Background Note: The Netherlands

PROFILE

OFFICIAL NAME:
Kingdom of the Netherlands

Geography
Area: 41,526 sq. km. (16,485 sq. mi.).
Cities: Capital--Amsterdam (pop. 739,104). Other cities--The Hague, seat of government (469,059); Rotterdam (598,923); Utrecht (270,244).
Terrain: Coastal lowland.
Climate: Northern maritime.

People
Population: 16.3 million.
Nationality: Noun--Dutchmen and Dutchwomen. Adjective--Dutch.
Ethnic groups: Predominantly Dutch; largest minority communities are Moroccans, Turks, Surinamese.
Religions: Roman Catholic, Protestant, Muslim, other.
Language: Dutch.
Education: Years compulsory--10. Attendance--nearly 100%. Literacy--99%.
Health: Infant mortality rate--5.0/1,000. Life expectancy--78 yrs.
Work force (2003: 7.4 million): commercial services—46.3%; non-commercial services—32.4%; industry—19.6%; agriculture—1.7%.

Government
Type: Parliamentary democracy under a constitutional monarch.
Constitution: 1814 and 1848.
Branches: Executive--monarch (chief of state), prime minister (head of government), cabinet. Legislative--bicameral parliament (First and Second Chambers). Judicial--Supreme Court.
Subdivisions: 12 provinces.
Political parties: Christian Democratic Appeal (CDA), Labor Party (PvdA), Liberal Party (VVD), other minor parties.
Suffrage: Universal at 18.

Economy
GDP (2004 est.): $591 billion.
GDP real growth rate (2004 est.): 1.3%.
GDP per capita (2004 est.): $36,236.
Natural resources: Natural gas, petroleum, fertile soil.
Agriculture (2.4% of GDP): Products--dairy, poultry, meat, flower bulbs, cut flowers, vegetables and fruits, sugar beets, potatoes, wheat, barley.
Industry (25% of GDP): Types--agro-industries, steel and aluminum, metal and engineering products, electric machinery and equipment, bulk chemicals, natural gas, petroleum products, transport equipment, microelectronics.
Services (73% of GDP): Types--trade, hotels, restaurants, transport, storage and communication, financial (banking and insurance) and business services, care and other.
Trade (2004): Exports--$313 billion (f.o.b.): mineral fuels, chemicals, machinery and transport equipment, processed food and tobacco, agricultural products. Imports--$274 billion (f.o.b.): mineral fuels and crude petroleum, machinery, transportation equipment, consumer goods, foodstuffs. Major trading partners in 2003 (exports/imports)--EU (76%/57%), Germany (24%/20%), Belgium (12%/11%), U.K. (10%/7%), U.S. (4%/8%).

HISTORY
The Dutch are primarily of Germanic stock with some Gallo-Celtic mixture. Their small homeland frequently has been threatened with destruction by the North Sea and has often been invaded by the great European powers.

Julius Caesar found the region which is now the Netherlands inhabited by Germanic tribes in the first century B.C. The western portion was inhabited by the Batavians and became part of a Roman province; the eastern portion was inhabited by the Frisians. Between the fourth and eighth centuries A.D., most of both portions were conquered by the Franks. The area later passed into the hands of the House of Burgundy and the Austrian Habsburgs. Falling under harsh Spanish rule in the 16th century, the Dutch revolted in 1558 under the leadership of Willem of Orange. By virtue of the Union of Utrecht in 1579, the seven northern Dutch provinces became the Republic of the United Netherlands.

During the 17th century, considered its "golden era," the Netherlands became a great sea and colonial power. Among other achievements, this period saw the emergence of some of painting's "Old Masters," including Rembrandt and Hals, whose works--along with those of later artists such as Mondriaan and Van Gogh--are today on display in museums throughout the Netherlands and the world.

The country's importance declined, however, with the gradual loss of Dutch technological superiority and after wars with Spain, France, and England in the 17th and 18th century. The Dutch United Provinces supported the Americans in the Revolutionary War. In 1795, French troops ousted Willem V of Orange, the Stadhouder under the Dutch Republic and head of the House of Orange.

