What is meant by "entrepot trade"?

Entrepot trade refers to the practice of warehousing goods in a particular location before they are re-exported to their final destinations. This allows traders to avoid incurring import duties or tariffs on the goods until they enter the market of the destination country. This system is often used in free trade zones or special economic zones, where goods can be stored, processed, or repackaged without triggering any customs duties at that stage. By doing so, businesses can manage inventory more effectively and optimize their supply chain logistics.

The other options do not accurately capture the essence of entrepot trade. For example, high tariffs are not a characteristic of this type of trade; rather, entrepot trade aims to mitigate such costs. Direct exporting to consumers does not involve the warehousing or transshipment aspect that defines entrepot trade. Lastly, the notion that it only involves trade between neighboring countries overlooks its broader application, as entrepot trade can occur on a global scale, often involving many different nations.