The Netherlands offered a comparatively calm official response to Russian cabinet steps to stabilise finances in August 1998. Local experts did not think the Russian crisis would have a macroeconomic impact on their country, considering Russia's modest position in its foreign trade: according to the Federation of Dutch Exporters, it roughly accounted for 1% of the entire turnover, with 1.47 billion guilders for the first four months of 1998.
Netherlands-based companies with trade and other economic interests in Russia also met resolutions of the Russian authorities with complacency. Indicatively, Dutch-Russian trade is wholly an US dollar arrangement. Local companies have always had the smallest possible rouble reserves in their Russian branches as the alien personnel receive salaries outside Russia.
Despite all that, top managers of the Netherlands Bank and the Nationale-Nederlanden NV insurers are closely monitoring Russian economic developments.
The latter officially announced on 2 September 1998, a suspension of insuring trade transactions with Russia, which practically started on 18 August. The move was made following consultations with the Economy and Finance ministries and the Netherlands Bank. Insurance experts of the company viewed the Russian developments of late August as an "extremely serious" economic deterioration, and described the introduced limitations as fully justified.
According to the Bank for International Settlements, total Dutch bank loans to companies operating on the Russian market amounted to US billion towards the end of 1997. The ABN-Amro Bank(roughly 400 million guilders), the ING Bank and the Rabobank were the largest creditors.
There is a controversy about the use of money from the SENO, a foundation to promote penetration to new markets, by Dutch companies trading with Russia. The Ministry of Economic Affairs has for now left the matter open. SENO allocations for 1997 amounted to 379 million guilders, and the bulk was channelled to expand trade with Russia.
According to the Netherlands' Central Statistics Bureau, Dutch exports to Russia amounted to 1.8 billion guilders within the first five months of 1998--16.6% more than in the same period of 1997. Dominating these exports were foodstuffs, primarily apples, pears, poultry and cheese. The Netherlands' imports from Russia amounted to 1.32 billion guilders within the same period. Russian exports to the Netherlands shrank in value terms by 5.8% against the same period of the preceding year--mainly due to petroleum prices plummeting on the world market. Crude oil, natural gas and aluminium account for the bulk of Russian exports to the Netherlands.
In 1996, the Netherlands was ranking 4th among Russia's West European trade partners, coming after Germany, Italy and the U.K.
Thus, the Netherlands remains with Russia's basic European trade partners.
According to Russian statistics for 1996, the bilateral trade turnover was staying at about the previous year's level of US billion (US billion, according to Dutch statistics).
The year 1997 left the turnover at its previous level, with no considerable shifts in export/import patterns.
Regrettably, that bilateral trade remains disproportionate with raw materials graphically dominating Russian exports. In particular, iron, steel, non-ferrous metals and fuels account for 91%. Dominating Russian imports are foodstuffs (50%), machinery and industrial equipment (23%), and chemicals and consumer goods (18%).
Russia is anxious to improve its export structure by enhancing the share of machinery, equipment and other finished articles--in particular, by increasing high-tech exports as the defence industry is shifting to civil-oriented production, certain regions and industrial companies emerge on the foreign market, and direct investment is coming to Russian industry from the Netherlands--especially to the agro-industrial complex, military industrial conversion, engineering, telecommunications and environment protection.
A joint Russia-Netherlands commission for economic cooperation was established in 1993, and had its maiden session in The Hague, September the same year. Leading the Russian delegation was V.P. Shilin, Deputy Minister of Foreign Economic Contacts, the Netherlands, F.A. Engering, Director-General for Economic Relations of the Ministry of Economic Affairs.
The session discussed commission goals and routine, and adopted its statute. The conferees debated specific matters pertaining to the work of international economic organisations, and developments under the Netherlands' technical assistance programme. They pointed out certain obstacles to bilateral trade, in particular, EU anti-dumping measures against Russian commodities, and Russian sanitary and industrial standards.
Among the issues which interested the Dutch party the most was Russia's stance on Soviet foreign debt settlements.
The commission had its next session in Moscow in October 1994. M.E. Fradkov, Deputy Minister of Foreign Economic Contacts, was leading the Russian delegation, and F.A. Engering the Netherlands. Russia’s approach towards investment in its economy was among the issues which aroused the guest delegation's greatest interest. The Dutch delegation visited Nizhny Novgorod during the session.
Victor Chernomyrdin, Russia's Prime Minister, visited the Netherlands in October 1997.
