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The Great Tobacco Bailout

by Robert Weissman

ONE AFTER ANOTHER, they strode to the podium, eager to face the television cameras and congratulate each other, and themselves, for their historic accomplishment. "We are here to announce what we believe is the most historic public health achievement in history," said Michael Moore, attorney general for Mississippi, in announcing that a "global" settlement had been reached with the tobacco industry to a crowd of reporters at a news conference at a posh Washington, D.C. hotel on June 20. "This is really the beginning of the end for the way the tobacco industry has treated the American public and probably the people in this world."

The settlement resolved 40 state lawsuits against the industry which sought reimbursement for Medicaid expenses paid out by the states in connection with tobacco-related diseases, as well as a dozen and a half pending private class action suits against the industry.


Among the biggest winners if the proposed tobacco deal is enacted into law may be tobacco company executives, argues "Behind the Smoke," a July report issued by the Institute for Policy Studies and Stakeholder Alliance.

With Wall Street analysts predicting a further rise in the value of tobacco company stocks if the deal is approved, the value of executives' stock options will shoot up. Stock options grant holders the right to buy stock from the company at a previously established price, even as the market value of the stock fluctuates.

"Behind the Smoke" focuses on how the deal would affect executives at three of the five tobacco company parties to the deal, Philip Morris, RJR Nabisco and UST, Inc. (formerly U.S. Tobacco). It excludes Brown & Williamson, which is owned by British-American Tobacco, which does not file executive compensation information with the U.S. Securities and Exchange Commission, and Loews, which derives only a small share of its revenues from tobacco and does not reward executives through stock options.

If the deal is approved, the three companies' stock will rise by more than 45 percent, forecasts Gary Black, an analyst with Sanford Bernstein.

That jump -- combined with the increase in tobacco company share value after the settlement negotiations became public -- would put more than $200 million in the pockets of the top five executive at Philip Morris, RJR and UST. Together, those executives hold 12.4 million stock options.

The biggest winner among the executives would be Philip Morris Chief Executive Officer Geoffrey Bible, whose stock options stand to rise in value by about $73 million. Other executives at Philip Morris would see their personal piggybanks grow by $14 million to $21 million. Charles Harper, retired chair of RJR Nabisco would make more than $16 million on the deal. Vincent Gierer, chief executive officer of UST, would realize a $6.7 million gain in the value of his stock options.

Moore was followed to the podium by the attorneys general from Washington, Arizona, Florida, Connecticut, New York and Indiana. Each echoed Moore's ecstatic comments, while straining to provide the catchiest sound bite for the evening news. After all, together they had brought the nation's most voracious industry to its knees.

The attorneys general were followed to the podium by Bill Novelli, president of the National Center for Tobacco-Free Kids, Dr. Lonnie Bristow, past president of the American Medical Association, and Matthew Myers, general counsel of the National Center for Tobacco-Free Kids. Myers and later Bristow had entered the negotiations as a representative of the public health community, even though colleagues had beseeched them to remain outside the secret talks.

"If you look at the overall, comprehensive scope of this agreement, it represents the single-most fundamental change in the history of tobacco control in any nation in the world," Myers said. "Will it work? Well, history will tell. But does it have the best opportunity to drive down the number of our children who smoke? I think the answer to that is, despite its flaws, absolutely."

Noticeably absent from the celebratory news conference were executives or representatives of the tobacco industry. In a brief, separate news conference, Steve Parrish of Philip Morris said, "The proposal is a bitter pill, because our companies have made concessions that were extremely difficult. But on balance, this plan is preferable to the continuation of the decades-long controversy that failed to produce a constructive outcome for anyone."

Wall Street had already signaled that it thought the deal was quite a bit sweeter for the industry than Parrish suggested, however. As word of the negotiations leaked out, Wall Street bid up the price of tobacco stocks by 15 percent.

Public interest activists from the tobacco control, public health and consumer spheres had also weighed in before the deal was announced. They were overwhelmingly critical.

The American Lung Association stated in a May resolution that it "opposes any global tobacco settlement beyond the scope of the Medicaid suits filed by state attorneys general because of the clear benefits afforded the tobacco industry. The tobacco industry must be held accountable for its abuses."

Public Citizen warned against "dealing with the devil." "These merchants of death know their business far better than any outsider, which means that, for every rule imposed, they have already figured a way around it," the organization argued in a May statement. "The industry has repeatedly and blatantly lied to the world public about the dangers of tobacco. That is not the kind of negotiator any sensible person would willingly join at a bargaining table."

Grassroots groups like Americans for Nonsmokers' Rights, Smokefree Pennsylvania, Virginia GASP and dozens of others furiously denounced the settlement negotiations. They were unanimous in their assessment that any deal would include unacceptable concessions to the industry and put a brake on the growing momentum against the industry.

