Model change in Hungarian tertiary education

3 hét 4 nap ago

Are the Hungarian tertiary education institutions autonomous, independent entities or are they controlled entirely by the state? This hypothetical question has been asked continuously ever since the democratic transition of Hungary because each government tried to change something about the legal status of Hungarian tertiary education. However, the main problem with this is that they have done so without a long-term higher education concept; besides, it can also be seen that the autonomy of Hungarian universities and colleges has been getting reduced with minor interruptions from government period to government period.[1]

This year, the government decided on the transformation of the mode of operation of seven Hungarian higher education institutions, which many see as a further reduction in autonomy. In my publication, I deal with this issue and after it is presented briefly, I will bring pro and contra arguments both for and against the transformation of the legal status of concerned Hungarian universities.

A pilot model for transformation – the Corvinus University of Budapest

The Government first decided on the transformation of the Corvinus University of Budapest in 2019. The law regarding this was passed by the National Assembly in 2019. According to the law, Corvinus became a foundation under the central budgetary institutions and management powers of the university went to the Board of Trustees appointed to the helm of the foundation.[2]

The Corvinus model was intended by the government as a pilot project, and it was not sure if the application of the model would be extended to the entire Hungarian higher education system.[3] Recently, it has become obvious that not only was this model a pilot project, but it was the sample for the transformation of the legal status of other universities as well. In 2020, the legal status of a further seven Hungarian universities[4] was changed.

Under the change, in private universities, the maintainer -that is to say, the Board of Trustees- accepts a budget, an annual report, the organisational and operational regulations, an institution development and asset management plan of the institution. Furthermore, if in private universities, the statutes of the foundation are different from the provision of the law, the maintainer can submit any Rector candidate[5] to the President of the Republic and is only required to ask for the opinion of the Senate[6], as opposed to public universities, where the minister can submit only the Rector candidate elected by the Senate to the President of the Republic.[7] Therefore the powers of the Senate will be reduced to academic issues in the private universities.

The members of the Board of Trustees were appointed by the Minister of Innovation and Technology, but from 1 January 2022 the Minister can hand over the founder’s rights to the Board of Trustees of the foundations, which means the Board of Trustees can make decisions about its own members.

Despite the change, the state maintains state financial aid[8] which means maintaining the same number of student places as under state financing; meanwhile, institutions will also get assets to operate, especially in the case of Corvinus, which received assets of significant value, as 10% of MOL and Richter shares was given to the university.[9]

However, the government does not finance them further from the annual central budget. Instead, the government will sign a long-term framework contract on their financing for a period of 10-25 years and within this it will also sign a short-term framework contract for a period of 3-5 years. Although the exact extent of the state financial aid is not yet known, the amount, even if it is not reduced, will most likely not be raised.

The reasons for model change – arguments pro and con

As can be seen, there is a lot of uncertainty about the model change, therefore it is worth looking at the arguments for and against it. I will start with the ones for it. The first reason for the change is following foreign examples, as several of the top 100 universities in the world also operate as foundations; furthermore, universities being transformed into foundations is a global phenomenon.[10]  The idea of the Corvinus model also comes from abroad.[11]

The second reason is predictability. According to the Minister of Innovation and Technology, this change can contribute to a long-term, predictable management[12] and allow these institutions to acquire sources more effectively from the private sector.

Another reason is related to university staff. The change will also affect university employees’ legal status. After the transformation, the employees will no longer be public servants, but will instead be private sector employees, whose legal status is no longer regulated by the Kjt.,[13] but by the Mt.[14] The reason for the change in the legal status is that the Mt. is more flexible than the Kjt. The other reason is that in the case of establishing a private sector employment relationship, the parties are free to agree on the employee's salary,[15] as opposed to the Kjt., where the public servant’s salary is determined by the wage grid. Thus, a private sector employment relationship allows the parties to agree on the salary which is either higher or even lower than the salary that would be payable under the public servant wage grid. According to the justification for the amendment, the higher salary would allow the best professionals to teach at the university.[16]

In addition, the model change would allow additional resources to be raised, as private capital could play a role in the easier and more effective financing of the university. However, it should also be noted that it is expected that private capital will appear only at least 3-5 years after the model change.

