EXECUTIVE SUMMARY

Honduras has many characteristics attractive to international and domestic investors: the close proximity to U.S. markets, legal protections and low tariffs provided under the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), a skilled labor pool with well organized labor unions, a rich endowment of natural resources, and productive agricultural zones. Investors report, however, that persistent uncertainty caused by security concerns, corruption, inadequate rule of law, expensive and unreliable electricity, problems with licensing and permitting, and deteriorating infrastructure continue to present significant challenges for enterprises of all sizes. According to the International Monetary Fund (IMF), real Honduran GDP grew by 4 percent in 2022 and IMF economists predict the economy will have grown by 3.7 percent by the end of 2023.

The administration of Honduran President Xiomara Castro has continued to push forward with its plan to “re-found” the country, purporting to reign in the country’s systemic corruption and establish an economic system that benefits all Hondurans. Many of these efforts appear well intentioned, but investors report that the fast pace of legal and regulatory changes, persistent government messaging blaming the private sector for the country’s poverty and corruption, and lack of rigorous cost-benefit analysis underpinning economic policymaking has created a climate of uncertainty that has driven a decline in private investment and job creation.

Many entrepreneurs and business owners, including more than 200 U.S. companies, operate thriving enterprises in Honduras, but nearly every company in contact with the Embassy has reported significant disruptions during the past year due to government policies such as the repeal of the regulatory framework allowing temporary per-hour employment, elimination of the public procurement infrastructure, and monetary and exchange rate policies that have led to widespread shortages of U.S. dollars in the highly import-dependent economy. Armed and frequently violent land invasions of private property are increasingly widespread throughout Honduras; the government recently announced the creation of a commission to resolve land disputes and enforce legal titles, which has created cautious optimism among private investors. Honduran businesses report continued problems in the electricity subsector, with many new businesses being refused hookups due to electricity shortages, and reliable service only possible through private generation. As of June 2023, the government started to implement a plan of scheduled blackouts to ration electricity throughout the country. Efforts to reform the subsector have not been successful – electricity remains prohibitively expensive and unreliable – and the loss-making state-owned utility continues to lose almost 40% of the electricity it generates to theft and technical losses, according to government data.

As of June 2023, the National Assembly is debating a tax law that, if passed, would eliminate the country’s existing tax incentives for new investment, replacing them with two vaguely defined new structures. Many private business groups have publicly expressed concern that this law would negatively affect the investment climate, and the current debate has contributed to additional concern about the predictability of investment returns.

The administration’s messaging on international trade has also been a source of uncertainty in the investment climate. Despite the potential benefits of CAFTA-DR to both Honduran exporters and consumers, President Castro has repeatedly made public statements that Honduras would seek to renegotiate the agreement. In the meantime, non-tariff measures have increased, which investors perceive to be directed largely against U.S.-sourced agricultural imports.

Despite all of these challenges, there are still lucrative business and investment opportunities in Honduras, and many multinationals are expanding their footprint in the country. Potential investors considering projects in the country should nevertheless ensure their projected returns include an appropriate risk premium.

Policies Towards Foreign Direct Investment

Honduras is generally open to foreign investment. The Castro administration has made public statements that it recognizes the importance of foreign investment to bring new opportunities, generate employment, and stimulate economic growth. At the same time, a number of senior officials in the Castro administration have pushed a narrative that the private sector is not contributing to the common good of the Honduran people. As a result, the business community reports that the administration’s economic policy reforms and rhetoric have led to an uncertainty undermining the investment climate.

Many representatives from the international investment community say that the Castro administration’s policies have made the investment climate in Honduras less attractive. Some examples cited by the business community include the repeal of the hourly employment law in April 2022, under which all Honduran employees must now be salaried, eliminating flexible hiring practices vital for seasonal work; and a May 2022 energy law, which contains provisions that energy producers understand to authorize the expropriation of energy investments if the government is not able to renegotiate power-purchasing agreements. The status of the country’s special economic “ZEDE” zones remains unclear, with the legislative framework no longer in force but the constitutional framework remaining in place, which has contributed to uncertainty over the government’s commitment to investment protections.

The legal framework for investment includes the Honduran constitution, the investment chapter of CAFTA-DR, and the 2011 Law for the Promotion and Protection of Investments. The Honduran constitution requires all foreign investment to complement, but not substitute for, national investment. Both the 2011 Law and CAFTA-DR guarantee national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy and include enhanced benefits in the areas of insurance and arbitration for domestic and foreign investors. In addition to liberalizing trade in goods and services, CAFTA-DR includes important requirements relating to investment, customs administration and trade facilitation, technical barriers to trade, government procurement, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environmental protection.

The National Investment Council (CNI), the Ministry of Investment Promotion, the Ministry of Economic Development, the Ministry of Finance, and the Ministry of Strategic Planning all have equities in attracting foreign investment and an ambitious job creation mandate. None of the agencies, however, have broad authority to “fast track” foreign investment projects, meaning companies are often left navigating various government ministries with overlapping mandates and no clear interagency coordination. CNI was formed and operates under the Law for Protection and Promotion of Investments. Critics complain that lack of clarity and overlapping responsibilities among these entities undermine the government’s ability to effectively promote Honduras as a profitable destination for foreign capital. Representatives from the Honduran government have expressed a desire to consolidate investment promotion activities within one Ministry or develop a separate autonomous entity comprised of both government and private sector elements to promote investment in the country. Any reforms will require approval from the Honduran Congress which is unlikely in the near term. The GOH has not established a strategic investment policy with FDI objectives, which undermines efforts to attract new investment.

There is no official process for investment retention nor dialoguing with the government about maintaining existing investments in Honduras. The government has not announced any new policies to host roundtables with the private sector to understand the challenges of doing business in Honduras. There is no formal mechanism for the public to comment on proposed economic reforms, but the national congress did meet with a broad representation of civil society and the private sector to socialize the draft tax reform law. It remains unclear the extent to which private sector and civil society feedback will be incorporated into the bill.

