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In the World Trade Organization
Panel Proceedings
Turkey — Certain Measures concerning the Production, Importation and
Marketing of Pharmaceutical Products
(DS583)
First Written Submission
by the European Union
Geneva, 19 May 2020
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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TABLE OF CONTENTS
1. Introduction ................................................................................................... 1
2. The Localisation Requirement ........................................................................ 2
2.1. Introduction .......................................................................................................... 2
2.2. Factual background ............................................................................................. 3
2.2.1. The distribution of pharmaceutical products in Turkey and the reimbursement system ........................................................ 3
2.2.2. The Localisation Requirement ............................................. 12
2.2.2.1 General features and objectives ........................... 12
2.2.2.2 The Localisation Requirement is a single and cohesive measure ................................................. 18
2.2.2.3 Institutional set-up .............................................. 21
2.2.2.4 The process and “phases” of localisation ............. 24
2.2.2.5 The implementation of the Localisation Requirement in general ........................................ 36
2.2.2.6 Evidence of the implementation of the various phases of the Localisation Requirement ............... 40
2.2.2.7 Evidence on the application of the Localisation Requirement to individual companies .................. 48
2.3. The Localisation Requirement is inconsistent with Article III:4 of the
GATT 1994 ................................................................................................ 52
2.3.1. The domestic and imported products at issue are “like” .......... 52
2.3.2. The Localisation Requirement is a law, regulation, or requirement affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of products ....... 54
2.3.3. The Localisation Requirement accords less favourable treatment to imported like products ................................................... 57
2.4. The Localisation Requirement is not protected by Article III:8(a) of
the GATT 1994 ........................................................................................ 59
2.4.1. The Localisation Requirement is not a “law, regulation or requirement governing procurement” .................................. 60
2.4.2. The Localisation Requirement does not involve the purchase of products by governmental agencies ..................................... 64
2.4.3. The Localisation Requirement does not involve any procurement or purchase “for governmental purposes” ............................. 66
2.4.4. Even if procurement and purchase by governmental agencies for governmental purposes was involved, it would be “with a view to commercial resale” ................................................. 68
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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2.5. The Localisation Requirement is inconsistent with Article X:1 of the
GATT 1994 ................................................................................................ 70
2.5.1. The Localisation Requirement falls within the concept of "laws, regulations, judicial decisions and administrative rulings" ....... 71
2.5.2. The Localisation Requirement pertains to “requirements on imports, or affecting the sale of imports” .............................. 73
2.5.3. The Localisation Requirement was “made effective” by Turkey 73
2.5.4. A number of elements of the Localisation Requirement were not published promptly in such a manner as to enable governments and traders to become acquainted with them ........................ 74
2.5.5. The failure to publish is not justified by confidentiality ........... 77
2.5.6. Conclusion on Article X:1.................................................... 77
2.6. The Localisation Requirement is inconsistent with Article 2.1 of the
TRIMs Agreement .................................................................................. 78
2.6.1. Legal Standard .................................................................. 78
2.6.2. The Localisation Requirement is an “investment measure” ...... 78
2.6.3. The Localisation Requirement is “related to trade in goods” .... 80
2.6.4. The Localisation Requirement is inconsistent with Article III:4 of the GATT 1994 .................................................................. 81
2.6.5. Conclusion ........................................................................ 81
2.7. The Localisation Requirement is inconsistent with Article 3.1(b) of the
SCM Agreement ...................................................................................... 81
2.7.1. Legal standard .................................................................. 81
2.7.2. Financial contribution ......................................................... 83
2.7.3. Benefit 84
2.7.4. Contingency upon the use of domestic over imported goods ... 85
2.7.5. Specificity ........................................................................ 85
2.7.6. Conclusion ........................................................................ 86
3. The Import Ban on localised products and the Prioritisation Measure .......... 86
3.1. The Import Ban measure ................................................................................. 86
3.2. The Prioritization Measure ............................................................................... 90
3.3. The Import Ban is inconsistent with Article XI:1 of the GATT 1994 ..... 96
3.4. The Prioritization Measure is inconsistent with Article III:4 of the
GATT 1994 ................................................................................................ 99
3.4.1. The domestic and imported products at issue are “like products”99
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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3.4.2. The Prioritization Measure is a law, regulation, or requirement affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of products .................... 100
3.4.3. The Prioritization Measure accords less favourable treatment to imported like products ..................................................... 101
4. Conclusions ................................................................................................ 103
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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TABLE OF CASES CITED
Short Title Full Case Title and Citation Argentina – Financial Services
Panel Report, Argentina – Measures Relating to Trade in Goods and Services, WT/DS453/R and Add.1, adopted 9 May 2016, as modified by Appellate Body Report WT/DS453/AB/R, DSR 2016:II, p. 599
Argentina –Import Measures
Appellate Body Reports, Argentina – Measures Affecting the Importation of Goods, WT/DS438/AB/R / WT/DS444/AB/R / WT/DS445/AB/R, adopted 26 January 2015, DSR 2015:II, p. 579
Argentina –Import Measures
Panel Reports, Argentina – Measures Affecting the Importation of Goods, WT/DS438/R and Add.1 / WT/DS444/R and Add.1 / WT/DS445/R and Add.1, adopted 26 January 2015, as modified (WT/DS438/R) and upheld (WT/DS444/R / WT/DS445/R) by Appellate Body Reports WT/DS438/AB/R / WT/DS444/AB/R / WT/DS445/AB/R, DSR 2015:II, p. 783
Brazil – Aircraft (Article 21.5 – Canada II)
Panel Report, Brazil – Export Financing Programme for Aircraft – Second Recourse by Canada to Article 21.5 of the DSU, WT/DS46/RW2, adopted 23 August 2001, DSR 2001:X, p. 5481
Brazil – Taxation Panel Reports, Brazil – Certain Measures Concerning Taxation and Charges, WT/DS472/R, Add.1 and Corr.1 / WT/DS497/R, Add.1 and Corr.1, adopted 11 January 2019, as modified by Appellate Body Reports WT/DS472/AB/R / WT/DS497/AB/R
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate Body Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, p. 3043
Canada – Renewable Energy / Canada – Feed-in Tariff Program
Appellate Body Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013, DSR 2013:I, p. 7
Canada – Renewable Energy / Canada – Feed-in Tariff Program
Panel Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/R and Add.1 / WT/DS426/R and Add.1, adopted 24 May 2013, as modified by Appellate Body Reports WT/DS412/AB/R / WT/DS426/AB/R, DSR 2013:I, p. 237
Canada – Wheat Exports and Grain Imports
Panel Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain, WT/DS276/R, adopted 27 September 2004, upheld by Appellate Body Report WT/DS276/AB/R, DSR 2004:VI, p. 2817
Chile – Price Band System
Panel Report, Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/R, adopted 23 October 2002, as modified by Appellate Body Report WT/DS207AB/R, DSR 2002:VIII, p. 3127
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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China –Auto Parts Panel Reports, China – Measures Affecting Imports of Automobile Parts, WT/DS339/R, Add.1 and Add.2 / WT/DS340/R, Add.1 and Add.2 / WT/DS342/R, Add.1 and Add.2, adopted 12 January 2009, upheld (WT/DS339/R) and as modified (WT/DS340/R / WT/DS342/R) by Appellate Body Reports WT/DS339/AB/R / WT/DS340/AB/R / WT/DS342/AB/R, DSR 2009:I, p. 119
China – Publications and Audiovisual Products
Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R, adopted 19 January 2010, DSR 2010:I, p. 3
China – Publications and AudIovisual Products
Panel Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/R and Corr.1, adopted 19 January 2010, as modified by Appellate Body Report WT/DS363/AB/R, DSR 2010:II, p. 261
China – Raw Materials Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, adopted 22 February 2012, DSR 2012:VII, p. 3295
Dominican Republic – Import and Sale of Cigarettes
Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R, adopted 19 May 2005, DSR 2005:XV, p. 7367
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, p. 591
EC – Bananas III (US) Panel Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, Complaint by the United States, WT/DS27/R/USA, adopted 25 September 1997, as modified by Appellate Body Report WT/DS27/AB/R, DSR 1997:II, p. 943
EC – IT Products Panel Reports, European Communities and its member States – Tariff Treatment of Certain Information Technology Products, WT/DS375/R / WT/DS376/R / WT/DS377/R, adopted 21 September 2010, DSR 2010:III, p. 933
EC - Seal Products Appellate Body Reports, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R / WT/DS401/AB/R, adopted 18 June 2014, DSR 2014:I, p. 7
EU – Footwear (China) Panel Report, European Union – Anti-Dumping Measures on Certain Footwear from China, WT/DS405/R, adopted 22 February 2012, DSR 2012:IX, p. 4585
India – Autos Panel Report, India – Measures Affecting the Automotive Sector, WT/DS146/R, WT/DS175/R, and Corr.1, adopted 5 April 2002, DSR 2002:V, p. 1827
India – Solar Cells Appellate Body Report, India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/AB/R and Add.1, adopted 14 October 2016, DSR 2016:IV, p. 1827
India – Solar Cells Panel Report, India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/R and Add.1, adopted 14
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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October 2016, as modified by Appellate Body Report WT/DS456/AB/R, DSR 2016:IV, p. 1941
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Corr.1 and Corr.2, adopted 23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201
Japan – Alcoholic Beverages II
Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, p. 97
Japan – Film Panel Report, Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, p. 1179
Korea – Various Measures on Beef
Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, p. 5
Thailand – Cigarettes (Philippines)
Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines, WT/DS371/AB/R, adopted 15 July 2011, DSR 2011:IV, p. 2203
Turkey – Rice Panel Report, Turkey – Measures Affecting the Importation of Rice, WT/DS334/R, adopted 22 October 2007, DSR 2007:VI, p. 2151
US – Clove Cigarettes Appellate Body Report, United States – Measures Affecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R, adopted 24 April 2012, DSR 2012:XI, p. 5751
US – COOL Panel Reports, United States – Certain Country of Origin Labelling (COOL) Requirements, WT/DS384/R / WT/DS386/R, adopted 23 July 2012, as modified by Appellate Body Reports WT/DS384/AB/R / WT/DS386/AB/R, DSR 2012:VI, p. 2745
US – Countervailing and Anti – Dumping (China)
Panel Report, United States – Countervailing and Anti-Dumping Measures on Certain Products from China, WT/DS449/R and Add.1, adopted 22 July 2014, as modified by Appellate Body Report WT/DS449/AB/R, DSR 2014:VIII, p. 3175
US – FSC (Article 21.5) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, p.55
US – FSC (Article 21.5 – EC)
Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, p. 55
US – Large Civil Aircraft (2012)
Appellate Body Report, United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012, DSR 2012:I, p. 7
US – Renewable Energy Panel Report, United States – Certain Measures Relating to the Renewable Energy Sector, WT/DS510/R and Add.1, circulated to WTO Members 27 June 2019 [appealed by the United States 15 August 2019 – the Division suspended its
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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work on 10 December 2019] US – Section 337 Tariff Act
GATT Panel Report, United States Section 337 of the Tariff Act of 1930, L/6439, adopted 7 November 1989, BISD 36S/345
US – Wool Shirts and Blouses
Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and Corr.1, DSR 1997:I, p. 323
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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TABLE OF ABBREVIATIONS
Abbreviation Full Name
AIFD Association of Research-Based Pharmaceutical Companies
API Active Pharmaceutical Ingredients
ARC [Universal Health Insurance] Alternative Reimbursement Commission
BMG Austrian Federal Ministry of Health
DCR Domestic Content Requirement
DRC Drug Reimbursement Commission
EAHC Executive Agency for Health and Consumers
EU European Union
FIT Programme Feed-In Tariff Program
GATT 1994 General Agreement on Tariffs and Trade 1994
GMP Good Manufacturing Practices
HIN Health Implementation Notification/Communique
HISC Healthcare Industries Steering Committee
HMPPAC Human Medicinal Products Priority Assessment
HSPC Healthcare Services Pricing Commission
IES Pharmaceutical Industry Employers
IEIS Union of Employers in Pharmaceuticals Industry
IRH Implementing Regulation for Healthcare
MEAC/TEDK Medical and Economic Assessment Committee
MNE Multinational Enterprises
SCM Agreement Agreement on Subsidies and Countervailing Measures
SGK Social Security Institution
SSI Turkey’s Social Security Institution
SUT Sağlık Uygulama Tebliği (TR)
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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Abbreviation Full Name
TEB Turkish Pharmacists’ Association
TMMDA Turkish Medicines and Medical Devices Agency
TRIMs Agreement Agreement on Trade-Related Investment Measures
WHO World Health Organization
WTO World Trade Organization
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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TABLE OF EXHIBITS
Exhibit No.
Title
EU-1 The Social Insurance and Universal Health Insurance Law No.5510, enacted on 31 May 2006, published in the Official Journal No 26200 on 16 June 2006
EU-2 "Universal Heath Insurance", document published by the Social Security Institution (SSI)
EU-3 “Short PPRI Pharma Profile, Turkey 2017”, by Prof. Dr. Mehtap Tatar, WHO Collaborating Centre for Pharmaceutical Pricing and Reimbursement Policy
EU-4 Social Security Institution Law No 5502, enacted on 16 May 2006, published in the Official Journal on 20 May 2006, No 26173
EU-5 Presentation by Gulsen Oner, Pharm. M.Sc. and Melda Kecik, Pharm. M.Sc, “Turkish Medicines and Medical Devices Agency”, 2014 WHO Technical Briefing Seminar
EU-6
Pharmaceutical Health Information System, Turkey, PHIS Hospital Pharma Report, January 2010, report Commissioned by the European Commission, Executive Agency for Health and Consumers (EAHC) and the Austrian Federal Ministry of Health (BMG)
EU-7 "Turkey: Pharmaceutical Sector Analysis", by Assoc. Prof. Yusuf Celik and Dr. Andreas Seiter
EU-8 Social Security Institution Regulation on Drug Reimbursement, 10 February 2016
EU-9 Pharmaceutical Industry Employers Union (IEIS), Turkey Pharmaceutical Industry 2015 report
EU-10 "Pharmacy in Turkey: past, present and future", by H. Tekiner, 14 October 2013
EU-11 Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 11 February 2019
EU-12
The Tenth Development Plan 2014-2018, Republic of Turkey, Ministry of Development, Ankara 2014, approved by the of, Decision of the Grand National Assembly of Turkey on the approval of the Tenth Development Plan (2014-2018), Decision No. 1041 of 2 July 2013
EU-13 "Era of localisation in the Pharma sector", press article published in ITO HABER, 14 March 2017
EU-14 The Structural Transformation Program for Healthcare Industries Action Plan, 7 November 2014, coordinated by the Ministry of Health and Ministry of Development
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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Exhibit No.
Title
EU-15 "2016 Action Plan of the 64th Government (Implementation and Reforms)", 10 December 2015
EU-16 65th Government Programme
EU-17 Press article published in the Hürriyet Daily supplement of 5 April 2017, entitled "Localisation of Medicines Shift from Imports to Production"
EU-18 Press article published in Dunya, 19 April 2017, entitled “Localization will end the imports of pharmaceuticals worth TL 2.2 billion”
EU-19 Press article published in Dunya, "Foreign investments will be [like] medicine!", 30 July 2019
EU-20 Press article published in Milliyet, “Localization of TL 6.1 billion of drugs”, 28 August 2017
EU-21 Rejoinder by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical Companies (AIFD) before the Turkish State Council, Case 2017/1308, 21 September 2017
EU-22 Press article Published in Haber, ‘Localisation' move in industrial products’, 2 November 2017
EU-23 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017
EU-24 Press article published in Diken, entitled ‘The minister announced: 291 medicines will be produced in Turkey in the scope of ‘indigenization project’, 22 March 2018
EU-25 "Performance Program for 100 Days", 3 August 2018, by the Turkish President
EU-26 The New Economy Program, the Presidency Decision No. 108 on the New Economy Program for the period 2019-2021
EU-27 Press article published in Dunya, ‘Local plan in place for 20 imported biotechnical products’, 25 September 2018
EU-28 Letter from the EU Commissioner for Trade to the Minister of Economy of the Republic of Turkey, 5 April 2017
EU-29 Letter from the Minister of Economy of the Republic of Turkey to the EU Commissioner for Trade replying to the letter of 5 April 2017, dated 19 June 2017
EU-30 Defense by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017
EU-31 Circular of the Prime Ministry 2015/19 (2015 HISC Circular)
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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Exhibit No.
Title
EU-32 Circular of the Prime Ministry 2018/15
EU-33 Directive on the Working Principles and Procedures of the Health Industries Steering Committee of 13 January 2016
EU-34 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017
EU-35 HSPC Decision regarding the Localization Process, October 2016
EU-36 Regulation on the Working Procedures and Principles of the Social Security Institution Healthcare Services Pricing Commission, Official Gazette no 26979 of 23 August 2008
EU-37 Regulation amending the Regulation on the Working Procedures and Principles of the Social Security Institution Healthcare Services Pricing Commission, Official Gazette No 29620, 10 February 2016
EU-38 Social Security Institution Regulation on Alternative Reimbursement for Universal Health Insurance, published in the Official Gazette 29620 on 10 February 2016
EU-39 Circular 2018/1 from the Office of the Prime Minister, Official Gazette, 24 January 2018
EU-40 Presentation entitled "Local Production”, delivered at the Symposium on Rational Approach to Current Issues concerning Medicines, Ankara, 7-9 October 2016
EU-41 Minister of Health, 2019 Ministry of Health Budget Presentation, delivered on 13 November 2018
EU-42 Letter from the Permanent Delegation of Turkey to the European Union of 29 November 2018, no. B/225
EU-43 Communication from TMMDA to certain companies, entitled “The process in which new products were added to the second phase of localization”
EU-44 TMMDA’s communication to companies of 29 April 2016, entitled “Local production”
EU-45 Roadmap for the process of localization (Setting forth of the principles for the negotiation dated 14.03.2016)
EU-46 TMMDA and SSI communication to companies entitled “Local production”, announcing that commitments were not considered appropriate and that products would be deactivated as of 22 December 2017
EU-47 SSI Communication of 23 February 2016, with annexed list of pharmaceutical products
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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Exhibit No.
Title
EU-48 Announcement concerning the localisation process of 4 March 2016 by the TMMDA, the SSI and the Ministry of Health
EU-49 Announcement about the Localisation Process of 4 March 2016 by the TMMDA, the SSI and the Ministry of Health, as sent to certain companies
EU-50 TMMDA communication dated 10 March 2016, entitled “Localization”
EU-51 Excerpts from Annex 4/A to the IRH (Health Implementation Notification/Communiqué), as amended in December 2018
EU-52 Protocol on the procurement of medicines from pharmacies which are members of the Turkish Pharmacists’ Association (TEB) by persons covered by the Social Security Institution
EU-53 Regulation on the procedures and principles governing checking of invoices of healthcare providers and reimbursement of their fees, Official Gazette no. 30001 of 8 March 2017
EU-54 Press article, “Abdi İbrahim sector’s leader since 2003”
EU-55 “Local Production of Drugs in Turkey and its Transfer Pricing "Side" Effects”, article by Başak Diclehan of KPMG, 15 October 2017
EU-56 TMMDA Announcement on the Localisation Process of 5 April 2016
EU-57 Letter from the Delegation of the EU to Turkey to the General Director of the SSI and to the President of the TMMDA, 23 March 2016
EU-58 Letter from the Ministry of Health to the EU's Delegation to Turkey in reply to the letter from the Delegation of the EU, 20 April 2016
EU-59 SSI, Announcement on the Localisation Process of 8 February 2017, with annexed list of products
EU-60 SSI, Announcement on the Localisation Process of 16 February 2017
EU-61 SSI, Announcement on the Localisation Process of 25 April 2017 (Exhibit EU-61)
EU-62 SSI, Announcement on the Localisation Process of 19 January 2018, with annexed list of products
EU-63 SSI, Announcement on the Localisation Process of 16 May 2018, with annexed lists of products (Exhibit EU-63).
EU-64 Press article, “SSI has delisted 143 drugs…”, Evrensel, 15 August 2018
EU-65 TMMDA, communication to companies entitled “Concerning Phase 2 Localisation Operations”
EU-66 TMMDA communication from March 2018, entitled “Government Localization Process 2nd update on the 2nd phase” (Exhibit EU-66).
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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Exhibit No.
Title
EU-67 TMMDA communication of 4 April 2018, entitled “Localization Studies” (Exhibit EU-67).
EU-68 TMMDA communication circulated in March and April 2017, entitled “Localization of Drugs Study (Stage 3)”
EU-69 TMMDA communication entitled “3rd Phase Localization Operations”
EU-70 TMMDA communication of March 2018, entitled “Government Localization Process”
EU-71 TMMDA communication of 4 April 2017, entitled “Phase IV localisation work”, with annexed list of product categories (Exhibit EU-71)
EU-72 TMMDA Communication of 13 January 2017, entitled “Localization Operation”
EU-73 TMMDA communication of 18 January 2018, entitled “About Localization Declaration”
EU-74 SSI communication of March 2018, entitled “Government Localization Process”, concerning a company’s non-submission of localisation commitments
EU-75 SSI communication of January 2018, entitled “Localization Process”, concerning the cancellation of de-listing
EU-76
TMMDA and SSI communication to Bayer Türk Kimya San rejecting proposed commitments, Annex V to Defense by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017
EU-77 SSI communication entitled “Localization Process”, providing a list of de-activated or de-listed products and providing for the possibility of updating proposed commitments
EU-78 SSI communication entitled “About Localization Process”, providing a list of de-activated or de-listed products and providing for the possibility of updating proposed commitments
EU-79 SSI communication entitled “Local Production” of January 2017, informing that the proposed commitments were found to be appropriate
EU-80 TMMDA communication of December 2016, entitled “Local Manufacture”, informing that the proposed commitments were found to be appropriate
EU-81 TMMDA communication of 31 January 2018, entitled “Localization Process”
EU-82 TMMDA communication of 10 October 2017, entitled “Preparing a progress report for your products in localization process”
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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Exhibit No.
Title
EU-83 TMMDA communication of December 2016, entitled “Local Production”, confirming that certain products fall outside the scope of localisation
EU-84 Republic of Turkey Ministry of development, Eleventh Development Plan (2019-2023), Transformation in healthcare industries: Specialised committee report, Report of the Medicines Working Group, July 2018
EU-85 Ministry of Health of the Republic of Turkey, 2019-2023 Strategic Plan
EU-86 Twitter statements by high-ranking officials
EU-87 TMMDA, excerpts from the 2019-2023 Strategic Plan
EU-88 Government of Turkey, 11th Development Plan for the period 2019-2023
EU-89 Regulation on the Marketing Authorization of Medicinal Products for Human Use, Official Gazette No.25705 of 19 January 2005.
EU-90 Implementing Regulation on Import Control of certain products inspected by the Ministry of Health Official Gazette No. 29579 of 31 December 2015.
EU-91 Implementing Regulation on Import Control of certain products inspected by the Ministry of Health, Official Gazette No. 30991 of 27 December 2019.
EU-92 Announcement on import applications for medical products” with Annexes and Model Statement of 31 December 2019.
EU-93 Regulation regarding the Variations on Medicinal Products for Human Use with Marketing Authorization or Pending Registration, Official Gazette No. 25823 of 23 May 2005.
EU-94 Announcement on variation applications
EU-95 Implementing Regulation for Healthcare
EU-96 Annex 4/C to the IRH/SUT
EU-97 Guideline for Working Principles and Procedures of Human Medicinal Products Priority Assessment Commission
EU-98 The Prioritisation Application Form Instruction of May 2016
EU-99 Administrative Activity Report of the Turkish Medicines and Medical Devices Agency of 2016
EU-100
Press article of 24 February 2018 published in the Yeni Şafak journal
EU-101
Circular on the Use of medicines from other countries and the Guide to the procurement and use of medicines from abroad
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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Exhibit No.
Title
EU-102
Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 5 May 2020
Turkey - Certain Measures concerning the Production, Importation European Union and Marketing of Pharmaceutical Products (DS583) First Written Submission ___________________________________________________________________________________
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1. INTRODUCTION
1. The Turkish authorities have adopted plans to achieve progressively the
localisation in Turkey of the production of a substantial part of the
pharmaceutical products consumed in Turkey. In order to achieve that
objective, Turkey requires foreign producers to commit to localise in Turkey
their production of certain pharmaceutical products. 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 (the "reimbursement scheme").
2. The European Union will show in Section 2 of this submission that the
localisation requirement is inconsistent with Turkey's obligations under the
following provisions of the covered agreements:
1) Article III:4 of GATT 1994, because, by excluding imported pharmaceutical
products for which localisation commitments have not been given, have not
been accepted or have not been fulfilled from the reimbursement scheme,
through the localisation requirement Turkey accords to imported
pharmaceutical products treatment less favourable than that accorded to like
products of national origin covered by that scheme in respect of laws,
regulations and requirements affecting their internal sale, offering for sale,
purchase, transportation, distribution or use;
2) Article X:1 of GATT 1994, because Turkey has failed to publish certain
elements, terms and conditions of general application of this measure promptly
in such a manner as to enable governments and traders to become acquainted
with them;
3) Article 2.1 of the TRIMs Agreement, because the localisation requirement is an
investment measure related to trade in goods inconsistent with Article III:4 of
GATT 1994; and
4) Article 3.1(b) of the SCM Agreement, because the reimbursement scheme
operated by the Turkish social security system involves the granting of a
subsidy within the meaning of Article 1.1 of the SCM Agreement. The
localisation requirement makes the granting of that subsidy contingent upon
the use of domestic over imported goods, thereby violating Article 3.1(b) of the
SCM Agreement.
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3. Where the production of a pharmaceutical product has been localised in Turkey
in accordance with the localisation requirement, applied in conjunction with the
Turkish rules for approving the importation and marketing of pharmaceutical
products, the importation of that pharmaceutical product is no longer permitted
("the Import Ban"). The European Union will show in Section 3 of this
submission that this Import Ban is inconsistent with Turkey's obligations under
Article XI:1 of GATT 1994.
4. Lastly, even in certain cases where imported products are not excluded from
the reimbursement scheme by virtue of the localisation requirement, 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 (the
"Prioritization Measure"). The European Union will show in Section 3 of this
submission that the Prioritization Measure is inconsistent with Turkey's
obligations under Article III:4 of GATT 1994
5. The European Union takes note of Turkey’s preliminary ruling request, which it
entirely disagrees with. The European Union will comment on that request in
detail in due course, as instructed by the Panel.
2. THE LOCALISATION REQUIREMENT
2.1. INTRODUCTION
6. Turkish authorities have adopted plans to achieve progressively the localisation
in Turkey of the production of a substantial part of the pharmaceutical products
consumed in Turkey. In order to achieve that objective, Turkey requires foreign
producers to commit to localise in Turkey their production of certain
pharmaceutical products. 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 (the “reimbursement system”). That system covers the
vast majority of sales of pharmaceutical products by pharmacies to patients.
Consequently, if an imported pharmaceutical product is excluded from the
reimbursement system, its competitive opportunities in the Turkish market are
significantly impaired, as compared with domestically produced like products.
7. In order to comply with the above described localisation requirement (the
“Localisation Requirement”), certain producers of pharmaceutical products
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commit to localise their production of certain pharmaceutical products in
Turkey. In those cases where foreign producers do not give the required
commitments to localise, where the authorities reject their offered
commitments or consider them not to be fulfilled, the pharmaceutical products
concerned are no longer reimbursed. The Localisation Requirement is designed
to apply on an ongoing basis, or at least until the localisation objectives
established by the Turkish government are achieved. The Localisation
Requirement is periodically adapted, modified, updated or extended with
respect to, inter alia, the products it applies to and/or the extent of localisation
sought.
8. The specific commitments to be implemented in order to comply with the
Localisation Requirement are established for each foreign producer in a non-
transparent manner and may differ from producer to producer.
2.2. FACTUAL BACKGROUND
2.2.1. The distribution of pharmaceutical products in Turkey and the reimbursement system
9. Introduced by the Social Insurance and Universal Health Insurance Law No.
55101, Turkey’s Universal Health Insurance (Genel Sağlık Sigortası) system
provides all insured and uninsured individuals in Turkey "with a comprehensive,
fair and equitable access to healthcare services, regardless of their economic
status."2 The large majority of the population is covered by universal health
insurance.3 The system is mainly funded by social security premiums based on
employer and employee contributions, and any deficit is covered from public
funds.4
10. The major actor in the Universal Health Insurance system is the Social Security
Institution (Sosyal Güvenlik Kurumu, “SSI”), affiliated to the Ministry of Labour
and Social Security. Under the Social Security Institution Law No. 5502,5 the
SSI administers the Universal Health Insurance system. Its duties are, among
1 The Social Insurance and Universal Health Insurance Law No.5510, enacted on 31 May 2006,
published in the Official Journal No 26200 on 16 June 2006 (Exhibit EU-1). 2 "Universal Heath Insurance", document published by the Social Security Institution (SSI) (Exhibit EU-
2). 3 In 2015, the percentage was 98.7%. See “Short PPRI Pharma Profile, Turkey 2017”, by Prof. Dr.
