Report to the Trade Barriers Regulation Committee
Directorate-General for Trade
Directorate F - Co-ordination of WTO and OECD matters. Dispute settlement and Trade Barriers Regulation
Dispute settlement and Trade Barriers Regulation
Non-Confidential Version
Monday, September 13, 2004
Report to the Trade Barriers regulation Committee
TBR proceedings concerning Turkish practices affecting trade in pharmaceutical products
1. Introduction 4
1.1. The Complaint 4
1.2. The investigation 5
2. The products and the complainant 6
2.1. The products 6
2.2. The complainant 6
3. Economic, commercial and Regulatory background in the European union 7
3.1. Economic and commercial background 7
3.1.1. General 7
3.1.2. Production and External trade 7
3.2. The EU legal and regulatory regime for pharmaceutical products 8
3.2.1. Marketing authorisations, pricing and transparency issues 8
3.2.2. Data exclusivity 10
4. Economic and Commercial background in Turkey 13
4.1. Production 13
4.2. Market share of generics and original pharmaceutical products 14
4.3. External Trade 15
4.4. Employment 16
5. Turkish Regulatory regime for pharmaceuticals 16
5.1. Description of the authorities involved and their responsibilities 16
5.2. Description of the process for authorisation/approval for pharmaceutical products 17
5.3. Reimbursement system 19
6. preliminary points under the tbr analysis 21
7. Turkish practices (trade obstacles) : factual and Legal analysis 23
7.1. Discriminatory and arbitrary benchmarking 23
7.1.1. Complainant’s allegations 23
7.1.2. Recent developments on pricing 26
7.1.3. Conclusion 28
7.2. Discriminatory margins 28
7.2.1. Factual analysis 28
7.2.2. Legal analysis under WTO rules 30
7.2.3. Legal analysis under the EC-Turkey Customs Agreement 31
7.2.4. Conclusion 31
7.3. Local production requirements 32
7.3.1. Factual analysis 32
7.3.2. Conclusion 33
7.4. Discriminatory “Buy Turkish” policies 33
7.4.1. Factual Analysis 33
7.4.2. Conclusion 34
7.5. Data protection and data exclusivity 34
7.5.1. The Complainant’s allegations 34
7.5.2. The Turkish authorities’ position 37
7.5.3. Generics producers’ position 38
7.5.4. Legal analysis 39
7.5.5. Conclusion 46
8. Adverse Trade Effects 46
8.1. Local content requirements 47
8.2. Lack of data protection 47
8.3. Conclusion 49
9. Community interest 50
10. Conclusion 51
11. Envisaged course of action Error! Bookmark not defined.
1. Introduction
1.1. The Complaint
On 9 October 2003, the European Federation of Pharmaceutical Industries and Associations (EFPIA) lodged a complaint (exhibit n°1) under Article 4 of Council Regulation (EC) n° 3286/94 (the Trade Barriers Regulation – TBR), to seek the removal of a number of alleged obstacles to trade in pharmaceutical products on the market of the Republic of Turkey.
EFPIA is a non-profit organisation representing the interests of the pharmaceutical industry in the European Union. For the purpose of the complaint, EFPIA is acting on behalf of those of its members which have an interest to export and market their products in Turkey.
The complainant alleged that Community sales of pharmaceutical products in Turkey are hindered by a number of obstacles to trade within the meaning of Article 2(1) of the Trade Barriers Regulation, i.e. “a practice adopted or maintained by a third country and in respect of which international trade rules establish a right of action”.
The trade barriers allegedly encountered by the complainant (EFPIA) include discriminatory pricing and discriminatory margins, local production requirements, discriminatory distribution policies, lack of data protection/data exclusivity as well as overall lack of transparency in the pricing system.
The Commission decided that this complaint contained sufficient evidence to justify the initiation of an examination procedure and a corresponding notice was published in the Official Journal of the European Union on 20/12/2003 (OJ C n°311/31) (exhibit n°2).
1.2. The investigation
During the first stage of the investigation, the Commission services gathered information on the products subject to investigation, on the Turkish legislation and practice, on the Turkish and Community pharmaceutical markets and industries and on the adverse effects claimed by the complainant. This information has been mainly collected by means of different questionnaires addressed to:
– The complainant EFPIA;
– Turkish generics producers (in associations and individually);
– Turkish authorities;
– Research-based companies in Turkey.