Limits on Foreign Control and Right to Private Ownership and Establishment

Honduras’ Investment Law does not limit foreign ownership of businesses, except for those specifically reserved for Honduran investors, including small firms with capital less than $6,300 and the domestic air transportation industry. For all investments, at least 90 percent of a company’s labor force must be Honduran, and companies must pay at least 85 percent of their payrolls to Hondurans. Majority ownership by Honduran citizens is required for companies in the commercial fishing sector, forestry, local transportation, radio, television, or benefiting from the Agrarian Reform Law. There is no screening or approval process specific to foreign direct investments in Honduras. Foreign investors are subject to the same requirements for environmental and other regulatory approvals as domestic investors.

According to the law, investors can establish, acquire, and dispose of enterprises at market prices under freely negotiated conditions without government intervention, but some foreign business operators report difficulty closing businesses. Private enterprises generally compete fairly with public enterprises on market access, credit, and other business operations. Foreign investors have the right to own property, subject to certain restrictions established by the Honduran constitution and several laws relating to property rights. Investors may acquire, profit, use, and dispose of property ownership with the exception of land within 40 kilometers of international borders and shorelines. Honduran law does permit, however, foreign individuals to purchase properties close to shorelines in designated “tourism zones.”

There is currently no process for the government to screen inbound foreign direct investment. There is also no formal process for the government to identify strategic projects that would require additional review before approving foreign investment.

Other Investment Policy Reviews

There have been no third-party investment policy reviews by a multilateral organization or civil society organizations over the past year. The last WTO trade review was conducted in 2016. The Inter-American Development Bank recently supported a study of designing a new investment promotion system for Honduras though it is unclear if the GOH will adopt any of the conclusions of the study.

Business Facilitation

The GOH has worked to simplify administrative procedures for establishing a company in recent years, including by offering many processes online. For example, the Ministry for Economic Development launched a single window portal for registering a firm to operate within a free trade zone. The effort was completed with input from the private sector groups representing Honduras’ manufacturing sector and utilizing a model developed by the UN Development Program. GOH officials have expressed interests in expanding the digitalization of business, import, permitting and licensing, and taxation processes across the government to increase efficiency and transparency. Currently, procedural red tape and/or the solicitation of bribes to obtain government approval for investment activities remains common, especially at the local level.

The GOH maintains several online business registration portals. Small- and medium-sized enterprises may use ( https://honduras.eregulations.org/ ) which provides clear step-by-step information on registering a business, including fees, agencies, and required documents. Unless the proposed tax reform bill passes, eliminating Free Trade Zones (ZOLIs) for new investment, companies seeking to operate in the ZOLIs may use the following portal: https://gobiernodigital.gob.hn 

GOH procurement notices, conducted by the Oficina Normativa de Contratación y Adquisiciones del Estado de Honduras (ONCAE). can be found at: https://honducompras.gob.hn 

Outward Investment

Honduras does not promote or incentivize outward investment. The government also does not restrict domestic investors from investing abroad.

A Bilateral Investment Treaty (BIT) between the United States and Honduras entered into force in 2001. The U.S.-Honduras Treaty of Friendship, Commerce and Consular Rights (1928) provided for Most Favored Nation treatment for investors of either country. CAFTA-DR supersedes most provisions of these agreements.

Provisions for investment are included in free trade agreements between Honduras and the United States, Canada, Chile, Costa Rica, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Peru, the Dominican Republic, Colombia, South Korea, and the European Union. These agreements supersede many of the provisions of Honduras’ separate Bilateral Investment Treaties with these countries.

Honduras also has separate Bilateral Investment Treaties with Cuba, Ecuador, France, Germany, Spain, Kuwait, the United Kingdom, the Netherland, the Republic of Korea and Switzerland. Honduras maintains a Preferential Commercial Agreement with Venezuela.

Following the GOH’s decision to recognize the People’s Republic of China in March 2023, Honduran exporters to Taiwan reported that GOH rescinded their certificates of origin, which are needed for importing into Taiwan under the Free Trade Agreement between Honduras and Taiwan.

Honduras and the United States signed a Tax Information Exchange Agreement in 1990. In 2014, Honduras and the United States signed the Foreign Account Tax Compliance Act. Honduras is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting and is party to the Inclusive Framework’s October 2021 agreement on the global minimum corporate tax. The official tax authority for Honduras is the Servicio de Administración de Rentas, or SAR.

Transparency of the Regulatory System

The GOH had made progress towards developing digital single windows to consolidate the application and approval process, for example, for firms registering in a free trade zone. These steps have allowed for greater transparency in the regulatory system. Both U.S. and Honduran firms, however, cite concerns regarding transparent policies and effective laws to foster market-based competition. In many cases the “rules of the game” are not clear to outside investors. This can be due to do overly complex and sometime overlapping authorities given to multiple GOH entities to approve permits for foreign investors. Ongoing issues relating to corruption also hinder transparent investment opportunities. Honduras lacks an indexed legal code so lawyers and judges must maintain their own libraries of law publications. While the majority of regulations are at the national level, municipal level regulations also exist and vary considerably in terms of responding to foreign investment permitting requirements.

Foreign investments in the mining, energy, healthcare, telecommunications, air transportation, agriculture, forestry, and education sectors generally require approval from the GOH via permits. Some U.S. investors have reported long waiting periods for environmental permits and other regulatory and legislative approvals. Sectors in which U.S. companies frequently encounter problems include infrastructure, telecoms, mining, and energy. Generally, companies report that regulatory requirements are complex and lengthy and vulnerable to rent-seeking and [perceived] corruption due to weak institutions. Regulatory approvals require congressional intervention if the time exceeds a presidential term of four years. Current regulations are available at the Honduran government’s eRegulations website ( http://honduras.eregulations.org/ ).

There is no legal requirement for the government to solicit public comment on proposed regulatory changes or legal reforms. It is generally understood that a legal or regulatory change does not take effect until the GOH publishes approved regulations in the official government Gazette, which represents the centralized location for legislative and regulatory actions. Public comments received by regulators are not published. The government does not promote or require companies’ environmental, social, and governance (ESG) disclosure to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments. In general, Honduras does have a system that allows for a systematic approach to developing government regulations. Regulations, however, are not always developed transparently and with input from the private sector or civil society groups.

