ECJ: the Hungarian Law of Higher Education is not compatible with EU law

On 6th October 2020, with its judgment in Commission v Hungary (Higher education) (C-66/18), the Grand Chamber of the Court of Justice upheld the action for failure to fulfil obligations brought against Hungary by the European Commission.

The proceedings concern the admissibility of a new higher education law approved by the Hungarian Parliament, regarding the new requirements and criteria allowing activity on the Hungarian territory by foreign universities: these conditions have been considered discriminatory and restrictive in relation to the treatment of national universities, limiting their activities and compromising the freedom of establishment. Particularly, the provision at issue hits the Central European University (CEU), a foreign university financed by George Soros, an American philanthropist which is not in good terms with the Prime Minister Viktor Orbán. The restrictions introduced by the law led to the university’s closure and to its transfer to Wien, and, on a general perspective, have been discriminatory to the other universities located in the country.

On 4 April 2017 Hungary adopted, as a matter of urgency, a law amending the 2011 Law on higher education. The law was aimed at safeguarding the quality of higher education teaching activities, and the main purpose of which was to reform the licensing regime applicable to foreign higher education institutions. These requirements applied both to new education institutions and to the ones already operating on the territory. Among them, Article 76(1)(b) of the Higher Education Act states that whether a higher education institution is seated outside the European Economic Area, the new law made teaching activity in the higher education field in Hungary subject to an international agreement between Hungary and the respective third State. Moreover, the reform prevented foreign higher education institutions to operate in Hungary, unless they equally carried out higher education in their State of origin.

According to the Commission motivated opinion, the 2017 Law on higher education was incompatible both with the commitments undertaken by Hungary within the framework of the General Agreement on Trade in Services (GATS), concluded within the framework of the World Trade Organization (WTO). Particularly, it stated that, in imposing these criteria on foreign universities,  Hungary failed to fulfil obligations concerning the so-called “national treatment clause” enshrined in Article XVII GATS: it provides each contracting Party “shall accord to the services and service providers of another Party no less favourable treatment than the one accorded to similar domestic services and service providers, in respect of all measures concerning the provision of services”.

Another supposed violation concerns the obligation the Eastern country has with the European Law. By requiring foreign higher education institutions to offer higher education training in their home country, Hungary failed to fulfil its obligations under Article 16 of Directive 2006/123 (“Services Directive”) and under Articles 49 and 56 TFEU, concerning freedom of establishment and freedom of movement of services. Lastly, Hungary went also against the provisions of the Charter of Fundamental Rights of the European Union relating to academic freedom, the freedom to found higher education institutions and the freedom to conduct a business.

Firstly, the Commission’s approach consisted in granting Hungary one month to take the necessary measures to comply with the opinion or to submit its observations. Anyway, after its refusal to the Hungarian request of an extension of this deadline, on 1st February 2018 the Commission brought the present action to the Court for failure to comply with the contested measures.

Primarily, the Court rejected the grounds of inadmissibility put forward by Hungary. Indeed, as regards the short time limits imposed by the Commission during the pre-litigation phase, the Court, confirming its case-law on this point, observed that the proceedings are usually two-months-lasting, giving States the proper time to use their right of defense. Notwithstanding Commission enjoys a considerable discretion in setting times, the Court recognized the urgency of the matter and concluded that Hungary has given insufficient justifications to prove that its right to reply has been infringed. Furthermore, it observed that the contested time limits had been set taking into consideration the imminent entry into force of the provisions at issue, which was originally set for 1st January 2018.

The other Hungarian argument concerns Commission’s lack of impartiality, claiming that the infringement procedure was brought up merely for political reasons: neither in this case the fact that “proceedings are […] solely in the interests of the CEU in Budapest” can be considered a reasonable ground to assert that the conduct of the infringement proceedings is biased. On the basis of the rules enshrined in Article 258 TFEU, the Court argues that the aim pursued by the proceedings is to objectively assess that a Member State has failed to fulfil its obligations under EU law. As it has already recalled in Commission v. Romania (Anti-money laundering) (C-549/18), in the context of the present procedure, “the Commission enjoys a discretion as to whether or not to commence such proceedings, which is not for review by the Court”. For this reason, the question as to whether it is appropriate to initiate an infringement procedure is entirely left to the Commission’s discretion.

