After one year, free trade pact paying some dividends in Dominican Republic

from Tropix

By Doreen Hemlock

South Florida Sun-Sentinel

One year into a free trade accord with the United States, commerce, investment and business confidence are up in this Caribbean nation.

The Dominican economy is humming, growing 10 percent last year and likely 5 percent this year, among the highest rates in Latin America.

Problem is, analysts say, free trade can't take all the credit - nor all the blame for Dominican shortcomings. Many factors influence business, and one year is too short to measure the full effect of a pact that phases in over 20 years.

Early signs indicate that hopes of U.S. and Dominican officials are panning out: U.S. sales to the tropical nation are rising as tariffs fall on such items as automobile parts. Dominicans are seeing U.S. investment rise in hotels, real estate and more. And business confidence is stronger now that Dominican goods get U.S. duty-free access permanently and U.S. firms can rely on a special panel to resolve disputes.

Those results carry weight at a time when Washington is debating a free trade pact with Colombia and when U.S. Democratic candidates Hillary Clinton and Barack Obama have called for reforms to the North American Free Trade Agreement (NAFTA), the 14-year-old treaty with Mexico and Canada.

Florida business is especially hot on DR-CAFTA, as the U.S.-Dominican Republic-Central American Free Trade Agreement is known.

Florida sales to the Dominican Republic, the state's fifth-largest market overseas, rose 7 percent to $2.68 billion last year. And U.S. investment in Dominican ventures jumped 16 percent to a record $796.1 million, much of that from Florida, according to U.S. and Dominican government data.

'There's also a psychological benefit as the agreement gets more American, companies looking toward Dominican Republic,' said Manny Mencia, who heads up international business at Enterprise Florida, the state's economic development group.

But more than free trade influences outcomes. U.S. exports are up partly because of a weak dollar. And U.S. investment in Dominican Republic has been rising for years as the governments work to lure needed cash to a nation where at least one-third of the 9 million residents live in poverty. Free trade pacts offer tools, but using them requires skills and competitiveness, analysts say.

Even supporters know the pact has its limits.

South Florida entrepreneur Jimmy Tate ran a business for 11 years, working with Dominican factories to make pants for U.S. sale. At its peak, his company employed almost 100 Dominicans, supported thousands of factory jobs and generated $40 million a year in sales, he said.

But Tate closed his TKO Apparel operations last year and now buys pants from China and other Asian nations that used to face quotas on U.S. sales before 2004. Those factories use Asian cloth, which sells for less than the U.S. fabric used in Dominican operations.

'The competitive edge in Asia far outweighs any benefits we can find in this hemisphere, even with DR-CAFTA,' Tate said. 'As a businessman, I appreciate that. But as an American, I'm sad that we no longer produce in this hemisphere.'

Santo Domingo street vendor Andres Vidal, 66, finds the benefits from free trade are not evenly distributed: The rich gain most.

'It helps the big companies more than the small,' said Vidal, peddling footwear from the hood, roof and back seat of his car. 'Big companies can buy millions of dollars of products from the United States, and they can get them much cheaper than I can.'

Prices of U.S. goods in the Dominican Republic also have dropped less than many hoped.

That's partly because some Dominican importers have not passed the full benefits of lower import duties on to consumers, pocketing some of the difference, said David Lewis, vice president of Manchester Trade , a trade consulting firm based in Washington, D.C.

Prices for some U.S. goods are rising because of soaring prices for oil and transportation. Dominican exports to the United States also have been stymied by a sluggish U.S. economy.

'I think the war with Iraq has hurt us because we depend so much on the United States,' said taxi driver Julio de Jesus, 43. 'With the weak dollar, the United States, instead of buying more Dominican goods, is the one that is benefiting by selling us more.'

The free trade pact is helping foreign investment, which hit a record $1.7 billion from all countries last year. But it's not the only reason, said Eddy Martinez, who runs the government's exports and foreign investment program.

The country has been benefiting from longer-term assets, such as its modern telecommunications system, which now attracts call centers and other high-tech services. It has stepped up promotions of factories to make medical devices and electronics to offset the loss of apparel jobs. And it's increased marketing for tourism, a top revenue earner.