CAFTA-DR requires that host governments publish proposed regulations that could affect businesses or investments. Honduras made significant progress in 2019 and 2020 in relation to the publication and availability of information under CAFTA-DR. Honduras notified Article 1 technical provisions, per CAFTA-DR requirements, and the Customs Administration (ADUANAS) and Sanitary Regulatory Agency (ARSA) have improved publication of regulations through their official online portals.

International Regulatory Considerations

Honduras is a member of the Central American System of Integration (SICA in Spanish), along with Costa Rica, El Salvador, Guatemala, Nicaragua, Panama, Belize, and the Dominican Republic. Under SICA’s Secretariat for Economic Integration (SIECA in Spanish), Honduras and Guatemala negotiated a customs union in 2017. SIECA is also supporting the expansion of this customs union to include El Salvador. Article 335 of the Honduran Constitution states that “The State shall order its external economic relations on the basis of fair international cooperation, Central American economic integration, and respect for the treaties and agreements it signs, insofar as they are not opposed to the national interest.” As a member of the WTO, Honduras notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Honduras has a civil law system. The Honduran Commercial Code, enacted in 1950, regulates business operations and falls under the jurisdiction of the Honduran civil court system. The Civil Procedures Code, which entered into force in 2010, introduced the use of open, oral arguments for adversarial procedures. The Civil Procedures Code provides for protection of commercial transactions, property rights, and land tenure. It also established a process for the enforcement of rulings issued by foreign courts.

Commercial law and contractual law are regulated through the 1950 Commercial Code and the 1909 Civil Code. There are civil courts where commercial cases are tried. There are also arbitration chambers where issues regarding contracts with an arbitration clause may be resolved.

In theory, the judicial system operates independently of the executive branch. However, the Honduran National Congress recently elected 15 new Supreme Court Justices to seven-year terms, naming a relative of President Castro as the new President of the Supreme Court. President Castro’s party, the Liberty and Refoundation Party (LIBRE), selected six of the new judges, while the National Party chose five magistrates and the Liberal Party picked four. There are frequent reports of corruption within the judicial branch, especially in local courts. U.S. firms report favoritism, external pressure, and the solicitation of bribes within the judicial system. Resolving an investment or commercial dispute in the local Honduran courts is often a lengthy process. Foreign investors report dispute resolution typically involves multiple appeals and decisions at different levels of the Honduran judicial system. Each decision can take months or years, and it is usually not possible for the parties to predict the time required to obtain a decision. An electronic case management system has recently been introduced with US Government support to increase transparency and reduce corruption. This system is gradually being rolled out to the different courts. Final decisions from Honduran courts or from arbitration panels often require subsequent enforcement from lower courts to take effect, requiring additional time. Foreign investors sometimes prefer to resolve disputes with suppliers, customers, or partners out of court when possible. Investors report a very high-quality mechanism for alternate dispute resolution. Legislative decree (N°51-2011) Law for Promotion and Protection of Investments promotes solving disputes between investors through mediation, conciliation, and arbitration prior to using the judicial system.

Laws and Regulations on Foreign Direct Investment

Honduras’ Investment Law requires all local and foreign direct investment be registered with the National Investment Council. Upon registration, the Investment Office issues certificates to guarantee international arbitration rights under CAFTA-DR. An investor who believes the government has not honored a substantive obligation under CAFTA-DR may pursue CAFTA-DR’s dispute settlement mechanism, as detailed in the Investment Chapter. The claim’s proceedings and documents are generally open to the public.

The Government of Honduras requires authorization for both foreign and domestic investments in the following areas:

  • Basic health services
  • Telecommunications
  • Generation, transmission, and distribution of electricity
  • Air transport
  • Fishing, hunting, and aquaculture
  • Exploitation of forestry resources
  • Agricultural and agro-industrial activities exceeding land tenancy limits established by the Agricultural Modernization Law of 1992 and the Land Reform Law of 1974
  • Insurance and financial services
  • Investigation, exploration, and exploitation of mines, quarries, petroleum, and related substances.

The Government of Honduras offers one-stop business set-up at its My Business Online website, which helps domestic and international investors submit initial business registry information and provides step-by-step instructions. ( https://www.miempresaenlinea.org/ ) However, formalizing a business still requires visiting a municipal chamber of commerce window for registration and permits, a process vulnerable to rent-seeking and corruption.

Competition and Antitrust Laws

The Commission for the Defense and Promotion of Competition (CDPC) is the Honduran government agency that reviews proposed transactions for competition-related concerns. Honduras’ Competition Law established the CDPC in 2005 as part of the effort to implement CAFTA-DR. The Honduran Congress appoints the members of the CDPC, which functions as an independent regulatory commission.

Laws that grant sole companies exclusive distribution rights for imported goods have created artificial monopolies in Honduras, hindering the availability and raising the price of imported goods in the Honduran market.

Expropriation and Compensation

The Honduran government has the authority to expropriate property for purposes of land reform or public use. The National Agrarian Reform Law provides that idle land fit for farming can be expropriated and awarded to indigent and landless persons via the Honduran National Agrarian Institute. In 2013, the Honduran government passed legislation regarding recovery and reassignment of concessions on underutilized assets. Both local and foreign firms have expressed concerns that the law does not specify what the government considers “underutilized.” The government has not published implementing regulations for the law nor indicated plans to use the law against any private sector firm.

The May 2022 energy law contains provisions (articles 4 through 6) that authorize the GOH to terminate contracts or acquire power plants for an undefined “fair price” either when the GOH and the power plant owner are unable to agree on a renegotiated Power Purchase Agreement in certain sectors or when the GOH determines, among other factors, that doing so will be in the public interest “for reasons of national security.” Honduran legal experts and energy producers are concerned that this law could give the GOH broad authority to expropriate private power plants.

