Cigarette manufacturers could yet rise - smoking - from the ashes

The tobacco industry has agreed to pay US states $370bn. Its relaxed attitude may mean the 'punishment' is not tough enough, writes John Carlin

The tobacco industry may yet rise like a phoenix from the ashes of a punishing deal reached on Friday in the United States to pay out $368.5bn (pounds 223bn) in compensation for past sins.

Profits may go down in coming years, but the long-term health of the industry appears much improved, while no guarantee exists that the number of people who smoke will appreciably drop. In taking their medicine and agreeing to pay American states $14.8bn annually over the next 25 years, cigarette manufacturers have won a reprieve from perils which could have put them out of business.

In recent years US tobacco companies have been suffering from a wasting disease brought on by huge lawsuits which have sent stock prices down and generated a steady stream of damaging publicity. Following agreement by state attorneys and lawyers for ill smokers to drop legal action in exchange for the multi-billion dollar settlement, the disease is now in remission.

What the effect will be on Americans' national obsession, their health, remains questionable. President Clinton and both Republicans and Democrats in Congress reacted cautiously to the news of the accord, suggesting a great deal of fine-tuning may be required before it wins their necessary approval.

Donald Shopland, head of the smoking and tobacco control programme at the National Cancer Institute, told the New York Times, with what sounded like a note of scepticism, that the agreement's impact on the rate of smoking among Americans remained "the $64,000 question". The former US Surgeon General C. Everett Koop warned there were serious flaws in the agreement and he described as "paltry" the $368.5bn tobacco companies agreed to pay.

The settlement is bound to have international repercussions, however: in Britain the anti-tobacco group, Action on Smoking and Health, released an opinion by John Melville Williams QC which said the tobacco companies, by forming bodies to promote sales and defend themselves against health claims, could be said to have presented evidence about the risk of smoking "which they knew to be false and misleading", thereby encouraging people to start smoking, to continue smoking or to smoke more harmful cigarettes.

Most of the huge sum agreed in the US will go on legal damages, but $2bn a year will be spent on programmes to help people stop smoking. All billboard advertising and sports promotions by cigarette companies will be banned - it is the end of the road for Joe Camel and the Marlboro Man - even as they pay for advertising to discourage young people from taking up smoking.

Yet ever since the US government first declared cigarette smoking to be a health hazard 32 years ago, the tobacco industry has shown itself to be remarkably resourceful in its ability to increase profits. Every year new scientific evidence has come up linking smoking ever more closely to cancer, emphysema and heart disease, yet, in a miracle of free enterprise capitalism, the purveyors of death themselves have continued to flourish and grow.

The tobacco companies' stock prices have risen 20 per cent in the two months since negotiations on a settlement began, and while they fell on Friday's news, the consensus among industry analysts is that they will recover when, as expected, cigarette prices go up by around 50c a packet.

Some analysts in Wall Street were saying yesterday they expected the companies' stock prices to go up another 20 per cent if Congress and the White House enacted the deal, not least because the big three - Philip Morris, RJR Nabisco and British American Tobacco - are enjoying strong growth overseas.

The details of the agreement are:

Two-thirds of the $368.5bn will be divided among state governments, public health groups and a fund to care for ill smokers and cover their legal claims;

$2bn a year will go to help people give up smoking or get medical treatment;

If the cigarette companies do not assist in the goal of cutting smoking among America's youth by 67 per cent over the next 10 years they will have to pay fines of up to $2bn;

Advertising on billboards and on the Internet is banned, as are sports promotions, while cigarette companies will pay for advertising to persuade people not to buy their products and carry larger health warnings on packets;

The federal Food and Drug Administration will regulate nicotine levels.

This last provision could lead to the government eventually banning nicotine in cigarettes. Yet the companies involved in the negotiations declared themselves satisfied they had achieved a deal which would ensure their permanence. "Negotiations of this size and scope create compromise, not perfection," they said. "But on balance this plan is preferable to the continuation of a decades-long controversy."

Michael Moore, the attorney-general for Mississippi and the prime mover behind the war on the tobacco companies, also declared himself happy with the outcome: "We wanted to do something that would punish this industry and we have done that."

Mr Moore employed the word "punish" six times in a six-paragraph statement, couching what he saw as a great victory in moral, almost Biblical, terms. And never since Sir Walter Raleigh has retribution so harsh been exacted on the evil weed. Yet the response of the cigarette companies suggests a confidence that while they might have lost a battle, they are still around for the long haul.

Business, page 1