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Executive Summary

The Internationalisation Monitor describes trends in globalisation and the consequences thereof for the Dutch economy and society. It is published quarterly as part of the Globalisation research agenda at Statistics Netherlands (CBS), commissioned by the Dutch Ministry of Foreign Affairs.

Occasionally, societies are hit by large, unforeseen crises. An exogenous shock is an example of such an unexpected event, which originates outside the local economy but has a major impact on it. Exogenous shocks impose significant consequences on the economy, international trade, employment and the survival of enterprises. Such shocks can turn society upside down and pose major challenges for businesses. Consider the coronavirus crisis and Brexit. There is a distinct before and after the crisis, and enterprises vary greatly in how they are affected by these exogenous shocks. Some are severely and permanently hit by a crisis while others suffer only slightly or not at all. And then there are those who have in fact an opportunity to profit from a crisis.

Since the outbreak of the coronavirus pandemic, international trading enterprises have had to deal with all kinds of production disruptions, delays and border measures, both within and outside the European Union. The Dutch economy is relatively open and therefore vulnerable to demand failure from abroad and problems in the supply chain. Trade in goods was severely hit at the beginning of the coronavirus pandemic, but has been able to recover fully in the meantime; and much more quickly than at the time of the 2008–2009 credit crisis. Trade in goods has therefore proved resilient. However, as if the recovery from the coronavirus crisis was not tough enough, Brexit became a reality as of 1 January 2021. As a result, bilateral goods trade with the UK picked up at a slower pace than trade with other countries.

This Internationalisation Monitor examines two exogenous shocks: the coronavirus crisis and Brexit, and their impact on the Dutch economy and trade. How might Dutch trade in goods have developed in the absence of the coronavirus and Brexit shocks? How do companies deal with exogenous shocks such as the coronavirus crisis and Brexit? Which traders have been hit hardest by the coronavirus crisis and/or Brexit, and which international trading enterprises have recovered? And: what is the impact of the new EU trade agreement with the UK (the TCA) on the Dutch flows of goods to and from the UK and any import duties?

Listed below is a summary of the main findings presented in this edition:

Exogenous shocks: two case studies

  • In 2020, the coronavirus crisis caused Dutch GDP to contract by 3.8%. The economic recovery took on a powerful V-shape. The Dutch economy as well as international trade in goods bounced back relatively quickly. The economic recovery from the credit crisis, which started in 2008 for the Netherlands, took longer and with the eurozone crisis, the economy experienced yet another downturn. It took until the end of 2014 – more than six years after the credit crisis broke out – before Dutch GDP was higher than before the credit crisis.
  • In many ways, the coronavirus crisis has had a different effect than the credit crisis. For instance, despite the coronavirus crisis, house prices continued to rise in 2020. Existing owner-occupied homes were on average 7.8% more expensive in 2020 than in 2019. The credit crisis, on the other hand, had a major impact on the financial situation of companies, government and consumers. In 2009, the number of (existing) owner-occupied homes sold was 30% lower than in 2008 and prices decreased by approximately 3% that year.
  • The volume of Dutch trade declined sharply during both the coronavirus crisis and the credit crisis. One year after the trough of the coronavirus crisis, trade in goods had recovered. This recovery was broad-based, for all types of goods. During the credit crisis, too, Dutch trade recovered relatively quickly: by mid-2010, imports and exports had already returned to the level of early 2008, although not for all types of goods.
  • Up to the Brexit referendum (June 2016), the British economy grew faster than the Dutch. Afterwards, it was the other way around. Measured from the trough of the credit crisis up to 2016, the British economy grew 14.8% and the Dutch economy 7.1%. After the referendum until the end of 2019, the British economy grew 5.0% and the Dutch economy 8.9%. Both economies experienced strong contraction during the coronavirus crisis. The Netherlands had returned to its pre-pandemic level by the third quarter of 2021, but the UK not yet.
  • Between 2009 and 2016 British exports grew more slowly than Dutch exports. As of 2016 up to the coronavirus crisis, British exports grew slightly faster than Dutch exports. UK exports contracted much more sharply during the coronavirus crisis than Dutch exports.
  • Since the Brexit referendum, the labour participation rate has risen somewhat faster in the Netherlands compared to the UK. The difference became more pronounced during the coronavirus crisis, when both countries experienced a setback in employment. But where British employment has not yet recovered, the Dutch labour participation rate is already higher than before the pandemic.
  • The referendum year marked a turning point in bilateral migration trends. Emigration of Dutch people to the UK fell sharply. British immigration into the Netherlands, on the other hand, accelerated. Furthermore, remigration of Britons from the Netherlands accelerated in 2019. Dutch remigration from the UK has stabilised since the referendum.

