Tobacco Documents Online

to ensure that taxpayers never foot the bill for the price support program. In addition to the no-net cost assessment, farmers also pay a budget deficit assessment that contributes about $30 million to the Treasury each year. This assessment isn [ collected from any other producer, just the tobacco farmer. Despite the fact that the program is paid for, despite the fact that the tobacco farmers pay to reduce the deficit and despite the fact that the president and many in public health communities now support the program -- and that's right, Mr. Chairman -- they support the program, there are senators and others who want to take this program away from the farmers who pay for it and run it. Mr. Chairman, I want to emphasize the support of the public health community for the tobacco program. Major public health groups are working with tobacco farmers to develop a set of core principles to govern the debate on tobacco policy. This includes groups like the National Center for Tobacco -Free Kids and the American Public Health Association. Principle number one reads as follows, and I quote, "The parties agree that a tobacco production control program, which limits supply and which sets a minimum price, purchase price, is in the best interest of the public health community and the tobacco producing community. And Surgeon General Koop and former FDA Commissioner David Kessler have gone on record supporting the continued operation of the tobacco program so long as it operates at no cost to the taxpayer. Now, I'm going to be asking our witnesses a little more about the program and what it means to the states like Kentucky, but the bottom line, Mr. Chairman, is this; ending the tobacco program means throwing tens of thousands of farmers out of work. It means the end of hundreds of rural communities throughout the Southeast. It means spending hundreds of millions of dollars, of taxpayers' dollars, and it means providing as much as a billion-dollar windfall to the tobacco companies every year. Many senators including you, Mr. Chairman, have agreed with me that the tobacco farmer must be taken care of in any settlement adopted by the Congress. Even the president in his five principles has acknowledged, finally, that protections for the farmer and his community must be a key part of any legislation. My I-eaf Act is co- sponsored by Senators Hollings and Frist on this committee, as well as six other tobacco -state senators. Mr. Chairman, I'm grateful to you that you have incorporated this farm proposal in your settlement bill that you introduced. It does protect the farmer and his community, and it does so by starting with the thing that keeps those communities thriving in the first place, the program. That ought to be the litmus test of any farmer proposal. Since the June 20th agreement was announced, we've seen a number of proposals to implement the settlement. I think many of us on this committee would agree that these proposals are spinning out of control. The latest proposal would raise tobacco taxes by $1.50 per pack and require the industry to pay $15 billion up front. It includes penalties which could add another $1. per pack. And even this extreme proposal isn't the end of the road. I've taken the time to total up the various proposals that have been quoted to spend moneys collected by the settlement. The settlement assumes that payments in the first five years would be $59 billion. The present budget assumes a higher figure, 66 billion (dollars). But when you add up all the other proposals, health, research funding, child care, tax cuts, elementary class size reductions and many others, the total of all the ideas in Congress so far on how to spend tobacco money exceeds $126 billion in the first five years, more than double the original settlement. We need a reality check, Mr. Chairman. I believe we're at the point where we're really talking about funny money, dollars that will never be there to fund all these wonderful programs. Why? Because we may just drive the companies into bankruptcy by demanding too much too fast. I didn't support the latest proposal to be offered. In fact,l along with three other democratic colleagues wrote to the vice president urging him to begin bipartisan negotiations on a settlement we can pass. I renew that call today, because as I said in our leuer, partisan proposals simply have no chance of becoming law. On this point, Mr. Chairman, I want to compliment you. Yours is the only bill out there that is bipartisan. I appreciate that and I appreciate your beginning a process today that I hope will lead to a strong bipartisan bill. A bipartisan bill will do what's necessary to fight teen smoking. We've lost the whole thrust, the righteous indignation in the beginning against tobacco, has now turned into greed, and it will do what's necessary to protect the tens of thousands of farmers who depend on tobacco. RJR0000000008001588 700516853

