[Congressional Record Volume 146, Number 70 (Thursday, June 8, 2000)]
[Senate]
[Pages S4821-S4823]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CONRAD (for himself, Ms. Collins, and Mr. Robb):
  S. 2696. A bill to prevent evasion of United States excise taxes on 
cigarettes, and for other purposes; to the Committee on Finance.


              gray market cigarette compliance act of 2000

  Mr. CONRAD. Mr. President, I am pleased today to join my good friends 
from Maine and Virginia, Ms. Collins and Mr. Robb, in introducing the 
Gray Market Cigarette Compliance Act of 2000. The growth in this gray 
market in cigarettes represents not only an economic threat, but a 
significant public health menace as well. This legislation will provide 
law enforcement with better and more effective tools to fight this 
dangerous intrusion into our marketplace.
  This bill concerns itself with cigarettes manufactured for overseas 
markets that nevertheless find their way into our domestic stream of 
commerce. Even if they have been manufactured in the United States, 
they are not required to comply with U.S. content disclosure and health 
labeling requirements. Thus, when they are brought back into the U.S. 
by gray market profiteers, they represent a serious public health 
concern. And because they are often sold at prices below those of 
products manufactured to comply with our tough cigarette marketing 
laws, they become more attractive and available to children.
  The gray market is unfair competition, plain and simple. Consumers 
often purchase gray market products thinking they are the same as the 
legitimate products manufactured for sale in the U.S. When gray 
marketers bring in cigarettes that are not manufactured in full 
compliance with U.S. law, they mislead unwitting consumers.
  Consumers are not the only ones affected. Gray marketers also harm 
the legitimate wholesalers and retailers who work hard and play by the 
rules by exploiting gray areas in the law in order to gain this unfair 
competitive advantage.
  It is important to stress as well the implications of the gray market 
in cigarettes for states under the tobacco Master Settlement Agreement 
(MSA). One of the major components of the MSA provides that payments to 
states are based on a formula that takes into account the annual volume 
of tobacco sold in each state. Gray market cigarettes are not counted 
under that volume adjustment formula. Therefore, to the extent that 
gray market sales displace sales of cigarettes that are counted in the 
volume adjustment, states could lose a portion of the amounts they 
would otherwise receive under the MSA.
  The Gray Market Cigarette Compliance Act will help consumers, 
retailers, wholesalers, and federal and state governments. It will 
strengthen the hand of law enforcement to combat the sale of gray 
market cigarettes and close loopholes that gray markets have been able 
to exploit. But most importantly, it will help keep cheap cigarettes 
out of the hands of children.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2696

       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 ``Gray Market Cigarette 
     Compliance Act of 2000''.

     SEC. 2. FINDINGS.

       Congress finds that additional legislation is necessary to 
     prevent evasion of United States taxes on cigarettes, to 
     ensure that the packages of all cigarettes sold or 
     distributed in the United States bear the health warnings 
     required by Federal law, to ensure compliance with applicable 
     Federal ingredient reporting requirements, and to improve the 
     enforcement of existing United States trademark laws so as to 
     prevent consumer confusion and deception. In support of this 
     finding, Congress has determined that:
       (1) Prevention of federal tax evasion.--
       (A) Cigarettes manufactured in the United States that are 
     labeled and shipped for export are not subject to the excise 
     taxes that otherwise would be payable with respect to such 
     products when removed from the premises of the manufacturer.
       (B) Enforcement difficulties are created for the 
     authorities charged with ensuring that proper taxes are paid 
     whenever export-labeled cigarettes are sold or distributed in 
     the United States.

[[Page S4822]]