Following Napoleon's defeat in 1815, the Netherlands and Belgium became the "Kingdom of the United Netherlands" under King Willem I, son of Willem V of Orange. The Belgians withdrew from the union in 1830 to form their own kingdom. King Willem II was largely responsible for the liberalizing revision of the constitution in 1848.

The Netherlands prospered during the long reign of Willem III (1849-90). At the time of his death, his daughter Wilhelmina was 10 years old. Her mother, Queen Emma, reigned as regent until 1898, when Wilhelmina reached the age of 18 and became the monarch.

The Netherlands proclaimed neutrality at the start of both world wars. Although it escaped occupation in World War I, German troops overran the country in May 1940. Queen Wilhelmina fled to London and established a government-in-exile. Shortly after the Netherlands was liberated in May 1945, the Queen returned. Crown Princess Juliana acceded to the throne in 1948 upon her mother's abdication. In April 1980, Queen Juliana abdicated in favor of her daughter, now Queen Beatrix. Crown Prince Willem Alexander was born in 1967.

Elements of the Netherlands' once far-flung empire were granted either full independence or nearly complete autonomy after World War II. Indonesia formally gained its independence in 1949, and Suriname became independent in 1975. The five islands of the Netherlands Antilles (Curacao, Bonaire, Saba, St. Eustatius, and a part of St. Maarten) and Aruba are integral parts of the Netherlands realm but enjoy a large degree of autonomy.

GOVERNMENT AND POLITICAL CONDITIONS
The present constitution--which dates from 1848 and has been amended several times, most recently in 1983--protects individual and political freedoms, including freedom of religion. Although church and state are separate, a few historical ties remain; the royal family belongs to the Dutch Reformed Church (Protestant). Freedom of speech also is protected.

Government Structure
The country's government is based on the principles of ministerial responsibility and parliamentary government. The national government comprises three main institutions: the Monarch, the Council of Ministers, and the States General. There also are local governments.

The Monarch. The monarch is the titular head of state. The Queen's function is largely ceremonial, but she does have some influence deriving from the traditional veneration of the House of Orange, from which Dutch monarchs for more than three centuries have descended. Her influence also derives from her personal qualities as Queen and her power to appoint the "formateur," who forms the Council of Ministers following elections.

The Council of Ministers plans and implements government policy. The Monarch and the Council of Ministers together are called the Crown. Most ministers also head government ministries, although ministers-without-portfolio exist. The ministers, collectively and individually, are responsible to the States General (parliament). Unlike the British system, Dutch ministers cannot simultaneously be members of parliament.

The Council of State is a constitutionally established advisory body to the government that consists of members of the royal family and Crown-appointed members generally having political, commercial, diplomatic, or military experience. The Council of State must be consulted by the cabinet on proposed legislation before a law is submitted to the parliament. The Council of State also serves as a channel of appeal for citizens against executive branch decisions.

States General (parliament). The Dutch parliament consists of two houses, the First Chamber and the Second Chamber. Historically, Dutch governments have been based on the support of a majority in both houses of parliament. The Second Chamber is by far the more important of the two houses. It alone has the right to initiate legislation and amend bills submitted by the Council of Ministers. It shares with the First Chamber the right to question ministers and state secretaries.

The Second Chamber consists of 150 members, elected directly for a 4-year term--unless the government falls prematurely--on the basis of a nationwide system of proportional representation. This system means that members represent the whole country--rather than individual districts as in the United States--and are normally elected on a party slate, not on a personal basis. There is no threshold for small-party representation. Campaigns are relatively short, lasting usually about a month, and the election budgets of each party tend to be less than $1 million. The electoral system makes a coalition government almost inevitable. The last election of the Second Chamber was in January 2003.

The First Chamber is composed of 75 members elected for 4-year terms by the 12 provincial legislatures. It cannot initiate or amend legislation, but its approval of bills passed by the Second Chamber is required before bills become law. The First Chamber generally meets only once a week, and its members usually have other full-time jobs. The current First Chamber was elected following provincial elections in May 2003.

