PRESS RELEASE
PRESS/TPRB/25
2 February 1996 Economic
reforms take hold in the Dominican Republic: but obstacles for export sectors remain Back
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After five years of macro-economic reform, including
major trade policy changes, the Dominican Republic has managed to curb inflation, decrease
its fiscal deficit, record a surplus in its balance of payments and attract more foreign
direct investment. According to a WTO Secretariat report on the Dominican Republic's trade
policies and practices, the government is continuing its efforts to further integrate the
economy into world markets and to make the country's exports more competitive.
Since 1990, the Dominican Republic has also taken a
number of steps to reform its highly discretionary and complex trade regime by suspending
a large number of trade restrictions. According to the report, these reforms should reduce
sectoral distortions in the economy, in particular by reducing the restrictiveness of
trade policies for those industrial and agricultural products which compete with imports.
Such policies contrast with the country's export activities in the free trade zones and
especially in the tourism sector, which has been progressively liberalized. The report
states that services such as tourism and proceeds from the free zones have become the most
important source of foreign exchange since the mid-1980s, followed by remittances from
Dominicans mainly working in the United States. In recent years, exports of agricultural
goods, such as sugar, coffee, cocoa, and tobacco - the traditional Dominican exports -
have been overtaken by exports of services and manufactured goods, especially clothing.
The government's previous trade regime, which was
characterized by a wide range of tariff rates - with some higher than 200 per cent - was
reformed in 1990. The current tariff, levied on an ad valorem basis, varies between three
and 35 per cent. The report states that tariff escalation still exists, indicating that
certain processing industries benefit from relatively high effective protection. As a
result of the Uruguay Round, tariffs for agricultural products were bound at 40 per cent.
For eight products, i.e. beans, chicken, corn, garlic, milk, onions, rice and sugar, the
Dominican Republic wishes to modify the bound rate and enter into negotiations with other
WTO members. In the meantime, import licences are still required for these products. A WTO
member since March 1995, the Dominican Republic is currently drafting legislation to
promote freer competition in the domestic market and to incorporate WTO commitments such
as intellectual property rights, anti-dumping legislation, a new foreign investment law
and a new financial code. The latter allows banks, which had been limited to providing
only specific financial services, to enter other banking activities. Under the General
Agreement on Trade in Services (GATS), the
Dominican Republic made commitments on market access
and national treatment, especially in the modes of cross-border supply and commercial
presence.
The major trading partner of the Dominican Republic
is the United States both in terms of exports and imports. The report states that this
dominance can be attributed to two factors: first, the Dominican Republic benefits from
duty-free privileges under the Caribbean Basin Initiative (CBI) under which Dominican
exports represent around 25 per cent of the goods entering the United States; second, the
free zones have specialized in the assembly of clothing to be exported to the United
States under the off-shore assembly programme, another preferential régime. The Dominican
Republic has been severely affected by the reduction of U.S. sugar import quotas,
previously particularly advantageous since in-quota sugar exports to the United States
earn twice the world market price.
Since 1990, the Dominican Republic has benefited
from the European Communities' ACP preferences under the Lomé Convention, which includes
banana exports. The Government's general trade policy objectives have been pursued through
multilateral, regional and bilateral trade negotiations, in particular with Caribbean and
Central American countries. It has also actively lobbied for the approval by the United
States of the extension of NAFTA treatment to Central America and the Caribbean.
The report concludes that the post-Uruguay Round
trading regime, as well as the full implementation of NAFTA, will bring some important
opportunities and challenges for the Dominican Republic. While some barriers to its
exports will be reduced, it will also lose preferential margins for some of its exports.
The opening of the economy will, in the longer term, mean some difficult adjustments,
especially for import-competing agriculture. These new conditions imply an even greater
need to eliminate structural impediments to growth in sectors with export potential.
Notes to Editors:
The WTO Secretariat's report, together with a report
prepared by the Dominican Republic will be discussed by the WTO Trade Policy Review Body
(TPRB) on 14 and 15 February 1996. The WTO's TPRB conducts a collective evaluation of the
full range of trade policies and practices of each WTO member at regular periodic
intervals and monitors significant trends and developments which may have an impact on the
global trading system.
Two reports, together with a report of the TPRB's
discussion and of the Chairman's summing up, will be published in due course as the
complete Trade Policy Review of the Dominican Republic and will be available from the WTO
Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover development of all aspects of the
Dominican Republic's trade policies, including domestic laws and regulations, the
institutional framework, trade policies by measure and by sector. Since the WTO came into
force, the "new areas" of services trade and trade-related aspects of
intellectual property rights are also covered. Attached are the summary observations from
the Secretariat and government reports. Full reports will be available for journalists
from the WTO Secretariat on request.
