News Release
April 13, 2007
San Diego Law Professor Involved in Fight to Save U.S. Film Industry
Exposes Hollywood’s “Dirty Little Secret”
SAN DIEGO -- The U.S. film industry is dying, according to Thomas Jefferson School of Law Assistant Professor Claire Wright, who paints an alarming picture of how one of the U.S.’ most preeminent industries is being killed off by enormous subsidies granted by foreign countries trying to “steal” the U.S. film business.
In her recent article titled Hollywood’s Disappearing Act: International Trade Remedies to Bring Hollywood Home and published in the prestigious Akron Law Review, Professor Wright exposes Hollywood’s dirty little secret: the fact that an enormous number of “American feature films” are no longer even “Made in the U.S.A.” Her article is causing a stir in film industry circles among those who agree with Professor Wright that legal action is needed now.
Professor Wright is a former partner of the international law firm of Baker & McKenzie and the international consulting firm of Ernst & Young, and she was a practicing international trade lawyer for many years before turning to teaching full-time at Thomas Jefferson School of Law in 2003.
Her article discusses in detail why the foreign film subsidies are inconsistent with World Trade Organization (WTO) members’ obligations under the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).
While the SCM Agreement clearly provides that specified government subsidies provided by a nation to its own domestic industries can contravene the SCM Agreement, Ms. Wright argues convincingly that even subsidies provided by a WTO member to foreign industries to lure foreign production to its shores are inconsistent with the SCM Agreement’s terms and, more importantly, the underlying political and economic rationales of the WTO trading system.
In particular, Ms. Wright claims, the WTO laws are supposed to protect national industries and products, not national companies, so U.S. film company management and shareholders cannot claim that the foreign subsidies are legal simply because they personally benefit from them. Furthermore, numerous statistics and anecdotes presented in Ms. Wright’s article illustrate that any benefits that the top film company managers or shareholders are enjoying as a result of the subsidies clearly are not “tricking down” to the rank-and-file U.S. film workers.
Professor Wright is quick to point out in her article that, under the current WTO free trade rules, there is nothing wrong with a U.S. company taking advantage of lower wage rates or favorable currency exchange rates in another country. However, the foreign film subsides, she states, are different, because they artificially lower a country’s labor rates and interfere with the free-market principles of demand and supply upon which the WTO trading rules are based.
In addition, her article documents how the film subsidies in Canada have created a subsidy spiral around the world, with a number of other countries now attempting to outbid Canada for the U.S. film industry. Such subsidy spirals tend only to harm the countries involved in the bidding process, as local taxpayers are left to pay large tax bills for years without having anything to show for their investment. This is one of the main reasons why the trade rules discourage government subsidies in the first place, Professor Wright notes.
Professor Wright also emphasizes that her article does not address the legitimacy of subsidies to promote a country or local government’s own cultural offerings. Rather, her article analyzes the legitimacy of film subsidies such as Canada’s Production Services Tax Credit (PSTC), which are granted specifically to foreigners to produce foreign cultural products - such as U.S.-developed films – on their own turf. She claims that it is disingenuous for a country such as Canada to treat U.S.-developed films as goods that can be produced anywhere in the world and at the same time argue that foreign films shot in Canada should be exempted from the WTO rules because such films promote “Canadian culture” and hence are not “mere commodities.” I
f the movies being shot in Canada were based on novels written by Canadian authors or highlighted Canadian history or featured Canadian lumberjacks, hockey players, or Mounties, that would be one thing, Professor Wright says. But, what is actually happening, she states, is that programs such as the PSTC program in Canada are simply “using the U.S. film industry to put the U.S. film industry out of business.”
An important adjunct to Professor Wright’s thorough legal review of Canada’s film incentives is a recently released report from the Hollywood-based Center for Entertainment Industry Data and Research (CEIDR, www.ceidr.org), "The Global Success of Production Tax Incentives and the Migration of Feature Film Production from the U.S. to the World, Year 2005 Production Report."
According to CEIDR, U.S. economic losses from just “runaway” feature film production alone are by now a staggering $23 billion and 47,000 jobs annually. In comparison, the Monitor Report, the first real study of the phenomenon, stated in 1999 that the economic cost to the U.S. from all runaway production for 1998, the first year Canada's subsidies were in effect, was $10.3 billion and 25,000 jobs.
Cathy Anderson, the Film Commissioner and CEO of the San Diego Film Commission, reports that San Diego’s film industry in recent years has suffered as much, if not more, than film locations in other parts of the U.S. In 2005, film expenditures in San Diego totaled $100 million, but this figure dropped to $80 million in 2006.
In the past, San Diego often was able to sell itself as a low-cost alternative to filming in Los Angeles. Today, Ms. Anderson points out, San Diego routinely loses film productions to other states, and approximately five years ago, it lost the lucrative movie-of-the-week business to Canada, on account of the enormous subsidies available there. She explains that the San Diego film industry is especially harmed by subsidies provided by other governments, because 95% of San Diego’s film industry is composed of television work, which is very cost-sensitive.
Ms. Anderson notes that film locations around the world compete for television and feature film productions based on three factors: budget, infrastructure, and locale. While San Diego can offer an attractive film locale and more-than-adequate infrastructure (Stu Seagull Productions alone has 11 stages in San Diego and an enormous new film studio facility is currently being constructed in San Marcos), she laments that San Diego no longer seems to be able to compete with other locations based on budget, because of the tremendous subsidies available elsewhere. Without some change in the status quo, Ms. Anderson concludes, the San Diego film industry can expect to continue to lose more and more film productions to other locales.
Today, most of the film work in San Diego consists of shooting pilots for television shows, but the television shows themselves are then almost always shot elsewhere. This is a shame, she points out, since each film project that comes to San Diego generates a number of high-paying jobs, as well as significant local expenditures and tax revenues. While the federal and state film subsidies in the U.S. do not appear to be trade-distorting on the international level and thus do not appear to be vulnerable to attack under the SCM Agreement themselves, Professor Wright does not believe that implementing competing subsidies in the U.S. is a cure-all for the declining U.S. film industry.
She points out that the escalating financial and job losses throughout the U. S. film industry have continued unabated despite the implementation of incentive plans in a number of other states and the federal JOBS Act of 2004, which established a very small federal incentive in the U.S.
The evidence is clear that domestic film incentives simply have not been able to stem the tide of outsourced film and television production, she concludes.
Professor Wright recommends in her article that the U.S. Government ask for enforcement of the WTO rules and pursue a legal challenge in the WTO to the film subsidy programs offered by Canada and its imitators. During the last year, she has spoken at several meetings around the country as an independent expert about the merits of such a legal case, and, due in large part to her presentations, the Screen Actors Guild recently joined six other film industry craft unions in funding the legal work necessary for such an action.
While a recent New York Times article by Adam Liptak on March 19, 2007, at A8, indicates that most law review articles today go unread, Professor Wright’s article has generated a great deal of interest in Hollywood and in the U.S. film industry generally. Moreover, U.S. film workers are now poised to file a petition with the Office of the U.S. Trade Representative in Washington, D.C. in the near future, requesting that the U.S. bring the type of legal action that Professor Wright recommends. This law review article appears to be one that actually could change peoples’ lives.
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