[Congressional Record Volume 144, Number 54 (Tuesday, May 5, 1998)]
[Senate]
[Pages S4226-S4231]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 COMPREHENSIVE ANTI-TOBACCO LEGISLATION

  Mr. HATCH. Mr. President, to date, our efforts to develop 
comprehensive, bipartisan anti-tobacco legislation have been stymied by 
the lack of consensus on a number of major issues.
  Over the next few weeks, I intend to devote full attention toward 
refocusing our efforts on a bill which can be enacted this year.
  To accomplish that goal, it is important that Congress and the 
Administration reflect on what our objective actually has been--and 
should continue to be.
  Last June, the 40 State Attorneys General, public health 
representatives, tobacco company officials, and representatives of the 
Castano group, announced a bold new initiative focused on eradicating 
the scourge of youth tobacco use.
  This proposed global tobacco settlement presents Washington with a 
once-in-a-generation-opportunity to help families and communities raise 
a whole generation of youth tobacco-free.
  Certainly, no one in Congress was bound to the particulars of the 
June agreement.
  But, we would not have seen such virtually unprecedented legislative 
consideration of the tobacco issue in the past 11 months were it not 
for this settlement.
  In short, our objective in 1997 was to improve the public health, and 
specifically the health of our youth, through a constitutional package 
of reforms which relies on a guaranteed stream of revenue from tobacco 
companies.
  Our objective should be the same in 1998.
  But it appears that it is not.
  Unfortunately, partisan politics, fear, greed and Washington's pile-
on mentality have caused us to lose sight of this objective.
  Instead, we are simply trying to ``out-tobacco'' one another. If that 
continues, the public interest will not be served, and Big Tobacco will 
win.
  As an optimist, I remain hopeful the Congress will succeed this year 
in passing strong, anti-tobacco legislation

[[Page S4227]]

that is comprehensive, workable, and Constitutionally-permissible.
  But as a realist, I also know that the events of the last few weeks, 
in which this issue has become increasingly fractionalized and 
politicized, make our task that much more difficult.
  Comprehensive tobacco legislation is now in jeopardy. Not for want of 
trying, to be sure, but for a lack of consensus on several crucial 
issues.
  For us to consider comprehensive tobacco legislation, and then to 
fail, would be a terrible loss, a loss for our country, a loss for our 
political system, and a loss for the generation of our youth America's 
parents hope to bring up tobacco-free.

  Let me be blunt. Our failure to enact comprehensive anti-tobacco 
legislation would also be a significant victory for the tobacco 
industry, an industry which has knowingly marketed harmful products for 
decades, deliberately targeting our youth in their quest for profits.
  Let me be equally frank. Passage of just any bill will be a 
significant loss for the American people, who should be able to rely on 
their legislators to write sound, responsible legislation.
  In writing a bill, we should not give in to the tobacco industry's 
demands. We should not give in to their less-than-veiled attempts to 
force both the Administration and the Congress into abandoning our 
objectives--addressing the problem of youth tobacco, reforming the 
legal system to allow for appropriate compensation to claimants, 
enhancing biomedical research with respect to tobacco, improving the 
public health, as well as helping our farmers transition away from 
growing tobacco.
  At the outset of my remarks, I want to distinguish carefully and 
clearly any substantive concerns I have about the legislation that has 
emerged from the Commerce Committee with my respect and admiration for 
those who have brought the legislation to this point.
  First and foremost, I commend the Chairman of the Commerce Committee, 
Senator McCain. Anybody who knows anything about John McCain knows that 
he is a patriot and true American hero.
  As I will lay out, while I do have significant concerns with many of 
the major details of the legislation that the Commerce Committee has 
put forward--and would have preferred that we could have worked more 
closely together--I do commend the efforts of all the members of the 
Commerce Committee in moving a bill forward for floor consideration.
  But before I discuss the policies of tobacco control, I want to sound 
a cautionary note about its politics.
  Pundits report that Democrats are in a ``win-win'' position on this 
issue.
  As conventional wisdom goes, the minority can keep on moving the goal 
posts of this legislation, proposing more and more harsh amendments, 
defying Republicans to vote against their ever-changing version of the 
bill.
  In this way, the Democrats can either foster the perception that they 
are tougher on Big Tobacco by making the bill more and more onerous, or 
they can tar and feather any recalcitrant Republicans with the charge 
that Republicans are in cahoots with Big Tobacco. That is pure bunk.
  Listening to the President's press conference last week, I was 
impressed by his earnest statement that this not be an election year 
issue. But, as we all well know, any issue raised consistently fewer 
than six months before an election is an election issue. It cannot be 
avoided.
  All rhetoric aside, the way to accomplish our goal--the reduction of 
youth tobacco use--is for the Congress and the White House to work 
together on a bill which can be enacted and implemented. We are not 
there yet, despite public protestations to the contrary.
  A number of key differences in approach are major stumbling blocks to 
enactment of a bill. These barriers include:


          Allocating any revenues that are derived from a bill

  The Senate budget resolution calls for all revenues to be devoted to 
Medicare.
  While the House has not completed work on its version, there are some 
in the House who believe that tobacco revenues should be used for more 
general tax decreases.
  Others suggest the tobacco revenues be used to help pay for health 
insurance for low-income people.
  A fourth approach is embodied in the President's budget, which 
advances a number of new or expanded domestic spending programs that 
will be financed with tobacco revenues.