       (C) The Balanced Budget Act of 1997 imposed restrictions on 
     the domestic sale or distribution of export-labeled 
     cigarettes, but such provisions have not been adequate to 
     prevent continued evasion of United States taxes on 
     cigarettes.
       (D) Enforcement of Federal cigarette tax laws will be 
     enhanced substantially if cigarettes manufactured in the 
     United States and labeled for export are not sold or 
     distributed in the United States.
       (2) Ensuring compliance with federal health warnings and 
     ingredient reporting requirements.--
       (A) Congress has required that specified warnings appear on 
     the packages of all cigarettes manufactured, packaged, or 
     imported for sale or distribution in the United States.
       (B) Congress has required that each person who 
     manufactures, packages, or imports cigarettes for sale or 
     distribution in the United States annually provide the 
     Secretary of Health and Human Services with a list of the 
     ingredients added to tobacco in the manufacture of such 
     cigarettes.
       (C) The public health objectives of the foregoing 
     requirements will be advanced by adopting additional 
     mechanisms for ensuring that these requirements are met with 
     respect to all cigarettes for sale or distribution in the 
     United States.
       (3) Enforcement of federal trademark laws.--
       (A) Cigarettes manufactured for sale abroad have 
     characteristics that differentiate them in material respects 
     from cigarettes that bear the same trademarks but that are 
     manufactured for sale in the United States.
       (B) Such material differences may include tar and nicotine 
     yields, incentive programs, and quality assurances with 
     respect to distribution and storage.
       (C) When cigarettes bearing trademarks registered in the 
     United States are manufactured for sale or distribution 
     outside the United States but are diverted or reimported for 
     sale or distribution in the United States, there is a 
     substantial risk of consumer confusion and deception. 
     Stickers and other similar devices are inadequate to prevent 
     such confusion and deception.
       (D) In order to effectuate the purposes of the United 
     States trademark laws, including the prevention of consumer 
     confusion and deception, additional legislation is necessary 
     to allow United States trademark holders to enforce fully 
     their rights against infringing cigarettes whether such 
     cigarettes were manufactured in the United States or abroad.

     SEC. 3. RESTRICTIONS ON TOBACCO PRODUCTS INTENDED FOR EXPORT.

       (a) Restrictions on Tobacco Products Intended for Export.--
     Section 5754 of the Internal Revenue Code of 1986 is amended 
     to read as follows:

     ``SEC. 5754. RESTRICTIONS ON TOBACCO PRODUCTS INTENDED FOR 
                   EXPORT.

       ``(a) Export-Labeled Tobacco Products.--Tobacco products 
     and cigarette papers and tubes manufactured in the United 
     States and labeled or shipped for exportation under this 
     chapter--
       ``(1) may be transferred to or removed from the premises of 
     a manufacturer or an export warehouse proprietor only if such 
     articles are being transferred or removed without tax in 
     accordance with section 5704;
       ``(2) except as provided in subsection (b), may be imported 
     or brought into the United States, after their exportation, 
     only if--
       ``(A) the requirements of section 4 of the Gray Market 
     Cigarette Compliance Act of 2000 are satisfied; and
       ``(B) such articles either are eligible to be released from 
     customs custody with the partial duty exemption provided in 
     section 5704(d) or are returned to the original manufacturer 
     of such article as provided in section 5704(c); and
       ``(3) may be sold or held for sale for domestic consumption 
     in the United States only if such articles are removed from 
     their export packaging and repackaged by the original 
     manufacturer or its authorized agent into new packaging that 
     does not contain the mark, label, or notice required by 
     section 5704(b) and complies with all other domestic law 
     applicable to such article.
     This section shall apply to articles labeled for export by 
     the original manufacturer even if the packaging or the 
     appearance of such packaging to the consumer of such articles 
     has been modified or altered by a person other than the 
     original manufacturer or its authorized agent so as to remove 
     or conceal or attempt to remove or conceal (including by the 
     placement of a sticker over) any mark, label, or notice 
     required by section 5704(b). For purposes of this section, 
     sections 5704(d) and 5761, and such other provisions as the 
     Secretary may specify by regulations, references to 
     exportation shall be treated as including a reference to 
     shipment to the Commonwealth of Puerto Rico.
       ``(b) Exceptions for Export-Labeled Tobacco Products for 
     Personal Use.--The restrictions of subsection (a)(2) and the 
     penalty and forfeiture provisions in section 5761(c) shall 
     not apply to personal use quantities of tobacco products and 
     cigarette papers and tubes, as defined in section 
     555(b)(8)(G) of the Tariff Act of 1930 (19 U.S.C 
     1555(b)(8)(G)).
       ``(c) Cross Reference.--Section 5761(c) contains civil 
     penalties related to violations of this section. Section 
     5762(b) contains a criminal penalty applicable to any 
     violation of this section. Section 5763(a)(3) contains 
     forfeiture provisions related to violations of this 
     section.''.
       (b) Clarification of Reimportation Rules.--Section 5704(d) 
     of the Internal Revenue Code of 1986 (relating to tobacco 
     products and cigarette papers and tubes exported and 
     returned) is amended by--
       (1) striking ``a manufacturer of'' and inserting ``the 
     original manufacturer, or its authorized agent, of such''; 
     and
       (2) inserting ``authorized by such manufacturer to receive 
     such articles'' after ``proprietor of an export warehouse''.
       (c) Conforming Amendments.--
       (1) Section 5761(e) is amended by adding at the end the 
     following: ``For an exception to the application of the 
     penalty under subsection (c), see section 5754(b).''.
       (2) Section 5763(a) of the Internal Revenue Code of 1986 is 
     amended by adding at the end the following new paragraph:
       ``(3) Export-labeled tobacco products or cigarette papers 
     or tubes.--Any tobacco product, cigarette paper, or tube that 
     was imported or brought into the United States, or is sought 
     to be imported or brought into the United States in violation 
     of section 5754(a)(2), or that is sold or being held for sale 
     in violation of section 5754(a)(3), shall be forfeited to the 
     United States. Notwithstanding any other provision of law, 
     any product forfeited to the United States pursuant to this 
     section shall be destroyed.''.
       (d) Clerical Amendment.--The item relating to section 5754 
     in the table of sections for subchapter F of chapter 52 of 
     the Internal Revenue Code of 1986 is amended to read as 
     follows:

Sec. 5754. Restrictions on tobacco products intended for export.

     SEC. 4. REQUIREMENTS APPLICABLE TO CIGARETTE IMPORTS.

       (a) Definitions.--As used in this section:
       (1) Secretary.--Except as otherwise indicated, the term 
     ``Secretary'' means the Secretary of the Treasury.
       (2) Primary packaging.--The term ``primary packaging'' 
     refers to the permanent packaging inside of the innermost 
     cellophane or other transparent wrapping and labels, if any. 
     Warnings or other statements shall be deemed ``permanently 
     imprinted'' only if printed directly on such primary 
     packaging and not by way of stickers or other similar 
     devices.
       (b) Requirements for Entry of Cigarettes.--
       (1) General rule.--Except as provided in paragraph (2), 
     cigarettes (whether originally manufactured in the United 
     States or in a foreign country) may be imported or brought 
     into the United States only if--
       (A) the manufacturer of those cigarettes has timely 
     submitted, or has certified that it will timely submit to the 
     Secretary of Health and Human Services the lists of the 
     ingredients added to the tobacco in the manufacture of such 
     cigarettes as described in section 7 of the Federal Cigarette 
     Labeling and Advertising Act (15 U.S.C. 1335a);
       (B) the precise warning statements in the precise format 
     specified in section 4 of such Act (15 U.S.C. 1333) are 
     permanently imprinted on both--
       (i) the primary packaging of all those cigarettes; and
       (ii) any other pack, box, carton, or container of any kind 
     in which those cigarettes are to be offered for sale or 
     otherwise distributed to consumers;
       (C) the manufacturer or importer of those cigarettes is in 
     compliance as to those cigarettes being imported or brought 
     into the United States with a rotation plan approved by the 
     Federal Trade Commission pursuant to section 4(c) of such Act 
     (15 U.S.C. 1333(c));
       (D) those cigarettes do not bear a trademark registered in 
     the United States for cigarettes, or if those cigarettes do 
     bear a trademark registered in the United States for 
     cigarettes, the owner of such United States trademark 
     registration for cigarettes (or a person authorized to act on 
     behalf of such owner) has consented to the importation of 
     such cigarettes into the United States; and
       (E) the importer has submitted at the time of entry all of 
     the certificates described in paragraph (3).
       (2) Exemptions.--Cigarettes satisfying the conditions of 
     any of the following subparagraphs shall not be subject to 
     the requirements of paragraph (1):
       (A) Personal-use cigarettes.--Cigarettes that are imported 
     or brought into the United States in personal use quantities 
     as defined in section 555(b)(8)(G) of the Tariff Act of 1930 
     (19 U.S.C 1555(b)(8)(G)).
       (B) Cigarettes brought into the united states for 
     analysis.--Cigarettes that are imported or brought into the 
     United States solely for the purpose of analysis in 
     quantities suitable for such purpose, but only if the 
     importer submits at the time of entry a certificate signed, 
     under penalties of perjury, by the consignee (or a person 
     authorized by such consignee) providing such facts as may be 
     required by the Secretary to establish that such consignee is 
     a manufacturer of cigarettes, a Federal or State government 
     agency, a university, or is otherwise engaged in bona fide 
     research and stating that such cigarettes will be used solely 
     for analysis and will not be sold in domestic commerce in the 
     United States.
       (C) Cigarettes intended for noncommercial use, reexport, or 
     repackaging.--Cigarettes--
       (i) that are being imported or brought into the United 
     States for delivery to the original