Concerning private capital financing, it is also interesting to look at the higher education of OECD countries and the proportion of tertiary education that was financed by the private sector and the state in 2016. This is illustrated in Tables 1 and 2.

1. Public spending on tertiary education

Source: OECD[17]

The table shows that in Hungary, the state spent 0.56% of GDP on higher education, which is lower than in most OECD countries. In this respect, Norway is the list leader, as the state spent 1.67% of GDP on higher education.

2. Private spending on tertiary education

Source: OECD[18]

In respect of financing from the private sector, Hungary (0.33% of GDP) is in the middle of the ranking of OECD countries, but lagging behind leading countries by a larger extent than in the case of public financing. In this regard, the top two countries on the list are the USA (1.67% of GDP) and China (1.69% of GDP). However, it is also important to emphasize that Hungary is higher in this ranking than in the previous one, because in recent years several courses have become self-financing (which also qualifies as financing from the private sector) and not because of companies playing a relatively larger role in the financing of higher education.

In addition, it should be noted that, according to some Hungarian authors, the share of private capital should be increased in the financing of Hungarian higher education.[19]

However, there are also counter-arguments to the model change. An example is the change in the number of state-supported student places. Although the Minister of Innovation and Technology says that state-supported places will remain after the model change, it may be questionable to what extent these places will be maintained and how the proportion of state-supported and self-financing students in higher education will change.

If the ratio would shift in favor of the former, it could have, among other things, the effect of further increasing social inequality, as students from financially struggling families would not choose courses or universities where tuition fees are required.  However, the introduction of tuition fees has become more frequent as a global tendency.[20]

Another counter-argument to the model change is related to management and predictability. What makes the model change unpredictable is that it is not a long-term solution, as it is not the result of a consensual agreement between the government and the parties concerned or the opposition parties,[21] but only the unilateral will of the government. Unfortunately, not only does this governance practice characterize the recent situation, but it also characterizes the Hungarian higher education policy after the democratic transition, as the successive governments would compete with each other rather than cooperate and, because of this, a long-term concept of Hungarian higher education was not developed.[22]

A further criticism based on predictability is that reliance on private money can cause more uncertainty for universities as private funders are less secure sources of revenue than state financial aid. For example, Corvinus, which has received 10% of MOL's and Richter's shares, may be more exposed to market conditions and uncertainty, as share prices may fluctuate quickly.

Apart from the shares that were given to Corvinus, the promised private funding has not been received by the affected universities yet, however, as I have already mentioned, it takes at least 3-5 years for the market to react to the model change.

Another criticism is that marketing may not be the best solution in each case. For marketing to fulfill its promise, more factors are necessary. First, the discipline should provide marketable services, the university must have adequate infrastructure and the management of the university must be involved in the transformation. Thus, marketing may not be an appropriate solution in each case, as a certain discipline may not be able to provide marketable services (e.g. social sciences) or it may be precluded from providing them due to lack of access to the appropriate infrastructure. The third factor is also relevant in connection with the Hungarian solution because the government decided on the model change without the consent of the management of most of the universities involved and even maintained this decision in spite of serious protests related to SZFE.[23]

In addition, the most important counter-argument in connection with the model change is that the autonomy of universities will be further reduced, as the powers of the management -the Senate- of the university will be reduced to academic issues and the most important decisions will be made by the Board of Trustees of the foundation.

This is also important in terms of autonomy because the members of the Board of Trustees were appointed by the Minister of Innovation and Technology and the members close to the governing party are predominant.[24] For this reason, the influence of the state in the operation of higher education institutions would increase further.

