[Congressional Record Volume 143, Number 105 (Wednesday, July 23, 1997)]
[Senate]
[Pages S7959-S7965]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LAUTENBERG (for himself, Mr. Wyden, Mr. Durbin, and Mr. 
        Harkin):
  S. 1060. A bill to restrict the activities of the United States with 
respect to foreign laws that regulate the marketing of tobacco products 
and to subject cigarettes that are exported to the same restrictions on 
labeling as apply to the sale or distribution of cigarettes in the 
United States; to the Committee on Commerce, Science, and 
Transportation.


              the worldwide tobacco disclosure act of 1997

  Mr. LAUTENBERG. Mr. President, today I am introducing the Worldwide 
Tobacco Disclosure Act of 1997. I am joined by Senators Wyden, Durbin, 
and Harkin. Our bill will address a loophole in current law that 
enables packages of cigarettes to be exported from this country without 
warning labels and to prevent the executive branch from undermining 
other countries' restrictions on tobacco.
  Within a few decades, the World Health Organization estimates that 10 
million people will die annually from tobacco-related disease, up from 
3 million per year. An astonishing 70 percent of those deaths will be 
in developing countries. To give my colleagues a basis for comparison, 
in America, today, approximately 400,000 die a year from tobacco. While 
smoking has declined 10 percent since 1990 in developed countries, the 
WHO concludes it has risen an alarming 67 percent in developing 
countries during that same period. American tobacco exports have 
increased by almost 340 percent since the mid-1970's, and these exports 
now account for more than half of our tobacco companies' sales.
  America is rightfully proud of its exports and the standards it 
upholds in international trade. But with tobacco, we're exporting 
death. We are the largest exporter of a product we know kills, and that 
is not something about which we should be proud. With marketing savvy 
and millions of dollars, American tobacco companies have significantly 
increased cigarette consumption in developing countries. It is 
estimated that cigarette consumption increased by 10 percent as a 
direct result of American tobacco companies entering the markets of 
Japan, South Korea, Thailand, and Taiwan.
  Why should Congress care if hundreds of thousands of teenage boys and 
girls in China become addicted to nicotine? Why not let their 
government deal with this matter? Mr. President, morally, we are 
obligated to warn them, to the extent we know of tobacco's dangers. We 
are obligated to support the efforts of our trading partners to protect 
the health of their citizens.
  Mr. President, cigarettes kill and the label should clearly state 
that. One component of the proposed tobacco settlement between the 
State attorneys general and the tobacco industry was stronger warning 
labels on cigarette packages, similar to those I included in 
legislation introduced earlier this year. While we are taking 
additional steps to make our citizens more aware of the dangers of 
tobacco, my colleagues may be surprised to know that our Government 
requires no warning on exported cigarette packages. We know that 
smoking is addictive and can kill, but you would never guess that by 
looking at a pack of Camels exported from this country into Africa or 
Eastern Europe. When we enacted the Federal Cigarette Labeling and 
Advertising Act of 1965, we may have thought that other countries would 
require their own warning labels and these would be adequate. We know, 
Mr. President, that this is simply not the case.

  Too many countries, especially in the developing world, have no 
warning labels on cigarette packages, and those that do, are inadequate 
to fully alert their citizens to the dangers of tobacco. Coupled with a 
poor national health system, citizens in these countries have no chance 
against tobacco promotional giveaways or slick advertising. Not knowing 
of the health risks associated with cigarettes, they are easily 
addicted and a significant percentage of them will die from this 
product.
  Mr. President, barring further steps, a health crisis resulting from 
tobacco will occur in the developing world within the next few decades. 
Our country alone spends $50 billion a year more on health care as a 
result of tobacco. Imagine what the worldwide cost of tobacco related 
illness will be in 20 years. Today limited funds are spent combating 
hunger, AIDS and other infectious diseases, and infant mortality 
worldwide. In about 10 years, we can add tobacco related illnesses to 
the list.
  One part of this legislation, Mr. President, requires exported 
packages of cigarettes to have warning labels in the language of the 
country where the cigarette will be consumed. Before exporting 
hazardous materials, Congress requires exports to alert our Government 
prior to export so that we might warn the government of the importing 
country that a certain product is being shipped to its borders. 
Cigarettes are a hazardous product and should be treated differently 
than an exported widget. Foreign subsidiaries of American tobacco 
companies will also be required to comply with this legislation because 
we do not want to put our farmers at a competitive disadvantage. This 
is a global problem that must be addressed by whatever means we have 
available. Should a country require more stringent labels than ours, 
the administration could grant a waiver of this provision for that 
country.
  Mr. President, the success tobacco companies have had selling death 
overseas is not solely due to their own own efforts. In the past, the 
U.S. Government assisted U.S. tobacco companies in hooking foreigners 
by using trade policy to dismantle foreign tobacco regulations, such as 
advertising bans, in several key markets. While most of this assistance 
occurred in the 1980's, its effects are felt today. Japan, South Korea, 
Thailand, and Taiwan were on the other side of this dispute with our 
Government over their antitobacco laws. They lost, their citizens lost, 
and the U.S. tobacco companies won. Smoking in those countries is 
higher as a result of past action by the U.S. Trade Representative.
  Our bill will prevent the USTR from undermining another country's 
tobacco restrictions if those restrictions are applied to both foreign 
and domestic products in the same manner. If a country has an 
advertising ban on tobacco products, our Government should not be 
spending money trying to dismantle that law if it equally affects 
foreign and domestic companies.
  This legislation is consistent with a GATT decision from 1990, which 
held that member nations can use various policies to protect health as 
long as they are applied evenly to domestic and foreign products, and 
with statements made by our current U.S. Trade Representative. Charlene 
Barshefsky

[[Page S7960]]

stated last year that the U.S. Government should not object when 
foreign government take steps to protect their citizens by adopting 
health measures to restrict the consumption of tobacco.
  Mr. President, I hope my colleagues would agree that we should not, 
in good conscience, turn a blind eye to the untold suffering caused by 
U.S. exports of this deadly product. We know too much about tobacco to 
sit idly by while our companies poison tens of millions throughout the 
world. And if foreign governments do not warn their citizens of 
tobacco's dangers, enacting this legislation is the very least we can 
and should do.
  Mr. President, I ask unanimous consent that the full text of my 
legislation be printed in the Congressional Record along with letters 
of support for this legislation from the American Lung Association, the 
National Center for Tobacco-Free Kids, and the American Heart 
Association, and two articles from the Washington Post documenting our 
Government's actions in Asia in the 1980's and how U.S. tobacco 
companies are targeting overseas markets.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1060

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Worldwide Tobacco Disclosure 
     Act of 1997''.

     SEC. 2. DEFINITIONS.

