Foreign investment in the Dominican Republic falls into two main categories: free trade zone investment and non-zone investment. The information provided below applies to investments outside the free trade zones (except where noted). The situation in the free trade zones is described in paragraph (D).

A.1. Openness to Foreign Investment
The Dominican Government officially welcomes foreign investment. A foreign investment law enacted in December 1995 allows unlimited foreign investment in nearly all sectors of the economy. Regulations implementing this law were enacted in September 1996 -- one of the early acts of the Fernandez Administration reflecting the importance it places on attracting foreign investment. In 1997, the Government established the Office for Investment Promotion (OPI) which is proving to be an important contact for potential investors.

A.2. Right to Private Ownership and Establishment
According to the 1995 law, foreign investment is not permitted in the areas of toxic, hazardous or radioactive waste disposal. Nor can foreign investments be registered which would affect the public health or the environment. Finally, the law prohibits foreign investment in defense or national security production without authorization from the office of the president. As a practical matter, domestic investors generally have a wider range of enterprise possibilities than do foreign investors.

A.3. Property Rights
In addition to problems with enforcement of contractual and property rights outlined in section A11, protection of intellectual property rights is also deficient. After listing in the Section 301 Watch List in 1997, the Dominican Republic was upgraded to the Priority Watch List by the Office of the U.S. Trade Representative in 1998. Dominican law provides for copyright, trademark and patent protection, but the law is inadequately enforced. Although the Dominican Government has taken some steps to help remedy shortcomings in this area, including seizures of pirated goods, protection of intellectual property rights remains problematic. Pirated video and audio recordings, as well as unauthorized broadcast of copyrighted material are of particular concern. Other areas where violations of intellectual property rights create problems are in pharmaceuticals and software.

A.4. Performance Requirements/Incentives
There are no special investment incentives or other types of favored treatment given to foreign investors. There are no requirements that investors export a certain percentage of their production. Foreign companies are unrestricted in their access to foreign exchange. Law 69 requires local sourcing when components are of approximately equal cost and quality compared to imports, but this law has not hindered investors.

In addition, there are no requirements that foreign equity be reduced over time or that technology be transferred according to certain terms. The Government imposes no location, local ownership, local content on export requirements, or conditions on foreign investors. The Dominican labor code establishes that 80 percent of the labor force of a foreign company, including free trade zone companies, must be composed of Dominican nationals (the management or administrative staff of a foreign company is exempt from this regulation).

The Foreign Investment Law provides that licensing contracts for the use of patents or trademarks, the leasing of machinery and equipment and the provision of technical know-how, must be registered with the Directorate of Foreign Investment.

A.5. Transparency of the Regulatory System
During the last few years, the Government has carried out a major reform effort aimed at improving the transparency and effectiveness of the laws affecting competition. New customs regulations have been instituted; major elements of the tax laws and the labor code have been reformed. A new Financial Monetary Code to regulate the banks and other players in the financial sector is still pending with the Congress. The Fernandez Administration is also pushing ahead with an effort to revise and modernize various areas of commercial law. As in many developing countries, however, red tape and differences between law and actual practice remain significant problems.

A.6. Corruption
Dominican law prohibits governmental corruption. However, corruption within the administrative, judicial and legislative branches of the government, within law enforcement agencies, and at the local and municipal levels of government remains a problem. Corruption and the need for reform efforts are openly and widely discussed. Former President Fernandez has made anti-corruption efforts a hallmark of his Administration. His Attorney General has appointed a special anti-corruption unit and the Office of the Comptroller General has also just opened an office to facilitate reports of corruption. The Supreme Court, newly appointed in 1997, has started to remove lower court judges suspected of corruption. The government still lacks the necessary enforcement mechanisms to eliminate corruption however.

A.7. Labor
An ample labor supply is available, although there is a scarcity of skilled workers and technical supervisors. Most employers have found the local work force competent, trainable, and cooperative. Foreign employers are not singled out when labor complaints are made. About 10 percent of the nation's work force is unionized. The labor code specifies that 20 percent or more workers in a company may form a union. Before a union may enter into a collective bargaining agreement or call a strike, it must have the approval of 51 percent of the company's workers. The unemployment rate calculated by the Central Bank for the Dominican work force is approximately 16 percent. Other experts, however, believe the actual rate is considerably lower.

