Adapted from the Report of the National Lawyer's Guild Delegation Investigation of Zones for Economic Development & Employment in Honduras, September 14, 2014
In early 2013, the National Lawyer's Guild were asked to witness the elections in Honduras by Honduran colleagues and allies and to document their findings. NLG organized a delegation of credentialed election observers to serve as “International Accompaniers” under Honduran election law. Their delegation concluded that there were serious problems that significantly undermined any assertion that the election was “free and fair” or “transparent.”
As a result of the contested elections, Juan Orlando Hernandez assumed the Presidency. Since then, Hernandez and the Honduran legislature have enacted a number of laws that provide for the concentration of executive and legislative powers at the expense of individual rights and freedoms and they have implemented policies that privatize state resources and functions.
Photo Credit: Congress’ Last Stand: Privatizations among New Laws in Honduras by Sandra Cuffe (http://upsidedownworld.org)
In early 2014, our colleagues in Honduras asked us to examine the controversial laws and constitutional amendments that facilitated the establishment of Zones for Economic Development and Employment (ZEDEs), also known as ‘charter cities’ or ‘model cities.’
ZEDEs represent a significant expansion of free trade zones in that they facilitate the creation of autonomous privatized city-states designed to exist independently from the legal, administrative and social systems of the Honduran state. They are investor-friendly enclaves governed by their own laws, courts and tax systems. The ZEDEs, proposed to spur economic growth and jobs, provide the legal basis for the corporate takeover of land within Honduras, in many cases without any prior consultation from citizens and communities that currently occupy those lands.
Given the contentious nature of land titling issues in Honduras and the historical abrogation of citizens’ land claims, many observers fear that the ZEDEs will further erode the rights of marginalized groups in Honduras and escalate repression against those who resist being dispossessed. By relinquishing control of key state functions to domestic and foreign investors, the arrangement allows corporations to circumvent local laws and business practices.
On September 6th, 2013, the National Congress of Honduras passed Decreto No. 120-2013, which created a novel legal structure for Zones for Economic Development and Employment, or ZEDEs. The ZEDE law represents an attempt by nationals and foreigners who support the liberalization of trade and labor rights to introduce an especially aggressive and expansive model of Special Economic Zones, or SEZs, even more flexible than those that exist in Shenzhen or Singapore.
ZEDES embrace trade liberalization beyond simple tax and infrastructure incentives: they enable the corporate entities, organizations and individuals who will fund and participate in the zones to structure the social organization itself. This process includes the content of laws, the tax structure, educational, labor and health care system, security forces and other basic elements typically managed by the state.
Many fundamental rights of Honduran citizens who live within the borders of ZEDEs are not protected under the new ZEDE law. These rights include:
- Article 183 - the right to Habeas Corpus or Amparo20,
- Article 65 - the inviolability of a right to life,
- Article 68 - guarantees of human dignity and bodily integrity,
- Article 69 - the guarantee against the extraction of forced labor,
- Article 72 - freedom of expression,
- Article 73 - protections for a free press,
- Article 77 - freedom of religion,
- Article 78, 79, & 80 - guarantees of assembly and association,
- Article 81 - freedom of movement,
- Article 82 & 83 - the right to a defense, to court access, and to counsel for indigents, and
- Article 84 & 85 - freedom from non-legal detainment
Chapter I, Article 1 of the ZEDE law, however, does state that Articles 10, 11, 12, 13, 15, and 19 of the Constitution are fully applicable. These provisions define the territorial limits of Honduras, obligate Honduras to international treaties and forbid the ratification of treaties that damage Honduras’ territorial integrity or sovereignty. The remaining sections of the Honduran Constitution, a document of 379 articles, will have only the effect that they are given by an agreement between the Committee for the Adoption of Best Practices (CABP), the independent governing board of the ZEDEs and the corporate promoters seeking to develop the land.
