A tariff-rate quota is essentially a
Options:
| a. two-tier tariff applied to a country’s imports b. three-tier tariff applied to a country’s imports c. two-tier quota applied to a country’s exports d. three-tier quota applied to a country’s exports |
The Correct Answer Is:
a. two-tier tariff applied to a country’s imports
A tariff-rate quota (TRQ) is a trade policy instrument that combines elements of both tariffs and quotas in order to regulate the importation of certain goods.
The correct answer is option (a):
a. a two-tier tariff applied to a country’s imports.
A tariff-rate quota (TRQ) is a specialized trade policy tool that combines elements of tariffs and quotas to regulate the importation of specific goods into a country. The correct option, (a), accurately describes a TRQ as a two-tier tariff applied to a country’s imports.
It involves a lower tariff rate, which is applied to a specified quantity of imports. This lower rate is deliberately set to encourage the importation of a certain amount of goods without imposing heavy financial burdens. It serves as an incentive for foreign producers to supply the domestic market with the specified quantity of goods.
Conversely, the second tier encompasses a higher tariff rate. It is implemented on any quantity of imports surpassing the predefined threshold. This higher rate acts as a deterrent for excessive imports and serves to protect domestic industries from being overwhelmed by foreign competition.
By imposing higher tariffs on quantities beyond the specified limit, the government aims to ensure that domestic producers have a fair chance to compete.
By operating on this two-tier system, TRQs strike a delicate balance between enabling international trade and safeguarding the interests of domestic industries.
This approach acknowledges the importance of allowing a certain level of imports to meet consumer demands and ensure a diverse range of goods. While also acknowledging the need to shield domestic industries from being overshadowed by cheaper foreign alternatives.
In summary, option (a) accurately describes a TRQ as a two-tier tariff applied to a country’s imports. This approach enables governments to manage the quantity and price of specific imports, ultimately fostering a balanced trade environment that considers both the interests of consumers and domestic industries.
Now, let’s delve into why the other options are not correct:
b. Three-tier tariff applied to a country’s imports:
This option is inaccurate because it implies the existence of three distinct levels of tariffs applied to imports. In reality, a tariff-rate quota involves only two tiers. The first tier is a lower tariff rate, which applies to a specified quantity of imports.
The second tier is a higher tariff rate, which is imposed on any quantity of imports beyond the specified threshold. This system is designed to provide a level of protection to domestic industries while still allowing for a degree of international trade. The concept of a “three-tier tariff” is not associated with tariff-rate quotas.
c. Two-tier quota applied to a country’s exports:
This option is incorrect because it combines the term “quota” with “exports,” which is not relevant to the concept of a tariff-rate quota. A tariff-rate quota primarily pertains to imports, not exports. It is a trade policy tool used by a country to regulate the quantity of a specific product that can be imported at a lower tariff rate.
This mechanism is employed to balance the interests of domestic industries and the advantages of international trade. There is no application of a quota on exports in the context of a tariff-rate quota.
d. Three-tier quota applied to a country’s exports:
This option is also inaccurate because it combines the term “quota” with “exports,” . Which is not applicable to the concept of a tariff-rate quota. A tariff-rate quota is solely focused on imports and does not involve quotas on exports. It is a mechanism used by a country to manage the quantity and price of specific imports.
The system involves setting two different tariff rates. One for a specified quantity of imports and a higher rate for any quantity beyond that threshold. This approach aims to strike a balance between facilitating international trade and safeguarding domestic industries.
In summary, a tariff-rate quota is a trade policy tool that employs two tiers of tariffs to regulate the quantity of specific goods that can be imported into a country. It is designed to strike a balance between facilitating international trade and protecting domestic industries. Options (b), (c), and (d) are incorrect because they do not accurately describe the nature and purpose of a tariff-rate quotas.
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