Executive Summary

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

‘Trade and sustainability’ is a complex and contemporary topic. Sustainability of production, trade and consumption is becoming increasingly important. The EU and the Netherlands, in particular, are major players in goods and service trade. Although international trade almost always produces greenhouse gas emissions (e.g., in transport), trade policies can support the move towards greater sustainability. For example, trade treaties and measures can prevent polluting domestic production from being moved abroad to countries where sustainability guidelines are less stringent. The EU intends to tax imports of polluting goods to charge the cost of environmental damage. Finally, through international trade, environmentally friendly goods can be produced on a larger scale and distributed globally.

In this Internationalisation Monitor, we look at different aspects of sustainability and trade and explore the complex relationship between the two. Based on a number of sustainability classifications, how is goods trade divided into environmentally friendly and unfriendly (polluting) goods and what are imported goods used for after entry? What role do sustainability provisions play in trade agreements, and do they affect the composition and volume of the Dutch trade in goods? Finally, this Monitor examines the import footprint at product and country level for the first time.

Listed below are the main findings presented in this edition:

Chapter 1: Import of goods from a sustainability perspective

• By assigning a carbon price to carbon-intensive imports from non-EU countries, the Carbon Border Adjustment Mechanism (CBAM) aims to level the playing field between enterprises and reduce the risks of carbon leakage because enterprises move outside the EU with less stringent emission regulations. In addition to reducing leakage, the CBAM will allow the European Union to claim international climate leadership by stimulating cleaner production outside the EU.
• Since 1996, Dutch imports of CBAM goods have increased fivefold in value and almost doubled in quantity (weight). The Netherlands is the fourth largest importer of CBAM goods in the EU (second for aluminium and cement).
• A second classification looks at all sectors that, according to the EU, run the risk of carbon leakage outside of the Union. The Dutch import value of these goods has become 6.5 times higher since 1996 while imports have almost doubled in weight. The Netherlands is the second largest importer of carbon leakage goods in the EU (largest for oil and oil products).
• Prevention of deforestation is another topic within the EU that has translated into legislation. Enterprises are obliged to prove that the manufacture of their products does not lead to deforestation or land degradation.
• Since 1996, Dutch imports of deforestation-linked goods have tripled in value and doubled in weight. The Netherlands is the second largest importer of these goods in the EU (largest for palm oil and related products and for soy products) and the largest importer of these goods outside of the EU.
• The EU’s Farm to Fork Strategy aims to accelerate our transition to a sustainable food system, and livestock farming is part of that puzzle. Among other things, the EU aims to promote more sustainable livestock farming, avoid carbon leakage from livestock imports and revise animal welfare regulations. Many livestock feed ingredients are imported into the EU from abroad.
• The Dutch import value of feed ingredients has increased 3.5 times since 1996, while imports have increased by approximately 50% in weight. The Netherlands is the second largest importer of these goods in the EU and still the second largest importer if certain goods that are also intended for human consumption are excluded.
• Green goods are products that are relatively friendly to the environment because they use fewer resources or have a lower share in worldwide pollution than their traditional counterparts (for example, solar panels as compared to oil or gas). They may also be associated with improving air or water quality or managing waste.
• Dutch imports of green goods have grown more than six times in value and almost four times in weight. Renewable energy is the fastest growing category and by far the biggest category. The Netherlands is the second largest importer of green goods in the EU, second for renewable energy and monitoring tools.

Chapter 2: European Green Deal: a closer look at CBAM, deforestation and livestock production chain