Since December 1989, the following reports have been
completed: 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), Côte d'Ivoire (1995), Egypt (1992), the
European Communities (1991, 1993 & 1995), Finland (1992), Ghana (1992), Hong Kong
(1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and
1994), Israel (1994), Japan (1990, 1992 and 1995), Kenya (1993), Korea, Rep. of (1992),
Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 & 1996),
New Zealand (1990), Nigeria (1991), Norway (1991), Pakistan (1995), Peru (1994), the
Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992),
Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994),
Switzerland (1991), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United
States (1989, 1992 & 1994), Uganda (1995), Uruguay (1992) and Zimbabwe (1994).
The
Secretariats report: summary Back to top
TRADE POLICY REVIEW BODY: THE
DOMINICAN REPUBLIC
Report by the Secretariat Summary Observations
(1) Introduction
In 1990, after several years of stagflation, the
Dominican Republic began a programme of reforms to restore macroeconomic stability and
growth. As a result of the programme, inflation and the fiscal deficit have decreased; GDP
has started to grow; and the balance of payments has moved into surplus. Confidence
stemming from the strong performance of the economy has been reflected in capital
repatriation and an increase in foreign direct investment.
To complement the macroeconomic programme, since
1990 there has also been an important reform of trade policies and practices, as well as
of the legal and institutional framework. These are intended to achieve a more neutral
régime which should enhance international competitiveness and reduce anti-export bias.
These reforms should also help to reduce sectoral divergences in the Dominican economy,
where import-competing segments of industry and agriculture and traditional, mainly farm,
exports have suffered from restrictive trade legislation, while export activities in the
free zones and the tourism sector have become the engines of growth.
Under the reform programme, trade policy has become
more open and competition has been encouraged. A large number of trade restrictions have
been suspended in important effort to reform a highly discretionary and complex trade
régime. However, the legislative framework has not yet been completely revised; thus,
laws, decrees and resolutions governing foreign trade appear to have little consistency
and transparency. The rationalization of this legislation, currently in hand, will enhance
the predictability of the trade régime and provide greater certainty for business.
Fiscal, including tariff, reforms were among the key
elements of the structural measures taken in 1990. The fiscal reform simplified the tax
code in order to improve the efficiency of tax collection. It also abolished all fiscal
incentives, with the exception of those granted to the free zones, in order to make the
system more neutral. The tariff reform partially simplified the trade régime. Tariff
exemptions were eliminated and the level and dispersion of the tariff rates decreased;
tariffs range from 3 to 35 per cent. However, there is still some tariff escalation, and
effective rates of protection in certain sectors remain high. The reduction of tariffs,
coinciding with other trade reforms, led to an import response which in turn increased
tariff revenues; tariffs remain one of the most important sources of fiscal revenue.
Financial reform is still under way. Major changes
include the authorization of multi-service banks and the approval of a new prudential law.
Further reforms are contemplated in the draft Monetary and Financial Code, now before
Congress. New legislation should reduce the costs of financial intermediation caused by
the risk involved in investing in what has been perceived as an unstable banking system.
As the financial reforms continue and the system becomes more efficient, interest rates
should also decline, making credit more affordable to small- and medium-scale
entrepreneurs.
Foreign direct investment has become increasingly
important, especially in the free zones and in the tourism sector. However, unexploited
opportunities still remain in several areas of the economy. According to the authorities,
a new FDI law has recently been approved by the Congress (since the completion of the main
part of this report). This would grant national treatment, liberalize profit remittances,
and eliminate inconsistencies between the present legislation and the Dominican Republic's
Schedule on Specific Commitments on services.
Since the beginning of the 1970s, resources have
been shifted from the traditional farming base of the economy towards the production of
services. Although the performance of the agricultural sector has been poor due to both
domestic and external factors, it continues to be the major employer. The services sector,
led by tourism, has become economically dominant. Manufacture of clothing in the free
zones has also become an important activity. The informal sector appears substantial, but,
by its nature, is difficult to assess. On the demand side, private consumption has
developed strongly since the beginning of the 1970s.
The private sector plays an important rôle
especially in the free zones and the tourism sector, although the State still has a
significant share in the economy. Privatization has not expanded as rapidly as it has in
some other Latin American countries despite the financial burden of public enterprises.
