The
AG Settlement:
Short on Time and Money,
Long on Loopholes
Produced by the Tobacco Control Resource
Center, 11/18/98
Contents:
I. Tobacco Advertising Limits are a Mirage
II. Money Left on the Table
III. State, Local, and Public Health Claims Precluded
IV. Bogus State and Local Lobbying Restrictions
V. Equitable (Non-Monetary) Relief
VI. Youth Access Provisions in the Master State Settlement
VII. Conclusion
The multi-state
agreement is no ordinary civil settlement. The proposed settlements scope is
broad and its ramifications far-reaching. Critical issues of public health will be
significantly affected by the settlements complex provisions. Given the proposed
settlements broad and very public impact, the process chosen is deeply disturbing.
The short time frame given to the Attorneys General to consent or decline participation
makes impossible a full and open public debate about the complex, life and death issues at
stake. Citizens are given no ability to learn about the settlements details, to
consider its implications, and to make their opinion known to their elected
representatives. Democracy demands that matters of such importance should be debated
openly and freely. The health of our nations youth should not be determined in
closed, smoke-filled rooms!
This analysis is necessarily brief due to the extremely short
time allowed for review. The public has been given less than four days to examine a
densely packed 150 page legal document that will heavily influence national health policy
for at least the next twenty-five years. It is no surprise that the settlement agreement
is laced with loopholes considering the co-authors of the document include the tobacco
industry and its attorneys.
I. Tobacco
Advertising Limits Are A Mirage
By Robert Kline
The multi-state agreement between the tobacco companies and the
state attorneys general touts as one of its great achievements the restriction of tobacco
industry advertising. But upon a brief review of the document the alleged advantages
disappear as a mirage - attractive when first seen in the distance, but lacking substance
when one looks closer. Any restriction on the industry achieved in one paragraph is
undercut in a subsequent paragraph.
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Youth Targeting - The industry may not "take any
action the primary purpose of which is to initiate, maintain or increase the
incidence of Youth smoking within any Settling State." Section III(a) This allows the
industry to continue to market to kids if that is only one of several purposes of the
advertising. This is already illegal under Fair Advertising laws and prohibited by the
industrys own code of conduct.
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Use of Cartoons - The ban on the use of cartoon
characters allows the Marlboro Man and other successful advertising campaigns to continue.
This is a step back from the more comprehensive June 20, 1997 agreement that also banned
human and animal images. The settlement also allows continued use of cartoon and animal
depictions currently in use on corporate logos and packaging that then may be used in
other advertising. See Section II(l)
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Brand Name Sponsorships - Restricting sponsorships is
very important because that is where the tobacco industry has shifted the bulk of its
promotional dollars. A Participating Manufacturer may not sponsor "events in which
the intended audience is comprised of a significant youth audience". Section
III(c)(1) What percent of an audience need be identified as "youth" for the
restriction to apply? Is the manufacturer excused if the manufacturer "intends"
the event to be for an adult audience, but a significant proportion of the audience is
youth? Does this clause cover auto racing where there is a significant proportion of youth
audience, or is NASCAR racing exempt based on the definition of "Brand Name
Sponsorship" (Section IIj)?
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"Limited" Brand Name Sponsorships - The
industry is given three more years of unlimited sponsorships before this provision takes
effect, assuming current contracts run for three years or more. Section III(c)(2). It is
important to note that the limitations on Brand Name Sponsorships do not apply to
so-called adult-only facilities. Section IIG
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The prohibition" of tobacco billboards does not apply
to outdoor advertising for Brand Name Sponsorships. Thus, for example, RJ Reynolds can
litter the outdoor advertising industry with billboards promoting Winston cigarettes
through the Winston Cup series. Section III (c)(2)(E)
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Payments Related to Tobacco Product and Media - The
industry would probably ratify the agreement with just the original eight states signing
on, therefore the product placement agreement will have a national impact on movies and
television. Other attorneys general need not sign on to get the benefit. Section III(e)
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Third Party Use of Brand Names - This section exempts
current contracts in existence as of July 1, 1998. If these are long term contracts this
restriction will be meaningless and may actually give the industry cover to continue this
behavior. Furthermore, this provision allows any merchandise presently in the hands of
third parties to continue to be distributed. It is unclear how much gear has already been
transferred to distributors in anticipation of this deal. Section III(i)
II. Money Left
On the Table
By Mark Gottlieb
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Back-Loaded vs. Front-Loaded - The payments to states
under the Agreement are "back-loaded." In the year 2000, the industry would pay
half of what it would in 2018, even taking inflation into account. Smaller payments in the
early years would minimize the financial impact on the tobacco companies and avoid
immediate price increases that would tend to reduce consumption and make tobacco products
less affordable for kids. This layaway plan for the industry's payments would appear to
create a partnership between the industry and settling states to assure payments in later
years.
