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PRESS/TPRB/25
2February 1996
ECONOMIC REFORMS TAKE HOLD INTHE DOMINICAN REPUBLIC: BUT
OBSTACLES FOR EXPORT SECTORS REMAIN
Afterfiveyearsofmacro-economicreform,includingmajortradepolicychanges,theDominican
Republic hasmanaged tocurbinflation, decrease itsfiscal deficit, record asurplus initsbalance of
payments andattract more foreign direct investment. According toaWTO Secretariat report onthe
Dominican Republic 'strade policies andpractices, thegovernment iscontinuing itsefforts tofurther
integrate theeconomy intoworld markets andtomake thecountry 'sexports more competitive.
Since 1990, theDominican Republic hasalsotaken anumber ofsteps toreform itshighly
discretionary andcomplex traderegime bysuspending alargenumber oftraderestrictions. According
tothereport, thesereforms should reduce sectoral distortions intheeconomy, inparticular byreducing
therestrictiveness oftrade policies forthose industrial andagricultural products which compete with
imports. Suchpolicies contrast withthecountry 'sexport activities inthefreetradezones andespecially
inthetourism sector, which hasbeenprogressively liberalized. Thereport states thatservices such
astourism andproceeds fromthefreezones havebecome themostimportant source offoreign exchange
since themid-1980s, followed byremittances fromDominicans mainly working intheUnited States.
Inrecent years, exports ofagricultural goods, suchassugar, coffee, cocoa, andtobacco -thetraditional
Dominican exports -havebeenovertaken byexports ofservices andmanufactured goods, especially
clothing.
Thegovernment 'sprevious trade regime, which wascharacterized byawiderange oftariff
rates-withsome higher than200percent-wasreformed in1990. Thecurrent tariff, levied onan
advalorem basis, varies between three and35percent. Thereport states thattariff escalation still
exists, indicating thatcertain processing industries benefit from relatively higheffective protection.
Asaresult oftheUruguay Round, tariffs foragricultural products were bound at40percent. For
eightproducts, i.e.beans, chicken, corn, garlic, milk, onions, riceandsugar, theDominican Republic
wishes tomodify thebound rateandenterintonegotiations withotherWTO members. Inthemeantime,
import licences arestillrequired forthese products.
AWTO member since March 1995, theDominican Republic iscurrently drafting legislation
topromote freercompetition inthedomestic market andtoincorporate WTO commitments suchas
intellectual property rights, anti-dumping legislation, anewforeign investment lawandanewfinancial
code. Thelatter allows banks, which hadbeenlimited toproviding onlyspecific financial services,
toenter other banking activities. Under theGeneral Agreement onTrade inServices (GATS), the
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Dominican Republic made commitments onmarket access andnational treatment, especially inthe
modes ofcross-border supply andcommercial presence.
Themajor trading partner oftheDominican Republic istheUnited States bothinterms of
exports andimports. Thereport states thatthisdominance canbeattributed totwofactors: first, the
Dominican Republic benefits fromduty-free privileges under theCaribbean Basin Initiative (CBI) under
which Dominican exports represent around 25percentofthegoods entering theUnited States; second,
thefreezones havespecialized intheassembly ofclothing tobeexported totheUnited States under
theoff-shore assembly programme, another preferential régime. TheDominican Republic hasbeen
severely affected bythereduction ofU.S.sugar import quotas, previously particularly advantageous
since in-quota sugar exports totheUnited States earntwice theworld market price.
Since 1990, theDominican Republic hasbenefited from theEuropean Communities 'ACP
preferences under theLomé Convention, which includes banana exports. TheGovernment 'sgeneral
tradepolicy objectives havebeenpursued through multilateral, regional andbilateral tradenegotiations,
inparticularwithCaribbeanandCentralAmericancountries.Ithasalsoactivelylobbiedfortheapproval
bytheUnited States oftheextension ofNAFTA treatment toCentral America andtheCaribbean.
Thereport concludes thatthepost-Uruguay Round trading regime, aswellasthefull
implementation ofNAFTA, willbring some important opportunities andchallenges forthe
Dominican Republic. While some barriers toitsexports willbereduced, itwillalsolosepreferential
margins forsome ofitsexports. Theopening oftheeconomy will,inthelonger term, mean some
difficult adjustments, especially forimport-competing agriculture. These newconditions imply an
evengreater needtoeliminate structural impediments togrowth insectors withexport potential.
Notes toEditors:
TheWTO Secretariat 'sreport, together withareport prepared bytheDominican Republic
willbediscussed bytheWTO Trade Policy Review Body (TPRB) on14and15February 1996. The
WTO 'sTPRB conducts acollective evaluation ofthefullrange oftrade policies andpractices ofeach
WTO member atregular periodic intervals andmonitors significant trends anddevelopments which
mayhaveanimpact ontheglobal trading system.
Tworeports, together withareport oftheTPRB 'sdiscussion andoftheChairman 'ssumming
up,willbepublished induecourse asthecomplete Trade Policy Review oftheDominican Republic
andwillbeavailable fromtheWTO Secretariat, Centre William Rappard, 154ruedeLausanne, 1211
Geneva 21.
Thereports cover development ofallaspects oftheDominican Republic 'strade policies,
including domestic lawsandregulations, theinstitutional framework, trade policies bymeasure and
bysector. Since theWTO came intoforce, the"new areas" ofservices trade andtrade-related aspects
ofintellectual property rights arealsocovered. Attached arethesummary observations from the
Secretariat andgovernment reports. Fullreports willbeavailable forjournalists from theWTO
Secretariat onrequest.
