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TITLE: NETHERLANDS ECONOMIC POLICY AND TRADE PRACTICES
DATE: FEBRUARY 1994
AUTHOR: U.S. DEPARTMENT OF STATE
Key Economic Indicators
(Millions of Guilders Unless Otherwise Noted)
and Employment 1991 1992 1993 /1
Real GDP (1980 prices) /2 411,831 418,421 418,421
Real GDP Growth Rate (pct.) 2.1 1.6 0.0
GDP (current prices) /2 543,560 563,220 573,300
By Sector: /3
Agriculture 20,890 21,070 21,439
Energy and Water 9,040 9,090 9,249
Manufacturing 202,770 201,780 205,311
Construction 26,820 27,490 27,971
Rents 46,710 48,150 48,993
Financial Services 23,320 23,400 23,809
Other Services 396,410 407,760 414,896
and Education 54,800 55,180 56,146
Net Exports of
Goods And Services 25,350 25,150 27,500
Real Per Capita GDP 27,273 27,528 27,348
Labor Force (000's) 6,860 6,932 6,988
Unemployment Rate (pct.) 7.2 6.9 7.9
Money and Prices
(annual percentage growth)
Money Supply (M2) 4.7 6.6 6.6
Base Interest Rate /4 8.7 8.1 6.5
Personal Savings Rate 8.6 9.2 8.0
Retail Inflation 2.0 2.0 1.3
Wholesale Inflation 0.5 -0.9 -1.2
Consumer Price Index 107.7 111.7 114.5
Exchange Rate (guilders/$)
Official 1.87 1.76 1.89
Balance of Payments and Trade
Total Exports (FOB) /5 248,809 245,861 244,631
Exports to U.S. 9,569 9,983 10,415
Total Imports (CIF) /5 234,609 236,159 232,617
Imports from U.S. 18,350 18,322 20,154
Aid from U.S. 0 0 0
Aid from Other Countries 0 0 0
External Public Debt 0 0 0
Debt Service Payments
(paid) 25,261 26,804 28,328
Gold and FOREX Reserves 55,973 65,330 62,531
Trade Balance /5 19,200 9,702 12,014
Balance With U.S. -8,781 -8,339 -9,739
1/ 1993 figures are all estimates based on six-month data.
2/ GDP at market prices.
3/ GDP at factor costs.
4/ Figures are actual, average annual interest rate.
5/ Merchandise trade.
1. General Policy Framework
The Netherlands is one of the most prosperous economies in
Europe. The economy depends heavily on foreign trade and is
characterized by: stable industrial relations fostered through
consultations among industry, unions and government; a large
surplus in external balances from trade and overseas
investments; natural gas exports which make Holland a net
exporter of a fuel increasingly in demand; and, a geographic
location as a European transportation hub with the world's
largest port, Rotterdam, a prime production site and
distribution center for foreign firms seeking access to Europe.
In an effort to reverse a dramatic rise in unemployment,
the coalition government in its last term of office has made
job creation its top priority. Substantial investment in
education and infrastructure will continue, as will subsidies
for research and development of cutting-edge technologies.
Aggressive and innovative export credit financing is
available. European Union (EU) programs supplement Dutch
development and restructuring. The government has contained
the growth of labor costs through consultation among the
"social partners" (government, labor and employers). Wage
restraint and a reduction of the individual burden of taxes and
social security contributions are seen as key to boosting
employment and improving the Dutch competitive position. The
OECD regularly criticizes the Netherlands in its annual reports
for its restrictive incomes policy which contributes to a large
current account surplus.
Stable labor relations are aided by generous unemployment,
disability and sickness benefits. This has created over 81
benefit recipients (including pensioners and those on
disability) for every 100 productive workers in 1992. The
government claims that, at a ratio of 86:100, maintaining the
social welfare system becomes a threat to economic growth, so
it is determined to cut social security programs. There are
plans to streamline current systems in favor of "mini-systems"
characterized by less government intervention and maximum
The Netherlands is one of the world's premier overseas
investors and trading nations. Dutch trade and investment
policy is among the most open in the world. Nevertheless, the
state dominates the energy sector, and plays a large role in
transport, chemicals, aviation, telecommunications and steel.
The government has reduced its role in the economy since the
early eighties, but calls for a national industrial policy have
Restrictive fiscal policy aims to reduce a large budget
deficit. The government has gradually cut the deficit from
more than 10 percent of Gross Domestic Product (GDP) in 1983,
to 3.4 percent in 1993. Although further deficit reduction
will take a back seat to employment growth, the government
continues on an austere course. However, with current slow GDP
growth, further deficit cuts are increasingly difficult.
