Executive summary

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

Previous editions of the Internationalisation Monitor have each focused on a specific theme. This time, we have opted for a more open framework, which enables us to address a broad range of topics and trends in globalisation and to highlight various aspects of internationalisation.

In this edition, we examine the implications of EU sanctions against Russia for Dutch goods exports. We also investigate the extent to which firms in the Netherlands are tapping into new markets following the loss of the Russian market and we take a closer look at emerging trade routes that involve an increased risk of sanctions evasion. We present a newly developed measure to assess access to finance for firms in the Netherlands, exploring its relationship with internationalisation and investments in green technologies. Finally, we explore the cost of tariffs in the Dutch supply chain for the first time, providing an analysis of both direct tariffs on Dutch goods imports and indirect tariffs within the supply chain.

Below we outline the main findings presented in each chapter of this edition:

Chapter 1: Sanctions against Russia: the impact on Dutch exports and possible circumvention routes

• This chapter introduces the topic of economic sanctions and provides an overview of the trade sanctions and export controls imposed on the Russian Federation by the European Union following Russia’s annexation of Crimea in 2014 and in response to ongoing Russian military aggression against Ukraine since 2022.
• The sanctions imposed against Russia have had a significant effect on Dutch goods exports to Russia. The value of exports to Russia of sanctioned goods decreased by 86% in 2023 compared to the period 2018–2021. Exports of non-sanctioned goods to Russia also dropped by 25%.
• The export restrictions have affected almost all product groups except medical products. Nevertheless, exporters in the Netherlands have managed to more than offset the loss of the Russian export market by increasing exports to other destination countries.
• Some destinations may involve an increased risk of sanctions circumvention, enabling sanctioned goods from the Netherlands to reach Russia via intermediate parties in third countries.
• Our econometric analysis sheds light on which routes could be used to circumvent sanctions by detecting disproportionate growth patterns in the export of sanctioned goods to other countries. These findings were further substantiated by investigating whether the export of sanctioned goods to Russia from these countries have indeed increased, and to what extent these countries’ voting behaviour in the United Nations’ General Assembly has aligned with Russia’s voting behaviour.
• Using this step-by-step method, the following seven countries are identified as being potential conduits for sanctions circumvention: Armenia, Kazakhstan, Kyrgyzstan, Mongolia, Serbia, Türkiye and Turkmenistan.

Chapter 2: Exporting in the shadow of sanctions

• In this chapter, we examine the characteristics of the Dutch firms that used to export goods to Russia before 2022 and whose exports were further restricted by the European Union’s economic sanctions on Russia after Russia’s invasion of Ukraine in 2022. We also examine how these firms have responded to the tightening of these sanctions.
• Descriptive analyses show that the firms that exported goods to Russia were mainly large multinationals. They were affected by the sanctions on Russia and seem to have absorbed this shock mainly along the intensive margin and to a limited extent by exploring new export destinations.
• We then explore the characteristics of firms that export sanctioned goods to the countries identified in chapter 1 as presenting an increased risk of sanctions circumvention. We distinguish between ‘switchers’ and ‘entrants’, roughly speaking distinguishing between firms that previously exported sanctioned goods to Russia and firms that did not export these goods altogether.
• Based on extensive descriptive and econometric analyses, a coherent profile of both groups of firms emerges. Switchers turn out to be mainly established, larger, older and more productive multinationals with an extensive trade portfolio. Entrants, on the other hand, are largely younger and smaller independent SMEs with a limited export portfolio, lower productivity levels, and often operating as intermediary agents and exporting goods that they do not manufacture themselves.
• A crucial disclaimer to the findings presented in both chapter 1 and chapter 2 is that no circumvention of sanctions has been ascertained directly. This is because the export behaviour of firms in the Netherlands that is observed only concerns the first transaction, in which goods are shipped from the Netherlands to the relevant foreign market. It is not possible to track these specific shipments to subsequent destinations (if any) to which these goods might be rerouted in subsequent transactions. Neither do we have any information about whether the Dutch exporter is aware of any circumvention of sanctions with respect to a given transaction. Our reference to trade with an increased risk of sanctions circumvention is therefore based on the understanding that certain patterns in large-scale firm-level export data are statistically remarkable.