After listing the pros and cons, it should be noted that the reduction of university autonomy has not only become an issue since the regime change, as the autonomy of Hungarian higher education institutions has gradually decreased since 1989.[25] Nonetheless, in my opinion, the reduction in autonomy has been greater since the 2010 change of government, as the management autonomy of universities and colleges was practically terminated. According to the recent constitution of Hungary – the Fundamental Law of Hungary –, “The Government shall, within the framework of the Acts, lay down the rules governing the management of public institutes of higher education and shall supervise their management.” [26] This practically means that universities cannot take loans, pass their budget or make decisions concerning their property independently, therefore they should operate without management autonomy.[27]

*   *   *

In conclusion, in my opinion, the transformation will further reduce university autonomy, as the Senate composed of the elected representatives of university staff will have less significant powers. However, change can also have positive effects, such as an increase in predictability due to the long-term support framework contracts and greater opportunities for the acquisition of private funding; furthermore, pursuing a university teaching career may become more attractive as a result of an agreement on higher wages made possible by private sector employment contracts. Nevertheless, it is important to emphasize that for the change to have a truly positive effect on the functioning of the universities concerned, the government must make its decision on the model change in cooperation with the management of the universities; most importantly, it should not force any changes that go against the will of those affected by them.

 

For a list of references, click HERE.

Author: Péter Soltész
law student, University of Debrecen Faculty of Law

[1] István Polónyi (2015): A hazai felsőoktatás-politika átalakulásai. Iskolakultúra, Vol. 25., No. 5-6., pp. 3-11.

[2]https://444.hu/2020/06/24/kevesebb-raforditassal-nagyobb-kontroll-errol-szol-az-egyetemek-alapitvanyi-kiszervezese

[3]https://index.hu/belfold/2018/10/09/budapesti_corvinus_egyetem_alapitvany_felsooktatas_k_f_vallalat_kutatas_palkovics_laszlo/ (2020.10.25.)

[4] The universities are as follows: University of Veterinary Medicine Budapest; University of Miskolc; Moholy-Nagy University of Art and Design Budapest; John von Neumann University; University of Sopron; Széchenyi.István University; University of Theatre and Film Arts in Budapest.

[5] The Rector is the leader and high representative of the university. The Rector candidate is elected by the Senate and the elected Rector is appointed by the President of Republic. -https://www.pecsma.hu/pte/ki-az-a-rektor-ki-az-a-dekan-mi-a-szenatus/ (2020.10.25.)

[6] The Senate is the decision-making board which is composed of teachers and researchers of the university, the Rector and the Chancellor. -https://www.pecsma.hu/pte/ki-az-a-rektor-ki-az-a-dekan-mi-a-szenatus/ (2020.10.25.)

[7] The point d of Paragraph 1 of Section 12 and the point c of Paragraph 1 of Section 1 of Act CCIV of 2011 on national higher education

[8] According to the Minister of Innovation and Technology. -Fonyó Istvánné (2019): Palkovics: Jelentős előrelépés történt a felsőoktatás nemzetközi versenyképessége érdekében. Tudományos és műszaki tájékoztatás, 66. Vol., No. 9., pp. 546-547.

[9]https://444.hu/2020/06/24/kevesebb-raforditassal-nagyobb-kontroll-errol-szol-az-egyetemek-alapitvanyi-kiszervezese (2020.10.25)

[10] https://www.academyofinventors.com/pdf/top-100-universities-2016.pdf (2020.10.25.)

[11] “The idea was taken from Finland, where some universities are state-run, while other universities have previously been suggested by the state that if they merge, they rationalize their operations, they can operate in a freer, foundation form. Such is the case, for example, with Finnish Aalto University, which was created by merging universities and colleges of technical, economic, and applied arts, which has gained significant market resources and now is trying to stand its ground in international competition.”

https://index.hu/belfold/2018/10/09/budapesti_corvinus_egyetem_alapitvany_felsooktatas_k_f_vallalat_kutatas_palkovics_laszlo/ (2020.10.25.)

