Dominican Republic WT/TPR/S/11
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V. TRADE POLICIES AND PRACTICES BYSECTOR
(1) Overview
1. Theprocess oforderly liberalization oftheeconomy oftheDominican Republic, thatbegan
intheearly1990s, affected allsectors viafiscal andtradereforms (Chapters IandIV).Theelimination
ofmost non-tariff measures hasmade thetrading system more transparent, while tariff reform has
lowered nominal protection forallsectors andeliminated theformer structure ofexemptions.
Nevertheless, tariffescalation continues toprovide higher levels ofeffective protection thanthenominal
rateswould indicate, especially inmanufacturing outside thefreezones.
2. Oneobjective oftheliberalization process wastoreduce theanti-export biasintheeconomy
andthemarked differential, amounting todualism between thedomestic economy andthefreezone
andtourism sectors. Thelatterhavebecome theengine ofexport-led growth, substantially transforming
aneconomy thathistorically relied onproduction andexport ofagricultural andmineral products;
however, despite theskills thathavebeendeveloped, enclave characteristics, particularly ofthefree
zones haveinhibited growth from spreading toother sectors oftheeconomy.
3. Aspartoftheprocess ofrestructuring theeconomy, theagricultural sector hasbeenliberalized
tosome degree andrelevant legislation hasbeenreformed. Pricecontrols formostfoods wereabolished
intheearly1990s andexport taxesonagricultural goods werealsoabolished. Laws thatgovern specific
sectors areintheprocess ofbeing amended andnewdraftlawsareawaiting approval inCongress.
Forinstance, anewtelecommunications lawisbeing drafted, andasindicated inChapter I,anew
Monetary Code andForeign Direct Investment lawarealready inCongress. Theexpectation isfor
increased competition inservices suchasbanking andtelecommunications topromote greater efficiency,
andthusforthecountry asawhole tobecome more attractive toforeign investors. TheGovernment 's
strategy seems tobetousethecommitments made intheUruguay Round asavehicle forcontinuing
theprocess ofreforming theeconomy.
4. Although therôleoftheStateindifferent sectors oftheDominican economy hasdiminished,
itshould stillbeaddressed aspartoftheongoing liberalization strategy, since thepublic enterprises
arenotefficient andcontinue topostlosses. Privatization could playamore important rôleinthis
area, andtheauthorities aremoving inthatdirection. Forinstance, inorder toovercome ashortage
ofenergy, which hadbecome aserious constraint onproduction, theGovernment hasoverhauled the
relevant public enterprises tomake private investment inthesector more attractive, andhasallowed
private generation anddistribution ofelectricity. TheGovernment hasalsodecreased thesubsidies
toState enterprises sothattheirrôlewould diminish.
(2) Agriculture, forestry andfisheries
5. Theagriculture, forestry andfisheries sectors accounted in1994 for12.6percentofGDP,
down from26percentin1973.1However, thesesectors employ about 35percentofthelabour force.
Since theearly 1970s, agricultural production haslacked dynamism, foodimports haveincreased
systematically andexports, especially traditional exports, havestagnated; thisisdueinparttoadverse
internationalmarketconditions,butalsotothecumulativeeffectofpolicyinterventionsthathavethwarted
agricultural development. Asnoted below, earlier policies which penalized agricultural producers began
tochange in1990, although further reforms arenecessary.
1Banco Central delaRepública Dominicana.WT/TPR/S/11 Trade Policy Review Mechanism
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6. Thetraditional export commodities ofsugar, coffee, cocoa andtobacco arethemain crops,
occupying more thanhalfofthelanddevoted toagriculture andgenerating over60percentof
merchandise exports. Theremaining areasuitable foragriculture isdedicated largely tofoodcrops,
ofwhich riceisthemostimportant. Themajor agricultural imports arewheat, maize, soybean and
soybean products.
7. Policies offoreign trading partners, asreflected intheU.S. Sugar Preferential Quota
Programme, theLomé Convention, theGeneralized System ofPreferences (GSP), andtheCaribbean
Basin Initiative (CBI), haveanimportant impact onDominican agricultural export policy andexport
performance. Themostimportant ofthese agreements havebeentheagreements under theGSPwith
theUnited States, Canada, Japan, andsome countries oftheEU.In1990, agricultural exports under
theGSPreached US$250.6 million, or15percentoftotalexports. Thesecond most important
agreement hasbeentheCBI, under which agricultural exports reached US$130 million.2
8. Until reforms began in1990, Dominican agricultural markets wereaffected bypricecontrols,
tariffs, non-tariff barriers, apersistent misalignment oftheexchange rate,non-competitive market
structures suchasState monopolies, andother restrictions. Thepolicy wastosubsidize consumers,
especially urban dwellers, oftenattheexpense ofproducers.3Export taxesalsoapplied. Thisextensive
interventionism ledtothedistortion ofrelative prices andthustothemisallocation ofresources inthe
agricultural sector aswellasintheeconomy asawhole. Investment inagriculture declined, affecting
mainly theproduction ofexportable crops.
9. Despite thereforms, theagricultural sector remains highly regulated. Although some ofthe
measures arenotcurrently applied, thesupporting legislation isstillinplace. Arecent study has
identified 381types ofmeasure affecting trade inagriculture, which havebeenimplemented through
laws(50),decrees (52),resolutions bygovernment institutions (20),regulations (8)andadministrative
measures (3).According toanUNCTAD classification, 76ofthese measures werelicences, permits
andcertificates, 50wereprohibitions, 37established standards andtechnical regulations, 18fixedprices,
15referred totheprotection offloraandfauna, 15established monopoly conditions, and13required
special import authorizations.4However, itappears thatextensive discretionary power exists togrant
incentives andsupport tothesector, suchasdirect payments tofarmers orpayments linked toexports5,
but,according totheGovernment, these payments arenolonger being made.
10. TheMinistry ofAgriculture, theAgricultural Bank, andtheDominican Agrarian Institute
(Instituto Agrario Dominicano )areinvolved inpromoting thedevelopment oftheagricultural sector.
TheInstituteofPriceStabilization(INESPRE)andotherinstitutes,CouncilsorCommissionsestablished
todealwiththepolicy orproduction ofindividual crops alsoaffect theperformance ofthesector.
TheGovernmentalsoexercisesconsiderablecontrolovertheagro-industrialsectorthroughitsownership
ofwheatandsugarmills.TheDominicanStateEnterprisesCorporation(CORDE)controlsthecountry's
onlytwoflour mills.
2IICA (1993).
3USDA (1994). Global Review ofAgricultural Policies.
4Government institutions implementing these measures were: theMinistry ofAgriculture (55), Central Bank
(16), INESPRE (13), CEDOPEX (5),andtheGeneral Directorate ofForestry (5).
5Technical Secretariat tothePresidency (1994).Dominican Republic WT/TPR/S/11
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11. INESPRE wasestablished in1969 inorder toimplement food andagricultural policy.
INESPRE 'smainfunctions aretostabilize agricultural prices through supply anddemand management.
TheInstitute setsbothproducer andconsumer prices andalsocontrols foodimports. INESPRE first
assesses theneedforimporting food. Ifimports arerequired, INESPRE either doessodirectly or
grants import licences toprivate sector firms ortoStatemonopolies. Forexample, INESPRE issues
import licences forrice,corn, onions, beans, garlic, pasta andtomato paste. TheInstitute alsoacts
asamarketing board andstores buffer stocks tointervene inthemarket inorder tostabilize prices.
Although itsrôlehasrecently beendiminished, INESPRE continues toadminister foodprogrammes,
handle commercial purchases, settheprices ofmostprice-controlled items andpurchase crops covered
bygovernment programmes. Forexample, inthecaseofredbeans, oneofthemajor staple foods,
INESPRE stillcontrols producer prices andgrants import licences when domestic supply doesnotmeet
demand. INESPRE isalsoincharge ofthecommercialization ofthisfood.6
12. TheGovernmentalsocontinuestosubsidizetheagriculturalsectorindifferentways,forexample,
byselling inputs, suchasseeds, below market price and/or bygiving orproviding other inputs to
farmers. InthepasttheGovernment 'sAgricultural Bank (Banco Agrícola )offered credit tosmall
andmedium-size agricultural enterprises atinterest ratesbelow themarket rate,but,according tothe
authorities, thisisnolonger thecase.
13. Liberalization oftheagricultural sector wasinitiated in1990, when theDominican Government
abolished price controls foranumber offoodproducts andabolished exports taxes onagricultural
products. These measures, withtheimprovement inexchange ratemanagement, initially helped in
reversing thedownward trend inagricultural production. Infact,thegrowth rateintheagricultural
sector increased from2.5percentin1991to5.9percentin1992. However, itdeclined subsequently,
growing atonly0.7percentin1993 andcontracting atarateof1.8percentin1994. In1991,
consumer subsidies forwheat-flour andsugar wereremoved aswereprice controls forrice,meatand
poultry. However, price controls remain forsugar, soybean oilandwheat-flour.
14. Anewtariffschedule wasimplemented in1992, withtariffs ranging from3percentforoilseeds
to35percentforbeef. Inaddition, agricultural imports aresubject toanumber ofsurcharges and
taxes.BoundtariffratesresultingfromtheUruguayRoundAgreementonAgricultureareat40percent.
However, foreight items (beans, chicken, corn, garlic, milk, onions, riceandsugar), amodification
isbeing sought, which would raisebound tariffs toarange between 74and162percent,onimports
above specified quota levels. Inthemeantime, import licensing isstillbeing applied inrespect ofthese
products (Chapter IV(2)(ix)).
15. Imports ofcoffee, porkandtobacco werebanned until1992, when asystem ofimport permits
wasinitiated. Import permits forporkareissued ifthere isadomestic shortage, andimport permits
forspecial types oftobacco aregranted bytheNational Tobacco Institute. Imports ofcoffee mayalso
beallowed withapermit, butthisisnotcommon because ofthesufficiency ofdomestic supplies.
(i) Crop production andlivestock
(a) Sugar
16. Sugar hasbeen themain Dominican export itemformany years, exported mainly tothe
United States under theU.S.sugar quota régime. Until1986, refined sugar wasmarketed byINESPRE
6Government oftheDominican Republic.WT/TPR/S/11 Trade Policy Review Mechanism
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inthedomestic market; since then, wholesalers andretailers havebeenabletobuydirectly fromthe
sugar mills. Production iscarried outby16sugar mills, 12ofwhich areoperated bytheGovernment.
Upto1990, theparastatal State Sugar Council (Consejo Estatal delAzúcar ,CEA) wasthemajor
producer andprocessor ofsugar; theCEA operates tenofthetwelve government-owned sugar mills.
