Bat Chief Fumes At Us Tobacco Deal

Martin Broughton, chief executive of Britains BAT Industries, is fuming over the US tobacco industrys $368.5 billion settlement with its foes. Words like stupid and ridiculous figure in his comments on the deal - even though he is one of its main signatories.

The industrys big win from the settlement, if Congress approves it, will be immunity from multi-million dollar litigation. But Broughton protests bitterly over some of the concessions that have been wrung out of the industry in return, some of which he sees as misguided. Indeed, he puts himself on the same side as the deals critics by suggesting that its main public health measures - the restrictions on cigarette advertising, the targeted cuts in teenage smoking and regulation by the Food and Drug Administration - are likely to fall short of delivering the desired benefits.

 

On the advertising restrictions, which are so severe as to come close to a ban, he says: All of our experience is that a ban on advertising makes absolutely no difference to the number of smokers or the number of cigarettes smoked. Its a bit like motor cars: its a mature product. Advertising cars doesnt suddenly make somebody who couldnt drive before decide hes going to pass the test and go out and buy a car. Instead, Broughton says, the restrictions will simply limit cigarette makers ability to compete with one another. If we agreed voluntarily to do what we are doing here, without Congressional approval, we would be up before the Justice Department on an anti-trust charge that said we were deliberately preventing competition.

Broughton is a 50-year-old qualified accountant who joined BAT Industries as a travelling auditor in 1971. He worked his way up through the ranks to become senior finance director in 1990 and chief executive in 1993. He found himself drawn into the US tobacco negotiations when Philip Morris and RJR Nabisco, BATs two bigger rivals in the US market, agreed to start talks with anti-tobacco lawyers at the beginning of April. As the talks neared their climax, he was identified as a stumbling block to a deal because of his strong opposition to some of the concessions being demanded by the anti-tobacco side. Last weeks signing of the deal seems to have done little to alleviate his concerns. In particular, the targets for reducing under-age smoking rankle because they seem to rest on the assumption that the tobacco companies can control smoking by teenagers - a premise he rejects as totally false.

Its all worked on the basis that the only reason under-age smokers smoke is because cigarette companies advertise to them and make the product freely available to them, he says, protesting that this argument ignores societal and cultural pressures. The deal proposes that teenage smoking should fall by 30 per cent in five years and 60 per cent in 10 years, with penalties of up to $2bn a year against the tobacco companies if the targets are not met. The penalties, however, may be reduced by 75 per cent if the industry can show that it pursued all reasonably available meas-ures to reach the goals. Mr Broughton says the anti-tobacco negotiators insisted on the penalties so the tobacco companies could be held to blame if the targets were missed. The assumption is that if these targets, which we believe to be unrealistic, are not met, it must be our fault, so we have to pay some more. Mr Broughton says he is concerned that the deal gives the Food and Drug Administration powers to reduce, and eventuall

eliminate, the nicotine content of cigarettes, but he takes comfort from a condition that prevents the FDA from doing so if a black market in full-nicotine cigarettes would result. He says it would be a damned stupid thing for anybody to suggest that a product should be prohibited if that merely led to a black market in which people kept on consuming the product but the government received no tax from it. Its not a loophole at all: its the one practical thing in there to say that if we are going to eliminate nicotine, at least only do it when there is going to be consumer acceptance of a product without nicotine. Doing it now flies in the face of reality. Although Mr Broughton appears to see little impact from the public health measures contained in the deal, he expects smoking to decline in the US because of the price increases that will be introduced to fund the settlement. Market analysts are seeing a fall of 10-12 per cent, and that doesnt look like an irrational forecast to me, he says. He says that BATs US profits will suffer: Only time will tell by how much. But he is not too worried that other countries will seek similar deals. I think there will be a lot of noise from people in other countries, but when you look at this coolly, this is a uniquely American situation and a uniquely American solution to it. Fortunately, most other countries are not blessed with the same legal structures and systems that the Americans have. There is an assumption that if these targets, which we believe to be unrealistic, are not met, it must be our fault, so we have to pay some more Copyright Financial Times Limited 1997. All Rights Reserved.