Council Agenda - City of Burbank

Tuesday, March 15, 2005

Agenda Item - 5


 

DATE: March 15, 2005
TO: Mary J. Alvord, City Manager
FROM:

Susan M. Georgino, Community Development Director

Ruth Davidson-Guerra, Assistant Community Development Director for Housing and Redevelopment

By: Yvette M. Ulloa, Economic Development Manager

SUBJECT:

RUNAWAY PRODUCTION � CONSIDERATION OF THE FILM AND TELEVISION ACTION COMMITTEE RESOLUTION


PURPOSE:

 

The purpose of this staff 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[1] request for the City Council to consider adopting a Resolution in support of a 301 (a) petition.  Section 301 (a) is a provision of United States trade law that provides an avenue to remedy unfair trade practices that are found to be in violation of existing trade agreements.[2] 

 

BACKGROUND:

 

On December 7, 2004, Tim McHugh, Executive Director of the Film and Television Action Committee sent a letter to Councilmember Stacey Murphy asking the City Council to support a Film and Television Action Committee Resolution at the February 8, 2005 Council meeting (Exhibit A).  Tim McHugh also addressed the City Council regarding this matter on January 18, 2005.  On January 18, 2005, City Council directed staff to provide background information on runaway production as well as an update on current legislation and lobbying activities. 

 

On February 8, 2005, Film and Television Action Committee members gathered outside City Hall for a special community rally before the City Council meeting.  Approximately 60 Film and Television Action Committee representatives attended this event.  Previously, the Film and Television Action Committee held a rally at the Hollywood Bowl and about 100 members attended.  At the City Council meeting, the Film and Television Action Committee requested the Burbank City Council to support their Resolution.  The purpose of this requested Resolution is to support the filing of a 301 (a) petition to help curb runaway production.

 

The issue of runaway production was first placed on the City Council agenda for discussion at the June 11, 2002 meeting.  Council directed staff to research pending legislative bills regarding this issue and on June 30, 2002, the City Council passed a Resolution to support Assembly Bill 2747 which was supposed to advocate a tax credit to retain, promote and encourage motion picture production in California.  The same year, the Film and Television Action Committee asked the Burbank City Council and other cities to sign a petition �advocating countervailing duties on imports of feature films and TV productions from Canada�[3]

 

In 2002, staff contacted representatives from local unions and studios in Burbank and after obtaining their feedback in regard to this issue, it was determined that the Film and Television Action Committee petition did not represent the overall opinion of the U.S. film industry.  Staff made a recommendation (Exhibit B) to support Assembly Bill 2747 instead of the alternative Film and Television Action Committee proposal, because of the concern that the Film and Television Action Committee approach may lead to retaliatory tariffs in other countries.  On July 30, 2002, City Council adopted a resolution (Exhibit C) supporting Assembly Bill 2747 instead of the Film and Television Action Committee�s previous Resolution.  During that period, the City of Santa Monica was the only City in the immediate region to support the Film and Television Action Committee petition.  The City of Los Angeles and the City of Culver City also supported Assembly Bill 2747 instead of the Film and Television Action Committee petition. 

 

United States runaway productions are defined as those that are developed and intended for release, exhibition or television broadcast in the United States, but are actually filmed in another country.  There are two major types of runaway productions:  creative runaways, which depart because the story takes place in a setting that cannot be duplicated or for other creative considerations;  and economic runaways, which depart to achieve lower production costs.   

 

The United States experienced economic losses since 1998 when Canada and other countries began offering tax subsidies to film production companies (in 1998, 232 productions were lost to Canada, up from 63 in 1990;  in 2001, Canada captured 81% of economic runaways and Australia and the United Kingdom captured another 10%).[4] 

 

In 2001, the film production industry directly generated 283,000 jobs in California adding $35 billion to the state�s economy.  According to the latest Motion Picture Association of America Economic Impact Report,[5] film, television and commercial production activity contributed $34.3 billion to the California economy in 2002[6] and payroll expenditures reached $17.2 billion in 2002.

 

While local production has improved, the labor impact of economic runaways is still significant, but it does not affect all of the entertainment industry employees, since a big portion of a film production project can take place locally (even if a production leaves California, pre-production, editorial, marketing and other work is conducted locally).  Nevertheless, the economic impact of runaway production can extend beyond the entertainment industry, affecting local merchants and support services.  When a production leaves California, the payroll, income and sales taxes on the direct spending are also lost.

 

This year, staff also discussed this issue with representatives from local unions and studios in Burbank.  Based on their feedback, the Film and Television Action Committee 301 (a) petition does not represent the overall opinion of the U.S. film industry.   Staff received letters against the Film and Television Action Committee�s proposed Resolution from the following organizations:  Motion Picture Association of America; Art Directors Guild and Scenic, Title and Graphic Artists (affiliate of International Alliance of Theatrical Stage Employees IATSE - Local 800); Directors Guild of America; and International Alliance of Theatrical Stage Employees (IATSE).  