Government expropriation of land owned by U.S. companies is rare. CAFTA-DR’s Investment Chapter Section 10.7 states no party may expropriate or nationalize a covered investment either directly or indirectly, with limited public purpose exceptions that require prompt and adequate compensation. Under the Agrarian Reform Law, the Honduran government must compensate expropriated land partly in cash and partly in 15-, 20-, or 25-year government bonds. The portion to be paid in cash cannot exceed $1,000 if the expropriated land has at least one building and it cannot exceed $500 if the land is in use but has no buildings. If the land is not in use, the government will compensate entirely in 25-year government bonds.

Land invasions by squatters on both Honduran and foreign-owned land are increasingly common, especially in agricultural areas. These invasions have grown more frequent and severe in 2023, frequently leading to violent confrontations. Owners of disputed land have found pursuing legal avenues costly, time consuming, and ineffective at enforcing property rights.

Dispute Settlement

Honduras is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) Convention. Honduras has also ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the Inter-American Convention on International Commercial Arbitration (the Panama Convention).

Investor-State Dispute Settlement

CAFTA-DR provides dispute settlement procedures between the United States and Honduras. The agreement’s Investment Chapter dispute settlement mechanism allows an investor who believes the government has not honored a substantive obligation under CAFTA-DR to request a binding international arbitration. Proceedings and documents submitted to substantiate the claim are generally open to the public. The agreement provides basic protections, such as non-discriminatory treatment, limits on performance requirements, the free transfer of funds related to an investment, protection from expropriation other than in conformity with customary international law, a minimum standard of treatment, and the ability to hire key managerial personnel regardless of nationality.

Over the past 10 years, there have also been a number of commercial disputes brought by U.S. persons or firms that remain unresolved. While many of these cases remain in litigation, others are pending final agreements between the Honduran government (GOH) and U.S. parties. The GOH office of the Procurador General of Honduras (Solicitor General) has been willing to meet with U.S. persons and firms to negotiate a resolution to these outstanding cases, but the negotiations are often slow and delayed, or even unilaterally terminated by GOH authorities.

International Commercial Arbitration and Foreign Courts

Honduras’ Conciliation and Arbitration Law, established in 2000, outlines procedures for arbitration and defines the procedures under which they take place. The Investment Law permits investors to request arbitration directly, a swifter and more cost-effective means of resolving disputes between commercial entities. Arbitrators and mediators may have specialized expertise in technical areas involved in specific disputes. Local courts recognize and enforce foreign arbitral awards issues against the government. Judgements from foreign courts are recognized and enforceable under local courts.

The following organizations provide more localized information:

  • Tegucigalpa Chamber of Industry and Commerce – Center for Conciliation and Arbitration
  • Cortes Chamber of Industry and Commerce – Center for Conciliation and Arbitration
  • The Atlantida Chamber of Industry and Commerce – Center for Conciliation and Arbitration
  • The Honduran Bar Association – Center for Conciliation and Arbitration

Numerous U.S. and other international investors say they strongly prefer taking advantage of international or local alternative dispute resolution mechanisms because the Honduran judicial system can be inefficient, lacks transparency, and is subject to political influence and/or corruption.  International donors have been working with the Honduran judiciary and prosecutors to try to improve the capabilities, effectiveness, and transparency of the justice system.

Bankruptcy Regulations

Companies that default in payment of their obligations in Honduras can declare bankruptcy. A Honduran court must ratify a bankruptcy for it to take effect. These cases are regulated by the country’s Commercial Code.

The judicial ruling that declares the bankruptcy of the company establishes the value of the assets, the recognition and classification of the credits, the procedure for the sale of assets and the schedule for the payment of the obligations, in the case that it is not possible for the company to continue its operations. The ruling must be published in the Gazette. The liquidation of companies is always a judicial matter, except in the case of banking institutions which are liquidated by the National Banking and Insurance Commission.

Any creditor or a company itself may initiate the liquidation procedure, which is generally a civil matter. The judge appoints a liquidator to execute the procedure. A mechanism that a company may exercise to prevent bankruptcy is to request a suspension of payments from the judge. If approved by the judge and the creditors, the company may be able to reach an agreement with its creditors that allows the same administrative board to maintain control of the company.

A company may be prosecuted for fraudulently declaring bankruptcy in the case that the administrative board or shareholders withdraw their assets before the declaration, alter accounting books making it impossible to determine the real situation of the company, or favor certain creditors granting them benefits that they would not be entitled to otherwise.

Investment Incentives

Honduras has historically offered numerous tax incentive programs that, depending on the type of business, exempt income, sale, and/or municipal taxes in addition to customs duties. The Castro administration is actively seeking, however, to eliminate these regimens and replace them with more limited new tax incentives.

One example of these pre-existing tax incentives is laid out in the 2017 Tourism Incentives Law, which offers tax exemptions for national and international investment in tourism development projects. The law provides income tax exemptions for the first 10 years of a project and permits the duty-free import of goods needed for a project, including publicity materials. To receive benefits, a business must be located in a designated tourism zone. Restaurants, casinos, nightclubs, movie theaters, and certain other businesses are not eligible for incentives under this law. Foreigners or foreign companies seeking to purchase property exceeding 3,000 square meters for tourism or other development projects in designated tourism zones must present an application to the Ministry of Tourism. The buyer must prove a contract to purchase the property exists and present feasibility studies and plans about the proposed tourism project. The Castro administration’s proposed tax reform, pending in the National Assembly as of June 2023, would eliminate this law for new investment.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Honduran government historically has offered four primary tax-advantaged structures to incentivize investment in Honduras: the Free Trade Zone (ZOLI), the Free Tourism Zone (ZOLT), the Industrial Zone for Export Processing (ZIP) and the Temporary Import Law (RIT). The GOH is no longer granting ZOLT and ZIP licenses, according to the Honduran National Investment Council. All of these tax regimes will be eliminated if the Castro administration successfully passes its tax reform package. In their place, the administration proposes to create two tax-exonerated structures: Free-Trade Zones (Zonas Francas) for firms that export their products, and the “Incentive Regime for Investment Development” (RINDE in Spanish) for firms producing for the domestic market.