The 21-member CABP, which was announced in February 2014, includes nine US citizens, three Europeans and only four Hondurans. The CABP is dominated by neoliberal and libertarian activists, several with close connections to former President Ronald Reagan. Numerous questions remain concerning this body. It is unclear, for example, if members of the CABP receive a salary or other compensation for their work.
There is no apparent prohibition on CABP members from investing in the ZEDEs themselves or having personal or business relationships with investors, raising conflict-of-interest concerns. The CABP’s broad unchecked powers are also cause for concern. Among other duties, the CABP is charged with appointing (and removing) the Technical Secretary (the executive officer of the ZEDE), who wields both executive and legislative power over the zones. The CABP is also charged with ZEDE planning and development,approving all internal regulations of the ZEDES, and even filling their own vacancies.
Given the lack of oversight by any branch of the Honduran government, the unrestrained powers granted to ZEDEs create a serious barrier to any future challenges. Another problematic provision of the ZEDE law involves the adjudication of legal disputes. The ZEDEs’ autonomous courts have the discretion to adopt legal systems from outside Honduras. Under the ZEDE legal regime, hired jurists who serve at the recommendation of the Judicial Council of Honduras.
A further particularly troubling aspect of the ZEDE law relates to the provisions that allow for the placement of ZEDEs in areas of “low population density,” and in municipalities in the departments adjoining the Gulf of Fonseca and the Caribbean Sea, without prior consultation with the affected communities.
The website identifies 14 areas as potential areas for ZEDEs in Honduras: Punta Castilla and Suco Paulaya, Colón; Puetro Cortes and Bajamar, Cortés; Cuyamel, Cortés; La Cieba, Atlántida; Quimistán, Santa Bárbara; Ocotepeque, Ocotepeque; Gracias, Lempira; Palmerola, Comayagua; Santa Maria de Real, Olancho; various municipalities of the Gulf of Fonseca; and El Triunfo and Choluteca, Choluteca. It is not clear whether any proposals for the creation of ZEDEs in these zones have been received or accepted.
The website also contains information related to the natural and human resources of many of the potential zones. Many communities believe they are being targeted for such investment. For example, the community historic Garifuna community of Rio Negro of Trujillo was knocked down in 2009 for investment, and the ZEDEs have created an increased the fear of such incidents in the future.
The opacity of the manner in which ZEDEs are being promoted does little to diminish fears. President Juan Orlando Hernandez has recently announced its plans to create an “industrial mining park” in El Corpus, Honduras. There has been no official announcement that this area would is being considered for a ZEDE, the language suggests a special development zone, potentially placing the shelter and livelihoods of residents at risk. These provisions, discussed in greater detail below, represents a significant departure from well-known economist Paul Romer’s original charter cities proposal, and violate international law.
A. The Special Economic Zone
Modern Special Economic Zones, or SEZs, began appearing during the second half of the 20th century. In general, SEZs rely on business and trade regulations that are independent from those of the country in which they are located, with the goal of encouraging commerce and trade. They may focus on a variety of economic initiatives, including ports, production, exportation, resource extraction, and tourism.(Amegual & Milberg, 2008) The primary SEZ of the last two decades is the Export Production Zone, or EPZ, which is mostly dedicated to export-oriented manufacturing and development. The premise behind the creation of these zones is that developing countries will attract export and production oriented corporations through legal, economic, political, and administrative concessions to businesses. (The economic 'mindset' of countries that engage in the robust use of EPZs prioritizes export-processing activities as a way to escape the long-term economic subversion of the global south.)These areas can be specifically limited to a certain, distinct piece of real property, a set of properties owned by a company with an EPZ-type agreement with the local government, or to land owned by the local government. More expansive SEZs include Shenzhen and Hainan in China and the SEZs in Dubai. Honduran SEZs have historically not extended far beyond the “fenced in” model of an EPZ.