 

Local Film Permit Activity

A report by the Entertainment Economy Institute[7] states that during the 1991-2002 time period, �employment in the entertainment industry grew faster than state private employment.�  For example, in 2002, the industry generated 294,000 jobs, an increase of about 29 percent from 1991 � compared to 17 percent for state private employment.  However, this report also indicates that there has been a more recent decline in jobs since a peak of 326,000 jobs in 1999.[8]  This publication categorizes employment in the entertainment industry by three periods:  stagnant employment (1991-93), rapid expansion (1994-99) and decline (2000-02).  Although there are no additional studies which specifically provide information on runaway production from 2002 to 2004, information from local organizations such as the Entertainment Industry Development Corporation and local film statistics reflect an ongoing improvement in the situation. 

 

Additionally, according to the latest statistics available from the Motion Picture Association of America,[9] California production increased 1.2% from 2001 to 2002, and United States production increased 26.9% during that same period.  In 2002, film, television and commercial production activity contributed $34.3 billion to the California economy.  At $34.3 billion, production expenditures in California have grown 25% since 1996.  Payroll expenditures edged up, reaching $17.2 billion in 2002, a 132% increase from 1992.  Since 1999, the amount spent on the purchase of goods and services in California by production companies has doubled (17.1 billion).  In 2002, Los Angeles, San Francisco and Orange County were the counties that had the largest impact from film, commercial and television production � contributing just over $32.3 billion.  Los Angeles was the top county in California with a total impact of $31.3 million (for a state-wide look at film production in California counties see Exhibit D).  Los Angeles, Beverly Hills and Burbank were the top cities in Los Angeles County in terms of production expenditures.  These three cities made up 79% of total production expenditures in the county, with a combined total of $24.6 million (Burbank ranked third only next to Los Angeles and Beverly Hills, see Exhibit E).  California and county-wide Information for 2003 and 2004 is not yet available.

 

In Burbank, 245 film permits were issued in 2003, with a total of 18 feature films.[10]  In 2004, this number increased to a total of 267 permits issued, including 27 feature films.  The 2004 numbers reflect an increase of 9% in total permit activity and a significant jump of 50% in feature film activity.  January 2005 figures in Burbank also reflect positive increases, with a total of 27 permits issued, including four feature films, compared to 22 permits issued (with no feature films) in January 2004.[11]  For a snapshot at film production in Burbank, please see chart below[12]:

 

YEAR

2002

2003

2004

Total permits

210

245

267

Feature Films

19

18

27

 

In the regional area, statistics from the Entertainment Industry Development Corporation[13] reflect strong 2004 numbers in terms of production activity, location shooting and television shows (Exhibit F).  Most of the production growth occurred during the summer, which experienced a 32% hike over 2003 and a 74% increase over the 10-year seasonal average.[14]  The Entertainment Industry Development Corporation reports show a total of 52,707 location production days during 2004, up by 19.2% over 2003 to a new record level (Exhibit G).  The previous high (the Entertainment Industry Development Corporation began issuing permits in 1994) was hit in 1997 with 47,669 location production days.[15]  The biggest increase during 2004 was in television production, which moved ahead by 26.8% to 18,257 days, topping the 10-year average (due to cable programming, new venues, additional shows, and increased production).  Commercial activity increased 17.57% in 2004 to 6,703 and feature film activity was up by 18.8% in 2004 to 8,707 days, reversing an eight year decline. 

 

A February 27, 2005 Daily News article[16] states that foreign runaway production is now facing steep competition from other states in the United States and that �some productions are staying in California because California is still the most desirable place for movie production due to its vast infrastructure, a deep pool of workers and its predictable sunny weather.�  During February, high-profile projects such as �The War of the Worlds� (Tom Cruise/Steven Spielberg), �The Bad News Bears� (Billy Bob Thorton/Greg Kinnear) and the Tim Allen-headlined 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� (Angelina Jolie/Brad Pitt) were also shot in Victorville, as were scenes of the latest Jamie Foxx movie �Jarhead.�[17]  Additionally, �Million Dollar Baby,� Academy Award winner for Best Picture of the Year, was shot entirely in Los Angeles.[18]

 

Although the Film and Television Action Committee claims that the runaway production issue will not improve (and other countries will continue to lure runaway production) unless a 301 (a) petition is filed, these film production statistics already reflect significant improvements in the local and national situation.  As evident by these articles and entertainment industry statistics, film production has increased in California and other states.  With the proposed 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.

