What seemed
at first to be straight-forward legislation to improve the global image of Tequila
is quickly threatening to blow up into a full scale international dispute. Larry
Walker investigates how serious the charges are and where the tensions lie.
A proposed regulation by Mexico to stop bulk shipment of Tequila and require
that it be bottled at source has the potential of erupting into a major trade
dispute between the US and Mexico, according to officials of the Distilled Spirits
Council of the United States (DISCUS.) Distillers north of the border are charging
that Mexico is trying to steal jobs from US bottling plants while creating new
jobs in Mexico.
In fact, the proposed bottled at source regulation has been an issue pushed
by premium Tequila producers such as Herradura and El Tesoro for at least the
ten to 15 years. Mexican producers charge that bulk Tequila is sometimes diluted
with cane alcohol on both sides of the border, but particularly in US plants.
Producers like Guillermo Romo de la Pena, the owner of Herradura, have long
claimed that bottling at source is the only way to protect the integrity of
Tequila. (Mescal, another Mexican spirit made from agave – although a different
variety – is bottled at source, with no bulk shipments allowed, according to
Ron Cooper, the owner of Del Maguey Single Village Mescal in Oaxaca.) The proposed
regulation would include RTDs, which would also have to be bottled in Mexico.
The US is Mexico’s top market for Tequila. Some 88.4m bottles of Tequila
were consumed in 2002, more than one-half of Mexico’s total production.
Of that, 83% is shipped in bulk and bottled at plants in Missouri, Kentucky,
California and elsewhere. Both Jose Cuervo and Sauza, which between them own
more than half the US Tequila market, are shipped to the US in bulk, except
for a few limited production 100% agave brands. The practice of shipping in
bulk for US bottling is not limited to tequila. A great deal of rum is also
bottled in the US as well as smaller amounts of other spirits.
It is difficult to estimate the number of jobs that might be lost if the new
regulation goes into effect, and, no one has put forward a solid number. A source,
who knows the Tequila business well, said the job loss issue was phoney. There
might be a few jobs lost here and there, but there isn’t a single US bottling
line that bottles only Tequila. Cuervo has its own bottling line but they bottle
a lot of things besides Tequila there.
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By GlobalDataPeter Cressy, the president of DISCUS, has said the Mexican proposal is ill-conceived
and a violation of the North American Free Trade Agreement. He added that the
Mexican plan could lead to shortages of Tequila and higher prices for the consumer.
It could have a grave effect on consumers worldwide, he told Washington reporters.
The Bush administration, already feeling political heat because of the loss
of 3.3 million jobs since George W. Bush took office, has been in contact with
Mexico to protest the move. Allen Johnson, chief agriculture negotiator for
the US Trade Representative has said his office is working with both sides to
try and resolve the problem. The trade agency is under some pressure since Mexico
has said the regulation could go into effect by January 1 of next year. As late
as mid-October, Mexico had not yet officially published the new regulations
putting the order into place. Mexico has also said that there could be a grace
period of at least one year before the regulation would be enforced.
A spokesperson with the Mexican Embassy in Washington, added that no definite
decision has been reached as yet on whether the regulation will go into effect.
A meeting has been scheduled in Guadalajara in late October or early November
(no firm date has been set) between officials of Mexico, Canada and the US to
discuss the regulation.
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The Tequila Regulatory Council has said the charge that Mexico was simply trying
to take US jobs away is simply not true. Judith Meza Nixon, US-Canada representative
for the council, has charged 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, she said, which is contrary to Mexican regulations.
She said the regulation was necessary to protect the authenticity of the product
and was not a violation of international trade rules or of the North American
Free Trade agreement.
An interesting wild card in the dispute is the increased supply of agave-based
sprit from South Africa. A spokesperson for Agave Distillers, a South African
company producing the spirit, said before the current dispute erupted, as reported
by just-drinks.com, that he had been approached by US interests about the spirit.
Agave Distillers does not call its product Tequila because Tequila is a protected
name of origin.
In answer to speculation that the South African spirit could be bottled and
sold as Tequila, Debbie Lamb, vice president for international affairs for DISCUS,
said that the US and Mexico have agreements dating back to 1974 which would
make it illegal for a US bottler to sell South African agave spirits as Tequila.
That agreement is also part of the NAFTA pact.
In the meantime, Tequila exports were up 20% in the first half of 2003, to
a total of 51.3m litres, including 37.3 million litres shipped in bulk.
