The Netherlands’ participation in global value chains

Authors: Marjolijn Jaarsma, Khee Fung Wong

The Netherlands operates more and more within global value chains. Is this reflected in the types of import goods entering our country and types of goods exported from the country? What is the role of intermediate products, such as raw materials, machinery or semi-finished goods in our international goods trade? Many such intermediate products are consumed by manufacturers, used as inputs in the production process, or traded on the international market. A part of the self-produced intermediate products reaches foreign consumers. In which foreign countries are our intermediate goods consumed?

6.1Key findings

The Netherlands is a trading nation, with large sums of money and substantial employment involved in the import and export of goods; see for instance CBS (2016a), CBS (2016b), and Chapters 2 and 4 of this publication. Worldwide, the Netherlands is the 6th largest exporter of goods and the 10th largest importer of goods (CIA World Factbook, 2017). A major share of these imports and exports are goods which enter and then leave the country again fairly quickly, without significant processing.

In 2015, the Netherlands imported roughly 372 billion euros in goods. These imports consist of three parts: one part is exported straightaway (re-exports); one part going to various industries in the Netherlands for further processing, and one part going directly to the Dutch consumer (without further processing). Of the 372 billion euros in imports, around 55 percent is for re-exports (203 billion euros). This share has increased slightly since 2012. At the same time, the share of goods flowing into the Dutch business economy for further processing declined. In 2012, still 34 percent of Dutch goods imports was destined for such processing, but this had dropped to 31 percent (116 billion euros) three years later. The surge in oil prices played a decisive role in this regard. When these imports are not taken into account, goods imports by the Dutch business economy did in fact increase between 2012 and 2015. The third import flow is made up of goods imported into the Netherlands which are directly intended for Dutch consumers. In 2015, these imports amounted to almost 53 billion euros, equivalent to 14 percent of total goods imports. This share remained stable between 2012 and 2015.

The types of imported goods vary per import flow. Of the imports which went directly to the Dutch market, approximately one-third consisted of consumer goods. In addition, the share of capital goods (23 percent) and other goods (22 percent) is relatively large in these imports. Imports destined for re-exports are relatively equally distributed over the types of import goods, in comparison with the two other import flows. The bulk of goods imported by companies are intermediate goods: i.e. raw materials and/or semi-finished goods which are processed further into end products or are consumed during a production process.

In 2015, the Netherlands exported 440 billion euros in goods. This is 10.5 billion euros more than in 2014, i.e. an increase of 2.5 percent. In 2015, almost 54 percent of exports were re-exports (236 billion euros). In addition, re-exports grew more rapidly between 2012 and 2015 than domestic exports, namely by over 6 percent). The composition of both export flows is very similar, with intermediate goods forming the largest category in both of these flows. On the other hand, re-exports are more often machinery and materials which form part of the production process, compared to Dutch-manufactured (domestic) exports. The latter are more likely consumer goods, for example fresh flowers or food products, as well as mineral fuels.

An increasing part of global goods trade consists of trade in intermediate goods. The fact that trade in these intermediates is growing, indicates that countries are operating more and more in global production chains. This applies to the Netherlands as well. Intermediate goods produced in the Netherlands are most often consumed in Germany, namely 15.3 percent of these export goods. Relative to 2012, Dutch-manufactured intermediate goods were consumed less frequently in Germany, Russia, France and Brazil, but more frequently in the US, China, the UK and South Korea.

6.2Destination of Dutch goods imports

Over half of imports destined for foreign markets

As shown in the infographic at the top of this chapter, in 2015 the Netherlands imported roughly 372 billion euros worth of goods.noot1 These imports can broadly be divided into three flows: 1) imports which go straight back to foreign markets (re-exports; 203 bn), 2) imports destined for further processing by a Dutch industry (116 bn) and 3) imports destined for consumers, without further processing (53 billion). The value of goods imports has grown by nearly 5 billion euros since 2012. Around 55 percent of all the goods imported into the Netherlands are directly re-exported. This is presented in Figure 6.2.1. The equivalent amount involved was 203 billion euros in 2015. These may be goods from the United States, for instance, which go through Dutch customs clearance and released to the European market, then go into transit towards a buyer in the United Kingdom. Wong et al. (2018) have demonstrated that out of the 19 billion euros worth of Dutch re-exports going to the United Kingdom, an amount of 10 billion euros comes from outside the EU. With its mainports including the large port and industrial complex in Rotterdam, Amsterdam Schiphol Airport and countless other logistics hubs, the Netherlands is particularly successful as an international distribution centre. Logistically well-placed, with a high-quality infrastructure and a wealth of knowledge about international trade, the Netherlands plays an important role in supplying goods to the European hinterland. Approximately half of all Dutch goods trade consists of re-exports, of which the bulk has a destination elsewhere in Europe.