As long as they continue to exist, both ZOLIs and ZIPs allow foreign investors tariff and tax incentives for export-only manufacturing. The following cities have been designated as free zones: Puerto Cortes, Omoa, Choloma, Tela, La Ceiba, and Amapala. The government historically allowed the establishment of ZIPs anywhere in the country. Currently, there are ZIPs located in Choloma, Buffalo, La Lima, San Pedro Sula, Tegucigalpa, and Villanueva. Companies operating in ZIPs are exempt from paying import duties and other charges on goods and capital equipment. The RIT allows exporters to introduce raw materials, parts, and capital equipment (except vehicles) into Honduras exempt from surcharges and customs duties if a manufacturer incorporates the input into a product for export (up to five percent can be sold locally).  Both government and private sector representatives acknowledge that many companies sell much more than five percent of their product on local markets in violation of ZIP and RIT rules, a key driver of the Castro government’s desire to reform the regime. Additional information on these incentive programs is available from the National Investment Council ( https://www.cni.hn/ ).

In April 2022, the Castro administration and Honduran Congress repealed the legislative framework that established Honduras’ Zones for Employment and Economic Development (ZEDEs), the largely autonomous economic zones created by the Honduran National Congress in 2013. The Constitutional basis for the ZEDEs, however, remains in force and ZEDEs continue to operate, although with substantially increased regulatory uncertainty. In December 2022, the owners of one ZEDE brought a $10.7 billion claim under the CAFTA-DR at ICSID alleging that the government’s actions, including the repeal of the ZEDE law, were in breach of obligations under the CAFTA-DR and other instruments, which is currently pending. U.S. and local investors expressed concern that the GOH’s and the ZEDE owner’s inability to agree on basic terms necessary to begin negotiations on resolving their dispute is an indication of a weakening investment climate.

Honduras ratified the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA) in July 2016, agreeing to expedite the movement, release, and clearance of goods, including goods in transit. The TFA also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. According to the WTO/TFA database, Honduras’ current rate of implementation of TFA Category A notification commitments stands at 58.4 percent. The Honduran government has received significant technical assistance from the U.S. government to meet compliance requirements in publication, notification, advance rulings, border agency cooperation, and establishing a national trade facilitation committee. Honduras, Guatemala, and El Salvador operate a trilateral customs union to foster and increase efficient cross-border trade, but implementation challenges persist.  Honduras uses digitized import permits for agricultural products to reduce costs and dispatch times. Honduras and Guatemala also use an online pre-arrival screening protocol to reduce border times and transit costs for goods.

With U.S. support, the GOH has advanced several initiatives to facilitate trade and reduce dispatch times and costs at key land and sea borders. Use of high-spec tablets by Aduanas (Customs) at Puerto Cortes has reduced dispatch times by over 30 percent and generated over $15 million in savings for private sector operators. Expansion of high-spec tablet use is envisioned to El Amatillo (land border with El Salvador) La Mesa as well (San Pedro Sula airport Customs). A streamlined inspections manual to be adopted by Aduanas and the National Health and Agrifood Safety Entity (SENASA), as well as additional IT developments to integrate Aduanas and SENASA inspection systems, will further compound time and cost reductions at key land and border crossings. Honduran government agencies charged with inspecting and clearing agricultural, processed food, and medicinal products have also made progress towards expediting the import clearance process and have introduced online portals for obtaining import permits, through U.S. assistance.

Many U.S. companies that operate in Honduras take advantage of the commercial framework established by the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR).  Substantial intra-industry trade now occurs in textiles and electrical machinery, alongside continued trade in traditional Honduran exports such as coffee and bananas.

Performance and Data Localization Requirements

The Honduran government encourages foreign investors to hire locally and to make use of domestic content, especially in manufacturing and agriculture. Article 137 of the Honduran Constitution requires that at least 90 percent of employees be Honduran citizens and that those employees receive no less than 85 percent of total payroll. The government looks favorably on investment projects that contribute to employment growth, either directly or indirectly. U.S. investors in Honduras have not reported instances in which the government has imposed performance or localization requirements on investments.

The Honduran government and courts can require foreign and domestic investors that operate in Honduras to turn over data for use in criminal investigations or civil proceedings. Honduran law enforcement, prosecutors, and civil courts have the authority to make such requests.

Real Property

Land title procedures in Honduras are reportedly particularly challenging for U.S. investors, given the overlapping authorities within the GOH and a paper-based titling process where archived files are often difficult to locate and authenticate, thereby making is difficult to confirm the true title holder. Title insurance is available in Honduras, though not widely purchased. U.S. investors should take steps to only work with accredited legal and real estate professionals when conducting property transactions.

Land invasions in Honduras have continued to increase year on year, reaching a crisis point in much of the country. Many American companies struggle with land invasions by armed criminal groups and report poor response from local authorities and law enforcement to these incursions. Business representatives complain that the central government and Public Ministry have made little or no effort to resolve these disputes.

Resolution of property disputes in court often takes years. There are claims of widespread corruption in land sales, deed filing, and dispute resolution, including claims against attorneys, real estate companies, judges, and local officials. Although Honduras has made some progress, the property registration system is perceived as unreliable and a constraint on investment. In addition, a lack of implementing regulations leads to long delays in the awarding of titles in some regions.

Previous estimates are that approximately 80 percent of the privately held land in the country is either untitled or improperly titled. The national property registry is managed by the Property Institute, though property survey information is managed by the Survey Institute. These two registries have not always aligned, leading to legal disputes regarding property. Steps are currently being taken to reconcile both lists. However, if a person has uninterrupted and peaceful possession of a property for more than 20 years, he or she may, without just title, request the acquisitive prescription of said property in court.

Honduran law recognizes secured interests in movable and real property. The Chamber of Commerce and Industry of Tegucigalpa (CCIT), the Chamber of Commerce and Industry of Cortes (CCIC), and the Chamber of Commerce and Industry of the South (CCIS) all manage their own merchant records. The right for CCIT, CCIC, CCIS to administer their own merchant registries is derived from a concession in Honduras’ secured transactions law.

Intellectual Property Rights

Honduras is mentioned but not listed in United States Trade Representative’s 2023 Special 301 Report or its 2022 Review of Notorious Markets for Counterfeiting and Piracy.