Of the overall market for tobacco products, smokeless tobacco comprises a small segment. ]n 1997, smokeless tobacco constituted approximately 4.7 percent of the tobacco market. Tobacco is one of the most controversial issues of our time. Historically, no other product has been the subject of so much political activity, popular concern and debate. We believe that the country is at a crossroads with regard to the tobacco issue. The controversy that has surrounded tobacco products over the preceding decades has provided no positive outcome for anyone. It's time to put the controversy beside (sic) us. Under the resolution, the tobacco industry has agreed to totally reform and restructure how tobacco products are manufactured, marketed, and distributed in the United States, to achieve certain public policy objectives, and to begin a new chapter for the industry from a social, political, and regulatory perspective. Since June 20th a number of legislative proposals have been introduced, some of which mirror provisions of the resolution and others which reflect more extreme views on how to address the current controversy. With regard to smokeless tobacco products specifically, I respectfully submit that two significant points should not be overlooked in the course of your deliberations. First, any tax or special assessment for smokeless tobacco products should take into account that govemment data recently highlighted by Secretary of Health and Human Services Donna Shalala indicated that youth usage is low and decreasing. I would like to put up a chart reflecting this trend. (Pause for putting up chart.) As you can see, the chart shows that youth usage is already below the federal government's goal of 4 percent for the year 2000. Second, the average retail price of our company's products already fall(s) well within the $3.50 price range advocated by the president and public health experts as a means to achieve reductions in youth usage of tobacco products. I believe that any proposal which fails to take into account these facts will result in an unfair penalty to those adults who choose to use our products. Despite the substantial burdens and constraints the resolution would impose, we are prepared to accept them in the interest of a national solution. We believe that the resolution represents a fair balance of competing views surrounding tobacco product.s. We therefore recommend to the committee the resolution as a vehicle for a national comprehensive solution of this controversial issue. We realize that it is only a proposal, even though an historic one. Now it is up to Congress to exercise its legislative prerogative as to the ultimate merits of the resolution. Thank you. SEN. MCCAIN: Thank you very much. Mr. Brooks? MR. BROOKS: Mr. Chairman, members of the committee, I appreciate the opportunity to appear before the committee today. In particular, I welcome the opportunity to engage in the dialogue concerning the many issues surrounding tobacco use, and particularly the problem of youth smoking. I wish we'd engaged in this debate many years ago. It's easy to criticize the past. But with 20/20 hindsight it is clear that at some point in the tobacco industry history we took the wrong path. We concentrated on fighting off attacks instead of engaging in a dialogue on these difficult issues with government. The result was too many years of conflict and confrontation. As you know, we believe that the best way to end this unfortunate history and to usher in a new era of industry cooperation with government is to enact the proposed resolution. To my knowledge, our critics have not identified a single youth- smoking initiative that is not already included in the proposed resolution. The reason is clear: the proposed resolution contains virtually everything on the public health community wish list, a long list of concessions that even our fiercest critics admit would have been unimaginable only months ago. Chief among these are an array of advertising and marketing restrictions that would be unconstitutional absent the industry's agreement, including a ban on human and cartoon images, vending machine sales, and billboards and other outdoor advertising. RJR0000000008001588 700516863

been long sought by public health initiatives; that the industry would no longer be able to gear its advertising towards children; and that penalties would be imposed upon companies if indeed they did not reduce the use of their products in the area of children. We've come a long way. You know, after 40 years of litigation, I don't think a single claim has ever been paid out. I'm not sure that will change if we don't enact some type of a settlement. I'm not sure that any of things are going to be possible or if anyone's going to ever be compensated if we continue down the same path that we have for the last 40, 50 years. I think Congress has a unique opportunity. We have to be fair. We have to insistent that it be followed very carefully, that it get the job done, that there are no holes that can be punched in this agreement. One of the interesting aspects, l mean if all of these programs are going to be paid for by a user fee on tobacco, if we are successful in getting everyone to quit smoking -- (laughs) -- where's the user fee going to come from? I mean, these are all questions that I think need to be considered. The hearing will do that, and I'm glad that you're holding it. Thank you. SEN. MCCAIN: Thank you, Senator Breaux. We'd