Tobacco: The Fire This Time

Cigarette makers now face FDA oversight

The next battle in the tobacco wars is about to erupt. Any day now, the Food & Drug Administration is expected to rein in the tobacco industry by asserting jurisdiction over cigarettes and other products. Sources say the new rules will mirror regulations the agency originally proposed last August. The goal: to slash smoking by adolescents in half within seven years by eliminating vending machines, billboard advertising, and many forms of promotion aimed at youths. If it goes forward, FDA officials believe, the plan could eventually whittle down the nation's annual $50 billion medical bill from tobacco-related illnesses by preventing teenagers from getting hooked in the first place.

Powerful political winds are gusting up behind the proposal. As the Presidential race heats up, tobacco regulation is turning into a campaign issue. When Bob Dole casually suggested in June that nicotine was not addictive and that the FDA should just butt out, gleeful Democrats quickly trotted out ads saying that Dole is standing idle while 3,000 kids a day start a habit that will kill one-third of them. "If Dole loses, a lot of it could be his statement on tobacco," frets Representative Linda Smith (R-Wash.).

Indeed, public outrage at Big Tobacco appears to be rising. According to a new Charlotte Observer/WSOC-TV poll, 48% of voters even in tobacco-growing South Carolina favor FDA regulation. Adding to the momentum, plaintiffs' lawyers and journalists have recently unearthed several documents indicating the industry targets underage smokers. One 1973 R.J. Reynolds Tobacco memo, for instance, discusses marketing to the "`21 and under' group." A company spokesperson says the document is a draft and that none of its proposals were adopted.

TWISTING ARMS. But this pro-regulatory juggernaut is heading toward an industry primed for war. Although the expected regulations themselves won't have much of an economic impact on tobacco, the industry wants no part of FDA control. Tobacco executives claim--despite repeated assurances to the contrary by agency chief David A. Kessler--that the current plan is merely a first step to much tighter constraints. Tobacco will never be able to meet the FDA legal requirement for medical devices of being "safe," admits Tobacco Institute spokesman Thomas Lauria. So "if it asserts jurisdiction, the FDA would be breaking the law if didn't ban tobacco," he says. "FDA regulation is tantamount to putting the tobacco industry out of business."

So Big Tobacco is mounting an extensive counterattack (table). Last August, five companies filed suit in federal court in North Carolina claiming that the FDA has no legal basis for regulating tobacco. Since then, lobbyists have been arm-twisting in Congress, where 82% of members have taken industry money, to keep the FDA from issuing final rules. And once regulations are issued, manufacturers will immediately go to court to seek an injunction, promises Charles A. Blixt, vice-president and general counsel of RJR.

Even though the industry claims that the FDA proposal is a matter of life and death, the actual restrictions on manufacturers would be "pretty benign," says Roy D. Burry, tobacco analyst at Oppenheimer & Co. They are expected to include bans on vending machines, mailorder sales, free samples, self-service displays, and such nontobacco items as hats emblazoned with brand names. They would also ban photos and illustrations from ads in publications popular with kids and prohibit the use of brand names as sponsors of events such as rodeos, allowing corporate backing only. If the FDA implements all of last August's proposals, companies would also have to kick in $150 million total for an antismoking campaign for kids.

None of these rules will take a big swipe out of revenues, predict analysts. The youth market accounts for only 3.5% of the $45 billion to $50 billion in domestic sales each year. And even if the rules do cut smoking, the U.S. market will probably shrink by only 2% a year, predicts Ronald Thomas, vice-president at ASB Capital Management Inc. "That's a drop in the bucket," he says.

FRIENDLY CAMEL. The lack of significant economic impact may be one reason Philip Morris Cos. and U.S. Tobacco Co. proposed their own legislative plan in May. The companies' deal: If Congress would agree to bar the FDA from regulating tobacco, they would agree to many of the specific restrictions the agency is seeking. But the cigarette manufacturers have not found a lawmaker bold (or stupid) enough to introduce its scheme in Congress. And while other tobacco companies are considering similar deals, the industry can't agree on one common proposal. For instance, RJR does not support its competitors' proposed advertising restrictions. "We need to compete for those people who chose to smoke and try to get them to smoke our brands," explains Blixt.

Because the industry clearly cannot count on a congressional bailout, Blixt believes that manufacturers' best hopes lie in the North Carolina federal suit. Their odds of success appear to have improved in May, when the U.S. Supreme Court ruled that the Constitution prohibits Rhode Island from banning price information in alcohol ads. Some legal experts say the major free- speech decision may bar the FDA's proposed advertising restrictions. But agency officials respond that the high court's 44 Liquormart Inc. vs. Rhode Island decision is not relevant. They claim that the ruling only applies to factual information, not promotional images, such as Joe Camel, that could be misleading, making tobacco seem safe rather than dangerous.

It's too early to know whether the industry will win in court. But with antitobacco forces gaining strength, companies may not be able to stave off government controls for long.