|
|
Country Commercial Guide
Table of Contents
CHAPTER 1. Executive Summary
CHAPTER 2. Economic Trends and Outlook
- Major Trends and Outlook - Principal Growth Sectors - Government Role in the Economy - Balance of Payments Situation - Infrastructure Situation
CHAPTER 3. Political Environment
- Nature of Political Relationship with the U.S. - Major Political Issues Affecting Business Climate - Brief Synopsis of Political System, Schedule for Elections, and Orientation of Major Political Parties
CHAPTER 4. Marketing U.S. Products and Services
- Distribution and Sales Channels - Use of Agents/Distributors, Finding a Partner - Franchising - Direct Marketing - Joint Ventures/Licensing - Steps to Establishing an Office - Selling Factors/Techniques - Advertising and Trade Promotion - Pricing Product - Sales Service/Customer Support - Selling to the Government - Protecting Your Intellectual Property - Need for a Local Attorney
CHAPTER 5. Leading Sectors for U.S. Exports and Investment
- Best Prospects for Non-agricultural Goods and Services - Best Prospects for Agricultural Products
CHAPTER 6. Trade Regulations and Standards
- Trade Barriers, Including Tariffs, Non-Tariff Barriers and Import Taxes - Customs Valuation - Import Licenses - Export Controls - Import/Export Documentation - Temporary Entry - Labeling, Marking Requirements - Prohibited Imports - Standards - Free Trade Zones/Warehouses - Special Import Provisions - Membership in Free Trade Arrangements
CHAPTER 7. Investment Climate
- A1) Openness to Foreign Investment - A2) Conversion and Transfer Policies - A3) Expropriation and Compensation - A4) Dispute Settlement - A5) Performance Requirements/Incentives - A6) Right to Private Ownership and Establishment - A7) Property Rights Labor - A8) Transparency of the Regulatory System - A9) Efficient Capital Markets and Portfolio Investment - A10) Political Violence - A11) Corruption - B) Bilateral Investment Agreements - C) OPIC and Other Investment Insurance Programs - D) Labor - E) Free Trade Zones - F) Foreign Direct Investment Statistics - G) Major Foreign Investors
CHAPTER 8. Trade and Project Financing
- Brief Description of the Banking System - Foreign Exchange Controls Affecting Trading - General Financing Availability - How to Finance Exports/Methods of Payment - Types of Available Export Financing and Insurance - Project Financing Available - List of Banks with Correspondent U.S. Banking Arrangements
CHAPTER 9. Business Travel
- Business Customs - Travel Advisory and Visas - Holidays - Business Infrastructure
CHAPTER 10. Economic and Trade Statistics
A. Country Data
Appendices
- Population - Population Growth Rate - Religion - Government System - Language - Work Week
B. Domestic Economy
- GDP - GDP Growth Rate - GDP Per Capita - Government Spending as a Percent of GDP - Inflation - Unemployment - Foreign Exchange Reserves - Average Exchange Rate for USD1.00 - Debt Service Ratio - U.S. Economic Military/Economic Assistance
C. Trade
- Total Country Export - Total Country Imports - U.S. Exports to D.R. - U.S. Imports from D.R.
D. Investment Statistics
CHAPTER 11. U.S. and Country Contacts
- U.S. Embassy Trade Related Contacts - Dominican Republic Government Offices - Chambers of Commerce - Country Trade or Industry Associations in Key Sectors - Country Market Research Firms - Country Commercial Banks - Multilateral Development Bank Offices in Country - U.S. Trade Related Offices
CHAPTER 12. Market Research
CHAPTER 13. . Trade Event Schedule
CHAPTER 1: Executive Summary
This Country Commercial Guide (CCG) presents a comprehensive look at the Dominican Republic's commercial environment, using economic, political and market analyses. The CCGs were established by recommendation of the trade promotion coordinating committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. embassies through the combined efforts of several agencies.
The Dominican Republic is the largest democratic country in the Caribbean. The U.S. remains its principal trading partner and its largest market where an estimated 1 million Dominicans reside. Dominicans generally have a positive view of the United States.
In the last few years the Dominican Republic has seen sustained economic growth, which was tempered only by the slow-down in the U.S. economy and the terrorist attacks of September 11, 2001. Since then, some sectors closely related to the U.S. economy, including the tourism sector, have been negatively affected. Subsequently, the economic growth rate of the Dominican Republic fell by two-thirds to 2.7 percent, well below the 7.9 percent growth rate average of the last 5 years. Still, this growth rate is 5 times the average for the rest of Latin America. Strong GDP growth and successful reforms to modernize the legal and regulatory systems have combined to produce a healthy financial sector. Reserves, assets, deposits and equity have grown substantially over the past five years.
The 2002 economic outlook depends on the revitalization of the tourism, construction and free trade zone sectors. The hotel industry is making strides to remediate the deficiencies in basic services (electricity, water, and environmental protection), while the Dominican government's priorities include lot-to-medium housing projects. In order to comply with the terms of new Free Trade Agreements with CARICOM and other countries in Central America, the government has reduced tariff rates on imports and further liberalization is expected. For 2002, economists predict a growth of 3.0% to 4.0% and a modest rise in inflation due to a weak increase in demand and a weakening exchange rate.
The Dominican Republic has a public (for private banks transactions) and an official exchange rate whereby non-free trade zone exporters and the oil industry are required to exchange foreign currency through the Central Bank. The average exchange rate increased 3.3% in 2001 to 16.82 pesos to the dollar, and by mid-year 2202 had reached 17.95 pesos to the dollar. The Dominican peso is expected to continue to depreciate at a similar rate.
American products in general are perceived by end-users to be of the best quality. U.S. exporters may find good opportunities in the sectors described in chapter 5, which include the telecommunication and sporting goods sectors. Sporting goods and recreational equipment has become the leading sector after five years of continuous growth. With no local production, U.S. imports of sporting goods account for 40 percent of the total market share. This sector is expected to grow significantly, in part because the Dominican Republic will host the Panamerican Games (Juegos Panamericanos) on 2003. The telecommunication sector remains among the top eight best prospects in the Dominican Republic, representing almost 6 percent of the Dominican GDP. By the end of 2001, the mobile phone market accounted for 5.9 percent of the total telephony; the number of wireless subscribers in 2001 was 11 times the number registered during 1996. Having one of the most advanced telecommunications networks in Latin America, local users have access to services provided in the United States.
While domestic manufacturing is minimal, agriculture recorded a solid 8.6% growth in 2001. Rice and potato outputs increased considerably. Sugar production continues to recuperate after an all time low, cocoa plantations are also healing with attractive international prices, while coffee continues depressed with very low market values. Government officials indicate that coffee is expected to recuperate as a result of the new legislation encouraging exports of traditional products.
U. S. Agricultural Exports to the Dominican Republic, which comprise about 65‑70 percent of the total agricultural imports (including fish, seafood, and forest products), remained in CY 2001 at US$603 million, the same as the year before. In 2001, a large portion of the imports from the United States reflect high volume and prices for bulk agricultural commodities such as corn (US$100M), wheat (US$40M), tobacco (US$85M) and lumber & plywood (US$51M). However, intermediate agricultural products, such as soybean meal (US$70M), veg oils (US$43M, 20% is US), animal fat & tallow (US$14), sweeteners (US$22M), NFDM [non fat dry milk] (US$40, 10% is US), and value added products are beginning to a stake a much larger share of total imports.
Dominican exports of agricultural products to the United States decreased in 1998 and 1999 forty five percent to a low of US$242 million. As a result of a major hurricane, recovery has been slow reaching US$257 million in CY 2001. However the slow‑down in import growth during 2001 was associated with the atmospheric event, the changes in policy and higher import duties have also acted adversely. Current estimates for CY 2002 anticipate a ten percent increase. Major export items continue to be apparel & cotton products, raw sugar and sweeteners, tobacco & products, cocoa, fresh and processed fruit and vegetables and coconuts (fresh and processed).
The Mejia Administration has worked very hard to attract foreign investment. Law No. 16-95 adopted November 1995, allows unlimited foreign investment in mostly all sectors. Article 5 of the law, however, does not permit investment in the disposal and storage of toxic, hazardous or radioactive waste not produced in the country, or in activities that negatively affect public health.
Corruption continues to be a concern among inventors. U.S. firms, bound by the Foreign Corrupt Practices Act, face difficulty in accessing justice within the local system. The government only recently ratified the New York Convention recognizing investors' right to submit disputes to international arbitration and, providing a legal framework to enforce international arbitration. Even though it has improved in recent years, the protection of intellectual property rights is still deficient. Unlicensed production of patented pharmaceuticals, software, video and audio recordings are not adequately addressed by the current law. Moreover, the banking system is expensive, long term financing is hard to find and there is no deposit insurance.
CHAPTER 2: Economic Trends and Outlook
This report was drafted in July 2002. Statistics were available for the period through March 2002.
Major trends and outlook:
In 2001 the economic growth rate of the Dominican Republic fell by two-thirds to 2.7 percent as a result of declining external demand, due to the economic slowdown in the U.S. and Europe and the aftermath of the September 11 terrorist attacks, higher taxes, and tighter monetary conditions. Although well below the country's annual average for the last five years of 7.9%, the economy grew five times the average for the rest of Latin America and exceeded expectations for the year. A drop in the price of petroleum and weak economic activity contributed to a halving of the inflation rate to 4.4%, its lowest level in five years.
The outlook for the reminder of 2002 will depend largely upon the pace of recovery in the tourism and free-trade sectors. However, growth is expected to begin a gradual recovery as the global environment improves and public investment rises as the government employs the proceeds from the US$500 million foreign bond issue in September 2001. Economists predict between 3.0% and 4.0% growth for 2002 and a modest rise in inflation due to an increase in demand and a weakening exchange rate. Consumer price increases, however, are expected to stay in the single digits, as they have since 1995.
Under the Mejia administration, the momentum for reform established in the 1990s, which led to the Dominican Republic being one of the fastest growing economies in the region, has been sustained. In late 2000/early 2001, several important policy changes were implemented to promote macroeconomic stability, including abolishing the distortionary fuel differential tax, implementing a new tax package to increase compliance and simplify import duties, and shifting towards a more flexible exchange rate.
The Dominican Republic maintains two exchange markets, a public one for most transactions that operates through private banks, and an official one, whereby non-free trade zone exporters and the oil industry are required to exchange foreign currency through the Central Bank. The Central Bank has taken a gradual approach to unifying the two markets, and, at present, less than 15 percent of transactions are handled in the official market. In November 2001, the government adopted a more flexible exchange rate policy, decreasing the spread between the official and the commercial bank exchange rates to 2.0 percent. This was followed by a move in April 2002 to set the official exchange rate on a daily basis, equal to a weighted average of the previous day's market rates, further decreasing the spread to under 1.0 percent. In late 2001, the government also created a foreign exchange desk to manage purchases and sales of foreign exchange by the Central Bank to ease the transition to a fully unified foreign exchange market. Finally, the government made a long awaited -albeit modest- move in September 2001 to phase out the 5% commission on foreign-exchange transactions, reducing it initially to 4.75%. The average exchange rate increased 3.3% in 2001 to 16.82 pesos to the dollar.
The Fernandez Administration, which ended in August 2000, left a large domestic debt. Within months of the inauguration, the new Mejia Administration formed a commission to review this debt and is working on a comprehensive plan to reduce the stock of domestic arrears. In 2001 the arrears declined substantially, however, the central government continues to incur domestic arrears as a result of complex electricity subsidies.
Following the extensive use of external debt rescheduling and relief in the 1990s, the Dominican Republic has paid its debt to foreign lenders in a timely fashion and now has one of lowest external debt burdens in the region. Despite maintaining a favorable debt-service profile, concern has been expressed over the recent pace of bilateral official loan approvals, which could create problems in servicing external debt obligations in the absence of effective fiscal reform. Dominican authorities are reportedly making institutional changes to centralize debt management.
Strong GDP growth and a largely successful reform effort to modernize the legal and regulatory framework have combined to produce a healthy financial sector in the Dominican Republic. The industry generates substantial revenues, though profits are tempered by strong competition. Reserves, assets, deposits and equity have all grown significantly over the past five years. Pending legislation would codify many of the reforms made to date and increase the DR's openness to foreign financial institutions.