like to begin with opening statements now, and we'B being with -- our witnesses are Mr. Geoffrey Bible, who's the chairman and CEO Of Philip Morris Companies; Mr. Steven Goldstone, who's the chairman and CEO Of RJ R Nabisco; Mr. Vincent Gierer, who is the chairman and CEO Of UST Incorporated; Mr. Nicholas Brooks, the chairman and CEO of Brown And Williamson Tobacco Corporation, and Mr. Laurence Tisch, who is the co- chairman of the hoard & co-CEO Of Loews Corporation. We'd like to begin with you, Mr. Bible. MR. BIBLE: Well thank you, Mr. Chairman. Mr. Chairman and members of the committee, good morning. (Moves microphone.)1 think perhaps I should draw this closer. I am Geoff Bible, and for the past three years, I've been chairman and chief executive officer of Philip Morris Companies. I am proud to represent the largest consumer products company in the world, and even prouder of our more than 150,000 employees, including 70,000 here in the United States, who develop, manufacture and market many of the world's leading brands in the tobacco, food and beer industries. Mr. Chairman, I am here to listen as well as to speak. I want to assure each member of this committee that I know how important it is to engage in a two-way discussion. I recognize that the tobacco industry is the subject of intense criticism for its past actions and for its role in the social, political and legal controversy over tobacco products. And I believe that many of the authors of this criticism are responsible people with legitimate concerns. We are here today after 40 years of increasingly angry litigation and conflict. In many instances, we operated as if we felt under a virtual state of siege, which too often has resulted in our failure to compromise, cooperate or embrace changes sought by our critics. Our failure has, in turn, led to even greater confrontation without resolving any of the controversial issues. In hindsight, I wish that years ago I had the fore,sight to try and find common ground with our critics. Although no one can change the past, I have tried to draw lessons from it. So since becoming chairman and CEO, I have searched for a better way to address and resolve the issues about our product and our industry. When I became chairman, I realized that I faced a critical personal choice. I believed that if I looked backward, I'd be forced to spend every bit of my time looking into literally hundreds of issues and allegations and thousands of documents. And I concluded that looking backward would only drive myself and my company deeper and deeper into a pointless position of conflict and fighting. Or I could take my energies and whatever abilities I have, and look forward. I wanted to try to find a way to cut this Gordian knot of conflict and anger, and help shape a future in which we could live as what we RJR0000000008001588 700516858

SEN. MCCAIN: Well, thank you, Senator Ford. And you're a vital part of that effort, certainly as far as charisma is concerned. (Laughter.)1 want to -- I want to assure you of that. SEN. FORD: If I've got charisma, let's use it, Mr. Chairman. SEN. MCCAIN: Well, Senator Ford, you are very important, and I want to assure you lhat it is -- I have every intention for us to move forward, and I believe that we can. I believe that on this committee, we've established a bipartisan working effort that I believe that we can and will and should. And I think you and I agree that the American people would not look kindly on us if at the end of this year, we had not addressed the issue of children smoking. Dr. Frist. SEN. BILL FRIST (R-TN): Thank you, Mr. Chairman. As a physician, I have obviously some experience but a great deal of personal feelings, having operated on thousands of patients, that I interpret the etiology of their disease being related to smoking, as a heart surgeon and as a lung surgeon. Being from a tobacco state, the same issues that we just heard discussed, where I've got 24- to 30,000 farmers, farming families, warehousers, very concerned about their future and anything that we do here. This past Saturday I spent four hours at my children's school. I have a 10-year old, 12-year old and 14-year old. And over that four hours, it was the parents talking about "Just say no" and how one says "no" at that particular age, aimed at a variety of behaviors, but the one that people kept coming back to again was smoking. As an adult American, clearly people have the -- or should have the freedom to buy a legal product and to smoke or use a legal product. And wearing each of those hats, I have a number of very quick questions. Coming back to Senator Ford's line of discussions, and I guess let me address this to Mr. Brooks, Goldstone and Bible. If we did go to a free market, two questions. Number one, knowing the elasticity of demand, and assuming that the price of tobacco would go down, what would that do to, A, the number of smokers in this country; and B, what would it do to your strategic planning for your company? Would you go into the growing business once -- clearly the small farms would consolidate into larger farms? So what impact would that have financially on your company? Mr. Brooks, let me start with you. If we went to a