Posted on 03/15/2004 8:39:43 AM PST by SheLion
War looms over FDA regulation of tobacco
Philip Morris argues federal oversight is needed for a buyout to pass in Congress
By David Rice JOURNAL RALEIGH BUREAU
As tobacco-state congressmen prepare to push a buyout of tobacco quotas that does not include regulation of cigarettes by the Food and Drug Administration, the nation's largest tobacco company says that a buyout must be combined with FDA regulation to succeed.
"We believe those issues are inextricably linked," Steve Parrish, a senior vice president at Altria Group Inc., the parent of Philip Morris USA, said in a meeting last week with editors at the Winston-Salem Journal.
"For a buyout to have any chance of success, it needs to be done in a way that can actually pass the Congress," Parrish said. "If you look at the issue of the buyout, it really has very little support outside the tobacco-growing regions of the United States."
So congressmen from Missouri, Minnesota or Massachusetts need to be able to assure their constituents that in return for a generous buyout of the federal licenses to grow tobacco, they will win new benefits for public health, Parrish said.
Because tobacco companies face deep distrust, "I think the public wants a very significant oversight of the tobacco industry at the federal level in order to deal with some of these issues of mistrust," Parrish said.
Negotiations on a bill in the U.S. Senate to allow FDA regulation of the tobacco industry appeared to unravel last fall, but the Philip Morris executives say they still believe that a combined buyout-FDA bill can be created.
Meanwhile, a group of House members from tobacco-growing states is preparing a bill for introduction this week or next that would dedicate 5 cents from the existing 39-cent-a-pack excise tax on cigarettes to pay for a buyout over seven years - without including FDA regulation. As he campaigns for the U.S. Senate, Rep. Richard Burr, R-5th, has told tobacco farmers that House leaders don't want the FDA to regulate tobacco products, and that such an effort could hurt chances for passage of a buyout.
"The House leadership says no bill will come to the floor with FDA regulation," Burr told a group of farmers in Pitt County recently. "Every member of the House knows that no bill will come out of the House with FDA. We'll work that out with the Senate when we pass two pieces of legislation," he said.
But executives from Philip Morris - which controls about half the domestic cigarette market - say that both the use of the existing tax and the absence of FDA regulation ultimately hurt a buyout's chances.
Diverting part of a cigarette-excise tax that currently flows into the federal budget will not be a popular choice, Parrish said. "It has no chance to pass at a time when we have a $400 billion deficit, and concerns about terrorism and troops in Iraq," he said. "We just don't see that as politically realistic."
Philip Morris supports an assessment on cigarette-makers to pay for a buyout.
A Senate buyout bill that failed to win passage last year relied on such assessments to raise at least $13 billion for a quota buyout. Under such a plan, the cigarette-makers could decide whether to pass those assessments along to customers.
Unlike Philip Morris, R.J. Reynolds Tobacco Co. and other cigarette-makers opposed that approach, saying they viewed the assessments as a new tax.
But John Scruggs, the vice president for government affairs at Altria, said that it would be difficult to pass a buyout without both a new source of money to pay for it and FDA regulation to satisfy members from nontobacco states.
"Given that there aren't 218 tobacco-state members in the House of Representatives, we don't see how that could pass unless there is an effort to marry these two issues and move it forward," he said.
Reynolds and other tobacco companies have adamantly opposed FDA regulation of cigarettes, saying that new restrictions on advertising could help Philip Morris lock in its position as industry leader.
A spokesman for Lorillard Tobacco Co. has even labeled the effort to let FDA regulate tobacco as the "Marlboro Monopoly Act," referring to Philip Morris' industry-leading brand.
But Parrish said that Philip Morris is not trying to use FDA regulation to protect its market share.
"That is not what this is about," he said, noting that Sen. Ted Kennedy, D-Mass., will have a significant role in shaping FDA legislation.
"The notion that he would do something to benefit a tobacco company at the expense of others to me is not believable," Parrish said.
