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he Dominican Republic has one of the most open economies in Latin America and the Caribbean and is a partner country in the Free Trade Agreement with Central America and the United States of America, best known as DR-CAFTA, which came into effect on March 1st, 2007, after a thorough and complex harmonization process of its national legislation and regulations with the provisions of the Agreement.The end result for the Dominican Republic has been the expansion and consolidation of preferential access to the U.S. market, strengthening of government institutions, and a commercial dynamic which encourages improvements in competitiveness and investment climate.
The agreement signed by the Dominican Republic with the United States and five Central America countries (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) creates a Free Trade Area compatible with the World Trade Organization (WTO) Agreement and other trade agreements to which the member nations are party. The main objectives of this agreement are: a) the expansion and diversification of trade; b) the elimination of barriers to trade and facilitation of cross-border movement of goods and services; c) the increase in investment opportunities; and d) the establishment of a legal and institutional framework that provide certainty and predictability to the economic agents. DR-CAFTA is the most important trade and investment enhancement agreement signed by the Dominican Republic given the structure of its foreign trade and the nature of its foreign investment portfolio. The United States is by far the main trading partner for the Dominican Republic, source of more than 50% of its imports and market for more than 75% of its exports. In addition, 35% of the cumulative investment inflows to the DR, close to US$4.5 billion for the period 19932007, has come from the United States, which is also the source of over US$1.6 billion in remittances and over one million tourists annually. This is the result of many decades of US-DR commercial relations through unilateral market access preferences such as the U.S. Sugar Program, Caribbean Basin Initiative (CBI), Caribbean Basin Trade Partnership Act (CBTPA), and the Generalized System of Preference (GSP). All parties to the Agreement will be impacted positively, including the United States to whom DRCAFTA region represents the 3rd largest market for its products
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in our hemisphere after Mexico and Brazil – a trade relationship of more than US$45 billion, in which the Dominican Republic is the largest partner in Central America and the Caribbean, and the 8th largest in the Western hemisphere. For the Dominican Republic, the Agreement, the result of its policy of integration to the world economy to induce sustainable economic growth and raise the standards of living of its citizens, is expected to bring about substantial benefits from its impact on the supply side, including on consumer price levels, on government institutions, on investment climate, and on industry and business competitiveness, to name a few. Some of the benefits of the Agreement for the DR include: (a) Consolidation and expansion of preferential access to the U.S. market provided under unilateral schemes such as CBI, CBERA, CBTPA and GSP, through an FTA based on reciprocity; (b) Expanded market access for agricultural products; (c) More flexible rules of origin, specially for textile and apparels; (d) Further liberalization of services in the financial, telecommunication, and energy sectors; (e) Institutional strengthening and greater level of transparency; (f) Increase trade and foreign investment as a result of more legal certainty and trade liberalization, both bilaterally with the US and intraregional among Central America and the DR; (g) Increase in the supply of products and reductions in market prices,
with positive effects on competitiveness and innovation; (h) Preferential access to the U.S. market for ethanol produced in the DR-CAFTA region from non-originating inputs –limited to a quota of 7% of total U.S. ethanol consumption. Further, the inclusion of new trade disciplines in the Agreement has had a catalyst effect in the development of market-oriented reforms, encouraging transparency and due process within State institutions. Consequently, the government of the Dominican Republic underwent broad modifications to its regulatory framework with the objective to modernize its norms and procedures, adjusting them to the commitments in the Agreement, while mitigating the impact from the elimination of tariffs and potentiating the benefits.
DR CAFTA: Essential for FDI & business growth The American Chamber of Commerce of the Dominican Republic (AMCHAM DR) is one of the most important forums of the country and was instrumental on DR-CAFTA negotiations FDI into the DR has surged since the ratification of DR-CAFTA
CAFTA is much more than a simple lowering of tariffs. It provides world class protection to investors, and consecrates a clear set of rules for both doing business, and solving conflicts in an efficient and transparent fashion. In effect, DR-CAFTA reduces uncertainty and allows investors to take better calculated risks.
