Case Summary and Outcome

The Grand Chamber of the Court of Justice of the European Union found that amendments to Hungary’s Higher Education Act of 2011, which placed new restrictions on higher education  institutions, were incompatible with EU law. The action was brought by the European Commission against Hungary following the adoption of the amendments in 2017, which ultimately forced the Central European University to move its operations to Austria. Firstly, the Court held that the requirement that foreign institutions of higher education establish an international treaty between Hungary and the State of origin was a violation of the General Agreement on Trade in Services (‘GATS’) of the World Trade Organisation (WTO). This requirement also restricted the right to academic freedom, the freedom to found higher education institutions and conduct a business under the Charter of Fundamental Rights of the European Union (‘the Charter’). The Court observed that, as academic freedom protects “freedom of expression and of action, freedom to disseminate information and freedom to conduct research and to distribute knowledge and truth without restriction,” the restrictions endangered freedoms enshrined under Articles 10 and 13 of the European Charter. Secondly, the Court found that, by adopting the additional requirement that foreign higher education institutions offer educational services in the country of origin, Hungary failed to comply with their obligations under the GATS. 

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Facts

On April 4, 2017, Hungary adopted a new act amending the Higher Education Act of 2011. The amendments added further requirements concerning the need for bilateral agreements between Hungary and non-European Economic Area (EEA) countries of origin of higher education institutions, the need to also provide higher education services in the country of origin, and further requirements for the registration and authorisation of higher education services in Hungary. The Hungarian Parliament claimed the law was intended to protect the quality of teaching in higher education institutions by reforming the licensing regime applicable to foreign higher education institutions. All higher education institutions, regardless of whether or not they had previously been approved, are subject to the new requirements. 

On April 12, 2017, the European Commission (Commission) held a discussion about the legal implications of the Hungarian Higher Education Law. The new law was perceived by members of the Commission as an ‘attempt to close down the Central European University.’ The Portuguese Commissioner Carlos Moedas expressed concern that the law may ‘restrict scientific and academic freedom of thought, and our common values of openness, and that it may damage Hungary’s academic reputation and relationship with EU partners.’ 

On April 27, 2017, the Commission decided to proceed with legal action and sent a letter of formal notice to the Hungarian Government on the Hungarian Higher Education Law. On May 25, 2017, Hungary replied by letter, disputing the alleged infringements.

On July 14, 2017, the Commission brought an action against Hungary for failure to fulfil its obligations before the Court. The Commission reasoned that, by requiring foreign higher education institutions located outside the EEA to conclude an international agreement in order to provide education services pursuant to Article 76(1)(a) of the new Law on higher education, Hungary had failed to fulfil its obligations under Article XVII of the GATS. Secondly, the Commission argued that, by requiring higher education institutions to offer education services in their country of origin, pursuant to Article 76(1)(b) of the new Law on higher education, Hungary failed to fulfil its obligations under Article 16 of Directive 2006/123 and under Articles 49 and 56 The Treaty on the Functioning of the European Union (TFEU). Finally, the Commission claimed that the new Law on higher education was incompatible with Hungary’s obligations under Article 13, Article 14(3) and Article 16 of the Charter. The Commission gave Hungary a period of one month in which to take the necessary measures to comply with its opinion. 

On August 14, 2017, Hungary replied to the Commission, arguing that there were no alleged infringements. Between August 2017 and November 2017, Hungary sent further observations to the Commission, noting the similarities between its situation and that of other Member States, as well as notifying the Commission of bilateral agreements between the Government of Hungary and foreign higher education institutions. 

On February 1, 2018, the Commission initiated the present infringement proceedings. 

On December 3, 2018, as a result of the new Law on higher education, the Central European University (‘CEU’) announced that it would relocate its operations from Budapest to Vienna. The CEU is a private university offering  US-accredited programs, established by the American-Hungarian philanthropist and investor George Soros. The decision to relocate followed the Hungarian government’s refusal to sign an agreement allowing the CEU to continue to teach in Hungary. This was widely seen as a result of the conflict between the liberal Mr. Soros and Hungary’s nationalist prime minister, Viktor Orbán.

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Decision Overview

President Koen Lenaerts delivered the opinion of the Grand Chamber of the Court of Justice of the European Union. 

The issue before the Court was whether the Higher Education Law as amended on April 4, 2017 disproportionately restricts EU and non-EU universities in their operations in Hungary and needs to be brought back in line with EU Law. 

