RESTRICTED
WORLD TRADE WT/TPR/G/11
3January 1996
ORGANIZATION(96-0015)
Original: Spanish
TRADE POLICY REVIEW
DOMINICAN REPUBLIC
Report bytheGovernment
Inpursuance oftheAgreement establishing theTrade Policy Review Mechanism (Annex 3ofthe
MarrakeshAgreementEstablishingtheWorldTradeOrganization),theinitialpolicystatementsubmitted
bytheGovernment oftheDominican Republic isattached.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body ontheDominican Republic.Dominican Republic WT/TPR/G/11
Page i
CONTENTS
Page
POLICY STATEMENT OFTHE DOMINICAN REPUBLIC 1
I. BACKGROUND 1
II. ECONOMIC AND TRADE ENVIRONMENT 1
(i) Trade policy developments 2
(ii) Unilateral opening andreform 2
(iii) TheDominican Republic andtheUruguay Round 4
(iv) Integration 5
(v) TheDominican Republic 'sparticipation inpreferential schemes 5
III. LEGISLATIVE ADJUSTMENTS FOLLOWING
THE URUGUAY ROUND AGREEMENTS 6Dominican Republic WT/TPR/G/11
Page 1
POLICY STATEMENT OFTHE DOMINICAN REPUBLIC
Trade Policy intheDominican Republic during thePeriod 1990-1995
I. BACKGROUND
TheDominican Republic isadeveloping country, inthetropical zone, withanopeneconomy.
Over thepastfiveyears itsforeign trade hasrepresented anaverage of33.1percentoftheannual
gross domestic product. Itcovers anareaofapproximately 48,700 km2andhasapopulation of
7.3million. Since independence in1844, itsforeign trade flows havebeenrelatively important, and
throughout mostofitshistory itseconomy hasbeenbased ontheexport ofprimary products andthe
import ofmachinery andequipment.
Over thepast15years, theDominican Republic 'strade policy hasbeenconducted within a
changing economic environment. Following aperiod ofstrong growth inthe1970s, when theeconomy
expanded atanannual average rateof9percentwhile prices increased atthemoderate rateof8percent
annually, theDominican Republic started toshow serious macroeconomic imbalances thatledtoa
large deficit intheexternal accounts, arapid increase inforeign debtandhighinflation andexchange
rates.
Intheearly1980s,theeconomystartedtodisplayseriousstructuraldefectsthatwereexacerbated
byunfavourable changes intheexternal environment. Theprices oftraditional exports became unstable
andvolatile, thehikeinpetroleum prices ledtohigher expenditure onimports, exports suffered the
negative effects oftherecession indeveloped countries, andhigher interest ratesoninternational markets
raised thecostofservicing thedebt. These external problems werecompounded byexpansionary fiscal
andmonetary policies, steep import andexport tariffs, anddomestic price controls. Theinternal and
external imbalances ledtohigher inflation, stagnation ofproduction andemployment, andserious
imbalances inthebalance ofpayments intheform ofgrowing arrears intheexternal debtservice,
lower international reserves oftheCentral Bank andexchange rateinstability.
Inthesecond halfofthe1980s, there wasanincrease inproduction andemployment boosted
byhigher public andprivate spending andthiswasreflected inasignificant external imbalance atthe
endofthedecade. Theexpansion inproduction came toanendin1990when inflation reached 79.9per
cent,GDPgrowth fellby5percentandinternational reserves wereonlysufficient tocover oneweek's
imports.
InAugust 1990, theGovernment introduced aseries ofmeasures tohaltthedeterioration in
themacroeconomic situation. These included reducing thebudget deficit, devaluing theexchange rate
ontheofficial market, liberalizing interest rates, abolishing pricecontrols, liberalizing prices ofpublic
enterprises andcurbing themoney supply. Atthesame time, theGovernment adopted measures to
remedy thestructural defects inthecountry 'seconomy. Reforms were implemented infourareas:
foreign trade, thetaxsystem, thefinancial system andlabour.
