Free-trade pact threatens entertainment, apparel: many fear exemptions could spill over into Europe.

Most sectors of the Los Angeles business community are cheering over the predicted trade spurt that might come from passage of the North American Free Trade Agreement. But those in the entertainment and apparel industries are less than exuberant.

Jack Valenti, president and chief executive officer of the Motion Picture Association of America, blasted the agreement before the House Ways and Means Committee as having "one fatal flaw that places in extreme jeopardy one of America's greatest trade prizes."

Canada obtained an exemption in the agreement, protecting it from free trade with America and Mexico's "cultural industries."

Cultural industries are the trademark of L.A.'s economy -- motion picture and video production, distribution and exhibition, publication, distribution and sale of books and other printed material, and radio, television and cable services.

Along with protecting Canada from the publication, distribution and sale of American cultural products, the agreement allows Canada not to uphold the intellectual property rights of American film-makers, authors and musicians.

NAFTA is considered one of the first trade agreements with strong intellectual property protection, according to trade experts. The agreement has a 20-year standard for protection of patents, copyrights and trademarks, according to the Department of Commerce. But those protections do not apply to U.S. entertainment products shipped to Canada because of Canada's cultural exemptions. This means if a musician in Canada wants to rip off a song of Madonna, she technically can without recourse, explained Tom Keene, a senior consultant with C&M International, a trade consulting firm with offices in Washington, D.C., and Newport Beach.

The agreement does, however, allow the United States and Mexico to take remedial action of similar commercial effect, e.g. raising the tariffs on beer by an amount sufficient to offset the losses sustained by the song being ripped off.

But Jonathan Doh, director of trade policy division in the Canada office of the U.S. Department of Commerce, dismissed the idea of Madonna being ripped off.

"I wouldn't expect U.S. entertainers to be indiscriminately prevented from obtaining a copyright or patent in Canada," he said.

What Canada has been known to do, he said, is favor distribution of Canadian films over foreign films. The radio stations don't give foreign songs as much play as Canadian ones, he said. He pointed to the case of rock singer Bryan Adams. Adams is Canadian born but because his producer and co-writer is American, Adams' song couldn't be played as much as a Canadian song.

Canada won a cultural exemption in the 1989 U.S./Canada Free Trade Agreement. And since NAFTA includes intellectual property rights, the cultural exemption was broadened, said Doh.

Many of those in the industry fear Canada's cultural exemption could spill over into Europe where France is negotiating for a cultural exemption under the GATT (General Agreement on Tariffs and Trade) negotiations.

What's at stake is huge, Valenti testified.

The U.S. exports $3.5 billion more in movies, TV programs and home video material than it imported in 1990, he said. Foreign sales of the core U.S. copyright industries (motion pictures, sound recordings, publishing and computer software) exceeded $34 billion in 1990, an increase of 28 percent over the previous year, he said.

Those in the apparel industry might also be less than enthused about the proposed accord.

Under NAFTA, if an apparel product is to benefit from free trade, the fabric must be woven in North America, and the yarn must be spun in North America, said Keene. "The problem for apparel companies is that a lot of fabrics aren't made in North America," said Keene.

He said if an apparel product is made in a Los Angeles factory, but not with a NAFTA-approved fabric, it still faces high tariffs. He predicts that a lot of products will be made in the Far East because it would be cheaper for the United States, Canada and Mexico to import them as finished products.

On the upside, Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., said local apparel companies are noting that more Mexican retail chains have been coming to L.A. lately.

Barbara Fields, head of a buying office and fashion service in the California Mart, said she has received interest from two junior and missy apparel chains: Coppel, a chain of eight stores in Mexico and Suburbia, a chain of 28 stores.

Kyser said any "California retailer with a unique twist should be making the jump to Mexico."

He accused California business of dragging its feet in exploring trade with Mexico.

"We need to move first because people in Texas are being more aggressive," he said. "Texans are very bright-eyed and bushy-tailed about Mexico."

California has a lot to gain by NAFTA, agreed trade experts.

"There's no question the agreement will spur economic activity in California," said Doral Cooper, president of trade-consulting firm C&M.

She said the agreement was designed to benefit border states and, because of L.A.'s large Hispanic population, there should be a surge in trade across the borders.

The 2,000-page agreement, still being hashed out by Congress, pertains to 7,000 items. It calls for all tariffs on these goods to be gradually eliminated over a 15-year period, said Cooper.

For a list of the tariff schedule or to have any questions on the agreement answered, contact the U. S. Department of Commerce at [phone].