Master thesis (CH4050)

Love thy neighbour

-

The possibilities of an economically smaller country analysed

Name: J.P.C. de Klerk

Student number: 287548

Date: 23-08-2010

Telephone number: 06-43027016

Address: Charlotte de Bourbonlaan 27-C

3062 BG Rotterdam

Lecturer: Prof. Dr. H. Klemann

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Acknowledgements

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Preface

Even before I started studying history I was very interested in international relations. When I

started to look more into the dynamic world of international relations I found one school of

thought to be very interesting, namely those that explain the intense Dutch-German relations.

This is due to the fact that I am Dutch, and my country is strongly connected, some say

dependent, of our neighbouring country Germany. Germany is the largest trading partner of

the Netherlands, with more than 25% of our export going east. A major reason for the Dutch

economy relying on Germany is because the river Rhine used to be an important economic

artery for Germany.

It is obvious that the Dutch are dependent on trading with Germany. There are many

different aspects to research in this area, and I have been drawn to look at the reasons why the

Dutch and Germans cooperate so intensely and well. One theory that gives an interesting view

on this matter is that of the interdependence theory, and especially concerning interaction

between larger and smaller states. As Germany is so much bigger, it is interesting why it

approved of Dutch trading relations to become so deep.

When the opportunity arose to study in Calgary I saw an opportunity to take my

research a step further. As I started to look into the interaction between big and small states, I

noticed that only one combination of countries cooperated more intensely than the

Netherlands and Germany, which is that of the combination of the U.S. and Canada. This

thesis is the result from a year studying interdependence theories in both the Netherlands and

Canada, and will look at the political options of both countries.

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Table of contents

List of Tables.............................................................................................................................4

1. Introduction...........................................................................................................................5

2. A review of the literature regarding interdependence theories........................................9

2.1 The origins of interdependence theories...........................................................................92.2 Kant’s thoughts applied to interdependence theories.....................................................102.3 The meaning of dependence theories as put forward by Albert Hirschman...................132.4 The meaning of interdependence theories as put forward by Keohane and Nye............182.5 Criticisms on interdependence theories..........................................................................212.6 Interdependence theories applied to Dutch-German relations........................................242.7 Interdependence theories applied to Canadian-American relations................................262.8 Summary of interdependence theories............................................................................28

3. Tables of Dutch-German and Canadian-American imports and exports.....................30

4. Political choices and options of the Netherlands and Canada........................................40

4.1 Political choices and options of the Netherlands............................................................404.1.1 ‘De handelsbetrekkingen tussen Nederland en de Bondsrepubliek Nederland’......404.1.2 ‘Onder invloed van Duitsland’................................................................................434.1.3. Reactions on ‘Onder invloed van Duitsland’..........................................................45

4.2 Political choices and options of Canada.........................................................................464.2.1 How did the institutional cooperation between the U.S. and Canada develop after the Cold War?....................................................................................................................464.2.2 The history of NAFTA.............................................................................................47

5. Conclusions and suggestions for further research...........................................................50

5.1 The compatibility of the WRR-reports with interdependence theories..........................505.2 The compatibility of NAFTA with interdependence theories.........................................515.3 Differences and similarities of Dutch-German and Canadian-American relations........525.4 Did Canada and the Netherlands have any options to deal with their economically dominant neighbours during the 1980s?...............................................................................535.5 Suggestions for further research.....................................................................................54

6. Bibliography........................................................................................................................56

7. Attachments.........................................................................................................................59

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List of Tables

1. World market share of goods and services...........................................................................33

2. Trade-to-GDP-ratio...............................................................................................................34

3. Dutch and German import and export ratio’s compared......................................................35

4. Canadian and American import and export ratio’s compared..............................................36

5. German trade balance compared with Dutch-German trade balance...................................37

6. Dutch trade balance compared with the total Dutch-German trade balance........................38

7. American trade balance compared with Canadian-American trade balance........................39

8. Canadian trade balance compared with Canadian-American trade balance.........................40

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1. Introduction

‘Interdependence can be good or bad, or both, (…) it means divorce is not an option’

– Bill Clinton (1946-now, former President of the United States).

This quote by former President Bill Clinton defines the definition of interdependence in a

nutshell. The goal of this thesis is to look at relations between economically small and big

countries, and use the examples of Dutch-German relations and U.S.-Canadian relations to

analyze differences and similarities between them. A possible similarity for instance is that

both countries share the same culture, which could explain their strong relationships. In order

to achieve this goal, the following main question will be used: ‘In the case of the Netherlands

and Canada, can it be said that economically smaller countries have any options when dealing

with an economically bigger country?’

In order to answer this question, this thesis has restricted itself in two ways. Firstly, it

will discuss both relationships during the 1980s. The main reason for this is that both relations

go a long way back and it is therefore impossible to discuss their entire history. Furthermore,

the situation became more complicated after the 1980s as the Iron Curtain fell and Germany

was reunited (when Germany is mentioned in further chapters, this is Western Germany, as

Eastern Germany was not able to trade with the Netherlands). Also, as the United States and

Germany were more concentrated on Canada and the Netherlands as they are now because the

world trade was not as globalised as it is now. This makes the analysis for the policy options

for Canada and the Netherlands much more interesting.

Additionally, it should be noted that this thesis will look at the matter from the smaller

country’s perspective. The majority of the literature has been written by scholars from the

smaller country, which seems logical as they have more to lose in the relationship with their

economically larger neighbour. The last point to which this thesis has restricted itself is by

only looking at the economic side of the relationships. The cultural aspects of these

relationships are also very appealing for instance, but the economic relations have a larger

impact on daily lives. Also, the effects of the economic relations are clearer and can therefore

be better analysed.

The perspective of this essay will be from a sophisticated liberal standpoint, as out of

all the different variations of liberalism this one suits my topic best. As put forward by Susan

McMillan in her article ‘Power and Interdependence’, sophisticated liberalism is ‘(…)

essentially optimistic but that also recognizes a certain potential for conflict. This version of

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liberalism includes both international political institutions and rules as well as the open

exchange of goods and services. Peace and liberalism are linked through the mechanism of

institutions that facilitate economic exchange and that encourage broader international

cooperation. This version of liberalism, however, is tempered with cautions that, in spite of

the liberal reasons for expecting peace, there may also be liberal reasons for going to war.’1

This view on liberalism suits this essay’s research best because sophisticated

liberalism looks beyond the basics of liberalism. The recognition of the role that international

political institutions have and that war may be justified in some cases applies very strongly on

the Dutch-German relations. Examples that justify this point of view is the functioning of

organisations like the European Union and the North Atlantic Treaty Organisation (NATO).

All these examples play a significant part in Canadian-American and Dutch-German relations,

and therefore I will view the matter discussed in this paper from a sophisticated liberal

viewpoint.

This thesis will start with an analysis of how the thoughts of the founding father of

interdependence theories, Immanuel Kant, can be applied to modern day historical economic

analysis, and will therefore show the basics of analysing these theories. The paper will then

continue with the analysis of two books: Robert Keohane and Joseph Nye’s Power and

Interdependence and Albert Hirschman’s National Power and The Structure of Foreign Trade

(although Hirschman focused more on dependence instead of interdependence, it is still very

useful for the analysis of these relations). Both books are basically a modern day adaption of

the foundations that Kant laid out.

There have been many criticisms on these theories, which will be addressed in this

paper as well. However, this paper will not be able to cover all grounds and will therefore

look at the criticisms from the realistic point of view. Most of the criticisms come from this

school of thought as interdependence theories have a strong connection with the liberal school

of thought. To conclude the chapter on interdependence theories, it will apply these materials

to two case studies, namely to the Dutch-German relations in the nineteenth and twentieth

century, as discussed in In Voor- en Tegenspoed… (‘For Better or for Worse’) by Hein

Klemann and Cees Van Paridon, and to the Canadian-American relationship with a chapter

from Power and Interdependence.

The third chapter will provide a basic statistical analysis of both the Dutch-German

and Canadian-American relationships. It will give a strong argument that both relationships

1 Susan McMillan, ‘Interdependence and Conflict’, Mershon International Studies Review, Vol. 41, No. 1 (May 1997) 38.

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have some remarkable similarities, but also have some differences. The data for these tables

are from the Organisation for Economic Cooperation and Development (OECD), with which I

have performed various calculations. These will be explained in chapter three.

Chapter four is composed of two case studies in order to analyse what political options

both the Netherlands and Canada have. The first case will discuss two reports of the Dutch

‘Wetenschappelijke Raad voor het Regeringsbeleid’ (‘Scientific Council for Government

Policy). These reports performed an analysis from a Dutch point of view on the Dutch-

German relations and how vulnerable these are. These reports drew many reactions from the

Dutch press and a lengthy reaction from the Dutch cabinet. To show what options Canada had

during this period, the second case-study will look into the founding of the North American

Free Trade Agreement with the use of Canadian literature.

Chapter five will form the conclusion of this thesis. It will first look at the

compatibility of the two case studies of chapter four with the interdependence theories

discussed in chapter two, after which it will analyse the similarities and differences between

the Dutch-German and Canadian-American relationships. With these answers the main

question will be answered, as well as the question whether these relations are interdependent.

The thesis will finish with some recommendations for further research.

So without further ado, the next chapter of his thesis will provide an insight in the

various interdependence theories.

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2. A review of the literature regarding interdependence theories

This chapter will focus on the origins of interdependence theories and will also provide an

introduction into them. In order to do so, it will look at the different thoughts of liberalism and

how these thoughts facilitated interdependence theories. It will also explain the type of

interdependence theories that will be used in this paper, and will finish with an application of

the theories to Dutch-German and U.S.-Canadian relations.

2.1 The origins of interdependence theories

The roots of interdependence theories lie in the school of liberalism. As put forward by Diana

Panke and Thomas Risse, all classical liberal theories of International Relations rely on the

idea that domestic actors or structures strongly influence the decisions and behaviour of

foreign-policy makers, as well as the interests of states.2 Important to note is that these

thoughts predominantly apply on second image, meaning that they influence the actions of

states and not individuals or international organisations.

The liberal view on international relations is based on the thoughts of the German

philosopher Immanuel Kant (1724-1804). He argued that republican states with democratic

values (all citizens are free and legally equal)3 will keep peace among each other, as the

governments of these states have to take elections into account. If a government were to wage

war that was perceived as unnecessary or unjust by their voters, it would not be re-elected to

office.4 If a country would wage war on another country with which it has strong economic

relations, such a war would not only cost more than the cost of the military operation or the

loss of life, but would also prevent any potential future economic growth.