II. ECONOMIC AND TRADE ENVIRONMENT
Theresults ofthestabilization andstructural reform policy werefeltimmediately. Inflation
fellfrom 79.9 percentin1990 to7.9percentin1991. Theexchange ratewasstabilized at
RD$12.50/dollar andGDP roseby7.6percentin1992. Asaresult ofthereforms, inthefirsthalf
ofthe1990s, theDominican Republic 'sinflation ratehasbeenoneofthelowest inthehemisphere,
GDP growth hasremained above theaverage forLatin America andtheCaribbean, unemployment
hasfallen significantly, productivity hasriseninthemostopensectors i.e.thefreezones andtourism,WT/TPR/G/11 Trade Policy Review
Page 2
therehasbeenprudent management ofmonetary policy, andinterest rateshavedropped. Theeconomy 's
increased focus onforeign markets asaresult ofthecommitments adopted under theUruguay Round
ofmultilateral negotiations willreinforce theimpact ontheeconomy andenterprises ofthestabilization
measures andthestructural reform implemented bytheGovernment.
(i) Trade policy developments
Over thepastfiveyears, themajor developments intheareaoftrade policy havebeenthe
tariff reforms of1990 and1993, participation intheCaribbean Basin Initiative, thesigning and
implementation ofagreements under theUruguay Round ofMultilateral Trade Negotiations, and
participation inregional integration agreements suchastheCaribbean Community, theFreeTrade
Area fortheAmericas andtheAssociation ofCaribbean States.
Policies toliberalize international trade ingoods andservices havehelped todiversify and
strengthen theDominican Republic 'sexport potential aswellastoincrease import penetration inthe
domestic market. Exports ofgoods, including those fromfreezones, grewatanaverage rateof5.9per
centduring theperiod 1990-1994, andexports ofservices increased atanaverage rateof11.2per
centoverthesame period. Furthermore, thecomposition ofexports hasshifted fromprimary goods
towards manufactured goods, theshare oftheformer falling from 22.3percentin1990 to14.4per
centin1994. Inthecaseofimports, thevalue andvolume ofimports ofgoods roseatanannual average
rateof3.7percent, andincreased to22.6percentasaproportion ofGDP in1994.
(ii) Unilateral opening andreform
Asmentioned, in1990theGovernment oftheDominican Republic embarked uponaneconomic
reform process withtheaimofachieving more effective allocation ofresources, eliminating theanti-
export biasintheeconomy, promoting greater participation bytheprivate sector inallbranches of
theeconomy, andpromoting competition inmarkets. Thefollowing aresome ofthemostimportant
measures:
- reduction ofexisting tariff levels thatvaried between 0percentand200percentto
ninetariffs, ranging from 0percentto35percent, andoftheirdispersion;
- replacement ofspecific duties byadvalorem levies;
- import valuation onthebasis ofmarket ratesrather thandifferent ratesforvarious
types ofgoods;
- application oftariffs based onc.i.f. value (cost, insurance, freight) forgoods instead
off.o.b. value;
- elimination ofprohibitions, quotas andother types ofquantitative restrictions formost
imports;
- elimination oftariff exceptions andexemptions granted tosectors under special
agreements withtheState orunder promotion legislation;
- elimination ofmultiple exchange rates;
- introduction ofanewcustoms nomenclature;Dominican Republic WT/TPR/G/11
Page 3
- modernization ofthecustoms service through computerization ofcustoms offices and
simplification ofclearance procedures;
- abolitionofdiscriminationintheapplicationoftheselectiveconsumptiontaxonalcohol,
tobacco andbeer;
- reduction ofmarginal ratesofpersonal income taxtothree ratesbetween 15percent
and25percent. Under theprevious system, themaximum marginal taxratewas75per
cent;
- establishment ofasingle rateof25percentforprofits taxandabolition oftax
exemptions;
- abolition ofprice controls;
- approval byCongress ofanewForeign Direct Investment Lawthatabolishes theban
onforeign investment incertain sectors oftheDominican Republic 'seconomy, allows
therepatriationofprofitsandthecapitalinvested,aswellasthechannellingoflong-term
loans;
- submission toCongress ofaLawonReform oftheElectricity Sector toenable
participation bytheprivate sector inpower generation anddistribution;
- liberalization ofinterest ratesfordeposits andloans;
- introduction ofuniform reserve requirements atalevelof20percent,compared with
theprevious system ofmultiple ratesdepending onthesectoral allocation ofthecredit
andthetypeofdeposit;
- establishment ofaprudential framework thatguarantees thesolidity offinancial
institutions andthetransformation ofthepresent system ofspecialized banks intoone
ofmultiple banking;
- submission toCongress ofaMonetary andFinancial Code tostrengthen the
independence oftheMonetary Board, theCentral Bank andtheSuperintendency of
Banks, establish thelevels ofcapital required inrelation totheamount andriskofassets
andthelimits onrelated assets heldbyfinancial bodies, aswellasthepenalties tobe
imposed iftherequirements arenotfulfilled;
- implementation oftheMonetary Board 'sDecision onbanking rules andprudential
measures inaccordance withtheBasel Agreements;
- strengthening oftheSuperintendency ofBanks.
