Rising Non-Tariff Barriers Pose Serious Challenges For India's Export Oriented MSMEs

“This is a problem that is becoming big for us. We may say that the amount of steel used in the product is X tonnes, but the US authorities believe it is more than that. When the amounts of steel and aluminium used in the finished goods are levied separately, the tariff game changes,” Pankaj Chadha, partner and CEO, Jyoti Steel Industries, and Chairman, Engineering Export Promotion Council (EEPC) told The Secretariat.

In March the US announced a 25 per cent tariff on steel and aluminium imports. 

As India and the US hold hectic talks to navigate the complicated tariff web and conclude the Bilateral Trade Agreement (BTA) before the August 1 deadline, a hydra-headed problem related to non-tariff barriers has arisen for Indian exporters categorised as Micro, Small and Medium Enterprises (MSMEs).

What Are Non-Tariff Barriers?

Non-tariff barriers (NTBs) — any measure that's not a customs tariff which acts as a barrier to international trade — have become a growing challenge for MSMEs in global trade, particularly with developed countries like the US. While tariffs are being reduced or eliminated through trade deals, NTBs are becoming more prominent and complex.

“While trade deals open up market access by lowering tariffs, non-tariff barriers are fast becoming the new challenge, particularly for MSMEs. Targeted government intervention, robust public-private collaboration, and MSME capacity-building are essential to ensure that Indian exports, especially to developed markets like the US, remain competitive and compliant,” Manoj Mishra, partner and tax controversy management leader at Grant Thornton Bharat, told The Secretariat.

However, the issue of non-tariff barriers is not just linked to the US. Just last week, Prime Minister Narendra Modi was in London to formally ink the India-UK Comprehensive Economic and Trade Agreement (CETA). India is also negotiating similar free trade agreements (FTAs) with a host of other countries.

Why Do NTBs Affect MSMEs The Most?

While the focus of all these trade talks revolves around issues related to tariffs, rules around packaging, labelling and inconsistent customs norms, etc., have often arisen resulting in uncertainty and losses for the country’s export-oriented MSMEs. 

For example, procedural delays have become common in the US. Textile and apparel items must meet specific requirements, including fibre content, country of origin, and care instructions, as mandated by the US Federal Trade Commission.

“US buyers are increasingly demanding compliance with voluntary standards, such as fair trade, rainforest alliance, and B-Corp (corporates certified by the third-party non-profit B Lab, indicating high standards of social, environmental and other indicators),” Mishra said, adding that Indian MSMEs often lack the scale or capacity to invest in these certifications, which makes them less competitive.

"Organic” or “sustainably sourced” inputs often require additional audits to be carried out by the MSME manufacturing units as well, adding to their costs.

What's The Way Forward?

At a recent event, Union Minister of Commerce and Industry Piyush Goyal asked the MSMEs to come forth with their problems that arise out of these NTBs.

Experts feel that Indian policymakers should include MSME-focused non-tariff barrier resolution mechanisms and sectoral cooperation chapters in all future FTA negotiations with foreign countries.

A dedicated MSME trade barrier cell to capture and escalate issues related to NTBs, for resolution through trade bodies or bilateral platforms, and upskilling of MSMEs by raising their awareness about US regulatory regimes, will also be critical. 

MSME exports have risen from Rs 3.95 lakh crore in 2020-21 to Rs 12.39 lakh crore in 2024-25, a government release said. There are more than 1,73,300 MSMEs which are into exports.