Supreme Court of Honduras declares special economic zones unconstitutional

Honduras’ Supreme Court on Friday declared unconstitutional laws that allow the creation of special economic zones exempt from national laws and taxes, known as ZEDEs, which have attracted foreign investors thanks to their low tax rate and limited regulation.

A small number of ZEDEs operate in Honduras after being granted 50-year concessions, including so-called pop-up cities that seek to boost investment and employment while enjoying significant autonomy over how they are run.

The law allowing them was passed about a decade ago by a conservative government, but leftist President Xiomara Castro has called for the abolition of the semi-autonomous zones, which she considers an attack on national sovereignty.

“We celebrate and recognize the patriotic, historic, fair and legal decision,” Castro said of the Supreme Court ruling on his X account. “Justice for the Honduran people means not selling our territory in parts or privatizing our sovereignty,” he added.

By a majority vote, the court ruled that the law establishing the conditions for the creation of the Zones of Employment and Economic Development, or ZEDE, as well as related constitutional reforms, violated “stone-stone” articles of the Constitution.

The ruling prohibits the creation of new ZEDEs. According to court spokesman Melvin Duarte, it also means that existing ZEDEs will be declared illegal.

But he added that the court will have to publish an “explanatory section” on how to treat the ZEDEs already operating in Honduras, without clarifying their final destination.

The best-known ZEDE, called Prospera, is located off the Honduran coast, on the island of Roatán.

Following the Court’s ruling, Próspera’s technical secretary, Jorge Colindres, said on his X account that the highest court in Honduras could not “give retroactive effect” and eliminate acquired rights of residents and workers of the ZEDEs.

Before the court’s decision, Prospera warned in a statement that a ruling declaring the zones unconstitutional would “create a climate of insecurity and uncertainty” and undermine ties between Honduras and the United States.

The ZEDEs have attracted interest mainly from US investors, according to Prospera, which added that “dozens” of US lawmakers had expressed concerns before the ruling.

He added that the decision could lead to “the cancellation of visas,” the suspension of aid and even the interruption of the flow of remittances,” according to Prospera.

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