The European Commission has decided to extend for three more years the structures under which European governments are allowed to financially support their local film industries.

The ruling, announced today (16 March), follows some six months of consultation with governments and film-makers ahead of the expiry in June 2004 of the regime that was introduced only in September 2001.

The announcement was made by Culture Commissioner Viviane Reding in agreement with Mario Monti, the EU Commissioner responsible for fair competition.

"I have suggested that the 2001 regime which was given broad support be extended for three years. Advantage will be taken of this period of time in order to study whether the current regime is fully capable of meeting the future challenges facing the European audiovisual market", said Reding in Brussels.

"There needs to be a high level of legal security for the making of audiovisual works in Europe. This is indeed a particularly important sector in cultural terms, playing a major role in the development of a European identity, but it is under considerable external pressure."

In recent years a number of national aid systems had come under EC scrutiny as it was feared that they were either providing too much support for local films or tying aid to spending in the donor country.

Last autumn Reding instigated a round of negotiations with a view to possibly reducing from 80% to 50% the level at which national aid systems cut in. In some industry circles it was suggested that "industrial" aid to the film sector would no longer be available to national governments and that states would only be able to provide subsidy for cultural reasons.

The Commission was the subject of intense lobbying by several states, notably France, which only last year installed a tax credit scheme with territorial effect. Points which may have swung the debate in favour of an extension of the current rules include arguments that the system was changed only three years ago .

Another is that national governments in Western Europe need to be able to provide a measure of stability to their local film industries at a time when the EU is set to be enlarged by the addition of low-cost countries. (This May the EU will grow from 15 member states to 25 with the accession of ten countries mostly from the former Soviet bloc.)

Reding says that the extension of the subsidy regime until June 2007 will allow a better investigation into the effect of film subsidies and cross-border competition.

"The Commission nevertheless wishes to examine whether the current regime can fully cope with the future challenges facing the European audiovisual market," said Reding. "As part of this work, it intends to check whether disproportionate territorialisation requirements cause undue fragmentation of the European audiovisual market, for example by creating obstacles to pan-European co-productions."