               Determining the final cost of the proposal

  The bill approved by the Senate Commerce Committee has an initial 
price tag of $516 billion over the next 25 years, without any 
calculation of the lookback provision, which naturally could push that 
price tag much higher.
  In contrast, the original settlement offered on June 20, 1997 was 
$368.5 billion.
  Legitimate questions have been raised about the ability of various 
industry players to pay a sum as high as $500 billion to $700 billion, 
which is what, extrapolated out, the Commerce bill could cost in the 
end.

  Let's face it, as much as many would like to penalize this industry, 
we are penalizing ourselves if we enact a new program predicated upon 
revenues that won't be there.


               Assessing the per pack or per can increase

  A related question is the price per product increase that will result 
from the new industry payments.
  A widely-reported figure is the Treasury Department's estimate that 
the Commerce bill, for example, will result in a per cigarette 
pack increase of $1.10 five years from now.

  As the Judiciary Committee's hearing last week revealed, we do not 
know the precise methodology the Administration used to make this price 
projection. Deputy Secretary Summers told the Judiciary Committee last 
week that he would provide us with the information that I requested, 
but we are still waiting.
  We do know that Wall Street experts, like David Adelman of Morgan 
Stanley Dean Witter, Martin Feldman of Salomon Smith Barney, and Gary 
Black of Sanford C. Bernstein, have concluded that the Administration's 
projections are far too low and that the true retail price of a pack of 
cigarettes--measured in constant 1997 dollars--will be in the 
neighborhood of $5 per pack in year 5, more than a $3 increase.
  Under this scenario, the price per carton will shoot up $30. This 
increase is almost twice as high, twice as fast, as the ``up to $1.50 
per pack'' increase over 10 years called for by the President last 
September.


               Ascertaining the effect on law enforcement

  The Treasury Department testified before the Judiciary Committee last 
week that ``by closing the distribution chain for tobacco products, we 
will be able to ensure that these products flow through legitimate 
channels and effectively police any leakages that do take place.'' In 
fact, Deputy Secretary Summers said that with these regulatory 
controls, ``we do not expect a large-scale smuggling problem. . .''
  Law enforcement officials at all levels with whom I have spoken are 
not so sanguine. These are the officers who will be on the front lines, 
policing against the violence, hijackings, smuggling, and other related 
crimes that are inherent in any opportunity for a black market.
  One officer with whom I spoke termed the Treasury statement 
``laughable.''


          Developing a consensus on the agriculture provisions

  One of the most unifying themes in the tobacco debate is the need to 
make certain that we provide an adequate program to transition American 
farmers out of tobacco production into other alternatives.
  There are major divisions, however, on how to structure that program. 
There are two major approaches in the Senate, one developed by our 
colleague from Kentucky, Senator Ford (the ``LEAF'' Act), the other by 
our colleague from Indiana, Senator Lugar.
  The major difference between these two bills is that the Lugar bill 
terminates the tobacco price support program, while the LEAF bill does 
not.
  The final key difference is in determining the extent of the role of 
the tobacco companies in any final legislation.
  As many are aware, the Department of Justice has undertaken one or 
more investigations related to tobacco companies.
  If there have been violations of the law, they should be prosecuted 
to their

[[Page S4228]]