Courts. The judiciary comprises 62 cantonal courts, 19 district courts, five courts of appeal, and a Supreme Court that has 24 justices. All judicial appointments are made by the Crown. Judges nominally are appointed for life but actually are retired at age 70.

Local government. The first-level administrative divisions are the 12 provinces, each governed by a locally elected provincial council and a provincial executive appointed by members of the provincial council. The province is formally headed by a queen's commissioner appointed by the Crown.

Current Government. The current government, formed in May 2003, is a coalition of the center-right Christian Democratic (CDA), conservative Liberal (VVD) and left-of-center Liberal Democrats 66 (D66) parties headed by CDA Prime Minister Jan Peter Balkenende. The coalition parties hold 78 of the 150 seats in the Second Chamber of Parliament. The opposition includes the Labor (PvdA) party with 42 seats and 5 other parties, each with less than 10 seats. Given the consensus-based nature of the Dutch Government, elections do not usually result in any drastic change in foreign or domestic policy. Descriptions of the four main parties follow.

The Christian Democratic Appeal was formed from the merger of the Catholic People's Party and two Protestant parties, the Anti-Revolutionary Party and the Christian-Historical Union. The merger process, begun in the early 1970s to try to stem the tide of losses suffered by religiously based parties, was completed in 1980. The CDA supports free enterprise and holds to the principle that government activity should supplement but not supplant communal action by citizens. On the political spectrum, the CDA sees its philosophy as standing between the "individualism" of the Liberals and the "statism" of the Labor Party. CDA has 44 seats in the current Second Chamber, more than any other party.

The Labor Party (PvdA), a classic European Social Democratic party, is left of center. It currently has 42 seats in the Second Chamber. Labor's program is based on greater social, political, and economic equality for all citizens, although in recent years the party has begun to debate the role of central government in that process. Although called the Labor Party, it has no formal links to the trade unions.

The Liberal Party is "liberal" in the European, rather than American, sense of the word. It thus attaches great importance to private enterprise and the freedom of the individual in political, social, and economic affairs. The VVD is generally seen as the most conservative of the major parties. It currently has 28 seats in the Second Chamber. The VVD has previously been the junior partner in two governing coalitions with the CDA from 1982-89.

The Liberal Democrats 66 (D66) party was founded in 1966 primarily for the purpose of promoting a drastic reform of the rigid, antiquated Dutch political system. Political reform still is its principal driving force. The party’s electoral fortunes have fluctuated widely. For a long time, its success was closely tied to the popularity of D66 founder, leader and former Foreign Minister Hans van Mierlo, who retired in 1998. Since then, the party steadily lost electoral support. In January 2003 elections, it only won six seats. Despite its relatively small size, D66 has invariably been a reliable, intellectually sound partner in successive coalition governments. D66 is a staunch advocate of a strong European Union, although it also subscribes to the importance of NATO and the transatlantic relationship in Dutch foreign policy.

Domestic Drug Policy
Despite intensified efforts by the Dutch Government to combat production of and trafficking in narcotic drugs, the Netherlands continues to be a significant transit point for drugs entering Europe (especially cocaine), an important producer and exporter of synthetic drugs, notably MDMA (Ecstasy), and an important consumer of most illicit drugs. U.S. law enforcement information indicates the Netherlands still is by far the most significant source country for Ecstasy in the U.S. The Dutch prosecutor’s office reported in 2004, however, that the number of Ecstasy tablets seized in the U.S. linked to the Netherlands dropped to 1 million in 2003 from 2.5 million in 2002. According to the interagency law enforcement Unit Synthetic Drugs (USD), 2003 synthetic drug seizures around the world related to the Netherlands involved almost 13 million MDMA tablets (2002: 24.6 million), and more than 871 kilos (2002: 910 kilos) of MDMA powder and paste. MDMA (powder and paste) seizures in the Netherlands in 2003 dropped to 435 kilos, about 50% less than in 2002, and the number of Ecstasy tablets seized dropped 20% to about 5.4 million. The Dutch government has made measurable progress in implementing the five-year strategy (2002-2006) against production, trade, and consumption of synthetic drugs.