Mehtap Tatar, WHO Collaborating Centre for Pharmaceutical Pricing and Reimbursement Policy, page 7 (Exhibit EU-3).
4 “Short PPRI Pharma Profile, Turkey 2017”, by Prof. Dr. Mehtap Tatar, WHO Collaborating Centre for Pharmaceutical Pricing and Reimbursement Policy, page 7 (Exhibit EU-3).
5 Social Security Institution Law No 5502, enacted on 16 May 2006, published in the Official Journal on 20 May 2006, No 26173 (Exhibit EU-4).
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others, to implement the social security policies by taking into consideration the
national development strategies and policies. The SSI is responsible for
reimbursing all healthcare goods and services covered by that system, including
pharmaceutical products.6 Thus, it provides the major part of the funding for
healthcare in Turkey.
11. The Turkish Medicines and Medical Devices Agency (Türkiye İlaç ve Tıbbi Cihaz
Kurumu, “TMMDA”), an institution affiliated to the Ministry of Health, is the
Turkish regulatory authority on human medicinal products, medical devices and
cosmetics. It is responsible for the regulation, evaluation and monitoring of
these products. 7
12. The distribution of pharmaceutical products in Turkey is organised differently in
the in-patient sector (patients treated in hospitals) and the out-patient sector
(ambulatory care including patients purchasing medicines from private
pharmacies).
13. The distribution of pharmaceuticals in the in-patient sector is based on the
principle that persons registered with the SSI can receive medical treatment
free of charge in hospitals contracted to the SSI. In the in-patient sector, the
only major source of funding is the SSI. Pharmaceutical products are
distributed to in-patients by hospital pharmacies. These pharmacies can be
public or private, but they are always parts of hospitals, and not separate
entities.8 They only serve in-patients and cannot sell medicines to out-patients
or to the public. There are no co-payments for in-patient pharmaceuticals.9 Any
prescriptions for in-patient use are specifically marked as “in-patient”, unlike
those for out-patients.10
14. Hospitals can purchase pharmaceuticals either from wholesalers or directly
from producers. However, they are required to purchase pharmaceuticals
through a tendering process. In the case of public hospitals, this corresponds to
6 “Short PPRI Pharma Profile, Turkey 2017”, by Prof. Dr. Mehtap Tatar, WHO Collaborating Centre for
Pharmaceutical Pricing and Reimbursement Policy (Exhibit EU-3), p. 13. 7 Presentation by Gulsen Oner, Pharm. M.Sc. and Melda Kecik, Pharm. M.Sc, “Turkish Medicines and
Medical Devices Agency”, 2014 WHO Technical Briefing Seminar (Exhibit EU-5). 8 Pharmaceutical Health Information System, Turkey, PHIS Hospital Pharma Report, January 2010,
report Commissioned by the European Commission, Executive Agency for Health and Consumers (EAHC) and the Austrian Federal Ministry of Health (BMG) (Exhibit EU-6), p. 5.
9 “Short PPRI Pharma Profile, Turkey 2017”, by Prof. Dr. Mehtap Tatar, WHO Collaborating Centre for Pharmaceutical Pricing and Reimbursement Policy (Exhibit EU-3), p. 21.
10 Protocol on the procurement of medicines from pharmacies which are members of the Turkish Pharmacists’ Association (TEB) by persons covered by the Social Security Institution (Exhibit EU-52)., Art. 3.2.1.
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the tendering rules applicable to all Turkish public institutions.11 This tendering
process can lead to different prices than in the out-patient sector, because
hospitals typically receive discounts.12
15. Pharmaceutical products are distributed to out-patients by pharmacies, which
are private entities. Pharmacies purchase pharmaceuticals from warehouses,
which are supplied by pharmaceutical companies. In the out-patient sector, the
two major sources of funding for pharmaceutical products are the SSI and out
of-pocket payments. Patients purchase their prescription pharmaceuticals from
private pharmacies. The SSI reimburses the pharmacies based on the invoices
submitted by the pharmacies. Unlike in-patient pharmaceuticals which are fully
reimbursed, there are co-payments or contributions for out-patient
pharmaceuticals. In the majority of cases, these include a payment of 10% or
20%, for pensioners and employed persons respectively, as well as an
additional fixed amount per pack. These contributions are collected by
pharmacies.13
16. In the out-patient sector, pharmaceutical products are delivered on the basis of
reimbursement of costs. Pharmaceuticals are not purchased by hospitals, or by
Turkish government agencies, but by patients or consumers, from private
pharmacies. This is expressly confirmed in Article 73 of the Social Insurance
and Universal Health Insurance Law No. 551014:
“Pursuant to this Law herein, healthcare services shall be provided
through the contracts concluded between the Institution and the
healthcare service providers at home or abroad and/or through the
11 Pharmaceutical Health Information System, Turkey, PHIS Hospital Pharma Report, January 2010,
report Commissioned by the European Commission, Executive Agency for Health and Consumers (EAHC) and the Austrian Federal Ministry of Health (BMG) (Exhibit EU-6), p. 9-11. According to Article 4.1.2(1) of the HIN, “healthcare institutions and institutes that have concluded an agreement/protocol with the Institution shall procure the medicines used in in-patient treatment (in-patient and one-day treatment)” (Exhibit EU-11).
12 Pharmaceutical Health Information System, Turkey, PHIS Hospital Pharma Report, January 2010, report Commissioned by the European Commission, Executive Agency for Health and Consumers (EAHC) and the Austrian Federal Ministry of Health (BMG) (Exhibit EU-6), p. 9-10. See also Article 4.4.1 of the HIN (“Applicable discount rates”) (Exhibit EU-11).
13 Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 11 February 2019 (Exhibit EU-11), Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 5 May 2020 (Exhibit EU-102), Articles 1.8 and 1.8.2. There are certain limited exceptions from co-payments. Thus, pharmaceuticals are fully reimbursed for certain patients with chronic diseases certified by a medical report, and for some products listed by the SSI for exemption. It is obligatory for pharmacies to collect co-payment, under threat of penalties. See Protocol on the procurement of medicines from pharmacies which are members of the Turkish Pharmacists’ Association (TEB) by persons covered by the Social Security Institution (Exhibit EU-52), Article 5.3.6.
14 The Social Insurance and Universal Health Insurance Law No.5510, enacted on 31 May 2006, published in the Official Journal No 26200 on 16 June 2006 (Exhibit EU-1).
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payment of the cost of healthcare services purchased by those covered
by universal health insurance and the persons under their care from the
non-contractual healthcare service providers in compliance with the
provisions set out in the provisions of this Law.” (emphasis added)
17. The reimbursement of the costs of pharmaceuticals purchased by persons
covered by the universal health care system is governed by the Protocol on the
procurement of medicines from pharmacies which are members of the Turkish
Pharmacists’ Association (TEB) by persons covered by the Social Security
Institution,15 concluded between the Turkish Pharmacists’ Association and the
SSI. The title of that instrument confirms that the persons “procuring”
pharmaceutical products from pharmacies are the persons covered by universal
healthcare, i.e. patients.
18. The Protocol regulates, inter alia, the requirements for prescriptions which must
be respected as a condition for reimbursement;16 the method of calculating
payments to pharmacies, including their discounts, profit rates, and service
fees;17 invoicing, review and reimbursement of invoices provided by pharmacies
to the SSI.18 Pharmacies covered by the reimbursement system periodically
send the invoices for all their sales of pharmaceutical products to out-patients
to the SSI, which reviews them and, assuming that it accepts them, reimburses
the balance of the invoices within a certain period, which is in most cases 60
days.19
19. Turkey uses a reference pricing system, through which a common
reimbursement level or reference price is set for a group of interchangeable
pharmaceuticals. If the price of a pharmaceutical is above the reference price,
out-patients have to cover the excess amount. For reimbursement purposes,
medicines are grouped into so-called “equivalent groups” based on the same
active molecule20 of similar strength.21 The IRH explains the method for
15 Exhibit EU-52. 16 Article 3.2. 17 Article 3.4. 18 Articles 4.2 and 4.3. 19 Regulation on the procedures and principles governing checking of invoices of healthcare providers and
reimbursement of their fees, Official Gazette no. 30001 of 8 March 2017 (Exhibit EU-53), Article 24. 20 "Turkey: Pharmaceutical Sector Analysis", by Assoc. Prof. Yusuf Celik and Dr. Andreas Seiter (Exhibit
EU-7), p. 11. 21 “Short PPRI Pharma Profile, Turkey 2017”, by Prof. Dr. Mehtap Tatar, WHO Collaborating Centre for
Pharmaceutical Pricing and Reimbursement Policy (Exhibit EU-3), p. 33. Article 4.4.2 of the IRH defines the notion of “equivalent group”. See Excerpts from Annex 4/A to the IRH (Health Implementation Notification/Communiqué), as amended in December 2018 (Exhibit EU-51), as well as
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calculating the reimbursed rate. To simplify, the rate consists of a “base unit
price” calculated for the cheapest product in the equivalent group having at
least a 1% market share. An amount of 10% is added to the base unit price.
Any excess amount shall not be reimbursed.22
20. There are two processes by which a pharmaceutical product can become
subject to reimbursement.
21. The first possibility is pursuant to the 2016 Regulation on Drug Reimbursement,
which regulates the principles and procedures for the reimbursement of
products funded, or requested to be funded, by the Social Security Institution
as well as the operating principles and procedures of, inter alia, the Drug
Reimbursement Commission (DRC), the Medical and Economic Assessment
Committee (MEAC) and the Secretariat established by the SSI.23
22. The second possibility is pursuant to the 2016 Social Security Institution
Regulation on Alternative Reimbursement for Universal Health Insurance. This
Regulation is, ostensibly, concerned with products which cannot be
manufactured or are otherwise unavailable in Turkey. In addition, however, the
alternative reimbursement rules aim to encourage the transition to local
production.24
23. According to the Regulation amending the Regulation on the Working
Procedures and Principles of the SSI Healthcare Services Pricing Commission,
alternative reimbursement models are “reimbursement models created with the
objective of promoting the inclusion of product and service groups in the health
sector financed/to be financed by the Institution in the scope of
reimbursement, depending on the financial or medical benefit they would bring
about, in areas of need and outside the current procedures, principles and rules
of payment, or --with the changing of current procedures, principles and rules
of payment-- [promoting] the production of product groups supplied from
Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 5 May 2020 (Exhibit EU-102).
22 Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 11 February 2019 (Exhibit EU-11), Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 5 May 2020 (Exhibit EU-102), Article 4.4.2 (“Pharmaceutical equivalence”).
23 Social Security Institution Regulation on Drug Reimbursement, 10 February 2016 (Exhibit EU-8), Article 1.
24 See Article 1 of the Social Security Institution Regulation on Alternative Reimbursement for Universal Health Insurance, published in the Official Gazette 29620 on 10 February 2016 (Exhibit EU-38).
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abroad, not manufactured or found in our country, and [promoting] the switch
to local production of imported products, and ensuring market presence”. 25
24. Companies can apply for their medicines to be subject to the Reimbursement
List either pursuant to the Regulation on Drug Reimbursement (regular
reimbursement pathway) or pursuant to the Regulation on Alternative
Reimbursement (alternative reimbursement pathway). The SSI can also choose
ex officio which of the pathways could be applicable.26 However, regardless of
the pathway used, once approved, the pharmaceutical products are included in
the same Reimbursement List.
25. In the out-patient sector, the pharmaceuticals that could benefit from
reimbursement are determined by the Drug Reimbursement Committee (DRC)
and the Alternative Drug Reimbursement Committee (ARC), which are both
affiliated to the SSI. 27 The DRC and ARC, with members from different public
organizations, and other supporting sub-committees, determine whether or not
certain pharmaceuticals are reimbursable, their reimbursement prices and the
rules and conditions of reimbursement.28
26. The reimbursement system is based on a positive list of goods and services
(Reimbursement List), contained in the Implementing Regulation for Healthcare
(“IRH”, also referred to as the “Health Implementation
Notification/Communique”, “HIN”, or in Turkish Sağlık Uygulama Tebliği,
“SUT”), adopted on the basis of the Social Insurance and Universal Health
Insurance Law No. 5510 and the Social Security Institution Law No. 5502.29 The
sales of the products listed on the Reimbursement List represent approximately
25 Article 3(1)(i) of Regulation amending the Regulation on the Working Procedures and Principles of the
Social Security Institution Healthcare Services Pricing Commission, Official Gazette No 29620, 10 February 2016 (Exhibit EU-37).
26 See Article 9(1)(a) of the Social Security Institution Regulation on Alternative Reimbursement for Universal Health Insurance, published in the Official Gazette 29620 on 10 February 2016 (Exhibit EU-38).
27 "Short PPRI Pharma Profile, Turkey 2017", by Prof. Dr. Mehtap Tatar, WHO Collaborating Centre for Pharmaceutical Pricing and Reimbursement Policy, page 34, http://whocc.goeg.at/Literaturliste/Dokumente/CountryInformationReports/Short_PPRI_Pharma_Profile%20Turkey%202017_consolidated.pdf , accessed on 02/08/2018.
28 "Short PPRI Pharma Profile, Turkey 2017", by Prof. Dr. Mehtap Tatar, WHO Collaborating Centre for Pharmaceutical Pricing and Reimbursement Policy, page 13, http://whocc.goeg.at/Literaturliste/Dokumente/CountryInformationReports/Short_PPRI_Pharma_Profile%20Turkey%202017_consolidated.pdf , accessed on 02/08/2018.
29 See excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 11 February 2019 (Exhibit EU-11), Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 5 May 2020 (Exhibit EU-102).
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90% of total sales of pharmaceutical products in Turkey30, the rest being sold
via hospitals or outside the scope of the reimbursement system.
27. The IRH governs the reimbursement of all health related services,
pharmaceuticals and medical devices31, and defines the reference prices for
reimbursement. It contains several chapters and annexes, classifying and
listing the types of goods and services that are reimbursed by the SSI.
Pharmaceutical products are regulated by Chapter 4 and eight annexes,
numbered from 4/A to 4/H. Annex 4/A, which is relevant in this dispute,
provides the list of pharmaceutical products that are reimbursed by the SSI.32
28. The updated IRH is published in its integral form by the SSI once or twice per
year. In addition, updated versions of Annex 4/A to the IRH are published more
frequently (normally on a weekly basis) on the SSI’s website, reflecting the
intervening changes in prices, discounts and other information related to the
listed products.33
29. Pharmaceutical products are included into the Reimbursement List on the basis
of applications by pharmaceutical companies. In order to be reimbursed,
products must be not only included, but also listed as “active”. If these two
conditions are not fulfilled, pharmaceutical products will not be reimbursed,
even if they are prescribed. Instead, those products can only be offered for
purchase and purchased at full market prices. After a product has been
included in the Reimbursement List, it can either be excluded entirely
(“delisted”), or kept on the list but “deactivated” (or, variously, made “passive”,
“passivated” or “passivized”). In either scenario, the product is no longer
reimbursed, even when it is prescribed. In such circumstances, the pharmacist
30 Pharmaceutical Industry Employers Union (IEIS), Turkey Pharmaceutical Industry 2015 report (Exhibit
EU-9), Table 1, page 5. 31 “Short PPRI Pharma Profile, Turkey 2017”, by Prof. Dr. Mehtap Tatar, WHO Collaborating Centre for
Pharmaceutical Pricing and Reimbursement Policy (Exhibit EU-3), p. 13. See also excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 11 February 2019 (Exhibit EU-11), excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 5 May 2020 (Exhibit EU-102).
32 Excerpts from Annex 4/A to the IRH (Health Implementation Notification/Communiqué), as amended in December 2018 (Exhibit EU-51), Excerpts from the Health Implementation Notification/Communiqué (SUT - Sağlık Uygulama Tebliği) or “the Reimbursement List”, updated as of 5 May 2020 (Exhibit EU-102).
33 The following website provides updates to the List: http://www.sgk.gov.tr/wps/portal/sgk/tr/kurumsal/merkez-teskilati/ana_hizmet_birimleri/gss_genel_mudurlugu/Duyurular.
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may dispense another pharmaceutically equivalent product which is included in
the Reimbursement List.34
30. Unlike a delisted product, a deactivated product is still visible in the
Reimbursement List. The fact that it is deactivated is, however, visible in the
MEDULA system, which is a software platform used by the SSI and healthcare
providers.35 Pharmacies use MEDULA to retrieve the detailed information on the
reimbursement of a particular product.
31. There are several circumstances in which pharmaceutical products can be
"deactivated" or made "passive" in the Reimbursement List. For example,
products are deactivated if a distribution certificate36 is not submitted to the
SSI within five months from the listing date for products listed for the first
time,37 when they have not been sold on the market in the past year38; or when
they are listed as having a price of zero or unlisted from the Reimbursement
List attached to the IRH.39 Importantly for the purposes of this dispute,
products are also deactivated when they are included in the attachments to the
various announcements on localisation, as will be further discussed below.
32. Typically, it is for the Chair of the SSI’s Drug Reimbursement Committee, who
is also the SSI’s Director General or Deputy Director of Universal Health
Insurance,40 to approve the deactivation of a product in the Reimbursement
List, or to reactivate the products if certain conditions are met.41 If no action is
taken within a period of ten months, the Chair of the DRC can delist those
products from the Reimbursement List.42 In the context of localisation,
34 Protocol on the procurement of medicines from pharmacies which are members of the Turkish
Pharmacists’ Association (TEB) by persons covered by the Social Security Institution (Exhibit EU-52), Article 3.2.12.
35 "Pharmacy in Turkey: past, present and future", by H. Tekiner, 14 October 2013 (Exhibit EU-10), p. 478. See also Article 3.2.1 of the Protocol on the procurement of medicines from pharmacies which are members of the Turkish Pharmacists’ Association (TEB) by persons covered by the Social Security Institution (Exhibit EU-52).
36 As per Article 3(b) of the SSI Regulation on Drug Reimbursement (Exhibit EU-8): “Distribution certificate means an extract from the Ministry of Health’s Drug Tracking System records, obtained by the company to show that the medicinal product concerned is available on the market”.
37 Article 12.5(b) of the Social Security Institution Regulation on Drug Reimbursement (Exhibit EU-8). 38 Article 12.5(ç) of the Social Security Institution Regulation on Drug Reimbursement (Exhibit EU-8). 39 Article 12.5(d) of the Social Security Institution Regulation on Drug Reimbursement (Exhibit EU-8). 40 Article 12.4(1)(a) and (b) of the Social Security Institution Regulation on Drug Reimbursement (Exhibit
EU-8). 41 Articles 12.5(b), (ç) and (d) of the Social Security Institution Regulation on Drug Reimbursement
(Exhibit EU-8). 42 Articles 5(1)(d) and 12.5(b), (ç) and (d) of the Social Security Institution Regulation on Drug
Reimbursement (Exhibit EU-8).
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however, other authorities apart from the DRC have been involved in the
decisions to deactivate and reactivate.
33. In particular, the Alternative Reimbursement Committee has frequently acted
to approve the deactivation, reactivation or delisting of a product in the
Reimbursement List. It is not always clear on which legal basis the ARC did so,
given that the circumstances for deactivation, reactivation, delisting and
relisting are provided in the SSI Regulation on Drug Reimbursement, and not in
the Regulation on Alternative Reimbursement.43 In any event, however,
regardless of the legal bases pursuant to which products are deactivated,
reactivated or delisted, and regardless of the division of labour between the
various committees, such decisions can all be attributed to the SSI. The
committees mentioned in the SSI Regulation on Drug Reimbursement or in the
SSI Regulation on Alternative Reimbursement are all affiliated to the SSI.
Moreover, following deactivation or delisting, the Reimbursement List is
updated by the SSI.
34. While neither delisted nor deactivated products are reimbursed, the
consequences of delisting and deactivation differ. Deactivated products can be
reactivated relatively easily, for example upon submission of the distribution
certificate to the SSI subject to certain conditions44 or upon request.45 On the
other hand, relisting a delisted products is more difficult. A new application for
inclusion into the List has to be made, triggering a lengthy approval procedure.
Moreover, such an application may not be submitted for six months after the
delisting.46
35. Furthermore, it is possible that deactivated products may be subsequently
subject to delisting. In particular, such products could be delisted because they
have not been sold on the market in the past year.47
43 Article 6.1(e) of the Social Security Institution Regulation on Alternative Reimbursement for Universal
Health Insurance, published in the Official Gazette 29620 on 10 February 2016 (Exhibit EU-38) provides for the authority of the ARC to decide on delisting in some circumstances.
44 Article 12.5(b) or (ç) of the Social Security Institution Regulation on Drug Reimbursement (Exhibit EU-8).
45 As provided in Article 12.5(ç) of the Social Security Institution Regulation on Drug Reimbursement (Exhibit EU-8): “For other reactivation requests, the application must be compliant with the Principles and Procedures for Medicinal Product Applications.” According to Article 12.5(d): “In the event that the name and price of a product so deactivated is reincluded in the drug price list published by the Ministry of Health, and the owner makes an application with the Institution, the product will be reactivated upon approval by the Drug Reimbursement Committee Chair, provided that the price to the government does not exceed the price to the government on the deactivation date.“
46 Articles 12.5(b), (ç) and (d) of the Social Security Institution Regulation on Drug Reimbursement (Exhibit EU-8).
47 Article 12.5(ç) of the SSI Regulation on Drug Reimbursement (Exhibit EU-8).
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2.2.2. The Localisation Requirement
36. Since 2013, Turkey has been putting in place and implementing a localisation
requirement in conjunction with its reimbursement system described above. In
the following sections, the European Union will outline, first, the Localisation
Requirement’s general features and objectives; second, the fact that it is a
single and cohesive measure; third, the institutional set-up; fourth, the process
and “phases” of localisation”, fifth, its implementation in general; sixth, its
implementation through various “phases”; seventh, its application to individual
companies and their products.
2.2.2.1 General features and objectives
37. On 2 July 2013, the Turkish Parliament approved the Government’s Tenth
Development Plan for 2014-2018.48 The Plan contains a “Program for Reducing
Import Dependency” by “increasing localisation and use of domestic inputs”,
which uses as one if its “performance indicators” the ratio of exports to imports.
“Component 2” of that Program is entitled “Increasing Localisation and Use of
Domestic Inputs”, which includes “supporting localisation and developing
appropriate mechanisms for this purpose”. 49
38. With respect to healthcare in particular, the Plan includes a “Healthcare
Industries Structural Transformation Program” (point 1.16), which aims to
relieve the pressure on social security spending and Turkey’s current account
deficit created by the increased demand for pharmaceuticals and medical
devices. The Program also aims to ensure that Turkish production could meet a
higher proportion of domestic demand of pharmaceuticals and medical devices,
especially for high-value added products.50 The Program sets the target of
meeting 60 percent of domestic pharmaceutical demand by value through
domestic production. Among the performance indicators to assess compliance
with that target is the “ratio of exports to imports in pharmaceuticals.”
48 The Tenth Development Plan 2014-2018, Republic of Turkey, Ministry of Development, Ankara 2014,
approved by the Decision of the Grand National Assembly of Turkey on the approval of the Tenth Development Plan (2014-2018), Decision No. 1041 of 2 July 2013 (Exhibit EU-12).
49 The Tenth Development Plan 2014-2018 (Exhibit EU-12), p. 152. 50 Tenth Development Plan 2014-2018 (Exhibit EU-12), p. 180. This is confirmed by a press article dated
14 March 2017, reporting that during the March 2017 presentation entitled ‘Localisation Project in Medicines: Transition from imports to production”, TMMDA president Dr. Gürsöz said the following: “Due to factors such as increasing average lifespan and increasing welfare levels, demand for medicines and medical devices are also on the rise. This demand creates pressures on social security spending and on the current deficit.” "Era of localisation in the Pharma sector", press article published in ITO HABER, 14 March 2017 (Exhibit EU-13).
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39. This localisation objective has been confirmed and further refined in various
legal instruments or statements by or on behalf of the Turkish government.
40. On 7 November 2014, the Turkish Ministry of Health adopted the Structural
Transformation Program for Healthcare Industries Action Plan,51 in order to
implement the Structural Transformation Program referred to above. The Action
Plan reiterates the objective of alleviating pressure on social security spending
and deficit caused by the increasing demand for medicines, as well as the
target of 60% in value for medicines through domestic production. It also
includes a table with performance indicators per year between 2013 and 2018,
including the heading “coverage ratio of exports to import”, scheduled to
increase from 18.2% in 2013 to 29.3% in 2018. 52
41. Furthermore, it includes as “Action 2” within “Component-1”, under the
responsibility of the Ministry of Health and the SSI, the requirement to
implement "necessary regulations and practices" "with the objective of
prioritizing medicines and medical devices produced in Turkey in the
reimbursement and pricing policies and licensing processes", until the end of
2018. As sub-actions of Action 2, the Ministry of Health is charged with swiftly
issuing licences for applications filed for medicines to be manufactured in
Turkey, and the SSI with “accelerating the evaluation process for the inclusion
of the domestically manufactured products in the Reimbursement List” and
“removing imported products from the Reimbursement List (provided that
assurances necessary for the provision of treatment have been obtained).”
Thus, the Action Plan explicitly provides that imported products shall be
removed from the Reimbursement List as part of achieving the localisation of
the production of pharmaceuticals in Turkey.
42. On 10 December 2015, the Turkish Government adopted its “2016 Action Plan
of the 64th Government”, which requires, as action no. 46 under the
responsibility of the Ministry of Health, that "the reimbursement, pricing and
licensing processes of medical devices and strategic and domestic medicines
shall be improved".53 It is further specified that the Ministry of Health should
ensure speedy licensing of medicines for which an application has been lodged
for production in Turkey “by addressing them together with SSI reimbursement
51 The Structural Transformation Program for Healthcare Industries Action Plan, 7 November 2014,
coordinated by the Ministry of Health and Ministry of Development (Exhibit EU-14). 52 The Structural Transformation Program for Healthcare Industries Action Plan, 7 November 2014,
coordinated by the Ministry of Health and Ministry of Development (Exhibit EU-14), p. 2. 53 "2016 Action Plan of the 64th Government (Implementation and Reforms)", 10 December 2015 (Exhibit
EU-15).
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policies”, and that the “SSI shall speed up the evaluation process for inclusion
of domestically manufactured healthcare products in the Reimbursement List".
In addition, “action no. 46” is described as requiring "imported products to be
excluded from the Reimbursement List, on condition of obtaining the necessary
guarantee for the provision of the treatment, shall be determined." This “action
no. 46” has been quoted as the basis for a number of announcements and
communications on localisation by Turkish authorities, as discussed below.
43. On 24 May 2016, in its “65th Government Programme”, the Turkish Government
expressed its objectives to “increase our capacity in… pharmaceuticals” and
“increase domestic production of pharmaceuticals”, inter alia, by “giv[ing]
priority to domestic pharmaceuticals…. in reimbursement, pricing and licensing
processes.”54
44. On 5 April 2017, Turkey’s health minister explained that “work on the
localisation of medicines gained pace in 2016” in order to meet the target of 60
percent of domestic pharmaceutical demand by value through domestic
production.55
45. In April 2017, a press report entitled “Localisation will end the imports of
pharmaceuticals worth TL 2.2 billion” cited Turgut Tokgöz, the secretary
general of IEIS (Union of Employers in Pharmaceuticals Industry) as saying that
the IEIS is “the mastermind behind the localisation project in the
pharmaceutical sector”, the purpose of which is to close the trade deficit in
pharmaceuticals. The report recounted his explanation as follows:
“In the scope of the project, 120 imported pharmaceuticals were
identified even though they could in fact be produced in Turkey. Unless
these pharmaceuticals start being produced in Turkey until the end of
February 2018, they will be removed from the reimbursement system.
This means that such pharmaceuticals will be excluded from the market
‘which operates on a reimbursement system’. In other words, it has
become almost imperative for the pharmaceutical [companies], willing to
stay in the Turkish market, to switch to local production. A significant
part of the pharmaceuticals announced in the first phase have shifted to
local production, and a significant decline has been recorded in imports.
Now the implementation of the second and third phases of the project
54 The 65th Government Programme (Exhibit EU-16), p. 4 and 7. 55 Press article published in the Hürriyet Daily supplement of 5 April 2017, entitled "Localisation of
Medicines Shift from Imports to Production" (Exhibit EU-17).
