ECJ delivers ruling on the incompatibility with EU law of “lex CEU”

  • 2020/10/29
  • kutatocsoport5

In its judgment in Case C-66/18 Commission v Hungary, delivered on 6 October 2020, the European Court of Justice (ECJ) condemned Hungary for failing to fulfil its obligations under EU law by adopting Law XXV of 2017 amending the Law on national higher education (commonly referred to as “lex CEU”). According to the Court, the requirement that higher education institutions that have their seat in a country that is not part of the European Economic Area (EEA) may only conduct their teaching and research activities in Hungary once an international treaty between Hungary and their country of origin has been concluded is not compatible with Article XVII (on national treatment) of the General Agreement on Trade in Services (GATS), an international agreement of the World Trade Organization (WTO) to which the EU is a party. Furthermore, the requirement that higher education institutions that have their seat in a foreign country – whether or not said country is part of the EEA – must also offer education in the country in which they have their seat infringes on both Article XVII of the GATS (with regard to countries outside of the EEA) and on Article 49 TFEU and Article 16 of Directive 2006/123/EC on services in the internal market (with regard to EEA member states). Finally, both of these requirements were found to be incompatible with Articles 13 (academic freedom), 14(3) (freedom to found higher education institutions) and 16 (freedom to conduct business) of the Charter of Fundamental Rights of the EU.

The infringement procedure was initiated by the European Commission following Hungary’s adoption of the Law amending the Law on national higher education on 4 April 2017. The Law introduced new requirements for the establishment in Hungary of new higher education institutions and for the continued functioning of already established higher education institutions that have their seat in a foreign country. Hungary claimed that these requirements were necessary to ensure the quality of higher education teaching activities undertaken by the institutions falling under the scope of the Law. Claiming the urgency of this objective, Hungary originally set a deadline of 1 January 2018 for the institutions affected to comply with the new requirements. The Commission sent Hungary a letter of formal notice on 27 April 2017, claiming that Hungary had failed to fulfil its obligations under Directive 2006/123, Articles 49 and 56 TFEU, Article XVII of the GATS, and Article 13, Article 14(3) and Article 16 of the Charter, and setting a period of one month for Hungary to reply. On 14 July 2017, the Commission issued its reasoned opinion, concluding the existence of the infringements mentioned in the letter, and set another one-month deadline for Hungary to comply with the opinion or submit its observations. Due to the pre-litigation procedure eventually proving unsuccessful, the Commission brought the case before the Court on 1 February 2018.

Hungary claimed that the case was inadmissible on two grounds: first, the short time limits imposed by the Commission during the pre-litigation procedure and second, the illegitimacy of the political motivations behind the Commission’s action, namely to protect the particular interests of the Central European University (CEU). The Court rejected both of these claims, arguing that the short deadlines were made necessary by the imminent entry into force of the contested provisions; furthermore, the Commission accepted and took into consideration all the observations that Hungary submitted when the deadline had already passed. As regards to the second claim, the Court referred to its case law, according to which the Commission enjoys complete discretion as to whether or not to initiate an infringement procedure, the motivations of which are not for review by the Court.

Hungary also claimed that the Court lacked jurisdiction to rule over the case, given that it concerned infringements of the GATS, an international treaty of the WTO, and therefore the assessment of whether the Law is compatible with Hungary’s commitments under the GATS should be the exclusive competence of the WTO’s dispute resolution bodies. Furthermore, these infringements affected the area of higher education, a field that does not fall within the competence of the European Union. The Court rejected both of these arguments, recalling that the GATS, just like any other international agreement entered into by the EU, is an integral part of EU law; moreover, the case concerns not only the area of higher education, but that of trade in educational services, which is an integral part of the common commercial policy, a field where the European Union has exclusive competence. With regard to the relationship between the ECJ and the WTO’s dispute settlement system, the Court emphasised that its jurisdiction to declare that a Member State infringed WTO law – such as the GATS – is not only compatible with that of the WTO bodies, but it’s also necessary in order to enable the EU, as a party to the WTO, to ensure the observance of WTO law in its entire territory. The Court also 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.

