The Dutch ‘No’ vote is disappointing but hardly consequential

Florian Keulers // 07.04.2016

The Dutch ‘No’ vote in an advisory referendum on the EU-Ukraine Association Agreement is the latest headache for the European Commission. The Netherlands is the only Member State which has not yet ratified the agreement, one that hopes to reduce trade barriers and augment Europe’s influence in Ukraine. For an organisation that has attracted criticism for its sluggish trade deal progress, the Dutch people’s rejection will be certain to cause concern.

Which commitments can be found in the agreement? The bulk of this agreement is concerned with trade; indeed, of the 323 pages which make up the document, 306 are concerned with trading matters. Primarily, the reduction of trade barriers will benefit all parties involved in the agreement. Augmenting the access to the 45 million strong Ukrainian consumer base will see European companies export more goods, boosting job growth and profits. In an economically stagnant Europe, this is sorely needed. With a further clause committing to regulatory harmonisation (Ukraine adopting certain European regulatory frameworks), European companies will not have to adapt their products for the Ukrainian market, and may have a comparative advantage over Ukrainian companies which will need to spend resources conforming with the new regulatory framework.

From the Ukrainian perspective, the reduction of trade barriers will also have positive effects. The EU is Ukraine’s largest export partner (34% of total exports), and the reduction of barriers to trade will likely see this number rise. The effect will be felt by European consumers, who will have greater choice and lower prices due to increased competition.

Despite this, we should not expect to see immediate results. The Ukrainian economy is still very small, with a nominal GDP per capita of $3082, much smaller than the EU-28 average of $27,400. In total figures, the GDP of Ukraine and her 45 million citizens is approximately equal to that of the Dutch province of North Holland, with only 2.7 million citizens.

Yet perhaps we should see this as an opportunity rather than a hurdle. Proponents of the deal liken Ukraine to Poland (with 38.5 million citizens), a country which has seen its GDP more than double since its accession into the European Union in 2004. Indeed, ABN Amro, one of the Netherlands’ largest banks, has highlighted that Ukraine’s relative lack of development presents significant opportunities for Dutch entrepreneurs, in particular in the agricultural sector. Ukraine is the world leader in sunflower oil production, and ranks in the top 10 when it comes to the production of wheat and corn.

It would be unwise, however, to ignore the negative side of this potential partnership. The agreement explicitly states that Ukraine will qualify for financial support through European mechanisms, with the aims of fighting corruption (Ukraine is currently ranked 130th out of 168 in corruption according to Transparency International) and the modernisation (read ‘westernisation’) of the state apparatus. The European Commission has estimated that transfers will add up to a minimum of €11 billion. In a period of austerity, and following billions of euros in transfers to Greece, it is not difficult to see why this argument might antagonise the electorate. Indeed, when we consider the large-scale corruption prevalent in the country, concerns are raised as to the efficacy of this spending. This is, however, a distortion of the matter. Financial support for the European Union will primarily come from, and be directed by, the mechanisms we already have in place; the European Bank of Reconstruction and Development (EBRD) and the European Investment Bank (EIB) have a successful track record when it comes to this type of support. There is no reason to expect this situation to be significantly different from the previous ones.

Nevertheless, the foreign policy implications of this agreement cannot be left out of a critical evaluation of the situation. Whilst the liberalisation of markets and societies is a worthy goal, we must consider the potential cost. This agreement has already sparked conflict with Russia, and escalation could further affect EU-Russia trade links. The European Commission estimated that the fall in exports to Russia from 2013 to 2014 amounted to 12.1%. Imports from Russia fell by 13.5% in the same time period. The cost of this fall in trade is estimated to have amounted to -0.5% of the EU’s GDP.

Many campaigners against the deal share Russia’s concern that this is the first step towards Ukraine’s accession to the European Union. They highlight the clause which emphasises a commitment towards greater political integration as evidence for this. Yet, this argument is weak at best. Unlike the EU’s association agreements with Turkey and various Balkan states (some of which have already joined the EU), there is no explicit claim that this agreement is a stepping stone towards Ukrainian EU membership. Indeed, a similar political integration clause to the Ukrainian one can also be found in the EU’s association agreement with Chile.

The false dichotomy presented by Putin (that Ukraine must choose either Russia or Europe) is also one that is very difficult to accept given the content of the agreement. Kees Verhoeven, a member of the Tweede Kamer for the D66 party highlighted that the agreement does not mean that “Ukraine can’t co-operate or trade with Russia”. Whilst it is true that this agreement will likely increase Ukraine’s economic activity with the EU (and vice-versa), Ukraine’s border with Russia and its reliance on Russian hard-energy sources mean that we are not likely to see a significant change in the Ukraine-Russia economic relationship.

It thus appears as if the EU-Ukraine Association Agreement presents us with significant opportunities for economic growth, at relatively minimal costs. So what does the ‘No’ vote mean for the future of the deal?

Firstly, we should recognise the significance of referendums in the Dutch political system. In contrast to referendums in other countries, Dutch referendums are merely advisory, and the government has no constitutional requirement to follow through with the result. Indeed, analysts predicted in advance that a ‘no’ vote will do little to prevent a deal. The deal will likely remain in effect for the other 27 Member States, and this is what is causing the biggest concern. Because of the nature of the union, access to one EU member automatically grants one access to the common European market. There simply is no opt-out. Indeed, because the power over trade affairs and agriculture is mostly held by the EU, this referendum’s effect will only be seen in the 17 non-trade related pages. On matters of European integration, security co-operation and reform, Member States have retained more sway. As such, if the government chooses to follow through with the ‘no’ vote, it is likely that the agreement will be divided; the trade section will pass whilst the political part will see slight adaptations. Indeed, as Aalt Heringa makes clear, the result will only be that the Netherlands will contribute less to the stabilisation of the Ukraine. This would be a missed opportunity. With this deal, we have the potential of working together with Ukraine to develop a society which is more stable, rule-based and less-corrupt with the consequence that it will become a more interesting trade-partner.

The outcome of this referendum makes one wonder about another referendum which will take place in less than three months time. The Dutch ‘no’ vote shows that it is difficult these days for any European government to win a pro-EU referendum as the mood of a substantial part of the population is angry, anti-establishment and Eurosceptic. Nigel Farage recently compared the Dutch referendum to the hors d’oeuvre, in anticipation of the main course in June. Whereas the consequences of the Dutch referendum can be dealt with, the implications of a British no against the government’s proposal will be far more serious and harder to swallow.

Thus, whilst it is disappointing that the Dutch electorate has been swayed by the isolationist and anti-globalisation rhetoric of the populists (the SP and Geert Wilders’ PVV are the only parties to have come out against the agreement), we should not be too concerned with the implications of the ‘no’ vote. The pro-business VVD, the major partner in the current VVD-PvdA coalition, will likely choose to maintain the trade agreement but renegotiate certain political elements of the deal.

Florian Keulers is a Research Assistant at EPICENTER.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).


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