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has started. The fourth phase, on the other hand, concerns how the
production of pharmaceuticals, which are not produced at all in Turkey,
can start in Turkey...”56
46. In 2019, Turgut Tokgöz similarly explained that “one of the main reasons why
pharmaceutical companies accelerated their investments towards local
production was due to the 'Transition from Imports to Manufacturing in the
Pharma Sector' pioneered by the Ministry of Health in 2016. According to
Tokgöz, "The main purpose of this practice is to increase from around 40% to
60% the share of domestic production in the pharma market in terms of value
[…]”57
47. In August 2017, Turkey’s Minister of Health Ahmet Demircan provided the
following explanation: “We're also making efforts for localisation of drugs. We
will ensure localisation in drugs worth … 6.1 billion TL along with gradual
transition from imports to manufacturing. Eventually they will become local. So
far, we have taken steps for localisation of drugs worth of 2.4 billion TL. And
work is underway for the remaining part; one third being local. Yet the target is
to reach 100% local."58
48. In September 2017, in a filing to a Turkish court concerning a legal challenge to
the Localisation Requirement, the SSI explained:
The localisation process is… intended for ensuring localisation in medicine
production, increasing local production, and decreasing dependence on
foreign resources.59
49. On 02 November 2017, the Minister of Science, Industry and Technology Faruk
Özlü announced a new roadmap concerning the localisation of imported
industrial products, explaining that the aim of localisation is to eliminate
56 Press article published in Dünya, 19 April 2017, entitled “Localization will end the imports of
pharmaceuticals worth TL 2.2 billion” (Exhibit EU-18). 57 Press article published in Dünya , "Foreign investments will be [like] medicine!", 30 July 2019 (Exhibit
EU-19).
58 Press article published in Milliyet, “Localization of TL 6.1 billion of drugs”, 28 August 2017 (Exhibit EU-
20). 59 Rejoinder by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical
Companies (AIFD) before the Turkish State Council, Case 2017/1308, 21 September 2017 (Exhibit EU-21), p. 12.
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Turkey’s trade deficit, in particular in five main sectors among which is the
pharmaceutical industry.60
50. Between 7 and 9 December 2017, representatives of the TMMDA gave a
presentation entitled "Pharmaceutical Localisation Project Work Conducted by
the Ministry of Health" (the “December 2017 presentation”),61 in which they
explained that, in order to meet the objectives of the 10th Development Plan
and the 64th Governmental Action Plan (addressing pressure on social security
expenditure and the trade deficit by meeting 60% of the need for medicines
through domestic production), it is necessary to rely on localisation. The
presentation goes on to explain in detail the various phases for the localisation
of medicines, and the process of deactivation of imported products from the
Reimbursement List.62
51. In March 2018, Jülide Sarıeroğlu, Minister of Labour and Social Security,
delivered a presentation at the SSI, in which she stated: “We are continuing
with our support to investments in what we call as domestic medicine, namely
those medicines that are produced in our country. In this context, at the first
stage 146, and after that 145 medicines will be localized.”63
52. On 3 August 2018, the President of Turkey Recep Tayyip Erdoğan announced
an Action Plan/Programme64 for the first 100 days of his Presidency, grouping
actions per Ministry. With respect to the Ministry of Health65, the Programme
calls for the localisation of vaccines as a strategic product in Turkey (point 9)
and for the acceleration of the localisation work on pharmaceuticals (point 10).
53. The Presidency Decision No.108 on the New Economy Program (also known as
the new Medium Term Economic Programme) for the period 2019-2021,
published on 20 September 2018,66 aims to address the current account deficit
and to reduce Turkey’s dependence on imports. It foresees, inter alia, the shift
60 Press article Published in Haber, ‘Localisation' move in industrial products’, 2 November 2017 (Exhibit
EU-22). 61 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health",
given by representatives of the TMMDA December 2017 (Exhibit EU-23). 62 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health",
given by representatives of the TMMDA December 2017 (Exhibit EU-23), slides 8-15. 63 Press article published in Diken, entitled ‘The minister announced: 291 medicines will be produced in
Turkey in the scope of ‘indigenization project’, 22 March 2018 (Exhibit EU-24). 64 "Performance Program for 100 Days", 3 August 2018, by the Turkish President (Exhibit EU-25). 65 "Performance Program for 100 Days", 3 August 2018, by the Turkish President (Exhibit EU-25), p. 26. 66 The New Economy Program, the Presidency Decision No. 108 on the New Economy Program for the
period 2019-2021 (Exhibit EU-26).
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to local production of twenty imported biotechnological pharmaceuticals used in
treatment of endemic diseases.67
54. In its 11th Development Plan for the period 2019-2023, the Turkish Government
reaffirmed its intention to implement support programs for the domestic
production of pharmaceuticals.68
55. Similarly, the Ministry of Health's Strategic Plan for 2019-2023 announced as
its “target 6.2”, the need to “ensure domestic production and localisation”.
Furthermore, in a SWOT analysis, in mentioned as an opportunity “promoting
localisation policies in the area of medicines and medical devices”.69 In its own
strategic plan, the TMMDA referred to the need to pursue localisation efforts in
various sectors and to support the domestic production of pharmaceuticals.70
56. In order to implement the “Transformation in Healthcare Industries” plan and
the Government’s 11th Development Plan for 2019-2023, the Medicines Working
Group, a specialised committee affiliated to the Turkish Ministry of
Development, published a Report (the ‘Medicines Working Group Report’).
Section 2.3.5 of the Report, entitled “Localisation Policies”, first refers to the
establishment and duties of the Localisation Executive Board set up in 2018. It
then states as follows:
“Under the leadership of the Ministry of Health, localisation and
technological transformation advances are being made in the medicine
sector. In this context, the aim is to increase the share of domestic
production in the medicine market from 40% to 60% in terms of value,
on the basis of the ‘Transition from Imports to Manufacturing’ project
introduced in 2016 and the previous Development Plan targets and
measures. The first and second phases of this project, which is of key
importance for the sector, have been successfully completed and are
continually being updated. Work on the third phase is also under way.
Preparatory work on the fourth and fifth phases has started. By the end
67 See also the press article published in Dünya, ‘Local plan in place for 20 imported biotechnical
products’, 25 September 2018 (Exhibit EU-27). 68 Government of Turkey, 11th Development Plan for the period 2019-2023 (Exhibit EU-88), 365.1. 69 Ministry of Health of the Republic of Turkey, 2019-2023 Strategic Plan (Exhibit EU-85). 70 TMMDA, excerpts from the 2019-2023 Strategic Plan (Exhibit EU-87), p. 34 and 82.
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of the first four phases, the aim is to produce domestically six billion lira
worth of products that used to be imported.” 71
57. Finally, high-ranking government officials have repeatedly expressed support
for the localisation of pharmaceutical products and their desire to maintain the
momentum of that project. Thus, for example, Turkey’s Minister of Health Dr
Fahrettin Koca tweeted in 2019 that localisation is a “strategic area”, that his
ministry “attaches great importance to localisation for medicines and medical
devices used in Turkey”, that “increasing domestic production” reverses the
picture of import dependence, and that the Ministry has had “considerable
success” with its effort to increase domestic production.72
2.2.2.2 The Localisation Requirement is a single and
cohesive measure
58. Turkey has sought to implement this localisation policy in the pharmaceutical
sector through various instruments and tools. The principal authorities in
charge of implementing the localisation policy are the SSI and the TMMDA.
59. As of 2016, a series of public and private communications, issued jointly or
separately by TMMDA and SSI, have required pharmaceutical companies
importing pharmaceutical products in Turkey to commit to localise production of
certain products, i.e. to produce them or ensure that they are produced in
Turkey. These commitments can be, and at times have been, refused. If they
are accepted, they must be fulfilled within a certain period of time, typically
around one year from the date of the communication. If no commitments are
given, if the commitments are refused (typically, because they are deemed
insufficient) or if they are not fulfilled, those pharmaceutical products are
deactivated, and later potentially delisted. In order to continue to benefit from
the reimbursement for the respective products on the Turkish market,
companies are thus forced to shift their own production to Turkey, or to
arrange that the products are manufactured by a third party manufacturer in
Turkey.73
71 Republic of Turkey Ministry of development, Eleventh Development Plan (2019-2023), Transformation
in healthcare industries: Specialised committee report, Report of the Medicines Working Group, July 2018 (Exhibit EU-84).
72 Twitter statements by high-ranking officials (Exhibit EU-86). 73 Presentation entitled "Local Production”, delivered at the Symposium on Rational Approach to Current
Issues concerning Medicines, Ankara, 7-9 October 2016 (Exhibit EU-40), slide 11.
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60. Despite the diversity of instruments used, and despite the fact that much of the
detailed implementation of the Localisation Requirement takes place in bilateral
communications between Turkish authorities and individual pharmaceutical
companies, there is no doubt that all of these steps are taken within the
framework of a single Localisation Requirement, in order to achieve the
objectives described above. Indeed, many of the relevant legal instruments and
documents expressly refer, for example, to the Tenth Development Plan or to
the Action Plan of the 64th Government. Turkish authorities have repeatedly
emphasized that the Localisation Requirement is a single, cohesive measure,
and that individual steps such as the announcements on the removal of certain
products from the Reimbursement List are taken within the framework of that
measure.
61. For example, when replying to a letter from the EU Commissioner for Trade
dated 5 April 2017,74 the Turkish Minister of Economy stressed that the
“localisation policy” with which the EU is concerned “is carried out as an
element of the 10th Development Plan of the Government.”75
62. Similarly, in a filing to a Turkish court connected to a domestic legal challenge
against the Localisation Requirement, the SSI explained in detail the way in
which the various steps taken by the Turkish authorities implementing the
Localisation Requirement,76 as well as the actions of various committees
involved in the Localisation Requirement, all form part of a single, coherent
measure, based notably on the Tenth Development Plan and the 64th
Government Action Plan.
63. Apart from the Tenth Development Plan and the 64th Government Action Plan,
the SSI also cited a number of provisions of the Social Insurance and Universal
Health Insurance Law No. 5510, the Regulation concerning Rules and
Procedures of Operation of the Social Security Institution Healthcare Services
Pricing Commission, and the Decree Law concerning the Organization and
Duties of Ministry of Health and its Affiliated Institutions. It then concluded that
the decision to remove imported pharmaceuticals from the Reimbursement List
74 Letter from the EU Commissioner for Trade to the Minister of Economy of the Republic of Turkey, 25
April 2017 (Exhibit EU-28). 75 Letter from the Minister of Economy of the Republic of Turkey to the EU Commissioner for Trade
replying to the letter of 5 April 2017, dated 19 June 2017 (Exhibit EU-29). 76 These steps include, for example, the SSI’s announcements related to localisation of 4 March 2016,
the ARC’s determination of the list of imported pharmaceuticals to be removed from the Reimbursement List, HSPC’s criteria concerning localization process of 10 October 2016, letters sent by TMMDA and the SSI on 28 December 2016 to the companies concerned announcing that removal, the suspension of certain imported products from the Reimbursement List on 8 February 2018, an update to the list of imported pharmaceuticals to be removed, etc.
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was not a one-off or arbitrary act, but that it was “conducted within the
framework of the authorities, granted to Ministry of Health, Ministry of Finance,
Ministry of Development and Undersecratariat of Treasury” and that it had legal
grounds: “[i]n coordination with related institutions and establishments, our
Institution has fulfilled a duty, assigned to it in highest level of policy
documents of the state, in compliance with law.”
64. The SSI went on to cite, again, the “Structural Transformation Program in
Healthcare Industries” as this policy document of the highest level. It
explained:
“One of the most important steps of indigenization in healthcare, a
strategic decision of State, is the process of localisation of imported
drugs… In our country, controlling pharmaceutical imports, which is one
of the most important factors in the formation of current deficit and
international trade deficit and when doing so, mobilization of idle
pharmaceutical production capacity in our country and increasing
employment, involves public interests.”77
65. On this basis, the SSI concluded that “there are no obstacles in front of
removal of imported pharmaceuticals from Reimbursement List, should they fail
to commence domestic production.” Moreover, the SSI asserted that, because
the majority of companies importing pharmaceuticals that are subject to the
localisation process submitted commitments, it follows that “the localisation
process is supported both by domestic and foreign pharmaceutical firms.”78
66. In a subsequent filing, the SSI was even clearer:
The localisation policy is clearly expressed with the indicator announced
under the 10th Development Plan as “To meet 60 percent of domestic
demand for medicines by value, through domestic production” under the
title of “Program of Structural Transformation in Health” and the program
component titled “introduction of new measures in harmony with the
international obligations for encouraging local pharmaceutical production
and exportation”. Our Institution conducts the localisation process by the
77 Defense by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical
Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017 (Exhibit EU-30), section II, pages 1-11.
78 Defense by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017 (Exhibit EU-30), p. 12.
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authority granted to it by the 10th Development Plan and the
Government’s 64th Action Plan which are among the relevant laws. 79
2.2.2.3 Institutional set-up
67. A number of Turkish authorities are involved in the implementation of the
Localisation Requirement. The two central actors are the SSI and the TMMDA.
Broadly speaking, the TMMDA proposes the products to be localised and
reviews localisation commitments submitted by companies, while the final
decision on whether to deactivate products from the Reimbursement List rests
with the SSI. Also involved in the localisation process are several committees,
which are connected in different ways either to TMMDA or SSI.
68. The Healthcare Industries Steering Committee (“HISC”), established on
the basis of the 2014 Structural Transformation Program for Healthcare
Industries Action Plan, is chaired by the Undersecretary of the Ministry of
Health and the TMMDA acts as its secretariat. Its role is to evaluate and
coordinate, inter alia, pricing and reimbursements of pharmaceutical products,
state support and trade policies in the healthcare sector, and in particular
activities connected to the 10th Development Plan and the Structural
Transformation Program for Healthcare Industries Action Plan.80 There is
evidence that the localisation of pharmaceutical products has been on the
agenda of HISC,81 and that, in a number of instances, HISC would submit
decisions for evaluation by the SSI and HSPC in the context of localisation.82
Furthermore, the EU understands that the HISC had an important role in
designing the several phases of localisation, as detailed below.
69. The Commission on the Transition from Import to Manufactured
Products (İthalden İmale Geçiş Komisyonu), referred to in the March 2016
Announcement on the Localisation Process announcing the first phase of
79 Rejoinder by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical
Companies (AIFD) before the Turkish State Council, Case 2017/1308, 21 September 2017 (Exhibit EU-21), p. 1.
80 Circular of the Prime Ministry 2015/19 (2015 HISC Circular) (Exhibit EU-31) Its composition was modified, as set out in Circular of the Prime Ministry 2018/15 (Exhibit EU-32). Article 5(1)(b) of the Directive on the Working Principles and Procedures of the Health Industries Steering Committee of 13 January 2016 (Exhibit EU-33) makes clear that the HISC “carries out the necessary coordination, surveillance and evaluation activities in connection to the relevant activities encompassed by the Action Plan of the 10th Development Plan Program on Structural Transformation in Health Industries and Government’s Action Plans.”
81 Slide 7 of the December 2017 presentation (Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA December 2017 (Exhibit EU-23)) mentions several issues that have been on the agenda of HISC.
82 For example, "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slide 7.
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localisation (see below),83 follows up on the process of localisation of medicines.
It is composed of representatives of TMMDA, SSI, Ministry of Development,
Ministry of Finance, Ministry of Economy and the Undersecretariat of Treasury,
and its work is performed by TMMDA’s department responsible for localisation
(the Drug Regulatory Department Coordination Unit84). This commission is, in
particular, responsible for proposing which medicines should be localised, for
reviewing localisation commitment proposals and for monitoring the transition
from imports to local production. It is also referred to in paragraph 9 of the
HSPC decision on localisation criteria85 as being responsible for reviewing and
deciding on localisation applications. There is evidence that this commission
drafted the assessments of localisation plans which were sent by TMMDA to the
SSI, and on the basis of which the Alternative Reimbursement Commission
(ARC) made an assessment concerning localisation and determined the
pharmaceuticals to be deactivated in the Reimbursement List.86
70. The Healthcare Services Pricing Commission (“HSPC”), established under
the leadership of the SSI, determines the regulated prices and hence the
reimbursement amounts for all healthcare services and goods financially
supported by SSI. It was formed on the basis of Article 72 of the Social
Insurance and Universal Health Insurance Law No. 5510 and is composed of
seven members: one from the Ministry of Labour and Social Security, Ministry
of Finance, Ministry of Health, Undersecretariat of State Planning Organization,
Undersecretariat of Treasury, and two representing the Social Security
Institution.87 The HSPC is empowered to prepare or draft alternative
reimbursement models, contract texts and reimbursement procedures88 which
83 Announcement concerning the localisation process of 4 March 2016 by the TMMDA, the SSI and the
Ministry of Health (Exhibit EU-48). 84 This unit evaluates which medicines could be localised, reviews localisation commitment proposals and
monitors the transition from imports to local production. It also appears to perform the task of communicating with companies through the functional mailbox [email protected]. See TMMDA’s communication to companies of 29 April 2016, entitled “Local production” (Exhibit EU-44).
85 October 2016, HSPC Decision regarding the Localization Process (Exhibit EU-35). 86 Defense by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical
Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017 (Exhibit EU-30). 87 Regulation on the Working Procedures and Principles of the Social Security Institution Healthcare
Services Pricing Commission, Official Gazette no 26979 of 23 August 2008 (Exhibit EU-36). According to Article 72 of the Social Insurance and Universal Health Insurance Law No. 5510, the HSPC reaches decisions by absolute majority and its decisions are published in the Official Gazette.
88 See Article 3 of the Regulation amending the Regulation on the Working Procedures and Principles of the Social Security Institution Healthcare Services Pricing Commission, Official Gazette No 29620, 10 February 2016 (Exhibit EU-37). According to that Regulation, alternative reimbursement models are “reimbursement models created with the objective of promoting the inclusion of product and service groups in the health sector financed/to be financed by the Institution in the scope of reimbursement, depending on the financial or medical benefit they would bring about, in areas of need and outside the current procedures, principles and rules of payment, or --with the changing of current procedures,
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are used, inter alia, in order to localise production. The HSPC may transfer its
powers to the SSI Drug Reimbursement Commission (“DRC”) or to the SSI
Universal Health Insurance Alternative Reimbursement Commission (“ARC”).89
71. On 6 October 2016, the HSPC decided on the localisation criteria that would be
applied by the TMMDA.90
72. The Drug Reimbursement Commission (“DRC”), already discussed above,
was set up by the Social Security Institution Regulation on Drug
Reimbursement (2016 Regulation on Drug Reimbursement), published in the
Official Gazette on 10 February 2016.91 Chaired by the SSI’s Director-General
of Universal Health Insurance and composed of representatives of the SSI,
Ministry of Finance, Ministry of Health, Ministry of Development and the
Undersecretariat for Treasury, is empowered to decide on the delisting,
deactivation or readjustment of the reimbursement conditions of
pharmaceutical products. The chair of the DRC is entitled to take decisions
approving the deactivation or delisting of a product from the Reimbursement
List. In some circumstances, this decision becomes effective three months after
publication,92 but in the case of localisation, the deactivation date is mentioned
in the various announcements on localisation.
73. The Medical and Economic Assessment Committee (“MEAC”), established
by the 2016 Regulation on Drug Reimbursement, prepares technical opinions
on reimbursement decisions and submits it to the DRC. Under Articles 8 until
11 of the Regulation on Drug Reimbursement, MEAC reports to the DRC. Under
the 2016 Regulation on Drug Reimbursement, MEAC is in some cases
authorised to assess applications for delisting submitted by companies.
74. The Universal Health Insurance Alternative Reimbursement
Commission (“ARC”), already referred to above, was established by the
Social Security Institution Regulation on Alternative Reimbursement for
principles and rules of payment-- [promoting] the production of product groups supplied from abroad, not manufactured or found in our country, and [promoting] the switch to local production of imported products, and ensuring market presence” (Article 3(1)(i)).
89 Article 5 of the Regulation amending the Regulation on the Working Procedures and Principles of the Social Security Institution Healthcare Services Pricing Commission, Official Gazette No 29620, 10 February 2016 (Exhibit EU-37).
90 Defense by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017 (Exhibit EU-30), in particular Annex 4.
91 Social Security Institution Regulation on Drug Reimbursement, 10 February 2016 (Exhibit EU-8), chapter two.
92 Social Security Institution Regulation on Drug Reimbursement, 10 February 2016 (Exhibit EU-8), Articles 12(5) and 14(g).
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Universal Health Insurance, published on 10 February 201693 (2016 Regulation
on Alternative Reimbursement). It is in charge of determining “alternative
reimbursement models” and associated reimbursement principles and
procedures based on the authorisation granted by the Health Services Pricing
Committee. It is chaired by the president of the SSI and composed of its
Director-General of Universal Health Insurance, as well as one representative
each from the Ministry of Health, Ministry of Finance, Ministry of Development
and Undersecretariat of Treasury. These “alternative reimbursement models”
are designed to provide reimbursement coverage outside the scope of existing
reimbursement principles, but also, inter alia, to incentivize local production of
groups of products which cannot be manufactured or otherwise are unavailable
in Turkey, and encourage transitioning to local production. One of the roles of
the ARC is "driving localisation and advanced technology transfer in line with
national policies", by "assessing alternative reimbursement models to
incentivize local manufacture of advanced technology products (…) and
imported products transitioning to local manufacture".94 There is evidence that
the ARC has made assessments concerning localisation and determined the
pharmaceuticals to be deactivated in the Reimbursement List.95
75. The Localisation Executive Board, established by the Prime Ministry’s
Circular of 24 January 2018, is in charge of launching programmes to reduce
the import dependency of the Turkish industry overall. It is established at
ministerial level, under the leadership of the Deputy Prime Minister in charge of
economy.96
2.2.2.4 The process and “phases” of localisation
93 Social Security Institution Regulation on Alternative Reimbursement for Universal Health Insurance,
published in the Official Gazette 29620 on 10 February 2016 (Exhibit EU-38). 94 Social Security Institution Regulation on Alternative Reimbursement for Universal Health Insurance,
published in the Official Gazette 29620 on 10 February 2016 (Exhibit EU-38), Article 6(2)(a). 95 Defense by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical
Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017 (Exhibit EU-30), p. 3 (“Relying on Social Security Institution General Health Insurance Alternative Reimbursement Regulation, published in the Official Gazette, dated February 10, 2016 and numbered 39620, Alternative Reimbursement Commission (ARC), formed by the Institution and authorized by HPSC under the same Regulation, has made an assessment in line with the criteria of HPSC, dated October 10, 2016, concerning localization process, relying on the letter of TMMDA, dated January 19, 2017 and numbered E.16113 and has determined the list of pharmaceuticals to be removed from the list.”).
96 Circular 2018/1 from the Office of the Prime Minister, Official Gazette, 24 January 2018 (Exhibit EU-39).
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76. The process and phases of the implementation of the Localisation Requirement
have been outlined in a number of legal instruments, announcements, and
public statements by Turkish officials.
77. For example, an October 2016 presentation by Dr. Hakan Eroğlu, Vice-
President of the TMMDA, explained the “course of action” for the “transition
from importing to manufacturing medicines”: first, the relevant products are
determined; second, negotiations are conducted with companies with a view to
creating a “transition plan”; next, companies must submit commitments to
produce locally. These commitments are then assessed. When companies do
not provide commitments, they are removed from the Reimbursement List.
When they do, and when the commitments are accepted, the plan they submit
will be followed up. Finally, the companies whose commitments are accepted
must submit a “variation” application (to register the product as locally
manufactured instead of imported), which must be approved by the TMMDA. On
this basis, reimbursement of the product by the SSI can continue.97
78. Slide 5 of the presentation gives an overview of the localisation process, as
envisaged at the time:
97 Presentation entitled "Local Production”, delivered at the Symposium on Rational Approach to Current
Issues concerning Medicines, Ankara, 7-9 October 2016 (Exhibit EU-40), slides 2-4.
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79. A similar overview, specific to Phases I and II of the localisation process, was
provided in a March 2017 presentation by the Chairman of the TMMDA:98
98 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation
by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slides 4 and 7.
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80. Similarly, the December 2017 presentation by the TMMDA, referred to above,
provides the following overview for Phases I - IV:99
99 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health",
given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slides 10 – 13.
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81. By way of example, the October 2016 presentation discusses an assessment of
284 products considered for localisation at that time. Out of these, the
companies’ localisation commitments were accepted in 76 cases, 117 products
were exempted from localisation and maintained in the Reimbursement List,
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and 91 products were “rejected”, i.e. there were no commitments or the
commitments were not accepted.100
82. The localisation policy has been designed and implemented in five phases,
depending on (a) the existing market share of domestic producers; (b) the
number of locally produced generic products and local producers in the
equivalent group; (c) the existence of an equivalent group. Each phase
progressively targets products with less existing domestic production, and more
sophisticated products. Thus, these so-called “phases” are not temporal in
nature, but refer essentially to product categories. The implementation of the
phases is a dynamic process. Multiple phases have been put in practice in
parallel, and products have been shifted between different phases. Thus, all of
them should be understood as ongoing.
83. The first phase covers imported products for which the overall market share of
domestic manufacturing in the equivalent group is between 50% and 100%101
and for which three or more local generic products, produced by three or more
producers, exist. The Turkish authorities estimated the market value of these
products to 697 million Turkish lira (TL). 102 Under the first phase, companies
were initially required to offer commitments by 4 May 2016. The evaluation of
the commitments and refusals to offer commitments were conducted during the
course of 2016. Until December 2017, the transition period for the
implementation of commitments took place, and in January 2018 TTICK was to
issue variation approvals.103 In December 2017, Turkish authorities explained
100 Presentation entitled "Local Production”, delivered at the Symposium on Rational Approach to Current
Issues concerning Medicines, Ankara, 7-9 October 2016 (Exhibit EU-40), slide 11. 101 Presentation entitled "Local Production”, delivered at the Symposium on Rational Approach to Current
Issues concerning Medicines, Ankara, 7-9 October 2016 (Exhibit EU-40), slide 7. The presentation also mentions that it has been decided to first localise the products with a market share of 50% and more.
102 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slide 3; Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 8.
103 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slides 4-5; Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23). See also "Era of localisation in the Pharma sector", press article published in ITO HABER, 14 March 2017, recalling how, by reference to the 10th Development Plan and the ‘Action Plan for Structural Transformation in Health Industries’, TMMDA president Dr. Gürsöz explained: “We have notified pharma companies. Following the creation of the plans for transition, the replies and commitments of the companies will be assessed. In January 2018, TMMDA will give the variation (change of place of production/localization) approvals.” Having noted that in this process, the first stage had been completed, Gürsöz added the following: “100 imported medicines have been approved, 29 alternatives have been identified, and 23 additions have been made. During the course of the ongoing second stage, 125 imported medicines will be localised.”
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that, for the first phase, out of a total of 202 medicines, 45 have been selected
for deactivation, with an import value of 695 000 TL. 104
84. The second phase covers imported products for which the overall market
share of domestic manufacturing in the equivalent group is more than 10%,
and for which two or more local generic products, produced by two or more
producers, exist. The Turkish authorities estimated the market value of these
products to around 1.62 billion TL or 1.65 billion TL.105 Under the second phase,
the covered products were selected, meetings with companies were held, and
companies were initially required to offer commitments in the course of January
2017. Assessments took place in late January and early February 2017.
Decisions on commitments were made on proposal by the HISC, evaluated by
the SSI and the HSPC, between 6 February and 31 March 2017. The transition
period for the implementation of localisation commitments was scheduled to
take place between 1 April 2017 and 31 March 2018, which appears to have
been rescheduled to 10 May 2017 and 9 May 2018.106 TMMDA was scheduled to
issue "variation" approvals in June 2018.107
85. This appears to have been updated through an HSPC decision establishing a so-
called “renewed interim period” in which 83 additional products were included
within the scope of the second phase between 30 October 2017 and 30 October
2018.108 This process would encompass, first, products newly included in Annex
4/A of the IRH and products which fell into the scope of the second phase
because the 10% share of domestic manufacturing had been reached; second,
“medicines announced for localisation among the medicines discussed in Phase
III”.109
104 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health",
given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 9. See also press report entitled "Localisation of drugs in the right track", published in Dünya, 15 August 2017, providing figures until August 2017.
105 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slides 4-5; Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 8.
106 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 11.
107 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slide 6; Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 11.
108 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 15.
109 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 15.
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86. In December 2017, Turkish authorities explained that at that stage, under the
second phase, out of a total of 263 medicines, 125 medicines have been
selected for deactivation by the SSI, with a market value of 1.650 million TL.110
87. When presenting the 2019 budget of the Ministry of Health, on 23 November
2018, the Minister of Health provided the figures for the value of the localised
products, taking into account the updates of the second phase, i.e. the products
added into the second phase: 111
88. The third phase covers imported products for which the overall market share
of domestic manufacturing in the equivalent group is less than 10%, or for
which there is only one local producer in the equivalent group. The Turkish
authorities estimated the market value of these products to around 1.4 billion
TL,112 or 1.55 billion TL.113
110 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health",
given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 9. 111 Minister of Health, 2019 Ministry of Health Budget Presentation, delivered on 13 November 2018
(Exhibit EU-41). Similarly, according to a press report entitled “Aim is to prevent imports worth of 6.1 billion: TL 3 billion TL target reached in localisation of drugs project”, published in Dünya on 18 September 2018, “out of 609 drugs included in the scope of localisation 371 have entered the localisation process, whose annual value is estimated to be around 2.74 billion TL. As for the 238 drugs, which are in the programme but have not undergone localisation, it was noted that they consist mainly of drugs which do not have significant importance in the market.”