(2) The Dominican Republic in World Trade
The major trading partner of the Dominican Republic
is the United States both in terms of exports and imports. This dominance can be
attributed to two factors. First, the Dominican Republic benefits from duty-free
privileges under the Caribbean Basin Initiative (CBI); Dominican exports represent around
25 per cent of the goods entering the United States under the CBI scheme. Second, the free
zones have specialized in the assembly of clothing to be exported to the United States
under the off-shore assembly programme, another preferential régime. The Dominican
Republic has been severely affected by the reduction of U.S. sugar import quotas,
previously particularly advantageous since in-quota sugar exports to the United States
earn twice the world market price.
Since 1990, the Dominican Republic has benefited
from ACP preferences under the Lomé Convention, including for bananas. However, until
recently this has not had a major impact on trade with the European Union.
In recent years, exports of agricultural goods, such
as sugar, coffee, cocoa, and tobacco - the traditional Dominican exports, have become
secondary; while exports of non-factor services and manufactured goods, especially
clothing, have increased. Non-factor services such as tourism, and proceeds from the free
zones have become the most important source of foreign exchange since the mid-1980s,
followed by remittances from Dominicans mainly working in the United States.
(3) Institutional Framework
Although official responsibility for trade and trade
policy is spread among a large number of government ministries and institutions in the
Dominican Republic, the Ministry of Foreign Affairs has the primary rôle in trade
negotiations, being responsible for negotiating and signing trade agreements. Also under
its mandate are other bodies dealing with specific aspects of foreign trade: these include
the Foreign Trade Commission (Comisión de Comercio Exterior), which advises the
Government on the formulation and implementation of trade policies, and the National GATT
Commission (Comisión Nacional del GATT), which studies all WTO/GATT-related issues and
advises on the negotiating position of the Dominican Republic.
The Government also consults on a regular basis with
the private sector through many official committees that are entrusted with the
formulation or implementation of trade policies.
(4) Trade Policy Features and Trends
The general trade policy objectives of the Dominican
Republic include moving towards a more outward-oriented trade régime, strengthening and
increasing overseas market access for Dominican products, and achieving the further
integration of the Dominican Republic into the world economy.
The Dominican Republic acceded to the GATT in 1950.
It was observer to two Tokyo Round Agreements (Government Procurement and Import
Licensing). The Dominican Republic became a member of the WTO in March 1995, having signed
the Final Act of the Uruguay Round and the Marrakesh Agreement establishing the World
Trade Organization. Under the Single Undertaking, all Uruguay Round Agreements, except the
four plurilateral agreements, became binding on the Dominican Republic.
The Government's general trade policy objectives
have been pursued through multilateral, regional and bilateral trade negotiations, in
particular with Caribbean and Central American countries. The Dominican Republic has
applied to enter CARICOM, where it currently has observer status. The Dominican Republic
also participated actively in the establishment of the Association of Caribbean States
(ACS), which seeks to promote the economic integration of the region through the
liberalization of trade, investment and transport. The Government is also interested in
participating in the work programme for a hemispheric free-trade area, following the
Summit of the Americas in December 1994. It also actively lobbied for the approval by the
United States of the extension of NAFTA treatment to Central America and the Caribbean.
(i) Evolution of trade policies and instruments
The previous trade régime was characterized by a
wide range of tariff rates. In some cases, nominal rates exceeded 200 per cent, and
effective protection was considerably higher for certain sectors. Import prohibitions and
quantitative restrictions also provided virtually insurmountable levels of protection to
domestic industries. The allocation of resources was distorted, and an anti-export bias
created, by the high levels of protection.
Following the tariff reform, tariffs, levied on an
ad valorem basis vary between 3 and 35 per cent; tariff escalation still exists,
indicating that certain processing industries benefit from higher effective protection
than is evident from the nominal rates. The tariff reform eliminated other levies and
taxes on imports; the additional charges that remain are the foreign exchange commission,
and consular fees.
Imports are allowed concessional entry only under
the free zones and temporary admissions régimes. Since 1993, any other concessional entry
for imports must be approved by Congress. Tariff preferences are granted only to Costa
Rica, under a preferential trade agreement established in May 1981.
In 1990, all import quotas and most import licences
and prohibitions were eliminated; import licences were replaced by tariffs, providing
greater transparency to the system. Sanitary and phytosanitary requirements seem to apply
equally to domestic and imported products.
As a result of the Uruguay Round Agreement on
Agriculture, tariff rates for all agricultural products were bound at 40 per cent. For
eight products (beans, chicken, corn, garlic, milk, onions, rice and sugar) the Dominican
Government is seeking to modify the bound rate; negotiations have not yet started, and
import licences are still required for these products.