The Court rejected also further contestation regarding its own jurisdiction on the case. In that regard, having recalled that the EU entered into the Agreement establishing WTO, of which GATS is part, the Court considered the GATS as part of EU law. Thus, the implementation of GATS provisions must be one of the primary duties of the Union. Next, with respect to the relationship between the exclusive competence of the EU in the area of common commercial policy and the broad competence of the Member States in the area of education, the Court made clear that commitments entered into under the GATS, including those relating to the liberalisation of trade in private educational services, fall within the common commercial policy under Article 207 TFEU. The Court pointed out that the EU may find itself incurring international liability as a result of any failure by a Member State to comply with its obligations under the GATS. Lastly, as the Court further states, even though The European Union cannot directly influence the Member States’ action in all the areas covered by the GATS, because each Member States exercise its own regulatory competences, the European Union has undertaken to be fully bound by that Agreement from an external point of view and the Member States’ actions within the scope of the GATS can be attributed to the European Union.

Thus, according to the duty of fair cooperation under Article 4(3) TEU, Hungary thus remains free to exercise its internal competence to regulate higher education, but only in so far as the relevant rules do not infringe obligations under the WTO agreements: this would not only render the European Union liable in international law, but also expose the other Member States to the risk of countermeasures.

In the light of the recognized jurisdiction, the Court proceeded to examine the Commission’s complaints.

First, as regards the Article 76(1)’s condition of a prior international treaty, Hungary justified this requirement on the base of the derogation to Article XVII, namely Article XIV: it provides that this type of measures “is necessary to guarantee public policy and public security and to prevent deceptive and fraudulent practices”. Nevertheless, it also states that exceptions are not to be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services”. Against this background, the requirement of the conclusion of an international treaty cannot, on closer examination, be regarded as a permissible exception as, in its specific form, it appears to be a means of arbitrary discrimination within the meaning of Article XVI of the GATS. Thus, in the light of Article XVII of the GATS on national treatment, the Court found at the outset that, in the field of higher education services, Hungary has not fulfilled its commitments and provided insufficient reasons.

Secondly, the Court examined the second requirement provided by the Law on Higher Education, which provides that education activities shall be offered in the State of origin. According to Hungary’s statements, this provision is aimed at preventing fraudulent practices and ensuring, through periodical controls by authorities, a high quality of teaching. Referring to the commitment undertaken by Hungary under Article XVII of the GATS, the Court, having shown the competitive disadvantage resulting from the requirement at issue for the institutions concerned, noted again the insufficiency of the explanations provided by the Hungarian Government in relation to the grounds that might justify its necessity. Therefore, the Court states that “the link to the existence of teaching activities in the State of origin is, in itself, not appropriate and generally not necessary in any case for ensuring the legality and quality of higher education”.Thus, in so far as that requirement applies to higher education institutions established in a third country member of the WTO, Hungary infringed that provision. Furthermore, in so far as the requirement applies to education institutions which have their seat in another Member State of the EU, the Court found there would be an unjustified restriction both of the freedom of establishment guaranteed by Article 49 TFEU and of the free movement of services covered by Article 16 of the 2003/126/EC: indeed, it is questionable whether the requirement at issue, with the purpose of preserving quality of education, would actually have an impact on the quality of the education offered in Hungary.

As for violation of the Charter, The Court held that the measures taken by Hungary were capable of endangering the academic activities of the foreign higher education institutions concerned within the territory of Hungary and, therefore, of depriving the universities concerned of the autonomous infrastructure necessary for conducting their scientific research and for carrying out their educational activities; consequently those measures were such as to limit the academic freedom protected in Article 13 of the Charter.

This is the latest Court’s struggle against Viktor Orbán’s government, who in the last years undertook a political path made of illiberal reforms. This last legislative reform contributed to exacerbate the tensions between the European Court of Justice and the Višegrad group’s leader, already worsened after the 18th June 2020’s ruling over the Hungarian reform of the law regulating NGOs’ activity: equally to the Law on Higher Education, it provided restrictions and sanctions to NGOs which benefit from foreign financing funds, i.e. a discriminatory and unjustified measure. This ruling represents a clear assessment of Hungary’s misuse of its discretional powers, but it is questionable whether it will be the last warning or the State will continue to take its steps towards new infringements of EU law and, above all, democratic values in which it is anchored.