UPSC Prelims Practice Questions — New FTAs can cushion tariff blow: RBI chief

Q1. With reference to the rules of the World Trade Organization (WTO) on preferential trade agreements, consider the following statements: Which of the statements given above is/are correct?

  1. As a general rule, a lower customs duty that a WTO member grants to one member must be extended to all other WTO members.
  2. A WTO member may cut its tariffs below the MFN rate on a few selected products from one partner and justify this as a free-trade area under GATT Article XXIV.
  3. Commitments on trade in services in a regional trade agreement are covered by Article V of GATS rather than by GATT Article XXIV.
  • A. 2 and 3 only
  • B. 1 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 2 only

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

  1. Under the India–UK Comprehensive Economic and Trade Agreement, the UK is not obliged to give the same goods from every other WTO member the duty-free entry it gives to Indian goods.
  2. GATT allows members that form a free-trade area to eliminate duties on substantially all the trade between them, as an exception to the most-favoured-nation obligation.
  • 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 a free-trade area and a customs union as defined under GATT, consider the following statements: Which of the statements given above is/are correct?

  1. In a free-trade area, each member continues to set its own tariffs on imports from non-members.
  2. Rules of origin matter in a free-trade area because, without them, goods from a third country could enter through the member with the lowest tariff and then move duty-free to its partner.
  3. Only a customs union, and not a free-trade area, requires its members to apply substantially the same duties on imports from outside the group.
  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1 only

Q4. With reference to the European Free Trade Association (EFTA), consider the following statements: Which of the statements given above is/are correct?

  1. EFTA was organised to remove barriers to trade in industrial goods among its member countries.
  2. EFTA members apply a common external tariff to imports from countries outside the group.
  3. By joining the European Economic Area, EFTA states become part of the EU customs union.
  • A. 1 and 3 only
  • B. 1 and 2 only
  • C. 1 only
  • D. 2 and 3 only

Q5. Suppose a major destination market sharply raises import tariffs on a country's merchandise exports, other things remaining the same. In this context, consider the following statements about the exporting country: Which of the statements given above is/are correct?

  1. Because import tariffs are collected from buyers in the importing country, the exporting country's current account remains unaffected.
  2. Its net exports tend to fall, weighing on its economic growth.
  3. A weaker current account resulting from lower export earnings tends to put depreciation pressure on its currency.
  • A. 3 only
  • B. 1, 2 and 3
  • C. 1 and 2 only
  • D. 2 and 3 only

Q6. Consider the following assertion: Diversifying export markets and export products reduces an economy's exposure to tariff action by any single trading partner. Which of the statements given below support/supports the above assertion?

  1. When exports are concentrated in one destination, a tariff increase there affects a larger share of total export earnings.
  2. Duty-free access in other markets through trade agreements lets exporters redirect part of their shipments when one market becomes costlier.
  3. A wider product basket lowers the chance that a sector-specific tariff hits most of a country's export earnings.
  4. Robust services exports and remittance receipts help keep India's current account deficit sustainable.
  • A. 1, 2, 3 and 4
  • B. 1 and 2 only
  • C. 2, 3 and 4 only
  • D. 1, 2 and 3 only

Q7. Under a trade agreement, Country X makes 90% of its tariff lines duty-free for Country Y. These lines account for 60% of Y's current exports to X by value. Which of the following inferences can be drawn from the above?

  1. The tariff lines that X keeps dutiable account for a disproportionately large share of Y's exports to X.
  2. The agreement gives duty-free treatment to 90% of Y's exports to X by value.
  3. If Y's exports shift towards products that are already duty-free, the value coverage would rise even with no change in X's tariff schedule.
  • A. 1 and 3 only
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 1 only

Q8. With reference to the constitutional framework under which India enters into and implements trade agreements, consider the following statements: Which of the statements given above is/are correct?

  1. The executive power of the Union extends to exercising the rights and authority that the Government of India holds by virtue of any treaty or agreement.
  2. Parliament may make a law to implement an international agreement even on a matter listed in the State List.
  3. A trade agreement signed by the Union Government cannot enter into force for India until Parliament ratifies it by a special majority.
  • A. 1 and 3 only
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 1, 2 and 3