Following release of the terms of the proposed settlement (available on the internet at, however, many of even the harshest public interest critics of the negotiations found the final agreement exceeded their worst expectations: Not only did the deal include provisions that had generated the most concern -- such as dramatic limitations on victims' rights to sue the industry -- but it traded away key industry restraints, most notably by undermining the existing authority of the Food and Drug Administration (FDA) to regulate tobacco products.

As public interest advocates studied the deal more closely, they discovered greater and greater industry advantages. The emerging perception was that the deal was indeed historic: In the face of the most intense opposition it had ever faced, the industry had arranged an unprecedented bailout from unbounded liability and legal and regulatory challenges.

In broad outline, the deal requires the tobacco companies to pay $368.5 billion over 25 years, accept advertising and marketing restrictions and commit -- at least on paper -- to reducing youth smoking rates in the United States by 60 percent over 10 years. In exchange, all of the ongoing lawsuits against the industry would be settled, future suits would face insurmountable obstacles, and in any case the industry's future liability would be capped. The authority of the FDA to regulate the tobacco industry would be curtailed. Hundreds of thousands of secret industry documents would remain concealed. And no restrictions would be placed on the industry's overseas activities.

To a considerable extent, critics of the deal, most notably former FDA Commissioner David Kessler and former Surgeon General C. Everett Koop, effectively shaped the terms of debate in the weeks following the announcement of the deal. Kessler and Koop chaired an advisory committee, organized by Representative Henry Waxman, D-California, which issued a public health and tobacco control community "blueprint" for an effective tobacco control policy. The Koop-Kessler blueprint has functioned as an implicit, detailed and thorough critique of the deal. The focused criticism of Kessler, Koop and other tobacco control advocates has made it politically almost impossible for Bill Clinton or other politicians who claim to be tobacco control advocates to support the deal as announced in June.

Because the proposed settlement not only settles the attorneys general cases and the private class actions, but also affects federal regulatory authority, proposes a variety of federal programs and limits future lawsuits, to become operative it must be adopted through legislation.

As Congress turns its attention to the deal in the fall, the issue will be whether it supports a revised deal, or rejects the terms altogether. Whether the tobacco industry will accept a revised deal that includes some stronger public health protections is uncertain. Another wild card is how the industry, in collusion with its friends in Congress, may insert provisions into legislation that weaken public health protections, perhaps in ways that are not immediately apparent. One sign of the industry's ongoing political influence was its ability to insert a provision in the federal budget and tax agreement that stipulated that income generated by a tax increase on cigarettes would be used to offset tobacco companies' liability in the settlement.


LEADING INTERNATIONAL tobacco control advocates from 19 countries on June 17 issued a joint statement criticizing the tobacco settlement negotiations for failing to address international tobacco control issues. Signers included advocates from Australia, Cameroon, Canada, France, Hong Kong, India, Japan, Kenya, Malaysia, Mongolia, New Zealand, the Philippines, Poland, South Africa, Switzerland, Taiwan, Thailand, Turkey and the United Kingdom. Advocates from 14 other countries subsequently signed on to the statement. A complete list of signatories is posted on the internet at

The full text of the international advocates' statement follows:

IT IS IRONIC that the U.S. tobacco litigation settlement discussions have been labeled talks aimed at achieving "a global settlement," since the talks have reportedly excluded consideration of the public health consequences of U.S. tobacco exports and the U.S. tobacco companies' overseas operations. It is unacceptable to discuss a comprehensive settlement of the U.S. tobacco litigation which does not include measures to control the use of U.S. tobacco products outside of the United States.

Only 4 percent of the world's smokers are in the United States. As horrible and monumental as the death and disease caused in the United States by tobacco is, the toll outside of the United States is much greater. Approximately 85 percent of the annual 3 million tobacco-related deaths occur outside of the United States. And while smoking and tobacco use rates are relatively flat or declining in the United States, they are rising elsewhere, especially in the developing countries. By the 2020s, the World Health Organization predicts 10 million people will die annually from tobacco related disease, 70 percent in the developing world.

Already, the major U.S. tobacco firms are selling more cigarettes abroad than domestically. Philip Morris and R.J. Reynolds sell more than two thirds of their cigarettes overseas, and the proportion is growing.

The U.S. tobacco companies are looking to markets in the Third World and Eastern Europe for future growth. And in many countries they are using slick and deceptive advertising and marketing techniques that target children, especially girls, in ways that would never be tolerated in the United States.

A settlement of the U.S. tobacco lawsuits that does not incorporate international tobacco control measures will fail to address the major tobacco-related public health problems. Even worse, a U.S. tobacco settlement in the absence of global controls may actually exacerbate public health threats in the developing world. If sales fall in the United States, or the U.S. companies are forced to pay a substantial settlement award, the tobacco multinationals can be expected to intensify their invasion of the Third World and Eastern Europe, pursuing marketing and corporate acquisition strategies with even greater determination. The drying up of information potentially associated with a settlement, and the inevitable loss of political momentum which will accompany a settlement, will also damage tobacco control efforts outside of the United States.