fullest, and it behooves the Department to move forward on its 
investigations swiftly and conclusively.
  But this specter of wrong-doing should not be allowed to cast such a 
shadow over the tobacco legislation that it becomes an excuse for 
inaction.
  Some have castigated the companies for their departure from 
directionless congressional deliberations.
  I do not believe that Congress needs the approval of the industry to 
pass tobacco legislation.
  As everyone knows, I am no friend of the tobacco industry or their 
products.
  But, having made these points, as a legislator with a deep 
appreciation of the process of building consensus in our democratic 
society, I do believe that Congress would be wise to consider the 
perspectives of the tobacco industry in fashioning legislation.
  This is true for one very fundamental reason: we want a program which 
works, a program with which this tremendously-resourced, tremendously-
creative industry will comply.
  Perhaps I am just not as smart as those who believe the companies 
cannot contribute anything constructive to the process.
  When Congress is dramatically affecting a sector of the economy, as 
long as that industry's products are legal, as long as they have a 
right to perform in our society, then that industry's views should be 
heard, no matter how much we don't like that industry.
  That should not amount to a veto.
  No outside group--not the tobacco companies, not the private 
attorneys, not the state attorney generals, not the public health 
groups, not anyone--should expect or be granted a veto over this 
legislation.
  What all affected parties should get is a forum for their views, an 
opportunity to be heard. This is the very essence of democracy.
  So I must ask those who pride themselves on not sitting down at the 
table with this industry to reexamine this position.
  I echo the suggestion that Mississippi Attorney General Mike Moore 
made a few weeks ago, that the President reconvene all of the original 
participants in these negotiations. Congress should be part of such 
talks.
  It just seems to me that beyond the purely public health issues, 
tobacco legislation has major social, political, and economic 
dimensions that argues for an inclusive process as possible.
  Some 50 million Americans use these products. Public health experts 
almost unanimously agree that we should not make them go cold turkey 
overnight.
  There is also the question of political philosophy of whether it is a 
proper role for the government to take away the freedom of adult 
Americans to consume tobacco products.
  Moreover, as a conservative, I am generally loath to endorse any type 
of new taxes. I am particularly sensitive about advocating a regressive 
scheme whereby the lower income segments of our society which have 
disproportionately higher smoking rates are called upon, in essence, to 
fund social programs dictated by the political elites.
  Tobacco revenue ought not be used to finance an explosion of new 
entitlements, a veritable ``honey pot'' of money to fund a mini Great 
Society.
  I am afraid that the President's approach in the budget strays down 
this path by paying for child care and education initiatives with the 
as yet agreed upon and uncollected tobacco revenues.
  To put it bluntly, the President has spent the money even before 
Congress has passed a bill.
  Also from an economic standpoint, I am mindful that several million 
decent, tax-paying, Americans are dependent, directly or indirectly, on 
the tobacco industry for their livelihoods.
  We have wisely, I think, sought to make an accommodation to the 
thousands of tobacco farmer families.
  Do we not also have some similar responsibility to carefully consider 
the economic interests of those who work on the loading docks at Philip 
Morris or sell cigarettes at the local gas station or 7-11 Store?
  Still other of our citizens are shareholders in these firms or may be 
dependent on pension funds with substantial holdings of tobacco 
securities.
  I note that Yale University, home of one of the most absolutist anti-
tobacconists, Dr. David Kessler, recently voted not to divest its 
tobacco holdings from its endowment investment portfolio. To me, this 
says a lot.
  We in Congress and the Administration must take care not to engage in 
a game of political one-upsmanship in which we all trip over ourselves 
in the race to show the public who is the toughest on tobacco.
  We may find that in the quest to punish the black-hatted tobacco 
industry we will have trampled over the interests and security of a lot 
of ordinary, hard-working Americans.
  These are very hard questions to answer, but they are questions which 
must be resolved before Congress can write a tobacco bill.
  Ten days ago, I received a bipartisan letter from four of the State 
Attorneys General who participated in last year's settlement 
negotiations.
  This letter--which I believe is a serious effort to help Congress 
make the corrections necessary before we consider the Commerce 
Committee legislation--highlighted three areas of concern, three 
particular areas in which Congress runs the risk of undermining the 
settlement's objectives if it continues down the current road.
  I ask unanimous consent that that letter be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                       Colorado Department of Law,


                               Office of the Attorney General,

                                        Denver, CO, April 24, 1998
     Hon. Orrin G. Hatch,
     U.S. Senate,
     Russell Building, Washington, DC.
       Dear Senator Hatch: We are pleased to respond to your 
     request for our legal views on pending tobacco legislation. 
     You have specifically asked us about any constitutional 
     concerns and the consequences. There are three key issues of 
     concern to us: 1. the difficulty of accomplishing several 
     provisions of the legislation without the industry's waiver 
     of constitutional challenges; 2. the potential for creating a 
     contraband market; and 3. potential bankruptcy of the 
     industry.
       We are glad that Congress is now seriously focusing on 
     passing comprehensive tobacco legislation and that full 
     Senate consideration is likely in the near future. We have 
     appreciated the opportunity to work with you, Senator McCain, 
     and others throughout the hearing process and committee 
     consideration of tobacco issues. Your leadership in holding 
     the first Congressional hearings last year addressing the 
     legal complexities of the tobacco settlement was especially 
     helpful. We look forward to continuing to share whatever 
     insight and expertise we have gained from several years of 
     engaging in legal battles with the tobacco industry.
       The landmark agreement reached on June 20, 1997, was not 
     perfect, but it includes critical themes which should provide 
     the framework for any Congressional action. Tobacco 
     legislation must be comprehensive. It must pass 
     constitutional muster so the war against teen smoking moves 
     to the streets and not the courthouse. And any financial 
     settlement must not bankrupt the industry and produce even 
     greater problems for the nation.
       As lawyers, we believe that the industry's waiver of 
     constitutional challenges is necessary to accomplish many of 
     the public health goals within the bounds of the 
     Constitution. Losing the voluntary nature of the settlement 
     agreement may have severe legal repercussions. Therefore, the 
     following consequences should be considered:


                           no consent decrees

       Consent decrees are essential to ensure long-term 
     compliance by the industry with key elements of the 
     comprehensive package. Consent decrees, by definition, 
     require the consent of all parties to the litigation. If a 
     party does not agree to the terms of a proposed decree, then 
     the court cannot thrust a settlement upon the parties. 
     Theatre Time Clock Co., Inc. v. Motion Picture Advertising 
     Corp., 323 F. Supp. 172, 173 (E.D. La. 1971). Therefore, If 
     any party objects to a term contained within a proposed 
     consent decree, a court cannot order its acceptance. Flight 
     Transportation Corp. Securities Litigation v. Fox and Co., 
     794 F.2d 318, 321 (8th Cir. 1986). Consequently, if the 
     tobacco industry will not enter into the consent decrees, 
     particularly the advertising restrictions, corporate culture, 
     payments, and other enforcement mechanisms of the decree, the 
     lawsuits cannot be settled with assurance. The states will 
     lose those enforcement mechanisms that were contemplated to 
     be included in such consent decrees.


