U.K. Launches Investigation Into Canadian Videogame Trade Practices

The United Kingdom has officially entered into a trade spat with Canada over the country's generous tax credit systems for videogame developers.

Numerous provinces in Canada offer tax rebates to developers who set up shop in the country. A Vancouver Sun report says Manitoba, Quebec and Ontario lead the way, allowing companies to write off 30-45 percent of labor cost, while Nova Scotia and Prince Edward Island also offer labor tax credits. In British Columbia, private investors in new media ventures receive a 30 percent refundable tax credit, up to $60,000, while corporations receive the same amount in a non-refundable credit.

"The Canadians have driven a tank over the French Citroen and have now parked on our lawn," said Paul Jackson, director general of the Entertainment and Leisure Software Publishers Association, a U.K. videogame trade association. "It is becoming very challenging to keep core development studios here."

Acting on a threat issued in October 2007, the U.K.'s Ministry of Culture, Media and Sport has requested an investigation of Canada's trade practices through the European Commission. "The U.K. government is concerned that state aid offered to computer games companies by a number of federal institutions in Canada may not be compatible with World Trade Organization principles," the ministry said in a statement to CanWest News.

Investissement Quebec CEO defended his province's actions in growing the videogame sector, saying late last year that companies were coming to the area to take advantage of the home-grown talent base. "The education system here is great," he said. "We are graduating each year 1400 new graduates ready to work. This industry is not creating hamburger flipping jobs, they are key technical jobs." Ontario, meanwhile, announced earlier this week that it would be increasing its tax credits for videogame developers, as well as adding additional financing to the province's Interactive Digital Media Fund.

Permalink

Go, go Commonwealth braaawl!

Despite being a British citizen; I agree with the decisions of these studios to migrate over to the other side of the Atlantic. Our government has hardly been fair on developers of late (the 'Manhunt 2' thing is only a very small demonstration of their untimely ruthlessness) and if studios can get better rates overseas, then the only way the British government can think to respond is to sue Canada? Jealous, much?

This will not go anywhere.

They are taking what I call "the South Park approach" and blaming Canada for their faults.

Being Canadian, I'm perfectly happy with the game developers all moving here. It'll be like Hollywood, but for games!

We are already a haven for tech, Kanada in Ottawa is Canada's version of silicon valley and it won't stop their. Ever since Canada has lost most of their industrial complex jobs they have been increasing funding and tax credits to the tech sector. Cry me a river Britain, every country gives tax credits we are just doing in the sector with the big bucks. It's finally time that Canada stood up to someone and said F off. Yay team.

"Hey look, chaps! Those blasted 'nadians are stealing our game developers with their savvy, forward-thinking support of a fast-growing industry! Let's throw things at them until they bleed!"

"Wise thinking! Passepartout, fetch my rocks!"

If I were patriotic I'd be ashamed. As I'm Welsh and in denial of the fact, I'll just laugh and steal their rocks.

Sometimes I really can't stand this damn country, so many flaws and hypocrisies I'd like to move myself to another country.

Go Canada!

'UK 'Country of Whiny Bitches'; Canada Points and Laughs'

Canada : Home of Celine Dion.

UK points and laughs.

UK: Home of the Spice Girls

Canada points and laughs back.

-- Steve

Damn. Foiled again.

I'm holding back from doing some patriotic schpeel. Because that shit sucks.

Thank god im not in the crossfire, unless both start to pick on Denmark.

as a British person i feel qualified to say:

As a nation, we epically phail when it comes to forward thinking industry. Post war history of Britain is typified by this approach to problems/challenges. The fact that our largest money-spinners (besides the tourists who come to see our ill-educated, ill-informed, incumbent monarch and her horrible brood) are the Financial sector and the Arms trade (both industries being at least 300 years old) demonstrates the above point even further.

Go Canada, this will be good for the games industry as a whole. It just saddens me that is has to be another country that leads the way, when Britain has the luxury of its current relative wealth and COULD invest in a similar programme.

I don't mean for this to come across as judgemental, but why are tax credits given anyway? Is it because the industry actually makes a lot towards the economy once it gets going or is it because there are loads of people graduating with degrees in e.g. computer games design and not enough jobs to go around?

Combat Marmot:
I don't mean for this to come across as judgemental, but why are tax credits given anyway? Is it because the industry actually makes a lot towards the economy once it gets going or is it because there are loads of people graduating with degrees in e.g. computer games design and not enough jobs to go around?