Before the First World War, liberal ideas were well represented in the international

diplomacy. However, after the First World War (in which many countries that were

economically strongly connected with each other fought each other brutally), and the failure

of the League of Nations (which was mostly based on liberal thoughts), liberal thoughts on

international relations were dismissed as being utopian.5 After the Second World War, many

democracies rose from the ashes of the second devastating war that the world had seen in 30

2 Diana Panke and Thomas Risse, ‘Liberalism’, in Tim Dunne, Milja Kurki and Steve Smith (eds.), International Relations Theories: Discipline and Diversity (New York 2007) 90.3 Immanuel Kant, ‘Perpetual Peace: A Philosophical Sketch’, in Hans Reiss (ed.), Kant’s Political Writings (Cambridge 1970) 102.4 Ibidem.5 Panke, ‘Liberalism’, 90.

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years. The rise of democracies could have meant the revival of Kant’s ideas, as his ideas

regarding interdependence focused on cooperation between democratic states. However, the

Cold War ensured that the theatre of international relations would be dominated by the

realistic school of thought after the Second World War had ended.

During the 1970s it became clear that the liberal international relations theory was far

from obsolete. The cooperation between democratic states in the rising European community

meant that scholars tried to find the roots of the successful cooperation between these states.

Important contributors to these studies were for instance the works of Robert Keohane and

Joseph Nye. Their theoretisation of the field of interdependence theories, in which they

instituted the term ‘complex interdependence’ (this will be referred to as ‘interdependence’

from here on), has been very influential until now. Their work will be discussed in more detail

in paragraph four. The next paragraph will review the first reflections on the effects of trade in

world politics, as formulated by Immanuel Kant.

2.2 Kant’s thoughts applied to interdependence theories

Immanuel Kant was a German philosopher who lived from 1724 until 1804, and is considered

one of the main ambassadors of the Enlightenment. In his piece Zum ewigen Frieden

(‘perpetual peace’) he argues that perpetual peace will be the result of the full development of

human nature. The individual, egoistic and violent actions of men will transform into a higher

state of peace as the human race is evolving and so is his morale. In further writings, he

argues for a League of Nations that abides to universal law which is also called moral

cosmopolitanism.

The thoughts of Kant have been very influential on the liberal school of thought that

has been dominant in the beginning of twentieth century, and some argue that his ideas are

currently experiencing a revival. As Kant’s writings form the basics of liberal thought, it is

interesting how they relate to the liberal interdependence theories. This chapter will therefore

discuss an article by John Oneal and Bruce Russett that has performed an statistical analysis

of Kant and interdependence named ‘The Kantian Peace; The Pacific Benefits of Democracy,

Interdependence, and International Organisations, 1885-1992’. This article shows that

peaceful relations among democracies existed throughout the twentieth century and not just

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after the Second World War.6 In their research they also look at the influence of important

trade and joint memberships in international organisations.

The liberal thinkers and governments of the eighteenth and nineteenth century

expected that commercial relations would prevent countries from using force on one another,

thus creating a ‘liberal peace’.7 The authors however consider the relations that are described

by Kant as interdependent, but it seems that this was not necessarily Kant’s vision. Trade

relations that prevent conflicts do not have to be interdependent. However, relations can be

called interdependent when a country acts differently in a conflict because it does not want to

endanger certain economic important relations. For example, when a country decides not to

use armed force to resolve a conflict if this will harm important economic relations and

therefore will harm themselves. From these arguments, it is understandable that the authors

call Kant’s description of intense economic relations interdependent. This is why Kant’s

idea’s of intense economic cooperation will be viewed as the foundations of interdependence

theories in this paper.

Kant’s ideas regarding cooperation between states show similarities with that of

Thomas Hobbes. Hobbes main idea, that there is a constant state of war between states and

that only a balance of power could bring a fragile peace, was accepted by Kant. He however

argued that a stable environment for peace could be achieved through a federation of

republics that hold liberal values, in which each state would keep its sovereignty but would

have collective agreements on subjects like defence. Furthermore, such a federation should be

build on the liberal values of democracy, international law and strong economic ties between

the participating nations, which would make them liberal nations. Countries that would not

embrace these liberal values (thus becoming illiberal) should therefore be feared by liberal

countries. These thoughts clearly show liberal thoughts but also realistic ones, especially the

assumption that the international system is anarchic and that power is one of the most

important factors.8 This supports the idea that interdependence theories are not solely the

property of liberalism.

The objective measurement of the connection between interdependence and conflict is

a hard nut to crack. To overcome this problem Oneal and Russett looked at the number and

intensity of relations between countries so they could research if these factors had an

influence on the number of conflicts. They concluded, after performing a regression analysis,

6 John Oneal and Bruce Russett, ‘The Kantian Peace: The Pacific Benefits of Democracy, Interdependence, and International Organizations’, World Politics, Vol. 52, No. 1 (October 1999) 2.7 Oneal and Russett, ‘The Kantian Peace’, 3.8 Oneal and Russett, ‘The Kantian Peace’, 4.

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that democracy, trade and the network of intergovernmental organisations have reduced the

number of militarised interstate disputes in the period from 1885 to 1992.9

In the period after the Second World War, interdependency between states grew

significantly. Oneal and Russett claim that this was the result of the increasing number of

democracies, as this civic promotes free trade and cooperation which should lead to

interdependent relations. This seems to support the idea that trade interests and

interdependence will reduce the number of conflicts between democratic states, as the number

of armed conflicts between them have significantly dropped after the Second World War.

Oneal and Russett claim that Kantian influences, mostly the emphasis on trade

relations, have not been able to abolish power politics.10 When power politics could not be

exerted by the democratic power hegemon in the twentieth century, two major wars between

economic power blocks broke out, as Britain could not defend her dominant position after

which the First and Second World War started. It is striking that these countries went to war

despite important trade interests, but this can be explained by the fact that ideologies were

considered more important than trade interests in these cases.

The importance of ideological preferences is also evident in the alliances that were

formed during the Cold War. The Cold War was a confrontation between two completely

different forms of civics, and both sides decided to form an alliance so their own ideology and

way of life could be preserved. It could be argued that the reduction of conflicts between

democratic states was thus mainly the result of power politics and the urge to preserve their

own way of life, but this is not entirely the case. In this argument trade relations are the result

of the alliance, but in reality it is the other way round, as alliances were formed in order to

preserve the ability to exert free trade, which in turn was the result of Kantian influences

(democracy and interdependence). Only time will tell whether this ‘Kantian peace’ will bring

stability to the newly formed democracies in the former USSR.

However, a statistical analysis of non-measurable elements like Oneal and Russett

performed can often be viewed as something that does not resemble reality. The factors that

Oneal and Russett have used for instance, are they the right indicators to be able to transform

non-measurable elements into objective numbers that prove that democracy and economic ties

provide peace and stability? It seems logical, but logic is not always the best way to observe

reality when studying economic relations.11

9 Oneal and Russett, ‘The Kantian Peace’, 34.10 Oneal and Russett, ‘The Kantian Peace’, 36.11 Edward Mansfield and Brian Pollins, ‘The Study of Interdependence and Conflict; Recent Advances, Open Questions and Directions for Further Research’, Journal of Conflict Resolution, Vol. 45, No. 6 (December 2001) 855.

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2.3 The meaning of dependence theories as put forward by Albert Hirschman

In his PhD-thesis National Power and the Structure of International Trade (first published in

1945) Albert Hirschman theorises the field of dependence theories, which was not extensively

studied until then. In this thesis he states that it is his aim to understand why and how

relationships of dependence, influence and domination can arise out of trade relations.12 He

emphasizes that he does not look at how power influences trade relations, but how trade

relations influence power relations and how this can be used as an instrument of national

power policy. This obviously means that he is a liberal scholar, as the previous chapter

showed the differences between liberal and realistic scholars.

The power implications that come into existence for political dependence from trade

were generally ignored by English economists. This is the reason why most literature on the

influence of trade come from German scholars.13 One of them, Max Sering, already concluded

in 1900 that economic dependence is not necessarily mutual, and that there are relations of

exploitation and of subjection.14 However, Hirschman concludes that although Sering made a

valid point, he did not look at the reasons how a mutual trade dependence between two

countries come into existence. With this statement, Hirschman anticipates on his own research

which should be able to explain unequal mutual economic dependence.

Hirschman subsequently tries to answer this question. His main conclusion is that if

war would not exist, foreign trade itself would create relationships of dependence and

influence between nations, just as war creates such relationships in the contemporary world.

He illustrates this statement with the example of the British Empire. According to Hirschman,

the main cause of the political or power aspect of international economic relations, is that a

country tries to make the most of its strategic position of its trade position by creating

conditions that will make an interruption of economic relations have more consequences for

its trading partners than for itself. Great Britain followed these thoughts with the use of its

strategic bases of Gibraltar, the Suez Canal and Singapore. With the control of these strategic

points it could cut off the trade of other countries and have direct power over other countries,

as it could threaten other countries with revoking the right to use these facilities.15 This

example proves Hirschman’s idea that ‘power to interrupt commercial or financial relations

12 Albert Hirschman, National Power and the Structure of Foreign Trade (Los Angeles 1980) 13.13 Hirschman, National Power, 11.14 Ibidem.15 Hirschman, National Power, 15.

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with any country, considered as an attribute of national sovereignty, is the root cause of the

influence or power position which a country acquires in other countries, just as it is the root

cause of the “dependence on trade”’.16

From this it can be derived that the influence country number one has on country

number two is nothing more than the gain that country two receives from its trade with

country number one, or in other words the losses country two would endure when a trade

embargo would be instigated. Therefore, the gain from trade and the dependence from trade

are seen by Hirschman as two pieces of the same phenomenon.17 The gain a country gains

from its trade with another country is therefore important in order to understand the role trade

interests play in power relations between countries and, thus also to understand dependence

and interdependence.

Hirschman continues by stating that economic aggression can be used as a substitute

for and complement to military aggression.18 He warns for the use of such, as history has

shown that this will not benefit a nation, as can be seen in the period following the First

World War. After the War, various countries increased their economic nationalism by using

restricting and discriminating rules on foreign and national investments. He therefore argues

that trade, in this day and age, is always connected to power policies and international power

relations.19

The second part of his thesis is used by Hirschman for a statistical analysis on trade,

especially what the impact of foreign trade can be on certain countries. According to him, the

dependence of a country on one or a few markets and the dependence on one or a few

products are generally cumulative. The dependence of a country that is caused by foreign

trade is not always a conscious decision of other countries but a mere by-product of the

situation.20 However, when a greater trading power has a strong interest in monopolising the

trade of a smaller country, it is wise for the smaller country to spread its trade equally over as

many countries as possible, as it could therefore evade becoming to dependent on the larger

country.