TheGovernment oftheDominican Republic hasimplemented economic reform gradually but
systematically, respecting itscommitment todismantle andeliminate theexchange surcharge onimports,
the1.3,1.2and1.1multipliers forbasic tariffs andother trade barriers within thespecified period.
TheGovernment iscurrently preparing newlegislation forfurther reform, including adraft
General Customs Law, anExport Promotion Law, andlawsonthestock market andimplementation
ofArticles 13and26oftheAgreements onDumping andSubsidies, respectively.WT/TPR/G/11 Trade Policy Review
Page 4
(iii) TheDominican Republic andtheUruguay Round
Thereforms putintoeffect in1991began aprocess ofreorganization oftheeconomy inorder
togiverenewed impetus totheopening upofmarkets, reinforce theintegration ofthedomestic economy
inregional andglobal markets andimprove thecountry 'sproduction efficiency andcompetitiveness.
Asaresult, theDominican Republic tookanactive partinthenegotiations thatledtotheestablishment
oftheWorld Trade Organization, thesuccessor toGATT, inwhich member countries triedtocreate
abroader andmore transparent legalframework forthedevelopment ofinternational trade.
From 1990 onwards, theGovernment implemented astabilization programme following
widespread consultations withthecountry 'seconomic andsocial base, andthisledtoasocial pact
oneconomic solidarity andthesigning ofastand-by agreement withtheInternational Monetary Fund
(IMF). Thestabilization programme focused onthefiscal sector andincluded anumber ofmeasures
onaggregate public spending, imposing severe restrictions ondemand andpromoting taxreform in
theareaoffiscal revenue. Inthemoney sector, themoney supply remained under strict control and
therateofincrease ofthemoney stock fellbyalmost half. Interest andexchange rateswereliberalized
sothattheycould bedetermined bymarket forces. Inaddition, theDominican Republic undertook
nottoimpose additional import restrictions forbalance-of-payments reasons.
TheGovernment oftheDominican Republic signed the1994Uruguay Round Agreements and
isdetermined topursue economic policies directed towards structural reform andtheopening upof
trade, which areessential fortheefficient allocation ofresources fromprivate investment intheeconomy
andthesearch fornewforeign markets. Inconformity withthese policies, theGovernment willmake
every effort tokeepinflation atlevels similar tothose inindustrialized countries andwillpursue its
endeavours tomaintain aviable balance ofpayments. Itsstrategy isbased onadherence totheprinciple
offreeenterprise, anopentraderegime soastoincrease exports, continued participation ininternational
financing organizations asanactive member andgreater efficiency inpublic spending soastoincrease
therateofgrowth ofearnings andimprove theirdistribution.
