RS21868 -- U.S.-Dominican Republic Free-Trade Agreement Updated January 3, 2005 On August 5, 2004, representatives of the United States, the Dominican Republic, and five Central American countries signed a regional free-trade agreement(DR-CAFTA) among their countries. The United States first had concluded a free-trade agreement with the CentralAmerican countries (CAFTA) in January2004. Later, on March 15, 2004, the United States and the Dominican Republic announced that they had concludeda bilateral trade agreement that from theoutset of negotiations was intended to be integrated into (or "docked onto") CAFTA. (8) The USTR described the outcome at the time: "With its integration intothe CAFTA, the Dominican Republic has assumed the same set of obligations and commitments as Costa Rica,Honduras, El Salvador, Guatemala, andNicaragua. As with the Central American countries, individual market access schedules were negotiated with theDominican Republic for goods, agriculture,services, investment and government procurement." (9) Under the agreement reached with the Dominican Republic FTA, 80% of U.S. exports of non-agricultural products would become duty-free immediately, withremaining duties phased out over 10 years. (10) U.S.sectors that would have immediate duty-free access include information technology products, agriculturaland construction equipment, paper products, wood, pharmaceuticals, and medical and scientific equipment. U.S.autos and auto parts would be able to enterduty-free after five years. More than half of U.S. agricultural exports would receive duty-free treatment immediately, including corn, cotton, wheat, soybeans, many fruits and vegetables,and processed food products. Tariffs would be phased out on most agricultural products within 15 years and on allagricultural products by 20 years. Beef,pork, poultry, rice, and dairy products would become duty-free under tariff-rate quotas. Most U.S. agriculturalproducers support the agreement. For example,the U.S. Grains Council announced that, in partnership with the National Grain Sorghum Producers and the NationalCorn Growers Association, it"...applaud[s] the successful negotiations..." of the FTA. (11) An official with the Grocery Manufacturers of America said the Dominican Republic "'...is a greatmarket for food, agriculture, and beverage products,'...[and] an excellent potential market for U.S. beer, snack foods,pet food, nuts, and breakfast cereals." (12) The sugar provisions in the agreement with the Dominican Republic do not seem as controversial as those reached with the Central American countries. Thecontinuing precedent of market-opening, however, worries the U.S. sugar industry. The tariff-rate quota (TRQ) onsugar for the Dominican Republic wouldincrease by 10,000 metric tons the first year, increase by 2% annually for years 2-15, then increase by a smalleramount in perpetuity. The tariff on above-quotaimports would not change. Dale Hathaway, a senior fellow at the National Center for Food and Agriculture Policy,said the increase in the DominicanRepublic's cap on sugar was "not significant." (13) The U.S. Sugar Industry Group argued, however, that more imports from the Dominican Republic couldjeopardize the stability of domestic prices, which would help neither country. (14) Textiles and apparel from the Dominican Republic would become duty-free and quota-free immediately, if they met the agreement's rules of origin, whichinclude general rules for all signatories and specific rules for each country. As with the other CAFTA parties, theDominican Republic would be allowed to useinputs also from Mexico or Canada to meet cumulation requirements for apparel or clothing. The American TextileManufacturers Institute, which representsU.S. textile producers, said that CAFTA could lead to reduced U.S. employment in the textile industry. (15) The American Apparel and Footwear Association(AAFA), which represents the North American apparel industry and its suppliers, said however, "...because manyU.S. companies maintain production-sharingrelationships with the [Dominican Republic], swift implementation of the [FTA] will likely have a positiveeconomic impact in the United States...." (16) An unresolved issue would be apparel made under co-production arrangements with Haiti. CBTPA benefits expire the earlier of: (1) September 30, 2008; or(2) the date on which the FTAA or another FTA as specified enters into force between the United States and aCBTPA beneficiary country ( P.L. 106-200 ,Section 211). Thus, if the FTA between the Dominican Republic and the United States enters into force, articlesco-produced by Haiti and the DominicanRepublic might no longer qualify under CBTPA. The Administration said it would work with the Congress so thatHaiti could continue to be eligible underCBTPA for apparel with inputs from the Dominican Republic. (17) The Dominican Republic signed on to the principles and standards under CAFTA's chapter on intellectual property rights with its own transition periods formeeting certain obligations. In late 2003, the International Intellectual Property Alliance (IIPA), a coalition of tradeassociations representing copyrightindustries, called broadcast piracy in the Dominican Republic "...the worst in the entire hemisphere." (18) As part of the bilateral FTA, the DominicanRepublicsigned two side documents committing it to act against broadcast