economics medium MCQ

What is the primary function of the 'Rules of Origin' in a Free Trade Agreement (FTA)?

  1. To determine the geographical indication of agricultural products
  2. To prevent 'trade deflection' by ensuring that only goods substantially produced within the FTA zone receive preferential tariff treatment
  3. To establish the official language used in all customs documentation
  4. To mandate the use of specific shipping routes for transporting goods between member nations

Answer: To prevent 'trade deflection' by ensuring that only goods substantially produced within the FTA zone receive preferential tariff treatment

Without strict Rules of Origin, a non-member country (e.g., China) could simply route its exports through the FTA member with the lowest external tariff (e.g., a small ASEAN nation), slap on a minor label, and bypass the high tariffs of the destination country (e.g., India). Rules of Origin mandate a minimum percentage of local value addition or a specific change in tariff classification to prove the good genuinely originated within the FTA.

Topic International Economics - Trade
Exam Relevance UPSC Prelims, SSC CGL
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