BUSINESSOPINION

Export processing zones in the Dominican Republic: Implications for the United States

By Hazrat Hassan

This article examines the general development of Export Processing Zones (EPZ), especially in the Dominican Republic. Furthermore, it addresses the meaning of this process for the Dominican Republic’s development, the health and safety issues for Dominican workers, and the consequences for the United States economy and experts. Additional considerations include the effect of EPZs on immigration and the impact of North American trade policies on the continued expansion of the Dominican Republic’s EPZs. [1]

Special areas set aside to facilitate commerce have an ancient history from China to the Mediterranean. Indeed, areas such as Gibraltar, Hong Kong, Singapore, and

Panama has long been “free ports” for the transshipment of goods. What EPZs offer that is different is the emphasis on assembly and manufacturing processes in the zones. Recently, data entry and other services also are relocating. By 1990, special zones for manufacturing were established in 27 developing countries exporting more than $13billion worth of goods. Total EPZ employment is estimated by a World Bank study at 530,000 workers. [2]

Thus, the EPZs are a major component in the shift from resource extraction to manufacturing in the multinational corporations’ globalization of production and the new international division of labor. [3]

The Dominican Republic and the United States are bound together in a historical web dating into the last century. Frequent US political intervention and military occupation are as typical of US-Dominican relations as they are of US relations with any other country in the Caribbean Basin. From the last direct military occupation in 1965, the two countries have also become more interconnected at the social and economic levels. Although the earlier US occupation of the 1920sleft a deep mark on Dominican society, the Dominican impact on the US was minimal.[4] Since 1965 though, Dominicans have migrated to the US in large numbers and now constitute the fourth largest Latin American population in the US. At the same time, the Dominican Republic has replaced Cuba as a major tourist and investment destination for the US. [5]

The most recent experience linking the two societies is the role that the Dominican Republic plays as a location for footloose companies relocating to more profitable sites or, to use an older term, “runaway shops.” After relocating, these firms supply cheap imports to the US market. As a magnet for new investment, the Dominican Republic has aggressively marketed the idea of Export Processing Zones as an important development tool for its economic growth. These zones (similar to fenced-in industrial parks) offer investors several cost-saving advantages such as duty-free imports of capital goods and raw materials, tax holidays (exemption from paying

Corporate income taxes for a period up to 20 years), low rent, unrestricted profit repatriation (favored access to foreign exchange and no requirements to reinvest in the Dominican Republic), and minimal regulation. This last item is also related to the main attraction for investors, namely, a low-cost wage environment. [6]

The EPZs attract labor-intensive industries (or their labor-intensive processes) seeking to escape higher wage-cost locations. Investors gain several labor cost advantages in the zones. First, there is usually little or no labor organizing due to explicit or tacit guarantees from the government. [7]

Dominican work controls (the essential 1951 Labor Code), dating from the Trujillo tyranny (1930-1961), are amazingly prohibitive toward unions and strikes as is an administrative requirement. As a result, there is a very low rate of unionization in the economy as a whole (8-9 percent of the work force in fragmented federations) and none in the EPZs.  Adding to this advantage, most firms (as in other EPZs) hire young female workers whom they regard to be more effective with the tedious work and more docile on union issues. The turnover rate is typically high, backed by a constant replenishment from the ranks of unemployed, underemployed (estimated at between 25 and 65 percent) and nearby rural populations. [8]

A further advantage comes with the rather lax system and rules for governmental regulation combined with weak and capricious enforcement. Underpaid public servants are easily persuaded to ignore violations. “Sweetheart” arrangements are also common. Since they are comprised mostly of assembly or light manufacturing industries, EPZs are often considered by the authorities to be clean and safe.  Therefore, little if any attention is paid to environmental or working conditions. [9]

The World Bank has embraced the idea of EPZs (as part of what some call the ‘Washington consensus”), but has assisted just six projects with a modest $87.5 million. However, there are some strong enthusiasts at the Bank and the International Monetary Fund and in agencies of the US government. The EPZ plays a role in the transition from import substituting to export-oriented development strategies so favored in structural adjustment programs. In the Dominican Republic, the market-oriented economists and others associated with EPZ promotion are especially enthusiastic about the growth and the prospects for economic development presented by the EPZ strategy. President described EPZs as “hens that lay golden eggs.” [10]

