EU secures arbitration victory against Turkey
Localised production of pharmaceutical products at issue | First-ever WTO appeal of its kind settled by arbitration
In the first appeal settled by arbitration to circumvent problems at the World Trade Organization (WTO), the European Union has secured a favourable ruling in its pharmaceutical dispute with Turkey.
The ruling, handed down yesterday, July 25, concluded that Turkey had failed to justify its localisation measures—which required foreign producers to commit to localising their production of certain pharmaceutical products in the country.
Back in 2019, the EU had asked the WTO to initiate dispute consultations with Turkey over requirements imposed by the country on pharmaceutical products. At the time, the EU claimed that the measures at issue, which include technology transfer requirements, are inconsistent with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
According to the EU, Turkish authorities were planning to localise production of a substantial proportion of pharmaceutical products. To achieve this, Turkey is requiring foreign producers to commit to localise in Turkey their production of certain pharmaceutical products, said the complaint.
A WTO panel had previously rejected Turkey’s arguments, recommending that the country bring its measures into line with the General Agreement on Tariffs and Trade 1994. Turkey subsequently appealed against the decision in April this year.
While the WTO’s Appellate Body would normally hear such disputes, it has been unable to issue a ruling since 2020 after former US President Donald Trump blocked new appointments.
Given the paralysis of the Appellate Body, the EU and Turkey agreed to send the dispute to non-WTO arbitrators. This ruling is the first WTO appeal arbitration award under article 25 of the WTO Dispute Settlement Understanding (DSU).
While the arbitrators agreed with some of Turkey’s arguments, they supported the earlier WTO panel’s finding that the localisation measure breached global trading rules and recommended that Turkey bring its measures into conformity.
Valdis Dombrovskis, the EU’s executive vice-president and commissioner for trade, said: “Today's verdict is a clear win for the EU, because all claims were decided in the EU’s favour. This is not only of economic importance for EU companies, but it also sends a strong signal discouraging other countries from continuing or pursuing similar discriminatory forced localisation policies, which are incompatible with WTO rules.”
Additionally, the WTO Panel also found that Turkey cannot prioritise reimbursement reviews and marketing applications of domestic pharmaceuticals over foreign ones. As Turkey did not appeal these findings to arbitration, they remain valid and enforceable.
