[Intl-tobacco] Canada may appeal U.S. tobacco decision (fwd)

[Robert Weissman]

Canada may appeal U.S. tobacco decision
by Randall Palmer
Source: Reuters, Wednesday, 7/5/00

OTTAWA, July 5 (Reuters) - The Canadian government said on Wednesday it
might appeal a U.S. court decision dismissing its $1-billion lawsuit
against RJ Reynolds Tobacco Holdings (NYSE:RJR - news) and its affiliates.

The court decision, made public on Tuesday, openly hinted at one area
where it was open to challenge -- a centuries-old English rule that
prohibits U.S.  courts from acting as another country's tax collector.

``We're reviewing the decision. An appeal is not out of the question,''
said Farah Mohamed, a spokeswoman for Canadian Justice Minister Anne
McLellan.  ``Certainly we feel that we have a very strong case and we'll
have to look at it in that light.''

Meantime, the tobacco industry hailed the ruling as a victory. Rob Parker,
president of the Canadian Tobacco Manufacturers' Council, declared: ``It's
a massive defeat for the government, and an embarrassing one for them.''

Parker also pointed out that in February a British Columbia court declared
that province's efforts to seek damages for the public health costs of
smoking-related illnesses were unconstitutional.

However, British Columbia is relaunching its lawsuit, minus the portion of
the case struck down by the court, and may be joined in the legal action
by Newfoundland. Ontario is also suing the tobacco industry, but in U.S.
court.

Ottawa launched its U.S. suit in December, accusing RJ Reynolds and its
Canadian subsidiary, RJR-Macdonald, of smuggling cigarettes into Canada,
thereby undermining anti-smoking policies and adding to health and
enforcement costs.

RJ Reynolds sold its Canadian unit, RJR-Macdonald, and other international
operations to Japan Tobacco Inc. last year, but retained all liabilities
that might arise from the smuggling investigation.

U.S. District Court Judge Thomas McAvoy in New York state said the lawsuit
ran afoul of a 1700s English rule adopted by the United States -- the
``revenue rule'' -- which prohibits U.S. courts from being used to collect
another country's revenue.

A lawyer at Canada's Justice Department, Gordon Bourgard, said in a
statement:  ``In its ruling the court did not address the factual merits.
Rather it dismissed the lawsuit based on a rule of law that has been
called into question by several courts.''

McAvoy himself hinted he would like to see the issue of the continued
validity of the revenue rule decided at a higher level of the U.S. justice
system.

He said in his ruling that if it were within his legal jurisdiction, he
``would be inclined to find the revenue rule outdated,'' at least in some
instances.

Bourgard said: ``Obviously we are disappointed with the ruling but it's
important to remember that when reading this ruling, the judge did not
deal with the factual issues of the claim. This lawsuit was filed only
after substantial investigation convinced the Canadian government it had a
strong and meritorious case.''

The suit alleged that Canadian cigarette makers attempted to defraud the
government of tax revenues in the early 1990s by shipping cigarettes to
the United States and then smuggling them back into Canada, especially
through Indian reserves straddling the border.

Ottawa hiked tobacco taxes sharply in 1989 and 1991, partly in an attempt
to curb smoking among teens and young adults. But the flood of illegal
cigarettes prompted the government to roll back taxes in eastern Canada in
1994 to take away the incentive for smuggling, a move many critics have
blamed for a subsequent rise in youth smoking.

Since the Canadian case was filed under the U.S. Racketeer Influenced and
Corrupt Organisations (RICO) Act, if it were successful it could result in
an award triple the actual damages -- meaning a possible windfall of $3
billion.

The case is being closely watched by other countries. Similar suits have
been filed in U.S. courts by Ecuador and by Colombia's provincial
governments.

(Additional reporting by Allan Dowd in Vancouver)