NAFTA offers trading partners operating within its boundaries reductions in tariffs on products in exchange for compliance with limits on imported labor and materials used in the manufacture of those products. This practice is also known as a:
a.Foreign trade zone.
b.Sourcing requirement.
c.International rebate.
d.Value added tax.
Answer:B
Choice "B" is correct. Sourcing requirements generally refer to content or value added limits on the percentage of labor or materials used in imported products. Compliance with limits may result in tariff reductions.
Choice "a" is incorrect. A foreign trade zone contemplates a physical location in which tariffs are waived on imported products until they leave the zone. Foreign trade zones anticipate delay rather than reductions in tariffs.
Choice "d" is incorrect. A value added tax is an incremental tax, not a reduction in tariffs.
Choice "c" is incorrect. An international rebate is not a tariff reduction practice.