-VFX Outsourcing
Regional Victories:
- Glendale
- West Hollywood
- Burbank

Fugitive Production

By Claire Wright

published in the Los Angeles Daily Journal, September 12, 2007, page 6
fugitive-productionOn Sept. 4, the Film and Television Action Committee filed a petition with the Office of the U.S. Trade Representative requesting that it investigate the enormous film subsidies that
Canada is providing to U.S. film producers to shoot films and television shows in Canada. The petition furthermore requests that, if the USTR finds that those subsidies contravene World Trade Organization laws, the United States file a dispute settlement case against Canada in the WTO. It is impossible to overstate the importance of this petition for U.S. film workers, the U.S. film industry and all Americans.

Few Americans realize that more than half of all U.S. feature films are now filmed outside of the country, primarily in Canada. These include many well-known films of quintessential American stories, such as “Independence Day,” “Cinderella Man,” “Brokeback Mountain” and “Chicago.” In fact, so many films and television shows are being shot by U.S. producers in Canada that the country is often referred to as Hollywood North. American studio executives and actors travel to Canada and are quickly granted temporary work visas, but rank-and-file American film workers are refused entry into Canada and their positions are quickly filled by Canadian film workers. The Canadian subsidies available to U.S. producers are actually based on the number of film jobs that the producers can fill with Canadians.

This case will test the international trade system itself, as it is really a fight between U.S. film producers, who are being enriched by the Canadian subsidies, and the below-the-line film workers — such as cinematographers, special-effects experts and set designers — who are all losing their jobs as a result of the subsidies. The WTO appellate body has ruled in a case involving General Motors cars manufactured in Mexico that the WTO laws are intended to protect “domestic industries” and “domestic products,” rather than “domestic companies” or “domestic profits.” Therefore, the fact that U.S. film producers are actually benefiting from Canada’s film subsidies is irrelevant.

Furthermore, this important question is being raised in the context of what is arguably the most important industry in the United States — the entertainment industry. Americans are internationally known for their entertainment industry, and, until recently, this industry created hundreds of thousands of jobs for U.S. nationals each year, contributed approximately $52 billion to the national economy annually and consistently ranked second among industries in which the United States had a trade surplus. However, in its 2006 report, the Center for Entertainment Industry Data and Research revealed that the economic losses attributable to this runaway film phenomenon now total $23 billion and 47,000 U.S. jobs annually, with Canada being the primary beneficiary of these losses.

Not surprisingly, the U.S. film producers who receive the enormous subsidies from Canada oppose FTAC’s petition, as do some American entertainment union leaders. As it turns out, the unions earn more money by signing up new members in Canada than they do by collecting ongoing dues from longtime American members.

If the United States ultimately files a case against Canada on this issue in the WTO, it should prevail. The trade laws are based on liberal economic theory, which holds that governments should not intervene in the marketplace but should instead allow the natural rules of supply and demand to dictate which industries will flourish in which countries. While many Americans are opposed to the outsourcing of U.S. jobs for any reason, liberal theory provides the basis for why the trade rules allow companies to move their manufacturing operations to countries where the wage rates are naturally lower or where the currency exchange rates are naturally more favorable.

By contrast, there is nothing natural about Canada writing huge checks to U.S. film producers and thereby artificially lowering the costs of film production in Canada. There should be no mistake about what is really happening: Canada is bribing U.S. film producers to move U.S. film jobs to Canada, and those U.S. film producers, with their eyes on their profit margins, are readily accepting these bribes.

There also can be no question that Canada’s film subsidies are trade-distorting, in that they cause fewer American-made films and more Canadian-made films to be sold in various markets around the world. Therefore, a WTO panel should conclude that the WTO Agreement on Subsidies and Countervailing Measures (the SCM Agreement) requires Canada to abolish its foreign film subsidy program or amend it so it no longer causes harm to the U.S. film industry.

In this regard, it is important to understand that the film subsidies provided by the U.S. government and by various U.S. states and cities are not trade-distorting. They do not harm the film industry in Canada or any other country. They merely move U.S. film production from one U.S. location to another.

The opponents of FTAC’s petition often argue that the U.S. should permit its film producers to film some projects outside of the country because the money they save by doing so will enable them to shoot more films in the United States. This “trickleback theory” is patently absurd and demonstrably false. No budget analyst for a U.S. film production company is going to risk her job by arguing to her bosses that they should forego the additional profits that could be gained by filming their next film outside the U.S. because they have already made enough money by shooting other films outside the country.

The statistics tell a very clear story. All that has happened since U.S. film producers first started accepting foreign film subsidies is that more and more filming has occurred outside of the United States.

Opponents often claim that if the USTR pursues a trade action against Canada on the film subsidy issue, it will initiate a trade war between the United States and Canada. At best, this claim is silly; at worst, it is irresponsible fear-mongering. Neither Canada nor the United States has been the least bit timid about suing the other in the WTO, and both have done so on many occasions. Trade between the two nations has always survived these disputes.

Canada’s argument that it is actually providing film subsidies to a service industry, the Canadian film workers, rather than to U.S. producers of a good, should be dismissed out of hand. Canada’s very similar argument in a WTO case involving its restrictions on U.S. periodicals was soundly rejected by the WTO appellate body. A WTO panel or the appellate body would conclude the same in this case.

Finally, all Americans should be gravely concerned about the fact that American film companies have been regularly replacing U.S. workers with Canadian (and other foreign) film workers. Cultural anthropologists around the world agree that members of any national culture must continually articulate what is important and distinctive about their national culture or soon see it perish. Former French President Francois Mitterand, during the Uruguay round of multilateral trade negotiations, phrased it this way: “A society which abandons the means of depicting itself would soon be an enslaved society.”

One of the stranger aspects of this story is that there are legions of Canadian and other foreign nationals attending American accent classes in order to increase their chances of being hired by a U.S. film company to impersonate an American in a U.S. story filmed outside of the country. Before it is too late, real Americans need to start using their real American voices to vigorously support FTAC’s petition challenging Canada’s film subsidies. Surely, all Americans agree that their cultural heritage is too important to allow it to be sold to the highest foreign bidder.

Claire Wright is a professor at Thomas Jefferson
School of Law in San Diego and the author
of “Hollywood’s Disappearing Act: International
Trade Remedies to Bring Hollywood Home,”
published in the Akron Law Review in 2006
and reprinted in the Entertainment, Publishing
and the Arts Handbook 2007


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