free market and the price of tobacco went down, what would that do to the number of smokers in this country, knowing what you know about elasticity of demand? MR. BROOKS: Well, I don't think it would impact the smokers per se, Senator, but it certainly would be a concern to me. Despite my accent, I do live and work in Kentucky. I'm certainly aware of the concerns of the 60,000 families that Senator Ford referenced. And I do believe that the industry wants constructively to find a solution to the issues that you and he both raised. I think we can. And I believe we have put some proposals forward as to how this might be encompassed within the resolution. SEN. FRIST: If we did go to a free market, if that was the way that the country decided, what would your prediction be on number of smokers in this company -- in the country. No effect? MR. BROOKS: None that I can foresee right sitting here today. SEN. FRIST: And financially to your company, what would you predict? MR. BROOKS: Well, the resolution is going to impose very severe financial penalties. I suspect this would -- SEN. FRIST: Now, this would be just if we went to a free market, in terms of the purchase of tobacco, tobacco growing. RJR0000000008001588 700516871

Reynolds, our tobacco company in Winston-Salem; its market share has been declining for 20 years. In 1993, our earnings out of that domestic tobacco business were $2.4 billion. Today, those earnings are $1.4 billion, down a billion dollars in just those few years. And on top of that, as the consequence of the LBO for RJR Nabisco with which I am sure you are all familiar in the late 1980s, RJR Nabisco, the parent company, is a financially weak company with a balance sheet burdened by debt. Our debt ratings are barely investment grade and are under negative credit watch by the credit rating agencies. This proposed resolution is going to add billions to our future obligations. And we'll have no choice but to raise prices significantly, which will reduce our volume, our sales and our earnings even further. So let me tell you, regardless of what you read in the paper, I can just tell you these financial obligations arc anything but soft on our company. And the only way that we are going to come close to withstanding these obligations, the burdens of meeting these obligations, is through the civil liability provisions. And, as Mr. Bible said, it is not immunity. We are settling lawsuits with the statc. We are settling class-action claims, even though we have never lost any one of them. They'll be a judgment fund of $5 billion annually for future individual litigants, plus a document depository that will make all the tobacco papers available for every person who wants to sue these tobacco companies. That's not immunity; it's predictability. And that's essential to our financial stability. You know, the attorneys general recognized that, without some reasonable limitations on these lawsuits that could threaten that very financial stability, these tobacco companies can hardly be expected to make the extraordinary marketing and financial concessions that form the heart of the agreement. Now, I agreed to this settlement even though it included many, many elements that our tobacco company in Winston-Salem has opposed for 40 years, and which frankly, are very critical to any consumer- product company. It's the essence of a consumer-product company; thc ability to communicate with your customer. That is what these companies are giving up in this proposed resolution. But I did it because establishing the rules, cooperating with government, and having some form of litigation-predictable exposure, makes sense for RJR Nabisco and our 80,000 employees, and it makes sense for this country too, because we have the chance, after 40 years of fruitless war in the courts, war in the press and war in the Congress, to put it behind us and move into an era of cooperation and comprehensive regulation. And the proposed regulation accomplishes these goals, and I really respectfully ask the committee to step back, to look at its elements in a fair manner, step above the day-to-day fray, as you have on so many issue before. We can have honest disagreements over past acts, over elements of the proposals. But we cannot lose opportunity -- lose sight of the opportunity before us. And with your leadership, I really think we can make a difference. Thank you, Mr. Chairman. SEN. MCCAIN: Thank you, Mr. Goldstone. Mr. Gierer. MR. GIERER: Good morning. Mr. Chairman and members of the committee, I am Vincent Gicrer, chief executive officer of UST. I welcome this opportunity to address the committee concerning the June 20th proposed resolution. Speaking on behalf of UST's shareholders, employees, suppliers, growers and consumers, I believe that the resolution, if enacted into law by Congress, will resolve many aspects of the controversy that has long surrounded tobacco products in this country. I also firmly believe that addressing the controversy in a piecemeal fashion without addressing all the components embodied in the proposed resolution may not achieve either the shared goal of reducing youth usage nor other public policy objectives. UST's principle subsidiary, United States Tobacco Company, is a signatory to the resolution. Our company does not manufacture nor market cigarettes. We do manufacture and market smokeless tobacco products, principally moist snuff under the brand names of Copenhagen and Skoal. RJR0000000008001588 70051 6862

