How will Brexit affect the Netherlands?
Following ratification of the withdrawal agreement by the European Union and the United Kingdom, Brexit took place on 31 January 2020, Since then the UK has no longer been part of the EU. Negotiations then began on the future relationship between the EU and the UK, culminating in a Trade and Cooperation Agreement on 24 December 2020.
As the Netherlands has longstanding and close bonds with the UK, Brexit affects the Netherlands in many ways. These bonds are not just financial and economic, but also political, as the Netherlands and the UK often shared the same views on policies and funding. Brexit is set to affect the following areas in any event:
- trade and industry,
- customs and excise,
- education and research,
- Public finances.
Long-term and short-term costs
Our audit of the Dutch government’s preparations for Brexit that we published on 10 December 2018 lists the various costs of Brexit for the Netherlands (data for mid-2018):
Among other things, we found that the short-term (i.e. in 2019-2020) direct costs to the Netherlands of a ‘no-deal’ Brexit would be € 1.6 billion. At the time our report was published, the date set for the UK’s departure from the EU was 29 March 2019. The actual Brexit date was 31 January 2020. A trade agreement was concluded on 24 December 2020, thus averting a no-deal Brexit.
Owing to Brexit the Netherlands will have to make a higher contribution to the EU budget – even if it remains unchanged. This is because after, after the UK’s exit, 27 rather than 28 member states will be responsible for the EU budget, to which the UK in the past had been a net contributor.
The Netherlands’ contribution to the EU will be affected not only by Brexit but also by the EU’s Multiannual Financial Framework (MFF) for 2021-2027. The financial consequences of the new agreement are disclosed in the Ministry of Foreign Affairs’ budget for 2021. Under the agreement reached by the European Council on 21 July 2020, the Netherlands’ total contribution to the EU will increase from nearly € 9 billion in 2021 to nearly € 10 billion in 2027.
There had been a risk that the Netherlands would lose some or all of its current rebate on its EU contribution following the UK’s departure. A rebate reduction had been suggested in one of the European Commission’s proposals for the MFF 2021-2027. In the agreement reached by the European Council, however, the Netherlands will receive a higher annual rebate of € 1.92 billion (in 2020 prices) in the forthcoming MFF period. Furthermore, the refund the Netherlands receives to cover the cost of collecting import duties will be raised from 20% to 25%.
Impact on Customs
In our 2018 audit report, we wrote that Dutch Customs would not be able to prepare itself fully for a ‘no-deal’ Brexit on 29 March 2019. The Customs authority claimed to need additional staffing of 928 FTEs in order to handle a no-deal Brexit, and said that it expected to have recruited 300 extra FTEs by the time that our audit was completed in mid-2018. In September 2019, we found that Customs expected to have recruited 596 FTEs by 1 October 2019, and that it was well on course in terms of the intake and deployability of Brexit staff.
Impact on the Dutch economy
The CPB Netherlands Bureau for Economic Policy Analysis examined the possible impact on Dutch economy. The CPB calculated that the decline in trade with the UK would cost the Dutch economy around 1.2% of its gross domestic product in 2030, i.e. approximately € 10 billion.
The Brexit process
In the referendum held on 23 June 2016, 51.9% of British voters voted in favour of the UK’s departure from the EU. The European Commission (representing the EU) and the UK began Brexit negotiations on 19 June 2017. They reached agreement on 17 October 2019 on the terms of the UK’s exit, including on the rights of EU citizens in the UK, on the border between Irish Republic and Northern Ireland, and on the final financial settlement between the UK and the EU. The date eventually agreed for Brexit was 31 January 2020. This was also the date on which a transition period started, during which the UK and the EU negotiated the nature of their future relationship. These talks were completed on 24 December 2020.
Trade and Cooperation Agreement
The EU and the UK concluded a Trade and Cooperation Agreement on 24 December 2020. The EU member states agreed to the agreement on 29 December 2020 and the UK parliament on 31 December 2020. The European Parliament must still ratify the agreement.
The agreement took effect and the new rules came into force on 1 January 2021. At present it is not known precisely how it will affect the Netherlands but it is already clear that a lot will change in many areas. There will be more checks and administrative bureaucracy at the borders with the UK, for instance at the ports of Rotterdam, Hook of Holland and IJmuiden. Dutch fishermen can catch about 25% less fish in British waters in the next 5 years, after which new talks will be held on fisheries. And Dutch students can no longer study in the UK under the EU Erasmus exchange programme. The agreement’s precise impact on the Dutch economy will become clearer in the coming period.
- More about the negotiation process
Brexit Adjustment Reserve
During its meeting of 17-21 July 2020, the European Council asked for a proposal to establish a Brexit Adjustment Reserve to compensate the member states and sectors hit hardest by Brexit. The European Commission published a proposal for the Brexit Adjustment Reserve on 25 December 2020 that will be negotiated in 2021. Under the proposal, the Netherlands can claim about € 750 million from the Brexit Adjustment Reserve.