Big Tobacco's Ruse

[Robert Weissman <rob@essential.org>]

In the two weeks since they announced they are walking away from the
negotiations over tobacco legislation, Big Tobacco has taken an
unprecedented pounding. 

The Clinton administration, members of Congress from both parties and the
media have lined up to take potshots at the tobacco industry's shocking
display of arrogance -- after all, under the constitution, corporate CEOs
do not have a vote in Congress, nor do they share the president's veto
power.

It has been the best two weeks Big Tobacco has enjoyed in a long time.

By denouncing legislation introduced by Senator John McCain, R-Arizona, as
an extremist, "big government" approach that is likely to bankrupt the
industry, the tobacco merchants have succeeded in luring in many into a
defense of the McCain bill.

That is exactly what the industry hoped to accomplish. Big Tobacco cannot
help but be happy with the McCain bill, which grants the industry a wide
array of concessions and protections. But it knows the best way to
generate support for the bill is to pretend to oppose it -- an industry
endorsement would be the kiss of death for any legislation on Capitol
Hill.

Here are some of the reasons why the industry loves the McCain bill:

* A cap on liability: The McCain bill specifies that the tobacco companies
cannot pay more than $6.5 billion a year in damages in civil lawsuits.
This lets the tobacco companies predict future expenses -- their most
cherished goal, because the uncertainty surrounding litigation and the
potential of huge punitive damage awards keeps tobacco stock prices
depressed.

* Consumers pay, not the companies: The McCain bill requires the companies
to make annual payments to the government, and to pass through the costs
to consumers. All proposed tobacco legislation would, through "pass
throughs" or direct taxes, raise prices for consumers, so this is not
unique to the McCain bill. But it does put the lie to the industry's claim
that tobacco companies may face bankruptcy under the bill. It is consumers
who will pay the costs, not industry (although resultant sales volume
declines may lower the companies' profits).

* An exemption from the nation's antitrust laws: The antitrust exemption
will permit the companies to collude to raise prices more than required --
meaning the industry may actually profit from the legislation.

In a September 1997 report, the Federal Trade Commission (FTC) concluded
that similar antitrust immunity provisions in the June 20, 1997 state
attorneys' general deal with the tobacco industry "may permit the industry
members to discuss pricing arrangements that reach beyond the amount of a
100 percent 'pass-through' to consumers of the cost of the annual
payments."

The FTC concluded that, with the June 20 settlement's antitrust immunity,
"the industry may be able to increase prices and generate substantial
profits." 

* Payments under the McCain bill are tax deductible: That means taxpayers
will cover the cost of about 40 percent of the industry's payments -- even
though consumers, not the companies, will really be paying the McCain
bill's costs. This is an enormous opportunity for company profiteering.

* Big Tobacco's real assets shielded: The McCain bill would permit only
domestic tobacco manufacturing subsidiaries to be sued. The parent
companies and the foreign subsidiaries of Philip Morris and R.J. Reynolds
would be completely protected from litigation. That means tobacco company
victims would be denied access to most of the assets and earnings of the
tobacco company conglomerates (Philip Morris already earns more than half
of its tobacco profits from overseas sales, and the portion is growing).

* Preemption of State Action: The McCain bill would prevent states from
enforcing regulations stronger than those in federal legislation through
civil suits against the tobacco companies. That would deter states from
trying to innovate more effective regulatory measures. Other preemptive
provisions in the McCain bill would also undermine community and state
campaigns to control the tobacco companies.

Congress, the media and the public shouldn't be fooled by Big Tobacco's
ruse. It is time to pass tough tobacco legislation -- without worrying
about industry's support, and without providing sweetheart deals to the
Tobacco Lords. If Congress cannot pass broad legislation to control the
industry, then it should pass more focused legislation -- including, for
example, a tax increase, affirmation of Food and Drug Administration
authority to regulate tobacco and international measures -- that doesn't
confer any special protections and benefits on the Merchants of Death.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
reporter. Robert Weissman is editor of the Washington, D.C.-based
Multinational Monitor and co-director of Essential Action, a corporate
accountability group.

(c) Russell Mokhiber and Robert Weissman

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