112 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slide 3. See Press article published in the Hürriyet Daily supplement of 5 April 2017, entitled "Localisation of Medicines Shift from Imports to Production" (Exhibit EU-17), and in particular the statements of Health Minister Prof. Dr. Recep Akdağ ("As regards the localisation efforts that we launched in 2016, we have the possibility to localize around TL 700 million at the first phase, TL 1.7 billion at the second and 1.5 billion at the final.") and the Secretary General of the Pharmaceutical Industry Employers' Union (IEIS) Turgut Tokgöz ("The first phase of the implementation has been designed to involve group of equivalent drugs with a total market share of 700 million TL and a domestic production of 50% and above. In the second phase of the implementation share of domestic production has been reduced to 10%, the third phase will involve equivalent drug groups with less than 10% share in domestic production. With the
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89. The TMMDA’s March 2017 presentation explained that the third phase was, at
that time, in a preliminary preparation stage, providing a list of product groups
with sales values.114 In December 2017, the schedule for phase III was set out
as follows: meetings with companies were to be held in March and April 2017;
preliminary commitments were to be offered in April or May 2017, depending
on the company; final commitments were to be offered by July 2017; and
August 2017 was the deadline for receiving definitive commitments.115 As
explained above, a number of products falling within Phase III have been
moved up to Phase II.
90. The fourth phase covers imported products for which there is an equivalent
group, but in which there is no domestic production. The Turkish authorities
estimated the market value of these products to around 2.2 billion TL.116
91. The March 2017 presentation explained that the fourth phase was, at that time,
in a preliminary preparation stage, providing a list of product groups with sales
values.117 In December 2017, the schedule for phase IV was set out as follows:
a discussion with industry was held in April 2017; preliminary commitments
were to be offered in May 2017. At the time of the presentation, 24 “preliminary
commitments” were provided by companies within the scope of Phase IV.118
92. Finally, the fifth phase covers imported products for which there is no
equivalent group or domestic production, and would cover patented products.
The Turkish authorities estimated the market value of these products to around
5.2 billion TL119 or 5.114 billion TL.120 In the March 2017 presentation, it was
completion of these three phases domestic production of almost 8 billion TL of products will be launched.")
113 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 8
114 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slides 8-10.
115 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 12.
116 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slide 3; Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 8.
117 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slides 11-13.
118 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 13.
119 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slide 3.
120 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health", given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 8.
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explained that the fifth phase was, at that time, in a preliminary preparation
stage, providing numbers of products with their associated costs to the SSI in
2016.121
93. Slide 3 of the March 2017 presentation provided the following overview of the
five phases of localisation: 122
94. Similarly, slide 9 of the December 2017 presentation123 provides the following
overview:
121 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation
by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slides 11-13. 122 "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation
by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), slide 5. 123 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health",
given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 9.
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95. As already explained, the phases are not temporal, but based on product
categories. Moreover, the conditions on the basis of which a product may fall
within one of these phases can change over time. Thus, the phases should not
be understood as rigid and separate. They remain operational in parallel, and a
product that may have initially been covered by one phase may subsequently
be covered by another.
96. Thus, the Turkish authorities periodically check if there are new products, or
products that would previously fall under more advanced phases that can be
included into a less advanced phase. For example, it may be that a product
initially fell under the third phase because there was only one domestic
producer in the equivalent group or its market share of domestic production
was less than 10%. However, it may be that another company has begun
producing an equivalent product in Turkey, or that the market share of the first
producer increased. In this case, the product could fall under the second phase,
and the Turkish authorities would accordingly include it into the second phase.
97. Thus, Turkish authorities introduced a so-called “renewed interim period” in
which they shifted certain products, including products previously covered by
the third phase, into the second phase.124
98. In a letter dated 29 November 2018, an explanatory note by TMMDA annexed
to a letter from the Delegation of Turkey to the EU explained this in the
following way:
“577, number of products mentioned in the information note, which
establishes a base for our Agency’s opinion on localisation application in
124 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health",
given by representatives of the TMMDA, December 2017 (Exhibit EU-23), slide 15.
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medicines on the agenda of the meeting, was reported as the estimated
number towards future as a result of works performed under the
“Localisation Assessment Commission” which is a sub-commission of the
Health Industries Steering Committee… This is a number calculated over
the “Reimbursement List” announced by the Social Security Institution
(SGK) as well as updated by the SGK every week, namely some of the
medicines notified to be reimbursed are removed from the list and new
ones enter the list. Shortly, the process has a structure which is living
and constantly changing.
Also, for products to be deactivated in the Reimbursement list
assessments are carried out regularly by the “Localisation Assessment
Commission” in accordance with various requests from companies. Thus,
numbers of medicines deactivated/to be deactivated are subject to
change. Numbers change constantly since the Reimbursement List is a
list changing continuously, going forward from the Phase 2 has not been
already planned, localisation is voluntary in other phases and new
products enter the 1st and 2nd phase.”125
99. While the localisation measure has foreseen all five phases from the outset
(and continues to do so), the summary set out above indicates that not all of
them have been put in practice yet. The evidence shows that, so far, products
have been deactivated within the framework of the first and second phase. This
includes updates of those phases, through which a number of products have
been shifted from subsequent phases into the first two phases. Instead of
activating a phase as a whole, Turkish authorities have preferred to shift
products from a more advanced phase into a less advanced phase. For
example, in the process of adding additional products to the second phase of
localisation, TMMDA requested companies to submit localisation commitments
until 6 September 2017, explaining that “products which are not submitted will
be subjected to the operation of “not localized””.126
125 Letter from the Permanent Delegation of Turkey to the European Union of 29 November 2018, no.
B/225 (Exhibit EU-42). 126 Communication from TMMDA to certain companies, entitled “The process in which new products were
added to the second phase of localisation” (Exhibit EU-43).
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2.2.2.5 The implementation of the Localisation
Requirement in general
100. When the Localisation Requirement is applied to certain products, under any of
the phases, companies may typically be informed that the covered products
would be delisted or deactivated from the Reimbursement List unless
companies offer commitments. In particular, the Turkish authorities have
periodically published “announcements on the localisation process”, which state
that certain products in the annexed list (“Annex-4/A”) would be deactivated
from the Reimbursement List within a certain period, unless companies commit
to localise the production of pharmaceuticals in Turkey. In other, individual
communications addressed to one or more companies, companies are inter alia
informed that their products are to be included in the localisation process,
invited to make commitments, notified of the authorities’ decision to accept the
commitments, refuse them, delist or deactivate their products (as the case may
be), and instructed on the various steps to be followed (including follow up,
possible updates or alternative commitments, variation applications etc.)
101. In the sections below, the EU will describe a number of such individual
communications. It should be noted that such communications are, for the
most part, exhibited in redacted form. These redactions were requested by the
companies providing the documents, concerned with the risk of retaliation or
other adverse consequences they may be exposed to in Turkey.127 The EU has
sought to ensure that the redactions are kept to a minimum, and that a
redacted version of the original document in Turkish is provided as well.
102. Local production commitments are typically required to contain the following
elements:
• approval from the company’s head office;
• the protocol approval for the contract providing for local manufacturing,
unless the producer already collaborates with a third party manufacturer or
owns a local manufacturing facility;
• technology transfer and performance of analyses.128
103. In some instances, companies offer commitments to localise products other
than the ones initially subject to the localisation. On some occasions, such
127 See, in that regard, Panel Report, EU – Footwear (China), para. 7.685. 128 Roadmap for the process of localization (Setting forth of the principles for the negotiation dated
14.03.2016) (Exhibit EU-45).
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alternative commitments have been accepted.129 This possibility is explicitly
foreseen by the HSPC Decision of October 2016, and Turkish authorities have
acknowledged elsewhere that they are open to such alternative
commitments.130
104. When a producer makes alternative localisation commitments, committing to
localise a second pharmaceutical product instead of the first product originally
subject to localisation, and the second product subsequently becomes subject
to a phase of localisation in its own right, the previously made commitments no
longer protect the first product from the threat of deactivation. In such a
scenario, the producer needs to offer new commitments, whether for the
product at issue or for another product that Turkish authorities are willing to
accept.
105. The localisation process must be completed within a set deadline, which is
typically 18 months. The final binding schedule of localisation is set in
discussions between the Turkish authorities and the company concerned.
106. The Turkish authorities supervise the implementation of the commitments.
Producers are required to present regular progress reports to TMMDA.131 Failure
to present a progress report can lead to the deactivation of the product.132 The
progress report must include steps such as internal approval from the
company’s head office on localisation, the conclusion of a manufacturing
contract with a Turkish producer, and any necessary technology transfer to that
129 Rejoinder by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical
Companies (AIFD) before the Turkish State Council, Case 2017/1308, 21 September 2017 (Exhibit EU-21), p. 12 (“Exemption requests of the manufacturers which offer alternative products in place of their imported products which are requested to be locally produced, have been accepted. The relevant alternative product requests have been accepted upon own requests of the manufacturers.”)
130 Article 3 of HSPC Decision regarding the Localization Process, October 2016 (Exhibit EU-35) provides: “If the manufacturer offers another product of the same or higher financial value, in conformity with the localization calendar, as an alternative to the products evaluated within the scope of localization; the manufacturer’s exemption/postponement requests for its products listed among the medicines evaluated within the scope of localization may be accepted”. See also the rejoinder by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical Companies (AIFD) before the Turkish State Council, Case 2017/1308, 21 September 2017 (Exhibit EU-21), p. 7 (“The manufacturers of the imported products which are evaluated within the scope of the localization process may make the appropriate commitment or commit to locally produce an alternative imported product in place of the relevant product.”)
131 TMMDA’s communication to companies of 29 April 2016, entitled “Local production” (Exhibit EU-44), requires companies to submit their progress reports to the TMMDA’s Drug Regulatory Department Coordination Unit in printed form, and by email to [email protected].
132 Roadmap for the process of localization (Setting forth of the principles for the negotiation dated 14.03.2016) (Exhibit EU-45) (“The companies will submit a progress report at the end of each term (for steps requiring over 3 months, a quarterly and end-of-term progress report will be prepared), otherwise an assessment for removal from the Reimbursement List will be carried out on 4 April 2016.. Products for which the required progress could not be recorded at the end of the term will be considered for removal from the Reimbursement List.”)
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local producer.133 Producers are also expected to explain any obstacle causing a
delay in the progress of the localisation commitments.
107. As part of localisation, the company concerned134 is required to submit a
"variation application" to TMMDA (i.e. application to transition from importation
to local production). The registration certificate for the relevant product would
be updated to reflect its locally manufactured status. Because of the variation
application and the resulting change in the licence from “produced in EU” to
“produced in Turkey”, once localised, the products can no longer be
imported.135
108. The implementation of the Localisation Requirement is further explained in the
HSPC’s October 2016 Decision regarding the Localisation Process.136 This
decision sets out the process and criteria for implementing the Localisation
Requirement, including commitments and delisting/deactivation. The SSI has
explained that this decision serves as the valid legal basis for the application of
the Localisation Requirement.137 It is frequently annexed to various
communications to companies covered by the localisation process, and cited in
announcements and communications by TMMDA and SSI. It is worth citing in
full:
“1. Products with equivalents shall be assessed to avoid any
difficulties in supply to the market due to the imported products
to be excluded from the Reimbursement List.
2. Among the equivalent products with a production market share
between 50% and 100%, the products with 3 or more local
equivalents within the same pharmaceutical form which are
active in the SKRK list shall be assessed.
3. If the company offers an alternative product with same or higher
financial value to the products assessed within the scope of
localisation, then their applications (if any) for the
133 TMMDA’s communication to companies of 29 April 2016, entitled “Local production” (Exhibit EU-44). 134 More precisely, the company that must submit the variation application is the marketing authorisation
holder. Prior to localisation, the marketing authorisation holder would be the importer required to transition to local production.
135 This process is governed by the Regulation regarding the Variations on Medicinal Products for Human Use with Marketing Authorisation or Pending Registration, Official Gazette No. 25823 of 23 May 2005 (Exhibit EU-93). For more details, see the section below detailing the Import Ban measure.
136 HSPC Decision regarding the Localization Process, October 2016 (Exhibit EU-35). 137 Defence by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical
Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017 (Exhibit EU-30), p. 3 and 18 (referring to the HSPC Decision as Annex 4 of the defence).
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exclusion/postponement of the products in the product list
assessed for localisation may be accepted.
4. The products, for which commitments appropriate for the
localisation criteria have not been submitted, shall be excluded
from the Reimbursement List one year after the decision for
exclusion from the Reimbursement List is taken. The schedule for
the transition to local production regarding the products for which
commitments have been submitted shall start when the decision
is announced. Companies should apply to TMMDA for the
variations within 1 (one) year after announcement of the decision
at the latest.
5. The products which were decided to be excluded from the
Reimbursement List shall be assessed for re-inclusion in the list if
they start to be locally produced (production license regulation).
6. The companies that wish to update the decision of transition to
local production for the products which were decided to be
excluded from the Reimbursement List shall be granted for 2
months as of the announcement of the decision for exclusion
from Reimbursement List. The companies who submit their
commitment about the decision of localisation within this 2-
month period should apply to TMMDA for the variations within 1
(one) year after announcement of the decision at the latest.
7. The applications for the transition from import to production of
the products assessed within the scope of localisation shall be
assessed by TMMDA maximum in 6 (six) months (excluding any
time pass related to determined deficiencies that cannot be
referred to TMMDA).
8. Assessment period shall be repeated annually in April and
October.
9. The requests for transition to local production in line with the
above-mentioned criteria shall be assessed and a decision is
made about them by a committee that consists of the
representatives of the SSI, TMMDA, Ministry of Development,
Ministry of Finance, Undersecretary of Treasury and Ministry of
Economy.
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10. The SSI Payment Commission shall make an assessment for the
exclusion from the Reimbursement List of the products of the
companies which have not submitted any commitment for
transition to local production or whose commitments were not
found appropriate by the commission defined in the Article 9.
11. The above-mentioned issues shall be notified by the SSI and
TMMDA to the sector authorities relevant to the issue.”138
2.2.2.6 Evidence of the implementation of the various
phases of the Localisation Requirement
109. On 23 February 2016, from its “local production” e-mail address
(“[email protected]”), the SSI sent a message to pharmaceutical
companies containing a list of all equivalent groups comprising their active
substance and form, with local production market share over 30%, that are
within the scope of localisation.139
110. On 4 March 2016, an “Announcement on the Localisation Process”140 by the
TMMDA and the SSI was published on TMMDA’s website. Referring to Action No
46 of the Action Plan for 2016 of the 64th Government as its basis, the
Announcement explained that “imported products shall be identified for removal
from the Reimbursement List on condition that the necessary guarantee of the
provision of treatment is received”. To this end, sales volumes of products
covered under the first phase (“more than one generic”, “production share of
50% or more”) as well as the domestic production capacity had been assessed,
and a schedule for the localisation of products was devised in order to avoid
any shortages in the market. It also explained that a “Transition from Importing
to Manufacturing Committee”141 was set up to oversee the process, and set out
deadlines for “companies concerned [to] submit their commitments for their
products included in the transition to local production to the TMMDA” or,
alternatively, to submit “justifications.. for products for which no localisation
138 The HSPC Decision was frequently annexed to various announcements and communications concerning
localisation. See, for example, TMMDA and SSI communication to companies entitled “Local production”, announcing that commitments were not considered appropriate and that products would be deactivated as of 22 December 2017 (Exhibit EU-46), Annex 1.
139 SSI communication of 23 February 2016, with annexed list of pharmaceutical products (Exhibit EU-47).
140 Announcement concerning the localisation process of 4 March 2016 by the TMMDA, the SSI and the Ministry of Health, as published on the SSI’s website (Exhibit EU-48).
141 The EU understands that this is the “Commission on the Transition from Import to Manufactured Products (İthalden İmale Geçiş Komisyonu)” referred to above.
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commitments are or can be made” (22 March 2016). Localisation would then
commence on 4 April 2016.
111. The Announcement concluded by stating that, for Turkish authorities, the
preferred outcome was not to remove products from the Reimbursement List,
but to shift to local production (i.e. to localise production on the basis of
company commitments.
112. In some instances, the 4 March Announcement was sent to individual
companies concerned in the form of a letter, including an annex listing the
company name, the market share group for localised production, the equivalent
group, and the name of the product(s).142 On 10 March 2016, an abbreviated
version of the Announcement was sent in the form of a letter to individual
companies, signed by Department President, on behalf of the President of the
TMMDA.143
113. In the course of March 2016, companies also received a document entitled
“Roadmap for the Localisation Process (setting out the principles for the
negotiation on 14 March 2016)”. This document set out in more detail the
various steps and deadlines for localisation (defined as “full production (except
for the active substance)”), including the submission of commitments or
justifications on why commitments could not be made. It added: “On 4 April
2016, discussions will commence on the removal from the Reimbursement List
of products for which no commitments have been made.”
114. It then set out the information that should be included in company
commitments (Global approval, Protocol approval for the contract
manufacturing agreement, Technology transfer and analyses), and explained
that it should contain a time schedule not surpassing 18 months. The final
schedule would be established in accordance with requests from the companies,
and would be binding. When domestic production is envisaged, the local
producer must be identified.
115. Companies making commitments are also required to submit progress reports
at the end of each “term”, or on a quarterly basis. Otherwise, the roadmap
explained, “an assessment for removal from the Reimbursement List will be
carried out on 4 April 2016. Products for which the required progress could not
142 Announcement about the Localisation Process of 4 March 2016 by the TMMDA, the SSI and the
Ministry of Health, as sent to certain companies (Exhibit EU-49). 143 TMMDA communication dated 10 March 2016, entitled “Localization” (Exhibit EU-50).
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be recorded at the end of the term will be considered for removal from the
Reimbursement List.”
116. In parallel, on 4 April 2016, any submitted “justifications” for why commitments
were not given would be assessed, and could be accepted, inter alia, “for
products that provide the same financial benefit with fewer boxes” (i.e. a
smaller volume of more expensive products).144
117. Around this time, several press reports suggested that pharmaceutical
companies shifted production to Turkey, with the objective of serving the
Turkish market. While companies do not publicly state that their localisation of
production in Turkey was a result of the measure at issue, this is commonly
understood to be the case at least with respect to some of those investments.
For example, a press article from 2019 reported that “the 'local production'
incentive of the Ministry of Health bore fruit and foreign pharmaceutical
companies embarked on an investment race in Turkey”, listing numerous
examples.145 Other press reports indicate that at least one domestic
manufacturer of pharmaceuticals expressed support for the Localisation
Requirement as it enables local manufacturers “not only to produce our own
products but also the products of other companies, which want to carry their
production over to Turkey”; thus, the company looked forward to “playing a
role in the reduction of imports.”146
118. The fact that the implementation of the Localisation Requirement, and its
objective, were common knowledge among industry actors is attested, for
example, by a report from a consulting firm advising on transfer pricing
arrangements for localised production:
“The government's support for domestic pharmaceutical production
includes preferential reimbursement arrangements for domestically
produced products, the delisting of imported products from the
Reimbursement List and inspection requirements. Within the context of
government's localisation strategy, 54 drugs have been delisted from
"Reimbursement List" led by the Social Security Institution (SGK). The
government expects local production of the delisted drugs, otherwise
144 Roadmap for the process of localization (Setting forth of the principles for the negotiation dated
14.03.2016) (Exhibit EU-45). 145 Press article published in Dünya, "Foreign investments will be [like] medicine!", 30 July 2019 (Exhibit
EU-19). 146 Interview with CEO of Abdi İbrahim, Süha Taşpolatoğlu’s, in “Abdi İbrahim sector’s leader since 2003”
(Exhibit EU-54).
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new drugs may be delisted from Reimbursement List. To sum up, there
will be local production of some drugs which are currently imported
from abroad. Prior to this localisation initiative, as known many
Multinational Enterprises (MNEs) in Turkey have been importing
finished products and distributing in the market. With the
implementation of such strategies, importation of finished products will
be converted to importation of API (Active Pharmaceutical
Ingredients). The APIs will be processed locally.”147
119. On 5 April 2016, an announcement was published on TMMDA’s website.
Referring to the Announcement of 4 March 2016, it explained that “equivalent
groups’ company commitments concerning the localisation process are
currently under review by the Council.”148
120. On 20 April 2016, the Ministry of Health responded to a letter from the EU’s
Delegation in Turkey149 raising concerns with the discrimination in favour of
domestically manufactured products. Annexed to that letter was a document
entitled “Fact sheet on process of transition from import to manufacturing”,
which referred to Action 46 under the 64th Government’s 2016 Action Plan, and
its requirement to make a determination on the removal of certain imported
pharmaceutical products from the Reimbursement List. The Fact sheet
explained that this effort was led by the Ministry of Health, that a Commission
to oversee the Transition From Import to Manufacturing was formed with
representatives of the Ministry for Development, the Ministry of Finance, the
Undersecretariat for the Treasury and the Social Security Agency, and that it
will engage in discussions with the companies concerned to that end. It
recalled, like the earlier announcements, that the authorities’ preferred
objective is not to exclude products from reimbursement but to “incentivise
local production”, and to “decisively continu[e] the task prescribed by the
action plan, by making all efforts to cooperate with firms.” In response to the
concerns raised by the EU Delegation, it argued that “this practice” (i.e. the
requirement to localise production) “applies to all firms with a manufacturing
147 “Local Production of Drugs in Turkey and its Transfer Pricing "Side" Effects”, article by Başak Diclehan
of KPMG, 15 October 2017 (Exhibit EU-55). 148 TMMDA Announcement on the Localisation Process of 5 April 2016 (Exhibit EU-56). 149 Letter from the Delegation of the EU to Turkey to the General Director of the SSI and to the President
of the TMMDA, 23 March 2016 (Exhibit EU-57).
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share of 50 % and over, regardless of whether they are an overseas or local
firm, and there is absolutely no discrimination against local firms.”150
121. On 29 April 2016, certain companies received an e-mail from TMMDA, noting
that the “applications regarding your products requested to be locally produced
within the process of "localisation" pursuant to the relevant clause of the 2016
Action Plan of the 64th Government have been assessed by the Commission of
Transition from Importation to Production.” The e-mail then summarizes the
“assessment criteria determined by the Commission of Transition from
Importation to Production”: the scope of the localisation (including an
exemption for products with less than three domestic equivalents), the time
periods within which production must be localised, and the schedule for
submitting variation applications. The message further explains that, whereas
“undertakings that the application of transition from importation to production
will be submitted to the Agency in maximum 1 year have been accepted”, other
requests have been refused. The message concludes by inviting companies to
submit updated commitments to TMMDA until 4 May should they wish to do
so.151
122. In October 2016, the HSPC adopted a Decision, referred to above, containing
detailed steps and rules for the implementation of the Localisation
Requirement.152
123. On 8 February 2017, the SSI published another “Announcement concerning
the localisation process”, listing as a contact address “[email protected]”,
(the word "yerel" in Turkish means "local" and the word "uretim" means
"production") to which it attached a “list resulting from the amendment made
to the Medicines Reimbursement List (Annex 4/A) in accordance with the 10th
Development Plan and Action Plan of the 64th Government.” The Annex
consists of an amendment to Annex 4/A of the IRH, and it is entitled “Medicines
to be removed from the Medicines Reimbursement List (Annex-4/A)”. It lists 50
products, and provides that “The effective date [of the removal] for the
medicines in this list is 8 February 2018.” 153 On 16 February 2017, a new
announcement stated that “requests for updating of the list attached to the
150 Letter from the Ministry of Health to the EU's Delegation to Turkey in reply to the letter from the
Delegation of the EU, 20 April 2016 (Exhibit EU-58). 151 TMMDA’s communication to companies of 29 April 2016, entitled “Local production” (Exhibit EU-44). 152 HSPC Decision regarding the Localization Process, October 2016 (Exhibit EU-35). 153 SSI, Announcement on the Localisation Process of 8 February 2017, with annexed list of products
(Exhibit EU-59).
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announcement dated 8 February 2017 can be made to the Medicines and
Medical Devices Agency within the two months following 8 February 2017,
which is the publication date.”154
124. On 25 April 2017, the SSI published on its website a new Announcement on the
Localisation Process, containing an updated version of the product list issued on
8 February 2017 with 48 items, with the same date of entry into effect of the
removal (8 February 2018). 155 This announcement also referred to the 10th
Development Plan and the 64th Government's Action Plan. As the SSI explained
in litigation in Turkey, this update took place because of the acceptance or
withdrawal of commitments after the 8 February 2017 Announcement. For
certain products localisation commitments had been offered and accepted by
TMMDA after the February 2017 announcement, whereas for other products the
localisation commitments have been withdrawn.156
125. On 19 January 2018, the SSI published on its website another Announcement
on the Localisation Process157, containing a “list of the medicines to be removed
from the Medicines Reimbursement List (Annex 4/A) as of 8 February 2018 in
accordance with the 10th Development plan and Action Plan for 2016 of the
64th Government.” Annexed to it was an amendment to Annex-4/A, in excel
format, entitled "Medicines to be removed from the Medicines Reimbursement
List ", containing 45 products, with entry into effect on 08 February 2018.
126. The SSI published another similar announcement on 16 May 2018.158 Citing the
same legal basis, it contained two attachments with lists of imported products
to be removed from the Reimbursement List for localisation purposes. Both of
these removals would enter into effect on 31 July 2018. The first attachment,
listing 30 products, is entitled “List of the medicines to be delisted in the first-
phase localisation process”, and the second, with 113 products, “List of the
154 SSI, Announcement on the Localisation Process of 16 February 2017 (Exhibit EU-60). 155 SSI, Announcement on the Localisation Process of 25 April 2017 (Exhibit EU-61). 156 Defence by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical
Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017 (Exhibit EU-30), p. 4: “With the announcement in question, 5 of the 50 imported pharmaceuticals… which are reported to be suspended as of February 8, 2018, have given localization commitment and with the approval of TMMDA, they have been designated as to be localized. On the other hand, Teril Cr 200 mg 20 tablet, Teril Cr 400 mg 20 tablet and Setron 1 mg. 10 film tablets pharmaceuticals have withdrawn their localization commitments. As it may be understood from here, localization process has a dynamic structure and in connection with the decisions and commitments of owners/authorisation holder, the pharmaceutical list, annexed to announcement, will change in time until February 8, 2018. Therefore, in case the pharmaceuticals, given in the list in question; the suspension decision will be revoked.”
157 SSI, Announcement on the Localisation Process of 19 January 2018, with annexed list of products (Exhibit EU-62).
158 SSI, Announcement on the Localisation Process of 16 May 2018, with annexed lists of products (Exhibit EU-63).
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medicines to be delisted in the second-phase localisation process”. Thus, unlike
previous ones, this announcement also concerned products from the second
phase. A press article confirms that on 31 July 2018 the SSI delisted 143
products.159
127. It follows that a number of pharmaceutical products covered by the first and
second phases, for which no commitments were given or the commitments
were not accepted, have been deactivated as of 8 February 2018 and 31 July
2018.
128. There is further evidence on the implementation of the second phase of the
Localisation Requirement. For example, communications to companies referring
to accepted commitments, entitled “Concerning Phase 2 Localisation
Operations” confirm that “the products which you have declared to us that you
will localise as part of the process for localisation of imported pharmaceutical
products currently being implemented in accordance with Action No 46 in the
64th Government’s 2016 Action Plan in line with the Health Industries
Structural Transformation Program in the 10th Development Plan (2014-2018)
have been assessed”, and specify, first, that variation applications must be
submitted within twelve months as from a certain date and, second, that the
company must submit a progress report six months after that date.160
129. As explained above, products have also been included into the second phase of
localisation ex post. For example, in the process of adding additional products
to the second stage of localisation, TMMDA requested companies to submit
localisation commitments until 6 September 2017, explaining that “products
which are not submitted will be subjected to the operation of “not localized””.161
130. Similarly, in March 2018, the TMMDA’s “local production working group” invited
companies to a meeting “on localisation processes of your below mentioned
products”, which were to be added to the second phase of localisation in the
course of its “second update”. The communication added that “the list of the
products in the 2nd phase will be updated regularly with regards to Annex 4/A
published by April and September.”162
159 Press article, “SSI has delisted 143 drugs…”, Evrensel, 15 August 2018 (Exhibit EU-64). 160 TMMDA, communication to companies entitled “Concerning Phase 2 Localisation Operations” (Exhibit
EU-65). 161 Communication from TMMDA to certain companies, entitled “The process in which new products were
added to the second phase of localization” (Exhibit EU-43). 162 TMMDA communication from March 2018, entitled “Government Localization Process 2nd update on
the 2nd phase” (Exhibit EU-66).