Even if it does win power to regulate tobacco products, the FDA could not limit tobacco companies' constitutional rights to advertise their products, Parrish said.
Though the FDA might want to impose new requirements on cigarette companies' labeling, manufacturing and reporting, "I don't see how anyone could make a good argument that that has anything to do with market share," he said.
So with Burr saying that a buyout bill won't clear the House with FDA regulation and Sen. Elizabeth Dole, R-N.C., saying that a buyout won't clear the Senate without FDA oversight, what happens in the end?
Larry Wooten, the president of N.C. Farm Bureau, has lobbied on Capitol Hill for a buyout, and he said that farmers don't really care whether FDA regulation is part of the package.
"The FDA is not our issue. The buyout is our issue. We'll take a buyout with FDA or we'll take a buyout without FDA," Wooten said. "This program is under such stress that it cannot withstand another year under that pressure, so something needs to be done."
But in part because of the delicate partisan balance in the U.S. Senate, Wooten says that FDA regulation probably has to be included.
"I personally believe that FDA oversight is going to be a part of the final solution, because of the political balance and because of the interests of the public-health community," Wooten said.
But despite their efforts to piece together a coalition to pass both a buyout and FDA regulation, even Philip Morris executives say that it's a long shot.
"To be honest, I think it's going to be extraordinarily difficult this year. But that's not to say it can't happen," Scruggs said. "It's going to take leadership."
o David Rice can be reached in Raleigh at (919) 833-9056 or at drice@wsjournal.com
Without a doubt, all of this will come right back to the smokers. Stick it to the smokers one more time.
So, PM isn't testing for lower tar and nicotine cigarettes and the rest are? I guess they won't rest until they sell us limp noodles.
They really are slime.
Do you get their TV ad where you are? I can put my shoe through the screen when that comes on. Telling smokers where to go to get help quitting! All the while, they reap thousands of dollars a day from smokers. PM is lower then low!
What's Really Going On- 07/29/2002
(If they are so against smokers and cigarettes, why do they continually sell cigarettes and tobacco products? Why don't they just pull it off of the market and stop making them!)
Philip Morris, the nations largest cigarette manufacturer and historically a leading opponent of tobacco regulation, has broken with the rest of the industry and is embracing the government intervention it has spent decades fighting.
NEXT WEEK, Senate health committee Chairman Ted Kennedy, a longtime Philip Morris nemesis, is holding hearings on a bill that would put cigarettes under the oversight of the Food and Drug Administration. In a shift that has surprised both allies and opponents, Philip Morris lobbyists say they are eager to see the Kennedy bill move forward.
Philip Morris believes in soup to nuts regulation of the entire industry, and we think that the FDA should be involved in all of that, says chief legislative counsel Mark Berlind. He says the company wants to see federal oversight of cigarette ingredients, warning labels, manufacturing, and marketing-with, he adds, a few limitations. But more on that later.
APART FROM THE PACK
Philip Morris flip-flop has left the rest of the tobacco industry feeling confused, angry, and jilted. They are impenetrable to me. Their strategy is impenetrable, their positions are impenetrable, says a veteran lobbyist for one of the cigarette makers opposing FDA regulation, who spoke on the condition his name not be used. I find their positions to be nuts. By endorsing even limited regulation, he says, Philip Morris is opening a Pandoras Box.
The smaller companies R.J. Reynolds, British American Tobacco, Lorillard, and chewing tobacco and cigar manufacturers all stridently oppose FDA regulation.
Its as fractured as the industry has been on an issue, says Robert Campagnino, senior tobacco analyst for Prudential Securities.
It wasnt so long ago that Marlboro-maker Philip Morris was public enemy No. 1 in Washington. In 1998, Philip Morris spearheaded a $100 million tobacco-industry advertising and lobbying blitz to fend off the legislation sponsored by Sen. John McCain to put the industry under FDA control.
