U.S. Representative Howard Berman responds to a challenge from a Canadian government official


July 26, 1999

Ambassador Raymond Chretien  Canadian Embassy 
501 Pennsylvania Avenue, NW  Washington, DC 20001-2114

Dear Mr. Ambassador:

Thank you for your letter of July 15th. Given the long, friendly and cooperative history shared by our two nations, it is indeed useful to review present and possible policies with regard to film and television production in both Canada and the United States. It is good to put these policies in perspective since I know we share the desire to avoid situations where resentment between citizens of our nations might grow.

The issue of runaway film and television production is a problem I take very, very seriously. Throughout my entire lifetime, this industry has been a vibrant and vital part of our Los Angeles economy. All along the chain of production, including suppliers and service companies that do business with production companies, these jobs have been the life blood of our economy and of tens of thousands of our households. We, in the United States, cannot permit the loss of our production jobs without a struggle, in spite of the "only natural" desire of non-U.S. societies to participate in the wealth they generate. 

I must disagree with your characterization of the Directors Guild of America/Screen Actors Guild report on runaway production as "overstated." Let me assure you that this report is a rigorous quantitative analysis on a production by production level. The study's methodology is sound, and the results are accurate.. Nonetheless, we may agree that the numbers a person quotes often depend upon the point of view he holds and the definitions he embraces.

It is clear, for example, that we do not share a common definition of "Canadian content." 

Many examples exist of shell production companies and other financial arrangements which qualify a production for "Canadian content," even though the project was initially developed in the U.S. and primarily financed by a U.S. entity. We believe that these are and should be counted as U.S. productions. We think that a production that was born and bred in the United States is a U.S. production. If it moved to Canada only to achieve lower production costs, then it is an "economic runaway." 

In another example, you observe that 2% of film, television and video production is made in Canada and that this is "hardly excessive." In fact, in 1998, out of a total of 1,075 U.S.-developed feature films, direct-to-video productions, movies for television and series for television, 285 (or 27%) were economic runaways, with 232 (or 22%) running away to Canada. Out of $17.6 billion in direct U.S.-production expenditures for these categories in 1998, $2.27 billion was lost to the U.S. due to productions moving to Canada. This is 13% of the total, not 2%. 

Among the factors that contribute to the difference in the numbers is the divergence in our opinion as to what is classified as "Canadian" (as mentioned above), and the fact that the DGA/SAG report included U.S.-developed productions which did not file for tax credits, U.S.-developed productions which began filming but did not complete production and productions which were partially shot in Canada and one or more other locations.

At the same moment, Mr. Ambassador, that you claim runaway production is so minuscule that we in California should scarcely notice it, your Film Commissioners and Culture Ministers are crowing about their success in luring U.S. productions to Canada. 113 productions, we are told, are confirmed in British Columbia in the first six months of this year, compared with 65 productions shot in the same period of 1998. This is very impressive growth. While film and TV production in Canada is small compared to that produced in the United States today, our concern is also about tomorrow.

While the California legislature is indeed considering tax credits to offset the labor rebates offered to production companies by Canada and its provinces, it is unlikely that they will equal your "modest" tax incentives. Since the Canadian government's 1997 financial incentives have now been joined by similar inducements in British Columbia and other provinces, rebates of up to 22% of a production's spending on Canadian labor are not uncommon. Manitoba's production revenues have soared since it inaugurated a blockbuster 35.5% rebate for use of Canadian labor. I would describe these incentives as "large" rather than "modest." Nonetheless, you correctly observe that if we want to compete with you, we must find equally attractive wares and that will be our task, both in California and federally.

It was not long ago that Canada was suffering considerable angst that its culture was being overrun by movies and television shows made in the United States. The change of attitude in Canada regarding the current desirability of the once-dreaded American production is noteworthy and instructive. It is becoming increasing clear to us that we too must move in some way to protect our indigenous product, which is largely independent film and TV productions that operate on such a slim margin that they require financial incentives to survive. By this, I certainly do not mean the setting up of trade barriers, but the incentivizing of our own industry.

We have, in fact, taken the first steps toward this goal. A bipartisan group of Representatives recently offered in the Congress a set of proposals for both wage tax credits and tax incentives for financing film and television production. Their action was designed to set in motion events which would both raise the level of attention in Washington to the important issue of runaway production and begin the process of congressional action. Their proposals were very well received by Ways and Means Committee Members and formal hearings will be held later this year.

I know you can appreciate and understand my intention to work very hard to expand partnerships between the U.S. government and the U.S. film production community to return our jobs to California. I know that you are not surprised that U.S. officials and workers will do battle for jobs forged by U.S. citizens in an industry we built.

Nonetheless, I look forward to our continued communications on this and other important dimensions of Canada-U.S. relations.

Sincerely,

HOWARD L. BERMAN
Member of Congress