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131. A communication to companies dated 4 April 2018 stated:
Further to the decision of Localisation Assessment Commission dated
March 23, 2018, the companies that submitted local production
commitments for their products included in Stage I; the companies that
submitted local production commitments for their products included in
Stage II; and the companies that submitted local production
commitments in Stage II 2017/1 update step should make their variation
applications to our Directorate until July 31, 2018, September 28, 2018
and January 31, 2019 respectively (application for switching from import
to production).
The products for which no application is made until that time, shall be
notified to Social Security institution so that they shall be passivated at
least 1 month later from the mentioned dates.163
132. There is also evidence that Turkish authorities have taken steps to implement
the third and fourth phases of localisation. In the course of March and April
2017, TMMDA invited companies to a meeting “for the purpose of assessment
of your products given in the attached list”, “within the scope of the localisation
study conducted upon instruction of the Health Industry Guidance Committee
that has held a meeting under chairmanship of our Minister”. The invitation was
entitled “Localisation of Drugs Study (Stage 3)”.164 TMMDA has also explicitly
instructed companies to submit “localisation commitments” for their products”
within the scope of 3rd phase localisation” to TMMDA until a certain date.165
Moreover, communications from March 2018 invite companies to meetings to
discuss their products listed in the letter in scope of the 3rd phase of the
“government localisation process”.166
133. On 4 April 2017, the TMMDA circulated to interested parties a communication
entitled “Phase IV localisation work”. Referring to the localisation objectives of
the 10th Development Plan and the Action Plan for the Programme of Structural
Transformation in Healthcare Industries, as well as the ongoing “accelerated”
work on Phases I-III, the communication explained that work on the fourth
phase has commenced. The relevant products, for which a list of product
163 TMMDA communication of 4 April 2018, entitled “Localization Studies” (Exhibit EU-67). 164 TMMDA communication circulated in March and April 2017, entitled “Localization of Drugs Study (Stage
3)” (Exhibit EU-68). 165 TMMDA communication entitled “3rd Phase Localization Operations” (Exhibit EU-69) 166 TMMDA communication of March 2018, entitled “Government Localization Process” (Exhibit EU-70).
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groups with sales values is provided in the annex, would be examined on a
“one-to-one basis” with the importing companies.167
2.2.2.7 Evidence on the application of the Localisation
Requirement to individual companies
134. Much of the communication related to the implementation of the Localisation
Requirement takes place bilaterally between Turkish authorities and the
companies concerned. Notably, the TMMDA sends localisation-related
communications to companies in letters, and through a functional mailbox
called [email protected]. The word "yerel" in Turkish means "local" and
the word "uretim" means "production". At the beginning of the localisation
process, the SSI also communicated with companies through the functional
mailbox [email protected]. The TMMDA also organises meetings with
companies to discuss the localisation of their products.
135. For example, TMMDA has invited companies to meetings in order to discuss the
“evaluation” of products annexed to the invitation “within the scope of
localisation operation performed by the instruction of Health Industry Guidance
Committee in the Presidency of our esteemed Minister.”168 Similarly, in March
2018, the TMMDA’s “local production working group” invited companies to a
meeting “on localisation processes of your below mentioned products”, which
were to be added to the second phase of localisation in the course of its
“second update”.169 Other communications from March 2018 invite companies
to meetings to discuss their products listed in the letter in scope of the 3rd
phase of the “government localisation process”.170
136. TMMDA has also sent communications to companies requesting them to submit
localisation commitments, and providing instructions on the process.
137. For example, TMMDA has instructed companies how to submit localisation plans
for their products previously identified and notified to them by TMMDA,
referring also to the variation applications that must be made at the end of the
localisation process.171 It has also explicitly instructed companies to submit
167 TMMDA communication of 4 April 2017, entitled “Phase IV localisation work”, with annexed list of
product categories (Exhibit EU-71). 168 TMMDA Communication of 13 January 2017, entitled “Localization Operation” (Exhibit EU-72).
Similarly, see TMMDA communication circulated in March and April 2017, entitled “Localization of Drugs Study (Stage 3)” (Exhibit EU-68).
169 TMMDA communication from March 2018, entitled “Government Localization Process 2nd update on the 2nd phase” (Exhibit EU-66).
170 TMMDA communication of March 2018, entitled “Government Localization Process” (Exhibit EU-70). 171 TMMDA communication of 18 January 2018, entitled “About Localization Declaration” (Exhibit EU-73).
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“localisation commitments” for their products to TMMDA until a certain date.172
Similarly, in the process of adding products to the second stage of localisation,
TMMDA requested companies to submit localisation commitments until a certain
date, explaining that “products which are not submitted will be subjected to the
operation of “not localized””.173
138. If a company does not submit localisation commitments, its products will be
deactivated. At times, Turkish authorities have made this clear to companies
explicitly. For example, a March 2018 communication from the SSI to a
company stated:
In line with the government localisation process implemented within the
context of 10th Development Plan and 64th Government 2016 Action
Plan, it is decided by Alternative Reimbursement Commission that, your
products … are to be put passive valid by XX/05/2018 in Annex 4A, on
the ground that you did not submit any localisation commitment about
them.174
139. Similarly, a January 2018 communication from the SSI to a company confirms
that the decision to deactivate that company’s products was taken “in line with
the purpose of 10th Development Plan and 2016 Action Plan of 64th
Government”, and that the decision can be cancelled in case the company
decides to submit localisation commitments acceptable to the Turkish
authorities.175
140. As explained above, when companies provide localisation commitments, those
commitments will be assessed. Companies are then notified of the outcome of
the assessment and of the next steps. These communications invoke as their
legal basis the Tenth Development Plan and Action no. 46 of the Action Plan of
the 64th Government.
141. First, the proposed commitments can be refused. In such circumstances, the
SSI and TMMDA jointly notify the company concerned in writing that the
relevant product(s) shall be excluded from the Reimbursement List one year
after the exclusion decision, because the commitments granted were
172 TMMDA communication entitled “3rd Phase Localization Operations” (Exhibit EU-69). 173 Communication from TMMDA to certain companies, entitled “The process in which new products were
added to the second phase of localization” (Exhibit EU-43). 174 SSI communication of March 2018, entitled “Government Localization Process”, concerning a
company’s non-submission of localisation commitments (Exhibit EU-74) 175 SSI communication of January 2018, entitled “Localization Process”, concerning the cancellation of
delisting (Exhibit EU-75).
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considered not to be “appropriate”. These communications also recall that
companies can request an “update”, i.e. submit a different proposed
commitment within two months. The 2016 HSPC Decision, described above,
and a list of the relevant products, have been attached to these
communications.176 A similar communication, annexed to a court filing by the
SSI, shows that a localisation commitment provided by the company Bayer
Türk Kimya San for the product “Ciproxin Infusion 0.2 g 1x100 ml”” was “not
found acceptable”, and that, accordingly, “action would be taken” under Articles
4 and 10 of the annexed HSPC Decision. Those articles concern the exclusion of
products from the Reimbursement List.177
142. This refusal, therefore, leads to an exclusion from reimbursement. In such
cases, in a series of communications from the SSI, companies have been
informed of an amendment to the Reimbursement List “within the scope of the
Tenth Development Plan and the Action Plan of the 64th Government” (i.e.
delisting and/or deactivation), attached to the letter (Annex 4/A), and at the
same time invited to submit their requests for update, if any, to TMMDA,
between a certain date and the “effective date of the regulation.”178 These
communications apply, as far as the EU understands, both to products for
which no commitments were given and to those for which commitments were
refused.
143. The proposed commitments can also be accepted. In such circumstances, the
company in question is notified, by letter, that its localisation commitments in
respect of certain of its products listed in an annex, assessed as falling within
the scope of the policy of localisation of imported products as per the annexed
HSPC’s Decision, are acceptable. The letter further stipulates that the company
is required to apply for transition to local manufacturing within a stipulated
176 TMMDA and SSI communication to companies entitled “Local production”, announcing that
commitments were not considered appropriate and that products would be deactivated as of 22 December 2017 (Exhibit EU-46)
177 TMMDA and SSI communication to Bayer Türk Kimya San rejecting proposed commitments, Annex V to Defense by the SSI in court proceedings raised by the Association of Research-Based Pharmaceutical Companies (AIFD) before the Turkish State Council, Case 2017/1308, 29 June 2017 (Exhibit EU-76).
178 SSI communication entitled “Localization Process”, providing a list of deactivated or delisted products and providing for the possibility of updating proposed commitments (Exhibit EU-77). Similarly, see a separate SSI communication entitled “About Localization Process”, providing a list of deactivated or delisted products and providing for the possibility of updating proposed commitments (Exhibit EU-78). See also SSI communication of March 2018, entitled “Government Localization Process”, concerning a company’s non-submission of localisation commitments (Exhibit EU-74), providing for a possibility to submit “updates of the localization status of those products” to the TMMDA before the effective date of delisting.
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period of time, and that the transition to domestic manufacturing will be
followed up as per the decision of the HSPC.179
144. Other communications, also referring to accepted commitments, confirm that
“the products which you have declared to us that you will localise as part of the
process for localisation of imported pharmaceutical products currently being
implemented in accordance with Action No 46 in the 64th Government’s 2016
Action Plan in line with the Health Industries Structural Transformation Program
in the 10th Development Plan (2014-2018) have been assessed”, and specify,
first, that variation applications must be submitted within twelve months as
from a certain date and, second, that the company must submit a progress
report six months after that date.180
145. Another TMMDA communication, referring to a company’s annexed product list,
sets the start date of the localisation process at 31 January 2018 and requires
the company to submit variation applications for the products for which it made
localisation commitments until 31 January 2019.181
146. Turkish authorities require companies with accepted localisation commitments
to submit progress reports at regular intervals. One such communication, of 10
October 2017, instructs companies on the process of submitting progress
reports to TMMDA, which should cover “each one of your medicine in
localisation declaration under Phase 1 and Phase 2” and contain “your stage,
your progress, reasons if there is a delay, and possible variation application
date to our agency.”182
147. Finally, various communications confirm that a variation application must be
made for products that have been localised on the basis of accepted
commitments within a certain date. Otherwise, those products will be
deactivated. For instance, a communication to companies dated 4 April 2018
states:
“Further to the decision of Localisation Assessment Commission dated
March 23, 2018, the companies that submitted local production
179 SSI communication entitled “Local Production” of January 2017, informing that the proposed
commitments were found to be appropriate (Exhibit EU-79). See also TMMDA communication of December 2016, entitled “Local Manufacture”, informing that the proposed commitments were found to be appropriate (Exhibit EU-80). In the latter case, the precise wording of the letter is replaced by a synopsis for confidentiality reasons.
180 TMMDA, communication to companies entitled “Concerning Phase 2 Localisation Operations” (Exhibit EU-65).
181 TMMDA communication of 31 January 2018, entitled “Localization Process” (Exhibit EU-81) 182 TMMDA communication of 10 October 2017, entitled “Preparing a progress report for your products in
localization process”. (Exhibit EU-82)
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commitments for their products included in Stage I; the companies that
submitted local production commitments for their products included in
Stage II; and the companies that submitted local production
commitments in Stage II 2017/1 update step should make their variation
applications to our Directorate until July 31, 2018, September 28, 2018
and January 31, 2019 respectively (application for switching from import
to production).
The products for which no application is made until that time, shall be
notified to Social Security institution so that they shall be passivated at
least 1 month later from the mentioned dates.”183
148. Finally, in some instances, companies submitting commitments are notified that
their products in question fall outside of the scope of the policy of localisation of
imported products, as per the HSPC decision in the annex.184
2.3. THE LOCALISATION REQUIREMENT IS INCONSISTENT WITH ARTICLE III:4 OF THE GATT 1994
149. Article III:4 of the GATT 1994 provides:
“The products of the territory of any contracting party imported into the
territory of any other contracting party shall be accorded treatment no less
favourable than that accorded to like products of national origin in respect of all
laws, regulations and requirements affecting their internal sale, offering for
sale, purchase, transportation, distribution or use.”
150. For a violation of Article III:4 to be established, three elements must be satisfied:
(i) the imported and domestic products at issue are "like products"; (ii) the
measure at issue is a "law, regulation, or requirement affecting their internal sale,
offering for sale, purchase, transportation, distribution, or use"; and (iii) the
imported products are accorded "less favourable" treatment than that accorded to
like domestic products.185
2.3.1. The domestic and imported products at issue are “like”
151. With respect to (i), it is well established in WTO jurisprudence that measures
distinguishing between goods solely on the basis of national origin satisfy the "like
183 TMMDA communication of 4 April 2018, entitled “Localization Studies” (Exhibit EU-67). 184 TMMDA communication of December 2016, entitled “Local Production”, confirming that certain
products fall outside the scope of localisation (Exhibit EU-83). The precise wording of the letter is replaced by a synopsis for confidentiality reasons.
185 Appellate Body Report, Korea – Various Measures on Beef, para. 133.
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product" requirement. Panels examining claims under Article III:4 of the GATT
1994 have repeatedly found that products at issue were like where the sole
distinguishing criterion was origin.186
152. Thus, where a Member draws an origin-based distinction, a comparison of specific
products is not required and it is not necessary to examine the traditional likeness
criteria – such as, their physical properties, end-uses and consumers' tastes and
habits.187 It is sufficient for the purpose of satisfying the "like product" test for a
complaining party to demonstrate that there can or will be domestic and imported
products that are "like".188
153. Panels have applied this reasoning to find that requirements to purchase domestic
over imported products satisfy the "like product" requirement. For example, in
India – Autos, the panel found that an "indigenization" requirement for
automobile manufacturers to purchase domestically produced auto parts satisfied
the "like product" test, because "the only factor of distinction under the
'indigenization' condition between products which contribute to fulfilment of the
condition and products which do not, is the origin of the product as either
imported or domestic".189 Moreover, in US – COOL, which concerned a country-of-
origin labelling requirement for certain meat products, the panel reflected that "in
previous disputes, products that are distinguished solely on the basis of their
origin were found to be like products within the meaning of Article III:4". The
panel then noted that "the COOL measure distinguishes the products at issue
according to the country in which the birth, raising and slaughtering of the animal
from which meat is derived took place". On that basis, the panel concluded that it
"need not engage in any further analysis to conclude that the products at issue in
this dispute are 'like products'".190
154. On the basis of this jurisprudence, it is clear that all the requirements for a finding
of likeness are met in this case. Much like the “indigenization” measure in India -
Autos, or the labelling scheme in US – COOL, the only “factor of distinction” on
which the Localisation Requirement is premised is the country of production. The
reimbursement of the products to which the Localisation Requirement applies is
186 Panel Report, India – Solar Cells, para. 7.83. Similarly, see Panel Report, Argentina – Import
Measures, paras. 6.273 – 6.276. 187 Panel Report, Turkey – Rice, para. 7.214 and the cases cited therein. 188 Panel Report, China - Publications and Audiovisual Products, paras 7.1444 – 7.1447. Panel Report,
Canada – Wheat Exports and Grain Imports, para. 6.164. 189 Panel Report, India – Autos, para. 7.174; see also, e.g., Panel Report, China – Auto Parts, paras 7.234
– 7.235. 190 Panel Report, US – COOL, paras 7.255 – 7.256.
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explicitly conditioned on their production in Turkey, and not on any other
characteristics of the products. The domestic and imported pharmaceutical
products at issue are like.
2.3.2. The Localisation Requirement is a law, regulation, or
requirement affecting the internal sale, offering for sale,
purchase, transportation, distribution, or use of products
155. With respect to (ii) (whether the measure at issue constitutes a "law, regulation,
or requirement affecting their internal sale, offering for sale, purchase,
transportation, distribution, or use"), the terms "all laws, regulations and
requirements" have been interpreted as encompassing a broad range of
governmental actions. They include, inter alia, requirements that an enterprise
voluntarily accepts in order to obtain an advantage from the government.191
156. First, the Localisation Requirement could be considered, at least in part, as a
“law” or “regulation”.
157. The panel in Brazil – Taxation explained that measures imposed through “specific
laws and decrees” are within the meaning of "laws" and "regulations" in the
context of Article III:4 of the GATT 1994.192 Similarly, the panel in US –
Renewable Energy found that measures which are “embodied, wholly or at least
partly, in formal legal instruments such as codes, rules, acts and statutes… clearly
qualify as "laws" or "regulations" resulting from "governmental action" and setting
out rules with which compliance is necessary to obtain an advantage from a
government.193
158. As explained above, the Localisation Requirement is imposed through a number of
legal instruments, many or all of which qualify as “specific laws or decrees” or
“formal legal instruments” resulting from governmental action, and setting out
rules with which compliance is necessary to obtain an advantage from a
government. This would be true, to name a few examples, of the decisions of
Turkish authorities setting out the general features of the Localisation
Requirement (such as the 10th Development Plan and 2016 Action Plan of 64th
Government) or specifying the criteria or procedures for localisation (such as the
HSPC Decision of October 2016); of the various localisation announcements
191 Panel Report, Japan – Film, paras 10.373 – 10.376; Panel Report, Canada – Autos, para. 10.73. Panel
Report, India – Autos, paras. 7.189 – 7.191; Panel Report, China – Auto Parts, paras 7.240 – 7.243. Panel Report, Brazil – Taxation, para. 7.703. Panel Report, US – Renewable Energy, para. 7.151.
192 Panel Report, Brazil – Taxation, para. 7.704. 193 Panel Report, US – Renewable Energy, para. 7.152.
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published by the TMMDA or the SSI; and of the individual communications
addressed by the TMMDA or the SSI to companies, containing inter alia binding
decisions on localisation and reimbursement (for example, acceptance or refusal
of commitments, or deactivation from the Reimbursement List). Of note, the SSI
has not just confirmed, but vigorously argued that a number of these instruments
are valid legal sources in the Turkish legal system.194
159. In the EU’s view, given the fact that the Localisation Requirement is to a
significant extent “embodied” through these “specific laws or decrees” or “formal
legal instruments”, it should, as a whole, be described as a “law or regulation”.
160. Alternatively, the Localisation Requirement could in any event be described as a
“requirement”.
161. The panel in India – Autos, referring to previous GATT reports, held that there are
two distinct situations which would be characterised under the term
"requirement": (1) obligations which an enterprise is "legally bound to carry out";
and (2) obligations which an enterprise "voluntarily accepts in order to obtain an
advantage from the government". The panel also established that it is irrelevant
whether a measure has actually been enforced, as it is merely its enforceability
that matters.195
162. The panel in Brazil–Taxation confirmed that the term "laws, regulations and
requirements" "encompasses a variety of governmental measures, from
mandatory rules which apply across the board, to government action that merely
creates incentives or disincentives for otherwise voluntary action by private
persons".196 Even if it is possible for manufacturers or importers to avoid the
application of a measure and freely import and market their products while
choosing to forgo an advantage, the measure would still be a “requirement”
within the meaning of Article III:4.197
163. Even if, formally speaking, companies whose products are covered by the
Localisation Requirement are free to either localise production (and thus continue
to benefit from reimbursement) or continue importing (and thus forgo
reimbursement), it is clear that the measure imposes a requirement (localisation)
as a condition for obtaining an advantage (reimbursement). Obviously, this
194 See section 2.2.2.2, by reference to Exhibits EU-30 and EU-21. 195 Panel Report, India – Autos, paras 7.183 – 7.184. See also Panel Report, Canada – Autos, para. 10.73
(where "letters of undertaking" submitted by certain firms at the request of the Canadian Government were considered to be "requirements").
196 Panel Report, Brazil – Taxation, para. 7.65. 197 Panel Report, China – Auto Parts, para. 7.242.
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requirement is a strong incentive to engage in “otherwise voluntary action” (the
decision to produce in Turkey). All of this would be true even if no product had
actually been deactivated from the Reimbursement List, because what matters is
the potential enforceability of the measure. Thus, there is at the very least a
“requirement” within the meaning of Article III:4.
164. Furthermore, the Localisation Requirement affects the internal sale, offering for
sale, purchase, transportation, distribution, or use of the relevant products.
165. Under GATT and WTO jurisprudence, the term "affecting" has consistently been
defined broadly.198 It goes beyond laws and regulations which directly govern the
conditions of sale, use or purchase to cover also any laws or regulations which
might adversely modify the conditions of competition between domestic and
imported products. This includes any measure capable of influencing the choice
between an imported product and the like domestic product, there being no need
to demonstrate that such choice is mandated or that such effects have actually
been produced.199
166. In particular, when the purpose of complying with certain requirements is to
obtain an advantage, or when they create an incentive to buy certain products
over others, it is clear that those requirements affect the sale, offering for sale or
purchase of products.200
167. Finally, in assessing whether the measure affects the sale, offering for sale or
purchase of products, there is no need to examine the extent to which the
measure has, “under current circumstances, influenced purchasing decisions on
the market.”201
168. With this in mind, it is clear that the Localisation Requirement affects the sale,
offering for sale, use or purchase of products. It is designed to confer an
advantage on locally produced pharmaceutical products by encouraging their sale,
purchase and use, to the detriment of like imported products. It is clearly capable
of influencing the choice between like imported and domestic products.
198 Panel Report, India – Autos, para. 7.196 Panel Report, Brazil – Taxation, para. 7.705. 199 Appellate Body Report, EC-Bananas III, para. 211; Panel Report, EC – Bananas III (US), paras 7.176
and 7.181; Panel Report, Canada – Autos, paras 10.80 and 10.84 – 10.85; Panel Report, India – Autos, para. 7.306; Appellate Body Report, US – FSC (Article 21.5 – EC), paras 208 – 212 ("… influences the manufacturer's choice between like imported and domestic input products if it wishes to obtain the tax exemption …"); and Panel Report, China – Publications and Audiovisual Products, para. 7.1450.
200 Panel Report, Brazil – Taxation, para. 7.706. 201 Panel Report, US – Renewable Energy, para. 7.161.
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2.3.3. The Localisation Requirement accords less favourable
treatment to imported like products
169. It is well established that less favourable treatment in the meaning of Article
III:4 of the GATT 1994 exists where a measure modifies the conditions of
competition to the disadvantage of imported like products,202 and that "the
term 'treatment no less favourable' in Article III:4 requires “effective equality of
opportunities for imported products to compete with like domestic products."203
In other words, “a measure accords less favourable treatment to imported
products if it gives domestic like products a competitive advantage in the
market over imported like products.”204 The implications of the contested
measure for the equality of competitive conditions are, first and foremost,
those that are discernible from the design, structure, and expected operation of
the measure; for example, an additional requirement imposed on imported
products is a significant indication of less favourable treatment.205
170. According to the Appellate Body, while the analysis of less favourable treatment
requires close scrutiny of the fundamental thrust and effect of the measure
itself, including the implications of the measure for the conditions of
competition between imported and like domestic products,206 it does not need
to be based "on the actual effects of the contested measure in the
marketplace".207 Furthermore, the reference to “less favourable treatment” in
Article III:4 is not qualified by any de minimis standard, is not limited to some
threshold degree of detrimental impact, and cannot be counterbalanced by the
continued existence of other competitive opportunities.208
171. More concretely, it is well established in the case law that incentives to favour
domestic products are inconsistent with Article III:4 of the GATT 1994. The
Appellate Body determined in US-FSC (Article 21.5)209, for example, that a rule
202 Appellate Body Report, Korea—Various Measures on Beef, paras. 135-137. 203 Appellate Body Reports, EC – Seal Products, 5.101 (citing Appellate Body Reports, US – Clove
Cigarettes, para. 176 (referring to GATT Panel Report, US – Section 337 Tariff Act, para. 5.10); China – Publications and Audiovisual Products, para. 305 (referring to Appellate Body Report, Korea – Various Measures on Beef, paras. 135 and 136); and Thailand – Cigarettes (Philippines), para. 126 (referring to Appellate Body Report, Japan – Alcoholic Beverages II, p. 16)).
204 Appellate Body Report, Dominican Republic – Import and Sale of Cigarettes, para. 93. 205 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 130. 206 Appellate Body Report, Thailand - Cigarettes (Philippines), paras. 128-130. 207 Appellate Body Report, US – FSC (Article 21.5), para. 215. 208 Panel Reports, China – Publications and Audiovisual Products, para. 7.1537; India – Solar Cells, para.
7.97. 209 Appellate Body Report, US – FSC (Article 21.5), paras. 212, 220
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linking tax benefits to the non-use of imported goods negatively affected the
internal use of imported products. In India – Autos, Canada – Renewable
Energy / Canada – Feed-in Tariff Program and India – Solar Cells, the panels
and the Appellate Body made similar findings in relation to incentives favouring
the purchase of domestic products through domestic content requirements.210
172. The panel in China – Auto Parts concluded that the Chinese measures at issue –
certain administrative procedures that only applied to imported products –
treated those products less favourably than like domestic products because
they created a disincentive for manufacturers to use the imported products. 211
Similarly, the Appellate Body in Dominican Republic – Import and Sale of
Cigarettes stated that "a measure accords less favourable treatment to
imported products if it gives domestic like products a competitive advantage in
the market over imported like products".212 Furthermore, the panel in India –
Autos found that an indigenization requirement imposed by the Indian
Government on car manufacturers modified the conditions of competition in the
Indian market to the detriment of imported products and was, therefore, in
violation of Article III:4 of the GATT 1994.213
173. This jurisprudence abundantly supports the conclusion that the Localisation
Requirement accords less favourable treatment in violation of Article III:4 of
the GATT 1994. It expressly reserves a major advantage – reimbursement,
which covers approximately 90% of the entire Turkish pharmaceuticals market
– to domestic like products to the exclusion of imported like products. While
imported products caught by the Localisation Requirement can still be imported
and sold, their exclusion from reimbursement creates a clear disincentive on
their sales in Turkey. Consumers are unlikely to choose a non-reimbursed
product over a like reimbursed product. This modifies the conditions of
competition between domestic and imported like products in a way that is
highly detrimental to imports. It takes away the ability of imported products to
compete on the basis of an “effective equality of opportunities”.
174. In other words, it is clear from the terms, design, structure, and expected
operation of the Localisation Requirement that it is a de iure discriminatory
210 Panel Report, India – Autos, paras. 7.195 – 7.198, 7.201 and 7.307. Panel Report, Canada – FIT
Programme, para. 7.166. Appellate Body Report, Canada – FIT Programme, para. 5.85. 211 Panel Report, China – Auto Parts, para. 7.270. 212 Appellate Body Report, Dominican Republic – Import and Sale of Cigarettes, para. 93 213 Panel Report, India – Autos, paras 7.201 – 7.203 (for the indigenization requirement) and 7.308-7.309
(for the trade balancing requirement).
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measure, and that, by its very nature,214 it accords less favourable treatment to
imports. There is no need to further analyse the actual market impact or other
consequences of the measure.
175. Finally, the fact that imported products are not entirely excluded from the
marketplace (for example, because the Localisation Requirement does not
cover all products, because the products that it covers can still be imported and
sold without reimbursement, or because a commitment on an alternative
product can be accepted) is no defence. It has been repeatedly found in the
jurisprudence that there is less favourable treatment even where the measure
“will not give rise to less favourable treatment for like imported products in
each and every case”,215 where the coverage of the measure is partial, or
where there are “other means of obtaining an advantage afforded under the
measure in question.”216
176. Based on the foregoing, the Localisation Requirement accords less favourable
treatment, and is inconsistent with Article III:4 of the GATT 1994.
2.4. THE LOCALISATION REQUIREMENT IS NOT PROTECTED BY ARTICLE III:8(A) OF THE GATT 1994
177. On several occasions, Turkey has asserted that the Localisation Requirement
falls within the scope of Article III:8(a) of the GATT 1994.217 Turkey errs.
178. Article III:8(a) of the GATT 1994 provides:
The provisions of this Article shall not apply to laws, regulations or
requirements governing the procurement by governmental agencies of
products purchased for governmental purposes and not with a view to
commercial resale or with a view to use in the production of goods for
commercial sale.
179. This provision is, as the Appellate Body explained, a derogation from the scope
of the national treatment obligation, and not a justification.218 Nevertheless, it
is for Turkey to explain why it considers this measure to fall within Article
214 Panel Report, India – Autos, paras. 7.201 - 7.202. 215 Appellate Body Report, US – FSC (Article 21.5), para. 221. 216 Panel Report, India – Solar Cells, para. 7.95, citing Panel Reports, US – FSC
(Article 21.5), para. 8.157, Canada – Autos, para. 10.87, India – Autos, paras. 7.201 - 7.202. 217 See the minutes of the meetings of the Committee on Trade-Related Investment Measures held on 6
November 2017, 1 June 2018, and `17 October 2018 (respectively G/TRIMS/M/43, G/TRIMS/M/44, and G/TRIMS/M/45).