In order to comply with the terms of new Free Trade Agreements with CARICOM and five Central American countries, the Dominican government has lowered tariff rates on imports, and further liberalization is likely to occur under the Free Trade Area of the Americas. Most Dominican tariffs now range from 3 to 20 percent, with an average import tariff of 10.7 percent. Pending legislation would decrease the number of tariff rates and reduce the maximum rate for most goods to 15 percent. Virtually all tariffs are bound in the World Trade Organization (WTO) at 40 percent. "Rectification" of the Dominican tariff bindings for eight agricultural commodities has been agreed at higher tariff levels for imports in excess of specified quotas, but Dominican authorities recently announced a schedule to reduce these contingent tariffs as well. Imports to the Dominican Republic have risen the last few years as the import regime has loosened.
Nonetheless, the Dominican Republic maintains a more restrictive trade regime than most of its major regional neighbors. The Dominican Government has not yet fully implemented the Uruguay Round agreements, although certain aspects of implementation are proceeding slowly. Improving -but still inadequate- protection for intellectual property (trademarks, patents, and copyrights) affects investment and business practices. A complex system of licensing and consular approvals of invoices impedes imports. While many formal non-tariff barriers have been abolished, reports of corruption and poor organization at the ports point to additional impediments to trade.
Free trade zones are exempt from most of the restrictions on international trade cited above. The growth of free trade zones demonstrates the ability of the Dominican Republic to compete in global markets when the obstacles to trade are reduced. The law specifies that free trade zone firms have the right to sell 20 percent of their output domestically, although this has not been implemented in the past. The Government has, however, reconsidered this policy and some limited sales from the free trade zones into the local economy are occurring.
Principal Growth Sectors:
Source: Dominican Central Bank
As noted above, the Dominican economy grew a modest 2.7 percent in 2001. Tourism and free trade zones, the principal growth engines of the past 10 years, suffered the greatest decline, while telecommunications remained the greatest source of dynamism. A recovery in the construction sector in the fourth quarter and the resilience of worker remittances also contributed to the growth. Continued periodic electrical power shortages (rolling blackouts) and the high costs associated with back-up generation facilities have impeded the growth of industry.
Performance in the telecommunications sector remained strong in 2001, despite the decline in other sectors closely linked to foreign investment (i.e., tourism and free trade zones). The Dominican Republic continues to experience a telecommunications boom, which received renewed impetus with the passage of a modern telecommunications bill in May 1998. In 2001, the mobile phone market was the main driver of the expansion, accounting for 55.9% of total telephony by the end of 2001 (up from 32.8 percent in 2000). Several private companies are competing to provide cellular telephones, pocket pagers, new telephone lines, long distance and Internet service. Two private firms provide local service.
Despite the problems in the Dominican energy sector due to complex electricity subsidies, an increase in government arrears to the independent power producers (IPPs) and a culture of non-payment among consumers, investment in electricity continues to rise following the effective capitalization of the sector in 1999. Recent improvements to transmission and distribution networks helped support an18.8% growth in the sector in 2001. Increased generation among the IPPs offset decreased production among the generating companies. The outlook for the sector for 2002 depends largely upon the outcome of negotiations between the IPPs and the State-owned Dominican Electric Corporation (CDE) to allow distribution companies to purchase electricity directly from the IPPs.
The government sector expanded by 8.8% in 2001, as it added 29,268 employees to its payroll. Education, the armed forces and two new secretariats (environment and culture) absorbed the majority of these resources.
Agriculture recorded a solid 8.6% growth in 2001, led by an increase in output of staple crops such as rice (up 23.1%) and potatoes (up 159.9%), which helped stem the flow of imports, despite the expansion of the food import bill. Sugar production continues to grow (up 10.1%) following the recent capitalization of the state sugar mills. Although coffee production fell slightly for the year (-3.0%), it posted an impressive growth in the fourth quarter as a result of legislation passed in November 2001 to encourage export of traditional products.
The financial sector continues to benefit from consolidation and liberalization efforts, posting 2.9% growth for the year. The sector was lead by the activities of private commercial banks and insurance companies, which expanded 7.0% and 5.1%, respectively.
A recovery in the construction sector in the fourth quarter of 2001 made a strong contribution to overall growth for the year by boosting employment and services. The increased activity in the sector was largely due to increased public investment in infrastructure projects as the government began to employ proceeds from the sovereign bond issuance in September 2001. Construction is expected to remain strong for 2002 as a result.
Tourism declined 6.6%, primarily as a result of the global slowdown, a weak Euro, and the events of September 11. Increased competition from similar vacation destinations also contributed to the decline. Hotel occupancy in 2001 was 66.3%, down from just over 70% in 2000. Tourism is expected to recover more slowly than other sectors of the economy, and a full recovery not likely until 2003.
Although 2001 was the first full year of Caribbean Basin Trade Partnership Act benefits for the Dominican Republic, which brings them into line with NAFTA treatment for many textile and other products, free trade zone exports contracted 4.6% due to a decline in demand from a faltering U.S. economy. While Dominican firms have proven competitive, largely through adoption of cutting edge technology and modern management practices that increase productivity and quality, several free-zone textile companies were forced to close in 2001. The lower growth rate and decreased investment flows into this sector can be attributed to aggressive competition from El Salvador, Honduras and Guatemala. However, several companies in other sectors, such as services and jewelry, were opened, laying the foundation for a more broad-based growth in the years to come.
Government Role in the Economy:
The Dominican Government has traditionally played a large role in the country's economic life. The Government has been the owner of all public utilities (except telecommunications), an insurance company, the country's largest bank (Banco de Reservas), and factories producing a variety of goods. Most of the state enterprises are unprofitable. Legislation to allow the privatization or "capitalization" of state-owned enterprises was passed by the Congress in June 1997. The Commission for the Reform of Public Enterprises (CREP), an entity mandated by the June 1997 law, had its first success with the privatization of the state-owned flour mill, Molinos Dominicanos, in December 1998. The distribution and generation units of the state-owned electricity company, the Corporacion Dominicana de Electricidad (CDE), were capitalized in April and May 1999. The privatization of assets of the State Sugar Council (CEA) took place in autumn of 1999. The government-owned hotels held by CORPHOTEL, its defunct airline (Corporacion Dominicana de Aviacion or CDA), and the companies held under the umbrella holding company CORDE are also scheduled for capitalization. Years of unprofitable operations, however, have effectively stripped many of the state-owned companies, leaving some with few tangible assets.
The Mejia Administration has worked hard to attract foreign investment, with the President himself leading several important trade and investment missions to the U.S., Latin America, Asia, and, most recently, to Europe and North Africa. Within the past year, the Dominican Republic has reached agreement on trade pacts with CARICOM and with five Central American countries that will lead to greater regional economic integration. The Dominican Republic participates actively in negotiations on a Free Trade Area of the Americas.
Although still not unusually high, the overall tax burden imposed by the Dominican government increased from 13.75% in 2000 to 14.95% in 2001. New fiscal measures implemented in late 2000/early 2001, which converted the oil price differential into a fixed tax, raised the value added tax and luxuries tax, and imposed a new minimum income tax on businesses, helped to offset a sharp decline in import taxes that resulted from modifications to the tariff regime. As previously noted, the government also took the first step toward phasing out the foreign exchange commission in the second half of the year.
The large government presence in the economy and a web of complicated regulations means that many economic decisions are politicized and businesspersons spend inordinate time "lobbying" the government. Foreign businesses can be at a distinct disadvantage in this process. U.S. businesspersons operating overseas are obligated to abide by the provisions of the U.S. Foreign Corrupt Practices Act.
Institutional difficulties common to developing countries are also present. Businesses often find that the labor force is hard working but untrained. Although the Dominican Government has instituted an impressive judicial reform program, it can be difficult and time-consuming to obtain an equitable result in the Dominican justice system. The banking system is expensive (unsecured business loans currently carry interest rates of over 20 percent), long term financing is hard to find, and, as noted above, there is no deposit insurance.
Balance of Payments Situation:
The government returned to a positive overall balance of payments situation in 2001, following a small deficit in 2000. The current account deficit fell by 1.3% of GDP in 2001 due to a narrowing of the trade deficit for goods and services as the contraction in import spending (7.3%) outweighed the decline in export earnings (7.0%). Lower petroleum prices and increased remittances from abroad helped to offset the losses of revenue from the free trade zone and tourism sectors. The resilience in family remittances sent by the Dominican Republic's expatriate population (an estimated 1.0 million Dominicans reside in the U.S. alone) is particularly surprising given the slowdown in the U.S. and Europe and the negative impact of the September 11 attacks on the New York services industry, which employs a large proportion of Dominican emigrants.
The capital account also improved its position in 2001, registering a 7.9% increase in the surplus recorded in 2000. FDI inflows were up 25.8% from 2000 to reach US$1.2 billion, just short of the 1999 record of US$1.3 billion, due to continued investment in energy, telecommunications, finance and tourism sectors. Portfolio investment also increased significantly as a result of the sovereign bond issuance.
Infrastructure Situation:
-- Electricity: Although foreign private producers have continued to add new capacity, soaring demand, poor maintenance of CDE's transmission facilities, and lack of energy conservation have kept capacity at well below peak levels of demand. A culture of non-payment for electricity, including by the Dominican Government, which is the single largest user, has sometimes caused plants to go off line because they can not pay their fuel suppliers and other creditors. Load shedding is a common practice and virtually all industrial enterprises have their own back-up power. Some large firms maintain completely independent electricity supplies. As noted above, however, the generation and distribution arms of the Compania Dominicana de Electricidad (CDE), the state-owned electrical energy supplier, were successfully capitalized in April and May 1999. It is hoped that this process, together with planned new investment in power generation, will bring substantial improvement to the Dominican power sector within two years.
-- Roads and Highways: The Dominican Republic has a well-developed road network, which the Government continues to improve. Nevertheless, as in most developing countries, some of the roads and highways are considered to be in poor and dangerous condition. Truckers belong to syndicates that regulate prices, increasing the price of haulage, and strikes or protests in some areas sometimes disrupt transport.
-- Airports: There are seven international airports in the Dominican Republic: they are in Santo Domingo (2), Puerto Plata, La Romana, Punta Cana, Santiago, Samana and Barahona. An international consortium won a bid and has assumed control of the Santo Domingo, Puerto Plata, Barahona and Samana airports. Construction of a new international airport in Santiago is now complete.
-- Major ports: Santo Domingo and other major cities are serviced by modern port facilities. Haina, located just outside the capital city, has a 2,600-foot long, 35-foot draft wharf, a 40-ton container crane and a 60-acre container yard. Transportation to more than a dozen U.S. ports is available on a weekly basis. There is also daily freight service to Puerto Rico. Other ports are located in the cities of La Romana, Boca Chica, San Pedro de Macoris and Puerto Plata. Construction of a new multimodal container transshipment facility outside of Santo Domingo began in early 2002. Passenger car ferry service is available between Santo Domingo and Puerto Rico.
-- The Dominican Republic has one of the most advanced telecommunications networks in Latin America. Services offered by the telephone companies (Codetel, Tricom, Centennial and France Telecom) include: direct distance dialing, international direct distance dialing, line 800, electronic mail, telenet, cellular mobile phones, facsimile, national paging services, and Internet services.
-- Major business newspapers and business or specialized magazines can be purchased locally, and several are available on the Internet. Cable television is also available locally in larger towns and cities, and generally offers some U.S. and European programming. Radio and television are the communications media reaching the largest numbers of Dominicans.
CHAPTER 3: Political Environment
Nature of Political Relationship with the United States:
The Dominican Republic is the Caribbean's largest democratic country. It has a long standing and close relationship with the United States, its principal trading partner and largest market. High rates of Dominican legal immigration to the United States reflect this close relationship. Dominicans generally have a positive view of the U.S. Though political and economic nationalists at times resort to anti-Americanism and charges of U.S. interference in the country's affairs, few Dominicans seem persuaded by this rhetoric.