[12]https://infostart.hu/belfold/2020/04/01/hat-ujabb-allami-egyetem-mukodik-tovabb-alapitvanyi-formaban (2020.10.25.)

[13] Kjt. is an Act which regulates -among others- the legal status of public servants

[14] Mt. is an Act which regulates -among others- the legal status of employees

[15] But the wage cannot be less than the sum of the mandatory minimum wage and the guaranteed minimum wage set by the Government.

[16] https://mandiner.hu/cikk/20180831_felsooktatas_piac_riport (2020.10.25.)

[17] https://data.oecd.org/eduresource/public-spending-on-education.htm#indicator-chart (2020.10.25.)

[18] https://data.oecd.org/eduresource/private-spending-on-education.htm#indi... (2020.10.25.)

[19] Péter Mihályi (2018): A hazai felsőoktatás jobbításának négy akadálya. 61. Vol., No. 2., pp. 98.
Fonyó Istvánné (2019): Palkovics: Jelentős előrelépés történt a felsőoktatás nemzetközi versenyképessége érdekében. Tudományos és műszaki tájékoztatás, 66. Vol., No. 9., pp. 546-547. István Polónyi (2019): Anomáliák a felsőoktatás-finanszírozásban. 29. Vol., No. 6., pp. 94.

[20] For example, in 2009 in Russia 55% of students in higher education are required to pay tuition fees. - András Nógrádi (2014): Változó felsőoktatás? Educatio, Vol. 23., No. 2., pp. 352.

[21]https://merce.hu/2020/01/28/az-elmult-evtized-a-felsooktatasban-a-nemzet... (2020.10.25.)

[22] István Polónyi (2015): A hazai felsőoktatás-politika átalakulásai. Iskolakultúra, Vol. 25., No. 5-6., pp. 7.

[23] http://szfe.hu/wp-content/uploads/2020/06/szfe_modellv%C3%A1lt%C3%A1s_06... Page 6 (2020.10.25.)

[24]https://444.hu/2020/06/24/kevesebb-raforditassal-nagyobb-kontroll-errol-szol-az-egyetemek-alapitvanyi-kiszervezese (2020.10.25.)

[25] István Polónyi (2015): A hazai felsőoktatás-politika átalakulásai. Iskolakultúra, Vol. 25., No. 5-6., pp. 3-11.

[26]  Paragraph 3 of Article X of the Fundamental law of Hungary

[27] István Polónyi (2015): A hazai felsőoktatás-politika átalakulásai. Iskolakultúra, Vol. 25., No. 5-6., pp. 9-10.

Kategória: Higher EducationBrexit Eng: Fogyasztóvédelem: Consumer Protection: 16th Anniversary: 
kutatocsoport5

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

1 hónap ago

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.

Kategória: Fundamental rightsEuropean UnionHigher EducationBrexit Eng: Fogyasztóvédelem: Consumer Protection: 16th Anniversary: 
kutatocsoport5

New market surveillance framework in the EU

1 hónap 2 hét ago

Introduction

Many things have changed in the global economy over the last 40 years. The trade of goods used to be carried out through relatively controllable and predictable routes, so the market surveillance measures, institutions and powers that could form the foundations of an efficient system are now not necessarily capable of providing the same high level of consumer safety. Rules created in the context of identifiable manufacturers, distributors established in the internal market, physical shops and markets are no longer suitable for facing the market surveillance challenges of the online market.

The large increase in the movement of goods, the volume of products flowing into the European Union through personal orders can no longer be controlled and tracked by traditional methods.[1] Behind the displayed offers of an online store a stock of a trader cannot necessarily be found, especially one’s that is established in the European Union.[2] In addition, warehouses are being set up within the borders of the EU for goods that had entered the European Union and later were withdrawn, that, until now, have fallen outside the control of market surveillance authorities.

