Florida, Puerto Rico, Virgin Islands May Feel Impact if Congress Eases Cuba Travel Limits

Daily Report for Executives provides in-depth coverage of unfolding legislative, regulatory, and judicial news from the nation’s capital, the states, and around the world. This daily news service...

By Lenore T. Adkins

March 7 — As Congress considers removing decades-old travel restrictions to Cuba, officials from Florida, Puerto Rico and the U.S. Virgin Islands are weighing how the potential new destination will affect their tourism industries.

A Florida tourism official says damage would be minimal, given the breadth of the state's tourist industry, but congressional lawmakers from the Virgin Islands and Puerto Rico aren't as confident about the dent an open Cuba could make in their troubled economies.

At the same time, Rep. Mario Diaz-Balart (R­Fla.), whose district covers part of Miami-Dade County, told Bloomberg BNA he vehemently opposes any legislation that would remove travel impediments to Cuba.

“It’s devastating for our national security interests,” said Diaz-Balart. “Keep in mind that when the [Fidel] Castro regime had funds, had real money, had cash, the Cuban people weren't any freer or better off. He used that money to send Cuban troops to Africa, to Latin America and our GIs even died fighting Cuban troops in Grenada.”

Impetus for Change.

On Dec. 17, 2014, President Barack Obama and Cuban President Raul Castro announced they were normalizing diplomatic ties, a move that started thawing the tense, Cold War-era relationship between the countries. One element of the initiative eliminated a travel license requirement for the 12 categories of Americans already authorized to visit Cuba. Obama detailed additional elements of the initiative that affect trade, communications and other areas, in a White House fact sheet.

But American tourism is still illegal under the trade embargo against Cuba, and that hasn't changed since 1963. So in January, a bipartisan group of senators including Jeff Flake (R-Ariz.) and Dick Durbin (D-Ill.), introduced the “Freedom to Travel to Cuba Act of 2015” (S. 299). It would let American citizens and legal residents visit the island nation without restriction, and companion legislation (H.R. 664) soon followed in the House.

Only Congress can lift the trade embargo, but if the proposed legislation becomes a reality, it would circumvent the part of the blockade that bans American tourists from Cuba.

“Let's eliminate this restriction on Americans traveling,” Durbin said at a January news conference in which he, Flake and several other senators announced their bill. “This is the only country in the world where we have these restrictions on Americans. Let's give our people a chance to travel and they will not only bring money to spend, they're going to bring new ideas, new values and real change to Cuba.”

Meanwhile, efforts are also afoot to terminate the trade embargo that has been in place for more than 50 years. In February, a bipartisan group of senators introduced a separate bill to repeal provisions that block Americans from doing business in Cuba.

In Florida, Tourism Is Paramount

But in Florida, where tourism is an important driver of the economy, Gov. Rick Scott (R) opposes Obama's overtures to Cuba for political reasons. The issue is a hot button in Florida, where there are a large number of Cuban Americans who tend to vote Republican.

“As long as Cuba chooses dictatorship over democracy, Governor Scott will continue to support the embargo and sanctions against them,” Scott's press secretary Jeri Bustamante said in an e-mail.

For the fourth consecutive year in 2014, Florida shattered its tourism records by attracting 97.3 million tourists—nearly five times the size of its population. Those tourists spent $82 billion in 2014, said Paul Phipps, chief marketing officer at Visit Florida, the state's tourism marketing arm, which gets some of its funding from the state government. Tourism also employed 1.1 million people last year, a 3.6 percent bump over 2013.

Scott has proposed earmarking an additional $11 million in fiscal year 2015, which begins July 1, to beef up Visit Florida's marketing strategy overseas. That would bring its total marketing budget to $85 million.

“Florida’s natural beauty, pristine beaches and exciting attractions continue to bring countless visitors to our state and provide valuable jobs for our families,” Scott said in a statement.

Fifteen million of Florida's tourists last year came from foreign countries. Visit Florida wants to capitalize on that by targeting would-be vacationers living in Brazil, China, Germany, Mexico and the U.K.—the state's top five international markets for tourists. Visit Florida would reserve another slice of the $11 million for wooing tourists from in Southeast Asia, who represent a growing market, Phipps said.

