With a CGE model, we quantify the impact of the Customs Union between
Turkey and the European Union (EU), Since the average tariff on non-ag
ricultural imports will be less than 2 percent, the trade diversion co
sts of the Customs Union are quite small. Improved access to third cou
ntry markets (through reciprocal preferential access agreements of the
EU) results in the largest gains from the Customs Union, estimated ov
erall to be about 1-1.5 percent of Turkish GDP. Applying the VAT unifo
rmly (rather than raising it to compensate for the tariff revenue loss
) will increase the welfare gain from joining the EU. (C) 1997 Elsevie
r Science B.V.