National Security as a Sword for Expropriation: The UK-China BIT on the Brink

The UK government nationalised British Steel on 16 July 2026. The nationalisation was carried out under the Steel Industry (Nationalisation) Act 2026. Jingye Group, a Chinese enterprise, had acquired the company in 2020 with a pledged investment of £1.2 billion. Jingye has now initiated consultation procedures under the UK-China Bilateral Investment Treaty of 1986 (the BIT) and also reserved its right to seek full compensation.

Should the dispute proceed to arbitration, a tribunal would first need to address a threshold jurisdictional issue. Under Article 7(1) of the BIT, arbitration is limited to disputes ‘concerning an amount of compensation’. Can an arbitral tribunal review whether the taking itself complied with the treaty’s substantive requirements? The textual limitation will inevitably generate an interpretive dispute. A narrow reading would effectively insulate the entire merits of the UK’s national security rationale from international adjudication. A broad reading, by contrast, would permit scrutiny of the taking’s lawfulness. This procedural gateway, rather than any substantive defence, places the protective function of the BIT on a precarious edge. The following sections first examine the nature of the taking, the UK’s justifications, and the compensation framework. These three inquiries show what could legally be at stake for both parties, assuming the merits can be reached. The discussion then turns to the jurisdictional question of whether a tribunal could ever review these issues at all.

From indirect to direct expropriation

The UK’s deprivation of Jingye’s investment unfolded in two legislative phases. On 12 April 2025, Parliament was recalled from its Easter recess. Parliament passed the Steel Industry (Special Measures) Act 2025 in approximately six and a half hours. That statute conferred extensive powers on the government. These included powers to direct British Steel’s business operations, to appoint company officers, and to prevent insolvency proceedings. Non-compliance carried criminal penalties, including imprisonment. Ownership formally remained with Jingye. However, the Act effectively stripped the investor of control, management, and economic benefits. This is a paradigm case of indirect or creeping expropriation under international investment law.

The Steel Industry (Nationalisation) Act 2026 completed the process. It received royal assent and took effect on 16 July 2026. It transferred legal title to the state. This two-step progression presents a textbook sequence of creeping expropriation. A series of measures cumulatively produces the effect of a taking under investment treaty jurisprudence.

Public purpose and national security as a justification

Article 5(1) of the UK-China BIT permits expropriation only under certain conditions. It must be for a public purpose related to the internal needs of the contracting party. It must also be accompanied by reasonable compensation.

The UK government has justified the nationalisation on national security grounds: it has argued that public ownership is necessary to safeguard vital national capability and to protect critical national infrastructure. The Secretary of State for Business and Trade stated that without public ownership, there was a significant risk that British Steel would fail and warned that UK steel-making capacity would then fall to approximately half of projected 2035 requirements. This would leave the UK vulnerable to volatility in international markets and supply chains.

From the UK’s perspective, there is a plausible case for treating steel production as a matter of strategic concern. The argument rests on the premise that domestic primary steel-making capacity is essential for defence procurement, infrastructure resilience, and supply chain security; a logic that has found support in other jurisdictions, where similar reasoning has been used to justify intervention in strategic industries. The BIT contains no essential security exception clause, so the UK’s national security justification must rest on the treaty’s public purpose requirement and customary international law.

Two possible legal bases should be distinguished. First, the UK could argue that national security falls within the scope of ‘public purposes’ under Article 5(1). This would require convincing a tribunal that maintaining a loss-making, globally over-supplied steel sector constitutes a ‘public purpose’, a proposition that may sit uneasily with the term’s ordinary meaning. Second, the UK could invoke the police powers doctrine by arguing that the measure is a legitimate, non-compensable regulatory act. This path, however, requires the measure to be non-discriminatory and proportionate. The recall of Parliament, the speed of the legislative process, and the statute’s exclusive application to a single Chinese-owned enterprise form a procedural chain that may cast doubt on the measure’s non-discriminatory character. These factors are not determinative, but they may inform a tribunal’s assessment of whether the national security justification is genuine or pretextual.

Even if the UK could overcome these hurdles, its justification, however, also faces difficulties under the customary international law standard of necessity. That standard, as articulated in CMS v. Argentina, requires a ‘grave and imminent peril’ to an essential interest of the State and is subject to strict cumulative conditions of which the State is not the sole judge. The UK steel industry’s difficulties are longstanding and deep-rooted, including high energy costs, post-Brexit trade barriers, and ageing infrastructure. They do not amount to a sudden existential threat that crystallised in April 2025. It is therefore doubtful that a mature, globally over-supplied industrial sector can meet the strict threshold of necessity.

The compensation framework

Article 5 of the BIT requires that compensation be reasonable, equal the real value of the investment immediately before the taking became public knowledge, include interest at a normal rate, and be paid without undue delay.