Weaker growth and sharply rising unemployment put the deficit
target of 3.3 percent of GDP for 1993 out of reach. The
deficit in 1993 and 1994 is expected to stick at 3.4 percent of
GDP. Nonetheless, the new target will allow the Netherlands to
meet the EMU target of three percent of GDP by 1999. The Dutch
would therefore fulfill two of the three main EMU convergence
criteria (budget deficit and inflation).
The deficit is largely funded by government bonds. As of
January 1, 1994 financing will also be covered by issuing Dutch
Treasury Certificates (DTC). DTC's will replace a standing
credit facility for short-term deficit financing with the
Netherlands Central Bank which, under the Maastricht Treaty,
will be abolished in 1994.
2. Exchange Rate Policies
Since the introduction of the European Monetary System
(EMS) in 1979, the Netherlands Central Bank (NB) has aimed
monetary policy towards maintaining the stability of the
exchange rate between the guilder and the German mark, using
interest rate policy to maintain this link. The guilder is
currently the strongest currency in Europe. When the EMS
fluctuation bands were widened to 15 percentage points in
August 1993, in agreement with Germany the guilder was kept
within the original 2.25 point EMS fluctuation band.
The NB exerts control over money market rates by adjusting
short-term rates and by varying the terms of the banking
community's access to NB financing. The NB's open market
policy provides the Bank with a tool to signal the market which
way it wants it to develop. For this purpose the NB uses a
three billion guilder portfolio of treasury issues from which
it can sell or buy.
Because Germany is the Netherlands' main trading partner,
the link with the mark is expected to remain virtually
unchanged. The strong guilder is expected to have a positive
impact on Dutch imports from the United States. A strong
guilder also minimizes exchange rate risks to U.S. investors in
the Netherlands. There are no multiple exchange rate
There are no exchange controls, although Netherlands
residents must obtain an exchange license for certain large
international financial transactions.
3. Structural Policies
Investment incentives have been a well-publicized tool of
Dutch economic policy and are used to facilitate economic
restructuring and to promote energy conservation, regional
development, environmental protection, and other national
goals. Subsidies and incentives are available to foreign and
domestic firms alike and are spelled out in detailed
regulations. Subsidies are in the form of tax credits which
are usually disbursed through corporate tax rebates, or direct
cash payments in the event of no tax liability.
The investment premium regulation (IPR), the only major
investment incentive still available to investors, seeks to
encourage investments in parts of the country with high
unemployment by giving an investment subsidy for new
investments (industrial buildings and fixed assets). The IPR
subsidy applies to investments, of which at least 25 percent is
investment of the investor's own capital. Grants range from 10
to 20 percent of the investment in buildings and equipment, and
sometimes land. A 20 percent grant is available for new branch
and restructuring projects, and 15 percent for expansion
projects. Full details are available from the Netherlands
Foreign Investment Agency. Local subsidies are also available.
In another effort to attract investment, in 1993 the
government established an office to give binding tax rulings to
foreign companies in advance of investment. While normal taxes
are not relaxed, companies have the ability to clarify, often
favorably, tax situations subject to various interpretations.
In November 1993, the government set up a 900 million
guilder (about $470 million) industrial fund to finance
restructuring projects by medium and large Dutch enterprises.
The money will come from the government, commercial banks,
insurance companies, pension funds, and the National Investment
Bank. Financing for new projects will be provided up to a
ceiling of 50 million guilders per project. The government
hopes the fund will help improve the structure and
competitiveness of the economy. Based on applications so far,
the fund should have enough money for at least twelve months.
4. Debt Management Policies
With a surplus on the balance of payments current account
of more than two percent of GDP in 1992 and no external debt
(all public debt is denominated in Dutch guilders), the
Netherlands is a major creditor nation. However, since the
early eighties, the gross public debt ratio of the public
sector (EMU criterion) has grown sharply, to 79.7 percent of
GDP in 1992. Debt servicing and debt rollover have risen in
step to near ten percent of GDP. All of the government's
financing needs (budget deficit and debt servicing) are covered
on the Dutch domestic capital market. The Dutch encounter no
difficulties in tapping the domestic capital market for loans.
Government bond issues are usually oversubscribed, and public
financing requirements have recently been met long before the
end of a fiscal year. Since the late eighties, the Dutch have
come a long way in improving their fiscal balance. The
Netherlands is a participant in and a strong supporter of the
IMF, IBRD, and other multilateral international financial
5. Significant Barriers to U.S. Exports
Dutch merchandise and services exports have grown to
represent more than 50 percent of GDP. This makes the Dutch
economy one of the most internationally oriented in the world.
The Netherlands is the ninth-largest U.S. export market, as
well as the one with which the United States has its largest
bilateral trade surplus, close to $9 billion in 1992. Total
U.S. exports to the Netherlands in 1992 were up two percent
over 1991. The Netherlands is the third largest direct
investor in the United States, behind the United Kingdom and
Japan. Dutch accumulated investment in the United States in
1992 rose by three percent over 1991 to over $61 billion. U.S.
direct investment in the Netherlands fell slightly to about $19
billion, a drop of three percent over 1991.
