Trade Relationships between the USA and Netherlands - Case Study Example

Trade Relationships between USA and Netherlands of the of the Introduction The Netherlands is parliamentary democratic system with a legal dominion. The head of the state is King Willem-Alexander who was indicted as the dominion after his mother, Queen Beatrix, was abdicated on 30 April 2013. The country has long been known for its international expansion oriented vision. It was the one of the founding members of the European Union, United Nation, NATO as well as the OECD. Apart from Luxembourg and Belgium, the country is also one of the members of the Benelux Economic Union. Even though Amsterdam is the capital city of the Netherlands, The Hague serves as the home of the Parliament and the Dutch Government. Economic overview The Netherlands is a wealthy trading nation that has a population of about 16.8 million which accounts for about 0.24% of the total population in the world. The population accounts for 0.9% of gross domestic product and 3.9% of the total goods exported all over the world. The country has a sizeable financial industry and is also the 18th largest economy in the world. Netherlands is also known to be the 8th largest exported of consumer goods which s valued at close to US$538.5 billion as of 2012. The agricultural sector of the country accounts for 2.8% of the gross domestic product, 73.2 % of services and 24% industry. The Netherlands stands in an advantageous position as far as agro-food processing, petroleum refining, chemical production and electrical machinery is concerned. The country was severely affected as a result of the financial crisis in the year 2007-08. Since, then its recovery has been on a slow down due to the weakness in the European countries. In 2012, The Netherlands recorded a negative gross domestic product of -1.0%. It played a pivotal and prominent role in the international retort to the financial crisis where many of its ideas and strategies were adopted by the European Union as well as the G20 countries. The country pays strong attention to its international finance and banking industries thereby seeking to strengthen the international monetary fund as well as other international financial institutions. The Government of Netherland also recommended freeing the world trade in order to be able to boost the global economy. Trade and investment Trade and investment is a very crucial dimension of the Dutch economy. The Netherlands conducts the majority of its trade with the European countries of which the most favorable countries are Belgium and Germany. Outside of Europe, the United States of America is the largest export destination of Netherland. On the other hand, China continues to grow as the largest supplier for the country. As far as the imports are concerned, they mainly comprise of machinery, chemical products, transport equipment, agricultural products and fossil fuels. The Netherlands is considered by many investors as a prospective destination for foreign investment. This is precisely because of its outward focus, open economy, good social services, stable public sector, contemporary and efficient infrastructure as well as an active private sector. One in every 10 private sector employees works under a foreign organization. The country itself is a significant global investor b its own right, serving as a home country to numerous large organizations with global operations. The list includes names such as Royal Dutch Shell, Rabobank and ING group. The pension fund sector within the country is counted as being the world’s most highly developed industry that has huge amount of private assets under its management. In addition to that, the venture capital market that operates within the country is among the most developed market within Europe (Department of Foreign Affairs and Trade, 2013). These factors contribute to the reason behind the strong trade relationship and economic ties between The Netherlands and The United States of America. The following section will illustrate the various dimensions of the trade relationships between the two countries. Bilateral Economic Relations The Netherlands and the United States share a broad economic viewpoint and definite commitment to free trade. The Netherlands is one of the member nations of the European Union and has worked in complete conjunction with the World Trade Organization as well as the Organization for Economic Cooperation and Development in order to move ahead the shared goal of developing a more stable, free and a market-led international economy. The United States, on the other hand, values its robust commercial and economic ties with the Netherlands with great respect. There are no imperative investments or trade barriers and thus the Netherlands is a strong receptive market for exports from the United States and it also serves as a strong partner for investment. As far as the position of investors in the United States concerned, Netherlands occupies the third position (USD 217 billion in 2010) with an estimated support for 700,000 jobs and the country is also the 8th largest importer of consumer goods from the United States. The Netherlands also takes part in the Visa Waiver program conducted by the United States that allows citizens from the countries that take part to migrate to the United States for tourism purposes or business purposes for a stay of 90 days or less without possessing a Visa (Bureau of Public Affairs, 2014). The United States on the other hand is the biggest foreign investor in the Netherlands with an investment of USD 521 billion in 2010. As mentioned above, the United Sates