The Dutch Opium Act punishes possession, commercial distribution, production, import, and export of all illicit drugs. Drug use, however, is not an offense. The act distinguishes between "hard" drugs that have "unacceptable" risks (e.g., heroin, cocaine, Ecstasy) and "soft" drugs (cannabis products). One of the main aims of this policy is to separate the markets for soft and hard drugs so that soft drug users are less likely to come into contact with hard drugs. The sale of a small quantity (under five grams) of soft drugs in "coffeeshops" is tolerated, albeit under strict conditions and controls. The United States continues to disagree with this aspect of Dutch drug policy. Overall, the Health Ministry coordinates drug policy, while the Ministry of Justice is responsible for law enforcement. Matters relating to local government and the police are the responsibility of the Ministry of Interior. At the municipal level, policy is coordinated in tripartite consultations among the mayor, the chief public prosecutor, and the police.

The Netherlands has a wide variety of demand-reduction and "harm"-reduction programs reaching about 80% of the country’s 26,000-30,000 opiate addicts. The number of opiate addicts has stabilized over the past few years, with the average age rising to 40, and the number of overdose deaths related to opiates stabilizing at between 30 and 50 per year.

Counterterrorism/Homeland Security
The Netherlands supports the global coalition against terrorism with leadership, personnel and material, including the deployment of troops to Iraq and Afghanistan. The Prime Minister stated the U.S. and his country stand "shoulder to shoulder" in the struggle for global security. The Netherlands is a party to all 12 UN counterterrorism conventions.

The Government made counterterrorism a priority issue for its EU presidency during the second half of 2004. In August 2004, the Act on Terrorist Crimes, implementing the 2002 EU framework decision on combating terrorism, became effective. The Act makes recruitment for the Jihad and conspiracy with the aim of committing a serious terrorist crime separate criminal offenses. In June 2004, the Dutch for the first time successfully convicted two individuals of terrorist activity allowing use of intelligence of the General Intelligence and Security Service (AIVD) as evidence. In 2004, the Government created a National Counterterrorism Coordinator’s Office to streamline and enhance Dutch counterterrorism efforts. The Dutch have taken a leading role, particularly in the European Union, to establish financial protocols to combat terrorism. They have also donated to the IMF to provide assistance to countries that lack the wherewithal to implement some of these measures immediately. They have taken steps to freeze the assets of individuals and groups included on the UNSCR 1267 Sanctions Committee’s consolidated list.

The Netherlands is an active participant in the Container Security Initiative at Rotterdam, one of Europe’s busiest ports. The Dutch have also installed radiological portal monitors at Rotterdam, in partnership with the Department of Energy’s Megaport/Second Line of Defense initiative. The government also permitted U.S. CBP Immigration Liaison Officers to return to Schiphol Airport to assist with US-bound passenger screening (the program is now known as the Immigration Assistance Program). In January 2005, the U.S and Netherlands agreed to develop an International Registered Travelers program to facilitate travel between Schiphol Airport and JFK.

Principal Government Officials
Head of State--Queen Beatrix
Prime Minister--Jan Peter Balkenende
Deputy Prime Minister and Minister of Finance--Gerrit Zalm
Deputy Prime Minister and Minister of Economic Affairs--Laurens Jan Brinkhorst
Foreign Minister--Ben Bot
Defense Minister--Henk Kamp
Ambassador to the United States--Boudewijn Johannes van Eenennaam
Ambassador to the United Nations--Dirk Jan van den Berg

The Netherlands' embassy in the U.S. is at 4200 Linnean Avenue, NW, Washington, DC 20008; tel: 202-244-5300; fax: 202-362-3430.

