Dominican Republic warms to China

Move to ditch Taiwan looks likely to bring infrastructure, greater food exports, and a US backlash

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The Dominican Republic recognised China and cut ties with Taiwan in 2018 (image:André Mellagi)

Scarcely eight months after breaking diplomatic relations with Taiwan, the Dominican Republic is already pointing to the benefits of its newly-established relationship with China.

The two recently countries cemented their bond by signing eighteen new cooperation agreements, including on agriculture, culture and tourism, according to Dominican newspaper Listín Diario.

During his November 2018 visit to China, the first ever by a Dominican leader, President Danilo Medina said he hopes the new relationship “will be very useful for both China and the Dominican Republic.”

If the Dominican Republic visualises and builds a strategy to strengthen its international relations on the shoulders of this giant that is China, the results could be promising

According to the Dominican Export and Investment Centre, raw materials exports, which were worth US$6.5 million annually, have already increased. Aluminum and nickel are among the most traded metals.

In the past decade, China has established ties with a number of countries in the Central America and Caribbean region, first with Costa Rica in 2007, followed by Panama in June 2017, the Dominican Republic in May 2018 and El Salvador in August that same year.

Benefits

According to Luis González, director of Asia and Oceania relations at the Dominican Ministry of Foreign Affairs, Chinese investment in the Caribbean nation will reach US$10 billion in the coming years.

Iván Gatón, an international relations expert at the Autonomous University of Santo Domingo said the Dominican government has been negotiating its diplomatic switch to China for some time.

“Since the administration of President Fernandez [2008-2012] contacts had already been made,” he said. “So let’s say that it was something that one way or another was bound to happen.”

There is already a strong focus on developing duty-free zones, energy, tourism, housing and infrastructure but a lack of certainty on other sectors that stand to receive support.

Robert Takata, an academic at the Latin American Faculty of Social Sciences (FLACSO), said:

“If the Dominican Republic visualizes and builds a strategy to strengthen its international relations at a general level on the shoulders of this giant that is China, the results could be promising in the near future.”

On the island, there are expectations that partnering with China will enable beneficial access to its consumer market. Just a few weeks ago, China authorised the import of Dominican rum. Mango, avocado and coffee, the first Dominican products marketed after the establishment of relations, are expected to follow.

President Medina said last November: “It is our interest to increase Dominican exports to the Chinese market, which is also among the largest and most dynamic in the world.”

Beyond infrastructure cooperation

In a September 2018 letter to China Civil Engineering Construction (CCECC) on behalf of the Dominican Regional Development Council (CRD), President Medina listed a number of new projects that the Chinese state-owned infrastructure corporation might be interested in.

Dominican President Danilo Medina meets Chinese counterpart Xi Jinping (image: PresidenciaRD)

They included a railway between the Dominican Republic and neighbouring Haiti; dams in the Monseñor Nouel province and on the Boba-Baquí rivers; the modernisation of the Arroyo Barril port; new sewage and wastewater systems in several northern provinces; and an aqueduct in Cotuí.

Song Yang, director of CCECC’s Foreign Aid division, responded by expressing the company’s interest in participating in the projects and in carrying out feasibility studies. This opened the possibility of the Dominican Republic receiving loans at concessional rates, or loans that can be classified as aid, as has happened in other Latin American countries.

“Since the Dominican Republic loan falls under the same category [of expanding electricity distribution] as the post-earthquake reconstruction loan in Ecuador, it could be a concessional with lower interest rates, and it may be advantageous to begin a relationship in this way, extending the best possible terms,” explained Rebecca Ray, a post-doctoral research fellow at Boston University’s Global Development Policy Center.

2-3%

the interest rates on concessional loans offered by Chinese policy banks to some developing countries

The difference between the interest rates of concessional loans granted to developing countries – sometimes as little as 2-3% compared to around 6-7% for non-concessional loans – depend on the projects they will finance.

“At this point, it is unclear the extent to which CCECC will or will not be involved in the DR electrical distribution work and whether any of these pitched projects are likely to be financed in the future through additional concessional loans,” Ray added.

China’s newfound congeniality towards the Dominican Republic extends beyond development projects. The rapidly evolving relationship has seen China support the Dominican Republic’s non-permanent place on the UN Security Council. The Caribbean country took its seat on January 1, having failed on two previous occasions in 2002 and 2007.

Miguel Vargas, Minister of Foreign Affairs said: “It is without doubt that this position will be a great challenge for the Dominican Republic, because there are great opportunities and the country will acquire great visibility and influence on a global scale.”

For China, the move further cut the list of countries in the Caribbean that recognise Taiwan as an independent nation. But there are some drawbacks to the Dominican Republic’s new alliance and ending 70 years of international cooperation.

Cases of successful collaboration include efforts to increase rice production, building ‘the Silicon Valley of the Caribbean’ and a Cybernatic Park in the capital Santo Domingo. Taiwan also worked on the national 9-1-1 Emergency and Security System, promoting tourism and the construction of a new centre for children with disabilities (Center for Comprehensive Care for Disability – CAID).

Dominican newspaper Hoy highlighted other Taiwan-backed initiatives, such as a US$4 million agreement to promote the development of micro-, small- and medium-sized enterprises (MSMEs), of which $3 million would come from Taiwan. The project’s future is now uncertain.

US response

With a slew of Central American and Caribbean nations recognising China, the US State Department called in the heads of diplomatic missions in Santo Domingo, Panama City and San Salvador (El Salvador).

According to an official statement, the objective was “to analyse the ways in which the US can support strong, independent and democratic institutions and economies throughout Central America.”

US action against the Dominican Republic could soon follow. News website McClatchy reported on January 9 that federal officials studying the US’ 2005 Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) are considering blocking the former’s preferential, tariff-free access to the US market. An anonymous official cited “questionable ties with China”. The White House, however, has not confirmed this.

Takata said: “In principle it is normal that this type of decision [to recognise China], no matter how delicate the handling, produces some rejection or irritation,” Takata said.

He added: “these frictions in international relations are impossible to avoid. Dominican diplomacy should be handled with kid gloves.”