Cancellation of the ZEDE law in Honduras and international investment law issues

Purpose In 2013, Honduras Congress passed the Zones for Employment and Economic Development (ZEDE) Organic Law, along with some constitutional changes, to create ZEDEs, which are essentially special economic zones with some unique features. Prospera Honduras Inc., a company with substantial United States investment, invested in Honduras relying on the ZEDE Organic Law and the Free Trade Agreement between Central America, the Dominican Republic and the United States of America (CAFTA-DR). In 2022, Honduras cancelled the ZEDE Organic Law, allegedly harming Prospera Honduras Inc.’s investments. Prospera and some other foreign investors have initiated an investor-state arbitration against Honduras for several alleged breaches of CAFTA-DR provisions. Honduras has remained silent and decided not to participate in the arbitration. This paper aims to examine whether the cancellation of the ZEDE Organic Law gives rise to international investment law obligations under the CAFTA-DR. Design/methodology/approach This is a doctrinal research and contains qualitative analysis. Findings The article concludes that CAFTA-DR preserves some regulatory space for host states; therefore, it would be wrong to assume that the arbitral decision in Prospera Inc. and others v. Honduras will favour only the foreign investors. This article also argues that, drawing insights from this dispute, future International Investment Agreements should better preserve Indigenous people’s rights. Moreover, the host states should reconsider whether they intend International Investment Agreements (IIAs) to apply to special economic zones in future. Originality/value There is no existing scholarly work examining the international investment law issues relating to the cancellation of ZEDEs in Honduras. Therefore, the findings of this article will be novel.