Some have suggested that unless the industry receives some liability protection, you would challenge any marketing restrictions. I guess -- and I think this is an equally important question. Suppose that the Congress acted without any liability immunity for the cigarette industry. Would you then challenge any marketing restrictions that would be imposed either by regulatory agency or by law? And would you do so by legal challenge? Mr. Brooks? Or let's start with Mr Tisch. MR. TISCH: Since more than 95 percent of the consumers of cigarettes are adults, we've been asked to give up all our First Amendment rights for the majority of our smokers. The predominant majority of smokers arc adults. So I think we would have a very difficult time not asking for our First Amendment rights and maintaining them in light of that situation, SEN. MCCAIN: Mr. Bible? MR. BIBLE: Well, I would agree with what Mr. Tisch said, Mr. Chairman. I would also add that I think there would be other parties who would have an involvement in this who might also challenge it, such as advertising agencies and others, So I don't think it's something just unique to the tobacco industry. SEN. MCCAIN: Mr. Bible, my question was, would you then consider a challenge to any restrictions on marketing if the liability immunity aspect of the agreement was not enacted by Congress? MR. BIBLE: Yes, I believe I'd be obliged to, Senator, Mr. Chairman, because I have a fiduciary responsibility to my stockholders also. And I think 97 percent of smokers in the United States are adults, and I'd like to retain the right to advertise my product to adults in a responsible fashion. And I believe there is room for advertising in a responsible fashion. SEN. MCCAIN: Mr. Gierer? MR. GIERER: Senator, I think we'd have to see what the restrictions were, if in fact we thought that they were a violation of First Amendment rights on commercial free speech. And I think we'd have to consider what actions we would take. SEN. MCCAIN: So you aren't necessarily saying you automatically would challenge? MR. GIF,RF,R: Well, I mean, I could see -- there are a number of things in this proposed resolution on access and that that I don't think we would have a problem with. I think there are a number of things that we were asked to voluntarily give up -- people in advertising and other kinds of things -- that if this deal broke apart, I don't think we'd probably be willing to do that. SEN. MCCAIN: Mr. Goldstone? MR. GOLDSTONE: Senator, this is our First Amendment rights to communicate with our customers, as I said in my opening statement, for a consumer product company -- SEN. MCCAIN: Could you speak a little more into the microphone, Mr. Goldstone? Thank you. MR. GOLDSTONE: All right. Our First Amendment rights, which include, as a consumer product company, communicating with your customer, it's critical to us, it's invaluable. There is -- I could not conceive of the circumstances that I, with the fiduciary duties that I have to my stockholders, employees and others, could conceivably give those up and at the same time have the burden of regulations. Our company wouldn't survive, so I'd have to assert my constitutional rights. SEN. MCCAIN: Mr. Brooks? RJR0000000008001588 700516868

You know, 89 percent of smokers, I understand it -- and maybe you can contradict this -- but 89 percent of smokers began when they were young, and most smokers begin at the age of 13 and a half or so they are smoking regularly by the time they are 14. Ninety-plus percent of those young people in this country recognize Joe Camel, more people than recognize Ronald McDonald. That's a trig butte to your advertising capacity, but we also know that the three top cigarette brands -- I think it's Marlboro, Newport, and Camel -- are smoked by kids while 86 percent of kids but only 35 percent of adults smoke those brands. So the power of your advertising is extraordinary, and my hope is that what we're going to resolve here in the course of the next days is this issue of liability. Is there some middle ground or is there a way to appropriately reflect what may yet conte down the pike that we can't predict that maintains the capacity for a settlement that doesn't do injustice -- if that's an inappropriate word to you -- but at the same time balances our needs to recognize what the future damage may be and what we may ]earn in the future even morc about the connection between youth smoking and future costs to the country. And that's the great issue before us. SEN. MCCAIN: Thank you, Senator Kerry. Senator Bryan. SEN, RICHARD H. BRYAN (D-NV): Thank you very much, Mr. Chairman. Let me add my commendation to you for holding this hearing, as well as the others that are focused on this issue. The panel before us today speaks volumes of just how different the world of tobacco is today. In 1994, when each of your predecessors testified before the House, as my colleague has mentioned, each