Gaming, as an industry, has become an economic powerhouse. The growth of the industry in the US is exceeding the overall growth of the US economy, and is in fact a bright spot in an otherwise dour picture of the nation's finances. Game developers are creating a product that is doing very well in even the worldwide market, and where these companies set up shops, jobs and cash follow. Developers in the UK are now pressuring the government to step up tax breaks for the gaming industry, and they're wielding a very real stick: developers have already begun to flee for the greener pastures of Canada.

15 game companies have joined a lobbying group called "Games Up?" to fight for better benefits in the UK. "All our key competitors offer tax breaks and grants, putting UK developers at a disadvantage," said Richard Wilson, a chief executive of Tiga, the UK trade organization for game developers.

Tiga argues that these tax breaks would, in the long run, help the UK. The organization "cited figures by Games Investor Consulting that suggested if its proposals on skills and tax credits were implemented, the British games industry would receive an additional investment of £220m over five years, creating an additional 1,500 jobs, rather than the projected decline from 10,000 developers today," as reported by the Financial Times.

Instead of entertaining these ideas, the UK government seems more likely to fight Canada. "The UK 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," an official from the UK Ministry of Culture, Media and Sport told Canwest News Service.

Paul Jackson, director of the Entertainment and Leisure Software Publishers Association, used even stronger words when talking to the Financial Times about this issue. "The Canadians have driven a tank over the French Citroen and have now parked on our lawn... it is becoming very challenging to keep core development studios here."

Searching for "game industry" on the Invest Quebec site, you can see how quickly the big studios are expanding their Canadian presence. "Ubisoft is one of the world's leading designers and publishers of video games, with subsidiaries in 21 countries and 3,000 employees. Its Montreal studio alone employs over 1,300 people (a number that is expected to double by 2010) and produces close to 50 percent of the titles in the Ubisoft group's catalogue," the site proclaims.

Or, again, "Beenox Studios (Activision) has been a wholly-owned subsidiary of Activision since 2005. The company, which has more than 100 employees at its Québec City studio, plans to triple its workforce in the near future by hiring 200 people by 2009."

The economic break given to developers in Quebec is huge: companies can save up to 30 percent of payroll in tax credits, with a 7.5 percent bonus if the game includes a French-language version. If you've ever purchased a game with instructions in both French and English, even in the US, there was a very good reason for that.

The UK government may be barking up the wrong tree, as the WTO TRIMs (Trade-Related Investment Measures) agreement seems to address this directly. "The long and short of the TRIMs Agreement is that developed countries can offer all the investment incentives they please, by tax relief or other means, provided they avoid local content requirements," noted the Center for Strategic Tax Reform.

Fighting Canada over these issues could be a long process, and in the meantime game developers will leave the country. The WTO is not known for ruling on these disputes in a timely fashion, and the case has to go through the EU before even getting that far.

This isn't the first time the UK has clashed with Canada over tax breaks causing businesses to pack up and move to our chilly neighbor up north. The last product to cause controversy? Wine.