The legislative framework for the protection of intellectual property (IP) rights, which includes the Honduran copyright law and its industrial property law, is generally adequate, but industry experts say the laws are poorly enforced. Honduras has enacted legislation to implement its obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO). Honduran law protects data exclusivity for a period of five years and protects process patents, but does not recognize second-use patents. The Property Institute and Public Ministry handle IP protection and enforcement. No new IP related laws or regulations have been enacted in the past year and the government is currently not pursuing any new reforms.

CAFTA-DR Chapter 15 on Intellectual Property Rights further provides for the protection and enforcement of a range of IP rights, which are consistent with U.S. and international standards. There are also provisions on deterrence of piracy and counterfeiting. Additionally, CAFTA-DR provides authorities the ability to confiscate pirated goods and investigate intellectual property cases on their own initiative.

The United States continues to have significant concerns regarding intellectual property (IP) protection and enforcement in Honduras, including with respect to online and software piracy, cable signal piracy, and the distribution and sale of counterfeit and pirated goods. The United States will continue to urge Honduras to fully enforce its IP laws. Additionally, the United States continues to urge Honduras to provide greater clarity regarding the scope of protection for geographical indications (GIs), particularly ensuring that all producers are able to use common food names, including any that are elements of a compound GI.

The Honduran legal framework provides deterrence against piracy and counterfeiting by requiring the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them. The law also provides for statutory damages for copyright and trademark infringement, to ensure monetary damages are awarded even when losses associated with an infringement are difficult to assign.

Digital piracy is widespread and frequently ignored in Honduras, especially by telecommunications companies. The Special Prosecutor for IP will not investigate a case unless it receives a complaint from a rights holder. Often, rights holders do not submit complaints because they do not want to navigate the bureaucratic process or fear they will lose business. In addition, sentencing for IP crimes remains ineffective to deter future violations. IP violators typically receive a three-to-six-year sentence and an approximately $2,000 fine. If a sentence is less than five years, however, the convicted party can choose to pay a larger fine and not serve any jail time.

Capital Markets and Portfolio Investment

There are no government restrictions on foreign investors’ access to local credit markets, though the local banking system generally extends only limited amounts of credit. Investors should not consider local banks a significant capital resource for new foreign ventures unless they use specific business development credit lines made available by bilateral or multilateral financial institutions such as the Central American Bank for Economic Integration.

A limited number of credit instruments are available in the local market. The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa, but investors should exercise caution before buying securities listed on it. Supervised by the National Banking and Insurance Commission (CNBS), the BCV theoretically offers instruments to trade bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds, and land reform repayment bonds. In practice, however, the BCV is almost entirely composed of short- and medium-term government securities and no formal secondary market for these bonds exists.

A few banks have offered fixed rate and floating rate notes with maturities of up to three years, but outside of the banks’ issuances, the private sector does not sell debt or corporate stock on the exchange. Any private business is eligible to trade its financial instruments on the BCV, and firms that participate are subject to a rigorous screening process, including public disclosure and ratings by a recognized rating agency. Historically, most traded firms have had economic ties to the other business and financial groups represented as shareholders of the exchange. As a result, risk management practices are lax and public confidence in the institution is limited.

The Honduran Public-Private Partnership, CONFIANZA, has operated since 2015 and provides loan guarantees to regional banks to facilitate financing to micro-, small-, and medium-sized enterprises in Honduras. CONFIANZA administers six funds for specific sectors of the economy and partners with over 40 financial institutions in Honduras.

Money and Banking System

The Honduran financial system is comprised of commercial banks, state-owned banks, savings and loans institutions, and financial companies. There are currently 15 commercial banks, and 10 financial groups operating in Honduras. While access to credit remains limited in Honduras, especially for historically underserved populations, the financial sector is a source of economic stability in the country. Honduras has a highly professional Central Bank and an effective banking regulator, the Comisión Nacional de Bancos y Seguros. There is no offshore banking or homegrown blockchain technology in Honduras.

Foreign Exchange and Remittances

Foreign Exchange

Article 10.8 of CAFTA-DR ensures the free transfer of funds related to a covered investment. Local financial institutions freely exchange U.S. dollars and other foreign currencies. Foreigners may open bank accounts with a valid passport. For deposits exceeding the maximum deposits specified for different account types (corporate or small-medium enterprises), banks require documentation verifying the fund’s origin.

In principle, the Investment Law guarantees foreign investors access to foreign currency needed to transfer funds associated with their investments in Honduras, including:

  • Imports of goods and services necessary to operate
  • Payment of royalty fees, rents, annuities, and technical assistance
  • Remittance of dividends and capital repatriation

Artificially low interest rates compared to the region led to a significant outflow of dollars chasing higher returns during the past year. As dollars continued to flow out of the country, many importers were unable to secure enough dollars to purchase the imports they needed to sustain their enterprises. Ultimately, the BCH reinstituted the direct auction of dollars in order to address excess demand, but many businesses continue to report difficulty securing sufficient foreign exchange. This shortage is likely to continue.

Remittance Policies

The Investment Law guarantees investors the right to remit their investment returns and, if they liquidate their investments, to remit the principal capital invested. Foreign investors that choose to remit their investment proceeds from Honduras do so through foreign exchange transactions at Honduran banks or foreign banks operating in Honduras. These exchange transactions are subject to the same foreign exchange process and regulation as other transactions.

Sovereign Wealth Funds

Honduras does not have a sovereign wealth fund.

7. State-Owned Enterprises

Most state-owned enterprises are in telecommunications, electricity, water utilities, mail services, hospitals, railroads, banking, and commercial ports. There is no published list of Honduran SOEs. The main state-owned Honduran telephone company, Hondutel, has private contracts with eight foreign and domestic carriers. The GOH has yet to establish a legal framework for foreign companies to obtain licenses and concessions to provide long distance and international calling. As a result, investors remain unsure if they can become fully independent telecommunication service providers.

