The Screen Production and Development Association says union demands over the filming of The Hobbit are incredibly damaging for New Zealand.
Executive producer Sir Peter Jackson is warning the films may not be made in New Zealand because an Australian-based actors union is urging performers worldwide to boycott working on the movie.
The Media, Entertainment and Arts Alliance (MEAA) is urging actors worldwide to boycott the film until the producers enter a collective bargaining agreement with the union.
Screen Production and Development Association chief executive Penelope Borland says the demands don't stack up to the industrial relations environment here.
She says the Hollywood dailies already have the dispute on their front pages, and New Zealand reputation as a film-friendly destination is being affected.
Film New Zealand, which markets this country as a movie location for overseas filmmakers, says the country's international reputation is at stake because of the dispute.
Chief executive Gisella Carr says other countries such as Britain and Australia are eagerly waiting to pick up the valuable work and have everything to gain from a dispute here.
In May, Guillermo Del Toro quit as director of The Hobbit because of the continuing delays in production.
Union thuggish, says Jackson
The row prompted Sir Peter Jackson, to issue a four-page personal statement warning that filming could be moved to Eastern Europe.
"If the Hobbit goes east - Eastern Europe in fact - look forward to a long, dry, big-budget movie drought in this country," the statement said.
The MEAA says The Hobbit, like Lord of the Rings is a non-union production, meaning there are no minimum guarantees of wages or working conditions and no share of profits.
But Sir Peter says Warner Brothers - the US studio financing the films - has agreed to share the profits with the actors.
He says MEAA's other demands can't be met because New Zealand labour laws prohibit collective bargaining with unions that represent independent contractors such as film actors.
Since 2006, MEAA has been in an alliance with New Zealand Actors' Equity.
Sir Peter says New Zealand Actors' Equity represents 200 of the 2000 actors in this country, and says he's angry a tiny minority of people could derail The Hobbit project, losing thousands of local jobs and millions of dollars of investment in the economy.
"The management of NZ Equity are clearly happy to be used as a political football by the Australians - but my sympathy goes to the 1800 New Zealand actors who are not part of the "Equity 200" but who are going to suffer the fallout if this Hobbit thing goes nuclear."
He believes the union is using The Hobbit in an attempt to widen its membership and power within the New Zealand film industry.
"It sure feels like our thuggish Aussie cousin is kicking sand in our eyes ... or to put it another way, they are opportunists exploiting our film for their own political gain."
We're fighting unfair conditions, says union
MEAA assistant federal secretary Simon Whipp says the union has no interest in driving work away and wants to work with the producers.
He says the union represents more than half of New Zealand performers, who have decided they want the union to have a presence in New Zealand.
Mr Whipp questions whether people would think it fair that a performer could sign a contract one day and the producer could terminate the next day.
South Pacific Pictures chief executive John Barnett says New Zealand is not as attractive to overseas film producers as it once was, and this latest threat will not help.
He says the union represents less than 80 people in New Zealand, and has no legal status in this country. The Companies Office website says the MEAA is currently struck off the register for Incorporated Societies.