       In this Act:
       (1) Cigarette.--The term ``cigarette'' means--
       (A) any roll of tobacco wrapped in paper or in any 
     substance not containing tobacco which is to be burned,
       (B) any roll of tobacco wrapped in any substance containing 
     tobacco which, because of its appearance, the type of tobacco 
     used in the filler, or its packaging and labeling is likely 
     to be offered to, or purchased by consumers as a cigarette 
     described in subparagraph (A),
       (C) little cigars which are any roll of tobacco wrapped in 
     leaf tobacco or any substance containing tobacco (other than 
     any roll of tobacco which is a cigarette within the meaning 
     of subparagraph (A)) and as to which 1000 units weigh not 
     more than 3 pounds, and
       (D) loose rolling tobacco and papers or tubes used to 
     contain such tobacco.
       (2) Domestic concern.--The term ``domestic concern'' 
     means--
       (A) any individual who is a citizen, national, or resident 
     of the United States; and
       (B) any corporation, partnership, association, joint-stock 
     company, business trust, unincorporated organization, or sole 
     proprietorship which has its principal place of business in 
     the United States, or which is organized under the laws of a 
     State of the United States or a territory, possession, or 
     commonwealth of the United States.
       (3) Nondiscriminatory law or regulation.--The term 
     ``nondiscriminatory law or regulation'' means a law or 
     regulation of a foreign country that adheres to the principle 
     of national treatment and applies no less favorable treatment 
     to goods that are imported into that country than it applies 
     to like goods that are the product, growth, or manufacture of 
     that country.
       (4) Package.--The term ``package'' means a pack, box, 
     carton, or other container of any kind in which cigarettes or 
     other tobacco products are offered for sale, sold, or 
     otherwise distributed to customers.
       (5) Sale or distribution.--The term ``sale or 
     distribution'' includes sampling or any other distribution 
     not for sale.
       (6) State.--The term ``State'' includes, in addition to the 
     50 States, the District of Columbia, Guam, the Commonwealth 
     of Puerto Rico, the Commonwealth of the Northern Mariana 
     Islands, the Virgin Islands, American Samoa, the Republic of 
     the Marshall Islands, the Federated States of Micronesia, and 
     the Republic of Palau.
       (7) Tobacco product.--The term ``tobacco product'' means--
       (A) cigarettes;
       (B) little cigars;
       (C) cigars as defined in section 5702 of the Internal 
     Revenue Code of 1986;
       (D) pipe tobacco;
       (E) loose rolling tobacco and papers used to contain such 
     tobacco;
       (F) products referred to as spit tobacco; and
       (G) any other form of tobacco intended for human use or 
     consumption.
       (8) United states.--The term ``United States'' includes the 
     States and installations of the Armed Forces of the United 
     States located outside a State.

     SEC. 3. RESTRICTIONS ON NEGOTIATIONS REGARDING FOREIGN LAWS 
                   REGULATING TOBACCO PRODUCTS.

       No funds appropriated by law may be used by any officer, 
     employee, department, or agency of the United States--
       (1) to seek, through negotiation or otherwise, the removal 
     or reduction by any foreign country of any nondiscriminatory 
     law or regulation, or any proposed nondiscriminatory law or 
     regulation, in that country that restricts the advertising, 
     manufacture, packaging, taxation, sale, importation, 
     labeling, or distribution of tobacco products; or
       (2) to encourage or promote the export, advertising, 
     manufacture, sale, or distribution of tobacco products.

     SEC. 4. CIGARETTE EXPORT LABELING.

       (a) Labeling Requirements for Export of Cigarettes.--
       (1) In general.--It shall be unlawful for any domestic 
     concern to export from the United States, or to sell or 
     distribute in, or export from, any other country, any 
     cigarettes whose package does not contain a warning label 
     that--
       (A) complies with Federal labeling requirements for 
     cigarettes manufactured, imported, or packaged for sale or 
     distribution within the United States; and
       (B) is in the primary language of the country in which the 
     cigarettes are intended for consumption.
       (2) Labeling format.--Federal labeling format requirements 
     shall apply to a warning label described in paragraph (1) in 
     the same manner, and to the same extent, as such requirements 
     apply to cigarettes manufactured, imported, or packaged for 
     sale or distribution within the United States.
       (3) Rotation of labeling.--Federal rotation requirements 
     for warning labels shall apply to a warning label described 
     in paragraph (1) in the same manner, and to the same extent, 
     as such requirements apply to cigarettes manufactured, 
     imported, or packaged for sale or distributed within the 
     United States.
       (4) Waivers.--
       (A) In general.--The President may waive the labeling 
     requirements required by this Act for cigarettes, if the 
     cigarettes are exported to a foreign country included in the 
     list described in subparagraph (B) and if that country is the 
     country in which the cigarettes are intended for consumption. 
     A waiver under this subparagraph shall be in effect prior to 
     the exportation of any cigarettes not in compliance with the 
     requirements of this section by a person to a foreign country 
     included in the list.
       (B) List of eligible countries for waiver.--
       (i) In general.--Not later than 90 days after the date of 
     enactment of this Act, the President shall develop and 
     publish in the Federal Register a list of foreign countries 
     that have in effect requirements for the labeling of 
     cigarette packages substantially similar to or more stringent 
     than the requirements for labeling of cigarette packages set 
     forth in paragraphs (1) through (3). The President shall use 
     the list to grant a waiver under subparagraph (A).
       (ii) Update of list.--The President shall--

       (I) update the list described in clause (i) to include a 
     foreign country on the list if the country meets the criteria 
     described in clause (i), or to remove a foreign country from 
     the list if the country fails to meet the criteria; and
       (II) publish the updated list in the Federal Register.

       (b) Penalties.--
       (1) Fine.--Any person who violates the provisions of 
     subsection (a) shall be fined not more than $100,000 per day 
     for each such violation. Any person who knowingly reexports 
     from or transships cigarettes through a foreign country 
     included in the list described in subsection (a)(4)(B) to 
     avoid the requirements of this Act shall be fined not more 
     than $150,000 per day for each such occurrence.
       (2) Injunction proceedings.--The district courts of the 
     United States shall have jurisdiction, for cause shown, to 
     prevent and restrain violations of subsection (a) upon the 
     application of the Attorney General of the United States.
       (c) Repeal.--Section 12 of the Federal Cigarette Labeling 
     and Advertising Act (15 U.S.C. 1340) is repealed.
       (d) Regulatory Authority.--Not later than 90 days after the 
     date of enactment of this Act, the President shall promulgate 
     such regulations and orders as may be necessary to carry out 
     this section.
       (e) Effective Date.--The provisions of subsections (a) 
     through (c) shall take effect upon the effective date of the 
     regulations promulgated under subsection (d).
                                                                    ____



                                    American Lung Association,

                                    Washington, DC, July 22, 1997.
     Hon. Frank Lautenberg,
     U.S. Senate,
     Washington, DC.
       Dear Senator Lautenberg: The American Lung Association 
     supports your legislation addressing U.S. economic and 
     foreign policy towards the international sale and labeling of 
     tobacco products.
       Tobacco use continues to be the single most preventable 
     cause of premature death and disease in the United States. 
     Worldwide, smoking causes one death every ten seconds, 3 
     million people a year. Unless strong measures are taken, it 
     is estimated that in three decades the death toll will rise 
     to about 10 million people each year, with 70 percent of 
     those deaths occurring in developing countries.
       In the past, the United States government has assisted U.S. 
     tobacco companies in their efforts to expand tobacco 
     advertising, promotion and exports. Using Section 301 of the 
     Trade Act of 1974, previous administrations have issued 
     formal threats to force other nations to import U.S. tobacco 
     products and to weaken health laws that would reduce tobacco 
     use. Your legislation would end the