To avoid doing public health harm, a settlement must set a worldwide floor on U.S. tobacco company practices, and the practices of their subsidiaries and those firms over which they exercise de facto control, including trademark licensees, without limiting the ability of countries to require companies to exceed the global minimum standard. Specifically, a settlement should be structured to:

1. Apply regulatory controls adopted as part of a settlement to all cigarettes manufactured in the United States, including those destined for export.

2. Require the tobacco companies to agree to a code of conduct embodying the regulatory provisions contained in a U.S. settlement in areas such as marketing to children, advertising and marketing, labeling and performance requirements for reduction of new children smokers. The industry must immediately agree to end practices such as cigarette giveaways, television advertising, sports, music and other similar sponsorships and clothing giveaways. This code should be developed in consultation with the World Health Organization, the International Union Against Cancer and other international tobacco control advocates.

3. Require the tobacco companies not to oppose efforts in other countries to adopt regulatory measures (for example, workplace restrictions on smoking and ingredient regulation) which are in line with World Health Organization recommendations.

4. Assure that any immunities or limits on liability granted to the tobacco companies not apply to the companies' exports or activities or investments abroad. There should be no immunities or limits on liability or annual caps covering potential litigation in either U.S. or non-U.S. courts relating to the tobacco companies' exports or activities and investments abroad. There should be no immunity or limits on liability applied to enforcement in U.S. courts of foreign judgments against the tobacco companies.

5. Ensure full public disclosure of the tobacco company documents now obtained by tobacco litigants and those sought by litigants but currently held by the tobacco companies under claim of attorney-client privilege.

6. Require full public disclosure by the tobacco companies in every country of all political donations and political lobbying efforts.

7. Entitle non-American victims to the same levels of compensation in U.S. courts as American victims, and ensure they maintain comparable legal remedies.

8. Require the U.S. tobacco companies to offer to compensate foreign government health agencies, proportional to their market share (taking into account smuggled cigarettes) and reflecting the formula used to determine their payment to the states for Medicaid reimbursement.

9. Require the tobacco companies to contribute $10 billion annually to the World Health Organization or other agreed upon international agencies for tobacco-control programs. This contribution would not preclude non-American demands for compensation for injuries caused by tobacco.

10. Contain an explicit stipulation by the tobacco companies that they will not claim in any context that settlement terms concerning their overseas sales or operations preclude other governments in any way from adopting laws and regulations more restrictive than those adopted in the United States.

11. Contain an explicit stipulation by the tobacco companies that they will not seek assistance from the U.S. Trade Representative, the U.S. Department of Commerce, U.S. embassies or other U.S. government agencies to resist or repeal other countries' tobacco control regulations and laws.

12. Penalize companies shown to participate in or support international tobacco smuggling.

13. Ensure that international tobacco control advocates be represented on an independent panel to determine the public health consequences of any final settlement.


At first glance, the main industry concessions -- the huge payment, the acceptance of marketing restrictions, the commitment to reduce youth smoking rates, well-funded counter-advertising programs -- appear extraordinary. Upon closer scrutiny, they still appear substantial, but far less revolutionary than original impressions suggest. The most eye-popping provision is the industry's agreement to pay $368.5 billion, an enormous sum by any standard. But the total industry payment quickly shrinks when the fine details of the agreement are reviewed. First, the industry payments are tax deductible. That means taxpayers will pick up approximately 40 percent of the company's tab, reducing the cost to the industry to about $221 billion over 25 years. Second, while the industry payments are inflation-adjusted, they are not discounted to reflect industry returns on investment. With a discount rate of 10 percent (on top of the inflation adjustment), the tax-adjusted cost to industry is $122 billion over 25 years. Still a substantial amount, but much less than the bandied-about figure.

The tobacco companies are expected to meet their payment obligations by passing through the costs and raising the price of cigarettes from 60 to 70 cents per pack. Although it means the payments will come significantly from consumer price increases rather than diminished company profits, this price increase may be the single most salutary result of the agreement. Wall Street analysts estimate it will result in a 10-to-15 percent decline in smoking rates.

The advertising restrictions are also less compelling upon close examination. In the deal, the industry agrees to accept the provisions of the August 1996 FDA rule which were struck down by the federal judge in Greensboro. These provisions include a ban on brand-name event sponsorship, limiting the use of billboards near schools, banning the advertising of non-tobacco products, like clothing and gear, with tobacco names, and limiting advertising in youth-oriented magazines (including such publications as Sports Illustrated). Additionally, in the deal the industry agrees to eliminate all billboard advertising, eliminate the use of human images and cartoons in ads, accept a prohibition on tobacco product placements in movies and on television, and accept a range of other provisions.

In total, the advertising and marketing restrictions go far beyond what U.S. tobacco control advocates envisioned as achievable just a year or two ago. But now that the tobacco control terrain has shifted, many public health critics of the agreement say the industry will easily be able to circumvent the restrictions.