Major Political Issues Affecting Business Climate:
A highly centralized regulatory and administrative system adversely affects the business climate. The interpretation of laws and regulations is often arbitrary. This has contributed to an unstable and capricious regulatory environment that also presents opportunity for corrupction. Businesses, domestic as well as foreign, complain that the rules of the game are constantly changing. Dominican and foreign business leaders have complained of judicial and administrative corruption, and have charged that corruption affects the settlement of business disputes. Dominican expropriation standards have been widely at variance with international norms. Several foreign firms and individuals have outstanding disputes with the Dominican Government concerning expropriated property or non-fulfillment of contractual obligations. Even when compensation has been ordered, investors and lenders often have not received prompt or adequate payment.
The past two governments have worked to make the Dominican Republic a more business friendly place. For example, in 1999, the Fernandez Government "capitalized" the country's electric sector, creating significant new investment opportunities for U.S. and other foreign firms. The Dominican Congress passed legislation in 1999, permitting the Dominican Government to issue up to five billion pesos worth of bonds to pay internal debts and settle expropriation cases. In 2000, the Government promulgated legislation cutting maximum import duties in the Dominican Republic from 40 percent to 20 percent. Unfortunately, U.S. and other businesses still experience problems in the Dominican Republic, ranging from unsettled expropriations, to unmet contractual obligations in the electric sector, to patent protection that does not meet World Trade Organization standards.
Brief Synopsis of Political System, Schedule for Elections, and Orientation of Major Political Parties:
The constitution provides for a popularly elected president and a bicameral congress (composed of 32 senators and 150 national deputies). The executive branch dominates the political system.
The election of legislators was separate from the Presidential election for the first time in 1998. Recent Constitutional reform allows and limits the President to two four-year terms of office. Free and fair presidential elections were held on May 16, 2000. Congressional and municipal elections were last held in May 2002. The Partido Reformista Social Cristiano (PRSC), the Partido Revolucionario Dominicano (PRD), and the Partido de la Liberacion Dominicana (PLD) are the main political parties. Each of these parties tends toward centrist platforms.
The country is also beginning the long process of judicial reform to modernize its courts and raise the standards of integrity in the system. A national judicial council selected new judges for the Supreme Court in August 1997. The new Supreme Court has appointed new judges throughout the court system and instituted a modern training program for judges and court administrators.
CHAPTER 4: Marketing U.S. Products and Services
Distribution and Sales Channels:
There are several methods for U.S. exporters to enter the Dominican market. One can use locally appointed distributors, a wholly-owned subsidiary, joint venture partners, or Dominican importers and wholesalers who also own retail outlets. The subsidiary and joint venture mechanisms have been enhanced through foreign investment law no. 16-95. A distribution agreement is not required for any of the above.
Use of Agents/Distributors - Finding a Partner:
Although the use of an agent or a distributor is not required, U.S. exporters wishing to market a product or service in the Dominican Republic on a regular basis, without opening offices or maintaining a joint venture should find an agent or a distributor.
The Dominican agent/distributor law (Law 173, April 1966) is designed to protect Dominican citizens who work as agents or distributors for foreign companies. Before appointing an agent or distributor in the Dominican Republic, U.S. firms should seek legal counsel, as Law 173 is complicated and potentially very costly to foreign suppliers. Under Law 173, agents and distributors often will have the right to compensation linked to a multiple of annual sales if the U.S. exporter decides to terminate the relationship. Foreign investment law no. 16-95 allows foreign firms to assume direct representation of their products manufactured abroad or in the Dominican Republic without law 173's lengthy residency requirements or two-thirds Dominican ownership of distribution companies.
The U.S. Commercial Service (USCS) in Santo Domingo can help U.S. exporters find agents and distributors through the following services:
- International Partner Search (IPS) IPS provides a report on up to five (5) qualified overseas agents, distributors, manufacturer's representatives, joint venture partners, licensees, franchisees, or strategic partners who have examined a U.S. company's brochures and have expressed an interest in the company's products, services, or licenses. They may also express an interest in partnering with the company. Request this service from your nearest Export Assistance Center.
- Gold Key Service:
Option 1: Consists of a survey of potential representatives or clients and 4-6 appointments per day with those that best fit the U.S. company's requirements. The service includes a welcome kit, hotel reservations (at Embassy rates), escort to appointments by a bilingual Commercial Specialist, car with driver, and complimentary use of office space for day of appointments (if requested). Participants must complete a company profile. Does not include advertising. CS Santo Domingo can arrange ad publications at additional charge.
Fees for the Caribbean Region served by USCS Santo Domingo are as follows:
Option 2: Consists of a survey of potential representatives or clients and 4-6 appointments per day with those that best fit the U.S. company's requirements. Participants must complete a company profile. Does not include advertising. Fees as follows:
* Due to limited resources the Embassy must be contacted to confirm availability of services.
- Expo USA: This is an exhibition of new-to-market U.S. firms seeking agents, representatives, distributors, licensees and franchises in the Dominican Republic. Expo USA 2002 is scheduled for September 12-14, 2002 in Santo Domingo, Dominican Republic. Please contact the U.S. Commercial Service, Santo Domingo for additional information.
Franchising:
Franchising is growing steadily in the Dominican Republic (DR). There are approximately 250 franchises established in the Dominican market with more than 900 stores in operation providing over 10,000 direct jobs.
Pizza Hut, Wendy's, Domino's Pizza, McDonald's, Burger King, Friday's, Baskin-Robbins, Kentucky Fried Chicken, Church's Chicken, Taco Bell, Dunkin'Doughnuts, Mrs. Field's, TCBY, Dairy Queen, Tony Roma's and Subway are in operation and/or expanding. Non-food franchises include a Radio Shack Store, GNC Vitamin stores, Payless Shoes, Alphagraphics, Sir Speedy, Dry Clean USA, Mr. Movies, Ethan Allen, Bombay, Meineke Mufflers, and a number of up-scale clothing outlets, including Benetton, Liz Claiborne and Versace.
Food franchising is the largest and fastest growing sector in Santo Domingo and other cities such as Santiago, La Romana and Puerto Plata, representing 45 percent of the total franchise market in the DR. As the food service sector of franchising becomes well established, Dominican entrepreneurs are looking toward other service franchises such as printing and auto service as growth sectors. In the past three years, retail and service franchises have begun to flourish and are growing rapidly.
Direct Marketing:
Direct marketing has met with some success for low-cost, locally produced services. Avon, Jafra and Amway have established successful foreign-owned direct marketing organizations.
Joint Ventures/Licensing:
There is considerable joint venture/licensing activity in the Dominican Republic, including manufacturing and services. The foreign investment law provides for opportunities in this area. Before negotiating a joint venture or licensing partnership, legal counsel should be consulted to minimize potential conflicts, unexpected taxes, withholding expenses on royalties, contributions to capital and related aspects of these ventures.
Steps to establishing an office through incorporation of a local subsidiary (other than free-zone investments governed by law 8-90):
Requirements and procedures:
1. Articles of incorporation are the basic document of Dominican companies. They are signed by the founders of the company and represent a private contract among the signers.
2. A certification from the Trademark Department at the Secretariat of Industry and Commerce should be obtained for any trademark desired to be used and protected within the Dominican Republic. The certification states that the proposed name is available for use.
3. The shares issued by the company must be fully subscribed and paid. The founder must make a sworn declaration of receipt of the payments before a Notary Public.
4. A written list of the initial shareholders is prepared by the founder(s) stating the names, personal circumstances, residence of each shareholder, and the number of shares subscribed to and paid for by each.
5. Payment of the capitalization tax should be made at the Department of Internal Revenue (Direccion General de Impuestos Internos).
6. A first shareholders meeting must be held. At the meeting a written list of shareholders in attendance is prepared. The articles of incorporation and the declaration made to the notary are formally approved. If share payments in kind are involved, the meeting approves an inventory and estimate and appoints an appraiser to verify the estimate. The Board of Directors and officers of the company are elected. If no payments in kind are involved, the shareholders then authorize the deposit of documents and the publication of a notice announcing the company's formation.
7. When payments in kind are made for shares, a second shareholders meeting must be held not earlier than five days after the first. At this meeting the appraiser's report is approved.
8. The articles of incorporation, the list of shareholders, and the minutes of the first and second (if any) shareholders meetings are registered at the Civil Registry (Oficialia Civil). Evidence that the capitalization tax has been paid must be presented and filed at this time.
9. An authorization for the deposit of documents is required from the Gift and Estate Tax Section of the Income Tax Department (la Seccion de Impuestos a la Propiedad y Obsequios del Departamento de La Direccion General de Impuestos Internos). Internal Revenue stamps, a copy of the articles of incorporation, and the list of shareholders must accompany this request.
10. The Civil and Commercial Court of First Instance (Corte Civil y Comercial de Primera Instancia) and the Justices of Peace (Juzgados de Paz) having jurisdiction over the domicile of the company and any of its branches must receive the following documents:
- the articles of incorporation - the list of shareholders - a copy of the receipt of payment of the capitalization tax - an abstract of the sworn declaration made to the Notary - the list of shareholders present at the shareholders meeting(s) together with the resolutions adopted and - the letter of approval from the Income Tax Department
11. A notice of formation of the company containing the required information must be published in a general circulation newspaper.
12. Prior to commencing operations, the company must:
- Obtain an authorization to start business and, in the case of an industrial operation, obtain a certificate of industrial registration from the Secretariat of State for Industry and Commerce (Secretaria de Estado de Industria y Comercio).
- Register the name of the company in the Business Registry (Registro Mercantil) maintained by the Official Chamber of Commerce, Agriculture and Industry.
Selling Factors/Techniques:
At the retail sales level, Dominicans prefer seeing the product and expect reliable after-sales service. Quality and responsiveness in after-sales service are becoming increasingly important ingredients in effective marketing strategies. In sales of services and manufactured goods, Dominicans often rely on networking, as well as close family and personal relationships. These characteristics in turn create the need for local agents and distributors or direct, in-country operations to make and sustain these contacts.
Advertising and Trade Promotion:
Most businesses in the Dominican Republic use major local newspapers, television channels and radio stations to advertise their products. Because of high illiteracy rates, television and radio are the media most used for products, which are intended to be marketed to all social classes.
Companies already in the Dominican Republic are well aware of the benefits of participating in local exhibition/trade promotion shows; there are many industry specific expositions flourishing in the Dominican Republic. Major regional exhibitions of American products and services sponsored by the U.S. Embassy's Commercial Service, are staged every year and many have traditionally been held in Santo Domingo. See appendix G on trade promotion events.
Pricing Product:
The DR is a price-sensitive market where the price is often equally important as quality and service. Dominicans are often familiar with U.S. pricing practices. Many successful new retail outlets, however, concentrate on quality goods and service support, as Dominican consumers become more affluent and sophisticated.
Sales Service/Customer Support:
Dominican customers have increasingly demanded consistent quality support and service. Service and customer support are still a developing concept. Several (both wholesale and retail) companies maintain sales without discounting. This is partly attributable to the good reputation for quality service and support, which suggests the importance of after-sales support.
Selling to the Government:
President Mejia's Administration is trying to establish a more favorable creditworthy reputation and resolve some of the systemic problems affecting irregularities in public contracting in the Dominican Republic. Several unresolved payment disputes from former Administrations remain.
Dominican Law no. 322 of 1981 states that foreign individuals or firms must be associated with Dominican or "mixed capital" enterprises in order to bid on or execute Dominican government-funded projects. There are exceptions, and variations on levels of participation required for complex projects and many direct opportunities for foreign bidders exist when project financing is from multilateral banks or foreign government aid sources, and where the bidding process is open and transparent, and payment is guaranteed by the outside sources.
Protecting Your Intellectual Property:
To help ensure production, trademarks, and copyright infringement, your product should be registered at the Legal Department of the Secretariat of State for Industry and Commerce. Once approved, a notice should be published in a local newspaper.
The U.S. Government recognizes significant improvement enforcing the IPR Law. The Dominican authorities have enacted two modern laws to protect the intellectual property, law 20-00 for patents and trademark and law 362-01 for copyrights.
The Dominican Republic is a member of the World Trade Organization and signatory of both the Bern and Paris Conventions on Copyrights and Patents and Trademarks, respectively. Nevertheless, protection of intellectual property rights is still weak. Even where the law provides protection, enforcement and remedies are often inadequate.