Imports are subject to a value-added type tax
(Transfer of Industrialized Goods and Services, Impuesto a las Transferencias de Bienes y
Servicios, ITBIS). Some products are exempt from this tax, and, in some cases, the tax
exemptions benefit domestic products only. The ISC (Selective Consumption Tax, Impuesto
Selectivo al Consumo) is levied mainly on alcoholic beverages, tobacco products and
imported luxury items.
Public procurement is regulated by law; however, in
practice government agencies and State enterprises follow their own guidelines. Foreign
suppliers must be associated with a domestic company in order to participate in public
bids.
Domestic standards in the Dominican Republic are
based on international standards but adapted to domestic conditions. They are applied
equally to domestic and imported goods.
In 1992, most export restrictions such as licensing
were abolished by decree. No special registration or documentation is now required for
most exports, other than a statistical declaration. Export permits are still required for
products affecting the environment, and for agricultural goods for sanitary reasons and
quality control. Internal taxes are not levied on exports. In 1990, export taxes on
agricultural goods were abolished. Although the Government is aware that export cartels
exist, they are not regulated.
Historically, a number of measures affecting exports
were implemented through a mixture of laws, decrees, regulations and resolutions. To
remedy the situation, the Government is currently planning to simplify the export régime.
The credibility of the new régime would also be enhanced if it were enshrined in law.
Free zones have become one of the most important and
dynamic sectors in the Dominican economy for the generation of employment and foreign
exchange. The success of the scheme can be attributed to the stability, transparency and
coherence of the overall policies regulating the free zones. Exports from free zones have
increased continuously at times when other exports have decreased. However, the export
base is narrow, specializing in clothing and exporting mainly to the United States; and
value added is very low.
Up to 1992, the Institute of Price Stabilization
(INESPRE) was responsible for administering prices for agricultural goods. Since then,
however, price surveillance has been maintained only for a few items. Following the
approval of the Tax Code in 1992, most production subsidies and tax concessions were
eliminated. However, the Dominican Government is empowered to provide temporary assistance
to specific sectors through price support mechanisms. For instance, cocoa and coffee
producers have at times been compensated for price falls in the international market.
(ii) New initiatives
The Dominican Government, aware of the importance of
reforming the economy and of a clearer legal framework to support these reforms, is in the
process of drafting laws that would supersede current legislation, regulations and decrees
in various areas of the economy. Legislation incorporating the new multilateral
commitments on intellectual property rights is being drafted, as well as legislation to
promote free competition in the domestic market. Several draft laws are currently being
discussed in Congress, including an anti-dumping law, a new foreign direct investment law,
a new electricity law, and a new Financial Code.
(5) Conclusion
The post-Uruguay Round era, as well as the full
implementation of NAFTA, will bring some important opportunities and challenges for the
Dominican Republic. While some barriers to its exports will be reduced, it will also lose
preferential margins for some of its exports. The opening of the economy will, in the
longer term, mean some difficult adjustments, especially for import-competing agriculture.
These new conditions imply an even greater need to eliminate structural impediments to
growth in sectors with export potential by continuing and enhancing the trade
liberalization process through the fiscal, financial, institutional, and legal reforms
already under way.
The success of the tourism industry in the Dominican
Republic has proved that the country is well able to compete in the international market
and exploit its comparative advantage. The sector was initially developed under a
temporary protection régime, but continued to prosper as the régime was phased out. The
free zones still operating under a preferential régime, have also been successful.
Progress in these two sectors, relative to the import-competing and traditional export
sectors, clearly points up the dualism of the Dominican economy. The liberalization of the
economy, by reducing this dualism, should allow the expansion of other potentially
competitive sectors.
Government
report Back to top
TRADE POLICY REVIEW BODY: THE
DOMINICAN REPUBLIC
Report by the Government - Summary Extracts
Trade Policy in the Dominican
Republic during the Period 1990-1995
I. BACKGROUND
The Dominican Republic is a developing country, in
the tropical zone, with an open economy. Over the past five years its foreign trade has
represented an average of 33.1 per cent of the annual gross domestic product. It covers an
area of approximately 48,700 km2 and has a population of 7.3 million. Since independence
in 1844, its foreign trade flows have been relatively important, and throughout most of
its history its economy has been based on the export of primary products and the import of
machinery and equipment.
Over the past 15 years, the Dominican Republic's
trade policy has been conducted within a changing economic environment. Following a period
of strong growth in the 1970s, when the economy expanded at an annual average rate of 9
per cent while prices increased at the moderate rate of 8 per cent annually, the Dominican
Republic started to show serious macroeconomic imbalances that led to a large deficit in
the external accounts, a rapid increase in foreign debt and high inflation and exchange
rates.
