ReSolution Issue 11, Nov 2016 | Page 46

In respect of the second factor, the TPP expressly clarifies, by footnote,33 that whether an investor’s investment-backed
expectations are reasonable depends on factors such as whether the government provided the investor with binding written assurances and the nature and extent of governmental regulation or potential regulation in the relevant sector. We have suggested previously34 that rights inherent in an investment should be construed to be flexible rights having regard to the natural evolution of the legal framework which existed at the time of the investment. The nature and course of that evolution will obviously differ between countries for cultural reasons. Accordingly, the concept of expropriation should only arise where the change in regulation falls outside
the evolution of the law which could reasonably have been contemplated at the time of the investment.

The third factor above the “character” of the government action is not further explained in the TPP. The ASEAN-Australia-NZ FTA
and the MalaysiaAustralia FTA state that the character of government action includes its objective and whether the action is
disproportionate to the public purpose. A test of “proportionality” was endorsed by the tribunal in Tecmed v Mexico.35 The tribunal
said













The above gives some clarity to the meaning of “indirect expropriation” under the TPP. Further, paragraph 3(b) of Annex 9B states:
“Nondiscriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives,
such as public health, safety and the environment, do not constitute indirect expropriation, except in rare circumstances.”

Regulatory actions to protect public health are said37 to include measures with respect to the regulation, pricing and supply of, and
reimbursement for, pharmaceuticals (including biological products), diagnostics, vaccines, medical devices, gene therapies and
technologies, health-related aids and appliances and blood and blood-related
products.

While some suggest the language “except in rare circumstances” should be removed from paragraph 3(b), so that non-discriminatory
regulation can never be indirect expropriation, to do so would unduly favour the host State and disadvantage the investor, to the
detriment of the whole purpose of international investment agreements.

In addition, Article 9.15, entitled “Investment and Environmental, Health and other Regulatory Objectives”, states:

“Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise
consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner
sensitive to environmental, health or other regulatory objectives.”

This language is also found in the Australia-United States FTA however in that agreement it is limited to environmental objectives.
The TPP is broader in its reach to “health or other regulatory objectives”. Article 9.15 requires the State to show that it determined
that the measure was appropriate with respect to the objective sought. Presumably this requirement will require proof that, prior to the action subject of complaint, the State