Balancing Economic Security and Investment Protection – The Case of Nexperia and the China–Netherlands BIT
Authors: Steffen Hindelang (CELIS Institute), Liam McGrath (CELIS Institute), Helene Schramm (CELIS Institute)
I. Introduction
While the European Union and its Member States are still assessing whether to introduce a mechanism to review outbound investment for economic security reasons, the Netherlands appears to be ahead of the policy curve. On 30 September 2025, following reports that parts of Nexperia Semiconductor's (“Nexperia”) business would be relocated to China, the Dutch Minister of Economic Affairs signed an order (“Order”) under the Goods Availability Act (Wet beschikbaarheid goederen) (“Wbg”) – a 70-year-old long-dormant emergency law – granting the state powers to block or reverse any corporate decision of Nexperia if they are deemed “(potentially) harmful to the interests of the company, to its future as a Dutch and European enterprise, and/or to the preservation of this critical value chain for Europe.”
The stakes are significant. Nexperia manufactures low-margin semiconductors for a wide range of industrial applications, playing a critical role in Europe’s automotive supply chain. The company has been owned by Wingtech Technology (“Wingtech”), a Chinese technology conglomerate, since 2019. Wingtech condemned the Dutch government’s move as “an act of excessive interference driven by geopolitical bias, not by fact-based risk assessment”. The Chinese government responded with export restrictions, hitting Nexperia’s production in Europe. Adding to the complexity – and not to be confused with the Order – non-Chinese executives of Nexperia later initiated civil inquiry proceedings against the company before the Amsterdam Court of Appeal, which imposed emergency governance measures upon Nexperia on 7, 8, and 13 October 2025. While the independent assessment conducted by the Amsterdam Court lends some credibility to the government’s concerns about Nexperia’s internal governance, these proceedings shall be left aside for the purposes of this blog post, which focuses on the Dutch government’s Order under the Wbg.
On 19 November, the Dutch government announced that the Order had been suspended after receiving assurances that the Chinese export restrictions would be lifted; an abrupt change of course likely aimed at easing ongoing diplomatic discussions. Despite this temporary suspension, Wingtech has reportedly filed a notice of arbitration under the Bilateral Investment Treaty between China and the Netherlands (“BIT”), thereby triggering the treaty’s six-month cooling-off period, and has signalled that it would seek up to EUR 8 billion in damages. According to market disclosures, Wingtech is expecting a net loss of up to USD 1.9 billion for 2025, largely as a result of the dispute over control of Nexperia. The Dutch government’s intervention thus raises important questions as to its consistency with the BIT and illustrates the growing tension between security-driven state measures and investment treaty obligations.
In his recent contribution to the CELIS Blog, Frans-Paul van der Putten examined the Nexperia crisis from a different perspective, asking whether the Dutch Security Screening Act would have altered the course of events had it been applicable at the time of Wingtech’s acquisition of Nexperia in 2019. The present post instead turns to the Dutch government’s intervention and assesses its compatibility with the Netherlands’ obligations under the China–Netherlands BIT.
II. The Dutch Legal Framework
Enacted in 1952 to address wartime supply chain vulnerabilities, the Wbg empowers the Dutch government to issue binding orders against any individual or legal entity to ensure the continued availability of goods in the “event of war, threat of war, or related or associated extraordinary circumstances”.
Notably, the Wbg does not define the term “extraordinary circumstances” which appears in the preamble, nor does Article 2 of the Wbg, which states that the Dutch government may intervene “in preparation for emergency situations”, elaborate on what constitutes such situations.
A statement from the Dutch government on 12 October sheds light on how the authorities applied the Wbg in the present case. The Ministry of Economic Affairs asserted that the Order is intended to “prevent a situation in which the goods produced by Nexperia (...) would become unavailable in an emergency.” The wording of its statement suggests that there is no such emergency yet. Rather, the measure is precautionary. Two days later, the Ministry further explained that the governance shortcomings within Nexperia related, inter alia, to the “improper transfer of production capacity, financial resources, and intellectual property rights to a foreign entity owned by the CEO and not connected to Nexperia”, which “[posed] risks of knowledge leakage and thus the loss of future production capacity.”
