TWN Info Service on WTO and Trade Issues (May22/03)
2 May 2022
Third World Network

WTO: Turkey resorts to arbitration procedure in pharmaceuticals dispute
Published in SUNS #9566 dated 2 May 2022

Geneva, 29 Apr (Kanaga Raja) – Taking into account that the WTO’s Appellate Body is not presently able to hear an appeal, Turkey has informed WTO members that it has initiated arbitration proceedings under Article 25 of the Dispute Settlement Understanding (DSU) to review the findings of a WTO dispute panel in a dispute raised by the European Union over certain measures imposed by Turkey concerning the production, importation and marketing of pharmaceutical products.

The Article 25 arbitration procedure notified by Turkey and circulated on 28 April will now enable both the EU and Turkey to undertake an agreed alternative appeal process to try to resolve this dispute.

According to the agreed procedures, three arbitrators will be appointed under Article 25 of the DSU to review the findings of the dispute panel.

Article 25 of the DSU concerning arbitration states:

“1. Expeditious arbitration within the WTO as an alternative means of dispute settlement can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties.

2. Except as otherwise provided in this Understanding, resort to arbitration shall be subject to mutual agreement of the parties which shall agree on the procedures to be followed. Agreements to resort to arbitration shall be notified to all Members sufficiently in advance of the actual commencement of the arbitration process.

3. Other Members may become party to an arbitration proceeding only upon the agreement of the parties which have agreed to have recourse to arbitration. The parties to the proceeding shall agree to abide by the arbitration award. Arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any Member may raise any point relating thereto.

4. Articles 21 and 22 of this Understanding shall apply mutatis mutandis to arbitration awards.”

On 22 March 2022, both the EU and Turkey had notified the WTO Dispute Settlement Body (DSB) that they had agreed on the procedures for arbitration under Article 25 of the DSU (WT/DS583/10) to decide on any appeal of the panel’s final report in this dispute.

Under the agreed arbitration procedures, a party’s notice of recourse to arbitration under Article 25 of the DSU is characterized as a “notice of appeal”.

Paragraph 1 of the agreed procedures for arbitration under Article 25 of the DSU states: “Taking into account that the Appellate Body is not presently able to hear an appeal in this dispute, the European Union and Turkey (hereafter the “parties”) mutually agree pursuant to Article 25.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) to enter into arbitration under Article 25 of the DSU to decide any appeal from any final panel report as issued to the parties in dispute DS583. Any party to the dispute may initiate arbitration in accordance with these agreed procedures.”

Paragraph 4 states: “Following the issuance of the final panel report to the parties, but no later than 10 days prior to the anticipated date of circulation of the final panel report to the rest of the Membership, any party may request that the panel suspend the panel proceedings with a view to initiating the arbitration under these agreed procedures. Such request by any party is deemed to constitute a joint request by the parties for suspension of the panel proceedings for 12 months pursuant to Article 12.12 of the DSU.”

Paragraph 5 of the agreed procedures for arbitration states: “The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat no later than 30 days after the suspension of the panel proceedings referred to in paragraph 4 has taken effect. The Notice of Appeal shall include the final panel report in the working languages of the WTO. The Notice of Appeal shall be simultaneously notified to the other party or parties and to the third parties in the panel proceedings. Rules 20-23 of the Working Procedures for Appellate Review shall apply mutatis mutandis.”

In its notification to the DSB of its decision to initiate an arbitration under Article 25 of the DSU to decide on an appeal with regard to certain issues of law and legal interpretation covered in the panel report in the dispute raised by the EU, Turkey said that pursuant to paragraph 5 of the Arbitration Agreement and Rule 20 of the Working Procedures for Appellate Review, it has simultaneously filed a
Notice of Appeal and its Appellant Submission with the European Union and the third parties in the panel proceedings and with the WTO Secretariat.

The Notice of Appeal includes the final report of the Panel in the working languages of the WTO, it added.

The panel report was originally issued to both the EU and Turkey on a confidential basis on 11 November 2021, but on 20 December 2021, the EU asked the panel to suspend its work, and the report was not circulated to the rest of the WTO membership.

At the request of both the parties, the dispute panel in this case did not itself circulate its final report to the WTO members, which would have made it public, but instead only transmitted it to the EU and Turkey and allowed them to make the report public.

Both Turkey and the EU agreed to make public the panel’s findings in this dispute.

If the dispute panel had itself circulated the report, the DSU would have required either party to file an appeal with the Appellate Body – which is currently non-functional – or the DSB to adopt the report, within 60 days following its circulation.

However, in resorting to the arbitration procedures under Article 25 of the DSU that have been mutually agreed by both parties, Turkey has now opted to use a mechanism to appeal the panel’s findings through an alternative means of dispute resolution.

EU-TURKEY DISPUTE

In its notification (WT/DS583/12) to the DSB, circulated on 28 April, of its decision to initiate an arbitration under Article 25 of the DSU to decide an appeal of the findings of the panel report in the dispute raised by the European Union, Turkey also included the full text of the panel report, thus making it public.

