In August 2017, Honduran President Juan Orlando Hernández made a rare visit to the coastal community of Crawfish Rock. Tucked away in dense forest on the tropical island of Roatán, Crawfish Rock is home to hundreds of English-speaking families of Black Caribbean descent, 165 miles and a stretch of sea away from the capital Tegucigalpa. In his meeting with the community, President Hernández apologized for long decades of government neglect, and promised to build parks, roads, and internet infrastructure to compensate its residents. “Better roads mean better job opportunities and access for everyone,” said Hernández.
Meanwhile, in the very same month, a new LLC was born to the State of Delaware: The Society for the Socioeconomic Development of Honduras (La Sociedad para el Desarrollo Socioeconómico de Honduras). Back in 2013, the Honduran government — after sacking and replacing four members of its Supreme Court — pushed through the so-called ‘ZEDEs law’, establishing new special “Zones for Employment and Economic Development” modeled on economist Paul Romer’s vision of a Charter City: Honduran territory packaged and sold to foreign investors for a penny. “Who wants to buy Honduras?” asked the New York Times.
The Society for the Socioeconomic Development of Honduras did. Later rebranded Honduras Próspera, the new LLC set its sights on the island of Roatán as the ideal home of the world’s first true charter city. Spread out over 1,000 acres, the Próspera ZEDE claimed to deliver on President Hernandéz’s promise of overdue development. “The concept of free private cities and charter cities, specifically what Próspera is trying to do, is the most transformative project in the world,” said Joel Bomgar, a member of the Mississippi House of Representatives who moonlights as President of Próspera. “There’s not a sort of Singapore of Central America right now. And so that’s what we’re trying to create.”
Fast forward six years, and President Hernández has been extradited to the United States on charges of drug trafficking with El Chapo; his successor, Xiomara Castro, has been elected with the mandate to eliminate the ZEDEs; and her government is locked in a legal battle that will determine the future not only of crypto-libertarianism in Central America, but of international trade law across Latin America at large.
Weapons Against the Weak
Próspera presents its ZEDE as a libertarian paradise, an earthly instantiation of the spirit of its Pronomos Capital funders, Peter Thiel and Marc Andreesen. “We are a private venture in which all relationships are determined by contracts between the organizer and the individual business or residents,” said one Próspera advisor. According to this account, the ZEDEs’ operation would be as immaculate as their inception: “quasi-independent city-states that begin with a clean slate and are then overseen by outside experts,” as The Economist described them. “They will have their own government, write their own laws, manage their own currency and, eventually, hold their own elections.”
At every step of their implementation, however, the ZEDEs have been protected by the legal, political, and economic power of the United States government. Ten years ago, that power took the form of US support for the coup governments of the National Party. Despite the military coup against President Manuel [Mel] Zelaya — unanimously condemned at the General Assembly of the United Nations — the Obama administration funneled millions of dollars to the coup government of President Porfirio Lobo Sosa as he reshaped the country’s constitution and recomposed its Supreme Court to force the ZEDEs into law. Today, the US marshals its power to defend the ZEDEs against what two U.S. Senators have described as “threats of expropriation or actions of the Honduran government relative to U.S. investments.”
The residents of Crawfish Rock did not remain silent when Próspera rolled onto the island of Roatán. Together with other community organizations across the country, they founded the National Movement against the ZEDE and in Defense of Sovereignty. “We are not nor do we accept being the scene of a neocolonial invasion, much less giving up our space, to the detriment of economic, social, cultural, environmental, ancestral and constitutional rights,” the Movement declared.
On the campaign trail, presidential candidate Xiomara Castro heard their call. “Every millimeter of the Homeland that they usurped in the name of the sacrosanct freedom of the market, ZEDES, was irrigated with the blood of the native peoples,” she said. “My government is going to return to a state of justice and law so that this does not happen again.” In January 2022, the Honduran Congress voted unanimously to repeal the ZEDEs law, and the President formed a special Commission — which includes the country’s Attorney General, Finance Minister, Foreign Minister, and Presidential Commissioner against the ZEDEs — to oversee their elimination.
Próspera’s retaliation was swift. In December 2022, the corporation filed a $10.7 billion dollar claim against the Honduran government with the International Centre for Settlement of Investment Disputes (ICSID) — a claim that would equal more than 80% the government’s total 2022 expenditures — citing the US Central American Free Trade Agreement (CAFTA-DR). Members of Congress and the Biden administration quickly rallied to defend and expand these CAFTA provisions. “We are considering proposing enhancements to the U.S. investor protections of 22 U.S.C. §2370(e), commonly known as the ‘Hickenlooper Amendment,’ to address any threats of expropriation or actions of the Honduran government,” Bill Hagerty (R-TN) and Ben Cardin (D-MD) wrote to Secretary of State Antony Blinken. The US Trade Representative Katherine Tai, for her part, “urged Honduras to take measures to improve its investment climate.”
