post-reform conditions (comprising: world class infrastructure; business-friendly services; and property rights and the rule of law) exist. The ERZ is executed as part of an economy-wide dual track strategy, whereby ERZs are used to kick-start a dynamic market economy, which forms Track 1 and rapidly expands employment, skills, taxes and exports. Track 1 also builds a proreform political coalition that can eventually take on opponents of reform and neutralize and/or co-opt them. Meanwhile, reform proceeds slowly in the rent distorted sector (Track 2) in order to avoid early confrontation with rent seekers, which a reforming government is likely to lose. Successful dual track economic reform in economies as diverse as Mauritius, Malaysia and China shows that SEZs can grow a dynamic market economy within fifteen years to a scale that dominates the total economy.

# **Box 2: Charter cities in Honduras**

<mark>In 2011, the Honduran National Congress passed an amendment to the constitution that gives the government the power to create special development regions (known by their acronym in Spanish, REDs). The REDs would be a independent jurisdiction, with its own laws and administrative systems. Laws developed by the governing authority of the RED, however, must be ratified by the Honduran Congress with a simple majority.</mark> <mark>The establishment of any region as an RED would require enabling legislation that must be supported by a two-thirds vote in Congress. Subsequent to this, Congress can change the enabling legislation and two-thirds majority and approval by referendum from the citizens living in the RED.</mark> <mark>The President of Honduras has set aside 1,000 square kilometers in a yet-to-be defined location for the development of the charter city.</mark> _<mark>Source: Adapted from http://chartercities.org/blog/191/a-new-city-in-honduras</mark>_ In the EAC context, it may not be necessary to develop an EIZ on the scale Romer proposes (population of around 10 million). However, it will almost certainly be necessary to have a city of some size not only for practical reasons such as housing of workers, but also for commercial and political reasons, such as ensuring a significant tax base to compel interest and commitment on the part of EAC members.

In line with the concept of SEZs, a critical characteristic of the EIZ would be its extra-territorial nature. Almost all SEZs operate under a different fiscal and legal framework than exists in the national economy in critical areas like the tax regime, rules on foreign currency, and sometimes labor law. Many also operate outside of the control of the municipal government authorities in the locality in which they are based. But the EIZ would differ from traditional SEZs in two critical ways. First and foremost is its regional nature. Because it is designed as a “regional space” and may indeed straddle two more existing countries, no single nation-state would be act as its natural sovereign. Second, and following from this, there is potential (and perhaps need) to operate the EIZ under a distinct legal, regulatory and fiscal regime that would differ further in scope than would normally be the case in an SEZ. In this sense, the 8