Need for a Local Attorney:
A local attorney is an important vehicle for establishing operations and advising on the conditions for doing business in the Dominican Republic. A list of lawyers familiar with U.S. businesses is available at the U.S. Commercial Service Santo Domingo.
CHAPTER 5: Leading Sectors for U.S. Exports and Investments
Best prospects for non-agricultural goods and Services:
Rank: 1 Name of Sector: Sporting Goods & Recreational Equipment ITA Code: SPT NarrativeThe Dominican market for Sporting Goods and Equipment has grown continuously over the past five years.
Baseball has always been the dominant sporting activity in the Dominican Republic, followed by Basketball, Volleyball, etc. However in the past few years physical fitness equipment has rapidly taken a leading position in the market.
Currently there is no local production of Sporting Goods in the Dominican Republic. US imports account for approximately 40% of the total market. US Sporting Goods enjoy a good level of acceptance, due to their high quality. However, there is strong competition from lower price Asian imports.
Sporting goods imports are expected to grow significantly, mainly because of the Panamerican Games 2003 (Juegos Panamericanos 2003), that will be held in the Dominican Republic.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 The above statistics are unofficial estimates. Rank: 2 Name of Sector: Computers and Peripherals ITA Code: CPT
NarrativeGrowing interest in electronic commerce and the need for better information management are fueling demand for computers and peripheral products in the Dominican Republic. The Dominican market for computers and peripherals is mostly dependent on imports. Even though there is a strong local production of local brands or clones which comprises for 45 percent of the market for PC´s, all the parts for these computers are imported. The country "exports" imported products and some locally assembled computers to Haiti.
The most promising sub-sectors are: parts, peripherals (printers, etc.), and accessories.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 The above statistics are unofficial estimates. Rank: 3 Name of Sector: Textile Fabrics ITA Code: TXF
Narrative
The Dominican apparel industry has a decades-long history characterized by the high quality of its labor force and excellent customer service. Some 262 apparel manufacturers, including full packagers, are located within the Dominican Republic's 51 free zone parks, generating approximately 120,000 direct jobs.
The worldwide economic downturn, and especially and specially the slowing of the U.S. economy, affected significantly the textile market in the Dominican Republic. The sector decreased 7.2% in year 2001, but it has been estimated that, for year 2002, the imports of textiles and yarns will grow to 13%, an increase of approximately $1.66 billion. The U.S. maintains its leadership as the major supplier of textiles and yarns to the textile/apparel manufacturing sector.
(Billions of U.S. Dollars)
Exchange Rate used: 17.70 The above statistics are unofficial estimates.
(*) Statistics are not available on local production of yarns and fabrics in the Dominican Republic.
Rank : 4 Name of Sector: Building Products ITA Code: BLD
Narrative
After a period of 4 years of remarkable growth, construction activity decreased during 2000 and 2001; nevertheless, experts expressed their confidence that by 2002, construction will emerge once again as one of the leading sectors in the Dominican Economy.
Most of the growth in the last half of 2002 came from construction (both public and private). The growth in the sector had a multiplier effect, both in sales of building products and in construction financing.
Currently, U.S. products dominate the import market with approximately 35% market share in 2000 and 2001. We expect this share to increase through 2002. Best sales prospects include products used in the construction of low-to-medium cost housing, malls and commercial buildings; and public works mega-projects, such as highways, bridges and marine ports. These are the industry sub-sectors that are expected to account for more construction activity in the short term.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 The above statistics are unofficial estimates.
Rank: 5 Name of Sector: Hotel & Restaurant Equipment ITA Code: HTL
Narrative:
Tourism was one of the hardest hit sectors in 2001 in the Dominican Republic. Tourism was already having a bad year when the September 11 attacks discouraged international travel. The sector declined by 6.6 percent last year, and many smaller hotels, especially on the Atlantic north coast, went out of business. Nevertheless, there are several ambitious plans for new resort projects that will try to expand the country's tourist offerings beyond the low end all-inclusive model that has predominated to date. The development of these new projects will present opportunities for U.S. suppliers of hotel and restaurant equipment.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 The above statistics are unofficial estimates.
Rank: 6 Name of Sector: Telecommunications Equipment ITA Code: TEL
Narrative:
The telecommunication sector in the Dominican Republic has seen impressive growth, averaging 16% annually in the last decade. As a result, telecommunications now makes up almost 6% of the Dominican GDP versus just 2.4% in 1991. Growth is evident across all sectors of the telecommunications market, but particularly in the mobile sector where the number of wireless subscribers in 2001 was more than 11 times the number of wireless subscribers in 1996. The country has also seen a steady growth in wire lines, showing an average annual growth rate of 9.7% between 1996 and 2001. As a result, the teledensity (number of lines per hundred inhabitants) in the Dominican Republic has increased from 7.48 in 1995 to 10.84 in 2001.
The Dominican Republic has one of the most advanced telecommunications networks in Latin America. Dominican users have access to services provided in the United States and the telephone companies continuously improve equipment and services.
Receptivity of American products is very good; American telecommunication products are perceived by end-users to be of the best quality. The most promising subsectors are: switching equipment, mobile telecommunication equipment, radio and television transmission equipment, and parts for telephone and switching equipment.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 The above statistics are unofficial estimates.
Rank: 7 Name of Sector: Electrical Power Systems ITA Code: ELP
Narrative:
Electrical Power Systems has consistently appeared in the list of Best Prospects for U.S. exports because the electricity sector in the Dominican Republic faces multiple challenges and, at the same time, presents tremendous opportunities for U.S. firms.
The Dominican electric utility, CDE, was capitalized in 1999 resulting in private investments in the areas of generation and distribution. These private investments are mainly from the U.S. and Spain.
CDE maintains 100 percent ownership of the transmission lines and hydroelectric generation.
Given the historically poor maintenance of the country's power generation, transmission and distribution facilities, energy shortages severely affect residential, commercial and industrial clients. All elements of the grid are in need of repair and expansion.
There are several projects underway to improve the distribution service and the transmission lines. Also, there are generation expansion projects planned in the sector.
Statistics in the table below show the free trade zone activity in electronic assembly on-going in the Dominican Republic.
There are excellent opportunities for U.S. firms in this evolving sector, we encourage U.S. companies to be more active and aggressive in the Dominican market that is now dominated by third country imports.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 The above statistics are unofficial estimates.
Rank : 8 Name of Sector: Household Consumer Goods ITA Code: HGC
Narrative:
The Dominican market for household furniture is expected to increase from US$182.80 million in 2001 to US$195.28 million in 2002, representing real growth of 6 percent. This upward trend in the Dominican household furniture market began in 1996, when Dominican residential construction activity and the resale of existing homes gained momentum.
In 2000, Dominican production of US$115.75 million in household furniture satisfied near 80 percent of domestic market demand. Exports of Dominican household furniture were valued at US$3.53 million in 2000, of which more than 90 percent were destined for the U.S. furniture market. Imports of household furniture in 2001 were valued at US$75.15 million and supplied 20 percent of Dominican market demand. The U.S. share of Dominican Republic's annual imports of household furniture has remained steady at approximately 50 percent since 1995.
U.S. household furniture products are very well received in Dominican Republic, as is evident by the large number of U.S. manufacturers currently selling in the Dominican market. Expanding niche markets like home entertainment furniture, wall units, chairs and sofas, ergonomic furniture, and outdoor furniture offers the best prospects for U.S. household furniture exporters.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 The above statistics are unofficial estimates.
Best Prospects for Non-Agricultural Goods and Services:
Best prospects for agricultural products:
In 2001, the agriculture and livestock sector accounted for 8.6 percent of the total Gross Domestic Product (GDP) in the Dominican Republic (DR). Central Bank statistics indicate that this sector has averaged less than 1 percent growth during 1998-2000.
US exports to the Dominican Republic, which comprise about 65-70 percent of the Dominican Republic's total agricultural imports (including fish and seafood products and forest products), remained stagnant at US$603 million when compared to $601 million in 2000. Imports of U. S. agricultural products were the highest level ever in 1999, after a major hurricane. However the slow-down in import growth during 2001 was associated with the atmospheric event, the changes in policy and higher import duties. The large portion of the imports from the United States reflect high volume and prices for bulk agricultural commodities such as wheat, corn, lumber and tobacco. However, intermediate agricultural products, such as soybean meal, animal fat, sweeteners and value added products are beginning to a stake a much larger share of total imports.
Import of tobacco (mainly wrappers) in 2001 exceeded US$85 million dollars while imports of consumer oriented products were slightly under US$98 million dollar in 2001. As the economy recovers consumer orientated products show excellent growth potential as the number of supermarkets, retail outlets, and fast food chains continue to expand in the DR. Adding to this sectors growth potential is the increase in the number of new products introduced from the US to local stores. Another factor expected to increase consumer-oriented products is the expanding Dominican tourism industry. The tourism industry demands fairly high quality food products and should help increase consumer ready sales.
United States softwood and treated lumber sales were US$56 million in 2001, lower than the highest export level ever in 1999 (US$96 million), but remains the third largest market in the western hemisphere. This sale reflects the efforts in both private and public construction industries in the DR to continue growth. It is important to note that the DR is the 13th most important trade partner to the US in terms of forest products.
The main prospects are:
Wheat (1001902055)
Narrative:
Government-owned Molinos Dominicanos, the largest wheat mill in the DR, was privatized in 1999. As a result, it began operating more effectively and is already paying dividends. This translated into more wheat imports from the US that year. Other private wheat mills, originally designed to supply wheat products to the pasta and cracker industry, continue to process and supply more than half the wheat demanded by the baking industry. Some wheat flour and durum are also imported from the US. It is important to note that some of the flour and related products continue to serve the Haitian market. Barring subsidies for European exports or more competitive prices from Canada, the United States will remain the predominant supplier to this price-sensitive market. Imports of wheat in 2001 exceeded US$39 million. (Millions of U.S. Dollars)
Exchange Rate used: 17.70 e\ unofficial estimates.
Soybean Meal (230400000)
Narrative
The United States is the Dominican Republic's principal supplier of soybean meal. It is mainly used in feed formulations for poultry and swine. The market is dependent on the poultry sector, which consumes about 65-70 percent of all feed ingredient imports. This sector was seriously affected by Hurricane Georges in 1998, but by the following year, it had totally recovered. The swine sector consumes 20 percent of the imports and cattle utilizes the rest. Imports of high protein soybean meal from the US exceeded US$71 million in 2001.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 e/ unofficial estimates
Corn (1005902030)
Narrative:
Corn in the DR is used primarily for poultry and swine feed formulations. The return to acceptable price levels of corn has stimulated the use of good quality US grain, lowering the local prices of poultry meat and increasing producer margins. The devastating effects of Hurricane Georges on the poultry population caused a decrease in consumption in 1998, but consumption levels recovered in 1999 and continued through 2001. The direct purchase from major producers of poultry and swine and the merging of the main feed manufacturing companies into one, assured the use of corn from the US. Corn exports in 2001 were valued at US$101 million, slightly lower than the year before, but higher quantities.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 e\ unofficial estimates. Fresh Apples and Other Deciduous Fruits (8061/8081/8082)
Narrative:
While the Dominican Republic produces an excellent variety of tropical fruits, there is a strong consumer market for apples, grapes, pears and some peaches and nectarines. These products are not native to the country and there is a high demand particularly during the Christmas season. Most imports are from the United States, but occasionally Canadian and South American fruit is imported during the holidays. About 83 percent of deciduous fruit is imported from the US and the remaining, from other sources, such as Chile and Canada. The import value for fresh apples and other deciduous fruits for 2001 were estimated over US$12 million, a record.
(Millions of U.S. Dollars)
Exchange Rate used: 17.70 e\ unofficial estimates.
Wine (2204214000)
Narrative:
Consumption of wine in the Dominican Republic has grown at an average rate of over 10 percent a year during the first half of the decade. Although the US market share is growing somewhat erratically with higher taxes, the United States currently ranks third behind Spain and Chile in supplying wine to the market. Consumers perceive US wine to be a quality product, but high prices are a major constraint to increased market share for the United States. According to Dominican importers, the value of total imports, was approximately US$12 million in 2001.
