In June of 2008, the Film and Television Action Committee (FTAC) published a position paper on their website at ftac.net in which they argued that the outsourcing of American film and television production has a “severe economic, social and cultural impact" on the United States. Their rhetoric, as well as that of others in the film industry concerned with runaway production, fuels an us vs. them mentality similar to that of the xenophobics’ currently decrying NAFTA while simultaneously undermining the logic, usefulness, and inevitability of democracy and a free market in the age of globalization.
The FTAC position paper identifies Canada by name and argues that subsidies and other measures violate Section 301 of the Trade Act of 1974. In particular, the FTAC argues that “repeated studies have shown that this outsourcing of the physical production of America’s largest export is overwhelmingly driven by one factor: Substantial subsidies offered by foreign governments to production originating in other countries, as opposed to their own. Subsection 125.5 of Canada’s Income Tax Act makes this distinction quite clear, saying ‘This program is designed to encourage the production of film and video productions in Canada without regard to Canadian content and ownership. Its goal is economic, that is, to attract foreign productions to Canada and to employ Canadian residents.’ As a result, American workers suffer wholesale discrimination as American employers agree to deliberately exclude them and hire foreign citizens instead in order to qualify for these incentives."
As a result of these concerns, the FTAC retained the DC based law firm Stewart & Stewart to file a 301(a) petition, according to Janet Wasko, “with the U.S. Department of Commerce to determine the legality of subsidies granted by the Canadian government." According to Wasko, in her book How Hollywood Works, the purpose of the petition is the initiation of a countervailing tariff remedy to “combat runaway production by forcing U.S. producers to give up Canadian government subsidies." She argues that the remedy would force producers or studios to give subsidy dollars to the U.S. government. Little support has emerged from Sacramento or DC, Wasko asserts, as lawmakers fear retaliation while also understanding the importance of foreign markets such as Canada in terms of distribution. The Stewart & Stewart attorneys, Alan M. Dunn and William A. Fennell, in a series of short video clips on the ftac.net website, explain the 301(a) petition more in terms of challenging Canada’s violation of the WTO subsidy agreement. Their hope is that a successful petition would force Canada to enter into negotiations with the United States with the aim of ending the subsidy program.
The FTAC position paper goes on to argue, “While Canada remains the prime offender because of its generosity and its proximity to the United States, many other countries have followed suit, introducing subsidy programs based on the Canadian model. In response to this increased competition for American production, Canada’s federal and provincial governments have raised their subsidy payments repeatedly since their inception." There are others who agree with the FTAC. For example, an article on the International Cinematographers Guild website at cameraguild.com states the following: “Congratulations to the Film and Television Action Committee in its latest victory in a campaign to fight runaway production. FTAC has won the support of the city of Glendale, which has endorsed FTAC in its drive for a federal trade investigation into the legality of foreign subsidies. Glendale council members voted to back the investigation on March 22, making it the fourth city to support FTAC’s campaign to address foreign subsidies." The article goes on to explain that the “organization is calling for the filing of a 301(a) petition to investigate whether Canada, by offering subsidies, is violating federal trade agreements with the United States. FTAC is an organization of industry activists working to stem the tide of runaway production." The article then concludes by stating that “Glendale is joining a long list of cities, unions and individuals in helping to build momentum for the campaign by throwing its support behind FTAC. So far, the cities of Burbank, Santa Monica and West Hollywood, as well as SAG, have joined in the call for an investigation." Indeed, FTAC has gotten the support of the WGA, the DGA, Teamsters, as well as international and local IATSE’s.
According to an article on the Canadian CBC News website, “U.S. group files trade action over Canada’s film subsidies," “Stephen Waddell, national executive director of the Alliance of Canadian Cinema, Television and Radio Artists, the union that represents Canadian actors, says he doesn’t expect the trade action to get to the investigation stage, because no Hollywood studios are behind it. ‘The studios love the production incentives in Canada,’ he told CBC News. ‘They recognize filmmaking is a global business. Hollywood isn’t the only place where you can make movies.’" Of course, the studios and other producers like such cost incentives; they are the decision makers and primary beneficiaries. “We are suffering," the FTAC position paper concludes. “Incentives relocate jobs and industries; they do not create them." As a resident of California and owner of a small production company, I would like to add that the state’s undisciplined tax and spend mentality certainly does not create jobs either.
Paul Krugman, winner of the Nobel Prize in Economics, has recently shifted his stance on protectionism, writing in his New York Times blog “The Conscience of a Liberal" on 1 February 2009 that the “economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story. But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response." Later in the same blog, he states, “Let’s be clear: this isn’t an argument for beggaring thy neighbor, it’s an argument that protectionism can make the world as a whole better off. It’s a second-best argument — coordinated policy is the first-best answer. But it needs to be taken seriously." Krugman then concludes by asserting, “Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again. But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program." Even Krugman wavers; how indeed will we put Humpty Dumpty together again? Do we really want to shatter those hard–won achievements of trade negotiations? Protectionism fails to comprehend the new global economy, the power of emerging markets, the price control of competition. The simple truth is producers will always go where production is less expensive, and California doesn’t do enough to control costs. As I have already stated, I have a small production company in Hollywood, and every year I am throttled by city and state taxes as well as various other licenses and fees. Lawmakers and the taxpayers who elect them must learn that the way to lure more jobs, more productions to Los Angeles County is the obvious way: lower costs.
