The talks, in Washington, denote a remarkable turn-about in the titanic struggle between the tobacco giants and their multiple courtroom foes. They could also have a favourable knock-on effect on legal action being taken in the UK against tobacco companies.
Industry stocks soared on the news on both sides of the Atlantic. In early trading on Wall Street, Philip Morris shares rose more than 6 per cent to $41.50; in London the price of BAT shares added 28p to 541p.
Experts warned the negotiations were at a very early stage and faced myriad obstacles before they could be concluded successfully. Most importantly, the central goal of the tobacco firms - to obtain immunity from all future liability lawsuits - would need the passage of new laws by Congress.
Central to that legislation would be the creation of a smokers' compensation fund. It would be fed by the $300bn - or whatever figure might be settled upon - which would be paid by the industry over 25 years.
Under the deal, the tobacco companies would also accept government proposals to place cigarettes under the regulation of the Food and Drug Administration, abandon all billboard advertising and agree to exorcise all human beings from their promotional campaigns.
Involved in the talks, which began two weeks ago, are a wide range of interests including officials from some of the 23 US states that are suing the industry, lawyers for the numerous individual lawsuits also pending as well as representatives of anti-smoking advocacy groups. The White House confirmed yesterday it has also been taking part in a monitoring role.
Taking the lead for the industry has been Philip Morris and RJR Nabisco. Indeed, the chiefs of both companies - Geoffrey Bible for Philip Morris and Steven Goldstone for RJR Nabisco - have both attended negotiating sessions. The companies have been speaking also for BAT and its US subsidiary, Brown & Williamson, and Lorillard of Loews Corp.
That the industry would eventually be driven to seeking a negotiated truce has been widely predicted. In recent weeks, it has watched the legal pressure against it mount.
Crucial was the decision last month by the Liggett Group, America's smallest cigarette company, to strike its own deal with the 22 suing states. Liggett has handed over industry documents that may prove deeply incriminating. Also sounding alarm bells is a private lawsuit just starting in Florida against R J Reynolds.
In the Florida case, the plaintiff's lawyer is Norwood Wilner, who last year won $750,000 in damages for a client against Brown & Williamson. It was the first time the industry was forced to make such a payout and possibly the point at which it realised that its legal difficulties were insurmountable.
Even a few months ago, the concessions being discussed in the negotiations would have been unthinkable for the industry. It was only in 1993, for instance, that the chiefs of all the main companies stood before Congress and, under oath, said that smoking was not addictive. Acknowledging its involvement in the talks, the White House yesterday put the emphasis on keeping cigarettes from minors. "We are interested in a certain outcome here, which is to protect children," President Bill Clinton's spokesman, Mike McCurry, said.
If a pact can be agreed, steering it through Congress would be monumentally difficult. Politicians will be wary of granting blanket immunity from future litigation or agreeing to anything that might give the impression of letting the industry off the hook.
Indeed, the $300bn figure is not quite as mighty as it at first seems. To pay for it, the US companies would need only to increase the cost of a pack of 20 cigarettes by 50 cents, or about 25 per cent. "That would not even be enough to reduce consumption," remarked Graham Kelder of the Tobacco Products Liability Project of the Northeastern Law School.
The benefits of a truce to the market values of the companies should also be considered. "The cost of the settlement would be very minimal relative to the discount applied to their stocks," Roy Burry of Oppenheimer Securities said yesterday.
So far little is known on how the talks are progressing. "Basically, what I'm doing is listening," Hubert Humphrey III, Attorney General of Minnesota, said yesterday. "I think the tobacco industry is in big trouble and they know it. I think their proposals still fall short of what we'd be interested in.'
A deal, meanwhile, might rob the tobacco industry's most fervent opponents of the feeling they most yearn - that punishment has been delivered. "It may be that this is an industry that doesn't deserve peace because of all the harm they have done to the public over the years," Mr Kelder suggested.
In Britain, lawyers said yesterday a settlement in the US would strengthen the hand of the 23 former smokers with lung cancer who are suing the tobacco companies in a joint action.
Writs on behalf of a further 12 litigants are to be issued in the next few days as part of the combined action against Imperial Tobacco and Gallahers but the case is not expected to come to court until the end of next year.
Martyn Day, the solicitor of Leigh Day and Company who is co-ordinating the actions, said: "I am absolutely delighted. The tobacco companies are being forced into these settlements to survive. They know if they carry on fighting there's a very good chance that they will be destroyed."
Comment, page 23
Tobacco fact file
Tobacco was introduced to Europe from the New World at the end of the 15th century. Smoking spread rapidly and was long regarded as having medicinal value.
Smoking only became a mass habit at the start of this century, and it was not until after the Second World War that the health dangers were identified.
More than 100 billion cigarettes are sold every week, equal to about 16 for every man, woman, and child in the world.
Since 1980 the number of cigarettes smoked in the world has increased by more than 1,000 billion a year.
Six countries account for more than half of the total world market for cigarettes, last put at 5,422 billion in 1995.
World-wide, in excess of 14.5 million people depend on the tobacco industry for employment.
BAT Industries, the UK's largest tobacco company, sold more than 670 billion cigarettes in 1995. The company's tobacco operations has 53,000 employees.
About 12.6 million adults in the UK smoke cigarettes - 29 per cent of men and 28 per cent of women.
Almost a quarter of 15-year-olds in the UK are regular smokers, despite it being illegal to sell cigarettes to children aged under 16.
Around 120,000 smokers in the UK die every year as a result of their tobacco habit.
The UK government earned pounds 8.98bn in revenue from tobacco duty and VAT in 1994/95, but spends only pounds 10m a year on health campaigns against tobacco use.
Sources: BAT industries and ASHReuse content