Sixty percentoftheexport quota fortheU.S. preferential market wasallocated totheCEA. The
restofthequota wasdivided between twoprivate sugar producers.
17. Sugar production intheDominican Republic declined during the1980s. In1992, production
totalled 592,775 metric tons, halfthelevel of1984. According totheauthorities domestic sugar
production ismainly determined bytheU.S. import quota, thus, asthequota decreased sodid
production. CEA'sshare intotalproduction declined from some 52percentin1990 toaround
43percentin1994.
18. Sugar exports havealsodeclined since 1980, andsugar haslostitsplace asthemajor source
offoreign exchange. Thischange isessentially policy-related; export taxes, exchange ratepolicy
andprice controls penalized private sugar exporters. Atthesame timetheState sugar industry has
shown limited capacity toadjust tostructural changes intheworld sugar market; theseinclude depressed
world prices andthereduction intheexport quota granted bytheUnited States, which wascutfrom
some 447,000 metric tonsin1982/83 toaround 186,000 metric tonsin1995/96.7Sugar exports are
subject toa40percenttaxontheincome resulting from activities related tosugar production and
exports, butthisiscurrently notbeing applied.
19. Insomeyears,suchasin1994,theDominicanRepublichashadtoimportrefinedsugar,because
ofincreased domestic demand andthelackofindustrial capacity torefine enough sugar tomeetit.8
Suchimports aresubject toimport licence requirements. Inanumber ofcases, barter deals havebeen
arranged toimport refined sugar inexchange forDominican rawsugar.
20. TheGovernment 'sgoalistokeepinoperation thesugar millsthatsupply rawandrefined sugar
tothedomestic market. Therefore, State-owned sugar millsaretobestrengthened bysubsidizing their
debtpayments, investing ininfrastructure andprivatizing management ofthemills bystarting joint
ventures withtheprivate sector. TheGovernment isalsoplanning tosellorrentthelandowned by
theCEA (Consejo delAzúcar )thatisnotsuitable foragriculture. Anattempt willalsobemade to
liberalize thedomestic price ofsugar, since INESPRE stillcontrols it.9
(b) Rice
21. Riceisthemain staple foodintheDominican Republic. Since themid-1960s, successive
governments havepursued apolicy ofself-sufficiency inrice. Production hasincreased considerably
andself-sufficiency wasachieved during theearly1980s, aided bytheplanting ofnewareasofirrigated
7Since 1962, theDominican Republic hasbeen themajor exporter among Latin American countries under
thequota system. Exports totheUnited States account foraround 80percentoftotalDominican sugar exports
(Valdés andSchaeffer, 1994).
8Memoria delInstituto Azucarero Dominicano ,Santo Domingo, República Dominicana, 1994.
9Government oftheDominican Republic.Dominican Republic WT/TPR/S/11
Page 67
landandtheintroduction ofnewseedvarieties. Producers havebeensubsidized through theprovision
ofcredit atpreferential rates, subsidized machinery, water, fertilizer, andtechnical assistance.10
22. Until 1986, INESPRE hadamonopoly inthemarketing ofrice.11Owners ofricemills were
required toselltheirproduct toINESPRE, which delivered themilled ricetowholesale organizations
anddirectly toconsumers through social programmes. Generally, thepricepaidtomillers washigher
thantheprice charged towholesalers. Thispolicy wasaimed atsubsidizing theconsumption ofrice
while giving attractive prices toproducers. In1986, themonopoly power enjoyed byINESPRE was
broken andthemarketing ofricewastransferred totheAgricultural Bank. ANational RiceCommission
wasalsocreated todealwithricepolicy. InAugust 1987, government intervention inthedomestic
market wasfurther reduced. While theGovernment established aminimum pricetobepaidtoproducers
bymillers, there wasnoprice support system toguarantee producers afixed price irrespective ofthe
levelofproduction.
23. Thericesector appears tohavereceived more government aidthanother agricultural sectors
since theearly 1990s. Domestic prices ofricearehigher thaninternational market prices, imports
arerestricted, andsubsidies areprovided tolow-income consumers. Riceproducers alsoreceive the
bulkofsubsidized agricultural credit.
24. Bytheendof1992 andin1993, domestic production ofriceexceeded demand. However,
exportingwasnotprofitableforDominicanriceproducersaspricesinoverseasmarketsweresignificantly
lower thanthedomestic price. Tomake exports profitable, theGovernment enacted atemporary export
subsidy programme. Theunitary subsidy wasRD$80 perquintal (1quintal =100kg..)exported12,
andwasusedtohonour partofthedebtofriceproducers totheAgricultural Bank. Theexport subsidy
iscurrently notbeing applied.
(c) Other cropproduction
25. Coffee,cocoaandtobaccoareotherimportanttraditionalexportcrops,contributing14percentof
totalvalue ofexports in1992 (including from freezones). Coffee isthesecond most important
agricultural export commodity. During the1980s, coffee production declined andcocoa production
stagnated. Atthesame timetobacco lostground duetoshifts indemand andthevirtual closure of
thecountry 'smainexport market forblack tobacco withSpain'sadoption ofEUimport rules. Inrecent
years, private investment hasswitched towards non-traditional export crops, suchaspineapples, citrus,
African palm, andvegetables.
Coffee
26. Production ofcoffee hasbeenaffected byseveral factors. Twotechnological factors have
contributed tothereduction ofoutput andyields. First, oldplantations havenotbeenreplanted and
havegoneoutofproduction. Second, thefailure tointroduce new,improved varieties ofcoffee and
tousemore fertilizer haveresulted inlowyields. Average coffee yields areamong thelowest in
10Valdés andSchaeffer (1994).
11In1986, INESPRE wasresponsible fortransactions concerning 85percentofthedomestic riceproduction.
Imports ofricewere alsohandled byINESPRE.
12Valdés andSchaeffer (1994).WT/TPR/S/11 Trade Policy Review Mechanism
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Latin America, 0.36MTperhectare.13Apart from these internal factors, lowworld market prices
haveinduced coffee producers toswitch toother products suchasfruit. Given these conditions, the
Government hastaken aseries ofmeasures toaidcoffee producers -some ofwhich alsoapply tococoa
producers. InOctober 1992, theGovernment enacted anexport subsidy programme tocover situations
when international prices werebelow domestic prices, andRD$55 million wasallocated tosubsidize
coffee exports. Export taxes onrawandprocessed coffee were eliminated in1992 (Presidential
Decree No.155-92), however, atthesame time, theinternal coffee commission levyor"voluntary"
contribution wasraised (Law 10-92). ThislevyisusedbytheCoffee Commission forinvestment in
infrastructure. TheGovernment plans toinitiate several technical programmes inorder toboost
productivity inthecoffee sector.
Cocoa
27. Production ofcocoa isconsidered ofhighimportance intheDominican Republic; inthepast,
measures havebeenadopted topromote andsupport thesector. ACocoa Commission wascreated
in1976topromotecocoaproductionandadministeraSpecialFundfinancedby"voluntary"contributions
oncocoa exports. When theGovernment considers thatinternational cocoa prices arelow(i.e.,when
theinternational priceislower thanthedomestic price), itactivates acompensation fundfordomestic
exporters. In1993, RD$60 million wereusedfrom thisfund; however, forthe1994-95 harvesting
period, thesubsidy wassuspended. Asinthecaseofcoffee, theGovernment considered thatcocoa
producersneededadditionalaidinordertoincreaseproductionandexports.Accordingly,byPresidential
Decree No.115-92, the"progressive advalorem contribution onexcessive coffee andcocoa export
earnings" wassuspended. Thedecree alsoincreased therateabove which "voluntary" contributions
arepayable byexporters ofcoffee andcocoa. Again theseincentives havenotbeenabletoboost cocoa
production orexports. Asinthecaseofcoffee, theGovernment isplanning toimplement technical
programmes inorder toincrease productivity andquality oftheproduct.14
Tobacco
28. Black tobacco hastraditionally beenoneoftheDominican Republic 'smainexports. Exports
ofthiscrophavedeclined duetothevirtual closure oftheSpanish market. However, given theaccession
oftheDominican Republic totheLomé Convention in1989, exports oftobacco totheEUshould rise.
Exports ofmanufactured tobacco products should alsoincrease since therawmaterial isnowbeing
processed intheFreeZones tobeexported mainly totheUnited States.15Infact,according tothe
authorities, since 1993 theDominican Republic hasbecome themain supplier ofcigars tothe
United States andtheEuropean Union. However, exports oftobacco products maybesubject to
quantitative restrictions imposed bytheUnited States. According totheauthorities, theUnited States
modified thisconcession asofSeptember of1995.
29. Tobacco production isalsoimportant inthatitgenerates around 14,000 jobsamong thepoorest
sectors ofthepopulation. Forthisreason, thissector hasbeensubsidized bytheNational Tobacco
Institute (Instituto Nacional delTabaco )which provides tobacco producers withfreeseeds, freechemical
inputs andfreetechnical assistance. InthiswaytheInstitute guarantees highyields andquality that
13IICA (1993).
14Government oftheDominican Republic.
15Government authorities.Dominican Republic WT/TPR/S/11
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hasgiven theDominican tobacco anadvantage overother kinds oftobacco intheinternational market.
Italsoissues permits fortobacco imports when domestic production isinsufficient tomeetindustrial
requirements.
Bananas
30. Theproduction andexport ofbananas hasrecently gained impetus asbanana exports fromthe
DominicanRepublicbenefitfromtheprovisionscontainedintheLoméConventiongrantingpreferential
entryintotheEUmarket. Banana exports weretaxed under Law348(1964) which finances theactivities
oftheNationalInstituteforthePromotionofBananas(InstitutoNacionalparalaPromocióndelGuineo),
butthistaxiscurrently notbeing applied. In1992, theGovernment created aspecial commission
toimplement banana policy, supervise production andmarketing, andissue certificates oforigin.
Dominican banana exports totheEUareconsidered ACPnon-traditional. Exports totheEUhaverisen
from 4,000 tonnes (US$876,000) in1990 to92,000 tonnes (US$16.6 million) in1994. Thequota
for1995 is55,000 tonnes. TheGovernment allocates 90percentofthequota toexisting
producer-exporters onthebasisofhistorical shares, andtheresttonewproducers. Nocharge islevied
forquota allocations, nordothere appear tobeanyplans tointroduce suchacharge, forexample,
bymeans ofauction. Itisnotclear whether quotas canbetraded byquota holders.