At the same time, consumers expect the same level of protection for products manufactured inside and outside the EU. In our globalized world, it remains a challenge to ensure that the imported products comply with EU standards but also do not gain an unfair competitive advantage by violating EU rules. Imported products should, in principle, be inspected when they enter the single market. However, the volume of imported products makes it impossible to control all shipments. In 2015, more than 30% of products entering EU markets came from imports. Their estimated worth was almost € 750 billion. [3] 

In my study, I am looking for the answer whether a high level of protection of the health and physical integrity of consumers can be guaranteed in the internal market in the changed circumstances. Therefore, I review the changes and the latest achievements of the legal framework, that can be considered as milestones of market surveillance and product safety regulations.

Challenges to face by the market surveillance system

Weaknesses in market surveillance have already been pointed out by many actors in Europe, including consumer organizations, industries, the European Parliament and the European Commission, the reasons for that can be traced back mainly to the following factors and changes.

Supply chains have become very complex and manufacturers are often located outside the EU, while in many cases the importer – from a traditional context – cannot be identified. Consumers regularly buy products from third countries via the internet, so the products reach the consumers directly, thus evading the product conformity and import inspections of the customs authorities in most cases. It should be noted here, however, that the power (authority) and obligation to control exist in the same way if the product is delivered to the border control in the form of private consignment or a non-concentrated consignment, but random checks obviously cannot be as effective.

One of the structural weaknesses of the single market for goods is related to the enforcement of harmonized EU product safety rules. Even though there are extensive safety rules, there are still too many illegal and unsafe products on the market. These products pose a high risk to consumers. Another vulnerability factor of the system is that products that are not covered or only partially covered by harmonized EU product safety rules, such as furniture or certain construction industry products, are not subject to specific rules. These products can be considered safe in one Member State and are in conformity with the public interest, while in another Member State they could have difficulties in accessing the market. EU legislation has established risk-oriented and general product safety rules. Too many new types of products and safety risks are excluded from the scope of the GPSD (despite that its scope is designated in general), while specific rules cannot, by their nature, cover all risks (see the rules on the chemical composition of consumer products, rules on chemicals).

Recognizing the weaknesses of the European market surveillance system, as a possible solution the European Parliament and the Council of the European Union adopted on 20 June 2019 the  Regulation (EU) 2019/1020 on market surveillance and product conformity as part of a program (so-called "Goods Package") providing measures that can offer adequate solution to some of the problems detailed above. [4] The second proposal of the package aimed to review and facilitate the use of mutual recognition in the single market. [5]

The Goods Package for a new market surveillance regulation

The ‘Goods Package’ is a wider scope of legislative proposal aimed at ensuring that products entering the European Union (EU) single market are safe and in conformity with the public interests protected by EU legislation, such as the protection of health and safety in general, the occupational health and safety, the protection of consumers and the public safety.

The Market Surveillance Regulation aims to meet the challenges posed by global markets and complex supply chains, as well as the increase in online sales to end-users in the EU. In order to strengthen the current market surveillance system, the challenges posed by the EU, the cross-border e-commerce and online commerce should be addressed, joint activities of market surveillance authorities, other relevant authorities and organizations representing economic operators or consumers of several Member States should be encouraged, also, the digital exchange of information between the authorities, trade unions and the European Commission should be improved. In addition, the regulation aims to establish an EU product conformity network as a platform for coordination and cooperation between Member States' authorities and the Commission; also, it intends to work closely with customs authorities to control products from outside the EU more effectively.

The focus on the entire supply chain

One of the most important results of the Market Surveillance Regulation is that it pays special attention to economic operators. With this, it is aimed to provide an adequate response to a phenomenon, namely products sold online, which has become impenetrable, contingent or even unidentifiable. The effectiveness of the market surveillance system is also significantly hampered by the fact that, as a result of direct sales to consumers, importers can no longer be identified in the classical sense and the consumer cannot be expected to comply with European legislation.