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Less Money in the Event of Bankruptcy - Were the
companies to suffer major legal defeats in other pending or future lawsuits and be
required to pay lump sum damages in the range of billions of dollars, a Manufacturer could
declare bankruptcy under Chapter 11. If it does, then those larger payments placed in the
later years of the agreement might never materialize. Because only the tobacco
manufacturing divisions and not the parent corporations are liable under the Agreement,
such a result would mean that the states have given up all future claims for far less than
they had bargained for. This is particularly true if tobacco divisions of the parent
companies are split off, as BAT has just done and RJR is expected to do.
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The Wrong Inflation Rate - The payments are tied to the
consumer price index, not the medical care inflation rate. However, the costs that the
state must pay are medical care costs. The Agreement relies on the wrong inflation rate.
If the costs of treating sick Medicaid patients continues to increase as it has in recent
years, the state's hands will be tied because the Agreement releases future claims against
the industry forever. This leaves our children, as taxpayers, to pay those medical
expenses. If the state were to go into court every few years to collect what the industry
owes them, then there is a better chance to collect actual future damages then the
Agreement provides.
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Less Money Than Minnesota - In its settlement with
Minnesota, and through the "Most Favored Nation" clauses of the previous three
settlements (MS, FL, TX) the states received significantly more money than is provided for
in the multi-state Agreement.
Based on a rough projection of the settlement
dollars in relation to estimated smoking-attributed Medicaid costs Minnesota obtained by
pushing the industry in court, the multi-state agreement appears to provide only about 54%
of that level of funding.
This marks a step back from the benchmark set in
Minnesota. By increasing the industry's payment levels to the point where an immediate
price increase would be necessary, it would be possible fund the states at the Minnesota
level or better, and have an impact on smoking rates and youth smoking attributable to the
price increase.
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Wall Street Journal Likes the Deal - For the public
health community, criticism of tobacco industry initiatives such as the multi-state
Agreement is nothing new. But even the Wall Street Journal has found the Agreement to be
"a far better deal for cigarette makers than widely expected." The Journal also
noted that, "[a]nalysts largely found the terms more favorable to the industry then
they anticipated." (Is Tobacco Settlement Good News for Firms? WSJ 11/17/98).
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Divide and Conquer- The tobacco industry has also created
a divide and conquer strategy both within the public health community and between the
states and federal government. First, the agreement designates that money should be used
for tobacco control or substance abuse prevention. This will create an ugly and
distracting battle for the spoils between tobacco control and prevention programs and
substance abuse treatment and prevention programs. Also, the Agreement is structured so
that a federal tobacco excise tax increase will reduce the industry's payments to the
states, effectively putting states in the strange position of opposing a federal tobacco
tax increase, normally the job of the tobacco industry.
III. State,
Local and Public Claims Precluded
By Professor Peter Enrich
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The settlement appears to severely restrict the ability of
states, localities, other subdivisions of state governments, and others acting in
furtherance of the public interest to bring a wide range of legal actions against a wide
range of parties (including retailers and distributors of tobacco products). These
restrictions could severely hamper a wide range of tobacco control efforts, directed at
both past and future conduct.
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The States - The restriction on any future monetary
claims "directly or indirectly based on, arising out of or in any way related to, in
whole or in part, the use of or exposure to Tobacco Products manufactured in the ordinary
course of business" is troublingly broad. This restriction means that the proposed
monetary recovery must reflect all future state tobacco-related health costs (not only the
past costs for which the settled suits typically seek recovery), because no future
recoveries of such costs will be possible.