In the interpretation of the statistical analysis performed by Hirschman on trading

between economically larger and smaller countries regarding the year 1913 and the period

1925 to 1938, he states that economic larger countries generally have a preference for trading

with economic smaller countries. As it is harder for a smaller country to divert its trading 16 Hirschman, National Power, 16.17 Hirschman, National Power, 18.18 Hirschman, National Power, 72.19 Hirschman, National Power, 78.20 Hirschman, National Power, 76.

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relations from larger countries, the larger country can exert its power over the smaller through

these relations.21 This is supported by the case of Nazi-Germany, which extended its trading

positions in other countries significantly, so it could be used by the Nazi-regime as a power

tool in the period leading up to the Second World War.

The next chapter in Hirschman’s thesis concerns how small countries deal with the

attempts of bigger countries trying to influence them. His research finds that bigger countries

have a natural urge to trade with smaller countries, as this increases their influences over these

countries. His research divides the smaller countries into three clusters: the European

countries, the South American countries and the countries that are part of the British

Commonwealth. In the first group Germany is the focal point that is used by him to compare

the different states, and he makes a distinction of three groups in this cluster. The first group

comprises all countries in south-eastern Europe (Germany has a substantial share in the

imports and exports of these countries). The second group consists of Belgium, the

Netherlands, Switzerland, Austria, Czechoslovakia and Poland, while the third and last group

consists of the Baltic and Scandinavian countries, of which more than fifty percent of their

trade comes from or goes to either England or Germany.22

In the periods that were researched by Hirschman the first group experienced a

concentration of trade, the second a decrease and in the third group no significant difference

could be seen. This could be explained by German efforts to increase its influence over

Eastern Europe, while the countries in the second and third group were able to withstand the

German efforts, whereas Germany still remained the largest trading partner for these countries

than any other state. The second reason for the German trade growing significantly in the first

group is that these countries had a border in common with Germany for the first time after the

‘Anschlüss’ and the annexation of Czechoslovakia, and therefore welcomed trading with

Germany. However, they soon realised that being too dependent on Germany would create a

dangerous situation, and they subsequently tried to reduce their trade relations, in which they

were unsuccessful. Such a realisation can also be seen in the attitude of the countries in the

second group, who all are German neighbours over a longer period of time. They realised that

the German attempts had the potential of becoming a risk, and so they tried to take

countermeasures, for instance by signing the Reciprocal Trade Agreements Program with the

United Stated in 1934.

21 Hirschman, National Power, 94.22 Hirschman, National Power, 110.

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Another interesting point that is raised by Hirschman is whether the European

countries had a choice in Germany making itself a major trading partner. Hirschman argues

that the economies of the first group were far more interesting for German economic

penetration than those of the second group, as German policy makers saw them as

complementary to the German economy. This does not explain however why Germany was

not able to increase its influence in the countries of the third group, the Baltic and

Scandinavian countries, as both were considered complementary to the German economy and

lying in German space.23 Hirschman explain this by stating that these countries could also sell

their products to Great Britain, a possibility that was not present for the Eastern-European

countries. Great Britain had a significant advantage over Germany because the sterling was a

convertible currency while the Reichsmark was not.24 Great Britain even exploited the Baltic

and Scandinavian strong desire not to trade with Germany by offering a price for their goods

that was significant lower than that what Germany offered, as Britain knew that the

Scandinavian and Baltic countries would accept it anyway.

Hirschman’s second cluster, which he names the British Empire, consists of Canada,

Ceylon (currently Sri Lanka), India, British Malaya (Malaysia), Australia, New Zealand,

South Africa, Egypt, Nigeria and Ireland. For all of these countries (except British Malaya),

Great Britain formed the single biggest export market, except for Canada, as America was a

more important trading partner, as Canadian exports to Great Britain and America were about

the same, while the majority of Canadian imports were American.25 The export of these

countries remained the same while their imports decreased in the periods that were researched

by Hirschman. The Commonwealth tried to regulate these flows through the Ottawa

Agreement in 1932, but this treaty failed to have any effect. Instead, Hirschman argues that

the trade barriers that were erected during the Great Depression were the main reason for the

members of the Commonwealth to find new markets.

The third and final cluster of countries that was researched by Hirschman is South

America. The trading characteristics of the countries on this continent do not show that much

interesting movements, except the fact that both Britain and America formed the most

dominant trading partners. However, both Germany and Japan tried to undermine the

dominant Anglo-American position in these countries. Nevertheless, it was not able to gain a

dominant position in South America as it was able to in Eastern Europe, but this may have

23 Hirschman, National Power, 113.24 Ibidem.25 Hirschman, National Power, 114.

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never been their prime objective. Therefore the Southern American countries never employed

any protective economic measures.

The main conclusion that needs to be taken from Hirschman’s research is that the big

trading empires could only form a concentration of trade in south-eastern Europe, which can

be attributed to German efforts. This can be seen as a remarkable feat, as for instance Great

Britain could not even influence her own colonies. On the other hand, Germany did achieve a

dominant position in the only region it truly wanted and needed, namely in South-Eastern

Europe. It is therefore hard to tell from Hirschman’s study whether larger countries are truly

able to influence the trade of other countries.

In an article that Hirschman wrote thirty years after the original publication, named

‘Beyond Asymmetry: Critical Notes on Myself as a Young Man and on Some Other Old

Friends’, he reflects on his PhD-thesis National Power and Foreign Trade. In this article, he

discusses what possibilities an economic smaller country has when it becomes dependent on a

stronger country. At first it seems that all the power lies with the larger party, as it has a

smaller gain from such a relation, and would therefore be able to manipulate it by subtle or

not-so-subtle hints.26 But could such a relation be either solid or stable, or both? An important

factor in such a relation is what the willingness of the smaller country is to oblige to the hints

of the stronger country, but Hirschman finds that this is very hard to objectify such a

readiness.

In a trade relation that consists of a stronger and weaker state, the weaker state will

focus all of its attention to this relation and will try to find a way out of it as soon as it realises

that this is not a favourable position, however, the stronger country will diverge marginal

attention to this relation and the majority of it to other interests. This creates a situation in

which the efforts of the smaller country to free itself are bigger than the efforts of the bigger

country trying to maintain the relation, which should favour the smaller country.27 Hirschman

argues that this is the way empires crumble and names the British Empire as the prime

example.

A second reason why the supposedly weaker country could become more powerful

over time, is that through economic intercourse the weaker country will become more

powerful, and will have enough resources at its disposal to find alternatives or free itself. A

third reason is that when the bigger country deploys resources and other means that only can

be used in the weaker country (in order to invest or support the trade), the weaker country

26 Hirschman, National Power, viii.27 Hirschman, National Power, ix.

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could threaten to deny access to these resources for the stronger country. However, the form

and deployment of such mechanisms vary significantly from case to case.28 Therefore it is

very hard for scholars to discover and describe possible countermeasures, as when they are

discovered they are possibilities and not certainties. Hirschman criticises his colleagues for

refusing to deal with such possibilities before these get mainstream attention, as they consider

these inferior and that these do not deserve their attention. His conclusion is that this attitude

have slowed the general development of dependency theories.

To finish this paragraph on Hirschman’s work, I would like to show why his

dependency theories can be regarded as the same as interdependence theories. When there is a

relation between two nations, as described by Hirschman (one being significant larger than

the other), a totally other situation comes rises when the bigger country will suffer significant

losses when the relation is broken. Such is the case between Germany and the Netherlands in

the period after the Second World War. Germany, despite being significantly larger, was

strongly dependent on Dutch infrastructure and geography. With no real possibilities for a

deep water port on German soil, Rotterdam developed itself into Germany’s main port. In the

new European economic order, Germany could not annex the Dutch port, creating an

interesting and dynamic relation in which the Netherlands and Germany tried to find the best

way to utilize it. This example shows that interdependence theories can complement

Hirschman’s thoughts, which will be examined further in the next chapters.

2.4 The meaning of interdependence theories as put forward by Keohane and Nye

The meaning of interdependence theories is subject to much discussion. There are many

approaches to these theories as the liberal school of thought on international relations has

many approaches as well. For this thesis the interpretation of Robert Keohane and Joseph Nye

will also be used. Their book Power and Interdependence (first published in 1977) was

considered as a groundbreaking piece on interdependence theories by some. Keohane and Nye

see their interpretation of interdependence as a part of the realistic school of thought, but most

scholars agree that their interpretation is a better fit in the liberal school of thought.29 For

example, one reason for this is for example that the idea that trade and economic interests

prevent war fits with ideas of the prominent liberal thinker Kant. This does not contradict

28 Hirschman, National Power, xi.29 Allen Sens and Peter Stoett, Global Politics: Origins, Currents, Directions (Toronto 2010) 19.

18

Keohane and Nye’s own standpoint, though they say they see it as a realist tool, they intend it

to be used by all scholars of international relations.

A point that also has to be taken into account is the fact that interdependence theories

focus on the domestic civil order (i.e. are structure-centred) and hold their ground in the

rational school of thought in realism.30 With this in mind, this thesis will use the following

definition of interdependence theories as put forward by Keohane and Nye:

‘(…) dependence means a state of being determined or significantly affected by external

forces. Interdependence, most simply defined, means mutual dependence. Interdependence in

world politics refers to situations characterized by reciprocal effects among countries or

among actors in different countries.’31

What Keohane and Nye put forward here is basically the same as Bill Clinton’s quote in the

introduction. Interdependence between countries means that both countries need each other

and that divorce is not an option.

This leads to an important point of this thesis. As Keohane and Nye point out, there is

a significant difference between ‘dependence’ and ‘interdependence’. The main difference is

that in the first definition only one country needs its relation with another country, while in

the second both countries strongly depend on their mutual relations. Is it therefore possible to

state that the relations between the Netherlands and Germany are interdependent relations and

not just the Netherlands being dependent on Germany?

To prevent any misconceptions, Keohane and Nye give three important characteristics

for interdependent relations. These are:32

1. Multiple channels that connect the societies of both countries and are involved on an

interstate, transgovernmental and transnational level. Examples of these channels are

informal and formal ties between governmental and non-governmental elites and

strongly cooperating transnational organisations.

2. The agenda of interstate relationships that consist of multiple issues that are not

arranged in a clear or consistent hierarchy. Besides the fact that this means that

military security does not dominate the agenda between both countries (affirming that

30 Panke, ‘Liberalism’, 93.31 Robert Keohane and Joseph Nye, Power and Interdependence (Cambridge 1977) 8.32 Keohane, Power and Interdependence, 25.

19

both countries trust each other), it also means that both countries have other means to

discuss their relations.

3. Military force is not used in their relationship. This does not mean, however, that both

countries can not use military force on other power blocks.

They follow up these requirements with some important remarks. The most important one is

that Keohane and Nye’s definition of interdependence does not limit itself to situations of

mutual benefit.33 When interdependence is limited to these situations, threats of military force

would not be taken into account and it would be assumed that levels of conflict are low.

