Honduran Supreme Court Declares ZEDEs Unconstitutional

The Honduran Supreme Court has declared laws enabling the creation of special economic zones, known as ZEDEs, unconstitutional. These zones, which touted low taxes and minimal regulations, attracted foreign investment. Existing ZEDEs now face legal uncertainty, as the court plans to release additional guidelines on their status.

The Honduran Supreme Court on Friday declared unconstitutional laws allowing for the creation of special economic zones exempt from national laws and taxes known as ZEDEs, which have attracted foreign investors via low tax rates and light regulation.

A small number of ZEDEs operate in Honduras after they were granted 50-year concessions, including so-called start-up cities that seek to boost investment and jobs while enjoying significant autonomy over how they are run. The law allowing them was approved about a decade ago by a conservative government, but leftist President Xiomara Castro has called for the semi-autonomous zones to be abolished due to what she argues has been a hit to national 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.

(With inputs from agencies.)