Honduras began to experiment with Export Production Zones in 1976 by creating a free zone at Puerto Cortes. (McCallum, 2011) The first zone was created under the authority of the government, which then privatized it in 1987. In 1998, following Hurricane Mitch, the Honduran government declared all of Honduras a Free Trade Zone or FTZ. In the FTZ or EPZ’s, which can be located anywhere in the country, companies are not required to pay import duties on goods and capital equipment, surcharges, selective consumption taxes, or sales taxes. Production and sale of goods inside the FTZ are exempt from federal and municipal taxes. Further, companies do not pay Honduran income tax for 20 years and are not required to pay local municipal taxes for 10 years. Finally, there is no restriction on the use of foreign exchange or the repatriation of capital profits. In 2006, Honduras joined the Central American Free Trade Agreement (CAFTA) that continued the trend towards opening up the Honduran economy to more foreign products. Under CAFTA, Honduras began admitting 80% of US products without tariffs. Within 10 years, nearly all tariffs will be eliminated. (Griswold & Ikenson, 2004) As part of the agreement, 98% of Honduran goods to enter the US duty-free.
B. The Predecessor to the ZEDEs: Charter Cities and REDs
Paul Romer is a well-known economist who promoted the idea of charter cities as an innovative economic development strategy in his 2009 TED Talk. (Romer, 2009) Romer explained that a charter city contains three elements: 1) a charter to set out the rules of the city; 2) a substantial area of uninhabited land; and 3) partnerships with other nations, including a designated body to control the administration of the city. Romer’s ideas were met with a period of generally positive press coverage, (The Economist, 2011) and he encouraged Honduras to use charter cities to promote economic growth. The post-coup Honduran government was receptive to this suggestion, and passed Honduras’ Special Development Regions law (Regiones Especiales de Desarollo or RED) in 2012.
REDs were to be administered by an oversight board known as the Transparency Commission that would have almost absolute control over the creation, management and policies of autonomous political zones within the country. The REDs were to be funded and managed by investors leveraging foreign capital in order to spur investment, to create development opportunities, to construct the necessary infrastructure, and to streamline the cumbersome process of doing business in Honduras. However, in December 2012, the Constitutional Chamber of the Honduras Supreme Court ruled that the RED law was unconstitutional, a decision that prompted former Honduran President Porfirio Lobo to label the Constitutional Chamber as “traitors.”
Less than two months after ruling on the RED law, the Honduran Congress voted to dismiss the four justices on the Constitutional Chamber of the Supreme Court who had ruled against the law. (Phillips, 2014) The same four justices had also alienated the government with their ruling on a police reform law. Many legal observers, including both Honduras’ own Minister of Justice and Human Rights and the UN Special Rapporteur on the independence of judges and lawyers characterized this ouster as a second coup given its failure to comply with procedures set out on the Honduran Constitution. (El Heraldo, 2012) Nonetheless, the Supreme Court upheld the removal of the four judges in a later decision. (El Heraldo, 2013)With the National Party in control of Congress, President Lobo selected the replacements for the four ousted judges based on their adherence to a number of free market and other reforms. (Cuffe, 2014)
Meanwhile, despite the Honduran government’s agreement to create a Transparency Commission that included Romer as a member, the government entered into a memorandum of understanding with an investor group without first consulting the Commission. Romer protested, and the government claimed that due to a legal technicality, the Commission was never officially created. As a result, Romer withdrew from the charter cities initiative in Honduras. The current plan for ZEDEs is distinctly different than Romer’s vision, excluding several safeguards he deemed critical to their operation. (Malkin, 2012)
C. Comparison of the Legal Structure of REDs and ZEDEs
ZEDEs are no longer being marketed as the embodiment of Romer’s charter cities. Rather, Mark Klugmann, a former speechwriter for presidents Ronald Reagan and George H.W. Bush, describes them as “LEAP” zones that provide distinct legal, economic, administrative and political protections for corporations. (Fund, 2014)
Regardless of the nomenclature, there are at least three areas in which the ZEDE model raises greater concerns than Romer’s charter cities model:
- ZEDEs do not present Hondurans with authentic choice because they can be imposed on unwilling communities without any referendum.