III. Challenging National Security Measures Under the China-Netherlands BIT
Against the factual background and domestic legal framework sketched out above, the analysis now turns to the implications of the Order under the China-Netherlands BIT. Article 10(3) of the BIT allows for investor–state arbitration. The available facts suggest that Wingtech qualifies as an “investor”, as defined in Article 1(2)(b), that its equity in Nexperia is a covered “investment”, as defined in Article 1(1)(b), and that the dispute falls within the temporal and territorial scope of the treaty. The remainder of the assessment focuses on the merits. In light of the scope and possible effects of the Dutch government’s Order, it could plausibly be challenged in at least three ways: first, as an indirect expropriation under Article 5(1); second, as a violation of the fair and equitable treatment (“FET”) standard under Article 3(1); and third, a violation of the right of free transfer of capital under Article 7.
Indirect Expropriation
Government measures that interfere with or usurp an investor’s actual management over an investment, for example by displacing or replacing managers, may constitute indirect expropriation (see, e.g., Pope & Talbot v Canada, Interim Award, 2000, para 100; Feldman v Mexico, Award, 2002, para 152; and, for management replacement specifically, see, e.g., Biloune v Ghana, Award on Jurisdiction and Liability, 1989, para 85; Biwater Gauff (Tanzania) Ltd v Tanzania, Award, 2008, paras 408-412 and 503-510). The interference must, however, result in a “substantial deprivation” of the investor’s rights to satisfy the threshold. Summarising this legal standard, the tribunal in Sempra v Argentina (Award, 2007, para 284) held that, beyond interfering in the appointment of officials or managers, “substantial deprivation” would result from state actions such as “managing the day-to-day operations of the company [...] interfering in administration [...] or depriving the company of its property or control in whole or in part.” A finding of indirect expropriation, the tribunal continued, “would require more than adverse effects. It would require that the investor no longer be in control of its business operation, or that the value of the business have been virtually annihilated” (Ibid, para 285).
Applying this standard to the case at hand, the Minister’s contention that despite the Order, “Nexperia’s regular production process can continue,” is not determinative, as continuity of day-to-day production does not preclude substantial deprivation of an investor’s rights. The question is whether Wingtech’s control of its investment has been effectively deprived by the Order. In the absence of further legal guidance in the Wbg or in the Order, there is a wide range of potential government actions that could ultimately result in a loss of effective management control. For instance, the blocking or the reversal of a company’s strategic decision to relocate production processes abroad. At this point, however, all of this remains hypothetical, as no such decision has been made. It remains to be asked, whether the mere possibility of such interference – the formal power to override or reverse corporate decisions – by the Dutch government could in itself constitute a significant loss of control. This seems doubtful, however, as the mere possibility provided for in the Order is too far removed from amounting to an actual taking.
FET Standard
While a claim based on indirect expropriation requires a fairly high threshold of interference with the investment, the Order in its current form may however amount to a violation of the FET standard, which also applies to interference with the management of an investment (see Elliott v Korea, Award, 2023, para 603; Biwater Gauff (Tanzania) Ltd v Tanzania, Award, 2008, para 605).
An investor could argue that the Dutch government’s intervention frustrated its legitimate expectations regarding the risks and rewards of its investment. Those expectations are derived, inter alia, from the host state’s legal framework at the time of investment. In this regard, a relevant question is whether a reasonable investor could have foreseen the Dutch government’s activation of (near-)wartime emergency legislation. The answer is likely yes: In times of crisis, virtually any commodity can become critical, so can mass-market chips. Also, geopolitical scenarios shift over time, all of which can be assumed to be foreseeable for a reasonable investor; the Wbg was, after all, in force and applicable at the time of the investment.