Most trade barriers that do exist result from common EU
policies. Some areas of potential concern for U.S. exporters
to the Netherlands follow:
Offsets for defense sector contracts: The Ministry of
Defense has a policy that requires all foreign contractors to
provide at least 100-percent offset compensation as a condition
for defense purchases over five million Dutch guilders. Under
this requirement, the seller must arrange for the purchase of
Dutch goods or permit the Netherlands to produce in-country
certain components or sub-systems of a weapons system it is
buying from a U.S. (or other foreign) supplier. In a recent
decision on the purchase of helicopters for the Dutch military,
it was alleged that a non-U.S. bid was accepted which contained
offsets of civil aviation procurement in conflict with relevant
GATT and U.S.-EU agreements. The Dutch have denied this charge.
Broadcasting and Media Legislation: Amendments to the
Dutch Media Act relating to public broadcasting which
liberalized the law by admitting for the first time local and
foreign commercial broadcasting stations into the Dutch cable
network took effect in 1992. Dutch compliance with the EU
broadcasting directive and the 50-percent-EU-content
requirement is not primarily a United States-Dutch issue, but
one between the United States and the EU. In any case, U.S.
television programs are highly popular and readily available in
Although the export sector of the Dutch economy is open and
free of competition restraints, cartels, bid rigging and price
fixing exist in the domestic sector of the economy. Cartels
have been legal in the Netherlands if accepted for registration
by the government. Cartel arrangements include price fixing
both by product area and from distributor to retailer, as well
as restrictions against market entry, restrictions on sales
territories and sales quotas. Cartels are not necessarily
limited to Dutch companies. In order to comply with EU
requirements and to curtail cartel activities, the government
in 1993 introduced legislation which bans horizontal
price-fixing activities. Nevertheless, the government is under
EU pressure to do more, and the Trade Minister's promise to
solve the problem by mid-1993 has not materialized. Thus
cartels are a potential threat to foreign firms seeking to do
business in the Netherlands. However, the Embassy is not aware
of any complaints by U.S. businesses of having been negatively
impacted by the cartels in the Netherlands.
Central government public procurement is generally open and
transparent and in compliance with the EU Procurement Directive
and the GATT Government Procurement Code. However transparency
and enforcement in this area can be deficient, especially with
regard to public notification of tenders by local authorities,
and offset or local content requirements.
In this regard, the EU Utilities Directive is one example
which could be of concern because of its provisions allowing
preferences for high EU-content bids in the telecommunications
and energy sectors, including the large market for goods and
services to the Dutch oil and gas sector. Up to now, only
Dutch entities have been allowed to compete with the Dutch PTT
for a second national network.
Dutch compliance with the Utilities Directive warrants
close scrutiny. The directive may have a positive effect by
forcing more public notification and ending the virtual
monopoly of two Dutch companies in public utility construction
which is done by local authorities. Much will depend on how
the Dutch interpret the directive.
6. Export Subsidies Policies
The Netherlands has almost no preferential or
discriminatory export or import policies with the exception of
those which result from its membership in the European Union.
The EU is a signatory to the GATT Subsidies Code, making The
Netherlands subject to the provisions of this code.
Under the export matching facility, the Dutch government
provides interest subsidies for Dutch export contracts
competing with government-subsidized export transactions in
third countries. Subsidies under the "Matching Fund" seek to
bridge the interest cost gap between a Dutch and foreign export
contract which has benefited from foreign interest subsidies.
Under the Dutch scheme, the government provides up to 10
million guilders of interest subsidies per export contract up
to a maximum of 35 percent per export transaction. To qualify,
the export transaction must have a Dutch content of at least 60
percent. For defense, aircraft and construction transactions,
the minimum Dutch content is one-third of the export portion of
The Dutch have a local content requirement of 70 percent
for exporters seeking to insure their export transactions
through the Netherlands Export Insurance Company (NCM).
In the aerospace industry, the Dutch government has
indirectly supported Fokker, the Dutch aircraft manufacturer,
with loans and loan guarantees as well as with direct support
for development programs. The recently-concluded Deutsche
Aerospace (DASA) purchase of a majority interest in Fokker
should allow the Dutch government (which had owned 31.8 percent
of the company) to reduce support of Fokker to a minimum.
