Entrepot trade: A Legitimate Detour?

When Mr. Zhang first heard that a batch of goods departed from China, transited through Singapore and finally arrived in the United States, he asked in confusion, "Isn't this taking a long way around?" In fact, behind this seemingly tortuous route lies the world of entrepot trade with an annual transaction volume exceeding trillions. Today, let's unveil this "commercial password" that connects the global markets.

The essence of entrepot trade is a combination of "physical transit + commercial operation". Ms. Li's electronic components departed from Shenzhen. After the containers were changed in Penang, Malaysia, and local origin labels were attached, they finally entered the EU market with zero tariffs. There are three driving forces behind this operation:

• Tariff Leverage: Evading anti-dumping duties or enjoying the benefits of free trade agreements
• Breaking Through Trade Barriers: Solving the qualification restrictions of direct exports
• Optimizing Capital Flow: Utilizing the more flexible settlement policies in the transit locations

1. Document Flow Game: Reshaping the "identity" of the goods through the third-party document processing in the transit port. When a batch of chemicals transited through Singapore, the full set of trade documents was changed to be issued by the local subsidiary of Zhongshitong, successfully evading the restrictions of the target country.

2. Logistics Reorganization Technique: A furniture factory in Vietnam transported semi-finished products to Cambodia for final assembly, taking advantage of the internal tariff preferences of ASEAN to export to Europe and the United States, with the profit margin increased by 18%.

3. Tax Arbitrage Model: By taking advantage of the tax preferential policies in the transit locations, part of the profits are retained in the low-tax areas. Data shows that professional entrepot traders can reduce the comprehensive tax burden by 5 - 12 percentage points.

In 2022, a cross-border e-commerce had its entire container of goods detained at the destination port for three months due to flaws in the entrepot documents. Special attention should be paid in entrepot trade:

• The specific requirements of the rules of origin in the transit countries
• The trap of "soft clauses" in letters of credit
• Contingency plans for international logistics emergencies

Blockchain technology is changing the traditional entrepot model. By automatically matching the transit warehouse capacity through smart contracts and tracking the status of goods with IoT devices, some companies have compressed the entrepot cycle from 45 days to 22 days. A cross-border trade platform recently tried by Mr. Zhang can even calculate the comprehensive costs of different transit routes in real time.

When global trade barriers rise and fall from time to time, entrepot trade is like a "Swiss Army Knife" in the business world. Have you ever considered whether there is such an optimization space in your own business chain? Welcome to share your insights or questions about entrepot trade in the comment section. We will select three typical questions and have them answered in detail by trade experts.