News Analysis: Dutch experts concerned over negative impact of Brexit

General

By Maria Vasileiou

THE HAGUE, Jan. 19 (Xinhua) — A “hard Brexit” entails increased challenges and negative economic effects for the European Union (EU) and the Netherlands, but looking further ahead much depends on the final outcome of the negotiations, said Dutch experts.

In a decisive speech on Tuesday that sets a course for a clean break with the EU, British Prime Minister Theresa May promised to quit the European single market and seek a free trade agreement with the EU.

She also pledged to restrict access to Britain by EU citizens and end the jurisdiction in Britain of the European Court of Justice.

The 12-point blueprint was dubbed a “hard Brexit”.

“This is bad news for the Netherlands for which Britain is an important trading partner, but also an unequivocal parting of ways between the UK and the remaining EU 27 member states,” said Joris Larik, senior researcher at The Hague Institute for Global Justice.

“The EU loses one of its largest economies and will clearly fall behind the U.S. as the world’s largest economic power, but will still remain ahead of China for the time being,” he added.

Barbara Baarsma, Director of Knowledge Development at Rabobank, cautioned that it’s not likely that the EU will give Britain comprehensive access to the single market, since Britain refuses to accept the free movement of persons and the jurisdiction of the European Court of Justice.

“The final trade deal will depend on what the EU is able to offer,” said Baarsma, who is also professor of Market Forces and Competition Issues at the University of Amsterdam.

“A trade deal would be positive for Dutch and other European companies that trade with Britain,” she said.

According to Larik, once Britain is outside the single market, it will have to painstakingly negotiate its way towards maximum market access.

“Access for every good or service into the EU will be a bargaining chip for the EU 27 member states,” he said.

“A deal that meets all the wishes of the UK could cause a domino-effect with other counties seeking to leave the EU as well, which could cause more economic damage than the Brexit alone,” Baarsma said.

The prevention of a domino-effect, she said, is also in the best interest for the Netherlands, as the EU is by far the largest trade partner of the Netherlands.

Baarsma also warned that the economic damage resulting from an increase in trade barriers between the EU and Britain could be larger for the Netherlands compared with other EU countries, since Britain is an important trade partner of the Netherlands.

Around 8 percent of Dutch exports goes to Britain, and it contributes 2.3 percent to Dutch GDP.

For the tax issue, Larik noted that both May and British Chancellor of the Exchequer Philip Hammond have alluded to the possibility of turning Britain into a corporate tax haven if their demands in negotiations with the EU are not met.

“This is a highly questionable approach,” Larik said.

In his opinion, it would be difficult for the British government to reconcile a massive gift to multinational corporations with earlier promises such as “making Britain work for everyone” and helping those “left behind by globalization”.

In terms of negotiating tactics with the EU, “this is more bark than bite,” said Larik.

Corporate tax rates in Britain are already low and the EU has a response to this in place right next door, he argued, referring to Ireland.

Ireland is the EU’s very low-tax, English-speaking point of entry to the single market, which is ready to accommodate both large global businesses and British firms needing EU-based franchises post-Brexit.

But according to Adriaan Schout, senior research fellow at Clingendael, the Dutch institute for international relations, the British plan to lower taxes means “the EU will have a Singapore at its doorstep”, making it difficult for “the most harmonized block in the world” to compete.

The EU needs to accept more competition in banking, industry and taxation. “We have to open a discussion on how the bloc should reform,” he added.

A low-tax Britain that enforces fewer regulations in terms of workers’ rights on businesses is a red line for the Netherlands.

Dutch deputy prime minister Lodewijk Asscher has said that the Netherlands would block any EU trade deal with Britain unless it signs up to tough tax avoidance regulations, preventing it from becoming an attractive offshore haven for multinationals and the rich.

May’s plan also involved ending large payments to the EU budget, but simply paying towards specific programs, an outcome which would increase the burden to countries which are net contributors to the EU budgets, such as Germany and the Netherlands.

For the Netherlands, this would mean an additional 442 million euros (469 million U.S. dollars) per year, according to the country’s Central Bureau of Statistics calculated (CBS).

But Larik argued that May’s intention to have access to specific programs will depend on authorization by the EU, thus making relevant negotiations difficult.