According to a statement by the Netherlands' Ministry of Economic Affairs, the Dutch side decided not to form a delegation of business circles for Her Majesty Queen Beatrix' official visit to Russia scheduled for November 1998. The ministry was referring to its opinion polls of Dutch companies in trade and other economic contacts with Russia, which revealed an inadequate interest in upcoming bilateral negotiations. As the local business community see it, there are no economic problems between the two countries to demand settlement at a state level. Local analysts, however, pointed out another, true reason for this corporate stance: the Dutch business was very circumspect about contacts with their Russian counterparts as Russian financial and economic developments had come to an edge. The Association of Western Creditors, to which the Netherlands Federation of Employers is affiliated, appealed to Russia's Finance Ministry to resume negotiations for the repayment of a non-insured commercial debt going back to the Soviet years. As the Association sees it, the settlement of that matter will promote Western confidence in the Russian government-sponsored reforms. All told, Russia's non-insured commercial debt to Western companies amounts roughly to US billion, including 80 million guilders, less interest, to 35 Dutch companies. In connection with this appeal, the federation expressed regret that Russia was not making any practical steps to that end irrespective of available bilateral understanding and Russia's repeated reassurances that it was willing to settle the problem.
Russia is the Netherlands' basic economic partner in Eastern Europe. In keeping with its foreign economic concept, the Netherlands welcomes Russia's steps to integrate into the global economic system and the prospects of Russia joining the World Trade Organisation, as the Dutch Prime Minister confirmed once more as he met his Russian counterpart at the negotiation table on 1 October 1997.
Joining the WTO, a major multi-purpose organisation, implies the assumption of numerous responsibilities in many fields. This is what the Netherlands proceeds from as it promotes Russian membership. It attaches primary importance at the initial stage of Russia-WTO talks to the achievement of basic understandings on two questions--when and how Russia deems it possible to cope with the main duties implied by WTO membership.
The Netherlands' stance on Russian commodity penetration to the Western market is the most lenient and pragmatic in the European Union.
There were no grounds, in 1992-97, to refer to any instances of discrimination against Russian export/import dealers or the Netherlands' national legal limitations which would inhibit Russian exports to that country apart from such as exist in the entire EU. Russia has come close to market economic arrangements, acknowledges the Netherlands. As its Prime Minister pointed out, the EU will gradually abolish its limitations on bilateral economic cooperation as the Russian economy acquires ever more market features in a process which the Netherlands will dod its best to promote.
The Netherlands has no national anti-dumping or anti-monopoly legislation, and is guided by European Union regulations, as its member should. As a rule, its spokesmen come out against anti-dumping procedures as they are voted on the European Commission, and Dutch-based companies have never before initiated such measures.
The 1990s made the Netherlands one of Russia's basic trade partners, ranking the world's sixth and Europe's fourth in terns of the trade turnover (1996). Every year since 1992 the bilateral trade turnover increased by 10-15% to reach US billion in 1997.
The present-day commodity turnover pattern does not fully satisfy Russia, whose exports are dominated by raw materials (90%)--of this, iron, steel and non-ferrous metals, 84.4% (US billion), mineral fuel, oil and petroleum products 5% (US million), ores 0.7% (US million), and foodstuffs, timber, paper and equipment 9.9% (approx. US million). The Netherlands is re-exporting to third countries about half of its raw imports from Russia. Dominating Russian imports from the Netherlands are foodstuffs, beverages and tobacco, 50%, while machinery and industrial equipment account for 20%. Several hundred Dutch companies engaged in trade with Russia have established their offices there and established joint ventures with Russian participation. Among them are such national economic leaders as the Shell, Philips, Unilever, Akzo-Nobel and Nutritia.
The Netherlands is maintaining business contacts with many parts of Russia, for some of which, e.g., Moscow and its environs, and the Sverdlovsk, Irkutsk, Arkhangelsk and Murmansk regions, it is a major trading partner.
The present arrangement of commodities in bilateral trade is likely to persist within the next few years, with Russian exports dominated by iron, steel, non-ferrous metals, oil and petrochemical products, ores (scrap metal), timber and chemicals.
Russia is likely to retain for 1998-99 a great scope of its purchases in the Netherlands of fruit, vegetables, meat and meat products, tea, coffee, cocoa and dairy products, other foodstuffs, office equipment, telecommunication equipment, electric engineering devices, chemicals and light industry produce.
The annual increase of bilateral trade is not likely to exceed 3% to 5% in 2000-05, and Russian exports will remain dominated by raw materials. Starting with 2001, Russia will export an annual 4 billion cu m of natural gas, close on 10% of the Netherlands' entire economic demands. A revival of Russian farming and a shift of military industry to civil-oriented production may reduce the share of foodstuffs in Russian imports in favour of high-tech equipment.