It's the former. Actually, if anything there's a bit of a boom going on in the game industry and companies are hiring like mad... there's a (perceived, anyway) shortage of talent. Tax credits on employment costs not only draw companies to the region offering the credit but also take the pinch out of offering competitive wages, potentially a double-positive for companies looking to expand.

Of course, the additional wages in the region mean more income tax flow, which takes the edge off the credits on the government side. Plus if there's new physical plant going up you get construction (and sales taxes on those materials), and there's land purchase (with transfer taxes, and future property taxes) and spill-over jobs too.

I don't know how it washes out, in terms of dollars-in vs. dollars-out for government, but it's certainly not a "make work" program for surplus Comp.Sci grads.

-- Steve

It appears the UK has once again put it's foot in it. As an amateur game-developer I'm pretty ashamed of our governments attitude towards games and game-development. Personally, I'd love to set up a game development company here in the UK but there isn't anything that makes me say "Yeh, it's a great idea to set up in the UK." The current policies make me say things like "Hmmm, perhaps Canada would be a better place to go, hell, even Europe would be better that the UK."

I don't think the government has quite tagged that "Game Development = Profit for developer and country." Sometimes I wonder why we elect these people who make our economy miss out on something so profitable.

P.M.

It's important to recognize that the dispute isn't over forward thinking, or the perceived value of the games industry itself, but rather over legal obligations of World Trade Organization (WTO) signatories (of which both Canada and the United Kingdom are). A tax credit scheme of this kind may be a violation of WTO subsidy limitations i.e. Canada may be in violation of international trade laws by offering tax credits to the detriment of other WTO members. As the credits allow for a significant saving in the cost of labour, and Canada enjoys development of its internal creative industries as a direct consequence of said credits, other WTO members have a reasonable and viable claim of illegal market manipulation. The UK is merely protecting its legal rights, and domestic markets, in challenging potentially illegal actions - not arbitrarily attacking Canada or the games industry. Canada is bound by WTO rules as are other members and must be held accountable for any and all violations they are deemed to have made.
Similarly, if the European Commission rules that Canada has unfairly provided subsidies to the industry, it may permit the imposition of punitive import duties on certain products. Again, this is done only as a means of protecting the domestic markets from illegal, and unfair, subsidization.

Those interested in the WTO issue might consider reading Article 1 of the Uruguay Round Agreement, the Agreement on Subsidies and Countervailing Measures, which can be found at:
http://www.wto.org/english/docs_e/legal_e/24-scm_01_e.htm .
The EU procedure can be reviewed at:
http://ec.europa.eu/trade/issues/respectrules/tbr/legis/adgreg06a.htm

Our Prime Minister Gordon Brown hates tax loopholes (a hangover from when he was Chancellor of the Exchequer, which is a Treasury Minister for you foreign types). He tries to close them, but in doing so risks alienating the businesses that use those loopholes. The film industry used to use Britain a lot, but they've now gone to New Zealand, Eastern Europe and elsewhere, since the Labour government closed to the film financing tax incentives. That said, it is possible that Canada is in the wrong here (at least as far as the EU is concerned). With all the legalese flying around, I'll have to wait to see how it plays out, to find out.

A question for someone more knowledgeable than I: If the WTO finds in favour of the UK, what are the implications for Canada given that these tax breaks are being given on a provincial level? Will the federal government be obligated to somehow compel the provinces to halt the tax credits, or impose some kind of counter-balancing federal tax? And if that happens, will that not play absolute bloody havoc with the already fragile and oh-so-tiresome state of federal-provincial relations?

The fact that tax incentives are being authorized on the provincial level somewhat complicates the question. If the WTO found the UK complaint to have merit, the Canadian government may act to rectify the problem in whatsoever way it deems fit, including doing absolutely nothing. The Canadian government's potential actions are however limited by its federal nature. As is explained in the paragraph to follow, it may not be possible for the government to merely change the law so as to bring Canada into compliance without the authorization and action of the provinces themselves. That being said, it is clear that the Canadian government would be held responsible for the compliance, or lack thereof, of it's provinces vis-à-vis WTO regulations. The potential punitive actions are diverse, but would most likely be the introduction of WTO sanctioned penalty taxes on Canadian exports to the EU (which is Canada's second biggest trade partner). However serious this may seem it should be remembered that this kind of international dispute is rather common and tends to be resolved with a varying degree of saber-rattling.

