The Trade Regulations, Accreditation & Compliance Enablement (TRACE) scheme primarily targets manufacturing and producing MSMEs involved in international value chains. However, the guidelines also recognise the role of merchant exporters, albeit in a narrow and tightly regulated manner.
This article explains when merchant exporters are eligible, the restrictions imposed, and the rationale behind tariff line-based coverage, strictly as per the notified framework.
Understanding Merchant Exporters in the TRACE Context
A merchant exporter typically procures goods from manufacturers and exports them without undertaking manufacturing activity. Under TRACE:
Merchant exporters are not the default beneficiaries
Eligibility is exception-based, not general
Coverage is allowed only where merchant exporters play a critical role in aggregator-based export models
The scheme consciously limits merchant exporter participation to prevent dilution of its MSME compliance enablement focus.
Core Eligibility Conditions for Merchant Exporters
A merchant exporter can be considered under TRACE only if all conditions are met:
The exporter qualifies as an MSME with valid Udyam Registration
The exporter holds a valid and active IEC
The exporter is not listed in the Denied Entity List
Exports are undertaken through aggregator-based models
The product exported falls within notified tariff lines under Annexure-VII
Failure to meet any one condition results in ineligibility.
Aggregator-Based Export Model: Central Requirement
The TRACE guidelines restrict merchant exporter eligibility to cases where exports are predominantly undertaken through aggregator-based models. This reflects situations where:
Multiple small producers supply goods to a merchant exporter
The merchant exporter assumes responsibility for:
Regulatory compliance
Certifications
Market access requirements
Compliance costs cannot be efficiently borne at the individual producer level
TRACE support, in such cases, is intended to facilitate collective compliance rather than trading margins.
Tariff Line-Based Restriction Under Annexure-VII
Unlike other MSMEs, merchant exporters are eligible only for specific HS six-digit tariff lines notified under Annexure-VII. Key characteristics of Annexure-VII:
Product-specific and exhaustive
Dominated by:
Meat and poultry products
Fish and marine products
Fresh, chilled, frozen, and processed categories
Reflects sectors with:
High regulatory scrutiny
Mandatory health, safety, and traceability requirements
Merchant exporters dealing in products outside these tariff lines are excluded from TRACE benefits.
Rationale for Tariff Line Limitation
The tariff line restriction serves multiple policy objectives:
Prevents blanket eligibility for all trading activities
Targets sectors with high compliance cost intensity
Ensures TRACE support addresses regulatory bottlenecks, not commercial trading
Aligns assistance with importing-country sanitary and technical requirements
This design ensures TRACE remains a compliance enablement mechanism rather than a general export support scheme.
Nature of Eligible Expenditure for Merchant Exporters
Where eligible, merchant exporters may claim reimbursement only for:
Testing
Inspection
Certification
Audits
Compliance and traceability systems
Such expenditure must be:
Mandated by importing-country regulations, or
Necessary to demonstrate compliance with internationally recognised standards
All other TRACE conditions, including prior Intent-to-Claim and post-certification reimbursement, apply identically.
What Merchant Exporters Cannot Claim
Even if otherwise eligible, merchant exporters cannot claim:
Benefits for products outside Annexure-VII tariff lines
Reimbursement for deemed exports
Reimbursement for supplies to SEZ units
Duplicate benefits under other Central or State Government schemes
Costs incurred before the prospective cut-off date
TRACE does not permit relaxation or discretionary inclusion.
Compliance and Documentation Expectations
Merchant exporters are subject to the same compliance framework as other applicants, including:
Filing of Intent-to-Claim prior to certification
Submission of complete documentary evidence
Self-declaration of non-availment of parallel benefits
Post-disbursement verification and audit
Any misrepresentation may lead to recovery and penal action.
Conclusion
TRACE adopts a cautious and sector-focused approach towards merchant exporters. By restricting eligibility to aggregator-based exports and notified tariff lines, the scheme ensures that support flows only where merchant exporters perform a compliance facilitation role, not merely a trading function.
This calibrated design preserves TRACE’s core objective: reducing regulatory compliance costs for MSMEs embedded in global value chains, while maintaining policy discipline and audit integrity.
Related Posts:
TRACE Scheme 2026: Complete Guide to Policy & Compliance
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