Monday, 28 Oct 2013
Overseas Business Risk – Dominican Republic
Political and Economic
The Dominican Republic is a representative democracy with national powers divided among executive, legislative, and judicial branches. The President appoints the Cabinet, Attorney General, enacts laws passed by the legislative branch, and is Commander in Chief of the Armed Forces. The President and Vice President run for office on the same ticket and are elected by direct vote for 4-year terms. Legislative power is exercised by a bicameral Congress--the Senate (32 members) and the House of Representatives (191 members). Some of the Municipal authorities (i.e. Mayors) are also elected for the same period and in the same elections. State governors are appointed by the President.
In 2010 a new Constitution (38th modification) was enacted. Some of the most important changes introduced included the creation of a Constitutional Court, Superior Electoral Tribunal, Superior Judicial Council, recognition of consumer rights, presentation by Congress of candidates to the Chamber of Accounts, changes to the rules concerning acquisition of Dominican nationality, establishment that marriage can only be between a male and female and the prohibition of abortion under all circumstances (even when the mother’s life is at risk).
The Dominican Republic has a multi-party political system but in the last 16 years two have dominated the political scene the Partido de la Liberación Dominicana (PLD) and the Partido Revolucionario DominicanO (PRD). International observers have found that presidential and congressional elections since 1996 have been generally free and fair. Elections are organized by a Central Elections Board (JCE), with 5 presiding members appointed by the Senate. Legislation relating to Political Parties and Financing, Corruption and related laws are yet to be approved by Congress. Since August 2012, the President of the Dominican Republic has been Danilo Medina and the Vice President is Margarita Cedeño de Fernández, of the PLD.
The court system in the Dominican Republic is unitary. It is divided territorially into Judicial Departments and Judicial Districts. The Supreme Court of Justice is the highest jurisdictional authority in the Judicial Branch and has nationwide jurisdiction. It holds exclusive jurisdiction for criminal actions against highest-ranked members of public, diplomatic and judicial offices, as determined by the Constitution of the Dominican Republic, and it functions as a cassation court to review the application of the law by lower courts.
There are eleven Judicial Departments, and each department has a Court of Appeals that may be divided in chambers by areas of law (civil and commercial chamber, criminal chamber, for labour matters, infants and adolescent matters), or have plenary jurisdiction.
There is also a Constitutional Tribunal and a Judicial Council composed by members of all levels of the judiciary, with powers to nominate and oversee performance of lower court judges
The most common types of litigation encountered by foreign entities are employment claims and claims for breach of contract. The Constitution and the Civil Code recognise the same rights and remedies to foreign entities as national entities. The judicial system in the Dominican Republic is slow, complicated, expensive, and can be highly frustrating.
The slowness of judicial decisions and implementation of judicial and arbitral decisions generates a perception among investors that a differential treatment according to the origin of the complainant or the defendant could exist, being domestic companies most favoured in the majority of cases.
The Dominican Republic is the largest economy in the Caribbean with a total nominal GDP of USD 58.9 billion (2012). With a population of 9.4 million (2010 National Census), income is distributed highly unequal. In 2012, the Dominican Republic’s GDP was 3.9%. The Dominican economy has been growing in the past eight years with an average of 6%.
Tourism (the leading foreign exchange earner), telecommunications, mining and free-trade-zone manufacturing are the most important sectors, although agriculture is still a major part of the economy. About two-thirds of national income is generated in the tourism-dominated services sector, while industry and agriculture account for 21% and 12% of national income, respectively. The country is highly dependent on the US, both in terms of exports and imports, as well as remittances from the considerable Dominican Diaspora. With a share of 61% of total exports, industrial production of the country’s Free Trade Zones has out stripped once important agricultural exports like sugar, cocoa and coffee.
The Dominican Republic supports free trade. A member of the WTO, and CARICOM, the Dominican Republic has a Free Trade Agreement with Central America and the United States of America (DR-CAFTA) and is party to the Economic Partnership Agreement (between CARICOM plus the Dominican Republic and the European Union). Eighty percent of the goods produced in Europe will receive duty free access to the Caribbean markets within the next 15 years. In addition, the country has a partial international treaty with Panamá. Bilateral negotiations are being held with Mexico, Colombia, Canada and Cuba to conclude trade agreements.
The Dominican Republic owed much of its success to the adoption of sound macroeconomic policies in the early 1990s and greater opening to foreign investment. Growth turned negative in 2003 (-0.4%) due to the effects of government handling of major bank frauds and to lower U.S. demand for Dominican manufactured goods. The Dominican peso fell to an unprecedented low in exchange markets in 2003-2004 but strengthened dramatically following the election and inauguration of a new PLD President, Leonel Fernandez, in 2004. Since late 2004 it has traded at a rate considered to be overvalued on a purchasing power parity basis. As of late end 2012, the policy of the Central Bank appears to be to allow a slight depreciation.
In 2012, following the inauguration of Danilo Medina as President, the government introduced a range of tax increases in order to try to reduce the fiscal deficit which had reached 8.5% of GDP by December 2012. A major drain of the government’s resources remains the energy sector –which requires a subsidy of almost 2% of GDP/year in order to pay generators. Blackouts are very common.