or cable piracy. U.S. industry advisors want theU.S. Government to monitor vigilantly theimplementation of the side documents and the agreement. (19) The USTR also expressed uncertainty, saying the FTA "...will require the Dominican Republic toupgrade considerably the level of intellectual property protection...." (20) On government procurement, cross-border trade in services, financial services, and investment, the Dominican Republic signed on to the general principles ofeach CAFTA chapter but negotiated its own list of specific concessions. For example, in the chapter on governmentprocurement, all signatories, including theDominican Republic, would accept general principles such as national treatment and transparency, but eachsignatory would observe these principles only withrespect to its own negotiated list of agencies and its own thresholds for contract amounts covered by the chapter. Similarly, the chapters on cross-border tradein services, financial services, and investment include general principles such as nondiscriminatory treatment, butthey have their own negotiated lists ofservices that are exempt from the general principles. The Dominican Republic acceded to almost all of the other provisions concluded in the CAFTA, including the chapters on labor and the environment. Underthose chapters, CAFTA parties agreed they would enforce their domestic labor and environmental laws but wouldretain the right to exercise discretionregarding investigations and related matters. They recognized that it is inappropriate to weaken labor andenvironmental laws to encourage trade, and agreed toensure access to judicial proceedings. The text would establish governmental labor and environmental committeesto oversee implementation, and other bodieswould do further cooperative work. The labor and environment chapters link to a dispute process under which, ifa party wins a labor or environmentalcomplaint, the losing party could be assessed monetary damages. The U.S. Trade Representative says that the FTA with the Dominican Republic "...will ensure effective enforcement of domestic labor laws, establish acooperative program to improve labor laws and enforcement, and build the capacity of the Dominican Republic tomonitor and enforce labor rights." (21) TheU.S. Department of State, however, has recognized that there have been widespread problems with putting workerrights into practice, even though theConstitution of the Dominican Republic and its 1992 Labor Code provide for broad worker rights. (22) Representatives of the AFL-CIO and theDominican laborgroup Consejo Nacional de Unidad Sindical (CNUS) have called for further reform of Dominican laws, effectiveenforcement provisions that allow for tradesanctions, and protection against trade law violations. (23) Human Rights Watch reports that women "...who become pregnant are routinely fired from jobsandshut out of employment in the Dominican Republic's export-processing sector," and such abuse of workers wouldbe allowed to continue, because CAFTAdoes not prohibit workplace discrimination. (24) Workers' groups also fear the loss of protections under current U.S. unilateral trade programs such as CBI. (25) The Dominican Republic also acceded to other chapters of CAFTA, including dispute settlement, trade remedies, electronic commerce, andtelecommunications. These chapters would establish a process for resolving disputes, set out rules for safeguards,keep transmission of digital productsduty-free, and ensure certain standards affecting suppliers of telecommunications services. There are also chapterson customs administration, technical barriersto trade, sanitary and phytosanitary measures, and transparency of laws and regulations. The Agreement wouldestablish a Committee on Trade CapacityBuilding. In the last months of 2004, a newly passed tax in the Dominican Republic made that country's participation in the FTA tenuous. In September 2004, theDominican Republic enacted a revenue measure to meet conditions for a loan by the International Monetary Fund. The revenue measure included a 25%increase in the tax on soft drinks with high-fructose corn syrup. U.S. trade officials warned that the 25% taxthreatened the FTA that the two countries justsigned. Senate Finance Committee Chairman Grassley warned that the tax would jeopardize Senate support for theagreement. (26) Representative Rangel,Ranking Member on the House Ways and Means Committee, however, called the Administration's threat to dropthe Dominican Republic from the tradeagreement "inappropriate and unfortunate." (27) TheDominican Republic responded to the opposition by repealing the 25% tax in the last days of 2004. It is uncertain when the Administration might submit implementing legislation for DR-CAFTA to the Congress. Regardless of when legislation might beintroduced, it is expected to be controversial.

Summary:
On March 15, 2004, the United States and the Dominican Republic concluded a draftfree-trade agreement tointegrate the Dominican Republic into the earlier signed Central American Free-Trade Agreement (CAFTA). Thefinal agreement (DR-CAFTA) was signed byall parties on August 5, 2004. The Dominican Republic would have its own market access provisions, but wouldaccept the rest of the CAFTA framework. Legislation to implement DR-CAFTA might be considered in the 109th Congress. This report willbe updated as developments occur.