Response To Stranahan On Subsidies

While the subsidy issue is quite divisive for vfx workers, the reason I chose to talk about it was that I hope a consensus could be reached.

Lee Stranahan had a podcast on the issue last week and I think we are making progress. Let me go over what he talked about and what I agree and disagree with and what works best for vfx artists.

Lee points out that subsidies in the tax code have always been used to influence behavior.

I agree and think it’s a good thing. Lee was given an incentive to do his film work in New Mexico so he moved his family to the state for that. That’s a good thing for everybody. If a car factory or stadium did the same thing that is good too.

However, pertaining to Hollywood studios, they don’t have to make any commitment to any authority for the subsidy. A good example is Transformers 3. The first two were shot in New Mexico because the incentive was there but for the third film, they have chosen Michigan for it’s larger 42% subsidy.

Lee believes that the rise in the creative class is more sustainable than other industries.

Again, I agree with this also. Places where creative people work and live are better for the economy. They are attractive to governments because those industries create very little pollution and need very little investment in infrastructure.

Ironically, the subsidies undermine the creative class in regards to vfx workers since studios move productions from country to country and state to state for the next big subsidy. This causes artists of all kinds of experience and disciplines to live out of their suitcase in various parts of the world. The creative class is unable to root itself in a particular area because of this volatility. This also delegitimizes the domestic film industry a state or foreign country creates as they become maquila operations.

Lee proposes a federal Plus One subsidy to resolve competiting subsidies race.

I think this is a good idea. Lee recognizes that as governments offer competing subsidies, they are in a race to the bottom and the playing field is not level. He proposes that the federal government pass a law where they will help states match overseas subsidies plus 1 percent on top of that.

So if Canada offers a 35% subsidy, the US will introduce a subsidy that effectively is 36%. This takes away other countries ability to offer a higher subsidy as they will know that the US will introduce a higher subsidy.

Is this possible? I have my doubts. Lee points out how divided the California legislature is and this isn’t exclusive to just the state. The federal government is still deeply divided and Republicans would quickly attack the proposal as a bailout. So what can we do? I have a suggestion to resolve the subsidy issue and it can be answered in essentially 3 letters.

WTO

The World Trade Organization is the authority whose responsibility it is to resolve this issue. While I’m no expert in trade law, Lee’s proposal is essentially a countervailing measure where the US government must pay a duty on subsidized goods to keep the playing field level. Canada, UK, and another countries are signatories to Subsidies and Countervailing Measures agreement. If they are found the be in violation of the agreement, the WTO will work on a resolution where the subsidy would be reformed, or the studios would be obligated to account for it when comparing work bids.

The process for filing the petition to the WTO is done through the US Trade Representive Ron Kirk. Therefore, you can bypass the gridlock of congress. If it is proven that US companies and jobs are being injured, the USTR will file a petition for the WTO to look at. This a common thing the WTO does. Most recently it is resolving a dispute between US company Boeing and European company Airbus for subsidies offered in airplane contracts.

How George W Bush Destroyed The US VFX Industry

This is not the first time such a petition was filed for the film industry. In 2007, the Screen Actors Guild, after witnessing much of their member’s work go overseas, heavily lobbied for a petition to be made with the WTO. The trade law professor involved in making the case was on strong ground. Unfortunately the Bush administration rejected the petition on unspecified ground and the bleeding of jobs overseas accelerated.

The Obama administration’s main weakness right now is their ability to create jobs. Yes, the stimulus money helps but it costs money and Republicans have attacked every attempt he has made to create jobs. I am pretty sure that the new administration would be open to filing a new petition. The infrastructure and talent is here, the cost to file is very little, it wouldn’t have to go through congress, and jobs would relatively come back quickly.

The elephant in the room is the failure of vfx facilities and workers to organize. There need to be a body that represents the interest of the vfx facilities and one that represents the workers. We are all being injured by this and react to it with a fierce urgency of “um whatever”. Contact Ambassador Kirk and let him know your story.

