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SEN. BURNS: Thank you, Mr. Chairman, and those are my sentiments exactly. We know that -- first of all, I want to congratulate you and the hours and the work that you have put in on this and I know it is a very difficult situation but I think we should get on with the markup because I don't think we are going to get this one done in 15 minutes. SEN. MCCAIN: Thank you. By the way, I forgot to mention Senator Keny, who was very important in helping us resolve the problems with liability, unfortunately has to go to a funeral this morning, and obviously we will be reserving his amendments so that he can have them brought up on his return. SEN. Rockefeller? SEN. FORD: Mr. Chairman? SEN. MCCAIN: Senator Ford? I apologize, Senator Rockefeller. SEN. FORD: That's all right. I think Senator Wyden was really here before I was. SEN. MCCAIN: Senator Wyden. SEN. WYDEN: Thank you, Mr. Chairman, and I just have about a minute's worth or so. First, I want to commend you and Senator Hollings and the bipartisan leadership of this committee. This effort has been no walk in the park and so appreciate the bipartisan way in which you have done it. Second, it seems to me that every member of this committee can agree that no person should die before their time because they were persuaded it was cool to start smoking at 14, and I think we all can agree on that and on a bipartisan basis. Second, the late Mike Synar sat next to me during the House hearings with the tobacco executives, and he was one of the most courageous members of Congress in my view in history, and I just want to take a quick minute to say that I think we honor his memory by passing a strong, good and bipartisan bill. Finally, Mr. Chairman, I want to say that a number of my colleagues have had concerns, especially about the export provision, and I want to make it clear to them, particularly Senator Ford and Senator Hollings, that I intend to work very closely with them. As a new member of this committee both of them have been very gracious to me and I want it understood that I think we can work these provisions out. 3

I want to mention, fmally, that there willl probably be an objection lodged for us continuing this markup, I am told. If that is the case, then we will have to conclude this markup today at Noon because of the rules of the Senate, if that is the case. If that does happen, then we will meet, the committee will meet after we are required to go out of session and we will determine the remaining amendments. We will try to reach time agreements or agreements on those amendments. We will make that attempt so that that will determine at what time we go in tomorrow to complete this bill. Let me just remind all my colleagues that there is no doubt how difficult this issue is, but the Democrat leader, the Republican leader, and the President of the United States want us to move forward with this bill, recognizing that if we are ever to bring to completion our mission that we have to move this bill through the committee, recognizing full well that this is not a perfect document, to say the least, and that is why we have a continuing process of floor debate in the Senate and the House input as well as of course negotiations and conference and with the White House. I also want to say that I am very grateful for the participation of thc Administration in this process. They have been very willing to compromise and to help us out, and without their invaluable assistance we would not be here as well. But before I continue thanking people I think it is important to stop because we are not there yet. We have not completed this markup and there will be plenty of time to do that. Senator Hollings, I understand, is on his way. I would like to ask the members if they would make their opening remarks in a few seconds so that we can begin a section by section markup of the bill. I would like to, if I might, also start out by asking the committee to adopt the Substitute S. 1415 along with technical, conforming, and other corrections to the draft that was distributed on Sunday and Monday. There are a couple of exceptions to that draft, which Senator Ford has raised, which I would like to ask unanimous consent that they be left out at this time. There will be negotiations between Senator Ford's and Senator Hollings' people on a couple of the aspects of the farm bill. I would like to now recognize Senator Inouye if he has any opening comment. SEN. 1NOUYE: Mr. Chainnan, we just have two hours. Let's get on with the show. SEN. MCCAIN: Senator Burns? 2

