In a sophisticated bid to evade Western sanctions and exploit tariff discrepancies, Russia and China have been engaging in a deceptive practice by trading newly manufactured copper wire rod disguised as scrap metal, according to investigations and multiple sources familiar with the operations, according to Reuters.
The Russian Copper Company (RCC), Russia's third-largest copper producer, has reportedly been involved in these transactions, bypassing economic penalties imposed by Western nations following Russia's military actions in Ukraine. According to data and sources, these activities have notably increased since December last year, with significant discrepancies observed between Chinese imports and Russian export records.
Sources revealed that newly produced copper wire rod-primarily used in power cable manufacturing-was being shredded in the remote Xinjiang Uyghur region, which borders Russia, to make it resemble copper scrap, Reuters reported. This transformation allows the metal to be classified differently at customs, benefiting from lower or nonexistent tariffs and thus providing a profitable loophole for both Russian exporters and Chinese importers.
The manipulations in trade classifications are evident from the customs data: Chinese records indicated a sharp increase in copper scrap imports from Russia starting in December, while Russian data showed minimal exports of scrap. For instance, in December, China reported importing 6,434 metric tons of copper scrap through the Alashankou border, while Russia recorded only 73 tons exported.
This mismatch raises questions about the transparency and legality of the transactions, especially since RCC and other involved Russian companies are under Western sanctions. Despite these measures, the shredded copper is sold openly to Chinese manufacturers, particularly in provinces like Jiangsu and Zhejiang, known for their extensive industrial manufacturing capabilities.
The strategic shredding of copper in Xinjiang remains largely unmonitored, partly due to restricted access to the region amidst international outcry over human rights abuses. This lack of oversight provides an ideal cover for such operations, complicating the traceability and verification of the true nature of the goods being traded.
The economic implications of these activities extend beyond mere trade statistics. By mislabeling the copper, the involved parties not only dodge tariffs but also sanctions, potentially undermining international efforts to penalize Russia for its aggressive geopolitical maneuvers.
On the regulatory front, neither Russian nor Chinese customs authorities have provided clear responses to inquiries about these discrepancies. Russia's Federal Customs Service has ceased publishing detailed foreign trade data since April 2022, which complicates efforts to track and verify these transactions further.
Market experts and geopolitical analysts are closely watching these developments, as they represent a critical juncture in international trade regulations and sanctions enforcement. The ongoing situation highlights the challenges faced by global institutions in maintaining the integrity of international trade laws and sanctions amid increasingly sophisticated methods of circumvention.