Florida's attractions include 1,400 golf courses, 825 miles of beaches and more than a dozen theme parks in Orlando. The state could more than hold its own against an open Cuba, Phipps said.

“This product is so diverse and I don’t care if you’re going to Pensacola or Key West or somewhere in between, there’s something for everyone,” Phipps said.

Cuba as Rival

Florida hotels can accommodate 100 million tourists and Phipps doubts the same is true for Cuba, which lies 90 miles to the south. While he says he expects some U.S. tourists would visit Cuba if Congress clears legislation to eliminate travel restrictions, the impact on Florida would be “marginal,” he said.

“If you have people that are coming to South Florida for Little Havana, part of the Miami experience … they possibly could look at [Cuba] as an alternative, but I just don’t know the level or quality of tourism product they have in Cuba,” Phipps said.

Theodore Piccone, senior fellow of foreign policy at the Brookings Institution, said, “Cuba has a nostalgia brand that could draw in a lot of visitors—it also could be competitive on the eco-tourism front, given its relatively pristine environment,” Piccone said via e-mail. “But its infrastructure is mediocre to poor and it still has to resolve its current [currency] unification policy, which will cause turbulence in the economy for a while once it’s enacted, maybe sometime this year.” Cuba uses a dual peso system and is shifting to a single currency.

The Ministry of Tourism and the Cuba Travel Network in Havana, the Cuba Tourist Board in London and the Consulate Section of Cuba in Washington didn't return calls seeking comment on Cuba's tourism industry.

Opposition to Opening the Gates

Congress has made multiple attempts to lift American travel barriers to Cuba since 2009 but they went nowhere, said Douglas Jacobson, an international trade law attorney at Jacobson Burton PLLC. He said he doesn't expect anything to happen with the latest try for at least a few years, because “hard-liners” are still opposed to engaging with Cuba.

For example, Cuban-American senators Marco Rubio (R-Fla.) and Robert Menendez (D-N.J.), outspoken critics of restoring diplomatic relations with the island nation, have said they oppose removing travel barriers because they don't want American tourist dollars supporting the “repressive” Cuban government.

Diaz-Balart, whose aunt was married to Fidel Castro from 1948-1955, blasted Obama's efforts to establish ties with the Castro regime.

“Normalization to a terrorist thug is a huge gift,” Diaz-Balart told Bloomberg BNA. “You know, it’s the United States of America. And what does that mean, that things are normal between us. So the president is saying things are normal despite the fact that you have arrested 100 [dissidents]? Despite the fact that six months ago, they sent a huge shipment of illegal arms to North Korea that was captured in Panama hidden under tons of sugar. Despite all that, the president is saying, ‘It’s OK.' ”

Jacobson said some lawmakers opposed Obama's unilateral action to begin normalizing relations with Cuba.

“The president went beyond the Congress and basically didn't involve Congress in any of this,” Jacobson said. “For Congress to agree on lifting the travel ban, it's going to be hard, but the time is certainly right and is better than it ever has been in the past.”

No Immediate Impact in Puerto Rico

Puerto Rico, which attracts more than 4 million tourists a year—equal to its native population plus another million—is already embroiled in an economic slump.

The territory can't afford to lose tourism dollars. Visitors spent about $3.3 billion in 2013, according to an economic report to Puerto Rico Gov. Alejandro Garcia Padilla (D). The tourism industry also accounts for 7 percent of the island's gross national product, with roughly 60,000 employees.

However, Robert Shapiro, chairman of Sonecon, a consulting firm specializing in the economy, domestic and national security and politics, said there is no immediate threat of Cuba siphoning off tourism business from Puerto Rico, primarily because Cuba doesn't have enough infrastructure to accommodate American tourists.

Puerto Rico is in the midst of a crippling nine-year recession and a 13.7 percent unemployment rate. The island also grapples with a significant brain drain, as more than 240,000 working-age adults have left the island within the last four years for jobs in the U.S., Shapiro said.

Also in February, Standard & Poor's Financial Services downgraded Puerto Rico's general obligation bond rating from BB to B, pointing to the government's inability to repay its $48 billion debt. Earlier that month, Moody's Investors Service gave the island's public debt junk-bond status, Shapiro said.