                          look-back penalties

       Penalties must have a direct relationship to the harm being 
     prevented. Penalties imposed by the government must be 
     ``rational in light of [their] purpose to punish what has 
     occurred and to deter its repetition.'' Pulla v. Amoco Oil 
     Company, 72 F.3d 648, 658 (8th Cir. 1995). Therefore, there 
     must be a reasonable relationship between the penalties 
     imposed and the harm likely to result from the defendant's 
     conduct as well as the harm that

[[Page S4229]]

     has actually occurred. Id. at 659 (quoting TXO Prod. Corp. v. 
     Alliance Resources Corp., 509 U.S. 443 (1993)).
       Although the courts have not articulated any precise 
     formula for ascertaining the ``reasonableness'' of penalties, 
     Justice Scalia observed that the touchstone is the value of 
     the fine in relation to the particular offense. Austin v. 
     United States, 509 U.S. 602, 627 (1993) (Scalia, J., 
     concurring in part and concurring in the judgment). If there 
     is no reasonable relationship, the penalties would be 
     considered an excessive fine and would not withstand judicial 
     scrutiny. See generally TXO, 509 U.S. 443; Pulla, 72 F.3d 
     648.
       The June 20 agreement with the tobacco industry had a 
     formula for the penalties imposed, which linked the actual 
     cost of a youth who begins smoking and the profit received 
     from that youth over the course of his life, to the amount of 
     the penalty. This demonstrates precisely the type of rational 
     relationship required by courts.
       However, the proposed look-back penalty may not pass 
     judicial scrutiny. At $3.5 billion, the fines are the largest 
     imposed on any industry for any conduct. As originally 
     proposed, the penalties could be suspended if the 
     manufacturers made serious, good faith efforts to curb youth 
     smoking but, unfortunately, failed to successfully change the 
     behavior of teenagers. This approach provided a due process 
     review, rather than imposing penalties through strict 
     liability. Under the current Senate Commerce bill, the 
     companies will be penalized even if they make every 
     reasonable attempt to halt youth smoking.
       A look-back penalty closely tied to tobacco company 
     behavior, or a penalty voluntarily agreed to by the 
     companies, is constitutionally sound and a valuable mechanism 
     for fighting youth smoking.


                 advertising and marketing restrictions

       The District court in Beahm v. U.S. Food and Drug 
     Administration, 966 F.Supp. 1374 (M.D.N.C. 1997), held that 
     the FDA's regulations relating to restrictions on tobacco 
     advertising were beyond the authority of the FDA and, 
     therefore, were invalid. This case is currently on appeal to 
     the Fourth Circuit. Although that court has not yet ruled on 
     the validity of existing FDA advertising regulations, even if 
     it should find that those regulations are within the purview 
     of FDA control, the advertising and marketing restrictions 
     set forth in the June 20th agreement may not survive First 
     Amendment review. This is in part because the restrictions 
     envisioned by the June 20 agreement are much more expansive 
     than the FDA restrictions currently being litigated. The 
     total ban on outdoor advertising, black and white only ads, 
     prohibition on Internet advertising, and prohibition on event 
     sponsorship are but a few examples of the marketing and 
     advertising restrictions contained in the June 20 agreement, 
     implemented by the voluntary Master Settlement Agreement, 
     Protocol and consent decree.
       It has been recognized that the First Amendment ``directs 
     us to be especially skeptical of regulations that seek to 
     keep people in the dark for what the government perceives to 
     be their own good.'' Liquormart, Inc. v. Rhode Island, 116 
     S.Ct. 1495, 1508 (1996). Furthermore, even communications 
     that do no more than propose a commercial transaction are 
     entitled to the coverage of the First Amendment. Id. In 
     recognition of the seriousness of this issue, the Supreme 
     Court has stated that ``when a State entirely prohibits the 
     dissemination of truthful, nonmisleading commercial messages 
     for reasons unrelated to the preservation of a fair 
     bargaining process,'' strict scrutiny is applicable. Id. at 
     1506. Consequently, in order to survive judicial review, the 
     government must demonstrate that its restriction on speech 
     was no more extensive than necessary. Id. at 1509. Because of 
     this heavy burden, ``speech prohibitions of this type rarely 
     survive constitutional review.'' Id. at 1508.
       Although the June 20 agreement with the tobacco companies 
     does not propose a total ban on advertising, its 
     expansiveness may nonetheless cause a reviewing court to 
     apply the strict scrutiny review utilized in Liquormart. As 
     that court recognized, not all commercial speech regulations 
     are subject to a similar form of constitutional review. Id. 
     at 1507. Therefore, when a state regulates commercial 
     messages to protect consumers from deceptive, misleading, or 
     otherwise harmful advertisements, ``less than strict review'' 
     is appropriate. Id. However, because the advertisements 
     forbidden by the June 20 restrictions would have presumably 
     been truthful in nature and the restrictions are being 
     implemented for purposes other than protecting the bargaining 
     process, it seems likely that this less stringent standard of 
     review would be inapplicable. Consequently, the government 
     would have to demonstrate that there were no less intrusive 
     means available to accomplish their goals. As the court in 
     Liquormart recognized, application of this standard usually 
     acts as the death knell for government restrictions. Id. at 
     1508.
       In this same vein, the restrictions included in the June 20 
     agreement could probably not be characterized as time, place 
     or manner of expression restrictions, which carry with them a 
     less stringent standard of review. Specifically, such bans 
     are content neutral. See generally Kovacs v. Cooper, 336 U.S. 
     77 (1949). Conversely, the bans envisioned in the agreement 
     are obviously content driven.
       In sum, the expansiveness of the proposed advertising 
     restrictions as well as the high burden that must be met in 
     order to justify such restrictions, raise serious concerns 
     that without the industry's voluntary consent and 
     participation, the advertising prohibitions envisioned in the 
     June 20 agreement may not survive First Amendment scrutiny.
       Additionally, the June 20 agreement incorporated the FDA 
     regulations, which, if overturned by the Fourth Circuit, 
     would also be unavailable as a regulatory mechanism. While it 
     is true that the industry would have some incentive to limit 
     its advertising and marketing to achieve the look back 
     requirements, if the look back penalties are also found to be 
     legally deficient, their value as an incentive would be 
     eliminated.