In the early 1980s, the economy started to display
serious structural defects that were exacerbated by unfavourable changes in the external
environment. The prices of traditional exports became unstable and volatile, the hike in
petroleum prices led to higher expenditure on imports, exports suffered the negative
effects of the recession in developed countries, and higher interest rates on
international markets raised the cost of servicing the debt. These external problems were
compounded by expansionary fiscal and monetary policies, steep import and export tariffs,
and domestic price controls. The internal and external imbalances led to higher inflation,
stagnation of production and employment, and serious imbalances in the balance of payments
in the form of growing arrears in the external debt service, lower international reserves
of the Central Bank and exchange rate instability.
In the second half of the 1980s, there was an
increase in production and employment boosted by higher public and private spending and
this was reflected in a significant external imbalance at the end of the decade. The
expansion in production came to an end in 1990 when inflation reached 79.9 per cent, GDP
growth fell by 5 per cent and international reserves were only sufficient to cover one
week's imports.
In August 1990, the Government introduced a series
of measures to halt the deterioration in the macroeconomic situation. These included
reducing the budget deficit, devaluing the exchange rate on the official market,
liberalizing interest rates, abolishing price controls, liberalizing prices of public
enterprises and curbing the money supply. At the same time, the Government adopted
measures to remedy the structural defects in the country's economy. Reforms were
implemented in four areas: foreign trade, the tax system, the financial system and labour.
II. ECONOMIC AND TRADE ENVIRONMENT
The results of the stabilization and structural
reform policy were felt immediately. Inflation fell from 79.9 per cent in 1990 to 7.9 per
cent in 1991. The exchange rate was stabilized at RD$12.50/dollar and GDP rose by 7.6 per
cent in 1992. As a result of the reforms, in the first half of the 1990s, the Dominican
Republic's inflation rate has been one of the lowest in the hemisphere, GDP growth has
remained above the average for Latin America and the Caribbean, unemployment has fallen
significantly, productivity has risen in the most open sectors i.e. the free zones and
tourism, there has been prudent management of monetary policy, and interest rates have
dropped. The economy's increased focus on foreign markets as a result of the commitments
adopted under the Uruguay Round of multilateral negotiations will reinforce the impact on
the economy and enterprises of the stabilization measures and the structural reform
implemented by the Government.
(i) Trade policy developments
Over the past five years, the major developments in
the area of trade policy have been the tariff reforms of 1990 and 1993, participation in
the Caribbean Basin Initiative, the signing and implementation of agreements under the
Uruguay Round of Multilateral Trade Negotiations, and participation in regional
integration agreements such as the Caribbean Community, the Free Trade Area for the
Americas and the Association of Caribbean States.
Policies to liberalize international trade in goods
and services have helped to diversify and strengthen the Dominican Republic's export
potential as well as to increase import penetration in the domestic market. Exports of
goods, including those from free zones, grew at an average rate of 5.9 per cent during the
period 1990-1994, and exports of services increased at an average rate of 11.2 per cent
over the same period. Furthermore, the composition of exports has shifted from primary
goods towards manufactured goods, the share of the former falling from 22.3 per cent in
1990 to 14.4 per cent in 1994. In the case of imports, the value and volume of imports of
goods rose at an annual average rate of 3.7 per cent, and increased to 22.6 per cent as a
proportion of GDP in 1994.
(ii) Unilateral opening and reform
As mentioned, in 1990 the Government of the
Dominican Republic embarked upon an economic reform process with the aim of achieving more
effective allocation of resources, eliminating the anti-export bias in the economy,
promoting greater participation by the private sector in all branches of the economy, and
promoting competition in markets. The following are some of the most important measures:
- reduction of existing tariff levels that varied
between 0 per cent and 200 per cent to nine tariffs, ranging from 0 per cent to 35 per
cent, and of their dispersion;
- replacement of specific duties by ad valorem
levies;
- import valuation on the basis of market rates
rather than different rates for various types of goods;
- application of tariffs based on c.i.f. value
(cost, insurance, freight) for goods instead of f.o.b. value;
- elimination of prohibitions, quotas and other
types of quantitative restrictions for most imports;
- elimination of tariff exceptions and exemptions
granted to sectors under special agreements with the State or under promotion legislation;
- elimination of multiple exchange rates;
- introduction of a new customs nomenclature;
- modernization of the customs service through
computerization of customs offices and simplification of clearance procedures;
- abolition of discrimination in the application of
the selective consumption tax on alcohol, tobacco and beer;
- reduction of marginal rates of personal income tax
to three rates between 15 per cent and 25 per cent. Under the previous system, the maximum
marginal tax rate was 75 per cent;
- establishment of a single rate of 25 per cent for
profits tax and abolition of tax exemptions;
- abolition of price controls;
- approval by Congress of a new Foreign Direct
Investment Law that abolishes the ban on foreign investment in certain sectors of the
Dominican Republic's economy, allows the repatriation of profits and the capital invested,
as well as the channelling of long-term loans;
- submission to Congress of a Law on Reform of the
Electricity Sector to enable participation by the private sector in power generation and
distribution;
- liberalization of interest rates for deposits and
loans;
- introduction of uniform reserve requirements at a
level of 20 per cent, compared with the previous system of multiple rates depending on the
sectoral allocation of the credit and the type of deposit;
- establishment of a prudential framework that
guarantees the solidity of financial institutions and the transformation of the present
system of specialized banks into one of multiple banking;
- submission to Congress of a Monetary and Financial
Code to strengthen the independence of the Monetary Board, the Central Bank and the
Superintendency of Banks, establish the levels of capital required in relation to the
amount and risk of assets and the limits on related assets held by financial bodies, as
well as the penalties to be imposed if the requirements are not fulfilled;
- implementation of the Monetary Board's Decision on
banking rules and prudential measures in accordance with the Basel Agreements;
- strengthening of the Superintendency of Banks.
