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The law that does not encourage the economy

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The law that does not encourage the economy
Since 2001 there is a law in the country that seeks to improve the living conditions in the frontier region, stimulate the return of the Dominicans which have abandoned the area, and to bring in new families and companies. Although as of last March, 113 companies were active under the cover of this law, and employ more than 11,000 persons, the legislation has not put to rest the controversies, and the seven provinces in which it has significance are among the poorest of the country.

In addition, it has not achieved an increase in Dominican inhabitants in the territories where it is applied; to the contrary, between 2002 and 2010 Dominican inhabitants fell by 17,375, according to the last two population census. What did increase in this period is the presence of foreigners - in the majority Haitian - going from 6227 to 35,390 and by 2012 they totaled 65,449.

This is Law 28 - 01, which creates a Special Zone of Frontier Development which covers Pedernales, Independencia, Elias Piña, Dajabon, Montecristi, Santiago Rodriguez and Bahoruco.

Of the seven, Montecristi, Dajabon and Santiago Rodriguez have captured the majority of the investments, since they bring together 88.4% of the active companies. This is criticized by the Senator of Elias Piña, Adriano Sanchez Roa, whose province is the poorest in the country.

The law establishes that industrial, Agro-industrial, agricultural, metalworking, free zones and tourist companies and industries, among others, that install themselves within the limits of any of these provinces, will enjoy facilities and fiscal exemptions, such as 100% of the payment of Internal Taxes and of customs tariffs on raw materials, equipment and machinery. In addition, they enjoy a 50% reduction in the payment for freedom of transit and use of ports and airports.

These blessings are received for 20 years, in order to promote the installation and compensate for the expenses in freight transportation, which the principal business associations argue is monopolized by the syndicates. To take a container to the frontier could cost as much as RD$55,000.

Because of these and other incentives, the legislation has remained as a focus of discrepancies between business sectors which consider it to be unfair competition, questioning which has reached even the Constitutional Tribunal which has handed down three sentences between 2013 and 2014.

One of them is 253/14 which declared as inadmissible a direct action of unconstitutionality imposed by the Industrial Association of the Dominican Republic (AI RD). The Association alleged that the legislation "creates a situation of unjustifiable inquality in relation to the fiscal charges between the companies which are covered by this law and the others."

There is also sentence 0184/14, which declared as inadmissible another direct action of unconstitutionality filed by the Association of Carbonated Beverage Industries, alleging that "it generates exorbitant profits in favor of those companies which embrace this law, and that it violates the free play of opportunities."

"We are asking for controls in order to avoid abuses," says Circe Almanzar, the executive vice president of the AIRD. "They are bringing in, tax-free, many assets that are produced in the country, in addition to the fact that they do not pay either ITBIS or Income Tax, or any other tax on their purchases."

In 2014, the requests for fiscal incentives granted to 20 companies by the Technical Office of the Coordinating Council of the Special Sown of Frontier Development (CCDF) for importing raw materials and equipment, amounted to RD$577.1 million.

Last year, the AIRD reported that the Executive had a proposal to modify the legislation, which contemplated that they (the tax incentives) could only be embraced by agricultural businesses, and those innovators who produced goods that were different from those processed by those covered under other tax regimes. The modification was not submitted.

Who have benefited?

From 2001, until November 2013, 224 companies were approved, 85% for the North frontier region, according to what is shown in the 2013 memories by the Directorate General of Frontier Development.

Nevertheless, as of March, 2015, the CCDF had registered 113 active companies and 13 with problems: 65 and Montecristi, 19 in Dajabon, 16 in Santiago Rodriguez, three in Bahoruco, five in Independencia, three in Pedernales and two in Elias Piña. The majority are from the Agro-business sector.

As of this month, they employed 8541 national workers and 2520 foreigners, and had required an investment of over RD$10.6 billion.

In 2005, a group of businessmen created the Dominican Association of Frontier Companies (ADEFRO) in defense of their rights as beneficiaries of Law 28 - 01. These are Grupo Banamiel, Quinta Pasadena, Grupo Almonte, BanaCaribe, Industrias San Miguel del Caribe, Megaplax, North West Industries, Cementos Andino Dominicanos, Unigold Dominicana, Caribbean Pallets, Agroforestal MACAPI, Casabe Guaraguano, Yellow Days Corporation, Southern Fillers and Kardisa.

Their president, Angel Alvarez, says that he feels that the legislation has produced positive results, with the creation of employment and development, nevertheless, "the bureaucracy and economic interests" have affected it.

"The greatest inconveniences which the investors have suffered in the development of the law, is the lack of credibility and confidence on the part of the powers that be of the Dominican Republic in Law 28 - 01, by reason of the fact that this law, in essence what it intends, in compliance with a constitutional mandate, is development," says Alvarez.

Why invest?

Fernando Capellan is a Dominican businessman and a standard bearer of frontier investment. He has reasons. The Group M, of which he is the president, has Villa Codevi in Dajabon, a hotel covered by Law 28 - 01. Nearby, but on the Haitian side, in Ouanaminthe, is the Codevi Free Zone, which manufactures textiles.

The Grupo M employees some 10,600 persons. "At first it was a tough job to establish ourselves (in Haiti) because of cultural reasons, language, and above all arriving in a foreign country, and in a town where there did not exist any type of industry and very little formality," recalls Capellan.

Upon starting their operations in 2003, they found a community that was socially and economically depressed, and today they now impact more than 50,000 persons. "In Dajabon there are more than 400 Dominicans living there that work in Codevi; so we have installed the Villas Codevi Hotel which is also a source of employment," says the businessman.

Modify the law: yes or no?

Capellan feels that many businesses which had taken advantage of Law 28-01 have been left behind, because they have had the disadvantage that when practically at the beginning of its implementation there have been suggestions for modification, and this causes businessmen do not want to invest.

He says that the law that should be revised, and that they analyze the advantages that it grants to the region and the dis-advantages for the other areas, so that the conflicts are resolved.

Miguel Cruz, the executive director of the CCDF, indicates that a foreign company whose intention is to manufacture coats in Santiago Rodriguez has gone through lawsuits in order to begin its operations. "In the two years since they have been approved they have not been able to receive benefits from the law," he says.

Cruz complains that because of the fiscal reform of 2012, the investment projects are sent to the Ministry of Hacienda in order to carry out a cost-benefit analysis, which takes months and even a year. In this process some eight companies are on hold.

Cruz recalls that the law was modified and declared unconstitutional. He supports a reassessment, not to "annihilate it," but rather to strengthen it". He suggests that the territorial areas be limited. "It is not the same that in Montecristi you permit people to install businesses in Hatillo Palma, which is an hour from Santiago. If you permit this, they are never going to install businesses in Pedernales, nor in Elias Piña, nor in Dajabon, because they have the possibility (in Hatillo Palma) to be within 45 minutes of Santiago," he indicated.

ADEFRO feels that the government should renew their vote of confidence, and permit that the validity of the law be extended for 20 more years, in order that new businessmen join, and can consolidate the development of the frontier region.