Fortress Europe? The European Commission, Hungary and international trade law

What do you, a state, do when your trade partners breach their WTO obligations and you want redress? Illegal retaliation aside, admittedly an increasingly popular choice these days, you would ordinarily consider bringing a case against them before a WTO panel in Geneva. Anything else? Suing the state in its domestic court is not an option. Affected private actors could do so if the trading partner has breached its own domestic law, but the scope for political negotiations and compromises inherent within the WTO process makes domestic courts wary about holding governments and legislatures to their international trade obligations – even in monist states that recognise those obligations as an integral part of their legal order.

But, in the EU, there is another option: if it is a Member State which has caused the breach (rather than the EU itself) the European Commission (the “Commission”) is able to bring infringement proceedings against that Member State. This possibility is currently being demonstrated in proceedings against Hungary about new laws designed to shut down the Central European University (the “CEU”), a body founded and funded by the billionaire philanthropist (and perennial nemesis of Prime Minister Viktor Orbán) George Soros.

One of these laws makes the provision of higher education services by providers from outside the EEA dependent on there being a treaty between Hungary and the home country of the provider, under which the home country indicates fundamental support for the provider’s activities. There is no evidence that the Hungarian government sought to sign such a treaty with the United States in respect of the CEU, which is incorporated in New York. The Commission sued Hungary for breaching the EU’s GATS obligations and certain other (purely EU law) obligations. Meanwhile, the CEU is in the process of winding down its Mode 3 services in Hungary and has established a new campus in Vienna.

In a blistering but tightly reasoned opinion delivered to the EU Court of Justice in March, Advocate General Juliane Kokott explained, among other things:

  1. why the Commission is entitled to sue Member States for breaches of WTO law; and
  2. why the new Hungarian law breached WTO law, and more specifically its commitments under the GATS, even when considering the general exceptions.

These two interesting points will be unpacked in this and a successive blog post respectively.

So why can the Commission sue a Member State for a breach of WTO law? Under Article 216 TFEU, international treaties concluded by the EU are an integral part of EU law. However, it is also well known from case law that individuals are not able to challenge EU legislation for being incompatible with WTO law.  Why? According to the Court, this could make it harder for the Commission to negotiate settlements with other countries credibly, an important aspect of resolving trade disputes.

But, as Kokott pointed out, this reasoning does not apply to the Commission suing Member States for infringements of WTO law. Quite the reverse. According to her, there are in fact several important reasons why the Commission should have the ability to do so.

  • The EU is responsible under WTO law for the acts and omissions of its Member States. Customary international law, reflected in the Vienna Convention on the Law of Treaties, means that the EU cannot excuse itself for breaches of international law on the basis that they were committed by its constituent members.
  • In any case, the EU has exclusive competence in the field of common commercial policy, including in respect of market access and national treatment for foreign investors, as can be seen in recent free trade agreements. Another way of looking at this is that, having conferred upon the EU its competence in the area of the common commercial policy, it is part of the Member States’ duty of sincere cooperation not to frustrate their exercise in the exercise of their own areas of competence (such as education, where the EU has only “complementary” competence).
  • Given that the other side of a WTO dispute can decide how to target authorised retaliatory measures, preventing the Commission from dealing with Member State infringements of EU law could unfairly expose other Member States to countermeasures. Kokott noted that this is a live issue: Member States other than those four responsible for subsidising Airbus are currently subject to US countermeasures authorised by the WTO (although this example is perhaps not as clear cut, as the EU also subsidised Airbus).
  • Finally, the ability of the Commission to enforce the EU’s international trade law obligations could improve its credibility when negotiating (although this will in practice also depend on the perceived willingness of the Commission to do so).

There is one rather important limitation on this ability. Acknowledging that WTO panels and the Appellate Body have jurisdiction for the binding determination of violations of WTO law, Kokott was of the view that the CJEU should limit itself to reviewing “manifest infringements” (i.e. nothing that turns on contentious and difficult questions of WTO law). Given how contentious and difficult many areas of trade law are, this would at first sight seem very restrictive, but she concluded that in this instance there was a manifest infringement.

Although we await the judgment in this case, this opinion sheds light on how the EU may enforce its international trade obligations internally. It will be particularly relevant for those countries that have FTAs with the EU or are seeking to negotiate them. As for the manifest infringement in this case, which relied on a sophisticated interpretation of the EU GATS schedule, stay tuned…


Written by Samuel Coldicutt of Linklaters.
Edited by the Linklaters Trade Practice. The views and opinions expressed here are the personal opinions of the author(s) and do not necessarily represent the views and opinions of Linklaters.