Admissibility

Firstly, the Court rejected the grounds of inadmissibility. Hungary argued that the action must be dismissed as inadmissible due to the short time limits imposed by the Commission during pre-litigation procedure. The Court reasoned that a short period of reply may be permitted in circumstances where there is an urgent need of remedy to an infringement (judgment of April 2, 2020, Commission v Poland, Hungary and Czech Republic (Temporary mechanism for the relocation of applicants for international protection), C‑715/17, C‑718/17 and C‑719/17, EU:C:2020:257, para. 92).  The Court held that the time period was not unreasonable and Hungary had not established that its right of defence had been infringed. The Court further rejected Hungary’s argument concerning the illegitimacy of the Commission’s aims to initiate the present proceedings solely for political purposes to protect the interests of the Central European University (CEU). In accordance with settled case-law, the Court confirmed that whether or not to commence such proceedings is within the discretion of the Commission, which may not be reviewed by the Court. (Commission v Romania (Anti-money laundering), C‑549/18, EU:C:2020:563, para. 49 (16 July 2020)) 

Jurisdiction

Secondly, the Court found that it had jurisdiction to hear and determine complaints regarding alleged infringements of WTO law. As the Agreement establishing the WTO, of which the GATS was a part, was an international agreement signed by the EU, the Court ruled that it was an integral part of EU law.  (Haegeman, 181/73, EU:C:1974:41, paras 5 and 6 (30 April 1974))

The Court further noted that failure to comply with its obligation under the GATS may ‘give rise to international liability on the part of the Union, a member of the WTO.’ [para. 84]

 The Court proceeded to examine the Commission’s complaints. 

1. The requirement of a prior international treaty

a) The effects to be ascribed to Hungary’s commitment in respect of higher educational services, in the light of the rule on national treatment set out in Article XVII of the GATS

Examining the Commission’s complaints, the Court firstly considered the requirement under the new Law on higher education that there be a prior international treaty. This requirement was examined in light of Article XVII of the GATS, which requires that services and service suppliers of any other member of the WTO receive treatment no less favourable than the state’s own like services and service suppliers. The Court found that the condition ‘is intended to cover all educational institutions, regardless of their origin, and therefore does not have any discriminatory element.’ [para. 113] Accordingly, the Court held that there was no qualification of Hungary’s commitments under Article XVII of the GATS in respect of higher education services. 

b) Modification of the conditions of competition to the benefit of like national providers

The Court proceeded to consider the condition of the 2017 Law on higher education that requires foreign providers of higher education in Hungary to establish an international treaty, at the discretion of Hungarian authorities, in order to provide their services. The Court found that the statutory requirement amounts to a modification of the conditions of competition to the disadvantage of the foreign institutions concerned. 

c) Justification under Article XIV of the GATS

Finally, the Court determined that the rationale provided by the Hungarian Government concerning the purpose of the requirement of a prior international treaty was not sufficient to justify it, in the light of Article XIV of the GATS. Hungary argued that the requirement of a prior international treaty was necessary to maintain ‘public order’ and prevent ‘deceptive practices.’ The Court found that Hungary had failed to present any arguments that would sufficiently demonstrate how such higher education institutions would constitute, without such a treaty, a ‘genuine and sufficiently serious threat affecting a fundamental interest of Hungarian society.’ [para. 131] Further, regarding the prevention of deceptive practices, the Court held that the requirement of a prior international treaty constituted a means of arbitrary discrimination as such a treaty depends ‘solely on the political will of that Member State.’ [para. 136] Accordingly, the Court found that, by adopting the requirement under Article 76(1)(a) of the Law on higher education, Hungary failed to fulfil its obligations under Article XVII of the GATS. 

2. The requirement that the institution concerned provide education in the State where it has its seat

The Court proceeded to consider the second of the Commission’s complaints: the requirement that the foreign higher education institution provide education in the State of origin. 

Hungary is committed, under Article XVII of the GATS, to ensure equal treatment of national and foreign providers of higher education services. As such, the Court considered whether the requirement that foreign institutions provide education in the State of origin  modifies the conditions of competition to the detriment of foreign providers, as compared with the like Hungarian providers. The Court determined that the requirement results in a ‘competitive disadvantage’ for the foreign suppliers of services concerned, modifying the conditions of competition to the benefit of like Hungarian providers. Hungary’s justifications, namely, the maintenance of public order and the prevention of deceptive practices, were again rejected by the Court. Therefore, the Court concluded that, in so far as the provision in Article 76(1)(b) of the new Law on higher education targets higher education institutions established in a third country member of the WTO, Hungary had failed to fulfil its obligations under Article XVII of the GATS. 