According to Jack Egan in a September Variety article, “There’s a war going on in Canada – over entertainment tax incentives. Just as in the U.S., where numerous states are leapfrogging each other’s tax breaks in order to pull in film and television productions, a high-stakes bidding battle has recently erupted north of the border." Egan goes on to explain, “Canada’s three big media centers – Toronto, Montreal and Vancouver – are vying with one another to attract lucrative Stateside productions. As a result, they’ve become locked in a fight that pits the three cities and their provincial governments – Ontario, Quebec and British Columbia, respectively – in a struggle for film and TV projects at a time when there are fewer shows to go around." Egan explains some of the reasons which include “rising competition from U.S. states with their own lavish incentive programs, the credit crunch that has made it harder to get production financing, and a steady upward trajectory for the Canadian dollar against the greenback that has pushed up the cost of going north." Quebec, affected by the recession, made the first move. “In early June," Egan explains, “its government stunned the competition by nearly doubling the value of its already generous production incentives. Quebec’s 25% refundable tax credit hasn’t gone up, but the rebate now covers the entire budget of a project, based on expenditures in the province. And to lure high-cost features, there is no longer a budget ceiling. Formerly, the 25% applied only to spending for local crew and labor, ordinarily representing about half the cost of a shoot. Based on the changes, Quebec claims its new incentives package provides credits that can top 40%." Soon after, Ontario matched Quebec’s benefits. “Though Ontario’s legislature hasn’t yet approved the increase," Egan states, “predictions are that it will easily pass." British Columbia has yet to counter. Of course, in The Return of Depression Economics and the Crisis of 2008, Paul Krugman argues that “one country after another has experienced a recession that at least temporarily undoes years of economic progress, and finds that the conventional policy responses don’t seem to have any effect." To deal with the global emergency, he argues “policy-makers around the world need to do two things: get credit flowing again and prop up spending." Until credit and spending flow, no industry will prosper. Within Canada, however, everyone seems to understand that lowering costs attracts producers and their production dollars.
There are some in Los Angeles who understand the central problem. On the NBC Los Angeles news website, in a 6 October 2009 article “Councilman Wants to Turn Around Runaway Production," writer Scott Weber explains, “City officials have been trying to convince film crews to come back to L.A., but the runaway production train may have already left the station." But he does go on to state that “City Councilman Richard Alarcon plans to outline 17 initiatives he hopes will slow down the trend. But he faces an uphill battle. Even though the city may lose as many as 6,000 jobs, some locals wouldn’t mind if production stayed away." Weber lists the obvious reasons production has been leaving: “Lack of tax incentives, high fees and parking problems for crew members were among the gripes according to an article in the Daily News." Weber reports that “Alarcon hopes to address producers’ concerns and raise awareness about the economic benefits of film production." The writer does concede, however, that “some residents though don’t share Alarcon’s enthusiasm. Many have complained that film crews disrupt life in their neighborhoods, creating traffic and parking nightmares. Movie shoots often close busy streets, leaving frustrated residents guessing how to get around. On top of that, the city is facing tough financial times and can’t afford handing out big tax breaks." Weber goes on to quote Councilman Bernard Parks who states that when “you take over a community for several weeks or whatever, the community should at least have something to point at and say people see an overall benefit, instead of it just was converged on, people were inconvenienced, there was a handful of people that benefited and most of them left." But Parks’s remark sound like he wants to charge producers more money once again, money that could be kicked back to the community. This mentality is exactly the opposite of those in Canada who understand that lower costs lure production which in turn increases jobs offered which in turn improves the overall economy.
Even other states in the U.S. get that.
Weber quotes Ruben Fleicher, the director of Zombieland, in his article who “received a 30 percent tax credit to film in Georgia." Fleicher goes on to say, “This movie would have cost twice as much if we’d done it in L.A." Weber ends his piece by stating that “Alarcon hopes to enlist FilmLA, a shooting-permit clearinghouse for the city, as well as staffers from council district offices to persuade people on the benefits of keeping film work in Hollywood." Alarcon is “trying to be surgical about it." He states, “I’m being very honest (with producers): We’re not going to be able to solve all of your problems in one fell swoop, but we’ve got to set the tone."
According to a 19 February 2009 article in The Wrap by Lauren Horwitch, “Calif. OKs $500M Tax Credit for Hollywood," the state legislature “bowed to the changing geography of film production on Thursday with an historic bill that will provide $500 million in tax incentives for productions that stay in the state. After years of watching one of the state’s core industries, entertainment, flee to Canada, England, New York, Louisiana and other states and countries that offered huge tax incentives, the legislature finally – and after intense lobbying efforts – passed the incentive program as part of the state budget. The ‘Ugly Betty Bill,’ so named for the show that fled Los Angeles for New York’s incentives, includes a 25% refundable tax credit for film productions shooting in the state." The plan is “funded for five years at $100 million per year beginning in fiscal year July 2009/10 through the 2013/14 fiscal year. Credits may not be utilized until tax years beginning in Jan. 2011. The bill also includes a temporary $3,000 tax incentive to businesses with 20 or fewer employees for each new full-time job they create." This change will do more to drive change in California than any other action.
If the Film and Television Action Committee and their lawyers believe Canada is in violation of the WTO subsidy agreement, then I suppose they have the right to file their 301(a) petition with the hoped-for result of a negotiation in which the subsidies will be removed, but the argument I’m trying to construct is that this pursuit misses the point. As I said in the introduction, this mentality, this logic, undermines the usefulness and inevitability of democracy and a free market in the age of globalization. Producers handle budgets. The less expensive a location, the more appealing. Likewise, if more broadly, FTAC wants production to move south of the northern border, they should channel their energies toward convincing states in general and California in particular to lower costs and thus compete with Canadian locations. This latest move by California to provide tax incentives is a move in the right direction.