advertising restrictions against retailers, distributors, wholesalers, 
                       and advertising businesses

       The June 20 agreement contemplated that the participating 
     companies would police their retailers, wholesalers, 
     distributors, and advertising agencies by contract and by 
     refraining from placing ads with them. These voluntary 
     implementation mechanisms were to be built into the Master 
     Settlement Agreement, Protocol and consent decrees. However, 
     any legislation that could be unconstitutional as to the 
     industry could also be unconstitutional as to the related 
     agents. Therefore, the same First Amendment issues that could 
     preclude the government from instituting blanket prohibitions 
     on advertising by tobacco manufacturers may also preclude 
     prohibitions affecting industry agents.


                          document disclosure

       The public depository of documents set forth in the June 20 
     agreement presumed some level of voluntary participation on 
     the part of the tobacco industry. While documents filed in 
     court, or otherwise made available to the public, can 
     certainly be put in a central public depository, it is 
     questionable that the industry can be required to release 
     documents not otherwise available, including documents it 
     considers privileged or confidential, as well as any future 
     documents or research.
       Obviously, almost any American business would object to the 
     government seizing its internal corporate documents and 
     opening them for inspection. The depository raises both 
     private property and search and seizure concerns.
       The Fifth Amendment provides in part: ``nor shall private 
     property be taken for public use, without just 
     compensation.'' U.S.C.A. Const. Amend. 5. It has been widely 
     recognized that the property to which this amendment applies 
     is that which ``is made up of mutually reinforcing 
     understandings that are sufficiently well grounded to support 
     a claim of entitlement.'' Nixon v. U.S., 978 F.2d 1269, 1275 
     (1992) (recognizing that former President had a property 
     interest in presidential papers). Those property interests 
     may be created in a myriad of ways, including uniform custom 
     and practice. Id. at 1276.
       Accordingly, the documents that were to be deposited by the 
     tobacco companies in a public depository constitute 
     ``property'' for Fifth Amendment purposes. This conclusion is 
     consistent with the district court's decision in Nika Corp. 
     v. City of Kansas City, 582 F. Supp. 343 (W.D. Mo. 1983), 
     wherein it was held that a corporation's documents 
     constituted ``property'' invoking Fifth Amendment 
     protections. See also U.S. v. Dauphin Deposit Trust Co., 385 
     F.2d 129 (3rd Cir. 1967) (trust company had a property 
     interest in various business records). In Nika the court held 
     that the government could not confiscate particular business 
     documents without providing for a method of compensation for 
     such taking. Id. Although the court found that there were 
     adequate means provided in that case, this clearly 
     demonstrates that corporate documents constitute ``property'' 
     for Fifth Amendment purposes, thereby invoking the necessity 
     for compensation when the government takes such for public 
     purposes. Consequently, there is a strong possibility the 
     tobacco companies could not be compelled to deposit the 
     documents specified in the June 20 agreement without just 
     compensation.
       Furthermore, if the Fifth Amendment protects the industry 
     from being required to hand over to the government all of its 
     documents, it seems that it would also protect them from 
     being required to pay the costs of the depository, unless the 
     costs are somehow built into other licensing fees.
       The tobacco companies would almost certainly raise 
     objections based on case or controversy and standing against 
     individuals wishing to challenge a decision by the companies 
     to withhold documents. Under Article III, Sec. 2 of the 
     Constitution, the federal courts have jurisdiction over 
     disputes only where there is a ``case'' or ``controversy.'' 
     Raines v. Byrd, 117 S.Ct. 2312, 2317 (1997). One element of 
     that test requires the complainant to establish that they 
     have standing to sue. Id. This requires the complainant to 
     demonstrate that he has suffered a personal injury fairly 
     traceable to the defendant's allegedly unlawful conduct * * 
     *.' Id. Therefore, any individual wishing to protest tobacco 
     companies' refusal to disclose documents would have to 
     establish that they were injured by such refusal Presumably, 
     the only means of doing so would be to assert that the 
     refusal negatively impacted their own personal pending 
     litigation with a particular tobacco company. However, this 
     would be difficult to demonstrate because a tobacco company's 
     refusal to deposit documents in a public depository is not 
     the equivalent of refusing to produce those documents in a 
     particular action. Consequently, any individual