[[Page S7961]]

     U.S. government's proactive involvement in the exportation of 
     tobacco's death and disease to other countries by curtailing 
     federal agencies from intervening internationally on behalf 
     of the industry.
       The American Lung Association believes the United States 
     should be a world leader in tobacco control and that the U.S. 
     should not help open international markets so companies here 
     can profit from death and disease elsewhere. This policy is 
     unacceptable and must end. The adoption of your legislation 
     would be a major step in the right direction.
       Thank you for your leadership on this and other tobacco 
     control-related issues.
           Sincerely,
                                                    Fran Du Melle,
     Deputy Managing Director.
                                                                    ____

                                               National Center for


                                            Tobacco-Free Kids,

                                    Washington, DC, July 23, 1997.
     Hon. Frank Lautenberg,
     U.S. Senate,
     Washington, DC.
       Dear Senator Lautenberg: We are writing on behalf of the 
     National Center for Tobacco Free Kids to express the center's 
     strong support for your effort, as a part of the Worldwide 
     Tobacco Disclosure Act, to ensure that the United States does 
     not interfere with actions taken by foreign governments to 
     reduce the dangers that tobacco products pose to their 
     citizens. This would help to save lives and improve the 
     public health of people around the world.
       There is clear need for action to be taken to prevent the 
     spread of tobacco caused disease throughout the world. In 
     1994, over 4.6 trillion cigarettes were consumed in foreign 
     nations. In 1995, over 3.1 million people died as a result of 
     tobacco use, with over 1.2 million of those deaths occurring 
     in developing countries. As worldwide tobacco use and tobacco 
     related disease has reached astronomical levels, U.S. tobacco 
     exports have continued to climb. In 1995, the U.S. exported 
     an estimated 240 billion cigarettes, up from less than 60 
     billion ten years earlier.
       In the past, America has taken action against governments 
     that promulgate rules to curb tobacco caused disease. During 
     the previous administration, the U.S. pressured Thailand, 
     Taiwan, South Korea and other countries not to enact tough 
     new laws to curb tobacco marketing, even though these laws 
     were to be applied in a non-discriminatory manner. The U.S. 
     also encouraged Taiwan to repeal new requirements for 
     cigarette warning labels. The Worldwide Tobacco Disclosure 
     Act would prevent American officials from using economic 
     muscle to promote higher cigarette exports by blocking 
     legitimate health laws in other countries.
       We commend you for taking the lead in introducing this 
     important piece of legislation and urge the Senate to stand 
     up for the health of millions of people around the world.
           Sincerely Yours,
     William D. Novelli,
       President.
     Matthew L. Myers,
       Executive Vice President and General Counsel.
                                                                    ____



                                   American Heart Association,

                                    Washington, DC, July 23, 1997.
     Hon. Frank Lautenberg,
     U.S. Senate,
     Washington, DC.
       Dear Senator Lautenberg: The American Heart Association 
     (AHA) is pleased to express its strong support for your 
     legislation, the Worldwide Tobacco Disclosure Act of 1997, a 
     critical step in addressing the inadequacy of current laws on 
     U.S. economic and foreign policy regarding the international 
     sale of tobacco products. In general, we believe that the 
     U.S. should actively promote the global adoption of U.S. 
     domestic tobacco control policies.
       The AHA is a non-profit organization representing the 
     interests of over 4.6 million volunteers nationwide who give 
     their time and energies to reducing cardiovascular disease 
     and stroke, this nation's number one and three killers 
     respectively. Despite our efforts, and the efforts of our 
     partners in tobacco control, tobacco use continues to be the 
     number one preventable cause of premature death and disease 
     in the United States.
       Worldwide, smoking causes one death every 10 seconds. The 
     global smoking rate is increasing steadily, despite decreases 
     in the United States and other developed nation. The World 
     Health Organization (WHO) predicts that more than 500 million 
     people alive today eventually will die of diseases caused by 
     smoking, unless strong action is taken to stem this epidemic.
       Historically, U.S. government agencies and Congress have 
     assisted U.S. tobacco companies in their efforts to expand 
     tobacco advertising, promotion and exports around the world. 
     Previous administrations have issued formal trade threats 
     under Section 301 of the Trade Act of 1974, to force other 
     nations to import U.S. tobacco products and to weaken health 
     laws that would reduce tobacco use.
       The AHA supports the primary goals of this legislation: 
     That exported cigarettes carry the same federal labeling 
     format requirements as those manufactured, imported or 
     packaged for sale or distribution within the United States, 
     and that there be a prohibition on the use of federal funds 
     to aid any effort by the United States, through negotiation 
     or otherwise, to weaken the tobacco control laws of foreign 
     countries.
           Sincerely,
                                     Martha, N. Hill, R.N., Ph.D.,
     President.
                                                                    ____


               [From the Washington Post, Nov. 17, 1996]

          U.S. Aided Cigarette Firms In Conquests Across Asia


           Aggressive Strategy Forced Open Lucrative Markets

                           (By Glenn Frankel)

