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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)
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