Beyond Tariffs: How Non-Tariff Barriers Are Reshaping India's Global Trade Strategy
As global trade diplomacy moves from negotiating customs duties to harmonising complex regulations, India is recalibrating its approach to Free Trade Agreements and domestic industrial policy. We explain the shift, the challenges, and the new strategy.
The Groundwork: Key Concepts, Context, and Institutions
To understand the ongoing shift in India's trade policy, a grasp of the foundational vocabulary, historical context, and the key players involved is essential. The conversation around global trade has evolved significantly, moving from a singular focus on import duties to a more complex landscape of domestic regulations that function as trade barriers.
(1) KEY TERMS
- Tariff — A tax or duty imposed by a government on imported goods, making them more expensive and thereby protecting domestic industries from foreign competition.
- Non-Tariff Barrier (NTB) — A trade-restricting measure other than a tariff, such as a quality standard, a licensing requirement, a sanitary regulation, or a complex customs procedure, that can make it difficult or costly for foreign goods to enter a market.
- Free Trade Agreement (FTA) — A pact between two or more nations to reduce or eliminate barriers to trade, including tariffs and NTBs, to encourage the free flow of goods and services among them.
- Mutual Recognition Agreement (MRA) — A component within an FTA or a standalone pact where signatory countries agree to recognise each other's conformity assessments (like product testing and certifications), eliminating the need for duplicate procedures.
(2) BACKGROUND & TIMELINE
The global trading system has undergone a fundamental transformation over the past three decades. The establishment of the World Trade Organization (WTO) in 1995 institutionalised a global push towards tariff reduction. While average global tariffs have nearly halved since then, the use of NTBs has surged. For India, this shift became apparent through its experience with key trade agreements.
- 2010: The ASEAN-India Trade in Goods Agreement comes into force. Despite tariff concessions, Indian exporters faced significant NTBs in sectors like pharmaceuticals and gems.
- 2011: The India-Japan Comprehensive Economic Partnership Agreement (CEPA) is signed. Tariff cuts did not translate into significant market access for Indian pharma companies due to Japan's lengthy domestic approval processes.
- Post-2020: India begins a strategic pivot, focusing more explicitly on NTBs in its new trade negotiations. This is driven by a desire to boost domestic manufacturing under initiatives like 'Make in India' (launched 2014) and the Production Linked Incentive (PLI) schemes.
- May 2022: The India-UAE Comprehensive Economic Partnership Agreement (CEPA) is operationalised, containing specific clauses on mutual recognition to tackle NTBs.
- March 2024: The India-European Free Trade Association (EFTA) Trade and Economic Partnership Agreement (TEPA) is signed, marking a significant step with legally binding obligations to reduce NTBs, and is expected to be operationalised by 2025.
(3) INSTITUTIONAL FRAMEWORK
Navigating the world of trade barriers involves a complex interplay of international and domestic bodies.
- World Trade Organization (WTO): The Geneva-based intergovernmental organization that regulates international trade. Its agreements, such as the Agreement on Technical Barriers to Trade (TBT) and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), provide the legal framework for the use of NTBs.
- Ministry of Commerce and Industry, Government of India: The nodal ministry for formulating and implementing India's foreign trade policy. Its Directorate General of Foreign Trade (DGFT) is the primary governing body responsible for laws regarding foreign trade.
- Bureau of Indian Standards (BIS): India's national standards body, established under the BIS Act, 2016. It formulates and implements quality standards, and its mandatory Quality Control Orders (QCOs) often function as technical barriers to trade for imported products.
For decades, the success of trade negotiations was measured by percentage points shaved off customs duties. Today, as tariffs recede in importance, a more complex and often opaque set of regulatory hurdles—Non-Tariff Barriers (NTBs)—has come to define the real terms of market access. India, historically a user of high tariffs for protection, is now grappling with this new reality, both as a target of NTBs and as a nation strategically deploying its own quality standards to support domestic industry.
The Global Pivot from Tariffs to NTBs
The decline of tariffs is a direct consequence of the post-1995 global trade order. Since the establishment of the World Trade Organization (WTO), average tariff rates among its members have fallen by nearly half. Protectionism, however, has merely changed its form. As overt tariff walls came down, governments increasingly turned to domestic regulations—ostensibly for health, safety, and environmental protection—which have the effect of restricting trade. According to an analysis of WTO and World Bank data, NTBs now affect approximately 90% of global trade. The WTO has tracked this explosion in regulatory activity; in 2023, member governments submitted over 7,700 notifications of new technical barriers and health-related trade measures, a tenfold increase compared to 1995.
How Major Economic Blocs Deploy NTBs
Different economies deploy NTBs based on their strategic priorities. The European Union possesses the world's most extensive regulatory architecture for trade. According to World Bank data, non-tariff measures cover an estimated 94% of imports entering the EU. These are concentrated in environmental rules like the Carbon Border Adjustment Mechanism (CBAM), chemical safety regulations (REACH), and stringent product and packaging standards. While the stated goal is consumer and environmental protection, they act as powerful filters on trade.