Under the Market Surveillance Regulation, the products covered can only be placed on the market if the underlying economic operator established in the EU can be identified. The economic operator shall be responsible for ensuring that the conformity documentation is available, shall cooperate with the market surveillance authorities and inform the authorities if there are grounds for believing that a product presents a risk. For the purposes of the Market Surveillance Regulation, an economic operator shall be a manufacturer established in the EU, an importer if the manufacturer is not established in the EU, an authorized representative of the manufacturer with a written mandate to act on behalf of the manufacturer; or in all other cases, Fulfillment service providers (FSPs) established in the EU, if there is no other economic operator established in the EU. The purpose of the Regulation is, inter alia, to apply the EU law to all economic operators involved in the supply and distribution chain in accordance with the extent of their intervention or participation.

The nature of liability extended to fulfilment service providers

Traditionally, economic operators, such as the manufacturer of the goods, the importer (if the manufacturer is not established in the EU) or the authorized representative, are responsible for placing the products on the EU market. However, there is an increasing number of economic operators who sell directly to consumers through e-commerce. Fulfilment service providers that perform the same functions as importers, but which do not always meet the traditional definition of importers in EU law, are now covered by the legislation. With the development of direct sales and online commerce, consumers may become 'importers' within the EU, but at the same time these consumers are clearly unable to ensure that products entering the EU comply with EU legislation. This is precisely why the legislator has extended the definition of economic operator in the Market Surveillance Regulation to fulfilment service providers who provide at least two of the warehousing, packaging, addressing and dispatch services without owning the products in question. Exceptions to this are postal services; parcel delivery services; and any other postal or freight services.

The Market Surveillance Regulation considers that a product offered for sale online or through other means of distance sales, should be considered to have been made available on the market if the offer for sale is targeted at end users in the Union, thus, if the relevant economic operator directs, by any means, its activities to a Member State

For the case-by-case analyses, relevant factors, such as the geographical areas to which dispatch is possible, the languages available, used for the offer or for ordering, or means of payment, need to be taken into consideration. In the case of online sales, the mere fact that the economic operators' or the intermediaries' website is accessible in the Member State in which the end user is established or domiciled is insufficient.

Stricter market surveillance powers

The Market Surveillance Regulation confers enhanced powers on national market surveillance authorities to ensure compliance with EU law for products purchased both in the online and offline market. Access to information is essential for the exercise of effective market surveillance powers. Under the Regulation, economic operators are obliged to provide relevant data or information to market surveillance authorities on compliance and technical aspects of the product, on the supply chain, on the structure and actors of the distribution network, on quantities of products on the market, online sales platforms and relevant information for the purpose of ascertaining the ownership of websites.

One of the biggest innovations of the Regulation, in addition to redefining the chain of responsibility, is the creation of an effective system of sanctions. The legislator envisages that, in the event of a serious risk, market surveillance authorities would have the right to require the removal of related product content from online interfaces or to oblige the economic operator to explicitly display a warning on its online interfaces. When such a request is not observed, the relevant authority should have the power to require information society service providers to restrict access to the online interface

What should be the next step?

In addition to the issues outlined in the study, a number of emerging product types are forcing the expansion of the traditional conceptual framework. More and more consumer goods such as cars, baby monitors, refrigerators and toys that are on the market can connect to the internet (Internet of things). Although these products offer several new services and greater convenience to consumers (even if connection to the internet is not a prerequisite for their operation), research shows that there may be a number of problems with their operation and use. In fact, it can endanger the health and physical integrity of consumers or violate their privacy. At the same time, it should be noted that the general safety of these products is subject to product safety rules, however, there are no compliance standards for new types of risks and hazards.

Nowadays, long-distance cruise control, blind spot/lane/traffic sign detection systems keep the car with minimal intervention on the road and also brake in an emergency instead of the driver. In smart homes, personal assistant programs help with life. But neither the car’s sensors nor the assistants are able to work without error yet. The role of algorithm-based decision-making will increase in the future and have an increasing impact on the lives of consumers, raising the issues of information self-determination, sovereign decision-making, including the regulation of the new type of product compliance.