There are some subsidies for shipping. Under strict
circumstances, Dutch ship-owners ordering new vessels or buying
existing vessels not older than five years may be eligible for
a premium of 10 percent of the contract price distributed over
five years. Subsidies for shipbuilding have been gradually
reduced since 1980. The present guideline is the seventh EU
Directive which allows a maximum aid level of nine percent for
shipbuilding after consideration of tax allowances. In
conformity with the OECD Understanding, the government grants
interest rate subsidies (maximum two percent) to Dutch
shipbuilders up to 80 percent of a vessel's cost with a maximum
repayment period of 8.5 years. This subsidy is only available
when it will be "matching" similar offers by non-EU shipyards.
The government may also guarantee loans to Dutch shipping
companies for investment purposes.
7. Protection of U.S. Intellectual Property
The Netherlands has a generally good record on IPR
problems, with the exception of the enforcement of anti-piracy
laws (see below). It belongs to the World Intellectual
Property Organization (WIPO), is a signatory of the Paris
Convention for the Protection of Industrial Property, and
conforms to accepted international practice for protection of
technology and trademarks. Patents for foreign investors are
granted retroactively to the date of original filing in the
home country, provided the application is made through a Dutch
patent lawyer within one year of the original filing date.
Patents are valid for 20 years. Legal procedures exist for
compulsory licensing if the patent is determined to be
inadequately used after a period of three years, but these
procedures have rarely been invoked. Since the Netherlands and
the United States are both parties to the Patent Cooperation
Treaty (PCT) of 1970, patent rights in the Netherlands may be
obtained if PCT application is used.
The Netherlands is a signatory of the European Patent
Convention, which provides for a centralized Europe-wide patent
protection system. This convention has simplified the process
for obtaining patent protection in the member states.
Infringement proceedings remain within the jurisdiction of the
national courts, which could result in divergent
interpretations detrimental to U.S. investors and exporters.
The enforcement of anti-piracy laws remains a concern to
U.S. producers of software, audio and video tapes, and
textbooks. The Dutch government has recognized the problems in
protecting intellectual property. Legislation is slated for
enactment at the end of 1993 to explicitly include computer
software as intellectual property under the copyright statutes.
In 1993 a dispute arose between a government-owned company
and U.S. firm over a non-disclosure agreement covering the U.S.
company's intellectual property. The Dutch company has denied
wrongdoing and has taken the U.S. company to court in the
Netherlands for slander.
8. Worker Rights
a. Right of Association
The right of Dutch workers to associate freely is well
established. One quarter of the employed labor force belongs
to unions. Unions are entirely free of government and
political party control and participate in political life.
They maintain relations with recognized international bodies
and form domestic federations. All union members, except most
civil servants, have the legal right to strike. Even Dutch
military personnel are free to join unions. Measures are
pending which would grant the right to strike to civil servants
not involved in "life-essential" activities; meanwhile,
disputes involving this sector are subject to arbitration.
b. Right to Organize and Bargain Collectively
The right to organize and bargain collectively is
recognized and well-established. There are no union shop
requirements. Discrimination against union membership does not
exist. Dutch society has developed a social partnership among
government, private employers, and trade unions. This
tripartite system involves all three participants in
negotiating guidelines for collective bargaining agreements
which, once reached in a sector, are extended by law to cover
the entire sector. Such agreements cover about 75 percent of
c. Prohibition of Forced or Compulsory Labor
Forced or compulsory labor is prohibited by the
constitution and does not exist.
d. Minimum Age for Employment of Children
Child labor laws exist and are enforced. The minimum age
for employment of young people is 16. Even at that age, youths
may work full time only if they have completed the mandatory 10
years of schooling and only after obtaining a work permit
(except for newspaper delivery). Those still in school at age
16 may not work more than 8 hours per week. Laws prohibit
youths under the age of 18 from working at night, overtime, or
in areas which could be dangerous to their physical or mental
development. In order to promote the employment of young
people, The Netherlands has a reduced minimum wage for
employees between ages 16 and 23.
e. Acceptable Conditions of Work
Dutch law and practice adequately protect the safety and
health of workers. There is no legally-mandated work week; it
is set by collective bargaining. The average workweek for
adults is 38 hours. The legally-mandated minimum wage is
subject to semi-annual living cost adjustment.
f. Rights in Sectors With U.S. Investments
The above described workers rights hold equally for
goods-producing sectors in which U.S. capital is invested.
Extent of U.S. Investment in Selected Industries
U.S. Direct Investment Position Abroad
on an Historical Cost Basis - 1992
(millions of U.S. dollars)
Total Manufacturing 7,216
Food & Kindred Products 652
Chemicals and Allied Products 3,511
Metals, Primary & Fabricated 433
Machinery, except Electrical 987
Electric & Electronic Equipment 408
Transportation Equipment 78
Other Manufacturing 1,148
Wholesale Trade 3,043
Finance and Insurance 4,931
Other Industries 726
TOTAL ALL INDUSTRIES 19,114
Source: U.S. Department of Commerce, Bureau of Economic
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