31. TheDominican Government hasmade progress inliberalizing theagricultural sector. For
instance, INESPRE 'squasi-monopoly rôleinimporting basicfoodstuffs hasdecreased, itnowimports
mainlytwoitemspowderedmilkandbeans.However,theseeffortsmustbetakenfurtherforthecountry
tobeabletoexploit itscomparative advantage inthissector. Forexample, INESPRE andthe
Agricultural Bank, inthecaseofrice,arestillempowered tosetriceprices (although, according to
theGovernment, theyarenotcurrently doing so)andtheyareresponsible forbuying andselling, and
granting import permits forthemost important foodstuffs. Second, price supports forsorghum and
maize remain inplace. Thisprogramme isimplemented bytheAgricultural Bank andtheSecretary
ofAgriculture (SEA). Thisinterventionism continues todistort relative prices inagriculture, sending
wrong signals tobothproducers andconsumers. Third, there isstilldisparity intariff rateswhich
penalizes some sectors while protecting others. Regulation ofbasic foodexports stillexist.16Fourth,
itisnotclear which legislation isstillinforce andwhich isnot.
(d) Livestock
32. In1990, livestock generated fivepercentofGDP. Itconsists mainly offoursub-sectors:
dairy cattle, beef, porkandpoultry. During thesecond halfofthe1980s thewhole sector achieved
positive growth rates.17However, asresult ofpolicy measures suchassubsidized imports, domestic
price controls andincreases ininput prices, production offresh milkdidnotincrease asfastasthe
other sub-sectors. Asaresult theDominican Republic nowimports around 50percentofmilk
consumed.
33. TheDominican Republic bothimports andexports beef. Beefexports weresubject toanexport
taxranging from 5to25percent, depending ontheinternational price (thehigher theexport price,
thehigher thetaxrate). Thismeasure wasadopted in1973toprotect domestic consumers andcontrol
domestic prices. In1980, anexport quota wasestablished andbeefexports werelimited to20percent
16Government oftheDominican Republic.
17IICA (1994).WT/TPR/S/11 Trade Policy Review Mechanism
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ofdomestic production. Anadministrative regulation hasunified export taxes toaspecific rateof
RD$0.08 perkg.. Dominican beefexports totheUnited States aresubject tophytosanitary and
quantitative restrictions; quantitative restrictions alsoapply tobeefexports toMexico. These measures
havereversed theearlier increase inDominican beefexports. Theproduction ofbeefappears tostill
beprotected. Forinstance, since1992, beefexports havebeensubject tolicensing inorder toguarantee
normal domestic supply. Atthesame time, theITBIS (Chapter IV)islevied onbeefimports while
itisnotlevied ondomestically produced beef.
34. Asstated inChapter IV,ingeneral, allimports oflivestock aresubject toasanitary certificate,
granted bytheMinistry ofAgriculture, inorder toprotect thenational herd.
(ii) Forestry andlogging
35. Thecontribution oflogging andforestry totheGDP oftheDominican Republic isvirtually
negligible, amounting tolessthan1percent.18Onereason forthislowcontribution toGDP isthat
thefelling oftrees, especially ofnative species, isprohibited forconservation reasons. Theprohibition
cannot, however, befullyenforced, andsome illegal exploitation oftheforest continues, resulting
inheavy deforestation. Theproduction ofwood consists mainly offirewood andwood forcharcoal.
Thedomestic supply ofwood isenough tomeetonly2percentofthedomestic demand, therestis
imported.19
33. Almost 100percentoftimber usedintheDominican Republic isimported. Timber for
construction comes from theUnited States, Chile andHonduras, andissubject toatariff rateof
15percentandanITBIS of8percent. Overall, import tariffs forthesector, including processing
andmanufacturing ofwood products, range from5to35percent(Table AV.2). There isescalation
inthetariff structure: rawmaterials show anaverage protection of7percent; fullyprocessed wood
products, notincluding furniture, anaverage protection of25.6percent,which means thatprotection
formost goods iscloser totheupper limit. Forinstance, average protection onfurniture, amore
processed good, isevenhigher reaching 30.9percent. Thistariffstructure favours themanufacturing
sector, since emphasis isonprotecting thefinished items while tariffs onrawmaterials orinputs are
low. Thisstructure ofprotection iscommon toother productive activities intheDominican Republic
aswellastoother economies thatadopted strategies ofimport substitution industrialization. Exports
ofwood havebeenprohibited since 1966 byDecree 728,withtheexception ofexports of"maderas
dealmácigo" and"Guayacán" (Guaiacum), forwhich anexport permit granted bytheSecretary of
Agriculture andtheGeneral Directory ofForestry isnecessary. However, theDominican Republic
hasnotexported wood formany decades.
36. Virgin forest hasvirtually disappeared. Deforestation began intheearly 1960s when the
exploitation oftheforest forcommercial purposes began, without anyregulation. Legislation to
discourage deforestation, introduced in196220,hasbeenchanged frequently, withnewdirectives and
regulations added without specifically amending theearlier laws; itisverydifficult toestablish aclear
setofcurrent regulations atanymoment intime. Theentangled legal system hasprevented the
development ofamarket forlogs, firewood andcharcoal anddiscouraged theprivate sector from
18IMF Report SM/93/252
19IICA, 1993.
20Law 5856, 1962.Dominican Republic WT/TPR/S/11
Page 71
participating inthere-afforestation efforts.21Conscious ofthedifficulties faced bythesector, the
Government initiated in1992 aprocess ofredrafting oftheexisting forestry legislation, (Leysobre
Preservación deRecursos Naturales yMedio Ambiente )tocreate theproper environment forthe
re-establishment andefficient management offorests.
(iii) Fishing
37. Thefisheries sector isnotparticularly well-developed intheDominican Republic. Most of
thecatch istaken incoastal waters; theremainder consists offresh water species andfishfarming.
Fishismainly consumed bytourists and/or highincome groups duetoitshighprice relative toother
sources ofprotein. Although domestic demand isnotveryhigh, localsupply hasmetonly40percent
ofthedemand. Demand islikely toincrease withthegrowth ofthetourism sector.
38. Theexpected increase indemand andthecontribution thatthesector maymake toemployment
render thedevelopment ofthisactivity important fortheDominican Republic. TheGovernment has
already implemented aseries oftechnical assistance projects targeting small-scale producers, whoare
themajor producers, butproduction hasnotyetresponded.
39. Trade infishandshellfish products isrestricted. Export restrictions exist, asdomestic supply
offishandshellfish doesnotmeet demand. Exports aresubject tolicensing andtoanexport tax.
Theexport taxonfishisUS$0.03 perkg.andthatonshellfish is5percentofthevalue ofexports
(Table IV.2). However, thetaxisnotcurrently being collected. Minimum export prices alsoexist
formostfishproducts. Fishandfishproducts classified asbasicnecessities attract atariffof3percent,
while otherfishandshellfish aresubject toa30percenttariffplus8percentITBIS. Ofthe54products
included inthetariff only5havetariffs below 10percent.22Fourofthese products areconsidered
basic foods, consumed supposedly onlybylower income groups, thusthelower protection.23The
fifthproduct, fishforbreeding, hasatariff of3percent. Thelower protection onthisitemisdue
tothefactthattheDominicans aretrying topromote fisheries. Thestructure ofprotection, inthis
case, attempts tofavour lowincome consumers andtoprotect thefisheries withhigher protection on
thefinalgood thanontheinput. Imports oflivefisharealsosubject tophytosanitary restrictions.24
Furthermore, theITBIS islevied onimports ofallfishproducts except herring, codandcanned
sardines25,butnotondomestically produced fishproducts.
21WorldBank(1992),DominicanRepublicUpdatingEconomicMemorandum:TheChallengeofSustainability
(Report No.106414-DO) May 22,1992.
22Arancel deAduanas delaRepública Dominicana .
23These products aresmoked herring, witha3percenttariff, salted anddried codat5percent, andsalted
herring at10percent. Canned sardines (notincluded inISIC 130)butconsidered alsoabasic foodhasatariff
of3percent.
24IICA (1994).
25Article 16,paragraph II,LawNo.14-93.WT/TPR/S/11 Trade Policy Review Mechanism
Page 72
(3) Mining andEnergy
(i) Mining andmetal industries
40. During the1980s themining sector wasoneofthemostimportant foreign exchange earners
fortheDominican economy. Themajor mining products were, ferro-nickel, doré(agoldandsilver
alloy) andbauxite. Theboom inthe1980s inthesector wasrelated totheincrease intheprice of
ferro-nickel. Intheearly1990s, however, themining sector started tolosedynamism, mainly because
ofthedecline ininternational prices, butthere wasalsoadecrease intheexploitation andproduction
ofminerals.
41. Three domestic factors, inparticular, contributed tothedecline ofthemining sector. First,
Falconbridge, thecompany thathasthelegalright toexploit andcommercialize ferro-nickel inthe
Dominican Republic, stopped production in1988 foracouple ofmonths because ofalevyimposed
bytheGovernment onferro-nickel exports. Following thecompletion ofsuccessful negotiations with
theGovernment, Falconbridge resumed production. Theagreement guarantees mining andexporting
rights toFalconbridge andallows theDominican Government, totaxthecompany onthepresumed
income fromexploitation.26Production andexports offerro-nickel alsofellfollowing thedecline in
prices intheinternational market intheearly 1990s.27Theexport share declined from 14percent
in1989to8percentin1991andtheycontinue tofall(Table AI.1). Second, production ofdoréalso
decreased atthebeginning ofthe1990s. Thecountry 'sonlygoldmine, Rosario Dominicana, aState
monopoly, closed in1992duetohighcostsofproduction caused bythelackofappropriate technology,
buttheminere-opened in1994 afterbeing renovated. Third, production ofbauxite, which hadbeen
exported since 1987, wasstopped in1991 duetoenvironmental considerations.28
42. Theoverall aimofDominican mining policy istopromote thedevelopment ofthemining and
petroleum sectors, including thefacilitation ofmining andpetroleum exploration. TheGovernment
hasconcluded exploration contracts withanumber ofprivate mining andpetroleum companies, and
several newdeposits havebeendiscovered, giving risetopositive expectations forthesector. The
existing mining lawhasalsobeenmodified inorder toreduce themining tax.
43. Despite efforts torestructure, themarket forminerals production remains concentrated, with
theStateowning onethirdofthemining enterprises. Also, intheprivate sector, themostimportant
company, Falconbridge, appears tohave adefacto monopoly intheproduction offerro-nickel.
Furthermore, import tariffs toprotect bothmining andtheprocessing ofmining products areinplace.
Theaverage tariff rateinmining rawmaterials is6.4percent, withtariffs ranging from 5percent
to20percent(Table AV.2). However, asprocessing requirements increase thetariff range widens
from5percentto30percentandtheaverage tariff ratesalsoincrease. Thisisthecaseforironand
steelproducts,non-ferrousmetals,andmetalproductswherethetariffescalationisclear,andtheaverage
tariffincreases ateachprocessing stage. Thistariffstructure asinother sectors favours theDominican
metal industry.
