By Aditi Shah
NEW DELHI, Dec 11 (Reuters) - Mexico's decision to raise tariffs as high as 50% will affect $1 billion worth of shipments from major Indian car exporters, including Volkswagen and Hyundai, despite industry lobbying to persuade New Delhi to prevent such a move, according to two sources and a letter from an industry group reviewed by Reuters.
Mexican President Claudia Sheinbaum's government approved on Wednesday raising import tariffs next year on hundreds of items from countries it does
not have trade agreements with, including China and India, to protect local jobs and manufacturing.
But the move also comes amid U.S. pressure on Mexico to curtail business with China, despite opposition from local business groups warning that higher tariffs will raise costs.
The import duty on cars will rise to 50% from 20%, dealing a significant blow to India's largest vehicle exporters to Mexico including Volkswagen, Hyundai, Nissan and Maruti Suzuki.
MEXICO TARIFF RAISES RISK FOR INDIAN MANUFACTURING
The Society of Indian Automobile Manufacturers, an industry group that counts VW, Hyundai and Suzuki among its members, had urged India's commerce ministry in November to press Mexico to "maintain status quo" on tariffs for vehicles shipped from India, according to a copy of the letter.
"The proposed tariff hike is expected to have a direct impact on Indian automobile exports to Mexico...we seek Government of India's support to kindly engage with the Mexican government," the industry body said in its letter to the commerce ministry before the tariff was finalised.
Details of the letter are being reported for the first time. It was not immediately clear what steps the car makers, industry body and Indian government will take next.
The tariff hike could force Indian automakers to reevaluate strategies reliant on Mexico, which is India's third-largest car export market after South Africa and Saudi Arabia.
Car manufacturers in India have relied on exports to ensure production is maximised and there are economies of scale. Some also rely on exports to cushion slower domestic sales or improve margins - a business strategy that may need to be redrawn.
The tariff hike, which mirrors a rise in global tariffs, including levies championed by U.S. President Donald Trump, could also complicate Prime Minister Narendra Modi's efforts to market India as a low-cost manufacturing alternative to China.
India's Commerce Ministry, Society of Indian Automobile Manufacturers and the Mexican government did not respond to requests for comment.
Hyundai and Maruti Suzuki did not respond to requests for comment, while Nissan declined to comment.
Piyush Arora, chief of VW's Indian unit, Skoda Auto Volkswagen, said India has been a strong export base for many years and the company ships to more than 40 countries from here.
"Mexico has consistently been one of our important export markets, given the rising demand there and the traction of our India-made models," Arora said before the tariffs were approved.
VOLKSWAGEN MOST EXPOSED TO MEXICO TARIFFS ON INDIA
India shipped goods worth $5.3 billion to Mexico in the last fiscal year, of which cars made up close to $1 billion, according to the letter and commercially available customs data.
Skoda Auto accounts for nearly 50% of India's total car shipments to Mexico. Hyundai shipped cars worth $200 million, Nissan's exports stood at $140 million and Suzuki's at $120 million, the data showed.
In meetings with government officials last month, car makers said the majority of shipments from India to Mexico are compact cars with an engine size of less than one litre, which are designed for the Mexican market and not for further export to the U.S., one of the sources said.
"Indian-origin vehicles are not a threat to Mexican local industry as Indian vehicles do not cater to high-end segments manufactured by Mexico for serving the North American market," the industry group said in its letter.
Car makers also told Indian officials that of the 1.5 million passenger vehicles sold in Mexico each year, about two-thirds are imported and India's shipments make up "just about 6.7 percent" of the total sales, according to the first source and the letter.
(Reporting by Aditi Shah, additional reporting by Diego Ore in Mexico; Editing by David Dolan and Jacqueline Wong)