Its fight was successful, and today cigarettes have less federal oversight than hot dogs. But $74 billion in punitive-damage judgments and more than 1,500 current lawsuits can make even the most recalcitrant corporation rethink its strategy. We want people to know that we are dealing with the issues that arise from this product, and we think that FDA regulation is the best way to get there, says Philip Morris Berlind.
BEHIND THE SMOKE
Philip Morris quest for governmental approval is not masochistic: There are solid business reasons for it. The company, which commands more than half of the U.S. tobacco market, earned $20 billion last year from domestic cigarette sales. But that market is, literally and figuratively, dying off at 2 percent to 3 percent a year. Philip Morris sees the future in a line of safe cigarettes it is developing. An FDA stamp of approval for them would be a major marketing asset. With its commanding share of the U.S. market, the company figures it can work within FDA rules to swamp its smaller competitors.
The way they calculate it is they are going to lock in their market share so they can go to the investors and say, Look, were practically a utility. We can guarantee this revenue stream. There arent any risks out there from government, weve solved them all, says James Derderian, who was chief of staff to the Republican-controlled House Commerce Committee during the late 1990s tobacco wars.
Philip Morris struggling rivals cant afford its boldness. R.J. Reynolds is desperate for a larger share of the U.S. market. The company sold off its profitable foreign operations to Japan Tobacco in 1999, leaving it with billions in potential liability and a shrinking customer base. British American Tobacco, while fighting regulation in the United States, is simultaneously pitching itself as a responsible corporate actor abroad, leading the industrys fight against smuggling and corruption.
The smallest of the opponents, Loews Corp.s Lorillard Tobacco Co., calls the Kennedy bill the Marlboro monopoly act. It will virtually eliminate our ability to communicate with adult consumers, thereby locking in Marlboros dominant position, says Lorillard spokesman Steve Watson.
CHANGE IN STRATEGY?
Philip Morris doesnt accept all the regulation proposed in the Kennedy bill. Probably the most controversial change Philip Morris seeks is to limit the FDAs ability to ban cigarette ingredients. Berlind says Philip Morris just wants to prevent the FDA from making cigarettes so unpalatable that nobody will smoke them. But according to a longtime policy adviser to the company who spoke on condition of anonymity, Philip Morris is really worried that the FDA will ban nicotine. If they say you can have half as much nicotine, and then have half as much again, and pretty soon you have a product nobody will buy, says the adviser.
Public-health advocates are dubious of the Philip Morris reversal theyre especially leery of Philip Morris desire to advertise its new smokes as safe but they are starting to accept that the tobacco giant has changed strategy. In the beginning I was cynical and thought this was a concerted ploy by the industry, but now I do think there is a real split, says American Lung Association chief lobbyist Paul Billings, who has been fighting the tobacco industry for a decade.
Philip Morris actually began its campaign to get an FDA stamp of approval right after the Bush administration took office, according to lobbyists who do work for the company. Philip Morris tried to get the administration to sponsor an FDA bill, but Bush advisers decided the president should stick to tax refunds and avoid a messy tobacco fight.
LOBBYING POWER
Appalled at their former allys betrayal, the remaining tobacco companies have banded together to block any potential regulation. They have scored a lobbying coup by hiring former Rep. Tom Bliley, the pro-tobacco ex-chairman of the Commerce Committee. Bliley was once known as the congressman from Philip Morris because his district included the companys Richmond, Va., manufacturing headquarters. Capitol Hill scuttlebutt has it that Bliley and Philip Morris never really got along, so his working for the competition is not a surprise.
Bliley is there to make sure that members realize that theres more than Philip Morris in the industry, says a lobbyist for one of the cigarette-makers in the anti-FDA coalition. He says that Bliley, who did not return a call, has been telling his former GOP colleagues that taking up tobacco control legislation is a waste of time because its controversial, tedious, and in the end accomplishes nothing.
But as Bliley should know more than anyone, Philip Morris has spent decades (and millions) getting Congress to do what it wanted which was usually nothing. Now it wants something done, so something may happen.
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