OTTAWA, NOV. 11 -- Canada's brewers face the possible loss of an exemption under the proposed U.S.-Canada free-trade agreement after an international trade agency ruled that the provinces unfairly control the distribution and pricing of alcoholic beverages.

Howard Collins, a Brewers Association of Canada spokesman, said the ruling by the General Agreement on Tariffs and Trade in Geneva, acting on a complaint by the European Community, could seriously affect the future of the industry.

The GATT ruling said provincial practices covering the listing, distribution and markup on wine, beer and spirits violate fair trade principles.

The preliminary ruling has not been made public, but Canadian officials in Ottawa have confirmed that it goes against Canada. Canada has always accepted GATT rulings.

Marc Lortie, spokesman for Prime Minister Brian Mulroney, told reporters today that Canada still hopes to negotiate some kind of settlement with the EC in bilateral discussions that will continue next week in Brussels.

"This is a preliminary ruling, and under GATT terms these two parties are going back to try to find a settlement," Lortie said. He said the countries have until Nov. 27 to reach a settlement, the date the GATT decision is to be made public.

If no settlement is reached, the ruling would be submitted to the full GATT council of all 95 member countries for a final determination.

Collins said the ruling caught brewers by surprise because the original complaint placed before GATT several years ago by the European Community only dealt with wine and spirits.

Canada, which has a domestic consumption of 23.4 million U.S. barrels of beer, imports 23,400 barrels a year from West Germany, 42,000 barrels from the United Kingdom and 50,000 barrels from the Netherlands.

But Collins said he feared the GATT ruling would wipe out an exemption granted to the brewing industry under the proposed Canada-U.S. free trade agreement.

"It could certainly have an impact," he said, adding that the Canadian government gave the industry no guarantee during the free trade negotiations that the exemption was a permanent fixture of the agreement.

If the free trade pact -- which has yet to be ratified by the U.S. Senate and Canadian Parliament -- were extended to brewers, it could result in the loss of 20,000 jobs, Collins said.

Canada's brewing industry developed over the past 100 years into 39 small plants across the country. To foster growth of the industry and domestic wineries and distillers, provincial governments set up stringent protectionist practices, including regulations that require breweries to produce beer in every province where they sell it, provincial liquor board restrictions on the number of foreign brands sold in stores, price markups on foreign alcohol by provincial liquor commissions, and rules that require minimum amounts of locally grown grapes to be used in domestic wines.

"What we face in the United States is competition against megaplants," Collins said, adding that Coors supplies the entire American market from one plant in Colorado.

In Ontario, Trade Minister Monty Kwinter said, "Either we conform or we decide we're not going to and we leave ourselves open to all of the remedies that any signatory of GATT has -- court action, retaliation, any of those things."