218 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.56.
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III:8(a), should it choose to do so.219 In the remainder of this section, the EU
will explain several reasons why Article III:8(a), in its view, does not apply. The
EU reserves its right to address this issue in further detail, or raise additional
points, should Turkey choose to make arguments under Article III:8(a).
180. As the Appellate Body and previous panels have explained, several
requirements must be met in order for a measure to fall within the scope of this
provision: 220
• the measures in question are "laws, regulations, or requirements governing
procurement", i.e. “containing rules for the process by which government
purchases products”221;
• the procurement is "by governmental agencies", and the entity purchasing
products must be a governmental agency222, i.e. an “entity performing
functions of government and acting for or on behalf of government”223;
• the procurement is of products purchased, and purchased "for
governmental purposes", i.e. “purchased for the use of government,
consumed by government, or provided by government to recipients in the
discharge of its public functions” 224; and
• the products in question are not procured "with a view to commercial resale
or with a view to use in the production of goods for commercial sale".
2.4.1. The Localisation Requirement is not a “law, regulation or
requirement governing procurement”
181. In Canada – Renewable Energy / Canada – Feed-in Tariff Program, the
Appellate Body explained that Article III:8(a) requires “an articulated
connection between the laws, regulations, or requirements and the
procurement, in the sense that the act of procurement is undertaken within a
binding structure of laws, regulations, or requirements.”225
182. In Canada – Renewable Energy / Canada – Feed-in Tariff Program and India –
Solar Cells, the panels and the Appellate Body considered this requirement to
219 Appellate Body Report, US —- Wool Shirts and Blouses, p. 14. 220 Panel Report, India – Solar Cells, para. 7.105; See also Panel Report, Canada – Renewable Energy /
Canada – Feed-in Tariff Program, para. 7.122. 221 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.74. 222 Appellate Body Report, India – Solar Cells, para. 5.18. 223 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.74. 224 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.74. 225 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.58.
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be fulfilled because there was an “articulated connection” between the
government’s procurement of electricity (the final product) and the domestic
content requirement the government imposed on certain inputs (electricity
generation equipment) used to make the electricity that was the subject of
procurement. In other words, the measures at issue satisfied this part of the
legal test, inter alia, because they set out eligibility rules that “governed” the
access to the government’s procurement of electricity. Without complying with
them, companies could not participate in the procurement at issue.226
183. Following that approach, in order to show that Article III:8(a) applies, Turkey
would have to demonstrate that the measure at issue, the Localisation
Requirement, “governs” the procurement of pharmaceutical products by
Turkey. Since the Localisation Requirement is connected to the reimbursement
system that Turkey uses for out-patient pharmaceuticals, the panel would
therefore be asked to find that the reimbursement system for out-patient
pharmaceuticals entails the procurement of those products by Turkey, and that
the Localisation Requirement governs that procurement.
184. In the EU’s view, this conclusion would not be open to the Panel, for the simple
reason that no procurement is involved.
185. It is impossible for a measure to “govern” procurement if no procurement is
involved. There can be no procurement where there is no “acquisition” of
products, i.e. where the government does not obtain any products.
Furthermore, as is clear from the jurisprudence, Article III:8(a) does not apply
unless the measure governs “the process pursuant to which a government
acquires products”.
186. In Canada – Renewable Energy / Canada – Feed-in Tariffs, the Appellate Body
referred to “procurement” as “‘[t]he action of obtaining something; acquisition’,
or ‘the action or process of obtaining equipment and supplies’.”227 In the
specific context of Article III:8(a), the Appellate Body explained that the term
“procurement” refers to “the process pursuant to which a government acquires
products.”228 While procurement should not be equated with the concept of
purchase, or with the act of acquisition itself – which is a distinct and additional
226 Panel Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 7.124; Appellate
Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.58. 227 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.59
(emphasis added). 228 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.59.
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requirement under Article III:8(a) – the Appellate Body has tied the concept of
“procurement” to the concept of “acquisition” or “obtainment” of products.229
187. By referring to “the process pursuant to which a government acquires products”
(emphasis added), which is linked to the ordinary meaning of “procurement” as
an act of “acquisition” or “obtainment”, the Appellate Body made clear that
Article III:8(a) only applies where the government, and not another actor or set
of actors, acquires or obtains products.
188. This interpretation is supported by the use of the terms “acquisition” and
“adquisición” in place of “procurement” in the French and Spanish versions of
the GATT 1994. These terms are different, and narrower, than the terms used
in the French and Spanish titles of the Agreement on Government Procurement
(Accord sur les Marchés Publics, Acuerdo sobre Contratación Pública).
189. Moreover, the reference to the “process” by which the government acquires
products, coupled with the requirement that procurement takes place within a
“binding structure of laws, regulations, or requirements,”230 imposes a further
limitation on the concept of “procurement”. It is not sufficient for a government
to acquire products. This acquisition must be done on the basis of a particular
legal process, specifically designed for that purpose and binding on
governmental authorities.
190. The EU recalls that its claims against the Localisation Requirement are directed
at Turkey’s treatment of domestic and imported pharmaceutical products in the
out-patient sector.
191. In this case, in the out-patient sector, pharmaceutical products are never
acquired or obtained, and thus never “procured”, by any governmental
agencies in Turkey, whether through the requisite type of legal process or
otherwise. Instead, they are acquired or obtained by consumers from
pharmacies, and the Turkish government reimburses the pharmacies for (in
most instances) a part of the cost.
192. This is clear from the legal instruments governing the reimbursement system
described above. Thus, the very title of the Protocol on the procurement of
medicines from pharmacies which are members of the Turkish Pharmacists’
229 Moreover, in India – Solar Cells, neither the panel nor the Appellate Body accepted India’s argument
that the concept of “procurement” goes beyond “direct acquisition”. Appellate Body Report, India – Solar Cells, para. 5.36; Panel Report, India – Solar Cells, paras. 7.130 – 7.133.
230 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.58.
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Association (TEB) by persons covered by the Social Security Institution,231
concluded between the Turkish Pharmacists’ Association and the SSI, confirms
that the persons “procuring” pharmaceutical products from pharmacies are the
persons covered by universal healthcare, i.e. patients. It is also clear from that
Protocol, as well as the Regulation on the procedures and principles governing
checking of invoices of healthcare providers and reimbursement of their fees,
that pharmacies send the invoices for their sales of pharmaceutical products to
out-patients to the SSI, which reviews them and, upon acceptance, reimburses
the balance.232
193. In this sense, it is useful to compare the reimbursement system which applies
to out-patient pharmaceuticals with Turkey’s treatment of in-patient
pharmaceuticals. For in-patients, public entities – hospitals – procure medicines
by acquiring or obtaining them. Furthermore, those entities provide those
pharmaceutical products to patients directly. Moreover, when doing so, public
hospitals acquire or obtain pharmaceuticals on the basis of a tendering process
that applies to Turkish government entities more generally. Thus, the
necessary elements of “procurement” seem to be present: the government
(including public hospitals) acquires or obtains products, pursuant to a
particular process designed for that purpose.
194. By contrast, in the out-patient sector, no public entity or governmental agency
ever acquires or obtains pharmaceutical products. Rather, consumers obtain
them from pharmacies, and the government reimburses a part of the cost.
Tendering procedures that are in place for Turkish public entities do not apply.
Thus, nothing is acquired or obtained by the government, much less through a
process specifically designed for that purpose. Indeed, if anything, Turkey
appears to have specifically designed the reimbursement system in order not to
procure pharmaceutical products.
195. It follows that, in this case, there is no “procurement” within the meaning of
Article III:8(a), as interpreted by the Appellate Body. In other words, Turkey’s
reimbursement system for out-patient pharmaceuticals does not constitute a
process pursuant to which Turkey acquires any products. Therefore, the
Localisation Requirement does not “govern”, and indeed is not related to any
process pursuant to which Turkey acquires any products, i.e. to any
“procurement”.
231 Exhibit EU-52. 232 Regulation on the procedures and principles governing checking of invoices of healthcare providers and
reimbursement of their fees, Official Gazette no. 30001 of 8 March 2017 (Exhibit EU-53), Article 24.
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2.4.2. The Localisation Requirement does not involve the purchase
of products by governmental agencies
196. First, the EU recalls that neither the Localisation Requirement, nor Turkey’s
reimbursement system for out-patient pharmaceuticals, concern
“procurement”. For this reason, the measure at issue also does not involve
“procurement by governmental agencies of products purchased”.
197. Should the Panel disagree with the European Union and find that the measure
at issue is somehow connected to procurement, Article III:8(a) still would not
apply, because the relevant products are not being purchased by governmental
agencies.
198. The Appellate Body explained that the word “purchased” in Article III:8(a)
refers to “the type of transaction used to put into effect” the procurement that
is at issue.233 The Appellate Body refrained from defining the precise range of
contractual arrangements that could be encompassed by the concept of
“purchase”.234 However, it is clear that the concept of “purchase” covers only a
sub-set of the various types of transactions that can be used to put into effect a
procurement.
199. Moreover, it is clear that the requirement that there must be a “purchase” is
distinct and additional to the requirement that there must be a “procurement.”
As the Appellate Body explained:
The word ‘purchased’ is used to describe the type of transaction used to
put into effect that procurement. Not every procurement needs to be
effectuated by way of a purchase, and not every purchase is part of a
process of government procurement. The use of the word ‘purchased’ in
the same provision suggests reading the word ‘procurement’ as referring
to the process of obtaining products, rather than as referring to an
acquisition itself, because, if procurement was understood to refer simply
to any acquisition, it would not add any meaning to Article III:8(a) in
addition to what is already expressed by the word ‘purchased’.”235
200. Similarly, in India – Solar Cells, the Appellate Body explained that, to be
covered by Article III:8(a), government procurement can only be effectuated
233 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.59. 234 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.59. 235 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.59
(emphasis added).
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by means of a purchase, and not by means of any other contractual
arrangement.236 The Panel Report in the same dispute explained that the
elements of “procurement” and “purchase” are “cumulative and separate.”237
201. The ordinary meaning of the term “purchase” is “[t]he acquisition of property
(esp. land) by any legal means other than inheritance”.238
202. As with the term “procurement”, a comparison with the text of the GPA, as
closely relevant context, suggests that the term “purchase” should not be
construed in an overly broad manner. Thus, Article I:2 of the GPA defines the
subject matter of procurement as follows: “This Agreement applies to
procurement by any contractual means, including through such methods as
purchase or as lease, rental or hire purchase, with or without an option to buy,
including any combination of products and services.” This definition suggests
that a number of contractual arrangements typically used in procurement
should be distinguished from “purchase”: “lease, rental or hire purchase, with
or without an option to buy”. The common element of these other contractual
arrangements is that, while they may lead to the acquisition of products (for
example, in the case of rental, the acquirer takes possession and has the right
to use the product for a certain period of time), they do not lead to the
acquisition of property over products. This, in turn, corresponds to the ordinary
meaning of the term “purchase” outlined above.
203. Therefore, simply put, if there is no acquisition of property, there is no
“purchase” and Article III:8(a) does not apply.
204. Even an acquisition of property would, however, not suffice. As the Appellate
Body explained, under Article III:8(a), the entity purchasing products (i.e.
acquiring property over the products) must be a "governmental agency",239 i.e.
an “entity performing functions of government and acting for or on behalf of
government.”240
205. In the out-patient sector, as the EU has already explained, no Turkish
governmental agency acquires the relevant pharmaceutical products, at any
point, whether through purchase or otherwise. Instead, those products are
purchased by consumers, and a part of the cost of that purchase is reimbursed
236 Appellate Body Report, India – Solar Cells, para. 5.35. 237 Panel Report, India – Solar Cells, para. Para. 7.133. 238 Oxford English Dictionary online (www.oed.com), entry for “purchase”. 239 Appellate Body Report, India – Solar Cells, para. 5.18. 240 Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in Tariff Program, para. 5.74.
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by the government. The rest of the cost is borne by the consumer when
purchasing the product from the pharmacy. Pharmacies, in turn, are also
private entities, not acting for or on behalf of the government.
206. It follows that the Article III:8(a) requirement that products must be purchased
by governmental agencies is also not met.
2.4.3. The Localisation Requirement does not involve any
procurement or purchase “for governmental purposes”
207. Article III:8(a) further requires that the relevant products are procured and
purchased “for governmental purposes”.
208. The Appellate Body has explained this requirement in the following way:
The Appellate Body interpreted the term "governmental purposes" in
Article III:8(a) as referring to "purchases of products directed at the
government or purchased for the needs of the government in the
discharge of its functions". The Appellate Body was of the view that the
phrase "products purchased for governmental purposes" in Article
III:8(a) "refers to what is consumed by the government or what is
provided by government to recipients in the discharge of its public
functions", with the scope of such functions determined on a case by case
basis. Further, the Appellate Body read the word "for" relating the term
"products purchased" to “governmental purposes" to require that there
be “a rational relationship between the [purchased]product and the
governmental function being discharged". Importantly, the Appellate
Body explained that "the additional reference to 'governmental' in
relation to 'purposes' must go beyond simply requiring some
governmental aim or objective with respect to purchases by
governmental agencies", given that "governmental agencies by their very
nature pursue governmental aims or objectives". In summarizing its
assessment, the Appellate Body framed the specific question under this
element as whether products are "purchased for the use of government,
consumed by government, or provided by government to recipients in the
discharge of its public functions".241
241 Panel Report, India – Solar Cells, para. 7.156, summarizing the findings of the Appellate Body in
Canada – Renewable Energy / Feed-In Tariff Program, paras. 5.66 – 5.68 and 5.74.
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209. Furthermore, the Appellate Body explained that “the products purchased must
be intended to be directed at the government or be used for governmental
purposes.”242
210. In the EU’s view, even if the Localisation Requirement were somehow
connected to the procurement and purchase of products by governmental
agencies, it would still fail to meet this requirement. The procurement and the
purchase would not be “for governmental purposes” within the meaning of the
provision, as set out by the Appellate Body.
211. It goes without saying that providing universal healthcare, ensuring access to
medicines and protecting human health are legitimate governmental objectives.
Nor does the EU dispute that reimbursing all or part of the cost of
pharmaceuticals could be linked to such objectives.
212. As the Appellate Body explained, however, it is not enough for the procurement
and the purchase to be associated with a governmental objective, however
important that objective may be. Instead, for Article III:8(a) to apply, the
products must be purchased (a) for the use of government, (b) to be consumed
by government, or (c) to be provided by government to recipients in the
discharge of public functions. None of these scenarios occurs in this case.
213. It is obvious that the Turkish government neither uses or consumes the
relevant pharmaceutical products. Even if it was somehow considered that the
government procures and purchases those products, consumers use them, and
not the government.
214. Furthermore, while the EU will not at this stage speculate on whether there is a
“public function” within the meaning of Article III:8(a) or what that function
might be, it is clear that the Turkish government does not provide the relevant
pharmaceutical products to recipients. It merely reimburses a part of the cost
of those pharmaceuticals, which are provided to patients (as “recipients”, in
this context) by pharmacies. Because there is no provision by the government,
there is also no provision by the government in the discharge of public
functions.
215. This should be contrasted with the scenario discussed by the Appellate Body in
Canada – Renewable Energy/Feed-in Tariff Program, in which "a public hospital
purchases pharmaceuticals and provides them to patients".243 Other than the
242 Appellate Body Report, Canada – Renewable Energy/Feed-in Tariff Program, para. 5.68. 243 Appellate Body Report, Canada – Renewable Energy/Feed-in Tariff Program, fn 514.
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fact that pharmaceutical products and patients are concerned, none of the
defining features of that scenario – a purchase of pharmaceutical products by a
public hospital for direct provision to patients – is present in this case.
216. Therefore, the “governmental purposes” requirement of Article III:8(a) is not
fulfilled either.
2.4.4. Even if procurement and purchase by governmental agencies
for governmental purposes was involved, it would be “with a
view to commercial resale”
217. Finally, the requirement that the procurement and purchase is “not with a view
to commercial resale” would also doom any attempt to bring the Localisation
Requirement into Article III:8(a).
218. The Appellate Body has explained that “both the terms "for governmental
purposes" and "not with a view to commercial resale" further qualify and limit
the scope of "products purchased", which means that these are cumulative
requirements.244 Thus, whether or not a purchase is made for governmental
purposes, it must also not be made with a view to commercial resale in order to
be covered by Article III:8(a).
219. The Appellate Body interpreted the terms "not with a view to commercial
resale" as follows:
[T]he term “resale" is defined as the "sale of something previously
bought". In the context of Article III:8(a), the word "resale" refers to the
term "products purchased". Accordingly, the product not to be "resold"
on a commercial basis is the product "purchased for governmental
purposes". As we see it, "commercial resale" is a resale of a product at
arm's length between willing seller and a willing buyer.”245
220. The Appellate Body further explained that “whether a transaction constitutes a
"commercial resale" must be assessed having regard to the entire transaction.”
In doing so, the assessment must look at the transaction from the seller's
perspective, including at whether the transaction is oriented at generating a
profit for the seller, as well as from the perspective of the buyer. A commercial
resale would be one in which the buyer seeks to maximize his or her own
interest. Overall, “it is an assessment of the relationship between the seller and
244 Appellate Body Report, Canada – Renewable Energy/Feed-in Tariff Program, para. 5.69. 245 Appellate Body Report, Canada – Renewable Energy/Feed-in Tariff Program, para. 5.70.
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the buyer in the transaction in question that allows a judgement to be made
whether a transaction is made at arm’s length.”246 The manner in which the
relevant transaction(s) is defined would have potentially significant implications
for this assessment.247
221. As the EU has explained in the sections above, there are a number of reasons
why, on a proper construction of Article III:8(a), the Panel should not reach
this stage of the analysis.
222. If it nevertheless chooses to do so, it would have accepted, before reaching
that question, that the Localisation Requirement governs the procurement and
purchase of pharmaceutical products by governmental agencies for
governmental purposes. This would mean that the government procures and
purchases pharmaceutical products when it reimburses a part of their cost to
the pharmacies which ultimately sell them to consumers. To recall, those
products are paid for partly through reimbursement, and partly through co-
payment and excess payment.
223. This would, however, inevitably lead to the same result: Article III:8(a) would
not apply. This is because accepting this logic would mean also accepting that
the procurement and purchase are undertaken with a view to commercial
resale, namely the commercial resale of pharmaceutical products by
pharmacies to consumers.
224. In the Turkish system described above, the mechanism by which the relevant
pharmaceutical products are delivered to end-users is through pharmacies
selling them those products. Ultimately, pharmacies provide the product, in
exchange for payment. A part of that payment (co-payment) is directly borne
by the consumer, and a part borne by the government through reimbursement.
If this reimbursement is to be considered a “purchase for governmental
purposes”, it would mean that it is done with a view to the provision of those
products to end-users.
225. However, this provision is made in the framework of a straightforward arms-
length sales transaction. Pharmacies are profit-seeking, and the end-users are
interest-maximizing. Thus, even if the government would somehow be
considered to be “purchasing” the products when reimbursing them, those
products would ultimately be delivered to consumers in an arms’ length
246 Appellate Body Report, Canada – Renewable Energy/Feed-in Tariff Program, para. 5.71. 247 Panel Report, India – Solar Cells, paras. 7.176 – 7.186.
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transaction in which there is a seller (the pharmacy) and a buyer (the end-user
or consumer). Under the jurisprudence described above, this would mean that
the “purchase” is made with a view to commercial resale.
226. The fact that a governmental agency is not itself reselling the products does not
mean that the transaction is not “with a view to commercial resale”. By using
the broad term “with a view”, Article III:8(a) captures not only direct resale by
the very agency purchasing the products, but also commercial resale through
another actor, such as, in this case, a pharmacy.
227. The EU is aware that this reading would mean that pharmacies are both selling
the products to the government, and reselling the same products to consumers.
But this oddity is not caused by the EU’s interpretation of the terms “with a
view to commercial resale”. Instead, it is caused by accepting the argument
that, when it engages in reimbursement, the Turkish government is procuring
and purchasing products for governmental purposes. The Panel should, as we
have explained, not go down that road. Even if it does, however, Article
III:8(a) would not apply, for the reasons just given.
2.5. THE LOCALISATION REQUIREMENT IS INCONSISTENT WITH ARTICLE X:1 OF THE GATT 1994
228. Article X:1 of the GATT 1994 provides, in relevant part:
“1. Laws, regulations, judicial decisions and administrative rulings of
general application, made effective by any contracting party, pertaining
to the classification or the valuation of products for customs purposes, or
to rates of duty, taxes or other charges, or to requirements, restrictions
or prohibitions on imports or exports or on the transfer of payments
therefor, or affecting their sale, distribution, transportation, insurance,
warehousing inspection, exhibition, processing, mixing or other use, shall
be published promptly in such a manner as to enable governments and
traders to become acquainted with them. Agreements affecting
international trade policy which are in force between the government or a
governmental agency of any contracting party and the government or
governmental agency of any other contracting party shall also be
published. The provisions of this paragraph shall not require any
contracting party to disclose confidential information which would impede
law enforcement or otherwise be contrary to the public interest or would
prejudice the legitimate commercial interests of particular enterprises,
public or private.”
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229. For a measure to be found inconsistent with Article X:1 of the GATT 1994, the
following five elements are relevant:
i. that the measures at issue are "laws, regulations, judicial decisions [or]
administrative rulings of general application" within the meaning of Article
X:1 of the GATT 1994.
ii. that the measures at issue "pertain to the classification or the valuation of
products for customs purposes, or to rates of duty, taxes or other charges,
or to requirements, restrictions or prohibitions on imports or exports or on
the transfer of payments therefore, or affecting their sale, distribution,
transportation, insurance, warehousing, inspection, exhibition, processing,
mixing or other use".
iii. that the measures at issue were "made effective" within the meaning of the
provision;
iv. whether the moment of publication was "prompt" vis-à-vis the moment the
measures were "made effective".
v. whether the "prompt" publication was done "in such a manner as to enable
governments and traders to become acquainted with them.”
2.5.1. The Localisation Requirement falls within the concept of
"laws, regulations, judicial decisions and administrative
rulings"
230. Regarding (i), the case law has established that the ordinary meanings of the
terms "laws, regulations, judicial decisions and administrative rulings" indicates
that the instruments covered by Article X:1 range from imperative rules of
conduct to the exercise of influence or an authoritative pronouncement by
certain authoritative bodies. Accordingly, the coverage of Article X:1 extends to
instruments with a degree of authoritativeness issued by certain legislative,
administrative or judicial bodies. This does not mean, however, that they have
to be "binding" under domestic law.248
231. In this case, as explained above, the Localisation Requirement is imposed
through a number of legal instruments resulting from governmental action, and
setting out rules with which compliance is necessary to obtain an advantage
from a government. Therefore, these various legal instruments fall under the
category of either “law”, “regulation” or “administrative rulings”. Of note, the
248 Panel Report, EC — IT Products, paras. 7.1025-7.1027.
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SSI has not just confirmed, but vigorously argued that a number of these
instruments are valid legal sources in the Turkish legal system (see paragraph
158 above).
232. The case law established that “general application" to the entire series of items
referred to in Article X:1 : "laws, regulations, judicial decisions [or]
administrative rulings”.249
233. According to the case law, two aspects are relevant when assessing whether a
law or another relevant measure is of "general application" within the meaning
of Article X:1: (i) its subject-matter or content; and (ii) the persons or entities
to whom it applies, or the situations or cases in which it applies.250
234. The subject-matter or content of a relevant measure may be narrowly drawn –
e.g. it may regulate imports of only one or a few named products from only one
or a few named countries – yet this would not preclude it being considered a
measure of general application, insofar as it applies to a class of persons or
entities, e.g. all those engaged in importing the product(s) concerned. The fact
that a relevant measure has a narrow regulatory scope does not demonstrate
that this measure is not generally applicable.
235. As regards the second aspect, a relevant measure that applies to a class or
category of people, entities, situations, or cases, that have some attribute in
common would, in principle, constitute a measure of general application. In
contrast, a relevant measure that applies to named or otherwise specifically
identified persons, entities, situations, or cases would not be a measure of
general application, but one of particular application.251
236. In this case, as already explained above, the Localisation Requirement is a
measure of general application.
237. First, as to its subject matter, it is a measure directed to imports of the covered
pharmaceutical products in Turkey generally.
238. Second, although the detailed implementation of the Localisation Requirement
takes place in bilateral communications between Turkish authorities and
individual pharmaceutical companies, all of these steps are taken within the
framework of a single Localisation Requirement, based notably on the Tenth
249 Panel Report, US — Countervailing and Anti-Dumping Measures (China), para. 7.30. 250 Panel Report, US — Countervailing and Anti-Dumping Measures (China), para. 7.35. 251 Panel Report, US — Countervailing and Anti-Dumping Measures (China), para. 7.35.
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Development Plan and the 64th Government Action Plan, that applies to entities
importing pharmaceutical products in Turkey generally.
239. The EU also refers to the explanations in the section 2.3.2 above.
2.5.2. The Localisation Requirement pertains to “requirements on
imports, or affecting the sale of imports”
240. Since the measure at issue is a localisation requirement on the covered
imports, as a condition for them to benefit from reimbursement, it directly
affects the internal sale of pharmaceutical products. The Localisation
Requirement creates incentives for the sale of imported pharmaceuticals that
are localised, i.e. inclusion in the Reimbursement List, and disincentives for the
sale of imported pharmaceuticals that are not localised, i.e. deactivation from
the Reimbursement List. By reimbursing only domestic products (including
imports that have been localised), the measure affects the internal sale of
imported pharmaceutical products to the detriment of foreign producers.
241. The EU also refers to the explanations in the section 2.3.2 above.
2.5.3. The Localisation Requirement was “made effective” by
Turkey
242. The term "made effective" under Article X:1 of the GATT 1994 covers all
measures that were brought into effect, or made operative, in practice . Itis not
limited to measures formally promulgated or that have formally "entered into
force".252
243. The European Union refers to the factual description of the localisaiton
requirement provided above. There is no doubt that this measure has been
brought into effect by Turkish authorities, both generally and through
application in individual cases.
244. Notably, in order to implement the localisation policy in relation to
pharmaceutical products, the Turkish authorities have published various
announcements on the localisation process informing that a series of imported
medicines would be deactivated from the Reimbursement List within a certain
period, unless companies commit to localise the production of pharmaceuticals
in Turkey. The Turkish authorities also engaged in bilateral communications
with companies whereby they informed them that their products are to be
252 Panel Report, EC – IT Products, para. 7.1048.
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included in the localisation process, invited to make commitments, notified of
the authorities’ decision to accept the commitments, refuse them, delist or
deactivate their products (as the case may be), and instructed on the various
steps to be followed (including follow up, possible updates or alternative
commitments, variation applications etc.)
245. Moreover, as explained above, a number of pharmaceutical products covered
by the first and second phases, for which no commitments were given or the
commitments were not accepted, have already been deactivated as of 8
February 2018 and 31 July 2018 (see paras. 123-127 and above).
246. Therefore, in light of the above, Turkey has “made effective” the Localisation
Requirement.
2.5.4. A number of elements of the Localisation Requirement were
not published promptly in such a manner as to enable
governments and traders to become acquainted with them
247. Regarding promptness of publication, the Panel in EC – IT Products found that:
“the meaning of prompt is not an absolute concept, i.e. a pre-set period
of time applicable in all cases. Rather, an assessment of whether a
measure has been published 'promptly', that is 'quickly' and 'without
undue delay', necessarily requires a case-by-case assessment.
Accordingly, we will look at the time span between the moment the CNEN
amendments were 'made effective' and the time they were 'published',
and assess whether this is prompt in light of the facts of the case.”253
248. Regarding the requirement that publication shall be done "in such a manner as
to enable governments and traders to become acquainted with them", the
Panel EC – IT Products found that:
“the publication of the relevant measure does not need to be in an
"official" publication in order to satisfy Article X:1. […] if measures are to
be published 'in such a manner as to enable governments and traders to
become acquainted with them', it follows that they must be generally
available through an appropriate medium rather than simply making
them publicly available.254 […] it is clear from a textual analysis of Article
253 Panel Report, EC – IT Products, para. 7.1074. 254 (footnote original) In other words, if a "medium" makes measures generally available to the public in
such a manner as to "enable governments and traders to become acquainted with them", we consider that such medium should be regarded as "appropriate" and that publishing on that medium would fall within "published" a used in Article X:1.
