Vancouver: On Jan. 11, California’s Governor Gray Davis injected new life into the ongoing runaway production controversy by floating a proposal for a new labor-based tax incentive for lower-budget California productions. At the same time, the Film and Television Action Committee, which has lobbied against runaway productions, temporarily withdrew its petition filed late last year calling for countervailing duties on U.S. shows shot in Canada with Canadian tax credits.

Billed as a response to the problem of productions and film jobs leaving Hollywood for cheaper locations like Canada, Davis’ proposal – modeled after the 25% tax incentive being considered by Congress in Washington – would start in 2004. It would offer producers who shoot all or nearly all of their MOWs, miniseries, cable programs and other smaller-budget shows in California a tax rebate of 15% applicable to the first $25,000 of a production employee’s salary.

‘We’re creating an atmosphere that lets filmmakers know that California really wants their business,’ says Davis in his official statement. ‘This stimulus package will provide a substantial financial boost to California’s entertainment community.’

The timing of the proposal, both its announcement and implementation, has Canadian observers such as Arthur Evrensel, senior partner at Vancouver law firm Heenan Blaikie, questioning the actual threat.

Davis is in an election year, says Evrensel, and the delay in putting the incentive into action sounds more like political rhetoric than practical problem solving. ‘Two years is a lifetime in the film business,’ he says.

‘[Gray’s] running for governor and there is lots of noise and about the issue,’ says Tom Adair, executive director of the BC Council of Film Unions. ‘We have other, more profound issues to deal with,’ such as maintaining government resources for film initiatives such as B.C. Film.

Davis’ tax-incentive proposal is not unprecedented in California and faces the same political obstacles that shelved previous attempts: namely, opposition from legislators outside Los Angeles who believe the tax breaks help only Hollywood and not the whole state. Film tax shelters were abandoned by California in the mid-1980s.

Responding to Davis’ proposal, Brent Swift, spokesperson for FTAC, says: ‘Two years from now, I’m not sure there will be anyone left in Hollywood. Its impact will be minimal.’

Swift says FTAC will refile the countervailing duty petition with the U.S. Commerce Department in March after voluntarily withdrawing the original application to refine the definition of what the entertainment industry is. ‘I’d rather have it right than quick,’ he says of the application.

Swift maintains that the petition’s withdrawal is no reflection of waning support for the runaway production cause. And FTAC has filed a request under Section 301 of U.S. trade laws to have a U.S. trade representative visit Canadian officials to rescind the subsidies.

The Commerce Department will decide whether to comply with the request by March and any negotiations with Canada would be political and not binding.