Rosy - The Leisure and Entertainment Capital of the World

 By David Martin, Esq.

          On May 15, 2008, the U.S. Navy rejected all bids made for approximately 2,900 acres of the former Roosevelt Roads U.S. naval base, according to a liaison in charge of the auction process.  The planned public sale has been rescheduled for the first quarter of 2009. This postponement presents an opportunity for Puerto Rico to reconsider its modest plans for the site.

 The acreage to be sold is a fraction of the total 8,600 acres contained on the base.  The property is one of the largest land assemblages in Puerto Rico under a single ownership. Equipped with its own heavy aircraft runways, helipads and harbor, “Rosy” (as many know it) is Puerto Rico’s golden chance to build the most preeminent leisure and entertainment city in the world. 

In December 2004, Puerto Rico’s Local Redevelopment Authority (known as Portal del Futuro) published its Reuse Plan.   In order of mention (and ostensible priority), the plan calls for the creation of a science park, industrial and commercial sites, schools, housing (including low income housing) and finally (and perhaps least) tourism facilities. 

The Reuse Plan expressly states that the government’s interest in tourism is “moderate.”[1]  This echoes the Commonwealth’s Comprehensive Annual Financial Report for the fiscal year ending June 30, 2006, stating that the island’s economic program seeks to “refocus the economy on biotechnology, telecommunications, technology information, and related sectors.”[2]   The Plan’s lack of emphasis on leisure and entertainment is suboptimal and must be changed.  

The preferential pursuit of high-tech and manufacturing jobs is demonstrably speculative, environmentally risky, and neglects Puerto Rico’s most formidable competitive advantages.  Puerto Rico has rare, underutilized gifts as a leisure and entertainment destination:

• A year-round temperate climate. (Try sitting poolside or playing golf in Las Vegas, Orlando or Atlantic City from November to March).
• Real tropical scenery and beaches. (Try finding these in the same L&E megasites)
• An artistically and athletically talented populace that competes and excels internationally in the performing arts and sports with little or no government support.
• Political stability as part of the United States with familiar federal laws and agencies.
• Proximity to the stressed-out highly paid workers on the U.S. East Coast seeking reprieve and reward for the efforts of their labor.

At the end of the day, when all is said and done, leisure and entertainment are what everybody wants and will pay up for. And there is no other place within the safety and convenience of the United States with the favorable baseline attributes of Puerto Rico. 

Las Vegas, Orlando and Atlantic City respectively emerged from a desert, a swamp, and a dilapidated seaside ghost town.  Macau on the coast of China, where crime gangs and execution-style killings were once commonplace, has already surpassed Las Vegas in L&E earning power, generating $7 billion in gaming revenue in 2007 versus $6.7 billion earned on the Las Vegas Strip.  In neighboring Cotai, the Las Vegas Sands Corp. invested $2.2 billion to build a larger version of The Venetian with 3,000 hotel rooms.  Sands plans to invest an additional $13 billion to build a new district of diversified entertainment in Cotai.[3] 

While Puerto Rico’s aspirations to build and host imposing manufacturing and high-tech industries are understandable, economic reality unmasks these as illusions. Such policies have done little to chip away at Puerto Rico’s unemployment rate (currently at 10.8%), which has hovered in the double digits for more than ten years.[4]  

If Puerto Rico’s unemployment rate weren’t enough to stop chasing an orgiastic future in manufacturing, consider what has happened on the U.S. mainland.  Despite its highly developed industrial complex and exceptionally educated labor force, the U.S.’s manufacturing jobs have declined from 17.1 million to 14 million  (a yearly decrease of 3.3%), from 2001 to 2007.[5]   

Does it make sense then for Puerto Rico to try to follow the same path when it is further behind in infrastructure and training?  

Noting the negative impact of the repeal of Section 936 of the Internal Revenue Code on Puerto Rico’s pharmaceutical industry, an article published in March 2008 by the Federal Reserve Bank of New York expresses a similar skeptical view of Puerto Rico’s prospects as a major manufacturing location.  The article states in relevant part: “The hope that Puerto Rico could…become the next Ireland …may not be realistic.”[6]

 A nearby chart shows the relentless 4% yearly decline (from 137,000 to 107,000) in Puerto Rican manufacturing jobs from 2001 to 2007.

