April 15 (Reuters) - Russian copper producer RCC and Chinese firms have avoided taxes and skirted the impact of Western sanctions by trading in new copper wire rod disguised as scrap, three sources familiar with the matter told Reuters.
Copper wire rod was shredded in China's remote Xinjiang Uyghur region by an intermediary to make it difficult to distinguish from scrap, the sources said, allowing both exporters and importers to profit from differences in tariffs applied to scrap and new metal, the sources said.
Russia's export duty on copper rod was 7% in December, lower than the 10% levy on scrap. Imports of copper rod into China are taxed at 4%, but there is no duty on Russian scrap imports.
There are no legal obstacles preventing China from buying metal from Russian firms under Western sanctions. But manufacturers are worried about losing export business to customers - including those in the U.S. and UK - if they are known to be doing business with Russian firms.
The sources said some Chinese companies have set up new teams to deal with Russia-related business.
U.S. sanctions, aimed at minimising Russia's export revenues, can also mean difficulties with processing dollar payments as international trade is typically carried out in dollars.
Sales of new metal disguised as scrap, which started in December, are reflected in a discrepancy between Chinese and Russian data. There is no difference between sanctions on copper scrap and rod.
