Quick Answer
Triangular trade is when a trader (for example a Taiwanese company) accepts an order from an overseas customer, buys the goods from a supplier in a third country and delivers them to the customer. The three parties are the buyer, the intermediary trader and the supplier; the trader handles orders, purchasing and documents and earns a margin or commission. The formal balance-of-payments term is merchanting. Note that Taiwan’s Ministry of Finance (tax) and Customs Administration (clearance) describe triangular trade slightly differently, as explained below.
The Three Roles in Triangular Trade
| Role | Typical location | Responsibilities |
|---|---|---|
| Buyer (overseas customer) | For example an importer or brand in the US or Southeast Asia | Orders from the trader, pays, clears and receives goods at destination |
| Intermediary trader | For example a Taiwanese trading company | Takes the order, finds the supplier, negotiates, arranges shipping and documents, earns a margin or commission |
| Supplier (third-country factory) | For example a manufacturer in Vietnam, Thailand or China | Produces and ships as the trader instructs |
The trader’s value is integration: the buyer doesn’t have to find overseas factories or deal with language and quality issues, and the supplier reaches markets it couldn’t reach on its own.
How Does Taiwan Officially Define Triangular Trade?
Two official descriptions are commonly cited in Taiwan, with different emphases:
Ministry of Finance (business tax): goods can be delivered directly from the third country
The MOF eTax Q&A 9216 discusses a business that accepts an order from an overseas customer, orders from a third-country supplier, and has the third-country supplier deliver directly to the overseas customer. In other words, the goods don’t have to pass through Taiwan. For how the trader reports this income for business tax, see Triangular Trade and Taiwan Business Tax.
Customs Administration (clearance): goods transshipped through Taiwan
The Customs Administration describes triangular trade as a Taiwanese company accepting an order from an overseas customer (buyer), purchasing from a third-country supplier (seller), and transshipping the goods through Taiwan to the buyer. This is the customs definition for goods that enter Taiwan and are re-exported; import and export declarations must be filed together, and foreign goods may not be marked as made in Taiwan.
Simply put: when goods don’t enter Taiwan, the focus is tax and documents; when goods are transshipped through Taiwan, customs transshipment procedures also apply.
Other Names for Triangular Trade
- Triangular trade: the plainest term, common in industry and textbooks.
- Merchanting: the formal term in paragraph 10.41 of the IMF’s Balance of Payments Manual, 6th edition (BPM6), meaning a resident buys goods from a non-resident and resells them to another non-resident without the goods entering the resident’s economy.
- Intermediary trade or third-party trade: used in some countries and bank documents.
When talking to customers, simply saying “we take the order and the goods are drop-shipped from a third-country supplier” is often clearer than the jargon.
Why Do Companies Use Triangular Trade?
- Shorter logistics: goods ship from the factory’s country directly to the customer’s country without routing through the trader’s location, saving transshipment time and extra freight.
- Multi-country sourcing: the trader can find the best-fit factories for price, quality and capacity in different countries.
- One trusted contact for quality and documents: the buyer deals with one contact, while the trader handles quality control, contracts and shipping documents.
- Protected supply chain information: within the law, contracts and documents can be arranged so supplier and buyer don’t deal directly, preserving the trader’s role. See What Is a Switch Bill of Lading?
Is Triangular Trade Legal?
Triangular trade itself is a normal, legal international trade model, but it must not be used to falsify origin or evade duties. For example, goods made abroad may not be marked as made in Taiwan, and every country has strict rules on origin and transshipment to evade duties. Before multi-country trade, read up on rules of origin.
Which Companies Suit Triangular Trade?
- Brands that design in country A, produce in country B and sell in country C and need one coordinator
- Importers who want products from several countries but lack staff to manage overseas factories
- Trading companies that receive overseas orders but have no production lines
- Bubble tea and food businesses that need ingredients from several countries delivered directly to overseas stores
How Tang Sugar Supports Triangular Trade
Tang Sugar’s triangular and multilateral trade service covers multi-country deal structuring, back-to-back sales and purchase contracts, coordination of commercial invoices, packing lists and bills of lading, Incoterms advice and three-way communication. Every structure is designed to be legal, compliant and auditable. If you are considering triangular trade, contact us with your product, shipping country and destination for a deal structure assessment.
FAQ
What does triangular trade mean?
Triangular trade is when a trader accepts an overseas customer’s order, buys from a supplier in a third country and delivers the goods to the customer. The three parties are the buyer, the intermediary trader and the supplier, and the trader earns a margin or commission.
What is merchanting trade?
Merchanting is the IMF balance-of-payments term for triangular trade: a resident buys goods from a non-resident and resells them to another non-resident without the goods entering the resident’s country. It is also called intermediary or third-party trade.
Do triangular trade goods have to pass through Taiwan?
No. The MOF tax Q&A describes a third-country supplier delivering directly to the overseas customer without the goods entering Taiwan, while the Customs definition covers goods transshipped through Taiwan. Clearance and tax treatment differ between the two.
Is triangular trade the same as entrepot trade?
Not exactly. Entrepot trade means goods pass through an intermediate country before re-export, while in triangular trade goods may ship directly from the third country. See Entrepot Trade vs Triangular Trade.
Further Reading
- Triangular Trade Process: Orders, Shipping, Payment and Documents
- What Is Multilateral Trade?
- What Is a Sourcing Agent?
Sources
- MOF eTax portal: Can the L/C margin from triangular trade be zero-rated? (Q&A 9216) (in Chinese)
- Customs Administration, Taiwan: Triangular trade (in Chinese)
- UN Statistics Wiki (MSITS 2010 Compilers Guide): Net exports of goods under merchanting (citing IMF BPM6 paragraph 10.41)
- Tang Sugar: Triangular and Multilateral Trade
