Transparency of the Regulatory System
On the 2018 Global Innovations Index, the Dominican Republic ranks 104 out of 127 for regulatory environment and 73 out of 127 for regulatory quality. The World Economic Forum 2018 Global Competitiveness Report ranked the Dominican Republic 95 out of 140 countries in efficiency of the legal framework in challenging regulations, and 99 out of 140 in burden of government regulations.
The World Bank Global Indicators of Regulatory Governance states that Dominican ministries and regulatory agencies do not develop forward regulatory plans. In other words, they do not publish a list of anticipated regulatory changes or proposals intended for adoption or implementation within a specific timeframe. Law 200-04 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on a unified website: http://www.consultoria.gov.do/ . Foreign investors, however, claim that these requirements are not always met in practice. Moreover, many businesses note that the scope of the website content is not always adequate for investors or interested parties. Some report that individual ministries sometimes upload proposed regulations to their websites or post them in national newspapers. Ministries sometimes form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations.
Some Ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited to stakeholders. Comments are not publicly accessible. Some ministries and agencies prepare consolidated reports on the results of the consultation, which they distribute directly to interested stakeholders. Ministries and agencies do not conduct impact assessments of regulations or ex post reviews. Affected parties cannot request reconsideration or appeal of adopted regulations.
The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally recognized professional accounting organization and has authority to establish accounting standards in accordance with Law 479-08, which also declares (as amended by Law 31-11) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally. The ICPARD and the country’s stock market regulator (Superintendencia del Mercado de Valores) require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).
By law, the Office of Public Credit produces a quarterly report on the status of the non-financial public sector debt. The Office of Public Credit presents a wide array of information and statistics on public debt bonds and projections on its website. www.creditopublico.gov.do/publicaciones/informes_trimestrales.htm
In addition to the public debt addressed by the office of Public Credit, the Central Bank maintains on its balance sheet approximately USD 11 billion in “quasi-fiscal” debt. Added to other borrowing, it puts the Debt-to-GDP ratio near 53 percent, and the Debt Service Ratio near 30 percent.
International Regulatory Considerations
Since 2003, the Dominican Republic has presented 226 regular notifications to the WTO Committee on Technical Barriers to Trade (TBT). In recent years, the Dominican Republic has frequently changed technical requirements (e.g., for steel rebar imports and sanitary registrations, among others) and has failed to notify these requirements under the WTO TBT agreement and CAFTA-DR.
Legal System and Judicial Independence
The World Economic Forum 2018 Global Competitiveness report ranked the Dominican Republic 125 out of 140 countries in judicial independence and 95 of 140 in the efficiency of the legal framework in settling disputes. On the 2018 Global Innovations Index, the Dominican Republic ranked 78 out of 126 countries for rule of law.
The judicial branch is an independent branch of the Dominican government. According to Article 69 of the Constitution, all persons, including foreigners, have the right to appear in court. The basic concepts of the Dominican legal system and the forms of legal reasoning derive from French law. The five basic French Codes (Civil, Civil Procedure, Commerce, Penal, and Criminal Procedure) were translated into Spanish and passed as legislation in 1884. Some of these codes have since been amended and parts have been replaced. Subsequent Dominican laws are not of French origin.
The country is divided into 12 Judicial Departments, each one headed by a Court of Appeals with jurisdiction over civil and criminal matters in 35 Judicial Districts. Justices of the Peace handle small claims, certain traffic accidents, landlord-tenant disputes, and other matters. There are also specialized courts with jurisdiction over labor cases, disputes involving registered land, cases involving minors, and administrative matters. The Supreme Court is the highest court, with jurisdiction to handle most appeals from the courts of appeal, and first instance jurisdiction in criminal matters involving certain high-level government officials. The Constitutional Tribunal rules on the constitutionality of laws, decrees, and treaties and decides cases involving constitutional questions.
Some investors complain of long wait times for a decision by the judiciary. According to the World Bank’s Doing Business report, while Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met. The Civil Procedure Code dates from 1884, and there have been few modifications. The resolution of a civil case normally takes two to four years, although some take longer. Some investors have complained that the local court system is unreliable, biased against them, and that special interests and powerful individuals are able to use the legal system in their favor.