ECONOMY
After a strong performance in the 1990s, which brought unemployment to below 3%, the Dutch economy has struggled in recent years, plagued by relatively high costs and weak domestic demand. Real GDP, which contracted by 0.9% in 2003, recovered moderately to an estimated 1.3% in 2004, largely due to a turnaround in both domestic demand and net exports. The economy is expected to grow by 1.5% in 2005 and 2% in 2006. After stagnant growth in 2003, exports rebounded in 2004, up 7.2%, and are expected to continue to grow strongly in 2005. This acceleration was not quite matched by growth in imports, which grew by 6.7% in 2004 and resulted in a further widening of the country's substantial trade surplus. The close correlation between export and import growth rates reflects the importance of re-export goods -- goods produced elsewhere that are redistributed via the Netherlands, mainly to other EU countries, with little or no further processing.

Private consumption rose by 0.5% in 2004, after falling by 0.9% in 2003, but remained sluggish, partly because of a persistently high unemployment rate of 6.4%. Private consumption is forecasted to pick up slightly in 2005-06. Government consumption increased by only 0.2% in 2004, well below increases in previous years. Although private and government consumption remained weak, investment staged a modest recovery with fixed capital formation 1.6% higher in 2004 than in 2003, a positive trend following drops of 3.6 and 3.1% in 2002 and 2003, respectively.

Many firms in the Netherlands cite a loss of competitiveness as a major impediment to growth. Increases in unit labor costs in recent years have outpaced those of their major competitors, including within the euro area. However, low wage rises in 2004 enabled firms to regain some lost ground, and further gains are expected following the recent agreement to restrain wage growth in 2005. Inflation dropped to 2.2% in 2003 and fell further to 1.4% in 2004, despite higher oil prices. Inflation is expected to stabilize at 1.5% in 2005 but could rise again slightly in 2006 as stronger domestic demand begins to put upward pressure on prices.

The Netherlands was one of the first EU member states to qualify for the Economic and Monetary Union (EMU). Its fiscal policy has sought to strike a balance between further reductions in public spending and lower taxes and social security contributions. However, an unexpected sharp economic downturn tipped the fiscal balance and pushed the nominal deficit from 1.6% of GDP in 2002 to 3.3% in 2003, breaching the 3% GDP limit set by the EMU's Growth and Stability Pact. In April 2004, the center-right coalition government agreed to a package of spending cuts, largely to health services, which helped to lower the budget deficit to 2.9% of GDP, just within the 3% limit. The government's 2005 budget, announced in September 2004, includes additional austerity measures and suggests that the deficit will decline further to 2.6% of GDP. However, concessions made to unions on unemployment benefits in order to reach agreement on measures to discourage early retirement and to keep wage rises down could widen the deficit unless the government introduces further cuts in 2006.

Government Role
Although the private sector is the cornerstone of the economy, the Netherlands has an important and vibrant public sector. The government plays a significant role through permit requirements and regulations pertaining to almost every aspect of economic activity. The government combines a rigorous and stable microeconomic policy with wide-ranging structural and regulatory reforms. The government has gradually reduced its role in the economy since the 1980s, and privatization and deregulation continue unabated.

Trade and Investment
The Netherlands, which derives more than two-thirds of GDP from merchandise and services trade, continued to have a strongly positive balance of goods and services trade for 2004 of $38.7 billion--close to 6.5% of GDP, the main contributor to a current account surplus of close to 2.3% of GDP. Since there are no significant trade or investment barriers, the Netherlands remains a receptive market for U.S. exports and an important investment partner. The Netherlands is the eighth-largest U.S. export market, as well as the fourth-largest direct investor in the United States. Dutch accumulated direct investment in the United States in 2003 was $146 billion. The United States is the largest investor in the Netherlands with direct investment of $179 billion. There are more than 1,600 U.S. companies with subsidiaries or offices in the Netherlands. The Dutch are strong proponents of free trade and the staunchest allies of the U.S. in international fora such as the World Trade Organization (WTO) and the OECD.

Sectors of the Economy
Services account for over 70% of the national income and are primarily in transportation, distribution, logistics, and financial areas, such as banking and insurance. Industrial activity generates about a fourth of the national product and is dominated by the metalworking, oil refining, chemical, and food processing industries. The agriculture and fisheries sector and traditional Dutch activities account for some 3% of GDP.

