Dragoman Digest

South Korea turns chip dominance into a nation-building program

A traditionally cyclical industry is being asked to bankroll lasting national change

South Korean President Lee Jae Myung has announced that domestic firms Samsung Electronics and SK Hynix will invest 911 trillion won (US$590 billion) alongside the government in new semiconductor plants. The two companies are the world’s largest makers of memory chips – the part of a computer that stores the information it works with – supplying nearly 80 percent of the advanced variant that feeds data to AI systems. Their combined market value is now roughly US$2 trillion. Memory was long a commodity business prone to gluts and price crashes. The AI boom has reversed that position: the five largest AI companies are expected to spend more than US$1 trillion on data centres (DCs) across 2025 and 2026, and their appetite for memory has outrun supply.

These plants anchor Lee’s Three Mega Projects, a 30-year program spanning semiconductors, AI DCs, and physical AI (robots and machines that carry AI into the real world). The government has steered the new capacity to the underdeveloped southwest, where it plans to meet chipmaking’s vast electricity needs with the region’s wind and solar resources. Locating advanced industry there is also meant to ease the economy’s decades-long concentration around Seoul. A planned Future Response Fund would channel the sector’s extra tax revenue back into the mega projects and into housing and employment support for younger South Koreans.

The companies are more guarded than the government about where and when the money will flow. Samsung chairman Lee Jae-yong called the southwest a “candidate site”, while SK Hynix committed only to staged construction, subject to market demand and board approval. Shares in both fell on the announcement. Analysts warn that new plants take at least two to three years to build and that fresh capacity has historically arrived just as demand tapers. AI spending has nonetheless defied repeated forecasts of a cliff, and buyers are emerging beyond DCs. Robots and other machines with in-built AI require memory of their own. Warnings drawn from past gluts treat AI as another product cycle. In the most bullish case – where AI proves the beginning of a new industrialisation – the greater risk for South Korea may be building too little, not too much, before competitors challenge for market share.

Türkiye’s defence boom forces a strategic rethink in Europe

Washington’s retreat from Europe has amplified Türkiye’s role as an indispensable contributor to European security

As Western leaders met in Ankara for the NATO summit, Türkiye presented itself as a critical pillar of European security. As well as fielding NATO’s second-largest army (after the US), Türkiye now boasts one of the continent’s fastest-growing defence industries. Türkiye’s fear of Russian predation and memory of the US arms embargo – imposed after Türkiye’s 1974 invasion of Cyprus – have long provided a powerful impetus for cultivating a self-sufficient defence industry. Increasing the depth of Türkiye’s defence industrial base has been a strong focus of President Recep Tayyip Erdoğan. Türkiye’s share of global arms exports has doubled since 2015, with the country ranking 11th worldwide and emerging as a major producer of NATO-standard munitions, drones, and missiles. The timing could hardly be more propitious, coinciding with growing alarm in European capitals over Washington’s perceived fickleness and misjudgement. Turkish companies are racking up deals across the continent. Munitions giant Arca Savunma has won multibillion-dollar contracts across Slovakia, Bulgaria, and Estonia, while drone champion Baykar’s joint venture with Italian defence group Leonardo has allowed it to access EU funding. A further swag of deals were signed on the sidelines of the summit.

Despite its exponential growth, the Turkish defence industry faces structural challenges of its own. Private companies lacking political connections often struggle to access capital, while inflation, still running at 33 percent, remains a major drag on competitiveness. Türkiye’s claims of breaking foreign dependencies warrant scepticism. The flagship KAAN fighter, for instance, still relies on foreign engines. Nor can political differences be wished away. Though few in European capitals will publicly say so these days, there is increasing discomfort at Türkiye’s descent into outright authoritarianism, with the repression of the opposition ramping up in the lead-up to the NATO summit. The interception of Iranian missiles headed for Türkiye earlier this year nonetheless served as a powerful reminder of Europe and Türkiye’s strategic interdependence. Likewise, both Türkiye and Brussels have an abiding interest in preventing Russia from subjugating Ukraine. With Europe’s industrial base struggling to keep up with defence-related demand, Turkish industry is primed to be a major beneficiary of Europe’s rearmament.

Beijing extends the legal hazards of supply chain vetting

Companies face a bind when satisfying Western law may mean violating Chinese law

China’s State Council, its highest administrative authority, recently issued two regulations treating routine corporate activity as a potential threat to national security. The Regulations on Countering Foreign States’ Unlawful Extraterritorial Jurisdiction and the Regulations on Industrial and Supply Chain Security prohibit compliance with foreign measures that Chinese authorities view as illegitimate attempts to enforce laws beyond the issuing country’s borders. Practices long regarded as unremarkable may fall within scope, from supplier audits and human rights reviews to decisions to end dealings with Chinese counterparties. Officials hold incredibly wide discretion to investigate and may impose fines or restrictions.

The difficulty for business is that foreign law demands the very conduct these regulations restrict. Companies in jurisdictions such as Australia are required to gather information from Chinese partners to meet due diligence obligations covering, for example, sanctions regimes and modern slavery reporting. Often they must also act on what they find. Those steps can now attract scrutiny as risks to China’s supply chains. So, a company may find itself compliant in Canberra or Brussels yet in breach in Beijing.

The first test of the regulations arrived in May when Chinese authorities declared an EU subsidy investigation into Nuctech – a Chinese state-owned maker of security screening equipment – to be “unjustified extraterritorial jurisdiction”. Organisations and individuals were directed not to assist. The probe was brought under the EU’s Foreign Subsidies Regulation, which imposes restrictions on companies in Europe found to be benefiting from market-distorting support from non-EU governments. The choice to invoke the rules in this case (Nuctech’s scanners are used in more than 170 countries) suggests enforcement will begin where industries are strategically significant and in response to high-profile foreign actions. The rules are themselves extraterritorial in effect, binding foreign entities and individuals, including suppliers, bidders, and investment targets without operations in China. Companies can map their exposures against the law as written. How the regulations are applied in practice, though, will depend as much on Beijing’s strategic objectives as on the legal text.

Dragoman, together with law firm Corrs Chambers Westgarth, is providing advice on these issues.

Japan expands its economic security architecture with regional partners

The Iran war has accelerated economic security cooperation between partners in the region

Economic security was top of the agenda when Japanese Prime Minister Sanae Takaichi made her first official visit to India last week. First raised as an area of bilateral cooperation in 2024, the 2026 joint declaration outlined enhanced collaboration across semiconductors, critical minerals, information and communication technology, clean energy, and pharmaceuticals.

This bilateral declaration occurs in the context of broader efforts under Takaichi to expand Japan’s economic security architecture. Prior to her premiership, Takaichi served as Minister of State for Economic Security from 2022 to 2024, overseeing the implementation of the 2022 Economic Security Promotion Act. Under the Act, 11 products were designated as critical to economic security, paving the way for government investment, stockpiling, supply chain support, and other forms of assistance. The list has since been widened, most recently adding drones in December 2025, and Takaichi’s government has separately designated 17 strategic sectors – including space – for priority investment.

Though Japan’s economic security framework is among the region’s most advanced, the Iran war and Chinese export controls have created an imperative for renewed bilateral and multilateral cooperation. Prime Minister Narendra Modi’s current regional tour has had a strong economic security focus, including deals signed with Indonesia on critical minerals, and this week’s Australia-India Partnership on Cyber, Critical Technologies and Supply Chains (PACTS). Australia and Japan similarly deepened their economic security cooperation during Takaichi’s visit to Australia in May. The result is an increasingly networked trade bloc around strategic goods in the Indo-Pacific – though one which does not yet share a common language or architecture.