The Netherlands is of major interest to Russia as the latter seeks to attract advanced technologies to its economy. This may concern narrow-purpose shipbuilding, such as shelf oil-derricks, bottom excavators and deep-sea elevators, navigation gauges, optic devices, medical equipment, and land and sea anti-corrosion metal part and pipe coating. The Netherlands owes a special international renown to its textile finishing and quality printing machines, paper and cardboard, environmental protection equipment, and an entire range of food industrial machinery for meat procession, dairy products, bakeries, confectioneries and fodder production. Dutch engineering industry owes one of its main benefits to specialisation in unique equipment according to clients' standards.
Farm machine industry excels in equipment for animal farms, hothouses, irrigation and drainage networks, farm produce sorting and storage, and root cropping. The Dutch have major practical experience of naval technologies, infrastructural development, and the use of non-conventional energy sources.
With economic improvement, Russia may expect to change its export arrangements, in particular, raise the share of finished articles and engineering produce.
Sufficient structural stability and high rates of Dutch imports may cause Russia fairly soon to increase exports of certain foodstuffs (grain and oil-bearing plants), and regain the achievements, lost in the mid-1990s, of its oil and petroleum product exporters with supplies both for oil refineries in the Netherlands and re-export to the neighbouring countries. There are also prospects to raise exports of chemicals. In this, Russian organic and non-organic chemicals, fertilisers, plastics, rubber and rubber articles are to get a firm market footing in reduced delivery costs and export prices, and extendedrange of export products.
Closer cooperation of Russian and Dutch shipbuilders is among the most promising development lines of Russian engineering exports in the current economic situation.
At the moment, this cooperation is limited to supplies of various kinds of ship hulls, mainly tugboat, fitted out with mass-produced equipment in the Netherlands to be sold to all ports of the world.
Dutch economic specificities make it inexcpedient for the country to seek self-sufficiency for all engineering items. This is why the Netherlands proceeds in its economic policies from extensive international cooperation.
In keeping with this concept, the country is not manufacturing many industrial items. In particular, it does not produce general-purpose machine tools, tractors, electric engines, and electric and hand cutting tools for wood- and metal-working and other purposes.
The Netherlands' imports fully satisfy its demands for excavating and loading machinery, including shopfloor devices. Even such commodities as optic devices and electrical measuring gauges may be eventually imported from Russia at a middle-class level as locally-based companies are limiting their efforts to the most expensive items with the highest possible quality and reliability--this because of the high cost of the domestic workforce.
The Netherlands' industry concentrates on assembly to make the country fully geared towards European and world standards and so import parts and finished articles up to such standards. All Dutch research institutes, whose competences extend to government safety inspection, are, alongside industrial associations, members of European associations which elaborate unified standards. Therefore it is necessary to bring it home to Russian manufacturers that, in case Russian industrial companies join European and global standardisation associations and proceed from their standards in output, Russian industrial exports to the Netherlands and the entire European Union will meet no obstacles except competition. Only unified standards will make Russian-Dutch cooperation possible to promote Russian machinery to third countries, as well.
The progress of Russian-Dutch cooperation in such fields crucial for Russia as military technological supplies and space effort--including the Netherlands' participation in a Russian programme for commercial satellite launchings—is unlikely now as the Netherlands is fully integrated in NATO and respective European space programmes.
Dutch capital was ranking third, in 1996, in terms of investment in Russia, coming after the USA and Switzerland, with US million, 15.1% of total foreign investment. Direct investment was far smaller, 1.4% of the total, or US million, ranking 9th. According to Russia's State Statistics Committee, the first half-year 1997 brought the Netherlands to lead general investment, at US billion, and rank third in direct investment (5.4% of the total), coming after the USA and the U.K.
As participants of a bilateral roundtable said during the Russian Prime Minister's visit to the Netherlands, there are the following basic reasons for a comparatively small amount of Dutch investment in the Russian economy:
Whatever pledges Russia might have made to improve the situation in all those aspects, it does not yet give grounds for ambitious investment, said the Dutch Prime Minister as he conferred with Russia's Prime Minister in October 1997.
Then, the Dutch are wary of tentative Russian competition on the world market, and this is the main reason for the Netherlands' procrastinations with large investment in the Russian economy. A majority in the Dutch business are interested in bilateral trade, rather than production partnership. They are eager to provide an extensive sales market for their own manufacturers through extending trade and finished article supplies instead of investing in the development of similar production in Russia.
Energy and agriculture remain the Netherlands' top priorities in cooperation with Russia.
Of major importance is a contract between the Gazprom and the Nederlandse Gasuni, signed in 1996 for Russian natural gas supplies under a 20-year arrangement, starting 2001, at an annual 4 billion cu m to a total 17 billion guilders, roughly US billion. This contract acquires lucrative prospects as the Netherlands is to switch to a Belgium-Britain gas mainline, to be commissioned in 1999.