"The advertising requirements in the proposed settlement, as written, will not appreciably inhibit the tobacco industry's ability to influence the 12-to-17-year-old segment of our population," says John Garrison, managing director of the American Lung Association. "In fact, the settlement's ban on the use of human images and cartoon characters in tobacco advertising and promotion would be a mere inconvenience to the tobacco industry."

Other countries' experience with advertising restrictions suggests the tobacco companies are stunningly adept at working around ad limits. In the United Kingdom, for example, tobacco control advocates say a ban on the use of human images has not measurably affected the marketing of Marlboro: Philip Morris has retired the Marlboro Man, but Marlboro Country -- beautiful portraits of the U.S. West -- still appears in Marlboro advertisements that tobacco control advocates say are as effective as any.

Perhaps the most innovative element of the agreement is a "lookback" provision which would require the tobacco companies to pay a fine if they failed to reduce teen smoking rates by 30 percent in five years, 50 percent in seven years and 60 percent in 10 years. The fines would amount to $80 million for each percentage point the industry fell short of the target and would be capped at $2 billion a year.

There are numerous shortcomings to the lookback provision, however, shortcomings so severe that there is consensus in the public health community about the need for reform. The potential fines would work out to little more than a nickel a pack, an amount the industry could easily pass on to consumers. They would not be allocated by company, so the incentive for any particular company to curtail marketing to children may be skewed. And the deal would permit individual companies to apply for a 75 percent rebate of the fine if they could show that they adhered to FDA regulations in good faith.

"As written, the proposal does not include sufficient economic incentives to ensure the industry will meet the targets established in the proposed settlement," asserts the American Cancer Society, one of the few public health groups favorably disposed to a settlement..

There are other benefits to the settlement. While much of the industry's annual payments would go to victims or state government coffers, substantial amounts would go to fund a major counter-advertising campaign and to smoking cessation programs.

Against the moderate public health benefits of the agreement, however, must be weighed the enormous concessions made to Big Tobacco.


From the industry point of view, the key element of the proposed settlement is the settlement of existing suits and effective preclusion of future suits, Wall Street analysts agree. The tobacco companies were willing to negotiate because "of the size and scope of the litigation docket," says Lloyd Brown of Prudential. "They wanted to stop being bothered by all the lawyers," says Alan Kaplan of Merrill Lynch. Although the attorneys general and public health proponents of the deal insist its terms preserve victims' rights to sue the tobacco companies, Roy Burry of Oppenheimer, Inc. provides a more telling assessment. The settlement proposal provides "virtual immunity" to the tobacco industry, he says. Claire Kendrick of Prudential says it affords "litigation protection."

The deal's key provisions on civil litigation would:

The cumulative effect of these limitations is dramatic: with few exceptions, plaintiffs and plaintiff's lawyers will not bring cases. The costs of litigating against the industry are simply too expensive, if those costs cannot be allocated over a broad class of plaintiffs. Any remaining chance that plaintiffs would bring suit would rest on the possibility of recovery of punitive awards -- but those too are forbidden by the settlement.

These provisions effectively deny the victims of the industry -- including the addicted and the involuntary victims of environmental tobacco smoke, who cannot be subjected to the industry claim that they voluntarily accepted risks -- the right to sue the industry.

The civil justice provisions afford the industry one of its most cherished goals: an end to the financial uncertainty associated with the many different suits against the tobacco companies and the accompanying possibility of massive punitive awards.

Finally, notes Ralph Nader, if the worst industry -- the one guilty of the most egregious misconduct -- is able to win effective immunity, it will not be long before every other industry says, "Me, too." Thus one of the unintended consequences of the tobacco deal could be the destruction of the U.S. tort system, one of Big Business' longstanding priorities.


Intertwined with the industry's desire for litigation protection is its overriding concern with preserving its ability to conceal hundreds of thousands of internal documents.

In lawsuit after lawsuit, the tobacco companies have thwarted victims' requests that they turn over documents -- as is normal in the "discovery" period of lawsuits -- on the grounds that those documents are protected by attorney-client privilege or other similar privileges, or because they include trade secrets.

Many observers of the industry believe it has abused the attorney-client privilege claim. Public Citizen explains why, in a July 11 memorandum: "Tobacco companies assert a new version of the privilege: They run much of their research, including that done by their contractors and front groups, past their lawyers; then they claim all of the information about or derived from the research is privileged."

The proposed terms of the deal would enable the tobacco industry to continue to conceal its most important documents for years, and perhaps permanently.

The deal would permit the tobacco companies to withhold from a new central depository of industry documents all of those for which they claim attorney-client, trade-secret or other privileges and protections. The industry would conduct a new review of all the documents for which it claims privilege or trade secrecy. After the review is concluded, public or private parties could challenge claims of privilege or trade secrecy for individual documents. Those challenges would be resolved by a panel of three federal judges.