 

Legislation

Assembly Bill 2747 � Assembly Bill 2747 was meant to stem runaway production by providing a tax incentive to produce motion pictures within California.  This bill would offer tax credits to productions with a total cost of qualified wages between $200,000 and $10 million (this was the target for this bill because Southern California had been steadily losing mostly small to mid-size productions to runaway production).   Although local studios produce major motion pictures with budgets of $50 million or more, they advocated Assembly Bill 2747 because the smaller and mid-size budget productions that would benefit from Assembly Bill 2747 would also provide job opportunities to the same freelance workforce hired for big budget films.

 

Assembly Bill 2747 was meant to create a tax credit equal to 15-25% of wages paid to qualified individuals during the taxable year with respect to qualified motion picture production depending on the area.  For each motion picture, the maximum amount of wages per qualified individual that could have been taken into account in computing the credit was $25,000.   Unfortunately, this bill failed passage in 2002.

 

House Resolution 715 � This bill was introduced in 2003.  House Resolution 715, also known as the �United States Independent Film and Television Production Act of 2003,� was meant to amend the Internal Revenue Code of 1986 to allow a United States independent film and television production wage credit in an amount equal to 25% of the qualified wages paid or incurred per qualified United States independent film and television production during a taxable year.   This bill failed passage in 2003. 

 

Assembly Bill 1830 - In California, a similar bill to Assembly Bill 2747 was introduced in 2004, Assembly Bill 1830.  This bill was meant to authorize a tax credit between 2006 and 2012 in an amount equal to 15% of qualified wages paid or incurred for services performed, with respect to the production of each qualified motion picture.  Due to the state fiscal situation, this bill failed passage in 2004.

 

House Resolution 4520 � The American Jobs Creation Act (Jobs Act) was created to offer new tax provisions to encourage domestic film production.  New benefits and tax provisions include immediate tax write-off of production expenditures for domestic films and TV productions of up to $15 million ($20 million in certain low income areas), a 9% deduction for net income from domestic film production for all films (phased-in over several years) and some other accounting structuring flexibility.  Congress approved this bill and it became public law on October 22, 2004. 

 

Senate Bill 58  ï¿½ In California, on January 12, 2005, Senate Bill 58 was introduced by Senator Kevin Murray (Exhibit H).  This bill would express the intent of the California Legislature to enact legislation to encourage production in California.  Staff interviewed Brian Crabb[19], Legislative Aide with Senator Kevin Murray�s office.  Mr. Crabb stated that Senate Bill 58 is currently a �spot� bill[20] while the legislative office is working with the Governor�s Administration to amend this bill�s language and include specific information about how this legislative effort would encourage production in California.  

 

Mr. Crabb stated that �official language� will be available sometime in March 2005 when Senator Murray�s office �unveils� this bill in partnership with the Governor�s Office.  Mr. Crabb stated that his office is interested in working closely with Burbank, since a big fraction of the entertainment industry is headquartered in this city, and they are interested in a collaborative effort when they launch this legislative bill.  Staff will provide updated information from Senator Kevin Murray�s office at the City Council presentation, if additional information is available.     

 

A Daily News article[21] stated that Governor Schwarzenegger is expected to announce his plan to grant tax breaks for film companies to keep their productions in California (Exhibit I).  According to this article, �Senator Kevin Murray stated that this tax credit would be aimed at production companies� costs for below-the-line workers[22] on projects that do at least 75 percent of their work in California.  This tax credit would be particularly aimed at the types of productions the state has been most vulnerable to losing.�  The purpose of this bill will be to allow California to compete with other incentives offered by other countries and states.

 

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 within the Business, Transportation and Housing Agency which is supposed to be funded by the Film California First fund, appropriated by the Legislature.  This bill would express the intent of the Legislature to restore State funding to the program. (Exhibit J).

 

Assembly Member Koretz was also quoted in the Daily News Article[23] where he stated that this bill would �restore the Film California First program, which would provide reimbursements for certain government-related production costs.�  This program was cut two years ago due to the State�s financial crisis.   

 

Both Senate Bill 58 and Assembly Bill 261 would provide long-term solutions that would help strengthen our local film production activity. 

 

Assembly Bill 777 � Assembly Member Nunez introduced Assembly Bill 777 on February 18, 2005 to encourage economic development and film production in California.  This is also a �spot� bill while the actual language and incentive information is being developed by Assembly Member Nunez and the Governor�s Office (Exhibit K).

 

Out of State Incentives

There are many states and one city that are now offering substantial domestic incentives for film production.  According to a February 27, 2005 Daily News article (Exhibit L), runaway production, because of various financial incentives (including other states� incentives and federal legislation), is going �increasingly domestic, with various productions in states all over the country.�   These states are offering incentives equal or better than Canada�s current incentives, opening a wide range of choices for the film industry to keep production in the United States. 