In the Dominican Republic there is limited wine production. The local production is mainly a sweet wine, which targets a lower income sector. Recent tariff changes in some cases pushes tariffs above 100 % of the CIF value. Importers are hopeful that tariffs would decrease in the near future. (Millions of U.S. Dollars)
Exchange Rate used: 17.70 e\ unofficial estimates.
Softwood and Treated Lumber
Narrative:
Dominican imports of forest products were estimated at US$85 million in CY 2001. It ranked 13th as the largest U.S. trade partner of forest products in the world and the 3rd largest export market in the Western Hemisphere. With a US$56 million in purchases, the Dominican Republic was the 4th largest market for U. S. softwood and treated lumber. It has a softer position as a panel product importer with heavy competition from South America, but remains in the top 25, with US$4 million of imports.
The wood market is divided the following way: 18-22% hardwood (Mahogany), 11-15% panel products (plywood) and the rest softwood lumber (pine). The US$60 million softwood market continues to be dominated by the U.S. products with little competition from Chile (6-8%). U.S. panel products on the other hand hold only thirty percent of the Dominican market with strong competition with less expensive Brazilian (45%) and Taiwan (25%) products. The US$12-15 million hardwood market is almost exclusively Mahogany coming from Central and South America. The strong effort to protect the natural resources in the Dominican Republic, the reconstruction effort after hurricane Georges during 1999 and 2000 and the central Government construction efforts, make this market particularly attractive. However, the relatively high tariffs continue to restrain the industry's growth. (Millions of U.S. Dollars)
Exchange Rate used: 17.70 e\ unofficial estimates.
CHAPTER 6: Trade Regulations and Standards
Trade Barriers, Including Tariffs, Non-tariff Barriers and Import Taxes:
Taxes and duties for imported goods (agricultural and non-agricultural) are calculated upon the "ad-valorem price," i.e., CIF price in US dollars multiplied by the unified foreign exchange rate (presently US$1.00=RD$17.70). All duties and taxes are collected in Dominican pesos. There are generally four taxes on imports except for those subject to exemptions provided by law. These taxes are the following:
A) Tariff (Arancel): This is the basic import tax which can be as low as 0 percent and as high as 20 percent.
B) Luxury Tax (Impuesto Selectivo al Consumo): This is a consumption tax for luxury imports or "non-essential" goods that ranges between 15 and 60 percent. This tax is calculated on the CIF price.
C) Exchange Surcharge (Recargo Cambiario): This is a 4.75 percent tax imposed on all imports into the Dominican Republic.
D) Industrialized Goods and Services Tax (ITBIS - Impuesto de Transferencia a los Bienes Industrializados y Servicios): This is a twelve percent tax on processed agricultural goods and all non-agricultural goods, and services. ITBIS is calculated on the CIF price plus the amount paid for all taxes and duties previously mentioned.
Example: Product X
Customs Valuation:
The Dominican Customs Office began to apply the GATT valuation system as of July 1, 2001. All imported goods from WTO-member countries are now taxed taking into consideration the value indicated in the commercial invoice. The Dominican government requested and received authorization from the World Trade Organization to exclude 31 items. The products that were exempted assessed the import tax based on a minimum value assigned by the Dominican Customs, not the value indicated on the commercial invoice.
For imports from countries not members of WTO, the valuation will continue to be done based on consideration of the minimum valuation lists created by Dominican Customs.
There are 23 existing Customs offices in the Dominican Republic: ten at ports, seven at airport zones, and six on the border with Haiti. The principal offices handling the majority of the cargo are: Port of Haina Oriental, Port of Haina Occidental, Las Americas International Airport and the Port of San Pedro de Macoris.
Customs officials indicate that the average clearance takes three days from submission of pertinent and complete documentation. Based on anecdotal information, clearances can be made in hours if importers make use of express clearance procedures.
Many importers are using one of the following express clearance procedures:
Advance Declaration (Declaracion Anticipada) - Importers may submit customs documentation 25 days prior to the arrival of the shipment.
Express Dispatch (Despacho Expreso) - This mode includes advance declaration of the goods and the verification of the shipment by customs officials at the importer's warehouse. Shipments may be dispatched in four hours when using Express Dispatch.
There is a proposed Customs Council (Consejo Superior de Aduanas) that is awaiting approval by Congress. The council would include a representative from the private sector to oversee customs operations.
Import Licenses:
A) Commerce/Industry:
Import licenses are not required for most products, except pharmaceutical products (drugs, cosmetics and skin care products) and agro-chemicals. For pharmaceutical products a license must be obtained at the Secretariat of State for Public Health for each trademark/product imported by the company. The license is valid for a period of five years. Agro-chemicals and fertilizers require an import license from the Secretariat of State for Agriculture.
B) Agriculture:
"No objection" and other type of permits are often required to import agricultural commodities into the Dominican Republic. In addition, phytosanitary certificates issued by recognized authorities in the country of origin must accompany live plants and agricultural material used in planting. Imports of animals normally require certificates of origin and other veterinarian documentation to assure disease-free status. Testing is done at the port of entry to reconfirm pest free status. Tariff rate quotas were proposed for eight agricultural goods (rice, sugar, chicken parts, pork, corn, onions, milk powder and garlic). Imports of food and agricultural products are normally facilitated through local distributors. Unless otherwise indicated, the Dominican Republic tends to follow U.S. standards concerning chemical tolerances in foods, packaging and labeling requirements.
Export Controls:
A) Commerce/Industry:
No export licenses are required. However, a sworn declaration of exports (Declaracion Jurada de Exportacion or Formulario Unico de Exportacion) should be presented at the port of departure. Free zone companies need only submit certifications from the National Free Zone Council to CEDOPEX (a government organization) to declare and register exports.
B) Agriculture:
A requirement for export licenses for most agricultural exports was lifted in 1993. The exchange rate applied to traditional exports was unified at the current official exchange rate of US$1.00 = RD$17.70. That unification eliminated the penalization of traditional exporters with an exchange rate differential, which supported the Central Bank Revenues. For the following years, the official exchange rate was used. Currently, the Dominican Center for Export Promotion (CEDOPEX) implemented the use of a form to declare exports. According to CEDOPEX, it trusts the quantity and the price exporters declare. Export values are reported in US dollars. In the event the transaction is in any other currency (including RD$), the US$ value is estimated at the official exchange rate.
Import/Export Documentation:
All imports into the Dominican Republic, other than free trade zone imports, require a consular invoice from a Dominican overseas consulate approving the transaction. Many U.S. exporters continue to complain that the fees are often expensive and appears arbitrary. The uncertainty regarding total associated costs is present for every shipment to the Dominican Republic. Private-sector associations and other groups continue to push for a change in the system, but it is a major revenue earner for Dominican consulates as well as for general revenue coffers. The exception applies to shipments from countries where there is not a Dominican Consulate. In these cases, the importer pays at Customs a set fee of US$400 for a fine. Some importers prefer to pay this $400.00 fine for every shipment instead of paying for the consular invoice because this cost does not vary.
Imports into free trade zones that are destined for re-export are excused from this and other customs requirements, such as import licenses, registration requirements, and payment of customs duties based on commercial invoice and airway bills of lading.
Temporary Entry:
A) Commerce/Industry:
Temporary entry is permitted for exhibition or demonstration purposes, and also for equipment needed for a temporary work in the D.R. Temporary entry of goods was adopted by Customs as a business facilitation service. No customs duties are paid to customs and the goods must be re-exported. A bond or other suitable security for all or a portion of the value of the goods must be posted at the time of temporary entry. This will be returned upon meeting all the terms of temporary entry and proof of shipment out of the country. If the company wishes to sell the products or machinery after making temporary entry, valuation and all relevant duties are determined in accordance with previously noted customs procedures. Temporary entry admittance is granted for a period of three (3) months. If more time is needed a renovation is required at the end of the three months.
B) Agriculture:
There are no provisions for the temporary entry of agricultural products. However, agricultural commodities and food products may be imported under bonded warehousing and for transshipment.
Labeling, Marking Requirements:
The Dominican Republic has formally subscribed to ISO 9000 and has announced its intention to follow all subsequent ISO 9000 standards. It is also a member of COPAN, the Panamerican Convention on Norms and Standards. Officials have stated that products meeting U.S. standards in labeling and marking should have little difficulty in complying with relevant Dominican regulations. DIGENOR (Direccion General de Normas y Sistemas de Calidad), the government office in charge of enforcement of regulations on marking, labeling as well as quality controls, freely admits that its inspection of products entering the country is not as thorough as it should be for lack of resources. Nevertheless, companies should review existing legislation and rules (last published in 1990) when exporting products deviating from U.S. standards in labeling and marking. There are special rules for live animals and unpacked foods, as well as medicines and products designed to enter the health market. These special rules, however, are more in the area of registration and prior import license approval than in marking and labeling requirements.
Prohibited Imports:
The importation of used clothes is prohibited by Law 458, but the Dominican government recently announced that it would allow the import of used clothing from Haiti for humanitarian reasons. There are also prohibition for the import of some plant species, and discretionary import licenses continue to be required from the Secretariat of Agriculture for most agricultural products. These serve to limit imports of many items, which are perceived as competing with domestic production.
Standards:
The Dominican Republic tends to follow U.S. standards and requirements.
Free Trade Zones/Warehouses:
Free Zone Operators (FZO) and enterprises are entitled to 100 percent exemption for extended periods of time from:
- The payment of corporate income tax.
- The payment of construction taxes, taxes on loan agreements, and on the recording and transfer of real property from the date of formation of the FZO.
- The payment of all taxes otherwise due on corporate formation or capital increases.
- The payment of any municipal taxes which may affect their activities.
- The payment of import duties and related taxes on raw materials, equipment, construction materials, parts for buildings, office equipment, etc., destined for construction, preparation or operation within the free trade zone.
- All taxes or duties on exports or re-exports, except for exports which enter into the local market.
- The business tax (patent) on inventory or assets and from the tax on the transfer of industrialized goods and services (ITBIS).
- Consular charges on imports consigned to Free Zone operators or enterprises.
- Import duties on equipment and utensils for the installation and operation of cafeterias, health services, medical assistance, childcare centers, entertainment or amenities or other equipment for the well being of workers.
- The payment of duties on the importation of transportation equipment, such as trucks, garbage trucks, micro buses, minibuses for the transportation of employees to and from work, subject to the prior approval in each case, of the National Free Zone Council. Such vehicles shall be non-transferable for a period of at least five years. The following are types of operations that free trade zone companies may engage in:
- Introduce, store, unpack and re-pack, recycle, exhibit, manufacture, mount, assemble, refine, process and deal in any type of product, goods or equipment.
- Provide internal services, such as design, layout, marketing, telecommunications, printing, data processing, translation, software development and any other similar or related service.
- Introduce into the free trade zone any and all machinery, equipment, parts, and tools which may be necessary or advisable in their operations.
- Transfer materials, equipment, machinery, etc. as well as labor and services from one free trade zone enterprise to another or between enterprises of different free trade zones, provided the transit regulations from one free zone to another are fulfilled.
It should also be noted that firms licensed to operate in the free trade zone might also be subject to certain rules of safety, environmental considerations and national security.
Special import provisions:
None
Membership in Free Trade Arrangements:
The Dominican Republic is a member of the World Trade Organization. In 1998, the Dominican Republic joined with Costa Rica, Nicaragua, Honduras, El Salvador and Guatemala in establishing a Central American-Dominican Republic Free Trade Area, which is expected to enter into force as soon as Honduras completes its ratification procedures. The Dominican Government signed a similar agreement with CARICOM in 2000. At the Summit of the Americas in Quebec, Canada, in April 2001, the Dominican Republic joined with other Western Hemisphere governments in committing itself to completing negotiation and implementation of a free trade agreement for the hemisphere by the year 2005.
CHAPTER 7: Investment Climate
A.1. Openness to foreign investment
The Dominican Government officially welcomes foreign investment. A foreign investment law (No. 16-95), enacted in November 1995, allows unlimited foreign investment in nearly all sectors of the economy. It should be noted, however, that certain earlier laws applying to specific sectors (e.g., banking and insurance) that may discriminate between domestic and foreign investments remain applicable. Regulations implementing the foreign investment law were enacted in September 1996. In 1997, the Government established the Office for Investment Promotion (OPI) which is proving to be an important contact for potential investors.