[[Page S4230]]

     wishing to protest the tobacco companies' refusal to disclose 
     documents might have to wait until their own suit was filed, 
     motions for discovery were made, and a particular tobacco 
     company refused to comply, before they would have standing on 
     this issue. Even then, they might not be able to demonstrate 
     that they were somehow injured by the tobacco company's 
     refusal to place such documents in a public depository.
       One of the primary benefits to individual claimants of 
     having the industry documents placed in a public depository, 
     aside from having ready access to the documents, is the 
     voluntary agreement of the companies not to challenge the 
     authenticity of the documents when they are offered as 
     evidence in individual trials. The companies are now well-
     known for fighting vigorous evidentiary battles. If the 
     industry does not enter into the voluntary agreements, one 
     can also assume that they will challenge the introduction of 
     these documents in individual trials, resulting in 
     considerably more expense for the plaintiffs than was 
     envisioned under the June 20 agreement.


                               contraband

       As law enforcement officials of the states, we are also 
     concerned about the danger of creating a contraband market 
     for tobacco products. Our children will not be helped by 
     creating a new product line for organized crime, nor by 
     providing a new entry market for drug dealers. Additionally, 
     the adverse health consequences of smoking cigarettes 
     produced in unregulated foreign or clandestine domestic 
     markets are likely to be even more significant than 
     cigarettes produced by the existing U.S. companies.
       The experience of the states with relatively high tax rates 
     on tobacco products has been studied in some detail. Revenues 
     lost to smuggling cigarettes into these states has been a 
     major concern. This is estimated to be a $1 billion per year 
     problem nationwide. In 1988 California increased its tobacco 
     tax from 18 cents to 35 cents per pack and today the 
     contraband market is estimated to be between 17.2 and 23% of 
     cigarettes sold. Michigan increased its cigarette tax in 1994 
     from 25 cents to 35 cents a pack. Michigan lost an estimated 
     $144.5 million per year in tax revenue. Washington State 
     increased its tax in 1997 to 82.5 cents per pack, and lost an 
     estimated $110 million a year to smuggling. New York State, 
     with a 56 cent state tax estimates it is losing about $300 
     million of tax revenue per year due to smuggling. The typical 
     scenario after a state makes a significant increase in its 
     cigarette tax is a decrease in sales in that state, but a 
     marked increase in sales in neighboring states. Smoking rates 
     in the higher-tax state typically remain the same, so the 
     increase in sales reflects purchases to take into the higher-
     tax state.
       There is a definite correlation between tax rates and the 
     level of smuggling. For many years, the differential in tax 
     rates on tobacco products was mainly an interstate problem 
     with contraband products being smuggled into those states 
     with the highest tax rates. The problem has now reached 
     international proportions. At first, popular American brands 
     were smuggled into other countries. We are now seeing that as 
     tobacco taxes rise nationwide, foreign manufactured 
     cigarettes and other products are being smuggled into the 
     United States.


                               bankruptcy

       Finally, we believe it to be in the best interests of 
     accomplishing the broad public health goals of legislation to 
     avoid bankruptcy of the tobacco industry.
       Critics of the June 20 settlement have suggested that 
     bankruptcy is not a great risk. This industry has a history 
     of annual domestic profits. For example in 1996 Philip Morris 
     and RJR (76 percent of the market) had domestic profits of 
     $6.3 billion. While it is not possible to determine precisely 
     the market value of the domestic tobacco companies (not the 
     parent companies), it is possible to estimate their market 
     value--if they were sold today. The stock of the Nabisco Food 
     Company, which is 80.5 percent owned by RJR, trades publicly. 
     This allows an extrapolation of the value which the market 
     places on RJR's tobacco operations. That value is $1.184 
     billion. Part of that is comprised of international 
     operations and part is domestic. Foreign tobacco companies 
     like Imperial and Gallaher trade at price earning rations of 
     10 to 11. If one uses a 10.5 P/E for Reynolds' international 
     earnings, Reynolds' domestic operations have a negative 
     market value of $1.1196 billion. Using similar valuation 
     methods for the other companies, Brown & Williamson is worth 
     a negative $240 million; Lorillard is worth a positive $641 
     million and Philip Morris USA is positive $3.855 billion. If 
     one were to ignore the fact that foreign tobacco companies 
     trade at P/E's higher than the imputed value of domestic 
     companies and assume identical valuation of domestic and 
     foreign companies, the entire domestic industry could be 
     worth as much as $21.484 billion. On this basis, the total 
     market of the industry (both foreign and domestic) is 
     estimated to be less than $50 billion. Liability to the 
     states alone exceed several hundred billion dollars. The 
     conclusion is obvious--this is an industry that produces 
     significant cash but has questionable inherent value as many 
     industry assets cannot be converted to other uses and have 
     little value outside the tobacco environment.
       State Attorneys General do not seek financial ruin of any 
     industry. It is our job to bring about compliance with the 
     laws and that is what we seek from the tobacco companies. 
     This is an industry that sells a legal product, employs 
     thousands of people, and provides a living to many more, 
     ranging from farmers to retailers. Our goal has been to hold 
     the industry accountable for its actions, and to provide for 
     significant public health gains. If the current companies are 
     liquidated, new companies can be expected to step into the 
     breach, within or outside this country. We would have 
     virtually no claims against these replacement tobacco 
     companies for past industry practices. Further, foreign 
     tobacco companies (possibly with manufacturing operations 
     abroad) might immediately step in to satisfy US demand for 
     cigarettes. This, of course, could hurt our farming 
     communities and those whose employment depends on this 
     industry.
       In conclusion, we appreciate your interest and efforts to 
     move comprehensive legislation forward. We are concerned that 
     the fundamental goal of reducing youth smoking may be lost in 
     the current political rhetoric. It's time for action and for 
     comprehensive legislation to achieve this goal now, not after 
     years of additional litigation and debate.
           Sincerely,
     Gale A. Norton,
       Attorney General,
       State of Colorado.
     Betty D. Montgomery,
       Attorney General,
       State of Ohio.
     Jan Graham,
       Attorney General,
       State of Utah.
     Christine O. Gregoire,
       Attorney General,
       State of Washington.