 

The following states and one city currently offer incentives for film production:  Florida, Hawaii, Illinois, Louisiana, New Mexico, New York, Pennsylvania, South Carolina, and New York City.  Incentives offered include tax credits for employment, accommodations, sales tax exemptions, film production tax credits, and incentive amounts range on average between 15% to 20%.  However, some incentives such as the accommodations tax rebate in South Carolina are as high as 100%.[24]

 

In addition to these incentives, the following states are currently trying to pass bills this legislative session:

  • Georgia � proposes a transferable credit of 9% of qualified in-state expenditures, plus 3% of payroll expenditures for Georgia residents hired.

  • Hawaii � currently has a tax credit but proposes to increase it.

  • Kansas � proposes a refundable credit of 15% of qualified in-state expenditures.

  • North Carolina � proposes a 10% refund on qualified in-state expenditures.

This shift of increased domestic film production is resulting in a high unemployment rate in the Canadian entertainment industry and an ongoing out-of-state competition for film production.  Film production in states like Illinois, Louisiana, New Mexico and New York has increased significantly.[25]  For example, Louisiana film production increased from $20 million in 2002 to $315 million in 2004, a 1575% increase in two years.  Film production in New Mexico increased from $8.8 million (2002) to $82.9 million (2004), an 842% increase in two years.  Although the Film Television Action Committee feels that the 301 (a) petition process would provide a solution to the runaway production issue, this petition would not be applicable to the increased domestic film production competition which is at an all-time high.

 

301 (a) Petition Process

The Film and Television Action Committee feels that the most effective way to stop runaway production would be to file a 301 (a) petition.  Based on information provided by Stewart & Stewart, a trade law firm representing the Film and Television Action Committee,[26] the 301(a) petition is a provision of United States trade law that provides an avenue to remedy unfair trade practices that are found to be in violation of existing trade agreements.  According to Stewart & Stewart, the petition process would move forward as follows:[27]

 

This petition would be sent to the United States Trade Representative requesting that he investigate the Canadian subsidies to film and television production.  Once the petition is filed, the United States Trade Representative must decide within 30 days whether to initiate an investigation.   If the United States Trade Representative accepts a petition as making the necessary showing, then it proceeds immediately to a dispute settlement proceeding aimed at eliminating the �inconsistent subsidy.�  This process would begin with mandatory consultations regarding the cessation of the subsidy practice.[28]  Subsidy cases such as this are subject to an accelerated schedule so the World Trade Organization could issue a decision within four to seven months (rather than the normal nine to 11 months).

 

Film and Television Action Committee Request

According to Gene Warren Jr., one of three Film and Television Action Committee Executive Directors[29] (and owner of Fantasy II Film Effects, a Burbank business for over 25 years), �there are now 19 countries (including Britain and Australia) that have successfully copied the Canadian production incentives and are now luring film production away from Canada at the same time as they continue to lure film production away from the United States.�[30]  Mr. Warren referred to a Variety.com article[31] which states that because of the weaker dollar, various provinces in Canada also started to feel high unemployment rates in their entertainment industry and, therefore increased incentives to compete with the �falling dollar� and other provinces� incentives (Exhibit M).  Mr. Warren also referred to the fact that California is also losing production to various states in the country because of aggressive incentives offered in places like Louisiana and New Mexico. 

 

Mr. Warren Jr. stated that �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� (for example, Mr. Warren Jr. stated that Canada could potentially lose up to around 90% of its trade which it exports to the United States).[32]  He also feels that it would not be difficult to accuse other countries of violating trade agreements because the incentive practices used by the United States are to keep production in the United States, not lure film production from another county. 

 

Tim McHugh, another Executive Director of the Film and Television Action Committee (and owner of Area 51 Visual Effects For The Digital Age, a 12 year-old Burbank business), stated that �the Motion Pictures Association of America has already filed a few 301 petitions to end piracy.  It should be noted that there are different types of 301 petitions (for an explanation of the difference between the Film and Television Action Committee 301 (a) petition and the Motion Picture Association of America �Special 301� petition, please see Page 12 of this report).  Mr. McHugh feels that there is �already a subsidy war out there (which is a form of a trade war).�[33]  He does 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.     

 

As mentioned earlier, the Film and Television Action Committee has secured the services of the Washington, D.C. trade law firm, Stewart & Stewart. They have published �The Legal Basis for the Film and Television Action Committee�[34] information on the Film and Television Action Committee website, a memorandum from the Law Offices of Stewart and Stewart which explains the legal basis for the Film and Television Action Committee�s request for a 301 (a) petition (Exhibit N).  According to Tim McHugh,[35] the Film and Television Action Committee hired Stewart & Stewart because of their experience and knowledge of 301 (a) petitions (they wrote the original �Worker Protection Clauses� within the North American Free Trade Agreement, also known as NAFTA).  