Since December 1989, thefollowing reports havebeencompleted: Argentina (1992), Australia
(1989 &1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995),
Canada (1990, 1992&1994), Chile (1991), Colombia (1990), Costa Rica(1995), Côted'Ivoire (1995),
Egypt (1992), theEuropean Communities (1991, 1993&1995), Finland (1992), Ghana (1992), Hong
Kong (1990 &1994), Hungary (1991), Iceland (1994), India(1993), Indonesia (1991 and1994), Israel
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(1994), Japan (1990, 1992and1995), Kenya (1993), Korea, Rep.of(1992), Macau (1994), Malaysia
(1993), Mauritius (1995), Mexico (1993), Morocco (1989 &1996), NewZealand (1990), Nigeria
(1991), Norway (1991), Pakistan (1995), Peru(1994), thePhilippines (1993), Poland (1993), Romania
(1992), Senegal (1994), Singapore (1992), Slovak Republic (1995), South Africa (1993), SriLanka
(1995), Sweden (1990 &1994), Switzerland (1991), Thailand (1991 &1995), Tunisia (1994), Turkey
(1994), theUnited States (1989, 1992&1994), Uganda (1995), Uruguay (1992) andZimbabwe (1994).
TRADE POLICY REVIEW BODY
THE DOMINICAN REPUBLIC
Report bytheSecretariat -Summary observations
(1) Introduction
In1990,afterseveralyearsofstagflation,theDominicanRepublicbeganaprogrammeofreforms
torestore macroeconomic stability andgrowth. Asaresult oftheprogramme, inflation andthefiscal
deficit havedecreased; GDPhasstarted togrow; andthebalance ofpayments hasmoved intosurplus.
Confidence stemming from thestrong performance oftheeconomy hasbeen reflected incapital
repatriation andanincrease inforeign direct investment.
Tocomplement themacroeconomic programme, since 1990there hasalsobeenanimportant
reform oftrade policies andpractices, aswellasofthelegalandinstitutional framework. These are
intended toachieve amore neutral régime which should enhance international competitiveness and
reduce anti-export bias.These reforms should alsohelptoreduce sectoral divergences intheDominican
economy, where import-competing segments ofindustry andagriculture andtraditional, mainly farm,
exports havesuffered from restrictive trade legislation, while export activities inthefreezones and
thetourism sector havebecome theengines ofgrowth.
Under thereform programme, trade policy hasbecome more openandcompetition hasbeen
encouraged. Alarge number oftrade restrictions havebeensuspended inimportant effort toreform
ahighly discretionary andcomplex trade régime. However, thelegislative framework hasnotyet
beencompletely revised; thus, laws, decrees andresolutions governing foreign trade appear tohave
littleconsistencyandtransparency.Therationalizationofthislegislation,currentlyinhand,willenhance
thepredictability ofthetrade régime andprovide greater certainty forbusiness.
Fiscal, including tariff, reforms wereamong thekeyelements ofthestructural measures taken
in1990. Thefiscal reform simplified thetaxcodeinorder toimprove theefficiency oftaxcollection.
Italsoabolished allfiscal incentives, withtheexception ofthose granted tothefreezones, inorder
tomake thesystem more neutral. Thetariff reform partially simplified thetrade régime. Tariff
exemptions were eliminated andthelevelanddispersion ofthetariff ratesdecreased; tariffs range
from3to35percent. However, there isstillsome tariff escalation, andeffective ratesofprotection
incertain sectors remain high. Thereduction oftariffs, coinciding withother trade reforms, ledto
animport response which inturnincreased tariff revenues; tariffs remain oneofthemostimportant
sources offiscal revenue.
Financial reform isstillunder way. Major changes include theauthorization ofmulti-service
banks andtheapproval ofanewprudential law.Further reforms arecontemplated inthedraftMonetary
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andFinancial Code, nowbefore Congress. New legislation should reduce thecosts offinancial
intermediation caused bytheriskinvolved ininvesting inwhathasbeenperceived asanunstable banking
system. Asthefinancial reforms continue andthesystem becomes more efficient, interest ratesshould
alsodecline, making credit more affordable tosmall- andmedium-scale entrepreneurs.
Foreign direct investment hasbecome increasingly important, especially inthefreezones and
inthetourism sector. However, unexploited opportunities stillremain inseveral areasoftheeconomy.
According totheauthorities, anewFDIlawhasrecently beenapproved bytheCongress (since the
completion ofthemain partofthisreport). Thiswould grant national treatment, liberalize profit
remittances, andeliminate inconsistencies between thepresent legislation andtheDominican Republic 's
Schedule onSpecific Commitments onservices.
Since thebeginning ofthe1970s, resources havebeenshifted from thetraditional farming
baseoftheeconomy towards theproduction ofservices. Although theperformance oftheagricultural
sector hasbeenpoorduetobothdomestic andexternal factors, itcontinues tobethemajor employer.
Theservices sector, ledbytourism, hasbecome economically dominant. Manufacture ofclothing
inthefreezones hasalsobecome animportant activity. Theinformal sector appears substantial, but,
byitsnature, isdifficult toassess. Onthedemand side,private consumption hasdeveloped strongly
since thebeginning ofthe1970s.