- The ZEDE legal regime does not provide for a transition to democratic governance.
- The ZEDE legal regime is based on unprecedented lack of transparency.
1. ZEDE Can Be Imposed on Unwilling Communities
Romer’s vision of locating charter cities only in areas free of inhabitants is absent from the ZEDE law. Romer has stated that “[i]n a charter city, legitimacy derives from residents’ decisions to opt-in to the new rules . . . .” (Fuller & Romer, 2012) To achieve this legitimacy, Romer proposed finding about 1,000 square kilometers of “uninhabited land” on which to locate the city. (Romer, 2009) In his words, “[p]eople can come live under the new charter, but no one is forced to live under it.”
The ZEDE legal regime, however, expressly contemplates establishing zones in inhabited areas. The law specifies that the designation of a ZEDE requires the approval of two thirds of the Congress, and is subject to a local referendum of the area’s existing inhabitants, except in certain designated areas. If the Honduran National Statistics Institute declares the area to have a lower than average population density for a rural area, Congress may impose a ZEDE on any existing communities in that area without even the basic protection of a referendum. This grants the National Statistics Institute the ability to decide when to strip Honduran citizens of their human right to self-determination through democratic governance.
Further, even a referendum does nothing to protect the “choice” of those who vote against having a ZEDE imposed on their community, not to mention those convinced to vote in favor of a ZEDE through a campaign of misinformation. In addition to low population density areas, areas contiguous to the Caribbean Sea and the Gulf of Fonseca, including the islands of Zacate Grande and Amapala that are currently undergoing ZEDE feasibility studies are excluded from the referendum process. Both islands are the home to significant longstanding communities.
Additionally, the legal structure of the ZEDE allows land with unclear ownership to be seized by the state, which will hold all land in rural ZEDEs, and contemplates the appropriation of land from owners do not want to sell their land. In short, ZEDEs can be imposed on inhabited areas, undermining one of the basic principles of Romer’s charter cities: the ideal that everyone who lives and works there has chosen to do so.
2. ZEDEs Provide for No Transition to Democratic Governance
The original RED law required the eventual return to democratic governance. Romer appeared to justify the period without democracy by advocating a “vote-with-your-feet” concept instead, whereby all residents of the charter city would have chosen to live there, and thereby chosen to sacrifice whatever democracy exists outside the city for the economic development inside it. The ZEDE law goes even further than the RED law in that it does not provide for any return to democratic governance short of abolishing the ZEDE altogether. Rather, the ZEDE will be permanently governed by the CABP, which its residents have no power to elect. Simply put, an unelected committee will govern the daily lives of Hondurans living in ZEDEs, and residents will have no democratic control
over local governance.
3. ZEDEs Present a Near Total Lack of Transparency
A major distinction between Romer’s charter cities model and the ZEDE legal regime is that the latter dispenses with a Transparency Commission. Romer and others stated that such a Commission would exist under the RED law and they were so certain of its existence that they named its members. (Cowen, 2012) Shortly after Romer left the RED project, Octavio Sanchez Barrientos and Mark Klugmann, current members of the ZEDE CABP, argued that this Transparency Commission never officially existed because the decree naming Romer and four others to the Commission never completed the publishing process in the Honduran Gazette. (Malkin, 2010)
The RED governance structure was based in significant part on the Transparency Commission. The Economist magazine described this body as “[p]erhaps the most important feature” of the model cities project in Honduras. (The Economist, 2011) The ZEDE regime replaces this Commission with the CABP.
In addition, decreased transparency has coincided with increased domestic political support for model cities in Honduras. This may be because the lack of transparency has allowed proponents of model cities to shift their messaging regarding the ZEDEs depending on the audience. Any agreements related to the ZEDEs are not public information (an agreement with the South Korean government to undertake a feasibility study was leaked, and was not presented to the public as a matter of right), so the government can represent to Hondurans a message focused on job creation. At the same time, the government can represent to potential foreign investors a message centering more on the stability of the ZEDEs and the relative difficulty to alter or eliminate them once they are in place.