26EIU(1995).
27Theprice ofnickel declined from US$6.24/lb in1988 toUS$4.02/lb in1990 andUS$3.70/lb in1991.
Itcontinued todecline, reaching US$1.40/lb in1993. In1994 theprice started torecover. IMF (1995).
28IMF SM/93/252, December 3,1993.Dominican Republic WT/TPR/S/11
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44. Inthecaseofnon-metallic mineral products theindustry isprotected atalllevels ofproduction,
withtariffs ranging from10percentto25percent.Inallcases theaverage tariffshows thatformost
lines, tariffs arecloser totheupper bound rate. Thestructure ofprotection could beattributed tothe
State'sinvolvement inthisactivity, since itplayed animportant rôleintheproduction ofcement.
(ii) Energy
(a) Hydrocarbons
45. Theproduction ofenergy intheDominican Republic isbased mainly onimported oil.Imports
ofoilaremade under theSanJoséPactof1980, whose objective isanuninterrupted supply ofoil
totheCentral American andCaribbean countries from Mexico andVenezuela. Inthecaseofthe
Dominican Republic, Mexico andVenezuela guarantee tosell26,000 barrels perdayforinternal use.29
AspartofthePact,Venezuela andMexico agree toprovide, atapreferential rate,anamount equivalent
to20percentofthetotalinvoice value fordevelopment aid.However, according totheauthorities
financing hasbeenprovided atmarket orabove market interest rates.30Moreover, thereisnoobligation
topurchase crude orrefined products fromMexico orVenezuela, andprivate companies import fuels
from other sources.
46. TheDominican Refinery (Refinería Dominicana S.A.,REFIDOMSA), ajointventure between
theGovernment andShell, hasmonopoly rights toimport. However, distributors areallowed toimport
unleaded gasoline, asaresome private companies. Thepetroleum-refining capacity ofREFIDOMSA
meets about onethird ofdomestic demand forfuel; theremainder ismetbyimporting refined oil
products. AsofOctober 1995 ESSO andTexaco areallowed toimport anddistribute oilproducts.
Wood andcharcoal areusedmainly inrural areas.
47. Consumer prices ofoilandoilproducts, aswellastheirmarketing margins, aresetbythe
Secretary ofIndustry andCommerce (SEIC).31Noexplicit taxes suchastheITBIS (Table AIV.2)
ortheselective consumption tax(ISC) arelevied onpetroleum32,although untilJune1995 theywere
affected bytheforeign exchange tax.TheSEIC alsoestablishes theprice atwhich theDominican
Electricity Corporation (Corporación Dominicana deElectricidad ,CDE) buysfueloilandgasoil from
therefinery.33Theprice mechanism usedatthepresent timeisdiscriminatory. Thesame products
orclose substitutes arepriced differently fordifferent groups ofconsumers. Insome cases, theprice
control mechanism actsasataxandinothers asasubsidy. Thegoods thataretaxed aregasoline,
kerosene, andgasoilforgeneral use.Subsidies aregranted onliquid petroleum gasfordomestic and
industrial consumption, ongasoilandfueloilforCDE'suseandforindustries generating theirown
electricity, andonfueloilfortransportation use. Therefore, consumers ofgasoline, kerosene and
gasoilwiththeexception ofCDE andindustry, aretaxed, while consumers ofother oilproducts are
subsidized.
29EIU(1995).
30Foramore thorough discussion oftheSanJoséPactintheTPR onVenezuela, forthcoming in1996.
31Decree No.3366 13/02/1969. IICA (1994).
32Title IV,LawNo.11-92, TaxCode.
33Resolution 2/91, Government communication.WT/TPR/S/11 Trade Policy Review Mechanism
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48. Thistypeofdiscriminatory pricing system canonlybesuccessfully implemented ifthemarkets
forthedifferent consumers aresegmented, orifrationing isimposed andreselling prohibited. Ifnone
ofthese conditions hold, asisthecaseintheDominican Republic, theprice differential becomes an
incentive forillegal speculation. Subsidized consumers buyatthelower price andresell ataprofit
toconsumers whodonotbenefit fromthesubsidy. According totheGovernment, thishasbeenone
ofthemostdetrimental effects oftheprice control mechanism inthemarket foroilandoilproducts.
49. TheauthoritiesrecognizethattheexcessiveStateinterventioninthissectorneedstobeaddressed
andhavealready taken steps towards liberalizing thesector bysending anewlawtoCongress. The
approval ofthislawwould entail thereorganization oftheStatemonopoly withtheaimofprivatizing
itwithin aperiod nottoexceed eight years. Government policy contemplates moving toasituation
where theinternal price paidbyCDE andindustry istheimport price pluscharges.
(b) Electricity
50. Upto1989, theproduction, transmission anddistribution ofelectricity were exclusively in
thehands oftheCDE, aStatemonopoly. Since 1989theprivate sector hasbeenallowed toparticipate
intheproduction ofelectricity.34Atpresent, around 40percentofelectricity isproduced byprivate
producers, whosellittoCDE.
51. TheDominican Republic hassuffered from serious electricity supply shortages. Although
85percentofthepopulation isestimated tohaveaccess toelectricity, frequent andprolonged power
cutshaveforced private firms tousetheirowngenerators, andtheGovernment estimates thataround
34percentoftotalelectricity consumption isproduced byprivate generators. Theproliferation of
private generators, eventhough ashort-term solution, willinthelongrunnotpromote thedevelopment
ofthesector, which needs full-fledged reform.
52. Theshortage ofelectricity hasbeencaused mainly byfinancial constraints ontheCDE. The
CDE started subsidizing electricity in1974 afterthefirstoilshock. Atthatpoint, theGovernment,
viaCDE, hadtheresources tofinance thesubsidization ofelectricity tariffs because ofthehighprice
ofsugar intheinternational market. However, oncethepriceofsugar fell,CDE'sresources diminished,
andsubsidization began todrainthealready scarce resources. Thus, CDEbecame incapable ofcarrying
outrepairs,maintaininginstallations,andexpandingproductivecapacityinordertokeepupwithdemand.
53. According totheGovernment, thesubsidy hasnotyetbeenremoved. Consumption ofup
to300Kwofelectricity permonth remains subsidized forhousehold users. Tariff ratesdiffer among
consumers. However, itisnotpossible toassess theexistence ofcross-subsidization since tariff rates
were notmade available.
54. TheGovernment hasrealized theimportance ofthesector andtheneedforprivate investment.
However, private investors areunlikely tobeattracted unless thesector ismoreappropriately regulated,
andtheGovernment, recognizing theproblem, hassentadraftlawtoCongress inanattempt toestablish
aclear andtransparent setofrules. Theobjectives ofthelawaretwofold: first, toseparate the
regulatory andpolicy design functions. Forthispurpose, twoinstitutions aretobecreated, the
Superintendency ofElectricity astheregulatory bodyandtheNational Commission forEnergy todesign
policy. Second, itisintended toestablish animproved framework forprivate investment inthesector.
34Law14-90, Promotion ofNational Electrical Development (Incentivo alDesarrollo Eléctrico Nacional ),
abolished in1992 bytheTaxCode.Dominican Republic WT/TPR/S/11
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(4) Manufacturing
50. Manufacturingcontributes19percenttotheDominicanGDP.Themostimportantmanufactured
goodsaretextilesandclothing,foodandbeverages,tobaccoandelectronicproducts.Dominicanindustrial
policieshavesimultaneouslypromotedimport-substituting,andnon-traditionalexport-orientedindustries.
Themanufacturing sector intheDominican Republic canthusbecharacterized bytwodifferent
sub-sectors: oneproducing forthedomestic market, andanother producing fortheinternational market.
Theinward-oriented industry emerged under animport-substitution industrialization strategy initiated
in1968(Law 299), although many ofthebenefits provided insupport ofthatstrategy nolonger apply.
Theexport-oriented industry hasdeveloped mainly through thepromotion offreezones.
Inward-oriented industrial sector
51. Theinward-oriented sector oftheDominican industry concentrates mainly ontheproduction
offoodproducts, beverages, chemicals, cement, electrical equipment, plastic materials andoilrefining.
Itwasestablished under asystem ofincentives suchashightariffs onimported finalgoods, subsidized
credit, subsidized foreign exchange, lowtaxrates, and/or exoneration fromimport taxes. Thisindustrial
policy promoted theemergence ofacapital-intensive industrial sector, heavily dependent uponimported
inputs, which became inefficient andobsolete duetohigh, long-lasting protectionism. However, today
preferential interest ratesandtaxexemptions havebeeneliminated.
52. Several ofthese industries areowned orpartially owned bytheState(Annex IV.1) although
therôleoftheStatehasbeenconsiderably reduced since trade andfiscal reforms began in1990. In
thepast,Stateenterprises obtained direct subsidies, subsidies through thepricemechanism, andincome
taxexemptions, buttheirbenefits havebeencutbackinrecent years. Remaining State enterprises
continue tobeindeficit.
53. Although there hasbeensome effort towards reforming theinward-oriented manufacturing
sub-sector, abiasremains infavour ofproduction forthedomestic market. Asmentioned, mostof
these industries areheavily dependent onimported inputs. Forinstance, industries suchasbeer,
fertilizers, petroleum refining, andelectrical machinery relyentirely onimported inputs. Inaddition,
theshare ofimported inputs isover90percentforpharmaceutical products, basic chemicals, dairy
products, plastic materials, andcement; andforpaper products isover70percent. Theaverage share
ofimported inputs forthewhole manufacturing sector is68percent.35
54. Tariffs levied onthese inputs areinsome cases lower thantariffs levied onthefinished good.
Table IV.2shows thatinthecaseofpharmaceuticals, petroleum andpaper products thetariff rates
forrawmaterials arelower thanforthefullyprocessed goods. Tariff escalation issubstantial, implying
thatproducers ofthese items receive significant assistance toproduce forthedomestic market. On
average, tariff ratesforbeer, dairy products andcement are5percentage points higher thanfortheir
main inputs.36Thetariff formilkis20percent,while nominal tariffs ondairy products range from
10to35percentwithanaverage of28.3percent. Inthecaseofplastic products andelectrical
machinery there isnodetailed information onthetariff structure oftheindustry asawhole (ISIC 356
and283,Table AV.2). Tariffs onimported plastic products range from3to30percent.Theaverage
rate,however, is25.6percent,which means thatmostitems haveprotection ratescloser totheupper
35Dauhajre, Méndez, andMena (1994).