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X:1 that it is not any manner of publication that would satisfy the
requirement, but only those that would give power to or supply
governments and traders with knowledge of the particular measures that
is 'adequate' so that traders and Governments may become 'familiar'
with them, or 'known' to them in a 'more or less complete' way."255
249. In the present case, not all of the legal instruments that form part of, or give
effect to, the Localisation Requirement, were published in such a manner as to
enable governments and traders to become acquainted with them. Overall, only
the broad outlines of the Localisation Requirement have been appropriately and
promptly published. Its substantive content has, for the most part, been put in
place in an entirely non-transparent manner, through a series of
announcements, presentations and communications, none of which have been
adequately and promptly published.
250. Several instruments containing the general objectives and features of the
localisation policy of pharmaceuticals have been published. This is true, for
example, of the Tenth Development Plan, the Structural Transformation
Program for Healthcare Industries Action Plan of 7 November, and the 2016
Action Plan of the 64th Government However, those documents contain only
limited details on the localisation policy of pharmaceuticals.
251. Similarly, the Circular of the Prime Ministry (2015 HISC Circular) numbered
2015/19 establishing the Healthcare Industries Steering Committee256 and
Circular from the Prime Ministry of 24 January 2018 on the Localisation Board
were published in the Official Gazette.257 However, those Circulars only refer to
the establishment of the above-mentioned Committees.
252. Beyond this, the substantive and procedural elements of the Localisation
Requirement have, for the most part, not been adequately published.
253. First, although the Turkish authorities published the various announcements on
localisation,258 those announcements did not elaborate on the details of the
255 Panel Report, EC – IT Products, paras. 7.1082, 7.1084 (also citing the Panel Report, Chile – Price Band
System, para. 7.127), 7.1086-7.1087. 256 Published in the Official Gazette dated 22.12.2015 No 14653. See
http://www.resmigazete.gov.tr/eskiler/2015/12/20151223-9.pdf , accessed on 09 August 2018 (Exhibit EU-31).
257 Official Gazette of 24 January 2018, page 8, http://www.resmigazete.gov.tr/main.aspx?home=http://www.resmigazete.gov.tr/eskiler/2018/01/20180124.htm&main=http://www.resmigazete.gov.tr/eskiler/2018/01/20180124.htm , accessed on 19 June 2018 (Exhibit EU-39).
258 See section 2.2.2.6 above, entitled “Evidence of the implementation of the various phases of the localisation requirement”.
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localisation policy of pharmaceuticals. Moreover, even those announcements
were not published in an adequate way, but were simply placed on the websites
of Turkish government authorities. In this respect, the EU recalls that in EC – IT
Products, the Panel found that publication of the measure at issue among other
documents on the EU Comitology website did not meet the requirements of
Article X:1 because “not any manner of publication that would satisfy the
requirement, but only those that would give power to or supply governments
and traders with knowledge of the particular measures that is 'adequate' so
that traders and Governments may become 'familiar' with them, or 'known' to
them in a 'more or less complete' way. “259
254. Furthermore, as explained in the factual section, a number of key elements of
the Localisation Requirement were only included in various presentations by
Turkish officials, and in private communications between the SSI and/or
TMMDA with the companies concerned. The presentations260 set out, notably,
the process and various steps that must be taken as part of localisation, the
phases of localisation, and the product categories to which those phases relate.
255. In individual communications addressed to one or more companies, companies
are inter alia informed that their products are to be included in the localisation
process, invited to make commitments, notified of the authorities’ decision to
accept the commitments, refuse them, delist or deactivate their products (as
the case may be), and instructed on the various steps to be followed (including
follow up, possible updates or alternative commitments, variation applications
etc.)261 Neither these presentations, nor those individual communications, were
ever published in an adequate manner.
256. Next, in the implementation of the Localisation Requirement, several
instruments of a more general nature containing rules, descriptions of
processes or criteria were simply communicated to individual companies
without having been previously published in an adequate manner. This
concerns, in particular, the “Roadmap for the Localisation Process (setting out
259 Panel Report, EC – IT Products, paras. 7.1082, 7.1084 (also citing the Panel Report, Chile – Price Band
System, para. 7.127), 7.1086-7.1087. 260 Presentation entitled "Pharmaceutical Localisation Project Work Conducted by the Ministry of Health",
given by representatives of the TMMDA, December 2017 (Exhibit EU-23), "Project on the Localization of Medicines, Transition from Importation to Manufacturing", presentation by Dr Hakki Gursoz, President of the TMMDA, 6 March 2017 (Exhibit EU-34), Presentation entitled "Local Production”, delivered at the Symposium on Rational Approach to Current Issues concerning Medicines, Ankara, 7-9 October 2016 (Exhibit EU-40).
261 The communications listed in section 2.2.2.7 above (“Evidence on the application of the localisation requirement to individual companies”).
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the principles for the negotiation on 14 March 2016)”262, and the HSPC Decision
regarding the Localisation Process of October 2016.263
257. None of those elements is/was made “generally available through an
appropriate medium” as required by the case law that gives “power to or supply
governments and traders with knowledge of the particular measure that is
'adequate' so that traders and Governments may become 'familiar' with them,
or 'known' to them in a 'more or less complete' way”.264
2.5.5. The failure to publish is not justified by confidentiality
258. Article X:1 of the GATT provides in the relevant part that:
The provisions of this paragraph shall not require any contracting party to
disclose confidential information which would impede law enforcement or
otherwise be contrary to the public interest or would prejudice the legitimate
commercial interests of particular enterprises, public or private.
259. In the European Union’s view, Turkey was in a position to publish at least the
general conditions of the Localisation Requirement, as included in the elements
listed above. The general information that should have been published includes,
for example: the planned course of action of transition from importation to
localisation, the details and timeline of the five localisation phases, the criteria
used for determining the imported products to be localised, the different steps
that companies have to undertake to “transition” to local production and the
data on the assessment of products within the scope of localisation. None of
this required Turkish authorities to disclose any confidential information, such
as the names of companies or products.
260. This general information is not confidential and its disclosure would have not
prejudiced the “legitimate commercial interests of particular enterprises”. On
the contrary, it would have provided clear details on the terms and conditions
of the measure and informed the decisions of traders and governments.
2.5.6. Conclusion on Article X:1
261. In sum, The European Union considers that the Localisation Requirement is
inconsistent with Turkey's obligations under Article X:1 of GATT 1994 because
Turkey failed to publish promptly the Localisation Requirement, a measure of
262 Roadmap for the process of localization (Setting forth of the principles for the negotiation dated
14.03.2016) (Exhibit EU-45). 263 HSPC Decision regarding the Localization Process, October 2016 (Exhibit EU-35). 264 Panel Report, EC – IT Products, paras. 7.1082, 7.1084.
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general application it made effective, imposing a requirement on imports and
affecting their sale, in such a manner as to enable governments and traders to
become acquainted with it. In addition, the information that Turkey was
required to make publicly available is not confidential.
2.6. THE LOCALISATION REQUIREMENT IS INCONSISTENT WITH ARTICLE 2.1 OF THE TRIMS AGREEMENT
262. The European Union submits that the Localisation Requirement is an
investment measure related to trade in goods that is inconsistent with Article
III:4 of the GATT. For those reasons, the Localisation Requirement is
incompatible with Article 2.1 of the TRIMS Agreement.
2.6.1. Legal Standard
263. Article 1 of the TRIMS Agreement defines as follows the coverage of that
agreement:
“This Agreement applies to investment measures related to trade in
goods only (referred to in this Agreement as "TRIMs").”
264. Article 2.1 of the TRIMS Agreement provides that:
“Without prejudice to other rights and obligations under GATT 1994, no
Member shall apply any TRIM that is inconsistent with the provisions of
Article III or Article XI of GATT 1994.”
265. Here below, the European Union will show that the Localisation Requirement is
inconsistent with Turkey’s obligations under Article 2.1 of the TRIMS Agreement
because i) it is an investment measure; ii) it is related to trade in goods; and
iii) it is inconsistent with Article III:4 of the GATT 1994.
2.6.2. The Localisation Requirement is an “investment measure”
266. The TRIMS Agreement does not define the term “investment measure”. The
panel in Indonesia – Autos clarified that the existence of an investment
measure does not depend on its characterization by the responding party:
“ [t]here is nothing in the text of the TRIMs Agreement to suggest that a
measure is not an investment measure simply on the grounds that a
Member does not characterize the measure as such, or on the grounds
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that the measure is not explicitly adopted as an investment
regulation265.”
267. Rather, the existence of an investment measure should be determined based
on an “examination of the manner in which the measures at issue … relate to
investment”266. Thus, the panel in Indonesia – Autos found that the measures
at issue were investment measures because they were:
“aimed at encouraging the development of local manufacturing capability
for finished motor vehicles and parts and components in Indonesia.
Inherent to this objective is that these measures necessarily have a
significant impact on investment in these sectors. For this reason, we
consider that these measures fall within any reasonable interpretation of
the term “investment measures.”267
268. Similarly, the panel in Canada – Renewable Energy / Feed-In Tariff Program
found that the measure at issue was an investment measure because it aimed
“to encourage investment in the local production of equipment associated with
renewable energy generation in the Province of Ontario”268 and, in practice, it
had been “a key factor motivating a number of manufacturers to establish
facilities for the production of renewable energy equipment in Ontario.269”
269. In the same vein, the panel in India – Solar Cells held that the measures at
issue were investment measures because their aim was to incentivize the
production of solar power generation equipment in India270.
270. Like the measures in dispute in the above mentioned cases, the Localisation
Requirement provides a strong incentive to foreign producers of pharmaceutical
products (in the form of inclusion of their products in the Reimbursement
Scheme) to encourage them to localize their production in Turkey. Inherent in
that objective is that the measures necessarily have a significant impact on
investments in Turkey. Indeed, in order to localize their production in Turkey,
foreign supplier will have to make significant investment in order to establish
new manufacturing facilities in Turkey, or to expand the existing ones, or
265 Panel Report, Indonesia – Autos, para. 14.82. 266 Panel Report, Indonesia – Autos, para. 14.81. 267 Panel Report, Indonesia – Autos, para. 14.81. 268 Panel Report, Canada – Renewable Energy / Feed-In Tariff Program, 7.109. 269 Panel Report, Canada – Renewable Energy / Feed-In Tariff Program, 7.110. 270 Panel Report, India – Solar Cells, para. 7.61.
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entering into licensing agreements with local manufacturers requiring those
manufacturers to make the necessary investments.
2.6.3. The Localisation Requirement is “related to trade in goods”
271. The TRIMS Agreement does not define the terms “related to trade in goods”.
272. The panel in Indonesia – Autos held that local content requirements were
necessarily trade-related:
[I]f these measures are local content requirements, they would
necessarily be 'trade-related' because such requirements, by definition,
always favour the use of domestic products over imported products, and
therefore affect trade271.
273. This view was endorsed by the panel in Canada – Renewable Energy / Feed-In
Tariff Program:
As to whether the measures are "trade-related", we note that the FIT
Programme imposes a "Minimum Required Domestic Content Level" on
electricity generators utilising solar PV and wind power technologies that
[…] compels them to purchase and use certain types of renewable energy
generation equipment sourced in Ontario in the design and construction
of their facilities. To this extent, we see the "Minimum Required Domestic
Content Level" that is at issue in these disputes to be not unlike the
domestic content requirements challenged in Indonesia – Autos, where
the panel opined that "by definition, [domestic content requirements]
always favour the use of domestic products over imported products, and
therefore affect trade272.
274. Similarly, the panel in India – Solar Cells concluded that:
In the present case, the DCR measures expressly stipulate the origin of
specified goods that may be used by SPDs for bidding eligibility and
participation under each of the relevant Batches of the National Solar
Mission. Inasmuch as this necessarily pertains to the use of goods based
on their origin, we are of the view that the DCR measures are "trade-
related" in the sense identified by previous panels.273
271 Panel Report, Indonesia – Autos, para. 14.82. 272 Panel Report, Canada – Renewable Energy / Feed-In Tariff Program, 7.111. 273 Panel Report, India – Solar Cells, para. 7.63.
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275. The Localisation Requirement provides an incentive to produce certain
pharmaceutical products in Turkey instead of importing them from other
Members. For that reason, like the measures at issue in the above mentioned
cases, it favours domestic pharmaceutical products over imported products.
Indeed, the very purpose of the Localisation Requirement is to replace imports
of certain pharmaceutical products with domestic products. Therefore, the
Localisation Requirement “affects trade in goods” within the meaning of Article
1 of the TRIMS Agreement.
2.6.4. The Localisation Requirement is inconsistent with Article
III:4 of the GATT 1994
276. For the reasons set out above in sections 2.3 and 2.4, respectively, the
Localisation Requirement is inconsistent with Article III:4 of the GATT 1994 and
is not excluded from the scope of that provision by virtue of Article III:8 (a) of
the GATT 1994.
2.6.5. Conclusion
277. For the above reasons, the European Union submits that the Localisation
Requirement is inconsistent with Article 2.1 of the TRIMS Agreement.
2.7. THE LOCALISATION REQUIREMENT IS INCONSISTENT WITH ARTICLE 3.1(B) OF THE SCM AGREEMENT
278. The European Union submits that the Reimbursement Scheme operated by
Turkey’s Social Security Institution (SSI) involves the granting of a “subsidy” in
the sense of Article 1.1 of the SCM Agreement. The Localisation Requirement
makes the granting of that subsidy contingent upon “the use of domestic over
imported goods”, thereby violating Article 3.1(b) of the SCM Agreement.
279. The European Union submits this claim in the alternative to its claim against the
Localisation Requirement under Article III:4 of the GATT set forth in section
2.3. In other words, the European Union requests the Panel to rule on this
claim only in the event that the Panel were to conclude that the Localisation
Requirement is not in breach of Article III:4 of the GATT 1994, or that such
breach is justified under any other provision of the GATT 1994.
2.7.1. Legal standard
280. Article 3.1(b) of the SCM Agreement prohibits the granting of subsidies that are
contingent upon the use of domestic over imported goods. Specifically, Article
3.1(b) of the SCM Agreement states that:
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3.1 Except as provided in the Agreement on Agriculture, the following
subsidies, within the meaning of Article 1, shall be prohibited: […]
(b) subsidies contingent, whether solely or as one of several other
conditions, upon the use of domestic over imported goods.
The term “subsidy” is defined in Article 1.1 of the SCM Agreement, which
provides as follows in relevant part:
For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public
body within the territory of a Member (referred to in this
Agreement as "government"), i.e. where:
(i) a government practice involves a direct transfer of funds
(e.g. grants, loans, and equity infusion), potential direct transfers
of funds or liabilities (e.g. loan guarantees);
(ii) […];
(iii) a government provides goods or services other than
general infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism,
or entrusts or directs a private body to carry out one or more of
the type of functions illustrated in (i) to (iii) above which would
normally be vested in the government and the practice, in no real
sense, differs from practices normally followed by governments;
or
(a)(2) […];
and
(b) a benefit is thereby conferred.
281. Article 1.2 of the SCM Agreement further provides that:
A subsidy as defined in paragraph 1 shall be subject to the provisions of
Part II or shall be subject to the provisions of Part III or V only if such a
subsidy is specific in accordance with the provisions of Article 2.
282. In turn, Article 2.3 of the SCM Agreement states that:
Any subsidy falling under the provisions of Article 3 shall be deemed to
be specific.
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283. The European Union will show here below that the Reimbursement Scheme
operated by Turkey’s SSI constitutes a “subsidy” because it involves a “financial
contribution” by a “public body” within the meaning of Article 1.1(a)(1) of the
SCM Agreement, which confers a “benefit” within the meaning of Article 1.1(b)
of the SCM Agreement.
284. The European Union will further show that, by virtue of the Localisation
Requirement, that subsidy is “contingent” upon “the use of domestic over
imported goods” and is, therefore, prohibited by Article 3.1(b) of the SCM
Agreement.
285. That subsidy must be deemed “specific”, in accordance with Article 2.3 of the
SCM Agreement, and, therefore, subject to the provisions of Part III of the SCM
Agreement.
2.7.2. Financial contribution
286. Turkey’s Social Security Institution (SSI) is affiliated to Turkey’s Ministry of
Labour and Social Security. It is beyond question, therefore, that the SSI is a
“public body” within the meaning of Article 1.1 (a)(1) of the SCM Agreement.
287. The Reimbursement Scheme may involve two types of closely connected
“financial contributions” by the SSI within the meaning of Article 1.1(a)(1) of
the SCM Agreement.
288. First, the payments made by the SSI to the pharmacies under the
Reimbursement Scheme involve a direct “transfer of funds” from the SSI to the
pharmacies. Therefore, those payments constitute, by themselves, “financial
contributions” within the meaning of item (i) of Article 1.1 (a)(1) of the SCM
Agreement.
289. Second, the above-mentioned payments made by the SSI to the pharmacies
under the Reimbursement Scheme are conditional upon the pharmacies
providing pharmaceutical products included in the Reimbursement List to the
out-patients who are beneficiaries of Turkey’s Social Security system and who
request those products at the pharmacies. The supply of those pharmaceutical
products by the pharmacies to the beneficiary out-patients must comply with
the terms and conditions stipulated by the SSI. In particular, those
pharmaceutical products must be supplied by the pharmacies at no cost, or at a
reduced cost, to the out-patients.
290. As explained above, the European Union considers that the Reimbursement
Scheme does not involve a “procurement” or “purchase” of pharmaceutical
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products “for governmental purposes” within the meaning of Article III:8 of the
GATT 1994. However, should the Panel take the view that, as it appears to be
Turkey’s position, the SSI does “procure” and “purchase” those products “for
governmental purposes”, it would follow necessarily that the subsequent supply
of those products by the pharmacies to the out-patients would constitute, by
itself, a “financial contribution” within the meaning of Article 1.1(a)(1) of the
SCM Agreement. Indeed, on that construction, it would have to be considered
that: 1) the SSI “entrusts” or “directs” the pharmacies, within the meaning of
item (iv) of Article 1.1 (a)(1), to perform the function of “providing goods”,
within the meaning of item (iii) of the same provision, to the beneficiary out-
patients on the terms and conditions stipulated by the SSI; and 2) by Turkey’s
own admission, such function is one “normally vested in the government and
the practice, in no real sense, differs from practices normally followed by
governments”, again within the meaning of item (iii) of Article 1.1 (a)(1).
2.7.3. Benefit
291. The financial contributions identified in the previous section, whether
considered each separately or in combination, confer a direct “benefit”, within
the meaning of Article 1.1(b) of the SCM Agreement, upon the out-patients who
are beneficiaries of the Turkish Social Security System. Clearly, those out-
patients are “better off”274 as a result. Indeed, in the absence of those financial
contributions, those out-patients would be required to pay to the pharmacies
the full price of the pharmaceutical products included in the Reimbursement List
in order to receive those products.
292. As a result of that direct benefit, the financial contributions identified in the
previous section also confer an indirect benefit to the producers of the
pharmaceutical products included in the Reimbursement List because they
lower the cost of those products to the out-patients and thus make them more
attractive relative to imported like products not included in the Reimbursement
List275.
274 Appellate Body Report, US – Large Civil Aircraft (2012), para. 662. 275 According to the Panel Report in Brazil – Aircraft (Article 21.5 – Canada II), where a financial
contribution is made to the purchasers of a product, rather than the producers, thereby conferring a direct benefit upon those purchasers, there is, at a minimum, a prima facie case that those financial contribution also confer an indirect benefit to the producers. See Panel Report in Brazil – Aircraft (Article 21.5 – Canada II) footnote 42 (“We note that PROEX III payments are made in support of export credits extended to the purchaser, and not to the producer, of Brazilian regional aircraft. In our view, however, to the extent Canada can establish that PROEX III payments allow the purchasers of a product to obtain export credits on terms more favourable than those available to them in the market, this will, at a minimum, represent a prima facie case that the payments confer a benefit on the
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2.7.4. Contingency upon the use of domestic over imported goods
293. The financial contributions, and hence the benefits thereby conferred, which
have been identified in the previous sections are conditional upon the out-
patients who are beneficiaries of Turkey’s Social Security system requesting,
and being supplied by the pharmacies, a pharmaceutical product included in the
Reimbursement List.
294. If an out-patient requests, and is supplied by the pharmacy, a pharmaceutical
product not included in the Reimbursement List, the financial contributions
described above do not take place: the out-patient will not be supplied that
pharmaceutical product unless it pays the full price; and the SSI will make no
payment for that product to the pharmacy under the Reimbursement Scheme.
295. In turn, as explained above in section 1, the inclusion of pharmaceutical
products belonging to certain categories in the Reimbursement List is
conditional, by virtue of the Localisation Requirement that applies to those
categories, upon the product in question being produced in Turkey. Like
imported pharmaceutical products (i.e. imported products for which
pharmaceutical companies have not made commitments to localise production
in Turkey or whose commitments have been rejected), with the same or similar
properties as domestically produced products, are not included in the
Reimbursement List.
296. The pharmaceutical products included in the Reimbursement List are supplied
to each out-patient for her exclusive personal use. They are provided by the
pharmacies upon presentation of a medical prescription which designates the
out-patient by name. Moreover, they cannot be legally resold by that out-
patient to any other person or entity.
297. Thus, the financial contributions, and hence the subsidy, identified in the
previous sections are effectively contingent upon the use by the out-patient of
domestic pharmaceutical products over like imported pharmaceutical products.
2.7.5. Specificity
298. Since the subsidy identified in the previous sections is prohibited by Article
3.1(b) of the SCM Agreement it must be deemed “specific”, in accordance with
producers of that product as well, as it lowers the cost of the product to their purchasers and thus makes their product more attractive relative to competing products”).
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Article 2.3 of the SCM Agreement and, therefore, subject to the provisions of
Part III of the SCM Agreement.
2.7.6. Conclusion
299. The Reimbursement Scheme operated by Turkey’s Social Security system
involves the granting of a “subsidy” in the sense of Article 1.1 of the SCM
Agreement. The Localisation Requirement makes the granting of that subsidy
contingent upon “the use of domestic over imported goods”, thereby violating
Article 3.1(b) of the SCM Agreement.
3. THE IMPORT BAN ON LOCALISED PRODUCTS AND THE PRIORITISATION
MEASURE
3.1. THE IMPORT BAN MEASURE
300. By this measure, when the production of a pharmaceutical product has been
localised in Turkey in accordance with the Localisation Requirement, applied in
conjunction with the Turkish rules for approving the importation and marketing
of pharmaceutical products, that pharmaceutical product can no longer be
imported in Turkey.
301. In particular, the following administrative authorizations must be obtained in
order to import a pharmaceutical product into Turkey:
a) a marketing authorisation, granted by the Ministry of Health, which
authorises placing the pharmaceutical product on the market;276
b) an inspection certificate required for importing a number of
pharmaceutical products277 into Turkey. The importer is required to
submit the inspection certificate when making a customs
declaration at customs offices. According to the “Announcement on
import applications for medical products” with Annexes and Model
Statement of 31 December 2019, a marketing authorisation is a
prerequisite for obtaining the inspection certificate).278
276 See the Regulation on the Marketing Authorisation of Medicinal Products for Human Use, Official
Gazette No.25705 of 19 January 2005 (Exhibit EU-89). 277 Implementing Regulation on Import Control of certain products inspected by the Ministry of Health
Official Gazette No. 29579 of 31 December 2015 (Exhibit EU-90) and the Implementing Regulation on Import Control of certain products inspected by the Ministry of Health, Official Gazette No. 30991 of 27 December 2019 (together the “Regulations on Import Control”), (Exhibit EU-91).
278 See Article 4 of the Regulations on Import Control and the “Announcement on import applications for medical products” with Annexes and Model Statement of 31 December 2019 (Exhibit EU-92) that refers to marketing authorisation as “licence”.
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302. As regards the above marketing authorisation, according to the Regulation on
Marketing Authorisation of Medicinal Products for Human Use, a pharmaceutical
product can either be granted a local marketing authorisation or an import
marketing authorisation.279 The same product cannot hold two marketing
authorisations, one “local” and one “import”.
303. In this respect, Article 20(2) of the Regulation on the Marketing Authorisation
of Medicinal Products for Human Use provides that: “A second local or import
marketing authorisation shall not be granted for any product with the same
formulation and pharmaceutical form, already authorized by the Ministry, to the
same real person or legal entity, even if the product has a different commercial
name.”
304. This means that the same product cannot be manufactured in Turkey and
imported at the same time. Therefore, to the extent that a pharmaceutical
product has been localised in Turkey in accordance with the Localisation
Requirement, it can no longer be imported.
305. Further, Articles 22(2) and 23(3) of the Regulation on the Marketing
Authorisation of Medicinal Products for Human Use show that the (import)
marketing authorisation is essential for importing a pharmaceutical product.
Articles 22(2) provides that “importation of a product the marketing
authorisation of which is suspended, shall be halted”. Article 23(3) provides
that “importation of a product of which the marketing authorisation is cancelled
shall be halted”.
306. When companies commit to localise their production of a pharmaceutical
product (that was previously imported under an import marketing
authorisation) in Turkey, they have to apply for a variation of their marketing
authorisation, from import to local status. Therefore, without the appropriate
marketing authorisation (for import), a product cannot be imported in Turkey.
307. The Regulation regarding the Variations on Medicinal Products for Human Use
with Marketing Authorisation or Pending Registration (“the Regulation on
Variations”) provides that in case of a change in the production site, a company
needs to apply for variation of the marketing authorisation.280
279 Article 8, paras. (n) and (s) of the Regulation on the Marketing Authorisation of Medicinal Products for
Human Use requires the submission of additional documents for marketing authorisations concerning imported products.
280 Regulation regarding the Variations on Medicinal Products for Human Use with Marketing Authorisation or Pending Registration, Official Gazette No. 25823 of 23 May 2005 (Exhibit EU-93).
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308. In particular, Article 4 of the Regulation on Variations defines “variation” as:
“Variations made in contents of documents mentioned in Article 8, 9, 10, 11,
and 12 of Regulation for the Marketing Authorisation of Medicinal Products for
Human Use…”. Point no. 7 of the Annex APP-1 of the Regulation on
Variations281 includes among the variation cases the “variation or addition of a
production site for part or all of the production process of the finished product”.
309. Moreover, the Announcement on variation applications regarding the
“Applications for Transition from Import to Manufacture or from Manufacture to
Import of Medicines” provides that “once the alteration from import to
manufacture or from manufacture to import has been approved, a new licence
[to be read as marketing authorisation] for the medicinal product for human
use will be issued”.282
310. Several documents further show that companies are required to change their
marketing authorisation from import to local within the Localisation
Requirement.
311. First, TMMDA’s presentation of 7-9 October 2016 on localisation283 refers to:
- “Follow-up of committed company plan and variation application”
- “Variation approvals by TMMDA (change of production
location/localisation)”;
- “Within 12 months after approval of localisation process, the
Company to complete the Variation Process Preparations for
License Approval.”;
- “Making application to TMMDA for change of production site”.
312. Second, TMMDA’s presentation “Project Transition from importing to
manufacturing” of 6 March 2017 presentation describes variations applications
a specific stage in phase I and II of the Localisation Requirement.284
313. Third, an email sent by TMMDA to a pharmaceutical company mentions
“variation application”.285
281 The full name of the Annex is “List and Conditions of Type IA and Type IB Minor Variations to be
conducted in accordance with Articles 5 and 6”. 282 Announcement on variation applications (Exhibit EU-94). 283 TMMDA’s presentation of 7-9 October 2016, pages 5, 10 and 11 (Exhibit EU-40). 284 TMMDA’s presentation “Project Transition from importing to manufacturing” of 6 March 2017, pages 4
and 7 (Exhibit EU-34). 285 TMMDA communication of 10 October 2017, entitled “Preparing a progress report for your products in
localization process” (Exhibit EU-82).
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314. Fourth, several letters sent by TMMDA to companies whose localisation
commitments have been accepted, required that those companies apply for
“transition to local manufacturing”286 (see paragraph 143 above).
315. Fifth, the HSPC Decision regarding the Localisation Process (see paragraph
69above), that sets out the process and criteria for implementing the
Localisation Requirement provides that: “Companies should apply to TMMDA for
the variations within 1 (one) year after announcement of the decision at the
latest”.287
316. Sixth, a press article dated 14 March 2017 refers to TMMDA’s president as
saying that :”We have notified pharma companies. Following the creation of the
plans for transition, the replies and commitments of the companies will be
assessed. In January 2018, TMMDA will give the variation (change of place of
production/localisation) approvals”.288
317. Seventh, another TMMDA letter to a company required making “variation
applications” within a certain deadline.289
318. Therefore, the above evidence further confirms that when a pharmaceutical
product has been localised in Turkey in accordance with the Localisation
Requirement, it can no longer be imported because, following the required
variation procedure, it lacks the import marketing authorisation necessary for
importation.
