South Korea extends zero tariff on Crude Oil Used to Produce Naphtha to 2025, announces multiple flexible tariff supports

The Ministry of Economy and Finance announced a flexible tariff operation plan for 2025, which includes maintaining zero tariffs on crude oil used to produce naphtha throughout next year. The decision, announced on December 2, is aimed at reducing the financial burden on the petrochemical industry, which has been experiencing declining profits due to global economic uncertainty and structural oversupply.

The flexible tariff system, which allows the government to adjust the tariff rate on imported goods based on economic conditions, has been applied to crude oil used to produce naphtha since 2007. Initially, the base rate of the flexible tariff was 3%, and it has been hovering between 0-1% for many years. From 2016 to 2022, the applicable tariff rate was 0.5%, but since 2023, it has been zero tariff.

In May this year, the South Korean petrochemical industry requested the government to extend the zero tariff on naphtha crude oil to help reduce production costs. The Ministry of Economy and Finance responded to this request by incorporating the zero tariff measure into its 2025 plan. "To ease the operating difficulties of the petrochemical industry, which has seen a sharp drop in profits due to global economic uncertainty and structural oversupply, and to promote business diversification and restructuring, we have decided to implement flexible tariffs throughout the year," said a spokesman for the Ministry of Economy and Finance.

The government has also decided to implement zero tariffs on naphtha itself and maintain flexible tariff support for liquefied natural gas (LNG) used for power generation and city gas through the winter of 2025. The measure will replace the 3% basic tariff with zero tariff during the high-demand winter months. In addition, the flexible tariff (0%) on liquefied petroleum gas (LPG) used for cooking and transportation in rural areas and crude oil used for LPG production will be extended until the first half of 2025.

To enhance the competitiveness of the semiconductor and display industries, the government has included five products, including copper foil for copper clad laminates (CCL) and masks for organic material deposition (FMS), on the list of flexible tariff goods.

The petrochemical industry plays a vital role in producing petroleum and gas-derived chemicals, which are essential for the manufacture of various products such as plastics, fertilizers and pharmaceuticals. Naphtha is the main raw material for the industry and is mainly used as a feedstock for the production of high-value chemicals and plastics. Zero duty on crude oil for naphtha production is expected to reduce production costs and support the industry’s efforts to address current economic challenges.