The Dominican Labor Code, which became law in June 1992, is a comprehensive piece of legislation which establishes policies and procedures for aspects of employer/employee relationships ranging from minimum wage levels, hours of work, overtime and vacation pay, to severance pay, causes for termination, and union registration. The labor code also specifies that 80% of non-management workers of a company must be Dominican nationals.

The standard workweek is 44 hours. Most jobs pay salaries based on the minimum wage.

A.8. Efficient Capital Markets and Portfolio Investment
The Dominican stock market, the Bolsa de Valores de Santo, was founded in 1991. Since beginning operations, the Bolsa has handled initial offerings of commercial paper. The Fernandez Administration has submitted regulatory legislation for the development of a capital market to the Congress. The Government believes the development of a capital market would to assist in privatization efforts and democratize the distribution of capital.

A.9. Conversion and Transfer Policies
A private sector exchange rate system exists for most commercial banking transactions. The Central Bank uses the market-determined rate of exchange, with some exceptions. Importers may obtain hard currency directly from commercial banks as well as from the Central Bank. One result of this system is that there is currently no queuing for foreign exchange.

Although by law, the Central Bank must receive all dollars resulting from exports of goods manufactured by non-free trade zone companies; in practice this law is applied flexibly and the dollars are turned into the commercial banking system. Moreover, for exporters of non-traditional products (i.e., manufactured goods, processed agricultural goods) and the tourism sector, the dollars can be sold at the free market rate rather than the Central Bank rate. The foreign investment law allows for remittance of all capital and profits.

A.10. Expropriation and Compensation
Dominican expropriation standards are at variance with international norms. There are a number of U.S. investors have outstanding disputes with the Dominican Government concerning expropriated property. In some cases these claims have existed for many years. Investors and lenders often have not received prompt or adequate payment. Even when compensation has been ordered by a Dominican court, or when the Government has recognized the claim, actual payment has been extremely difficult to obtain.

A.11. Dispute Settlement
The Dominican Republic is a civil code country. The Dominican Republic also subscribes to the "Calvo Doctrine," under which commercial disputes must be settled in the courts of the territory in which they occur and without provision for private sector-government dispute settlement. Both free trade zone and non-free trade zone companies face dispute resolution problems in the Dominican Republic. U.S. firms bound by the Foreign Corrupt Practices Act have particular difficulty accessing justice within the Dominican system or defending their interests in court.

The Dominican Republic has generally not recognized the right of investors to submit disputes to binding international arbitration. The Dominican Republic is not a member of the International Center for the Settlement of Investment Disputes (ICSID, also known as the Washington Convention), nor is it a member of the New York Convention of 1958 on the negotiation and enforcement of foreign arbitral awards. The Government is, however, now engaged in an arbitration with Smith-Enron Cogeneration. The Government does not enter into binding arbitration with foreign private citizens.

Land tenure also poses difficulties. Although not specified in law, the government can take land without compensation and judicial procedures in the land courts are often of uneven quality. When a judgement in favor of a foreign investor is rendered, the judicial system is often unable to enforce its decision.

A number of U.S. investors, ranging from large firms to private individuals, have payment-related or contractual disputes with the Dominican Government and its government-owned enterprises. On a recent occasion, the state-owned electricity company moved to prevent a U.S.-owned private power producer from shutting down operations due to lack of payment by sending a small military contingent onto the grounds of the plant. This underlines the difficulties foreign investors can face in trying to resolve their disputes with the Dominican Government. As noted above, the Government refuses to engage in international commercial arbitration or to negotiate a settlement directly with most firms. The Embassy estimates the total value of these claims as at least US$200 million. The claims fall primarily into three categories: refusal to live up to the terms of a contract signed with the investor, expropriation, and failure to pay for services or equipment.


