From xxxxxx <[email protected]>
Subject A Private Government in Honduras Moves Forward
Date February 23, 2021 1:05 AM
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[Hondurans are facing a sudden onslaught of these new
jurisdictions, Economic Development and Employment Zones (ZEDEs),
which international promoters refer to as “charter cities,”
“startup cities,” or “free private cities.” ]
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A PRIVATE GOVERNMENT IN HONDURAS MOVES FORWARD  
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Beth Geglia and Andrea Nuila
February 15, 2021
NACLA
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_ Hondurans are facing a sudden onslaught of these new jurisdictions,
Economic Development and Employment Zones (ZEDEs), which international
promoters refer to as “charter cities,” “startup cities,” or
“free private cities.” _

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It’s almost like an insult that this is happening to us now, after
so much sacrifice to develop the community to the point it’s at
today,” Venessa Cardenas explains, in Crawfish Rock, Roatán, as she
remembers her grandmother who passed away last May at 90 years old.
“She was the one who fought for us to have the road, the school,
water, all of the basic projects… the government has never given us
anything that we didn’t fight for. She gave everything for this
community. She’s the reason me and my family are so firm.”

Venessa’s community is located between two tourism
projects—Pristine Bay and Palmetto Bay—on the Honduran island of
Roatán, where she serves as vice-president of the _patronato, _the
community governing council. Her family has been in Crawfish Rock for
five generations and seen different kinds of tourism investment come
to the island over the years. But recently, Crawfish residents learned
that their municipality was ground zero for a new enclave model that
has allowed a group of investors from the Washington DC-based firm
NeWay Capital
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to establish an independent governance system as an experiment with
privatized jurisdictions.

Hondurans are facing a sudden onslaught of these new jurisdictions,
Economic Development and Employment Zones (ZEDEs), which international
promoters refer to as “charter cities,” “startup cities,” or
“free private cities.” U.S. economist Paul Romer, currently
disassociated from the project, and Honduran politicians from the
National Party proposed the zones shortly after the 2009 military
coup, which made the country a ripe location for experimentation with
extreme neoliberal policies. The 2013 ZEDE law provided unprecedented
legislative, administrative, judicial, and financial autonomy to
investors for a wide range of territorial ventures, including urban
development and resource extraction.

Government promises of fantastical new city projects that would build
a “Honduran Hong Kong” appeared to be smoke and mirrors, as behind
the scenes attempts to establish ZEDEs were largely kept secret from
the public.The legal framework of the ZEDE caught the attention of
libertarian and free-market venture capitalists who sought
opportunities to create a global market of private governments.
However, internal disagreements and public controversies over
government corruption, drug trafficking, and electoral fraud slowed
the project. Government promises of fantastical new city projects that
would build a “Honduran Hong Kong” appeared to be smoke and
mirrors, as behind the scenes attempts to establish ZEDEs were largely
kept secret from the public. Since May 2020, two ZEDEs have been
officially launched: the “Honduras Próspera” ZEDE (PZ) on Roatán
where Crawfish Rock is located, and the “Ciudad Morazán” ZEDE in
the industrial town of Choloma. The founders of Próspera have
referenced a third site in La Ceiba, and are also considering Cuyamel,
Puerto Cortés, Puerto Castilla, and Amapala in the southern region as
additional future hubs.

According to Crawfish residents, developers did not present the
Próspera project to them as a ZEDE. Once it was revealed to be a
ZEDE, the project provoked national debate over whether the ZEDEs
represented a privatization of Honduran sovereignty or were simply a
new form of democratic local government. The constitutional charter
of Honduras’ first ZEDE, Próspera, along with its extensive code of
rules
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was made public at the official site [[link removed]] of the
Published Internal Rules of the Próspera ZEDE. While the ZEDE law,
passed in 2013, has been analyzed elsewhere
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here we will discuss the form of government this group of investors
has established by way of the Próspera charter within the parameters
of autonomy provided to them in the ZEDE law. Implications of the
Próspera governance system include an erosion of popular sovereignty,
a discriminatory model for most Hondurans, and a misleading and faulty
internal democracy. 

GOVERNANCE STRUCTURE AND DECISION MAKING IN THE PRÓSPERA ZEDE

The structure of the Próspera ZEDE, as outlined in the reformed
constitutional charter approved on July 26, 2019, is a highly
corporatized model of governance with minimal opportunities for
participation. A primary authority, the Technical Secretary (TS),
governs the ZEDE alongside other key bodies, including the “Promoter
and Organizer,” a private company registered in Delaware called
Honduras Próspera LLC, and the Council of Trustees, referred to as
“the Council” in this article. The Council oversees the PZ Trust
and is the PZ’s primary governing body, with nine voting members
including the TS and NeWay Capital and Honduras Próspera LLC CEO
Erick Brimen as Secretary. Other Trustees include Oliver Porter,
founder of the Sandy Springs model
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Jeanette Doran, President of the North Carolina Institute for
Constitutional Law, and Gabriel Delgado, a tech and cryptocurrency
entrepreneur associated with the Francisco Marroquin University in
Guatemala. They serve seven-year terms with no term limits. Próspera
also has two Council Observers: Rodrigo Quercia, CEO of Brazilian real
estate, retail, and agribusiness conglomerate Grupo Solpanamby, and
Tom Murcott, who played a lead role in attracting investors and
residents to the Songdo IDB in the Incheon smart city in South Korea.

