All of dollar figures have been converted to the exchange rate of $11.86 guilders for 1993. Sources: Central Bureau of Statistics (CBS), Netherlands Central Bank (NB), Central Planning Bureau (СРВ)

1. General Policy Framework

The Netherlands is a prosperous and open economy, and depends heavily on foreign trade. It is noted for: stable industrial relations fostered through consultations among employers, unions, and government; a large current account surplus from trade and overseas investments; natural gas exports making Holland a net exporter of a popular fuel; a geographic location as a European transportation hub with the world's largest port (Rotterdam), one of its top airports (Amsterdam-Schipol), and an excellent road and rail system, making it a prime production and distribution center for foreign firms seeking access to Europe.

Dutch trade and investment policy is among the most open in the world. The government has reduced its role in the economy since the 1980s, and privatization continues with little debate or opposition. Nevertheless, the state dominates the energy sector and plays a large role in transport, chemicals, aviation, telecommunications, and steel.

Elections in May 1994 produced a new, three-party, left-right coalition government. The government inherits an economy that moved out of shallow recession in 1993 (GDP grew 0.4 percent) and that has begun sustained, export-led growth. Growth is expected to be at least 2 percent in 1994, and near 2.8 percent in 1995. The consensus forecast is for annual average growth of 2.2 percent over the next four years (although the Finance Minister has warned of a possible downturn in the international business cycle after 1996). Inflation is low and falling; 1994 CPI inflation is expected to be 2.8 percent, slowing to 2.7 percent in 1995. Nonetheless, the government must grapple with a number of structural economic problems if the Dutch economy is to fully live up to its potential.

A key government goal is to stimulate the creation of 350,000 new jobs over the next four years. A cut in the "collective burden” of taxes and social security contributions is seen as key to boosting employment and improving competitiveness, but Dutch industry is not convinced the government is doing enough on this score. The government also plans to continue (and perhaps speed up) the process of deregulation and antitrust reform begun under the previous government.

With much "fat" in spending already pared away, budget cuts are getting into areas which were regarded as untouchable: development aid, social security, de

fense, education. The 1995 budget cut spending by 4.6 billion guilders ($2.5 billion). Total planned cuts are 18.2 billion guilders ($10 billion) by the end of 1998. A combination of budget austerity and economic growth will reduce the budget deficit from the current 3.75 percent of GDP to 3.3 percent of GDP in 1995. Public debt will rise from 79.4 percent of GDP at the end of 1994 to 79.9 percent in 1995.

The deficit is largely funded by government bonds. Since January 1, 1994, financing has also been covered by issuing Dutch Treasury Certificates (DTC). DTCs replace a standing credit facility for short-term deficit financing with the central bank which, under the Maastricht Treaty, was abolished in 1994.

2. Exchange Rate Policies

Since the European Monetary System (EMS) was introduced in 1979, the Netherlands Central Bank (NB) has maintained a stable exchange rate between the guilder and the German mark using interest rate policy. The guilder is one of the strongest currencies in Europe. When the EMS fluctuation bands widened to 15 percentage points in August 1993, the Dutch and Germans agreed to keep the guilder in the original 2.25 point fluctuation band. Because Germany is the Netherlands' main trading partner, the link with the mark is expected to stay intact. A strong guilder should encourage Dutch imports from the United States and reduce exchange rate risks to U.S. investors in the Netherlands. There are no multiple exchange rate mechanisms.

The NB exerts control over money market rates by adjusting short-term rates and by varying the terms of banks' access to NB financing. The NB's open market policy gives the bank a tool to signal the market the way it wants it to develop. For this purpose the NB uses a three billion guilder portfolio of Treasury issues from which it buys or sells.

There are no exchange controls, although Netherlands residents must obtain an exchange license for certain large international financial transactions.

3. Structural Policies

Limited, targeted investment incentives have been a well-publicized tool of Dutch economic policy to facilitate economic restructuring, and to promote energy conservation, regional development, environmental protection, research and development, and other national goals. Subsidies and incentives are available to foreign and domestic firms alike and are spelled out in detailed regulations. Subsidies geared to the previous objectives 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 strictly investment incentive currently available, aims to encourage investment in areas with high unemployment with subsidies for new investments (industrial buildings and fixed assets). The IPR applies to investments of which at least 25 percent is 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. Local subsidies are also available from regional development companies.

To combat relatively low spending on research and development by Dutch firms, the government set up "Senter," an independent agency to encourage and financially assist firms in innovative research and development projects in targeted fields. Senter's programs are open to firms without regard to nationality of ownership that have Dutch-based research and development operations. There are few restrictions on size and other elements of participating firms, and selection for funding is competitive.

Senter emphasizes technology transfer, and many programs are geared to linking firms from diverse sectors. Senter has a 700 million guilder (over $376 million) annual budget. A similar agency, "Novem," has a 300 million guilder ($161 million) budget for energy and environment-related programs.

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 can clarify, often favorably, tax situations that may be open to interpretation.

