Dominican Republic

FOREIGN ECONOMIC RELATIONS

Foreign Trade

Unloading lumber, port of Haina
Courtesy Inter-American Development Bank

According to official figures, exports in 1987 dipped to US$718 million, a ten-year low. Diminished exports, in combination with the country's largest import bill ever (US$1.5 billion), caused the nation's merchandise trade deficit to reach the unprecedented and precarious level of US$832 million. Traditional exports suffered a steady decline from 1984 to 1987 because of a steep drop in sugar revenues.

This negative data on overall exports, however, masked positive patterns in exports at the sectoral level, as the economy continued to diversify away from sugar. For example, the structure of Dominican exports changed dramatically from 1981 to 1987 as the share of traditional exports (sugar, coffee, cocoa, and tobacco) dropped from 62 percent to 43 percent, while minerals as a percentage of exports went from 28 percent to 34 percent, and nontraditionals jumped from 10 to 23 percent. These data, however, excluded free-zone exports, which technically were not recorded as merchandise trade. Free-zone exports swelled from the equivalent of 10 percent of total exports to 31 percent of total exports from 1981 to 1987, and in 1987 free-zone export revenues surpassed those derived from traditional agricultural exports for the first time (see table 7).

The novel composition of Dominican exports also caused a redirection of the country's goods and services toward the United States market and those of developed countries in general. The United States share of Dominican exports, after peaking at 83 percent in 1970, fell to 52 percent by 1980, but then leaped to 87 percent by 1987, indicating a somewhat risky dependence on a single export market. Puerto Rico's share of the country's exports, which were included in the United States figures, steadily increased during the 1980s, and it exceeded 7 percent by 1987. Less developed countries received only 3 percent of Dominican exports in 1987; only 2 percent of all foreign sales went to Latin America. The Soviet Union, which first contracted to purchase Dominican sugar in the mid-1980s, accounted for 2 percent of exports, a figure that was expected to increase. European markets, particularly Spain, Switzerland, and Belgium, received the balance. An unknown, but presumably large, amount of exports was smuggled out of the Dominican Republic, especially to Haiti, to circumvent international agreements, exchange controls, and export taxes.

The government supported the diversification of exports through the Dominican Center for Export Promotion (Centro Dominicano de Pronoción de Exportaciones--Cedopex). Although established in 1971, Cedopex had a minimal economic role until the 1980s, when the country began to move from import substitution toward export promotion. An important foundation of that policy was the Export Incentive Law of 1979 (Law 69), which afforded duty-free entry of imported inputs for exporters and provided certain foreign-exchange benefits. In the first five years that Cedopex administered Law 69, businesses exported 275 new products as a result of the legislation. This number rose considerably after 1984 with the passage of the CBI, the signing of bilateral textile agreements with the United States, and the designation of a series of new free zones. Cedopex also extended conventional investment promotion services, such as market research, overseas promotion of new products, and investor guidance to government regulations. Despite these advances in export promotion, some economists pointed to the continued use of export taxes and the outright prohibition of certain exports, mainly staple foods, as disincentives to improved export performance.

Dominican imports reached an unprecedented US$1.55 billion in 1987. Even more alarming than the country's unparalleled trade deficit, however, was its inability to reduce import demand even as oil prices fell during the late 1980s. Oil's share of total imports, as high as 61 percent in 1980 after the disruptions of the 1970s, declined to a manageable 24 percent by 1987. Non-oil imports mounted, however, thereby ravaging the country's balance of payments and leaving the nation vulnerable in the event of another oil price increase. In order of importance, other imports included intermediate, consumer, and capital goods. A large percentage of increased imports in the late 1980s was dedicated to public sector projects pursued for both economic and political reasons. The country drew an increasing share of its total imports from developed countries; this figure grew from 62 percent in 1981 to 78 percent in 1987. The United States was the major supplier, providing 55 percent of imports, followed by Japan with 11 percent, and West Germany and Canada with 2 percent each. Developing countries contributed only 22 percent. This consisted primarily of oil imports originating in Venezuela and Mexico.

The government's import policies in the 1980s continued to endorse steep tariff protection for local industry, and only limited import liberalization was achieved. In the late 1980s, the country banned more than 100 imports, mostly agro-industrial products, and some tariffs reached 350 percent. Moreover, successive Dominican governments used import tariffs as a political tool to reward powerful constituents. Excessive public sector imports and exchange-rate subsidies for certain parastatals exacerbated the import crisis in the late 1980s.

The republic's other trade policies consisted of securing markets for traditional and nontraditional exports through bilateral agreements, such as the United States sugar quota agreement, the United States General System of Preferences, the CBI, and the 807 program (see Glossary), as well as international agreements for coffee, cocoa, and other products. For many years, the Dominican Republic unsuccessfully attempted to become a member of the Caribbean Community and Common Market (Caricom) and the Lomé Convention (see Glossary) of the European Economic Community. Although the country had achieved observer status in both, full participation continued to be unlikely because Dominican exports competed directly with those of other members.

Data as of December 1989

Dominican Republic - TABLE OF CONTENTS