The Government of the Dominican Republic has
implemented economic reform gradually but systematically, respecting its commitment to
dismantle and eliminate the exchange surcharge on imports, the 1.3, 1.2 and 1.1
multipliers for basic tariffs and other trade barriers within the specified period.
The Government is currently preparing new
legislation for further reform, including a draft General Customs Law, an Export Promotion
Law, and laws on the stock market and implementation of Articles 13 and 26 of the
Agreements on Dumping and Subsidies, respectively.
(iii) The Dominican Republic and the Uruguay
Round
The reforms put into effect in 1991 began a process
of reorganization of the economy in order to give renewed impetus to the opening up of
markets, reinforce the integration of the domestic economy in regional and global markets
and improve the country's production efficiency and competitiveness. As a result, the
Dominican Republic took an active part in the negotiations that led to the establishment
of the World Trade Organization, the successor to GATT, in which member countries tried to
create a broader and more transparent legal framework for the development of international
trade.
From 1990 onwards, the Government implemented a
stabilization programme following widespread consultations with the country's economic and
social base, and this led to a social pact on economic solidarity and the signing of a
stand-by agreement with the International Monetary Fund (IMF). The stabilization programme
focused on the fiscal sector and included a number of measures on aggregate public
spending, imposing severe restrictions on demand and promoting tax reform in the area of
fiscal revenue. In the money sector, the money supply remained under strict control and
the rate of increase of the money stock fell by almost half. Interest and exchange rates
were liberalized so that they could be determined by market forces. In addition, the
Dominican Republic undertook not to impose additional import restrictions for
balance-of-payments reasons.
The Government of the Dominican Republic signed the
1994 Uruguay Round Agreements and is determined to pursue economic policies directed
towards structural reform and the opening up of trade, which are essential for the
efficient allocation of resources from private investment in the economy and the search
for new foreign markets. In conformity with these policies, the Government will make every
effort to keep inflation at levels similar to those in industrialized countries and will
pursue its endeavours to maintain a viable balance of payments. Its strategy is based on
adherence to the principle of free enterprise, an open trade regime so as to increase
exports, continued participation in international financing organizations as an active
member and greater efficiency in public spending so as to increase the rate of growth of
earnings and improve their distribution.
The continuity of the policy described in the
preceding sections in credit, foreign exchange and fiscal matters has allowed the
Dominican Republic to pursue the process of liberalizing its markets, thus helping to
stabilize domestic prices of goods and services and exchange rates. In addition, the
Dominican Republic is pursuing its efforts to obtain Congressional approval of a package
of laws on the modernization and internal reorganization of the country so that it can
adapt to the new world situation resulting from the globalization of the economy and
markets. The Law on the Reform of the Energy Sector, the new Monetary and Financial Code
and reorganization of the judicial sector are awaiting Congressional approval. The
National Congress has already approved the new law on foreign direct investment, which
allows the repatriation of the totality of capital and profits and opens up all sectors of
the economy to foreign investment with the sole exception of those related to national
defence and ecology, and has signed the Agreement on the World Bank's Multilateral
Investment Guarantee Agency (MIGA). At present, there is a public discussion on further
tariff and tax reform.