“Moody’s calls it the most likely place in the world to default on its public debt,” said Shapiro, who served as undersecretary of commerce for economic affairs for then-President Bill Clinton.

In the short term to midterm, lifting U.S. restraints on travel to Cuba wouldn't have a significant effect on Puerto Rico, Gov. Padilla said in a statement in February. But pointing to the deep historic ties between Cuba and Puerto Rico, Padilla has asked the federal government to include Puerto Rico in its efforts to establish relations and help it stay competitive in the region. He declined to make further comment.

Blow to U.S. Virgin Islands

The U.S. Virgin Islands, a territory of about 105,000 people, are about 800 miles east of Cuba and compete with other Caribbean destinations for tourist dollars, said Rep. Stacey Plaskett (D-V.I.), a non-voting delegate in the House.

The Virgin Islands economy took a hit in 2012 after its largest private employer, Hovensa LLC oil refinery, closed and laid off nearly 2,000 workers. The Virgin Islands’ unemployment rate hovers at 12.8 percent, with 6,012 unemployed workers, according to November 2014 statistics from the territory's Department of Labor.

Tourism accounts for 80 percent of the Virgin Islands gross domestic product. The islands hosted nearly 2.7 million tourists in 2013, according to the governor's Bureau of Economic Research. Tourists, of whom more than 90 percent are Americans, primarily arrived on cruises and spent $1.2 billion in 2013. The U.S. recession stifled tourism for a time, but the industry has bounced back, Plaskett said.

If American lawmakers erase travel barriers to Cuba, Plaskett fears the move could deliver a significant blow to tourism on the Virgin Islands. Cuba is much closer to Florida and Plaskett said she worries that the island nation might replace the Virgin Islands as the first stop for cruise ships departing from Florida. She’s also concerned that investment dollars from developers and the tourism industry would plunge if they bypass the Virgin Islands for Cuba.

Plaskett has spoken with Rep. Pedro Pierluisi (D-P.R.) about the potential problem, and raised the issues with the Interior Department, which oversees U.S. territories. She also spoke briefly with Obama after his State of the Union address about the territory's desire to remain competitive. Meanwhile, Plaskett is working on a plan that would address the potential impact on the Virgin Islands' tourism industry. Details of the plan aren't available, but Plaskett says she will determine her next move based on its conclusions.

“We want on the front end … for Washington to be cognizant that the U.S. Virgin Islands and Puerto Rico need to have a competitive edge to compete with Cuba when the market opens up,” Plaskett told Bloomberg BNA in January. “It can’t be done in a vacuum by forgetting the interest that the U.S. already has in Puerto Rico and the U.S. Virgin Islands.”

Appeal of the Forbidden

Even so, Americans are eager to visit Cuba, according to a recent Gallup poll.

The poll, taken in February shows 59 percent of the Americans questioned favor lifting restrictions on travel to Cuba, while 30 percent are opposed. It queried a random sample of 1,016 adults and had an error margin of plus or minus 4 percentage points.

While a significant boost in American “curiosity tourism” to Cuba is likely, real questions remain about sustainability over the long term, given favorable pricing for tourists available in places such as the Dominican Republic and elsewhere in the Caribbean, said Piccone, of the Brookings Institution in Washington.

A 2010 report the Brookings Institution released with several other organizations from a conference, “Caught in the Global Hurricane: Debating the Caribbean's Development,” concluded that Cuba would require at least $3 billion in foreign investment to beef up its infrastructure in order to handle an onslaught of American tourists. Right now, 3 million people visit every year, the majority of them Canadians.

Jaime Suchlicki, director of the Cuban Institute at the University of Miami, says American tourists won't travel to Puerto Rico if they can visit Cuba, because the island nation is shrouded in glamour and mystery. Its music, colonial buildings, rum and cigars enhance the mystique, he said.

“Cuba has been the forbidden apple … for 50 years, so there's a pent-up demand to visit,” Suchlicki told Bloomberg BNA.

To contact the reporter on this story: Lenore Adkins in Washington at ladkins@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com