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The restriction would appear to severely limit future state
actions to enforce a wide array of tobacco control measures by seeking monetary damages
from tobacco companies, retailers, or other agents or associates of the tobacco companies.
For example, a state action for civil damages for a retailers or distributors
violation of a state law restriction on marketing or advertising practices would appear to
be barred.
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Local Government - The settlement also extends those same
restrictions to cities, counties, and other political entities that are not parties to the
settlement. the authority of the states to release such claims of entities that are not
parties to the settlement is unclear, and will raise difficult issues inviting
state-by-state adjudication. Section II(pp) To the extent that these third-party releases
are enforceable, the effect both on pending local enforcement actions and on future local
tobacco control efforts may be severe.
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States Pitted Against Local Government - Worse, even
where the third-party releases may be found unenforceable, the settlement provides that
any monetary damages for which the tobacco companies may be found liable in such local
government suits will reduce, dollar-for-dollar, the states recoveries under the
settlement. Section XII(b). This gives the states a direct incentive to try to enforce
their release of local governments rights, and the settlement expressly reserves the
right of the states to intervene in such actions to assert that interest (see
XII(b)(2)(C)). These provisions have the likely effect of turning the states into
agents of the tobacco companies in efforts to prevent local governments from pursuing
tobacco control enforcement actions.
IV. Bogus State and Local
Lobbying Restrictions
By Graham Kelder
Background
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Historically, the greatest deterrents to local and statewide
tobacco control efforts have been 1) tobacco industry legal intimidation; 2) tobacco
industry opposition to local and statewide initiatives through lobbying, and/or the
activity of astro-turf roots groups (like the National Smokers Alliance) and/or tobacco
industry proxies (like the New England Convenience Store Association or the Massachusetts
Restaurant Association); 3)lack of resources; and 4) lack of policy guidance.
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The summary of the multi-state settlement states that the Master
Settlement Agreement (MSA) achieves the following:
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"Tobacco companies prohibited from opposing proposed state
or local laws or administrative rules which are intended to limit youth access to and
consumption of tobacco products."
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"Prohibits lobbyists from supporting or opposing state,
federal, or local laws or actions without authorization of the companies."
What The MSA Allows The Industry To Continue To Oppose
[do] not prohibit any participating
Manufacturer from (A) challenging enforcement of, or suing for declaratory or injunctive
relief with respect to, any such legislation or rule on any grounds; (B)
continuing
to oppose or cause to be opposed
any specific state or local
legislative proposals or administrative rules introduced prior to the time of
State-Specific Finality in such Settling State; (C) opposing, or causing to be opposed,
any excise or income tax provision or user fee or other payments relating to Tobacco
Products or Tobacco Product Manufacturers; or (D) opposing, or causing to be opposed, any
state or local legislative proposal or administrative rule that also includes measures
other than those described in Exhibit F.
Analysis
The Exhibit F Restrictions
(1) No participating Manufacturer may oppose,
or cause to be opposed (including through any third party or Affiliate), the passage by
such Settling State (or any political subdivision thereof) of those state or local
legislative proposals or administrative rules described in Exhibit F hereto
intended by their terms to reduce Youth access to, and the incidence of Youth consumption
of, Tobacco Products. (Emphasis supplied.)
Analysis of Exhibit F Restrictions
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The tobacco industry remains free to oppose any and all
restrictions on exposure to environmental tobacco smoke.
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F1 (No opposition to vending machine restrictions):
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This is a significant concession for those jurisdictions that do
not yet have restrictions on vending machines.
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A large portion of Massachusetts cities and towns (180 cities
and towns = 77% of the Massachusetts population) already restrict youth access to vending
machines.
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The tobacco industry is free to oppose any and all restrictions
on self-service displays (otherwise known as "vending machines without glass and
knobs").
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F2 (No opposition to inclusion of cigars in definition of
tobacco products):
-
Is this is a significant concession for the vast majority of
jurisdictions, including Massachusetts, in light of the fact that it's being made by
cigarette companies, not cigar manufacturers?