Theprivate sector plays animportant rôleespecially inthefreezones andthetourism sector,
although theStatestillhasasignificant share intheeconomy. Privatization hasnotexpanded asrapidly
asithasinsome other Latin American countries despite thefinancial burden ofpublic enterprises.
(2) TheDominican Republic inWorld Trade
Themajor trading partner oftheDominican Republic istheUnited States bothinterms of
exports andimports. Thisdominance canbeattributed totwofactors. First, theDominican Republic
benefits from duty-free privileges under theCaribbean Basin Initiative (CBI); Dominican exports
represent around 25percentofthegoods entering theUnited States under theCBIscheme. Second,
thefreezones havespecialized intheassembly ofclothing tobeexported totheUnited States under
theoff-shore assembly programme, another preferential régime. TheDominican Republic hasbeen
severely affected bythereduction ofU.S.sugar import quotas, previously particularly advantageous
since in-quota sugar exports totheUnited States earntwice theworld market price.
Since 1990, theDominican Republic hasbenefited from ACP preferences under the
Lomé Convention, including forbananas. However, untilrecently thishasnothadamajor impact
ontrade withtheEuropean Union.
Inrecent years, exports ofagricultural goods, suchassugar, coffee, cocoa, andtobacco -the
traditional Dominican exports, havebecome secondary; while exports ofnon-factor services and
manufactured goods, especially clothing, haveincreased. Non-factor services suchastourism, and
proceeds from thefreezones havebecome themost important source offoreign exchange since the
mid-1980s, followed byremittances from Dominicans mainly working intheUnited States.
(3) Institutional Framework
Although official responsibility fortrade andtrade policy isspread among alarge number of
government ministries andinstitutions intheDominican Republic, theMinistry ofForeign Affairs
hastheprimaryrôleintradenegotiations,beingresponsiblefornegotiatingandsigningtradeagreements.
Alsounder itsmandate areother bodies dealing withspecific aspects offoreign trade: these include
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theForeign Trade Commission (Comisión deComercio Exterior), which advises theGovernment on
theformulation andimplementation oftradepolicies, andtheNational GATT Commission (Comisión
NacionaldelGATT),whichstudiesallWTO/GATT-relatedissuesandadvisesonthenegotiatingposition
oftheDominican Republic.
TheGovernment alsoconsults onaregular basiswiththeprivate sector through many official
committees thatareentrusted withtheformulation orimplementation oftrade policies.
(4) Trade Policy Features andTrends
Thegeneral tradepolicy objectives oftheDominican Republic include moving towards amore
outward-oriented trade régime, strengthening andincreasing overseas market access forDominican
products, andachieving thefurther integration oftheDominican Republic intotheworld economy.
TheDominican Republic acceded totheGATT in1950. Itwasobserver totwoTokyo Round
Agreements (Government Procurement andImport Licensing). TheDominican Republic became a
member oftheWTO inMarch 1995, having signed theFinal ActoftheUruguay Round andthe
Marrakesh Agreement establishing theWorld Trade Organization. Under theSingle Undertaking,
allUruguay Round Agreements, except thefourplurilateral agreements, became binding onthe
Dominican Republic.
TheGovernment 'sgeneral trade policy objectives havebeenpursued through multilateral,
regional andbilateral tradenegotiations, inparticular withCaribbean andCentral American countries.
TheDominican Republic hasapplied toenterCARICOM, where itcurrently hasobserver status. The
Dominican Republic alsoparticipated actively intheestablishment oftheAssociation ofCaribbean
States (ACS), which seeks topromote theeconomic integration oftheregion through theliberalization
oftrade, investment andtransport. TheGovernment isalsointerested inparticipating inthework
programme forahemispheric free-trade area,following theSummit oftheAmericas inDecember 1994.
Italsoactively lobbied fortheapproval bytheUnited States oftheextension ofNAFTA treatment
toCentral America andtheCaribbean.
(i) Evolution oftrade policies andinstruments
Theprevious trade régime wascharacterized byawiderange oftariff rates. Insome cases,
nominalratesexceeded200percent,andeffectiveprotectionwasconsiderablyhigherforcertainsectors.
Importprohibitionsandquantitativerestrictionsalsoprovidedvirtuallyinsurmountablelevelsofprotection
todomestic industries. Theallocation ofresources wasdistorted, andananti-export biascreated, by
thehighlevels ofprotection.
Following thetariff reform, tariffs, levied onanadvalorem basisvarybetween 3and35per
cent;tariffescalationstillexists,indicatingthatcertainprocessingindustriesbenefitfromhighereffective
protection thanisevident fromthenominal rates. Thetariff reform eliminated other levies andtaxes
onimports; theadditional charges thatremain aretheforeign exchange commission, andconsular
fees.
Imports areallowed concessional entry onlyunder thefreezones andtemporary admissions
régimes. Since 1993, anyother concessional entry forimports mustbeapproved byCongress. Tariff
preferencesaregrantedonlytoCostaRica,underapreferentialtradeagreementestablishedinMay1981.
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In1990, allimport quotas andmostimport licences andprohibitions wereeliminated; import
licences were replaced bytariffs, providing greater transparency tothesystem. Sanitary and
phytosanitary requirements seem toapply equally todomestic andimported products.
Asaresult oftheUruguay Round Agreement onAgriculture, tariff ratesforallagricultural
products werebound at40percent. Foreight products (beans, chicken, corn, garlic, milk, onions,
riceandsugar) theDominican Government isseeking tomodify thebound rate; negotiations have
notyetstarted, andimport licences arestillrequired forthese products.