Contrast these figures with leisure and hospitality jobs that have grown at an average rate of 1.45% from 66,000 in 2001 to 74,000 in 2007.[7]  

Total revenue from tourism from 1997 to 2006 grew at a compound rate of 5.11% from $2 billion to $3.4 billion.  The latter number represents a return of 28 times the Puerto Rico Tourism Company’s $121.9 million budget for the 2007 fiscal year.[8]   In early December 2007, Terestella Gonzalez Denton, executive director, announced $2.5 billion in future tourism projects and the construction of 3,000 hotel rooms.[9]  As a percentage of visitor spending, expected tourism investment is just 71% of the prior year’s visitor spending.

As illustrated in these simple graphs and figures, Puerto Rico’s manufacturing jobs continue to disappear, while Puerto Rico’s tourism industry continues to grow.  

It is helpful to compare these figures with Nevada’s 308,000 to 333,000 leisure and hospitality jobs, reflecting a 1.57% growth rate during the same period.[10]  From 2001 to 2006, visitor spending in Las Vegas has increased from $31.9 billion to $34.9 billion, a compound growth rate of 4.3% (the same rate as in Puerto Rico).[11]   For 2008, about $35 billion in additional investment is planned for Las Vegas.[12]  This represents approximately 100% of visitor spending in 2006.

If the L&E powers-that-be see this type of future in leisure and entertainment, why doesn’t Puerto Rico? 

Private investment must be allowed and encouraged on the scale of Las Vegas, Orlando, Macau and Cotai.  The MGM Grand in Las Vegas has 5,690 rooms.[13]  The largest hotel in Puerto Rico is El Conquistador with approximately 984 rooms.[14]  But more significantly, Puerto Rico hotel resorts have thin or non-existent feature entertainment and generally lack pedestrian-friendly proximity to one another.  In addition to a nearby airport, Las Vegas’ superior attraction lies in a visitor’s ability to easily sample and enjoy hotel properties and other venues by just walking the Strip.    

Rosy can have that and more.  The entire site can and should be developed into an L&E city on the order of Las Vegas, Atlantic City and Macau-Cotai.  But better. 

Rosy’s physical perimeter should be maintained and it should be operated as a semi-autonomous district with its own flexible and efficient regulations and laws, cooperatively financed security, computerized real property and commercial registries, and a specialized business court with proceedings conducted in English.  

Visitor regulation should be light and friendly. European sunbathing already happens on the beaches of San Juan, and walking outside with a cocktail has traditionally not been a reason to get hassled.  Smoking should be permitted, so as not to cause the reported downturn in visitor traffic experienced after the partial smoking ban in Atlantic City.  In fact, Rosy can be the impetus for a Puerto Rican premium cigar industry that could help revive the moribund agricultural sector.   

Rosy is a place where sovereign wealth funds can do an enormous amount of good.  They can finance the expertise and capacity to build out the site with careful respect for the ecosystem and the natural habitat.   At least 10 to 15 major parcels of no less than 30 to 100 acres each should be created for mega hotel resorts designed along a pedestrian-friendly strip lined by trees, benches, amphitheaters, and water sculptures that are no less impressive than the perennial Bellagio fountain.   It is essential that multiple resort properties compete with one another based on service, entertainment, and employee compensation.  The captive resort-bound visitor who feels ripped off by stratospheric pricing can no longer be part of the equation. 

Thus, Rosy cannot be dominated by a one-resort community.  This will defeat the purpose of having a diversified and dynamic entertainment district that must continuously re-invent itself as market conditions change.  Existing island resorts and hotels should not feel threatened as Rosy will attract more visitors than it can handle by itself.  It will also serve as a catalyst for exponentially greater tourism and visitor spending throughout the island.  

I offer more specific proposals.  Two anchor resorts could be called “The Bacardi ® Palace” and “The Serrallés Don Q® Castle,” showcasing two world famous Puerto Rican rum brands.  These resorts, which should be no smaller than Caesar’s Palace and The Venetian, will continue a tradition of promoting awareness of Puerto Rico better than any government advertising can accomplish.  

Rosy’s mega-resorts should include arenas and theaters large enough for marquee shows, concerts, and sporting events, such as world championship boxing.  One of Rosy’s centerpieces can be an entertainment museum honoring past and present superstar entertainers and athletes the world over.

