Rebuttal to Arguments Against Adoption of Proposed Resolution
From Alan M. Dunn and William A. Fennell of the Washington DC-based trade law firm Stewart & Stewart. Click here or view below.
COUNCIL AGENDA - CITY OF BURBANK
TUESDAY, MARCH 15, 2005
RUNAWAY PRODUCTION CONSIDERATION OF THE FILM AND TELEVISION ACTION COMMITTEE RESOLUTION:
The purpose of this report is to provide an update on the runaway production issue and present supporting and opposing documentation in response to the Film and Television Action Committee’s request for the Council to consider adopting a resolution in support of a 301 (a) petition, a provision of United States trade law that provides an avenue to remedy unfair trade practices. The issue of runaway production was first placed on the Council agenda for discussion at the June 11, 2002 meeting. On June 30, 2002, the Council passed a resolution to support Assembly Bill (AB) 2747 which was supposed to advocate a tax credit to retain, promote and encourage motion picture production in California as opposed to signing the Film and Television Action Committee’s previous resolution supporting “advocating countervailing duties on imports of feature films and TV productions from Canada.” (AB 2747 eventually failed passage). At the February 8, 2005 Council meeting, the Film and Television Action Committee requested the Council to adopt their proposed resolution to support the filing of a 301 (a) petition to help curb runaway production.
The following summarizes legislation aimed at providing solutions to the runaway production problem:
House Resolution 4520 The Jobs Act was created to offer new tax provisions to encourage domestic film production and became public law on October 22, 2004. New benefits and tax provisions include immediate tax write-off of production expenditures, net income deduction and some accounting structuring flexibility.
Senate Bill 58 In California, Senate Bill 58 was introduced by Senator Kevin Murray on January 12, 2005. This bill would grant tax breaks for film companies to keep productions in California, aimed at production companies' costs for below-the-line workers on projects that do at least 75 percent of their work in California.
Assembly Bill 261 In California, Assembly Member Paul Koretz introduced Assembly Bill 261 on February 2, 2005. Existing law established the Film California First Program which includes filming incentives. This bill would express the intent of the Legislature to restore State funding to the program, which allowed production companies to film for free on State land and provided reimbursements for production costs.
Assembly Bill 777 Assembly Member Nunez introduced Assembly Bill 777 on February 18, 2005 to encourage economic development and film production in California. This bill would grant tax breaks for film companies to keep their productions in California.
ARGUMENTS FOR ADOPTION OF PROPOSED RESOLUTION
Based on information submitted by the Film and Television Action Committee, their membership feels that the most effective way to stop runaway production would be to file a 301 (a) petition. They offered the following arguments in favor of filing a 301 (a) petition:
- There are 19 countries that have successfully copied the Canada production incentives and are now luring film production away from United States. According to the Film and Television Action Committee's research, the 301(a) petition is the best way to remedy the runaway production issue.
- The Film and Television Action Committee does not feel this 301 (a) petition would create a further trade threat than they believe already exists because a country would not retaliate for violating a trade agreement they already signed.
- The Film and Television Action Committee stated that the Motion Picture Association of America has already filed a few 301 petitions to end piracy and that there is already a subsidy war out there (which is a form of a trade war)
- They do not feel that another petition would jeopardize this ongoing subsidy war. The Film and Television Action Committee feels that this petition would actually help end the subsidy war.
- The Film and Television Action Committee's proposed Resolution has the support of the Studio Utility Employees Local 724 (affiliated with Laborers International Union of North America) and the Studio Transportation Drivers Teamster Local 399. They also state that they have the support of the Hollywood Local 695, although its parent organization, the International Alliance of Theatrical Stage Employees (IATSE) has submitted a letter against the proposed resolution.
ARGUMENTS AGAINST ADOPTION OF PROPOSED RESOLUTION
According to the Motion Picture Association of America, a 301 (a) investigation would hurt filmed entertainment exports. They offered the following arguments against adoption of the proposed resolution:
- Film production is up in California and the nation.
- There is no need for a 301 (a) petition because there is a significant increase in out-of-state incentives which match other countries' incentives.
- The Film and Television Action Committee petition would hurt the United States filmed entertainment exports, since over 40 percent of the revenues earned by the filmed entertainment industry are earned in markets outside the United States.
- Film production incentives do not violate trade agreements, so it would be difficult to come up with a substantive basis for a 301 (a) petition. The Motion Picture Association of America feels it would be difficult to accuse other countries of violating trade agreements since the United States employs similar incentive practices (such as House Resolution 4520 which authorizes Federal film production incentives).
- There is a major difference between the Film and Television Action Committee 301 (a) petition and a Special 301 petition which the Motion Picture Association of America filed to address intellectual property issues abroad (copyright protection). This Special 301 petition has a high level of international consensus as it benefits the United States and foreign cultural industries.
- A Special 301 petition does not contain the same possible perception of a direct threat of unilateral or multilateral sanctions as does a 301 (a) case. Opening a Section 301 (a) investigation against foreign film production subsidies would ignite cultural sensitivities and affect ongoing negotiations.
Statistics from the Entertainment Industry Development Corporation reflect strong 2004 numbers in terms of production activity, location shooting and television shows. There were a total of 52,707 location production days during 2004, up by 19.2 percent over 2003 to a new record level. Television production moved ahead by 26.8 percent to 18,257 days and feature film activity was up by 18.8 percent to 8,707 days, reversing an eight-year decline. In Burbank, the 2004 film permit statistics reflect an increase of nine percent in total film permit activity (267 vs. 245 permits), and a significant increase of 50 percent in feature film activity (27 vs. 18 feature films).
According to a recent Daily News article, runaway production is reflecting an increasingly domestic pattern due to various financial (other State and Federal) incentives, and some productions are now staying in California because of a weaker dollar, location, worker pool and weather. For example, during February, high-profile projects as “The War of the Worlds”, “The Bad News Bears” and the remake of “The Shaggy Dog” are all shooting in Los Angeles. Long Beach enjoyed some high profile shoots for several scenes of “The Aviator” and so did the Inland Empire where “Meet The Fockers” was shot. Parts of the upcoming drama “Mr. and Mrs. Smith” were also shot in Victorville, as were scenes of the latest Jamie Foxx movie “Jarhead.” Additionally, “Million Dollar Baby,” Academy Award winner for Best Picture of the Year, was shot entirely in Los Angeles. With the approved Federal and pending State legislation to keep production in the country and the State, it is hoped that this situation will continue to improve so our local entertainment industry can continue to flourish to provide additional jobs to our local workforce.
It is recommended that the Council direct staff to track the success of Federal legislation (House Resolution 4520, the Jobs Act) recently passed in October 2004 as well as Governor Schwarzenegger's pending State legislation (Senate Bill 58, Assembly Bill 261 and Assembly Bill 777) and direct staff to return with an update on the progress of this runaway production legislation. Staff recommends this report be noted and filed.