In Turkey, specific healthcare services are reimbursed by the government due to the social state principle. Accordingly, a large portion of the prescribed pharmaceutical products have been included in the reimbursement list of the Social Security Institution (“SSI”) and the payments of the treatments have been completely or partially made by the SSI.
According to the legal framework, pharmaceutical products with the marketing authorization can be included in the reimbursement list upon the application made by the pharmaceutical company, without making any distinction as to the product being imported or local. A local product might have advantages compared to an imported one as it is the case for other products as well. However, the provisions of certain international treaties - particularly General Agreement on Tariffs and Trade (the “GATT”) - regulating rights and obligations under international trade that prohibits discrimination and which Turkey is a party of should not be violated by applying different rules to local and imported products.
Background of the Dispute
The localisation of pharmaceutical products was envisaged by the policy in the 2016 Action Plan announced on December 10, 2015 by the 64th Government. This Action Plan included an expression which states that “Exclusion of imported pharmaceutical products from the reimbursement list will be determined, provided that necessary assurance is obtained for provision of the treatment.” It was planned with this policy to promote the production of local pharmaceutical products by excluding the imported products from the SSI’s pharmaceutical reimbursement list.
Based on this policy, the SSI started to delist imported products which were already added to the reimbursement list, on the grounds that the products were not manufactured (localized) in Turkey and/or marketing authorization holders’ plans on manufacturing in Turkey were not accepted.
Even though it is not an absolute obligation for a drug to be included in the reimbursement list of SSI in order to be placed on the market; 90% of the pharmaceutical market in Turkey consists of products included in the reimbursement list. In other words, the sale rates of the products that are not included in the list does not even constitute 10% of the market in total. Therefore, being included in the reimbursement list has been an actual obligation for pharmaceutical products to be placed on the market. In this context, excluding imported products from the reimbursement list results in pushing the mentioned products out of the market.
Legal Basis of the Complaint and Findings under the Report of the WTO Panel
After the mentioned discrimination came into effect, the European Union requested consultations from the World Trade Organization (“WTO”) on April 2, 2019 regarding the measures concerning the manufacturing, importation and marketing of pharmaceutical products pursuant to the claim that Turkey violated various international agreements, particularly GATT.
EU claimed that the measures applied by legal and administrative instruments constitute contradictions to the obligations arising from the provisions of GATT, Agreement on Trade-Related Investment Measures (the “TRIMs Agreement”), the Agreement on Trade-Related Aspects of Intellectual Property Rights (the “TRIPS Agreement”) and Agreement on Subsidies and Countervailing Measures (the “ASCM”). The complaint of the European Union basically gathers around three points: [1]
- Localisation Requirement: Exclusion of imported pharmaceutical products from the SSI’s reimbursement list, for which commitments for localisation are not given.
- Import Ban on Localised Products: When the production of a certain pharmaceutical product has been localised in Turkey, the product is no longer importable and therefore, the importation is subject to restrictions implemented by Turkey, other than taxes, duties or other charges.
- Prioritization: Practice that causes inequality between the imported and localized products by prioritizing the local products with respect to the licensing, pricing and reimbursement processes.
Turkey claimed in its defence against these allegations that since it aims to ensure continuously accessible, effective and financially sustainable healthcare to its citizens by the mentioned localisation policy, the policy is within the context of general exception provisions and since the reimbursement of the mentioned pharmaceutical products is provided by the government, the provisions on the government procurement derogation in Article III:8(a) of the GATT shall apply.
WTO panel evaluated both of the parties’ statements and decided that the EU’s complaint was justified; and concluded that Turkey violated the referred international trade agreements.
Appellate Process
In the presence of the report dated November 11, 2021, which was prepared at the end of the proceedings initiated by EU and included findings against Turkey; Turkey applied to an appeal process on April 25, 2022 before the WTO, which has been rarely applied in practice.
Subsequent to the delivery of the report prepared by WTO panel to the parties; not being able to appoint a judge to the WTO Appellate Board resulting from the United States of America’s policies at that time caused delay of the process. Afterwards, upon the request of the European Union, the process was suspended on December 20, 2021 and the suspension period was prolonged twice by the requests of the European Union.
On March 22, 2022, it was notified to the WTO by both parties that the parties decided to continue the proceedings by the arbitration procedure pursuant to article 25 of the Dispute Settlement Understanding (“DSU”). Upon acceptance by WTO of such requests, Turkey made an appeal application as per article 25 of DSU on April 25, 2022 and therefore, the report was made publicly available by the parties.
It is expected the arbitrator panel, established upon the application of Turkey, to make a decision in 90 days.
Evaluation
The mentioned article 25 regulating arbitration for the disputes before the WTO, is a provision applied only in one settlement between the EU and USA. In this context, one can say that the step Turkey has taken might also constitute an example for disputes between different states. This indicates that arbitration might be an alternative of the settlement of various suspended disputes before the WTO, due to the deadlock in the WTO Appellate Board, and a new era might begin for dispute resolution before the WTO.