Proposed Film Tariff Is A Non-Starter
Schuyler Moore, leading Hollywood entertainment attorney
By Schuyler Moore
Source: Forbes
This is just a quick note to assure Hollywood that the proposed tariffs on films produced outside the U.S. is a non-starter for a whole lot of reasons, so no need to cogitate on it:
Films are now delivered digitally, not by shipping antiquated film canisters, so the proposal violates the World Trade Organization moratorium on tariffs on digital transmissions, which has been in effect and repeatedly renewed for twenty-seven years. There is some debate as to whether the moratorium applies to tariffs on (a) the digital transmission itself or (b) the information actually transferred, but in either event it would clearly apply to a tariff on the digital transmission of films.
Tariffs are designed to be collected by custom agents on physical goods crossing a border, not digital transmissions. There are no procedures in place for imposing or collecting tariffs on any digital transmissions, so an entirely new agency would have to be formed and trained to do it, and it sure wouldn’t be easy given the billions of worldwide digital transmissions per minute. The system would have to rely on self-reporting by the companies receiving the transmissions, and many companies would likely “forget” to report.
Any attempt to tax the digital transmission of films would have to be implemented as a digital tax (as in Europe), which would require an act of Congress, as only Congress can enact taxes. This approach would require a long and tortured process that would get wrapped up in the logjam of the pending tax overhaul bill. And even if it did get enacted, it would likely be challenged as being effectively an impermissible tariff, which is exactly the grounds that the U.S. is using to challenge the European digital taxes.
It is utterly unworkable in practice. Even putting aside the fact that films are produced both in and out of the U.S., what happens if worldwide streaming rights to a film produced outside the U.S. are licensed to Netflix? Would the tariff be imposed on the full amount paid by Netflix? Would there have to be some allocation between the value of U.S. and foreign rights? What about the digital delivery to a U.S. company of only foreign rights to a film?
Who exactly is this supposed to help? While it might temporarily bring more film production jobs back to the U.S., it would decimate all the film production companies, including the major studios, since the majority of films are now produced outside the U.S. Indeed, most of those films must be produced in foreign locations due to the stories being set there.
The amusing part of it is that the entire rationale behind the tariff trade wars is to reverse the worldwide trade deficit with the U.S., and the U.S. film industry is one of the few industries that have a significant trade surplus. The net result of the proposed tariff would be to kneecap the U.S. film industry, particularly taking into account the obvious reciprocal tariffs that will be coming.
There has already been substantial walk-back of the proposal given the firestorm of objections against it. The next step is meetings with film industry heads, and they will no doubt get the message across.
So we can all relax.