The objective of reform in the financial sector was
to provide a permanent legal structure for financial institutions to enter and leave the
system and prudential and banking rules to regulate it. Work is also going on to improve
the legal and regulatory framework for financial policy, to establish and ensure
compliance with the prudential and banking regulations so as to improve the solvency of
financial institutions, lessen the excessive segmentation of the system so as to enhance
its efficiency, strengthen institutional capacity to supervise the sector and ensure that
State banks are subject to the same prudential regulations as private banks. The
provisions of the new Monetary and Financial Code on banking and prudential regulations
are already being applied in the form of decisions by the Monetary Board, which give
foreign banks treatment similar to that of national banks and establish multibanking as a
way of lowering the operating costs of financial institutions. The reform process begun in
1992 and is expected to last some six years up until 1998.
(iv) Integration
Although the Dominican Republic is not a member of
any economic integration grouping at present, since 1991 it has made increased efforts to
develop its relations with the various integration schemes that are viable from the point
of view of national interests. In this connection, it has set up three bodies to promote
economic integration. In 1992, the Commission for the Follow-Up of Integration Schemes was
created, subsequently the Joint Standing Commission for the Follow-Up of Bilateral
Agreements was strengthened and, lastly, the National Commission for the Follow-Up of
Commitments by the Summit of the Americas was established. The Dominican Republic
participated at the highest level - the President of the Republic - in the Summit of
American Heads of State and signed the Action Plan. At the meeting held in Denver,
Colorado, the Government participated at ministerial level, together with the private
sector and associations of business groups, highlighting its keen interest in the Free
Trade Area for the Americas (FTAA) and a commitment to implement the Plan of Action.
In addition, the Dominican Republic has participated
in the reciprocal payments and credit agreement of the Latin American Integration
Association (LAIA) since the organization was founded in 1980. This mechanism allows the
Dominican Republic to have access to financing for trade operations with member countries
of LAIA. During the 1980s, the mechanism was increasingly used to finance such operations.
In the early 1990s, it was almost exclusively used to meet prior commitments, but the
Dominican Republic has now modified the procedure for use of such financing and this has
been favourably received by commercial banks.
In 1989, the Dominican Republic acceded to the IVth
Lomé Convention, initiating a process of rapprochement with CARICOM, of which it became
an observer, taking an active part in the various functional cooperation mechanisms in
areas such as health, education, agriculture, etc. The end of 1992 saw the creation of the
Association of Caribbean States (ACS), of which the Dominican Republic is a founder
member, only awaiting ratification by Congress of the Organization's constituent
agreement. In addition to these multilateral agreements, the Dominican Republic has
concluded bilateral agreements with Costa Rica and agreements of intent with other
countries, for example, Ecuador and Panama.
In the immediate future, the Dominican Republic
intends to finalize and amplify the reforms initiated in 1990 so as to enhance the
competitiveness of the economy, promote trade with the rest of the world and make use of
the advantages offered by international trade to improve the living conditions of its
population.
(v) The Dominican Republic's participation in
preferential schemes
Foreign trade plays an important role in the
Dominican Republic's economic policy, accounting for a high percentage of its GDP. In the
dynamics of foreign trade, domestic exports and exports from free zones have received
strong support from the various preferential trade schemes. Among these are the programmes
under the Caribbean Basin Initiative (CBI), concluded by the United States and the Central
American and Caribbean Region in 1983, and the Lomé IV Convention signed between 15
European Union States and 69 ACP States (Africa, Caribbean and Pacific) in 1989, as well
as the Generalized System of Preferences (GSP), which has 26 different schemes under which
developed countries grant preferences to developing countries.
Since 1980, the Dominican Republic has also been a
beneficiary of the San José Agreement signed by petroleum-importing Central American and
Caribbean countries, Mexico and Venezuela. This Agreement gives the Dominican Republic
access to lines of credit for approximately 20 per cent of the cost of petroleum supplied
by Mexico and Venezuela. These funds can be used to finance economic development projects
in production sectors on preferential terms.
The implementation of the mechanisms mentioned above
has allowed the Dominican Republic to expand the coverage of its exports, including
activities in free zones, by 6.6 per cent annually over the period 1990-1994. The value of
exports to the North American market under the preferential programme of the CBI and the
GSP has grown at an annual rate of over 20 per cent during the same period, making the
Dominican Republic the leader among Caribbean and Central American countries, accounting
for 25 per cent of the region's exports to this market. Under the Lomé IV Convention the
value of domestic exports and exports from free zones to Europe has grown by 2.4 per cent
annually, while their volume has shown an annual increase of 6.5 per cent.
The preferential margins under these trade schemes
will be affected by the establishment of both the WTO and NAFTA and the creation of a Free
Trade Area for the Americas (FTAA), which will be set up in 2005. Exports of goods such as
made-up clothing and shoe uppers, in particular, will lose their access advantages as a
result of the opening-up of trade in the North American market. Among Latin American
countries, the Dominican Republic is the main supplier of both these exports to the North
American market. It is aware of the impetus provided by the opening-up and globalization
of the economy and hopes to achieve a higher level of integration of its production, as
well as the necessary rationalization of its operating costs so as to be more competitive.
