South Korea Extends Duty-Free Policy on Crude Oil for Naphtha Production to 2025

Zero tariff on crude oil used to produce naphtha would be maintained for the entirety of 2025, according to the Ministry of Economy and Finance's strategy for flexible tariff operations in 2025. This policy was officially announced on December 2, following a broader effort at ease the financial strain on South Korea's beleaguered petrochemical sector that is currently wracked by shrinking profit margins due to economic instability in the global market and structural oversupply of the same.

The flexible tariff system allows the government to change import tariff rates with respect to the fluctuations of the economy, thus providing an avenue to assist industries when the time is hard. Since 2007, crude oil for naphtha production has enjoyed this system that had been imposed as a basic tariff of 3%. Over the years, the tariff rate has been adjusted within a range of 0% to 1% as needed by the economy. Between 2016 and 2022, it was applied at 0.5%. However, the government reduced the tariff to 0% last year and it has remained at this level since then. This extension of the zero-tariff policy reinforces the government's commitment to alleviating the cost drivers on the petrochemical industry and making it competitive in a very challenging global market.

In May, the petrochemical industry of South Korea officially appealed to the government. The industry requested an extension of the zero tariff of crude oil used for the production of naphtha, which it argued it needs to reduce production cost due to increasing financial stress. In response to that, the Ministry of Economy and Finance included the continuation of the zero tariff in its 2025 tariff operation plan to indicate support for the ailing industry. A ministry spokesperson made the announcement while highlighting the justification for the decision. The spokesperson said the petrochemical industry has faced major losses in terms of profit because of instability in the global economy and persistent structural oversupply in the market. In an effort to alleviate these issues, the ministry chose to keep the flexible tariff system, with the zero tariff to remain in place all of 2025.

The spokesperson further pointed out that there are broader goals beyond the immediate relief in terms of cost, citing that the policy will be able to encourage the industry to pursue business diversification and restructuring to build resilience against future economic uncertainties. By keeping the zero tariff, the government is trying to offer a stable basis for the industry to tackle current challenges while putting it on a long-term growth and sustainability track.

The government has also announced further measures to support energy affordability and industry stability for 2025. The zero tariff rate on naphtha itself will now be applied, thus alleviating cost pressures on the petrochemical sector. In addition, flexible tariff support for liquefied natural gas used in bioliquid heat and power generation will continue during the high-demand winter months next year. This revision will remove the typical 3% surcharge, which means there would no longer be a charge to pay in terms of energy cost while at their peak during the colder seasons.

The administration will also expand the prevailing flexible 0% tariff on the consumption of LPG that is used in cooking and for transportation within the countryside. This is more critical for rural areas because LPG is the major source of energy for household use and transport in such regions. The zero duty on crude oil used in LPG production will also persist during the first half of the year, meaning there will be no volatility in LPG prices in that period. These decisions collectively reflect that the government is committed to finding solutions for reducing energy prices, assisting industries, and satisfying community needs, primarily in periods of high demands and economic difficulties.

As part of its plans to strengthen the competitiveness of South Korea's semiconductor packaging and display industries, the government has added five new items to its flexible tariff policy. These include copper foil for copper-clad laminate (CCL) and fine metal masks (FMS) for organic material deposition, which are the most important components in the production of advanced electronic devices. It is a reflection of the government's commitment to the strengthening of key industries in light of global competition.

Meanwhile, the petrochemical industry, which is basic for producing vital chemicals from petroleum and natural gas, remains in excellent shape. This industry forms the backbone of manufacturing everything from plastics and fertilizers to pharmaceuticals. The primary feedstock for this industry is naphtha, which is a critical raw material used mainly as a feedstock to produce high-value chemicals and plastics. The government has maintained a zero tariff on crude oil used to produce renewable naphtha to ease financial burdens and promote resilience. It is expected to greatly reduce production costs, which is exactly what the industry needs when facing economic challenges like global instability and market oversupply. These adjustments of tariffs represent the government's more comprehensive efforts to strengthen strategic industries and ensure their sustainability in the face of shifting economic conditions.