REGULATION WATCH;PEPSI'S LATEST CHALLENGE;COCA-COLA FUMES OVER NEW MEXICAN CAMPAIGN

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MEXICO CITY-Mexican legislators are busy drawing up firm guidelines on competitive advertising in light of the current legal wrangle between PepsiCo and Coca Cola Co. over the Pepsi Challenge's national breakout.

The country's national consumer organization, Profeco, is expected to announce the ground rules for comparative ad campaigns this month, to be incorporated eventually into federal consumer law. Mexico's federal upper house is also expected to approve the Council for Self-regulation and Ethical Advertising, or Conar.

Modeled on similar Latin American organizations, the council will have an ethical code of conduct which, with Profeco's rules, aims to avoid the type of fierce competition being waged between the two soft-drink giants.

Mexico's cola war has bubbled furiously since PepsiCo broke the Pepsi Challenge nationally in late May, the most competitive campaign run to date and one that has provided bloody legal fisticuffs between Pepsi and its rival.

"It's the first truly confrontational ad here," said Francisco Fernandez, Pepsi Challenge account director with BBDO.

Though the outcome of the current dispute is unclear, it has provided plenty of material for corporate lawyers to chew on and will help shape future legislation.

PepsiCo is building pressure by expanding the profile and reach of its confrontational $5 million campaign. It plans to set up 200 Pepsi Challenge stands nationally, inviting the public to "Join the Pepsi Challenge and let the taste decide."

The Pepsi Challenge, a campaign run in at least 38 countries and known here as El Reto Pepsi, invites consumers to taste Pepsi and "another cola" without knowing which is which, and state their preference. Consumers are not left guessing at the "other" soft drink's identity, as the Coca-Cola logo is splashed all over the ads. One newspaper ad shows bottles of Pepsi and Coca-Cola with the headline: "Pepsi values your freedom of choice."

It's not surprising, then, that Coca-Cola, claiming to hold 75% of Mexico's cola market, responded like a bull to a red flag.

Coca-Cola ousted a PepsiCo slogan from pilot schemes last summer, "More than 50% of people prefer the taste of Pepsi," ruled by Profeco as a violation of federal consumer law. Coca-Cola also hit back with a high-profile campaign. One ad shows a Coke bottle on a photocopier, suggesting that the product is the only genuine cola and can't be reproduced-a Pepsi Challenge rebuff.

But Coca-Cola has been unable to halt the Challenge altogether, as Pepsi has thwarted with an amparo, or legal block, Coca-Cola's efforts to declare the campaign unconstitutional through the Mexican Institute of Industrial Property. So although Pepsi momentarily can continue with the campaign, Coca-Cola keenly seeks to remove the block and force PepsiCo into the courtroom. The company also is trying to get the Challenge off the air, arguing that the Challenge's use of the word coca is illegal, being a part of the Coca-Cola brand name and therefore a damaging use as a generic term by Pepsi.

Mexico's all-powerful media giant Televisa has run the campaign; Television Azteca reportedly is not carrying the Pepsi Challenge ad because of the uncertain legal situation. PepsiCo lawyers are preparing to rebut the most recent legal onslaught from the Mexican Institute of Industrial Property. The legal quagmire is fueled by Mexico's lack of firm legal guidelines on competitive or comparative ads; the strongest reference to it in federal consumer law is being updated.

Meanwhile, Coca-Cola complains that the Challenge is subjective: "It talks about tastes and preferences, which are subjective," said public relations officer Vivian Algeria. Her counterpart at PepsiCo, Francisco Soroa, retorted: "The public has the right to choose which product is the best."

But Jose Alberto Teran, president of the Mexican Association of Advertising Agencies, wants to keep such wrangles out of court. The association, representing 45 agencies, has lobbied hard recently for the proposed self-regulation council.

"We don't want a judge's decision or amparo. We should be reasonable in the way we conduct business and respect the consumer," Mr. Teran said.

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