The Court then found that the requirement, insofar as it applied to foreign higher education institutions, was an unjustified restriction of the freedom of establishment guaranteed by Article 49 TFEU. A restriction of the freedom of establishment is permissible only if it is justified by an overriding reason in the public interest, is proportionate to the objective pursued and does not exceed what is necessary to obtain it. (Commission v Hungary, C‑179/14, EU:C:2016:108, para. 166 (23 February 2016)) The reasoning relied upon by Hungary was again the need to maintain public order. The Court noted that reasons of public policy must be ‘genuine, present and sufficiently serious’ to be relied upon. [para. 181] (Commission v Luxembourg, C‑319/06, EU:C:2008:350, para. 50 (19 June 2008)) The Court found that the impugned requirement, should it not be met, does not pose a genuine, present and sufficiently serious threat to a fundamental interest of Hungarian society. The Court found that Hungary had failed to explain why the objective of preventing ‘deceptive practices’ could not be achieved by alternative, more ‘reliable’, means. Nor did the requirement satisfy the goal of ‘ensuring high standards in the quality of higher education’ as the new Law made no reference to the quality of education offered by the foreign institution. [para. 188] 

The Court then found that the requirement is an unjustified restriction of the free movement of services covered by Article 16 of the Services Directive 2006/123. Under Article 16(1) of Directive 2006/123, the Member State in which the service is provided must ensure the free exercise of a service activity within its territory. The present requirement, pursuant to Article 76(1)(b) of the Law on higher education, requires that institutions offer higher education in their State of origin. This requirement, when considered in the light of Directive 2006/123, insofar as it imposes an additional condition on service providers established in another Member State, is capable of restricting the right of such providers to the free exercise of higher education services in Hungary. Accordingly, the Court found that Hungary failed to fulfil its obligations under Article XVII of the GATS and under Article 49 TFEU and Article 16 of Directive 2006/123. 

3. Article 13, Article 14(3) and Article 16 of the Charter

The Court then examined the third of the Commission’s complaints as to whether the requirements introduced by the 2017 Law on higher education were consistent with Articles 13, 14(3) and 16 of the Charter. These articles refer to the freedom of the arts and sciences, right to education and freedom to conduct a business, respectively.

The Court firstly affirmed that Hungary was bound by the Charter. The scope of the Charter is defined in Article 51(1), which states that the provisions of the Charter apply to Member States only ‘when they are implementing Union law.’ The Court noted that both the performance of obligations under an international agreement, including the GATS, and restrictions placed on a fundamental freedom guaranteed by the TFEU Treaty must be regarded as implementing EU law within the meaning of Article 51(1). As such, the law on Higher Education must comply with the fundamental rights enshrined in the Charter. (Commission v Hungary (Transparency of associations), C‑78/18, EU:C:2020:476, para. 101 (18 June 2020)) 

The Court initially examined Article 13 of the Charter, which provides that ‘academic freedom shall be respected.’ Referring to the case-law of the European Court of Human Rights (ECtHR), the Court noted that this freedom ‘is associated, in particular, with the right to freedom of expression enshrined in Article 10 of the ECHR.’ [para. 224] (ECtHR, April 15, 2014, Hasan Yazıcı v. Turkey, CE:ECHR:2014:0415JUD004087707, paras 55 and 69) Therefore, academic freedom should protect ‘freedom of expression and of action, freedom to disseminate information and freedom to conduct research and to distribute knowledge and truth without restriction.’ [para. 225] Referencing Recommendation 1762 (2006), ‘Academic freedom and universal autonomy,’ adopted by the Parliamentary Assembly of the Council of Europe on June 30, 2006, the Court found that ‘academic freedom also incorporates an institutional and organisational dimension, a link to an organisational structure being an essential prerequisite for teaching and research activities.’ [para. 227] Consequently, the Court concluded that the measures imposed by the new Law on higher education were ‘capable of endangering the academic activity of the foreign higher education institutions’ in Hungary and, therefore, limit academic freedom under Article 13 of the Charter. [para. 228]

The Court proceeded to consider the freedom to found educational establishments and to conduct a business, under Article 14(3) and Article 16 of the Charter, respectively. The Court found that the impugned measures were capable of rendering uncertain or excluding the possibility of establishing a higher education institution, or preventing their continued operation, in Hungary. In these circumstances, the new Law on higher education limited the freedoms guaranteed under both Article 14(3) and Article 16 of the Charter. 

As the interferences could not be justified under Article 52(1) of the Charter, the Court held that Hungary failed to fulfil its obligations under the provisions of the Charter. 

Conclusion

The Court concluded that the new Law on higher education violated the freedom to provide services (Article 56 TFEU); the freedom of establishment (Article 49 TFEU); Directive 2006/123/EC on services in the internal market (Article 16); the right of academic freedom, the right to education and the freedom to conduct business as provided by the Charter of Fundamental Rights of the European Union (Articles 13, 14, 16 respectively); as well as the Union’s legal obligations under international trade law (the General Agreement on Trade in Services – GATS – in the framework of the World Trade Organisation, WTO). 

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