319. Furthermore, only with an (import) marketing authorisation, companies can
apply for the inspection certificate, which is a required administrative permit for
importing pharmaceutical products in Turkey.290
320. The Announcement on import applications provides that “import applications for
medical preparations and other products listed in Annexes 1/A, 1/B and 1/C of
Implementing Regulation No 2020/20 on import inspections for certain
286 TMMDA communication of December 2016 entitled “Local Manufacture”, informing that the proposed
commitments were found to be appropriate (Exhibit EU-80). 287 HSPC Decision regarding the Localization Process, October 2016 (Exhibit EU-35). 288 "Era of localisation in the Pharma sector", press article published in ITO HABER, 14 March 2017,
recalling how, by reference to the 10th Development Plan and the ‘Action Plan for Structural Transformation in Health Industries’ (Exhibit EU-13)
289 TMMDA communication of 31 January 2018, entitled “Localization Process” (Exhibit EU-81). 290 Implementing Regulation on Import Inspection of Certain Products Inspected by the Ministry of Health,
Official Gazette No 30991 of 27 December 2019 (Exhibit EU-91). See, in particular, Art. 4(1): “If products referred to in Annex 1/A, Annex 1/B, Annex 1/C or Annex 2 are imported for the purposes stated for each therein, human health and safety compliance shall be certified by the Inspection Certificate contained in Annex 3” and Art. 8(1) “An Inspection Certificate issued by the Ministry of Health shall be recorded in the customs declaration during registration. The importer or its representative is responsible for submitting the Inspection Certificate to the relevant customs office”
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products inspected by the Ministry of Health (Official Gazette 30991 of 27
December 19) (the Implementing Regulation on Product Safety and Inspection)
must accurately provide all data requested on the Import Authorisation
Application Form in the EBS Import Module, along with three (original)
Inspection Certificates and three pro forma invoices, and must be submitted
electronically, along with the following documents, […] (4) licence /
intermediate product permit / permit”.291 This “licence” is the marketing
authorisation (for import), which is one of the prerequisites of the import
application process to obtain an inspection certificate.
321. This further confirms that a pharmaceutical product that has been localised in
Turkey in accordance with the Localisation Requirement can no longer be
imported. In the absence of the correct import marketing authorisation, it
cannot obtain the inspection certificate, that is also necessary for importation
3.2. THE PRIORITIZATION MEASURE
322. By this measure, Turkey gives priority to the review of applications for inclusion
of domestic pharmaceutical products in the list of products covered by the
reimbursement system, as well as with respect to some licensing policies and
processes, over the review of the applications of like imported products.
323. The following action plans and programmes confirm the existence and content
of an overarching Prioritization Measure with respect to locally manufactured
pharmaceutical products.
324. First, On 7 November 2014, the Turkish Ministry of Health adopted the
Structural Transformation Program for Healthcare Industries Action Plan,292 in
order to implement the Healthcare Related Industries Structural Transformation
Program (para.40 above).
325. The Action Plan includes as “Action 2” within “Component-1”, under the
responsibility of the Ministry of Health and the SSI the requirement to
implement "necessary regulations and practices" "with the objective of
prioritizing medicines and medical devices produced in Turkey in the
reimbursement and pricing policies and licensing processes." Action 2 includes
as sub-actions the following :
291 Announcement on import applications for medical preparations and other products for the attention of
companies of 31 December 2019 (Exhibit EU-92). 292 The Structural Transformation Program for Healthcare Industries Action Plan, 7 November 2014,
coordinated by the Ministry of Health and Ministry of Development, http://strateji.gtb.gov.tr/haberler/10kalkinma-plani-oncelikli-donusum-programlari-aciklandi, accessed on 15 June 2018 (Exhibit EU-14).
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”It will be ensured that the MoH swiftly issues licenses for applications
filed for medicines to be manufactured in Turkey.”; “SSI will accelerate
the evaluation process for the inclusion of the domestically manufactured
products in the Reimbursement List by carrying out necessary legislative
work.”
326. Further, under Component-3 of the 2014 Action Plan "Improvement of Business
and Entrepreneurial Ecosystems", Policy no 1 “Developing Cooperation Models
with the domestic Medicines /Medical Devices Industry While Devising New
Health Schemes”, Action No 2 provides that “products developed as a result of
R&D activities planned and materialized as per the needs of our country will be
supported in terms of pricing and reimbursement practices” and that “newly-
developed medicines, emerging from the R&D activities conducted in Turkey”
will benefit from “special licensing practices” and the facilitation of “price and
reimbursement practices.”
327. Second, the 2016 Action Plan of the 64th Government (Implementation and
Reforms), of 10 December 2015, lists as Action No 46 "[T]o improve the
reimbursement, pricing and licensing processes for medical devices and
strategic and domestic medicines" under "Social Policies and Working Life".293
328. Under the "Description" column or the "action definition", Action No 46 states
that "The Ministry of Health will promptly license medicines for which an
application has been lodged for production in Turkey, at the same time as
addressing the Social Security Institution reimbursement policies for them";
and that "[b]y making the necessary amendments to its own legislation, the
Social Security Institution will speed up the evaluation process for including
domestically manufactured healthcare products on the Reimbursement List".
329. Third, the 65th Government Programme of 24 May 2016 provides under the
Industrial Policies, section of No 4 “Strong Economy”, at page 81: "Our main
objectives include the financial sustainability of the quality we have achieved in
healthcare and increasing domestic production of pharmaceuticals and medical
devices." It further specifies that: "When it comes to reimbursement and
pricing policies and licensing procedures, we will give priority to domestically
produced medicines and medical devices."294
293 2016 Action Plan of the 64th Government (Implementation and Reforms)", 10 December 2015 (Exhibit
EU-15). 294 The 65th Government Programme (Exhibit EU-16).
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330. Further, the SSI Regulation on Drug Reimbursement of 10 February 2016295
implements the abovementioned actions and programmes with respect to the
inclusion on the Reimbursement List.
331. In particular, according to Article 5 (g) of the SSI Regulation on Drug
Reimbursement the Drug Reimbursement Committee (DRC) is responsible for
a fast track review of pharmaceutical products manufactured in Turkey for the
purpose of being placed on the Reimbursement List: “Holding extraordinary
sessions, when necessary, to assess applications for locally-manufactured
medicinal products requesting to be listed, without waiting for conclusion of
other applications made during the same period”.
332. Further, according to Article 6(ç) Reimbursement Committee Chair is
responsible for the review of “assessments by the Medical and Economic
Assessment Committee related to applications for locally-manufactured
products, that a decision be taken at an extraordinary meeting of the Drug
Reimbursement Committee, and calling an extraordinary meeting of the Drug
Reimbursement Committee, if necessary”.
333. The SSI Regulation on Drug Reimbursement also grants fast track review to
certain imported pharmaceutical products are necessary for the treatment of
patients and that are not available domestically.
334. According to Article 5 (ğ), the Drug Reimbursement Committee (DRC) also
grants fast track review to the imported pharmaceutical products listed on the
Foreign Price List of Medicinal Products :“Holding extraordinary sessions, when
necessary, to assess medicinal products, listed in the Foreign Price List of
Medicinal Products, published by the Institution, requesting to be listed for
reimbursement, without waiting for conclusion of other applications made
during the same period”.
335. Article 3 of this Regulation provides that the “Foreign Price List of Medicinal
Products means a list published by the Institution of medicinal products to be
reimbursed if imported from other countries”. Article 4(3) (1) of the
Implementing Regulation for Healthcare (see paragraph 24 above296 specifies
that these are pharmaceutical products necessary for the treatment of patients
but are not available domestically : “Supply of medicines that are deemed
necessary for persons who are availed of the Institution’s health benefits and
295 Exhibit EU-8. 296 Article 4(3) of the Implementing Regulation for Healthcare (Exhibit EU-95).
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that are not possible to be supplied domestically […]”. Article 4.3(3) of the
same regulation confirms that the “Foreign Price List of Medicinal Products” is
Annex 4/C to the IRH/SUT: ““Medicines, cost of which will be paid if supplied
from abroad have been indicated in the “Price List of Medicine from
Abroad”(Annex-4/C).”297
336. According to Article 9 (c), the Medical and Economic Assessment Committee
(MEAC/TEDK) is also responsible for prioritizing the review of locally
manufactured pharmaceutical products and of the imported products listed in
the “Foreign Price List of Medicinal Products: : “Prioritizing the review of
applications involving locally manufactured medicinal products requesting listing
for reimbursement and medicinal products listed in the Foreign Price List of
Medicinal Products, which have subsequently gained marketing authorisation
and now requesting listing for reimbursement, other than those resolved on by
the TEDK and posted on the Institution’s official website upon approval by the
Drug Reimbursement Committee Chair, and referring them to the Drug
Reimbursement Committee Chair for publication, without waiting for conclusion
of the other applications that were submitted during the same period, issuing
an opinion that these should be given consideration during an extraordinary
meeting of the Drug Reimbursement Committee”.
337. Therefore, pharmaceutical products manufactured in Turkey are "listed" in the
agenda of the Drug Reimbursement Committee and of the Medical and
Economic Assessment Committee as prioritized topics for review to be include
in the Reimbursement List and these Committees hold extraordinary meetings
for that purpose. No such treatment is given to imported products that are like
locally produced products.
338. Next, locally manufactured pharmaceutical products are also given priority with
respect to licensing, in particular the applications for good manufacturing
practices (“GMP”) and marketing authorisations.
339. The TMMDA’s Guideline for Working Principles and Procedures of Human
Medicinal Products Priority Assessment Commission (“Priority Assessment
Guideline”)298 gives priority, inter alia, to applications regarding pharmaceutical
297 Annex 4/C to the IRH/SUT, accessed on 18 May 2019 (Exhibit EU-96). According to the Circular on the
Use of medicines from other countries and the Guide to the procurement and use of medicines from abroad, the pharmaceutical products included in the “Foreign Price List of Medicinal Products” are “not available on the market for various reasons for the diagnosis and treatment of illnesses on the basis of a prescription or in urgent cases” and can be imported only with TMMDA’s authorisation (Exhibit EU-101).
298 Guideline for Working Principles and Procedures of Human Medicinal Products Priority Assessment Commission available in English at https://titck.gov.tr/storage/legislation/QgR2Se2X.pdf and in
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products whose production is transferred to Turkey,299 applications for locally
manufactured products for exportation purposes300 and applications301 relating
to products which have strategic importance for Turkey’s policies.302
340. The Priority Assessment Guideline also gives priority to the review of
applications regarding imported pharmaceutical products listed in the “Foreign
Price List of Medicinal Products” (see paragraph 334above).
341. Specifically, Article 2 e) of the Priority Assessment Guideline refers to
“Applications relating to products which cause serious public health problems in
case they are not ready for use including vaccines or those which are included
in the Agency’s foreign medicine procurement list on the date of application,”.
Article 10 e) provides that the application regarding imported products listed in
the “Foreign Price List of Medicinal Products” are not assessed using the scoring
criteria laid down in the guideline:” Applications … which are included in the
Agency’s foreign medicine procurement list on the date of application are
assessed by the Commission independently of the scoring criteria in the
guideline.”
342. The Priority Assessment Guideline covers the applications for GMP and
marketing authorisation ending with the placing on the market of a
pharmaceutical product. In this respect, Article 4(1) c) defines the “Assessment
Process” as “Product analysis procedures, the GMP audit of manufacturing
plants, all the phases of marketing authorisation application which starts with
pre-assessment and ends in placing on the market.”
343. Article 4(1) h) of the Priority Assessment Guideline defines “Prioritization” as
the “assessment of applications within the determined criteria and put them
forward in the Agency’s assessment processes by giving priority to applications
about medicines which can contribute to the national economy by decrease in
import and increase in export and local production; to public finance by
decrease in unit medicine price; to public health, preventive and therapeutical
health services by using them in health service delivery”.
Turkish at https://titck.gov.tr/storage/announcement/WOCRVdb1.pdf. According to the “Announcement on the Guideline of the Priority Assessment Commission and Guideline”, the Guideline has been established “in accordance with official approval No 2165621 of 13 April 2016 on Prioritisation in the Licence Assessment Procedure”, (Exhibit EU-97).
299 See Article 2 ç) of the Priority Assessment Guideline. 300 See Article 2 d) of the Priority Assessment Guideline. 301 See Article 2 h) of the Priority Assessment Guideline. 302 The Prioritisation Application Form Instruction of May 2016 (Exhibit EU-98) provides details on the
submission of application for review.
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344. The Priority Assessment Guideline establishes the Human Medicinal Products
Priority Assessment Commission (“HMPPAC”) within the TMMDA with the
following duties:
a) assessing and finalizing the prioritization requests; and
b) following the results of its decisions, reviewing and reassessing them when
necessary.303
345. The Administrative Activity Report of the TMMDA for 2016 confirms that
HMPPAC was established in order to implement Action No 2, under Policy no 5
of Component 1 of the 2014 Action Plan for the Healthcare Industries Structural
Transformation Programme.304
346. Further to the assessment of the requests for prioritization, the HMPPAC
classifies the applications into high priority applications, priority applications
and normal applications.
347. Article 10 e) provides that “applications relating to products which have
strategic importance in terms of country policies are assessed by the
Commission independently of the scoring criteria in the guideline.” Article 10 f)
provides that “the applications relating to locally manufactured products having
export relation among marketing authorisation applications are assessed by the
Commission according to the criteria of planned exportation time, planned
exporting countries, planned exportation size and the starting date of
exportation.” Article 10 ğ) provides that “the priority matter of locally
manufactured product applications relating to the transferring of production of
imported medicines to our country is assessed by the Commission.”
348. It has to be noted that Annex 3 of the Priority Assessment Guideline regarding
the Prioritization Assessment Criteria and Scoring Chart attributes a coefficient
of 0.15 to applications concerning Local production without any further
distinction, a coefficient of 0.15 to applications concerning a Local active
substance and a coefficient of 0.3 for applications involving the performance of
bioequivalence studies in Turkey.
349. The Priority Assessment Guideline read as a whole gives priority for review to
applications concerning all locally manufactured products. In particular, Articles
2 ç), 2d), 2h), 4(1) h) and Annex 3, read in light of Action 2 of the 2014 Action
303 Article 6 of the Priority Assessment Guideline. 304 See Administrative Activity Report of the Turkish Medicines and Medical Devices Agency of 2016 where
the HMPPAC is translated as “Priority Assessment Board” (Exhibit EU-99).
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Plan, Action No 46 of the 2016 Action Plan and the 65th Government
Programme of 24 May 2016, show that all domestic products (and the imported
products listed in the “Foreign Price List of Medicinal Products”, that for various
reasons are not available in Turkey), are given priority for GMP and marketing
authorisation procedures.
350. Finally, TMMDA representatives confirmed in a press article of 24 February
2018305 the existence of the Prioritization Measure by stating that whether a
product is locally manufactured and imported is among the criteria governing
the assessment of the prioritisation process of products:
“Are license processes of local producers the same with imported and licensed
production?
The licensing periods of products to be licensed by our institution is determined
according to the provisions stipulated in the legislation. Regarding prioritised
products, this period is 180 days if the product has priority, and 150 days if the
product has high priority. Where the product has no priority, such period is 210
days. However, these periods solely comprise the licensing assessment process
of our institution, and do not include the period that elapses when applicants
reply to the deficiencies identified. Being manufactured and imported are not
the sole criteria governing the assessment of the prioritisation process of
products. Below you can find in detail the criteria stated in the legislation, as
such, the decision for prioritisation is taken according to the different features
of the product, its contribution to societal health and the economy of the
country and etc.”
3.3. THE IMPORT BAN IS INCONSISTENT WITH ARTICLE XI:1 OF THE GATT 1994
351. Article XI of the GATT 1994 on the “General Elimination of Quantitative
Restrictions” provides, in relevant part that:
“General Elimination of Quantitative "No prohibitions or restrictions other
than duties, taxes or other charges, whether made effective through
quotas, import or export licences or other measures, shall be instituted or
maintained by any contracting party on the importation of any product of
the territory of any other [Member] or on the exportation or sale for
export of any product destined for the territory of any other [Member].”
305 “Watch out with the localization trap”, press article on the online journal Yeni Şafak, of 24 February
2018 available at https://www.yenisafak.com/hayat/yerellestirme-tuzagina-dikkat-3163628 (Exhibit EU-100).
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352. Article XI:1 of the GATT 1994 lays down a general obligation to eliminate
quantitative restrictions. It prohibits Members to institute or maintain
prohibitions or restrictions other than duties, taxes, or other charges, on the
importation, exportation, or sale for export of any product destined for another
Member.
353. In order to establish that a challenged measure is inconsistent with Article XI:1
of the GATT 1994, the complaining Member must demonstrate the following
elements:
(i) the measure falls within the scope of the phrase "quotas, import or export
licences or other measures";306 and
354. (ii) the measure constitutes a prohibition or restriction on the importation or on
the exportation or sale for export of any product.307
355. The Appellate Body defined the term "prohibition" as a "legal ban on the trade
or importation of a specified commodity".308 Import bans are inconsistent with
Members' obligations by virtue of Article XI:1 because they have a restrictive or
limiting effect on importation or exportation.
356. The second component of the phrase " prohibitions or restrictions" is the noun
"restriction", which is defined as "[a] thing which restricts someone or
something, a limitation on action, a limiting condition or regulation", and thus
refers generally to something that has a limiting effect.309
357. The Appellate Body in Argentina–Import Measures explained that the use of the
word "quantitative" suggested that only those prohibitions and restrictions that
limit the quantity or amount of a product being imported (or exported) would
fall within the scope of this provision.310
306 The Panel Report in Argentina — Import Measures, para. 6.363 explained that this wording covers all
measures that constitute import "prohibitions or restrictions" regardless of the means by which they are made effective. The reference to "quotas, importor export licences" is only indicative of some means by which import prohibitions or restrictions may be made effective. What is relevant when examining a measure under Article XI:1 of the GATT 1994 is whether a measure prohibits or restricts trade, rather than the means by which such prohibition or restriction is made effective. Also, according to the Appellate Body Report in Argentina — Import Measures, para. 5.218 the scope of Article XI:1 covers measures through which a prohibition or restriction is produced or becomes operative.
307 Appellate Body Report, Argentina–Import Measures, paras. 5.217-5.128. 308 Appellate Body Reports, China–Raw Materials, para.319. 309 Appellate Body Reports, China–Raw Materials, paras.319-320. 310 Appellate Body Report, Argentina–Import Measures, para. 5.217 (referring to the Appellate Body
Reports, China–Raw Materials, para.319-320).
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358. As to how to ascertain the limiting effects of a measure, the Appellate Body has
explained that this can be done through an analysis of its design, architecture,
and revealing structure, in its relevant context.311
359. In the present case, the Import Ban measure prohibits the importation of those
pharmaceutical products whose production has been localised in Turkey in
accordance with the Localisation Requirement.
360. Specifically, the Regulation on the Marketing Authorisation of Medicinal
Products for Human Use and the Regulation on Variations provide that a certain
pharmaceutical product can be registered either with a local marketing
authorisation or with an import marketing authorisation. Moreover, several
documents from Turkish authorities confirm that the localisation of production
in Turkey in accordance with the Localisation Requirement requires switching
from an import marketing authorisation to a local marketing authorisation (see
paras. 77, 83-84, 107, 121, 128,137, 144-147 above).
361. Therefore, if a pharmaceutical product has been localised in Turkey in
accordance with the Localisation Requirement, the company importing that
product is required to switch its import marketing authorisation into a local one
and, thus, lose the former. The lack of an import marketing authorisation for a
particular pharmaceutical products leads to the impossibility to import that
product because a marketing authorisation is a prerequisite312 for the inspection
certificate required for the customs procedure.313 Articles 22(2) and 23(3) of
the Regulation on the Marketing Authorisation of Medicinal Products for Human
Use also show that importation is not possible in the absence of an import
marketing authorisation.
362. Therefore, the Import Ban measure, as a prohibition to importation that does
not constitute "duties, taxes and other charges", falls within the scope of the
phrase "quotas, import or export licences or other measures".
363. Since the Import Ban prohibits the importation of pharmaceutical products
localized in accordance with the Localisation Requirement, this measure, by its
very nature, has a limiting effect on importation itself.
311 Appellate Body Report, Argentina – Import Measures, para. 5.217 (referring to the Appellate Body
Reports, China – Raw Materials, paras. 319-320). 312 See the Announcement on import applications for medical products where the marketing authorisation
is referred to as “license/permit” (Exhibit EU-92). 313 See Article 4(2) of the Implementing Regulation on the import control of certain products inspected by
the Ministry of Health.
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364. The European Union considers that the Import Ban on localised products is
inconsistent with Turkey's obligations under Article XI:1 of GATT 1994,
because, once a foreign producer has localised production of a certain
pharmaceutical product pursuant to the Localisation Requirement, applied in
conjunction with the Turkish rules for approving the importation and marketing
of pharmaceutical products, that product can no longer be imported. Therefore,
Turkey institutes and maintains a prohibition or restriction, other than duties,
taxes or other charges, on the importation of pharmaceutical products of the
territory from other WTO Members.
3.4. THE PRIORITIZATION MEASURE IS INCONSISTENT WITH ARTICLE III:4 OF THE GATT 1994
365. The legal standard to find that a measure is inconsistent with the national
treatment obligation in Article III:4 of the GATT 1994, is set out above (para.
150).
3.4.1. The domestic and imported products at issue are “like
products”
366. With respect to (i), it is well established in WTO jurisprudence that measures
distinguishing between goods solely on the basis of national origin satisfy the
"like product" requirement. Panels examining claims under Article III:4 of the
GATT 1994 have repeatedly found that domestic and imported products at
issue were like products where the sole distinguishing criterion was origin.314
367. Thus, where a Member draws an origin-based distinction, a comparison of
specific products is not required and it is not necessary to examine the
traditional likeness criteria, such as, their physical properties, end-uses and
consumers' tastes and habits.315 It is sufficient for the purpose of satisfying the
"like product" test for a complaining party to demonstrate that there can or will
be domestic and imported products that are "like products".316
368. In the present case, the domestic products are all pharmaceutical products
manufactured in Turkey while the imported products are all imported
pharmaceutical products with the same characteristics. Based on this
jurisprudence, it is clear that the requirement of likeness is fulfilled.
314 Panel Report, India – Solar Cells, para. 7.83. Similarly, see Panel Report, Argentina – Import
Measures, paras. 6.273 – 6.276. 315 Panel Report, Turkey – Rice, para. 7.214 and the cases cited therein. 316 Panel Report, China - Publications and Audiovisual Products, paras 7.1444 – 7.1447. Panel Report,
Canada – Wheat Exports and Grain Imports, para. 6.164.
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369. Finally, as explained above (para. 334), the pharmaceutical products included
in the “Foreign Price List of Medicinal Products” are a part of the pharmaceutical
products imported in Turkey but they are not available in Turkey “for various
reasons” and are “procured [from abroad] on the basis of a prescription” “for
the diagnosis and treatment of illnesses” “or in urgent cases”.317 These
imported pharmaceutical products” do not have corresponding domestic “like
products” because they are included on the abovementioned list as they are not
available on the Turkish market. Therefore, they fall outside the scope of the
Prioritization Measure. .
3.4.2. The Prioritization Measure is a law, regulation, or
requirement affecting the internal sale, offering for sale,
purchase, transportation, distribution, or use of products
370. With respect to (ii), (i.e. whether the measure at issue constitutes a "law,
regulation, or requirement affecting their internal sale, offering for sale,
purchase, transportation, distribution, or use"), the terms "all laws, regulations
and requirements" have been interpreted as encompassing a broad range of
governmental actions (see paras. 157, 162 above).
371. The Prioritization Measure could be considered as a “law” or “regulation”. As
explained above, the Prioritization Measure is imposed through a number of
legal instruments, namely the SSI Regulation on Drug Reimbursement setting
out the priority given to the review of applications for listing for reimbursement
and the Priority Assessment Guideline setting out the priority given to the
review of applications for GMP and market authorisation.
372. The EU notes that, in the context of Article III:4 of the GATT 1994, past panels
and the Appellate Body have understood the term "affecting" to have a "broad
scope of application" in the specific context of the impact of domestic content
requirements on private operators' choices and incentives.318 Article III:4 of the
GATT 1994 also covers those measures which, even though their main
objective is not to regulate the internal sale, offering for sale, purchase or use
of the product, affect the conditions of competition of the products in question
on the domestic market.319
317 See Article 3 of the Guide to the procurement and use of medicines from abroad (Exhibit EU-101). 318 As to the "broad scope of application" denoted by the word "affecting" in Article III:4 of the GATT
1994, see Appellate Body Report, US – FSC (Article 21.5), paras. 210-212. 319 Panel Report, Argentina — Financial Services, paras. 7.119-7.123.
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373. The European Union submits that the Prioritization Measure is a "law,
regulation, or requirement affecting the internal sale, offering for sale,
purchase, transportation, distribution, or use".
374. The Prioritization Measure consists in granting priority to the review of
applications for inclusion in the reimbursement scheme, as well as of the GMP
and marketing authorisation applications, of pharmaceutical products of
national origin. As explained above (para. 26), the sales of the products listed
on the Reimbursement List represent approximately 90% of total sales of
pharmaceutical products in Turkey, the rest being sold via hospitals or outside
the scope of the reimbursement system. As to the priority review for licensing,
in particular the GMP and market authorisation procedures, it has to be recalled
that a pharmaceutical product cannot be sold in Turkey before completing these
procedures.
375. Therefore, this measure affects the internal sale or offering for sale because it
affects the conditions of competition of the imported products on the domestic
market as it covers the priority of applications for inclusion in the
reimbursement scheme of pharmaceutical products and the review of GMP and
marketing authorisation applications.
3.4.3. The Prioritization Measure accords less favourable treatment
to imported like products
376. The legal test to find that a measure accords less favourable treatment to
imported products is set out above (paras. 169-172).
377. In this case, the Prioritization Measure accords "less favourable" treatment to
imported pharmaceutical products than that accorded to like domestic
products.320
378. The implications of the contested measure for the equality of competitive
conditions are discernible from the design, structure, and expected operation of
the measure. This measure consists in granting priority to the review of
applications regarding pharmaceutical products of national origin for inclusion in
the reimbursement scheme, and the review of GMP and marketing
authorisation applications. The fact that the products of domestic origin are
granted priority review whereas the imported products are not granted priority
review, distorts the conditions of competition to the detriment of imported
320 Panel Report, India — Solar Cells, para. 7.80.
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products.321 The priority review granted by the Turkish authorities to products
of domestic origin means that these products are likely to be placed on the
market faster than imported products, thereby providing them with an
advantage over the imported products. Thus, this measure, accords "less
favourable" treatment to imported pharmaceutical products. It takes away the
ability of imported products to compete on the basis of an “effective equality of
opportunities”. The jurisprudence has already dealt with similar measures. For
example, the panel in China – Auto Parts found that certain administrative
procedures that only applied to imported products accorded less favourable
treatment by treating those products less favourably.322
379. In other words, it is clear from the terms, design, structure, and expected
operation of the Prioritization Measure that it is a de iure discriminatory
measure, and that, by its very nature, it accords less favourable treatment to
imports. There is no need to analyse the actual market impact or other
consequences of the measure further.
380. Finally, the fact that imported products are not entirely excluded from the
marketplace (for example, because the Prioritization Measure does not cover
imported pharmaceutical products listed on the “Foreign Price List of Medicinal
Products”), is no defence. It has been repeatedly found in the jurisprudence
that there is less favourable treatment even where the measure “will not give
rise to less favourable treatment for like imported products in each and every
case”,323 or where the coverage of the measure is partial.324
381. Therefore, the European Union considers that the Prioritization Measure is
inconsistent with Turkey's obligations under Article III:4 of GATT 1994,
because, by according priority to the review of applications regarding
pharmaceutical products of national origin for inclusion in the reimbursement
scheme and the review of GMP and marketing authorisation applications,
Turkey accords to imported pharmaceutical products treatment less favourable
than that accorded to like products of national origin.
321 Appellate Body Report, Thailand — Cigarettes (Philippines), para. 128. 322 Panel Report, China – Auto Parts, para. 7.270. 323 Appellate Body Report, US – FSC (Article 21.5), para. 221. 324 Panel Report, India – Solar Cells, para. 7.95.
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4. CONCLUSIONS
382. For the reasons set out in this submission, the European Union requests the
Panel to find that:
1) The Localisation Requirement is inconsistent with Turkey's obligations under
Article III:4 of GATT 1994, Article X:1 of GATT 1994 and Article 2.1 of the TRIMs
Agreement;
2) To the extent that the Panel found that the Localisation Requirement is not
inconsistent with Article III:4 of the GATT 1994, that such measure is inconsistent
with Article 3.1(b) of the SCM Agreement;
3) the Import Ban on localised products is inconsistent with Turkey's obligations
under Article XI:1 of GATT 1994; and
4) the Prioritization Measure is inconsistent with Turkey's obligations under Article
III:4 of GATT 1994.