Around 31 percent of imports continue on to be processed

Not only re-exports are (logically) related to imports, but domestic exports as well are dependent on key raw materials, semi-manufactured products and services from abroad. Where in the past, most products were manufactured and consumed in one and the same place, this has become increasingly untrue in recent decades. Production chains are being ‘cut up’ in various places around the world, and exports are increasingly being sent to destinations other than their end destination. Nowadays, exports are increasingly being processed in the country where they are purchased, only to be exported again. CBS has conducted research on this topic; see for example Lemmers (2013), Lemmers et al. (2014), Mounir & Lemmers (2017) and Jaarsma et al. (2018). A growing part of the international trade in goods consists of trade in so-called intermediate products such as semi-manufactured products. According to World Trade Organization figures, 44 percent of world exports in 2016 consisted of such intermediate goods (WTO, 2017). The Netherlands participates in these international production chains and this is reflected in the composition and destinations of Dutch goods trade. The share of previously imported raw materials and intermediates in Dutch exports has grown for several years, from 48 percent in 1988 to 60 percent in 2017 (Wong et al., 2018). As demonstrated by Lemmers & Wong (2019), a considerable and still rising share of Dutch imports is directly intended for foreign markets. As for Dutch imports from countries outside the EU, such as China and the United States, this is a significant share at around 60 percent. This rise is coupled with a decrease in the share of imports going to Dutch manufacturers for further processing. In 2012, still 34 percent of Dutch goods imports were destined for various industries, but this had dropped to 31 percent three years later. In absolute terms as well, the imports of goods by various industries declined between 2012 and 2015; in 2012 this still involved 126 billion versus 116 billion in 2015. However, this was influenced to a large extent by the oil price, which was over twice as high in 2012 compared to 2015. When crude oil imports are not taken into account, goods imports by Dutch industries did in fact increase between 2012 and 2015. These imports may result in manufacturing of products for the domestic market (for example cocoa beans are processed into chocolate for domestic consumption), or for foreign markets (for example iron ore from Brazil is processed into steel and subsequently exported to the German automobile industry).

Stable import share of 14 percent going to Dutch customers

The infographic at the beginning of this chapter and Figure 6.2.1 show a third import flow, namely goods which are imported by the Netherlands and are directly intended for domestic consumption. These include for example footwear, clothing or telephones which are imported from China or the United States and do not undergo any processing in the Netherlands, but are sold directly to consumers. In 2015, this import flow amounted to almost 53 billion euros, equivalent to 14 percent of total goods imports. This share remained stable between 2012 and 2015.

6.3Composition of Dutch goods imports

Goods which are sold directly to Dutch consumers are different in nature and in use from, for example, goods that are imported by Dutch enterprises. In this chapter, Dutch goods imports are classified into five types of goods: intermediate goods, capital goods, consumer goods, mineral fuels and goods not elsewhere specified.noot2 Intermediate goods are goods which will still go through conversion or undergo processing during the production of ‘final’ goods; given their nature, they are mainly used in the production processes of the manufacturing and other industries. Consider for instance raw materials such as iron ore or coal, but also unprocessed agricultural products or raw materials for the food industry, such as cocoa, coffee or sugar. Capital goods are goods that are utilised or implemented in the production process, for instance in the manufacturing of consumer goods or services. Examples include lorries, cranes, robots or machinery which are deployed in the production process of all types of goods. Consumer goods include all goods which are purchased by the consumer in order to satisfy particular needs. These may be durables, such as microwave ovens or telephones. Non-durable consumer goods are purchased for immediate consumption or storage for a (very) short period of time such as food, beverages or clothing. Mineral fuels such as petrol, diesel or natural gas are not counted as intermediate goods in this classification; they form a separate category. The reason for this is that mineral fuels are exposed to sharp price fluctuations, which would distort changes in intermediate goods prices. Goods which cannot be classified under these four categories are put into the category ‘goods not elsewhere specified’. Examples include motor vehicles, computers, certain types of military equipment such as weaponry and ammunition, postal packages and specific aircraft and shipping components (see OECD, 2017).

