Russian copper producer RCC and Chinese firms have found a way to avoid taxes and navigate around Western sanctions by engaging in a scheme where new copper wire rod is disguised as scrap, according to three sources familiar with the matter.
The copper wire rod is shredded in China’s Xinjiang Uyghur region by an intermediary to make it appear like scrap, making it difficult for authorities to tell the difference. This allows both exporters and importers to take advantage of variances in tariffs applied to scrap versus new metal.
Russia’s export duty on copper rod is lower than that on scrap, creating a financial incentive for this deceptive practice. Chinese manufacturers are concerned about losing export business if they are seen doing business with Russian firms due to Western sanctions.
The sources revealed that China has seen a surge in copper scrap imports from Russia, which does not align with the data provided by Russia. Russian customs have not provided an explanation for this discrepancy, citing a halt in trade data publication following the invasion of Ukraine.
The technique of disguising new metal as scrap involves shredding newly-made copper wire rod to make it easier to sell to Chinese manufacturers. This operation has thrived in Xinjiang due to restricted access to the region amidst international criticism of Uyghur repression.
Despite claims by Russian companies like RCC maintaining that they only supply products to Russian companies, evidence suggests otherwise. Data from a commercial provider indicates substantial purchases of “copper rod” from RCC’s plant in the Urals region, generating millions of dollars in revenue.
This deceptive trade practice has raised concerns about the authenticity of products in the market, highlighting the challenges in regulating international trade and enforcing sanctions effectively. As the situation continues to evolve, authorities will need to remain vigilant to prevent further exploitation of loopholes in the system.
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