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US, Mexico clash over tequila bottling operations

WASHINGTON, DC - Tequila, the distilled spirit that fueled a decades-old margarita craze in the US, has landed squarely in the middle of a trade fight between Mexico City and Washington, reports Reuters.

Mexico is threatening to cut off all bulk exports of tequila, claiming it needs to tighten quality controls on the gold-plated name-brand that is owned by the Mexican government and supposedly assures every bottle's high quality.
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If enacted, all tequila would be bottled in Mexico.

Mexico is the only nation that produces the alcohol made from fermented sap from the blue agave plant.

But as is usually in the case with trade fights, there are opposing views.

US companies suspect that by banning bulk exports used north of the Rio Grande for individual bottling, Mexico is maneuvering to steal American bottling jobs.

Peter Cressy, president of the Distilled Spirits Council, told Reuters that Mexico's proposal an "ill-conceived action" in violation of world trade rules.

Another US industry official, who asked not to be identified, bluntly said the Mexican government was trying to "create jobs" by moving American bottling operations south.

In early August, as official Washington was mostly shut down, Mexico previewed a new regulation requiring that all tequila would have to be bottled before export.

The Bush Administration, sensing the potential loss of bottling plant jobs in California, Arkansas, Missouri and Kentucky, has been in contact with Mexico to protest the move, according to a spokesman for the US Trade Representative.
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The agency is hoping to head off a late-October official publication of the regulation by Mexico that could go into effect as early as next year.

Allen Johnson, the chief agriculture negotiator for the US Trade Representative, has told inquiring senators that the USTR's office was still reviewing Mexico's proposed regulations and was working with industry to try to resolve the problem.

Last year, the US consumed 86.4 million bottles of tequila, more than half of Mexico's total output. Eighty-three percent was shipped to the US in bulk form and bottled here, according to the US Distilled Spirits Council.

Mexico's Tequila Regulatory Council challenged the notion that job creation was driving the move to kill bulk exports.

Judith Meza Nixon, US-Canada representative for the council, said there is evidence that handlers of bulk tequila on both sides of the border could be eroding the drink's quality.

In a telephone interview with Reuters, she said that some bulk shipments from Mexico turned out to be sugar cane alcohol or grains spirits, instead of tequila. In other instances, US bottlers were found mixing different types of tequila together, also in violation of Mexican standards, she said.

If Mexico halts bulk shipments, the government would be "protecting the authenticity of a product," which Nixon argued was within international trade rules.

Frank Coleman, a spokesman for the US distillers, said this trade dispute comes as consumption is skyrocketing. That, he said, was because of American's growing love for premium sipping tequilas and for tequila-based drinks.

Without Mexico's bulk tequila, Cressy said, there is the "significant potential" for shortages.

According to the news service, If Mexico goes ahead with the move, the US eventually could file a complaint under the terms of the North American Free Trade Agreement. For now, both industries are saying they have NAFTA on their side.

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