Lower oil price pushing down mineral fuel import value

Not entirely surprisingly, imports by the private sector mainly consist of intermediate products, i.e. raw materials and/or semi-manufactured goods which are subsequently processed into end products, or utilised in the production process. The resulting output by the Dutch business economynoot3 can either be intended for domestic consumption or for exportation as part of the next step in the global value chain. Mineral fuels form the second largest group of import products for Dutch industries, as shown in the figure below. Compared to 2012, the share of mineral fuels in these imports has declined considerably whereas the share of intermediate goods has in fact grown. Here as well, the development has been influenced by the fact that a barrel of crude Brent oil cost around 112 US dollars in 2012, against around 54 US dollars in 2015. This sharp decline was caused by an overcapacity on the world market, for instance due to increasing (shale) oil production in the United States and weak demand for oil from within Europe and more significantly from China. This evidently had an impact on the import value of mineral fuels.

Consumer goods take up largest share in domestic consumption

In 2015, one-third of the imports which were directly consumed on the domestic market were consumer goods. Think of bananas, clothing or footwear, imported from abroad and for sale in online and/or brick-and-mortar shops. These imports for domestic consumption also hold relatively large shares of capital goods (23 percent) and other goods (22 percent). In comparison with the other two import flows, imports destined for re-exports are relatively equally distributed over the various types of import goods. Nevertheless, the largest share was taken up by intermediate goods (38 percent), followed by consumer goods and capital goods.

On average 53 percent of manufacturing imports were intermediate goods

The 116 billion euros in imports by the Dutch business economy can be broken down further by industry. The main focus here is on the twenty industries that account for the largest shares of imports.noot4 Figure 6.3.2 shows the composition of imports by these twenty sectors. A number of aspects are particularly striking. For example, the manufacturing industry mainly imports intermediate goods, although the various sectors show marked differences. In 2015, the largest import volume was on account of the petroleum industry at 17.6 billion euros. Not surprisingly, imports by this industry consisted almost entirely of mineral fuels, in line with its nature and production process. Following closely is the food, beverage and tobacco industry with an import value of 16.6 billion euros, nearly 70 percent of which are intermediate goods including raw materials, food products and agricultural products that undergo further processing in the Netherlands. In addition, this industry imports relatively many consumer goods, possibly undergoing some minor processing. A relatively large share of intermediate goods is also imported by the chemical industry (62 percent). Here as well, a significant portion are mineral fuel imports. This is also the case in the energy supply branch. The highest shares of imported intermediate goods are seen in the paper industry (94 percent), metal manufacturing industry (91 percent), rubber and plastics manufacturing (88 percent) and basic metal industry (82 percent). Imports by the machinery and electrotechnical industries include – aside from intermediate goods – relatively large amounts of capital goods such as robots or machinery. Outside of manufacturing, many capital goods are also imported by the information and communication sector. As for consumer goods, these are most often imported by accommodation and food services, as well as lighter manufacturing industries such as food, beverages and tobacco and other industries.

6.4Composition of Dutch goods exports

In 2015, total Dutch goods exports stood at 440 billion euros. This was 10.5 billion up on 2014, representing an increase of 2.5 percent. Export growth was therefore slightly higher than import growth in 2015 (2.2 percent) and contrary to goods imports, total exports did rise between 2012 and 2014.

Figure 6.4.1 shows the composition of Dutch goods exports. The value of goods can be divided into two large categories, namely domestic exports originating from various industries and re-exports. In 2012, re-exports contributed slightly more to the value of goods exports (222 billion euros) compared to domestic exports (203 billion).noot5 In 2015, this proportion shifted as re-exports gained an even larger share. Of the 440 billion euros in gross exports in 2015, around 236 billion were re-exports. Re-exports consequently grew by over 6 percent relative to 2012. In 2015, domestic exports stood at 204 billion, showing much more modest growth (0.5 percent).