In the meantime soldier on,

VFX Soldier

5 Responses to Response To Stranahan On Subsidies

  1. Winston Smith says:

    I’m no expert on the WTO either, but a little more thorough web search may indicate that for the WTO, the term “trade” refers to “goods” NOT “services.”

    Also, for the WTO, subsidies tend to deal with government giving subsidies to their OWN industries NOT a FOREIGN entity.

    My guess is that the WTO agreements state these thing explicitly and thus the 2007 FTAC complaint has no legal standing under any WTO agreements. Which may explain why it was dismissed so readily under the Bush administration.

    But, I’m no trade expert. Perhaps you should just shoot an email to the lawyer who represented the complaint. I’m sure that she’d be able to give you the exact legal 411.

    Also, FYI, FTAC was established in 1998 to address the growing problem of runaway production. I don’t recall the Clinton administration doing anything substantial to address this problem then. This is not a democrat/republican issue. If you continue to see it this way, you will miss hitting the correct target dear vfxsoldier.

    Here is an interesting research paper for your consideration:

    http://www.law.upenn.edu/journals/jbl/articles/volume9/issue4/McDonald9U.Pa.J.Lab.&Emp.L.879(2007).pdf

    You get a special gold star and a happy face if you can correctly name which major American political party’s Jack “there has been no outsourcing of U.S. motion picture jobs” Valenti and Charlton “fight subsidy with subsidy” Heston belong to. Now grow-up and focus on addressing the real issues.

    • vfxsoldier says:

      Trade Law Prof Claire Wright argues that the incentives are for the production of goods: Feature Films. She also points out that the WTO ruled against Canada when they tried to use the service argument in the past:

      http://www.tjsl.edu/files/faculty/C_Wright_Hollywood%27s_Disappearing_Act.pdf
      http://www.ftac.org/html/claire-art.html

      I never said this issue was a republican or democrat issue. What I said was that GW Bush seriously injured our industry by failing to let the petition go to the WTO in 2007. He wasn’t very popular with democrats or republicans.

      Of course the late Jack Valenti lobbied for runaway production. He was no friend of our industry. The MPAA is is a trade organization that represents the studios who benefited from overseas subsidies.

      Which is also why you are wrong about the WTO dealing exclusively with domestic subsidies for domestic industries. Claire Wright points out that the WTO ruled when Mexico lured GM to make cars in their country with subsidies for a foreign entity.

      Finally, after all that hard research you did you finish it off with:

      “grow up”

      No special gold star for you. Just a sad face for that one.

      Quite elementary of you my dear Winston.

      • Winston Smith says:

        “She also points out that the WTO ruled against Canada…”

        Yup, well, I did say that I wasn’t a trade expert! I stand corrected.

        “…you are wrong about the WTO dealing exclusively with domestic subsidies for domestic industries”

        Yup, wrong again.

        “I never said this issue was a republican or democrat issue.”

        Agreed. You did not explicitly state this. But you do see how it would be possible to infer this from your title “How George W Bush Destroyed The US VFX Industry”? You could have more accurately stated “How Inaction of Clinton, Bush, and Obama Administrations’ Destroy The US VFX Industry” yes? I understand that you wanted to point-out that particular FTAC 2007 petition, but why not mention that FTAC was formed in 1998 in response to the start of Canadian film production subsidies and “run-away” production. Who was President in 1998? What did that administration do then to address this issue? What has the current Obama administration done to address this issue? You do realize that the Obama Administration’s USTR can self-initiate trade dispute action (19 U.S.C. § 2412(b)(1) (2005)). So why haven’t they?

        “What I said was that GW Bush seriously injured our industry by failing to let the petition go to the WTO in 2007.”

        Fair enough. But my point was that perhaps there were in fact valid reasons why the Bush USTR turned-down the FTAC 2007 petition.

        Here is the relevant explanation from the 2007 USTR press release:

        “Based on a thorough review of the economic data, other facts, and legal arguments set out in the petition, the interagency committee unanimously recommended that the USTR not accept the petition because a dispute based on the information and arguments set out in the petition would not be effective in addressing the Canadian subsidies.