Furthermore, the term ‘mutual benefit’ would be a subjective basis of determining if two

countries are interdependent. This remark is in line with the sophisticated liberal way of

viewing the matter that is used in this paper.

Another important point that is raised by Keohane and Nye is that their definition of

interdependence is broader than what the dictionary says about interdependence, as they do

not want to be considered either purely liberal or realistic, although they find themselves

realists. Instead, they prefer their theories being used in all views on international politics and

relations.34 This is why their view on interdependence implies that interdependent relations

will always involve costs, as these relations will restrict the autonomy of the states involved.

However, before two countries engage in an interdependent relation it is impossible to know

whether this relation will be profitable. It is important to keep this mind while studying these

kinds of relations.

As interdependence theories look closely at the relations between economy and

conflict, it is no coincidence that these theories have been strongly linked with the notion of

International Political Economy (IPE). IPE is of a wide collection of views on the relationship

between economics and politics at the international level with historical, economic and

anthropologic influences.35 Some scholars even argue that economics and politics can not be

seen separately in the current world, where globalisation has ensured that countries can

become even more intensely connected and economies can become intertwined.

2.5 Criticisms on interdependence theories

33 Keohane, Power and Interdependence, 9.34 Ibidem.35 Sens and Stoett, Global Politics, 115.

20

The first criticism that is noteworthy is that of Susan McMillan. She states in her article

‘Interdependence and Conflict’ that realism has another starting point than liberalism, as it

focuses on the causes on war, whereas liberalism tends to focus more on international

cooperation.36 Therefore, realists will tend to look if interdependence enhances war or is not

related to war, while liberal scholars will look if interdependence reduces war.

This different starting point also leads to a different meaning of interdependence.

Where liberal scholars have a positive association with this notion, realists will argue that

interdependent relations will inevitably lead to dependent relations, as perfect equality in such

a relation is virtually impossible to achieve and maintain. The inequality in such relations

between countries provides surroundings that are predestined to spark a conflict. Thus,

according to McMillan: ‘interdependence is not a matter of mutual and symmetrical

interactions as liberalism assumes, and the power inherent in asymmetric economic

relationships does matter for international politics, particularly the onset of war’.37

Another realistic counterargument for interdependence theories is that if there are

more interactions between countries, it could mean that there are more reasons to start a

conflict. As Kenneth Waltz points out, the fiercest conflicts that the world has seen took place

between states who were working together intensely.38 Furthermore, according to realists,

conflicts spawned by (inter)dependent relations can not be of a military nature, as military

conflicts or wars are mainly driven by security concerns.

McMillan also points out that realists oppose the idea that when there is an

asymmetrical economic interdependent relation this does not mean that the more powerful

country can exert its power over the weaker one. The link between private economic actors

and state actors is a problematic one as it is hard to research, just like the connections between

market power and military actions.

An article written by Richard Rosecrance and Arthur Stein gives a fairly

comprehensive view of the different views on interdependence theories. Firstly, they point out

that there has been a disagreement on what the word ‘interdependence’ actually means and

that at least three definitions exist.39 These different views are, according to Rosecrance and

Stein, the main source of different conclusions that scholars derive from studies regarding

interdependence theories.

36 McMillan, ‘Interdependence and Conflict’, 40.37 McMillan, ‘Interdependence and Conflict’, 41.38 Ibidem.39 Richard Rosecrance and Arthur Stein, ‘Interdependence: Myth or Reality’, World Politics, Vol. 26, No. 1 (October 1973) 2.

21

The first definition states that interdependence is present when a country experiences

the changes of a different economic situation in another country. The second definition stands

for the situation where a country experiences the effects of external economic changes. The

third one (that will mostly be used in this paper) has been put forward by Kenneth Waltz and

is recognisable in the opening statement of this paper, namely that a interdependent relation is

a relation that brings grave consequences to one or more countries when it is broken.

In his essay the ‘Myth of Interdependence’ Waltz argues that nations will know when

they become too interdependent on other countries.40 And when they do, they will try to find

better alternatives than being dependent. The realist point of view that a state will always act

rational and in its best interest can clearly be recognised here. However, it can be argued that

a state will not always act rationally or in its best interest, as states are governed by humans

who are known to behave irrationally. Furthermore, human perception can cause

misconceptions, so what a country deems to be the best and most rational choice, can in fact

not be the best choice. Also, some countries do not have a choice in becoming dependent or

not.

In addition, Rosecrance and Stein argue that Waltz’s definition implies a positive

relationship between two countries, as he states that a country will suffer when the

relationship in question is ended. Additionally, they state that according to Waltz, a

relationship in which a country experiences economic effects of something that happens in

another country, does not have to be an interdependent relation as these effects do not have to

be detrimental. Waltz further states that interdependence occurs more frequently when the

units in the relation are very unequal or relatively equal in capacity.

Waltz arguments have also drawn much criticism. If his first premise (that

interdependence should be viewed as a constructive development) was true, it would mean

that interdependence could not be a reason for conflict. This is because when a relationship is

broken and both parties that are involved suffer from it, countries would think twice to engage

in a conflict. Also, his second premise can be criticised, as there are many interdependent

relations in which both parties that are involved are very unequal, but this can not be called a

necessary condition.41

It is clear that the conflicting ideas regarding the reasons why international conflicts

come into existence (liberals consider mostly economic aspects, whereas realists look more

closely at strategic reasons) have sparked many debates. One scholar, Jon Pevehouse, seems 40 Kenneth Waltz, ‘The Myth of Interdependence’, in Charles Kindleberger, The International Corporation; A Symposium edited by Charles P. Kindleberger (London 1970) 220-223.41 Rosecrance and Stein, ‘Interdependence: Myth or Reality’, 3.

22

to suggest that both ‘camps’ could be right as their different conclusions do not necessarily

exclude each other. To fully understand what interdependence theories can mean for

explaining economic relations extensive data surveys are needed.42

Such an extensive survey has been performed by Michael De Vries. He firstly suggests

that interdependence consists of four closely linked aspects: economic, politico-military,

institutional and diplomatic aspects.43 Secondly, the structure of interdependence does not

change over time, and thirdly, strong ties of interdependence are not just related to processes

of intensive integration but also of intensive conflicts.44 The results of De Vries’ research

show that interdependence can intensify relationships between nation-states, regardless if it is

a conflictual or cooperative relation.

Another important critique of interdependent theories concerns the usage of the word

trade. Patrick McDonald argues that these theories should not use trade as the unit of

measurement, but free trade.45 For instance, both realists and liberals consider the global

economy prior to World War I as a open trading system that increased interdependence

between states. Therefore, the outbreak of the First World War negates interdependence

theories, as European nation-states fought each other despite that the presence of major

trading relations with each other.

McDonald, however, argues that the trading relations prior to the First World War

were not free trading relations. The reason that the trading between the European powers

dramatically increased at the beginning of the twentieth century (the main reason for critics to

argue that economic relations were not able to prevent the nation-states from going to war),

was not a result of government policies, but that of the dramatic reduction of transportation

costs. In the period leading up to the First World War, trade tariffs remained at the same level

while the transportation costs plummeted.46 McDonald even argues that the trade tariffs

increased in that period, providing the nations with an extra reason to wage war. The example

McDonald provides, proves this as Germany had imposed trade tariffs on agricultural

products against Russia, which created a strong anti-German lobby in Russia, changing the

Russian diplomacy on German relations to a course where Russia would not give its utmost

effort to prevent a war. This thus turns the example of the First World War into a supporting

42Jon Pevehouse, ‘Interdependence Theory and the Measurement of International Conflict’, The Journal of Politics, Vol. 66, No. 1 (February 2004) 247.43 Michiel De Vries, ‘Interdependence, Cooperation and Conflict: An Empirical Analysis’, Journal of Peace Research, Vol. 27, No. 4 (1990) 438.44 De Vries, ‘Interdependence, Cooperation and Conflict’, 429.45 P. McDonald, ‘Peace through Trade or Free Trade’, The Journal of Conflict Resolution, Vol. 48, No. 4 (Aug., 2004) 568.46 McDonald, ‘Peace through Trade or Free Trade’, 569.

23

argument for interdependence theories, instead of a counterargument. Besides creating mutual

ties of dependence among states that make war less likely, free trade also reduces the power

of societal groups that would profit from war.47

The notion that the First World War supports interdependence theories rather then

disproving them, inspired McDonald to write a statistical study with Kevin Sweeney on the

economic situation prior to World War I. In this study he has the same findings as in his

previous study, namely that the outbreak of the First World was partly caused because

European countries had imposed trading restrictions, rather than that intensive trading could

not prevent war.48 If free-trade supporters would have gained the upper hand in the European

countries, they could have prevented European governments from going to war, according to

McDonald and Sweeney.

They support this statement by a statistical analysis. Because the period of

globalisation (initialised in the fifty years leading up to the First World War) was caused by

significantly lower transportation costs, and was actually obstructed by the rising trading

tariffs. Through single and multiple equation estimating techniques, the authors find

‘substantial support for the hypothesis that higher protection levels raise the likelihood that governments engage in military conflict’.49

2.6 Interdependence theories applied to Dutch-German relations

Thus far this paper has looked at various interpretations of interdependence theories. This

chapter will look at how these theories can be applied to a case-study, as it will look at the

Dutch-German and Canadian-American relations from a perspective taken from the

interdependence theories. In order to do so, this paper will use a study from Hein Klemann

and Cees van Paridon titled In Voor- en Tegenspoed… (‘For Better or for Worse’). For this

publication of the ‘Stichting Maatschappij en Onderneming’ (‘Foundation for Society and

Enterprise’) they have researched how the current Dutch-German relations have developed

until now and how they will develop in the future. For the Canadian-American case-study the

book of Keohane and Nye will be used.

Klemann states that from the year 1860 the Dutch and German economy started to

become strongly connected with each other. The main reason for this was that the German

47 Ibidem.48 P. McDonald and K. Sweeney, ‘The Achilles’ Heel of Liberal IR Theory? Globalization and Conflictin the Pre–World War I Era’, World Politics, Vol. 59, No. 3 (April 2007) 403.49 McDonald, ‘The Achilles’ Heel of Liberal IR Theory?’ 403.

24

Ruhr area started to develop into a highly industrial area specialised in heavy industry. All the

coal and ores that were mined needed to be transported and the main mode of transportation

was by water. As the only river that could transport all the goods, the Rhine, goes through the

Netherlands and ends in the North sea near Rotterdam, this city developed into the port that

would handle all the goods that needed to go to or come from the Ruhr area.50 The goods that

needed to go to the Ruhr Area play a significant role, as many goods were needed to support

the heavy industry there, therefore creating new companies in the Netherlands that would

focus on providing services for this relatively new industrial area.