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F3 (No opposition to enhancement of enforcement efforts):
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F4 (No opposition to encouraging or using supporting technology
for enhancement of enforcement):
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F5 (No opposition to limitations on using tobacco products as
prizes or give-aways in promotions of non-tobacco goods):
-
Does this mean that the industry can oppose the use of tobacco
products as prizes or give-aways in promotions of tobacco products? The answer is probably
"yes."
-
This is not a very significant concession, even if it is
interpreted very broadly.
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F6 (No opposition to penalties on Youth for possession or use):
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The Massachusetts Coalition for a Healthy Future and many other
tobacco control advocacy organizations oppose penalties on youth for possession or use.
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The biggest supporter of penalizing youth for tobacco possession
or use is the tobacco industry!
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See Graham Kelder, The Perils, Promises and Pitfalls of
Criminalizing Youth Possession of Tobacco (http://tobacco.neu.edu/tcu/YPFINAL.HTM).
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F7 (No opposition to limitations on tobacco product advertising
in or on school facilities, or wearing of tobacco logo merchandise in or on school
property):
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F8 (No opposition to limitations bubble gum cigars, candy
cigarettes, etc.):
The Need To Seek Permission
Section III m (2) prohibits lobbyists from supporting or
opposing state, federal, or local laws or actions without authorization of the companies.
So what? Such opposition can go forward after the lobbyists
secure the necessary permission which the tobacco companies will be more than happy, I am
sure, to supply.
V. Equitable (Non-monetary) Relief
By Patricia Davidson
Few significant non-monetary provisions are included in the
proposed settlement. States willing to pursue a better deal for public health could
achieve much more by either litigating their cases or holding out for a more comprehensive
settlement. The alleged benefits of the proposed settlement can be achieved without
agreeing to the loopholes and the giveaways.
Equitable relief, which is a court ordered remedy other than
the payment of damages, could be crafted to achieve basic tobacco control policies. Court
orders could (1) expressly prohibit wrongful tobacco industry conduct; (2) require
corrective actions to remedy the harm of past industry conduct and (3) include
prophylactic or "fencing-in" provisions designed to prevent a recurrence of
industry violations of the law in the future.
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Enjoin Future Fraud. Court orders could, for example, expressly
prohibit the industry from claiming that the link between smoking and disease has not been
established and that tobacco products are not addictive. There is overwhelming evidence,
much of which came to light as a result of the Attorneys General lawsuits, that the
tobacco industry repeatedly made these false claims while their own internal research
showed otherwise. An equitable decree could specify that certain kinds of false statements
by the industry are prohibited.
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Correct Past Fraud. Correcting the deleterious effects of the
decades of misleading industry statements and concealed research about smoking and health,
addiction and targeting minors are among the most important goals the state Attorneys
General cases could achieve. A court order could address these wrongful acts by requiring
the tobacco industry to pay for a series of corrective advertisements.
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End Targeting of Minors. Many industry practices that target
youth could be prohibited under a court order. For example, an equitable decree might ban
all distribution of free samples, vending machine sales and self-service displays. Ending
these industry practices, which promote illegal sales to minors, is a reasonable remedy to
"fence-in" the rogue tobacco industry.
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Require Industry Payments for Targeted Cessation Programs. A
court could order the industry to pay for withdrawal and cessation programs for tobacco
users. The industry could be obliged to fund nicotine withdrawal programs as a way of
mitigating future costs to the state treasuries. For decades the industry has carefully
crafted and employed techniques to target specific populations (e.g., youth, communities
of color, women). General and targeted withdrawal and cessation programs, along with
targeted counter-advertising campaigns, could help reverse these effects.
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Order Industry Disclosures. Many incriminating industry
documents have been released as a result of the Attorneys General lawsuits. However, there
are probably many more, including, for example, documents regarding health effects of
tobacco, nicotine manipulation, additives and marketing to minors, that have not yet
surfaced. Continued litigation will provide key opportunities to employ the discovery
process to uncover information the industry may still be hiding. Moreover, a court could
order disclosure of industry research and data as an equitable remedy.