also serves as a huge export market for the Netherlands. Some of the important Dutch exports to the United States include beverages, office machinery and chemical products. The products that are mainly imported from the United States include computers, knowledge regarding aerospace engineering, electrical devices and chemical products. Some of the biggest Netherlands based companies are highly active in the United States majorly in the banking, insurance, oil and chemical industry. Since the devastation caused by the Hurricane Katrina on the United States soil, The Netherlands have had a strong collaboration with the United Sates Government on climate and water adaptation issues. Both these countries also share a strong relationship between each other in the field offshore and urban wind energy, sustainability of the economy, bicycle policy and green construction (Government of the Netherlands, 2014). Figure 1: US-Netherlands Partnership (Source: Embassy of the Netherlands, 2014) The numbers in the figure given above suggests the opportunities for foreign investment that are available within the country and how these opportunities have been used by the United States. The figure also illustrates how the numbers translated into American jobs. In the year 2011, the United States imported goods and services worth $33 billion from the Netherlands (an increase of $6 billion from the previous year). The exports were from the United States were valued at $47.5 billion (an increase of $11.2 billion from the previous year). These figures put Netherlands in the list of the top 10 countries with which the United States has recorded trade surplus. In the very same year, companies based in the Netherlands sustained their level of investment in the United States economy at $240 billion (a decrease of a very meager value of $5 billion from the prior year). On the other hand, companies based in the United States increased their level of investment in to $595 billion in the Netherlands (an augmentation of $52 billion from the previous year). This made the Netherlands one of the most favorable destinations for foreign direct investment. Due to a very strong economic and trade relationship that exists between the United States and the Netherlands, 680,000 Americans have their jobs (Embassy of the Netherlands, 2014). As mentioned earlier, the trade relationship between the United States and the Netherlands is a source of employment for hundreds of thousands of people and majority of the investors believe that there is a huge prospect for future growth. This was the fundamental message conveyed by the Prime Minister of the Netherlands Mark Rutte to the President of the United States Barack Obama. The Dutch Prime Minister also presented the President of United States with an in-depth study done by the Dutch Embassy regarding a bilateral investment and trade relationship between the two countries. The study highlighted the current various aspects of trade relationship between the two countries also illustrated the future prospects of continuing and developing such an economic tie. In spite of a bullish global economy, trade with and investment from Netherlands continue to deliver favorable outcomes for both the countries. Having the same spirit, Prime Minister Mark Rutte showed huge interest in fortifying the trade and investment relationship between the United States and the European Union by establishing a comprehensive and deep free zone for trade between the European Union and the United States. According to predictions made by the Dutch Analysts, the foundations of a free trade zone would augment the amount of United States’ exports by $53 billion as well as the number of jobs within the United States economy. This could bring about the eagerly required impulse for both the European and the American economies (Ministry of Foreign Affairs, 2011). More than 850 Netherlands based companies in the United States are strengthening the relevance of the trade and economic relationship that exists between the two countries. The relevance of the relationship (trade and economic) that exists between the two countries can be best seen witnessed in the state of Texas with more than 75,000 jobs and in California with near about 60,000 jobs that is supported by the union between the United States and the Netherlands. The state that is at the pinnacle position amongst the top beneficiaries of the United States- Netherlands relationship is Texas. More than 75 Netherlands based companies that include names such as Heerema Offshore, SBM Offshore, Vopak North America, Fugro, KLM Royal Dutch Airlines and lastly the Shell Oil Company are also based predominantly in Texas. The investments from these Netherlands based companies alongside the exports from Texas to Netherlands accounts for 75,653 jobs in the state. The foreign direct investment from Dutch investors in the state of Texas was worth $11.4 billion in the year 2010. This made the country of Netherlands, the 4th largest investor in the American economy. The American state of Texas exported goods worth close to $6 billion to the Netherlands in the year 2010. Amongst the goods that were exported to the Netherlands, coal and petroleum products had the majority proportion (Ministry of Foreign Affairs, 2011). On the other hand, California serves as home for more than 80 companies headquartered in the Netherlands. Some of those companies based in California are Rabobank, NXP Semiconductors as well as the Nielsen Company. The investments from these companies based in Netherlands and the exports from California to Netherlands accounts for 57,968 jobs in the state. In