Honduras’ Top Court Declares Self-Governing ZEDE Zones Unconstitutional, Reports Reuters

By Gustavo Palencia

TEGUCIGALPA (Reuters) – The Honduran Supreme Court ruled on Friday that the legal foundation for special economic zones, known as ZEDEs, which were designed to operate outside local laws and taxes, is unconstitutional. These zones attracted foreign investors with promises of minimal taxation and regulation.

Currently, only a few ZEDEs are functioning in Honduras, having been granted 50-year concessions. These include so-called start-up cities that have considerable autonomy in their operations.

The legislation that enabled their creation was passed approximately ten years ago by a conservative administration that highlighted the zones’ potential to stimulate investment and job growth. However, leftist President Xiomara Castro has advocated for the abolition of these semi-autonomous entities.

"Justice for the Honduran people," Castro stated on social media, "means not selling off our territory piecemeal or privatizing our sovereignty."

In a majority decision, the court determined that the law defining the Zones for Employment and Economic Development, along with associated constitutional amendments, transgresses certain "immutable" articles of the constitution.

The ruling bans the establishment of new ZEDEs, and according to court spokesman Melvin Duarte, it suggests that existing ZEDEs will also be deemed illegal. Nevertheless, he mentioned that the court would need to provide an "explanatory addendum" to clarify the status of the ZEDEs already in operation, leaving their future uncertain.

The most prominent ZEDE, Prospera, is situated off the Honduran coast on Roatan Island. Prior to the court’s ruling, it indicated that a declaration of unconstitutionality would "create a climate of insecurity and uncertainty for investors and employees" and could harm relations between Honduras and the United States.

Prospera has noted that U.S. investors have shown significant interest in these zones and that "dozens" of U.S. lawmakers expressed their concerns prior to the ruling. The decision could lead to "visas being canceled, the suspension of support, and even a disruption in remittance flows," according to Prospera.