UPDATE 1-Mexico auto groups warn reaction to U.S. EV tax credits could spark trade war

(Adds comments from Mexico's automotive industry association, background)

By Anthony Esposito

MEXICO CITY, Dec 6 (Reuters) - The heads of Mexico's top automotive and auto parts industry groups said on Monday a proposed U.S. tax credit for electric vehicles (EVs) goes against free trade principles, and warned retaliatory tariffs threatened by Mexico's government could spark a trade war.

The proposed $12,500 EV tax credit would include $4,500 for EVs built in the United States by union workers, effective after 2027. It is included in the Biden administration's sweeping climate and social spending legislation now under consideration by Congress.

But Mexican Economy Minister Tatiana Clouthier has said the tax credit is "discriminatory," would violate the United States-Mexico-Canada Agreement on trade, and that Mexico is analyzing legal actions in response that may include tariffs.

The head of the Mexican Automotive Industry Association (AMIA) argued that according to World Trade Organization rules, Mexico's government could impose tariffs on products imported from the United States that have an equal value to the impact the EV tax credit would generate on Mexican industry.

However, AMIA chief Fausto Cuevas said he advocated for finding another solution.

"This would lead us to a trade war. That does not benefit what we are really looking for, which is the regional integration of the industry," he said.

The U.S. Trade Representative's office said on Friday it was committed to legislation strengthening the U.S. EV industry.

In late October, Mexico, along with the European Union, Germany, Canada, Japan, France, South Korea, Italy and other countries wrote to U.S. lawmakers saying the proposed tax credit violates international trade rules. (Reporting by Anthony Esposito; Additional reporting by Sharay Angulo; Editing by Rosalba O'Brien)