Chapter 1: Dutch trade in times of crises

  • The coronavirus crisis has had a major impact on the Dutch economy. In the spring of 2020, a disruption in supply and demand caused the value of Dutch goods trade to plummet. It slowly picked up again in the autumn.
  • The import value of goods rose by 20.5% in the first three quarters of 2021 compared to the same period a year earlier. Goods imports in the first three quarters of 2021 were also higher than in the pre-pandemic year 2019, by 9.9%.
  • Imports of oil and oil products and natural gas shrank sharply in the period January–August 2021 compared to the same period before coronavirus. The import value of medicines grew, on the other hand. Goods imports from Norway, Russia and the UK were hit particularly hard. At the same time, imports from China continued to grow, with Dutch enterprises becoming more dependent on China for their imports.
  • In the first nine months of 2021, Dutch enterprises exported 19.8% more than in the same period a year earlier. Compared to the pre-pandemic year 2019, the value of goods exports was also 10.4% higher.
  • Goods exports to Poland, China and South Korea were not affected by the coronavirus pandemic, but those to Germany, Belgium, France, the UK, the US, Italy, Spain, Sweden and Taiwan on the other hand were.
  • Dutch service trade was hit harder by the coronavirus crisis than goods trade. This is strongly reflected in a large drop in international travel and service trade of enterprises active in tourism, recreation and travel agencies.
  • Higher import and export prices and a greater volume of trade have led to a strong recovery in Dutch goods trade in the course of 2021.
  • Due to Brexit, bilateral trade with the United Kingdom took a significant hit in the first three quarters of 2021.
  • The UK’s share in the value of total Dutch goods imports fell sharply. Imports of medical instruments and appliances, measuring, control and analysis instruments, modems, plastics and biodiesel from the UK grew strongly. By contrast, Dutch enterprises imported fewer petroleum products, pharmaceuticals, chips and semiconductors and passenger cars from the UK. Goods imports relying on fast logistic handling including fruit and vegetables, meat and dairy, declined as well.
  • The UK’s export share even reached a low point in the period January–September 2021. The export value of flowers and plants to the UK was unprecedentedly high in the first eight months of 2021; that of medical instruments and appliances and refined petroleum products also increased. However, Dutch enterprises generated less value exporting fresh food products such as fruit and vegetables, meat and dairy, across the Channel.
  • This chapter consists of two parts, the first being an analysis of the COVID-19 crisis, the second an evaluation of the effects of Brexit. Both make use of a constructed counterfactual to analyse their effects on the international trade in goods. The COVID-19 counterfactual was constructed based on a sARIMA model, the Brexit counterfactual was created by using a synthetic control method.
  • May 2020 was the month when the impact of COVID-19 was greatest. Imports were 17% below the long-term expected trend as estimated by the sARIMA model. However, imports rebounded quickly. In March 2021 imports were actually 11% higher than the long-term expected trend.
  • Exports were hit harder by the COVID-19 crisis, according to our model. In May 2020, exports were 22% below the long-term expected trend as estimated by the sARIMA model. In March 2021, exports were ‘only’ 5% higher than the expected long-term trend.
  • The estimated COVID-19 impact was largest for the SITC-1 group miscellaneous manufactured articles. Beverages and tobacco and machinery and transport equipment were also affected more strongly. Animal and vegetable oils, fats and waxes experienced the smallest negative deviation from the long-term expected trend.
  • Imports from the UK were hit harder by Brexit than exports to the UK. In January 2021 imports were 35% lower than expected, according to our synthetic control method; exports were 26% lower than expected.
  • In the months following Brexit, especially in March 2021, bilateral trade made a strong recovery with imports 19% and exports 5% higher than expected by the model.
  • During the first nine months of 2021, imports from the UK were actually 3% higher than expected. Conversely, exports to the UK took a heavy blow as they were 11% lower than expected, mainly due to a 35% fall in re-exports. Enterprises based in the Netherlands have missed €3.2 bn in export value due to Brexit, according to our model.