The 1997 Cornell University study found youth to be about half as sensitive as adults to price increases. Other countries like Canada, United Kingdom, Norway, and Denmark have cigarette prices up to $5 a pack, more than twice our level, and have experienced similar increases in youth smoking while adult smoking rates have declined. The Chairman is very sensitive to what we would look at as black market, and we have gone well beyond the sensitive arena -- area for the black market when popular brands in Mexico are 80 and 90 cents a pack. So there's a great deal of evidence that price has little to do or no effect on youth smoking decisions, but certainly less than the impact on adults. Then my friend from Louisiana has tried and tried and tried to find something that would get to advertising, so that we could sign the protocol, so we could use other than price to stop youth from smoking. If we are raising prices to reduce smoking rates, we are really trying to reduce adult smoking rates, not youth. If we are dramatically raising taxes in this proposal by more than five times the level of spending proposals in the Clinton budget for a youth smoking bill, we are really debating an adult smoking bill. I think the five year, $123 billion tax increase in this bill is unjustified. And I listened to my good friend from Oregon, Senator Wyden, and let me say something about the international proposals in this bill, and I hope we can work out something. It seems like we are also trying in this bill to be the international morality police force. I believe it is naive to assume we can regulate other countries and decide what is best for them. These are multinational corporations we are dealing with. They will pack their bags and go overseas. This is another example of misplaced Washington intentions which fail to achieve any of their intended results but cost Americanjobs. This bill requires among other things, one, the posting a bond regarding each exported product -- each product; two, enormous new labelling requiretnents in addition to those already in the bill including a new ID number for each individual pack of cigarettes; three, a new additional layer of govenunental permits; and four, possible criminal penalties if employees do not follow U.S. laws in other countries. This bill sets a disturbing precedent for other industries. There are at least three troubling trade issues raised by these international provisions. 9

Mr. Chairman, as we get started on this hearing, I would like to recognize that we have here in the audience several of the Attorneys-General who but for their el2ort we wouldn't be here today -- SEN. MCCAIN: You are exactly right, Senator Brownback. SEN. BROWNBACK: -- discussing this issue right now. I would like to take particular note of one from Kansas that was one of the lead Republicans on this issue, Carla Stovall that was here -- and I think we owe them a clear debt of gratitude for getting us to this point and time. SEN. MCCAIN: And you might notice, Senator Brownback, they are very close by to get us through the last hurdle here too, so thank you. SEN. BROWNBACK: I urge that horse into the barn. I strongly support a tobacco settlement that accomplishes the following goals. First, it must drastically reduce the number of underage smokers. Second, it must reimburse the Government for the costs incurred as a result of smoking-related claims. Third, the agreement must result in a ban on almost all forms of advertising of tobacco products and bring and end to the marketing of cigarettes to children. Fourth, I think the agreement must be Constitutional. I applaud Senator McCain for his tremendous efforts in attempting to accomplish these goals and moving this legislation forward. Now while the bill that this committee has before today may not be perfect, it moves us towards a final settlement, and I look forward to working with my colleagues to make additional changes to this bill as it moves to the Senate floor so that we can move and mature this issue to some final resolution. SEN. MCCAIN: Thank you very much. Senator Ford. SEN. FORD: Thank you, Mr. Chairman. I am going to take two or three minutes. I may never get another chance to say all this. Mr. Chairman, I know that I am suspect. Whatever I say -- oh, he's from a tobacco state -- 6

SENATE COMMERCE COMMITTEE MARKUP OF TOBACCO LEGISLATION MORNING SESSION, WEDNESDAY, APRIL 1, 1998 CHAIRED BY: SEN. JOHN MCCAIN (R-AZ) 9:30 A.M., 216 HART SENATE OFFICE BLDG., WASHINGTON, DC TRANSCRIPT BY: FEDERAL NEWS SERVICE 620 NATIONAL PRESS BUILDING WASHINGTON, DC 20045 COPYRIGHT 1998 BY FEDERAL NEWS SERVICE, INC. CHAIRMAN McCAIN: (In progress.) -- to rnark up comprehensive bipartisan tobacco legislation. I want to sincerely thank Senator Hollings, every member of the committee for their effort and contribution. I think it is well known that this process has been inclusive and this process has been very difficult and complicated. The reason why we are where we are is because every member of the committee on both sides of the aisle has been included in this process -- the public health coimnunity, the Attorneys-General, the National Center for Tobacco-Free Kids, Dr. Koops and Kessler, and a special debt is owed to the committee - - by the committee to the States' Attorneys-General led by Mike Moore of Mississippi, Christine Gregor of Washington, and Gail Norton of Colorado along with their outstanding team. - All these individuals and so many others have made invaluable contributions I would like to also mention a couple of other individuals on the committee. First, Dr. Frist was able to work out FDA language which many viewed to be literally impossible. Dr. Frist did a marvelous job on this part of it, along with many other members but his leadership was invaluable. I would like to congratulate Senator Ford for his efforts on behalf of the farmers of his state and of the South. I would like to thank Senator Gorton for his contributions and expertise. Senator Wyden is here with his commitment to kids of America and his longstanding involvement in this issue. I would also like to mention that Senator Dorgan of course has been not only our liaison with Senator Conrad but also has been very involved in this issue as well. - Senator, Bryan, thank you; Senator Inouye -- I want to thank every member -- Senator Burns has had problems with some of this issue, but he has worked with us as well.

