How can a Compliance Framework Tackle Gaps in Non-Tariff Measures?

ISSUE BRIEF

Strengthening India’s Non-tariff Measures’ Compliance

A Comparative Analysis of Key Governance Frameworks

14 June, 2024 | Industrial Sustainability

Prerna Prabhakar, Latika Adlakha, Hemant Mallya

Suggested Citation: Prabhakar, Prerna, Latika, Adlakha, and Hemant Mallya. 2024. Strengthening India’s Non-tariff Measures’ Compliance: A Comparative Analysis of Key Governance Frameworks. New Delhi: Council on Energy, Environment and Water.

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Overview

This policy brief provides an overview of the existing practices in regulatory compliance in international trade and suggests key elements of a potential compliance framework like information sharing; feedback and redressal; and firm-level compliance framework. A comparative assessment between the US, EU and India for these key elements, brings out the gaps in Indian governance towards NTMs compliance, and this brief provides policy suggestions to address these gaps. Some of these include providing digital updates for recent NTMs regulations and corresponding impacted sectors ; establishing formal interaction mechanisms between industry and government; specific support for MSMEs towards NTMs compliance ; and developing firm level NTM compliance frameworks.

Key Highlights

While the Government of India holds regular meetings to update the industry players about the regulations notified to the WTO, it needs to be complemented by digital updates on information regarding the regulations, the impacted sectors, and compliance steps.
India needs a formal interaction mechanism in which the industry raises their concerns, and the governmental organisation adopts a systematic approach to deal with the issues.
Concerning the presence in other countries, information regarding any assistance offered by Indian embassies for NTM compliance-related issues or any other help desks in the importer countries is not available.
While the Indian government provides support to small and medium enterprises (SMEs), there needs to be a specific support mechanism for SMEs in the case of NTM-related compliance.
Indian exporting firms need to adopt NTM compliance frameworks at the firm level of operation. This can include a structured plan to strengthen various aspects of NTM compliance like maintaining a guidebook, building a dedicated team to oversee the entire compliance process, tracking foreign NTM regulations, training the in-house team, and managing non-compliance.

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Hemant Mallya

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Because of their complex nature, non-tariff measures pose a bigger challenge for exports than import tariffs. Strengthening domestic compliance with international NTMs is likely to facilitate market access for Indian exports. The foremost thing in this direction is to build capacity within the government departments to understand the implications of such regulations on India’s exports and work with the industry to resolve these issues.

Executive summary

New-age international trade is increasingly moving towards an inward-looking and protectionist trade policy approach, manifested in the form of laws, regulations, standards, and guidelines, particularly focusing on energy efficiency and sustainability. These regulations, termed non-tariff measures (NTMs), are designed in the respective domestic economies, but they equally impact their imports. Over time, trade negotiations and policies, once predominantly centred on tariff considerations, have evolved to prioritise NTMs, with an emphasis on sustainability. Although the NTMs are formulated by the receiving economy to ensure a better quality of imports in the longer run, they also might have serious short-term cost implications if the exporter does not have adequate institutional support for ensuring effective compliance with international regulations or standards. For instance, Indian exports worth USD 37 billion are at risk due to sustainability-driven NTMs of the European Union (EU). To safeguard its exports from the risk of non-compliance with NTMs and to reach its USD 1 trillion target for merchandise exports by 2030, India needs a structured framework for ensuring compliance with the EU NTM regulations, and this policy brief provides an overview of the existing practices in regulatory compliance in international trade and suggests key elements of a potential compliance framework.

While the Technical Barriers to Trade (TBT) and Sanitary and Phyto-Sanitary (SPS) agreements of the World Trade Organization (WTO) provide a global framework to ensure a level-playing field for domestic producers and importers, a uniform country-specific governance structure has not been designed as yet for facilitating NTM compliance by the domestic industry. Countries across the world have distinct frameworks in place to ensure the compliance of their domestic industry firms with foreign regulations. While countries such as the United States and EU have defined a clear division of roles and responsibilities among different departments or divisions, industry players still struggle with compliance procedures in certain cases, which eventually hampers the global competitiveness of exports. To avoid difficulties in compliance, we propose a common country-specific NTM compliance framework centred on three key principles.

Information sharing: Sharing detailed and accurate information with the industry players concerning the proposed and notified regulations, product categories at risk, and compliance mechanisms for these regulations.
Feedback and redressal: Helping the industry with any possible challenges they face in compliance and taking up the issues of the industry to the concerned trading partners for seeking clarifications.
Firm-level compliance framework: Strengthening the compliance mechanisms in the export firms as they bear the most impact in the form of loss of export opportunity cost.

The existing practices in the United States, EU, and India are compared within the framework of these three proposed principles in this issue brief to reflect on the strengths and weaknesses of each countries’ practices. An India-centric stakeholder consultation to assess the gaps in India’s existing practices and suggest suitable changes for designing an effective NTM compliance mechanism.