The charter allows Próspera to operate as a corporation that can
contract with private or public actors. One primary contract is with
the General Service Provider (GSP), a private entity to which the
provision of services such as water and electricity, education, and
healthcare as well as other elements of local governance, are
outsourced. The GSP can collect fees in exchange for services and pays
a determined royalty to the Council.

Any semblance of local democracy in the Próspera charter is
undermined by the power of the Committee for the Adoption of Best
Practices (CAMP) over each ZEDE government. The CAMP is a 12 to
21-person body that was appointed by President Hernández and ratified
by Congress in 2014. It is subject to little oversight and fills its
own vacancies. According to the most recent publicly available
information, its members include nine U.S. citizens and only four
Hondurans. The CAMP must approve the ZEDE’s choice of Technical
Secretary as well as the zone’s internal rules and norms and
therefore holds the power to override local decisions.

Even so, limits to internal democratic decision-making in the PZ are
also significant. Honduras Próspera LLC selects four of the nine
Council Trustees. Although PZ “Residents,” those who are approved
and fulfill a list of criteria explained below, elect a majority of
decision-makers—four Council Trustees plus the Technical
Secretary—further stipulations chip away at even this partial
representation. Until August 2025, or when PZ reaches a population of
10,000 residents, two of the four Trustees subject to Resident vote
will be elected by land-owning Residents only. Land-owners will
exercise one vote per square meter of land owned and registered in the
ZEDE’s independent land registry. After this point, the Council will
determine the continuation of vote-by-land ownership. By then, the PZ
will have likely entered many contracts that would be difficult to
reverse, as the passage of any rule that terminates an existing
contract will require the vote of two thirds of the Council.

Only after Natural Residents reaches 10,000 do Residents have the
ability to repeal existing rules with a two-thirds vote, and new rules
by a simple majority, but only within 7 days of the Rule’s passing.

RESIDENT STATUS AND LIKELIHOOD OF EXCLUSION 

Despite a rhetoric of freedom and choice, ZEDE residency is likely to
be restricted, even among Honduran citizens. New residents must be
approved by Próspera’s private General Service Provider (GSP) using
criteria including available space in the ZEDE, ability for the ZEDE
to manage growth, the reputation and social harmony of Próspera, the
applicant’s criminal record, and the ability to pay applicable taxes
and fees. These include an annual Resident fee of $260 for Honduran
citizens and $1,300 for foreigners, an annual e-Gov license fee of
$130 to access Próspera’s digital governance platforms, and a
general liability insurance policy sold by the GSP at an annual
premium of $260 maximum.

Through vague language such as “reputation and social harmony,” it
is highly possible the GSP will use its discretion to achieve
political and ideological cohesion in Próspera through exclusion. In
2019, Titus Gebel, a former member of the ZEDE of North Bay Council
and a chief architect of the Próspera legal system, told a German
media outlet
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that the “ZEDE will reserve the right not to admit, for example:
serious criminals, communists and Islamists."

Zone administrators tout this Agreement as a codification of the
“social contract” assumed between citizens and governments in the
modern nation-state.Such cohesion-by-design is also reinforced by an
“Agreement of Coexistence,” a legally binding contract that
residents must sign with the PZ government. Zone administrators tout
this Agreement as a codification of the “social contract” assumed
between citizens and governments in the modern nation-state. This
time, citizens (Residents) can sue their governments for breach of
contract. But what the Agreement does in effect is reduce, if not
eliminate, the possibility for contentious politics. In Section 1(b),
Residents agree to “such delegation of popular sovereignty as is
necessary to sustain the power and authority held in trust by the
PZ” as well as to “comply with the provisions of the PZ Promoter
and Organizer’s master plan common interest community
declaration,” to be enacted on all land registered within the PZ. In
exchange, Residents are promised “legal stability” for individuals
and property.

The Agreement also seems to preclude the possibility of social
welfare. Residents must commit to “self-responsibility,” meaning
the ability to meet the financial obligations to the PZ without
relying on subsidies from the PZ government. Breach of this Agreement
can result in revocation of residency. New Residents are also subject
to a probationary period of one year, during which the PZ can
terminate their Residency without cause. Terminated Residents have 180
days to vacate the zone before being evicted.

The cost, requirements, and subjective selection of Residency make it
likely that some Hondurans who work in the zone will be relegated to a
non-Resident underclass.

JUSTICE SYSTEM

The Agreement of Coexistence also upholds the Resident Bill of Rights,
which emphasizes individual freedoms and protects private property.
This individualist approach to subjective rights contrasts with
current international attempts to increase protection of collective
interests and the commons. PZ’s rights scheme also breaks with
social rights, such as certain labor rights, health, maternity leave,
and the people’s right to insurrection, that crystallized in the
1982 Honduran Constitution. Even though all ZEDEs are ordered to
fulfill the principles of human rights in the Honduran Constitution,
it is legally unclear how the latter can coexist with the
property-based regime ingrained in the Próspera Charter.

