Turkey’s bid to join the European Union (EU) may finally be getting “back on track,” according to the bloc’s top official for enlargement. And while that track may still have a number of hurdles to clear, recent research, carried out by the World Bank Group outlines several interim policy measures that could bring the sides closer together while also benefitting the Turkish economy.
Most goods already move freely between the two economies, under the EU-Turkey Customs Union established in 1995. But agriculture, as is often the case, has proved a sticking point and remains outside the Customs Union today.
A set of permanent institutions, established under the 1963 Ankara Agreement, have chipped away at agricultural trade restrictions. These have steadily provided technical support and helped to facilitate quick action when political opportunities have arisen. And today there is still opportunity to take action on agriculture—with or without becoming an EU Member State.
Full EU membership would mean that all remaining trade barriers between the two economies would fall. Turkey would adopt the Community Acquis, the broad body of law that governs all EU Member States—and this would have two key implications for Turkey’s agricultural sector: adopting EU food safety standards, and adopting the EU’s Common Agricultural Policy.
The first step, the adoption of EU standards for food safety, is not controversial. Turkey has already started this process. The EU is Turkey’s largest market for agricultural exports, so firms are used to meeting its standards.
In addition, Turkey’s domestic food market has become increasingly sophisticated. More consumers are buying their food from supermarkets, restaurants, and fast-food chains, which have their own food safety requirements that often supersede government standards.
And finally, Turkey’s exports to other regions, especially North Africa and the Middle East, are growing fast, where high safety standards provide Turkish exporters an additional advantage.
The second step is more controversial, since it would require Turkey to adopt the EU’s Common Agricultural Policy (CAP). Both the EU and Turkey protect their agricultural sectors, and the level of support provided in each economy is roughly the same.
However, in Turkey, much of the support targets specific crops that are politically or economically important. While in the EU, there is a trend to provide support to farmers that is de-linked from production.
Adopting this more flexible approach may help Turkey continue a transformation of its agricultural sector that has been largely beneficial. However, it may also be the case that finding agreement on agriculture once again slows the membership process.
So, there are additional paths that Turkey can take short of full membership in the EU.
To start, Turkey could adapt a more flexible domestic support program for agriculture unilaterally, without implementing the EU CAP in its entirety. Turkey and the EU could also agree to fully incorporate agriculture into the Customs Union, especially if the dwindling set of irritants under the current CU can be resolved. And Turkey could also accelerate the adoption of third-party free trade agreements.
Policy simulations, based on a multiregional, multi-sector computable general equilibrium (CGE) model suggest the effects of each step toward integrating the two economies, would benefit Turkey, although the benefits would be small relative to the size of the entire Turkish economy. This is partly because, under the Ankara institutions, barriers to trade have already been lessened, so the steps needed to complete the Customs Unions or comply with third-party trade treaties are themselves small.
In addition, economic growth, guided in part by the Ankara Agreement, has transformed the Turkish economy and agriculture’s role in it. Although Turkey’s agriculture sector is still Europe’s largest, agricultural production generates only a small part of Turkey’s GDP. Agriculture’s share of merchandise trade has shrunk, and the share of labor employed by agriculture is also declining. As a consequence, changes in agricultural policies have a reduced impact on the general economy.
Significantly, however, the policy simulations suggest that workers, both skilled and unskilled, would benefit from closer economic ties between Turkey and the EU. Lower-skilled agricultural workers would stand to benefit in particular, helping to continue to drive down poverty rates in the country (figure 1).
Simulations also suggest closer economic ties between Turkey and the EU would continue the structural transformation of Turkey’s agricultural sector, already underway. Labor would continue to leave agriculture, but the real wages for both skilled and unskilled, would improve, helping to continue to drive down poverty rates in the country (figure 1).
In other OECD countries, the gaps between incomes for those working in agriculture and those in other sectors have been closed—a process that often takes generations to accomplish. As Turkey has undergone its rapid economic transformation, average incomes have increased substantially and poverty rates have declined dramatically. Still, a significant gap remains between average incomes in agriculture and other sectors, and rural poverty rates remain much higher than urban rates.
The simulations suggest that changes in trade policies can help, but combining changes in trade policy with changes in domestic policies can accelerate the process. In particular, fostering a continued evolution of the sector means moving away from backward-looking policies that supported crops important in the past, and using the resources to help the sector pursue emerging opportunities and support the disproportionate poor who rely on agriculture for their livelihoods.