Define 'preferential tariff' and give an example of a mechanism that provides it.

• A. A tariff rate applied universally to all imports.
• B. A tariff rate determined by domestic producers.
• C. A reduced tariff rate granted under a trade agreement or program; examples include Generalized System of Preferences (GSP) or free trade agreements with reduced tariffs.
• D. A temporary tariff suspension.

Answer: (C)

A preferential tariff is a tariff rate that is lower than the general rate for imports from specific countries, granted through a trade agreement or program to encourage trade with those partners. A common mechanism providing this is the Generalized System of Preferences (GSP), where eligible developing countries receive reduced or duty-free tariffs on many products. Another mechanism is a free trade agreement that lowers or eliminates tariffs on most goods traded between the participating countries. This is different from universal or MFN tariffs and from temporary suspensions, and it depends on eligibility and rules of origin.