Imports aresubject toavalue-added typetax(Transfer ofIndustrialized Goods andServices,
Impuesto alasTransferencias deBienes yServicios, ITBIS). Some products areexempt from this
tax,and,insome cases, thetaxexemptions benefit domestic products only. TheISC(Selective
Consumption Tax,Impuesto Selectivo alConsumo) islevied mainly onalcoholic beverages, tobacco
products andimported luxury items.
Public procurement isregulated bylaw; however, inpractice government agencies and
State enterprises follow theirownguidelines. Foreign suppliers mustbeassociated withadomestic
company inorder toparticipate inpublic bids.
Domestic standards intheDominican Republic arebased oninternational standards butadapted
todomestic conditions. They areapplied equally todomestic andimported goods.
In1992, most export restrictions suchaslicensing were abolished bydecree. Nospecial
registration ordocumentation isnowrequired formost exports, other thanastatistical declaration.
Export permits arestillrequired forproducts affecting theenvironment, andforagricultural goods
forsanitary reasons andquality control. Internal taxes arenotlevied onexports. In1990, export
taxes onagricultural goods were abolished. Although theGovernment isaware thatexport cartels
exist, theyarenotregulated.
Historically, anumber ofmeasures affecting exports wereimplemented through amixture of
laws,decrees,regulationsandresolutions.Toremedythesituation,theGovernmentiscurrentlyplanning
tosimplify theexport régime. Thecredibility ofthenewrégime would alsobeenhanced ifitwere
enshrined inlaw.
Freezones havebecome oneofthemost important anddynamic sectors intheDominican
economy forthegeneration ofemployment andforeign exchange. Thesuccess ofthescheme canbe
attributed tothestability, transparency andcoherence oftheoverall policies regulating thefreezones.
Exports from freezones haveincreased continuously attimes when other exports havedecreased.
However, theexport baseisnarrow, specializing inclothing andexporting mainly totheUnited States;
andvalue added isverylow.
Upto1992, theInstitute ofPrice Stabilization (INESPRE) wasresponsible foradministering
prices foragricultural goods. Since then, however, price surveillance hasbeenmaintained onlyfor
afewitems. Following theapproval oftheTaxCode in1992, most production subsidies andtax
concessionswereeliminated.However,theDominicanGovernmentisempoweredtoprovidetemporary
assistancetospecificsectorsthroughpricesupportmechanisms.Forinstance,cocoaandcoffeeproducers
haveattimes beencompensated forprice fallsintheinternational market.
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(ii) Newinitiatives
TheDominican Government, aware oftheimportance ofreforming theeconomy andofaclearer
legalframework tosupport thesereforms, isintheprocess ofdrafting lawsthatwould supersede current
legislation, regulations anddecrees invarious areas oftheeconomy. Legislation incorporating the
newmultilateral commitments onintellectual property rights isbeing drafted, aswellaslegislation
topromote freecompetition inthedomestic market. Several draftlawsarecurrently being discussed
inCongress, including ananti-dumping law,anewforeign direct investment law,anewelectricity
law,andanewFinancial Code.
(5) Conclusion
Thepost-Uruguay Round era,aswellasthefullimplementation ofNAFTA, willbring some
important opportunities andchallenges fortheDominican Republic. While some barriers toitsexports
willbereduced, itwillalsolosepreferential margins forsome ofitsexports. Theopening ofthe
economy will,inthelonger term, mean some difficult adjustments, especially forimport-competing
agriculture. These newconditions imply anevengreater needtoeliminate structural impediments
togrowth insectors withexport potential bycontinuing andenhancing thetradeliberalization process
through thefiscal, financial, institutional, andlegalreforms already under way.
Thesuccess ofthetourism industry intheDominican Republic hasproved thatthecountry
iswellabletocompete intheinternational market andexploit itscomparative advantage. Thesector
wasinitially developed under atemporary protection régime, butcontinued toprosper astherégime
wasphased out.Thefreezones stilloperating under apreferential régime, havealsobeensuccessful.
Progress inthese twosectors, relative totheimport-competing andtraditional export sectors, clearly
points upthedualism oftheDominican economy. Theliberalization oftheeconomy, byreducing
thisdualism, should allow theexpansion ofother potentially competitive sectors.
TRADE POLICY REVIEW BODY
THE DOMINICAN REPUBLIC
Report bytheGovernment -Summary Extracts
Trade Policy intheDominican Republic during thePeriod 1990-1995
I. BACKGROUND
TheDominican Republic isadeveloping country, inthetropical zone, withanopeneconomy.
Over thepastfiveyears itsforeign trade hasrepresented anaverage of33.1percentoftheannual
gross domestic product. Itcovers anareaofapproximately 48,700 km2andhasapopulation of
7.3million. Since independence in1844, itsforeign trade flows havebeenrelatively important, and
throughout mostofitshistory itseconomy hasbeenbased ontheexport ofprimary products andthe
import ofmachinery andequipment.
Over thepast15years, theDominican Republic 'strade policy hasbeenconducted within a
changing economic environment. Following aperiod ofstrong growth inthe1970s, when theeconomy
expanded atanannual average rateof9percentwhile prices increased atthemoderate rateof8percent
annually, theDominican Republic started toshow serious macroeconomic imbalances thatledtoa
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large deficit intheexternal accounts, arapid increase inforeign debtandhighinflation andexchange
rates.