In Crack-Up Capitalism, the historian Quinn Slobodian exposes the myth that — in Honduras and across the world — the anarcho-capitalist project could be realized without the ruthless application of state power. He cites an admission by the Seasteading Institute’s Michael Strong: “Libertarians don’t like international trade law, but it turns out international trade law is tremendously helpful.”
The Próspera case reveals, however, that US international trade law is a precondition, not simply a “helpful” backstop, for these anarcho-capitalist adventures. In 2014 — just one year after the passage of the ZEDEs law — the coup government in Honduras signed a treaty with the State of Kuwait for “reciprocal promotion and protection of investments,” which promised to protect all Kuwaiti investments in the ZEDEs for “a period of no less than 50 years.” Today, Próspera cites the “Most Favored Nation” principle enshrined in CAFTA to extend this 50-year protection to US investments, as well — and uses that 50-year timeline to calculate the $10.7 billion in expected future profits lost to the democratic decision to derogate the ZEDEs law.
If the ZEDEs have generated the most international outrage — a clear-cut case of corporate colonialism set among the poorest communities in Honduras — the system of Investor-State Dispute Settlement (ISDS) is the true scandal. The ISDS system, written into US bilateral investment treaties across the world, provides the international scaffolding for corporate power and its abuses, allowing investors to threaten, extort, and extract billions of dollars from governments in the developing world for any regulation that might impinge on their profit margins — from minimum-wage provisions to environmental protections.
The scandal is not only that ISDS serves as a one-sided legal weapon against the weak: through ISDS, corporations can sue governments, but governments still lack a legally binding instrument to hold foreign corporations accountable for their crimes. It is also that, through the “Most Favored Nation” principle, the legal weapon of the ISDS can only grow stronger, as new treaties extend and defend the privileges of the last. The case of Próspera and its application of the Honduras-Kuwait Treaty thus reveals the spiraling injustice of the ISDS system, shifting the balance of power in the international trade system toward the corporation and away from the state, toward the multiplication of profits and away from the fundaments of democracy.
Rules for Thee
Since the start of the Biden administration, the United States has celebrated a seachange in its approach to international trade law. If Donald Trump “crippled” the World Trade Organization, the Biden administration has recast this crisis as an opportunity to ditch the old orthodoxy and welcome new trade rules that “equip it to better tackle modern-day imperatives,” as Biden has defined them. “The WTO and the multilateral trading system’s rules were never meant to be immutable or static,” said the US Trade Representative Katherine Tai. “Right now, being committed to the WTO also means being committed to a real reform agenda.”
Among its Southern neighbors, this celebration has felt more like a gaslighting ceremony. While the US shapes a new set of trade rules to fit its “modern-day imperatives,” countries like Honduras are still constrained, disciplined, and potentially bankrupted by the old set of trade rules to the benefit of US-domiciled LLCs like Próspera. In trade, as in so many other policy areas, the Biden administration’s commitment to a “rules-based international order” looks more rules for thee, but not for me.
Honduras is already contesting this injustice. In early November, we joined a high-level delegation to Tegucigalpa to support President Xiomara Castro and her Commission for the Defense of Sovereignty and Territory to develop a strategy to resist, challenge, and reform the international trade system to restrict corporate power and dismantle the investor-state dispute settlement regime. As Honduras takes over the presidency of the Community of Latin American and Caribbean States (CELAC) in 2024, President Castro has an opportunity to bring the issue to the head of the hemispheric agenda.
The Biden administration must be ready to negotiate. President Biden has already pledged not to sign any future trade deals that include ISDS provisions. But the case of Honduras shows that this pledge is insufficient: only the elimination of ISDS from existing US trade agreements can defend democracy from these brazen corporate interventions.
The stakes for Honduras are not simply the billions of dollars otherwise destined for health, housing, and education. They are the very existence of Crawfish Rock: the past and future of the families who have inhabited the island for centuries. “If you take away our land, if you take away our cultural heritage, our way of living, you take away everything, the entire identity of the group as English-speaking blacks,” says the Vice President of the Crawfish Rock governing council Venessa Cardenas Woods, “then you would be eliminating an entire people.”