Under the foreign investment law, foreign investment is permitted in all sectors, but under Article 5 of the law the following sectors are excluded: disposal and storage of toxic, hazardous or radioactive waste not produced in the country; activities affecting public health and the ecological equilibrium of the country; and, the production of materials and equipment directly linked to national security without authorization from the President.
There are no limits on foreign control or screening of foreign investment. Foreign investors have participated in all stages of the capitalization of state enterprises such as the electric company, airport management and sugar mills.
In 2001 the Dominican economy grew 2.7% (more than five times the Latin American average). Despite the slowdown of the world economy, a weaker Euro and the September 11 terrorist attacks, foreign direct investment increased US$ 245.5 million dollars, that is 25.8% higher than in the year 2000. This growth took place while the rest of Latin American countries were experimenting a 10% slowdown in direct investment.
A.2. Conversion and Transfer Policies
A private sector exchange rate system exists for most commercial banking transactions. The Central Bank uses the market-determined rate of exchange, with some exceptions. Importers may obtain hard currency directly from commercial banks as well as from the Central Bank. One result of this system is that there is currently no queuing for foreign exchange.
Although by law, the Central Bank must receive all dollars resulting from exports of goods manufactured by non-free trade zone companies, in practice this law is applied flexibly and the dollars are turned into the commercial banking system. Moreover, for exporters of non-traditional products (i.e., manufactured goods and processed agricultural goods) and the tourism sector, dollars can be sold at the free market rate rather than the Central Bank rate. The foreign investment law allows for remittance of all capital and profits.
The Central Bank collects a fee for all exchanges of pesos into hard currency. Since September 27, 2001, this fee has been set at 4.75% in an effort to offset declining revenues from the state's resale of petroleum products.
A.3. Expropriation and Compensation
Dominican expropriation standards have historically been at variance with international norms. A number of U.S. investors have outstanding disputes with the Dominican Government concerning expropriated property. In some cases these claims have existed for many years. Investors and lenders often have not received prompt or adequate payment. Even when compensation has been ordered by a Dominican court, or when the Government has recognized the claim, actual payment has been extremely difficult to obtain.
The most recent Dominican administration have expropriated far fewer properties than their predecessors and have generally paid adequate compensation in those few cases. A law passed in 1999 authorized the issuance of bonds to settle a large number of claims against the Dominican government, including for expropriated property. With assistance from a USAID-sponsored expert, the Mejia Administration is reviewing several expropriation cases in hopes of using this mechanism to settle them. In 2000, the government reached a cash settlement in one long-standing expropriation case involving a U.S. investor and made partial payments toward settlement of another.
The government has not fully lived up to the commitments it made in connection with the partial-privatization of the energy sector to clear up arrears owed to several independent power producers (IPPs) and to remain current with the new distribution companies on payments for its own use of electricity. In the last year, several U.S.-owned IPPs were forced to suspend service when they were unable to meet their commitments to lenders due to lack of payments by the state electric company.
The electrical utility, CDE has a history of slow payment to the generating companies, and there has been pressure on U.S. companies to renegotiate power purchase agreements. Until government owned CDE resolves its problems of chronic slow payment and default, and honors the sanctity of contracts, we recommend investors be wary of projects in this sector.
A. 4. Dispute Settlement
Both free trade zone and non-free trade zone companies face dispute resolution problems in the Dominican Republic. U.S. firms bound by the Foreign Corrupt Practices Act have had particular difficulty accessing justice within the Dominican system and defending their interests in court. Recent judicial reforms, including replacement of the entire Supreme Court, have somewhat improved administration of justice in the country.
The Dominican Republic has not generally recognized the right of investors to submit disputes to binding international arbitration but the government has recently ratified the New York Convention recognizing investors' right to submit disputes to international arbitration and, providing a legal framework to enforce international arbitration. The Dominican Republic only recently became a member of the International Center for the Settlement of Investment Disputes (ICSID, also known as the Washington Convention). On October 29, 2001, the Dominican Republic promulgated its insertion as a member of the 1958 New York Convention. In 1999 the Government settled a dispute with Smith-Enron Cogeneration, which was before an arbitration panel in Mexico City.
Land tenure also poses difficulties. Although not specified in law, the government can take land without compensation, and judicial procedures in the land courts have been of uneven quality. The Supreme Court appointed new land court judges in October 1998, however, and is pushing ahead with efforts to upgrade these courts. When a judgment in favor of a foreign investor is rendered, the judicial system is often unable to enforce its decision.
A number of U.S. investors, ranging from large firms to private individuals, have payment-related, expropriation, or contractual disputes with the Dominican Government and its government-owned enterprises. The most notable of these is the government's continuing failure to implement the terms of an agreement reached with independent power producers in connection with the capitalization of most functions of the state electric company. The Embassy estimates the total value of U.S. investor claims as at least US$300 million, of which more than one-third is owed to the independent power producers.
A.5. Performance Requirements/Incentives
There are no special investment incentives or other types of favored treatment given to foreign investors. There are no requirements that investors export a certain percentage of their production. Foreign companies are unrestricted in their access to foreign exchange. Law 69 requires local sourcing when components are of approximately equal cost and quality compared to imports, but this law has not hindered investors.
In addition, there are no requirements that foreign equity be reduced over time or that technology be transferred according to certain terms. The Government imposes no location, local ownership, local content, or export requirements or conditions on foreign investors. The Dominican labor code establishes that 80 percent of the labor force of a foreign company, including free trade zone companies, must be composed of Dominican nationals (although the management or administrative staff of a foreign company is exempt from this regulation).
The Foreign Investment Law provides that licensing contracts for the use of patents or trademarks, the leasing of machinery and equipment, and the provision of technical know-how must be registered with the Central Bank's Directorate of Foreign Investment.
A.6. Right to Private Ownership and Establishment
The Dominican Constitution guarantees the freedom to own private property and to establish businesses. The Foreign Investment Law grants foreign investors the same rights as domestic investors. Public enterprises are not given preference over private enterprises.
A.7. Property Rights
Secured interests in both movable and real property are recognized and respected, although fraudulent claims and squatters sometimes created legal challenges for legitimate title holders. Mortgages on real property must be registered in the Registry of Titles of the place where the property is located. Real property rights registered under the Dominican Republic's Torrens system of real property registration are binding on third parties. Provision in the law is also made for registration of liens on personal property.
Protection of intellectual property rights has improved in recent years, but is still deficient in some areas. The Office of the U.S. Trade Representative placed the Dominican Republic on the Section 301 Watch List in 1997 and on the Priority Watch List in 1998-2002. Pirated software, video and audio recordings, as well as unauthorized broadcasts of copyrighted material remain concerns despite increased government efforts to crack down on these violations. Unlicensed production of patented pharmaceuticals is also a problem not adequately addressed by current law.
In 2000 the Dominican Republic passed a new patent and trademark law that, while intended to comply with the nation's obligations under World Trade Organization rules, appears to fall short in a few key respects. New copyright legislation that appears to meet WTO standards was also passed in 2000.
A.8. Transparency of the Regulatory System
During the last few years, the Government has carried out a major reform effort aimed at improving the transparency and effectiveness of the laws affecting competition. New customs regulations have been instituted, and major elements of the tax laws and the labor code have been reformed. A telecommunications law was passed in May 1998. Other major legislative proposals are still pending in the Congress including a Financial Monetary Code to regulate the banks and other players in the financial sector, and the so-called Market Regulation Code which seeks to revise and modernize various areas of commercial law. As in many developing countries, however, red tape and differences between law and actual practice remain significant problems.
A.9. Efficient Capital Markets and Portfolio Investment
Strong GDP growth and a largely successful reform effort have combined to produce a healthy financial sector in the Dominican Republic. The industry generates substantial revenues, though profits are tempered by strong competition. Reserves, assets, deposits and equity have all grown significantly over the past few years. Portfolio investment in 2001 was 128.3% higher than in 2000, totaling US$ 603.7 million, of which US$ 500 million was from the issuance of sovereign bonds in the international markets. The balance was from flows coming from investments by the private energy sector.
In 2001 there was an increase of 32.5% in disbursements of middle and long-term loans, amounting to US$ 683.1 million, of which 66.1% went to the public sector and 33.9% to the private sector. This fact shows the increasing access of both sectors to the international financial markets due to a decrease in interest rates in the international financial markets, and to the improvement of the Dominican Republic's financial solvency and country-risk.
The Dominican stock market, the Bolsa de Valores de Santo Domingo, was founded in 1991. Since beginning operations, the Bolsa has handled initial offerings of commercial paper. The previous Fernandez Administration submitted capital market regulatory legislation to the Congress, which has still not acted on it. The current Government believes the development of a capital market would assist in privatization efforts and democratize the distribution of capital.
The private sector has access to a variety of credit instruments. Foreign investors are able to obtain credit on the local market, but tend to prefer less expensive offshore sources.
A.10. Political Violence
Most poor neighborhoods in the Dominican Republic have protested in 2001 regarding the high cost electric energy and the extensive blackouts given by the electric distribution companies for non-payment.
During the 2002 Congressional and Municipal elections, on May 16, a married couple, activists of an opposition party, was murdered in Jarabacoa. This case is still being investigated. The murder of PRD Senator Darío Gómez in 2001, has not been resolved yet by the Judicial System. Occasional labor protests are generally peaceful. Student demonstrations are more common, but are generally confined to the areas immediately around college campuses and have not resulted in damage to foreign investment facilities. The economic downturn in early 2001, combined with cutoffs of electricity to non-paying segments of the population, has led to increased agitation, especially in poor neighborhoods.
A.11. Corruption
Although Dominican law prohibits governmental corruption, it remains a problem within the administrative, judicial and legislative branches of the government, within law enforcement agencies, and at the local and municipal levels of government. Corruption and the need for reform efforts are openly and widely discussed. President Mejia has made anti-corruption efforts a hallmark of his Administration. His Attorney General has appointed a special anti-corruption unit and the Office of the Comptroller General has opened an office to facilitate reports of corruption. Nevertheless, new corruption cases keep sprouting in the Government with slow follow-up from the Justice System. The Mejia Government continues to investigate alleged acts of corruption committed by officials during the government of Ex-President Leonel Fernandez, but so far has failed to produce any convictions. The government still lacks, however, the necessary enforcement mechanisms to eliminate corruption.
B. Bilateral Investment Agreements
There is no bilateral investment agreement and no bilateral tax treaty between the Dominican Republic and the United States. The Dominican Republic has a Bilateral Investment Treaty with Spain that does not provide the level of protection to investors contained in U.S. bilateral investment treaties.
C. OPIC and other Investment Insurance Programs
The Overseas Private Investment Corporation is active in the Dominican Republic with both insurance and loan programs. The Dominican Government is a party to the Multilateral Investment Guarantee Agency (MIGA) Agreement. Estimated annual U.S. dollar value of local currency likely to be used by the Embassy is $5.4 million. The Embassy purchases Dominican currency at the market exchange rate. The Dominican peso has depreciated on average about 3% per year over the last several years, and is likely to continue to depreciate at a similar rate in the near term.
D. Labor
An ample labor supply is available, although there is a scarcity of skilled workers and technical supervisors. Most employers have found the local work force competent, trainable, and cooperative. Foreign employers are not singled out when labor complaints are made. About 10% of the nation's work force are unionized. The labor code specifies that 20% or more workers in a company may form a union. Before a union may enter into a collective bargaining agreement or call a strike, it must have the approval of 51% of the company's workers. The unemployment rate calculated by the Central Bank for the Dominican work force at the end of 2001 was 15.6%.
The Dominican Labor Code, which became law in June 1992, is a comprehensive piece of legislation which establishes policies and procedures for aspects of employer/employee relationships ranging from minimum wage levels, hours of work, overtime and vacation pay, to severance pay, causes for termination, and union registration. The labor code also specifies that 80% of non-management workers of a company must be Dominican nationals. The standard workweek is 44 hours. Most jobs pay salaries based on the minimum wage.