the year 2010, with an investment of $6.7 billion, Netherlands was in the 5th position among the companies who had invested in California. The state of California exported goods worth close to $4.1 billion to the Netherlands in the year 2010. The free trade agreement that exists between the United States and the Netherlands can significantly improve the economy in the Netherlands. This is precisely the reason why the Government of Netherlands is seeking for a comprehensive and ambitious US trade agreement. This was said by the Foreign Trade minister of the Netherlands Lilianne Ploumen in response to the announcement made by Barack Obama regarding a transatlantic investment and trade partnership. Ecorys, a consultancy firm based in the Netherlands predicted in the last autumn that a further liberalization of trade with the United States could give favorable outcomes in terms of a long term economic growth in the Netherlands. The growth has been predicted to be somewhere between €1.4 billion and €4 billion (Ministry of Foreign Affairs, 2011). Over the past few months, the government of Netherlands has been thoroughly engaged in the groundwork of the forthcoming talks with the United States government regarding strengthening the economic and trade relationship between the two countries. Lilianne Ploumen has had significant interest in the Dutch business community, with a direct attention on the top sectors such as horticulture and agri-food, chemicals, hi-tech materials and systems. The time that that is about to come, the Dutch Ministry of Foreign Affairs will strive to seek for inputs for the government’s negotiation efforts for civil society and other business organizations. The underlying rationale behind this strategy is to be well prepared before the talks regarding the economic tie and trade relationship between the two countries is held. Studying the input given by these organizations will help the Dutch government will help them to negotiate with the United States Government (Cristea, 2011; Herzer, 2013). These inputs will be gathered from the organizations in a series of seminars that will be held in the Netherlands, Washington D. C. and Brussels. If the European countries are excluded from the list that includes Netherlands’ trade and investment partners, then the list will show US to be the most important trading partner. If the overall list is concerned, then US occupy the fifth position as far as both imports and exports are concerned. The major exports from the Netherlands to the United States are refined oil products, medicinal products, machinery and beer. The major exports from the United States to the Netherlands are medical equipment, medicinal products, telecommunications services and refined oil products. In addition to that, the United States is a major partner of the Netherlands as far as technological cooperation and investments are concerned. The Netherlands on the other hand is the third biggest foreign investor in the United Sates economy behind United Kingdom and Japan (Kingdom of Netherlands, 2013). Import and export between the United States and Netherlands The figure given below suggests that the amount of imports and exports both to and from the Netherlands have increases at a steady rate since 1985 until 2013 with very insignificant fluctuations in between. As is evident from the values, the highest amount of import was worth $23.5 billion and was recorded in the year 2011. Since then, there was a slight dip in the amount of imports but they were considerably less. The highest amount of export was recorded in the year 2013 with a staggering value of exports amounting to $42.6 billion. These values suggest the relevance of the economic and trade relationship that has existed between the two countries over the past two decades. The relationship has strengthened over the course of the 28 years and it is expected that the trade relationship between the two countries will grow to the next level. With the advent of globalization, many companies based in the United States established their operational hub in the Netherlands and vice versa and through this entry mode they have been able to contribute towards the development of both the home country economy as well as the economy of the foreign country. With the help of the Netherlands, companies based in the United States have been able to gain access to other European countries and have been able to attain and serve a wider customer base which has significantly boosted their progress. Imports and exports have been at an all time high where both the countries are paying close attention to the needs and demands of each other. The most significant part of this trade relationship can be witnessed during the period of 2007-08 when the global financial crisis happened. Despite the havoc that was wreaked by the global financial crisis, the import and export between these two countries continued to grow with some minor fluctuations. Although the Sovereign debt crisis that happened in 2010 had a significant impact on majority of the European countries, the imports and exports from Netherlands did not dip down. In fact it can be said that, the trade relationship that exists between the two countries is also in some way responsible for providing stability to the respective economies. Figure 2: Import and export between the United States and Netherlands (Source: United States Census Bureau, 2014) The trade relationship between the United States and the Netherlands is one of the strongest that exists between any two countries. The Netherlands has been ranked as the 4th best business destinations in the world by