[[Page S4823]]

     manufacturer of such cigarettes, or to a cigarette 
     manufacturer or an export warehouse authorized by such 
     original manufacturer;
       (ii) that do not bear a trademark registered in the United 
     States for cigarettes, or if those cigarettes do bear a 
     trademark registered in the United States for cigarettes, 
     cigarettes for which the owner of such United States 
     trademark registration for cigarettes (or a person authorized 
     to act on behalf of such owner) has consented to the 
     importation of such cigarettes into the United States; and
       (iii) for which the importer submits a certificate signed 
     by the manufacturer or export warehouse (or a person 
     authorized by such manufacturer or export warehouse) to which 
     such cigarettes are to be delivered (as provided in clause 
     (i)) stating, under penalties of perjury, with respect to 
     those cigarettes, that it will not distribute those 
     cigarettes into domestic commerce unless prior to such 
     distribution all steps have been taken to comply with 
     subparagraphs (A), (B), and (C) of paragraph (1), and, to the 
     extent applicable, section 5754(a)(3) of the Internal Revenue 
     Code of 1986.
     For purposes of this subsection, a trademark is registered in 
     the United States if it is registered in the Patent and 
     Trademark Office under the provisions of title I of the Act 
     of July 5, 1946 (popularly known as the Trademark Act of 
     1946), and a copy of the certificate of registration of such 
     mark has been filed with the Secretary. The Secretary shall 
     make available to interested parties a current list of the 
     marks so filed.
       (3) Customs certifications required for cigarette 
     imports.--The certificates that must be submitted by the 
     importer of cigarettes at the time of entry in order to 
     comply with paragraph (1)(E) are--
       (A) a certificate signed by the manufacturer of such 
     cigarettes or an authorized official of such manufacturer 
     stating under penalties of perjury with respect to those 
     cigarettes, that such manufacturer has timely submitted, and 
     will continue to submit timely, to the Secretary of Health 
     and Human Services the ingredient reporting information 
     required by section 7 of the Federal Cigarette Labeling and 
     Advertising Act (15 U.S.C. 1335a);
       (B) a certificate signed by such importer or an authorized 
     official of such importer stating under penalties of perjury 
     that--
       (i) the precise warning statements in the precise format 
     required by section 4 of the such Act (15 U.S.C. 1333) are 
     permanently imprinted on both--

       (I) the primary packaging of all those cigarettes; and
       (II) any other pack, box, carton, or container of any kind 
     in which those cigarettes are to be offered for sale or 
     otherwise distributed to consumers; and

       (ii) with respect to those cigarettes being imported or 
     brought into the United States, such importer has complied, 
     and will continue to comply, with a rotation plan approved by 
     the Federal Trade Commission pursuant to section 4(c) of such 
     Act (15 U.S.C. 1333(c)); and
       (C) either--
       (i) a certificate signed by such importer or an authorized 
     official of such importer stating under penalties of perjury 
     that those cigarettes and the packages containing those 
     cigarettes do not bear a trademark registered in the United 
     States for cigarettes; or
       (ii) if those cigarettes do bear a trademark registered in 
     the United States for cigarettes--

       (I) a certificate signed by the owner of such United States 
     trademark registration for cigarettes (or a person authorized 
     to act on behalf of such owner) stating under penalties of 
     perjury that such owner (or authorized person) consents to 
     the importation of such cigarettes into the United States; 
     and
       (II) a certificate signed by such importer or an authorized 
     official of such importer stating under penalties of perjury 
     that the consent referred to in clause (i) is accurate, 
     remains in effect, and has not been withdrawn.

     The Secretary may provide by regulation for the submission of 
     certifications under this subsection in electronic form if 
     prior to the entry of any cigarettes into the United States, 
     the person required to provide such certifications submits to 
     the Secretary a written statement, signed under penalties of 
     perjury, verifying the accuracy and completeness of all 
     information contained in such electronic submissions.
       (c) Enforcement.--
       (1) Civil penalty.--Any person who violates a provision of 
     subsection (b) shall, in addition to the tax and any other 
     penalty provided by law, be liable for a civil penalty for 
     each violation equal to the greater of $1,000 or 5 times the 
     amount of the tax imposed by chapter 52 of the Internal 
     Revenue Code of 1986 on all cigarettes that are the subject 
     of such violation.
       (2) Forfeitures.--Any tobacco product, cigarette papers, or 
     tube that was imported or brought into the United States or 
     is sought to be imported or brought into the United States in 
     violation of, or without meeting the requirements of, 
     subsection (b) shall be forfeited to the United States. 
     Notwithstanding any other provision of law, any product 
     forfeited to the United States pursuant to this section shall 
     be destroyed.
       (3) Cross reference.--Section 1621 of title 18, United 
     States Code, contains criminal penalties applicable to the 
     commission of perjury under this section.

