Russia and China Engage in Trade Practices Amidst Tax and Sanction Concerns

In a recent development reported by Reuters on April 15, Russian copper producer RCC and Chinese entities have reportedly engaged in trade practices involving new copper wire rod disguised as scrap, according to three sources familiar with the situation. This revelation comes amidst concerns over tax evasion and the circumvention of Western sanctions.

The intricate trade scheme involves the processing of copper wire rod sourced from Russia in China’s remote Xinjiang Uyghur region. Allegedly, an intermediary shreds the wire rod, transforming it into a form that closely resembles scrap metal. By doing so, the origin of the metal becomes obscured, making it challenging to differentiate from legitimate scrap. The motivation behind this practice is rooted in exploiting differences in tariffs applied to scrap and new metal, allowing both exporters and importers to capitalize on financial discrepancies. This tactic has enabled Russian and Chinese entities to navigate tax regulations and evade the impact of Western sanctions imposed on Russia.

According to the sources, some Chinese companies have established specialized teams to handle Russia-related business, indicating a concerted effort to capitalize on emerging trade opportunities. This strategic shift in trade dynamics underscores the evolving nature of international commerce amidst geopolitical tensions and regulatory measures. One significant challenge faced by entities involved in this trade is the processing of dollar payments, particularly in light of US sanctions aimed at minimizing Russia’s export revenues. The reliance on dollar transactions in international trade poses logistical hurdles for companies operating in sanctioned regions.

Data discrepancies between Chinese and Russian trade records further complicate the issue. Chinese customs data suggests a surge in copper scrap imports from Russia since December, while Russian records obtained by Reuters indicate negligible exports of scrap to China. The disparity raises questions about the transparency and accuracy of trade reporting in sanctioned regions. In response to inquiries regarding the discrepancy, Russian customs declined to comment, citing the temporary suspension of foreign trade data publication since April 2022. This lack of transparency underscores the challenges associated with monitoring and regulating trade activities in sanctioned regions.

RCC, subject to Western sanctions, reiterated its commitment to supplying products exclusively to domestic entities, refraining from further elaboration on the matter. Similarly, attempts to seek clarification from China’s customs authority in Xinjiang went unanswered, adding to the opacity surrounding the trade practices in question. China has emerged as a pivotal destination for Russian exporters seeking to mitigate the impact of international sanctions imposed in response to Russia’s actions in Ukraine. The complex nature of shredded copper wire rod presents challenges for detection and tracing, making it an attractive option for Chinese manufacturers seeking to source raw materials.

Despite assertions by Russian customs indicating minimal scrap exports to China, data suggests a significant increase in copper wire rod exports to China in December. Notably, Kyshtym Copper Electrolyte Plant JSC, a facility operated by RCC, purportedly exported substantial quantities of copper wire rod to China, prompting questions regarding the fate of these shipments. The reported trade activity underscores the evolving landscape of international commerce amidst geopolitical tensions and regulatory measures. As global trade dynamics continue to evolve, stakeholders must remain vigilant in monitoring and addressing emerging challenges to ensure transparency and compliance with regulatory standards.