  Mr. HATCH. In brief, the concerns highlighted in this letter from the 
Attorneys General of Colorado, Ohio, Utah and Washington are:
  (1) The difficulties created by enacting legislation without the 
industry's voluntary waiver of several constitutional prerogatives.
  The Generals raise specific legal concerns about attempting to 
legislate in the absence of consent decrees and other voluntary 
agreements with the industry.
  These concerns go to several major features of any comprehensive 
bill: advertising and marketing restrictions (including restrictions 
affecting retailers, distributors, and advertisers); look back 
penalties; and document disclosure.
  We should also take to heart General Mike Moore's observation that, 
in the nearly three years since it was first proposed, the FDA's rule 
on tobacco advertising has not gone into effect.
  We all know the cause: litigation.
  But by settling the lawsuit, in Mississippi, there is no billboard 
advertising today, a result that goes far beyond the FDA rule and what 
the Constitution would permit us to do legislatively.
  (2) The second concern of the Attorneys General is the untoward 
effect that the potential bankruptcy of the tobacco industry would 
entail. Let me be clear about my position on this.
  I would like nothing more than for the tobacco industry to pay a 
trillion dollars. But I also want an anti-tobacco program which works. 
All of the bills before Congress have in common a serious effort to 
curtail youth tobacco use. All of the bills rely on industry payments 
to fund those efforts.

  If we bankrupt the companies, or if we drive them offshore, 
ultimately no one wins, because we need the industry payments to fund 
the massive anti-tobacco program the American public wants. Without 
that funding source, the whole program goes down the drain.
  If the companies become bankrupt or move offshore, it is a whole new 
ball game, and one which we cannot control.
  It would be more intellectually honest just to ban tobacco.
  On this subject, the AGs' letter said:

     State Attorneys General do not seek financial ruin of any 
     industry. It is our job to bring about compliance with the 
     laws and that is what we seek from the tobacco companies. 
     This is an industry that sells a legal product, employs 
     thousands of people, and provides a living to many more, 
     ranging from farmers to retailers. Our goal has been to hold 
     the industry accountable for its actions, and to provide for 
     significant public health gains. If the current companies are 
     liquidated, new companies can be expected to step into the 
     breach, within or outside this country. We would have 
     virtually no claims against these replacement companies for 
     past industry practices. Further, foreign tobacco companies 
     (possibly with manufacturing operations abroad) might 
     immediately step in to satisfy U.S. demand for cigarettes. 
     This, of course, could hurt our farming communities and those 
     whose employment depends on this industry.

  (3) The third major point of concern for the Attorneys General is the 
potential for increasing the black market for illegal contraband 
cigarettes.

[[Page S4231]]

  A recent case study from Alaska is illustrative. Five months ago, 
Alaska increased its cigarette tax from 29 cents to one dollar. From 
all we know about nicotine addiction, the resulting decrease in sales 
cannot be explained by sudden cessation. Rather, it appears that legal 
sales were replaced in part by black market cigarettes. The Alaskan 
legislature is considering rolling back some of the tobacco taxes.

  With respect to the issue of contraband the AGs' letter says:

     As law enforcement officials of the states, we are also 
     concerned about the danger of creating a contraband market 
     for tobacco products. Our children will not be helped by 
     creating a new product line for organized crime, nor by 
     providing a new entry market for drug dealers. Additionally, 
     the adverse health consequences of smoking cigarettes 
     produced in unregulated foreign or clandestine markets are 
     likely to be even more significant than cigarettes produced 
     by the existing U.S. companies . . .