With the ability to fly directly to Rosy’s airport, visitors will practically be able to walk to their hotels with no need to rent a car or waste time getting to their destination.  High rollers with private jets can land at the Fajardo municipal airport, which can extend its runway to welcome the increased, high-margin traffic.  

Privately funded cooperative advertising must be relentless in educating, especially the American public, that travel to Puerto Rico is a domestic trip.  Use dollars, a U.S. driver’s license, snail mail home a postcard through the U.S. Postal Service. This is a major informational obstacle that can only be overcome by message repetition, much the same way Las Vegas hammers on the fact that one goes there for fun and relaxation and not just to gamble. 

Consistent with the Reuse Plan, the ecologically sensitive areas should continue to be preserved in the interest of conservation and as an additional eco-touristic attraction.  Apart from the futility of trying to compete for manufacturing jobs, the disastrous environmental effects of chemical and heavy-equipment based industries in China and India should convince Puerto Rico that clean and green L&E is the way to go.

With powerful offshore breezes and Caribbean sunlight, Rosy is perfectly suited for wind and solar energy.  Rosy should emphasize (if not require) pedestrian and other non-automotive transportation and generally restrict Rosy’s roads to emergency vehicles and safe and clean collective transportation.  Because it is not a productive asset, private housing should be discouraged in this unique entertainment enterprise zone.   

Rosy should contain a state-of-the art hospital and emergency treatment facilities with medical staff fluent in major languages.  Retail stores should offer upscale, duty-free shopping available to travelers showing proof of unexpired return air transportation tickets.  The Reuse Plan correctly proposes a building out of the harbor and marina facilities for yachts and small cruise ships.  This will ignite aquatic sports and boat travel to Vieques, Culebra and the Virgin Islands.   

The transfer of Ramey Air Force Base on the west coast of the island in the early 1970’s is a blue print of what not to do.  Like the other former military installations, the grounds of Ramey were once immaculate and in apple pie order.  With the transfer, the base perimeter was removed and disorder trellised its way onto the site.  Military housing was practically gifted to the local residents.  While a noble ideal, a regional campus of the University of Puerto Rico was attempted, but is in disrepair and appears desolate.   The Rafael Hernández airport retains the Spartan look of a military airfield with no curb appeal for tourist passengers.  The former officers’ club (now a low-key and underused restaurant) stands wistfully overlooking the Mona Passage.   The remaining areas of the base have been unappealingly chopped up and fenced off into various federal and state agency sites.  

The same fate should not await Rosy. 

The site should continue to be enclosed; access opened to all, but regulated.  Rosy’s airport must be polished into a gem.  The former military housing should be torn down.  The grounds should be sold or leased to major resort operators.  The areas set aside for educational use should be eliminated.  More educational spending will not cause world-class scholars and researchers to forgo MIT and Stanford.  It is much more likely, however, that the wealthy owners of their groundbreaking technologies will come to Rosy to spend their millions and billions to enjoy themselves in safest and most exciting L&E city in the world. 

Over the next 30 to 40 years, Rosy can be the new cornerstone of the island’s economy and provide free-market wealth and abundance to the People of Puerto Rico.  All the government has to do is allow it to occur.   Let’s cancel any plans to ask Congress for handouts.  This is our chance.   

[7]   U.S. Department of Labor, Bureau of Labor Statistics. http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU4300000700000001&data_tool=%22EaG%22 (Viewed on March 22, 2008).

[8]   Caribbean Business, April 17, 2008 (p. 32)

[9]   “Puerto Rico Holds First Tourism Investment Conference and Launches Properties Catalogue,” Reuters, December 4, 2007.  http://www.reuters.com/article/pressRelease/idUS143835+04-Dec-2007+PRN20071204 (Viewed on March 25, 2008).

[10]    U.S. Department of Labor, Bureau of Labor and Statistics.  http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMS3200000700000001&data_tool=%22EaG%22   (Viewed on March 22, 2008).

[11]   The Center for Business and Economic Research, University of Nevada, Las Vegas. http://cber.unlv.edu/tour.html  (Viewed on March 22, 2008).

[12]   “Is a Comeback in the Cards for the Storied Tropicana,”  The Wall Street Journal (2007 or 2008).

