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Trade Opportunities for the DR
- Published 08/29/2007
- Articles on Trade with the US and the DR-CAFTA
What can the Dominican export sector and overseas investors in the DR look forward to with the implementation of DR-CAFTA?
According to the US Congressional Research Service, the Dominican Republic is the 26th largest US export market (fifth in the Western Hemisphere) and ranks as the 38th largest import country (seventh in the Western Hemisphere). More so than any of the Central American countries, Dominican trade is dominated by the United States. The United States absorbs 85% of the DR’s exports, with 10% going to other developed countries and only 5% entering developing countries. The Dominican Republic imports 49% of its merchandise goods from the United States, 17% from other developed economies, and 34% from various developing countries. Although the largest of the DR-CAFTA trading partners, US exports actually declined by nearly 1% in 2003 because of a severe recession in the Dominican Republic. The joint-production arrangements of U.S.-Dominican trade are evident in apparel and jewelry-making industries. Apparel and textiles constitute 20% of U.S. exports and 50% of U.S. imports. Other significant US exports include various types of machinery, refined oil products, and plastic. Other important US imports include medical instruments, electrical machinery, tobacco, and plastic. In many ways, the structure of the U.S.-Dominican trade is similar to that of US-CAFTA trade, and hence the economic logic of “docking” it to the Central American agreement.
For overseas investors, primarily those from the United States, DR-CAFTA will offer enhanced access for investment in the Dominican Republic and the Central American member nations. Under the agreement, Central American countries and the Dominican Republic will change the current “dealer protection regimes” and loosen restrictions that up till now have locked U.S. firms into exclusive or inefficient distributor arrangements. As a result, there will be substantial new investment opportunities in sectors such as telecommunications, express delivery, computer and related services, tourism, energy, transport, construction and engineering, financial services, insurance, audio/visual and entertainment, professional, environmental, and others.
Manufacturing and assembly – inside and beyond the Industrial Free Trade Zones:
Dominican manufacturers and external investors in the DR can look forward to accessing new markets for existing Dominican products, as well as scope for diversification to maximize the opportunities of the new, expanded export market. The hope is that once the DR-CAFTA agreement goes into full throttle, industrialists will be able to import raw materials, equipment, machinery, inputs and technological products into the Dominican Republic without having to pay tariffs. DR-manufactured products will retain their tariff protection, which will be phased out in the longer-term future.
Garments. A study carried out for USAID identified clothing as the DR’s main export product, along with livestock and produce, processed food, chemicals and pharmaceutical products and plastics.
Pre-DR-CAFTA. Currently, finishing processes (dyeing etc.) have to be done in the US. Experts predict that once the DR-CAFTA has fully been implemented the DR or another member country will be able to complete these processes domestically. Up to now there have been no accumulation provisions for Canada and Mexico, but with DR-CAFTA there will be a provision of up to 100m sq meters per year. Under the current regime, luggage, brassieres, pajamas and girls’ clothes have to be assembled with 100% US components. Once the agreement is under way these can be assembled with components imported from anywhere in the world.
With DR-CAFTA.For the DR, there will be more flexibility and fewer limits on rules of origin. The Free Trade Zone garment factories in Central America and the Dominican Republic are the second-largest buyer of US-produced yarn and fabric in the world. Clothing made in these facilities will be duty-free and quota-free under the Agreement if they use US or regional fabric and yarn, thereby supporting U.S. fabric/yarn exports and jobs. With the recent expiration of global quotas on textiles/apparel, DR-CAFTA positions regional garment-makers – and their U.S. suppliers of fabric and yarn – in a better position to compete with Asia. The agreement’s benefits for textiles and apparel will be retroactive to January 1, 2004. CAFTA also contains accumulation provisions, which will allow woven apparel from the region to contain a capped amount of Mexican and Canadian inputs. Up till now, textiles had to be manufactured in the region. With the new agreement the material can be Dominican or from elsewhere in the region.
Footwear. The footwear industry is another area where opportunities have been identified.
Pre-DR-CAFTA. Under the current system, there are restrictions on rules of origin imposed by the Caribbean Basin Recovery act and much of the manufacturing has shifted to Asia.
With DR-CAFTA.DR-CAFTA presents the Dominican Republic with a chance to recover its market share, which has declined over the last decade. Currently footwear has to pay tariffs of up to 37%, because the rules of origin state they have to be assembled from US-made components. Under DR-CAFTA the components can be imported from any country. DR-CAFTA allows duty-free access, with the exception of 17 rubber footwear products, for all footwear assembled in the country or any combination of DR-CAFTA countries. The Free Trade Zone and regular industrial sector will have to work together to maximize this opportunity. In order to encourage footwear manufacturers to relocate to the DR, the country has to address internal factors like eliminating restrictions, improving power supply, retraining the workforce and updating the equipment and infrastructure.
