The customs union between Turkey and the EU

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This paper investigates trade integration between Turkey and the EU, beginning with a historical overview of their trade relations, from initial association to the establishment of a customs union (CU) and deeper integration. Chapter 3 evaluates the CU's influence, focusing on its short-term static and long-term dynamic effects since Turkey joined on January 1, 1996. The analysis employs Viner’s traditional approach to compare trade creation and diversion effects resulting from the removal of trade restrictions, grounded in neoclassical customs union theory, which remains a key framework for trade data analysis. Important theoretical principles are illustrated through the Turkish context, with insights from Ricardo and Heckscher-Ohlin. Additionally, the new trade theory addresses limitations of neoclassical assumptions. The paper aims to assess how CU-induced trade liberalization affects Turkish welfare, sectoral specialization, economies of scale, competitiveness, technological transfer, and foreign direct investment, while also noting some EU effects. It utilizes foreign trade data from various Turkish and EU statistical sources, focusing on recent developments due to a scarcity of 21st-century studies. The final section of Chapter 3 explores potential further integration, exemplified by monetary integration, while Chapter 4 summarizes findings to provide a conclusive assessment of the CU's impacts on both Turkey and the EU.