UPSC Prelims Practice Questions — U.S. assures India of tariff edge over competitors

Q1. With reference to the Most-Favoured-Nation (MFN) principle of the World Trade Organization, consider the following statements: Which of the statements given above is/are correct?

  1. The MFN principle requires a WTO member to apply one uniform rate of customs duty to all the products it imports.
  2. As a general rule, a lower tariff that a WTO member grants to a product from one member must be extended to like products from all other members.
  3. A WTO member raising its tariff on a product equally for all members does not breach MFN, though the increase may still breach its separate tariff-binding commitment.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 3 only
  • D. 2 and 3 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. If India and the U.S. grant each other tariffs lower than those they apply to other WTO members, the arrangement must fit within a WTO-recognised exception to the non-discrimination principle.
  2. WTO rules allow developed countries to extend non-reciprocal tariff preferences to products from developing countries.
  • 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

Q3. With reference to the theory of comparative advantage associated with David Ricardo, consider the following statements: Which of the statements given above is/are correct?

  1. A country can gain from trade even if it is less efficient than its trading partner in producing every good.
  2. Comparative advantage in this sense rests on differences in opportunity costs of production, so it cannot be created by an importing country's tariff decision.
  3. The theory has been used as an argument in favour of freer trade between countries.
  • A. 1 only
  • B. 1, 2 and 3
  • C. 1 and 2 only
  • D. 2 and 3 only

Q4. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A preferential tariff that shifts a country's imports from a lower-cost non-preferred supplier to a higher-cost preferred supplier can reduce overall economic efficiency.
  2. Trade diversion refers to a preferential arrangement replacing high-cost domestic production with imports from a more efficient partner country.
  • 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

Q5. Consider the following statements regarding free trade areas and customs unions: Which of the statements given above are correct?

  1. In a free trade area, each member keeps its own tariffs on imports from non-members.
  2. Rules of origin are more essential to a customs union than to a free trade area because customs union members share a common external tariff.
  3. A member of a customs union cannot, acting alone, cut its tariff on imports from an outside country without departing from the common external tariff.
  4. A free trade area can be consistent with WTO rules even though it treats non-members less favourably than members.
  • A. 2 and 4 only
  • B. 1, 2, 3 and 4
  • C. 1, 3 and 4 only
  • D. 1 and 3 only

Q6. Consider the following facts: I. In 2019, the U.S. ended India's beneficiary status under its Generalized System of Preferences, a scheme of one-way tariff preferences. II. In February 2026, India and the U.S. committed to 'provide each other preferential market access' under a framework for an interim trade agreement. III. India said it would proceed only if the U.S. tariff on Indian goods were lower than the U.S. tariff on goods from competitor countries. Which of the following inferences can be drawn from the above?

  1. Unlike the GSP, the proposed arrangement expects India also to grant tariff concessions to the U.S.
  2. The U.S. ended India's GSP status because a WTO dispute panel had ruled those preferences illegal.
  3. If the U.S. later cut its tariffs on India's competitors to the level applied to India, India's negotiated edge would be eroded even if the tariff India faces stayed the same.
  • A. 1 and 3 only
  • B. 2 and 3 only
  • C. 1 only
  • D. 1, 2 and 3

Q7. Consider the following assertion: An interim trade agreement between two WTO members that relies on GATT Article XXIV cannot remain indefinitely a deal liberalising only a narrow set of goods. Which of the statements given above support/supports the assertion?

  1. An interim agreement under GATT Article XXIV must include a plan and schedule for forming a free trade area or customs union within a reasonable length of time.
  2. A free trade area under GATT must eliminate duties on substantially all the trade between its members.
  3. A customs union must apply substantially the same duties to trade with territories outside the union.
  • A. 1, 2 and 3
  • B. 2 and 3 only
  • C. 1 only
  • D. 1 and 2 only

Q8. Suppose a trade agreement signed by India requires changes in law on a subject in the State List. With reference to the constitutional position, consider the following statements: Which of the statements given above is/are correct?

  1. Parliament may make a law on that subject to implement the agreement without the consent of the States.
  2. Parliament may legislate on that subject only after the legislatures of two or more States pass resolutions requesting it.
  3. Once signed by the Union executive, the agreement automatically overrides any inconsistent Act of Parliament in Indian courts.
  • A. 2 and 3 only
  • B. 1 and 2 only
  • C. 1 only
  • D. 1 and 3 only