In the World Trade Organization Panel Proceedings · Indonesia – Autos Panel Report, Indonesia...

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


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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


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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


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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

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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











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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

















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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

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?DataSource=Cat&query=@Symbol=WT/DS33/AB/R*&Language=English&Context=ScriptedSearches&languageUIChanged=true


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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)


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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


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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


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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)


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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


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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).


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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”


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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


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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


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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).

http://whocc.goeg.at/Literaturliste/Dokumente/CountryInformationReports/Short_PPRI_Pharma_Profile%20Turkey%202017_consolidated.pdf

http://whocc.goeg.at/Literaturliste/Dokumente/CountryInformationReports/Short_PPRI_Pharma_Profile%20Turkey%202017_consolidated.pdf


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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.

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).


- 14 -

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.


- 18 -

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.


- 20 -

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,

mailto:[email protected]


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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.


- 27 -

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


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.





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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


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.



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.


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.



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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


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).


- 47 -

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”.

http://www.resmigazete.gov.tr/eskiler/2015/12/20151223-9.pdf

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


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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).

http://strateji.gtb.gov.tr/haberler/10kalkinma-plani-oncelikli-donusum-programlari-aciklandi


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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

https://titck.gov.tr/storage/legislation/QgR2Se2X.pdf

https://titck.gov.tr/storage/announcement/WOCRVdb1.pdf


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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).

https://www.yenisafak.com/hayat/yerellestirme-tuzagina-dikkat-3163628


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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.

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