A.12. Political Violence:
There has been no political violence directed specifically at foreign firms in the past 12 months.

B) Bilateral Investment Agreements
There is no bilateral investment agreement between the Dominican Republic and the United States. The Dominican Republic has a Bilateral Investment Treaty with Spain which falls far short of what is usually contained in U.S. bilateral investment treaties.

C) OPIC and other Investment Insurance Programs:
The Overseas Private Investment Corporation is active in the Dominican Republic with both insurance and loan programs. The Dominican Government is a party to the Multilateral Investment Guarantee Agency (MIGA) Agreement.

D) Free Trade Zones:
The Dominican Republic's free trade zones are regulated by Law Number 8-90. This legislation is managed by the Free Trade Zone National Council (CNZF in its Spanish acronym). The CNZF is a joint private sector/Government body. Law 8-90 provides 100% exemption on all taxes, duties, charges and fees affecting production and export activities in the zones. These incentives are for 25 years for zones located near the Dominican-Haiti border and 15 years for zones located in the rest of the country. The Free Trade Zone National Council has discretionary authority to extend the time limits on these incentives.

Hard currency flows from the free trade zones are handled via the free foreign exchange market. Foreign and Dominican firms are afforded the same investment opportunities (both by law and in practice).

Central Bank statistics show that investment in the free trade zones grew by approximately ten percent in 1997. The CNZF reports a total cumulative investment of US$630 million by year end 1997. The domestic component of this investment was 30 percent; the rest was from abroad. Most of the foreign investment came from the U.S.(50.4 percent), followed by companies registered in Korea and Taiwan. In general, firms operating in the free trade zones experience far fewer bureaucratic and legal problems than do firms operating outside the zones.

Exporters/investors seeking further information from the CNZF may contact:

Consejo Nacional de Zonas Francas
Leopoldo Navarro No. 61
Edif. San Rafael, piso no. 5
Santo Domingo, D.R.
Phone: (809) 686-8077
Fax: (809) 686-8079 and 688-0236

Contact: Lic. Gabriel Castro Gonzalez, Executive Director

E) Capital Outflow Policy:
The Dominican Republic has no specific policy for capital outflow or outbound direct investment and there are no laws providing incentives for investment overseas by Dominicans. Dominican firms or individuals have investments in the U.S. and elsewhere.

F) Major Foreign Investors:
Following are some of the largest non-free trade zone companies registered as foreign businesses by the Central Bank of the Dominican Republic:

1. Compania Dominicana de Telefonos (CODETEL) owned by GTE of Canada (in turn a subsidiary of GTE of Stanford, Conn.): the main telephone service provider which has operated in the Dominican Republic for more than 40 years.
Registered capital: $370 million.

2. Central Romana Corporation (U.S.): A diversified operation which includes a hotel, sugar plantations, a mill and a real estate businesses, among other activities.
Registered capital: $92 million.

3. E. Leon Jimenes, C. por A. (a local partner of Phillip Morris, of the U.S.): this company produces cigarettes, cigars and beer.
Registered capital: $16.5 million.

4. Falconbridge Dominicana (Canada): operates mining project and produces ferronickel for export.
Registered capital: $15 million.

5. Shell Company (Holland/England): shares ownership with the Dominican Government of the only petroleum refinery in the country (50% each) and is a distributor of petroleum by-products in the Dominican Republic.
Registered capital: $14 million.

6. Citibank (U.S.): the bank has operated in the Dominican Republic for many years.
Registered capital: $13 million.

7. Esso Standard Oil (U.S.): Esso is a long-time distributor of petroleum by-products.
Registered capital: $11 million.

8. Texaco Caribbean (U.S.): Another long-time distributor of petroleum by-products.
Registered capital: $10 million.

9. Colgate Palmolive, Inc. (U.S.): a leading manufacturer in the Dominican Republic of soaps and toothpaste.
Registered capital: $9.5 million.

10. Bank of Nova Scotia (Canada): One of the oldest foreign commercial banks in the Dominican Republic.
Registered capital: $8 million.

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