As Ceasar said, while it is a good idea for the playability and balance, its far from historical truth.
According to International Law for that period, and that is the Haag convention of 1905 and 1907, a country that declare neutrality at the start of a world war, can not take part in any kind of warfare or let other partys use their territory. The Law says the neutral state must have a strong military force to protect and defend its neutral territories.
Based on the International Law, all neutrals should have strong Infantry/Fighter defense for self protection, stronger than the OOB set up, and even maybe let them grow with one additional unit every second turn, if that dont make it too complicated.
The OOB rules for neutrals dont model the historical truth, it models the collective safety mechanic that the League of Nations tried to implement after WWI, but was abandoned in 1938, when every neutral minor country in Europe reverted back to the Haag convention from 1905/07. Attack one member, and you attack them all. I love that idea, and maybe it would have worked, but no matter how beautiful the idea is, it was in fact abandoned in 1938 because UK and France denied the League of Nations to punish Italy and Japan after the attacks on true neutrals Ethiopia, Albania and Manchuria. PM Chamberlain said in his speach that the collective safety mechanic was dead, and that each neutral minor had to depend on their own military defense, or join the Western Allies.
Still, the idea of collective safety for neutrals is not dead in A&A. Attack neutral Spain, and all the neutrals of the world will attack you. Sorry but its not the historical truth, not for the first years when strict neutral Ethiopia, Albania, Austria, Czechoslovakia, Poland, Finland, Romania, The Baltic States, Norway, Denmark, Iceland, Belgium and Netherlands all were attacked, and all this were strict and true neutrals, its not like they were pro something that would have justified the attacks, but the truth is that the rest of the true neutrals did nothing, strict neutral Sweden did nothing when its brothers Finland, Norway and Denmark were attacked, why would neutral Sweden do something if true neutral Bolivia in South America, or true neutral Zimbabwe in Africa, or true neutral Mongolia in Asia got attacked ? I just cant see the reason. A neutral is a neutral, when your brother get stabbed you turn your back to it, you dont suddenly join any fight, because then you are not neutral.