 

The Film and Television Action Committee is working on raising about $300,000 so they can complete the legal actions necessary to file the 301(a) petition by the end of 2005.  They indicate that they have completed all the preparatory work to be able to file this petition and are working on gathering �political support, recognition and understanding of the issue.�[36]  Two years ago, they gathered support from the City of Santa Monica, and more recently the City of Pittsburg, and Jersey City.  They have not yet approached any other cities with this current proposal.  The City of Burbank, Culver City and Los Angeles were approached a couple of years ago but the Film and Television Action Committee proposal was different at the time, asking City Council to support a different Resolution.  They plan to approach the City of Los Angeles next and a few other cities after Burbank�s consideration of their Resolution. 

 

Staff had discussions with the following organizations about their proposed support of the Film and Television Committee�s proposed 301 (a) petition.  On March 2, 2005, staff interviewed Earl Bredlinger, Secretary/Treasurer of Studio Utility Employees Local 724 (affiliated with Laborers International Union of North America) and Vice-Chair of the Film and Television Action Committee.  He stated that the Studio Utility Employees Local 724 Board has confirmed support of the proposed 301 (a) petition (Exhibit O).  Additionally, staff interviewed Steve Dayan on March 3, 2005, Business Agent of the Studio Transportation Drivers Teamster Local 399.  Mr. Dayan stated that the �Teamsters� have been supportive of the 301 (a) petition simply �because they are open to requesting an investigation of the issue.�  However, he also stated that with various states offering similar incentives, it is uncertain as to what will happen with such a petition in the near future.  They support the 301 (a) issue for now and their umbrella organization (the International Brotherhood of Teamsters) has provided some financial support for this petition.  They understand it will take the Film and Television Action Committee some time to gather all the support and financial backing they need.

 

Finally, the Film and Television Action Committee stated they have the support of Hollywood Local 695 (International Alliance of Theatrical Stage Employees Production Sound Technicians, Television Engineers and Video Assist Technicians) (Exhibit P).  However, the Hollywood Local 695 umbrella organization in Los Angeles (International Alliance of Theatrical Stage Employees IATSE), submitted a letter against the proposed 301 (a) resolution.  This organization�s letter represents the position of the smaller labor unions affiliated with them, including Hollywood Local 695. 

 

Film and Television Action Committee members have indicated there are varying feelings about the proposed federal and State legislation to keep production in the state and the country and although most feel that such legislation would provide partial remedy to the situation, some of them feel that this would not be a proactive solution and would not resolve the actual issue at hand, since 19 countries are still expected to continue to lure runaway production. 

 

Organizations Opposed to Proposed Resolution

The Motion Picture Association of America (Exhibit Q), the Art Directors Guild and Scenic, Title and Graphic Artists, an affiliate of International Alliance of Theatrical Stage Employees IATSE - Local 800 (Exhibit R), the Directors Guild of America (Exhibit S) and the International Alliance of Theatrical Stage Employees � IATSE (Exhibit T) submitted letters to the City of Burbank opposing the proposed Film and Television Action Committee Resolution.  The International Alliance of Theatrical Stage Employees (IATSE) represents 18 local unions and approximately 28,000 - 29,000 employees (Exhibit U).

 

The Art Directors Guild and Scenic, Title and Graphic Artists� letter[37] dated February 7, 2005 states that the Film and Television Action Committee petition would hurt United States filmed entertainment exports and that �international trade rules of the World Trade Organization and the recent Free Trade Agreements do not prohibit subsidies.� According to this letter, �subsidies for film production services are permitted under the rules of the World Trade Organization Services Agreement and subsidies for goods are also permitted.�  

 

A Motion Picture Association of America economic impact report states that �over 40% of the revenues earned by the filmed entertainment industry are earned in markets outside the United States.�  This report emphasizes that it is in the interest of the United States industry and those who work in that industry to support trade policies that help open foreign markets, assist to increase sales of United States filmed entertainment abroad and generate more revenues to stimulate new production.  

 

The Motion Picture Association of America[38] also expressed in a similar letter that this petition would hurt U.S. filmed entertainment exports.    They state that �film production incentives don�t violate trade agreements, so there is no substantive basis for a 301 (a) petition.�  This type of petition would be based on the argument that a foreign country is violating a trade agreement.  In a letter dated February 7, 2005, the Motion Picture Association of America states that �support for an unfair trade petition by the City of Burbank would be misplaced and counterproductive to efforts intended to keep production in the United States and continue growing this important industry for the overall United States economy.�

 

According to the Motion Picture Association of America, the United States has been trying to have open discussions with other countries on a variety of entertainment issues in the World Trade Organization services negotiations.  If, as a result of such a petition, the United States Trade Representative opens a Section 301 (a) investigation against foreign film production subsidies, this would �inflame cultural sensitivities worldwide and jeopardize this dialogue and efforts to achieve more access to foreign markets through negotiations.�[39]  Since the United States exports far more filmed entertainment to Canada than it imports, the United States would be far more vulnerable than Canada in this situation. 

 

Additionally, 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, also known as the �Jobs Act� which authorizes federal film production incentives and was approved by Congress last year).