       On the streets of Manila, ``jump boys'' as young as 10 hop 
     in and out of traffic selling Marlboros and Lucky Strikes to 
     passing motorists. In the discos and coffee shops of Seoul, 
     young Koreans light up foreign brands that a decade ago were 
     illegal to possess. Downtown Kiev has become the Ukrainian 
     version of Marlboro Country, with the gray socialist 
     cityscape punctuated with colorful billboards of cowboy 
     sunsets and chiseled faces. And in Beijing, America's biggest 
     tobacco companies are competing for the right to launch 
     cooperative projects with the state-run tobacco monopoly in 
     hopes of capturing a share of the biggest potential market in 
     the world.
       Throughout the bustling cities of a newly prosperous Asia 
     and the ruined economies of the former Soviet Bloc, the 
     American cigarette is king. It has become a symbol of 
     affluence and sophistication, a statement and an aspiration. 
     At home--where the American tobacco industry is besieged by 
     anti-smoking activists, whistle-blowers, government 
     regulators, grand juries and plaintiffs' lawyers--cigarette 
     consumption has undergone a 15-year decline. Thanks to 
     foreign sales, however, the companies are making larger 
     profits than ever before.
       But the industry did not launch its campaign for new 
     overseas markets alone. The Reagan and Bush administrations 
     used their economic and political clout to pry open markets 
     in Japan, South Korea, Taiwan, Thailand and China for 
     American cigarettes. At a time when one arm of the government 
     was warning Americans about the dangers of smoking, another 
     was helping the industry recruit a new generation of smokers 
     abroad.
       To this day, many U.S. officials see cigarette exports as 
     strictly an issue of free trade and economic fairness, while 
     tobacco industry critics and public health advocates consider 
     it a moral question. Even the Clinton administration finds 
     itself torn: It is the most vocally anti-smoking 
     administration in U.S. history, yet it has been in the 
     uncomfortable role of challenging or delaying some anti-
     smoking efforts overseas.
       At the same time, fledgling anti-smoking movements are 
     rising up with support from American activists, passing 
     restrictions that in some cases are tougher than those in the 
     United States.
       Having exported its cigarette industry, the United States 
     is now in effect exporting its anti-smoking movement as well.
       Just as the industry's overseas campaign has produced new 
     smokers and new profits, it has also produced new 
     consequences. International epidemiologist Richard Peto of 
     Oxford University estimates that smoking is responsible for 3 
     million deaths per year worldwide; he projects that 30 years 
     from now the number will have reached 10 million, most of 
     them in developing nations. In China alone, Peto says 50 
     million people who are currently 18 or younger eventually 
     will die from smoking-related diseases. ``In most countries, 
     the worst is yet to come,'' he warned.
       Asia is where tobacco's search for new horizons began and 
     where the industry came to rely most on Washington's help. 
     U.S. officials in effect became the industry's lawyers, 
     agents and collaborators. Prominent politicians such as 
     Robert J. Dole, Jesse Helms, Dan Quayle and Al Gore played a 
     role. ``No matter how this process spins itself out,'' George 
     Griffin, commercial counselor at the U.S. Embassy in Seoul, 
     told Matthew N. Winokur, public affairs manager of Philip 
     Morris Asia, in a ``Dear Matt'' letter in January 1986, ``I 
     want to emphasize that the embassy and the various U.S. 
     government agencies in Washington will keep the interests of 
     Philip Morris and the other American cigarette manufacturers 
     in the forefront of our daily concerns.''
       U.S. officials not only insisted that Asian countries allow 
     American companies to sell cigarettes, they also demanded 
     that the companies be allowed to advertise, hold giveaway 
     promotions and sponsor concerts and sports events in what 
     critics say was a blatant appeal to women and young people. 
     They regularly consulted with company representatives and 
     relied upon the industry's arguments and research. They 
     ignored the protests of public health officials in the United 
     States and Asia who warned of the consequences of the market 
     openings they sought. Indeed, their constant slogan was that 
     health factors were irrelevant. This was, they insisted, 
     solely an issue of free trade.
       But then-Vice President Quayle suggested another motive 
     when he told a North Carolina farming audience in 1990 that 
     the government also was seeking to help the tobacco industry 
     compensate for shrinking markets at home. ``I don't think 
     it's any news to North Carolina tobacco farmers that the 
     American public as a whole is smoking less,'' said Quayle. 
     ``We ought to think about the exports. We ought to think 
     about opening up markets, breaking down the barriers.''
       A handful of American health officials vigorously opposed 
     the government's campaign, yet were either stymied or 
     ignored. ``I feel

[[Page S7962]]

     the most shameful thing this country did was to export 
     disease, disability and death by selling our cigarettes to 
     the world,'' said former surgeon general C. Everett Koop. 
     ``What the companies did was shocking, but even more 
     appalling was the fact that our own government helped make it 
     possible.''


