Can the VFX industry force Hollywood studios to give up foreign tax subsidies?
That's the question posed by VFX Soldier, an anonymous blogger and VFX pro who commissioned a Washington, D.C., law firm to investigate the issue using crowdsourced funds. The resulting feasability study is available online as a Google doc.
VFX Soldier has long maintained that tax subsidies promote a "race to the bottom" in the industry. As tax incentives pop up in different regions around the world, studios move production and post to leverage the most attractive financial advantages on offer, which reduces stability and job security for VFX professionals. VFX Soldier has also argued that tax subsidies violate international trade agreements through the WTO and NAFTA, and four lawyers at Picard Kentz & Rowe (PK&R) determined that the best way forward for VFX workers would be invoking so-called countervailing duty laws in the U.S. that are meant to balance the effects of subsidies abroad.
What are countervailing duties, or CVDs? If the U.S. Department of Commerce determines that imported goods are being subsidized in their country of origin, causing injury to a competing industry in the U.S., U.S. Customs can levy duties on those goods to offset the subsidies they received. PK&R, VFX Soldier noted in his post yesterday, "specializes in CVD issues" in industries such as lumber and shrimping.
"A U.S. producer for a film who chooses Vancouver as the location to execute VFX work for a significant rebate could find itself at risk of having to pay the whole rebate back to the U.S. government a year later after an annual review by Commerce," VFX Soldier wrote, summarizing the effects of a CVD order. "That alone could be a powerful deterrent for locating VFX production somewhere based simply off of a rebate."
In order to apply the laws in the U.S., a petition must be filed indicating support from at least 25 percent of the U.S. industry, and 50 percent of all those in the industry who express an opinion. What's more, the industry would also need to demonstrate injury due to the foreign subsidies. In order to facilitate that, the law firm's feasability study recommends the establishment of a "formal organization," such as a trade association, to make strategic decisions and collect confidential business information for presentation to government agencies.
Given the still-fragmented state of the VFX industry in the U.S. and a potential lack of consensus on strategy and tactics, that could be the toughest part of the plan. The Visual Effects Society, for instance, has been strategizing on its own, lobbying for increases to tax subsidies in California — and thus alienating U.S. VFX artists who work in other states. Calls for a national VFX trade association haven't yet come together in a meaningful way, though perhaps VFX Soldier's ongoing campaign will provide a strong enough incentive for workers and/or compaines to organize.
The lawyers did note that the Film and Television Action Committee has been attacking foreign tax subsidies for years, with a failed attempt to curb Canadian subsidies through the U.S. Trade Representative in 2007 and a CVD petition in 2001 that was withdrawn when the FTAC's coalition was unable to demonstrate enough industry support. To avoid the 2001 error, the firm recommends basing support on the production level of filmmaking companies, rather than counting support from individual workers in the industry. And it acknowledged that such data can be difficult to obtain.
The document from PK&R acknowledges that, even if a CVD order was obtained, it might be difficult to enforce, since post-production services on a film are not a physical "good" that has to cross a country's border. But the lawyers said that any success in this area on the part of the VFX industry would make it much easier to negotiate restrictions on subsidies with individual countries. "If a CVD petition was even marginally successful, that development would change the way that subsidy recipients approach the issue," the lawyers wrote. "For example, groups that today would be completely opposed to any limitations on subsidies might become amenable to discussing an international agreement that would impose meaningful limits on subsidies in this sector, in return for lifting CVDs."