of them swore that tobacco was not addictive. I doubt that any of you will take that position today. And more than the names and faces have changed since 1994; the nation 's own view of about tobacco and smoking products has been significantly altered. As a former state attorney general, I know how difficult it was for the 40-state attorneys general to come together and try to negotiate a legitimate settlement with the tobacco companies to resolve their state lawsuits. I also know that you would not have come to the table without some direct benefits most significantly a limitation of liability. Since the June 1997 signing of the negotiated tobacco settlement, tobacco company documents have been released that indicate that there was a concerted and a premeditated decision by tobacco companies to target underage children to entice them to smoke. As a lawmaker, I'm offended; as a parent, I'm outraged and so these hearings today are in the context of that history. And I don't think any of us here can forget it. Every day, there are 3,000 young people who begin smoking; roughly a third of them will die prematurely due to smoking-related illnesses. This Congress has a responsibility to deal with this issue, and there is a public policy issue that involves enormous costs to federal and state governments in terms of the health-related costs incurred as a result of smoking. I regret to say that my state has the highest rate of prevalence of any state country when it comes to smoking. About $198 million a year is the price tag of those smoking-related illnesses. In our state, approximately 1,100 inhabitants will die of long cancer this year so, Mr. Chairman, I look forward to working with you and other members of this committee in fashioning a settlement that deals effectively with the issue of underage smoking. I believe that smoking is an adult choice, and the thrust of our efforts should be to focus on the young people and to prevent them from living a life of poor health and ultimately death as a result of consuming this dangerous product. Mr. Chairman, I would ask that the balance of my statement be made a part of the record. SEN. MCCAIN: Without objection. Senator Gorton. SEN. SLADE GORTON (R-WA): Mr. Chairman, we're here and obviously it's a very interesting time to hear from these gentlemen. I am interested in what they will have to say that differs, kind of, from what various congressional committees have heard previously. But I am also, as a member from a state that is a leader in the tobacco litigation, interested in their comments and in their ability to prove those comments as to how deep the well actually is. I hope one or more of these gentlemen will tell us at what point a set of liabilities opposed on them will simply cause them to file at least in Chapter 11, in RJR0000000008001588 700516856

MR. BROOKS: Regrettably, I would have to concur with both Mr. Bible and Mr. Goldstone, Mr. Chairman. SEN. MCCAIN: Even if those restrictions were restrictions of advertising to children? MR. BROOKS: Mr. Chairman, I don't believe that Brown & Williamson currently does, or has done historically for that matter, targeted children with our advertising. Regrettably, advertising about our products do occasionally, you know, by dint of being advertising are made aware to people under age of smoking age or, indeed, under-drinking age or whatever else it might be, and that is always a risk with advertising. But if there was a way of closely tailoring some restrictions that would ensure that all we were doing was avoiding any risk of advertising to children, I'd certainly want to look at that before instructing my lawyers to assert our First Amendment rights. But I think my position is broadly in line with Mr. Goldstone and Mr. Bible's. SEN. MCCAIN: Senator Ford? SEN. WENDELL FORD (D-KY): Mr. Chairman, I'm not sure that I understand this -- the question is, if we put into legislation First Amendment rights restrictions, would they go to court. Well, if they didn't, somebody else would, because once you put the nose under-- the camel's nose under the tent, then somebody else is going to be doing it. We find that attorney-client privilege today and all that stuffs going down the drain. I'm very concerned -- SEN. MCCAIN: Senator, without taking from your time, Senator Ford, could I respond? As you know, there are many people who have advocated that the immunity from liability be completely dropped. I think that we as a committee have to examine the ramifications of that proposal that's being made, and that's the reason why I directed the -- SEN. FORD: Well, I understand that and, and I appreciate what the chairman's doing. As I understood it, that, under the First Amendment rights in the June twenty-something settlement, that there was a protocol, and I'm not sure -- or side agreement -- that would be signed to get around the First Amendment problems. And so I, that's what I think we're going to have to do here. I don't believe we can legislate, and I'm not a lawyer -- I am on jury, however -- but, that we can legislate that without the possibility of going to court. And, I was -- I want to say one thing, that Dr. Koop surprised me and I didn't quite