Analysis: With White House Skeptical of Pact, Industry Faces Tough Test

By BARRY MEIER

As cigarette industry representatives meet on Tuesday with a special White
House task force reviewing the proposed tobacco accord, they are likely to
find a more skeptical audience than they did during settlement talks with
state attorneys general.

Both industry and state officials have argued that the $368.5billion pact
is a major step toward reducing the health threats posed by smoking. But
last week, President Clinton rejected a part of the plan that would have
required federal regulators to prove that reducing nicotine levels in
cigarettes would not create a black market for fullstrength products.

Now, after months of negotiations, the proposed accord is likely to face
tough tests on the issue that matters most to industry: the ultimate
pricetag for congressional legislation that will buy it peace and
protection from tobacco litigation.

"For industry, money is the bottom line," said one source who participated
in the negotiation.

In a meeting two weeks ago, Bruce Lindsey, the deputy White House counsel,
told industry lawyers that the blackmarket provision and other aspects of
the plan like the amount of money cigarette companies will pay in fines
if youth smoking fails to fall may prove problematic. Now the White
House task force, which is headed by Donna Shalala, secretary of health and
human services, and Bruce Reed, the president's chief domestic policy
adviser, is scrutinizing the 68page settlement for problems in a process
expected to take a few weeks.

"We are looking at every aspect of this, from punitive damages to the
economics of it," Shalala said recently. "But most important is whether it
works to achieve our goals in public health."

Under the proposed settlement, which was reached on June 20 and which must
be approved by Congress, the industry agreed to pay tens of billions of
dollars to settle state lawsuits seeking to recover smokingrelated health
care costs; to restrict its advertising, and to help public health
advocates work to lower youth smoking. In exchange, the industry would
receive protections from some smokingrelated lawsuits and punitive damages.

Industry officials have said they are not likely to walk away from the
proposal solely because of how the blackmarket issue is resolved. But the
dispute over the provision may foreshadow some of the troubles that lie
ahead for the proposal.

Lindsey said in a telephone interview on Sunday that before the plan was
publicly unveiled, he was told that the Food and Drug Administration would
have the authority to require a lower nicotine content in tobacco products
if it could show that such a step was supported by science, was technically
feasible and would not create a black market in such products.

But Lindsey said that after FDA and Justice Department officials more
closely examined the proposal, they discovered that the language on the
blackmarket issue tilted the playing field in industry's favor by
requiring the agency to meet an unacceptably tough legal test before
ordering lower nicotine levels.

"Placing the burden on the agency pushed this one over the top," Lindsey
said.

The White House panel is examining the settlement proposal with new eyes
and far different emotions that those involved in drafting the plan. And
many of over 50 officials on the panel from agencies including the FDA,
the Centers for Disease Control and the Treasury and Justice Departments
are eager to put their own imprint on any legislative proposal that may
emerge.

"There are panel members who think that industry is trying to write its own
regulatory blueprint and others who think that the proposal is an
opportunity that we can't afford to let go by," one source familiar with
the panel said.

Among the issues that may prove particularly nettlesome to the industry is
the question of the amount of fines the industry would pay if specified
goals in reducing youth smoking are not met.

While the proposal put a $2billion cap on the amount of such fines, David
Kessler, the former FDA commissioner, and other public health advocates
have said the fines should be unlimited and made specific to companies so
that industry leaders are not penalized for the efforts of laggards. One
administration official, speaking on condition of anonymity, said that
making the penalties taxdeductible, which the proposal does, waters down
its sting for industry.

"If a penalty is taxdeductible, the value of it is a third less than it
would otherwise be," that official said.

In their meeting on Tuesday with the White House panel, industry lawyers
who helped negotiate the proposed accord are expected to make their case
for it and answer questions posed by government officials. But industry
officials, speaking on the condition of anonymity, said they would fight
any moves that would significantly increase the settlement's price tag.

"We are giving the health community everything they have always said would
work to reduce youth smoking in terms of billboards, advertising and
countermarketing," said one tobacco company official, referring to aspects
of the proposal. "But then if it doesn't work out that way, I don't
understand why we should pay more for doing what they wanted."

During the tobacco negotiations, Philip Morris Cos., the dominant company
in the cigarette industry, clashed with its smaller rivals over the issue
of money, said people close to the talks. And the resources of some
companies to pay more may also be strained.

For example, RJR Nabisco Holding Corp., the parent company of the R.J.
Reynolds Tobacco Co., will make a far smaller contribution to the first
$10billion payment if the settlement is approved than its market share
would dictate because of its shaky finances.

The recommendations of the review panel are not expected to reach the White
House for several weeks. At that time, Lindsey says, it will be the
administration's turn to decide what to do next before helping to cement
the nation's policy on tobacco for decades to come.

"We need to look at this from every possible direction and for every
possible consequence before we decide whether to sign off on it or not,"
Lindsey said.

Copyright 1997 The New York Times Company