The Steel Industry (Nationalisation) Act 2026 provides for a compensation scheme to be established through secondary legislation, with an independent valuer to determine the amount. However, the framework presents legal uncertainties. The Act does not specify a minimum compensation amount or a calculation formula; these details are left entirely to future regulations. The Department for Business and Trade told the BBC that any payout would be determined independently and only paid ‘if any, is payable’. This formulation leaves open the possibility of zero compensation. Such a prospect is difficult to reconcile with the BIT’s requirement of reasonable compensation based on the investment’s real value.

The independence of the valuation process may also be questioned. The Business Secretary previously characterised British Steel’s market value as ‘zero’. This pre-emptive assessment was made before the appointment of any independent valuer. Under international investment arbitration, the valuation of a going concern should reflect its overall economic value, including future earning capacity, not a government’s politically motivated declaration.

The jurisdictional hurdle

From the UK’s perspective, there is a plausible textual case for a narrow reading of Article 7. The provision speaks only of disputes ‘concerning an amount of compensation’. It makes no mention of the legality of the taking itself. A textualist tribunal could therefore conclude that its mandate is confined to quantum alone. The UK may also point to the fact that the BIT’s dispute resolution mechanism is carefully circumscribed, and that the contracting parties deliberately limited arbitration to disputes over compensation, leaving other aspects of expropriation to be determined under domestic law.

This reading is not without its difficulties. Investment tribunals have reached divergent interpretations of similarly worded provisions in Chinese BITs. In Tza Yap Shum v. Peru (2009), the tribunal adopted a broad construction, which holds that jurisdiction over disputes concerning the amount of compensation encompasses issues inherent to an expropriation, including whether the property was expropriated in accordance with the BIT. This reasoning was followed in Beijing Urban Construction v. Yemen (2017).

Conversely, in Beijing Shougang v. Mongolia (2017) and AsiaPhos v. China (2023), tribunals adopted a narrower interpretation, which limits jurisdiction to quantum disputes and treats the existence of expropriation as a matter for domestic courts.

The UK would likely rely on the narrower line of cases. But a textual distinction may cut against that position. The BITs in Beijing Shougang and AsiaPhos expressly provided that disputes not resolved through consultation could be submitted to the domestic courts of the host state. The UK-China BIT contains no such provision. A narrow reading would therefore leave an investor with no forum, domestic or international, in which to challenge the lawfulness of an expropriation. Such an outcome would render the substantive protections of Article 5 largely unenforceable. Whether the drafters intended this outcome is unclear, but the treaty’s silence on domestic court recourse provides a basis for arguing that it does not preclude arbitral review of the taking’s lawfulness.

A telling disparity

A revealing statistic from the UNCTAD Investment Policy Hub provides useful context. The UK has signed 110 BITs, which indicates that it is among the world’s most active participants in the BIT system. UK-based investors have initiated 129 investment arbitrations against other host States. By contrast, the UK has been a respondent in only two known investment treaty arbitrations to date. One was initiated in 2006 concerning a commercial lease and another is pending since 2025 concerning mining rights.

This disparity is telling. The UK is one of the primary beneficiaries of the investment treaty arbitration system. The current dispute, however, involves a foreign investor seeking to challenge the lawfulness of a UK sovereign measure. If the case proceeds to arbitration, the UK may argue that the tribunal lacks jurisdiction over the lawfulness of the taking, relying on a narrow interpretation of Article 7. Whether it will do so remains to be seen; the parties may instead settle the matter through negotiation. But the possibility itself is noteworthy, given the UK’s historical role as a champion of robust investment protection.

The UK’s historical experience as a capital-exporting state has not required it to defend investment claims. This may be partly attributable to its traditionally open approach to foreign investment. That approach, however, has shifted markedly. The National Security and Investment Act 2021 established a new regime empowering the government to scrutinise, block, and even unwind transactions on national security grounds. The British Steel case, if it proceeds to arbitration, would therefore place the UK in an unfamiliar position. It would test whether the UK is prepared to accept the same level of scrutiny that it has long demanded of other host States.

Conclusion

The British Steel nationalisation presents a significant test for the international investment law regime. Whether the taking satisfied the BIT’s substantive requirements remains open to debate. But the more fundamental question is procedural. Will an arbitral tribunal have the opportunity to examine those substantive issues at all? The tribunal’s interpretation of Article 7 will determine whether the UK-China BIT offers meaningful protection or remains a largely unenforceable instrument.

Beyond the immediate dispute, this case reflects broader challenges. These include the expanding invocation of national security as a justification for regulatory intervention and the proliferation of investment screening mechanisms. Both trends point to a regime under strain. If a G20 member state with a long-standing commitment to the rule of law can expropriate foreign property through emergency legislation and then invoke treaty drafting ambiguities to avoid merits review, the legitimacy of the entire investment protection framework may be called into question. The British Steel arbitration, should it proceed, will be watched closely by the global investment community.