understand it -- he didn't put nicotine in the same category as cocaine and crack and all that, and one of our colleagues asked him why not, he said, "You can't overdose on nicotine. " And so I think there is some, at least, research or scientific knowledge as it separates the two, and so I think you have to be careful. One thing that, you know, I'm trying to fight -- I want a reasonable bill and I think we could sit down at the table and probably do the same thing that you did with the attorneys general, but we don't find that around here. You're down, so they want to kick the hell out of you. And every time they kick, the price goes up a little bit and I resent that. And I think that ought to be worked out. But let me -- if anybody at the table can tell me, if we do away with the tobacco program -- do away with the tobacco program. How many of the 60,000 farm families in my state would be left to grow tobacco? Anybody have any idea? Somebody said -- one economist said that it would only be about 10 percent, that'd be 6,000. Reduce the 60 down to six and they d all become large farms and would deal direct with the manufacturer and the warehouse people. Would that be a correct assumption? MR. BIBLE: I'll have a go at it, if I may, Mr. Chairman. SEN. FORD: I like your goes. It's your stops that worry me. (Laughter.) MR. BIBLE: Okay. It's -- depending on what elasticity you would use in predicting industry volume, you could see industry volume declines ranging between 25 percent and 40 percent over a five-year period and higher over a 10- RJR0000000008001588 700516669

However, there is a significant limit to what we can do unilaterally. Market realities elsewhere are vastly different than in the U.S. Outside the United States our competitors have 87 percent of the market to our 13 percent. And included among those competitors are many powerful foreign nations, such as China and Japan. More than half of all cigarettes sold outside the United States are manufactured by companies owned by foreign governments. I know that some in Congress believe the details of this proposed resolution should be translated to every corner of the world. But I don't believe that we can be effective agents of change in foreign markets by taking unilateral marketing steps which would only make us less and less influential players in those markets. Nevertheless, Philip Morris is committed to doing whatever we can internationally to address the issue of youth smoking, and let me tell you how. Philip Morris has committed to pursue five essential initiatives on youth smoking: First, we will work to support minimum age laws in every country. Second, we will work to support youth access programs everywhere. Third, we will support youth anti-smoking programs organized in concert with education and health officials in every country. Fourth, we will put an "underage use prohibited" or "adult use only" label on every package in every market where it is legally possible to do so. Finally, we will work with governments and our competitors proactively to try to change the marketing practices of this industry worldwide, to achieve the reforms necessary, to reduce youth smoking in each country in which we operate. Obviously, as I have said, this cannot be done unilaterally. We have to change the competitive rules and keep the playing field level so that all our competitors are bound as we are. But we will undertake that challenge. I believe in accountability. Our executives will make these initiatives an integral part of their business plans and report on their progress to me. In conclusion, Mr. Chairman, I believe that our nation is at an important crossroads with respect to the future of public policy on tobacco issues. If my perception is correct that most people believe that adults who wish to smoke should continue to be able to do so legally and that these companies should be able to continue in business, then the question is, how should the industry conduct itself and be regulated going forward? The proposed resolution is intended to address that question in a comprehensive and sensible way, and I would urge its enactment. Thank you , Mr. Chairman. SEN, MCCAIN: Thank you. Mr. Goldstone? MR. STEVEN GOLDSTONE (Chairman and CEO of RJR Nabisco, Inc.): Thank you, Mr. Chairman. Good morning. I appreciate the opportunity to be here, so we can talk about ending the fighting -- oh, is the mike not -- I'm sorry. (Arranging microphone.) That's better? So we can talk about ending the fighting, ending the constant conflict of the past four decades. I'd like to talk about charting a new direction, a direction in which my company can be in a position, not of fighting, but of cooperating with government and cooperating with the public health community. Over the past three years, since I became RJR's chief executive, I have grappled, just like, apparently, Mr. Bible has at Philip Morris, with how to find a process that could bring about constructive change in a rational and civil manner. And Senator Wyden, when I was listening to your remarks, I was thinking about a change and a process that doesn't require that we approach the subject without skepticism, given the past. It's really a process that is not based on whether you believe everything Steve Goldstone says or everything that my colleagues say, although I hope you would, but rather, establishes the necessary regulation and enforcement so that for years to come, tobacco companies can compete for adult customers in a responsible and a socially acceptable way. I have to tell you, I think it's a tough task. The intensity and the level of hostility is really pretty amazing, from my point of view a5 a relatively new chief executive. But I do think we are compelled to step above the war in the courts and in the newspapers and in RJR0000000008001588 700516860