In addition, and particularly in connection with
NAFTA, the Dominican Republic, together with other countries of the Caribbean and Central
American region, is trying to get the United States Administration to agree to an
equilibrium under a programme of parity with the NAFTA Agreement in order to maintain
tariff preferences. For the next few years, it is estimated that the average foreign trade
coefficient, in relation to GDP, will rise to 35 per cent and, with the process of
opening-up, exports of goods classified into traditional products, non-traditional
products and minerals are expected to grow at a rate of 6.5 per cent until 2005, and
activities in the free zones by over 7 per cent.
III. LEGISLATIVE ADJUSTMENTS FOLLOWING THE
URUGUAY ROUND AGREEMENTS
The Government of the Dominican Republic has set up
an inter-agency technical team to follow up on the commitments undertaken as a signatory
to the Uruguay Round Agreements. Its work has included identifying the legal provisions
that are inconsistent with the Agreements, whether administrative or resulting from
application of legislation. In this connection, non-tariff barriers to trade in
agricultural products are being eliminated and discretional import licences are being
identified so that they can be eliminated or replaced by automatic licences.
Legislation is also being drawn up on rules of
origin, and the existing phytosanitary provisions have been revised to harmonize them with
the provisions in effect in its major trade partners. The Dominican Republic is also
preparing a law to define the institutional framework for application of the Uruguay Round
Agreements on unfair trade practices and safeguard measures. Under the Dominican
Republic's legal system, once international agreements have been ratified by the National
Congress they have force of law. Consequently, the agreements on dumping, subsidies and
countervailing measures, and safeguards have already been incorporated into the law, the
only pending issue being the identification of the Government authorities responsible for
investigating such procedures, reviewing decisions (judicial review mechanism) and
applying the measures.
Legislative adjustment also includes the annulment
of the legal provisions that are contrary to the commitments undertaken in the Dominican
Republic's schedule of services, which is an integral part of the Final Act of the Uruguay
Round. A number of these provisions have already been annulled in the new Foreign Direct
Investment Law, adopted in November 1995 by both legislative chambers. Reform of the
telecommunications regime has already started in order to modernize the legal,
institutional and regulatory framework in this sector. When the process is completed,
there will be an independent, participatory regulatory body with administrative and
financial autonomy, whose main objective will be the effective regulation of this sector
so as to guarantee universal service, and promote competition, quality of service and the
user's right of choice.
In the area of intellectual property, the Government
considers that legislative reform should take place in the context of a competitive regime
that will have to be created in order to guarantee the operation of market forces in the
context of the increased opening-up of the economy over the next decade. It therefore
supplemented the new draft Industrial Property Law with legislation for the promotion of
competition, consumer protection and repression of unfair practices. For this purpose, all
the regulatory functions under this regime were entrusted to a new State body. Like the
regulatory body for telecommunications, it will have financial autonomy and administrative
independence from other State bodies.
Other institutional reforms resulting from the
Uruguay Round concern the functioning of the Directorate-General of Customs. The
implementation of reform of this body is currently at an advanced stage in order to ensure
that it functions effectively in compliance with the Customs Valuation Code of the Uruguay
Round. The transposition of Schedule XXIII of the tariff bindings prior to the Uruguay
Round has been carried out, reflecting in domestic legislation the ad valorem levels that
have been bound in successive negotiations since 1952. A draft decree has also been sent
to the Executive repealing four provisions that have not been applied since 1986, which
established non-tariff restrictions on trade in textile products that were contrary to the
Agreement on Textiles and Clothing.
As far as the foreign trade regime is concerned, it
is planned to merge responsibilities conferred by law in a single State institution so as
to end the legal and administrative conflicts that have occurred up until now. The
Government also intends to reform the rights of users of maritime transport by acceding to
major international agreements such as the Hamburg Rules, the United Nations Convention on
International Multimodal Transport of Goods and United Nations Convention on a Code of
Conduct for Liner Conferences. In order to promote greater efficiency in this sector,
these activities will be included in the competition regime to be established from 1996
onwards. Law No. 70 on the port authority of the Dominican Republic will be modified in
order to establish a regime for the private operation of national ports through
concessions awarded to eligible enterprises and the granting of national treatment.
Finally, the Dominican Republic wishes to underline its firm commitment to open commerce
and foreign trade as a means of improving the quality of life of its population. Back
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