The state-owned National Electric Energy Company (ENEE) is the single largest contributor to the country’s fiscal deficit. Due to years of mismanagement and corruption, ENEE loses over $30 million every month and its debt amounts to more than 10 percent of Honduran GDP. With the May 2022 energy law, the government reversed energy reform legislation that called for the separation of ENEE into three independent units for distribution, transmission, and generation. The law also weakened the electricity regulator and eliminated the independent systems operator. Electricity subsector experts say that dispatch decisions have become much less transparent since the elimination of the systems operator, a disincentive for new investment. The electrical subsector faces serious structural problems, including high electricity system losses, a transmission system in need of upgrades, vulnerability of generation costs to volatile international oil prices, an electricity tariff that does not reflect actual costs, and the high costs of long-term power purchase agreements (PPAs), which have often been awarded directly to companies with political connections instead of via a fair and transparent tendering and procurement process. Many businesses have installed on-site power generation systems to supplement or substitute for power from ENEE due to frequent blackouts and high tariffs.

Honduran law grants municipalities the right to manage water distribution and to grant concessions to private enterprises. Major cities with public-private concessions include San Pedro Sula, Puerto Cortes, and Choloma. The state water authority National Autonomous Aqueduct and Sewer Service (SANAA) manages Tegucigalpa’s water distribution. Persistent water shortages are another constraint on private enterprise in Honduras, especially during the spring dry season.

The Honduran National Port Company (ENP) is the state-owned organization that oversees management of the country’s government-operated maritime ports, including Puerto Cortes, La Ceiba, Puerto Castilla, and San Lorenzo. Private companies Central American Port Operators and Maritime Ports of Honduras have 30-year concessions to operate container and bulk shipping facilities at Honduras’ principal port Puerto Cortes.

Two SOE banks include the National Agriculture Development Bank (BANADESA) and the Honduran Bank for Production and Housing (BANHPROVI).

Privatization Program

The Honduran government is not seeking to privatize state-owned enterprises and, in fact, has approved legal reforms to give the government broader authority to take over private enterprises, specifically via the May 2022 energy reform law.

Awareness of the importance of Responsible Business Conduct (RBC) is growing among both producers and consumers in Honduras. An increasing number of local and foreign companies operating in Honduras include conduct-related responsibility practices in their business strategies. The Honduran Corporate Social Responsibility Foundation (FUNDAHRSE) has become a strong proponent in its efforts to promote transparency in the business climate and provides the Honduran private sector, particularly small- and medium-sized businesses, with the skills to engage in responsible business practices. FUNDAHRSE’s approximately 110 members can apply for the foundation’s “Corporate Social Responsibility Enterprise” seal for exemplary responsible business conduct involving work in areas related to health, education, environment, codes of ethics, employment relations, and responsible marketing.

RBC related to the environment and outreach to local communities is especially important to the success of investment projects in Honduras. Several major foreign investment projects in Honduras have stalled due to concerns about environmental impact, land rights issues, lack of transparency, and problematic consultative processes with local communities, particularly indigenous communities. Although the International Labor Organization Convention 169 on Indigenous and Tribal Peoples was ratified by the GOH in 1995 and Honduras voted in favor of UN’s Indigenous People’s rights in 2007, there is still much to do in the area. There is still a need for foreign investors to build trust with local communities, while employing international best practices and standards to reduce the risk of conflict and promote sustainable and equitable development.

Examples of international best practices include the following:

Voluntary Principles on Security and Human Rights Initiative
The UN Guiding Principles on Business and Human Rights
The Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises.

Climate Issues

GOH has a National Adaptation and Climate Strategy and a Biodiversity Strategy.  The Castro Administration has manifested their willingness to support conservation and climate adaptation efforts.  Early in 2022, the administration reactivated the Environmental Cabinet composed of Ministries of Environment, Forestry, Agriculture, Energy, Economic Development and Finance and the Protected Areas and Wildlife Institute.  The purpose of this body is to coordinate interagency efforts to address climate change, biodiversity conservation and Forestry Management.

The GOH has not established policies to reach net-zero carbon emissions by 2050. However, in collaboration with the support of the UN, GOH conducted sectoral studies to determine Nationally Determined Contributions (NDC) and drafted a greenhouse gasses mitigation strategy. While sectoral studies provided recommendations and targets for NDCs, these recommendations have not been translated into official policy. The NDC document reports that the contributions and goals were established in consultation and with the participation of the private sector and says that the private sector will contribute to reaching the goals but does not identify specific actions.

Early in 2022, the GOH suspended the ecotax to support efforts to administer protected areas, which generally adds additional taxes on imported cars.

At this time, the GOH has not implemented public procurement policies that include environmental and green growth considerations such as resource-use efficiency, pollution abatement, or climate resilience.

U.S. businesses and citizens report corruption in the public sector and the judiciary is a significant constraint to investment in Honduras. Historically, corruption has been pervasive in government procurement, issuance of government permits, customs, real estate transactions (particularly land title transfers), performance requirements, and the regulatory system.

The Castro administration continues to negotiate with the UN on establishing a UN-led International Commission against Impunity and Corruption in Honduras (CICIH). A technical assessment team is expected to arrive in mid-2023 to begin assessing what legal changes would be required for an Anticorruption Commission to operate successfully. A broad amnesty law passed in February 2022 likely would prevent the anti-corruption commission from investigating a significant number of cases and the extent to which CICIH would be independent and have investigative authority is an open question. The United States Foreign Corrupt Practices Act (FCPA) deems it unlawful for a U.S. person, and certain foreign issuers of securities to make corrupt payments to foreign public officials for the purpose of obtaining or retaining business for directing business to any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more information, see the FCPA Lay-Person’s Guide:   https://www.justice.gov/criminal-fraud .

Honduras ratified the UN Anticorruption Convention in December 2005. The UN Convention requires countries to establish criminal penalties for a wide range of acts of corruption. The UN Convention covers a broad range of issues from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence, and the concealment and laundering of the proceeds of corruption. The UN Convention contains transnational business bribery provisions that are functionally similar to those in the Organization for Economic Cooperation and Development Anti-Bribery Convention.