E. Foreign Trade Zones/Free Ports
The Dominican Republic's free trade zones are regulated by Law Number 8-90. This legislation is managed by the Free Trade Zone National Council (CNZF in its Spanish acronym). The CNZF is a joint private sector/government body. Law 8-90 provides 100% exemption on all taxes, duties, charges and fees affecting production and export activities in the zones. These incentives are for 25 years for zones located near the Dominican-Haitian border and 15 years for zones located in the rest of the country. The Free Trade Zone National Council has discretionary authority to extend the time limits on these incentives.
Hard currency flows from the free trade zones are handled via the free foreign exchange market. Foreign and Dominican firms are afforded the same investment opportunities both by law and in practice.
The CNZF's Annual Statistical Report for 2001 says that the Free Zones Sector ended 2001 with a total of 51 free zone parks and 512 operating companies. The same report also says that the total cumulative investment in Free Trade Zones was approximately US$1.3 billion by year-end 2001, of which nearly 70.28 percent represents foreign investment. Over 57% of the foreign investment came from the U.S., followed by companies registered in Korea, Israel, Holland, and Switzerland. In general, firms operating in the free trade zones experience far fewer bureaucratic and legal problems than do firms operating outside the zones.
Exporters/investors seeking further information from the CNZF may contact:
Consejo Nacional de Zonas Francas Leopoldo Navarro No. 61 Edif. San Rafael, piso no. 5 Santo Domingo, D.R. Phone: (809) 686-8077 Fax: (809) 686-8079 and 688-0236 Contact: Lic. Jeannette Dominguez Aristy, Executive Director Web site: www.cnzfe.gov.do
F) Foreign Direct Investment Statistics
Foreign direct investment in the last few years has been largely concentrated in tourism, free trade zone activity, electricity generation and communications. The Dominican Government has made a concerted effort over the last five years to attract new investment to the country, taking advantage of the new foreign investment law and of the country's natural and human resources. The decision to capitalize ailing state enterprises (electricity, airport management, and sugar) attracted substantial foreign capital to these sectors.
Foreign Investment Data (In millions of U.S. dollars) Source: Central Bank of the Dominican Republic
G) Major Foreign Investors:
Following are some of the largest companies registered as foreign businesses by the Central Bank of the Dominican Republic:
1. Compania Dominicana de Telefonos (CODETEL) owned by Verizon (U.S.): the main telephone service provider, which has operated in the Dominican Republic for more than 40 years.
2. Central Romana Corporation (U.S.): A diversified operation, which includes a hotel, sugar plantations, a mill and real estate businesses, among other activities.
3. E. Leon Jimenes, C. por A. (a local partner of Phillip Morris, of the U.S.): this company produces cigarettes, cigars and beer.
4. Falconbridge Dominicana (Canada): produces ferro nickel for export mining in the Dominican Republic.
5. Shell Company (Holland/England): shares ownership with the Dominican Government of the only petroleum refinery in the country (50% each) and is a distributor of petroleum by-products in the Dominican Republic.
6 . Citibank (U.S.): the bank has operated in the Dominican Republic for many years.
7. Esso Standard Oil (U.S.): Esso is a long-time distributor of petroleum by-products.
8. Texaco Caribbean (U.S.): Another long-time distributor of petroleum by-products.
9. Colgate Palmolive, Inc. (U.S.): a leading manufacturer in the Dominican Republic of soaps and toothpaste.
10. Bank of Nova Scotia (Canada): One of the oldest foreign commercial banks in the Dominican Republic.
11. AES (U.S.): Through local subsidiaries operates the electricity distribution network in the eastern half of the country, as well as electricity generation plants.
12. Enron (U.S.): In partnership with other companies operates an electricity generating plant Puerto Plata.
13. Coastal (U.S.): A major investor in electricity generation.
14. Seaboard (U.S.): A major investor in electricity generation.
15. Tricom (40% owned by Motorola - U.S.): Second largest provider of long distance and cellular telephone services in the Dominican Republic.
CHAPTER 8: Trade and Project Financing
Brief description of the Banking System:
The composition of the financial system in the Dominican Republic is as follows:
The Central Bank of the Dominican Republic executes the monetary policy and issues national currency (Dominican pesos), maintaining its value against foreign currencies. The Central Bank also regulates the exchange rates and manages external payments.
Commercial Banks: - 12 institutions: 10 local and 2 foreign (Citibank and Bank of Nova Scotia) - Authorized to operate as multiple service banks
The list of multi-service banks to date are: Banco Popular Dominicano, Banco de Reservas de la Republica Dominicana, Banco Intercontinental, Banco BHD, Banco Nacional de Credito, Banco Dominicano del Progreso, Citibank, N.A., Banco Mercantil, The Bank of Nova Scotia, Banco Global, Banco de Santa Cruz, Banco Comercial de Santiago.
The Central Bank requires financial institutions to become multi-service banks offering checking, savings and various lending services. By merging banking functions into single financial institutions, the Central Bank intends to consolidate the sector into a smaller group of solid, larger institutions with better risk management. Most banks have made or are making the transition from specialized to multi-service banks.
Over the last several years, the banking system has experienced important mergers: Banco del Comercio Dominicano with Banco Intercontinental, Banco Metropolitano with Banco Dominicano del Progreso, Banco Global with Banco Mercantil. The main reason for these mergers was to increase the range of products offered to clients.
Commercial banks are the main formal source of private sector financing. Most loans are fixed-term loans where the borrower is required to make either periodic payments of principal and interest or a single balloon payment of the entire balance at the loan's termination. Most commercial lending is short term (1 - 5 years), although financing for construction or tourist projects with government funding has terms of 12 years or more.
Savings & Loans Associations: - 18 institutions - Specialized in housing development & financing (mortgages)
Mortgage banks and savings and loans associations provide medium and long-term (10 to15 years) loans for residential housing.
Development Banks: - 12 institutions - In process of consolidation and disappearance
Development banks, both public and private, offer medium and long term loans to finance projects in priority sectors, including agriculture, tourism, industry, services, and transportation.
Financing companies (Financieras): - Close to a hundred.
Financieras provide short and medium term loans to commercial and industrial sectors. These companies provide loans when commercial banks are unable or reluctant to do so, and with the highest interest rates of the market.
The Dominican Congress is currently discussing a revision to the country's financial and monetary code in an attempt to expand the flow of foreign capital into the country. After a new round of negotiations the bill was recently re-submitted to Congress in an initiative by the Central Bank of the Dominican Republic and the Executive Power. The new monetary code would give a higher degree of independence to the Central Bank, clarify and encompass all aspects of industry regulation and remove restrictions for the incorporation of foreign capital banks.
Foreign Exchange Controls Affecting Trading:
The Monetary Board sets monetary policy and oversees Central Bank operations. It also sets banking and financial norms through resolutions.
At the present time, pursuant to various resolutions issued by the Monetary Board, two foreign exchange markets operate in a parallel manner: a "private" market, where most sectors of the economy are free to buy and sell foreign exchange through commercial banks, and an "official" market, where only non-free trade zone exporters and the petroleum industry are required to trade foreign exchange exclusively through the Central Bank. The exchange rate of commercial banks varies around the official rate: in times of dollar abundance, the commercial bank's rate will generally be below the Central Bank rate, and the Central Bank will buy dollars to keep the Peso from appreciating further; in times of relative dollar scarcity the commercial bank rate will be above the Central Bank rate, and the Central Bank will sell dollars to keep the Peso from depreciating further.
General Financing Availability:
Interest rates are determined by market conditions. Current market rates range between 22 and 36 percent with 22 percent available for preferred clients.
Foreign companies cannot obtain domestic credit for a period greater than one year without prior approval from the Central Bank (law 861, article 28 of July 1978).
How to Finance Exports/Methods of Payment:
The most common forms of payment are letters of credit, cash (most Dominican companies maintain dollar accounts abroad), and supplier credit when a trading relationship has been established. Another form of payment that has been recently used is electronic transfer. Besides, payment through credit card for business purchases is common. Nevertheless, American firms should be cautious accepting credit cards due to increased fraud.
Types of Available Export Financing and Insurance:
United States Ex-Im Bank and the Overseas Private Investment Corporation are both active in the Dominican Republic financing the U.S. private sector. As indicated above, foreign companies face some restrictions on domestic credit.
Project Financing Available:
Financing is available for specific projects from the Inter-American Development Bank (IDB), the World Bank and the Overseas Private Investment Corporation (OPIC). The Inter-American Development Bank provides funding primarily to public sector entities for the design and execution of projects. IDB projects provide U.S. suppliers of goods and services significant export opportunities, mainly in the transportation, environmental, health, education, urban development, tourism, agriculture and energy sectors.
The International Bank for Reconstruction and Development (IBRD), a member of the World Bank Group, gives long-term loans at market-related rates. Such loans are granted primarily to developing nations.
The International Development Agency (IDA), the soft loan window of the World Bank, lends to the poorest of the developing countries. Both the IBRD and IDA work to promote broad based economic growth and operate under the same set of procurement guidelines. Their projects frequently focus on structural adjustment, sectorial reform and individual project lending. Each project may cover a wide variety of sectors and can involve anywhere from one to hundreds of separate contracts providing export business opportunities for suppliers worldwide.
Typically the World Bank does not finance the entire cost of a project. It finances only the components of a project purchased with foreign exchange.
A list of commercial banks in the Dominican Republic is available at Commercial Service Santo Domingo upon request. You may request it by sending an e-mail to: josefina.gitte@mail.doc.gov
CHAPTER 9: Business Travel
Business Customs:
Normal business attire is the rule.
Business hours are generally from 8:00 am - 5:00 p.m., Monday through Friday. Government offices work from 7:30 am - 2:30 p.m., Monday through Friday. Some companies work Saturday mornings. The lunch hour is from 12:00 PM - 1:00 PM or 1:00 PM - 2:00 PM. Lunch meetings are common, and breakfast meetings are becoming more frequent, particularly among companies doing business internationally. Business appointments are generally required, but punctuality is not a consistent part of Dominican business practices. Most Dominican businesspeople speak English, but communication in Spanish is desirable. Business cards are exchanged.
Travel Information and Visas:
Travelers are encouraged to read the Consular Information Sheet and Background Notes for the Dominican Republic located on the State Department website (United States.www.state.gov). At the time of the publication no travel warnings for the Dominican Republic were in effect. Recorded travel information is also available by calling the Department of State at (202) 647-5225. Holidays 2002:
Law 139-97 mandates that holidays that falling on Tuesday or Wednesday be moved to the previous Monday, and for those falling on Thursdays or Friday to be moved to the following Monday.
Business infrastructure:
See under section II. Economic Trends and Outlook item on Infrastructure Situation.
Chapter 10. Economic and Trade Statistics
Appendices
A. Country Data
1) Population: 8.7 million 2) Population Growth Rate: 2.3% 3) Religión: Predominantly Roman Catholic 4) Government System: Representative Democracy 5) Language: Spanish. English is widely spoken in the business community 6) Workweek: Government: Monday – Friday, 8:30 AM – 4:00 PM Private Sector: Monday – Friday, 8:00 AM – 5:00 P.M.
B. Domestic Economy
Central Bank of the Dominican Republic Statistics as of March 2002. Monetary Amounts in US$. The Central Bank does not provide estimates for 2002 yet.
C. Trade (in US$ Millions)
(*) Central Bank of the Dominican Republic. (**) US Department of Commerce National Trade Data Bank.