U.S. firms indicate that corruption on all levels – business, government, and judicial – impedes their access to justice. Several large U.S. firms have been subjects of injunctions issued by lower courts on behalf of distributors with whom they are engaged in a contract dispute. According to some reports, these disputes are often the result of the firm seeking to end the relationship in accordance with the contract, and the distributor uses the injunction as a way of obtaining a more beneficial settlement. Many companies have noted that these injunctions often disrupt distribution activities, with negative effects on sales. In order to engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.
Decree No. 610-07 placed the Directorate of Foreign Commerce (DICOEX) in charge of commercial dispute settlement, including disputes related to the Investment Chapter of CAFTA-DR. The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; Law No. 141-15 concerning Restructuring and Liquidation of Business Entities; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.
Laws and Regulations on Foreign Direct Investment
The Export and Investment Center of the Dominican Republic (CEI-RD) aims to be the one-stop-shop for investment information, registration, and investor after-care services. CEI-RD maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives (http://cei-rd.gob.do/ ).
Competition and Anti-Trust Laws
The National Commission for the Defense of Competition (Pro-Competencia) has the power to review transactions for competition related concerns. Private sector contacts note, however, that strong public pressure is required for Pro-Competencia to take action.
Expropriation and Compensation
The Dominican constitution permits the government’s exercise of eminent domain; however, it also mandates fair market compensation in advance of the use of land taken. Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses. Property claims make up the majority of cases. Most, but not all, expropriations have been used for infrastructure or commercial development. Many claims remain unresolved for years.
Investors and lenders have reported that they typically do not receive prompt payment of fair market value for their losses. They have complained of difficulties in the subsequent enforcement even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or when the government has recognized a claim. In other cases, some indicate that lengthy delays in compensation payments are blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems. There are also cases of regulatory action that investors say they could be argued to be indirect expropriation. For example, they note that government decrees mandating atypical setbacks from roads or other public infrastructure may deprive investors of the economic benefits of their investments.
Many companies report that the procedures to resolve expropriations lack transparency and, to a foreigner, may appear antiquated. Few examples exist where government officials are held accountable for failing to pay a recognized claim or failing to pay in a timely manner.
ICSID Convention and New York Convention
In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (Washington Convention), however, the Dominican Congress did not ratify the agreement as required by the constitution. In 2001, the Dominican Republic became a contracting state to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The agreement entered into force by Congressional Resolution 178-01.
Investor-State Dispute Settlement
The Dominican Republic has entered into 12 bilateral investment treaties, most of which contain dispute resolution provisions that submit the parties to arbitration. As a signatory to CAFTA-DR, the Dominican Republic is bound by the investment chapter of CAFTA-DR. There are currently three pending U.S. investor-state dispute cases filed against the Dominican Republic under CAFTA-DR.
The Embassy is aware of at least 28 U.S. investors who are involved in ongoing legal disputes with the Dominican government and parastatal firms involving payments, expropriations, contractual obligations, or regulatory obligations. The investors range from large firms to private individuals and the disputes are at various levels of legal review.
International Commercial Arbitration and Foreign Courts
Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic. Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution. Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08. In addition, Law 181-09 created an institutional procedure for the Alternative Dispute Resolution Center of the Chamber of Commerce Santo Domingo (http://www.camarasantodomingo.do/ ).
Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention. U.S. investors complain that the judicial process is slow and that domestic claimants with political connections have an advantage.
Law 141-15 provides the legal framework for bankruptcy. It allows a debtor company to continue to operate for up to five years during reorganization proceedings by staying legal proceedings. It also authorizes specialized bankruptcy courts; contemplates the appointment of conciliators, verifiers, experts, and employee representatives; allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims; stipulates civil and criminal sanctions for non-compliance; and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997. In March 2019, a specialized bankruptcy court was established in Santo Domingo. The national juridical school is still training specialized bankruptcy judges.
The Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency, according to the World Bank’s Doing Business Report.