After collecting the information referred to above, the Commission services carried out verification visits. A fact finding mission took place in Turkey and the Commission officials met with representatives of the two Turkish generics producers associations (IEIS/Pharmaceutical Manufacturers Association, TISD/Turkish Pharmaceutical Manufacturers Association), the association of the research-based companies in Turkey (importers and locally established) under the acronym of AIFD, representatives of individual companies, officials from the Ministry of Health, the Ministry of Labour and Social Security, the Secretariat General for EU Affairs (under the authority of the Prime Ministry and the Turkish Foreign Affairs Ministry), the Ministry of Finance, the Ministry of the Treasury, representatives of the Turkish Pharmacists Association, representatives of the Istanbul Chamber of Pharmacists, representatives of the McKinsey consulting company and the EU Delegation in Ankara.
The Commission services wish to stress that the Turkish authorities were fully co-operative throughout the investigation and were willing to reply to all questions. That was also the case for all other interested parties, including the generics producers and the Pharmacists associations.
2. The products and the complainant
2.1. The products
The products under investigation are pharmaceutical products falling under the following Combined Nomenclature Headings codes 2936, 2937, 2938, 2939, 2941 and 3001 to 3006. The products which are principally subject to the alleged obstacles to trade are innovative or original products:
Innovative pharmaceutical products are those introduced in the market for the first time. They are developed by research-based pharmaceutical companies which then take the appropriate steps to protect their intellectual property rights in the product. This is essential as it allows the innovator of the product a period of exclusive sales and thus profitability, thereby ensuring the continuity of research into further products. The cost of researching and developing a new chemical or biological entity was estimated at € 895 million in 2001.
Generic products contain the same active ingredient as the innovative products and are essentially similar to and overall interchangeable with the innovative products. A key element for generic pharmaceuticals is bioequivalence. Bioequivalence means that the products to be compared (i.e. the generic medicines and the original) produce the same biological availability of the active substance in the body when given in the same quantity.
2.2. The complainant
EPFIA represents the pharmaceutical industry operating in Europe. Founded in 1978, its members are 18 national pharmaceutical industry associations and 43 companies undertaking research, development and manufacturing of medicinal products for human use in Europe. EPFIA has a liaison status with national pharmaceutical industry associations from 1 candidate country and 4 new EU countries (Bulgaria, Czech Republic, Hungary, Poland and Slovenia).
3. Economic, commercial and Regulatory background in the European union
3.1. Economic and commercial background
3.1.1. General
With an estimated share of 37, 5% of the world pharmaceutical output in 2002, more than 588.000 employees, a global output of nearly € 159 billion and sales of € 104 billion, the pharmaceutical industry is the 5th largest sector in the European Union, amounting to 35% of the total EU manufacturing value added.
The sector is high technology-based and research and development oriented. R&D expenditure reached nearly € 20 billion in 2002 and amounts to 15% of the whole EU business R&D expenditure. It is also one of the high technology sectors to consistently show a positive trade balance.
3.1.2. Production and External trade
In 2002 production of pharmaceutical products in the EU was in the order of € 145 billion. Exports of those products amounted to € 49.2 billion (approximately one third of the production) while imports reached € 23.9 billion.
The EU pharmaceutical industry is a key contributor to the EU trade balance. In 2002 the trade surplus reached € 25.3 billion (up from 16.3 billion in 2000).
3.2. The EU legal and regulatory regime for pharmaceutical products
The European Union has established certain principles for the management and operation of national health care systems, which are reflected in EU law. All EU Member States offer state medical assistance and different degrees of reimbursement of medicaments to patients, and regulate – to a lesser or larger extent depending on the particular Member State - the market for pharmaceutical products both from the point of view of pricing and of protection of public health.
In order to better understand EFPIA’s complaint, it is useful to provide a brief and focused overview of the EU legal and regulatory regime governing pharmaceutical products. The following analysis simply aims at highlighting those issues which are relevant for EFPIA’s complaint.
3.2.1. Marketing authorisations, pricing and transparency issues
From the first European Community pharmaceutical Directive concerning the granting of marketing authorisations for medicinal products, issued in 1965, to our days, Community lawmakers have striven to maintain a high level of protection to public health while achieving a single, EU-wide market for pharmaceutical products under conditions of transparency, streamlined procedures for pricing/reimbursement as well as support for research and innovation.
