Film groups look to sic WTO on foreign-film subsidies

For years, people have been trying to figure out ways to keep film
production in California. The usual answer has been tax breaks and
subsidies.

But a political action committee made up of film-industry professionals
thinks they have found a better way: forcing other countries get rid of
their subsidies.

The Film and Television Action Committee (FTAC) is gathering money to file a
complaint with U.S. Trade Representative ambassador Susan Schwab, alleging
that film-industry subsidies paid by 20 other countries violates the terms
of the General Agreement on Tariffs and Trade (GATT). Schwab represents the
U.S. in the World Trade Organization (WTO), which administers the GATT.

American trade negotiators long have railed against the subsidies that
France has paid to maintain its own domestic film industry. But according to
Tim McHugh, executive director of the Studio City-based FTAC, these
subsidies have changed in recent years, prompted by a 1999 decision by the
Canadian government to open up subsidies and tax breaks to foreign producers
as well.

The move was so successful in drawing American studios to Canada, McHugh
said, that several other countries soon copied the idea. The primary
condition to get these breaks, McHugh added, is that these studios use local
labor, leaving their America-based cameramen, carpenters and other skilled
production staff at home. This, McHugh said, has led to the main production
of several recent blockbusters to happen mostly overseas: Superman Returns
in Australia, X-Men: The Last Stand in Canada, and the Lord of the Rings
trilogy in New Zealand.

The problem is that these subsidies violate a condition of the GATT that
prohibits subsidies above set amounts if they potentially hurt other
signatories. In this case, U.S. labor is being hurt directly. McHugh’s
organization has gathered about half of the $500,000 it needs to file the
compliant, he said, a process that demands a wide variety of documents be
filed on a precise schedule.

“We’re not suing anybody,” McHugh said. “There is no jackpot at the end. We
have to pay our lawyers as we go.”

There are a couple other reasons FTAC is moving forward with the effort now,
McHugh said. For one thing, they want to get it on the agenda of the WTO’s
2007 Ministerial conference. These meetings, which set the organization’s
agenda, happen only every other year. The other reason is that this year is
an election year.

No one really wants to come out against American workers in an election
year,” McHugh said.

The Motion Picture Association of America (MPAA), which represents studios,
has come out against the idea. As of press time, the MPAA had not returned
calls seeking comment.

The MPAA has numerous reasons to oppose the FTAC effort, beyond the
financial benefit studios receive. It relies on other countries as major
markets: The overseas take of U.S. films is beginning to overtake the
domestic box office, and has saved some films that have failed financially
with U.S. audiences. The MPAA also needs the help of other countries in
fighting the growing threat of film piracy.

According to the Center for Entertainment Industry Data and Research
(CEIDR), the total budgets for major studio films shot in the U.S. dropped
from $3.9 billion in 1998 to $3.2 billion in 2001. The biggest beneficiary
was Canada, who saw their major-studio business jump from $410 million to
almost $1.1 billion over the same period.

CEIDR will release a new report, covering the period up through last year,
within the next two weeks. Several new major subsidies are coming into play
in recent months, said CEIDR director Stephen Katz, including recent efforts
passed in New York City and Germany.

“The trends are continuing,” said Katz. “Now it’s coming into full force,
and the states are getting involved.”

Much of the production still in the U.S. is leaving California for other
states. Attempts to provide in-state tax breaks to prevent “runaway”
production hit another snag last month when Assembly Speaker Fabian N