TOBACCO DEAL UP IN SMOKE, MAKERS SAY

Firms Say Federal Pressure Too Harsh, Jeopardizing Last Year's Pact With States

WASHINGTON -- The nation's major cigarette makers sounded a death knell
yesterday 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 they would walk away. But yesterday,
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."

"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 yesterday 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 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 to 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.