Honduran Supreme Court Declares ZEDEs Unconstitutional

The Honduran Supreme Court has ruled the legal foundation of special economic zones known as ZEDEs unconstitutional, which has disrupted ongoing operations and leaves their future uncertain. Approved a decade ago to attract investment, the zones have faced opposition from President Xiomara Castro. The ruling could impact U.S. investor relations.

The Honduran Supreme Court on Friday 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. The ruling disrupts ongoing ZEDE operations and leaves their future uncertain.

The law allowing these zones was approved about a decade ago by a conservative government eager to boost investment and job creation. However, leftist President Xiomara Castro has been a vocal opponent, advocating for the abolition of these semi-autonomous entities. "Justice for the Honduran people," Castro wrote on X, "means not selling off our territory piecemeal or privatizing our sovereignty."

By a majority vote, the court found that the terms for establishing Zones for Employment and Economic Development (ZEDEs) and related constitutional reforms violated articles of the constitution "written in stone." While the ruling prevents new ZEDEs from being established, the fate of existing ones remains unclear and awaits further clarification. The court's decision could strain relations with U.S. investors, potentially leading to canceled visas, disrupted remittances, and a chilling effect on investment.

(With inputs from agencies.)