• The European Green Deal encompasses a set of policy initiatives that support the EU in its pursuit of a green transition, ultimately aiming for climate neutrality by 2050. This chapter delves into three trade-related aspects of the European Green Deal: the Carbon Border Adjustment Mechanism (CBAM), deforestation mitigation, and the livestock production chain closely linked to the ‘Farm to Fork’ strategy. This chapter elaborates on the analysis done on these themes in Chapter 1.
• The emphasis is on examining the interplay between the Dutch economy and these aspects, with a particular focus on the international dimension and the influence of imports and exports. This extends beyond merely quantifying the import volumes; it also involves assessing the impact and involvement of Dutch industries within these broader initiatives.
• The EU has introduced the CBAM to create a level playing field for specific carbon-intensive goods manufactured within the EU and those imported from non-EU countries.
• Iron/steel and aluminium are the primary CBAM goods imported by the Netherlands from non-EU countries. The greenhouse gas emissions associated with these imports are significantly higher (per euro of imports) compared to imports of the same goods from EU countries. This trend also applies to cement and fertilisers. The total emissions linked to the import of CBAM goods amount to 2.44 kg CO₂ equivalents per euro of imports, more than double the emissions from imports originating in EU countries.
• Only 20% of Dutch CBAM imports ultimately remain in the Netherlands. The majority are either re-exported or subjected to further processing for Dutch exports.
• The majority of CBAM goods are imported from EU countries (82%), with a smaller portion originating from non-EU countries (18%). This distribution is roughly similar among the industries that import the most, namely the metal products industry and the base metal industry.
• Goods associated with deforestation can be categorised into two main groups. Products like cacao (products), palm oil and soy, once imported into the Netherlands, ultimately find their way abroad again (81–84%). Large quantities of these goods are processed in the Netherlands to create new products that are subsequently exported. By contrast, wood (products), coffee and cattle (products) have a different pattern, with nearly half of the imported products remaining in the Netherlands, whether or not they undergo further processing.
• Wood and wood products dominate the list of deforestation-related goods imported into the Netherlands, with a total import value of €12.9bn in 2021. These imports serve various industries in the Netherlands, including the paper industry, construction, furniture manufacturing and energy supply. Unlike these industries, the food industry is involved in the imports of all deforestation-related goods, including wood (products), coffee, palm oil, cacao (products), cattle (products) and soy.
• The Dutch livestock production chain contributed €12.9bn in value added to the Dutch economy (1.5% of domestic GDP) and 134 thousand jobs (1.7% of total employment) in 2021. However, its share in total greenhouse gas emissions within Dutch borders is much larger: 9.3% in 2021. Moreover, emissions fell less between 2019 and 2021 (–‍1.5%) than the value added (–‍5.5%) and employment (–‍3%) during the same period.
• For both value added and emissions associated with the livestock production chain, it holds true that approximately three quarters are tied to Dutch exports, while only one quarter is linked to final demand in the Netherlands.
• Greenhouse gas emissions resulting from the Dutch livestock production chain are higher when we include the emissions that take place outside of the Netherlands. In total, the Dutch livestock production chain amounted in 2021 to 29.1 megatons of CO₂ equivalents in greenhouse gas emissions, with nearly one third originating outside the Netherlands. The most significant contributors to the environmental impact of the Dutch livestock sector were the imports of live animals (primarily from Germany and Belgium), livestock feed ingredients (mainly sourced from soy production in Brazil and maize from Ukraine), and mineral fuels (predominantly from Russia).

Chapter 3: Sustainability provisions in trade agreements

• International trade is a significant source of income and prosperity for many countries. However, to ensure that the resulting economic development is sustainable, it is important to develop deep international trade agreements.
• From the very first international trade agreement in 1860 between the UK and France, these agreements have become more extensive, both in number of participating countries and in content. They cover an ever wider range of policy areas beyond just lowering or abolishing tariffs.
• Labour, environmental, and sustainability provisions in trade agreements are aimed at preventing a ‘race to the bottom’, where countries compete with each other for trade and investment, on the basis of increasingly less stringent regulations. These provisions are meant to create a level playing field by installing certain minimum sustainability standards.
• Empirical studies have shown mixed results in terms of the effectiveness of such provisions in preventing a race to the bottom. Developing countries may view them as protectionist measures, even though some research indicates they can enhance trade and sustainability.
• Initiatives like DESTA (DESign of Trade Agreements), TREND (TRade & ENvironment Database) and LABPTA (LABour Provisions in Trade Agreements) are meant to systematically code and quantify the content of deep trade agreements, providing insights into their design and differences. TREND has assessed environmental provisions of 776 trade agreements from 1952 to 2022. LABPTA has coded 487 agreements from 1990 to 2015.
• Via the European Union, the Netherlands is now a participant in 43 international trade agreements with 147 different countries around the world. The number of environmental provisions in these agreements has grown rapidly, from 0 in the 1990s to 2,200 provisions in 2021.
• Sustainability provisions in those agreements may range from specific commitments like the ban on importing whale products in the Bulgaria-EFTA agreement from 1993, to more general and non-binding language, such as in the South Korea-EU agreement from 2011 that speaks generally about encouraging investments without lowering sustainability standards. Other areas include promoting renewable and clean energy, water management or marine protection.
• Another aspect of sustainability provisions in deep trade agreements are labour provisions. These were first discussed during the Bretton-Woods negotiations in 1945–1946, while the Havana Charter of 1948 further emphasised their importance. With the foundation of the World Trade Organization (WTO) in 1994 and more specifically the International Labour Office (ILO) in 1996, labour provisions became a more integral part of deep trade agreements.
• Via the European Union, the Netherlands is now involved in 23 trade agreements with 88 different countries which include labour provisions that go beyond mere aspirational commitments. Provisions that focus on the elimination of discrimination are relatively more prevalent in the agreements of the European Union than agreements worldwide.