Electronics
Pre-DR-CAFTA. Although the DR’s electronics manufacturing/assembly industry is relatively small compared to other sectors like garments, it is the largest in the Caribbean region and makes for an interesting case study of the opportunities offered by CAFTA. According to research for USAID, ADOZONA and CEI, technical and engineering talent has not been too difficult to find in the DR, and the DR’s location, providing “just-in-time” access to the US is a significant competitive advantage for this and other industries. There is an existing industrial framework and infrastructure, and the workforce is easily trainable. The Dominican industrial sector has shown an interest in “cluster” activities. The country’s proximity to the US, the airports and the Caucedo mega-port are all cited as factors that make investment in the Dominican electronics industry attractive.
With DR-CAFTA. Though the DR-CAFTA has only been in place for close to three months it is difficult to really determine if teh free trade agreement is bearing any positive results but the thought is that eventually these advantages are compounded.
Agriculture
Pre-DR-CAFTA. Of the DR-CAFTA countries, the Dominican Republic is currently the United States’ largest market — with $462 million in sales that accounted for 27% of all agricultural exports to the region. In contrast, the DR’s exports amount to just 10% of the US’s imports from the region.
With DR-CAFTA. It is anticipated that with the DR-CAFTA, there will be a decline in some agricultural exports to the US, while other sectors such as sugar, meat and dairy products will see an increase. This will result in a movement of labor from the areas of decline to the more profitable sectors of the export industry like sugar, textiles, apparel and leather products.If the DR can achieve a significant production of ethanol, this could become an attractive export to the US market, for instance. Already, Brazilians with a long track record in ethanol production are interested in securing local deals for the production of ethanol for future export to the US. Mangos, bananas and avocados is also seen as another product with wide export potential to the US market, and large plantations are already into production nationwide. Locally produced meat, ice cream, evaporated milk, cheeses, yoghurt and other dairy products will now have access to the US market, including the very Dominican “dulce de leche,” or Dominican sweet. There will be no duty on exports of rum, beer and whisky produced locally. These source many of their raw materials locally. There will be opportunities for export of exotic vegetables and fruits, such as sweet potato (batata), limoncillo de te, passion fruit, bangaña culebra, buen pan, granadillo, libertad and coconuts with the implementation of locally based plague risk analysis. Osmar Benitez, executive vice president of the Dominican Agribusiness Board (JAD), says that the future of Dominican agriculture is in developing tropical agriculture, ethnic agriculture, organic agriculture, tourism agriculture and gourmet agriculture.
The World Bank had identified investing in research, development of agriculture technology, strengthening of animal and vegetable sanitary inspection systems, product quality control, development of market intelligence, training of agriculture specialists and agriculture businessmen, bank credit access, improvement of support services to exports such as transport, banking service and government red tape as areas necessary for preparing the country for DR-CAFTA. The Inter American Development Bank ahs suggested that the country reduce protection to non-competitive products, such as rice and beans, in favor of those where the country has export potential (perishables, fruits, high value greens, and some animal-based products).
Government procurement
New regulations. The state is committed to issuing open public tenders for public purchases and contracting when these exceed the sum of US$58,000.00 (services) and US$6,725,000.00 construction projects.
With DR-CAFTAthe DR itself can now for the first time be present at bids for US Federal government tenders as well as in 24 states, with more states set to join in due course. The DR is no longer restricted by the “Buy American act” as it has been since 1998.
The benefits of Law 322 have been preserved. This law obliges overseas construction companies to enter into partnership with Dominican companies. Exceptions have been made in several sectors like the armed forces, school breakfasts, small and medium sized businesses, anti-poverty and health programs, among others.
Tourism
Tourism is the Dominican Republic’s flagship industry and has been one of the regional leaders in this sector for a number of years. The DR-CAFTA agreement contains new environmental regulations that affect the tourism sector. It also presents new opportunities for Dominican companies to invest in other countries in the region and vice-versa, and to some extent attract new tourists from the Central American countries, as well as increasing arrivals from the US, part of the established North American and European. Dominican companies who supply the DR tourist industry also have potential new markets in Central America. The country is expected to benefit from new interest in major US hotel and tourism companies that may increasingly become attracted to the country by the promise of rule of law guaranteed under DR-CAFTA.
Services
Recent research for USAID shows that there are a number of interesting opportunities for Dominican investors and service providers in Central America, and vice-versa, as well as for US investors in the DR and the region. Cross-border telecommunications, financial services and services in general will become simpler with the advent of DR-CAFTA. Investors from other DR-CAFTA member states will enjoy parity with national businesspeople, and will have greater protection than under the current system.
