India proposes trade agreement with Mexico to mitigate high tariffs

While in an FTA two trading partners either significantly reduce or eliminate import duties on max number of goods traded between them, in a PTA, duties are cut or removed on some products

India has proposed a preferential trade agreement (PTA) with Mexico to help domestic exporters deal with the steep tariffs announced by the South American country, a top government official said on Monday.

Mexico has decided to impose steep import tariffs - ranging from about 5 per cent to as high as 50 per cent on a wide range of goods (about 1,463 tariff lines) from countries that do not have free trade agreements with Mexico, including India, China, South Korea, Thailand and Indonesia.

Commerce Secretary Rajesh Agrawal said that India has engaged with the country on the issue.

"Technical level talks are on...The only fast way forward is to try to get a preferential trade agreement (PTA) because an FTA (free trade agreement) will take a lot of time. So we are trying to see what can be a good way forward," he told reporters here.

While in an FTA two trading partners either significantly reduce or eliminate import duties on maximum number of goods traded between them, in a PTA, duties are cut or removed on a limited number of products.

Trading partners of Mexico cannot file a compliant against the decision on imposing high tariffs as they are WTO (World Trade Organisation) compatible.

The duties are within their bound rates, he said, adding that their primary target was not India.

"We have proposed a PTA because its a WTO-compatible way forward... we can do a PTA and try to get concessions that are required for Indian supply chains and similarly offer them concessions where they have export interests in India," Agrawal said.

Citing support for local production and correction of trade imbalances, Mexico has approved an increase in MFN (most favoured nation) import tariffs (5-50 per cent) with effect from January 1, 2026 on 1,455 tariff lines (or product categories) within the WTO framework, targeting non-FTA partners.

Preliminary estimates suggest that this affects India's around $2 billion exports to Mexico particularly -- automobile, two-wheelers, auto parts, textiles, iron and steel, plastics, leather and footwear.

The measure is also aimed at curbing Chinese imports.

India-Mexico merchandise trade totalled $8.74 billion in 2024, with exports $5.73 billion, imports $3.01 billion, and a trade surplus of $2.72 billion.

The government has been continuously and comprehensively assessing Mexico's tariff revisions since the issue emerged, engaging stakeholders, safeguarding the interests of Indian exporters, and pursuing constructive dialogue to ensure a stable trade environment benefiting businesses and consumers in both countries.

Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai has said that Mexico's decision is a matter of concern, particularly for sectors like automobiles and auto components, machinery, electrical and electronics, organic chemicals, pharmaceuticals, textiles, and plastics.

"Such steep duties will erode our competitiveness and risk, disrupting supply chains that have taken years to develop," Sahai said, adding that this development also underlines the little urgency for India and Mexico to fast-track a comprehensive trade agreement.

Domestic auto component manufacturers will face enhanced cost pressures with Mexico hiking duties on Indian imports, according to industry body ACMA.