This paper discusses in greater detail the case for tariff compensation set out in the Green Paper on Rural Policy. It considers a number of theoretical and practical arguments levelled against the principle, including those put forward in the Annual Report for 1973-74 of the Industries Assistance Commission. It concludes that despite the various counter arguments, the second best argument for tariff compensation applicable to low cost manufacturing as well as rural industries, remains valid in principle; in practice the extent to which any such partial compensation would be warranted needs to be assessed in the light of the appropriate substitution and complementarity relationships.