Tequila Sparks U.S.-Mexico Flap

Trouble's brewing in Margaritaville.

U.S. distributors of tequila are upset over a proposed Mexican government regulation that would require all tequila sold in the United States to be bottled in Mexico.

Sales of tequila, propelled by the popularity of margaritas and tequila shots chased with lime and salt, have almost doubled over the past decade, making tequila the fastest growing liquor in the country.

Some 83 percent of the tequila consumed in this country is shipped in bulk from Mexico and then bottled in U.S. plants.

But the Mexican government wants to change that, proposing a regulation that would ban bulk shipments and require all tequila to be bottled in Mexico.

The Mexican government, which will put the rule out for public comment next month, contends that requiring tequila to be bottled in Mexico will guarantee the quality of the product.

"We are concerned that the measures in place now are not working properly," said Salvador Behar, a trade attorney with the Mexican Embassy in Washington. "We want to be sure that whatever is sold as tequila is proper."

But U.S. liquor companies contend that the fight is really an effort to create more jobs in Mexico. They said that banning bulk shipments of tequila would run counter to general practices in the liquor industry worldwide where various types of liquor from gin to vodka are shipped in bulk from the country of origin to be bottled for sale in other nations.

"This is a jobs issue," said Mike Griesser, vice chairman of McCormick Distilling Co. of Weston, Mo., distributors of Tequila Rose and Tarantula Azul. "There is a small group of Mexican producers and bottlers who want to force bottling back into Mexico."

The proposed ban on bulk shipments would not take effect until January 2005 and Griesser said the year's delay was to provide Mexican companies time to expand their bottling plants.

"There's not enough capacity there currently to handle all of this tequila," he said.

The Distilled Spirits Council of the United States complained Wednesday about the proposed rule, saying if it goes into effect it would raise costs for consumers and threaten jobs in U.S. bottling plants.

"This proposal could have a grave effect on consumers worldwide through higher prices, fewer choices and the significant potential for serious product shortages," said the council's president, Peter Cressy.

He said the proposed regulation would violate rules of the World Trade Organization and commitments made by Mexico when it joined the United States and Canada in the North American Free Trade Agreement in 1994.

The U.S. industry hopes the Bush administration will formally object to the rule change when trade ministers from the three countries hold their next regularly scheduled meeting on Oct. 7 in Canada.

Frank Coleman, a spokesman for the Distilled Spirits Council, said that protecting the quality of tequila shipped in bulk has not been a problem. He said the existing standards are strictly monitored by Mexico's Tequila Regulatory Council.

Coleman said U.S. bottling plants for tequila were operating in four states — California, Arkansas, Missouri and Kentucky. Cuervo, the most popular brand of tequila sold in the United States, is distributed by Diageo North America, which has its headquarters in Stamford, Conn.

According to industry figures, tequila sales rose to 7.2 million 12-bottle cases last year and represented 4.7 percent of all U.S. liquor sales in 2002. The United States is Mexico's biggest market for tequila, consuming more than 50 percent of the country's foreign shipments last year.

By Martin Crutsinger