Flavio Dario Espinal Former Dominican Squire Sanders & Dempsey, Ambassador to the U.S.
DR-CAFTA: Trade and investment opportunities Dominican Republic’s Ambassador to the United States from 2004 to 2009. His tenure in Washington, D.C. included the ratification and implementation of DR-CAFTA DR is a regional hub for trade among the U.S., Europe and Asia. Trade agreements with the U.S. and the E.U. provide a new cycle and our challenge is to understand this and capitalize on this new scenario
/ International relations
Alejandro Peña Prieto Partner Squire Sanders & Dempsey Former President of AMCHAM-DR
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or the DR and the countries of Central America, the signing and entry into force of the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) represents a historic change in the focus of their political economies. In effect, the Dominican Republic has committed itself to a transformation from a relatively inwardly focused economy to a more outward focus, and seeks to integrate the Dominican economy into global markets and supply chains. This commitment reflects a consensus by local private and public sector leadership that in order for the Dominican Republic to generate the jobs and prosperity towards which all its people aspire, they need better access to global markets and foreign investment. And that is what DR-CAFTA is all about.
As former Secretary of State Colin Powell once remarked, “capital is a coward”, it avoids uncertainty, and it seeks clarity and security. And as we have seen, DR-
As a result, it should come as no surprise that foreign direct investment (FDI) into the Dominican Republic has surged since the signing of DR-CAFTA in 2004. Average FDI in the five years prior to signing was close to US$900 million per year and during the following five years to the agreement, average FDI has doubled to US$1.8 billion per year. At first glance, the impact on trade has been less dramatic. In fact, the Dominican Republic’s trade balance has worsened since entry into force of the trade agreement. A closer analysis, however, shows that most of that deterioration is attributable to circumstances beyond the purview of DR-CAFTA, such as: a) The precipitous drop in demand in the U.S. and global economy for nearly all traded goods as a result of the global financial crisis. b) The expiration in 2005 of the World Trade Organization’s Multi-Fiber Agreement that regulated apparel quotas, and under which the Dominican Republic had a disproportionately large quota in the U.S. market. c) The upward trend in oil prices and other key commodities like grains and fertilizers.
/ International relations
d) The suspension in 2008 of operations of a major ferronickel mine (Falconbridge Dominicana) due to the global economic situation. As the U.S. and global economies recuperate, we believe that overall trade outlook is very positive for the following reasons: a) Exports overall were increasing until the global downturn in demand in 2008, and indeed nontraditional exports have continued to increase throughout the global downturn. Moreover, the free trade zones, as well as local producers, are diversifying their product offerings, which was one of the explicit goals of the agreement. b) Falconbridge Dominicana (owned by Xstrata) has announced it will restart operations in 2011, bringing back on line a major foreign exchange generator. Even more promising, the Barrick Gold project at Pueblo Viejo is ramping up for production, and will have a significant impact on Dominican exports going forward for decades. c) With the inexorable rise of wage rates (and other costs) in China, and the impact of high energy prices on the cost of transportation, there are many segments of the manufacturing sector currently in Asia that are rethinking their supply chain strategies for products destined for the U.S. market. With the protections for investors provided by DRCAFTA, close geographic proximity to the U.S., and demonstrable advances in transportation infrastructure and trade facilitation procedures, the Dominican Republic is perfectly positioned to pick up some of this production. This will generate more jobs, technology transfer, and exports in the years ahead. DR-CAFTA represents a sovereign commitment to not just the reduction of tariffs and the adoption of a specific set of reforms, but more to an ongoing process of institutional transformation. At the end of the day, are the public and private institutions who that serve as the foundation and enablers for a functional market economy capable of competing in the global marketplace. Customs procedures, government procurement practices, investors’ protections, protection of intellectual property rights, dispute resolution, and much more, all depend on institutions that are focused on facilitating economic growth. That is the challenge, and the promise.
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