Three factors may weaken the continued expansion of the Dominican EPZs. First, are the North American Free Trade bids, this anticipated trade growth among Mexico, Canada, and the United States has already encouraged increased investment in the liberalizing Mexican economy. The advantages conferred by a long-term treaty might shift investments away from the Caribbean due to Mexico’s similar access to the US market and greater levels of productivity. While Mexican labor costs are higher and will continue to rise, the security of preferred access over the longer term may be in doubt for Caribbean economies. Although the Dominican Republic retains cost advantages, especially for the East Coast markets, investors will want some longer term assurances. The proposed CBI III and other negotiations between Caribbean governments and the Clinton Administration are aimed at improving the certainty of the business climate. The future growth of EPZs and other investments in the Caribbean countries depend very much on the details of these agreements, especially with respect to US and Asian investors. [11]

A second uncertainty involves the political and economic instability of the Dominican Republic itself. Although regular elections have been held since 16% and there has been an alternation of governing parties, both of which are indicators of democratic tendencies, there has also been evidence of growing political crisis along with the debt-driven economic crisis.[12]

The third uncertainty relates to other countries in the Caribbean and their futures. Certainly all of the island countries and other Caribbean Basin states are locked in a process sometimes termed the “comparative advantage of misery,” whereby the wages and other associated costs of production are driven down (often through currency devaluation) to remain competitive with their neighbors and distant rivals for markets and investment. Of particular concern over the next decade will be the fate of Puerto Rico, with its favorable tax and trade relations with the US mainland and the fate of Cuba, which is opening to capitalist investors as never before. Political changes on either island could have significant impact on the future competitive position and survival of the Dominican economy. [13]

Conclusion

Equally, the health and safety consequences both in the EPZ and in the remaining US production suffer from the entire process of capital flight and downgraded manufacturing. At home, this capital flight has weakened labor as a force in society and contributed to the worsening of conditions of work and life. What can be deduced from this conclusion? For one thing, the union movement, and the health and safety interests associated with it, must deepen their awareness and understanding of the complexities of the globalization process. From that position, stronger actions can be taken to force compliance with existing laws and to strengthen fairness provisions in trade policy. We are only just beginning to see the building of awareness and action on these fronts. This Article has illustrated several of the economic and health and safety consequences of this process for the US and countries like the Dominican Republic. Hopefully, it will contribute to both awareness and action from progressive quarters. (Credit goes to Dr. Rebeca Ruiz Dominican Republic (HR)) [14]

References:

  1. Abreu, op. cit., and A. hijo, et. al and Dauhajre. “‘Working to Make Your Business Work: Free Zones in the Dominican Republic.” Santo Domingo: Dominican Republic Investment Promotion Council.” Impacto Economico de las Zonas Francas Industriales en la Republica Dominica, 1989.
  2. Beneria, See 1. “Las Zonas Francas Industriales: EI Exito de una Politica Economica.” Santo Domingo: Centro Intemacional Para el Desarrollo Economico , 1989.
  3. Ferguson. “The Deindustrialization of America.” New York: Pantheon, 1982.
  4. Ferguson, J. “Dominican Republic: Beyond the Lighthouse.” London: Latin American Bureau, 1989:442.
  5. Hartlyn, J. “The Dominican Republic: Contemporary Problems and Challenges.” Democracy in the Caribbean: Political, Economic, and Social Perspectives Baltimore: Johns Hopkins University Press,, 1993.
  6. Kelleher, T. “Free Zones as an Instrument of Economic Development in Developing Countries.” World Bank: 3;, 1991.
  7. Kelly, Fernandez. “Compare these figures with Los Angeles the second largest garment-producing center in the U.S.,.” Washington Post , 1982.
  8. Pineda, M. “La Vida Mia, No Es Fadl:. “la Otra Cara de la Zona Franca”. Santo Domingo: CIPAF.” World Bank: 3., 1990.
  9. Rolko, J. “States and Markets: An Introduction to International Political Economy.” Restructuring the World Economy, 1989.
  10. Sassen. “Why Migration? Report on the Americas.” World Bank, 1992.
  11. Sassen-koob:. “There is also downward pressure on wages and working conditions on the order of 17.” The NewYork Time, 1980.
  12. Sklair, and Lindeke, W.,. “EPZ: Hidden Thorns and Alternatives.” Namibia Review, 1992.
  13. Soja, E. “”Economic Restructuring and the Internationalization of the Los Angeles Region.” In Smith and Feagin, eds. op. cit.:184.” The Capitalist City. Oxford, UK:, 1987.
  14. DR.REBECA RUIZ. EN ESTOMATOLOGIA “Clinica Dental Hermanos Ruiz, Dominican Republic, September 2016.

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Hazrat Hassan

Hazrat Hassan holds MS Finance from International Islamic University in Islamabad, Pakistan.

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