DISPUTE SETTLEMENT

DS: Turkey — Certain Measures concerning the Production, Importation and Marketing of Pharmaceutical Products

This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

  

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Summary of the dispute to date

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Consultations

Complaint by the European Union

On 2 April 2019, the European Union requested consultations with Turkey regarding various measures concerning the production, importation and marketing of pharmaceutical products. The measures identified by the European Union include the following alleged acts: a localisation requirement, a technology transfer requirement, an import ban on localised products, and a prioritization measure.

The European Union claimed that:

  • The localisation requirement and the prioritization measure appear to be inconsistent with Article III:4 of the GATT 1994.
     
  • The localisation requirement, the technology transfer requirement, and the prioritization measure appear to be inconsistent with Articles X:1 and X:3(a) of the GATT 1994.
     
  • All four categories of challenged measures appear to be inconsistent with Article X:2 of the GATT 1994.
     
  • The import ban on localised products appears to be inconsistent with Article XI:1 of the GATT 1994.
     
  • The localisation requirement appears to be inconsistent with Article 2.1 of the TRIMS Agreement and Article 3.1(b) of the SCM Agreement.
     
  • The technology transfer requirement appears to be inconsistent with Articles 3.1, 27.1, 28.2, 39.1 and 39.2 of the TRIPS Agreement.

The European Union submitted, together with its consultations request, a statement of available evidence pursuant to Article 4.2 of the SCM Agreement.

On 18 April 2019, the United States requested to join the consultations.

 

Panel and Appellate Body proceedings

On 2 August 2019, the European Union requested the establishment of a Panel. At its meeting on 15 August 2019, the DSB deferred the establishment of a panel.

At its meeting on 30 September 2019, the DSB established a panel. Brazil, Canada, China, India, Indonesia, Japan, the Russian Federation, Switzerland, Ukraine and the United States reserved their third-party rights.

On 4 March 2020, the European Union requested the Director-General to compose the panel. On 17 March 2020, the Director-General composed the panel.

On 15 September 2020, the Chair of the panel informed the DSB that due to the delays caused by the global COVID-19 pandemic, the panel did not expect to issue its final report to the parties before the second half of 2021. The Chair apprised the DSB that the report would be available to the public once it was circulated to the Members in all three official languages, and that the date of circulation depended on completion of translation.

The confidential final report was issued to the parties on 11 November 2021, and the panel informed the parties that circulation of the report was expected in mid-January 2022. On 22 December 2021, the Chair of the panel informed the DSB that the panel had granted the European Union's request of 20 December 2021, to which Turkey indicated that it did not object on the same day, that the panel suspend its work pursuant to Article 12.12 of the DSU until and including 21 January 2022. The Chair of the panel informed the DSB on 21 January 2022, 10 February 2022 and 24 February 2022 that the panel had granted the European Union’s subsequent requests for extensions of the suspension of the panel’s work.

On 22 March 2022, the parties jointly communicated to the panel and to the DSB that they had agreed on procedures for arbitration under Article 25 of the DSU. Through these agreed procedures, the European Union and Turkey jointly requested the Panel to suspend its work indefinitely pursuant to Article 12.12 of the DSU, except to the extent necessary to effect certain joint requests of the parties. The Panel accepted this request.

Moreover, the parties requested the panel to transmit the final report to the parties and third parties, without circulating it, and to allow the parties to disclose the report if they resorted to arbitration under Article 25 in accordance with their agreed procedures. The panel granted the parties' requests. It therefore transmitted its report to the parties and third parties, and agreed that the report would no longer be confidential if the parties resorted to arbitration under Article 25 in accordance with their agreed procedures. 

 

Arbitration under Article 25 of the DSU

In the agreed procedures for arbitration under Article 25 of the DSU , the parties indicated that they had mutually agreed pursuant to Article 25.2 of the DSU “to enter into arbitration under Article 25 of the DSU to decide any appeal from any final report as issued to the parties in dispute DS583.”

 

On 25 April 2022, Turkey filed a notice of recourse to Article 25 under those agreed procedures. In their agreed procedures, the parties refer to this notice as a Notice of Appeal. This notice was circulated to the DSB on 28 April 2022. The notice includes the full text of the report transmitted by the panel to the parties, which is thereby made public even though it has not been circulated by the panel for the purposes of Article 16 of the DSU. The following is a summary of the panel report as included in Turkey’s notice of recourse to Article 25:

The European Union challenged three measures, which it described as follows:

  1. a “localisation requirement” whereby Turkey requires foreign producers to commit to localise in Turkey their production of certain pharmaceutical products and if such commitments are not given, are not accepted by Turkish authorities, or are not fulfilled, the pharmaceutical products concerned are excluded from the scheme for the reimbursement of the pharmaceutical products sold by pharmacies to patients operated by Turkey's social security system;
  2. an “import ban on localised products”, which is the localisation requirement applied in conjunction with certain rules for approving the importation and marketing of pharmaceutical products; and
  3. a “prioritization measure” whereby Turkey gives priority to the review of applications for inclusion of domestic pharmaceutical products in the list of products covered by the reimbursement scheme, as well as with respect to any pricing and licensing policies and processes, over the review of the applications of like imported products.