 

The Motion Picture Association of America states that production is up in California and the nation.  The Association feels that there is no need for a 301 (a) petition because of the significant increase in out-of-state incentives which now match other countries� incentives and are competing for production.  Although California�s film production increased slightly (1.2%) from 2001 to 2002 (the latest figures available), United States film production increased significantly (26.9%).[40]

 

Film and Television Action Committee 301 (a) Petition vs. Motion Picture Association of America �Special 301� Petition

In response to the Film and Television Action Committee�s statement that the Motion Picture Association of America has already filed a similar 301 petition for piracy, Bonnie J.K. Richardson, Vice President of Trade and Federal Affairs for the Motion Picture Association of America in Washington, D.C. indicated that there is a major difference between a 301 (a) petition and a �Special 301� petition.  A �Special 301� petition refers to a separate section of United States law that addresses intellectual property issues abroad and has a high level of international consensus.  According to Ms. Richardson, she has been responsible for the Motion Picture Association of America trade policy agenda for over 12 years, and the Motion Picture Association of America has never filed a regular 301 petition.  

 

In a recent electronic correspondence interview with Bonnie J.K. Richardson,[41] the following opinions were expressed about the difference between the �Special 301� petition already filed by the Motion Picture Association of America and the proposed Film and Television Action Committee 301 (a) petition: 

 

�The Motion Picture Association of America believes that there are significant differences between the Film and Television Action Committee�s threatened use of Section 301 (a) to address film production incentives in Canada and the copyright industries' use of a separate section of United States law (referred to as "Special 301") to address intellectual property issues abroad.  First, the Motion Picture Association of America states that international law with regard to copyright protection (as set forth in the World Trade Organization and the World Intellectual Property Organization) is clear and enjoys a high level of international consensus.  There are no international trade prohibitions with regard to film production incentives.   While there may be disagreement on the margin about how much intellectual property protection is "enough," every one of the 146 member countries in the World Trade Organization would agree that they have international obligations to protect copyright. 

 

There have been numerous challenges by the United States (and other countries) under the international rules on intellectual property protection; to date, none have resulted in a trade war.    In contrast, many countries have film production incentives (including the United States) and firmly believe those incentives are consistent with international law.  The Film and Television Action Committee challenge of film production subsidies is quite unprecedented; how countries will react is very much in question. 

 

Secondly, improvement of copyright protection is seen by the Motion Picture Association of America as a "win/win" scenario.  Copyright protection benefits all cultural industries, so a successful United States challenge of a foreign country's copyright laws would benefit that country's cultural industries as much, if not more, than it benefits the United States industry.   Generally, foreign cultural industries strongly support United States efforts to encourage stronger copyright protection.  The opposite is true of the Film and Television Action Committee�s challenge to Canada's cultural promotion efforts.  Such a challenge would be perceived by Canadians as well as other foreign cultural industries as a threat to their countries' ability to promote a healthy, local cultural industry.  

 

Thirdly, a mere filing under the intellectual property provisions of United States law referred to as "Special 301" does not contain the same direct threat of unilateral or multilateral sanctions as does a 301(a) case.  The vast majority of "Special 301" filings are simply a way of providing information to the United States Government regarding United States industries' perceptions of deficiencies in copyright protection.  Of the 67 countries where the United States copyright industries provided information to the United States this year under "Special 301," only three of those countries are in the category which - like 301 (a) - implies a threat of trade retaliation.� 

 

SUMMARY:

 

Current Production Estimates and Legislative Efforts

Based on the information provided by the Entertainment Industry Development Corporation and local media, entertainment industry activity has increased:

  • Overall, 2004 entertainment industry production activity rose in nearly every category measured. 

  • Although feature films tracked by the Entertainment Industry Development Corporation still remain below their record highs, the rise of 18.8% reversed an eight year decline. 

  • According to a Daily News article,[42] runaway production is going increasingly �domestic� because of various financial incentives (including other states� incentives and federal legislation including tax breaks).

  • This article also states that some runaways are staying in California because �California is still the most desirable place for movie production due to its vast infrastructure, a deep pool of workers and its predictable sunny weather.�

  • During February, many high-profile projects have been filmed in the region including �The War of the Worlds� (Tom Cruise/Steven Spielberg), �The Bad News Bears� (Billy Bob Thorton/Greg Kinnear) and the Tim Allen-headlined remake of �The Shaggy Dog.�  Additionally, �Million Dollar Baby,� Academy Award winner for Best Picture of the Year, was shot entirely in Los Angeles.

Legislation such as House Resolution 4520 is hoped to increase local production further as one of its benefits is to retain production in the United States.  This public law that became effective on October 22, 2004, provides new tax provisions to encourage domestic film production: 

  • A nine percent deduction for net income from domestic film production for all films (phased-in over several years).

  • Accounting modifications to provide for potential additional tax reductions (including retroactive changes).