Chapter 3: Access to finance and firm heterogeneity

• Obtaining external credit is very important for many firms. Firms need external credit during their start-up phase, but also to invest and remain competitive in the market, for instance. Financially healthy firms contribute to a good economy, so it is important to understand the extent to which firms have access to credit.
• Our understanding of firms’ degree of access to finance is limited and is derived in two ways: directly, by interviewing a sample of firms; and indirectly, by analysing the financial statements of firms to estimate the degree of access to finance based on financial key figures. A combination of both can also be applied.
• To understand the degree of access to finance among Dutch firms, we have developed our own access to finance indicator by comparing answers on the degree of access to finance from the CBS Financing Monitor with firms’ financial key figures, in order to select financial indicators of interest for the forecasting model.
• A firm’s balance sheet total, return on assets, current ratio, solvability, a dummy for paying dividends, a firm’s life stage and size class are combined and, by means of an econometric analysis, a robust prediction can then be made for a firm’s degree of access to finance in the Dutch business economy.
• Credit constraints are not constant, but fluctuate in response to external circumstances. For instance, a peak in credit constraints is clearly seen in 2020, the year in which the Covid-19 pandemic began.
• The accommodation and food services sector is more likely to face credit constraints than other sectors. This is because it is mainly made up of smaller firms. SMEs are more than three times more likely to face credit constraints than larger firms.
• The same trend can be seen among non-multinational firms, which include a large proportion of SMEs. Non-multinationals are almost three times more likely to face credit constraints than multinationals.
• Firms that are already relatively likely to face credit constraints, such as SMEs, firms in the accommodation and food services sector and non-multinationals, also seem to be more sensitive to external factors, as on average they were even more likely to encounter credit constraints in 2020, the year in which the Covid-19 pandemic began.
• Unsurprisingly, productivity also affects credit constraints. Less productive firms have a higher chance of credit constraints. Even though they may need external credit more quickly, these firms seem less attractive to investors, partly because of their lower return on assets.

Chapter 4: Access to finance, trade, and green investments

• This chapter examines the relationship between access to finance, internationalisation, investment abroad and investment in green technologies.
• Better access to finance can encourage internationalisation in the form of starting to import goods and/or services or investing abroad. A lower risk of being financially constrained is also essential to giving enterprises sufficient financial scope to invest in sustainability.
• Although the descriptive analysis suggests that access to finance plays an important role in encouraging firms to start exporting, the econometric model finds no evidence of this. Starting to export is determined by factors such as productivity, firm size, firm age, and whether the firm was active as an importer of goods and/or services in the preceding years.
• Given that engaging in imports increases the likelihood that an enterprise will start exporting in the future, access to finance may indirectly affect the decision to start exporting.
• A higher risk of being financially constrained contributes to the likelihood that an existing goods exporter will stop exporting in the subsequent three years.
• Firms with better access to capital not only export more in terms of export value, but also export a more diverse range of products to more destination markets.
• In addition, it appears that perennial exporters that remain active in foreign markets over many years generally experience fewer (future) finance constraints than intermittent exporters. This suggests that consistent international activity is associated with a more stable financial footing, and that successful exporters tend to have better access to finance.

Chapter 5: Tariff costs in the Dutch supply chain

• This chapter focuses on tariff costs in the Dutch supply chain. In addition to direct tariff costs on products that are imported into the Netherlands, there are also tariff costs in the upstream supply chain before these products reach the Netherlands: indirect tariff costs. In 2020, total tariff costs amounted to more than €2.2bn, of which 48.5% (€1.1bn) were levied directly at the Dutch border and 51.5% (€1.2bn) were levied indirectly in the supply chain. This reveals that total tariff costs are substantially higher than suggested by previous research on direct tariffs.
• In 2020, the average import tariff in the Netherlands for direct and indirect imports was 1.57%. Despite an increase in total tariff costs between 2015 and 2019, the average tariff rate decreased from 1.71% in 2015. Many goods in the Dutch supply chain are produced outside the EU and reach the Netherlands through multiple countries. The highest indirect tariff costs in this supply chain are associated with goods from China and the US. The highest tariff costs were on products from these two countries and for direct imports at the Dutch border.
• Products with the highest direct average tariffs are meat, sugar, dairy products, textiles and shoes. Products with the highest average indirect tariffs are sugar and dairy products. The highest indirect tariff costs relate to indirect imports of vehicles, refined petroleum products, miscellaneous manufactured goods, textiles and electrical machinery and equipment.
• The majority of import tariffs were levied on goods destined for domestic consumption. These costs are split almost equally between direct and indirect tariffs. Between 2015 and 2019, tariff costs increased gradually, but fell in 2020 due to the Covid-19 pandemic. Increasingly, Dutch consumers bear the burden of these costs within the supply chain: in 2020, 61.4% of total tariff costs were related to domestic consumption, compared to 58.9% in 2015. Most tariff costs are levied on road vehicles, yarns, textiles, clothing, various food products, iron, steel, metal goods, and miscellaneous manufactured goods.
• Tariffs on imported goods that are processed for Dutch exports were significantly lower than those for the domestic market, amounting to €864 million in 2020. Most tariff costs for exports were levied on chemical products, mineral fuels, miscellaneous manufactured goods, semiconductor components and metal products.
• Other EU counties are playing an increasing role in the supply chain of Dutch exporters. In 2020, 27.2% of tariff costs in the upstream supply chain were levied by other EU countries. This reflects the growing importance of EU tariffs on imports from outside the EU that are essential for Dutch exports, potentially impacting economic performance and competitiveness. Future EU trade policies could address this by reconsidering the situation around critical import products. Meanwhile, the EU’s role in domestic tariff costs declined from 30.5% in 2015 to 25.2% in 2020, with non-EU tariffs increasingly affecting domestic consumption, leading to higher costs that are borne largely by Dutch consumers.
• The average tariff costs on direct and indirect imports are the highest for the accommodation and food services sector, followed by the textile, clothing and leather industry and the food, beverages and tobacco industry.