UPSC Prelims Practice Questions — Ferrari’s India orders shift to overdrive on EU FTA bet

Q1. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Parliament can make a law on a matter enumerated in the State List if the law is meant to implement an agreement that India has entered into with another country.
  2. The executive power of the Union extends to the exercise of such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of any treaty or agreement.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q2. After the India–EU FTA comes into force, suppose India levies a higher customs duty on a car imported from Japan than on an identical car imported from Italy. With reference to WTO principles, consider the following statements: Which of the statements given above is/are correct?

  1. The difference in duty is a departure from the most-favoured-nation principle.
  2. The difference in duty is a violation of the national treatment principle.
  • A. 1 only
  • B. 2 only
  • C. Both 1 and 2
  • D. Neither 1 nor 2

Q3. Suppose that, after the India–EU FTA cuts duties on EU cars, Indian buyers switch from cars made by a lower-cost non-EU producer to EU cars. The EU cars are costlier before duty but cheaper after the preferential duty is applied. In this context, consider the following statements: Which of the statements given above is/are correct?

  1. Indian buyers necessarily end up paying a higher price for these cars than they did before the FTA.
  2. This is an instance of trade diversion, which lowers efficiency because supply shifts from a more efficient outside producer to a less efficient partner producer.
  3. India's customs revenue on these purchases is likely to fall, because the cars now enter at the lower preferential duty.
  • A. 2 and 3 only
  • B. 3 only
  • C. 1, 2 and 3
  • D. 1 and 2 only

Q4. Trade agreements that open up imports of sensitive goods such as automobiles sometimes use a 'tariff-rate quota'. Which of the following best describes how such an arrangement works?

  • A. A lower duty applies to imports above a set price, while cheaper imports pay a higher duty
  • B. Imports beyond a set volume are barred, while imports within that volume pay the ordinary duty
  • C. Imports within a set volume pay a lower duty, while imports beyond that volume pay a higher duty
  • D. Duties on all imports fall in fixed annual steps, whatever volume is imported in each year

Q5. An Indian importer wants to claim the India–EU FTA's preferential duty on a car. In this context, consider the following statements: Which of the statements given above is/are correct?

  1. Whether the claim succeeds depends on whether the car meets the agreement's origin criteria, not merely on whether it was shipped from a port in the EU.
  2. Rules of origin are needed in a free-trade area because its members keep their own tariffs on non-members, which would otherwise allow third-country goods to enter through the partner with the lowest duty.
  3. A car designed by a company headquartered in the EU qualifies automatically, wherever it is assembled, because origin follows the nationality of the brand owner.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q6. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. For goods moving between its own members, a customs union such as the EU has less need for rules of origin than a free-trade area has for trade among its members.
  2. Members of a customs union apply a common external tariff, so routing a non-member's goods through the member with the lowest duty brings no tariff advantage.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q7. India negotiated its free trade agreement with the European Union as a single bloc, not with individual European countries. With reference to the EU's role in international trade, consider the following statements: Which of the statements given above is/are correct?

  1. In the WTO, the European Commission ordinarily speaks for all EU member states, rather than each member state presenting its own trade position.
  2. Because the EU is itself a member of the WTO, its individual member states have ceased to be WTO members in their own right.
  3. Italy cannot, on its own, apply a lower import tariff to Indian goods than Germany applies, because the EU has a single trade policy and tariff.
  • A. 1 and 2 only
  • B. 2 only
  • C. 1, 2 and 3
  • D. 1 and 3 only

Q8. India has a separate trade agreement with the EU and with the European states that are outside the EU customs union. With reference to the difference between a customs union and a free-trade area, consider the following statements: Which of the statements given above is/are NOT correct?

  1. Members of a free-trade area remove duties on trade among themselves, but each member sets its own tariffs on imports from non-members.
  2. Members of a customs union, such as the EU, apply a common external tariff to imports from non-members.
  3. Since a customs union is a deeper form of integration, GATT does not require it to eliminate duties on substantially all the trade among its members.
  • A. 2 and 3 only
  • B. 1 only
  • C. 3 only
  • D. 2 only