Intheearly1980s,theeconomystartedtodisplayseriousstructuraldefectsthatwereexacerbated
byunfavourable changes intheexternal environment. Theprices oftraditional exports became unstable
andvolatile, thehikeinpetroleum prices ledtohigher expenditure onimports, exports suffered the
negative effects oftherecession indeveloped countries, andhigher interest ratesoninternational markets
raised thecostofservicing thedebt. These external problems werecompounded byexpansionary fiscal
andmonetary policies, steep import andexport tariffs, anddomestic price controls. Theinternal and
external imbalances ledtohigher inflation, stagnation ofproduction andemployment, andserious
imbalances inthebalance ofpayments intheform ofgrowing arrears intheexternal debtservice,
lower international reserves oftheCentral Bank andexchange rateinstability.
Inthesecond halfofthe1980s, there wasanincrease inproduction andemployment boosted
byhigher public andprivate spending andthiswasreflected inasignificant external imbalance atthe
endofthedecade. Theexpansion inproduction came toanendin1990when inflation reached 79.9per
cent,GDPgrowth fellby5percentandinternational reserves wereonlysufficient tocover oneweek's
imports.
InAugust 1990, theGovernment introduced aseries ofmeasures tohaltthedeterioration in
themacroeconomic situation. These included reducing thebudget deficit, devaluing theexchange rate
ontheofficial market, liberalizing interest rates, abolishing pricecontrols, liberalizing prices ofpublic
enterprises andcurbing themoney supply. Atthesame time, theGovernment adopted measures to
remedy thestructural defects inthecountry 'seconomy. Reforms were implemented infourareas:
foreign trade, thetaxsystem, thefinancial system andlabour.
II. ECONOMIC AND TRADE ENVIRONMENT
Theresults ofthestabilization andstructural reform policy werefeltimmediately. Inflation
fellfrom 79.9 percentin1990 to7.9percentin1991. Theexchange ratewasstabilized at
RD$12.50/dollar andGDP roseby7.6percentin1992. Asaresult ofthereforms, inthefirsthalf
ofthe1990s, theDominican Republic 'sinflation ratehasbeenoneofthelowest inthehemisphere,
GDP growth hasremained above theaverage forLatin America andtheCaribbean, unemployment
hasfallen significantly, productivity hasriseninthemostopensectors i.e.thefreezones andtourism,
therehasbeenprudent management ofmonetary policy, andinterest rateshavedropped. Theeconomy 's
increased focus onforeign markets asaresult ofthecommitments adopted under theUruguay Round
ofmultilateral negotiations willreinforce theimpact ontheeconomy andenterprises ofthestabilization
measures andthestructural reform implemented bytheGovernment.
(i) Trade policy developments
Over thepastfiveyears, themajor developments intheareaoftrade policy havebeenthe
tariff reforms of1990 and1993, participation intheCaribbean Basin Initiative, thesigning and
implementation ofagreements under theUruguay Round ofMultilateral Trade Negotiations, and
participation inregional integration agreements suchastheCaribbean Community, theFreeTrade
Area fortheAmericas andtheAssociation ofCaribbean States.
Policies toliberalize international trade ingoods andservices havehelped todiversify and
strengthen theDominican Republic 'sexport potential aswellastoincrease import penetration inthe
domestic market. Exports ofgoods, including those fromfreezones, grewatanaverage rateof5.9per
centduring theperiod 1990-1994, andexports ofservices increased atanaverage rateof11.2per
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centoverthesame period. Furthermore, thecomposition ofexports hasshifted fromprimary goods
towards manufactured goods, theshare oftheformer falling from 22.3percentin1990 to14.4per
centin1994. Inthecaseofimports, thevalue andvolume ofimports ofgoods roseatanannual average
rateof3.7percent, andincreased to22.6percentasaproportion ofGDP in1994.
(ii) Unilateral opening andreform
Asmentioned, in1990theGovernment oftheDominican Republic embarked uponaneconomic
reform process withtheaimofachieving more effective allocation ofresources, eliminating theanti-
export biasintheeconomy, promoting greater participation bytheprivate sector inallbranches of
theeconomy, andpromoting competition inmarkets. Thefollowing aresome ofthemostimportant
measures:
- reduction ofexisting tariff levels thatvaried between 0percentand200percentto
ninetariffs, ranging from 0percentto35percent, andoftheirdispersion;
- replacement ofspecific duties byadvalorem levies;
- import valuation onthebasis ofmarket ratesrather thandifferent ratesforvarious
types ofgoods;
- application oftariffs based onc.i.f. value (cost, insurance, freight) forgoods instead
off.o.b. value;
- elimination ofprohibitions, quotas andother types ofquantitative restrictions formost
imports;
- elimination oftariff exceptions andexemptions granted tosectors under special
agreements withtheState orunder promotion legislation;
- elimination ofmultiple exchange rates;
- introduction ofanewcustoms nomenclature;
- modernization ofthecustoms service through computerization ofcustoms offices and
simplification ofclearance procedures;
- abolitionofdiscriminationintheapplicationoftheselectiveconsumptiontaxonalcohol,
tobacco andbeer;
- reduction ofmarginal ratesofpersonal income taxtothree ratesbetween 15percent
and25percent. Under theprevious system, themaximum marginal taxratewas75per
cent;
- establishment ofasingle rateof25percentforprofits taxandabolition oftax
exemptions;
- abolition ofprice controls;
- approval byCongress ofanewForeign Direct Investment Lawthatabolishes theban
onforeign investment incertain sectors oftheDominican Republic 'seconomy, allows
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therepatriationofprofitsandthecapitalinvested,aswellasthechannellingoflong-term
loans;
- submission toCongress ofaLawonReform oftheElectricity Sector toenable
participation bytheprivate sector inpower generation anddistribution;
- liberalization ofinterest ratesfordeposits andloans;
- introduction ofuniform reserve requirements atalevelof20percent,compared with
theprevious system ofmultiple ratesdepending onthesectoral allocation ofthecredit
andthetypeofdeposit;
- establishment ofaprudential framework thatguarantees thesolidity offinancial
institutions andthetransformation ofthepresent system ofspecialized banks intoone
ofmultiple banking;
- submission toCongress ofaMonetary andFinancial Code tostrengthen the
independence oftheMonetary Board, theCentral Bank andtheSuperintendency of
Banks, establish thelevels ofcapital required inrelation totheamount andriskofassets
andthelimits onrelated assets heldbyfinancial bodies, aswellasthepenalties tobe
imposed iftherequirements arenotfulfilled;
- implementation oftheMonetary Board 'sDecision onbanking rules andprudential
measures inaccordance withtheBasel Agreements;
- strengthening oftheSuperintendency ofBanks.