make it difficult, if not impossible, for the companies to have a fair day in court. And the companies, by providing money toward smoking cessation programs, are getting relief from claims for damages based exclusively upon addition. I believe that the proposed resolution supported by all sides to last year's tobacco talks constitutes a realistic plan to rationalize how our nation deals with cigarette smoking and other types of tobacco use, a plan that permits us to move away from decades of confrontation and acrimony into a new era of sensible regulation and industry accountability. I am sure that this plan is not perfect. But it does represent a good faith and, I believe, very successful attempt by persons on all sides of this issue to arrive at a workable resolution of a difficult social problem. But what I can tell you will not work are various unrealistic one-sided proposals that would result only in insolvency for the tobacco companies, loss of revenue to the federal and state governments, and the handing over of the American market to foreign companies and black marketeers. I hope that this Congress will not let this historic opportunity pass and will take the steps necessary to make this accord possible. Thank you, Mr. Chairman. SEN. MCCAIN: Thank you very much, Mr. Tisch. We'll have five minutes of questioning and further rounds, if necessary. Before we do, Dr. Frist, would you care to make any opening comment? We rely a great deal on Dr. Frist in this committee. He's the only one with any experience in many aspects of this issue, and we appreciate his involvement. For all of the witnesses, before Congress last month I believe you conceded that nicotine is, in fact, addictive. However, industry spokesman Walter Mariman (sp), who has been called the voice of tobacco, when asked about whether the CEOs testified that nicotine is addictive, answered, quote, "I don't believe they testified that nicotine is addictive. No, sir." So I guess I'm required to ask you that question again to clarify the record on this issue. And if it's agreeable to you, we'll just start at either end. I guess we'll begin with you, Mr. Brooks, and go down that way, and then start the opposite way on the next question. Mr. Brooks? MR. BROOKS: Thank you, Mr. Chaimtan. Yes, I think before the House Commerce Committee I did express the view that many people in this country do believe that smoking is addictive and that by some definitions -- indeed, by the 1988 Surgeon General's definition -- that smoking would be regarded as addictive. I personally took the view, in the short time I was allowed to speak on the subject before that committee, to point out that in -- I wouldn't personally, in a serious debate about smoking, label tobacco as addictive, just simply because I believe that the word "addiction," in my use of that word, means that people can't quit, and it is evident today that there are as many Americans in the States who have smoked and quit as continue to smoke. And therefore, I don't think it's an appropriate word to use. But I fully accept that other people use it, and I have also clearly signed up to the resolution, which requires that my company place that warning on cigarette packs. SEN. MCCAIN: But you personally don't believe that it's addictive? MR. BROOKS: I personally wouldn't use that word in relation to smoking. I think if you would like me to explain a little further -- I do believe it's a reasonable point of view I hold -- that in 1964 the surgeon general made a clear distinction between the hard drug use, like crack cocaine and heroin, and stimulants, like tobacco and -- nicotine in tobacco, and caffeine. SEN. MCCAIN: Well, I just -- what I don't understand here -- cocaine is -- you can quit the hard drugs, too, I mean. So if your definition of "addictive" is something that you can't quit, then I guess that there's nothing, then you -- under your definition, then, cocaine would not be addictive. MR. BROOKS: Well, no, I don't believe that would be the case, Senator. I mean, I'm not an expert in this matter, and maybe we will have to defer to Dr. Frist SEN. MCCAIN (?): It's become -- MR. BROOKS: But my understanding is that you can -- and indeed, I am a smoker myself, and I have in the past, on occasions, quit successfully, and I don't find that a particularly difficult experience. It's tough on occasions, but it's something which I think people can do with a little bit of resolve. So on that basis, I really find it difficult to label it or (put ?) it in the same category as crack cocaine or heroin. RJR0000000008001588 700516866