According to the US Congressional Research Service, the Dominican Republic is the 26th largest US export market (fifth in the Western Hemisphere) and ranks as the 38th largest import country (seventh in the Western Hemisphere). More so than any of the Central American countries, Dominican trade is dominated by the United States. The United States absorbs 85% of the DR’s exports, with 10% going to other developed countries and only 5% entering developing countries. The Dominican Republic imports 49% of its merchandise goods from the United States, 17% from other developed economies, and 34% from various developing countries. Although the largest of the DR-CAFTA trading partners, US exports actually declined by nearly 1% in 2003 because of a severe recession in the Dominican Republic. The joint-production arrangements of U.S.-Dominican trade are evident in apparel and jewelry-making industries. Apparel and textiles constitute 20% of U.S. exports and 50% of U.S. imports. Other significant US exports include various types of machinery, refined oil products, and plastic. Other important US imports include medical instruments, electrical machinery, tobacco, and plastic. In many ways, the structure of the U.S.-Dominican trade is similar to that of US-CAFTA trade, and hence the economic logic of “docking” it to the Central American agreement.
For overseas investors, primarily those from the United States, DR-CAFTA will offer enhanced access for investment in the Dominican Republic and the Central American member nations. Under the agreement, Central American countries and the Dominican Republic will change the current “dealer protection regimes” and loosen restrictions that up till now have locked U.S. firms into exclusive or inefficient distributor arrangements. As a result, there will be substantial new investment opportunities in sectors such as telecommunications, express delivery, computer and related services, tourism, energy, transport, construction and engineering, financial services, insurance, audio/visual and entertainment, professional, environmental, and others.
Manufacturing and assembly – inside and beyond the Industrial Free Trade Zones:
Dominican manufacturers and external investors in the DR can look forward to accessing new markets for existing Dominican products, as well as scope for diversification to maximize the opportunities of the new, expanded export market. The hope is that once the DR-CAFTA agreement goes into full throttle, industrialists will be able to import raw materials, equipment, machinery, inputs and technological products into the Dominican Republic without having to pay tariffs. DR-manufactured products will retain their tariff protection, which will be phased out in the longer-term future.
Garments. A study carried out for USAID identified clothing as the DR’s main export product, along with livestock and produce, processed food, chemicals and pharmaceutical products and plastics.
Pre-DR-CAFTA. Currently, finishing processes (dyeing etc.) have to be done in the US. Experts predict that once the DR-CAFTA has fully been implemented the DR or another member country will be able to complete these processes domestically. Up to now there have been no accumulation provisions for Canada and Mexico, but with DR-CAFTA there will be a provision of up to 100m sq meters per year. Under the current regime, luggage, brassieres, pajamas and girls’ clothes have to be assembled with 100% US components. Once the agreement is under way these can be assembled with components imported from anywhere in the world.
With DR-CAFTA.For the DR, there will be more flexibility and fewer limits on rules of origin. The Free Trade Zone garment factories in Central America and the Dominican Republic are the second-largest buyer of US-produced yarn and fabric in the world. Clothing made in these facilities will be duty-free and quota-free under the Agreement if they use US or regional fabric and yarn, thereby supporting U.S. fabric/yarn exports and jobs. With the recent expiration of global quotas on textiles/apparel, DR-CAFTA positions regional garment-makers – and their U.S. suppliers of fabric and yarn – in a better position to compete with Asia. The agreement’s benefits for textiles and apparel will be retroactive to January 1, 2004. CAFTA also contains accumulation provisions, which will allow woven apparel from the region to contain a capped amount of Mexican and Canadian inputs. Up till now, textiles had to be manufactured in the region. With the new agreement the material can be Dominican or from elsewhere in the region.
Footwear. The footwear industry is another area where opportunities have been identified.
Pre-DR-CAFTA. Under the current system, there are restrictions on rules of origin imposed by the Caribbean Basin Recovery act and much of the manufacturing has shifted to Asia.
With DR-CAFTA.DR-CAFTA presents the Dominican Republic with a chance to recover its market share, which has declined over the last decade. Currently footwear has to pay tariffs of up to 37%, because the rules of origin state they have to be assembled from US-made components. Under DR-CAFTA the components can be imported from any country. DR-CAFTA allows duty-free access, with the exception of 17 rubber footwear products, for all footwear assembled in the country or any combination of DR-CAFTA countries. The Free Trade Zone and regular industrial sector will have to work together to maximize this opportunity. In order to encourage footwear manufacturers to relocate to the DR, the country has to address internal factors like eliminating restrictions, improving power supply, retraining the workforce and updating the equipment and infrastructure.