TheGovernment oftheDominican Republic hasimplemented economic reform gradually but
systematically, respecting itscommitment todismantle andeliminate theexchange surcharge onimports,
the1.3,1.2and1.1multipliers forbasic tariffs andother trade barriers within thespecified period.
TheGovernment iscurrently preparing newlegislation forfurther reform, including adraft
General Customs Law, anExport Promotion Law, andlawsonthestock market andimplementation
ofArticles 13and26oftheAgreements onDumping andSubsidies, respectively.
(iii) TheDominican Republic andtheUruguay Round
Thereforms putintoeffect in1991began aprocess ofreorganization oftheeconomy inorder
togiverenewed impetus totheopening upofmarkets, reinforce theintegration ofthedomestic economy
inregional andglobal markets andimprove thecountry 'sproduction efficiency andcompetitiveness.
Asaresult, theDominican Republic tookanactive partinthenegotiations thatledtotheestablishment
oftheWorld Trade Organization, thesuccessor toGATT, inwhich member countries triedtocreate
abroader andmore transparent legalframework forthedevelopment ofinternational trade.
From 1990 onwards, theGovernment implemented astabilization programme following
widespread consultations withthecountry 'seconomic andsocial base, andthisledtoasocial pact
oneconomic solidarity andthesigning ofastand-by agreement withtheInternational Monetary Fund
(IMF). Thestabilization programme focused onthefiscal sector andincluded anumber ofmeasures
onaggregate public spending, imposing severe restrictions ondemand andpromoting taxreform in
theareaoffiscal revenue. Inthemoney sector, themoney supply remained under strict control and
therateofincrease ofthemoney stock fellbyalmost half. Interest andexchange rateswereliberalized
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sothattheycould bedetermined bymarket forces. Inaddition, theDominican Republic undertook
nottoimpose additional import restrictions forbalance-of-payments reasons.
TheGovernment oftheDominican Republic signed the1994Uruguay Round Agreements and
isdetermined topursue economic policies directed towards structural reform andtheopening upof
trade, which areessential fortheefficient allocation ofresources fromprivate investment intheeconomy
andthesearch fornewforeign markets. Inconformity withthese policies, theGovernment willmake
every effort tokeepinflation atlevels similar tothose inindustrialized countries andwillpursue its
endeavours tomaintain aviable balance ofpayments. Itsstrategy isbased onadherence totheprinciple
offreeenterprise, anopentraderegime soastoincrease exports, continued participation ininternational
financing organizations asanactive member andgreater efficiency inpublic spending soastoincrease
therateofgrowth ofearnings andimprove theirdistribution.
Thecontinuity ofthepolicy described inthepreceding sections incredit, foreign exchange
andfiscal matters hasallowed theDominican Republic topursue theprocess ofliberalizing itsmarkets,
thushelping tostabilize domestic prices ofgoods andservices andexchange rates. Inaddition, the
Dominican Republic ispursuing itsefforts toobtain Congressional approval ofapackage oflawson
themodernizationandinternalreorganizationofthecountrysothatitcanadapttothenewworldsituation
resulting fromtheglobalization oftheeconomy andmarkets. TheLawontheReform oftheEnergy
Sector, thenewMonetary andFinancial Code andreorganization ofthejudicial sector areawaiting
Congressional approval. TheNational Congress hasalready approved thenewlawonforeign direct
investment, which allows therepatriation ofthetotality ofcapital andprofits andopens upallsectors
oftheeconomy toforeign investment withthesoleexception ofthose related tonational defence and
ecology, andhassigned theAgreement ontheWorld Bank'sMultilateral Investment Guarantee Agency
(MIGA). Atpresent, there isapublic discussion onfurther tariff andtaxreform.
Theobjective ofreform inthefinancial sector wastoprovide apermanent legalstructure for
financial institutions toenter andleave thesystem andprudential andbanking rules toregulate it.