                             waging the war

       Clayton Yeutter, an affable, high octane Nebraska 
     Republican with a wide smile and serious political 
     aspirations, came to the Office of the U.S. Trade 
     Representative in 1985 with a mission: to put a dent in the 
     record U.S. trade deficit by forcing foreign countries to 
     lower their barriers against American products.
       Yeutter (prounced ``Yi-ter'') took office at a time when 
     Washington was on the verge of declaring a trade war against 
     some of its staunchest allies in the Far East. Asian tigers 
     such as Japan, South Korea, Taiwan and Thailand were running 
     up huge trade surpluses with the United States on goods 
     ranging from T-shirts to computer chips to luxury sedans. The 
     U.S. annual trade deficit in 1984 totaled a record $123 
     billion. Congressional Democrats proposed a 25 percent 
     surcharge on products from Japan, Taiwan, South Korea and 
     Brazil, while the House and Senate overwhelmingly approved 
     resolutions calling for retaliation against Japan if it 
     didn't increase its purchases of exports.
       In heeding that warning, the Reagan administration turned 
     to a small, elite and little-known federal agency. The Office 
     of the U.S. Trade Representative (USTR) had only 164 
     permanent employees, but it enjoyed cabinet-level status and 
     a self-styled half-joking, half-serious reputation as ``the 
     Jedi knights of the trade world.'' Operating out of the four-
     story, Civil War-era Winder Building on 17th Street NW, 
     USTR's staff was known for its dedication and aggressiveness. 
     Most staff members came from departments such as Commerce, 
     State and Agriculture, and they saw the trade rep's office as 
     a place where they could practice their craft free from the 
     fetters of larger, more rigid bureaucracies. They worked long 
     hours and displayed a fierce loyalty to each other and the 
     agency they served.
       In 1985 they got a new boss to match their mood. Yeutter 
     had worked as a deputy trade representative during the Ford 
     administration, then went on to become president of the 
     Chicago Mercantile Exchange. He came back to Washington with 
     an eye toward using USTR as a launching pad for becoming a 
     U.S. senator, secretary of agriculture or even vice 
     president, according to friends. Yeutter was not a member of 
     Ronald Reagan's inner circle, and he was eager to show the 
     president what he could do. ``They told me they needed a 
     high-energy person,'' he recalled in a interview. ``I told 
     them I was ready to hit the ground running.''
       Yeutter knew that USTR had a weapon in its arsenal that was 
     tailor-made for softening up recalcitrant trading partners. 
     Section 301 of the 1974 Trade Act empowered USTR to launch a 
     full-scale investigation of unfair trading practices and 
     required that Washington invoke retaliatory sanctions within 
     a year if a targeted government did not agree to change its 
     ways. Launching a 301 was like setting a time bomb; both 
     sides could hear the clock ticking.
       Yeutter had no trouble persuading the administration to 
     allow him to use Section 301 aggressively. ``There was a lot 
     of momentum for attempting something new,'' he said.
       The U.S. tobacco industry had been trying for years to get 
     a foothold in these promising new Asian markets. In 1981 the 
     big three--Philip Morris Inc., R.J. Reynolds Tobacco Co. and 
     Brown & Williamson--had formed a trade group called the U.S. 
     Cigarette Export Association to pursue a joint industry-wide 
     policy on the issue. But the companies had felt frustrated 
     during the first term of the Reagan administration.
       Japan, the West's second largest market for cigarettes, 
     remained virtually closed to American brands due to high 
     tariffs and discriminatory distribution. South Korean law 
     effectively made it a crime to buy or sell a pack of foreign 
     cigarettes. Taiwan and Thailand remained tightly shut. All of 
     these countries but Taiwan were signatories to the General 
     Agreement on Tariffs and Trade, and Taipei hoped to join 
     soon. Yet each appeared to violate free trade principles.
       ``In international trade terms, it's really very rare that 
     the issues are so clear-cut and so blatant,'' recalled Owen 
     C. Smith, a Philip Morris foreign trade expert who serves as 
     president of the association. ``These countries were sitting 
     with published laws which on their face discriminated against 
     American products. It was an untenable situation. . . . These 
     were, frankly, open-and-shut cases.''
       When Yeutter and his staff looked at the cigarette business 
     in these countries, they saw blatant hypocrisy. Each Asian 
     government sought to justify its ban on imported cigarettes 
     in the name of public health, yet each had its own protected, 
     state-controlled tobacco monopoly that manufactured and sold 
     cigarettes--and provided large amounts of tax revenue to the 
     government. The state companies' marketing techniques were in 
     many ways just as cynical as those of the American companies. 
     In Taiwan, for example, the most popular state brand was 
     called Long Life. These were classic, state-run companies; 
     bloated and inefficient, they produced overpriced, low-
     quality and poorly marketed cigarettes that could never 
     compete with jazzier American brands in free competition.
       Health was simply a smoke screen, Yeutter quickly decided, 
     raised by recalcitrant foreign governments hooked on 
     cigarette profits. ``I would have had no problem with Japan 
     or Korean or Taiwan putting up genuine health restrictions,'' 
     he insisted. ``But that's not what these governments were 
     doing. They were restricting trade, and it was just 
     blatant.''
       What Yeutter didn't seem to appreciate was that the very 
     flaws of the state-run monopolies were exactly what a doctor 
     might have ordered: Their high price and poor quality had 
     helped limit smoking mostly to older men who had the money 
     and taste for harsh, tar-heavy local brands. The monopolies 
     seldom, if ever, advertised and did not target the great 
     untapped markets of women and young people. Per capita sales 
     remained low in every country except Japan. From a public 
     health standpoint, maintaining the monopolies was far 
     preferable to opening the gates to American companies with 
     their milder blends and state-of-the-art marketing.
       ``When the multinational companies penetrate a new country, 
     they not only sell U.S. cigarettes but they transform the 
     entire market,'' said Gregory Connolly, a veteran anti-
     smoking activist who heads the Massachusetts Tobacco Control 
     Program. ``They transform how tobacco is presented, how it's 
     advertised, how it's promoted. And the result is the creation 
     of new demand, especially among women and young people.''
       Connolly, who traveled widely through Asia, documented how 
     American companies skirted advertising restrictions by 
     sponsoring televised rock concerts and sporting events, 
     placing cigarette brands in movies and lending their brand 
     names to non-tobacco products such as clothing and sports 
     gear. A Madonna concert in Spain became a ``Salem Madonna 
     Concert'' when televised in Hong Kong, while the U.S. Open 
     tennis tournament in New York became the ``Salem Tennis 
     Open'' in Malaysia. Tennis stars Pat Cash, Michael Chang, 
     Jimmy Connors and John McEnroe appeared in live matches in 
     Malaysia sponsored by RJR.
       None of this troubled Yeutter and his trade warriors. They 
     saw foreign advertising restrictions as one more form of 
     trade discrimination. The interagency committee that advised 
     Yeutter on the issue consisted of representatives from State, 
     Agriculture, Commerce, Labor and Treasury, but not from 
     Health and Human Services. There was no one with a public 
     health or tobacco control background to argue that there was 
     a link between advertising and health.
       The companies convinced Yeutter that helping them sell 
     cigarettes meant helping American trade. They produced 
     studies showing that aside from heavy aviation parts, 
     cigarettes were America's most successful manufactured export 
     in terms of the net balance of trade. They estimated that 
     cigarette exports--largely to Western Europe and Latin 
     America--accounted for 250,000 full-time jobs in the United 
     States and contributed more than $4 billion to the positive 
     side of the trade ledger.
       The industry also turned up the political heat. In a 
     January 1984 letter to an official in the Commerce 
     Department, Robert H. Bockman, then director of corporate 
     affairs for Philip Morris Asia, described trade barriers 
     against his company's products in South Korea. He then went 
     on to discuss what he called ``the politics of tobacco in 
     this election year. Attached please find a listing of the 
     1980 election results in the major tobacco-growing areas in 
     the United States. You will note that the margin of victory 
     for the president [Ronald Reagan] was narrow in some key 
     areas.''
       Jesse Helms (R-N.C.), who at the time chaired the Senate 
     Agriculture Committee, also intervened. In July 1986 Helms 
     wrote to Japanese Prime Minister Yasuhiro Nakasone 
     congratulating him on his recent election victory and 
     pointing out that American cigarettes accounted for less than 
     2 percent of the Japanese market. ``Your friends in Congress 
     will have a better chance to stem the tide of anti-Japanese 
     trade sentiment if and when they can cite tangible examples 
     of your doors being opened to American products,'' wrote 
     Helms. ``I urge that you make a commitment to establish 
     timetable for allowing U.S. cigarettes a specific share of 
     your market. May I suggest a goal of 20 percent within the 
     next 18 months.''
       At Yeutter's urging, Reagan decided not to wait for a 
     formal filing from the industry against Japan. Instead, for 
     the first time the White House filed three 301 complaints 
     with USTR in September 1985, one of them against Japanese 
     restrictions on the sale of U.S. cigarettes.
       According to the USTR log of the case, U.S. officials 
     presented a lengthy questionnaire at their opening session 
     with Japanese trade representatives, demanding detailed data 
     on the Japanese market. Meanwhile, other U.S. bureaucrats 
     began drawing up lists of products for possible retaliation--
     all part of what one negotiator called the ``ratcheting-up 
     process.''
       Japanese negotiators hung tough over the course of 14 
     sessions. Joseph A. Massey, who was in charge of trade 
     negotiations with Japan, recalled they argued that Japan 
     Tobacco, the state-run cigarette monopoly, was too 
     inefficient to withstand U.S. competition, and that in any 
     case the Americans should continue the previous long-standing 
     practice of giving Japan an indefinite time period to comply.
       Massey recalled one other unusual aspect of the 
     negotiation: Industry representatives

