Latvia Aizsardzības industrijas likums — Statutory Framework for State Support of the Defence-Industrial Base

Mechanism

The Aizsardzības industrijas likums was adopted as part of a legislative package alongside the March 2024 Latvia National Security Law FDI-screening amendments (filed separately). Together the two instruments complete Latvia's post-2022 defence-industrial restructuring: the FDI-screening amendments protect Latvian defence-industrial firms from hostile foreign acquisition, while this law provides the affirmative-support instruments.

Strategic-partnership agreement architecture. The Ministry of Defence may enter into strategic-partnership agreements with Latvia-registered capital companies holding a licence for commercial activities with goods of strategic significance (i.e., exporters licensed under the Strategic Goods Circulation Law administered by the State Police Strategic Goods Control Committee). Agreements cover long-term procurement commitments, capacity-reservation obligations, technology-development support, and export-licence processing facilitation.

Supply security and continuity obligations. Strategic-partner firms must maintain specified production-capacity levels, hold mandatory buffer inventories of critical inputs, and fulfil continuity-of-operations requirements that mirror NATO Article 3 resilience commitments. These obligations are enforceable under the law and subject to MoD monitoring.

Procurement preference. Latvian-registered strategic-goods companies with strategic-partnership status receive preferred-supplier treatment in Latvian National Armed Forces and State Defence Logistics and Procurement Centre (VALST) procurement, without triggering EU Public Procurement Directive open-tender requirements where Article 346 TFEU defence-exemption applies.

R&D and co-financing. The law creates a statutory basis for grants and co-financing for R&D and capacity-expansion investments by strategic-partner firms, including as match-funding channels for EU European Defence Fund (EDF) and EDIRPA (European Defence Industry Reinforcement through Common Procurement Act) grants.

EU-state-aid alignment. Support measures are framed under EU Treaty Article 346 (defence-exemption carve-out from state-aid notification) and the EU State Aid Framework for R&D&I, limiting the Commission notification burden for grant instruments below Article 346 thresholds.

Downstream implications

• Directly supports the Latvian drone-technology cluster — Atlas Aerospace (tactical UAVs exported to Ukraine and Nordic partners), UAV Factory (long-endurance surveillance UAVs used by NATO member states and Ukraine), and Edge Autonomy Latvia (ISR platforms) — by providing statutory procurement priority and MoD capacity-reservation agreements that de-risk long production runs.
• Operationalises Latvia's commitment to increase defence spending from 2.27% GDP (2023) to ≥3% GDP (2025 target), with domestic-industry preference ensuring a share of the increased procurement budget flows to Latvian suppliers.
• Structurally peers Lithuania's Defence-Security Industry Law Amendment (2025-10-18) and Estonia's RKIK Ermistu Defence Industrial Park (2025-12-30) as the third pillar of Baltic member-state domestic-defence-industrial-base legislation in the post-2022 security environment.
• Interfaces with EU EDIP (European Defence Industry Programme, successor to EDIRPA) participation — Latvia's strategic-partner firms are positioned as qualifying domestic-industrial-base entities for EDIP-funded common procurement.

Open questions

• Specific budget envelope for strategic-partnership grants has not been publicly disclosed; implementation appropriations flow through annual MoD budget rather than a standalone fund.
• Whether the law will be amended to align with the March 2025 EU ReArm Europe / SAFE regulation framework (which introduced new EU-level defence-industrial-base criteria for joint procurement eligibility) remains to be seen.
• Latvia's 2025-2036 Defence Industry and Innovation Strategy (adopted by the government in 2025) provides the strategic direction for implementation, but specific R&D-grant call programmes under the law have not yet been publicly announced.