The scheme is replete with pitfalls, as Public Citizen explains in its memorandum. First, there is no timetable for the industry review of documents; given the industry's record of stonewalling discovery requests, it is fair to suspect the industry will proceed with less than all deliberate speed. Given the enormous number of documents for which the industry has claimed privilege and trade-secret protection -- 500,000 in the Minnesota suit against the industry alone, according to Minnesota Attorney General Hubert Humphrey III -- even a good faith effort would be laborious and very time consuming.

Second, the delinking of the privilege and trade secrecy review from efforts to sue the industry will remove a key incentive for challenging industry claims of privilege. Those who do challenge industry claims of secrecy may not be qualified or highly motivated to do so; and there will be very limited opportunity to appeal decisions. "Indeed," Public Citizen notes, "even an industry ally could raise a challenge, weakly pursue it, and bind everyone else to the decision."

Third, the removal of the privilege review from trial judges to the three-judge panel will take decision-making authority away from judges who are connected with a particular litigated case and may be skeptical of claims of privilege. That authority will instead be lodged in a panel that is likely to be frustrated with the entire time-consuming review scheme. "The real fear is that the panel will take the path of least resistance: uphold industry claims on a broad-brush basis and be done with the matter," asserts Public Citizen.

Attorney General Humphrey has been the champion of the importance of disclosure. The Minnesota suit against the tobacco companies has come the closest of any to prying loose many of the industry's secret documents. Humphrey says the state is on the verge of getting access to, and winning the ability to introduce in court, 33 million pages of top-secret industry documents. Humphrey has seen many of the documents, though he cannot discuss their contents. He says they are not smoking guns, but "smoking howitzers."

In June and August, the public gained a glimpse of what might be contained in the hundreds of thousands of secret industry documents. In June, Representative Henry Waxman, D-California, disclosed documents obtained from the Liggett Company.

Liggett reached a separate settlement with the attorneys general last year, in which it agreed to turn over all of its documents. The other tobacco companies have fought to keep the most important of those suppressed, on the grounds that they describe Liggett's joint defense strategies with other tobacco companies.

The documents Waxman released showed that Liggett attorneys recognized that Liggett had developed a new cigarette with "major health benefits" but advised against introducing it because it "may incite accelerated cancer litigation which may, in turn, result in infinite liability." The attorneys also intervened to prevent Liggett employees from making public statements about tobacco's health effects that would contradict "our position that there is no scientific proof of any cause and effect relationship between smoking and human health."

In early August, eight even more damaging documents were revealed, in connection with the state of Florida's suit against the tobacco companies. One unsigned note from a 1981 meeting of tobacco lawyers says, "Cigarettes kill people beyond a reasonable doubt." An October 1986 memo from R.J. Reynolds says industry lawyers "thwarted the industry scientists' desires to assure the safety of the product by testing ingredients adequately."

In response to the August disclosures, Reynolds released an analysis in which it said the "thwarted" assertion was mistaken. A tobacco industry lawyer told the Washington Post that the note about cigarettes killing people was a mischaracterization.

With increasing attention devoted to the disclosure issue, proponents of the deal began arguing that the documents could show nothing new. Given all that was already known, nothing from the industry could be surprising, asserted Mississippi Attorney General Moore.

But this is an ill-founded claim, critics contend. "It is not possible for negotiators to assess reasonably the value of all present and future class-action suits against the industry without first knowing what damning evidence could possibly be presented in a courtroom and in the court of public opinion for future regulatory initiatives," wrote Ralph Nader in a June 19 letter to settlement proponents. The documents may also suggest important ways industry regulations should be crafted; for example, the industry probably knows more about how to reduce youth smoking than tobacco-control experts.

"Disclosure is vital because, without it, Congress cannot make an informed judgment about whether to approve all or part of the deal and cannot know what kind of protections should be built in to guard against industry efforts to end run any restrictions imposed," argues Public Citizen. "Equally significant, if the Food and Drug Administration is to regulate tobacco products in an effective way, it must know what the industry knows."

But the deal not only does not contemplate disclosure before Congressional consideration of the settlement, it would impede disclosure even after Congressional approval.


Industry's other critical domestic concern is regulation by the Food and Drug Administration. Under the leadership of David Kessler, the FDA began an unprecedented effort to regulate the tobacco industry, on the grounds that cigarettes are nicotine-delivery devices. FDA rules issued in 1996 begin to clamp down on industry efforts to market to children through a variety of initiatives, including a strict limit on the use of vending machines and stricter regulation of cigarette retailers, as well as a variety of restrictions on tobacco advertising and promotions. The likely next phase of FDA regulation of the industry will focus not so much on marketing as on the composition of the product. The most prominently discussed potential regulatory strategy is regulation of nicotine levels in cigarettes. Nicotine is the addictive component of cigarettes. In the run up to the announcement of the deal, every pronouncement from public health and other public interest groups insisted that a minimum condition of any settlement must be that FDA authority remain intact. During the negotiations, the materials released by negotiating parties all suggested FDA authority would be maintained or enhanced.