[[Page S7963]]

     from both sides sat in on bargaining sessions. ``The Japanese 
     insisted that Japan Tobacco should be in the room,'' he said. 
     ``We said, `If that's the case, there needs to be 
     parallelism.' . . . They did not sit at the table. They sat 
     quietly along the back wall.''
       Finally in late September 1986, a year after the 301 
     complaint was filed, Yeutter received a phone call at his 
     McLean home late one evening from Japanese Finance Minister 
     Kiichi Miyazawa. The minister wanted more time, but Yeutter 
     was unrelenting. He recalls telling Miyazawa that the 
     completed retaliation documents were to be forwarded to the 
     White House the following day. ``I said, `I'm sorry, Mr. 
     Minister, but your government has run out of time,' '' 
     Yeutter recalled.
       Within days the Japanese capitulated, signing an agreement 
     allowing in American-made cigarettes. By giving in on such a 
     politically well-connected product as cigarettes, Japanese 
     commentators said, Tokyo hoped to buy time on other trade 
     issues. It was, commented the Asahi Shimbun newspaper, a 
     ``blood offering.''
       And so Japan was transformed into a battleground for the 
     world's biggest tobacco companies. Philip Morris aimed at 
     Japanese women with Virginia Slims; Japan Tobacco fought back 
     with Misty, a thin, mildblended cigarette. When RJR wooed 
     young smokers with Joe Camel, JT countered with Dean, named 
     after fabled actor James Dean. Cigarettes became the second 
     most-advertised product on television in Tokyo--up from 40th 
     just a year earlier.
       Today, imported brands control 21 percent of the Japanese 
     market and earn more than $7 billion in annual sales. Female 
     smoking is at an all-time high, according to Japan Tobacco's 
     surveys, and one study showed female college freshmen four 
     times more likely to smoke than their mothers.
       Yeutter and his colleagues insisted they had done nothing 
     for tobacco they would not have done for any other industry. 
     But the fact remained that at a time when the United States 
     could not overcome Japan's resistance on a broad range of 
     exports--from beef to cars to super-computers--U.S. 
     cigarettes flourished, thanks to the perseverance of the 
     trade warriors.


                            Into South Korea

       The next target was South Korea, which had a $1.7 billion 
     domestic tobacco market. The U.S. tobacco industry filed a 
     301 complaint against Seoul in January 1988, and USTR 
     initiated its investigation a month later, South Korea's 
     state cigarette monopoly had done little advertising over the 
     years, and a few months before the 301 case, the Seoul 
     government had formally outlawed cigarette ads. But the 
     United States insisted on defining ``fair access'' as 
     including the right to advertise.
       Even before the formal complaint was filed, tobacco state 
     lawmakers and their allies had supported opening South 
     Korea's market. Senators Dole (R-Kan.) and Helms and 14 
     others--including Gore, then a senator from Tennessee--wrote 
     to South Korean President Chun Doo Hwan in July 1987 
     demanding that tobacco companies be allowed ``the right to 
     import and distribute without discriminatory taxes and 
     duties, as well as the right to advertise and promote their 
     products.''
       The companies did their own work as well. RJR hired former 
     Reagan national security adviser Richard Allen to lobby the 
     government in Seoul and give the company more influence than 
     its corporate rivals. Philip Morris gave a $250,000 contract 
     to former White House aide Michael Deaver, who hired two 
     former USTR officials and later obtained a $475,000 lobbying 
     contract with the South Korean government, according to 
     testimony at his 1987 trial for perjury. (Deaver was 
     convicted of lying to Congress about his lobbying activities 
     after he left the White House.)
       In May 1988 Seoul formally agreed to open its doors to 
     American brands. The deal allowed cigarette signs and 
     promotions at shops, 120 pages of advertisements in magazines 
     and cigarette company sponsorship of social, cultural and 
     sporting events. Cigarettes quickly became one of the most 
     heavily advertised products in South Korea; from no 
     advertising in 1986, American tobacco companies spent $25 
     million in 1988. Student activists, anti-smoking groups, the 
     South Korean consumers' union and the local cigarette retail 
     association all staged protests against ``tobacco 
     imperialism'' and boycotted American cigarettes, and the 
     companies accused the state cigarette monopoly of constant 
     violations of the agreement. Still, within a year, American 
     companies had captured 6 percent of the market.
       USTR also made fast work of Taiwan. On the heels of the 
     Japanese agreement, Taiwan had agreed in October 1985 to 
     liberalize barriers to wine, beer and cigarettes. But a year 
     passed and the market remained effectively closed. Reagan 
     then ordered Yeutter to propose ``proportional 
     countermeasures,'' while U.S. officials threatened to oppose 
     Taiwan's application for membership in GATT.
       ``Since Taiwan wasn't a GATT member, we were not under GATT 
     constraints,'' said a senior USTR negotiator. ``I hate to say 
     it, but you can do whatever you want with Taiwan and Taiwan 
     knows it. They're much more vulnerable than other 
     countries.''
       Six weeks after Reagan's order, Taiwan folded. ``The 
     atmosphere in the negotiations was very bad for us,'' 
     recalled Chien-Shien Wang, then deputy minister of commerce, 
     who was Taiwan's chief negotiator. ``We were told the U.S. 
     had lost patience with us and was about to put us on the 301 
     list. So we had no choice but to agree.''
       While some USTR officials now concede they were uneasy 
     about using their power on behalf of America's most 
     controversial industry, they say they had no choice.
       ``For us it was an issue of, it's a U.S. product and it 
     deserves fair market access,'' said Robert Cassidy, the 
     current assistant U.S. trade representative for Asia and the 
     Pacific. ``There are lots of products people here might 
     prefer not to pursue--I myself didn't much like exporting 
     machines to manufacture bullets. But that's not the issue. 
     The issue was, is this discriminatory treatment or not?''
       Following the agreement, consumption of imported cigarettes 
     in Taiwan soared. According to one industry trade journal, 
     foreign brands went from 1 percent of annual cigarette sales 
     to more than 20 percent in less than two years, while state-
     manufactured brands declined accordingly. RJR sponsored a 
     dance at a Taipei disco popular with teenagers and offered 
     free admission for five empty packs of Winstons. Studies by 
     Taiwanese public health specialist Ted Chen, now a professor 
     at Tulane University Medical Center, tracked a steadily 
     rising rate of smoking among high schoolers.