36Arancel deAduanas delaRepública Dominicana (1993) .WT/TPR/S/11 Trade Policy Review Mechanism
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rate.Thesituation issimilar forelectrical machinery, withtariffs ranging from10to35percentwith
anaverage of19percent.
55. Fertilizers andbasic chemicals show lower ratesofnominal tariff protection thantheother
products analysed here. Theaverage tariff rateforbasic chemicals is7.8percent,witharange from
3to15percent. Fertilizers havealower average of4.5percent,while therange is3to10percent,
implying thatmost tariff ratesarecloser tothelower limit (Table AV.1). Furthermore, thetariff
structure forindustrial chemicals (ISIC 351,Table IV.2) doesnotshow escalation. Protection inthis
industry, whose products aremainly inputs fortheproduction ofagricultural goods, seems tobreak
thepattern ofother industries. Infact,thepolicy ofhaving lower tariffs forinputs remains; inthis
instance, however, itisfavourable toagriculture rather thantoindustry. Given thetariff structure,
effective protection inthismanufacturing sub-sector islikely tobehigher thanthatimplied bynominal
import tariffs. Inaddition, other elements suchasinternal taxes, which incertain cases discriminate
against imports, provide increased protection todomestically produced goods.37
56. Thedegree ofprotection becomes clearer when examining effective rates. Effective ratesof
protection were calculated foranumber ofindustries intheDominican Republic. Sixofthem had
ratesofprotection ofmore than100percent: beverages 626percent38,clothing 322percent,glass
products 133percent, leather goods 124percent, electrical machinery 123percent, plastic goods
120percent; fiveindustries hadeffective ratesofprotection between 50and100percent: furniture
80percent,paper andpaper products 70percent,tobacco 63percent,chemicals 61percent,shoes
54percent; twoindustries hadeffective protection between 0and50percent: metal products
43percentandplastic products 1percent; andtwohadnegative effective ratesofprotection: food
products -9percent, andnon-metals -4percent.39
57. Thedisparity inthelevelofprotection distorts resource allocation across industries, withthe
highly protected industries inabetter position toobtain scarce domestic resources. Thehighlevels
ofeffective protection areattributable totheescalation ofnominal tariffprotection inconjunction with
thelowvalue-added ofindustrial production intheDominican Republic.40Non-traditional exports
suchasclothing, leather goods, tobacco, andshoes havehigh, positive effective ratesofprotection
which protects their production forthedomestic market while theyarewellabletocompete
internationally onthebasisofcostandquality (aswellasbeing assisted bybenefits available forexports).
However, theimplicit taxation ofproducts ofthefood industry which aretraditional exports is
demonstrated bynegative effective ratesofprotection.41Inthecaseofotherindustries suchasbeverages,
glassproducts, electrical machinery, plastic goods, furniture, paper andpaper products, andchemicals,
therateofprotection ispositive. These industries seem tobedualistic, withexport-competing firms
co-existing withtraditional firms catering tothedomestic market.
37Dauhajre (1994).
38Theeffective rateofprotection fortobacco andbeershould have declined duetotheelimination ofthe
discriminatory excise taxes andoftheforeign exchange surcharge.
39Dauhajre (1994), p.78.
40Laird andYeats (1990), Appendix 2,shows that,forgiven protection oninputs andfinished goods, effective
protection increases asthevalue-added under freetrade declines.
41Valdés andSchaeffer (1994).Dominican Republic WT/TPR/S/11
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Export-oriented industrial sector
58. Inresponse tothedeterioration ofthesector, in1990 theGovernment launched astrategy to
promote manufacturing, focusing onstrategic areas andexport-oriented industries. Since then
development oftheindustrial sector intheDominican Republic hasbeen largely conditioned by
Law8-90, which promotes theestablishment ofnewfreezones andthegrowth ofexisting ones.
59. TheIndustrial Restructuring Programme, which provided technical support topriority sectors
wassuspended because ofalackoffunds. Theindustries thatbenefited fromthisprogramme include
textiles andgarments, wood andfurniture, agro-industry, leather andfootwear, andpackaging.
60. Industries operating under thefree-zone régime areamong themostdynamic intheDominican
economy. Asitis,theDominican Republic hasthehighest number offreezones intheCaribbean
region.Theywereestablishedin1955byLaw4315,butonlyincreasedinnumberandbecameimportant
after1985. Thefreezones haveflourished because oftheincentives given toenterprises; theproximity
totheUnited States market; thepreferential treatment granted toDominican exports under off-shore
assembly provisions intheUnited States andtheCaribbean Basin Initiative (CBI); andthelowcost
ofDominican labour compared tothatoftherestoftheregion.
61. Thecontribution ofthezones toGDP during thefirstsixmonths of1995 was3.75percent.
In1994 thezones produced netforeign exchange earnings ofUS$441 million from atotalvalue of
exports ofUS$1,417 million bythezones. Thezones haveconcentrated inproducing labour-intensive
manufactures, withheavy specialization intheassembly oftextiles andclothing. In1993, clothing
accounted for70percentofthemanufacturing activity inthefreezones, followed byshoes and
electronics.42Thezones aregenerating mostofthenewemployment, although atpresent onlyabout
6percentoftheactive labour force works inthefreezones, which according totheGovernment is
significant since unemployment is22percent. Thissub-sector isalsoanimportant source offoreign
exchange. Thevolume ofexports originating inthezones more thandoubled between 1989and1993
while during thesame period, other exports fellbyhalf.43Inaddition, onaverage 95percentofall
manufactured exports inthelate1980s were produced inthefreezones.
62. Asnoted inChapter IV,freezones havebecome veryimportant fortheDominican economy
even though vertical integration andlinkages withtherestoftheeconomy arestillweak.44The
value added inproduction isaround 15percent. Thislowfigure ismainly duetothenature of
production thathasemerged under theadvantages provided bytheUnited States off-shore assembly
programme.45Under thisprovision, duties charged arebased onthefullvalue oftheimported item
minus thevalue ofimported material fromtheUnited States.46These provisions generate anincentive
tominimize theuseoflocally produced inputs, sothat,inthelongrun,thefreezones could operate
asadisincentive tofurther industrial development intheDominican Republic.
42Secretaría deEstado deIndustria yComercio (1994).
43Banco Central delaRepública Dominicana (1994). Refer alsotoTable IV.3.
44Dauhajre etal.(1989).
45Inparticular, section 9802.00.80 oftheHarmonized Tariff Schedule oftheUnited States (former Item807
oftheU.S. Tariff Schedule).
46Secretaría deEstado yComercio (undated).WT/TPR/S/11 Trade Policy Review Mechanism
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63. Asopposed tothelackofthedynamism oftheinward-looking industrial sector, however, the
prosperity offreezones demonstrates thebenefits ofanalmost freetraderégime andthedisadvantages
ofaprotected one. Ineffect, there isaneedforconvergence ofrégimes towards greater neutrality
oftreatment inorder toextend theoutward-oriented approach toother sectors oftheeconomy, rather
thanhaving tooffset theanti-export biasoftheexisting import régime tomake exporting viable. This
might beachieved, forexample, byreducing special benefits forthezones ontheonehand, while
ontheother approaching freertrade elsewhere. Thiscould alsohelptodevelop linkages between the
zones andtherestoftheeconomy.
(i) Textiles andclothing
64. Textiles and,particularly, clothing havebecome themostimportant non-traditional export for
theDominican Republic. Production ofclothing isconcentrated inthefreezones where around
63percentofthefirms specialize intheproduction ofclothing and64percentoflabour isengaged
inthisactivity. Exports ofclothing amounted toUS$1.49 billion in1993 representing 98percent
oftotalexports.47TheDominican Republic isthemain producer andexporter ofclothing inthe
Caribbean Basin.48
65. Dominican clothing exports arehighly concentrated, withmore than90percentofproduction
being directed totheU.S.market. While mostoftheDominican Republic exports totheUnited States
arecovered under CBIduty-free treatment, apparel andtextile products areexcluded fromthisbenefit.
However, theyenter theUnited States under heading 9802.00.80 oftheHarmonized Tariff Schedule
oftheUnited States (orformer TSUS 807)apreferential régime which relates tooff-shore assembly
programmes. Thisheading covers products assembled abroad, withacertain percentage ofU.S.
components, thatcanenter theUnited States withaspecial tariff concession. Duties arelevied onthe
totalvalue oftheproduct minus thevalue ofU.S.inputs.
66. In1986, theUnited States added anewprogramme covering certain U.S.imports oftextile
andapparel products from CBI-beneficiary countries; itisprovided forunder HTS9802.00.801049
orformer Item807A oftheU.S.Tariff Schedule ("Super 807"). Products entering theUnited States
under HTS9802.00.8010 areproducts assembled off-shore with100percentU.S.inputs andcutin
theUnited States; dutyintheUnited States islevied onthevalue added. These products aregranted
Guaranteed Access Levels (GALs) bytheUnited States.50TheGALs arenegotiated, buttheyarenot
considered aquota inthestrict sense, since theirlevelcanbechanged attherequest oftheexporter.
TheDominican Government estimates thatmore than40percentofallgarments exported tothe
UnitedStatesareassembledusingonlyU.S.materialsandexportedunderthisduty-reductionprogramme.
67. TheUnited States hasalsonegotiated export quotas forcertain categories ofclothing. Two
types ofgoods canbeexported aspartofthese quotas: goods thatwould qualify as9802.00.80 (i.e.,
assembled intheDominican Republic using some U.S. components) orclothing produced inthe
Dominican Republic regardless oftheorigin oftheinputs.
47UNSTAT, Comtrade database.
48Latin American Economy &Business, May 1995.
49Shelburne (1992).
50Secretaría deEstado yComercio (undated).Dominican Republic WT/TPR/S/11
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68. Under theMultifibre Arrangement (MFA) which expired attheendof1994, the
DominicanRepublichadsignedbilateralexportagreementswiththeUnitedStatesandCanadacontaining
Specific Limits. FortheU.S. market, thirteen specific export quotas forclothing products were
negotiated andforCanada three specific quotas were negotiated.51These quotas were carried over
intotheWTO Agreement onTextiles andClothing upon theentry intoforce oftheWTO on
1January 1995. TheGALs mentioned above werenotcarried overintotheWTO. TheNational Textile
Commission (Comisión Nacional Textil)allocates thequotas toDominican exporters based ontheir
pastexport levels. Quotas arenottransferable, unless specifically authorized.