Chapter 3: International goods trade and goods traders during the coronavirus pandemic: macro and microlevel analyses

  • This chapter analyses the consequences of the coronavirus crisis on international trade from a macroeconomic and microeconomic perspective. Various different measures and proxies of the coronavirus crisis were considered to estimate these effects, such as data on the number of people infected with coronavirus, coronavirus-related deaths, lockdown measures and vaccinations. For the microeconomic analysis, this data was merged with information on Dutch international traders and their trade in goods, as well as other firm characteristics, such as size, sector, productivity and support measures provided by the government.
  • The results of the macroeconomic analysis show that the coronavirus crisis and lockdown measures abroad had negative consequences for Dutch goods trade with these countries. These results are especially pronounced in the sample with the top 10 trade partners, suggesting that the level of exposure of the Netherlands to supply and demand from the main trade partners plays an important role in the pandemic's impact on Dutch international trade.
  • The results for exports appear to be slightly higher than those for imports. In particular, a 1% increase in coronavirus-related death cases corresponds to a drop in the value of Dutch exports by 0.02% and Dutch imports by 0.01%. Furthermore, the influence of the pandemic varies per product type and is especially substantial for products that rely more heavily on intermediate inputs.
  • Lockdown (stringency) policies as an alternative measure in the coronavirus crisis also correlate with a lower export and import value. The results further show that vaccinations in 2021 go together with higher values of Dutch international trade.
  • Taking into account differences in enterprise characteristics such as productivity, as well as the stage of the coronavirus crisis, independent small and medium-sized enterprises (SMEs) experienced a smaller decline in exports (and imports) during the deep crisis than large enterprises. They also experienced a smaller increase in trade volume during the recovery phase. However, this only appears to apply to the entire group of importers and exporters (which includes intermittent traders, entry and exit). Specifically in the case of continuous traders, independent SMEs performed less well than large enterprises.
  • The most productive international traders experienced a lower decline in trade during the coronavirus crisis than the least productive traders. Trading enterprises that received financial support from the government experienced higher declines in trade value during the deep crisis than the enterprises that did not receive financial support. During the recovery and growth phase, both groups of enterprises experienced similar trade growth paths.

Chapter 4: The asymmetric impact of Brexit on international goods trade and on traders

  • This chapter focuses on the impact of Brexit on Dutch businesses by means of a micro dataset. Descriptive statistics are provided on trends concerning businesses on a micro level and regressions are performed to evaluate the effect of Brexit-related uncertainty on British import and export shares. All analyses are done on data concerning international trade in goods.
  • During our research period, 2015–2021, the relative contribution of trade with the UK has decreased more strongly than trade with other partner countries. The UK’s share in total Dutch imports has dropped from approximately 5% in 2015 to 4% in 2021. In exports, the UK’s share has dropped from approximately 8 to 7%.
  • Individual firm export shares have declined over the period 2016–2021. This can be attributed mainly to non-foreign Dutch businesses reducing their exports to the UK.
  • The relative share of businesses in the Netherlands that engage in trade with the UK has decreased over the period 2016–2021. The diminished relevance of UK trade may thus be attributable to fewer businesses trading with the UK, rather than individual businesses trading less with the UK.
  • The decrease in the relative share of the number of businesses engaged in trade with the UK was mostly to be found among Dutch businesses, it was more stable for foreign businesses operating in the Netherlands.
  • Regression analysis has shown that there is a significant negative correlation between Brexit-related uncertainty, as observed by an index created by the Bank of England, and export shares.
  • Construction, information and communication and wholesale and retail trade seem to be more affected by Brexit uncertainty than other sectors. The effect is also larger for Dutch businesses than for foreign businesses.
  • The significant negative correlation between Brexit-related uncertainty and export shares is stronger from 2021 onwards compared to the years before.

Chapter 5: Trade in goods with the UK after Brexit: Truly tariff-free?

