For the past couple of weeks, Hungary's Educational and Cultural Ministry (OKM, www.okm.hu) has been in talks with the European Commission's Competition Commission, led by Neelie Kroes, in an attempt to harmonize Hungary's film subsidy system with EU law..

The current subsidy policy is part of the 2004 film law in Hungary which offers a 12 % tax shelter (informally called an immediate or non-direct subvention) on every forint that is spent on filmmaking-an incentive that draws many international productions to Hungary.

Brussels now insists that subventions should be restricted to "cultural content" when it comes to granting tax rebate to filmmaking.

Negotiations are under way as the current program winds up on Dec. 31. Assuming negotiations are successful, the new rules would apply to the next two-year program.

The current subsidy package (for 2006-2007) was accepted without thorough investigation in Brussels, as the concept on which it was based preceded Hungary's joining the EU in 2004. However, the new decrees on executing the film law must be fully EU-compatible.

The magnitude of direct subventions given to Hungarian film productions has not provoked objections from the EU, although some minor modifications will be needed, Hungarian officials told the state-run news agency MTI (www.mti.hu).

Major changes won't be required because in June, the European Commission decided to retain the policy on subsidizing national film production in the member states until 2009.

The maximum state subvention is limited to 50% of the overall budget of any given film in Europe, and only in exceptional cases can be further increased. In Hungary's case, the subsidy has been increased to 90% for films with a budget under 2 million euro (500 million forints).

Balazs Samuel, deputy director of the artistic department at the Cultural Ministry of Hungary, has led the delegation in Brussels during the negotiations. The Ministry's suggestions will be submitted to Motion Picture Coordination Commission in Hungary.