                        the anti-smoking crusade

       The 301 cases were a boon to the industry. The Boston-based 
     National Bureau of Economic Research estimated in a recent 
     report that sales of American cigarettes were 600 percent 
     higher in the targeted countries in 1991 then they would have 
     been without U.S. intervention. In 1990, after he became 
     secretary of agriculture, Yeutter told a news conference, ``I 
     just saw the figures on tobacco exports here a few days ago 
     and, my, have the turned out to be a marvelous success 
     story.''
       The tobacco companies insist that the government's efforts 
     merely allowed them to gain a fair share of existing markets. 
     But the National Bureau projected that American entry pushed 
     up average cigarette consumption per capita by nearly 10 
     percent in the targeted countries. The report said fiercer 
     price competition and sophisticated advertising campaigns had 
     stimulated the increase.
       Then-surgeon general Koop, a fierce critic of the industry, 
     first heard about the 301s when he visited the Japanese 
     Health Ministry during the swing through the Far East in the 
     mid-1980s. ``They greeted me with, `What are you trying to do 
     for us? We will never be able to pay the medical bill,' '' he 
     recalled. ``I had no idea what they were talking about.''
       Koop soon found out that USTR was, in his words, ``trading 
     Marlboros for Toyotas.'' But it took several years for anti-
     smoking activists to become mobilized. In 1988 Koop attempted 
     to hold a hearing on cigarette exports in his Interagency 
     Committee on Smoking and Health, but said he was advised a 
     few days before that the Reagan White House wanted him to 
     drop the subject and uninvite witnesses such as Judith 
     Mackay, a prominent anti-smoking activist from Hong Kong.
       Koop refused. Officials from State and Commerce who had 
     agreed to appear suddenly withdrew, but Mackay and a parade 
     of critics testified. She accused the United States of waging 
     ``a new Opium War'' against Asia, an allusion to Britain's 
     19th-century effort to force China to allow trade of the 
     addictive drug.
       When Yeutter learned of the criticism, he wrote to Koop to 
     defend his record. ``I have never smoked, have no desire to 
     do so and believe this addiction to be a terrible human 
     tragedy,'' he told Koop. ``However, what we are about in our 
     trade relationships is something entirely different.''
       Koop found Yeutter's letter unconvincing. ``I'm a firm 
     believer in the difference between a moral compromise and a 
     political compromise,'' Koop said in a recent interview. ``I 
     suppose Yeutter can say he was just doing his job, but when 
     you really are exporting death and disease to the Third 
     World, that's a moral compromise that I would never make.''
       During congressional hearings on the trade issue in May 
     1990, the government's sole witness was Sandra Kristoff, then 
     assistant trade representative for Asia and the Pacific, who 
     had negotiated the agreements with South Korea and Taiwan and 
     who vigorously defended USTR's role. She mocked the idea of 
     taking into account health issues in trade policy matters, 
     saying such considerations might result in banning trade in 
     cholesterol-laden cookies ``or hormones in red meat. . . . 
     U.S. trade policy is not in the business of picking winners 
     or losers in terms of products.''
       After the hearing, two lobbyists for Philip Morris wrote a 
     memo to their boss praising her testimony. ``The best witness 
     we had was USTR Representative Sandy Kristoff . . . ,'' they 
     wrote. ``She was tremendously effective.'' Kristoff, who now 
     serves on the staff of the National Security Council, 
     declined to be interviewed.


                           eyeing new markets

       When anti-smoking activist Gregory Connolly toured Asia in 
     1988 he was astonished by how entrenched American cigarettes 
     already had become. In Taipei he discovered 17 billboards 
     advertising foreign cigarettes within sight of a local high 
     school. In Bangkok he was shown student notebooks decorated 
     with the Marlboro logo. In Manila he took photographs of jump 
     boys huddling

[[Page S7964]]

     in an alley smoking Marlboros. Afterward, he protested to 
     Filipino health activist Phyllis Tabla: ``You've got to do 
     something about this!''
       Her reply: ``Don't lecture us! It's not us! It's you!''
       Philip Morris was so delighted with the success of the 301 
     cases that when Yeutter left USTR in 1989 to become secretary 
     of agriculture in the Bush administration, the company threw 
     a celebration in his honor at the Decatur Club here. When 
     critics raised questions about the reception, Yeutter told 
     the Senate Agriculture Committee: ``It's unfortunate that 
     when people try to say thank you, it becomes a potential 
     conflict of interest issue, but that's the way the world is 
     these days.''
       Looking back, Yeutter said he now feels the reception was a 
     mistake. ``Philip Morris shouldn't have done it,'' he said, 
     ``They were simply trying to be gracious. . . . It simply was 
     not good judgment on their part. And in retrospect I probably 
     should have done more to discourage it.''
       Today Yeutter practices international trade law from a 
     corner office at Hogan & Hartson, Washington's largest law 
     firm. He also sits on the board of British-American Tobacco 
     (BAT), the British-based tobacco conglomerate that owns Brown 
     & Williamson, the Louisville-based cigarette manufacturer 
     that was one of the participants in the 301s. He insists he 
     has not changed his mind about the dangers of smoking. But 
     cigarettes remain a legal product, and, he says, BAT is an 
     excellent, well-run company that he is proud to serve.
       When Yeutter moved to Agriculture, incoming President Bush 
     appointed Carla Hills, a highly regarded lawyer and former 
     housing and urban development secretary, to succeed him at 
     USTR. One canny political pro replaced another. And USTR set 
     its sights on opening more cigarette markets in Asia.
       Next on the agenda was Thailand.
       Conditions there were similar to those in Japan, South 
     Korea and Taiwan: a very promising market in a country 
     undergoing explosive economic growth; a state-run monopoly: 
     tight restrictions on imported cigarettes; an advertising ban 
     purportedly based on health claims.
       After their success in Japan, South Korea and Taiwan, 
     officials were highly optimistic about Thailand.
       The Thai Finance Ministry already was holding discussions 
     about opening its market.
       Thailand, both U.S. officials and industry representatives 
     agreed, would be easy.
       Only they were wrong. As they were about to find out, in 
     pressing on into Thailand, Washington and the industry had 
     gone a country too far.
                                                                    ____


                        Two on Top of the World


 the largest independent tobacco merchants are based in va. but their 
                            growth is abroad

               (By Frank Swoboda and Martha M. Hamilton)