In 1914 Germany invaded Belgium in an attempt to conquer France. This plan,

devised by count Von Schlieffen, originally included an invasion of the Netherlands as well.

However, the German Empire decided not to do so which, according to Klemann, can be

explained by the wish of the Germans not to endanger its important trade relations with a

military conflict.51 During the Interwar period, the Weimar Republic also took an approach

that would focus on keeping the economic relations intact with the Netherlands, just as after

the Second World War. As a result of this the economic growth of both countries has shown a

remarkable correlation.

Klemann states that the German invasion during the Second World War was a

exception, as the German invasion of the Netherlands during the Second World War was

caused by an aggressive regime and was not based on a rational decision.52 He suggests that

this decision was mainly made because the economic ties between the Netherlands and

Germany were cut off because of the Nazi-regime and that Germany still needed the supply

lines that ran through the Netherlands. The preference of Reichskommissar Seyss-Inquart to

incorporate the Netherlands into the German currency area after the Netherlands had

surrendered seems to support this.

Klemann ends his essay by stating that the Netherlands and Germany have had an

intense relationship for over hundred-and-thirty years. However, the intensity of this

relationship has declined over the last ten years.53 This is caused by the fundamental changes

that have taken place in the Ruhr area. As the global dependency on coal has been

dramatically reduced, many mines were closed and the heavy industry moved to other areas.

However, this does not mean that Germany has lost its need for the use of the port of

Rotterdam, as there is still a large market to supply in the hinterland of Germany. 50 Hein Klemann and Cees Van Paridon, In Voor- en Tegenspoed…; Verleden, heden en Toekomst van de Nederlands-Duitse Economische Betrekkingen (The Hague 2008) 41.51 Ibidem.52 Klemann and Van Paridon, In Voor- en Tegenspoed… 42.53 Ibidem.

25

Nevertheless this trend has changed the role of the Netherlands for Germany, as it is now just

one of the many neighbouring countries that Germany has. Therefore the Netherlands should

not take the economic benevolent German attitude towards the Netherlands for granted.54

The paragraphs above show that Klemann’s findings on Dutch-German relations are

closely connected with the interdependence theories. They show that strong economic ties

have indeed lowered the numbers and risks of armed conflicts. Even now when Germany has

become less dependent on the Dutch topography, economic ties still make armed conflicts

likely. This is mostly due to the fact that the majority of the European countries have spread

their economic dependency over various countries (for example through the European Union

and Euro), which has created a climate in which a armed conflict seems highly unlikely

between European democratic states at this moment.

2.7 Interdependence theories applied to Canadian-American relations

When looking at the three characteristics that were put forward by Keohane and Nye, it is

clear that the U.S.-Canadian relations fit these characteristics. This chapter will show that the

U.S.-Canadian relations are indeed interdependent, which will be an important part of the next

paragraph. A short history of the current relations between the U.S. and Canada will show

this.

The alliance between both countries took flight during the Second World War.

Because Canada was still part of the British Commonwealth, it was involved from the

beginning of the Second World War. During the War both countries closely co-operated

military, but also economically. After the War, it became clear that Canada was still a small

country in the eyes of the U.S. despite Canada’s efforts in the War, as it was not included in

talks regarding the post-war world. Canada expected that the Soviet-Union would become a

threat to the Western world so it decided to side with the U.S. and Great Britain in their post-

war policy on the Soviet-Union. However, it did not want to upset the USSR, as a conflict

between the U.S. and the USSR would probably involve Canada due to its geographic

position. This was further complicated by the American view that Canada was very important

as it took up all of the northern border and was also an important trade partner.55

After these events Canada became a part of the ‘New American Empire’. The Cold

War was the main cause for Canada to start working more intensely with the U.S. when it 54 Ibidem.55 John H. Thompson and Stephen J. Randall, Canada and the United States: Ambivalent Allies (Montreal and Kingston 2008) 170.

26

joined the North Atlantic Treaty Organisation (NATO) and the North American Air Defence

Agreement (NORAD). American investments in Canada and bilateral trades also rose.56 This

resulted in Canada becoming ‘part of America’. Canada became even more connected with

America than it was with Great Britain while it was still a British colony.

These paragraphs show that both countries are able to work strongly together, and that

they have developed multiple channels on interstate, transgovernmental and transnational

levels. Furthermore, military issues play an important role in their relationship but are

historically not the most important issues.57 After the Cold War this role diminished, but

recently it became more prominent with the Canadian involvement of Canada. However,

since all signs point to a Canadian retreat in 2011,58 the dominance of military issues seems to

diminish again.

It is clear that America is important to Canada, but Keohane and Nye show that

Canada is important to the U.S. as well. First of all, Canada forms the northern border of the

U.S., making it imperative for the U.S. that Canada is a willing and able defence partner.

Secondly, each country is the other’s most important trading partner.59 Another aspect that has

to be taken into account is that Canada is the primary buyer of American culture, as for

example in newspapers, magazines and television programmes. All these historic factors as

well as the current situation make it clear that both countries need each other and would face

serious difficulties if their bonds were cut.

2.8 Summary of interdependence theories

This paper has shown the origins and basics of various interdependence theories, alternatives

to them and criticism. As stated before, it is widely acknowledged that both liberalism and

realism share their influence in interdependence theories. This can be recognised in the fact

that power politics have had a major role in the reduction of armed conflicts between

democratic states. Oneal and Russett’s research uses elements from both the liberal and

56 Thompson and Randall, Ambivalent Allies, 171.57 Keohane, Power and Interdependence, 169.58 The Corner: ‘Harper Says Canada Will Pull Out of Afghanistan by 2011’, March 30 2011 (http://corner.nationalreview.com/post/?q=Njc1Zjk3ZjEzMzU2ZjYwNTdkNmE3ZGQ5NDYzOWIyMjA=, accessed on 09-04-2010).59 U.S. Commercial Service, ‘Canada-U.S. Trade Relationship’ (http://www.buyusa.gov/canada/en/traderelationsusacanada.html 11-4, accessed on 09-04-2010). Keohane and Nye also show that this has been the case since the beginning of the twentieth century (Keohane and Nye, Power and Interdependence, 169).

27

realistic school of thought. This makes me realise that interdependence theories can not be

seen as the property of only liberalism. Just as Keohane, Nye and McMillan I see the need for

adding realistic elements when studying and using interdependence theories in this thesis.

My impression is that when one wants to study economic relations he should use the

definitions by Keohane and Nye, and should use Hirschman’s definition when power and

power policies will be discussed. The texts that have been discussed here show that Keohane

and Nye’s definition does not differ that much from Hirschman’s, and that they therefore can

be used together.

The criticisms on the liberal view of interdependence theories have also been

discussed in this paper. These criticisms are mainly written by realistic scholars, which is

easily explained. The liberal and realistic school of thought both have a different view from

which they view the matter of economic and power relations, and each one attaches more

significance to different aspects. Therefore, by definition, the conclusions they draw from

their research can not be the same. This leads me to the conclusion that I can use Keohane and

Nye’s definition as well as Hirschman’s definition, as long as I keep in mind what its

limitations are, and that they are both the product of a fixed point of view. This does not

prevent me however of using the benefits of their work for my research.

One of the major flaws however of just using interdependence theories in researching

intense economic relations is that it is hard to take complex factors into account. For instance,

it is very hard to measure what effects international organisations can have on international

trade. It is widely acknowledged that they are able to contribute, but a number can not be put

on the intensive lobbying that takes place in these kinds of organisations. This is something

that will be needed to be addressed in any future analysis of economic relations. According to

Mansfield and Pollins, there are strong signs that the power and nature of the effects of

interdependence depend on many domestic and international factors that are very hard to

research.60 A improved understanding of these factors and how they influence the ties between

economic relations and armed conflicts is much needed according to these authors.

60 Mansfield and Pollins, ‘The Study of Interdependence and Conflict’, 854.

28

3. Tables of Dutch-German and Canadian-American imports and exports

This chapter will discuss various tables and graphs I made from various data sets. The core

data are derived from the Organisation for Economic Cooperation and Development (OECD),

the Dutch Central Bureau for Statistics (CBS), the American Bureau of Statistics or, from

own calculations with these data. The full data-sets that were used for this chapter can be

found in the attachments.

Graph one shows that despite the relatively low percentage of trade of the American

GDP ratio, America still has the largest market share. As America owns the largest economy

in the world, it seems logical that even a small percentage of the American GDP can still form

29

the largest world market share. Germany’s share is lower, but still significant higher than that

of the Netherlands and Canada, who are roughly the same.

Graph two shows the importance of trade for the Netherlands, Canada, Germany and

the United States. From this graph it can be concluded that the Netherlands are highly

dependent on trading with other nations, while Canada and Germany are significantly less

dependent on foreign trade. The United States, compared with the other countries, rely

significant less on foreign trade. Therefore, the importance of foreign trade is the most for the

Netherlands and the least for the United States.

Graph three looks at how important the Canadian-American trade relationship is for

both Canada and the United States. It is obvious that this relationship is very important for

Canadian trade, as both the export to and import from America form more than half of

Canada’s export and import. As Canada’s trade is forty percent of its GDP, and more than

fifty percent of this trade is related to the United States, it is safe to say that Canada strongly

relies on America. America itself however is much less dependent on its Canadian trade, as

only a small portion of its GDP is formed by trade, of which only one-fifth is related to

Canada.

Graph four analyses the trading relations between the Netherlands and Germany. It

shows that the Dutch trade with Germany is smaller than that of Canada with the U.S., but on

the other hand trade is proportionately more important for the Dutch economy. The

importance of the Dutch-German trading relationship for Germany is also not significant

according to this graph. It is striking that the Netherlands export significantly more to

Germany than it imports from Germany, but the German import from the Netherlands is

always higher than its export to the Netherlands. This is not the case in the Canadian-

American relationship, which could mean that Germany is slightly more dependent on the

Netherlands than America on Canada.

Graphs five and six show the influence of the Canadian-American trade balance. The

reason I included this graph is to show that without the American trade, the overall Canadian

trade balance would be very negative, as the Canadian-American trade balance is many times

bigger than the overall trade balance almost every year. This means that Canada imports

significantly more from other countries than it exports, which provides a one-sided trade

situation. The American trade balance is not strongly influenced by the Canadian-American

trade, as the influence of the Canadian-American trade balance is roughly the same as it is in

the import and export ratios.

30

Graphs seven and eight compare the Dutch-German trade balance with the total Dutch

trade balance. These graphs show the same as graphs five and six, although it seems that the

Netherlands were able to achieve a lesser dependency of Dutch-German trade in the 1980s.

