The Dominican Republic and International Trade

The Dominican Republic at a Glance

Geographically located at the center of the Caribbean, with privileged market access to the United States, Europe, and Central America, an abundant work force, a domestic market of more than ten million people, and a decades-old policy of great openness to foreign investment and international trade, the Dominican Republic has become the largest economy in the Caribbean and Central America, the number one recipient of direct foreign investment in the region (2. 3 billion dollars in 2015), and its most-visited tourist destination (5.6 million tourists in 2015). From 1993 to 2015, gross domestic product (GDP) growth of the Dominican economy averaged 5.4% annually; in 2014 and 2015, it reached 7.3 and 7.0%, respectively, the highest by far in the Western Hemisphere.

Market Size

In 2015, the Dominican Republic bought $16.9 billion dollars’ worth of imported products and exported 9.7 billion dollars in local products. The top four countries for Dominican exports in 2014 were the United States (49%), Haiti (14%), Canada (9%), and Switzerland (2.5%). Imports came mainly from the Unites States ($7.3 billion in 2014), China ($2.1 billion), and Mexico ($1.1 billion).

In the Western Hemisphere, the Dominican Republic is the seventh largest trading partner of the United States, after Canada, Mexico, Brazil, Venezuela, Colombia, and Chile.

Participation in the International Community

The Dominican Republic maintains diplomatic relations with 129 countries and is a member of many regional and international organizations, including the United Nations, the Organization of American States, the Central American Integration System, the World Trade Organization, the International Monetary Fund, the World Bank, the International Centre for Settlement of Investment Disputes, the International Finance Corporation, the Inter-American Development Bank, the Inter-American Investment Corporation, the Central American Bank for Economic Integration, the Caribbean Development Bank, the Multilateral Investment Guaranty Agency, and the Caribbean Forum of African, Caribbean and Pacific States.

Memmbership in the World Trade Organization

The Dominican Republic has been a member of the World Trade Organization (WTO), the world-wide regulator of international trade, since its founding in 1995. The main objective of the WTO is to foster international trade by eliminating trade barriers and enforcing the multiple commercial agreements reached by its members over the decades.

As a developing country, the Dominican Republic is allowed to receive preferential, non-reciprocal treatment from other member states.

Free Trade Agreements

The Dominican Republic enjoys advantageous trade with the United States, the European Union, and countries in the Caribbean and Central America region. Two important agreements are the free trade agreement with the United States and Central America (DR-CAFTA) and the Economic Association Agreement with the European Union (AAE). Both encourage the free flow of trade among the member states by significantly reducing tariffs, opening new markets, and promoting regional integration. Furthermore, the country has initiated discussions to liberalize trade with Canada, Mexico, Mercosur, and Taiwan.

Dominican Republic and  Central American Free Trade Agreement (DR-CAFTA)

Signed August 5, 2004, and effective in the Dominican Republic on March 1, 2007, DR-CAFTA facilitates trade and investment between its member states and promotes regional integration by eliminating tariffs, opening markets, reducing barriers to services, promoting competition, protecting intellectual property rights, and advancing transparency. Parties to the agreement are the United States, the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. These last six countries represent the third largest export market for U.S. goods in Latin America after Brazil and Mexico.

DR-CAFTA permanently guarantees the Dominican Republic the ability to export most of its products and services to the member states without customs duties. Service sectors with open access to all signatories of DR-CAFTA include financing, insurance, investments, tourism, energy, transport, construction and engineering, government contracts, telecommunications, express delivery, electronic commerce, entertainment, professional services, computer and related services, and environmental industries. Importantly, laws that protect domestic dealers by locking companies into distributorship arrangements have been loosened.

DR-CAFTA also requires member states to effectively enforce local labor and environmental regulations,  and eliminate corruption, in order to ensure fair competition and a level playing field for all.

Certain obstacles to free trade remain under the treaty. Member states have kept tariffs on specific agricultural products up to a certain limit, and have prohibited the importation of certain goods. For instance, the Dominican Republic does not allow the entry of used clothes, used electric household appliances, or cars older than five years.

