Cyprus a Test of U.S. Attack on Copyright Piracy : Trade: Nicosia is set to crack down on theft of intellectual property. The new law comes as a result of Washington’s pressure.

The tiny shops off Ledra Street in the heart of Nicosia’s ancient walled city seemed an unlikely battlefield this week in the American trade war on international piracy.

Unsold inflatable Santas still dangled from outdoor sales racks beside postcards of topless sun worshipers on the beaches of this eastern Mediterranean island. Innocent shawls of Cypriot lace adorned the walls inside, and souvenir ashtrays lined the shelves.

But the stores were packed with shoppers, and it wasn’t a post-Christmas rush on tourist kitsch. The target: floor-to-ceiling wall racks almost hidden in the corner. The shoppers had come for “Demolition Man,” “Jurassic Park,” “Cliffhanger” and “Aladdin”--high-quality, pirated videocassettes of dozens of recent American films--in a pre-New Year’s rush on these and other products of intellectual contraband.

As of Saturday--Jan. 1--this remote island of less than 1 million residents will become an international test case of America’s ability to police the pirates--20th-Century thieves of everything from Sylvester Stallone’s latest action adventure to Microsoft’s latest corporate program.

Under a new Cypriot law, passed after pressure from Washington and scheduled to take effect here on New Year’s Day, the Cypriot government promised to crack down on the island’s booming trade in pirated video- and audiocassettes, computer software, books and a host of other copyrighted material that U.S. trade associations say have violated American intellectual-property laws with impunity for years.

At stake in the new copyright law are tens of millions of dollars that those trade associations estimate the handful of Cypriot pirates rob from Hollywood’s film industry and other American exporters each year. But the new law will also test the U.S. government’s policy of using the threat of trade barriers to protect American business interests abroad.

The threat came in the form of a decision by U.S. Trade Representative Mickey Kantor last Wednesday to suspend duty-free status for several items that Cyprus exports to the United States, unless Cypriot authorities prove they are serious about the law. The legislation passed last June but with a grace period that allowed pirates to maximize their profits before it kicked in.

As evidence of the importance the United States attaches to the new law--and the depth of its skepticism--those shops in Nicosia’s old city and throughout the island will be filled next week with undercover U.S. Embassy sleuths and civilians working for the Washington-based International Intellectual Property Alliance. For weeks to come, they will scour the island for violators.

Economically, the stakes are not as high for Cyprus as they may appear. They boil down to shotgun shells, village wine and women’s blouses, the bulk of the Cypriot export trade to America covered under the Generalized System of Preferences that Kantor revoked for Cyprus last week. The Cypriot duty-free trade covered by the GSP totals $1.2 million a year.

Rather, U.S. officials said, the threat to treat Cyprus as a trade pariah was meant as a powerful political message, not only for Cyprus but also for other countries identified by American trade associations as havens for intellectual pirates. Among such are key U.S. ally Egypt and Cypriot archfoe Turkey, which invaded Cyprus in 1974 and continues to occupy the northern third of the island.

Justifying the extreme step against Cyprus, a U.S. official also cited evidence that the island’s pirates are not merely catering to the tens of thousands of tourists who descend here each year, largely from Europe, but also feeding a vast export market throughout the Middle East.

In 1992 alone, the island imported 1.8 million blank videocassettes and 2 million blank audiocassettes, according to the Cypriot Ministry of Commerce and Industry. U.S. officials suspect many of those tapes were then recorded here with master tapes smuggled from America, and re-exported to markets throughout the Persian Gulf and Middle East.

“Over the years, Cyprus has become a center for both domestic and export piracy,” declared a petition filed earlier this year with the U.S. trade representative’s office by the International Intellectual Property Alliance. That organization represents eight major trade groups including the powerful, Washington-based Motion Picture Assn. of America.

“Estimates for trade losses due to piracy (in Cyprus) are $51 million annually for the U.S. motion picture, recording, music publishing and book publishing industries,” the document said.

The alliance, whose petition urged the harsh trade action against Cyprus, detailed what it termed “the tortured history of U.S. efforts to work with the Cypriot government.” And it stressed that the major problem facing the U.S. film industry is Cypriot “export of videotapes to European, Mediterranean, Arab and African countries.”

When Kantor agreed to suspend Cyprus’ GSP status, one of the alliance’s powerful members, Motion Picture Assn. President Jack Valenti, declared: “I am hopeful that this message will encourage respect for our copyrights, not only in Cyprus but throughout the world.”

U.S. officials concede that the success of that message depends largely on Cyprus’ response.

During the brief parliamentary debate on the new copyright law last June, many Cypriot politicians made it clear that the booming trade has enriched only half a dozen or so prominent Cypriots who own the studios that produce the bootleg cassettes. But they defended the eight-month grace period in enforcement by citing the law’s impact on the hundreds of “mom-and-pop operations” that sell the pirated copies.

Since Kantor’s action last Wednesday, the Cypriot government has reiterated promises to crack down on the pirates beginning Saturday.

“The idea is to saturate the shops for the first couple weeks to make sure they’re complying,” one U.S. official said. “If the government, the police and the courts don’t do something serious right from the start, there will be a problem again, and who knows where it will lead then?”