Most of the provisions of the Market Surveillance Regulation will apply from 16 July 2021, so companies distributing products on the EU market that are covered by EU harmonization legislation shall be prepared to apply the rules, including the designation of a responsible representative.

 

Author: Dr. Zsolt Hajnal, assistant professor, University of Debrecen, Faculty of Law

The study was made under the scope of the Ministry of Justice’s program on strengthening the quality of legal education.

[1] V. Jadhav & M. Khanna, “Factors Influencing Online Buying Behavior of College Students: A Qualitative Analysis”, The Qualitative Report 2016, Vol. 21, No.1, 2016, pp.1-15

[2] V. J Massad and K. Berardelli, “The Roles of Bounded Rationality and Ethical Self-efficacy in Online Shopping Orientation”, Academy of Marketing Studies Journal, Vol. 20, No.3, 2016, pp. 26-37

[3] SWD(2017)466.

[4][4] Regulation (EU) 2019/1020 of the European Parliament and of the Council of 20 June 2019 on market surveillance and compliance of products and amending Directive 2004/42/EC and Regulations (EC) No 765/2008 and (EU) No 305/2011. OJ L 169, 25.6.2019, p. 1–44

[5] Regulation (EU) 2019/515 of the European Parliament and of the Council of 19 March 2019 on the mutual recognition of goods lawfully marketed in another Member State and repealing Regulation (EC) No 764/2008 OJ L 91, 29.3.2019, p. 1–18

 

 

Kategória: TradeEuropean UnionBrexit Eng: Fogyasztóvédelem: Consumer Protection: 16th Anniversary: 
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ECJ: Hungary’s restrictions on the foreign funding of civil organisations do not comply with EU law

3 hónap ago

In its judgment in Case C-78/18 Commission v Hungary, delivered on 18 June 2020, the European Court of Justice condemned Hungary for its 2017 adoption of the “Transparency Law”[1] which imposed an obligation on civil organisations to register as “organisations in receipt of support from abroad” if the yearly sum of the donations they received from abroad (including both other Member States and third countries) exceeded a certain threshold and to publicly disclose the donations received, including the name, the country and the city of residence (or in the case of legal persons, the registered office) of the donors whose donations reached HUF 500,000 (around €1400). This information was then published on a freely accessible electronic platform.

The Commission, following a pre-litigation procedure that included the issuance of a letter of formal notice and a reasoned opinion, brought an action for failure to fulfil obligations before the ECJ against Hungary, claiming that the Transparency Law infringed on both Article 63 of the Treaty on the Functioning of the European Union (TFEU) concerning the free movement of capital and on Articles 7, 8 and 12 of the Charter of Fundamental Rights of the European Union, concerning, respectively, the right to respect for private and family life, the right to the protection of personal data and the freedom of association. Hungary claimed that the action of the Commission must be dismissed as inadmissible due to the Commission’s unlawful conduct during the pre-litigation stage, namely the requirement that Hungary submit its comments on the letter of formal notice and then on the reasoned opinion within a period of one month, instead of that of two months normally applied in pre-litigation procedures.

The Court of Justice dismissed Hungary’s argument, noting that the short time limits of the pre-litigation procedure can only lead to the inadmissibility of the subsequent action if the Commission’s conduct provably made it more difficult for the member state concerned to refute the complaints raised in the case. In this case, however, Hungary couldn’t prove such conduct, especially since the Commission accepted – and duly took into consideration – comments submitted by Hungary’s on the formal letter and the reasoned opinion several weeks after the original one-month deadline had passed.

