The ongoing tax credit fever, which has provinces upping the ante with each other in attempts to kick start local production while attracting foreign producers, has caused some u.s. heavy hitters to sit up and take notice.

California Governor Pete Wilson’s office convened a meeting last month with u.s. entertainment industry labor leaders and government officials to discuss ‘Canadian incentives,’ which they contend are luring production away from California.

Of particular concern to the group, which included California Film Commission director Patti Archuletta and the governor’s senior policy advisor and liaison to the entertainment industry, Rosalie Zalis, is the twining of the Federal and Ontario Foreign Services Tax Credit, which can result in credits of up to 22% of a production’s labor budget.

Some u.s. producers and executives have gone so far as to suggest that the various provincial tax credits coupled with the federal credit are a violation of the North American Free Trade Agreement, although Zalis is on record saying ‘it does not appear that Canada is violating nafta.’

Out of the gathering, two subcommittees were formed to study the effect and feasibility of creating u.s. federal and state incentives and/or tax credits for film and television companies. Some are calling for the reinstatement of the u.s. government’s Investment Tax Credit which was eliminated a decade ago.

In a letter to Archuletta, l.a.-based producer Len Hill of Hill Fields Entertainment states: ‘I don’t object to producers electing to shoot in Canada because the locations are better or the crews more qualified. The problem arises when huge Canadian tax subsidies undermine competitive market forces.

‘We need a level playing field.’

With the cfc announcing a 29% decline in television production days for 1997, tv series and mows shooting in Canada are the type of lost production causing the most alarm. Hill writes, ‘It is important to bear in mind that almost 70% of the movies that are made for the American networks are now being produced in Canada.’

Though his mow figure may be a little high, Hill also points to Nelvana’s recent deal with cbs to produce the network’s entire Saturday morning lineup as an example of the ‘unlevel playing field.’

The Directors Guild of America estimates that more than $1 billion of u.s. production has gone to Canada in recent years, with some high-profile examples being Fox shows The X-Files and Millennium.

California state officials will now collect more information before they decide whether to file any kind of formal trade complaint against Canada.

b.c.’s announcement of its own foreign tax credit is pending, as is Alberta and Saskatchewan’s, while Quebec is the latest province to initiate a foreign services credit, joining Ontario, Manitoba, Nova Scotia and New Brunswick.

B.C. Film Commissioner Pete Mitchell seems unconcerned with the California lobby, saying the exchange rate is reason enough for u.s. producers to come north and that cultural industries are supposedly exempt from nafta.

Noting that California or the u.s. federal government may pass tax incentive legislation, Mitchell says, ‘It seems like there is a film incentive frenzy happening right now. I’m more concerned with Saskatchewan coming in with a 40% rebate setting some kind of unrealistic standard. It’s a race to the bottom.’