TEGUCIGALPA, (Reuters) – The Honduran Supreme Court yesterday declared unconstitutional the legal underpinning of special economic zones exempt from local laws and taxes known as ZEDEs, which have drawn foreign investors lured by the promise of light taxation and regulation.
A small number of ZEDEs operate in Honduras after they were granted 50-year concessions, including so-called start-up cities that enjoy significant autonomy over how they are run.
The law allowing them was approved about a decade ago by a conservative government that touted the zones’ ability to boost needed investment and job creation, but leftist President Xiomara Castro has called for the semi-autonomous entities to be abolished.
“Justice for the Honduran people,” Castro wrote on X on Friday, “means not selling off our territory piecemeal or privatizing our sovereignty.”
By a majority vote, the court ruled that the law laying out the terms for creating the Zones for Employment and Economic Development, or ZEDEs, as well as related constitutional reforms, violated articles of the constitution “written in stone.”
The ruling prohibits new ZEDEs from being established. According to court spokesman Melvin Duarte, it also implies that existing ZEDEs will be declared illegal.
But he added that the court will need to publish an “explanatory addendum” regarding how to deal with ZEDEs already operating in Honduras, leaving their ultimate fate unclear.
The most well-known ZEDE, called Prospera, is located off the Honduran coast on the island of Roatan. Ahead of the court decision, it warned that a ruling declaring the zones unconstitutional would “create a climate of insecurity and uncertainty for investors and employees” and undermine ties between Honduras and the United States.
ZEDEs have attracted interest largely from U.S. investors, according to Prospera, which added that “dozens” of U.S. lawmakers had expressed concern ahead of the ruling.
The decision could cause “visas to be canceled, the suspension of support and even a disruption in the flow of remittances,” Prospera said.