That authority was confirmed in a Greensboro, North Carolina courtroom in April, when a federal judge ruled against an industry challenge to the FDA's authority to regulate cigarettes. The judge did invalidate the agency's advertising restrictions, however, on the grounds that FDA authority did not cover advertising and promotions. While the case is on appeal, the industry had maneuvered to move the case to North Carolina, Tobacco Country, and to get the particular judge it did. Legal observers generally expect the Greensboro recognition of FDA authority to be upheld.

But the newly confirmed FDA authority was partially traded away in the secret settlement negotiations. The proposed settlement would permit the FDA only to require modifications of tobacco products, including nicotine level reductions, for a 12-year period; only on the brink of the next century's second decade would the agency be permitted to ban nicotine. Even more serious, the deal stipulates that the agency must follow a "formal rulemaking" procedure -- a prolonged, trial-type proceeding -- in adopting any product regulations. The deal also requires the agency to make extremely difficult evidentiary showings before it can even regulate nicotine. Before any nicotine or product regulation can be adopted, the FDA must show the regulation will:

These required justifications for regulation give the industry enormous opportunity to block or at least subject any FDA regulatory effort to interminable delay. Compounding the problem, under the deal a court reviewing the agency's regulatory decision is only supposed to show deference to the agency in its areas of expertise; these areas do not include whether regulations will create a black market. And, compounding the problem still further, the agreement sets the reviewing court's level of deference at a much lower level than is standard. (The agency must show it has "substantial evidence" to justify regulations for the first 12 years, and must meet an even more stringent "preponderance of the evidence" test afterwards; normally, courts will uphold agency action unless it is arbitrary and capricious.)

These restrictions of FDA authority have met with unanimous resistance from the public interest community. David Kessler has led the criticism of this provision. "The proposed settlement compromises the ability of the FDA to effectively regulate nicotine," Kessler told the Senate Commerce Committee in late July. "The public health community, the surgeon generals for the last 30 years, the president of the United States, the FDA and countless others have not spent this past generation fighting this battle, winning now in district court, only to see major parts of what the agency has won taken away."

Even would-be proponents of the deal from the public health community agree this provision must be changed before they can support legislation enacting the settlement. "The procedural hurdles imposed by this section are wholly unjustified from a legal or public health perspective," says the American Cancer Society. The American Medical Association says that giving the FDA the same authority over tobacco as it has over drugs and medical devices is "essential."

President Clinton has similarly stated that the FDA provision should be revised.


ONE OF THE MOST TOUTED FEATURES of the tobacco deal is the prohibition on the use of cartoons or human images in cartoons. It was in reference to this provision that Florida Attorney General Robert Butterworth said, "the Marlboro Man is riding into the sunset on Joe Camel." Proponents believe the ban on cartoons and human images will undercut one of the most important tools available to tobacco companies to hook kids on smoking.

But critics contend that the importance of this provision has been vastly overblown. "There are an infinite number of symbols/images, other than human or cartoon, that are or can be made meaningful to adolescents [and] that when used in a knowledgeable fashion in the creation of cigarette advertising will make a powerful, persuasive connection with adolescents, encouraging them to smoke," writes Penolope Queen, director of brand consultancy for TEAM Strategic International. Queen, former worldwide director of strategic development for Saatchi and Saatchi Worldwide, was commissioned to analyze the cartoon/human image ban by the American Lung Association.

"There is no way to impose effective limitations on cigarette advertisers short of declaring that they may use no symbols/images of any kind in their advertising" -- that is, that they be confined to text-only ads -- Queen concludes. It should be noted that the deal does limit advertising to text only in publications deemed "youth oriented" -- a provision included in an earlier Food and Drug Administration rule now under court challenge.

Many recent tobacco company advertisements conform to the cartoon/human image ban, providing the opportunity to assess how advertisements post-ban might still appeal to children.

Queen analyzed a print advertisement for Camel Lights. The ad features a motorcycle, the wings of an eagle (similar to the Harvey Davidson motorcycle logo), a camel and a black background. The text of the ad says, "Live Out Loud." The camel is adorned with the word "Camel" and the Camel slogan "Genuine Taste."

"The overall effect," Queen writes, "is that the viewer perceives The Camel Brand, and, in particular, Camel Lights, as a brand that stands for individuality, freedom, defiance, doing your own thing, heightened masculinity -- creating an image of anti-political correctness, perhaps even a quasi-outlaw image that closely connects up with the key issues of adolescents and their search for identity."

The motorcycle, she suggests, stands as a symbol of personal freedom and rebellion, masculinity and virility and risk-taking. "Specific focus on the fender and tire portion of the motorcycle as symbols suggests speed, excitement, racing, rallying, competition," she asserts.