     SEC. 5. PENALTIES APPLICABLE TO THE SALE OF CIGARETTES NOT IN 
                   COMPLIANCE WITH LABELING REQUIREMENTS.

       (a) Civil Penalty.--Any person who sells or holds for sale 
     for domestic consumption any cigarettes for which the precise 
     warning statements in the precise format required by section 
     4 of the Cigarette Labeling and Advertising Act (15 U.S.C. 
     1333) are not permanently imprinted on both--
       (1) the primary packaging of all those cigarettes; and
       (2) any other pack, box, carton, or container of any kind 
     in which those cigarettes are offered for sale, sold, or 
     otherwise distributed to consumers,
     shall, in addition to the tax and any other penalty provided 
     in this title, be liable for a penalty for each violation 
     equal to the greater of $1,000 or 5 times the amount of the 
     tax imposed by chapter 52 of the Internal Revenue Code of 
     1986 on all cigarettes that are the subject of such 
     violation.
       (b) Forfeitures.--Cigarettes that are sold, or are being 
     held for domestic sale, in the United States (and not for 
     export or duty-free sale) shall be forfeited to the United 
     States if the precise warning statements in the precise 
     format required by section 4 of the Federal Cigarette 
     Labeling and Advertising Act (15 U.S.C. 1333) are not 
     permanently imprinted on both--
       (1) the primary packaging of all those cigarettes; and
       (2) any other pack, box, carton, or container of any kind 
     in which those cigarettes are offered for sale, sold, or 
     otherwise distributed to consumers.
       (c) Enforcement.--The provisions of this section shall be 
     enforced by the Secretary of the Treasury through the Bureau 
     of Alcohol, Tobacco, and Firearms and such other agencies 
     within the Department of the Treasury as the Secretary may 
     determine.
       (d) Treatment of transfers.--Transfers of cigarettes that 
     meet the requirements for transfer or removal free of tax 
     under section 5704 of the Internal Revenue Code of 1986 and 
     transfers of cigarettes pursuant to section 4(b) of this Act 
     shall not be treated as sales for domestic consumption under 
     this section.
       (e) Destruction of Forfeited Articles.--Notwithstanding any 
     other provision of law, any article forfeited to the United 
     States pursuant to this section shall be destroyed.
       (f) Definitions.--For purposes of this section, the term 
     ``primary packaging'' shall refer to the permanent packaging 
     inside of the innermost cellophane or other transparent 
     wrapping and labels, if any. Warnings or other statements 
     shall be deemed ``permanently imprinted'' only if printed 
     directly on such primary packaging and not by way of stickers 
     or other similar devices.

     SEC. 6. EFFECTIVE DATES.

       (a) In General.--Except as provided in subsection (b), this 
     Act, and the amendments made by this Act, shall take effect 
     upon the date of enactment of this Act. Nothing in this 
     subsection shall be construed to affect the effective date of 
     the provisions of section 9302 of the Balanced Budget Act of 
     1997 (Public Law 105-33).
       (b) Exceptions.--The amendments to sections 5754(a)(3) and 
     5763(a)(3) of the Internal Revenue Code of 1986, and the 
     provisions of sections 4 and 5 of this Act shall take effect 
     after the date which is 60 days after the date of enactment 
     of this Act.

     SEC. 7. STUDY.

       The Director of the Bureau of Alcohol, Tobacco, and 
     Firearms shall study whether the penalties imposed under 
     sections 5761, 5762, and 5763 of the Internal Revenue Code of 
     1986 are adequate to enforce the provisions of sections 
     5704(d) and 5754 of such Code and report the results of such 
     study to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate 
     within 1 year of the date of enactment of this Act.

     SEC. 8. SEVERABILITY.

       If any provision of this section is held to be invalid as 
     it relates to any particular circumstance, such provision 
     shall remain valid under all other circumstances, and all 
     other provisions of this section shall remain in full force 
     and effect. If any provision of this section is held to be 
     invalid in its entirety, all other provisions of this section 
     shall remain in full force and effect.

     SEC. 9. SAVINGS.

       The civil or criminal penalties and remedies provided by 
     this Act and any other civil or criminal penalty and remedy 
     provided by chapter 52 of the Internal Revenue Code of 1986 
     and section 4 of this Act that are applicable to any 
     violation shall not be exclusive, but shall be in addition to 
     any other remedy provided by law.
                                 ______