anyone know much about the FREE TRADE ZONES in the DR

Bob,
Everthing is in a state of flux until the implementation of CAFTA is straightened out. When CAFTA takes full effect, there may be little need for free trade zones.

Bob,
You are right CAFTA is similar to NAFTA. It was supposed to go into effect January 1, 2006. But due to normal Dominican government inaction on meeting specific requirements it is postponed until at least July 1.
The state of flux is due to the following. In the past, companies located in free-zones to benefit from breaks on import/export duties, taxes, payroll wages and benefits, etc. In turn for passing on these benefits, the owners of the free-zones charge premium rents to the companies located within. Many of these benefits, under CAFTA, will become available outside the free-zones, where rental rates can be much lower or a company can own their own facility. In effect, many companies are currently hesitant to locate new business in the free-zones, with long leases, when in a few months they may be better off outside the free-zones.
I'm sure you're correct that those companies already have free-zone facilities here in the DR. It is just a stagnant period for new ventures or expansion of current ventures until the CAFTA issue is resolved.

I also thought initially that there will be an effect on the Zona Francas when (if ever) DR-Cafta gets implemented. But you should not forget about the tax breaks that free zone companies get - by virtue of establishing in a free zone. This will probably keep the zona francas healthily operating into the future.

Chris said:

I also thought initially that there will be an effect on the Zona Francas when (if ever) DR-Cafta gets implemented. But you should not forget about the tax breaks that free zone companies get - by virtue of establishing in a free zone. This will probably keep the zona francas healthily operating into the future.

Click to expand...

That is true for independant companies located in free-zones and are seeking a profitable bottom line. Not rue for companies located in free-zones which are subsidiaries of or have mutual ownership with a foreign parent company. The companies provide manufacturing or service for the parent company. Most times they do this by billing the parent company at zero net profit. The Dominican subsidiary shows zero profit on their books, and ups the bottom-line of the parent company. In effect being responsible for very little Dominican tax liability if they were located outside the fee-zone. In the future the companies are going to be weighing the value of tax saving in the free-zone while paying inflated rents, to paying tax and being on the outside.

Local manufacturing companies will still enjoy benefit from the free-zones.

Howmar, you forgot to mention that in several years most of the tax incentives for free-zones will be repealed, something to do with fair global trade I suppose.

Those frequent flights to The DR must be getting costly...I know, since I myself try to go every couple of months (at least I get mine paid by my company...usually).

Anywho...just marry her and bring her over to The US. That way you're together all the time and you can cut on the trips...

Hey...I'm just going from what I see from afar. I don't know your real motives for wanting to find a job down there...but I have a hunch...

HOWMAR said:

That is true for independant companies located in free-zones and are seeking a profitable bottom line. Not rue for companies located in free-zones which are subsidiaries of or have mutual ownership with a foreign parent company. The companies provide manufacturing or service for the parent company. Most times they do this by billing the parent company at zero net profit. The Dominican subsidiary shows zero profit on their books, and ups the bottom-line of the parent company. In effect being responsible for very little Dominican tax liability if they were located outside the fee-zone. In the future the companies are going to be weighing the value of tax saving in the free-zone while paying inflated rents, to paying tax and being on the outside.

Local manufacturing companies will still enjoy benefit from the free-zones.

Click to expand...

Forgive me for being dense today... but with the type of manufacturing or service companies that you are describing, if DR-cafta will change very little - why did they establish then in the Zonas in the first place? What is begging the change now?

And if I remember correctly, the tax benefits in a Free Zone company is for 20 years...

I've been trying to figure out the effect of DR-Cafta on the Zonas for a while now.

Chris said:

but with the type of manufacturing or service companies that you are describing, if DR-cafta will change very little - why did they establish then in the Zonas in the first place? What is begging the change now?

Click to expand...

Who said DR-CAFTA will change very little. If a manufacturing company, under CAFTA, you will still be able to import raw material and export finished product duty free, but without the free-zone owner picking your pocket with exhorbitent rents. Same for a service company that has to import technology. The net result will be the ability to pay Dominican scale overhead on the open marketplace rather than the metropolitan US prices the free-zone owners presently charge.

OK, Howmar thanks, I understand your point now.

laurapasinifan said:

soooooooooo you are saying... that there are a few free trade zone building owners... that are WELL connected...huh?

( thus the fact that the DR goverment is dragging its feet)

bob

Click to expand...

I'm not saying that this is the holdup for initiation of CAFTA, but indeed, the free-zone owners had to be WELL connected to receive the free-zone designation. There are so many aspects of this agreement, pressure can be coming from anywhere. For example, lets say you are a car dealer selling a brand of car which is manufactured in the Far East, and has no US production facilities. You surely will be concerned that the dealer across the street which sells cars manufactured in the US will pay no import duty on his product, while you will. The CAFTA agreement contains hundreds of pages devoted to determining a products country of origin.

There's a lot pressure coming from many different points. There's pressure from the free zone owners, the agricultural sector, the manufacturing and pharmaceutical sectors, the US government, and more.

There are so many intricacies to the CAFTA-DR agreement, that I'm not sure that the Dominican government will get everything that it needs to get done, to get it implemented anytime this year, much less by July 1. Right now, the administration is still trying to negotiate with congress on a financial reform package, that they claim must be passed before the agreement can be enforced. After that, they have to figure out a plan to meet future requirements, such as protection of foreign intellectual property and patents, which are now below the required standards of the agreement.

