Effects of quotas on Turkish foreign trade: a gravity model

Official URL: http://dx.doi.org/10.1016/j.tranpol.2014.09.006

As stated by a European Union Commission Report (2009), Turkey's role as a world trade participant has grown in recent years, particularly as the country has been capitalizing more on its unique geopolitical position. Given the substantial trade volume and deep-rooted relations between Turkey and the EU, due attention should be paid to their trade and economic relations, and steps should be taken to improve these relations. Turkey is the biggest economy that is in a Customs Union (CU) with the EU, but not a member of the EU, along with Andorra, Monaco, and San Marino. When it joined the CU in 1996, Turkey removed all customs duties and equivalent charges as well as quantitative restrictions. However, some EU countries impose quota limits on Turkish road transporters that may indirectly restrict trade between Turkey and the country in question. This study has investigated the effect of road-transport quotas on Turkish foreign trade with EU countries. A gravity model estimated using panel data from 18 selected EU countries between 2005 and 2012 was used for this purpose. Furthermore, as one of the leading sectors using road transportation for Turkish exports to EU countries, the textile sector was analyzed as a case study. The results indicated that quotas have significant effects on total Turkish exports by road transport as well as Turkish textile exports to EU countries. The estimated loss of Turkish exports to the selected countries in the time period analyzed was 10.6 billion dollars of Turkey's total exports by road transport and 5.65 billion dollars of Turkey's total textile exports. Therefore, it can be concluded that the quota limitations are against CU regulations because they limit not only road transportation, but also trade between parties.