The goal of this study is to explain shifts in countries’ trade policies. Accordingly, I examined the plausibility of the Baldwin’s Domino Theory of Regionalism in Turkey’s policy shift on deepening its integration with the EU. I argued that actual and potential trade diversion arising from the EU’s existing and future FTAs has motivated Turkish interest groups and rational policy makers; first to negotiate similar agreements with the EU’s FTA partners, and second, as a practical solution to the reluctance of some of these countries (supply side), to shift its policy towards the modernisation of the CU, by overcoming existing economic and political problems among the Parties, in order to eliminate trade diversion threat by producing a formula for parallel conclusion of the EU’s FTAs by Turkey. I supported the argument presented in the theory that trade diversion mobilises exporters in excluded countries. However, I extended the theory and suggested that diversion of trade also prompts rational decision-makers who aim to maximise the national economic interest of their country. Furthermore, although Baldwin argues that political equilibrium determines countries’ trade policy decisions based on the competition between pro- and anti- liberalisation interest groups, I underlined that economic and political relations with the negotiating partners are also determinant in countries’ trade policy choices. Accordingly, I argued that trade diversion overcomes not only pressures of protectionist interest groups, but also economic and political problems among the excluded country and negotiating partner. Finally, while Baldwin focuses on the demand side, which is the excluded country from an agreement between two or more countries, and argues that the excluded country will be willing to negotiate a similar agreement with the incumbent country; he ignores the supply side, whether the incumbent country will accept the negotiation proposal of the excluded country. I put forth that incumbent countries are not always willing to negotiate agreements with excluded countries. Indeed, I presented reluctance of some of the EU’s FTA partners (supply side) to negotiate similar agreements and resultant trade diversion threat as the main reason behind Turkey’s policy shift towards the modernisation of the CU. While Turkey was resisting on the EU’s demand to upgrade the CU by extending it to the new areas, including services, public procurement, it has changed its policy and accepted the EU proposal in order to find a solution to the trade diversion problem in the modernisation of the CU process. The launch of the TTIP negotiations was the tipping point changing the political equilibrium in Turkey in favour of upgrading the CU by deepening and widening of its coverage. Whether the negotiations among the EU and Turkey on the modernisation of the CU, and even negotiations among the EU and the US on the TTIP would be concluded successfully or not are ambiguous for now. Nevertheless, it is certain that the threat of trade diversion stemming from the EU’s ambitious FTA agenda, which was shaped in flesh and bones with TTIP, can explain the shift in Turkey’s trade policy. This study concludes that trade diversion plays an important role in shift in countries’ economic and commercial policies. This conclusion of the study is useful for government officials and trade diplomats in the field of economic diplomacy. The threat of trade diversion arising from the EU’s ambitious FTA agenda and its decision to negotiate TTIP with the US, unintentionally, enabled the EU to convince Turkey to upgrade the CU. In this way, policy-makers, who would like to conclude an agreement but face with difficulties to convince the negotiating partner, can make use of the competition between the related country and its competitor in order to break the resistance of and convince the negotiating country. More importantly, this study contributes to the literature of International Political Economy, in general, and Political Economy of International Trade, in particular, as it supports and extends the arguments presented in Domino Theory of Regionalism.