The influence of the Dutch-German trade balance on the German trade balance seems to be

small, as the trade deficit shown in the table is only a fraction of the total trade balance.

These graphs are thus able to show that Canada and the Netherlands are roughly in the

same situation. The exact similarities and differences will be discussed in the conclusion of

this thesis.

31

Graph 1. World market share of goods and services

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

14,00%

16,00%

18,00%

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Year

Percentage

The Netherlands Canada Germany The United States of America

Source: Organisation for Economic Cooperation and Economic Development, Database of Stat Extracts (http://stats.oecd.org/Index.aspx).

32

Graph 2. Trade-to-GDP-ratio

Source: Organisation for Economic Cooperation and Economic Development, Database of Stat Extracts (http://stats.oecd.org/Index.aspx).

33

Graph 3. Dutch and German import and export ratio’s compared

Source: Centraal Bureau voor de Statistiek, Statline (complete database of Dutch statistics; www.cbs.nl/statline), Organisation for Economic Cooperation and Economic Development, Database of Stat Extracts (http://stats.oecd.org/Index.aspx), and own calculations (see attachments).

34

Graph 4. Canadian and American import and export ratio’s compared

Source: Organisation for Economic Cooperation and Economic Development, Database of Stat Extracts (http://stats.oecd.org/Index.aspx), and own calculations (see attachments).

35

Graph 5. German trade balance compared with Dutch-German trade balance

Source: Organisation for Economic Cooperation and Economic Development, Database of Stat Extracts (http://stats.oecd.org/Index.aspx), and own calculations (see attachments)..

36

Graph 6. Dutch trade balance compared with the total Dutch-German trade balance

Source: Centraal Bureau voor de Statistiek, Statline (complete database of Dutch statistics; www.cbs.nl/statline), and Organisation for Economic Cooperation and Economic Development, Database of Stat Extracts (http://stats.oecd.org/Index.aspx), and own calculations (see attachments).

37

Graph 7. American trade balance compared with Canadian-American trade balance

Source: Organisation for Economic Cooperation and Economic Development, Database of Stat Extracts (http://stats.oecd.org/Index.aspx), and own calculations (see attachments).

38

Graph 8. Canadian trade balance compared with Canadian-American trade balance

Source: Organisation for Economic Cooperation and Economic Development, Database of Stat Extracts (http://stats.oecd.org/Index.aspx), and own calculations (see attachments).

39

4. Political choices and options of the Netherlands and Canada

This chapter will look at what choices the economically smaller countries the Netherlands and

Canada have against their economically larger neighbours through the use of two case studies.

4.1 Political choices and options of the Netherlands

Firstly two reports of the WRR will be discussed, and what the overall reactions on these

reports were. The first report is a preliminary report, which means no official response was

written by the Dutch government, nor any reactions in the press can be found. Furthermore,

only the economic analysis of both reports will be reviewed, as this thesis has been primarily

focused on economic aspects, as explained in the introduction.

4.1.1 ‘De handelsbetrekkingen tussen Nederland en de Bondsrepubliek Nederland’

The first report that will be reviewed is De handelsbetrekkingen tussen Nederland en de

Bondsrepubliek Duitsland (‘The trading relations between the Netherlands and the Federal

Republic of Germany’). This report refers to a earlier report named Plaats en toekomst van de

Nederlandse industrie (‘Place and future of the Dutch industry’). This report claimed that the

competitiveness of the Netherlands was especially disadvantaged by its bad industrial

structure. If the Netherlands wanted to become stronger in that area, a vigorous change would

be needed to halt the penetration of the Dutch markets and to gain a more dominant position

in foreign markets.61 This is also desirable as the Dutch economy is very open, and therefore

should be very competitive for both inner and foreign markets.

In this report, the Dutch position in the West-German markets was labelled as a good

example of how it should develop in other countries. The main reason for this was, besides

that Western Germany was the single largest trading partner for the Netherlands, that the

report saw Western Germany as the nation that was able to adjust itself the best within the EG

to the new economic balances.62

De handelsbetrekkingen continues with the discussion on how global trading grew

very fast in the period after the Second World War, posing new challenges to nations’

economies. Especially the Western-European countries were able to benefit from these 61 C. van Paridon (supervisor), E. Greup and A. Ketting, Voorstudie 30: De handelsbetrekkingen tussen Nederland en de Bondsrepubliek Duitsland (The Hague 1982) 148.62 Ibidem.

40

developments through cooperation, specialisation and up-scaling. In order to benefit fully

from these advantages, it is necessary for the Dutch economy to be able to react on changing

conditions in the world economy, for instance on the rise of new competitors or the demand

of new technologies. According to the report, the Dutch economy is able to establish itself in

the world economy by adopting these challenges. Its export grows quicker than the world’s

average until 1975, and more importantly, than the export of other developed countries. After

1975 however, it is significantly lower. The report therefore tries to find the answer of the

question if this is a structural trend, or a more temporary feat.

In order to find this answer, the report analyses the trading pattern of the Dutch

economy. The build-up of the Dutch export forms an important part of the answer, and since

the European Community was established in 1967, the Dutch export is mostly destined for

members of the European community. Most of the E.C. countries have a concentration of

export to fellow members, but the Netherlands still show a very strong concentration

compared to them.63 This can be explained by the fact that Dutch exports focuses on Western

European countries as a primary destination, as a nation will always try to export the most

goods to rapidly growing economies. On the other hand, it seems wise to spread exports as

you do not want to put all your eggs in one basket. The report detects that since 1975 the

growth of the members of the E.C. has declined, resulting in a stagnation of the Dutch export.

It expects that the Newly Industrializing Countries, the oil-producing counties as well as

Japan will take over as the economic powerhouses. The report states that there is virtually no

Dutch export to these countries, which makes the Dutch export rather a burden then a

stimulus for the Dutch economy. Therefore, the Dutch export-policy should be changed, as

the current composition of the Dutch export (the major component of the Dutch export

consists of either agricultural goods or commodities) is not able to compete wit other Western

European countries.64 It is expected that such profits could be gained in the industrial sector.

The report continues with an analysis of the Dutch-German trade, as the report argues

that this is by far the most important trading relation for the Netherlands. Its analysis tried to

uncover whether there were any significant trends in the bilateral trade between the

Netherlands and Germany. In order to do so, the report compared the actual trading flow with

the expected trading flow (which was calculated with the Savage-Deutsch-model and a

gravity model).

63 Van Paridon, De handelsbetrekkingen tussen Nederland en de Bondsrepubliek Duitsland, 150.64 Van Paridon, De handelsbetrekkingen tussen Nederland en de Bondsrepubliek Duitsland, 151-153.

41

Table 1: Dutch trade with the Federal Republic of GermanyYear: 1950 1955 1960 1965 1970 1975 1980

Import/total import 11.0 17.6 21.8 24.5 27.1 25.5 22.4

Export/total export 14.0 17.0 22.3 26.7 32.0 30.9 30.2

Source: Van Paridon, De handelsbetrekkingen tussen Nederland en de Bondsrepubliek Duitsland.

This table shows that the Dutch trade with the Federal Republic of Germany took a major

flight in the period after the Second World War. This is in line with the notion that the

Netherlands focused on trading with Germany. However, these numbers are not enough to say

that the Dutch-German trading relation is unique. When different models are calculated

through the Savage-Deutsche-model, it seems that the trade intensity between the Netherland

and Germany is not that unique. The report calculated what ratios could be expected, and they

prove significantly higher. Other countries who border Germany do however have even

higher ratios, and the report states that it can be expected from two developed countries that

are on the same level that they have intense trading relations.

This idea is only enforced by the findings that other countries have more intense

trading relations with Western Germany than the Netherlands. However, the composition of

the Dutch export to Western Germany looks rather odd. The report characterises this

composition as that of a third-world country with a first-world country, as mostly unfinished

products are being exported to Western Germany while mostly finished products are

imported. Also, the exports in this sector are declining. The report sees this as a sign that the

Dutch economy, and especially the industrial sector, is not able to compete with other

countries in an important market any more. Furthermore, the Dutch export seems to focus on

Nord Rhine-Westphalia, while the economic activity is moving to the south. This focus can be

explained by the fact that Nord-Rhein Westphalia borders the Netherlands, but it seems

preferable to export to the southern Germany.65

This all leads the report to the question whether the mutual dependence between the

Netherlands and Germany has grown or not. It can be argued that it has grown as many

organisations in the Netherlands and Germany have been economically integrated after the

Second World War was ended. The report performed a cluster analysis of different sets of

data, for instance those of national accounts and monetary series. It concluded that the

distance between both countries has declined, as the achieved numbers have decreased which

means that the economic policies of both countries share great similarities. It is evident that

the ability of both the Netherlands and Germany to define their own course has decreased, 65 Van Paridon, De handelsbetrekkingen tussen Nederland en de Bondsrepubliek Duitsland, 160-161.

42

which leads to the conclusion that the mutual dependence between both countries has

increased.66

4.1.2 ‘Onder invloed van Duitsland’

The second report is titled Onder invloed van Duitsland (‘Under influence of Germany),

written under the supervision of T. Quené, which focused on the consequences of the intense

trading relations between the Netherlands and Germany. It focuses on three aspects of these

intense relations, namely the economical, security and environmental aspects. For this paper,

only the report analysis of the economic relations will be discussed, as was explained in the

introduction.

The report gives an analysis of why the trading relations are intense. A third of the

export of goods and services goes to Germany while sixteen percent of the direct investments

heads for the same direction.67 The report notes that while these quantities are not unusual for

neighbouring countries that have the same level of development, the intensity is also defined

by the nature of these relations. When viewed form this angle, the report finds that there are

three aspects of the Dutch-German relations that can be called exceptional68:

1. The composition of the goods that are traded between both countries is unique.

The Netherlands exports mostly agricultural products, while it mostly imports

investor and consumption goods. The Dutch export is one-sided, while the export

to Germany is even more one-sided.

2. The Dutch export to Germany is mainly focused on Nord-Rhein Westphalia,

which is not surprising as this state is the only German state that borders the

Netherlands. It seems more preferable to focus on the southern states of Germany,

as they show a higher economic growth.

3. The trade with Germany has a strong influence on the Dutch balance of payments.

This trade shows an even greater contribution to the balance than the total Dutch

export to the other E.C. members. Especially the agricultural goods and the export

of fuels make this possible.

66 Van Paridon, De handelsbetrekkingen tussen Nederland en de Bondsrepubliek Duitsland, 163.67 T. Quené (supervisor), WRR-rapport 23: Onder invloed van Duitsland; Een onderzoek naar gevoeligheid en kwetsbaarheid in de betrekkingen tussen Nederland en de Bondsrepubliek (The Hague 1982) 201.68 Quené, Onder invloed van Duitsland, 201.