The administrative structure of DR-CAFTA is headed by the Free Trade Commission, consisting of cabinet-level representatives of the seven parties to the agreement. The Commission is responsible for supervising the implementation of the agreement and resolving disputes regarding its interpretation and application.

Economic Partnership Agreement (EPA)

The Economic Partnership Agreement (EPA) is a free trade treaty with financing and investment aspects signed in 2007 between the European Union (EU) and CARIFORUM, an organization of Caribbean nations, whose members are Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Granada, Guyana, Haiti, Jamaica, Saint Lucia, Saint Kitts and Nevis St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, and Dominican Republic. The EPA allows duty-free access to Caribbean products to the 28 countries of the EU and provides economic assistance to Caribbean countries with the stated purpose of reducing poverty, promoting regional integration, and encouraging regional consolidation into the world economy. It also promotes free trade within the Caribbean region. The Dominican Republic entered the EPA on October 15, 2008.

Under the terms of the EPA, access to markets is asymmetrical. Provisions for exports from Caribbean countries to the countries of the EU are generous for eligible products. In contrast, provisions for similar imports from the EU are subject to restrictions for up to 25 years, with safeguards to protect local employment and sensitive industries. This asymmetry protects certain products and sectors in the less-developed Caribbean countries from the potential unequal effect of trade with the EU while affording the less-developed member states access to EU products.

The EPA, together with DR-CAFTA, offers international investors and local producers in the Dominican Republic unprecedented free-trade access to the two largest markets in the world: The EU and the United States. Few other countries benefit from such a privileged situation.

Free Trade Agreement with CARICOM

Signed in 1998 and ratified by the Dominican Republic in February 2001, this agreement involves the Dominican Republic and 14 Caribbean nations (CARICOM), and establishes free trade zones in the region along WTO guidelines. Trade between the Dominican Republic takes place on an equal or reciprocal basis with other more developed Caribbean states, but may be differentiated with those less-developed, such as Antigua y Barbuda, Belize, Dominica, Granada, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and Haiti.

The free trade agreement between the Dominican Republic and CARICOM coexists with free trade agreement between the Caribbean nations and the European Union (EPA). A provision in the EPA stipulates that in case of a conflict in the handling of a product or sector between the two agreements, the agreement with the less restrictive treatment will prevail.

Free Trade Agreement with Central America

A free trade agreement between the Dominican Republic and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua was signed in 1998 and came into effect in 2001. Although a regional treaty, it is, in fact, a bilateral agreement between each Central American country and the Dominican Republic. The agreement provides for free trade in all products originating in the region except those registered in a “negative list.”

This agreement coexists with DR-CAFTA, which incorporates several of the provisions of the former, including the negative lists. In case of a conflict in the handling of a product or sector between the two agreements, the agreement with the less restrictive treatment will prevail.

Partial Free Trade Agreement with Panama

This agreement was signed in 1985, but discrepancies over its application delayed implementation until 2003. Four lists of products benefit from liberalized trade, subject to rules of origin: (a) “two-way products,” which consists of those that enjoy free access to the markets of both countries; (b) Dominican products than can be freely exported to Panama; (c) Panamanian products that can be freely exported to the Dominican Republic; and (d) products manufactured in free trade zones.

A Permanent Mixed Commission consisting of representatives from both countries may add new products to the lists.


GUZMÁN ARIZA’S SERVICE IN INTERNATIONAL TRADE

Involvement exemplifies Guzmán Ariza’s experience in trade agreements. We dedicate a large part of our practice to helping international corporations meet their operational and strategic business objectives in the country. We have actively participated in the negotiation of the most important international trade agreements, giving us intimate knowledge of the local impact of their contents on your business. When DR-CAFTA was enacted, we pioneered the field of public procurement law in the Dominican Republic to meet the objectives of that trade agreement.

Our presence in and attention to trade issues enable us to monitor provisions that impact your business, such as technical barriers to commerce, rules of origin, domestic components, and tariff. Armed with timely information, we can anticipate legal changes and guide your business for the long term.