The wings of an eagle have symbolic meaning of their own -- connected with strength, pride and freedom -- but have special import because of their association with Harley-Davidson. "The Harley-Davidson brand of motorcycle for young people epitomizes the meanings of `motorcycle' as symbol in American culture today," Queen writes. "It represents a rebellion from mainstream adult culture; heightened individuality; the excitement and raw emotion of the `Harley' sound and speed. ... The Harley-Davidson brand also represents belonging to a very special sub-culture in which each member shares in the camaraderie of The Brotherhood, even Sisterhood, and The Family of Harley-Davidson."

The "Live out Loud" line, Queen contends, is a "motto or potential war cry for adolescence, encouraging young readers to be bold, stand up for yourself, take a position, be assertive, be a man, go for it ... take risks, do your own thing, personal freedom, no matter what the cost."

The symbols and text of the ad, Queen concludes, "synchronize beautifully to create a powerful, compelling, yet unconscious communication to today's youth about the Camel brand."

"The symbolic analysis of this single ad," she notes, "demonstrates how easily it is and will be to create powerful advertising within the new guidelines -- no human images, no cartoon characters -- to effectively reach a youth audience."


From the tobacco industry vantage point, the U.S. market is only half of the game -- and a half of declining importance. The U.S. tobacco multinationals sell approximately two thirds of their cigarettes overseas, and now earn about half their profits outside of the United States. While the U.S. market is flat or declining, international markets are booming. The U.S. companies' exports are shooting up at double digit rates, and prospects are bright in Asia, Eastern Europe, Latin America and Africa. The deal -- perversely called a "global" settlement, although no parties outside the United States were included in the negotiations, nor covered by the terms of the proposed settlement -- does nothing to curtail the companies' overseas sales or activities. None of the restrictions imposed on their marketing or advertising are extended abroad. None of the $368.5 billion is to be devoted to international tobacco control.

According to the National Center for Tobacco-Free Kids, the leading public interest proponent of the deal, the attorneys general and public health negotiators tried unsuccessfully to include international provisions in the agreement. "This is one of a several issues the companies flatly refused to negotiate, despite serious and repeated efforts," according to John Bloom of the National Center.

Many international tobacco control advocates believe the result of this failure to include international provisions is that the deal would actually intensify the tobacco companies' predatory activities overseas. They fear that Big Tobacco will seek to increase earnings abroad in order to pay off its settlement payments at home (see "A Not So Global Deal," Multinational Monitor, June 1997; "International Advocates: `Deal is Unacceptable,'" this issue).

The National Center for Tobacco-Free Kids responds that "U.S. companies are already expanding as aggressively as possible, fueled in large part by their enormous U.S. profits. Damaging the tobacco industry in the United States is, we believe, more likely to help than to hinder international efforts." The Center insists that the deal will actually assist international tobacco control efforts, arguing, "Strong, comprehensive U.S. legislation also could serve as a catalyst for many other nations -- not by providing the maximum that any other country should attain, but a minimum."

Unfortunately, there are provisions in the deal that may directly hinder international tobacco control efforts. The provision on FDA authority specifies that the "scope of FDA authority" extends to "all product sold in U.S. commerce." As Brion Fox, James Lightwood and Stanton Glantz of the Institute for Health Policy Studies at the University of California, San Francisco point out, this appears to preclude the FDA from regulating tobacco company exports.

Professor Marc Galanter of the University of Wisconsin points out that a provision on bankruptcy specifies that if the tobacco companies declare bankruptcy, only entities selling into the U.S. market would continue to have settlement payment obligations. This provision may create the possibility of unforeseen industry mutations in the event that the settlement or other regulatory or other developments actually forces a stark reduction in domestic tobacco consumption. The tobacco companies may be able to separate their domestic and international operations, and direct profits from overseas activities directly into shareholders' pockets, bypassing the settlement payment scheme altogether.

There is little prospect of these matters affecting the Congressional debate over the settlement proposal, however. While Senator Ron Wyden, D-Oregon, Representative Lloyd Doggett, D-Texas, and a handful of others have raised the international issue, it is off the radar screen of most members of Congress.


The deal provides "global peace" to the industry. It provides certainty as to its financial future, its litigation future, its regulatory future. What is critical to Big Tobacco, says Mark Cohen, an industry analyst with Goldman Sachs, is that "it will provide an atmosphere which is more predictable, so that [the companies] can go about planning and making their financial commitments with greater certainty." Public health proponents of the deal are willing to afford the industry this certainty, in exchange for what they perceive to be certain and immediate gains. Three thousand (U.S.) children become addicted to tobacco every day, they continually point out, and any delay theoretically sacrifices thousands of children.

But, in addition to overstating the likely benefits of the positive provisions in the deal, they may be trading away more than they realize.