69. InMarch 1995, theDominican Republic notified theTextiles Monitoring Body oftheWTO
ofitsdecision toretain therighttousethetransitional safeguard mechanism forproducts covered by
theAnnex oftheTextiles andClothing Agreement. Italsoprovided thelistoftextile andclothing
products which wasintegrated intotheGATT 1994 asthefirstphase ofthetransitional programme
envisaged intheTextile Agreement.52
70. TheDominican Government isconcerned about theeffects ofphasing outtherégime ofbilateral
quotas under theMFA, andofNAFTA. Intheshort termruntheeffect ofthephase-out oftheMFA
doesnotappear tobenegative, since theannual growth rateintheexport quota totheUnited States
willincrease ateachofthethreestages ofthephase-out. However, quotas forother more competitive
countries willalsoincrease, andtheDominican clothing industry willthusbefaced withachallenge.
Inaddition, following thefullimplementation ofNAFTA theincrease oftextiles produced inMexico
isbound tomake market access totheUnited States more competitive, while atthesame time, there
isanincentive forU.S.firms tomove production toMexico. Indeed, since thebeginning of1994,
100clothing factories inCBIcountries haveshutdown.53Inthelong-run, themovement ofU.S.
companies toMexico willdepend upon several factors suchasthebehaviour ofmexican wages,
productivity, shipping costs, political stability, etc.,thustheeffects cannot bepredicted without amore
rigorous analysis beyond thescope ofthisReview. However, theCaribbean Basin Trade Security
Act,nowbefore Congress, would grant NAFTA parity totheCaribbean Basin countries untilthey
joinNAFTA orsome other formoftradeagreement withtheUnited States isreached. Theproposals
havealready beenapproved bytheTrade Sub-committee oftheWays andMeans Committee.54
(ii)Electronics
71. In1994, 13electronics firms, outofatotalof446(2.9percent), were inoperation inthe
Dominican freezones.55Most ofthecompanies areengaged inproduction and/or assembly ofelectrical
andelectronic components andaccessories. Thefirms haveconcentrated intheproduction ofcomputer
components suchaselectrical switches andwires, tubes, semi-conductors andkeyboards. More recently,
firmshavestartedtoassemblefinisheditemssuchasairconditioners,fans,etc.TheDominicanRepublic
isinterested inattracting more high-tech industries. Forthispurpose twofreezones withparticular
51WTO documents G/TMB/N/61, G/TMB/N/62, andG/TMB/N/63.
52WTO documents G/TMB/N/17 andG/TMB/N/43.
53Latin American Economy andBusiness, May 1995.
54Financial Times, April 11,1995
55SEIC (1994).WT/TPR/S/11 Trade Policy Review Mechanism
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features havebeendesigned.56Theadvantage ofthistypeofindustry, asopposed toclothing, isthat
ingeneral working conditions arebetter andwages arehigher. These industries alsorequire more
highly skilled labour andprovide training which contributes totheaccumulation ofhuman capital in
theDominican Republic. However, oneofthemainobstacles thatthesefirms encounter isthecountry 's
power supply problem.
(5) Services
72. Services hasbecome theleading sector oftheDominican economy, accounting for67percent
ofGDPin1995; theshare ofthedifferent services in1993wascommerce 12.7percent,construction
8percent,transport 7.4percent,hotels 5.4percent,communications 2.7percentandotherservices
30.9percent. Thecontribution oftourism toGDP iseffected through several ofthese sub-sectors
andlinkages alsoextend tothemanufacturing andagricultural sectors.57
73. Since thestructural reform programme began in1990, there havebeennospecific sectoral
incentivesforenterprisesintheservicessector,exceptthat,underspecialcontractswiththeGovernment,
enterprises providing telecommunication services areexempt fromtaxonprofits. Ontheother hand,
theselective consumption tax(ISC) islevied oncertain services. Forexample, anISCof5percent
islevied onhotelrooms, 10percentoninsurance services, 10percentonlongdistance national and
international communications, and20percentoninternational airtransport.58According tothe
Government, therôleoftheStateisnotsignificant intheservices sector. However, theGovernment
hasamonopoly insome services sub-sectors suchaswater andirrigation, ports, airports, andenergy
transmission andcommercialization. Italsohasfullownership oftheDominican airline (Dominicana
deAviación ),which ispresently notoperating flights duetofinancial difficulties. TheState-owned
insurance company haslostimportance since1990, currently holding only3.4percentofthemarket.
Furthermore, theReserve Bank oftheDominican Republic (Banco delaReserva dela
RepúblicaDominicana),aState-ownedbank,holdsthehighestvalueofdemanddepositsinthecountry.59
74. TheDominicanRepublic'sScheduleofSpecificCommitmentsnegotiatedintheUruguayRound
includes horizontal commitments affecting allsectors aswellassector-specific commitments.60The
Dominican Republic 'sofferonhorizontal commitments included sectors inwhich theshare offoreign
capital islimited orprohibited. Foreign investment isprohibited inpublic services, while there are
limits toforeign investment inadvertising, broadcasting, television, andmass media communication
systems; maritime, landandairtransport; andinsurance. There aresome apparent inconsistencies
betweenthecommitmentsandthedomesticlegislation.However,theDominicanauthoritiesarecurrently
addressing thisissue.
75. Horizontal commitments alsocover foreign labour. Limits aresetonthenumber offoreigners
allowed towork inaDominican company. Interms ofnational treatment, foreigners working inthe
Dominican Republic willbeconsidered nationals, unless there isaninternational agreement tothe
56Montalvan, G.P. (1989).
57SECTUR (1994).
58Chapter VIII, LeyN.11-92, p.194.
59Government oftheDominican Republic.
60GATS/SC/28, 15April 1994.Dominican Republic WT/TPR/S/11
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contrary. TheDominican Republic didnotbindthesupply ofservices through thepresence ofnatural
persons, except forsenior andspecialized staffassociated withcommercial presence whomustcontribute
tothetraining ofDominican personnel intheirrespective areas ofspecialization.61Foreign natural
persons aresubject totherequirement ofawork permit andawork visa.
76. Sector-specific commitments cover thefollowing areas: business services, communication
services, construction andrelated engineering services, financial services, health andsocial services,
tourism andtravel-related services, andtransport services.
Most-Favoured-Nation Treatment
77. According totheGovernment, existing legislation intheDominican Republic appears tobe,
overall, inconformity withthem.f.n. principle. TheDominican Republic willgrant m.f.n. treatment
toallGATS members. TheDominican Republic haslisted itsexemptions totheprinciple of
most-favoured-nation (m.f.n.) treatment under theAnnex onArticle IIExemptions totheGATS
Agreement. M.f.n. exemptions cover thefollowing sectors: legalservices, auditing andaccounting
services, medical, para-medical, dental, nursing andphysiotherapy services, andarchitectural and
engineering services. These types ofprofessional services maybeprovided byforeigners onthebasis
ofreciprocity only.62Thismeasure applies toallcountries.
Transparency
78. There isnosingle agency mandated toprovide information onlegislation andmeasures affecting
trade inservices intheDominican Republic, andtherelevant information hastobeobtained from a
variety ofdifferent sources. However, theGovernment intends tocreate aninstitution withthismandate
inthefuture.
Other
79. TheDominican Republic doesnotparticipate inanypreferential agreements concerning trade
inservices. Ithassigned abilateral agreement withSpain onmutual recognition ofqualifications in
certain professional areas. There arecurrently norestrictions oninternational payments andtransfers.
(i) Tourism
80. Since the1980s, tourism hasbeenoneofthemostdynamic sectors intheDominican Republic
interms ofgrowth andasasource offoreign exchange.63Asashare ofGDP, tourism represented,
according totheCentral Bank, 4.1percentin1989; for1995 itwasestimated thatitwould reach
6.1percent. Between 1983 and1993, tourism receipts increased byanannual average of
61Theprovision, through thepresence ofnatural persons, ofprofessional services suchaslegal, accounting,
consultancy, engineering, architectural andmedical services, issubject tothefulfilment oftherequirements laid
down inthelaws governing theexercise ofsuch professions (Document GATS/SC/28, 15April 1994).
62Document GATS/EL/28, 15April 1994.
63World Bank (1995).WT/TPR/S/11 Trade Policy Review Mechanism
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14.4percent64,reaching US$1.2 billion in1993. Thenumber ofhotel rooms alsoincreased from
13,000 in1990 to25,000 in1992 (Table V.1).
Table V.1
Tourism intheDominican Republic, 1988-93
1988 1989 1990 1991 1992 1993
Thousands ofarrivals
Tourist arrivals 1,116 1,400 1,533 1,321 1,524 1,691
Annual percentage change
23.73 25.45 9.50 -13.83 15.37 10.96
Thousands ofarrivals
Tourist arrivals byair 1,116 1,400 1,533 1,321 1,524 1,691
US$million
Tourism receipts 768 818 890 877 1,054 1,234
Annual percentage change
34.50 6.51 8.80 -1.46 20.18 17.08
Source: World Tourism Organization, Yearbook ofTourism Statistics, Vol.1-46 ed.
81. Thetourism sector isgoverned byLaw84of1979, which established theSecretary ofTourism
andreplacedLaw541of1969,whichwasthebasictourismlaw(LeyOrgánicaylaDireccióndeTurismo
delaRepública Dominicana );andDecree No.1871 of1971, onRegulations onTourist Guides
(Reglamento sobre Guías deTurismo ).TheForeign Investment Lawisalsorelevant, asdiscussed
below.
82. Until 1992, Law153wasthemostrelevant lawforthedevelopment ofthetourism sector since
itprovided taxexemptions, especially onimport duties ofmaterials andequipment, tofirms operating
inthissector. Asaresult, thissector didnotsuffer unduly from theanti-export biasgenerated by
thepre-reform trade régime. Thislawwasabolished in1992 aspartofthefiscal reform.65
83. Law861onForeign Investment regulates theestablishment oftourist-related businesses by
foreigners. Inmostcasesthetreatment afforded tonationals isalsoavailable toforeigners; forexample,
there arenorestrictions onforeigners wishing toopenahotel orrestaurant. InitsGATS Schedule
ofSpecific Commitments, theDominican Republic hasmade thecommitment toallow commercial
presence without limitations andtoprovide national treatment toforeign suppliers ofhotelandrestaurant
services, withtheonlyrequirement being toregister attheNational Tourism Directorate (Dirección
Nacional deTurismo ).66Travel agencies, touroperators andtourist guides havealsobeenincluded
inthelistofspecific commitments. Cross-border supply inthese services hasbeen liberalized
completely. There arenorestrictions onmarket access forforeigners, butnocommitments weremade
onnational treatment. Foreigners whowishtoestablish atravel agency mustsubmit anapplication
totheSecretary ofTourism (SECTUR) with4fiscal stamps eachofRD$4. Inthecaseoftourist guides,
64Dauhajre, Méndez andMena (1994).
65LeyNo.11-92CódigoTributariodelaRepúblicaDominicanaSantoDomingo,RepúblicaDominicana,1992.
