CDS (I) 2024 General Knowledge · Question 32 of 120

Correct — D, 1, 2, 3, 4 and 5. Every item on the list is a genuine determinant of whether a free trade agreement actually raises exports. Item 1 sets the size of the prize — a preference is worth only the gap between the agreed tariff and the most favoured nation tariff the country would have faced anyway. Item 2 decides whether exporters can claim that preference at all: rules of origin are, in the World Trade Organization's words, 'the criteria used to define where a product was made', and strict local-content or processing requirements routinely leave preferential tariff lines unused. Item 3 matters because sanitary and phytosanitary measures are non-tariff barriers, and an agricultural or marine export blocked on food-safety grounds gains nothing from a zero tariff. Item 4 is domestic and unglamorous but decisive — ports, roads, power and testing laboratories set what India can actually deliver at what cost. Item 5 is the demand side, since a preference into a stagnant market yields little while the same preference into a growing one yields a great deal. Nothing on the list is a distractor.

• (a)1, 3 and 4 only — Leaves out rules of origin and partner-country income. Rules of origin are what decide whether a preference can be used at all, and export growth ultimately depends on demand in the partner market.
• (b)1, 2 and 4 only — Drops sanitary and phytosanitary measures and partner income. For India's agricultural, marine and processed-food exports, food-safety and plant-health requirements are often the binding constraint rather than the tariff.
• (c)2, 3 and 5 only — Drops the tariff margin itself and domestic infrastructure — the first is the whole point of signing an agreement, and the second determines whether exporters can supply competitively.

A free trade agreement lowers tariffs between its parties below the most favoured nation rates they apply to everyone else. That preference has value only in the margin between the two rates, and it can be claimed only by goods that satisfy the agreement's rules of origin — the criteria that define where a product was made, which exist to stop goods being routed through a member country merely to collect the preference. Beyond tariffs sit non-tariff measures, of which sanitary and phytosanitary rules on food safety, animal health and plant health are the most important for agricultural trade.

The instinct in a five-item list is to hunt for the plant, and here there is none — which is itself the lesson. When every listed factor is a real channel, the examiner is testing whether you understand that market access is necessary but not sufficient for export growth. Signing the agreement delivers items 1, 2 and 3, all negotiated at the table. Item 4 is entirely in India's own hands and cannot be negotiated away, which is why utilisation of India's trade agreements has often been low even where preferences existed. Item 5 is outside anyone's control at the table and is the reason the choice of partner matters as much as the terms. A working rule for such stems: reject an item only if it is factually wrong or plainly irrelevant, never because the list feels too long.

• Rules of origin are 'the criteria used to define where a product was made', and decide which goods may claim preferential treatment.
• The value of a preference is the gap between the agreed tariff and the most favoured nation tariff otherwise applicable.
• Sanitary and phytosanitary measures are non-tariff barriers on food safety, animal and plant health, governed by a WTO agreement of that name.
• Domestic infrastructure and logistics set the cost and reliability of supply, and are not affected by any trade agreement.
• Export growth also depends on income and demand in the partner economies.

• Rejecting an item because it is domestic; infrastructure and logistics bear directly on export competitiveness.
• Treating tariff elimination as sufficient for export growth and ignoring non-tariff measures.
• Assuming the longest option is a trap; in select-the-factors stems it is often simply correct.

Asked as an all-of-the-above style determinants list, where the discipline is to test each item on its merits rather than to look for a planted error.

• practice — not a real PYQ

  Rules of origin in a free trade agreement exist mainly to

  • (a)set the tariff rate applicable to third countries
  • (b)prevent goods from non-member countries being routed through a member to claim preferences
  • (c)fix minimum export prices
  • (d)harmonise currency exchange rates between members

  Answer(b) prevent goods from non-member countries being routed through a member to claim preferences — they define where a product was actually made.

• practice — not a real PYQ

  The Agreement on the Application of Sanitary and Phytosanitary Measures deals with

  • (a)anti-dumping duties
  • (b)food safety and animal and plant health requirements
  • (c)intellectual property rights
  • (d)dispute settlement procedures

  Answer(b) food safety and animal and plant health requirements — a non-tariff area that can block exports even at a zero tariff.