Tobacco control efforts on multiple fronts -- diverse private and state lawsuits based on varied theories, federal regulatory initiatives, local and state tobacco control innovations, ongoing document disclosures, new requirements for ingredient disclosure, criminal investigations against the industry, whistleblower revelations -- combine into a whole greater than the sum of the parts. With initiatives targeting the industry from all sides, Big Tobacco has retreated into an ever more defensive posture. Even the tobacco companies do not have the resources to combat all of the varied initiatives effectively. Moreover, the different tobacco control efforts feed each other: lawsuits generate document disclosures, which encourage new regulatory efforts, which heighten public interest, and so on. In the process, the social stigma attached to smoking increases, which may be one of the most important ways to curtail tobacco consumption rates.

Combined, these various initiatives have created a political momentum against the industry which has radically altered the terms of the possible in tobacco control. Absent a legislatively imposed settlement, that political momentum is likely to continue to build -- especially if current or former tobacco industry executives are indicted for fraud and misleading Congress -- and the public health gains in the settlement may soon be achievable without any concessions to industry.

As Minnesota Attorney General Humphrey said in June, "Six months ago, the private attorney who now reportedly represents 20 states said in the Wall Street Journal that the campaign against Big Tobacco had `reached a high-water mark.' `It's foolish not to settle now,' he was quoted as saying. If we'd settled then, we would have missed the historic settlement admissions by Liggett & Myers, the North Carolina judge's confirmation that nicotine is a drug and cigarettes are subject to full FDA regulation. We would have missed the Baltimore billboard cases, the Massachusetts additives case, and the sight of a retired senior executive of Philip Morris taking the fifth in one of four federal criminal grand jury proceedings." Nineteen ninety-seven has also witnessed: the disclosures by Representative Waxman of Liggett documents detailing suppression of research the company thought would reduce harm from cigarettes by as much as 90 percent; the publication of new scientific research on the effects of environmental tobacco smoke and ammonia additives; the disclosure of the Florida documents; the filing of a new round of lawsuits against the tobacco companies by union health and welfare funds; R.J. Reynolds' withdrawal of Joe Camel from the U.S. market; the passage of a 15 cent-a-pack tobacco tax (albeit one that will offset the companies liability under a settlement, if one is enacted).

"The choice is not between the a stagnant status quo and the terms of the settlement," Ralph Nader wrote in his June 19 letter. "Rather, it is between a dynamic current environment in which tobacco control forces are gaining ground daily and a settlement which will effectively freeze tobacco control efforts for the foreseeable future."


Fresh from finishing with the budget and the tax bill, the tobacco deal will be high on Congress's agenda when the members return from their August recess. The terms of the debate to occur are now relatively clear.

The tobacco industry will lobby for passage of the deal in its current form. The attorneys general will probably ally themselves with the industry, though they will not be adverse to minor modifications of the agreement -- as long as those modifications do not cause the industry to walk away from the deal altogether.

The National Center for Tobacco-Free Kids, the American Cancer Society, the American Heart Association and the American Medical Association will lobby for passage of a bill that incorporates the terms of the deal, but strengthens the FDA and lookback provisions. President Clinton is likely, though not certain, to ultimately fall in this camp.

The overwhelming proportion of the public interest community will oppose the deal altogether, rejecting it as a starting point for a tobacco control strategy. Some will call for abandonment of the deal and urge instead adoption of a tobacco control strategy based on the Koop-Kessler Advisory Committee blueprint. Others, skeptical that any positive tobacco control legislation, will simply call for a return to the status quo, with the dozens of state cases proceeding ahead.

This camp appeared strengthened in late July, when Koop and Kessler called on Congress not to be bound by the terms of the deal, but to enact comprehensive tobacco control measures apart from a legislative settlement of the state and private suits.

The tobacco companies clearly have the power to veto any legislation not to their liking. And while some believe the companies may be willing to make much more concessions before walking away from the deal, hardliners among the tobacco executives -- notably Martin Broughton, head of BAT, parent company of Brown & Williamson, who has said the deal is a take-it-or-leave-it proposition -- may torpedo any legislation that extracts more from the companies.

The second grouping also has veto power -- President Clinton will not support legislation that fails to garner any support from prominent public health groups -- though it may not be will willing to exercise this power, if the consequence is that there be no final legislation.

The level of influence of the outright opponents of the deal is uncertain. Support from Kessler and Koop strengthens their sway. But the real determinant will be their ability to convince the public that the deal is a bailout for the industry and their degree of success at mobilizing public opposition to the deal.

Although they may be politically weakest of the three camps, time favors the outright opponents. The Minnesota case against the industry is scheduled to go to trial in January 1998. If the documents Minnesota Attorney General Humphrey has obtained are anywhere near as explosive as he claims, and Minnesota lawyers are able to introduce those documents in their case, the backdrop against which the proposed settlement legislation will be considered will shift suddenly, and the entire agreement is likely to collapse.

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