  • Immediate tax write-off of production expenditures for domestic films and TV productions under $15 million ($20 million in certain low income areas).

Pending State legislation such as Senate Bill 58, Assembly Bill 261 and Assembly Bill 777, if passed, are expected to also provide steps to improve the runaway production issue and keep production in California:

  • The Film California First Program would be restored, allowing production companies to film for free on state land and provide reimbursements for certain production costs.

  • A tax credit would be available for production companies� costs for below-the-line workers on productions that California has been most vulnerable to losing, such as Movies-of-the-Week.[43]

  • If this proposed legislation becomes law, California will be more equipped to compete with out-of-state and foreign incentives to generate additional local jobs.

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.  The Film and Television Action Committee offered the following arguments in favor of filing a 301 (a) petition:   

  • There are 19 countries that have successfully copied the Canadian 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.[44]

  • 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 (International Alliance of Theatrical Stage Employees Production Sound Technicians, Television Engineers and Video Assist Technicians), 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 for a 301 (a) petition

According to the Motion Picture Association of America, the Art Directors Guild and Scenic, Title and Graphic Artists (affiliate of International Alliance of Theatrical Stage Employees IATSE - Local 800), Directors Guild of America and International Alliance of Theatrical Stage Employees (IATSE), a 301 (a) investigation would hurt filmed entertainment exports.  The Motion Picture Association of America offers 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% 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).

  • The Motion Picture Association of America indicates that 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.

This staff report summarizes the supporting and opposing positions in response to the Film and Television Action Committee�s request for the City Council to consider adopting a Resolution in support of a 301 (a) petition.  A Resolution has been drafted for Council consideration should the Burbank City Council wish to support the Film and Television Action Committee petition.

 

RECOMMENDATION:

 

It is recommended that the City 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 City Council to note and file this report.

 

EXHIBITS:

A  Letter from Tim McHugh, Executive Director of the Film and Television Action Committee

B  Runaway Production Staff Report (July 30, 2002)

C  Resolution supporting Assembly Bill 2747 (July 30, 2002)

D 2002 California Economic Impact Report � Entertainment Production Expenditures - California Counties

E 2002 California Economic Impact Report � Entertainment Production Expenditures � Top California Cities

F  Entertainment Industry Development Corporation Press Release (January 19, 2005)

G  Daily News Article �Local Filming Days Climb� (January 20, 2005)

H  Senate Bill 58 (Murray) � Economic Development:  Motion picture production

I    Daily News Article �Tax Breaks For Filming Proposed� (February 27, 2005)

J  Assembly Bill 261 (Koretz) � Economic Development:  Film California First Program

K Assembly Bill 777 (Nunez) � Economic Development:  Motion Picture Production

L Daily News Article �Moving Pictures � California�s Runaway Production Isn�t Going Far;  Other States Are Luring Filmmakers� (February 27, 2005)

M  Variety.com Article �Fear of Flight� (September 7, 2004)

N  �The Legal Basis for the Film and Television Action Committee 301 (a) petition� � Law Offices of Stewart & Stewart

O  Studio Utility Employees Local 724 Letter

P  Film and Television Action Committee Press Release Announcing IATSE Hollywood Local 695 Support of 301 (A) Petition

Q  Letter from the Motion Picture Association of America

R  Letter from the Art Directors Guild & Scenic, Title and Graphic Artists (February 7, 2005)

S  Letter from the Directors Guild of America

T  Letter from the International Alliance of Theatrical Stage Employees (IATSE)

U  International Alliance of Theatrical Stage Employees (IATSE) List of Labor Unions


 


[1] www.ftac.org.  �About FTAC.� The Film and Television Action Committee (FTAC) was formed in Hollywood in December 1998 to address the issue of runaway film jobs.  The Film and Television Action Committee is an organization dedicated to recovering American film jobs that have been lost to Canada and other nations due to �unfair trade practices.�

[2] Law Offices Stewart & Stewart.  Memorandum to Film and Television Action Committee. Page 9.  October 25, 2002.  Referral to Section 19 U.S.C. & 2411 (commonly referred to as �Section 301�).   

[3] According to the Film and Television Action Committee, countervailing duties are a special category of tariffs designed to protect U.S. industry from foreign merchandise sold at below market value and against unfair foreign subsidies.

[4] Directors Guild of America (DGA) and Screen Actors Guild (SAG) Study:  Investigation of Runaway Production Study conducted by the Monitor Company.  January 1999.

[5] Motion Picture Association of America.  Economic Impact Report.  2002.

[6] 2003 figures were not available at the time this report was written.

[7] In May 2002, the Entertainment Economy Institute (EEI) was awarded funding from the Governor�s 15% discretionary Workforce Investment Act funds to create an entertainment industry cluster research initiative. 

[8] Entertainment Industry Economy Institute.  �California�s Entertainment Workforce.�  Employment and Earnings 1991-2002.  December 2004.

