Amid increasing supply chain uncertainties due to the Middle East conflict, the government is encouraging domestic production of economically secure items. The strategy focuses on expanding tax deductions for domestically produced items of high importance and increasing stockpiling and overseas investments for items that are difficult to produce locally. For items with a high dependency on specific countries, the government will fully support the costs of alternative imports with low-interest loans.
On July 14, the government unveiled its "2026 Second Half Economic Growth Strategy" during a Cabinet meeting. The plan categorizes supply chain responses into four levels: items that can be produced domestically, items that are difficult to produce but can be stockpiled, items that cannot be produced or stockpiled domestically, and items that cannot be produced or stockpiled either domestically or internationally.
For economically secure items that can be produced domestically, a tax deduction will be introduced. This deduction will be based on the production and sales volume of strategically important items, calculated by multiplying an appropriate unit price by the quantity produced, which will then be deducted from corporate or income taxes.
Separate support measures are being considered for companies that cannot benefit from tax incentives due to initial production losses. Domestic production subsidies for high-risk economically secure items, which are less cost-competitive than foreign products but essential for supply chain stability, will continue until the first half of next year.
The government also plans to expand the recycling and reprocessing of critical minerals. To increase the recycling rate of critical minerals from the current 7% to 20% by 2030, efforts will be made to promote the independence of the urban mining industry. Standards will be improved to prioritize the separation and recovery of waste parts containing critical minerals during the recycling of electric vehicles and electronic products, and permanent magnets will be recognized as recyclable resources. A pilot project supporting the mass recycling of rare earth elements will also be launched with a budget of 8.08 billion won.
For essential goods that are difficult to produce domestically, the government will pursue both new stockpiling and the expansion of existing stockpiles. Research will begin on new stockpiling methods for urea used in fertilizers, and the necessity and operational methods for stockpiling naphtha will be reviewed. The total stockpile of major crude oil types will be expanded in line with economic scale, and the stockpile targets for six non-ferrous metals will be reassessed by August to establish a stockpiling plan for 2027-2031.
Stockpiling infrastructure will also be enhanced. A dedicated stockpiling facility for critical minerals will be established by 2028 at the Saemangeum National Industrial Complex, consisting of six general warehouses and four specialized warehouses. Additionally, the government plans to expand oil stockpiling facilities to hold over 20 million barrels and increase international joint stockpiling with major oil-producing countries like Saudi Arabia and the United Arab Emirates.
For items like vehicle urea that require inventory circulation, a new stockpiling model will be piloted next month, allowing companies that agree to annual usage amounts to purchase government-held stock. In the event of a supply chain crisis, government stockpiles will be prioritized for these contracted companies.
For items that cannot be produced or stockpiled domestically, the government will secure overseas production capabilities. Starting in 2027, investments in overseas supply chains for urea and critical minerals will be increased, and support will be provided for overseas resource development, processing, and securing long-term supply negotiation rights through sovereign wealth funds, policy funds, and development finance.
For items with over 80% dependency on specific countries, the government will provide low-interest loans for alternative import costs through a supply chain stabilization fund. The support limit will be increased from 80-90% to 100%, with a preferential interest rate of up to 2.3 percentage points. The government is also considering revising the oil import tax refund system to develop refining technology for medium and heavy crude oil from non-Middle Eastern sources and to compensate for additional freight costs incurred.
* This article has been translated by AI.
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