Although Dutch crude oil production is small, the Netherlands ranks among the largest producers and distributors of natural gas. The Slochteren gasfields in Groningen Province in the north are among the world's largest-producing natural gas fields. Total proven reserves of natural gas situated on the mainland currently amount to about 2 trillion cubic meters. Roughly 80% is accounted for by reserves on the mainland, the remaining 20% accounted for by relatively small deposits on the North Sea continental shelf. Current gas production is running at an annual average of close to 80 billion cubic meters, roughly half of which is exported to EU member countries.

Environmental Policy
The Netherlands is a small and densely populated country. Its economy depends on industry, particularly chemicals and metal processing, intensive agriculture and horticulture, and on its infrastructure, which takes advantage of the country's geographical position at the heart of Europe's transportation network. These factors have led to major pressure on the environment.

The National Environmental Policy Plan (NMP) sets out Dutch environmental policy. The first version was published in 1989, followed by second and third versions in 1993 and 1998, respectively. NMP-4, laying out government environmental policy over the next few years, was published in 2001. Under the NMP, the government seeks to cut back on all forms of pollution by 80%-90% within one generation, meaning that by 2010, the present generation should be able to pass on a clean environment to the next one.

Although the environmental quality in the Netherlands has improved significantly, some important targets, particularly with respect to nitrogen oxide and ammonia emissions, climate change, and noise reduction, will not be realized within the timeframe set in the NMPs. The main reasons for this are increasing mobility, energy use, and intensive agriculture. The NMP-4, therefore, proposes drastic measures in order to be able to meet the targets.

The Dutch Government works closely with industry and nongovernmental organizations on implementation of environmental policy. To be able to reach environmental targets, the government has signed agreements with the private sector and other relevant organizations. In order to meet the Kyoto target of reducing greenhouse gas emissions by 6% in the 2008-2012 period from 1990 levels, the government reached an agreement with industry and the energy sector on emission rights trading. The sectors have been allocated 112 million tons of CO2 for the 2005-2007 period. The European emissions trading system is to start operating in 2005.

FOREIGN RELATIONS
The Netherlands abandoned a long-standing policy of neutrality after World War II. The Dutch are engaged participants in international affairs. Dutch foreign policy is geared to promoting a wide variety of goals: the rule of law, human rights, and democracy. Priority is given to enhancing European integration, ensuring European security and stability (mainly through the mechanism of NATO and by emphasizing the important role the United States plays in the security of Europe), and participating in conflict management and peacekeeping missions.

The Netherlands generally pursues its foreign policy interests within the framework of multilateral organizations. The Netherlands is an active and responsible participant in the United Nations as well as other multilateral organizations such as NATO, the EU, the Organization for Security and Cooperation in Europe (OSCE), the Council of Europe (CoE), the OECD, the WTO, and the International Monetary Fund. A centuries-old tradition of legal scholarship has made the Netherlands the home of the International Court of Justice; the Yugoslavia and Rwanda War Crimes Tribunals; the European judicial and police organizations Eurojust and Europol; the Organization for the Prohibition of Chemical Weapons; and International Criminal Court. Dutch security policy is based primarily on membership in NATO, which the Netherlands joined as a charter member in 1949.

The Dutch are strong advocates of European integration, and most aspects of their foreign, economic, and trade policies are coordinated through the European Union. The Netherlands’ post-war Customs Union with Belgium and Luxembourg (the Benelux group) paved the way for the formation of the European Community (precursor to the EU). Likewise, the Benelux abolition of internal border controls was a model for the wider Schengen accord, which today has 15 European signatories, including the Netherlands, pledged to common visa policies and free movement of people and goods across common borders.

The Dutch were key proponents of the 1992 Maastricht Treaty and were the architects of the 1998 Treaty of Amsterdam. They have embraced the introduction of new member states and the common currency (euro). The Netherlands last held the revolving presidency of the EU in the second half of 2004.