66WTO, document GATS/SC/28, 15April 1984.Dominican Republic WT/TPR/S/11
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theofferofcommercial presence isinconsistent withcurrent national legislation (Decree 1871of1971)
under which noforeigner isallowed tobeatourist guide.67Decree 1871 will,therefore, needtobe
amended inlinewiththeoffer.
84. Tourism intheDominican Republic ispartofthenon-traditional, export-oriented sector and
isledbytheprivate sector. Ithasdeveloped rapidly forseveral reasons: geographic (870milecoastline)
andclimatic conditions; lowcosts incomparison toother Caribbean destinations; international
advertising campaigns launched bytheSecretary ofTourism (SECTUR); andalegalframework that
atleastinitially, granted special incentives tothesector. Asaresult, theDominican Republic has
become themostpopular tourism destination intheCaribbean sincetheearly1990s, welcoming some
1.5million tourists in1994.
85. Attheoutset thetourism sector developed mainly because oftheincentives granted tothesector
through Law153. However, itscontinued growth, evenwithout special fiscal incentives, shows that
theDominican economy hasthepotential tocompete intheexternal market. Room availability has
increasedandtheoccupancyratewas72percentin1994.68Demandhasalsocontinuedtogrowalthough
theorigin oftourism haschanged: traditionally tourists camemainly fromtheUnited States andCanada,
andtoalesser extent from Europe, buttheshare ofU.S.andCanadian tourists hasdecreased since
thelate1980s, while theshare ofEuropean tourists hasincreased by51percent. In1993, 45percent
oftourists totheDominican Republic were European, 25percentcame from theUnited States,
10percentfrom Canada and20percentfrom other countries.69Theincrease inEuropean tourism
canbepartly attributed totheinvestment made bySpaniards inDominican beach resorts, andtheir
marketing campaigns. Inthelast10years Spanish promoters havebuiltand/or acquired 5,800 rooms
andtheymanage 1,100 additional rooms. Forty percentoftheavailable rooms inhotels ofmore than
100rooms aremanaged bySpanish investors. Intotaltheirinvestment hasbeenestimated tobe
US$300 million.70Furthermore, Iberia, theSpanish airline runsseveral daily flights from Europe
totheDominican Republic making thecountry more accessible. Theincrease incharter flights has
alsomade thecountry more reachable.
86. Thetourism sector hasgained importance alsobecause ofspill-over effects andlinkages to
therestoftheeconomy, forinstance, through increased demand forfoodandbeverages.71Other sectors
suchasconstruction, transportation andcommunications havealsobenefited from thedynamism of
thetourism sector. Forexample, construction picked upinthelate1980s, afteraslump from 1980
to1985, dueinparttoprivate investment inhotels. Thetourism sector hasalsohadanimpact on
thelabour market, eventhough atpresent only4percentofthelabour force isengaged inthisactivity
perse.SECTUR estimates thatthemajor labour impact isderived from theboost thattourism has
given toother sectors, i.e.the indirect effects.72
67Secretariado Técnico delaPresidencia (1994).
68Secretaría deTurismo (SECTUR) 1994.
69Latin American Economy &Business, March 1994.
70Dominican authorities.
71ECLA (1994), p.498.
72Secretaría deEstado deTurismo (SECTUR) 1994.WT/TPR/S/11 Trade Policy Review Mechanism
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87. Despite thesuccess ofthesector, SECTUR feelsthereisaneedtoidentify possible constraints
onitslong-term growth. First, interms ofhuman capital thereisinsufficient labour withthenecessary
skills towork inhotels andrestaurants. SECTUR plans toincrease training capacity.73Second, tourist
projects havenotbeenappraised from anenvironmental point ofview, andenvironmental problems
mayyetsetlimits totourist development. Third, thehighcostoflocalcapital (i.e., domestic interest
rates at28-36 percent) hasbeen aconstraint oninvestment, particularly formedium andsmall
enterprises.
88. Furthermore,demandfortourismseemstobehighlyresponsivetoexternalfactors.Forinstance,
asshown inTable V.I,there wasadecrease intourism in1991 apparently duetotheGulfCrisis.74
Inthefirstquarter of1994, hotel occupancy alsodeclined duetolower arrivals fromSpain andItaly
following thedepreciation ofthepeseta andthelira.75
89. Finally, competition among suppliers oftourism services isbound toincrease, andthecountry
willhavetomake aneffort tokeepitsshare ofthemarket andtoassure adequate useofthecapacity
already installed. Given thisoutlook andotherpotential problems, SECTUR feelsthatthesector should
begiven more support intheform ofnewincentives andnewpolicies toregulate investment.76
(ii) Financial Services
Banking
90. Thebanking sector intheDominican Republic issupervised bytheSuperintendent ofBanks.
Until 1992, private banking wasconducted byanumber ofspecialized banks eachlimited toproviding
onetypeoffinancial service: commercial banks, development banks, finance companies, mortgage
banks, andsavings andloanassociations. Commercial banks dominated thesystem andcontrolled
about twothirds ofthebanking sector 'stotalassets. Mortgage banks engaged infinancing realestate
purchases,andmainlyextendedmedium-term(10-year)loansforcommercialconstruction.Development
banks offered medium- andlong-term loansandparticipated incapital formation ofdevelopment projects
inindustry, agri-business, transportation, andtourism.
91. Since theFifth Resolution oftheMonetary Board (Junta Monetaria )in1992, asamended by
the25thResolution of1994, authorized financial institutions areallowed toundertake multiple banking
activities andundertake transactions inanyconvertible currency.77Uptonow, theMonetary Board
andtheSuperintendency ofBanks haveallowed eight banks toperform multiple banking services.
ThisResolution ispartofamore thorough financial reform (Chapter I)tobecompleted byanew
Financial andMonetary Code, nowbeing discussed inCongress. Thebanking sector inthe
Dominican Republic is,therefore, inaperiod oftransition.
73Secretaría deTurismo (SECTUR) 1994.
74IDB(1993).
75ECU (third quarter 1994), p.28.
76Secretaría deEstado deTurismo (SECTUR) 1994.
77Secretaría deEstado deFinanzas (1994), p.105.Dominican Republic WT/TPR/S/11
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92. Atpresent, specialized andmixed banking co-exist. Four banks offermultiple banking, while
271other financial institutions provide specialized services. Theprivate sector hasanimportant rôle,
withprivate financial institutions holding 74percentofthetotalassets inthefinancial system.78The
share ofassets heldbyforeign banks hasbeendecreasing since 1990. In1990, thethreeforeign banks
-Citibank, Bank ofNova Scotia, andChase Manhattan -held14.9percentoftotalassets. Following
theclosure ofChase Manhattan, foreign participation declined to7.2percentin1994.79According
totheauthorities, Chase Manhattan stopped operating intheDominican Republic aspartoftheBank's
global policy ofreducing itspresence inLatin America.
93. Foreign banks mustcomply withtherequirements oftheGeneral Banking Law(LeyGeneral
deBancos ),Law708of1965, toobtain approval forestablishment (Annex V.1).80Established foreign
banks aresubject tothesameregulations asnational banks interms ofthefunctions theymayperform,
criteria forlending, ratios ofassets andreserves tocapital, andfiscal commitments.
94. IntheGATS negotiations onfinancial services, theDominican Republic hasextended specific
commitments inbanking andother financial services. Commitments weremade bothonmarket access
andnational treatment especially inthemodes ofcross-border supply andcommercial presence
(Table AV.3). These commitments areconsistent withtheDominican legislation thatgoverns financial
services; thebanking lawandtheFDIlaw. There aresome areas which remain unbound allowing
fortheimposition ofnewrestrictions onfinancial services. However, theapproval ofthenewFinancial
andMonetary Code andthenewFDIlawwould minimize thisrisk,since thesector would befurther
liberalized andnational treatment would begranted toforeigners.
Insurance
95. Inorder toestablish aninsurance company, foreigners must comply withtherequirements
stipulated intheFDIlawandthePrivate Insurance Law.81However, while theFDIlawputsalimit
of49percentonforeign equity, which isconsistent withtheSchedule ofSpecific Commitments,
Law126stipulates thatthere isnoneedtofulfil thisrequirement.82There isaneedtoamend the
legislation inorder tomake requirements forforeigners consistent andmore transparent. Moreover,
according totheauthorities despite thelawanumber offoreign insurance companies operate inthe
Dominican Republic.
(iii) Telecommunications
96. Telecommunication services intheDominican Republic areinthehands oftheprivate sector.
Telecommunications areregulated byLaw118of1966 (LeydeTelecomunicaciones )andbythe
Director-GeneralofTelecommunications.Until1990,theDominicanTelephoneCompany(CODETEL),
asubsidiary ofGTECorporation, hadadefactomonopoly, asthesoleprovider oftelecommunications
78Secretaría deEstado yFinanzas (1994), p.5.
79Central Bank.
80These requirements arespecified inGATS Schedule ofSpecific Commitments, Supplement 1,
(GATS/SC/28/Supp.1).
81Law 126Private Insurance Law(1971).
82Article 10,Section (a)ofLaw126, Private Insurance Law(1971).WT/TPR/S/11 Trade Policy Review Mechanism
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services.In1990theGovernmentdecidedtoopenupthemarketand,underResolution4-91,established
theprincipleoffreecompetitioninthesector.Anysupplieroftelecommunicationservicesmusttherefore
allow anyother supplier freeinter-connectibility. Competition isallowed inalltelecommunication
services, bothbynationals andforeigners. In1990 theGovernment licensed asecond supplier,
TRICOM, toprovide allservices. CODETEL alsosigned aninter-connection agreement with
All-American Cables andRadio toprovide long-distance calls. Currently, however CODETEL still
holds 93percentofthetelecommunications market.
97. Theregulatory framework fortelecommunications isbeing further overhauled. Resolution 1-95
oftheSecretariat ofState forPublic Works (Secretaría deObras Públicos )setsoutnewconditions
regulating competition inthefield, particularly forinternational calls, where theprinciple of
non-discrimination inratesbetween "dominant" andother suppliers isestablished. Atthesame time,
theuseof"callback services", isbanned.
98. There arevirtually noprice controls inthetelecommunication services. Under Article 109
ofLaw118,theSecretariat ofState forPublic Works regulates onlytheprice ofthefirsttelephone
lineforresidential services.83According totheauthorities, thisprice isnotestablished according to
cost, buthasusually been cross-subsidized byinternational rates. Under Resolution 1-95, cross-
subsidization oflocalcallsistobegradually eliminated through thecreation ofanewpricing structure
taking account ofcostsofproduction, theofficial exchange rateand/or inflation. Allother prices are
determined directly bythesupplier oftheservice. TheISCof10percentisstilllevied onlong-distance
telecommunication services fornational orinternational long-distance calls.
