On April 10, 2019, the European Union (“EU”) circulated its request for dispute consultations with Turkey to World Trade Organization (“WTO”) members, in relation to the measures imposed by Turkey on pharmaceutical products with regard to production, import and approval for reimbursement, pricing and licensing.

In brief, the EU claims that Turkey’s localization regulations and practices are inconsistent with Turkey’s obligations arising out of several agreements, such as the provisions of General Agreement on Tariffs and Trade (“GATT”), Agreement on Trade Related Investment Measures, Agreement on Trade-Related Aspects of Intellectual Property Rights, or Agreement on Subsidies and Countervailing Measures.

According to document conveyed by the EU, Turkish authorities are in a localization process with regard to pharmaceutical products consumed in Turkey, where foreign producers are required to commit to localize their production of pharmaceutical products in Turkey. The reason EU has requested a dispute consultation is that the related pharmaceutical products are excluded from the reimbursement scheme, if these foreign producers fail to engage in the localization process. Since the Turkish social security system manages and operates the pharmaceutical products sold by pharmacies to patients and covers the expenses relating to the pharmaceuticals involved in the reimbursement scheme, for a producer to be excluded from the scheme has great impact on their sales and marketing in Turkey.

There are certain measures adopted by Turkish authorities which ensure the operation of this localization process. The EU claims that the process is not sufficiently transparent. The technology transfer requirement, which concerns the transfer of new technology from the originator to a secondary user, imposes the obligation on the producers to transfer technology rights to a producer established in Turkey. Another argument is that, producers cannot import their pharmaceutical product into Turkey, once that product has been localized in Turkey. Lastly, the EU expresses that, the Turkish authorities give priority to the applications for inclusion of domestic pharmaceutical products in the reimbursement scheme in cases where imported products are not excluded from the reimbursement scheme as a result of the localization requirement, which is also administered in a non-transparent manner. These measures are implemented through a variety of legal instruments, such as government programs, development plans, presidency decisions and laws and regulations.

To provide an example, the EU argues that, the abovementioned treatment of producers with pharmaceutical products imported to Turkey is inconsistent with Article III:4 of GATT, which rules that the imported products from the territory of any contracting party into the territory of any other contracting party, shall treated no less favorable than that of the national origin, since localization requirement results in unfavorable treatment of imported products, thus affecting their sales in Turkey. Another argument is that the non- transparency in establishing of certain procedures such as the technology transfer requirement, which varies from producer to producer, is inconsistent with Article X:1 of GATT, indicating that laws, regulations, judicial decisions and administrative rulings put in place by a contracting party should be published promptly, in order to enable traders to become acquainted with them. It can be seen that many of the arguments revolve around the “less favorable treatment” argument, while others include inconsistencies with obligations relating to patent rights and transfer of undisclosed information arising out of related agreements.

Accordingly with the procedure of consultations, a dispute will be initiated in the WTO and parties will discuss the related matters to find an amicable solution without proceeding with litigation. If the EU and Turkey fail to resolve the issues after 60 days, a panel will be established upon EU’s request from the Dispute Settlement Body.

 This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in September 2019. A link to the full Legal Insight Quarterly may be found here