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In response to concerns from business leaders, a legislator has designed a new tariff on raw materials used by many manufacturing firms.

INSTRUCTIONS TO CANDIDATES
ANSWER ALL QUESTIONS

1. Identifying types of tariffs

For each hypothetical scenario, complete the first column in the following table by indicating whether the tariff described is more likely a protective tariff or a revenue tariff.

Scenario

A. In response to concerns from business leaders, a legislator has designed a new tariff on raw materials used by many manufacturing firms. The legislator felt the new tariff was necessary based on input from the private sector that new discoveries of natural resources abroad would threaten to put domestic producers of raw materials out of business. To meet this goal, this tariff will charge 20% of the total value of the goods imported. B. In an effort to balance next year's budget, a senator has proposed a new tariff. She proposed the new tariff with a goal of raising a total of $100 million. To meet this goal, this tariff will charge $1,000 on every crate of the imported good plus an additional 6% of the total value of the imported goods.

Protective or Revenue

Tariff Type

For each hypothetical scenario, complete the second column in the previous table by determining if the fees charged represent an ad valorem, compound, or specific tariff.

2. Calculating the effective rate of protection

GlobalCell is an American firm producing cell phones. GlobalCell imports cell phone components from India and assembles them domestically. Suppose that in the United States, a cell phone sells for $500 and that 60% of the cell phone's value comes from the value of the imported components. The United States imposes a 40% tariff on cell phones and a 10% tariff on the cell phone's components. Assume that costs of producing components are the same in the United States and India and that transit costs are nonexistent.

Based on the information provided, the effective rate of protection that Global Cell receives from the tariff is

3. Winners and losers from tariff reductions

Suppose that India imports fertilizers from Canada. The free market price is $12.00 per ton.

If the tariff on imports in India is initially 12%, Indians pay 5

per ton.

One of the accomplishments of the Uruguay Round that took place between 1986 and 1993 was significant across-the-board tariff cuts for industrial countries, as well as many developing countries. Suppose that as a result of the Uruguay Round, India reduces its import tariffs to 6%.

Assuming the price of fertilizers is still $12.00 per ton, consumers now pay the price of [5

Based on the calculations and the scenarios presented, the Uruguay Round most likely

i

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