MPAA president Jack Valenti has addressed a letter to the president of Mexico Vicente Fox, warning that the US may take retaliatory measures against the Mexican film industry for applying a one peso levy to all cinema admissions.

The levy is part of an initiative from the Mexican Parliament to boost local film production; the cash raised will be channeled directly into production and will be administered by the state backed Mexican Film Institute (Imcine).

Introduced in January, the levy was hailed by local producers and directors, but met by a wave of heated reactions from local exhibitors and distributors, most of whom either represent US interests or are local agencies of US majors and US exhibition chains. This in a country which represents in volume and earnings the 4th best market for US films worldwide.

Valenti's letter to President Fox says 'the adoption of such a measurewithout previously consulting [the MPA].....could force us to cancel our backing for the Mexican film industry......this also would cause difficulties to our mutual relations....".

Two weeks ago, Steve Solot, MPA senior vice president, Latin America was also dispatched to Mexico City to meet with Minister of Culture Sari Bermudez.

To Ms Bermudez, Solot expressed the US stand in the boldest possible way. He is said to have told her that every peso that does not enter at the box office, is apeso lost for the US film When contacted by Screen, Solot declined to comment.

One Mexico-city based US studio executive commented: "The letter was intelligently worded and I don't think its tone was threatening. I think Valenti only meant to say that the majors might lose their interest in backing Mexican cinema if the financial stakes increased due to the levy."

"The tone of the letter was firm, perhaps radical but not offensive," said Alma Garcia of leading Mexico City exhibitor Cinemex.

The stand-off comes at a time when studios have stepped up their activities in Mexico. Warner Bros, Fox, Columbia TriStar and Disney have been actively distributing local films in recent years. Disney, through its joint venture with Spain's Admira, Miravista, has just kicked off principal photography of its first Mexican production, Ladies' Night. Warner Bros has been co producing films through its joint venture with Televisa film arm Videocine, Coyoacan Films and Columbia TriStar boarded its first Mexican project Sin Ton Ni Sonia last year.

Though the existence of the letter and its terms have not been disclosed and the local press is unaware of the whole matter, it is understood that at the highest Mexican levels there is both anger and preoccupation. The anger can be understood but the threats of retaliation could bring a severe hit on the local film industry.

The Valenti threats could also encompass US productions heading south of the border which represent a considerable source of income for local crews plus a steady cash flow for the locations and the local facilities on offer.