Work isalsogoing ontoimprove thelegalandregulatory framework forfinancial policy, toestablish
andensure compliance withtheprudential andbanking regulations soastoimprove thesolvency of
financial institutions, lessen theexcessive segmentation ofthesystem soastoenhance itsefficiency,
strengthen institutional capacity tosupervise thesector andensure thatState banks aresubject tothe
sameprudential regulations asprivate banks. Theprovisions ofthenewMonetary andFinancial Code
onbanking andprudential regulations arealready being applied intheformofdecisions bytheMonetary
Board, which giveforeign banks treatment similar tothatofnational banks andestablish multibanking
asawayoflowering theoperating costs offinancial institutions. Thereform process begun in1992
andisexpected tolastsome sixyears upuntil1998.
(iv) Integration
Although theDominican Republic isnotamember ofanyeconomic integration grouping at
present, since 1991 ithasmade increased efforts todevelop itsrelations withthevarious integration
schemes thatareviable from thepoint ofviewofnational interests. Inthisconnection, ithassetup
threebodiestopromoteeconomicintegration.In1992,theCommissionfortheFollow-UpofIntegration
Schemes wascreated, subsequently theJoint Standing Commission fortheFollow-Up ofBilateral
Agreements wasstrengthened and,lastly, theNational Commission fortheFollow-Up ofCommitments
bytheSummit oftheAmericas wasestablished. TheDominican Republic participated atthehighest
level-thePresident oftheRepublic -intheSummit ofAmerican Heads ofStateandsigned theAction
Plan.AtthemeetingheldinDenver,Colorado,theGovernmentparticipatedatministeriallevel,together
withtheprivate sector andassociations ofbusiness groups, highlighting itskeeninterest intheFree
Trade Area fortheAmericas (FTAA) andacommitment toimplement thePlanofAction.
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Inaddition, theDominican Republic hasparticipated inthereciprocal payments andcredit
agreement oftheLatin American Integration Association (LAIA) since theorganization wasfounded
in1980. Thismechanism allows theDominican Republic tohaveaccess tofinancing fortradeoperations
withmember countries ofLAIA. During the1980s, themechanism wasincreasingly usedtofinance
suchoperations. Intheearly 1990s, itwasalmost exclusively usedtomeetprior commitments, but
theDominican Republic hasnowmodified theprocedure foruseofsuchfinancing andthishasbeen
favourably received bycommercial banks.
In1989, theDominican Republic acceded totheIVthLomé Convention, initiating aprocess
ofrapprochement withCARICOM, ofwhich itbecame anobserver, taking anactive partinthevarious
functional cooperation mechanisms inareas suchashealth, education, agriculture, etc.Theendof
1992sawthecreation oftheAssociation ofCaribbean States (ACS), ofwhich theDominican Republic
isafoundermember,onlyawaitingratificationbyCongressoftheOrganization'sconstituentagreement.
Inaddition tothesemultilateral agreements, theDominican Republic hasconcluded bilateral agreements
withCosta Ricaandagreements ofintent withother countries, forexample, Ecuador andPanama.
Intheimmediate future, theDominican Republic intends tofinalize andamplify thereforms
initiated in1990 soastoenhance thecompetitiveness oftheeconomy, promote trade withtherest
oftheworld andmake useoftheadvantages offered byinternational trade toimprove theliving
conditions ofitspopulation.
(v) TheDominican Republic 'sparticipation inpreferential schemes
Foreign tradeplays animportant roleintheDominican Republic 'seconomic policy, accounting
forahighpercentage ofitsGDP. Inthedynamics offoreign trade, domestic exports andexports from
freezones havereceived strong support from thevarious preferential trade schemes. Among these
aretheprogrammes under theCaribbean Basin Initiative (CBI), concluded bytheUnited States and
theCentral American andCaribbean Region in1983, andtheLomé IVConvention signed between
15European Union States and69ACPStates (Africa, Caribbean andPacific) in1989, aswellasthe
Generalized System ofPreferences (GSP), which has26different schemes under which developed
countries grant preferences todeveloping countries.
Since 1980, theDominican Republic hasalsobeenabeneficiary oftheSanJoséAgreement
signed bypetroleum-importing Central American andCaribbean countries, Mexico andVenezuela.
ThisAgreement gives theDominican Republic access tolinesofcredit forapproximately 20percent
ofthecostofpetroleum supplied byMexico andVenezuela. These funds canbeusedtofinance
economic development projects inproduction sectors onpreferential terms.
Theimplementation ofthemechanisms mentioned above hasallowed theDominican Republic
toexpand thecoverage ofitsexports, including activities infreezones, by6.6percentannually over
theperiod 1990-1994. Thevalue ofexports totheNorth American market under thepreferential
programme oftheCBIandtheGSPhasgrown atanannual rateofover20percentduring thesame
period, making theDominican Republic theleader among Caribbean andCentral American countries,
accounting for25percentoftheregion 'sexports tothismarket. Under theLomé IVConvention
thevalue ofdomestic exports andexports fromfreezones toEurope hasgrown by2.4percentannually,
while theirvolume hasshown anannual increase of6.5percent.
Thepreferential margins under these trade schemes willbeaffected bytheestablishment of
boththeWTO andNAFTA andthecreation ofaFreeTrade AreafortheAmericas (FTAA), which
willbesetupin2005. Exports ofgoods suchasmade-up clothing andshoeuppers, inparticular,
willlosetheiraccess advantages asaresult oftheopening-up oftrade intheNorth American market.