The Dominican Republic's tourism and mining sectors will support strong economic growth rates over the coming years.
In 2012, 4.5 million tourists visited the country. Currently the main sources of tourism are North America, Europe (including Russia – a major growth market), Central America and the Caribbean. This sector will remain a main driver of growth over the coming years.
The Dominican Republic is a regional leader in attracting foreign direct Investment, and in 2012 totalled US$3,609 Billion, mostly due to a single large gold mining project. UK is one of the largest investors in the Dominican Republic. Main sectors of investments for UK companies are: energy, mining, security, consumer goods, creative industries, telecommunications, and pharmaceuticals.
Human Rights and Business
Serious human rights problems include unlawful killings by police; beatings and other abuse of suspects, detainees, and prisoners; harsh prison conditions in some prisons; arbitrary arrest and detention of suspects; widespread corruption; use of state intelligence services against political opponents and allegedly, civil society figures; violence and discrimination against women; child prostitution; trafficking in persons; ineffective enforcement of labour laws; and child labour.
The law provides for an independent judiciary; however, despite increasing independence in the judiciary, instances of political influence in decision making are still evident. Interference by public entities, when it occurs, tends toward public pronouncements regarding active cases and selective prosecution, as opposed to direct intervention in existing cases.
There are separate court systems for claims under criminal law, commercial and civil law, and labour law. Commercial and civil courts reportedly are very slow in adjudicating cases, although their decisions are generally enforced. As in criminal courts, undue political or economic influence in civil court decisions remains a problem.
The law provides for the freedom to organize labour unions; all workers, except the military and the police, are free to form and join unions of their choice. The law allows unions to conduct their activities without government interference.
There is a low threat from terrorism in the Dominican Republic. But you should be aware of the global risk of indiscriminate terrorist attacks, which could be in public areas, including those frequented by expatriates and foreign travellers.
The security situation in Dominican Republic is stable. Demonstrations and protests occur occasionally. As a precaution, you should avoid any demonstrations or large gatherings of people. Political demonstrations are generally not targeted at foreigners.
Bribery and Corruption
The law penalises corruption; nevertheless, there is a strong culture of impunity. World Bank sources confirm a problem with governmental corruption. Overall lack of transparency and confidence in public sector institutions, high levels of corruption, lack of respect for the rule of law, and high transaction costs limit the economy's competitiveness. In Transparency International’s 2012 Corruption Perceptions Index, the Dominican Republic rose from 129th to 118th.
Man at screen
The comprehensive reform of the intellectual property protection in the Dominican Republic, undertaken in 2000, has been a great achievement towards the modernization process of the business legal framework in the country, and a significant step towards the process of complying with WTO obligations. Currently, and due to the implementation of DR-CAFTA, the Copyrights Law and Industrial Property Law have been amended in order to comply with this agreement. Other international legislations applicable are the Treaty on Patent-Related cooperation; The Budapest Treaty on the International Recognition of the Deposit of Microorganism for the purposes of Patent Procedure; the International Convention for the protection of New Varieties of Plants (UPOV); the Berne Convention and Universal Copyright Convention.
The 2010 Constitution reconfirmed the right to Intellectual Property. Law 20-00 of 8 May 2000 on Industrial Property grants protection to Patents (for products and procedures and at the same time linkage and data exclusivity protection is also provided) and Distinctive Signs among other titles. Several regulations have been enacted in connection to enforcement. Law 65-00 regulates Authorship/Copyright and related aspects. Some regulations have also been published regarding this subject.
The Government body in charge of granting patents and registering distinctive signs is the National Office of Industrial Property (Oficina Nacional de Propiedad Industrial, ONAPI). The National Office of Author’s Right/Copyright (Oficina Nacional de Derecho de Autor ONDA) is the other Government body in charge.
Civil and criminal sanctions may be applicable in case of violations to the industrial property rights and include compensation, as well as fines and or prison. Despite the legal framework, international pharmaceutical companies complain about serious counterfeiting and breach of intellectual property laws.
Organised Crime and Protective Security Advice
The Dominican Republic is considered a secure country, safe for travelling and vacationing. Violent crime against tourists is rare. Particular care should be taken if you are passing through isolated areas on foot, especially at night. You should take precautions to reduce the risk of being targeted. When you leave your hotel, do not wear expensive jewellery or carry large amounts of cash or expensive items such as cameras. Keep your valuables, including your passport in hotel safety deposit boxes. Be particularly careful after dark and avoid quiet, poorly lit areas. Driving at night is difficult and often dangerous due to poor roads and unlit vehicles which drive erratically.
The Dominican Criminal Code sets forth three types of offences depending on their seriousness: misdemeanors, felonies and crimes. The sanctions applicable to each one differ significantly. Criminal courts are also entitled to condemn persons found guilty of felonies or crimes to the payments of indemnities to the victims. Furthermore, property may be confiscated when such property is the evidence of the result or evidence of the crime.
Sources: US Embassy, World Bank, the International Monetary Fund, the United Nations, Central Bank of the Dominican Republic, UN Human Rights Report, Transparency International, Pellerano & Herrera Attorneys, Jimenez Cruz Peña Attorneys, 2011 Index of Economic Freedom, National Statistics Department.
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