“Re-arm”! Assessing the Interplay Between Arms Export Regulation and International Investment Law

In the last few years, investment and trade in arms and dual-use technologies have grown (and are expected to increase further) due to the escalation of geopolitical tensions and the “rearm” initiatives launched by many countries and international organizations such as NATO and the European Union (“EU”). A significant part of this activity involves joint venture (“JV”) projects or subsidiaries confirming an existing trend and aligning with the direction taken by the EU with the Programme Readiness 2030, which stimulates cross-border partnerships. Yet, the prospect of increasing investment and trade in arms and dual-use technologies across borders also heightens concerns about the circumvention of arms-control regimes and the risk of forum shopping. Indeed, while trade of arms and dual-use items is regulated by a set of international and regional instruments – including the Arms Trade Treaty (“ATT”), the Wassenaar Arrangement, Council Common Position 2008/944/CFSP, and Regulation (“EU”) 2021/821 (recast), concerns emerge about arms exports conducted through subsidiaries or JV partners established in third countries with weak regulatory frameworks. This blog post argues that, while international investment agreements (“IIAs”) are not drafted with arms-transfer governance “in mind”, but primarily to promote and protect foreign direct investment (“FDI”), some of them include clauses that may be relevant to preventing the circumvention of international and EU obligations on arms and dual-use items control. To this end, it examines three types of clauses: national security exceptions, exceptions relating to the maintenance of international peace and security, and provisions on corporate social responsibility and human rights.

National Security Exceptions

A first category of relevant provisions in IIAs relates to “security exceptions” (Ackermann, 2022; Henckels, 2025). These clauses often mention the production and transfer of arms and dual-use items expressly and provide that the state shall not be prevented from taking measures it considers necessary to protect its essential security interests. They can be found, inter alia, in the EU Model Clauses for Bilateral Investment Treaties (“BITs”) and in the model bilateral investment treaties of several countries (e.g., Bulgaria, Canada, the Czech Republic, and Slovakia), including major arms exporters (India and Italy). For example, Article 16 of the Italian Model BIT states:

Nothing in this Agreement shall be construed: (…) to prevent a Party from taking an action which it considers necessary for the protection of its essential security interests: (i) connected to the production of or traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods and materials, services and technology, and to economic activities, carried out directly or indirectly for the purpose of supplying a military establishment [...]

This clause resembles Article XXI(b)(ii) of the General Agreement on Tariffs and Trade (“GATT”). It may be understood as entailing that states exercise their sovereign right to introduce arms trade controls, without automatically incurring international responsibility for breaching the BIT, insofar as such measures are necessary to safeguard their essential security interests. In this regard, although the reference to measures the state “considers necessary” has often been interpreted as indicating a self-judging provision, the WTO Panel in Russia-Traffic in Transit clarified that the discretionary nature of such clauses is limited by the obligation of states to act in good faith. In other words, a state invoking this exception must substantiate both the essential security interest at stake and its connection with the specific measure. Accordingly, restrictive measures on arms and dual-use items exports – where there is a risk that they may be used by the importing state to commit serious human rights violations – may well be regarded as necessary to prevent an escalation that could ultimately threaten the exporting state’s own national security, particularly in cases where geographical proximity increases the likelihood of spillover effects.

Exceptions Relating to the Maintenance of International Peace and Security

Another category of exceptions included in some IIAs that may help promote compliance with arms and dual-use trade regulations concerns states’ obligations to maintain international peace and security. For example, Article 18 of the United States Model BIT provides that the treaty shall not be interpreted as preventing any contracting state “from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security”. This clause recalls Article XXI(c) of the GATT and, like the exceptions related to states’ essential security interests, recognises some discretion to the state in identifying the measures necessary to maintain international peace and security, including, theoretically, measures aimed at limiting the transfers of arms or dual-use items to third states. In this regard, it shall be noted that the risk that exported arms may be used to undermine peace and security constitutes the first criterion that states shall consider in authorising (or not) an export licence under Article 7 of the ATT, as well as one of the guiding principles mentioned in the ATT preamble.