PZ's adjudicative system is designed to integrate common law as an
alternative to the country’s civil legal system. It is made up of
the Próspera Court and the Próspera Arbitration Center (PAC). The
Próspera Court is a judicial body that holds exclusive jurisdiction
in PZ but is limited to criminal matters and those related to children
and adolescents. The CAMP proposes members of the Próspera Court, who
are then appointed by the Honduran Judiciary Council, but as of 2020
there is no information available about the judges who will serve on
the Próspera Court.  

The PAC is a dispute settlement mechanism that may eventually provide
services to various ZEDEs, which the Agreement of Coexistence obliges
Residents to use for all disputes except those specifically delegated
to the Court. Eight non-Honduran arbiters and one Honduran arbitral
officer have already been appointed to the PAC by Próspera ZEDE. The
three Senior Arbiters [[link removed]] of the PAC are from
the state of Arizona. It is also notable that the CEO and Secretary of
the PAC, Humberto N. Macias, is also Deputy General Counsel for
Honduras Próspera LLC. The PZ Court, the PAC, or any arbitration
tribunal is also empowered to reform the Próspera Charter, subject to
ratification by a simple majority of natural Residents through a
referendum.

Individuals or local communities affected by the PZ’s activities may
have restricted access to the PZ adjudicative system for several
reasons. First, information regarding the PZ’s legal and
adjudication system is neither clear nor easily accessible to the
public. Adopting a new legal system might exclude Honduran lawyers
who lack the means to adapt to a new common law practice. For example,
Próspera has created a legal framework called "Roatán Common Law
Code" that compiles a large set of norms on private law, including
from U.S. common law. Second, it is unclear if the adjudicative system
will be physically accessible and affordable. According to a PAC fee
calculator [[link removed]], for a Próspera resident to
file, for example, a labor related claim of $10,000 under standard
arbitration procedures, the estimated fee would be $1,120 with $392 of
that amount paid upon filing, and all fees recoverable as costs by the
prevailing party. For Honduran Citizens (not Próspera Resident) this
same proceedings would be $378 more expensive. Finally, communities
affected by Próspera activity outside of its borders have limited
mechanisms for accessing justice either through Honduran courts that
have no jurisdiction over the PZ, or through the PZ judicial system.

Once the population of Próspera reaches 1,000 natural person
Residents, those who are Residents of Próspera can file complaints
through an Ombudsman appointed by the CAMP for violations of the
Residents’ Bill of Rights. However, the Ombudsman is severely
disincentivized to pursue complaints because it is personally
financially liable if arbitrators determine the proceedings to have
been “an abuse of process or otherwise frivolous.” 

According to Cardenas, Próspera representatives have done little to
explain Resident status or the governance structure to the Crawfish
population. To the contrary, local residents understand that the
municipal government no longer holds jurisdiction over the 58 acres
now incorporated into the ZEDE model. The land has allegedly been
transferred from the municipal registry to an independent Próspera
ZEDE land registry.

The ZEDE law gives the Honduran state the ability to expropriate land
for the development or the expansion of each zone, which must be
compensated, but cannot be challenged by landholders.Land
dispossession is an essential concern of communities. The ZEDE law
gives the Honduran state the ability to expropriate land for the
development or the expansion of each zone, which must be compensated,
but cannot be challenged by landholders. According to the Permit
Registrar of PZ, investors are even able to apply for an Indigenous
Impact Permit when a project poses a “substantial risk of
involuntary displacement of indigenous populations groups.” The
permit lasts for six months and costs $200.

In an audio file sent to the community, NeWay CEO Erick Brimen has
claimed, as has the Honduran government, that Próspera holds no
intention to expropriate Hondurans of their land: “[We] have not
taking any land, have not forced any transaction, and never will.
Never will. You have my word on that. You don't have to take my word,
but you have it.”

Próspera is now building and marketing luxury homes on the property.
According to a Próspera survey, those interested in inhabiting the
zone can seemingly reserve a residence with a refundable $5,000
reservation fee. Bulldog Security contractors have begun securing the
PZ area. Additionally, the Próspera ZEDE has begun admitting
Residents and aims to attract mobile tech workers, entrepreneurs, and
investors by offering an expansive menu of regulatory options.

But Cardenas asserts that the primary struggle right now is to get
Congress to repeal the ZEDE law.

“I don’t care what anyone says about expropriation. What I care
about is what’s written in the law passed by Congress. That’s what
matters…” she says. “They might say ‘we won’t expropriate
you,’ but maybe the next person will be different. Maybe other
investors will need Crawfish Rock or another community, so the risk is
very high for Hondurans.”

_ANDREA NUILA HERRMANNSDORFER is an international lawyer and PhD
candidate in law at the University of Bremen. Her doctoral research
focuses on the legal implications of zones such as ZEDE in the future
of public international law._

_BETH GEGLIA is a researcher and PhD candidate in anthropology at
American University. Her doctoral research focuses on ZEDE
development, governance, and land struggles in Honduras. _

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