Attorney-General Chris Finlayson has written to Sir Peter Jackson's Hollywood backers to reassure them New Zealand law rules out an expensive union-negotiated collective agreement for actors on Lord of the Rings prequel The Hobbit.

Sir Peter this week threatened to move the production to Eastern Europe, after actors union the Australian Media, Entertainment and Arts Alliance (MEAA) called for a boycott of the film.

The union said Sir Peter and other producers had refused to enter into a union-negotiated agreement. It advised members not to accept work on the project because actors might be employed on inferior non-union contracts.

Although Sir Peter has labelled the MEAA an "Australian bully boy" seeking to opportunistically increase its influence in this country, its stance has found support from big names in New Zealand. They include Karl Urban, who played Eomer in The Lord of the Rings trilogy, and the president of local NZ Actors Equity union, Jennifer Ward-Lealand.

New Line, Warner Bros Pictures and MGM said their general policy was to avoid filming in locations with potential for "workforce uncertainty".

Yesterday, Mr Finlayson said in a letter to the studios - which was also copied to Sir Peter and Ward-Lealand - that legal advice from the Crown Law Office confirmed the Commerce Act prevented The Hobbit's producers "from entering into a union-negotiated agreement with performers who are independent contractors". Section 30 of the act, which deals with price fixing, "effectively prohibits" such arrangements, he said.

Sir Peter's spokesman Matt Dravitzki said his boss had nothing to add to his statement earlier this week which also referred to the Commerce Act provision.

Mr Dravitzki said Sir Peter - who this year prepared a report on the New Zealand Film Commission for Mr Finlayson - had not asked the Attorney-General for his help.

It is understood Mr Finlayson acted on his concerns about the security of what is a major production and, as such, is seen as important for the future of the New Zealand film industry, and wanted to reassure investors that what was being touted as a reason not to invest in New Zealand did not have a firm legal foundation.

Last night, Frances Walsh of NZ Actors Equity said the union was aware of the Commerce Act provisions referred to by Sir Peter and Mr Finlayson.

However, it had received legal advice of its own that showed there were two other provisions in the act that allowed a collective agreement to be negotiated, with actors classed as independent contractors.

However, the Herald understands both those mechanisms rely on a degree of goodwill between the parties which has been increasingly absent from recent communications.

Employment lawyer Peter Cullen told Radio NZ "actors would be more likely to get a higher rate if they negotiate collectively than if they do it individually".