  • On 24 December 2020, British prime minister Boris Johnson informed the public that the newly agreed Trade and Cooperation Agreement (TCA) between the EU and the UK would allow UK goods to be sold without tariffs and without quotas. However, that agreement only applies to goods that satisfy the rules of origin, i.e. goods that are produced predominantly in the UK or the EU.
  • Due to the increasing importance of global value chains, the production of goods consists of value added from ever more countries. As such, exported products include ever-increasing foreign value added, which complicates satisfying the rules of origin and making use of the TCA.
  • Over the period January–August 2021, the Netherlands imported €15.3 bn worth of goods from the United Kingdom. 56% of this import value could enter the European Union free of tariffs in any case, as the Most Favoured Nation tariff is already zero. Import tariffs would typically have to be paid for the remaining 44%, unless firms make use of the TCA which can ensure that the products are imported free of charge. However, the agreement was used for only 68% of those imports. As a result, Dutch importers still paid €121 million in import tariffs over this period.
  • The preference utilisation rate (PUR) has been growing, from 64% in January to 71% in August. This is in line with findings in the literature which show that it takes time for importers to know how to use a trade agreement, i.e. which regulations to follow and which documents to use.
  • On average, the manufacturing industry (71%) and the wholesale and retail sector (70%) make slightly more use of the TCA for their goods imports. The agrifood business also has a high PUR with 92%. On the other hand, the automotive sector has a PUR of only 51%. This may be related to the varying extent to which these products were created through global value chains.
  • The Netherlands is an important hub for re-exports between the UK, the EU and the rest of the world. In fact, it is estimated that 58% of the re-exports to the United Kingdom were produced outside of the EU in 2017.
  • Between January and August 2021, re-exports from the Netherlands to the United Kingdom have dropped by 34% compared with the same period in 2019. Given the fact that 58% of the re-export value was added outside the European Union, those reexports may have been tariffed as they might not have satisfied the rules of origin of the TCA. Faced with double taxation, this might have been a reason for British firms to import their goods directly from the origin.
  • With a decrease of over €1 bn, the largest drop in re-export value since 2019 was recorded for mobile phones, modems and routers . These products also contain 81.2% of value that was added outside the EU, such that they run a higher risk of not satisfying the rules of origin. With import tariffs of only 0.1% on these products in the UK, however, the threat is perhaps not so much the actual tariff costs. Rather, the fact that there now is an additional border which leads to an efficiency loss may be sufficient motivation for the UK to import these products directly rather than via the Netherlands.
  • Re-exports of clothing have also fallen by €188 million. With an average extra-EU import content of 50% in these re-exports to the UK, this stream also runs a risk of being faced with import tariffs in the UK. Furthermore, the average UK import tariff on these goods amounts to 10.9% such that the threat of higher trading costs is particularly large for these goods.
  • By taking a closer look at the rules of origin for individual products, as well as the importance of such products for the Dutch economy, more light could be cast on the risks and opportunities of the Trade and Cooperation Agreement for the Netherlands.

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Medewerkers

Auteurs

Sarah Creemers

Dennis Cremers

Dennis Dahlmans

Hans Draper

Loe Franssen

Thomas van Gemert

Marjolijn Jaarsma

Hans Langenberg

Angie Mounir

Tim Peeters

Leen Prenen

Janneke Rooyakkers

Iryna Rud

Mark Vancauteren

Marcel van Wijk

Redactie

Sarah Creemers

Marjolijn Jaarsma

Janneke Rooyakkers

Eindredactie

Sarah Creemers

Marjolijn Jaarsma

Janneke Rooyakkers

Dankwoord

We danken de volgende personen voor hun constructieve bijdrage aan deze editie van de Internationaliseringsmonitor:

Henk-Jan Dirven

Janneke Hendriks

Richard Jollie

Remco Kaashoek

Michel van Kooten

Irene van Kuik

André Mares

Frank Notten

Tom Notten

Tim Peeters

Michael Polder

Davey Poulissen

Rik van Roekel

Roos Smit

Sandra Vasconcellos

Lona Verkooijen

Marien Vrolijk

Karolien van Wijk

Hendrik Zuidhoek

CBS Vertaalbureau