New TRACE rules explained: Higher reimbursements for MSME exporters

The Director General of Foreign Trade, Ministry of Commerce and Industry, on Wednesday (July 1), issued a new set of guidelines for the Trade Regulations, Accreditation and Compliance Enablement (TRACE) under the Export Promotion Mission, specifically under the Niryat Disha pillar. The new guidelines aim at bringing greater operational clarity and reducing the high cost of meeting international regulatory and certification requirements for MSME exporters.

What is TRACE?

In many countries, there are stricter rules and regulations to examine the quality and eligibility of products before they can be sold in those countries. For exporters, it is necessary to meet their standards by following their prescribed criteria. To achieve this, exporters often need to spend heavily on product testing, inspection, international certifications, factory audits, traceability systems and other conformity assessment procedures.

These procedures lead to increased compliance costs for exporters and are particularly burdensome for MSMEs. TRACE reduces this burden by reimbursing part of these expenses.

The revised framework offers a major boost to MSMEs, as they are now eligible for reimbursement of up to 95% of certification costs, Medium Enterprises up to 80%, and the reimbursement ceiling increased to ₹50 lakh per Importer Exporter Code (IEC). Support exceeding ₹50 lakh may be considered on a case-by-case basis after a detailed review by the Sub-Committee.

The phased disbursement mechanism will also improve liquidity, enabling exporters to invest in quality compliance without facing financial constraints.

“These reforms are timely as exporters navigate disruptions arising from the West Asia crisis and rising input costs driven by increased global energy prices. These initiatives will provide timely support, enhance exporters' resilience, and help sustain strong export growth during the current financial year,” said ASSOCHAM.

The revised guidelines provide for the disbursement of approved financial support in two instalments. The first instalment, amounting to 50% of the approved assistance, will be released after the applicant successfully obtains the required certification and submits the relevant certificate. The remaining 50% will be disbursed once exports linked to that certification are completed.

What is the reimbursement process?

The reimbursement process has now been split into two stages. Under the first stage (RC-1), eligible businesses must submit their claim after obtaining the required certification, inspection report, test report or other compliance document. They must also provide the invoice, proof of payment, and evidence showing that the certification was mandatory or required by the export market.

In the second stage (RC-2), businesses can apply for the remaining reimbursement after proving that they have exported products covered by the certification. They will need to submit export documents and proof that the export proceeds have been received.

The Trade Notice said the approved amount will be credited directly to the bank account linked to the Importer Exporter Code (IEC) under the two-instalment system introduced in the revised guidelines.

If an applicant does not submit a reimbursement claim within two years of filing the Intent-to-Claim, the claim will automatically lapse, and the applicant will not be eligible to apply under the scheme in the following financial year. If the first instalment has already been released, the applicant must provide proof of exports linked to the certification within two years. Otherwise, the second instalment will lapse, and the first instalment may have to be refunded.

The amended guidelines also expand the role of the Sub-Committee. It will recommend the amount and maximum limit of financial assistance under TRACE, decide which testing, inspection and certification services are eligible for support, and recommend the tariff lines under which merchant exporters can receive assistance.