In November 1993 the previous government set up a 900 million guilder (about $484 million) industrial fund to finance restructuring projects by medium and large Dutch enterprises. The money came from the government, commercial banks, insurance companies, pension funds, and the National Investment Bank. Financing for new projects is available up to a ceiling of 50 million guilders per project. The fund was intended to improve the structure and competitiveness of the economy, but has so far been used by just one company.

4. Debt Management Policies

With a current account surplus of three percent of GDP in 1993 and no external debt (all public debt is denominated in guilders), the Netherlands is a major creditor nation. Nonetheless, since the early eighties, the gross public debt of the public sector (EMU criterion) has grown sharply, to 79.4 percent of GDP in 1994. If current policies are followed, most observers predict little decrease in the debt as a percentage of GDP in the next four years. Debt servicing and rollover have risen to nearly ten percent of GDP. All of the government's financing needs (budget deficit and debt servicing) are covered on the Dutch domestic capital market. There are no difficulties in tapping the domestic capital market for loans. Government bond issues are usually over-subscribed, and public financing requirements have recently been met long before the end of each fiscal year. Since the late eighties, the Dutch have significantly improved their fiscal balance. The Netherlands is a participant in and strong supporter of the IMF, IBRD, and other international financial institutions. 5. Significant Barriers to U.S. Exports

The Dutch economy is an open one. Dutch merchandise and services exports represent more than 50 percent of GDP, making 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 being a country with which the United States has one of its largest bilateral trade surpluses: $7.4 billion in 1993. Total U.S. exports to the Netherlands in 1993 were down seven percent over 1992. However, a nine percent increase is forecast for 1994. In 1993, imports from the U.S. accounted for nearly 11 percent of total Dutch imports. The Netherlands is among the top three direct investors in the United States, along with the United Kingdom and Japan; Dutch accumulated investment in the United States in 1993 grew to 68.5 billion dollars. The U.S. is the largest investor in the Netherlands: U.S. direct investment fell slightly, to about 19.9 billion dollars in 1993.

Most trade barriers that do exist result from common EU policies. The following are areas of potential concern for U.S. exporters to the Netherlands:

Agricultural Trade Barriers: Agricultural trade bariers are generally driven by the Comaon Agricultural Policy (CAP), and common external tariffs that serve to severely limit imports of U.S. agricultural products. Bilateral import barriers are confined to the restrictive acceptable limits of Aflatoxin in peanut imports. These limits are independent of EU directives and at times, serve to restrict U.S. peanut imports. Offsets for Defense Sector Contracts: The defense ministry requires all foreign contractors to provide at least 100 percent offset/compensation for defense procurements over five million Dutch guilders (about $2.7 million). The seller must arrange for the purchase of Dutch goods or permit the Netherlands to domestically produce components or sub-systems of the weapons systems it is buying.

Broadcasting and Media Legislation: Liberalizing amendments_to_the_ Dutch Media Act admitting local and foreign commercial broadcasters into the Dutch cable network took effect in 1992. Dutch compliance with the EU Broadcasting Directive and its 50-percent-EU-content-where-practicable requirement is not primarily a bilateral issue, but one between the United States and the EU. U.S. television programs are popular and readily available in the Netherlands.

Cartels: Although the export sector of the Dutch economy is open and free of competition restraints, cartels 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 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 to curtail cartels, the government in 1993 and 1994 introduced legislation to break up the cartel system. The new government is expected to proceed quickly with the anticartel bill. For the time being, cartels are a potential threat to foreign firms seeking to do business in the Netherlands. However, the U.S. Embassy knows of only two complaints by U.S. firms of having been disadvantaged by cartels in the Netherlands, and these did not involve exports. Public Procurement: Central government procurement is generally open and transparent and complies with the EU procurement directive and the GATT government procurement code. However, independent studies show that transparency and enforcement in this area can be deficient, especially at the local authority level, and with offset or local content requirements.

In this regard, the EU utilities directive may have a positive effect. It requires more public notification and ending the virtual monopoly of two Dutch companies in public utility construction for local authorities. However, the U.S. Embassy has received no complaints from U.S. firms since 1992. Because U.S. firms operate primarily in the export-oriented sector of the economy and at the central government

level of procurement, they appear to have experienced little discrimination in public procurement sector since 1992.

6. Export Subsidies Policies

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. These 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 (about $5.4 million) 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 a contract.

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. With the purchase of a majority interest in Fokker by Deutsche Aerospace (DASA), it is expected that the Dutch government (which had owned 31.8 percent of the company) will reduce support of Fokker.

There are some subsidies for shipping. Under strict conditions, Dutch shipowners 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 antipiracy 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. The enforcement of antipiracy 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 was enacted in early 1994 to explicitly include computer software as intellectual property under the copyright

statutes.

8. Worker Rights

a. The 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 also maintain relations with recognized international bodies and form domestic federations. The Dutch unions are active in promoting workers' rights internationally. 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. The 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 Dutch workers.

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 eight 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 legallymandated minimum wage is subject to semi-annual cost of living adjustments.

f. Rights in Sectors with U.S. Investments.—The worker rights described above hold equally for 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-1993