I don't want to see this bill go down over those export provisions and I want to tell my colleagues who have concerns about that that I intend to work with them j ust as we have on so many issues, to get these matters worked out and I thatilc you for that chance, Mr. Chairman. SEN. MCCAIN: Thank you very much, Senator Wyden. Again, I want to thank Dr. Frist for his incredible effort on the FDA. Dr. Frist. SEN. FRIST: Thank you, Mr. Chairman. 1, too, want to commend you for the leadership you have shown in what is a very difficult effort that we are undertaking, and really beginning today in many ways. You have shown real leadership in offering a thoughtful and nonpartisan bill to address issues which really are public health issues -- as we all share that common goal, to reduce underage usage of tobacco. Over the past eight months, this committee has worked to gather information necessary to evaluate the tobacco settlement. I have had the opportunity on another committee, the Labor Committee, to look at many of the issues that we will be addressing today as well. As the only physician in the United States Senate, as one who has been involved over the last 20 years in issues of health and public health, and as someone who has had the opportunity or maybe I shouldn't describe it as an opportunity, but the occasion to operate on hundreds and in fact thousands of people who have suffered the ravages of tobacco use, I have been eager to participate in this process. The proposal that we will be discussing today is complex. Difference of opinion are going to run very deep. It's reflected by the number of amendments that have been put forward, but I remain very hopeful that this committee will produce a product that we'll be proud of in years to come. It will clearly move that entire debate forward. Whatever our differences, all of us, I believe, are committed to that shared vision of an America where children -- no child -- where children do not use tobacco. I do urge my colleagues as we work on this complex legislation to keep a clear- eyed focus on the health of the current generation, but maybe even more importantly that next generation, to keep in mind that 12-year-old, that 13-year-old girl or boy who is getting ready to travel through that tricky passage of adolescence, who is tempted and exposed, is lured into smoking something which ultimately condemns so many of them to an early -- to a premature death. When this committee first held hearings on the tobacco settlement I made my priorities very clear. As a physician I want to participate actively in a process to craft 4

legislation that will really result in meaningful reductions in underage smoking, reductions in youth smoking. We all know the statistics. They will be said again and again today. All of us want those statistics to be something we can be proud of in years ahead instead of so discouraged by. As a Senator from Tennessee, I reflect about 23,000 farmers as well. They were not at the table in the agreement with the State Attorneys-General. 1 have been very pleased to see the Chairman's mark -- we will be debating it later today -- I have been in support of the long-term assistance for farmers. The Chaimian's mark contains much of the original Leaf Act again which addresses those specific issues of the agricultural community. Again the bill before us establishes a good framework for reducing teen smoking. The burden of tobacco-related illnesses will be reduced if this bill is passed by providing us with a true national research agenda as well on tobacco. Mr. Chairman, I look fonvard to working on this legislation as we further craft it and further refine it today. SEN. MCCAIN: Thank you very much, Senator Frist. Senator Hollings. Thank you, Senator Hollings, for everything you have done on this bill. SEN. HOLLINGS: Well, thank you, Mr. Chairman. You have done an outstanding job. Many could disagree with the decisions but they certainly wouldn't disagree with your procedure. You have worked around the clock. Everyone has been listened to, conferred with, again and again and again, and this is the product, and I congratulate you on your diligence and bringing it out. I appreciate very much, as Senator Frist, the farmers have finally been factored in. Otherwise, I would ask consent that my statement be included. SEN. MCCAIN: Thank you again. Senator Brownback, I believe, was here before Senator Abraham. Senator Brownback. SEN. BROWNBACK: Thank you very much, Mr. Chairman, and I, too, add my congratulations to you for your hard work in getting the bill to this point. Congress certainly has a monumental task ahead of it. Since the June 20th global tobacco settlement we have attempted to craft legislation to drastically reduce underage smoking. We have been pulled in many different directions by many different groups even within the Senate and many of us have approached the issue quite differently. 5