  The letter from the AGs notes that the cigarette contraband problem 
is already a $1 billion nationally. For example, the AGs provide an 
estimate that in the state of California--which raised its state 
tobacco tax in 1988 from 18 cents to 35 cents a pack--that today 
between 17% and 23% are smuggled. That's about 1 in every 5 cigarettes.
  The AG's letter goes on to say:

     There is a definite correlation between tax rates and the 
     level of smuggling. For many years, the differential in tax 
     rates on tobacco taxes was mainly an interstate problem with 
     contraband products being smuggled into those states with the 
     highest tax rates. The problem has now reached international 
     proportions. At first, popular American brands were smuggled 
     into other countries. We are now seeing that as tobacco taxes 
     rise nationwide, foreign manufactured cigarettes and other 
     products are being smuggled into the United States.

  I have also received letters from a number of law enforcement 
organizations, whose thousands of members will be expected to provide 
the first line of defense against these smugglers. These law 
enforcement officers are extremely apprehensive that passage of 
this legislation will precipitate the emergence of a thriving black 
market in cigarettes, posing huge problems for law enforcement at every 
level. They say the Commerce bill, in particular, will inevitably lead 
to the creation of a massive black market, giving organized crime a new 
line of business and undermining not only respect for the rule of law, 
but also the real goal of the legislation, preventing underage tobacco 
use.

  I might also add that one of the most frightening outcomes of a new 
black market would be the likelihood that children will find it easier 
than ever to purchase tobacco products.
  One of government's principal responsibilities is to help families 
and communities keep children from smoking. A large, lucrative black 
market could have the unintended consequences of making parents' job 
harder.
  It is not too hard to envision unregulated cigarettes being sold on 
literally every street corner.
  In response to this concern we have been told by the Administration 
not to worry because the system contemplated by the Commerce Committee 
bill is a closed system.
  When our colleague from California, Senator Feinstein, asked a series 
of questions about this black market she was repeatedly told about this 
purported closed system.
  I believe that Senator Feinstein shares my concern about the 
government's ability to design a ``closed system,'' given our 
experience with guarding the nation's borders and safeguarding our 
children in the costly and never-ending battle against illicit drugs.
  I share Senator's Feinstein's pointed remarks on this issue because 
I, too, simply do not believe that this closed system will prove so 
easy to implement.
  It seems to me that the real question for policymakers is this. Given 
these facts, how can we shape a comprehensive national tobacco control 
strategy that can help prevent the next generation of young Americans 
from choosing to use tobacco and help those already addicted to stop?
  In my view, most of the essential elements for answering this 
question can be found in the proposed global tobacco settlement 
announced last June 20th.

  In return for funding a comprehensive anti-tobacco education and 
cessation program with an unprecedented payment of $368.5 billion 
spread over 25 years, under the agreement the industry would be granted 
a measure of financial certainty and predictability by settling a 
series of pending lawsuits.
  Now, almost 11 months after that settlement was proposed, it still 
holds forth the best model for comprehensive legislation which can be 
enacted this year.
  It contains the limited liability provisions which are necessary to 
evoke tobacco industry compliance with the program.
  The President's most senior representatives have said, both publicly 
and privately, that they would not oppose some version of those 
provisions in a bill which was otherwise acceptable. It is not the 
breaking point some assert it to be.
  The AGs' proposal also avoids some of the pitfalls inherent in 
legislation currently being discussed. For example, it will pass 
Constitutional scrutiny.
  At some point, you have to stand up for some principles like the 
First Amendment's protection of commercial speech--a principle that, 
according to virtually every constitutional law expert that has 
testified before the Judiciary Committee, will be subject to court 
intervention if advertising and promotion restrictions of tobacco 
products are written into a federal statute.
  For example, noted First Amendment practitioner Floyd Abrams has 
stated that attempting to codify the existing FDA rule--currently in 
held in abeyance pending further judicial proceedings in the Fourth 
Circuit Court of Appeals, would run afoul of First Amendment 
protection.
  By virtually insisting that the Commerce Committee codify the FDA 
rule, the Administration is risking a protracted Constitutional battle 
over advertising provisions that industry will voluntary go far beyond.
  Still others point out that, absent industry agreement by contract 
and consent decree, it will be unconstitutional to require so-called 
industry lookback penalties if certain tobacco reduction targets are 
not met.
  Mr. President, these are issues that concern me very much.
  They are issues which merit serious study, and then concerted action, 
but they should not be stumbling blocks to enactment of a final bill.
  I am alarmed.
  I see the sands racing through the hourglass as we move toward 
adjournment, but I do not see consensus emerging on the shape of 
tobacco legislation.
  Indeed, I see the Congress increasingly polarized, as members race 
into either one of two camps: the ``keep-upping-the-ante'' faction, 
those who will ``pile on'' any punitive bill, or the ``minimalist 
approach'' contingent.
  The result of this polarity is a paralysis which cannot be breached 
until we realize we are jeopardizing our effectiveness through 
politicization.
  Surely there is a middle ground, a basis for legislation which 
focuses on our real target--weaning a generation of kids off of 
nicotine--not on the politics of punishment.
  These political games not only disappoint those we represent, but 
also, as I have outlined, punish them as well.
  We owe our kids, and we owe their parents, hard-working Americans in 
every state, so much, much more.

                          ____________________