U.S. Trade Representative Robert Zoellick this week outlined steps the Bush Administration is taking to strip the Dominican Republic out of legislation that would implement a bilateral free trade agreement, which is currently packaged with an agreement with five Central American countries (DR-CAFTA). However, a final decision on whether to actually dump the Dominican Republic FTA has yet to be made.

In a Nov. 16 letter to Senate Finance Committee Chairman Charles Grassley (R-IA), Zoellick said dropping the Dominican Republic is not the administration’s “preferred outcome,” but nevertheless said USTR is preparing for the possibility of proceeding with “Central America alone.”

In October, Dominican Republic President Leonel Fernandez signed into law a broad tax package that contained a tax on soft drinks made with imported high fructose corn syrup (HFCS). The administration had long warned the Dominican Republic that the adoption of any HFCS tax could force the U.S. to jettison the Dominican Republic FTA and has been working on internal plans to do so.

In his letter, Zoellick said he was outlining the steps the administration was taking to move forward “if necessary” without the Dominican Republic because the HFCS tax was now in effect. Specifically, Zoellick said USTR staff would forward the text of a FTA that excludes the Dominican Republic to the five Central American governments. That text would eliminate all provisions specific to the Dominican Republic but otherwise would be identical to the agreement the U.S. signed with the Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic in August.

In addition, Zoellick said he had asked the U.S. International Trade Commission (ITC) to produce an assessment on the likely economic impact of a FTA with only the five Central American countries.

Zoellick said the new ITC analysis would “become relevant” if President Bush asks Congress to approve an FTA that does not include the Dominican Republic.

House Ways and Means Committee Chairman Bill Thomas (R-CA) declined to comment in a Nov. 17 briefing on a specific timeframe for deciding whether to eliminate the Dominican Republic FTA. Instead, he said only that there is a “finite” limit on the amount of time that can elapse before a decision has to be made.

For now, Thomas said it is possible to prepare two separate tracks of implementing legislation, one with the Dominican Republic and one without, until a decision has to be taken. In the Senate, one aide said the administration has yet to convey a specific timeline of when a final decision would be made.

Ultimately, Thomas said any decision on whether to move ahead without the Dominican Republic would be the result of “an agreement between Congress and the administration.” A U.S. trade official last week said the administration had made a decision on how best to remove the Dominican Republic from the implementing legislation and would discuss that decision with Congress (Inside U.S. Trade, Nov. 12, p. 11).

Grassley, who had urged Fernandez in September not agree to the tax, said this week that he would “rather not see the Dominican Republic left behind,” but attacked the HFCS tax as both a violation of World Trade Organization rules and the provisions of the FTA. In a Nov. 17 statement, Grassley said the tax would directly hit corn growers and HFCS producers in Iowa, and as long as the tax was in place he would “strongly oppose” any FTA that includes the Dominican Republic.

In addition, Grassley said dropping the Dominican Republic would give Congress the chance to consider the deal with the five Central American countries without “further delay.”

Ranking House Ways and Means Committee Member Charles Rangel (D-NY) accused the Bush Administration of using “strong-arm tactics” against the Dominican Republic that it would not use in trade disputes with other nations.

In a Nov. 18 statement, Rangel attacked the administration’s HFCS complaints as “weak” and said rather than bullying the Dominican Republic, the administration should try and “nourish” the economic relationship between both countries.

Rangel argued that the Dominican Republic imposed the tax because it was given very little additional access to the U.S. sugar market, even in relation to the other five Central American countries. Under the terms of the deal, the Dominican Republic was given an immediate 10,000 metric ton increase over its current access levels, compared with some 100,000 metric tons of access given to the other five countries. However, U.S. sugar industry representatives have long complained that the Dominican Republic did not need any increased access, as it is already the largest sugar exporter to the U.S.

Rangel said the better route for dealing with the administration’s complaints would be through a possible WTO challenge, as the U.S. has done with Mexico. Rangel accused the U.S. of using a double standard against the Dominican Republic.

The HFCS tax is contained in an October tax package passed by the Dominican Republic’s Congress and signed by President Fernandez. Fernandez however has tried to quash the tax in an amendment sent to Congress calling for the elimination of the HFCS tax. To date, no action has been taken on that amendment.

Separately, Central American sugar producers were in Washington this week to meet with administration officials and congressional staff to gauge what kind of lobbying effort they should undertake early next year to help get the Central America FTA through Congress.

One industry source said the group met with Chief U.S. Agriculture Negotiator Allen Johnson and staff from the House Ways and Means and Senate Finance Committees.

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