99. IntheUruguayRound,theDominicanRepublicmadeacommitmenttograntbothmarketaccess
andnational treatment onconsumption abroad andcommercial presence indatatransmission services,
radio andtelevision cable services, sound andimage transmission onafeebasis and"other"
telecommunications services. (Table AV.3). TheAnnex onTelecommunications ofGATS requires
allmembers to"ensure thatanyservice supplier ofanyother Member isaccorded access toanduse
ofpublic telecommunications transport networks andservices onreasonable andnon-discriminatory
terms andconditions..."84
100. National legislation appears already tobeconsistent withtheDominican commitments on
telecommunications, except inthecaseofradio where, according tonational legislation (Law 118),
commercial presence isnotallowed inthecaseofradio stations. Theestablishment ofaradio station
requiresalicence,whichmayonlybegrantedtonationalsortoforeignerswhohaveoptedforDominican
nationality.85This legislation isatpresent being revised totakeaccount ofUruguay Round
commitments.86
83Wellenius andStern eds.(1994).
84WTO (1995), Annex onTelecommunications, p.361, 5.
85Article 59ofLaw118Telecommunication Law, 1966.
86Government communication.Dominican Republic WT/TPR/S/11
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(iv) Transportation
101. InitsUruguay Round Schedule ofspecific commitments, theDominican Republic made a
commitment toallow bothmarket access andnational treatment oncross-border supply, consumption
abroad andcommercial presence forthetransport services listed inTable AV.3. Nocommitments
havebeenmade inairtransport services oronthetransportation ofpassengers.87Interms oftrade,
there arenoincentives fortraders tousenational transport companies andthere isnopreferential
treatment fornational vessels intheuseofports.
Airtransportation
102. IntheUruguay Round, theDominican Republic made nocommitments onairtransportation,
which isgoverned byLaw505of1969, theAeronautic Law. Thislawstates thatalltransportation
byairofpassengers andcargo must besupplied bynational enterprises.88According toLaw861,
anational enterprise isonewithatleast71percentnational equity. Foreign aircraft cannot beused
indomestic commercial activities, andforeign commercial pilots require aDominican licence tomake
domestic flights.
103. Theunhampered functioning ofthissector isimportant totheeconomy duetothelinkages
withthetourism sector. Liberalization ofthesector could thusbebeneficial totheeconomy. For
instance, thefourinternational airports intheDominican Republic arepublic andhavetraditionally
been runbytheState. However, aCanadian consortium, SSSI International, hasproposed the
construction ofaninternational airport inthenorth ofthecountry. Theconsortium would provide
thecapital andwould operate theairport.89Interms ofcommercial carriers, thereisonenational airline,
Dominican AirCompany (Compañía Dominicana deAviación ).Overseas flights havebeenprovided
bysixteen airlines since 1990, withAmerican Airlines becoming themain carrier.90
Maritime transport
104. Maritime transport isimportant since most merchandise trade istransported bysea,with
widespread useofcontainers.91Theports areState-owned, butconsideration isbeing given totheir
privatization. Improved portfacilities could alsoassist thedevelopment oftourism.92
105. Inthecaseofmaritime transport services, Uruguay Round commitments donotinclude
transportation ofpassengers ormaritime transportation ininternal waters. However, the
Dominican Republic hascommitted itself toproviding bothmarket access andnational treatment on
cross-border supply, consumption abroad andcommercial presence onmost maritime services
(Table AV.3). LawNo.3003 of1951, which governs maritime transportation, appears inconsistent
87WTO document GATS/SC/28, 15April 1994.
88Article 138, Law505of1969, Aeronautic Law(LeydeAeronáutica Civil).
89EIU(1995 First Quarter), p.20.
90EIU(1994-1995) p.20.
91EIU(1994-1995) p.20.
92Secretariado Técnico delaPresidencia (1994).WT/TPR/S/11 Trade Policy Review Mechanism
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withsome ofthecommitments made inthisarea. Forexample, inthecases oftowing andpushing
services (CPC 7214) andsupport services forwater transport (CPC 745), legislation prohibits foreign
vessels fromsupplying maritime transportation suchascoastal transportation, towing, andtransportation
andmovement ofpassengers within theports inthenational territory.
(v) Other Services
Construction
106. Thesector experienced strong growth during the1970s, erratic results during theperiod from
1980 to1985, andgrew atarateof18percentannually from1986 to1989. Thedynamism during
thislatter period canbeattributed topublic works such ashousing projects, anaqueduct in
Santo Domingo andahydroelectric project. Private investment alsocontributed totheincrease of
construction intheformofhotels.93However, during theearly 1990s therateofgrowth declined as
theprogramme ended, withastrong negative impact onthelabour market.94
107. TheDominican Republic included allactivities related toconstruction services initsSchedule
ofSpecific Commitments. Thecommitment covers commercial presence andgrants market access
andnational treatment toallforeigners. While national legislation (Law 322ofMay1981) requires,
inthecaseofpublic procurement, thatsuppliers havealiaison withanational firmoramixed enterprise
(51to70percentnational equity), public procurement isnotincluded intheGATS sothatthere is
noinconsistency between existing legislation andtheUruguay Round commitment.95
93ECU Report (1994-1995), p.20.
94IDB(1993), p.74.
95Secretariado Técnico delaPresidencia (1994).Dominican Republic WT/TPR/S/11
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Annex V.1
Criteria forApproval oftheOpening ofBanks intheDominican Republic
(Inaccordance withLawNo.708,General Banking Law(14April 1965))
Article 10. Theauthorization oftheMonetary Board must beobtained, through the
Superintendent ofBanks andsubject tothelatter'sopinion, forthefollowing purposes:
(a) Useofthewords "banco" (bank), "banquero" (banker) and"bancario (adjective: bank
orbanking) inanylanguage orinanyform, inthebusiness name ofanyperson or
entity;
(b) Theopening ofanewbankoranewbranch oragency ofabank;
(c) Themerger oftwoormore banks other thaninthecaseofthesaleoftheentire business
ofabanktoanother institution;
(d) Achange intheby-laws orcapital ofabank.
Paragraph (d)ofthisArticle shallapply tobranches offoreign banks onlyinrespect ofthe
capital theyholdintheRepublic andtheby-laws governing theirlocaloperations.
Article 11.Only limited companies established under thelawsoftheDominican Republic
expresslyandexclusivelytocarryonbankingoperations,andthebranchesoragenciesofforeignbanking
institutions dulyauthorized forsuchoperations inthecountry oforigin, maybegranted authorization
forthepurposes setoutinArticle 10.
TheSuperintendent ofBanks andtheMonetary Board shallrequire allapplicants tosubmit
thedataandinformation theydeem necessary. Inthecaseofapplications toopenanewbank, they
shallrequire inparticular:
(a) Thefirstandlastnames orbusiness name, profession, domicile andnationality ofthe
founders ororganizers;
(b) Thename ofthecompany;
(c) Theoperations envisaged;
(d) Thelegaldomicile andlocality inwhich theheadoffice, branch oragency willbebased;
(e) Theamount ofthepaid-up capital withwhich thecompany willbegin public operations;
(f) Acopyoftheby-laws andanyamendments ormodifications thereto, thenumber of
directors, theirfirstandlastnames, profession, domicile andnationality, thenumber
ofshares theyhold, andthesurety orbonddeposited toguarantee theproper fulfilment
oftheirfunctions;
(g) Thefirstandlastnames, profession, domicile andnationality oftheirexecutives and
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Branches offoreign banks currently operating intheRepublic shall beexempt from the
provisions ofparagraph (a)ofArticle 996anditsthepreamble.
Article 12.Fortheestablishment ofabranch oragency ofaforeign bank, other thanofa
foreign bankalready established intheRepublic, inaddition totherequirements inArticle 11,two
dulycertified copies ofthefollowing documents shallberequired;
(a) Thecertificate ofincorporation andtheby-laws inthecountry oforigin;
(b) Thelegalauthorization foritsestablishment inthecountry oforigin,
(c) Proof thatthebankmaylawfully, inaccordance withitsby-laws andthelawsofthe
country oforigin, establish branches/agencies intheRepublic;
(d) Thenameofthelegalrepresentativeorrepresentativesresponsiblefortheadministration
ofthebranch oragency intheRepublic, andtheirattributions andpowers;
(e) Thegeneral balance sheets andannual reports ofthebankforthelastfiveyears, or
theyears since itsestablishment iflessthanfive;
(f) Thestatement ofthecapital andreserves allocated tothebranch foritsownoperations;
(g) theOfficial Gazette publishing theExecutive decree authorizing theinstitution tobe
domiciled intheRepublic.
Article 13.Before granting theauthorization requested forthepurposes ofArticle 10,the
Monetary Board shallascertain, bymeans ofanyinvestigations itmaydeem necessary, that;
(a) Thepublic interest andgeneral economic andlegalconditions justify thegranting of
theauthorization;
(b) Theapplicants areserious, responsible andotherwise trustworthy.
Thenotice oftheestablishment ofalimited company forthepurpose ofcarrying onbanking
operations shallcontain, inaddition totheextract required byArticle 42oftheCode ofCommerce,
themention oftheauthorization oftheMonetary Board required byArticle 10ofthepresent law,as
wellastheinformation indicated inArticle 11.
...
Article 15.Before beginning operations, branches oragencies offoreign banks established
intheDominican Republic inthefuture shalldemonstrate thatthecapital andreserves allocated to
themarelocated inthecountry, inaccordance withwhatever theMonetary Board decides ineachcase.
Article 16.Branches oragencies offoreign banks nowestablished intheDominican Republic
orwhich areestablished inthefuture shall notberequired tohave aboard ofdirectors forthe
administration oftheiroperations within theterritory oftheRepublic, butmusthaveoneormoreagents
96Paragraph (a)ofArticle 10instead ofArticle 9.Dominican Republic WT/TPR/S/11
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domiciled intheRepublic under thedirect responsibility oftheparent company andmust carry on
inhis/their names theordinary operations within theattributions ofthebranch oragency.
Article 17.Theassets heldintheRepublic byaforeign bank, including thecapital andreserves
ofbranches oragencies shallgotomeeting thebank'sobligations intheRepublic onapreferred basis.
CHAPTER III
Capital andReserves
Article 19.Anyforeign bankorbankowned byamajority ofnon-residents which isestablished
inthefuture shall, before beginning operations, havepaid-up capital ofnotlessthanRD$1,000,000.00,
plusareserve fundofnotlessthan20percent.
Note: According totheauthorities inthecaseofestablishing amultiple service bank Article 12(f)
should say: "capital must besubscribed andpaidup".