EXCLUSIVE / An EU infringement procedure launched against Hungary about a law that regulates pharmacies has been unjustifiably stalled for more than two years, raising concerns among foreign investors.
In 2010, Hungary’s Fidesz-led government decided to amend a law that regulates the operation of pharmacies. The amended “Gyftv” law, in particular, required pharmacists, who are basically Hungarians, to become the majority shareholders of the pharmacies they work in.
In addition to that, another regulation prevented investors from holding shares in more than four pharmacies, which blocked any expansion of pharmacy chains in the market. Approximately 40% of existing pharmacy chains belong to investors from other EU member states.
Budapest’s move triggered the reaction of foreign investors, who claimed that the new regulations violated the EU single market rules and pose a threat to the liberalisation of the sector which started in 2006.
There are also fears that it could set a precedent and create spill-over effects in other EU pharmaceutical markets.
For several years, Hungarian Prime Minister Viktor Orbán has kept “surprising” Western investors with exotic new laws.
In 2014, the European Commission initiated an infringement process against Hungary over the operation of pharmacies by sending a letter of formal notice. Later that year, the Hungarian government replied but the EU executive found the reply insufficient.
But for more than two years there has been no progress in the case and the infringement procedure cannot move to the next stage, the so-called “reasoned opinion”.
The Hungarian narrative
The Hungarian government based its decision on the fact that the liberalisation of the sector created 400 more pharmacies in Hungary but this has not improved the supply of medicinal products in the countryside and in the most disadvantaged regions. It, therefore, believes that family-owned pharmacies should return especially in those areas.
Hungarian diplomatic sources told euractiv.com yesterday (20 March) that the government introduced the requirement of majority pharmacist ownership in pharmacies as “this is the only guarantee to ensure that professional and ethical considerations prevail in the course of pharmacy operation”.
“The requirement of majority pharmacist ownership had been recognised as necessary and proportionate measure by the European Court of Justice in its judgement brought in Cases C-171/07,C-172/07 Apothekerkammer des Saarlandes,” the sources added.
The Court decision recognises that restrictions on freedom of establishment that are applicable without discrimination on grounds of nationality “may be justified by overriding reasons in the general interest, provided that the restrictions are appropriate for securing attainment of the objective pursued and do not go beyond what is necessary for attaining that objective”.
“The protection of public health is one of the overriding reasons in the general interest which can justify restrictions on the freedoms of movement guaranteed by the Treaty such as the freedom of establishment,” the Court noted.
A two-year delay
According to a Commission Staff Working document, the amendments to the Gyftv law limit foreign investors’ presence on the market with a compulsory sell-off of their stake and can further harm investor confidence.
“These amendments seem unjustified, and may cause the end of pharmacy chains in Hungary and increase product costs […] they are also discriminatory towards foreign companies, as most chains are owned by foreign investors (the law suggests keeping medicine supplies ‘within national interest’),” the paper reads.
Asked by EURACTIV why the advancement of the infringement process has been delayed so much, a European Commission official declined to provide any comment on the grounds that the case it is still ongoing, irrespective of the length of the investigation.
Karolina Kóródi, president of the association of Hungarian Pharmacy Network Operators (HGYSZ), insisted that the government’s justifications for the amendments were groundless.
“The alleged problems that were used to justify the introduction of the restrictive measures in 2010 have proven to be non-existent and/or not related to pharmacy chains,” she told EURACTIV.
“At the same time, the Hungarian government has not made any effort since 2010 to solve the real problems affecting the security of pharmaceutical supply and public health,” she added.