       Richmond.--The faint, pungent smell of tobacco leaf is the 
     first thing you notice when you enter the second-floor 
     executive offices of Universal Corp., the world's largest 
     independent tobacco leaf merchant.
       At Universal, as at the Danville, Va., headquarters of its 
     second largest rival, Dimon, Inc., the smell of tobacco is 
     the smell of money.
       The two companies (and their only other major competitor, 
     Standard Universal Corp. of North Carolina) are the middlemen 
     in the world tobacco industry. They don't make cigarettes or 
     other consumer tobacco products. Instead, they buy, ship, 
     process, pack, store and finance leaf tobacco for sale to 
     cigarette manufacturers.
       Together the two had $5.7 billion in revenue in 1996 from 
     operations in locations that included the United States, 
     Brazil, Tanzania, Zimbabwe, Italy, Bulgaria and China. 
     Despite declining U.S. consumption, and a multibillion-dollar 
     legal settlement by manufacturers that is apt to cut domestic 
     consumption even further, there is no sense of panic in the 
     corridors of these tobacco merchants. Universal and Dimon 
     know the world market--it's enormous and still growing.
       ``The world market is where the bulk of the growth is,'' 
     said Universal Vice President James H. Starkey III. Worldwide 
     tobacco consumption has been rising by 1.2 percent to 1.5 
     percent a year, providing Universal with a consistent 18 
     percent to 19 percent annual return on equity.
       About a third of the tobacco grown in the United States is 
     exported. Last year, that came to 340 million tons of flue-
     cured tobacco, which is harvested over a several-week period 
     and cured by heat, and about 160 million tons of burley 
     tobacco, which is hung to dry and cure, according to Randy 
     Weber, associate administrator for the Farm Service Agency of 
     the U.S. Department of Agriculture.
       ``I don't see us shifting away from tobacco. We have 
     continued to reinvest in tobacco as opportunities arise. 
     We're constantly looking for opportunities for expansion,'' 
     said Starkey.
       His optimism is echoed by those who follow the industry, 
     ``I'd say the future is very strong, although there are going 
     to be short-term ripples because of the cigarette settlement 
     and the imposition of higher prices,'' said David A. Goldman, 
     an industry analyst with Robinson-Humphrey in Atlanta.
       Universal noted in its annual report to stockholders that 
     ``demand for leaf continues to increase in response to an 
     estimated 1 percent annual growth in world cigarette 
     consumption and consumption of American-blend cigarettes is 
     increasing by 3 to 4 percent annually.''
       There is a growing global market for the mild tobacco 
     mixture known as ``American blend'' and for American-style 
     cigarettes, of which Universal is a major supplier. More and 
     more of the leaf that goes into those products is being 
     harvested abroad, putting pressure on U.S. growers but 
     increasing profitability for processors by lowering the price 
     of tobacco. As an example of the shift, Starkey points to 
     France, where, he said, the public is beginning to move away 
     from ``dark tobacco'' cigarettes such as the well-known 
     Gaulois to milder, American blend cigarettes as manufacturers 
     introduce low-cost, generic brands to cultivate a taste for 
     the new blend with the smoking public.
       Universal has operations in 30 countries around the globe. 
     It first went into China in the 1920s, and there and 
     elsewhere it has survived civil wars, communist takeovers and 
     political unrest. ``The one thing we've been good at is 
     managing through instability. We stick to our knitting. We 
     don't get involved in politics,'' Starkey said.
       Karen W.L. Whelan, Universal's treasurer, said the company 
     keeps ``liaison people'' at its headquarters who travel back 
     and forth to various countries to help it keep track of 
     changes overseas.
       The search for new markets has taken Universal from Eastern 
     Europe to the emerging nations of Africa. In the early 1990s, 
     Universal and Philip Morris purchased the largest tobacco 
     processing company in Kazakhstan from the government. In 
     China--the world's largest tobacco producer, growing more 
     than half the world's supply of flue-cured tobacco--Universal 
     manages a new leaf processing plant near Bengbu for the 
     Shanghai Tobacco Co.
       Universal buys the leaf processed at the Chinese plant and 
     has agreed to export a minimum of 70 percent of the tobacco. 
     ``It's the only export operation in China managed by a 
     foreign company,'' Starkey said.
       The company first entered China in 1925, and it remained 
     until the communist takeover. It returned to China when the 
     Nixon administration reopened relations with the Asian nation 
     in the 1970s.
       Like almost all the other U.S.-based multinationals, 
     America's tobacco merchants are watching the vast Chinese 
     market closely, for an obvious reason: Smokers in China 
     consume approximately 1.7 trillion cigarettes a year, far 
     more than the 450 billion a year smoked by U.S. consumers, 
     according to Scott & Stringfellow analyst John F. Kasprzak.
       More than just a tobacco merchant, Universal's interests 
     include lumber and building products distribution in the 
     Netherlands and Belgium. It also buys, processes and 
     distributes tea, rubber, sunflower seeds, dried fruits and 
     seasonings as part of a joint venture with COSUN, a Dutch 
     sugar cooperative. But tobacco is by far its biggest 
     business, accounting for 71 percent of the company's revenues 
     and 83 percent of its operating profits.
       Rival Dimon Inc. is also enjoying an up-curve, reaching 
     almost $2.2 billion in sales last year. Dimon operates in 36 
     countries, and like its Richmond competitor its business is 
     not one-dimensional: It ranks as the world's largest exporter 
     and distributor of fresh-cut flowers. Dimon was formed in 
     1995 by a merger of 120-year-old Dibrell Bros. Inc. of 
     Danville with tobacco processor Monk-Austin of Farmville, 
     N.C. That union created a company that ranked second in its 
     industry to Universal; a deal consummated earlier this year 
     in which Dimon acquired British-based Intabex Holdings 
     Worldwide SA narrowed the gap between the two companies.
       Intabex was a privately-owned company that was the fourth-
     largest leaf tobacco dealer in the world. It owned tobacco 
     buying, processing and exporting operations in the United 
     States, Brazil, Argentina, Malawi, Italy and Thailand and was 
     affiliated with a Zimbabwe company that Dimon also acquired. 
     Its acquisition will offer Dimon considerable opportunity to 
     cut costs, Kasprzak said, by consolidating operations and 
     refinancing Intabex's considerable debt.
       Officials from Dimon declined to be interviewed for this 
     story.
       Both Universal and Dimon have benefited from industry 
     consolidation, which has in the past several years cut the 
     number of major leaf merchants from eight to three. But the 
     same consolidation has hurt U.S. tobacco growers, said Jerry 
     Jenkins, a grower in Lunenberg County, Va., who is also 
     chairman of Tobacco Associates, the export promotion 
     organization for the nation's flue-cured growers.
       ``The problem with the recent mergers and consolidations in 
     the industry is that they reduce competition,'' said Jenkins, 
     who farms about 30 acres of flue-cured tobacco and 3.5 acres 
     of dark fire-cured tobacco. ``It's generally not to the 
     benefit of the seller of the product.''
       Virginia farmers grow flue-cured tobacco on approximately 
     40,000 acres and burley tobacco on about 10,000 acres. 
     Maryland is also a tobacco-growing state but on a much 
     smaller level. Only about 8,000 acres there are devoted to 
     tobacco cultivation, according to the USDA's Weber.
       The increasing worldwide demand for tobacco that is filling 
     the coffers of Universal and Dimon may not be the long-term 
     salvation of these farmers. Although the world's

[[Page S7965]]

     smokers are developing a taste for American blend, U.S.-grown 
     tobacco is simply too expensive for many world markets. U.S. 
     tobacco is still as much as 30 percent higher in price than 
     competitive tobacco products from Brazil and Zimbabwe, 
     according to Universal's Starkey.
       Perhaps an even greater problem for American growers is the 
     financing role the processing companies play in overseas 
     markets. According to analyst Goldman, companies like Dimon 
     contract with a cigarette maker like R.J. Reynolds Tobacco 
     Co. to deliver a certain grade of tobacco a year from now and 
     ask for a down payment. They then use that down payment to 
     provide cash advances to growers in countries such as Brazil, 
     helping to finance farmers there without putting their own 
     funds at risk.
       ``When you're loaning a man money to grow a crop or 
     underwriting his loan and furnishing technical advice, it 
     only seems natural that you're going to want to buy his crop 
     first to recoup that investment,'' said tobacco grower 
     Jenkins. To compete, tobacco growers in Virginia have had to 
     cultivate larger acreages to achieve efficiencies of scale, 
     he said.
       ``We don't like to buy without having an order,'' said 
     Universal's Whelan, adding that most of the company's tobacco 
     purchases are made at local auction, which is how tobacco is 
     sold in this country. She said that in only a handful of 
     countries does Universal have advance contracts with growers, 
     in countries such as Brazil, Guatemala, Mexico and Italy.
       The next possible target for expansion for Universal, Dimon 
     and Standard may be processing tobacco for U.S. cigarette 
     manufacturers who now do their own processing, said Scott & 
     Stringfellow's Kasprzak. In recent years Lorillard Tobacco 
     and RJR turned over their leaf purchasing and some processing 
     to Dimon's predecessors, and others may follow suit.
       In the meantime, Virginia's tobacco merchants can look 
     forward to doing business in a world that every year consumes 
     more cigarettes with no sign of slowing down.

                          ____________________