Question

Answer the following questions regarding Turkey's membership to Customs Union. (In this question, you need to do extra reading and you need to be specific about the effects of Customs Union on Turkey's economy. It is not enough to write the general advantages and disadvantages of customs union agreements).

a) Based on the literature, discuss the positive effects of Customs Union on Turkey's trade and economy. (Please do not write a long essay, list the positive effects of customs union in bullets. You should also provide relevant references).

b) Based on the literature, discuss the negative effects of Customs Union agreement on Turkey's trade and economy. (Please do not write a long essay, list the negative effects of customs Unions in bullets. You should also provide relevant references)

c) It has recently been discussed that Customs Union agreement needs to be updated. Based on the literature, discuss what type of changes need to be done in Customs Union agreement in order to increase the gains of Turkey from such an agreement.

Answer 1

Customs Union is an agreement between two or more neighboring countries to remove trade barriers and to reduce or abolish customs duty. It helps to increase economic efficiency and establishing  stronger political and cultural ties among the member countries.  

 

It was in the year 1995, the Customs Union (Turkey and European Union) came into force. It was a part of the economic integration, abolishing of all trade barriers in order to increase growth and economic prosperity of the country.  

 

a)

Once become the member of a Customs Union, a country can enjoy an economic integration, comprising of a common market and common economic policies, along with super national powers.

 

* Customs Union have two types of effects on the economy - static and dynamic.

 

* Static effects can be again divided into two - trade creation effects and trade diversion effects.   

 

* Increased competition, economies of scale, efficient production, increase in investment and there by more job opportunities, etc. are the advantages of dynamic effects.  

 

* The volume of trade between Turkey and European Union increased and Turkey became one of the major trading partner of European Union.  

 

b)

The following are the negative effects of Customs Union in Turkey's economy.

 

* It resulted a decrease in the share of European Union while considering the total trade of Turkey, especially during the period of 1996 -2010.  

 

*Even after a Customs Union membership between European Union and Turkey, it did not cover agricultural products .  

 

* The devaluation of the Turkish currency due to the financial crisis of early 2000 caused lower rate of imports.  

 

c)

The following points can be included in the Customs Union agreement, which are favourable for the economic growth of Turkey.

 

* The Customs Union left out agriculture - a growth potential economic sector, and also in terms of employment.

 

* Judicial dispute settlement is another problem, which is not mentioned in the Customs Union Agreement.

 

* At present Turkey feels it difficult to take part in the decision making process, because it adapts slowly to the European Union laws. Hence, the accountability and legislation should be greatly improved through a reformed Customs Union. If so, we can expect a positive impact on the Turkish society and its institutions, especially in the area economic growth and stability of the country.  

 

* It should also include financial assistance and welfare measures for the people of the member countries including Turkey.  

 

Explanation:

Customs Union is an agreement between two or more neighboring countries to remove trade barriers. It was in the year 1995, the Customs Union (Turkey and European Union) came into force. The following are the negative effects of Customs Union in Turkey's economy. The Customs Union left out agriculture - a growth potential economic sector, and also in terms of employment. The devaluation of the Turkish currency due to the financial crisis of early 2000 caused lower rate of imports. Judicial dispute settlement is another problem, which is not mentioned in the Customs Union Agreement.