D. Investment Statistics
(Source: Central Bank of the Dominican Republic)
Foreign Direct Investment by Sector Cumulative January 1998 through December 2001 (US$ Millions)
Foreign Direct Investment by Country of Origin Cumulative January 1998 through December 2001 (US$ Million)
CHAPTER 11. U.S. and Country Contacts
U.S. Department of Commerce U.S.Commercial Service (USCS) Ave. Pedro Henriquez Urena No. 133 Edificio Empresarial Reyna I, 5th Floor Santo Domingo, Dom. Rep. Telephone: (809) 227-2121 Ext. 228 Fax: (809) 920-0267 Contacts: Terry Sorgi, Regional Senior Commercial Counselor E-mail: terry.sorgi@mail.doc.gov María Elena Portorreal, Senior Commercial Specialist E-mail: maria.elenaportorreal@mail.doc.gov Web site: www.usatrade.gov
U.S. Department of Agriculture Foreign Agricultural Service (FAS) Ave. Pedro Henriquez Urena No. 133 Edificio Empresarial Reyna I, 4th Floor Santo Domingo, Dom. Rep. Telephone: (809) 227-0112 Ext. 275 Fax: (809) 732-9454 Contact: David Salmon, Agricultural Attache Carlos G. Suarez, Senior Agricultural Specialist E-mail: sgsantodomingo@fas.usda.gov Web Page: http://www.usemb.gov.do/FAS/fasindex.htm
Dominican Republic Government Offices:
Secretaria de Estado de Industria y Comercio (Secretariat of State for Industry and Commerce) Ave. Mexico, Edificio de Oficinas Gubernamentales Juan Pablo Duarte, Piso 7 Santo Domingo, Dom. Rep. Phone: (809) 688-2449 and 685-5171 Fax: (809) 686-1973 Contact: Lic. Sonia Guzman de Hernandez Secretary for Industry and Commerce E-mail: ind.comercio@codetel.net.do Web page: www.seic.gov.do
Secretaria de Estado de Agricultura (Secretariat of State for Agriculture) Kilometro 6 ½, Autopista Duarte Santo Domingo, Dom. Rep. Phone: (809) 547-3888 Fax: (809) 549-3907 Contact: Ing. Agrom. Eligio Jaquez Secretary of State for Agriculture E-mail: sec.agri@codetel.net.do
Direccion General de Aduanas (General Directorate of Customs) Ave. Mexico Santo Domingo, Dom. Rep. Customs Director Phone: (809) 688-7070 Fax: (809) 687-3486 Contact: Lic. Vicente Sanchez Baret E-mail: aduana.dga@codetel.net.do
Instituto de Estabilizacion de Precios (INESPRE) (Price Stabilization Institute) Plaza Independencia Santo Domingo, Dom. Rep. Telephone: (809) 530-0020 Fax : (809) 531-2473 Contact: Ing. Agro. Pablo Mercedes, Executive Director
Instituto Azucarero Dominicano (Dominican Sugar Institute) Ave. Winston Churchil No. 606 Santo Domingo, Dom. Rep. Telephone: (809) 532-9226 Fax: (809) 533-2402 Contact: Ing. Severo de Js.Ovalle, Executive Director E-mail: Inst.azucar@codetel.net.do
Patronato Nacional de Ganaderos (National Livestock Patronage) Ciudad Ganadera Santo Domingo, Dom. Rep. Telephone: (809) 535-7165 Fax: (809) 535-7167 Contact: Dr. Jose A. Rodriguez Conde, President E-mail: png@codetel.net.do
Instituto Interamericano de Ciencias Agrícolas (IICA) (Interamerican Institute for Agricultural Sciences) Fray Cipriano De Utrera Esq. República del Líbano Centro de Los Heroes Santo Domingo, Dom. Rep. Telephone: (809) 533-2797 Fax: (809) 532-5312 Contact: Dr. Rafael Marte, Representative E-mail: iicard@iicard.org
Banco Agricola de la Republica Dominicana Ave. Independencia Santo Domingo, Dom. Rep. Telephone: (809) 535-8088 exts. 2001, 2002, 2003 Fax: (809) 535-8088 Contact: Ing. Radhames Rodriguez Valerio, Administrator E-mail: bagricola.refor@net.do
Fundacion Dominicana de Desarrollo Mercedes No. 4, Zona Colonial Santo Domingo, Dom. Rep. Contact: Lic. Ada Wiscovitch, Director Telephone: (809) 688-8101 Fax: (809) 686-0430
Centro Para el Desarrollo Agropecuario Forestal Jose A. Soler No. 50 Santo Domingo, Dom. Rep. Telephone: (809) 544-0616 Fax: (809) 544-4727 Contact: Lic. Altagracia Rivera de Castillo, Executive Director E-mail: cedaf@cedaf.org
Chambers of Commerce:
Camara de Comercio y Produccion del Distrito (Santo Domingo Chamber of Commerce) Arzobispo Nouel No. 206 Phone: (809) 682-2688 Fax: (809) 685-2228 Santo Domingo, Dom. Rep. Contact: Lic. Milagros Puello, Executive Director Web-site : www.ccpsd.org.do
American Chamber of Commerce of the Dominican Republic Ave. Sarasota No. 20, Torre Empresarial AIRD, 6th Floor Santo Domingo, Dom. Rep. Tel.: (809) 381-0777 Fax: (809) 381-0303 Contact: William Malamud, Executive Vice President E-mail: amcham@codetel.net.do
Country Trade Associations or Industry Associations in Key Sectors:
Junta Agroempresarial Dominicana (JAD) (Dominican Agribusiness Council) Euclides De Morillo No. 51, Arroyo Hondo Santo Domingo, Dom. Rep. Telephone: (809) 563-6178 Fax: (809) 566-7722 Contact: Osmar Benitez, Executive Vice President E-mail: jad@codetel.net.do
Asociacion Nacional de Importadores (Dominican Importers' Association) Roberto Pastoriza No. 16 Condominio Diandi XIII Santo Domingo, Dom. Rep. Telephone: (809) 562-6909 Fax: (809) 541-2574 Contact: Roberto Huerta, President E-mail: asoc.impor@codetel.net.do
Asociacion Dominicana de Exportadores (Adoexpo) (Dominican Exporters Association) Winston Churchill No. 5 Santo Domingo, Dom. Rep. Telephone: (809) 532-6779 Fax: (809) 532-1926 Contact: Lic. Samir Rizek, President E-mail: adoexpo1@codetel.net.do
Asociacion de Industrias de la Republica Dominicana (Association of Manufacturers of the Dominican Republic) Ave. Sarasota No. 20, Torre Empresarial AIRD, 12th Piso Santo Domingo, Dom. Rep Telephone: (809) 472-0000 Fax: (809) 472-0303 Contact: Lic. Elena Viyella de Paliza, President E-mail: aird@codetel.net.do
Consejo Nacional de la Empresa Privada (Dominican Private Enterprise Council) Ave. Sarasota No. 20, Torre Empresarial AIRD, 12th Piso Santo Domingo, Dom. Rep. Telephone: (809) 472-7531 Fax: (809) 472-7850 Contact: Lic. Marino Ginebra, President E-mail: cnep@codetel.net.do
Fundacion Dominicana de Desarrollo (Dominican Development Foundation) Mercedes No. 4, Zona Colonial Santo Domingo, Dom. Rep. Contact: Ada Wiscovitch, Executive Director Telephone: (809) 688-8101 Fax: (809) 686-0430
Centro para el Desarrollo Ferestal Jose Amado Soler 50 Santo Domingo, Dom. Rep. Contact: Lic. Altagracia Rivera De Castillo, Executive Director Telephone: (809) 544-0616
Country Market Research Firms:
A list of market research firms in the Dominican Republic is available at Commercial Service Santo Domingo upon request. You may request it by sending an e-mail to: josefina.gitte@mail.doc.gov
Multilateral Development Bank Offices in Country:
Interamerican Development Bank (IDB) Banco Interamericano de Desarrollo Ave. Winston Churchill esq. Luis F. Thomen Edificio BHD Telephone: (809) 562-6400 562-1547 Fax: (809) 562-2607 Santo Domingo, Dom. Rep. Contact: Stephen McGaughey, Country Representative Web page: http://www.iadb.org/dominicana
U.S. Trade Related Offices:
Multilateral Development Bank Office MLDA-USA Trade Center Ronald Reagan Building 14th and Constitution, NW Washington, DC 20007 Telephone: (202) 482-3399 Fax: (202) 482-3414 Contact: Janet Thomas, Director
TPCC Trade Information Center Number in Washington: 1-800-USA-TRADE (1-800-872-8723)
US Department of Agriculture Foreign Agriculture Service Trade Assistance and Promotion Office Telephone: (202) 720-7420
CHAPTER 12. Market Research Reports:
Dominican Republic Industry Sector Analyses (ISAs)
- Computers and Peripherals: 12/27/01 - Food Processing and Packaging: 11/09/2001 - Textile Machinery and Equipment: 06/23/2001 - Distribution Equipment: 03/21/2001 - Building Products: 10/13/2002 - Mobile Telecommunication Equipment: 10/13/2000 - Franchising: 06/22/2000 - Automotive Spare Parts: 06/14/2000 - Transmission Equipment: 02/17/2000
Industry Sector Analyses can be accessed via the World Wide Web at:
Agricultural Industry Sector Analyses prepared in 2001-2002
Cocoa: Jun 2002 Rice: April 2002 Oilseed and Products: April 2002 Sugar: May 2002 Tobacco: June 2002 Forest Products: June 2002 Trade Policy Monitoring Report: April 2002 Fresh Fruits: April 2002 Exporter Guide to the Consumer Food Market: Feb 2002 The Dairy Market: Jan 2001 Corn: Aug 2001 Livestock and Products: Aug 2001 Avocado market: May 2001 Coffee: July 2001
CHAPTER 13. Trade Events Schedule:
September 12 – 14, 2002: Expo USA 2002, Santo Domingo. Organized by the U.S. Commercial Service Office in Santo Domingo, and the American Chamber of Commerce is an exhibition of U.S. firms seeking to increase sales or find representatives and partners in the Dominican Republic.
U.S. Wine, Cheese and Fruit Reception, Santo Domingo, Organized by the Foreign Agricultural Service Office in Santo Domingo in a major hotel, is an exhibition of U.S. wine, fruit, cheese and processed meat product firms seeking to increase sales in the Dominican Republic. October/November, 2002
Las Americas Food and Beverage Show, Miami, and supported by the Foreign Agricultural Service Offices. It is major food show and exhibition of U.S. food firms seeking to increase sales or find representatives and partners. FAS leads a Dominican delegation to the event. November, 2002.
November 18 – 22, 2002: Four-Site Cosmetics Catalog Exhibition: To be held in the Dominican Republic, Barbados, Jamaica and Trinidad and Tobago
March, 2003 - Agricultural and Livestock Fair, Santo Domingo, Organized by the Foreign Agricultural Service Office in Santo Domingo, is an exhibition of U.S. livestock and agricultural firms seeking to increase sales or find representatives and partners in the Dominican Republic.
May, 2003 - The 2002 Supermarket Industry Convention and Educational Exposition, Chicago, Illinois. Organized by the Food Marketing Institute and supported by the Foreign Agricultural Service Offices. It is major food show and exhibition of U.S. food firms seeking to increase sales or find representatives and partners. FAS leads a Dominican delegation to the event.
USCS Santo Domingo will organize delegations of Dominican business representatives to attend the following International Buyer Programs (IBPs).
- November 18 – 22, 2002: Condex Fall. Las Vegas, Nevada. - January 21 – 24, 2003: International Builder's Show. - January 21 – 24, 2003: Electric Power 2003. Houston, Texas. - March 4 – 6, 2003: The Restaurant, Hotel Motel Show. Chicago, Illinois. - March 28 –30, 2003: Kitchen / Bath Industry Show. Orlando, Florida. - June 2 – 6, 2003: NAB 2003. Atlanta, Georgia. - August 10 –12, 2003: International Hardware Week. Chicago, Illinois. - August 25 – 28, 2003: Magic International. Las Vegas Nevada. - September 5 – 8, 2003: NAFEM 2003. New Orleans, Louisiana. - October 29 – 31, 2003: MedTrade. Atlanta, Georgia. Atlanta, GA. - November 12 –14, 2003 SHOPA Show. Atlanta, Georgia
Note: Trade event schedules may change. U.S. firms should contact the Commercial Service and/or the Agricultural Service Office in Santo Domingo for the latest information. |
|
| PRIVACY NOTICE | WHAT'S NEW? | SEARCH | TOP OF PAGE | The Embassy of the United States in Santo Domingo produces and maintains this site. Links to other Internet sites and the inclusion of information from non-government sources should not be construed as an endorsement of the views contained therein. For any suggestion, comment or problem please contact us. |