Though Romer now maintains no formal affiliation with the ZEDE initiative, his previous involvement with the model cities project brought it publicity and lent a degree of legitimacy that the Honduran government needed to bring in international investors. Indeed, Klugmann now seems to suggest that Romer’s involvement was merely a strategic choice by the Honduran regime. (Klugmann, 2013)
Subsequent to passage, a group of more than 50 NGOs challenged the ZEDE law and ZEDE-related constitutional amendments in the Constitutional Chamber of the Honduran Supreme Court. (Peralta, 2014) Lawyer Adeline Ávila Sarmiento presented the case for the plaintiffs in early 2014, offering 16 arguments for unconstitutionality. Sarmiento asserted that the ZEDEs would impact Honduras’ territorial sovereignty and integrity, the nation’s form of government and the public interest. She also contended that only the Honduran Congress has the authority to establish taxes and to create a monetary system. (Peralta, 2014) The challenge was heard by the Constitutional Chamber – the same court that was installed by the conservative National Party as a result of the judicial coup in January 2013 – and not surprisingly, the Chamber unanimously rejected the challenge.
Guillermo Peña Panting, executive director of the Honduran liberal policy institute, Eleútera stated, “With this decision, the investors, national developers, and interested foreigners…now have the legal backing necessary to proceed forward the project implementation.”
Many of the communities we met with expressed profound concerns as to how ZEDEs would impact their right to vote and to participate in local governance. Community members reported that a number of local mayors had been taken on an all-expenses-paid trip to South Korea to learn about ZEDEs. Members of these communities have not been informed about important realities ZEDEs present: for example, community members asked us if they would still be able to vote for their mayors under a ZEDE, and if so, what power their mayors would have. The answers to these questions are unclear, though it appears unlikely that the position of mayor – or, indeed, of any local elected official – will exist under a ZEDE. Government functions will likely be performed by administrators appointed by the corporations that control the ZEDE and the corporate interests represented in the CABP, stripping the citizens of these communities of their right to democratic governance. What is very clear is that both Honduran society in general and the communities likely to be affected by an eventual ZEDE have not been given information about how and where the ZEDEs will function, and how their civil and political rights will be affected.
Conditions for ordinary Hondurans have deteriorated precipitously since the 2009 coup. The government and security forces are plagued by corruption, poverty is pervasive, and Honduras sits at the apex of the global per capita murder rate. Drug, domestic and gang related violence has claimed thousands of lives. At the same time, state-sponsored repression against those organizing in opposition to government policies that contribute to widespread suffering has escalated, creating a climate of fear and impunity. These harrowing conditions are inter-related. Until Honduran citizens can access jobs and a secure livelihood, they will push back against a government that does not democratize economic and social opportunities. In response, the Honduran government will employ lethal tactics to enforce its priorities and suppress dissent.
Honduras is in desperate need of economic development, but development policies cannot replicate decades of neoliberal initiatives that have done nothing to alleviate the suffering of the majority of Hondurans, and served only to enrich the country’s economic and political elites. Against this backdrop, the prospect of ZEDEs raises considerable alarm about the future for the hundreds of thousands of Hondurans for whom the government already fails to provide security, stability and basic human needs. The rough contours outlined by the law itself ZEDEs will deprive citizens of rights guaranteed by Honduran and international law, and the implementation of these zones threatens to encroach on an even broader range of internationally protected rights. Instead of fulfilling its obligations to care for its citizens, Honduras is relinquishing those duties to international investors who are focused on increasing profits, not providing for economic and personal security. The international community must monitor for a potential human rights disaster created when the Honduran government privatizes the state functions that serve as its core organizing principles and obligations.