The focus is therefore on whether the actual application of the law was consistent with the FET standard and, in particular, whether it still sufficiently ensured the “stability” and “predictability” of the Dutch legal framework (CMS v Argentina, Award, 2005, para 276). Of course, “stability is not an absolute concept” (RREEF v Spain, Decision on Responsibility and the Principles of Quantum, 2018, para 315), and the host state’s right to regulate domestic matters in the public interest must also be considered. The relevant question is whether the Order represents a legitimate response to evolving security concerns that still remains within the “acceptable margin of change” of the regulatory framework (cf. El Paso v Argentina, Award, 2011, para 402). Here, the evolving understanding of what ‘security’ entails in international economic relations complicates the assessment of what constitutes a predictable application of law. As certain types of risks, such as technological dependence or supply-chain vulnerabilities, are increasingly reclassified as matters of economic or national security, both the threshold for invoking emergency-type powers and the predictability of their use in new contexts shift in parallel. Thus, the expansion of economic security as a regulatory rationale might require a more dynamic understanding of what a predictable application of the law entails. In the case of Nexperia, the Dutch government’s invocation of legislation intended for situations of “war, threat of war, or related or extraordinary circumstances” appears, nevertheless, to stretch the traditional meaning of those terms.
Even so, assuming arguendo that the Dutch government acted outside the legal scope provided by the Wbg in issuing the Order, not every breach of domestic law entails a breach of FET. As the tribunal in Gavrilović v Croatia (Award, 2018, para 878) held, this requires “(...) a blatant disregard of the applicable law, a clear and malicious misapplication of the law, or a complete lack of candour or good faith in the application of the law.” It appears doubtful that this high threshold has been met in the present case.
Free Transfer of Capital
A potential consequence of the Order is that Wingtech cannot freely transfer funds or other assets out of the Netherlands without risking the Dutch government’s intervention. To substantiate a claim that its right to repatriate its investment is violated, the investor could argue that the Order introduces an open-ended approval requirement effectively amounting to a transfer restriction.
That said, it appears unlikely that the Dutch government would block pure financial transfers, as the Order’s primary aim seems to be preventing Nexperia from transferring tangible or intangible assets abroad, such as shipments of machinery or intellectual property rights. In Karkey v Pakistan (Award, 2017, paras 654 f.), the question of whether such non-monetary transfers fall within the scope of the transfer clause was addressed. The tribunal held that the transfer clause at issue extended to physical assets in the form of detained vessels, as the relevant BIT defined “investment” to include “movable and immovable property”. An examination of Article 1(1)(a) of the BIT reveals that Wingtech could make the same argument.
IV. Grounds for Precluding Wrongfulness
Unlike some modern investment treaties, the BIT does not contain any national security carve-outs that could assist in justifying the Order (and whose effects would, in any event, have been uncertain). Instead, the Netherlands could seek recourse to Article 25 of the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts (“ARSIWA”), on necessity. Necessity precludes wrongfulness where the act in question “is the only means for the State to safeguard an essential interest against a grave and imminent peril,” provided that the state has not contributed to that situation.
While safeguarding knowhow and production capacities in the semiconductor sector may qualify as an essential interest, their imminent relocation must amount to a grave and imminent peril. The Chinese, by adopting export restrictions in response to the Dutch Order – disrupting Nexperia’s supply chain and, by extension, European car manufacturing – may, in fact, have themselves provided the illustration of the existence of such peril.
Perhaps, however, the grave and imminent peril to which the Netherlands responded lies elsewhere. The temporal coincidence between the Dutch Order and the United States announcing that Nexperia would be subject to export controls suggests that the Netherlands may have acted in direct response to U.S. pressure; a pattern not without precedent. From this perspective, the intervention may be better understood as part of the broader U.S.–China “chip war,” rather than as an autonomous measure aimed at strengthening Dutch or European economic security
The remaining issue is whether the Netherlands had less restrictive means available. The fact that China could cause supply chain disruptions even without the actual implementation of the Order calls into question whether the Order was indeed the only suitable means of protecting Dutch (and European) essential interests.
V. Conclusion
The Nexperia intervention illustrates how the expanding security-driven rationale in states’ approach to foreign investment is increasingly on a collision course with long-standing investment protections. While this tension is by now recognised in the context of inbound FDI screening, the present case illustrates that similar considerations can also arise after an investment has been completed. This evolving interaction between economic security and investment protection warrants close attention going forward.
Note: A version of this post was previously published on the Kluwer Arbitration Blog. That version is available here.
