TOBACCO BLACK MARKET RISE PREDICTED

WASHINGTON--Answering critics of legislation aimed at curbing teen smoking,
the Clinton administration says lawmakers could control any black market
for tobacco products by taking a page from alcohol regulation, licensing
every link in the chain of distribution. "The creation of a sound
regulatory system -one that will close the distribution chain for tobacco
products -will ensure that the diversion and smuggling of tobacco can be
effectively controlled," Lawrence Summers, deputy secretary of the
Treasury, told a Senate panel Thursday.

But the tobacco industry says otherwise in new television ads that accuse
members of Congress and the White House of courting a black market,
increased crime and teen smoking by supporting a Senate tobacco bill.

Suggesting that beefed-up enforcement would solve the problem is a big step
in the right direction, said industry spokesman Scott Williams. "The
administration just admitted that the threat of a contraband problem is
real," he said of Summers' proposal. Meanwhile, President Clinton extended
an olive branch to the tobacco industry by inviting companies to come back
to the negotiating table to help write legislation to cut teen smoking.

"I would hope that before this is over, they would come back and rejoin the
negotiations," Clinton said. "I think it would be better if they were at
the table."

He also said lawmakers and political parties should not accept
contributions from tobacco companies. "Until we get this matter resolved
with the teen smoking, I think it would be better if none of us did," he
told a news conference.

The chasm between Washington and an industry that for decades wielded
virtually unequaled power here split wide open three weeks ago when tobacco
company executives rejected Congress' leading tobacco bill. Sponsored by
Sen. John McCain, R-Ariz., who chairs the Senate Commerce Committee, the
measure would cost tobacco companies $516 billion over 25 years, sharply
raise cigarette prices and curtail the industry's marketing ability.

Tobacco executives say that bill would drive companies out of business,
make their product unaffordable and spawn a black market beyond the
government's control. Contraband, they say, would cause all manner of
societal ills, from gang members hawking smokes to kids to a spurt in
organized crime.

A federal law adding $1.10 to the price of cigarettes would result in a
pack costing $5, once wholesalers and retailers add their own increases to
make up for reduced demand, the industry says. That $5 is well above the
level at which a black market would be created, cigarette-makers contend.

The Treasury Department disputes that calculation, saying the bill would
result in a price closer to $3.50.

At a Senate Judiciary Committee hearing Thursday, Democrats and the
administration went further, accusing the industry of participating in the
existing black market.

"Haven't the tobacco companies been shown to be complicitous in some of the
smuggling efforts?" Sen. Richard Durbin, D-Ill., asked. He held up news
reports saying U.S. American tobacco companies and employees were involved
in smuggling.

"In some cases, there was complicity," replied Lawrence Summers, deputy
secretary of the Treasury. "There is no way in our judgment that
substantial smuggling of tobacco products could take place without the
complicity of those in the industry." Williams denied the charge.

"They wouldn't support or condone breaking the law," Williams told
reporters. "The black market hurts the tobacco companies. They lose sales."

Sen. Orrin Hatch, R-Utah, who chairs the Senate Judiciary Committee,
counseled caution. "If the companies become bankrupt or move offshore, it
is a whole new ballgame, and one which we cannot control," he said.

Summers' proposal for strictly licensing all levels of the tobacco industry
did not come with an estimated cost or a way to pay for it. The proposal,
likely to be offered as an amendment to McCain's bill, would target
manufacturers, wholesalers, exporters and importers, requiring federal
licenses. Every retailer would have to get a state license.

The proposal also would require that tobacco products be marked for
domestic distribution or for export, to ensure that excise taxes are
collected.

Critics, such as Sen. Dianne Feinstein, D-Calif., called the proposal
naive, saying other areas of the law already are too weak to prevent
Mexican cigarettes from crossing the border into her state.

Copyright Los Angeles Times