a) What is entrepôt trade? b) State three advantages and three disadvantages of international trade

Answer Details

(a) What is entrepôt trade?

Entrepôt trade (also called re-export trade) is a form of international trade in which goods are imported into a country not for consumption within that country but for the purpose of re-exporting them to other countries, usually after some processing, sorting, grading or repackaging. The goods pass through the intermediary country's warehouses and are then shipped abroad. Such a country is called an entrepôt or a re-export centre.

(b) Three advantages and three disadvantages of international trade

Advantages

1. It enables specialisation: Countries concentrate on producing what they can make best and cheapest, then exchange for what they lack.
2. It widens the range of goods available: Consumers can enjoy goods and services that cannot be produced at home, such as machinery and foreign foods.
3. It is a source of government revenue and foreign exchange: Import and export duties provide revenue, while exports earn the country foreign currency.

Disadvantages

1. It can lead to over-dependence: A country may rely too heavily on others for essential goods, which is dangerous in times of war or crisis.
2. It may ruin infant/local industries: Cheap imported goods can outsell and destroy young home industries.
3. It encourages the dumping of harmful or substandard goods: Foreign firms may flood the market with inferior or dangerous products.

(Other valid points include unfavourable balance of trade/payments and the spread of harmful cultural influences.)