First, this bill has a licensing fee based on worldwide production, in effect, taxing production beyond our own borders. Second, the bill extends the FDA provisions including labelling, marketing and advertising restrictions to other countries without regard to those countries' policy decision relating to tobacco. Third, the bill prohibits the United States Trade Representative from taking action against discriminatory trade barriers, setting a very disturbing precedent in our trade arena -- no revenue to the Government, Mr. Chairman, but a heck of a huge cost to the company. I will support efforts to strike this provision. So, Mr. Chairman, in closing, I know I have gone longer than you wanted me to, I am willing to support comprehensive legislation today which goes much further than I was willing to go a few months ago, but I am not willing to support proposals which raises taxes unnecessarily, hurts my fanners whether it is to punish an industry, or fund new programs, or offset new tax cuts. I am not willing to support legislation which bankrupts an industry and makes any farmer provision a hollow victory for me if there's no industry left to fund them. I hope we can get this proposal back to a reasonable level, maybe somewhere between the Administration's view and the June 20 settlement. Mr. Chairman, I will be pleased to work with you to try to arrive at that and I hope we can. I thank you for your time. SEN. MCCAIN: Thank you very much, Senator Ford. I would ask the indulgence of my Republican colleagues for Senator Stevens to make a brief remark. He has to chair an Appropriations Committee hearing -- I think it is more highway projects, is that right, Ted? (Laughter.) SEN. MCCAIN: Senator Stevens. SEN. : By all means. SEN. : Go ahead. 10

there's potentially another $6.5 billion in additional tort liability payments above the annual payments. Mr. Chairman, that adds up to a total industry payment of $122.8 billion over give years by my calculations. Compare this to $65.5 billion in the Administration's budget for youth smoking legislation. I know the Chairman has worked hard to get the Administration's blessing and this drove up the price-tag. However, I remain surprised that this bill appears to be potentially about twice as large as the Administration's budget request and I might add not all the Administration's budget request was even for spending on youth smoking related proposals. Let's look at the Administration's budget. There's $23.9 billion over five years in new tobacco spending that actually relates to tobacco and that is a stretch. Mr. Chairman, that is a stretch, so this is little better than 36 percent of the $65.5 billion amount requested in the Clinton budget. So we have a budget proposal that raises almost three times as much money as will be spent on youth smoking and related programs. Why are we almost doubling that budget figure in this legislation is a big question. I know some have argued that young people are more, quote, "price sensitive" than adults, and we should raise the price by enormous amounts, even if we don't need most of the money for youth smoking initiatives, but I think the picture is confusing at best. When you want to raise a lot of money to fund other programs, it is convenient to come up with a statistic that youth are more price-sensitive than adults. We have heard a lot of evidence before the committee that youth were less sensitive. We heard a lot of testimony. We heard the following things in the last few weeks. Youth smoke for status. They want the most expensive brands. Youth smoking rates today are still below their peak in the 1970s. Youth smoking rates fell during the 1980s but have been rising since '91. Price explains none of this. Ninety-two percent of youth smoke just four brands: Marlboro, Winston, Newport, and Camel, the four highest priced brands, compared to 48 percent of adults smoking those four highest-priced brands. A 1998 -- this year -- University of Maryland study found that the assumed negative effect of price on youth smoking decision was, and I quote, "nearly nonexistent."

SEN. MCCAIN: Senator Ford, you are never suspect in the eyes of your colleagues on this committee. SEN. FORD: Well, I have been on occasion, though, Mr. Chairman -- (Laughter) SEN. FORD: Though, Senator, I hope that my colleagues will listen for a little bit -- but first I want to thank you, Mr. Chairman, for your hard thankless work that you put into the draft of what we hope wil l be a comprehensive smoking proposal. You have been very accommodating to me and I am grateful to you regarding the need to provide a framework for tobacco fanners under this proposal, and I thank you, and it may be that that proposal is beginning to unravel and I am very concerned about it. However, this is obviously much more complicated than the impact on farmers. In some ways it is appropriate that we are beginning this process on April Fool's Day -- because the more I have heard, the more I think we are fooling ourselves to think that a comprehensive bill can pass. The last few days we have seen that, one, some in the public health community are denouncing this bill Second, that the tobacco industry is apparently in revolt -- meaning there may be no protocol or consent decree as envisioned by the legislation and the agreement of June 20th last year. Advertisers are standing by, ready to sue, if we regulate the content of advertising. Some politicians from tobacco states are worried how they can run if a bill like this passes. Some politicians from non-tobacco states do not want any bill to pass so they can have au issue to run on in the Fall And sixth, everyone seems to be dreaming up new spending ideas that have nothing to do with youth smoking legislation. I must say from my perspective I was astonished to learn about the high price-tag of this bill. It is $102.1 billion over five years in real terms just for the annual payments. This is $108.5 billion if you add 3 percent inflation. On top of those payments there is potentially another $14.2 billion over five years from look-back penalties, and on top of that these two sums -- on top of these two sums 7