Honduras ratified the Inter-American Convention against Corruption (OAS Convention) in 1998. The OAS Convention establishes a set of preventive measures against corruption; provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment; and contains a series of provisions to strengthen the cooperation between its states’ parties in areas such as mutual legal assistance and technical cooperation.

Table 1: Key Metrics and Rankings
Measure Year Index/Ranking
TI Corruption Index 2022 23/100, 157 of 180
MCC Government Effectiveness FY 2023 -0.33 (19 percent)
MCC Rule of Law FY 2023 -0.62 (6 percent)
MCC Control of Corruption FY 2023 -0.60 (6 percent)

Crime and violence rates remain high and add cost and disincentive to investments. Demonstrations occur regularly in Honduras and political uncertainty poses a challenge to ongoing stability. Violent “colectivo” groups associated with the ruling party frequently disrupt business activities, including at medical centers.

Although violent crime remains a persistent problem, Honduras has reduced homicides to less than 40 per 100,000 inhabitants. Cases of violence, extortion, and kidnapping are still common, particularly in urban areas where gang presence is more pervasive. Drug traffickers continue to use Honduras as a transit point for cocaine and other narcotics en route to the United States and Europe, which fuels local turf battles in some areas and injects illicit funds into judicial proceedings and local governance structures to distort justice. The business community historically had been a target of kidnapping for ransom, but the number of such kidnappings dropped from 92 in 2013 to 15 in 2021, primarily through the work of the USG-supported Honduran National Police National Anti-Kidnapping Unit. Although violent crime rates are trending downward, corruption and white-collar crime, including money laundering, negatively affect economic prosperity and stability for the business community.

The Honduran Labor Law prescribes a maximum eight-hour workday, 44-hour workweek, and at least one 24-hour rest period per week. The Labor Code provides for paid national holidays and annual leave. Most employment sectors also receive two one-month bonuses as part of the base salary, known as the 13th and 14th month salary, issued in mid-December and mid-June, respectively. New hires receive a prorated amount based on time-in-service during their first year of employment. The Labor Code requires companies to pay one month’s salary to employees terminated without cause. Companies do not owe severance to employees who resign or are terminated for cause. Employees terminated for cause can contest the basis for the termination in court to claim severance. There are no government-provided unemployment benefits in Honduras, although unemployed individuals may have access to their accumulated pension funds.

The Secretariat of Labor and Social Security (SETRASS) is responsible for registering collective bargaining agreements. The Labor Code prohibits the employment of persons under the age of 14. Minors between the ages of 14 and 18 must receive special permission from SETRASS to work. The majority of the violations of the labor-related provisions of the children’s code occur in the agricultural sector and informal economy.

Honduras has a significant informal economy, which according to last available data from a 2017 World Bank study, nearly 83 percent of all Hondurans were employed in informal sector positions, one of the highest in the region. The GOH has sought to incentivize informal firms to take steps to formalize, including offering a consolidated registration process at no-cost to business owners. Many informal business owners, though, indicate that the reduction of tax incentives from five years to three and the overly complex tax system continue to dissuade more companies from formalizing.

While Honduran labor law closely mirrors International Labor Organization standards, the U.S. Department of Labor has raised serious concerns regarding the effective enforcement of Honduran labor laws. Labor organizations allege the SETRASS fails to enforce labor laws, including laws on the right to form unions, reinstating employees unjustly fired for union activities, child labor, minimum wages, hours of work, and occupational safety and health. A 2015 U.S. Department of Labor report provided recommendations to address labor concerns in Honduras and called for a monitoring and action plan (MAP) to improve labor law enforcement in Honduras following a 2012 submission brought under the labor chapter of CAFTA-DR. While the government has made significant progress toward addressing areas of concern, outstanding issues to completing the Honduran government’s obligations under the MAP include resolution of emblematic collective bargaining cases and the enforcement and collection of fines for labor violations.

As mentioned above, in April 2022, President Castro signed the repeal of the Hourly Employment Law. Labor groups had alleged that some employers used hourly contracts to avoid responsibility for severance, provide employee benefits, and prevent union formation. The repeal did not stipulate the process for transitioning employees from hourly to salaried, but it did prevent the termination of employees.

The U.S. Department of State Country Report on Human Rights Practices describes a number of labor and human rights compliance issues that affect the Honduran labor market: https://www.state.gov/reports/2022-country-reports-on-human-rights-practices/honduras/ . These include employers’ anti-union discrimination, refusal to engage in collective bargaining, and employer control of unions.

In 2022, the DFC provided a $7.0 million loan portfolio guarantee to Lafise Bank to back on-lending to Honduran small and medium sized enterprises that support gender equity and inclusion as well as companies in the health care industry. Additionally, DFC contributed $181,500 in technical assistance to Honduran based AgroMoney, a lender to small and medium sized firms in the agricultural sector. USAID has identified more than 30 investment deals, valued collectively at over $950 million, that could benefit from DFC financing.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy 
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) N/A N/A 2021 $28.49 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($USD, stock positions) N/A N/A 2021 $1.251 billion BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($USD, stock positions) N/A N/A 2021 -$99 billion BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP N/A N/A 2021 3.1% UNCTAD data available at

https://unctad.org/topic/investment/world-investment-report

* Source for Host Country Data:  N/A  

Table 3: Sources and Destination of FDI 
Direct Investment from/in Counterpart Economy Data 
From Top Five Sources/To Top Five Destinations (US Dollars, Millions) 
Inward Direct Investment  Outward Direct Investment 
Total Inward 17,598 100% Total Outward 2,845 100%
USA 4,577 26% Panama 1,352 48%
Panama 3,088 18% Guatemala 366 13%
Guatemala 1,803 10% Costa Rica 226 8%
Colombia 1,426 8% El Salvador 209 7%
Mexico 1,232 7% Colombia 125 4%
“0” reflects amounts rounded to +/- USD 500,000. 

Source:  IMF Coordinated Direct Investment Survey (CDIS)

Scott Hansen
Economic Counselor
Avenida La Paz
Tegucigalpa M.D.C.
Honduras
+504 2236-9320 x4178
Hansensw@state.gov 

2023 Investment Climate Statements: Honduras
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