International renegotiations: the case of the Dominican Republic and Falconbridge

In 1969, Falconbridge Ltd agreed to expand greatly the facilities operated by its subsidiary in the Dominican Republic. Over the succeeding years, the company mined, processed and exported a large proportion of the country's nickel reserves. Due to worldwide market conditions, however, the company made losses rather than profits, and the Dominican government received little financial benefit from the company's operations. Matters came to a head in November 1987 when President Balaguer of the Dominican Republic unilaterally imposed taxes on company imports and exports. This action was significant because under a long-standing agreement with the Dominican government, Falconbridge was only obligated to pay income taxes and had an exemption in perpetuity from all other taxes. When the company refused to pay the new taxes, the government began to curtail nickel exports. Meanwhile, on world markets, the price of nickel soared. This paper briefly describes how the world nickel market has evolved, and then focuses attention on the relationship between Falconbridge and the Dominican Republic. It outlines the issues that arose, describes the renegotiation process itself and analyses how matters were resolved.