43

Furthermore, the balance of the traffic of services between the Netherlands and Germany is

very positive. It is so positive that it exceeds the total balance of services. Also, more than

half of all goods transported in the Netherlands, are headed for Germany. Two-thirds of these

consists of transit-goods, of which forty percent is related to oil, thirty percent to ores and

fourteen percent to agricultural products. This leads to the conclusion that the services-

relations can also be considered as exceptional.69

Another interesting point in the Dutch-German economic relations is that of the direct

investments. When the report was written in 1982, the Netherlands were the largest foreign

investor in the world when compared to the gross national product, as the outgoing

investments exceeded the incoming investments by one percent of the gross national product.

The Dutch investments in Germany are also larger than the German investments in the

Netherlands. While these investments are profitable for the Netherlands, it seems that they

substitute Dutch employment and added values. This is supported by the fact that most of

these investments are in sectors in which the Dutch export is underrepresented, such as in

industrial goods.70

The report explains these findings by the intensity of the monetary relations between

both countries by that they both take part in the European Monetary System (EMS), in which

their mutual market is strongly represented. The Dutch monetary policy was focused on

keeping the nominal value of the German mark equal in the Netherlands. There are two

reasons for this policy: firstly, the goal is to minimize the rise of the import price levels in

order to limit the domestic inflation which would harm the export, and secondly not to harm

the worldwide confidence in the guilder.71

The report does make an important statement regarding the relation between the

guilder and the mark. When the report was written, the guilder had a fixed price with the

mark, which helped the trade balance and the inflation. However, the report wonders if the

guilder is able to follow the mark in the future. The government should look hard whether the

current monetary policy is still most preferable.

The report concludes its analysis of the Dutch-German economic relations with

possible solutions for the earlier mentioned problems. To start with, the infrastructure for

goods in transit should be improved, so Germany will not search for another port to fulfil its

needs. This is just one part of the competitiveness of the Dutch export that should be

improved, the report also mentions that the Dutch investing climate should be improved. 69 Quené, Onder invloed van Duitsland, 202.70 Ibidem.71 Ibidem.

44

Another aspect of the Dutch export that should be adjusted, is the composition of the

Dutch export in general. With the ability to adjust the location of its markets and being

competitive in the export of other products than just transit or agricultural goods, the

Netherlands should be able to participate more worldwide and be less dependent on

Germany.72 This will require a drastic change in the Dutch economy and monetary policies, as

the role of the guilder will play a important role in this process. Furthermore, the Dutch

government should try to negotiate more through unilateral and multilateral agreements with

Germany, instead of focusing on bilateral negotiations. The report fears that Germany would

be a tough negotiator in head-to-head meetings, while it would not dare to do so when other

countries are involved.

4.1.3. Reactions on ‘Onder invloed van Duitsland’

The commentaries on the report generally share the same conclusion: the findings of the

report are no shocking news, but it is good that an institution with the authority of the WRR

explicitly states that the investing climate should be improved, and that the export needs some

drastic changes in composition and destination. The negative reactions mostly come from the

parties of which the WRR suggest that they should change or whose role should be reduced,

namely the agricultural sector and the Dutch-German Chamber of Commerce. The

agricultural sector tries prove that their dominant position is necessary and that their dominant

role should not be reduced. The reaction of the Chamber of Commerce also seems to make

sense, as the report was not received well in certain German circles. Therefore, they try to do

some damage control and explicitly state that Nord-Rhein Westphalia is still very important to

Dutch exporters.

So, the overall opinion of the press on the report is that the WRR made some sound

but already known statements regarding the Dutch-German economic relations, but some

people disagree strongly as the reaction from the Dutch-German Chamber of Commerce

showed, but do not realise these conclusions were based on extensive studies by the WRR.

The reaction of the Dutch cabinet shows restraint in admitting that the

recommendations of the WRR should be implemented as soon as possible. The cabinet

criticises the report on several methodological points and downplays certain issues, but

acknowledges many of its conclusions.73 This is however wrapped in a message that the 72 Quené, Onder invloed van Duitsland, 204.73 Letter from the prime-minister, minister of General Affairs, Ruud Lubbers, on behalf of the Dutch cabinet, concerning the cabinet’s position with regard to the report of the WRR titled Onder invloed van Duitsland.

45

suggestions of the WRR were already well known and that the cabinet is already making

progress on the issues. The cabinet thus implies that the report is somewhat obsolete.

However, this reaction can be explained by the cabinet trying to please German institutions

and not to rub up the important Dutch sectors the wrong way in its first year of office. The

fact that the cabinet acknowledges many conclusions and disguises this seems to support this.

The numerous reactions in the press show that many sectors in the Dutch economy

agree with these changes, and combined with the fairly large media attention it received, seem

to point out that many layers of the Dutch society realise the peculiar position of the

Netherlands in its relation with Germany. However, the reaction by the Dutch cabinet shows

that it is very hard to say such findings out loud without coming across as rude with the

German neighbours. The fact that the suggested changes are being implemented silently

seems to demonstrate that the Netherlands do have some wiggling room, but not out in the

open field.

4.2 Political choices and options of Canada

This chapter will look at a case-study of the Canadian choices and options in its relation with

the U.S., namely the development of NAFTA.

4.2.1 How did the institutional cooperation between the U.S. and Canada develop after

the Cold War?

There have been many perspectives on institutional cooperation, but it will be beyond the

scope of this review to provide a complete overview of all the institutional cooperation

between the U.S. and Canada. Therefore this thesis will use the case-study of the Northern

American Free Trade Agreement (NAFTA), in which the United States, Canada and Mexico

participate. It will exclude Mexico from its analysis, as it is clear that the bilateral relations

between the U.S. and Canada were the single most important reason for the rise of NAFTA.

This is an interesting example to look at how these two countries developed their bilateral

relations into NAFTA, will show whether interdependence theories can explain how

institutional cooperation developed between the U.S. and Canada.

Dutch House of Representatives seating 1982-1983, 17777, No. 1.

46

4.2.2 The history of NAFTA

The U.S. and Canada have a long history but the development of NAFTA took flight during

the 1980’s. These years brought new dynamics to the bilateral relations between both

countries. With conservatives gaining power in both countries at the beginning of this decade,

their ideology united them in a renewed crusade against the Soviet-Union. After the collapse

of the Soviet-Union, Canada still supported America in arms, as shown by their involvement

in the Gulf War of 1991. Beside their renewed military cooperation, their economic relations

also received a major boost by a free trade agreement in 1987, which ultimately resulted in the

North American Free Trade Agreement (NAFTA) of 1993.

The official talks about the U.S.-Canada Free Trade Agreement started in 1985 and the

treaty was signed in 1987. However, talks about free-trade between both countries had been

going on for more than a hundred years.74 The debate that took place right before the treaty

was signed was much more intense in Canada than in the U.S., which can be explained by the

fact that there were more implications for Canada with this treaty than for the United

States.

The reasons for both countries signing the treaty have been heavily debated over the

years. Some suggest that globalisation had a major role in this, as the opening markets in the

business world required legislation to guide this process. It is also argued that Canada tried to

push the treaty through as it did not want to be subjugated to American protection legislation.

The idea that the treaty was for more important to the Canadians than to the Americans seems

to be supported by the fact that ninety-seven percent of the Canadians were aware of the

treaty while only sixty percent of the Americans knew about the treaty.75

Both countries had certain expectations of the treaty. The Canadian economy was

functioning in such a way that it was more attractive for foreign companies to set up factories

in Canada itself than to export to Canada. The result of this was that during the 1970s foreign

companies, especially American companies, had a very dominant position in the Canadian

economy. Trying to counter these developments the Canadian government attempted to gain

more control over companies settling in Canada. Even though it managed to reduce the

74 Bruce Meyer, ‘U.S.-Canada Free Trade Agreement of 1989’, Encyclopedia of Business (http://www.enotes.com/biz-encyclopedia/u-s-canada-free-trade-agreement-1989/, accessed on 11-08-2010).75 Office for Foreign Affairs and International Trade Canada, ‘Canada and the World: A History’, (http://www.international.gc.ca/history-histoire/world-monde/1984-1993.aspx?lang=eng, accessed on 09-08-2010).

47

dominance of American companies in Canada, it could not counteract the fact that Canada

was still too dependent on American trade and the Canadian inability to be competitive.76

The Canadian economy relied heavily on the trade of its resource products, which

became problematic as these alone were not sufficient to keep the country afloat. Therefore,

some argued that Canada should focus its economy on competing in the manufacturing area.

Whether Canada would rely on its resource products, or on its manufacturing was however

not the most pressing issue, as another major problem was that of nontariff barriers employed

by other countries.77 The threat that such barriers would be employed by the United States was

by far the most pressing issue as the Canadian economy still focused strongly on its American

counterpart. With this in mind, the Canadian government set up four objectives that it wished

to reach by setting up the Free Trade Agreement:78

1. Access to the United States market by limiting the effects of United States trade laws.

2. Enhance access to the United States market by eliminating tariffs and achieving more

liberal nontariff barriers.

3. Ensure any gains through a strong agreement with an effective dispute settlement

mechanism.

4. To maintain policy discretion in cultural industries and foreign investment in some

sensitive sectors.

These were the objectives of the Canadian government and the reasons for pursuing a Free

Trade agreement (FTA). The next paragraph will look if this can also be said of the American

objectives.

In the years leading up to the FTA several countries had tried to establish a trade

agreement. The U.S. decided not to join this General Agreement on Tariffs and Trade (the

predecessor of the World Trade Organisation), rendering it useless. However, this prevented

U.S. companies to sell their technology products to a large number of potential markets. The

upcoming FTA could protect intellectual property rights, government procurement practices,

and product standards that the GATT could not.79

Another important reason for the U.S. to pursue a FTA was that it showed other

powerful trading blocks (e.g. the European Union and Japan) that it had alternatives to them.

76 Meyer, ‘U.S.-Canada Free Trade Agreement of 1989’ (09-08-2010).77 Office for Foreign Affairs, ‘Canada and the World’ (09-08-2010).78 Ibidem. 79 Office for Foreign Affairs, ‘Canada and the World’ (09-04-2010).

48

Furthermore, it provided an important stability in its most important economic relation with a

single country as it took away the Canadian import tariffs.

History shows that the FTA between the U.S. and Canada was only the prelude of

something bigger, namely NAFTA. This agreement that was signed only four years after the

FTA was signed, indicating that there was a strong need for a formalised way of approaching

the intense economic relations between both countries. The dynamics surrounding this

discussion of the treaty are characterised by the following view on this matter by the Canadian

Office of Foreign Affairs and International Trade:

‘The FTA was barely in place when the administration of George Bush Sr. began to negotiate

a free trade agreement with Mexico. This placed the Canadian government in a quandary.