Thecontinuity ofthepolicy described inthepreceding sections incredit, foreign exchange
andfiscal matters hasallowed theDominican Republic topursue theprocess ofliberalizing itsmarkets,
thushelping tostabilize domestic prices ofgoods andservices andexchange rates. Inaddition, the
Dominican Republic ispursuing itsefforts toobtain Congressional approval ofapackage oflawson
themodernizationandinternalreorganizationofthecountrysothatitcanadapttothenewworldsituation
resulting fromtheglobalization oftheeconomy andmarkets. TheLawontheReform oftheEnergy
Sector, thenewMonetary andFinancial Code andreorganization ofthejudicial sector areawaiting
Congressional approval. TheNational Congress hasalready approved thenewlawonforeign direct
investment, which allows therepatriation ofthetotality ofcapital andprofits andopens upallsectors
oftheeconomy toforeign investment withthesoleexception ofthose related tonational defence and
ecology, andhassigned theAgreement ontheWorld Bank'sMultilateral Investment Guarantee Agency
(MIGA). Atpresent, there isapublic discussion onfurther tariff andtaxreform.
Theobjective ofreform inthefinancial sector wastoprovide apermanent legalstructure for
financial institutions toenter andleave thesystem andprudential andbanking rules toregulate it.
Work isalsogoing ontoimprove thelegalandregulatory framework forfinancial policy, toestablish
andensure compliance withtheprudential andbanking regulations soastoimprove thesolvency of
financial institutions, lessen theexcessive segmentation ofthesystem soastoenhance itsefficiency,
strengthen institutional capacity tosupervise thesector andensure thatState banks aresubject tothe
sameprudential regulations asprivate banks. Theprovisions ofthenewMonetary andFinancial Code
onbanking andprudential regulations arealready being applied intheformofdecisions bytheMonetary
Board, which giveforeign banks treatment similar tothatofnational banks andestablish multibankingDominican Republic WT/TPR/G/11
Page 5
asawayoflowering theoperating costs offinancial institutions. Thereform process begun in1992
andisexpected tolastsome sixyears upuntil1998.
(iv) Integration
Although theDominican Republic isnotamember ofanyeconomic integration grouping at
present, since 1991 ithasmade increased efforts todevelop itsrelations withthevarious integration
schemes thatareviable fromthepoint ofviewofnational interests. Inthisconnection, ithassetup
threebodiestopromoteeconomicintegration.In1992,theCommissionfortheFollow-UpofIntegration
Schemes wascreated, subsequently theJoint Standing Commission fortheFollow-Up ofBilateral
Agreements wasstrengthened and,lastly, theNational Commission fortheFollow-Up ofCommitments
bytheSummit oftheAmericas wasestablished. TheDominican Republic participated atthehighest
level-thePresident oftheRepublic -intheSummit ofAmerican Heads ofStateandsigned theAction
Plan.AtthemeetingheldinDenver,Colorado,theGovernmentparticipatedatministeriallevel,together
withtheprivate sector andassociations ofbusiness groups, highlighting itskeeninterest intheFree
Trade Area fortheAmericas (FTAA) andacommitment toimplement thePlanofAction.
Inaddition, theDominican Republic hasparticipated inthereciprocal payments andcredit
agreement oftheLatin American Integration Association (LAIA) since theorganization wasfounded
in1980. Thismechanism allows theDominican Republic tohaveaccess tofinancing fortradeoperations
withmember countries ofLAIA. During the1980s, themechanism wasincreasingly usedtofinance
suchoperations. Intheearly 1990s, itwasalmost exclusively usedtomeetprior commitments, but
theDominican Republic hasnowmodified theprocedure foruseofsuchfinancing andthishasbeen
favourably received bycommercial banks.
In1989, theDominican Republic acceded totheIVthLomé Convention, initiating aprocess
ofrapprochement withCARICOM, ofwhich itbecame anobserver, taking anactive partinthevarious
functional cooperation mechanisms inareas suchashealth, education, agriculture, etc.Theendof
1992sawthecreation oftheAssociation ofCaribbean States (ACS), ofwhich theDominican Republic
isafoundermember,onlyawaitingratificationbyCongressoftheOrganization'sconstituentagreement.
Inaddition tothesemultilateral agreements, theDominican Republic hasconcluded bilateral agreements
withCosta Ricaandagreements ofintent withother countries, forexample, Ecuador andPanama.
