Clinton Reneging on Tobacco Deal, Firms Say

Tobacco companies on Wednesday fired off a strongly worded letter accusing the White House of reneging on terms of a giant tobacco truce and of trying to drive the price for peace so high that “it would almost certainly result in industry bankruptcies.”

The three-page letter said the Clinton administration had helped work out terms of the proposed $368.5-billion tobacco settlement, but now is seeking to raise the costs beyond cigarette makers’ ability to pay while all but eliminating the liability protections that prompted them to negotiate in the first place.

This raises “questions as to whether the White House is serious about wanting a comprehensive resolution,” the letter says.

But a White House official disputed the charge that the administration had suddenly changed course. “We fully expect to disagree with the tobacco industry in this process--that’s hardly surprising,” said spokesman Barry Toiv.

The letter, hand-delivered to the White House late Wednesday, was signed by top industry negotiator J. Phil Carlton and addressed to White House policy advisor Bruce N. Reed, who is on vacation.

A source said it was also faxed to Air Force One in Africa, where President Clinton and Deputy White House Counsel Bruce R. Lindsey are on a 12-day tour. Lindsey was the administration’s point man in monitoring settlement talks between the industry, state attorneys general and private anti-tobacco lawyers.

But the industry’s message was aimed as well at key senators and aides who are attempting to craft the first major bipartisan bill to incorporate, and likely go beyond, the industry’s concessions in the June 20 deal. Working virtually around the clock, they are trying to complete a draft bill by next week.

While not explicitly threatening to fight tougher proposals, the letter says tobacco firms “will not be able to participate in any resolution that is too expensive financially or leaves the industry without civil liability protections.”

“I think they’re [the industry] very close to walking,” said John Coale, a negotiator for anti-tobacco lawyers with pending class-action suits against the industry.

The companies are “drawing lines,” he said. “They’re saying, ‘Look, enough’s enough.’ ”

Aides to senators said that, to some extent, the industry was posturing in the letter. “I don’t know what their bottom line is,” one aide said.

The industry fears the erosion of its position in two crucial areas: the cigarette price increase to be imposed by legislation and the legal protections it would get, if any.

Under terms of the June 20 agreement, the industry would have to raise the price per pack of cigarettes an estimated 65 cents to 70 cents to raise billions of dollars each year for health care and anti-smoking initiatives. But the White House has proposed a payment scheme that would assure the government gets $1.10 per pack to fund domestic programs and discourage youth smoking. And Senate Commerce Committee Chairman John McCain, a key player, said Wednesday that $1.10 was “the target.”

In the letter, the industry said it always assumed its 65-cent hike would mean an increase at the retail counter of at least $1.10 because wholesalers and retailers would increase their markups and state excise taxes would rise.

However, the administration’s call for bringing the government an additional $1.10 per pack means that the retail price would grow by as much as $2.40, according to the letter, which would cause sales to plummet and “almost certainly result in industry bankruptcies.”

The agreement would also shield the industry from future class-actions and lawsuits by the states, and bar individuals suing the companies from seeking punitive damages. This is an “area of the settlement in which the White House was involved in helping . . . to work out the details,” the letter claims.

But it says the industry is alarmed by reports that the White House is lobbying against all of these protections and is willing only to support a cap on the amount of damages the industry must pay in any one year.

“We do not understand why the White House is taking a radically different position” than it did before, the letter says.

But Toiv said that while the June agreement “helped to create an historic opportunity to help kids . . . we’ve always said significant changes needed to be made.”

Coale said the letter was meant as a reality check for negotiators in the White House and on Capitol Hill. “Hopefully, people will . . . get back to reasonableness” or “it’s back to scorched earth for the industry and the trenches for the litigators.”

With the industry’s power in Congress ebbing, many tobacco foes contend that strong anti-smoking legislation can be passed without concessions to the industry.

But that is a pipe dream, said industry spokesman Scott Williams. “The tobacco industry might not be the most popular kid on the block but you cannot do comprehensive legislation without them as an active and supportive participant.”

For example, according to Williams, without gaining some benefit, the industry won’t agree to stringent advertising curbs that it offered in the deal but that might be unconstitutional if imposed by Congress.

* INDUSTRY DEFENSE: Historian testifies Minnesotans knew about tobacco threat. D1