The United States, in contrast, uses NTBs more for strategic and national security objectives, with its measures covering about 77% of imports. Recent years have seen a proliferation of export controls, entity lists, and restrictions on semiconductors and AI hardware, aimed at limiting rivals' access to critical technology. India has traditionally relied more on tariffs, with NTBs covering a comparatively lower 45% of its imports. This is changing, as New Delhi systematically expands its use of Quality Control Orders (QCOs) for imports of electronics, toys, and chemicals, a strategy aimed at boosting domestic manufacturing under the Production Linked Incentive (PLI) schemes.
India's Experience with NTBs in Past FTAs
India's history with Free Trade Agreements highlights the limitations of a tariff-centric approach. The ASEAN-India FTA (2010) is a case in point. Despite tariff reductions, the preferential tariff utilisation rate among Indian businesses remains below 50%, according to industry reports. This is largely because NTBs make it commercially unviable to claim the benefits. For instance, complex registration requirements in Indonesia have historically restricted Indian pharmaceutical exports, while cumbersome Thai customs procedures have forced Indian gems and jewellery exporters to reroute shipments through Hong Kong.
The experience with developed countries is similar. The FTA with Japan (2011) has not led to a significant increase in Indian pharmaceutical exports. The primary obstacle is Japan's domestic regulatory system, where market approvals can take five to seven years. Similarly, while bilateral trade with South Korea reached $27.8 billion in FY 2022-23, India's exports accounted for only a fraction of that total, with Indian firms citing regulatory hurdles as a key challenge. Anuj Gupta, Managing Director of BowerGroupAsia, notes that India’s overall FTA utilisation rate is about 25%, a stark contrast to the 70%-80% rates seen in developed economies, indicating that tariff concessions have not translated into market access in practice.
India's New Strategy: Tackling NTBs Head-On
Recognising these past shortcomings, India's recent trade agreements signal a clear strategic shift. The focus is now on embedding specific, enforceable mechanisms to address NTBs directly within the legal text. The India-UAE Comprehensive Economic Partnership Agreement (CEPA), effective since May 2022, was a forerunner. It includes provisions for automatic recognition of medicines approved by major global regulators like the US FDA and UK's MHRA, and mandates mutual acceptance of laboratory testing, thereby eliminating costly duplicate compliance procedures.
The India-European Free Trade Association (EFTA) Trade and Economic Partnership Agreement, signed in March 2024, represents the most advanced version of this new approach. The agreement makes NTB reduction a legally binding obligation. It establishes frameworks for mutual recognition of standards and streamlined conformity assessments. Crucially, the agreement's text mandates the creation of a dedicated sub-committee tasked with addressing NTBs on an ongoing basis, providing an institutional mechanism for resolving regulatory friction. This marks a fundamental change from simply negotiating tariff lines to actively managing the regulatory relationship between trading partners.
The pivot from tariffs to non-tariff barriers represents a fundamental shift in the nature of economic sovereignty and global competition. For India, navigating this new terrain is central to its ambition of becoming a manufacturing powerhouse, particularly as global supply chains are being reorganised.
The current global economic flux presents both a challenge and an opportunity. As Western economies seek to 'de-risk' from China, they are looking for alternative manufacturing partners. India is a prime candidate, but market access is no longer guaranteed by competitive pricing alone. It is now contingent on meeting a dense web of international standards and regulations. Successfully navigating the EU's CBAM or the US's technology controls is now as important as any tariff concession. Failure to do so risks exclusion from high-value global markets, irrespective of FTAs.
In the coming years, India's trade negotiations, particularly with the UK and the EU, will be dominated by chapters on Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures. Future FTAs are expected to build on the EFTA model, with legally binding clauses on regulatory cooperation and dedicated dispute resolution bodies for NTBs. Once the India-EFTA agreement is operational, the first report of its sub-committee on NTBs will be a key indicator of this new model's efficacy. Furthermore, future reviews of India's Foreign Trade Policy are expected to feature a comprehensive strategy for aligning domestic standards with global benchmarks to proactively address NTBs.
This strategic shift necessitates a 'whole-of-government' approach. The Ministry of Commerce can no longer negotiate in a silo. It requires deep, continuous coordination with sectoral regulators like the Bureau of Indian Standards (BIS), the Food Safety and Standards Authority of India (FSSAI), and the Central Drugs Standard Control Organisation (CDSCO), as well as with the Ministry of Environment on issues like CBAM. The challenge is twofold: first, to upgrade India's own regulatory and testing infrastructure to global standards, and second, to build the diplomatic and legal capacity to challenge foreign NTBs that are protectionist in intent. This journey reflects an ambition, often articulated by Indian policymakers, to transition from being a rule-taker to a rule-maker in the 21st-century global economy.