According to the Panel report, which has now been made public by Turkey, on 2 April 2019, the EU requested consultations with Turkey with respect to the measures and claims at issue in the dispute, and consultations were held on 9 and 10 May 2019.

On 2 August 2019, the European Union requested the establishment of a panel , and at its meeting on 30 September 2019, the DSB established a panel pursuant to the request of the European Union in document WT/DS583/3.

According to the European Union, the measures at issue include:

a. a “localisation requirement” whereby “Turkey requires foreign producers to commit to localise in Turkey their production of certain pharmaceutical pro ducts”, and “[i]f 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”);

b. an “import ban on localised products” which the European Union describes as follows: “[w]here 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”; and

c. a “prioritization measure” whereby “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.”

According to the Panel report, the “localisation requirement” relates to Turkey’s policy objective of achieving the gradual transition from imports to domestic manufacturing of pharmaceuticals.

To achieve this policy objective, Turkey requires foreign producers to commit to localise in Turkey their production of certain pharmaceutical products. If a foreign producer does not make a commitment for a pharmaceutical product subject to localisation, if the Turkish authorities reject the commitment, or if the commitment made is not fulfilled, the pharmaceutical product concerned is no longer reimbursed by the SSI (Social Security Institution).

On the import ban on localised products, according to the Panel report, when a pharmaceutical company commits to localise the production of a product and this commitment is accepted, the company has to submit, within a year, a
variation application. This is a request to modify the marketing authorization for the relevant product from “import” to “local”.

The alleged “import ban on localised products”, as described by the European Union, arises from the combined operation of the localisation requirement a nd the Turkish rules for approving the importation and marketing of pharmaceutical products, and in particular Article 20(2) of the Marketing Authorization Regulation (Single Authorization rule).

As for the “prioritization measure”, the Turkish Medicines and Medical Devices Agency (TMMDA)’s Guideline for Working Principles and Procedures of Human Medicinal Products Priority Assessment Commission (Prioritization Guideline ) provides for the possibility to request priority assessment, in particular, of applications for GMP (good manufacturing practices) certification and marketing authorization, and of certain requirements relating to pharmaceutical products in specific cases.

The Prioritization Guideline sets out the criteria that determine whether a particular product is eligible for priority assessment, as well as the procedure that must be followed to obtain priority assessment and treatment. The Prioritization Guideline also establishes a Prioritization Commission which is in charge of examining applications.

“Prioritization” can be requested for ten categories of applications, including applications relating to transferring the production of imported medicines to Turkey, applications for locally manufactured products for exportation purposes, and applications relating to products that have strategic importance in terms of the country’s policies.

According to the Panel report, in addition, the Drug Reimbursement Regulation provides for the possibility of according priority to the applications for inclusion in the Annex 4/A list of some pharmaceutical products.

FINDINGS AND CONCLUSIONS OF THE PANEL

For the reasons set forth in its report, the Panel concluded as follows:

a. With respect to Turkey’s request for a preliminary ruling:

i. Turkey’s request for a preliminary ruling was not untimely;

ii. the localisation requirement, the import ban on localised products, and the prioritization measure were identified with sufficient specificity to comply with Article 6.2 of the DSU when reading the panel request on its face, as a whole, and in light of the attendant circumstances; and

iii. the European Union provided a brief summary of the legal basis of the complaint sufficient to present the problem clearly with respect to its claims under Article X:1 of the GATT 1994 and Article 3.1(b) of the SCM Agreement. Both claims, therefore, are properly within the Panel’s terms of reference.

b. With respect to the localisation requirement:

i. the European Union has established the existence of the localisation requirement as a “single measure”, whereby (i) Turkey requires foreign producers to com mit to localise in Turkey their production of certain pharmaceutical products; and (ii) where commitments are not given, not accepted or not fulfilled, affected products are no longer reimbursed by the SSI;

ii. the localisation requirement is not covered by the government procurement derogation in Article III:8(a) of the GATT 1994, and is therefore subject t o the national treatment obligation in Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement;

iii. the localisation requirement is inconsistent with the national treatment obligation in Article III:4 of the GATT 1994;

iv. Turkey has not established that the localisation requirement is justified under Article XX(b) or Article XX(d) of the GATT 1994; and

v. in the light of these findings, the Panel declined to rule on the Europe an Union’s alternative and conditional claim under Article 3.1(b) of the SCM Agreement and exercised judicial economy over the European Union’s additional claims under Article 2.1 of the TRIMs Agreement and Article X:1 of the GATT 1994.

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

d. With respect to the prioritization measure:

i. the European Union has established the existence of an overarching measure whereby Turkish authorities give priority to the review of applications for inclusion in the Annex 4/A list and to GMP and marketing authorization applications concerning domestic pharmaceutical products over like imported products; and

ii. the prioritization measure is inconsistent with Article III:4 of the GATT 1994.

The Panel concluded that, to the extent that the measures at issue are inconsistent with the GATT 1994, they have nullified or impaired benefits accruing to the European Union under that agreement.

Pursuant to Article 19.1 of the DSU, the Panel recommended that Turkey bring its measures into conformity with its obligations under the GATT 1994.