Traders in Newquay have been told to remove signs and displays which obstruct the highways.
Cornwall Council have told traders they cannot use the pavement but some traders have said it could hit trade and force them to close.
The council said it had powers under the Highways Act, to prosecute traders for obstruction.
Peter Tatlow, from the council's highways department, said it was acting after receiving complaints.
He said: "We're at the busiest time of year and we've got to think about the fact that thousands of people want to use the streets of Newquay and that's what the streets are for."
Lucy Turville who puts tables and chairs outside her coffee shop, said: "If we moved our tables and chairs we wouldn't get any customers in, because it's only a small place and it's quite important that people can see we've got customers.
"But I think if enough people show that they're going to use the chairs they'll [the council] see the point, because we don't want local businesses getting shut down."
The council said that only those premises which owned a forecourt were entitled to use the space outside the property.
Mark Bird, who runs a wet suit shop, said he had removed his goods from the pavement while other traders had not.
He said: "Some of them have put the goods back out and we'll lose trade if their stuff is out and ours isn't.
"It's disappointing, but if its a point of law I don't mind complying with it, and it would be unfair to us if the other people weren't then made to take their goods in as well."