Trade

 

There was no economic process more dynamic in the Dominican Republic during the 1980s than the rapid growth of EPZs. Although the Dominican government established the legal framework for EPZs in 1955, it was not until 1969 that the Gulf and Western Corporation opened the country's first such zone in La Romana. By the close of the decade, the results of free-zone development were dramatically clear. From 1985 to 1989, the number of free zones had more than doubled, from six to fifteen; employment had jumped from 36,000 to nearly 100,000. The number of companies operating in free zones had increased from 146 to more than 220. In 1989 six more free zones were being developed, and three more had been approved. These zones were projected to bring the total to twenty-four by the mid-1990s. Demand nonetheless outpaced growth, forcing some companies to wait as long as a year to acquire new factory space.

 

Principal Growth Sectors in the Dominican Republic 2000:

 

Sector
% of real growth
Communications 15.7%
Hotels, bars, & restaurants 15.7%
Commerce 8.4%
Construction 5.2%
Finance 3.2%
Manufacturing (non EPZ) 8.9%
EPZ 8.0%
Overall growth 7.8%

 

Increased Trade = Increased Employment in EPZs

The prinicipal advantage of the EPZs in the Dominican Republic is cheap labor

Year
# of Zones
Enterprises
Employment
1985 5 123 30,737
1994 31 476 176,311
1996 35 434 164,639
2000 51 519 200,000

Standards for trade in EPZs

EPZ operators 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 EPZ.
- 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 EPZ operators or enterprises.
- Import duties on equipment and utensils for the installation and operation of cafeterias, health services, medical assistance, child care 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 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 EPZ 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 EPZ enterprise to another or between enterprises of different free trade zones, provided the transit regulations from one free zone to another are fulfilled.

How has NAFTA affected EPZs?

The regional division of labour and allocation of export roles has changed dramatically with the entry into force of the North American Free Trade Agreement (NAFTA). Because NAFTA imposes no duties on goods produced within its territory, it places Caribbean States at a disadvantage relative to Mexico, which now enjoys lower tariffs in the highly competitive textile and clothing products sector.

The Caribbean has been the hardest hit by NAFTA and the increasing competitiveness of other regions. Recent currency devaluations in Asia will reduce the cost of exports from those countries and most likely intensify the competition in major markets even further. The Caribbean Textile and Apparel Institute reports that, since the introduction of NAFTA, over 150 companies and 123,000 jobs have been lost in the apparel industry in the Caribbean, and that many of those firms have relocated to Mexico. While the value of Mexican clothing exports to the United States rose from US $709 million in 1990 to US $3.8 billion in 1996, those of the Dominican Republic rose only from US $723 million to US $1.7 billion in 1996.

Although the Caribbean Basin Initiative (CBI) provided for duty-free access to the US market, it specifically excluded some sectors, including textiles, apparel, shoes, and leather products, which were subject to international agreements, restricting market entry on quantitative grounds. Thus, with the passage of NAFTA, the CBI no longer put the Caribbean in a competitive situation. Therefore, on October 10, 2000, the United States Trade Representative announced that 10 countries would be eligible for the Caribbean Basin Trade Enhancement Act (CBTA). The countries were: Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Nicaragua and Panama.

The CBTPA was legislated as part of the Trade Act of 2000. The concept of the CBTPA, as it relates to textiles and apparel, is to provide benefit to both the Caribbean Basin region apparel manufacturers and their employees and to provide benefit to the U.S. textile and yarn manufacturers. With close proximity to the U.S. market, the region can take advantage of potential efficiencies such as speed to market lead-times and transportation costs. In general, apparel assembled in the Caribbean Basin region may enter the U.S. duty free, as long as the fabric or inputs used in the apparel are from the U.S. However, even with the passage of the October 2000, CBPTA, which gives Dominican textile manufacturers equal tariff treatment to that afforded under NAFTA, there have been layoffs in the textile sector due to a lack of demand in the US.

A major problem with trade agreement like this is the dependence the Dominican Republic develops on the US market. US investors account for more than half of the firms operating in the EPZs. Virtually all of the output of the Dominican Republic EPZ enterprises, as well as the country (87.3%) is destined for the United States. Excessive reliance on a single market makes the exporting country acutely vulnerable to a downturn or changing tastes in the consuming economy or to protectionist pressures. The Dominican Republic has already experienced the consequence of the early 1990’s recession in the US, the signing of NAFTA, World Trade Center bombing, and the recent weakness of the market today. Basically, because the Dominican Republic is so reliant on the US they are destined to suffer at the hands of the US economy. When demand is up, employment is good, when demand goes down, employment goes down.

For Example:

Look at the fluctuations in the Exchange rates

Dominican pesos per US dollar
Date
$18.2 April 2003
$17.310 January 2002
$16.952 2001
$16.415 2000
$16.033 1999
$15.267 1998
$14.265 1997

The value of the Dominican peso is decreasing mainly because the economy in the US is not performing very well. The money paid to employees working in EPZs will be worth less on the domestic market because the Dominican peso is being devalued.

 

back to Eco. impacts back to Home Top of Page