The principles to which pricing and reimbursement of pharmaceutical products must adhere to are stated in Council Directive 89/105/EEC of 21 December 1988 (exhibit n°3). Its main principles are:
- the right of the company, holder of a marketing authorisation and applying for pricing approval, to a prompt and duly motivated response;
- use of objective and verifiable criteria to accept or refuse to admit products to reimbursement lists;
- publication of the criteria and of the lists themselves.
In another respect, under Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 (exhibit n°4) on the Community Code Relating to Medicinal Products for Human Use, it is made clear that marketing authorisations for medicinal products may be refused only for reasons relating to the quality, safety or efficacy of the medicinal product concerned. This confirms the fact that under international practice in the regulation of pharmaceutical products, it is unusual to include price as an integral part of the registration approval process.
Further and regarding pricing – in those cases where the marketing of a medicinal product is permitted only after the competent authorities of the Member State concerned have approved the price of the product – EU Member States have committed under the same Council Directive 89/105/EEC, as above, that a decision on the price which may be charged for the medicinal product concerned is adopted and communicated to the applicant within 90 days of the receipt of an application submitted by the holder of a marketing authorisation.
Also, Council Directive 89/105/EEC (the so-called Transparency Directive) imposes the obligation to provide a statement of reasons based on objective and verifiable criteria whenever it is decided not to permit marketing of a product at the price proposed by the applicant. Through these specific provisions, the Transparency Directive aims at enhancing transparency and eventually avoiding creeping and/or overt restrictions that undermine the functioning of the EC common market.
3.2.2. Data exclusivity
Although, intellectual property legislation on data protection is ultimately Member State legislation, the basic norms are reflected in EC legislation. Reference is made in particular to Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 (exhibit n°4) on the Community Code Relating to Medicinal Products for Human Use. Having as objectives the safeguarding of public health through appropriate rules on production, distribution and use of medicinal products while promoting the development of the pharmaceutical industry within the Community, this Directive sanctions the rule of data exclusivity, namely that confidential data is exclusive to the originator and may not be relied on by others for marketing approvals during a period of 6 – 10 years following grant of marketing approval.
More particularly, under the mentioned directive data exclusivity implies:
(i) that the undisclosed/confidential data generated by the originator may not be used by another company (generics manufacturer) to produce its own relevant data (principle of non-disclosure), and,
(ii) that the marketing/regulatory authority may not rely or refer (directly or indirectly) to the originator’s data, to process and approve third parties’ subsequent applications for a certain period of time (6 – 10 years following the grant of marketing authorisation) (principle of non-reliance).
As indicated above, the EC legislation is based on protection of data exclusivity for a term of 6 – 10 years, with a mandatory 10 year period for products authorised at the Community level through the so-called “centralised procedure”. After completion of the exclusivity period/term, test data (toxicological and pharmacological tests plus clinical trials) may be relied on by new applicants (“abbreviated/abridged applications”), which only have to demonstrate that their product is essentially similar to an already approved one. It should be stressed that under the relevant Directives as listed above, no medicinal product may be placed on the market of a Member State unless a marketing authorisation has been issued by the competent authorities of that Member State.
Further, Directive 2001/83/EC, imposes a 210 day time limit for adoption of the decision granting authorisation to place a medicinal product on the Member State market following the submission of a valid marketing authorisation application.
It should be stressed that recently adopted EU legislation confirms and strengthens the points made above regarding transparency, pricing and data exclusivity.
In this context, particular reference should be made to Directive 2004/27/EC of the European Parliament and of the Council of 31 March 2004 (exhibit n°5) amending Directive 2001/83/EC on the Community Code relating to Medicinal Products for Human Use and which entered into force on 30 April 2004. This new Directive aims, among others, at promoting the operation of the internal market through harmonisation of the period for data protection/exclusivity relating to pre-clinical tests and clinical trials. In particular, it provides for an effective period of protection of ten years (which under certain circumstances can be extended to eleven) following the initial authorisation of the original product in a Member State or the Community. In turn, the ten-year period is broken down into two sub-periods: generic manufacturers are entitled to apply for, and obtain, a marketing authorisation after eight years from the first marketing authorisation; however, the generic product cannot be placed on the market before ten years. The new directive thus strengthens considerably data protection in line with international practice and the stated objective to foster the promotion and marketing of research-based innovative pharmaceutical products. It should be noted that EU Member States are bound to transpose this Directive within their domestic legal order by 30 October 2005.