А если я не ошибаю, даже иностранец в России может говорить об "отечественной" водке (с значением "российская"), в отличии от "импортной/зарубежной" водки, не правда ли?
And in such cases, "отечественный" can be translated "domestic." (Although "domestic" in other contexts means "домашний".)
Perhaps, by analogy, a foreigner in Russia could also describe Russian pop music as "отечественная" if he were a recording-industry executive talking about music as a "commodity" that can be imported and exported?
But, usually, music is something close to the soul, and so if you say отечественная музыка it means the music of one's own country, but not the music of someone else's country.