[Intl-tobacco] Judge Strikes Blow to Canadian Smuggling Suit in US

[Robert Weissman]

Judge Strikes Blow to Tobacco Suit
Source: Reuters, Tuesday, 7/4/00

VANCOUVER, British Columbia (Reuters) - A U.S. District Court judge has
struck a blow to Canada's $1 billion lawsuit against RJ Reynolds Tobacco
Holdings (NYSE:RJR - news) that accused the tobacco giant and its
subsidiaries of cigarette smuggling.

Judge Thomas McAvoy said the lawsuit ran afoul of a 1700s English common
law rule adopted by the United States that prohibits its courts from being
used to collect another country's revenue. McAvoy handed down the decision
Thursday but it was not made public until Tuesday.

The ``Revenue Rule'' has been criticized as outdated in the modern era of
closely-linked national economies and tax treaties, and McAvoy's ruling
hints he would like to see the issue of its continued validity decided at
higher level of the U.S. justice system.

McAvoy, who sits on the U.S. District Court for northern New York state,
said if it were within his legal jurisdiction, he ''would be inclined to
find the Revenue Rule outdated'' at least in some instances.

Canada filed suit in December alleging that cigarette makers attempted to
defraud it of tax revenue in the early 1990s with a scheme that shipped
Canadian brands of cigarettes to the United States and then smuggled them
back into Canada.

The smuggling of over cigarettes into Canada ran rampant in the early
1990s as Canadians attempted to avoid high taxes that were designed to
reduce smoking.  The flood of illegal smokes eventually forced the taxes
to be reduced.

The civil lawsuit, which also named the Canadian Tobacco Manufactures
Council, accused the tobacco maker of breaking U.S. anti-racketeering laws
and sought compensation for the lost tax revenue.

McAvoy's 55-page ruling dismissed the lawsuit at the request of the
defendants, although he sided with Canada on several legal points and
acknowledged that Canada suffered economic harm.

A copy of the ruling was first obtained by the French language
broadcasting service Radio Canada.

Efforts to reach the tobacco makers for comment on the ruling were not
immediately successful.

Fred Bartlit, the private attorney in the United States representing
Canada, said on Tuesday that he had only just received a copy of the
ruling and no decision had been made on filing an appeal.

RJ Reynolds International sold its Canadian unit, RJR MacDonald, to Japan
Tobacco Inc (2914.T) last year, but retained all liabilities that might
arise from the smuggling investigation.