Mainly consumer goods show strong growth in re-exports

As shown in figure 6.4.1, the export value of re-exports and domestic exports is of the same order of magnitude. Figure 6.4.2 demonstrates that the composition of both export flows is also highly similar. In both export flows, intermediate products constitute the largest group of goods. In 2015, 36 percent of re-exported goods and 38 percent of domestically produced export goods were intermediate products. There is a more distinct difference in the capital intensity of these flows: re-exports are more likely machinery and equipment which form part of the production process, compared to domestic exports. In other words, machinery is more often included in re-exports than in domestic exports. The latter more often comprise consumer goods in comparison with re-exports. Other components of domestic exports that are less prevalent in re-exports include mineral fuels and other goods. Relative to 2012, growth was recorded in all types of re-exports except mineral fuels. Consumer goods in particular have formed an increasing proportion of Dutch re-exports. As for domestic exports we see, aside from a decline in mineral fuels, a very slight contraction in intermediate goods. This was largely due to declining trade in products containing mineral fuels such as petrol and natural gas, which was indirectly hit by the slump in oil prices as well. This was (barely) compensated by the growth in consumer goods, capital goods and other unspecified goods.

6.5Composition of domestic exports

Figure 6.5.1 shows – similar to Figure 6.3.2 – the composition of domestic exports by the various industries. Here as well, we focus on the twenty most prominent industries in terms of domestic exports.noot6

Intermediate products form roughly 40 percent of domestic exports by manufacturers

Largest in this respect is the food, beverage and tobacco industry with an export value of 34.5 billion euros. The bulk of these exports are consumer goods such as beer, chocolate and processed foodstuffs. Nevertheless, even in this industry, intermediate goods make up a large chunk of the exports; these goods are sent abroad to be processed into end products. At 26.4 billion euros, the chemical industry is second largest in terms of its domestic export share. This industry’s domestic exports are almost entirely composed of intermediate products, serving as input for manufacturers and producers abroad. The basic metal industry, building materials industry and paper industry mainly export intermediate products. The share of intermediate products is also relatively high in agriculture, forestry and fisheries; it is similar in size to the flow of consumer goods exports in this industry. Mining and quarrying as well as the oil industry mainly export mineral fuels. The share of capital goods in domestic exports is mainly larger in the electrotechnical industry, the machinery industry and the motor vehicle and trailer industry.

As indicated previously, the share of intermediate goods in world trade flows has risen in recent decades. The fact that trade in these intermediates is growing, indicates that countries (and industries) are operating more and more in global production chains.

Figure 6.5.2 follows the export flow of intermediate goods from the Netherlands (worth 78 billion euros in 2015) in global value chains and shows in which countries these goods are consumed in the end. This extends from intermediate goods in direct exports such as cow’s milk from the Dutch agricultural industry to the German consumer, to indirect exports of intermediate goods which end up being consumed in another country after several steps in the global supply chain. For example, a Chinese consumer who buys an Audi which is manufactured in Germany required imported products such as steel from the Netherlands as intermediate. Figure 6.5.2 shows to what extent Dutch intermediate goods exports (for example steel) are used in the consumption of final goods (Audi) in other countries (China).

US and China rising as end users of Dutch intermediate goods

Not only is Germany our most important trade partner, it is by far the largest consumer of Dutch-manufactured intermediate goods. Of the nearly 78 billion euros in intermediate goods that were manufactured in the Netherlands in 2015, eventually 15.3 percent (11.2 billion euros) were destined for Germany. This is over 4 billion euros more than the consumption of Dutch intermediate goods by number two: the United States. In 2015, that export flow amounted to approximately 7.1 billion euros. In third and fourth place were the UK and France, respectively. Each consumed approximately 7 percent of the intermediate goods produced in the Netherlands. The top 5 is completed by China, which accounted for nearly 6 percent of Dutch intermediate goods consumption in 2015. Relative to 2012, consumption of Dutch intermediate goods was down in Germany, Russia, France and Brazil, but up in the US, China, the UK and South Korea. The UK and France switched places between 2012 and 2015.

6.6References

Open references