Tobacco companies say deal is up in smoke

Thursday, April 9, 1998

WASHINGTON — The nation’s major cigarette makers sounded a death knell Wednesday for last summer’s historic tobacco settlement, saying Congress has twisted their offer to help cut teen smoking into a harsh attack on their industry and sharp tax increases for American smokers.

Led by Steven Goldstone, head of No. 2 tobacco maker RJR Nabisco, the companies vowed to fight efforts by President Clinton and Congress to increase prices and fashion tougher restrictions on advertising.

“Those price increases will destroy the domestic tobacco business, and I don’t just mean my company,” Goldstone told the National Press Club.

But Clinton and congressional leaders insisted they will press forward with efforts to pass a comprehensive law meant to curb teen smoking and compensate states for treating sick smokers–with or without the industry’s cooperation.

“They can be part of it or they can fight it,” an angry Clinton said on his return from a trip to Chicago. “I think they ought to rethink their position because we’re going to get this done one way or the other.”

The companies had warned for weeks that they would walk away. But on Wednesday, Goldstone said the process was “broken beyond repair.”

“We have failed in our effort to achieve a comprehensive resolution of the contentious issues surrounding tobacco in our country,” he told the National Press Club.

The leading proposals in Congress would raise cigarette prices too much, he said, without regard for adult smokers and businesses that depend on tobacco sales.

“Washington has rushed to collect more tobacco revenues while playing the politics of punishment,” said Goldstone, whose company, R.J. Reynolds Tobacco Co., makes Winston and Camel brands.

White House spokesman Mike McCurry said Goldstone’s remarks show how worried the tobacco industry is that Congress will pass tough legislation.

“It’s a mark of how serious the effort is in Congress,” he said.

The leading Senate bill, sponsored by Sen. John McCain, R-Ariz., would cost the industry $506 billion and force tobacco companies to curb advertising that critics say helps lure teens to smoke. It overwhelmingly passed a Senate committee last week.

It is tougher than the settlement tobacco companies negotiated with states and public health advocates last June. That deal–had Congress approved it–would have given the industry significantly more legal protection from product liability suits and would have cost companies $368 billion.

McCain agreed with Clinton that the effort will continue with or without industry support. “In the most charitable terms that I can describe it, the tobacco companies do have an enormous credibility problem,” he said.

Rep. Tom Bliley, R-Va., chairman of the House committee responsible for tobacco legislation, said he still expects Congress to pass a strong bill aimed at reducing teen smoking.

“We have lacked strong leadership from the president; now we don’t have the cooperation of the tobacco industry,” he said. “That is unfortunate, but not a reason for inaction.”

“Tobacco companies are not in a position to dictate to Congress,” said Rep. Henry Waxman, D-Calif., a longtime tobacco foe. “We don’t need their permission.”

But Congress might need the industry’s cooperation to ensure that advertising restrictions are implemented. Tobacco companies have fought these restrictions in court before, saying the Constitution protects their right to free speech.

Goldstone said his comments Wednesday were not coordinated with other tobacco companies, but other companies immediately endorsed them.

“It would be irresponsible–to our customers and our company–to agree to the kind of proposals now before Congress,” said Lorillard Tobacco Co.

Philip Morris, maker of No. 1-selling Marlboro cigarettes, said a solution is “no longer possible” and promised to fight McCain’s bill. “We regret that a historic opportunity to resolve decades-old controversies surrounding tobacco has been lost,” the company said in a statement.

The tobacco companies began that fight with a full-page ad in today’s Washington Post. “Regrettably we believe the political process has ended any prospect for achieving a rational, comprehensive tobacco solution,” said the ad, signed by Philip Morris, Lorillard and Reynolds, along with Brown & Williamson Tobacco Corp. and United States Tobacco Co.

The companies said the legislation being considered by Congress is unconstitutional and would impose new taxes on Americans, allow an unelected federal agency to make it illegal for adults to buy tobacco products, create a “black market” in tobacco products, establish 17 new federal bureaucracies, and “devastate” the tobacco industry.

“We agreed to fundamental change in the way we do business, but we cannot agree to changes that would put us out of business,” the companies said.

The industry continues to face a host of lawsuits from states looking to recover the costs of treating smoking-related illnesses. Legislation would have settled those suits, but state attorneys general said that if no national deal is reached, they will move forward in the courts.

A handful of states have already settled individually with the companies, collecting money but failing to impose the broad national restrictions possible under a congressional deal.

Goldstone said he hasn’t decided whether to try and settle those cases out of court but said his instinct is to continue fighting.

Tobacco stocks, which had fallen about 15 percent in recent weeks as tough legislation gathered support in Congress, were up for the day. RJR Nabisco held on to a $1.06 increase, and Philip Morris was up $2.25 a share.

Goldstone accused the administration, Congress and public health advocates of undercutting the deal by demanding more than the industry agreed to in June.

“The administration, while publicly praising the concept, privately dismantled it piece by piece,” he said. “This resolution cried out for strong, bold political leadership. Precious little was forthcoming.”

But he said the industry also shouldered some of the blame for misunderstanding public anger about past industry practices such as targeting young people.

“(We) did not fully appreciate the depth of the mistrust and anger that existed,” he said. “We did underestimate … how angry people have been over this issue.”