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Shopping Centers Today -> February 2006
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PASSPORT, PLEASE
Will new U.S. border rules cut traffic at tourist-centric retail centers?
By Joel Groover
A new U.S. law that will force travelers in the western hemisphere to show hard-to-get forms of identification such as a passport before they can enter the U.S. has raised fears of economic harm to retail and tourism.
Critics say the law, which passed in December 2004 as part of a raft of recommendations by the 9/11 commission, threatens to stymie the flow of travel and commerce long enjoyed by citizens of the U.S. and some of its neighbors, millions of whom regularly cross the border with the mere flash of a driver’s license. Some of the restrictions are due to come into effect in December, others next year.
Not only does the law place new restrictions on foreign nationals, it also forces U.S. citizens to acquire a passport (or perhaps an alternate ID with similar safeguards) before they can re-enter the country after a trip to Canada, Mexico or such tourist havens as Bermuda.
Given the maxim that shopping and tourism go hand in hand, a travel slowdown caused by the restrictions could hurt shopping centers inside and outside the U.S. that depend on foreign visitors or routine cross-border traffic. “I’m surprised that this still hasn’t received much exposure,” said Gwen MacKenzie, CLS, senior vice president of retail investments at Irvine, Calif.-based Sperry Van Ness. “I don’t think people realize the impact it might have.”
The U.S. departments of Homeland Security and State plan to implement the law, called the Western Hemisphere Travel Initiative, for all air and sea travel to or from Canada, Mexico, Central and South America, the Caribbean and Bermuda by Dec. 31. The ID requirements would kick in for all land-border crossings exactly one year later.
The agencies have yet to announce which forms, if any, of secure ID beyond a passport will be acceptable, though the government says the Border Crossing Card, or “laser visa,” which Mexican citizens use to enter and exit the United States, should pass muster. Canadian and U.S. citizens now use driver’s licenses as their primary form of ID when crossing their mutual border, which, Alaska included, stretches some 5,500 miles.
The government is drawing up final plans for how the law will work, based in part on public comments received over the past few months, says State Department spokesman Edgar Vasquez. Border communities, as well as such business groups as the American Society of Travel Agents, the Travel Business Roundtable (of which ICSC is an executive board member) and the Travel Industry Association of America, are anxious for more details.
“Nobody knows where this is going to go in terms of the timing or, for that matter, the content,” said Paul M. Ruden, American Society of Travel Agents’ senior vice president of legal and industry affairs. “But we have good reason to believe the government is working on an alternative instrument to the passport.”
By all accounts, federal officials have gotten an earful about the potential economic downside of the passport requirement. Outspoken critics include Sen. Hillary Rodham Clinton of New York and Sen. Byron L. Dorgan of North Dakota.
“There is tremendous concern among New Yorkers that the initiative’s identification requirement would not only devastate the tourism and retail industry, but also greatly disrupt life on both sides of the American-Canadian border,” Clinton wrote in a letter to both agencies.
Surveys by the Canadian Tourism Commission show that just 34 percent of Americans and 41 percent of Canadians carry valid passports. (Canadian passports cost about C$75 [$64] and expire after five years.) The commission predicts that U.S. businesses will lose about $670 million over three years as trips by Canadians decrease by nearly 3.5 million. Canada’s tourism and other industries will take a C$3.3 billion hit during the same period, with 7.7 million fewer inbound trips by U.S. citizens.
The stats are no abstraction for Marjorie Ruddy, marketing manager for Canada One Factory Outlets, in Niagara Falls, Ontario. The 40-store mall, which draws 3 million visitors a year, is just minutes away from the famous waterfall and the U.S. border. Americans account for up to 30 percent of the mall’s traffic during the summer, Ruddy says.
“We were impacted as soon as the law hit the news, because a lot of the media forgot to say it didn’t take effect [for crossings by land] until 2007,” Ruddy said. “We actually had a few groups from the United States that we had booked to arrive here at the mall that called us and said, ‘We’re afraid. We think we’re going to cancel.’ ”
Similar ripple effects could reach major cities across Canada, says Peter Sharpe, president and CEO of Toronto-based Cadillac Fairview Corp., one of Canada’s largest owners of retail real estate. Americans are a mainstay of the Canadian convention business, he says. “Imagine the reluctance of a large meeting planner in Dallas faced with ensuring that all 400 people have passports so that they can get back into the United States, whether from Vancouver or Toronto,” Sharpe said. “The fallback position would be, ‘Let’s find something in the U.S.’ ”
Those dynamics also apply on the other side of the border. A family of four in Montréal, for example, might rethink a trip to Orlando, Fla., after mulling over the time, effort and expense of acquiring a set of passports at $75 each. (Although there is currently no U.S. government passport requirement for air travel between the U.S. and Canada, some airlines do require identification beyond a driver’s license. Many travelers use a passport for the purpose.)
“Close to 2 million Canadians a year go down to Florida at some point during the winter,” said Edward Sonshine, president and CEO of Toronto-based RioCan, Canada’s largest REIT. “It’s the No. 1 foreign destination for Canadians. It’s cold up here.”
The Canadian dollar is now worth about 86 cents, up from 73 cents a decade ago, and this makes Canadians far more likely to cross into the U.S. to shop, says Sonshine. The number of Canadian visits to the U.S. rose from 34.5 million in 2003 to 35.9 million the following year, according to the Binational Tourism Alliance, which represents 60 tourism and other business operators in the Buffalo-Niagara region. In 2004 Canadians spent $10.05 billion in the U.S. — $1.8 billion more than Americans spent in Canada the same year.
“Our malls in Buffalo do substantial business from Ontario,” said Howard Zemsky, a Buffalo businessman and alliance board member. “You don’t have to walk far to find an Ontario license plate.”
Indeed, the Syracuse, N.Y.-based Pyramid Cos., which owns three malls along the Canadian border in upstate New York, has seen a marked increase in Canadian shoppers over the past few years as a result of the favorable exchange rate, says Andra M. Case, corporate marketing manager. “Based on the feedback we’ve received from our merchants, Canadians account for approximately 12 to 15 percent of our annual customer base,” she said.
In the parking lots at Mall of America, in Bloomington, Minn., the license plates are as likely to be from Manitoba as Minneapolis. Canadians outnumber all other foreign tourists at the mall, says Doug Killian, Mall of America’s associate director of tourism and guest services.
“We’re only about a five-hour drive from the Canadian border,” he said. “Winnipeg in particular is an important market for us.”
The trouble is, the very things that have been making life easier for shoppers can do the same for terrorists, security experts say. Absent requirements to show a high-tech biometric passport or some other form of secure ID, they say, a terrorist could use a fake driver’s license to devastating and tragic results.
Such scenarios are why, rather than seeking to kill the initiative, ICSC supports travel industry efforts to lobby for a solution that “balances the need for better security with the free flow of commerce,” said Jennifer Platt, ICSC’s director of federal government relations.
The hope is that the federal government will come up with an alternative to the passport that is highly secure, inexpensive and easy for travelers to acquire, says Rick Webster, director of government affairs at the Travel Industry Association of America. As passed by Congress, however, the law clearly states that the passport “will be the document of choice for travel within the Western Hemisphere or re-entry.”
And that has some executives entertaining the other nightmare scenario: serious drop-offs in shopping become the painful price of greater security.
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