Chapter 4: Sustainability in trade agreements: growth and/or green?

• The chapter examines the relationship between environmental norms in trade agreements and sustainable trade in the Netherlands, focusing on the period 1996–2021.
• The share of trade in goods occurring under sustainable trade agreements, i.e. agreements that include environmental norms, remained relatively stable for both imports and exports during the period under consideration.
• The proportion of green trade taking place under sustainable trade agreements is comparable to the proportion of brown trade occurring under such agreements. Both proportions remained stable during the period 1996–2021.
• An econometric model is used to analyse the relationship between the value of trade and its composition in terms of green and brown products on the one hand and the number of environmental norms in trade agreements on the other.
• The model does not find clear evidence supporting a protectionist effect of green norms. In other words, environmental provisions do not appear to significantly hinder trade.
• There is little evidence that environmental provisions help make trade relatively greener, except in the case of trade with low-income countries, where trade does become greener in the presence of environmental provisions.
• One key limitation of this study is a conceptual one, namely which aspects of sustainability are considered and emphasised in the established classifications of green and brown goods.
• Opportunities for further research include an extension of the current study to the firm level to explore the role of firm heterogeneity in the relationship between environmental norms and trade. Firm level data also allow for the exploration of a wider range of potential sustainability measures.

Chapter 5: The greenhouse gas footprint of Dutch imports

• The import footprint of the Netherlands is the (greenhouse gas) footprint of all imported goods and services in the state in which they arrive at the Dutch border. Emissions caused by alterations made after the product is imported are not included. In this chapter, we calculated import footprints using GLORIA's multi-regional input-output tables in combination with CBS data on Dutch imports. This provides an accurate insight into the environmental impact of Dutch import activities, an aspect that is becoming more and more relevant in the context of ongoing globalisation and international value chains. First, we needed to investigate the plausibility of footprints that were calculated using GLORIA. We demonstrated that emission data in GLORIA and CBS data are comparable at the most accurate available level. Furthermore, footprints calculated using GLORIA and aggregated per country reflect reality well. However, when it comes to less-documented countries or sectors, it is advisable not to draw consequences from the findings within that country or sector without further inspection.
• In contrast to the emissions from the Dutch economy, the imports footprint increased in 2021 compared to 2019. The largest part of this footprint is related to goods for re-export and goods for intermediate use. Manufacturing accounted for the bulk of the total import footprint at 63.2% due to imports for intermediate use. Within manufacturing, the major contributors to this import footprint were the food, petroleum and chemical industries. These three industries held relatively large shares in the import footprint compared to their shares in the total import value. This was mainly due to the import of specific goods with relatively high emissions, such as petroleum, soy and live animals.
• In 2021, around 60% of the import footprint of CBAM products was emitted outside the EUnoot1 and would therefore be taxed under the new CBAM regulation. Not all of these imports came to the Netherlands directly from outside the EU: 37% of the import footprint outside the EU is linked to goods that came to the Netherlands via another EU country. Of the 15.9 megaton CO₂ equivalent import footprint of CBAM goods that was emitted outside the EU, about half (51%) was due to CBAM goods that were immediately re-exported upon arrival in the Netherlands. In addition, some of the imports ultimately left the Netherlands in processed form as part of other export products; another 4.3 megatons CO₂ equivalent of the import footprint is associated with those products. The remainder, a relatively small part of the import footprint (28%), is on account of consumers in the Netherlands and thus becomes part of the Dutch consumption footprint.