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Dominican Republic: February 1996

“ The Dominican Republic was widely commended by members for the rapid progress of economic and trade reform since 1990. It was recognized that the reforms had positive effects both on macroeconomic variables and on the external accounts.”

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  > Summary of Government report

16 February 1996

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The Trade Policy Review Body of the World Trade Organization (WTO) conducted its first review of the Dominican Republic's trade policies on 14 and 15 February 1996. The text of the Chairman's concluding remarks is attached as a summary of the salient points which emerged during the two-day discussion.

The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including: its domestic laws and regulations; the institutional framework; bilateral, regional and other preferential agreements; the wider economic needs and the external environment.

A record of the discussions and the Chairman's summing-up, together with these two reports, 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.

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), the Dominican Republic (1996), 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 & 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), Slovac 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), Venezuela (1996) and Zimbabwe (1994).

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At its meeting on 14-15 February 1996, the Trade Policy Review Body held its first review of the trade policies and practices of the Dominican Republic. These remarks, made on my own responsibility, summarize the salient points of the discussion and are not intended to substitute for the collective evaluation and appreciation of the Dominican Republic's trade policies and practices, which will be reflected in the Minutes.

The discussion developed under three main themes: (i) the general economic situation and reform programme; (ii) the existence of a "dual economy" and consequences for domestic industry and (iii) a number of specific questions.

General economic situation and reform programme

Economic reform: The Dominican Republic was widely commended by members for the rapid progress of economic and trade reform since 1990. It was recognized that the reforms had had positive effects both on macroeconomic variables and on the external accounts.

Trade liberalization: Members appreciated that the Dominican Republic had made great strides towards a more outward-oriented trade régime. However, note was taken of the high reliance of fiscal revenue on trade taxes, and concern was expressed that this could impede further reforms unless a way was found to broaden the tax base.

Role of the State in the economy: Participants noted the crucial role of the State in key sectors of the Dominican Republic's economy, and requested further information on the privatization programme and on remaining price controls. Some members emphasized the importance of privatization in sectors such as electricity to enhance productivity by improving the capital stock. One member asked if the Dominican Republic had notified its state trading monopolies in conformity with the requirements of Article XVII of the GATT.

Concentration of exports: Members expressed their concern about the vulnerability of the Dominican economy due to its heavy reliance on a limited number of export products and markets. Members attributed this concentration to preferential arrangements such as the CBI and the Lomé Convention, and raised questions concerning the effects of such concentration on the long term competitiveness of the economy and the development of other sectors. The need for active stimulation of the diversification process was emphasized.

In response, the representative of the Dominican Republic said the stabilization measures and structural reforms were aimed at creating market conditions in support of the reforms, and at attracting foreign investment which would allow the transfer of technology necessary to reduce the vulnerability of the economic and export structure in both goods and services. The authorities recognised that, in small economies, only such openness could guarantee permanent flows of capital and technology. He recognised that the process of market opening must be deepened further, to preserve the gains that had been made and to find new niches in international markets.

The representative stressed that the authorities were conscious of the need for further market diversification, although it had to be recognized that the proximity of the huge North American market and preferential schemes had influenced developments and provided important benefits in the past. The reduction of preferences in textiles might have initial negative effects, but there was still time to make the necessary adjustments.

He stated that, while the privatization process had been slow, most public enterprises were not very attractive to private investors; however, there were no barriers to entry in these sectors. There were no longer any state import monopolies in the Dominican Republic. Complete privatization would depend on congressional approval; he emphasized the difficulties for a minority government to have bills accepted, particularly in an election period. Fuels were the only products now subject to price controls.

"Dual Economy" and consequences for domestic industry

Free Zones: The important role of free zones in promoting the export sector as an engine of growth in the Dominican economy was noted. However, members stressed the importance of reaching a better balance between the free zone sector and the rest of the economy, through the development of appropriate linkages.

Tariff escalation: Members welcomed the considerable rationalization and reduction of tariff rates, but expressed some concern about the continued tariff escalation, which affected resource allocation by providing high effective protection for some industrial sectors. Some members recommended a more uniform tariff régime, with fewer rates.

Tax neutrality-ITBIS: Members commended the tax reform implemented by the Dominican Republic, but expressed their concern about the lack of tax neutrality in the ITBIS tax which, they considered, targeted imports more than domestically produced goods. It was suggested that the ITBIS was not compatible with the Article III:2 requirement for national treatment in respect of internal taxation.

In response, the representative of the Dominican Republic said that the free zones were seen as an intermediate step in the integration of the Dominican economy into world markets. They had already contributed to technology transfer and labour training. The rapid development of the services sector, especially tourism, had allowed further market development.

