The Spanish decline to enter Hawaii's capital (8)
I believe the answer is:
helsinki
'capital' is the definition.
(capital of Finland)
'the spanish decline to enter hawaii's' is the wordplay.
'the spanish' becomes 'el' ('the' in Spanish).
'decline' becomes 'sink' (sinking is a kind of declining).
'to enter' is an insertion indicator.
'hawaii' becomes 'HI' (abbreviation).
'el'+'sink'='elsink'
'elsink' inserted within 'hi' is 'HELSINKI'.
(Other definitions for helsinki that I've seen before include "port" , "Finland's largest city" , "North European capital" , "Liken his strange city to one in Finland" , "Foreign city" .)