Intheimmediate future, theDominican Republic intends tofinalize andamplify thereforms
initiated in1990 soastoenhance thecompetitiveness oftheeconomy, promote trade withtherest
oftheworld andmake useoftheadvantages offered byinternational trade toimprove theliving
conditions ofitspopulation.
(v) TheDominican Republic 'sparticipation inpreferential schemes
Foreign tradeplaysanimportant roleintheDominican Republic 'seconomic policy, accounting
forahighpercentage ofitsGDP. Inthedynamics offoreign trade, domestic exports andexports from
freezones havereceived strong support from thevarious preferential trade schemes. Among these
aretheprogrammes under theCaribbean Basin Initiative (CBI), concluded bytheUnited States and
theCentral American andCaribbean Region in1983, andtheLomé IVConvention signed between
15European Union States and69ACPStates (Africa, Caribbean andPacific) in1989, aswellasthe
Generalized System ofPreferences (GSP), which has26different schemes under which developed
countries grant preferences todeveloping countries.
Since 1980, theDominican Republic hasalsobeenabeneficiary oftheSanJoséAgreement
signed bypetroleum-importing Central American andCaribbean countries, Mexico andVenezuela.
ThisAgreement gives theDominican Republic access tolinesofcredit forapproximately 20percentWT/TPR/G/11 Trade Policy Review
Page 6
ofthecostofpetroleum supplied byMexico andVenezuela. These funds canbeusedtofinance
economic development projects inproduction sectors onpreferential terms.
Theimplementation ofthemechanisms mentioned above hasallowed theDominican Republic
toexpand thecoverage ofitsexports, including activities infreezones, by6.6percentannually over
theperiod 1990-1994. Thevalue ofexports totheNorth American market under thepreferential
programme oftheCBIandtheGSPhasgrown atanannual rateofover20percentduring thesame
period, making theDominican Republic theleader among Caribbean andCentral American countries,
accounting for25percentoftheregion 'sexports tothismarket. Under theLomé IVConvention
thevalue ofdomestic exports andexports fromfreezones toEurope hasgrown by2.4percentannually,
while theirvolume hasshown anannual increase of6.5percent.
Thepreferential margins under these trade schemes willbeaffected bytheestablishment of
boththeWTO andNAFTA andthecreation ofaFreeTrade AreafortheAmericas (FTAA), which
willbesetupin2005. Exports ofgoods suchasmade-up clothing andshoeuppers, inparticular,
willlosetheiraccess advantages asaresult oftheopening-up oftrade intheNorth American market.
Among Latin American countries, theDominican Republic isthemain supplier ofboththese exports
totheNorth American market. Itisaware oftheimpetus provided bytheopening-up andglobalization
oftheeconomy andhopes toachieve ahigher level ofintegration ofitsproduction, aswellasthe
necessary rationalization ofitsoperating costs soastobemore competitive.
Inaddition, andparticularly inconnection withNAFTA, theDominican Republic, together
withother countries oftheCaribbean andCentral American region, istrying togettheUnited States
Administration toagree toanequilibrium under aprogramme ofparity withtheNAFTA Agreement
inorder tomaintain tariffpreferences. Forthenextfewyears, itisestimated thattheaverage foreign
tradecoefficient, inrelation toGDP, willriseto35percentand,withtheprocess ofopening-up, exports
ofgoods classified intotraditional products, non-traditional products andminerals areexpected togrow
atarateof6.5percentuntil2005, andactivities inthefreezones byover7percent.
III. LEGISLATIVEADJUSTMENTSFOLLOWINGTHEURUGUAYROUNDAGREEMENTS
TheGovernment oftheDominican Republic hassetupaninter-agency technical teamtofollow
uponthecommitments undertaken asasignatory totheUruguay Round Agreements. Itswork has
includedidentifyingthelegalprovisionsthatareinconsistentwiththeAgreements,whetheradministrative
orresulting fromapplication oflegislation. Inthisconnection, non-tariff barriers totradeinagricultural
products arebeing eliminated anddiscretional import licences arebeing identified sothattheycan
beeliminated orreplaced byautomatic licences.