[9] Motion Picture Association Film Production Report.  March 2, 2005. Data from Film Permit offices.

[10] Burbank Police Department Film Statistics � 2003, 2004, January 2005.

[11] At the time this report was printed, January 2005 figures from the Entertainment Industry Development Corporation were not available.

[12] Please note that this chart is not necessarily reflective of the film statistics in the county or nation, as film production in Burbank is focused on specific location.

[13] Entertainment Industry Development Corporation issues location permits in the City of Los Angeles, the unincorporated area of Los Angeles County and some other cities in the County.  EIDC handles about 80% of all permits for shooting in Los Angeles County.

[14] �Summer Surge in Television Tops Record Year for L.A. Production.�  Philip Sokoloski.  January 19, 2005.  Page 1.

[15] Los Angeles Economic Development Corporation. The Economic Data Global Express (e-EDGE), v.9 n.4.  Released Jan. 24, 2005.

[16] �Tax Breaks For Filming Proposed.�  Harrison Sheppard, Sacramento Bureau.  Daily News.  February 27, 2005.  Page 7.

[17] �Moving Pictures.�  Greg Hernandez.  Daily News.  Page 7.  February 27, 2005

[18] Warner Bros.  Electronic Information.  March 2, 2005.

[19] Brian Crabb.  Legislative Aide, Senator Kevin Murray�s Office.  Telephone Interview.  February 24, 2005. 

[20] A �spot� bill is a place-holder bill while the actual legislative language is being drafted.

[21] �Tax Breaks For Filming Proposed.�  Harrison Sheppard, Sacramento Bureau.  Daily News.  February 27, 2005.  Page 7.

[22] Below-the-line workers - Carpenters, electricians, make up artists and others who represent the bulk of the entertainment industry�s middle-class work force and rarely travel when productions are filmed out of state.

[23] �Tax Breaks For Filming Proposed.�  Harrison Sheppard, Sacramento Bureau.  Daily News.  February 27, 2005.  Page 7.

[24] Motion Picture Association of America.  Domestic Film Production Incentives.  March 2, 2005.

[25] Motion Picture Association of America.  Domestic Film Production Incentives.  March 2, 2005

[26] The Film and Television Action Committee.  http://www.ftac.org/html/301a-2.html.  �The Facts about FTAC�s Section 301 (a) Filing.�

[27] Law Offices of Stewart and Stewart.  Memorandum to Film and Television Action Committee.  May 28, 2002.  Page 4.

 

[28] Law Offices of Stewart and Stewart.  Memorandum to Film and Television Action Committee.  May 28, 2002.  Page 4.

[29] The Film and Television Action Committee has three executive directors:  Gene Warren Jr., Don Newman and Tim McHugh.

[30] Gene Warren Jr.  Film and Television Action Committee Executive Director.  Telephone Interview.  February 24, 2005.

[31] �Fear of Flight.� Brendan Kelly.  Variety.com.  September 7, 2004

[32] According to the Film and Television Action Committee, Canada has the potential of losing up to 92% of its trade which is with the United States.

[33] Tim Mc Hugh.  Film and Television Action Committee Executive Director.  February 8, 2005 Personal Interview.

[34] Film and Television Action Committee website.  www.ftac.org. February 23, 2005.

[35] Tim Mc Hugh.  Film and Television Action Committee Executive Director.  Telephone Interview.  February 24, 2005.

[36] Gene Warren Jr.  Film and Television Action Committee Executive Director.  Telephone Interview.  February 24, 2005.

[37]  Letter to Mayor Marsha Ramos from Art Directors Guild and Scenic, Title and Graphic Artists.  February 7, 2005.

[38] The Motion Picture Association of America, Inc. (MPAA) includes:  The Walt Disney Company, Metro-Goldwyn-Mayer Studios Inc.; Universal City Studios LLLP; Paramount Pictures Corporation; Sony Pictures Entertainment, Inc.; Twentieth Century Fox Film Corporation; Warner Bros. Entertainment Inc.  In California MPAA also represents CBS Broadcasting Inc. 

[39] Motion Picture Association of America Economic Impact Report. January 2005.

[40] Motion Picture Association of America.  Melissa Patack.  Electronic Interview.  March 2, 2005.

[41] Bonnie J. K. Richardson.  Vice President, Trade and Federal Affairs.  Motion Picture Association of America.  February 24, 2005.  Electronic correspondence interview.

[42] �Moving Pictures.�  Greg Hernandez.  Daily News.  Page 1.  February 27, 2005

[43] �Tax Breaks for Filming Proposed.�  Harrison Sheppard.  Daily News.  February 27, 2005.

[44] The Film and Television Action Committee.  http://www.ftac.org/html/301a-2.html.  �The Facts about FTAC�s Section 301 (a) Filing.�

 

 

go to the top