A potential crisis in Margaritaville was averted Tuesday when U.S. and Mexican trade officials signed an agreement ensuring the continued northward flow of tequila.
Mexico agreed to drop a proposed ban on bulk sales of the liquor to American bottlers in exchange for guarantees that the U.S. would better police its neighbor's national spirit after it leaves Mexican soil.
Tuesday's agreement was signed in Washington by U.S. Trade Representative Rob Portman and Mexican Secretary of the Economy Sergio Garcia de Alba.
The largest concession won by Mexico is the creation of a tequila bottlers registry identifying approved bottlers. U.S. officials also agreed to tougher oversight of American blenders.
The deal ends a two-year battle by liquor makers over who can bottle the agave-based spirit for retail sales. It also appears to guarantee uninterrupted supply of the popular hooch in the United States, where retail sales reached nearly $3.3 billion in 2004.
The agreement "will ensure that margaritas continue to flow" in the United States, said Debbie Lamb of the Washington-based Distilled Spirits Council of the United States.
Mexico is the world's only producer of tequila and manufacturers here are fiercely protective of the product. Rules pre-dating the North American Free Trade Agreement grant Mexican producers exclusive rights to bottle tequila made from 100% agave.
Some premium brands of the pure spirit sell for several hundred dollars a bottle.
The United States, Mexico's largest export market, is the destination for about half of Mexican tequila production. But nearly three-quarters of the tequila the U.S. buys from Mexico is a mixture of 51% agave and 49% distilled sugar that is shipped in bulk by tanker truck or rail car north of the border. U.S. bottlers turn the agave into lower-cost "well brands" that are often used for margaritas and other mixed drinks.
Mexican producers have complained that American firms have allowed adulterated products that contain less than 51% agave. Since 2003, they have been pushing the Mexican government to require all tequila to be bottled in Mexico to ensure strict quality control.
"For us, the U.S. market is the most important market in the world," said Ramon Gonzalez Figueroa of the Tequila Regulatory Council, a trade group. "We want to guarantee consumers of this great country that when they drink a cup of tequila, that it has the authentic taste of Mexico."
U.S. manufacturers deny that they have skimped on quality. Some grumble that the Mexicans simply wanted to grab bottling jobs and exert more control over a lucrative market built by U.S. marketing savvy.
U.S. experts say Mexico also lacks the bottling capacity to supply the American market, which could lead to supply shortfalls and lower sales for Mexican producers.
"You don't want to kill the goose that laid the golden egg," said Frank Coleman of the Distilled Spirits Council. "You don't want to disrupt the market."
Times researcher Carlos Martinez in Mexico City contributed to this report.