One might argue that references to international peace and security primarily serve as a legal basis for action by the United Nations (“UN”) Security Council, rather than for unilateral measures by individual states. However, this argument contrasts with both the formulation of the model treaty and the practice of states. First, within the limits discussed above, the formulation of the exception confirms that the state has some discretion in identifying the measures “it considers” necessary to maintain international peace and security. Second, in the case of obligations erga omnes, such as the protection of some fundamental human rights, the International Court of Justice affirmed that all states are obliged not to provide aid or assistance to the state responsible for the wrongful conduct (Klabbers, 2024). Consequently, a state’s decision to block arms exports to a country where there is a risk of serious human rights violations does not necessarily amount to a violation of the BIT, as the exception may offer the state some arguments in defence, should the investor challenge the measure before an investment arbitral tribunal.

Clauses on Corporate Social Responsibility and Human Rights

A third category of clauses relates to investors’ corporate social responsibility (“CSR”). Illustrative examples include Article 12 of the 2015 Indian Model BIT and Article 7 of the 2019 Netherlands Model BIT. Both provisions call for investors to voluntarily adopt internationally recognised CSR standards. The two models differ, however, in that the Indian Model BIT directs this expectation at investors, whereas the Netherlands Model BIT requires the state party to encourage investors operating within its territory to adopt such standards. These provisions are interesting as they may prompt the adoption of the so-called internal compliance programmes (“ICPs”), which feature prominently in the international legal frameworks governing arms and dual-use transfers. Indeed, such ICPs are increasingly understood as a core part of the human rights due diligence that corporations are requested to perform in these sectors. For example, both Regulation (EU) 2021/821 and the Wassenaar Arrangement consider ICPs as essential for ensuring compliance with dual-use items trade obligations and, ultimately, for safeguarding human rights. On this basis, one may argue that the clauses included in IIAs that encourage the adoption of CSR polices at least increase pressure on arms industries to adopt ICPs also when they operate through FDIs. One standing critique, however, is that these clauses on CSR rely on soft, non-binding language: they encourage, rather than require, investors to align with international CSR standards.

Some IIAs incorporate human rights clauses drafted in more prescriptive language. Article 18(4) of the 2016 Morocco-Nigeria BIT provides:

“[i]nvestors and investments shall not (…) operate the investments in a manner that circumvents international (...) human rights obligations to which the host state and/or home state are Parties”. 

If one interprets the risk assessment obligation set out in Article 7 of the ATT—which requires states not to authorise exports where the weapons could be used to commit or facilitate serious human rights violations—as a human rights obligation, then provisions such as those found in the Morocco-Nigeria BIT may play a role in promoting compliance with the human rights parameters embedded in arms-trade regulations. Indeed, an arms company that establishes its subsidiary in a country with more lenient regulations for arms transfer would not, by virtue of this clause, be exempted from the application of the more stringent human rights parameters by which the home state is bound. However, whether the risk assessment obligation set out in Article 7 of the ATT can be regarded as a human rights obligation depends on whether this kind of obligation can arise from treaties whose primary focus is not human rights per se.

Conclusion

In the current context of rearmament across several countries, it is important to acknowledge that compliance with arms control norms necessarily takes place at various levels: international, EU, national, and private, and with the involvement of diverse instruments (IIAs, ATT, EU Common Position, ICP, CSR). This blog post has sought to demonstrate that, although the international investment law regime and the arms control legal frameworks are clearly designed with different purposes and scopes, they may well interact and may mutually reinforce each other. Although still largely overlooked in current practice, the interaction between IIAs and arms-trade regulation deserves far greater attention, especially in the light of the expected rise in investment in the arms and dual-use sectors of the coming years and likely arbitration cases in the same sectors.

This publication was funded by the European Union—Next Generation EU, PRIN 2022 PNRR, project: “Arms, Peace and Sustainability (ArPeSu)” (P20223XFXK) – CUP E53D23021150001.