With respect to the localisation requirement:

  1. the Panel rejected Turkey's argument that the European Union had failed to establish the “existence” and “precise content” of the localisation requirement as a single and cohesive measure;
  2. the Panel rejected Turkey's argument that, because the government pays the price of pharmaceutical products in Turkey, the challenged measure involves a governmental “purchase” of products covered by the “government procurement” derogation in Article III:8(a) of the GATT 1994;
  3. the Panel upheld the European Unions' claim that the localisation requirement is inconsistent with the national treatment obligation in Article III:4 of the GATT 1994 because it is designed to create a financial incentive for consumers to select domestically produced pharmaceutical products (the cost of which is mostly borne by the government) over imported pharmaceutical products (which over time will cease to be paid for by the government), and thus accords “less favourable treatment” to those imported pharmaceutical products;
  4. the Panel rejected Turkey's affirmative defence that the localisation requirement is designed to ensure an uninterrupted access to safe, effective and affordable medicines for the Turkish population, and thus falls within the range of policies to protect human life and health covered by the general exception in Article XX(b) of the GATT 1994;
  5. the Panel rejected Turkey's affirmative defence that the localisation requirement is, for similar reasons, a measure necessary to secure its compliance with certain laws and regulations requiring Turkey to ensure accessible, effective and financially sustainable healthcare within the meaning of Article XX(d) of the GATT 1994;
  6. in the light of these findings, the Panel declined to rule on the European Union's alternative and conditional claim under Article 3.1(b) of the SCM Agreement; and
  7. the Panel likewise exercised judicial economy over the European Union's additional claims under Article 2.1 of the TRIMs Agreement and Article X:1 of the GATT 1994.

In the light of these findings on the localisation requirement, the Panel exercised judicial economy over the European Union's claim that the localisation requirement applied in conjunction with the Turkish rules for approving the importation and marketing of pharmaceutical products (referred to by the European Union as the “import ban on localised products”) is inconsistent with Article XI:1 of the GATT 1994.

With respect to the prioritization measure:

  1. the Panel rejected Turkey's argument that the European Union failed to establish the existence of an overarching “prioritization measure” as defined by the European Union; and
  2. upheld the European Union's claim that the prioritization measure is inconsistent with Article III:4 of the GATT 1994.

On 28 April 2022, the Arbitrator was composed.

On 21 July 2022, the Arbitrators' Award was issued to the parties. On 25 July 2022, in accordance with Article 25.3 of the DSU, the Award was notified to the Dispute Settlement Body, the Council for Trade in Goods, the Committee on Subsidies and Countervailing Measures, and the Committee on Trade-Related Investment Measures.

In the Arbitration, Türkiye challenged the Panel's findings pertaining to the localisation requirement under Articles III:4, III:8(a), XX(b), and XX(d) of the GATT 1994.

With respect to Articles III:4 and III:8(a) of the GATT 1994:

  • The Arbitrators considered that, under Article III:8(a), “procurement by governmental agencies of products purchased for governmental purposes” would typically involve the procurement of products through a purchase by a governmental agency. However, Article III:8(a) does not contain an unequivocal requirement to that effect. The Arbitrators did not foreclose the possibility that, in certain circumstances, the relevant purchase transaction may be entered into by a non-governmental entity so long as the products are procured by a governmental agency and procurement is of products purchased for governmental purposes. The Arbitrators therefore found that the Panel erred in considering, as a starting point for its analysis, that Article III:8(a) required a purchase by governmental agencies.
  • The Arbitrators concluded that, in this case, there is no procurement by a governmental agency of pharmaceutical products.
  • The Arbitrators upheld, albeit for different reasons, the Panel's finding that the localisation requirement is not covered by the government procurement derogation in Article III:8(a), and is therefore subject to the national treatment obligation in Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement. The Arbitrators found that the Panel's finding that the localisation requirement is inconsistent with the national treatment obligation in Article III:4 of the GATT 1994 remains undisturbed.

With respect to Articles XX(b) and XX(d) of the GATT 1994:

  • The Arbitrators did not consider that the Panel erred in its interpretation of Article XX(b). In particular, the Panel did not erroneously confuse the “design” and the “necessity” steps of the legal analysis. The Panel also did not set out a legal standard requiring a substantial degree of probability of risk for assessing whether a measure has been taken to protect human, animal, or plant life or health, nor did the Panel introduce any quantitative dimension to the notion of risk to human life or health that unduly limited the range of public health measures that fall within the scope of Article XX(b). To the extent that they found no reversible error in the Panel's interpretation, and taking into account the nature of Türkiye's application claims, the Arbitrators considered that Türkiye failed to establish that the Panel erred in its application of Article XX(b). The Arbitrators also rejected Türkiye's claims under Article 11 of the DSU.
  • In light of the manner in which Türkiye articulated its justification for the localisation requirement under Article XX(d), the Arbitrators considered that it did not constitute legal error for the Panel to have extended elements of its assessment under Article XX(b) mutatis mutandis to the analysis of Türkiye's defence under Article XX(d).
  • The Arbitrators upheld the Panel's finding that Türkiye has not established that the localisation requirement is justified under Article XX(b) or XX(d) of the GATT 1994.

The Arbitrators recalled that, pursuant to the Agreed Procedures, the findings of the Panel that were not challenged in the context of the Arbitration are deemed to form an integral part of the Award. The Arbitrators recommended that Türkiye bring into conformity with its obligations under the GATT 1994 its measures that were found to be inconsistent in this Award and in the Panel Report as modified by this Award.

In the agreed procedures for arbitration under Article 25 of the DSU, the parties agreed to “abide by the arbitration award, which shall be final”.

 

Reasonable period of time

On 18 August 2022, Türkiye informed the DSB that it intended to implement the recommendations and rulings of the arbitrators and the panel in this dispute in a manner that respects its WTO obligations and that it would need a reasonable period of time to do so.

 

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