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Among Latin American countries, theDominican Republic isthemainsupplier ofboththese exports
totheNorth American market. Itisaware oftheimpetus provided bytheopening-up andglobalization
oftheeconomy andhopes toachieve ahigher level ofintegration ofitsproduction, aswellasthe
necessary rationalization ofitsoperating costs soastobemore competitive.
Inaddition, andparticularly inconnection withNAFTA, theDominican Republic, together
withother countries oftheCaribbean andCentral American region, istrying togettheUnited States
Administration toagree toanequilibrium under aprogramme ofparity withtheNAFTA Agreement
inorder tomaintain tariff preferences. Forthenextfewyears, itisestimated thattheaverage foreign
tradecoefficient, inrelation toGDP, willriseto35percentand,withtheprocess ofopening-up, exports
ofgoods classified intotraditional products, non-traditional products andminerals areexpected togrow
atarateof6.5percentuntil2005, andactivities inthefreezones byover7percent.
III. LEGISLATIVEADJUSTMENTSFOLLOWINGTHEURUGUAYROUNDAGREEMENTS
TheGovernment oftheDominican Republic hassetupaninter-agency technical teamtofollow
uponthecommitments undertaken asasignatory totheUruguay Round Agreements. Itswork has
includedidentifyingthelegalprovisionsthatareinconsistentwiththeAgreements,whetheradministrative
orresulting fromapplication oflegislation. Inthisconnection, non-tariff barriers totradeinagricultural
products arebeing eliminated anddiscretional import licences arebeing identified sothattheycan
beeliminated orreplaced byautomatic licences.
Legislation isalsobeing drawn uponrulesoforigin, andtheexisting phytosanitary provisions
havebeenrevised toharmonize them withtheprovisions ineffect initsmajor trade partners. The
Dominican Republic isalsopreparing alawtodefine theinstitutional framework forapplication of
theUruguay Round Agreements onunfair tradepractices andsafeguard measures. Under theDominican
Republic 'slegalsystem, onceinternational agreements havebeenratified bytheNational Congress
theyhave force oflaw. Consequently, theagreements ondumping, subsidies andcountervailing
measures, andsafeguards havealready beenincorporated intothelaw,theonlypending issue being
theidentification oftheGovernment authorities responsible forinvestigating suchprocedures, reviewing
decisions (judicial review mechanism) andapplying themeasures.
Legislative adjustment alsoincludes theannulment ofthelegalprovisions thatarecontrary
tothecommitments undertaken intheDominican Republic 'sschedule ofservices, which isanintegral
partoftheFinal ActoftheUruguay Round. Anumber ofthese provisions havealready beenannulled
inthenewForeign Direct Investment Law, adopted inNovember 1995bybothlegislative chambers.
Reformofthetelecommunicationsregimehasalreadystartedinordertomodernizethelegal,institutional
andregulatory framework inthissector. When theprocess iscompleted, therewillbeanindependent,
participatory regulatory body withadministrative andfinancial autonomy, whose mainobjective will
betheeffective regulation ofthissector soastoguarantee universal service, andpromote competition,
quality ofservice andtheuser'srightofchoice.
Intheareaofintellectual property, theGovernment considers thatlegislative reform should
takeplace inthecontext ofacompetitive regime thatwillhavetobecreated inorder toguarantee
theoperation ofmarket forces inthecontext oftheincreased opening-up oftheeconomy overthenext
decade. Ittherefore supplemented thenewdraft Industrial Property Lawwithlegislation forthe
promotion ofcompetition, consumer protection andrepression ofunfair practices. Forthispurpose,
alltheregulatory functions under thisregime wereentrusted toanewStatebody. Liketheregulatory
body fortelecommunications, itwillhavefinancial autonomy andadministrative independence from
other State bodies.
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Other institutional reforms resulting fromtheUruguay Round concern thefunctioning ofthe
Directorate-General ofCustoms. Theimplementation ofreform ofthisbodyiscurrently atanadvanced
stage inorder toensure thatitfunctions effectively incompliance withtheCustoms Valuation Code
oftheUruguay Round. Thetransposition ofSchedule XXIII ofthetariff bindings prior tothe
Uruguay Round hasbeencarried out,reflecting indomestic legislation theadvalorem levels thathave
beenbound insuccessive negotiations since 1952. Adraftdecree hasalsobeensenttotheExecutive
repealing fourprovisions thathavenotbeenapplied since1986, which established non-tariff restrictions
ontrade intextile products thatwere contrary totheAgreement onTextiles andClothing.
Asfarastheforeign traderegime isconcerned, itisplanned tomerge responsibilities conferred
bylawinasingle Stateinstitution soastoendthelegalandadministrative conflicts thathaveoccurred
upuntilnow. TheGovernment alsointends toreform therights ofusers ofmaritime transport by
acceding tomajor international agreements suchastheHamburg Rules, theUnited Nations Convention
onInternational Multimodal Transport ofGoods andUnited Nations Convention onaCode ofConduct
forLiner Conferences. Inorder topromote greater efficiency inthissector, these activities willbe
included inthecompetition regime tobeestablished from 1996 onwards. LawNo.70ontheport
authority oftheDominican Republic willbemodified inorder toestablish aregime fortheprivate
operationofnationalportsthroughconcessionsawardedtoeligibleenterprisesandthegrantingofnational
treatment. Finally, theDominican Republic wishes tounderline itsfirmcommitment toopencommerce
andforeign trade asameans ofimproving thequality oflifeofitspopulation.
END