Productions outside the U.S. face new rules, regulations: blame Canada ... again.

As countries such as Canada, Australia and Ireland continue to lure American productions overseas with tax incentives and an increased number of locally trained crews, the fight over runaway production has taken a curious twist, with the Screen Actor's Guild (SAG) now squaring off against movie and television producers. The showdown could be pivotal to a host of television and film productions, as rising costs have encouraged more and more productions to film outside the U.S., where producers are able to use non-union contracts for actors and crews to keep costs down.

The loggerhead between the actors' union and producers centers on a long-standing SAG regulation, called Global Rule One. The tension arose from new SAG president Melissa Gilbert's intention, beginning May 1, 2002, to actually enforce the rule, which has long been conveniently overlooked. In short, Global Rule One requires member actors to be covered by the same working conditions in overseas productions as members enjoy at home. In other words, all productions using U.S. talent are required to sign SAG signatory contracts, meaning they would also be required to contribute to a depleted pension fund. "Our insurance plan is in trouble," Gilbert said recently, "and it's costing and hurting our members, so we need productions outside the United States to put in their share. We're an affiliate of the AFL-CIO and I sit on that national board, so as a union person, it's important for our members that we get this done." SAG studies claim lack of enforcement has caused a loss of $22.9 million dollars in revenue over the past five years for its pension and health fund.

Not surprisingly, producers took an equally hard-line and the Alliance of Motion Picture and Television Producers (AMPTP) has threatened to sue talent agents who agree to contracts that enforce the controversial rule. AMPTP president Nicholas Counter demanded that SAG withdraw the rule and claimed that enforcement of union contracts abroad violated an AMPTP agreement with SAG. In typical Hollywood style, SAG responded by threatening to countersue if the AMPTP interferes with actors' work contracts.

"I want to be absolutely clear about this," wrote SAG chief executive Bob Pisano in a letter to Counter. "Any further attempt by AMPTP or its member companies to interfere with the thousands of individual talent agency agreements between our members and their talent agents will be met with a prompt and vigorous response. Pisano added that Global Rule One is consistent with SAG's agreements with the AMPTP and that SAG has a duty to protect its workers working abroad, as do producers who employ them for offshore productions.

The issue simply highlights the problems being caused by the number of U.S. productions filming abroad. According to union statistics, there has been a 53.6 percent increase in the number of U.S.-funded productions being filmed overseas since 1996. Last December, a Los Angeles-based economic think-tank estimated Hollywood lost 3,700 jobs in 2001 to runaway productions.

But the real issue for unions and government alike is how to make domestic filming more cost-efficient, which has prompted some lawmakers to fight fire with fire and try to match the incentives being offered outside the U.S. Some examples include the Bahamas and Bermuda, which have no income taxes; financial and tax incentives are available for films produced in France, but only if French is the language used during production; by applying to the U.S. Chamber of Commerce for an entry visa called an ATA Carnet, a U.S. production company can avoid paying customs duties on cinematographic equipment brought into New Zealand or Belgium; other than a 16 percent profits tax, there is no sales tax, value added tax (VAT), or any other income tax in Hong Kong for film productions; and U.S. or other non-local actors may be exempt from Australian fringe benefits taxes on certain relocation costs. Perhaps the broadest incentive is found in Denmark, where a non-resident film production company may receive financial backing from the Danish Film Institute if it may be presumed to have a "reasonable chance of attracting considerable audience."

The country that has benefited the most is Canada. Like England and Australia, Canada offers tax breaks and has the added advantage of being right next door. In addition, the Canadian federal government offers an 11 percent refund on wages paid to local laborers, as well as various financing packages for film production. By combining those incentives with additional credits offered by some provinces, the weaker Canadian dollar and lower wages, it is possible for producers to shave 25 percent or more off the cost of production.

"Producers found it harder to make arguments to keep movies in town because it became so financially competitive to make them out of town, admitted producer Lynda Obst.

The U.S. Congress is now considering Bill S1278, which would create wage tax credits for small and mid-sized productions shot in the U.S. with payrolls in the range of $200,000 to $10 million. The credit would apply to production of any motion picture, network or cable TV original movie, series, miniseries, or pilot. Productions made in economically depressed areas would be granted a larger, 35 percent credit under the bill, which also prohibits granting any wage credits for the making of pornographic films. In addition, California Governor Gray Davis has proposed a wage-based credit that would start in 2004. All the industry unions have lined up in support of the bill, which many believe is long overdue. Actress Helen Hunt, speaking during the Creative Coalition forum, said, "The bottom line is, it's a business. Why aren't we modeling ourselves after the guys who are getting the production?"

Financial incentives aside, filming outside the U.S. can be fraught with peril if productions aren't knowledgeable about local ordinances or regulations. For example, if guns are brought into Puerto Rico to be used during filming, they must be accompanied at all times by two local police officers. In Peru, local companies must pay bonuses to all employees on Independence Day and Christmas Day equal to one month's salary. Also, U.S. actors typically will be subject to taxes in the U.K. for their U.K. performance income under special regulations targeting nonresident entertainers.

RELATED ARTICLE: U.S. Actors Call SAG to War.

DOM SERAFINI

Hollywood's Screen Actors' Guild (SAG) said "enough" to runaway production, which is said to be costing the U.S. some $10 billion a year. As of May 1, 2002, SAG is enforcing new directives in the hopes of luring film and TV productions back to the U.S. by levying penalties against those actors who star in productions not in accordance with SAG'S rules, even if done outside the U.S.

According to the union, which represents some 100,000 members, the new, stricter rules will neutralize any benefits offered by countries such as Canada, Ireland and Luxembourg, which offer currency benefits, tax exemptions, subsidies, grants and less rigid union regulations.

The first new rule states that, in order for a program to be labeled SAG compliant, the actors must respect U.S. union rules regardless of where the project is produced. Of particular relevance are residuals and turnaround rules. Residuals can become problematic when shows that began as TV product land on the silver screen. Starting in May, all actors who used to negotiate flat fees waiving residuals under foreign union laws will not be able to do so any more.

As far as the turnaround is concerned, some foreign unions permit recalling actors to work after a break of 10 hours. SAG now demands a minimum 12-hour respite. SAG also requires producers to deposit a $50,000 bond to guarantee that actors will be compensated regardless of what might occur. Non-American actors can shoot only one SAG-compliant movie as non-union members, after which they must join SAG (even sooner if they shoot for more than 30 days on their first project). Union members who fail to heed SAG rules can be fined up to $100,000, as was the case when golf champion and SAG member, Tiger Woods, appeared in a Canadian commercial during last year's actors' strike.

In the end, the burden of all these new rules will be carried entirely on the union members' shoulders, since non-SAG film and TV product are not illegal in the U.S.