There's quite a way to go, to say the least!

HOWMAR said:

For example, lets say you are a car dealer selling a brand of car which is manufactured in the Far East, and has no US production facilities. You surely will be concerned that the dealer across the street which sells cars manufactured in the US will pay no import duty on his product, while you will.

Click to expand...

HOWMAR, have you read the part of CAFTA-DR that pertains specifically to automobiles? From what I can remember, there are all sorts of requirements and exclusions that make it virtually impossible to import a vehicle without import duties. There are specific parameters for engine size, fuel type and comsumption, that basically limit your options to a motorized skateboard if you want to avoid import taxes.

Hipocrito Mejia said:

There's a lot pressure coming from many different points. There's pressure from the free zone owners, the agricultural sector, the manufacturing and pharmaceutical sectors, the US government, and more.

There are so many intricacies to the CAFTA-DR agreement, that I'm not sure that the Dominican government will get everything that it needs to get done, to get it implemented anytime this year, much less by July 1. Right now, the administration is still trying to negotiate with congress on a financial reform package, that they claim must be passed before the agreement can be enforced. After that, they have to figure out a plan to meet future requirements, such as protection of foreign intellectual property and patents, which are now below the required standards of the agreement.

There's quite a way to go, to say the least!

Click to expand...

And to top it off, some of the new taxes implemented to compensate for the anticipated loss of import duties have already gone into effect (i.e. additional items subject to ITBIS), creating a windfall for the government. They are in no rush.

Oh, REALLY???

Sorry HOWMAR, but you are full of B.S.

Before you go off the deep end, and start a flame war, know this:

I have started and run a Free Zone company here (profitably). I have put up with all of the B.S. one deals with running ANY company in the DR. I have dealt with the DR Labor Laws, DGII audits (yes, free zone companies still deal with DGII), contractors doing construction or maintenance here, the trucking mafiaso, and other gov't huacales, and I have won almost all of the battles that conducting business in the DR entails.

And I made money. That's what business anywhere is about.

The biggest bribe I have ever paid anyone in the DR to get something done, or moving, was an ice-cold Pepsi. Period.

(and for Chris) - DR-CAFTA only changes things for textile and clothing manufacturers (which do account for about 50% of Free Zone exports), shoe manufacturers, and a few other minor products (petroleum derivatives, etc). EVERYTHING ELSE is just as it has been under the Caribbean Basin Initiative, which was last renewed for PERPETUITY in the 90's.

DR-CAFTA does not REPLACE the CBI, it is in ADDITION to CBI. CBI still exists for the other 20 or so signatory nations in the Caribbean who are not part of DR-CAFTA, and the DR is not renouncing the CBI, they are adding to it with DR-CAFTA.

Any company making any other products - medical equipment, automobile parts, electronics, WHATEVER, will see no difference in what they have been doing since the first CBI was passed, and the DR signed off on it.

The Dominican textile manufacturers pushed for DR-CAFTA thinking they are much closer to the US market than China is, and we will mop up. Sorry, but whatever the DR can make for $1.00. China can do for $0.40, and deliver 3 weeks later. Good luck. Time will tell the story about this.

HOWMAR, you are blowing smoke about free zone companies paying "high U.S.-type rents". What B.S. The friends I have outside all wished they had the same rates we paid for rent, and once inside the walls of our free zone, if you didn't know where you were, you could guess anywhere in the U.S. (or the world).

I guess the rents would be much cheaper if I went WAYYY out in the campo looking for an empty building, but then the trucking rates, etc would go up and the personnel quality would go down too, and I would still have to live out in the boonies.

Free Zone wages are at a special lower rate. Most Free Zones, if they are of any size, have also negotiated special, lower group rates for electricity. The Free Zone companies pay no corporate income taxes to the D.R. They don't pay ITBIS on locally-purchased goods and services. All imported inputs come in, and finished goods go out, as "duty-free". There is no 13% Exchange Duty charged on these imports either.

Free Zone companies receive the tax-free treatment for 15 years, unless they are in the border area near Haiti, which receives a 20 year exemption.

Free Zone companies' only duty exemption on any vehicles are for those with seating for 12 or more passengers, designed to transport employees. No duty exemption for the boss's jeepeta, or his wife's Mercedes.

Dealing with Aduanas is a breeze compared to companies "outside" who have to wheedle their goods one way or another to receive them. I've never had to wait more than 36 hours to get a container delivered to my dock, once the ship had docked. Containers going out, same story. A piece of cake.

I don't see much changing for awhile for most companies operating in Free Zones. Most companies only sign leases for building space for 2 to 5 years anyway, so they can still pick up and leave if things change later.

THAT's what the DR government needs to keep in mind, maintaining enough benefits for these companies to keep them , and the jobs they represent in the area they operate in.

You can get a good look at a T-bone by sticking your head up a bull's ass, but isn't it easier to just ask the butcher?

Suerte.

Great GringoCarlos, there is a mess of rumors and other talk going around. One Zona told me that onely Zona companies will be allowed to take part in DR-Cafta (OK, I knew it was nonsense.. but this is some of the stories.)

Your experience with movement of goods in your Zona sounds good. We've had some problems where we were, and it was a good park... They somehow could not understand the difference between manufacturing and distribution, and we had endless problems bringing stuff in...

Thanks anyway, I did not understand the CBI in combination with DR-Cafta. Your post made this clearer.