        (http://www.ustraderep.gov/Document_Library/Press_Releases/2007/October/Statement_from_Gretchen_Hamel,_Deputy_Assistant_USTR_for_Public_Media_Affairs,_regarding_a_Section_301_Petition_on_Canadian.html)

        I would agree that this press release is a bit terse. But I get the sense that the Bush Administration at that time did not think that there were satisfactory actions that could be taken to solve the problem.

        Indeed, Claire Wright states:

        “The USTR is not even obligated to respond in any fashion to such a request. In fact, it is not unusual for such a request filed by domestic interested parties to languish at the USTR for several years.317 The USTR might also be especially tempted in this case to ignore such a request, as the powerful MPAA appears to oppose any challenge to the subsidies.”

        (INTERNATIONAL TRADE REMEDIES TO BRING HOLLYWOOD HOME, p815)

        Continued reading of pages 815-819 “Remedies” section of Wright’s article may give you an idea of what the Bush USTR was thinking when they turned-down the FTAC 2007 petition.

        Here are some other possible factors as mentioned in the article (p925) by McDonald that I mentioned above:

        “However, the FTAC faces major obstacles by filing a complaint with the USTR. First, the government has total discretion in deciding whether or not to pursue a trade dispute with any member of the WTO.27 ° Given the minimal trade disputes that the United States files with the WTO, FTAC would bear an astonishing high level of persuasion to overcome U.S. apathy in this area.”

        “Second, it is hard to accuse other nations of violating trade agreements since many states, and now the Federal Government at a minimal level, have film incentives of their own.”

        “Finally, even if the U.S. Trade Representative chooses to pursue the FTAC’s forthcoming filing and the WTO rules in favor of the United States, Canada can appeal the ruling and keep the issue from complete resolution for years. And, as a last resort, Canada can simply choose to ignore such a ruling.”

        These are interesting points to consider don’t you think?

        “He wasn’t very popular with democrats or republicans.”

        Not only is this statement irrelevant to the issue of VFX out-sourcing, it is factually incorrect as regards to Republican support.

        According to a May 23, 2007 Gallup poll, Bush’s approval rating amongst Republicans was 75%, and 8% for Dems.

        (http://www.gallup.com/poll/27658/Republicans-Ratings-Bush-Averaging-75-Democrats-Only.aspx)

        Just to put this into perspective, according to a June 14, 2010 Gallup poll, Obama’s approval rating amongst Democrats is 79% and 12% for Repubs.

        (http://www.gallup.com/poll/140738/Obama-Weekly-Job-Approval-Rating-46.aspx)

        Keeping in mind that the Gallup polls are plus/minus 2%, is it then correct for me to state that “Obama isn’t very popular with republicans or democrats”?

        “Of course the late Jack Valenti lobbied for runaway production. He was no friend of our industry.”

        Well, I think that the Democratic Party would disagree with you about Jack Valenti:

        “”Our hearts go out to Jack Valenti’s family and friends as we mourn his loss. A fine public servant, advising Democratic leaders for decades, Jack served our country with honor, dignity and poise. Like the film that he loved so much, Jack was truly ‘a man for all seasons.’ We will all miss Jack.”

        (http://www.democrats.org/a/2007/04/statement_on_th.php)

        BTW, the next possible head of the MPAA is also a Dem:

        http://www.hollywoodreporter.com/hr/content_display/news/e3idbde8a913c883742625df02b6d0b403f

        Still no gold star and happy face for you for not correctly identifying the political stripes of Valenti and Heston. A grown-up would simply say “Dem” and “Repub” respectively. Not a big deal really, just the facts m’am, just the facts

  2. vfxsoldier says:

    Wow,

    Kudos to you Winston. You certainly did your homework. Regardless of our disagreement with the solution, I think we both agree that the subsidies pose a huge problem.

    Great work.

  3. […] and I have had our fair share of strong disagreements but one thing we all agree upon is VFX artists looking out for each other and joining a union. One […]

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