As a general rule, international law insists that the authority to commit a state to a treaty is located solely with that state's central government. Therefore the Canadian government alone is empowered to bind Canada in the international arena, as it has done in signing various international economic treaties including those associated with WTO membership. Domestic Canadian law however somewhat limits this power by defining treaties as non-self-executing i.e. the contents of a treaty are not automatically incorporated directly into Canadian law, but rather must be implemented through legislation as necessary. It is because of this that the issue at hand becomes complicated. Where treaties are related to matters which have been framed as within the sphere of provincial rights, it becomes the responsibility of a province to adopt any necessary legislation required to bring it into compliance with the central government's treaty obligations. In effect, this means that Canadian succession to certain international treaties is usually done only after consultation with, and agreement from, provincial authorities.

It is somewhat unclear, at least to me, if tax incentives are deemed to be a provincial right (they would seem to occupy an uneasy space between the federal Trade and Commerce authority granted under section 91(2) and the provincial powers related to Property and Civil Rights 92(13)), and therefore which level of government has the authority to legislate so as to end the incentives if this is found to be necessary. If incentives are deemed a function of the federal Trade and Commerce power then the Canadian government may legislate, if deemed a function of Property and Civil Rights then only provincial action is appropriate. Regardless, the country as a whole is answerable to WTO. The Canadian government, as central authority, is answerable for violations of its international obligations even if such violations are due to the actions of its provinces.

MrHappy255:
We are already a haven for tech, Kanada in Ottawa is Canada's version of silicon valley and it won't stop their. Ever since Canada has lost most of their industrial complex jobs they have been increasing funding and tax credits to the tech sector.

Sorry had to correct. It's Kanata, I live there and it is silicon valley pretty much. My dad works for Wesley Clover inside Mitel's HQ. I feel excited to have met Sir Terry Matthews on quite a few occasions. First time I met him was in his golf club restaurant. He treated me and my dad to a free meal. I remember how he said he used to not fry ants with magnifying glasses but used firecrackers for devious deeds >:). We went again and were allowed to go to the driving range. I even got to drive the golf cart. I know but I was 10 so it was huge to me. He even sent me a sports watch for my birthday. I met him last summer as well. This time I went to his house(s). I got to enter his main house and it is huge! My cousin from England was there too and we attended the BBQ. He told the most hilarious stories and everyone laughed at them. Some were things I probably shouldn't have known about ;).After dinner he allowed us to go into the basement pool room. It was amazing. Beautiful table and a nice TV beside. And I met him again a few months ago. It was my school's career day and I got to go. When he wasn't in a meeting I got to see his office. He had a giant prop champagne bottle in there and he had some Pshit or however it was spelt. He is hilarious in telling stories in how he took a bottle of it back from France because of its name. Anyways that's a bit from me. Sorry for being off topic, went into memories :D.

A question comes to mind as a citizen of Canada: What has the WTO ever done for us?

I could have sworn similar issues brought before WTO from Canada against the US for 'subsidies' regarding their lumber and various duties on our imported lumber - resulted in jack squat for Canadian lumber industry, something felt very much in BC.

It worked for the US, why wouldn't it work for Canada?

On other levels too, I think the WTO and other organizations like it, like SPP (Security and Prosperity Partnership Of North America - http://www.spp.gov/) should all get stuffed and piss off.

Canada loves those who make games, we love to play them.

Despite the awful PR over the years, the WTO fulfills important functions in a globalizing economy. While its duties are extensive, they can basically be summarized as "ensuring trade between nations occurs in a manner that is generally fair." The WTO is charged with ensuring various international trade agreements are respected, and that both domestic and international markets are protected from excessive manipulation. Like all member nations, Canada enjoys numerous rights and protections under the WTO structure and may challenge other nations' market policies whenever they so chose.

Again, just because the UK challenges Canadian policy it doesn't mean that the WTO will rule in its favor. The review system is intricate and multidimensional and more often than not results in a considered, comprehensive judgment designed to promote market development.

I know it sounds rather trite but ultimately the benefits outweigh the disadvantages. The WTO is a very effective framework for international dispute resolution. Indeed, the mere fact that the UK may appeal to this body instead of pursuing unilateral, and likely reactionary, action speaks to the importance of this formalized negotiation system.

I hear what you are saying cappp, but unfortunately I don't agree. You are seeing it from the view point that its necessary where globalization is concerned, but I see it from the view point of localization. On a local scale, there is no accountability with WTO, where an international body that I didn't elect or can see un-elected by voting someone else in does not and will not answer to my concerns over lowering standards near my home because some other country sees fit to have low standards protecting their citizens rights, public domain, and safety. You may see it like the business version of the UN, but I see it as market bullying. If a duly elected government encourages business through tax breaks, what business is it of any foreign association to tell the elected, and thus the electorate they represent, what to do? Can I as a citizen of one of the members of the WTO tell them what to do or do I get pepper sprayed in the face (or worse) for voicing my concerns in a civil and peaceful manner within a few kilometers?