On the substance of the case, the Court first examined whether Hungary’s conduct constituted an unjustified restriction on the free movement of capital enshrined in Article 63 TFEU. The Court held that the transactions covered by the Transparency Law fell within the scope of Article 63’s concept of ‘movements of capital’ and that the law in question does indeed constitute a restrictive measure of a discriminatory nature, as it establishes a difference in treatment between domestic and cross-border movements of capital which does not correspond to any objective difference in the situations at issue and which is apt to deter natural or legal persons established in other Member States or third countries from providing financial support to the organisations concerned. The obligations of registration, declaration and publication and the penalties for failing to comply are meant to create a climate of distrust with regard to the organisations in receipt of support. The public disclosure of information on persons established in other Member States or in third countries providing financial support to these organisations is also such as to deter them from providing such support.

On the question of the possible justification of this restriction, Hungary argued that the law is justified both by an overriding reason in the public interest, specifically the objective of increasing the transparency of financial support received by civil society organisations that have a significant influence on public life, and on the grounds of public policy and public security mentioned in Article 65(1)(b) TFEU, as a measure in the fight against money-laundering, the financing of terrorism and organised crime. Considering the first argument, the Court held that, while increasing the transparency of the financing of organisations may indeed be considered a legitimate justification, Hungary had not demonstrated why this objective warrants the restrictive measures implemented by the Transparency Law, especially since they apply indiscriminately to all the organisations which fall within the scope of that law, instead of targeting only those that are genuinely likely to have a significant influence on public life and public debate. On the second argument, the Court noted that the grounds of public policy and public security may only be relied on if there is a genuine, present and sufficiently serious threat to a fundamental interest of society; Hungary, however, had not submitted any argument proving the existence of such a threat and instead based the Transparency Law on a presumption made on principle and indiscriminately that any financial support of civil organisations that is sent from abroad and the organisations in receipt of such support are intrinsically suspect. Consequently, the Court concluded that the restrictions were not justified and therefore that Hungary had failed to fulfil its obligations under Article 63 TFEU.

The Court of Justice then examined whether the provisions of the Transparency Law constituted a limitation of the rights enshrined in Articles 7, 8 and 12 of the Charter. As regards the right to freedom of association (Article 12(1)), the Court pointed out that it constitutes one of the essential bases of a democratic and pluralist society, inasmuch as it allows citizens to act collectively in fields of mutual interest and in doing so to contribute to the proper functioning of public life. In the present case, the Court found that the obligations put in place by the provisions of the Transparency Law limited that right, inasmuch as they rendered significantly more difficult the action and the operation of the associations which are subject to them.

As regards the right to respect for private and family life (Article 7), the Court referred to the interpretation given by the ECHR, according to which this right compels public authorities to refrain from any unjustified interference in the private and family life of persons and in the relations between them. On the right to protection of personal data (Article 8(1)), the Court noted that it precludes information in relation to identified or identifiable natural persons from being disseminated to third parties, whether that be public authorities or the general public, unless that dissemination takes place in the context of fair processing that meets the requirements of Article 8(2). The Court observed that, in the present case, the obligations of declaration and of publication provided for by the Transparency Law constituted a limitation of both of these interconnected rights, especially since Hungary had not submitted that the provisions laying down those obligations met the requirements of fair processing.

Addressing, lastly, the issue of the potential justification of the limitations to fundamental rights, the Court observed that the provisions of the Transparency Law could not be justified by any of the objectives of general interest – that is, the objectives of transparency and the safeguarding of public policy and public security – which Hungary relied upon.

In the light of these considerations, the Court concluded that, by adopting the provisions of the Transparency Law which impose obligations of registration, declaration and publication on civil society organisations directly or indirectly receiving support from abroad exceeding a certain threshold and which provide for the possibility of applying penalties to organisations that do not comply with those obligations, Hungary has introduced discriminatory and unjustified restrictions in breach of its obligations under Article 63 TFEU and Articles 7, 8 and 12 of the Charter.

[1]Law No LXXVI of 2017 on the Transparency of Organisations which receive Support from Abroad

Kategória: European UnionCivil Society OrganisationsBrexit Eng: Fogyasztóvédelem: Consumer Protection: 16th Anniversary: 
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