A. Findings

A comparative assessment of the governance framework clearly highlights the areas that need to be strengthened to improve Indian industry’s ability to comply with foreign regulations.

Information sharing: The Government of India (GoI) holds regular meetings to update the industry players about the regulations notified to the WTO, but it needs to be complemented by digital updates or information regarding the regulations, the impacted sectors, and compliance steps. The existing approach is largely fragmented in nature, and a consolidated framework is required for providing information about the recent regulations.
Feedback and redressal: The information sharing mechanism mentioned above could be complemented with a formal interaction mechanism in which the industry raises their concerns and the governmental organisation adopts a systematic approach to deal with the issues. Although government bodies like the Directorate General of Foreign Trade (DGFT) and Export Promotion Councils (EPCs) are mandated to assist the industry with NTM compliance, their roles are not clearly defined for carrying out this function. Stakeholder discussions conducted as a part of this research suggested that industry players do not know who to approach in these government bodies for compliance-related issues. Therefore, clear instructions and guidelines have to be provided to exporters for approaching the relevant authority in case they have any query related to NTMs imposed by the importing country.
Assistance in the importing nations: Concerning the presence in other countries, information regarding any assistance offered by Indian embassies for NTM compliance-related issues or any other help desks in the importer countries is not available.

A consolidated framework is required to provide information about the recent foreign regulations to Indian exporters.

SME support: Overall, support is generally provided by the government to small and medium enterprises (SMEs), but there is no specific support mechanism for SMEs in the case of NTM-related compliance. The Government of India has integrated the Open Network for Digital Commerce (ONDC) with Global Mart specifically for aiding the SMEs to use the Global Mart platform for selling their products or services, but still the SME exporters are required to subscribe to private consultancy services to acquire information about the key export markets, which can be a challenge for them.
Firm-level compliance framework: Exporting firms need to adopt firm-level compliance frameworks at the firm level of operation. This can include a structured plan to strengthen various aspects of NTM compliance like maintaining a guidebook, building a dedicated team to oversee the entire compliance process, tracking foreign NTM regulations, training the in-house team, and managing non-compliance. While the United States and the EU have detailed frameworks that are to be followed for NTM compliance, a similar effort has not been made in India.

B. Policy recommendations

India has made considerable progress in formulating its export compliance policies, but a concerted effort to facilitate NTM compliance is needed.

Information-sharing mechanism

The foremost requirement for effective NTM compliance is the streamlined information-sharing platform/ mechanism, which needs to be put in place in India. A process needs to be defined for understanding the regulations and providing necessary information to the nodal department, which can then be shared in a structured format with the industry. Once the capacity in the relevant departments is built, a platform needs to be conceptualised to provide real-time updates to the exporters on foreign regulations, with sector-wise details and the necessary compliance steps. In this regard, it is important to also address the sticky challenge of reported harmonised system (HS) codes and their alignment with the possibly impacted products in the compliance regulations.

Feedback and redressal

Although help desks are available in the relevant department, there are no clear guidelines for exporters on how to approach them in case of any problems. Also, multiple contact points can be misleading for the exporters. To overcome this confusion, a dedicated team in the relevant government department can be assigned as the contact point for the exporters who face challenges in NTM compliance. Specific guidelines need to be put in place for the exporters to prepare and submit complaints to this team. The respective EPCs could facilitate this process.

The presence of help centres or having a dedicated NTM team in the respective embassies in other countries can be strengthened to acquire additional information or other guidance in case the exporters need it. Along with building these teams, there needs to be a formal mechanism to connect these teams with the exporters. As micro, small, and medium-sized enterprises (MSMEs) account for a considerable proportion of Indian exports, there needs to be a specific programme to help them with NTM compliance.

Company-level framework

As the firms bear the direct cost of inadequate compliance mechanisms, it is important that they formulate dedicated in-house policies for ensuring export compliance. The standardised framework can be conceptualised by a group of experts—from the government, legal firms, and think tanks—which should be followed by all the export firms. One of the key requirements of the framework is to have a dedicated team that looks after various aspects of export compliance in the respective firms.

FAQs

What are Non Tariff Measures ?

Non-Tariff Measures (NTMs) are policy measures other than ordinary customs tariffs that can have an economic effect on trade. Technical barriers to trade (TBT) and Sanitary and Phytosanitary (SPS) measures are the two widely used NTMs. TBT includes measures such as labelling, standards on technical specifications and quality requirements, and other measures protecting the environment. SPS measures include restrictions on substances, ensuring food safety, and those for preventing the dissemination of diseases or pests.
What is an example of a non-tariff measure?

TBT and SPS are two widely used NTMs. Examples of TBT and SPS measures faced by India include registration, evaluation, authorisation and restriction of chemicals, eco-design requirements for power transformers, and control of wood packaging material used in the transport of specified commodities originating from India.