Formalized negotiation for civil discourse is good and all but it should not in any way trump the concerns of the locals whose lives it affects. Instead of complaining to the WTO, Canada should have focused on reducing our exports of raw lumber and improved our quality wood products. I figure the same for the UK, don't bitch to the WTO about it, improve the situation there at home to remain competitive by either directly competing or by specialization to dominate a part of the market in its own right.

You're exactly right, global solutions are rarely applied successfully to local problems.

That being said, Canadian membership in the WTO is a function of Canadian governmental action and therefore continues only in so much as Canadian citizens tolerate it. Similarly, the WTO is an enforcement agency, not a legislative body. As such, it enforces treaties that have been ratified by elected governments purportedly in the best interests of their constituents. Canada has negotiated each treaty it has signed, and has considered the implications and outcomes in light of its own national interest, the WTO is a product of Canadian (and international) decision making, not its source.

The entire point of the complaint is to make international trade fair, or at least as fair as possible. In making international trade fair, the WTO works to prevent dramatic shifts in local experiences. By offering tax rebates on the scale mentioned, Canadian provinces directly reduce the cost of doing business in Canada. By the same token then, the cost of doing comparable business elsewhere is increased by the same amount. In effect, companies that chose to work anywhere but Canada are placed at a disadvantage in competing with firms that are located in Canada. The domestic industries in other countries then suffer unless their governments take equal, or greater, legislative moves. In effect, the internal marketing decisions of one state dictate those of all others if they intend to remain competitive. This is not only a direct challenge to the notion of sovereignty and national determinalism, but also privileges those nations which have the social capital to keep up with the Jones. Further, in forcing nations to accommodate industries or risk market instability, unrestrained internal tinkering disturbs the already precarious balance between the needs of citizens and those of corporations. To remain competitive, and retain corporate relevance, states are forced to adapt to the demands of business to a greater extent than to those of individuals.

In effect, the WTO complaint is intended to protect the concerns of locals on an international level. The system is premised on balancing the concerns of communities across the globe, and will at times arrive at decisions that benefit some whilst clearly disadvantaging others. The key is that the system works to create an overall balance across all trade disputes so as to promote a somewhat equal standing for all domestic considerations. It is imperfect, but it's the best way we have to balance vying interests.

Do any nations ever choose to simply ignore WTO rulings that don't go in their favour?

Malygris:
Do any nations ever choose to simply ignore WTO rulings that don't go in their favour?

Ironically, the US has been singled out for criticism on this recently... I'm biased, but I agree in that the common response to a WTO ruling against US interests seems to be to appeal it ad infinitum while disregarding the ruling because it's still "pending".

I'm not familiar enough with the WTO as a whole to determine whether other nations routinely flout it as well... though the cynic in me thinks it's likely, my inner optimist hopes it isn't too widespread.

-- Steve

As a general rule, counties that have been found to be in violation by the WTO change their behavior. These changes are most often framed as reductions in barriers to trade i.e. removal of whatever was found to be in violation by the WTO in its review. However, the underlying dynamics of international relations, diplomatic clout, and economic muscle mean that some nations are more able than others to ignore rulings they find objectionable. The United States is one such country, indeed as far as I know it's the only one to publicly flout a WTO ruling over any significant period. This is a dangerous game as the WTO may permit progressively escalating retributive actions by injured parties if compliance does not occur. For instance, the suspension of enforceable US trade- and copy- rights in the injured territories is an admittedly extreme, through fully permissible, potential punishment. As it is the only reason injured parties haven't requested such drastic aid is the implicit danger of such actions (the implications of blacklisting in US markets are more than most economies can bear) and the unilateral trade treaties in operation between the US and many countries (non-WTO regulated treaties with their own mandated resolution strategies, punishment schemes, and legal force).

For those who are interested, Canadian Minister of Industry Jim Prentice has stated that he is investigating the UK's claims although ultimately believing them to be without merit.

http://www.reportonbusiness.com/servlet/story/RTGAM.20080404.wgamers0404/BNStory/Business/home

Ps. US disregard for unfavorable WTO rulings is hardly a new behavior. For instance, there's a 2001 judgment (available here: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds160_e.htm) that is still being violated (at this point the WTO merely charges a fine for these ongoing breaches).

Sorry bout the misspelling, my brother in law is actually a programmer for Mitel, says it kinda sucks but hey what the heck. Anyway thanks for the correction.