Bloomberg and thus it continues to be a favorable destination for majority of the companies based in the United States. In fact during the period between 2000 and the end of 2010, Netherlands was ranked as being at the top position amongst the countries in the world which are considered prospective for direct investment done by investors based in the United States. In the meanwhile, as mentioned earlier, Netherlands continues to be the third largest foreign investor in the United States economy. The robust trade and economic relationship between the two countries can also be witnessed in the amount of goods that exported by the United States to the Netherlands every year. In addition to that the trade surplus that the United States of America have generated with the Netherlands is also a testimony to the fact that these countries have been having a stable trade and economic relationship over the last two decades. Given the fact that Europe’s fourth largest Airport (Schipol) and the largest port (Rotterdam) are situated in the Netherlands, it shares a broad network with all the other European destinations. This attribute of the country makes it a prospective location from which the companies headquartered in the United Sates can base their operations. Currently more than 2000 organizations headquartered in the United States have based their operations in the Netherlands with a workforce greater than 180,000. The trades done and investments made by the Netherlands in the United States economy provide support to more than 624,000 American employees. The data mentioned above are as of the year 2011. In other words, it is apparently difficult to find a country located elsewhere in the world which can prove to be even more fruitful to companies based in the United States than Netherlands has already proven to be (Embassy of the United States, 2013; The White House, 2013). Conclusion Having done an in-depth analysis of the trade and economic relationship that exists between the United States and the Netherlands it can be said that both these countries have demonstrated a strong bond with each other. The Government of United States as well as that of the Netherlands has been very receptive to each other. They have welcomed each other’s objectives and have paid close attention to the needs and demands of the masses. Since 1985, the imports and exports business conducted between the two countries have continued to grow exponentially. This is evident from the mounting figures of both imports and exports illustrated in figure 2. The primary goods that are exported between the two countries are refined oil products, computers, machinery, chemical products, petroleum products, liquor and so on and so forth. Both the countries by means of their trade and investment relationship have been able to contribute towards the stability of each other’s economy. The investments made and trade conducted between these countries have accounted for a significant proportion of jobs. The government of both these countries seeks to strengthen their trade and economic relationship in the long run in order to be able to ensure the long term sustainability of each their respective economy. The United States and Netherlands over have proved to be prospective destinations for each other in terms of conducting international trade and relationship. Analysts of both the countries have predicted that the trade relationship between the United States and Netherlands have huge prospect in the future and will continue to grow at a rapid rate in the time to come (Ebscohost, 2011). References Bureau of Public Affairs. (2014). U.S. Relations with the Netherlands. Retrieved from http://www.state.gov/r/pa/ei/bgn/3204.htm Cristea, A. D. (2011). Buyer-seller relationships in international trade: Evidence from U.S. States exports and business-class travel. Journal of International Economics, 84(2), 207-220. Department of Foreign Affairs and Trade. (2013). Netherlands country brief. Retrieved from https://www.dfat.gov.au/geo/netherlands/netherlands_country_brief.html Ebscohost. (2011). U.S. relations. Retrieved from http://web.a.ebscohost.com.ezproxy.cqu.edu.au/ehost/detail?vid=4&sid=87daa2e5-cb1b-451d-8ece-5fa13b5899af%40sessionmgr4003&hid=4112&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=70378800 Embassy of the Netherlands. (2014). US-Netherlands Partnership. Retrieved from: http://economicties.org/us-netherlands-partnership/ Embassy of the United States. (2013). Message from Chargé d’Affaires ad interim Adam Sterling. Retrieved from http://thehague.usembassy.gov/root/english/trade--commerce.html Government of the Netherlands. (2014). Relations the Netherlands - United States. Retrieved from http://www.government.nl/issues/international-relations/united-states Herzer, D. (2013). Cross-Country Heterogeneity and the Trade-Income Relationship. World Development, 44, 194-211. Kingdom of Netherlands. (2013). The Netherlands Seeks Ambitious and Comprehensive US Trade Agreement. Retrieved from: http://dc.the-netherlands.org/news/2013/02/comprehensive-trade-agreement.html Ministry of Foreign Affairs. (2011). Economic Ties between the USA and the Netherlands: A Partnership that Works. Retrieved from: http://www.minbuza.nl/en/news/2011/11/economic-ties-between-the-usa-and-the-netherlands-a-partnership-that-works.html The White House. (2013). Foreign Direct Investment in the United States. Retrieved from http://www.whitehouse.gov/sites/default/files/2013fdi_report_-_final_for_web.pdf United States Census Bureau. (2014). Trade in Goods with Netherlands. Retrieved from https://www.census.gov/foreign-trade/balance/c4210.html Read More