Historically, Canada's economic and political ties with Mexico were weak. However, the

government worried that the benefits gained under the FTA would be placed in jeopardy by a

potential U.S.-Mexico pact. Reluctantly, it joined the negotiations, though the Americans were

certainly not anxious to have a third party at the table. This was essentially a defensive

measure on Canada's part, aimed at protecting Canada's trade with the United States.’80

The literature on the development of NAFTA seems to suggest that the U.S. were actively

pursuing a Canadian involvement in the free trade talks with Mexico, suggesting that they

valued the Canadian trade relations. The compatibility of this case-study with

interdependence theories will be discussed in the conclusion of this paper.

5. Conclusions and suggestions for further research

This chapter will answer the main question that was put forward in the introduction: ‘In the

case of the Netherlands and Canada, can it be said that economically smaller countries have

any options when dealing with an economically bigger country?’ It will first look at the

80 Office for Foreign Affairs, ‘Canada and the World’ (09-04-2010).

49

compatibility of the interdependence theories from chapter two with the case studies of

chapter four, after which it will discuss the similarities and differences between the Dutch-

German and Canadian-American relationships. With these answers the main question will be

answered, as well as the question whether these relations can be called interdependent. This

chapter will finish with some recommendations for further relations.

5.1 The compatibility of the WRR-reports with interdependence theories

This leads this thesis to the question how the close relations between Germany and the

Netherlands are reflected in the politics of the Netherlands. First of all, these relations are

reflected by the fact that the WRR performed various research projects in to this matter at all.

Secondly, the suggested changes are stressed by the WRR. The many reactions in the press

show that many sectors in the Dutch economy agree with these changes, combined with the

fairly large media attention it received, seem to point out that many layers of the Dutch

society realise the peculiar position of the Netherlands in its relation with Germany. However,

the reaction by the Dutch cabinet shows that it is very hard to say such findings out loud

without coming across as rude with the German neighbours. The fact that the suggested

changes are being implemented silently seems to show that the Netherlands do have some

wiggling room, but not out in the open field.

The economic and political bonds between the Netherlands and Germany that were

described by the report of the WRR seem to concur with the interdependency theories. While

this paper can not prove that Germany is strongly dependent on the Netherlands, it is able to

demonstrate that various government agencies and sectors know that the Netherlands can not

live without Germany. The development of Dutch infrastructure, for instance, will be done

because Germany will always need a deep water port, which the Netherlands will provide

with Rotterdam. Germany needs such a port and could search for an other than Rotterdam, so

it is up to the Dutch government to create the best option for Germany. This semi-dependency

on the Netherlands is evident and therefore, the theories discussed in chapter five can largely

explain the current political and economic situation.

5.2 The compatibility of NAFTA with interdependence theories

The chapter on NAFTA raises some interesting issues. As from previous chapter can be

concluded that the U.S.-Canadian relations can be called semi-interdependent, the

50

developments in this relation during the discussions surrounding the FTA can be explained by

the interdependence theories. First of all there is the fact that these discussions fit the three

characteristics as put forward by Keohane and Nye. The level of the discussions transcended

interstate, transgovernmental and transnational levels as the discussions took place between

representatives of both governments. The results of the discussion called for many new

discussions between all levels of government.

Another point that fits the characteristics is the role of the military in the U.S.-

Canadian relationship. Firstly, it does not dominate the agenda of their relationship, even

during the Second World War.81 Secondly, since the American invasion in the beginning of

the nineteenth century both countries have not used arms against each other. Instead, they

have used their arms together against other power blocs. This can be seen in the First and

Second World War as well in the more recent situation in the War in Afghanistan. The

Canadian decision not to join America in the invasion of Iraq can be seen as an irregularity,

especially since Canada has been more supportive of their American neighbour since Steven

Harper was elected in 2006.

An additional important reason why both countries’ actions can be viewed as coherent

with the interdependence theories is that the objectives that both countries had going into the

discussions of the FTA and NAFTA strongly suggest that they both realise that their relations

is one of mutual dependence. The Canadian objectives strongly acknowledged that it needed a

formalisation of its trade relations with the United States, while the U.S. wanted to secure its

northern border and their most important market. These objectives fit perfectly in the

interdependence theories.

In the world of international trade and international relations many factors matter in

decision making. It can be argued that the actors (Canadian and American government

officials) involved in the negotiations were influenced by their surroundings. It seems

however that they were more influenced by supporters of a FTA than by the people who

opposed it, as the officials decided to push the agreement through. Another argument for a

path dependency in the negotiations is that the officials realised that a FTA was needed in

order for the Canadian economy to stay competitive, therefore choosing a path that would end

at a FTA.

5.3 Differences and similarities of Dutch-German and Canadian-American relations

81 Keohane, Power and Interdependence, 168.

51

At first glance there are some easy to spot similarities between the Dutch-German and

Canadian-American relations. First of all, the Netherlands border Germany just like Canada

borders America, although it is Canada’s only neighbour while the Netherlands have two.

Furthermore, both Germany and America are economic powerhouses, while the Netherlands

and Canada are relatively small players in the world economy.

Besides these similarities that can be found at first sight, there are more beneath the

surface. Both relationships are formally established through varies treaties and multilateral

and unilateral relations, as for instance the E.C. and the Free Trade Agreement. Meanwhile,

the importance of the economically larger neighbour can be seen in the trade figures of both

relationships. The Netherlands depend strongly on foreign trade, while a very large portion of

its trade is concentrated on Germany. Canada’s is less dependent on its foreign trade, but is

far more dependent on its trading relationship with the U.S., which means that both countries

strongly rely on their neighbour.

This is supported by the fact that both the Netherlands and Canada export more than

they import from Germany and the United States. The importance of this positive trade

balance can be seen when the mutual trade balances are compared with the total trade

balances. Without their neighbours, both the Netherlands and Canada would face large

economical problems.

The U.S. and Germany do not rely as strong on Canada and the Netherlands as vice

versa. However, Canada is still a major trading partner for the U.S., as a significant part of the

American trade is related to Canada. The portion of the German trade that is related to the

Netherlands is smaller, but Germany relies more on foreign trade than America. This means

that the importance of Canada and the Netherlands for the U.S. and Germany are roughly the

same.

So, while there are some differences, also some important similarities can be observed,

resulting in a comparable position of Canada and the Netherlands in the context of their

relations with their neighbouring countries. The most important similarity is however that

both countries had no free choice with regard to their neighbours and therefore had to find a

way to cooperate with economic powerhouses during the twentieth century.

5.4 Did Canada and the Netherlands have any options to deal with their economically

dominant neighbours during the 1980s?

52

The literature seems to suggest that smaller countries have indeed some options when it

comes with dealing with dominant countries. Hirschman argues that smaller countries will

find ways to influence the relationship with the larger country as long as the bigger country is

not fully focused on this relationship, but when the bigger country does focus and exerts its

will, the smaller country does not really have a choice but to comply. This was especially

evident in the period leading up to the Second World War. Hirschman’s research also shows

that the Netherlands are historically economically strongly connected with Germany, just as

Canada is with the United States. Hirschman concludes that bigger countries have a natural

urge to trade with smaller countries, as this increases their influences over these countries.

However, Hirschman also finds evidence that some smaller countries could escape the

wishes of bigger countries, just as in the case with the British Commonwealth and Southern

America. On the other hand, these countries were geographically far away from the dominant

country. The Netherlands and Canada border Germany and the U.S., which makes it easier for

the larger countries to exert their will. Nonetheless, it is hard to tell from Hirschman’s study

whether large countries are truly able to influence the trade of other countries.

Nevertheless, the period after the Second World War saw a rise in the formation of

bilateral, multilateral and unilateral organisations and treaties. Treaties like the FTA and

organisations like the E.C. offered the smaller countries possibilities to increase their ability

to resist the larger power’s wishes. For instance, Germany can not make unreasonable

demands on Rotterdam port tariffs, as other countries will object to this in the E.C. (for

instance France).

The reports of the WRR showed that export policies can also be used for influencing

trade relations. Institutions in Nord-Rhein Westphalia were not pleased by the strong

recommendations made by the WRR, and its suggestion to move the export to other parts of

Germany required the Dutch cabinet to state that this would not happen, while implying that

this would happen anyway. Combined with the fact that the U.S. actively pursued a Canadian

participation in NAFTA, this shows that both Germany and the U.S. value their trading

relations with the Netherlands and Canada, and that the smaller countries do have some

options. They also try to find alternatives to armed conflicts through bilateral, unilateral and

multilateral agreements in order to force the smaller country to act the way it wants.

The only question that remains is whether both relationships can be called

interdependent. While it is obvious that the Netherlands and Canada are dependent of their

bigger neighbour, it is hard to say whether Germany and the U.S. are as well. Germany needs

53

a deep water port which the Netherlands provides, while Canada is the largest trading partner

of the U.S..

However, Germany and the U.S. could try to find alternatives for these issues but

chose not to. It can be postulated that Germany is more dependent on the Netherlands than the

U.S. is on Canada, as Germany’s power over the Netherlands or other countries is restricted

by various European treaties and organisations and geographically dependent on the

Netherlands, while the U.S. has less official obligations to Canada, and is not dependent on its

geographical location due to its size. Furthermore, both Hirschman and Onder invloed van

Duitsland find that the Dutch and German economies are complementary to each other, while

the Canadian and American economy might not be, as the American economy already holds

every possible asset and aspect needed. As long as the Netherlands and Canada are able to

provide what Germany (a port) and the U.S. (a significant market) need, both Germany and

the U.S. will not complain about these relationships, or will try to find alternatives. This

makes these relationships, in my view, semi-interdependent.

5.5 Suggestions for further research

The research in this thesis has primarily focused on the Dutch and Canadian view on the

relationships with Germany and the U.S.. It would be preferable if more literature from the

American and German point of view would be available.

Another lack of literature concerns empirical studies whether Germany and the U.S.

are dependent on the Netherlands and Canada. What comes to mind is how many goods

Germany actually needs and receives from transit in the Netherlands, and whether Germany

has short-term alternatives for Rotterdam. In the case of the U.S. one could think of studying

what would happen with the American economy if it could or would not trade with Canada.

Many literature has been written on interdependence theories, but there are very few analysis

available that look at these issues, so there are virtually none that actually can prove that a

larger economy is dependent on smaller one.

Also, the role of strategic studies seems very important when studying these materials,

so a combination of strategic and economical studies with interdependence theories seems to

be very interesting. If this can be combined with a study of the influence of multilateral and

unilateral organizations and treaties, a better answer could be given to the questions posed in

this thesis.

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55

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7. Attachments

Data for graphs in chapter three.

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