The Dominican Republic is member of numerous free trade agreements. In addition, the country has established more than 50 free trade zones, the “Zonas Francas”. More than 500 companies are still operating actively in these zones, taking advantage of various tax exemption for 15 years. As the country’s economy mainly depends on exports, the country primarily designated these zones for export production. Approximately half of the companies engage in textile and clothing production for the US market. Furthermore, the Dominican Republic produces agricultural products, in particular sugar.
The Dominican Republic was, for a long period, one of the fastest-growing economies in the world. Since 1992, the country has shown economic growth of over 5% per year. After 2001, economic growth has slowed as a result of the recession in the US, high oil prices, and falling prices for its export products.
In 2018, the share of the various sectors in the gross national product was as follows: agriculture and fisheries 5.15%, industry 28.81%, trade, transport, finance, communication and other services 58.63%. However, economic growth has recently stagnated due to the credit crisis. In the years 2010 to 2013, the economy grew by an average of 2%. In 2017, growth is around 5%. Tourism and free trade zones generate the most income. The average GDP per capita in 2018 is USD 7750.93 per year.
We give an overview of the Dominican Republic free trade agreements.
Table of Contents
Overview: Free trade agreements of the Dominican Republic
The Dominican Republic signed 5 free trade agreements, with DR-CAFTA (free trade agreement between the Dominican Republic, Central America, and the United States) and the EPA (Economic Partnership Agreement) having the greatest scope in the export system.
Comprehensive benefits for the Caribbean Community and the Dominican Republic characterize the CARICOM (free trade agreement between the Dominican Republic and the Caribbean Community CARICOM). The country is also a trading partner of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua signed under the DR-CAFTA. The main objectives of this agreement are to strengthen the spirit of cooperation and reciprocal trade between all signatories.
Finally, the trade agreement between the Dominican Republic and the Republic of Panama signed on July 17, 1985, characterized by being of partial scope.
Dominican Republic-Central and the United States Free Trade Agreement (DR-CAFTA)
DR-CAFTA’s goal is to strengthen the bonds of friendships and cooperation among the member nations and promoting regional economic integration. By creating a broader and more secure market for services and merchandise produces within their territories, while taking into account the differences in the levels of development and the size of the economies.
The free trade agreement is formed between the United States, the Dominican Republic, Costa Rica, the Northern Triangle and Nicaragua.
DR-CAFTA pursues to facilitate access in the areas of services, goods, investments, governmental procurements, and intellectual property. Each party has to eliminate customs duties and will not rise any existing customs duty. In addition, they will not adopt new customs duty on merchandise originating from another signatory nation.
The FTA focuses on investments and the treatment each party gives investors from other members. The agreement establishes that members are obligated to give the same conditions to foreigners as given to their nationals.
Economic Partnership Agreement between the European Union and the CARIFORUM nations (EPA)
The EPA was signed on 15 October 2008 and approved by the Dominican Congress in 2009. It is a mutual agreement, compatible with the World Trade Organization (WTO). The chapters included relating to:
- Innovation and intellectual property
- Marketing of services
- Marketing of merchandise
- Adjudication of public contracts and aid to development, among other issues.
The agreement facilitates a free trade zone by eliminating duties, non-tariff measures, quotas and comparable provisions by member countries.
The majority of the European Union (EU) composes the EPA.
The CARIFORUM countries are: Antigua and Barbuda, the Bahamas, Barbados, Belize Dominica, Dominican Republic, Granada, Guyana, Haiti, Jamaica, St. Kitts and Nieves, St. Lucía, St. Vincent and the Grenadines, Surinam, Trinidad and Tobago.
The objectives of EPA CARIFORM are the creation of the coherent commercial association in order to reduce and eradicate poverty by:
- Encouraging regional integration, economic collaboration, and governance
- Promoting the gradual integrations of the CARIFORUM states into the world economy
- Increasing capacity of the CARIFORUM states in commercial policy and trade issues
- Supporting increased investment and the initiative of the private sector and the competitiveness of the CARIFORUM region
- Improving EU-CARIFORUM relations
EPA includes an asymmetric clause regarding Most Favored Nation treatment which creates that if the EU enters into a commercial contract with other non-signatory nations of the EPA, and grants them commercial treatment healthier than those arranged to the EPA countries, this treatment will be automatically extended to the CARIFORUM countries. But, for CARIFORUM nations, this only applies if the deal is reached with a developed nation of some of the emerging nations.
Free Trade Agreement between the Central American Countries and the Dominican Republic (CAFTA-DR)
The parties signed this Free Trade Agreement on 16 April 1998. Finally, it entered into effect in the Dominican Republic in March 2002. The principal objectives of this agreement are to:
- Promote free trade conditions within the Free Trade Area
- Eliminate barriers to the movement of businesspersons and capital among the territories of the parties
- Promote and protect investments towards intensively benefiting from the advantages offered by the markets of the parties and strengthening the competitive capacity of the signatory countries in the flow of world interchange
- Stimulate expansion and diversify goods and services among parties
- Eliminate trade barriers for goods and services originating in the parties
- Increase the opportunities for investment in the territories of the parties
- Create efficient procedures for the application of and compliance with this treaty, for its joint administration for the solution of controversies
The agreement is formed by Central America: Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. And by the Dominican Republic.
Commercial Treaty between the Dominican Republic and the Republic of Panama (Partial AAP Scope)
Both parties signed the contract on 17 July 1985 and ratified by the Dominican Congress in 1987. However, it did not go into effect until 2 November 2003.
Products that benefit from this agreement must originate within the parties backed by a Certificate of Origin. Originating merchandise is that which is produced in the territory of one or both parties:
- based on non-originating materials which may have undergone a substantial transformation expressed via a change of customs classification value of regional content or other requisites.
- even though one or more of the non-originating materials utilized in the production of the merchandise does not comply with a change of customs classification.
- Is obtained in full or produced entirely from materials that qualify as originating.
Due to this treaty, 103 Dominican products enter duty-free into Panama. In like manner, the Dominican Republic allows duty-free entry of 101 Panamanian products. Additionally, there is a list which shows products manufactured in the Free Zones or Exportation Processing Zone. The application regulation foresees the possibility of including more products to benefit from free trade.
Expanding to the Dominican Republic? Engage with a local legal expert
The Dominican Republic offers exciting opportunities for executives looking to do business in the Caribbean and Central America. While foreign investors haven’t discovered the country yet, the perfect time is now to establish yourself in a growing market.
Biz Latin Hub has legal and accounting experts across Central and South America, and the South Pacific. Our services specialize in foreign company incorporation and market entry strategies. Contact our team of experts to discuss your opportunity in the Dominican Republic.
Learn more about our team and expert authors.