Dominican Republic Joins U.S. Trade Pact

July 16, 2004

THE Dominican Republic became the seventhcountry of the U.S.-Central American Free-TradeAgreement (CAFTA) this week, and Costa RicanPresident Abel Pacheco confirmed he is conditioningthe trade pact’s submission to the Legislative Assemblyon lawmakers’ approval of the much-delayed tax plan.Exporters say Dominican Republic’s accession toCAFTA will improve the agreement’s chances of beingpassed by the U.S. Congress.“This is very beneficial,” said Sergio Navas, executivevice-president of the Costa Rican Chamber ofExporters (CADEXCO). “There are many Dominicanexpatriates living there and there is a lot of investment between the two countries. Politically, thisis very positive.”THE agreement reached Mondayexpands on and replaces the 1998 free tradeagreement between Central Americaand Dominican Republic, which went intoeffect in Costa Rica in 2002.Dominican Republic’s inclusion standsto benefit Costa Rican chicken farmers anddairy producers, who will finally be ableto make use of the preferential export quotasfor chicken breast and powdered milkthey almost obtained in the 1998 agreement.“We’re very pleased,” said AlejandroHernández, executive director of theNational Chamber of Chicken Farmers.“We believed CAFTA provided a greatopportunity to bring the Dominicans backto the negotiating table and convince themto accept a quota. Six years after the treatywas negotiated, we finally have access totheir market.”Navas agreed.“WHAT we’ll have with DominicanRepublic will be better than what we currentlyhave,” he said. “This will improvethe situation of many exporters. This ismore an opportunity than a challenge. Themore countries join, the greater the benefits.”Navas said he hopes CAFTA can beused to convince Dominican officials toeliminate a 2% tariff the country recentlybegan charging on all foreign goods. Thetariff, Navas said, is an illegal barrier totrade and makes it difficult for Costa Ricanproducts to compete with Dominican ones.Representatives of the seven CAFTAcountries – the United States, Guatemala,El Salvador, Honduras, Nicaragua, CostaRica and Dominican Republic – will meetlater this month to sign the agreement for asecond time. The agreement, minusDominican Republic, was signed in May(TT, May 28).In the past, Costa Rican trade officialshave said they would submit CAFTA to theLegislative Assembly as soon as the signingwith Dominican Republic took place.BUT this week, Pacheco confirmed hisstance on CAFTA – it will not go beforethe assembly until lawmakers approve thePermanent Fiscal Reform Package.However, the two-year-old tax proposalcannot be voted on until theConstitutional Chamber of the SupremeCourt (Sala IV) rules on an action ofunconstitutionality that questions measurestaken earlier in the year to speed up theplan’s approval (TT, July 9).During his weekly cabinet meeting,Pacheco said he is “not interested” inCAFTA and the additional wealth it wouldcreate if that wealth is not distributed fairlyamong all Costa Ricans.For that reason, he said, the tax planmust move forward.“With or without the free-trade agreement,the money must be distributed,”Pacheco said. “The people who earn themost money must pay taxes. That way we’llhave schools, roads and hospitals. We won’tallow a small group to take the meat, discardthe bone and then leave it for the rest.”PACHECO first announced his decisionto condition CAFTA on the tax planlast Friday, a day after he said he wouldsubmit CAFTA to the assembly in August,and three days after he expressed pessimismover its future in the U.S.Congress.Last week, Pacheco accused the country’sbusiness leaders of abandoning him inthe fight to get lawmakers to approveCAFTA and the tax plan.In response, the Union of Private-Sector Chambers and Associations(UCCAEP), an umbrella group that representsmore than 40 business chambers,issued a statement denying Pacheco’sclaims.The group said it had played an activerole in every part of the CAFTA process,working alongside the Foreign TradeMinistry (COMEX) to prepare the country’sofficial negotiating stance, and beingpresent during every negotiating round.On the fiscal reform issue, UCCAEPhas insisted on the need for a comprehensivetax reform that will reduce the country’sbudget deficit and ensure future economicstability.MEMBERS of the assembly’sPermanent Commission on ForeignRelations, the commission charged withstudying CAFTA before it is voted on,have said they hope the agreement will besubmitted to them as soon as possible tohave enough time to properly study it.Liliana Salas, the commission’s secretary,has said the commission will probablyneed at least nine months to study CAFTA(TT, July 9).What the Addition Means For Costa RicaAS part of the negotiations to includethe Dominican Republic in the CentralAmerican Free-Trade Agreement(CAFTA) with the United States, CostaRica obtained a yearly 2,070-metric-tonchicken breast export quota that will paya 12.5% tariff and a 2,200-metric-tonpowdered milk export quota that will paya 20% tariff.Costa Rica originally had been grantedthese quotas as part of the 1998agreement, but they were later revokedbecause Dominican legislators refused toratify the agreement unless chickenbreasts and powdered milk were excluded.Costa Rican officials reformed thetreaty to eliminate the quotas.As part of the new agreement, the tariffon powdered milk will be graduallyeliminated over eight years. All otherdairy products and chicken parts will begradually liberalized over 20 years. CostaRican vegetable oils will be liberalizedover 15 years.Officials from both countries agreedto meet during the next year to furtherdiscuss the treatment chicken, dairyproducts and oils will receive underCAFTA.Flour, garlic and petroleum derivatives,which were excluded from the 1998agreement, will be gradually liberalizedunder CAFTA.At the request of Dominican Republic,beer, alcohol and tobacco will be excluded.At the request of Costa Rica, rice,onions, and beans will be excluded. Bymutual agreement, sugar and coffee willalso be excluded.Textiles and fabrics will have duty-freeaccess.CAFTA’s chapters on services andinvestment will apply between all sevencountries.

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