[13]  Insider Viewpoint  http://www.insidervlv.com/hotelslargestworld.html  (Viewed March 22, 2008).

[14]  GBD Online Report.  http://www.gamingdirectory.com/Registered/GamingPropertiesReport.cfm (subscription service) (Viewed on January 19, 2008).

TO U.S. INVESTORS

By

© 1995 published in International Financial Law Review 48 (March 1995) (Euromoney Publications PLC)  

sub nom David R. Martínez

    On October 20, 1994, the US-Argentine bilateral investment treaty came into effect, offering U.S. investors brighter prospects in Argentina. The treaty, which has an initial term of 10 years and applies retroactively to pre-existing investments, provides enhanced safeguards to U.S. businesses.

   What are the main features of this treaty and how it will encourage U.S. investment? First and foremost, the treaty requires that U.S. investments in Argentina receive the better of national treatment or most-favored nation status. This is the same standard of protection given to U.S. investors in Mexico under the North American Free Trade Agreement.

   Exceptions to national and most-favored nation treatment are listed in the Protocol attached to and made a part of the treaty. The exceptions apply to investments in certain border areas, air transportation, shipbuilding, nuclear energy centers, insurance, mining, and fishing.

   Investments under the treaty are defined broadly to include every kind of investment owned or controlled directly or indirectly by U.S. enterprises or persons.

   Under the treaty, Argentina undertakes not to hinder the management, operation, maintenance, acquisition, expansion or disposal of investments by “arbitrary or discriminatory measures.”

   Subject to local immigration regulations, the treaty recognizes the right of U.S. investors to enter Argentine territory to establish, expand and maintain their investments, where substantial capital or resources have been or will be committed.

   Another safeguard to U.S. investment provided in the treaty is the freedom to engage top-level managers without regard to nationality. This enables U.S. companies to appoint executives and other personnel from within their own ranks.

   U.S. investors are also exempt from the need to satisfy performance requirements as a condition of establishing, expanding or maintaining their investments. One performance requirement specifically removed was the obligation to purchase local goods and services. In the Protocol, however, Argentina reserves the right to maintain, but not increase, performance requirements in the automotive industry.

   The treaty also promises effective means of enforcing rights regarding investments, investment agreements, and investment authorizations in Argentina. This provision should supply a basis for inter-government dialogue on any shortcomings in Argentina’s judicial system and the need for reform.

   The specter of expropriation has often haunted U.S. investors venturing abroad. The treaty tackles the issue directly by providing that Argentina may not expropriate investments except for “a public purpose” and in “a non-discriminatory manner.” Also required is prompt, effective and adequate compensation.

   In addition, the treaty recognizes a U.S. investor’s right to make investment transfers freely. Transfers include profits, dividends, interest, capital gains, royalty payments, management or technical assistance fees, and proceeds from the sale or liquidation of all or part of an investment. Generally, transfers are to be made in freely usable currency at the prevailing market rate of exchange with respect to spot transactions in the currency to be transferred.

   According to criteria of the International Monetary Fund, there are five “freely usable” currencies: the U.S. dollar, the Japanese yen, the German mark, the French franc, and the British pound. The rule of free transfers does not, however, bar Argentina from requiring currency transaction reporting and the withholding of taxes.

   In a landmark break with the past, the treaty allows U.S. investors to submit investment disputes with the government to binding arbitration outside the country. Investors are no longer required to exhaust domestic remedies before seeking arbitration. With this change, Argentina now affords U.S. investors free access to arbitration for investment-related disputes.

   The treaty is the first of its kind concluded between the U.S. and a Latin American country under the Enterprise of the Americas Initiative, which seeks hemispheric economic integration and development. If the objectives of the Summit of the Americas are reached, the rest of Latin America will afford comparable investment protections by the year 2005.

   Attracted by positive economic conditions and other business-friendly reforms, U.S. investment in Argentina grew significantly before the treaty. The added protection offered by the treaty should make Argentina even more attractive

On January 1, 1994, Andean Pact legislation began protecting industrial secrets for the first time. Applying to Bolivia, Ecuador, Colombia, Peru, and Venezuela, Decision 344 replaced Decision 313, passed in 1992, which had governed various forms of industrial property but not industrial secrets. Regulated in separate chapters of Decision 344 are patents, utility models, industrial designs, marks, trade names, and denomination of origin. (more…)