Referring to questions on the ITBIS, the representative was aware that legislation needed to be updated. He emphasized that the tax was collected only at one stage. Exemptions had been progressively eliminated, showing the commitment to eliminate any discriminatory elements. The base had also been extended to other goods, previously exempt. Details on the operation of the tax were provided. The Selective Consumption Tax had varying rates, mainly applying to automobiles and domestic electrical goods not produced in the country. Rates for tobacco and alcoholic beverages had been unified, so that this was no longer discriminatory.

Tax reforms had reduced the dependency on trade taxes to 4.1 per cent of GDP, compared with 5.7 per cent in 1992. There had also been a reduction in tariff escalation; average effective protection had fallen by 6 per cent from the situation in 1990 to 14 per cent in 1994. The new Tariff Code was fully consistent with the authorities' Uruguay Round commitments.

Specific issues

Agriculture: While members praised the active role of the Dominican Republic in the Uruguay Round, widely shared concerns were expressed over the modifications now being sought to its bindings in agriculture. One member felt that seeking to modify the commitments so soon after conclusion of the Round raised questions about the transparency and security of access to the Dominican market.

Import licences: Members commended the Dominican Republic for having largely eliminated prohibitions and import licensing. However, members were concerned about the legal status of remaining import licences and scope for discretion in their allocation. Clarification was sought in this area.

In response, the representative of the Dominican Republic said that his Government was currently conducting negotiations to rectify its Uruguay Round Schedules in respect of some agricultural items, and hoped to complete these soon. As officially published, from 1 January 1996, there were no licensing restrictions on any agricultural items; however, legal adoption of these administrative measures would require congressional approval. Only items tariffied under the proposed rectification of schedules would be subject to special safeguards. Details were provided on other measures to move progressively to a market economy in the agricultural sector, including new land reform initiatives. Some Dominican products faced restrictions on access to developed country markets. The authorities noted that Spain had been declared free of African swine fever and this would be resolved in the context of harmonization with the WTO rules.

Customs reform: Members recognized the efforts of the Dominican Republic in this area. Nevertheless, some still considered customs procedures to be cumbersome. They also enquired about intentions to reform the present valuation system, based on minimum values, to conform to the WTO Customs Valuation Agreement. Several members also considered consular invoice fees as an extra tax on imports.

Foreign investment: The passage of the new foreign direct investment law was welcomed. Details of the legislation were requested. One member stressed that, to derive full benefits, including from technology transfers, the new law should go hand-in-hand with a revised Intellectual Property Law.

Services: While members generally welcomed the commitments made by the Dominican Republic in the GATS, some called attention to apparent discrepancies between these commitments and some national legislation. One member stressed the need for rapid approval of the New Monetary and Financial Code.

Rules of origin and preferential agreements: Questions were asked about the rules of origin applied by the Dominican Republic. The authorities were requested to notify the free-trade agreement with Costa Rica.

Questions were also asked on the implementation of Uruguay Round commitments in the areas of competition law and anti-dumping and countervailing measures.

In response to these questions, the representative of the Dominican Republic responded that, to some extent, the pace of developments had overtaken the pre-existing legal and institutional framework. A large body of laws, decrees and special contracts had already been eliminated. The new Foreign Investment Law would accord national treatment to foreign investment and remove most restrictions except for environmental and security requirements; free repatriation of capital was permitted and foreign and domestic firms could participate equally in privatization bids.

The Dominican authorities recognised the importance of the link between protection of intellectual property and foreign investment, and a draft law had been prepared to bring Dominican legislation into line with the TRIPS agreement. The representative also gave details of enforcement of intellectual property laws.

Competition rules would be completed with specific rules to safeguard competition in the areas of telecommunications, transport and energy, and a new regulatory framework was being created.

Details were given on the modernization of customs procedures and the advances which had been made. The list of customs values had reduced the discretion of customs officers. The authorities expected to conform to WTO requirements within the allowed 5-year period. Consular fees were applied on a sliding scale. Rules of origin were linked only to trade with Costa Rica under the FTA with that country and used the "substantial transformation" criterion.

Most laws relating to services had been brought into line with the commitments given by the Dominican Republic. In the area of transport, the Dominican offer was perhaps the widest of any country, including in maritime services, and was linked to the desire of the country to introduce a multi-modal transport system. Since negotiations on maritime services were still ongoing, the offer could not yet be regarded as final; existing laws could thus not be in conflict with the WTO. Restrictions on tourist guide services would be resolved with the promulgation of a new law on professional services being drafted in anticipation of the completion of these negotiations in the WTO.

In general, the TPRB has welcomed the thoroughgoing reforms that the Dominican Republic has undertaken, especially since 1990. We are, however, concerned about aspects such as the dualism of the economy and, as yet, an apparent lack of coherence in the legal framework for trade policy making. In this context, we recognize that the authorities are taking serious steps to modernise and unify this framework and we wish them well in these efforts, which should create a more stable and predictable trading environment for economic development. We are also conscious of the potential vulnerability of the economy because of the limited number of export products and markets, and would strongly encourage active Government leadership in the diversification process. Back to top