Regarding the substance of the case, the Court first examined the requirement of a prior international treaty in light of Article XVII of the GATS on national treatment. The Court found that, while Hungary had made a reservation in respect of the market access commitment enshrined in Article XVI of the GATS, no such reservation had been made regarding Article XVII. While, in the interpretation of the Court, the market access reservation can also apply to measures that are inconsistent with both Articles XVI and XVII, no link to Article XVI could be established in the current case. Next, the Court stated that the requirement of the conclusion of an international treaty imposes an additional condition on foreign higher educational service providers that is difficult to fulfil: whether the required treaty can be concluded before the established deadline is largely up to the discretion of the Hungarian authorities, and in certain cases – particularly in the case of federal states – the conclusion of the treaty might even prove impossible. As such, the Court found that the requirement modifies the conditions of competition in favour of providers of higher education services established in Hungary. Hungary relied on Article XIV of the GATS to justify the measure, claiming that the requirement was necessary for the protection of public order and the prevention of deceptive practices. The Court rejected these justifications, arguing that Hungary had failed to provide any argument as to how the continued provision of higher education services in the lack of a treaty would cause a genuine and sufficiently serious threat to public order, while the measure was also disproportionate to the objective of preventing deceptive practices, which could have been achieved through less restrictive measures, such as a unilateral declaration from the country of origin.

Second, the Court examined the requirement that education activities be offered in the State of origin. As regards to third country members of the WTO – that is, those outside of the EEA – the Court followed the previous argument, concluding once again that Hungary failed to fulfil its obligations under Article XVII of the GATS, resulting in competitive disadvantage from the requirement at issue for the institutions concerned. The Court also noted once again that Hungary failed to appropriately justify the necessity of the restrictive measure. Concerning higher education institutions based in another EEA Member State, the Court found that the measure constituted 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 Directive 2006/123/EC on services in the internal market. Hungary’s justifications in this regard were primarily focused on the requirement being necessary to ensure the high quality of higher education, on which point the Court observed that simply requiring teaching activity in the state of origin does not in any way prejudge the quality of the education offered in Hungary, and, as such, the objective cannot justify the requirement at issue.

Finally, the Court examined whether the requirements at issue were compatible with Articles 13, 14(3) and 16 of the Charter of Fundamental Rights of the EU. Since the case concerned the issue of Hungary’s failure to fulfil its obligations under Article XVII of the GATS, which forms part of the law of the EU, the Court found that Hungary was implementing Union law, and as such, must comply with the fundamental rights enshrined in the Charter. Regarding Article 13 on academic freedom, the Court established, referring to the interpretation given by the European Convention of Human Rights and to its case-law, that academic freedom does not only have an individual dimension based on the freedom of expression, but also an institutional and organisational dimension reflected in the autonomy of educational institutions. Since the measures at issue proved capable of endangering the autonomous functioning of the institutions concerned, they were found to be incompatible with the academic freedom protected in Article 13 of the Charter. Furthermore, the founding of those institutions is protected by Articles 14(3) and 16 of the Charter and the measures at issue were found to constitute an interference with the rights enshrined in those provisions. Since these restrictions on fundamental rights could not be justified under Article 52(1) of the Charter, the Court held that Hungary has failed to comply with the provisions of the Charter.

Besides its importance in protecting academic freedom in Member States, this judgment is the first to establish that the existence of the WTO’s own dispute settlement system does not preclude the jurisdiction of the Court to declare, in an infringement procedure, that a Member State has failed to fulfil its obligations under an international agreement of the WTO; thus clarifying an important issue concerning the relationship of EU law with WTO law. Further clarifying its opinion, the Court emphasised that the assessment of the conduct of a Member State during infringement proceedings, including those concerning a breach of WTO law, is not binding on other members of the WTO, nor can it affect any later assessment that the WTO’s Dispute Settlement Body (DSB) might be called upon to make. Thus, according to the Court, neither the EU nor the Member State concerned could rely on the judgment of the Court in order to avoid the legal consequences which WTO law attaches to rulings of the DSB.

Regardless of the urgency of the procedure and the Court finding that Hungary’s conduct was incompatible with Union law, the decision arrives too late for the embattled Central European University: the CEU announced on 3 December 2018 the immediate relocation of its campus to Vienna with the outlook that all of its programs starting in September 2019 will launch at the new location. The move was finalized in less than a year and the inauguration of the new campus took place on 17 November 2019. However, all hope is not lost concerning the continued presence of the CEU in Hungary. Following the publication of the Court’s decision on 6 October 2020, the CEU leadership held a press conference where rector Michael Ignatieff stated that while the university considers Vienna its new home, its Budapest campus will be used to host new programs including the CEU Democracy Institute


The judgment of the Court is available here.

The opinion of Advocate General Kokott on the case is available here.

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