Legislation isalsobeing drawn uponrulesoforigin, andtheexisting phytosanitary provisions
havebeenrevised toharmonize them withtheprovisions ineffect initsmajor trade partners. The
Dominican Republic isalsopreparing alawtodefine theinstitutional framework forapplication of
theUruguay Round Agreements onunfair tradepractices andsafeguard measures. Under theDominican
Republic 'slegalsystem, onceinternational agreements havebeenratified bytheNational Congress
theyhaveforce oflaw. Consequently, theagreements ondumping, subsidies andcountervailing
measures, andsafeguards havealready beenincorporated intothelaw,theonlypending issue being
theidentification oftheGovernment authorities responsible forinvestigating suchprocedures, reviewing
decisions (judicial review mechanism) andapplying themeasures.
Legislative adjustment alsoincludes theannulment ofthelegal provisions thatarecontrary
tothecommitments undertaken intheDominican Republic 'sschedule ofservices, which isanintegral
partoftheFinal ActoftheUruguay Round. Anumber ofthese provisions havealready beenannulled
inthenewForeign Direct Investment Law, adopted inNovember 1995bybothlegislative chambers.Dominican Republic WT/TPR/G/11
Page 7
Reformofthetelecommunicationsregimehasalreadystartedinordertomodernizethelegal,institutional
andregulatory framework inthissector. When theprocess iscompleted, therewillbeanindependent,
participatory regulatory bodywithadministrative andfinancial autonomy, whose mainobjective will
betheeffective regulation ofthissector soastoguarantee universal service, andpromote competition,
quality ofservice andtheuser'srightofchoice.
Intheareaofintellectual property, theGovernment considers thatlegislative reform should
takeplace inthecontext ofacompetitive regime thatwillhavetobecreated inorder toguarantee
theoperation ofmarket forces inthecontext oftheincreased opening-up oftheeconomy overthenext
decade. Ittherefore supplemented thenewdraft Industrial Property Lawwithlegislation forthe
promotion ofcompetition, consumer protection andrepression ofunfair practices. Forthispurpose,
alltheregulatory functions under thisregime wereentrusted toanewStatebody. Liketheregulatory
body fortelecommunications, itwillhavefinancial autonomy andadministrative independence from
other State bodies.
Other institutional reforms resulting fromtheUruguay Round concern thefunctioning ofthe
Directorate-General ofCustoms. Theimplementation ofreform ofthisbodyiscurrently atanadvanced
stage inorder toensure thatitfunctions effectively incompliance withtheCustoms Valuation Code
oftheUruguay Round. Thetransposition ofSchedule XXIII ofthetariff bindings prior tothe
Uruguay Round hasbeencarried out,reflecting indomestic legislation theadvalorem levels thathave
beenbound insuccessive negotiations since 1952. Adraftdecree hasalsobeensenttotheExecutive
repealing fourprovisions thathavenotbeenapplied since1986, which established non-tariff restrictions
ontrade intextile products thatwere contrary totheAgreement onTextiles andClothing.
Asfarastheforeign traderegime isconcerned, itisplanned tomerge responsibilities conferred
bylawinasingle Stateinstitution soastoendthelegalandadministrative conflicts thathaveoccurred
upuntilnow. TheGovernment alsointends toreform therights ofusers ofmaritime transport by
acceding tomajor international agreements suchastheHamburg Rules, theUnited Nations Convention
onInternational Multimodal Transport ofGoods andUnited Nations Convention onaCode ofConduct
forLiner Conferences. Inorder topromote greater efficiency inthissector, these activities willbe
included inthecompetition regime tobeestablished from 1996 onwards. LawNo.70ontheport
authority oftheDominican Republic willbemodified inorder toestablish aregime fortheprivate
operationofnationalportsthroughconcessionsawardedtoeligibleenterprisesandthegrantingofnational
treatment. Finally, theDominican Republic wishes tounderline itsfirmcommitment toopencommerce
andforeign trade asameans ofimproving thequality oflifeofitspopulation.