In a setback to California vintners, Mexico on Thursday slapped higher tariffs on U.S. wine, using the wrath of grapes to retaliate for a separate trade dispute with Washington.
Mexico raised duties on most U.S. wines to 20% from 14%, creating another hurdle for wine exporters already hit hard by the steep devaluation of the peso in late 1994. That had caused U.S. products to become up to twice as expensive for Mexican consumers.
Bobby Koch, senior vice president of the Wine Institute, a San Francisco-based trade group, charged that Thursday's move was part of a pattern of protectionism dating back to the negotiations for the North American Free Trade Agreement, which took effect in 1994.
"This latest action confirms Mexico's desire to protect its wine and brandy industry," he said.
Mexican officials, however, insisted the tariff increase was an appropriate response to a recent U.S. decision to raise duties on certain Mexican brooms. They claimed that move violated NAFTA.
Mexico is the No. 13 export market for U.S. wines, buying about $3 million worth last year. That's tiny when compared with the No. 1 export market, Britain, which purchased $60 million last year, according to the Wine Institute.
But winemakers had hoped that this land of beer and tequila might increasingly turn to chardonnay and merlot. Mexico had imported $7 million worth of U.S. wines in 1994, before the devaluation sent the economy--and wine sales--into a tailspin.
"It's disappointing to hear the Mexican government is doing this," said Stan Hock, a spokesman for Sutter Home Wineries in St. Helena, Calif. While Sutter exports only a small amount to Mexico, it has become increasingly interested in this market, he said.
NAFTA was supposed to give the U.S. industry a boost by phasing out Mexican wine tariffs by the year 2004. Wine exports are particularly important to California, which dominates the U.S. industry, with $4.5 billion in total sales last year. However, the Mexican market has shown little sign of recovery so far.
Mexico also raised duties Thursday on U.S. brandy, wine coolers, Tennessee whiskey, notebooks, float glass and wooden furniture.
The tariff increases were a response to a U.S. decision to raise duties on Mexican brooms made of a straw-like substance known as broomcorn. Since NAFTA took effect, about 200 of the roughly 800 workers in the American industry have lost their jobs because of Mexican competition, according to U.S. executives.
Under NAFTA, a member country can protect an industry severely harmed by foreign competition, but must offer other trade benefits to compensate.
The U.S. offered compensation for the broom tariff at a Dec. 11 meeting, but Mexico determined it wasn't enough, said a U.S. trade official, speaking on condition of anonymity. Mexico then decided to impose the higher tariffs.
The Mexican government hopes that the U.S. industries hurt by the new tariff will turn their anger on Washington, a senior Mexican Commerce Ministry official, Humberto Jasso, told reporters.
"We want the United States firms that are affected by this measure to pressure their government so that it adheres to what the treaty says . . . and lifts this measure," he said.