Electronics
Pre-DR-CAFTA. Although the DR’s electronics manufacturing/assembly industry is relatively small compared to other sectors like garments, it is the largest in the Caribbean region and makes for an interesting case study of the opportunities offered by CAFTA. According to research for USAID, ADOZONA and CEI, technical and engineering talent has not been too difficult to find in the DR, and the DR’s location, providing “just-in-time” access to the US is a significant competitive advantage for this and other industries. There is an existing industrial framework and infrastructure, and the workforce is easily trainable. The Dominican industrial sector has shown an interest in “cluster” activities. The country’s proximity to the US, the airports and the Caucedo mega-port are all cited as factors that make investment in the Dominican electronics industry attractive.
With DR-CAFTA. Though the DR-CAFTA has only been in place for close to three months it is difficult to really determine if teh free trade agreement is bearing any positive results but the thought is that eventually these advantages are compounded.
Agriculture
Pre-DR-CAFTA. Of the DR-CAFTA countries, the Dominican Republic is currently the United States’ largest market — with $462 million in sales that accounted for 27% of all agricultural exports to the region. In contrast, the DR’s exports amount to just 10% of the US’s imports from the region.
With DR-CAFTA. It is anticipated that with the DR-CAFTA, there will be a decline in some agricultural exports to the US, while other sectors such as sugar, meat and dairy products will see an increase. This will result in a movement of labor from the areas of decline to the more profitable sectors of the export industry like sugar, textiles, apparel and leather products.If the DR can achieve a significant production of ethanol, this could become an attractive export to the US market, for instance. Already, Brazilians with a long track record in ethanol production are interested in securing local deals for the production of ethanol for future export to the US. Mangos, bananas and avocados is also seen as another product with wide export potential to the US market, and large plantations are already into production nationwide. Locally produced meat, ice cream, evaporated milk, cheeses, yoghurt and other dairy products will now have access to the US market, including the very Dominican “dulce de leche,” or Dominican sweet. There will be no duty on exports of rum, beer and whisky produced locally. These source many of their raw materials locally. There will be opportunities for export of exotic vegetables and fruits, such as sweet potato (batata), limoncillo de te, passion fruit, bangaña culebra, buen pan, granadillo, libertad and coconuts with the implementation of locally based plague risk analysis. Osmar Benitez, executive vice president of the Dominican Agribusiness Board (JAD), says that the future of Dominican agriculture is in developing tropical agriculture, ethnic agriculture, organic agriculture, tourism agriculture and gourmet agriculture.
The World Bank had identified investing in research, development of agriculture technology, strengthening of animal and vegetable sanitary inspection systems, product quality control, development of market intelligence, training of agriculture specialists and agriculture businessmen, bank credit access, improvement of support services to exports such as transport, banking service and government red tape as areas necessary for preparing the country for DR-CAFTA. The Inter American Development Bank ahs suggested that the country reduce protection to non-competitive products, such as rice and beans, in favor of those where the country has export potential (perishables, fruits, high value greens, and some animal-based products).
Government procurement
New regulations. The state is committed to issuing open public tenders for public purchases and contracting when these exceed the sum of US$58,000.00 (services) and US$6,725,000.00 construction projects.
With DR-CAFTAthe DR itself can now for the first time be present at bids for US Federal government tenders as well as in 24 states, with more states set to join in due course. The DR is no longer restricted by the “Buy American act” as it has been since 1998.
The benefits of Law 322 have been preserved. This law obliges overseas construction companies to enter into partnership with Dominican companies. Exceptions have been made in several sectors like the armed forces, school breakfasts, small and medium sized businesses, anti-poverty and health programs, among others.
Tourism
Tourism is the Dominican Republic’s flagship industry and has been one of the regional leaders in this sector for a number of years. The DR-CAFTA agreement contains new environmental regulations that affect the tourism sector. It also presents new opportunities for Dominican companies to invest in other countries in the region and vice-versa, and to some extent attract new tourists from the Central American countries, as well as increasing arrivals from the US, part of the established North American and European. Dominican companies who supply the DR tourist industry also have potential new markets in Central America. The country is expected to benefit from new interest in major US hotel and tourism companies that may increasingly become attracted to the country by the promise of rule of law guaranteed under DR-CAFTA.
Services
Recent research for USAID shows that there are a number of interesting opportunities for Dominican investors and service providers in Central America, and vice-versa, as well as for US investors in the DR and the region. Cross-border telecommunications, financial services and services in general will become simpler with the advent of DR-CAFTA. Investors from other DR-CAFTA member states will enjoy parity with national businesspeople, and will have greater protection than under the current system.