The Gazprom and the Shell signed a strategical partnership agreement in November 1997, which envisages a purchase by the Western partner of convertible Gazprom bonds to one billion US dollars, and the establishment of a parity-based joint venture to operate West Siberia's Zapolyarnoye field, expected to yield an annual 25 million tons of oil and gas condensate, starting 2003. The agreement also stipulates unified strategies in the Caspian basin oil and gas market development, and the establishment of a consortium, involving the Russian-based Lukoil, to draft proposals for an upcoming Rosneft privatisationtenders. Talks are underway to involve the Shell in the construction of several Russia-Europe pipelines.
Russian-Dutch agro-industrial cooperation has always been an essential part of bilateral contacts. A financial group was set up in the Netherlands to promote private corporate investment in Russia's Black Earth Belt. Leading it is the Rabobank, the country's second-largest bank, long established as private and cooperated farming creditor.
Managers of a majority of Dutch agricultural cooperatives showa considerable interest in stepping up contacts with Russia. As they see it, investment is to come from Dutch food manufacturers, while cooperated farmers will be coping with raw foodstuff supplies. The Campina Melkuni dairy cooperative, for one, announced its intention to invest US million in Russia, and signed a contract to coordinate Russian-based ventures with the Cebeco Handelsraad corporate landtillers, which has a project underway in the Moscow Region. With due consideration for Russia's present-day money limitations, it is more expedient to focus on purchases of Dutch state of the art technologies and knowhow, rather than ready foodstuffs. In this, as we see it, the following fields appear the most promising:
A favourable climate for trade and other bilateral economic contacts was largely promoted by a 1996 resolution by the Nationale-Nederlanden NV insurers to resume the insurance of Russian-oriented commercial export contracts guaranteed by Russian banks. With short-term contracts, the Dutch insurers may agree to insure a contract against an irrevocable letter of credit opened at a top-class Russian bank or an unconditional guarantee by a similar bank. Medium-term (5 to 8 years) and long-term export loans cannot be insured unless an international financial institution, such as the World Bank or the EBRD, is involved on a parity share arrangement, with government guarantees or under security of funds on Russian partners' accounts with Western banks (this primarily concerns oil and gas transactions). In this, insurance terms offered by the Dutch insurers are no different from respective arrangements of German and French insurers (the Hermes and the COFAS).
Circumspect Dutch government insurance arrangements for trade with and investment in Russia do not allow Dutch companies to compete with German, French and US manufacturers, who enjoy greater support from the government and national export loan insurance companies.
As we analyse the present state and prospects of bilateral contacts, we cannot but point out the Dutch leaders’ attention paid to technological assistance, which started in 1992. A total of 132 million guilders has been since allocated for the purpose, and 27 million was earmarked for 1998. The projects concern farming, power industries, transport and environmental protection.
As the Dutch see it, two basic problems demand urgent solution to make this assistance as effective as possible:
On a bilateral technical programme, the Federation of Netherlands Industry arranged a trip to its country for 26 Russian managers, who were to get firsthand information about Dutch production managerial techniques in a market economy. They arrived in the latter half of July 1998 to stay for ten weeks. The first training stage, of four weeks, was based on the University of De Twente, with lectures on marketing theory, and financial and personnel management. The postgraduates next went on to the country's leading companies.
According to the Minister of Education, the cabinet allocated 300,000 guilders, in 1998, for Russian postgraduate managerial training. The first three months' venture, starting April 1998, was based on the universities and business schools of Rotterdam, Eindhoven, Groningen and De Twente. The Netherlands also allocates an annual 4 million guilders to support Russian researchers. As the minister emphasised, the sums go directly to researchers--mainly fundamental, bypassing their institutes.
The Netherlands-based engineering company DHV is to join hands with interested Russian organisations for a project to develop the Russian cargo transport market on Russia-EU technical cooperation programmes.
Uneasiness swept the Netherlands in 1998 as Russian authorities demanded compulsory guard for carriers of furniture, televisions and related commodities, cocoa and transport vehicles following across Russia. As Dutch transport companies saw it, the arrangement was badly complicating frontier crossing, and the commodities were to reach their customers much later.
The Dutch came into a still greater consternation as Polish authorities determined to complicate customs paper drawing for Poland-bound and transit lorries with food cargos--meat, fish and dairy products. According to rules which entered into force May 16, 1998, it may take up to four weeks to secure necessary papers--a procrastination which questions compliance with trade contracts. It gives rise to bad problems, considering a monthly 2,000 Dutch foodstuff-loaded lorries following to Poland or, via it, to Ukraine and Russia.