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Disband Existing and Restrict Future Tobacco Industry Research
Organizations. Dissolution of tobacco industry associations which have been used to
promote fraudulent messages and withhold damaging research results, along with
restrictions on future activities of reconstituted organizations, could be included in a
court order.
VI. Youth Access
Provisions of the Master State Settlement
By Laura Hermer
The proposed master settlement raises a number of concerns, not
as much for what it provides than for what it leaves out.
The proposed settlement:
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Lookback provisions would provide participating
manufacturers with a strong economic disincentive against marketing or otherwise
encouraging the sale of tobacco products to minors.
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Such provisions would provide participating manufacturers with a
true impetus to reduce youth sales.
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Lookback provisions are an essential component of any state
settlement which is serious about reducing sales of tobacco products to minors.
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Omits any provisions preventing participating manufacturers from
allowing their products to be used as part of a self-service display, requiring them to
take strong active steps to prevent the use of their products in such displays, and making
them liable for failure to take such steps.
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Self-service displays prevent sales clerks and other individuals
from exercising an important aspect of control over tobacco products sales.
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Self-service displays are frequently located at child-level.
They not only function as advertisements, but also as potential sources of items which
children could take without anyone seeing.
-
Provisions requiring participating manufacturers to take strong
active steps to prevent the use of their products in self-service displays and penalizing
them for any failure should be included in any acceptable state settlement with the
tobacco industry.
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The proposed settlement under consideration not only expressly
permits point-of-sale advertising, but even allows tobacco products advertisements of up
to fourteen feet square in size veritable billboards - to be displayed inside or
outside on the property of tobacco products retailers.
-
In Massachusetts, a recent state study showed that stores
located within 1,000 feet of schools especially those located in minority
neighborhoods - were more likely to display tobacco products advertisements than those
located farther from schools.
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Many other studies have shown that children are particularly
susceptible to certain tobacco products advertisements, and are influenced in their
decision to begin smoking by tobacco products ads.
-
Any state settlement serious about restricting youth use of
tobacco products should include, at the very least, substantial restrictions on
participating manufacturers ability to permit their advertisements to be used at the
point-of-sale, if not an outright ban on that permission. Any permitted point-of-sale
advertisements should be restricted to plainly informing adult consumers of the tobacco
products brands available at the location and their prices, along with any required
statements such as warnings and nicotine and tar contents.
-
Numerous studies have shown that minors generally have
substantial success in illegally purchasing tobacco products through vending machines.
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Only approximately half of all states have statewide
restrictions on the siting of tobacco products vending machines.
-
Any settlement which is serious about reducing youth access to
tobacco products should include an outright ban on the ability of participating
manufacturers to operate or lease tobacco products vending machines, or to contract with
operators or lessors of such vending machines.
The proposed settlement also:
-
Requires participating manufacturers to either create or
reaffirm its commitment to assist in the reduction of tobacco use by minors. Each
participating manufacturer must designate an executive level manager to identify methods
to reduce youth access to and consumption of tobacco products, and encourage the
manufacturers employees to assist in this process.
-
This provision is less restrictive than the June 20th
settlement proposal, which would have entirely banned all offers of non-tobacco items
based on proofs of purchase of tobacco products.
-
It provides large loophole for youth access by permitting
redemption of proofs of purchase for gifts by mail, even if the recipient must provide a
photocopy of an identification card as proof of age.
-
This provision does not go as far as the June 20th
settlement proposal, which would have banned free samples entirely.
-
It is not included in any other state settlement to date.
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Prevents participating manufacturers from producing packs
containing fewer than twenty cigarettes, or packages of loose tobacco containing fewer
than 0.60 ounces of the substance. But this section only is in effect until the
year 2001, after which the industry may apparently sell "kiddy" packs.
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The requirement to make youth possession and purchase of tobacco
products illegal will make it more difficult for states to enforce bans on tobacco sales
to minors laws because enforcement is through kids attempting to purchase tobacco at
retail stores. Such attempts could be considered illegal under the terms imposed by this
Agreement.
VII.
Conclusion
The Master Settlement Text appears to be carefully drafted to
provide the tobacco industry with many critical releases from current and future claims
and local tobacco control efforts while providing shockingly little in terms public health
benefits. The payments to the states could be far less than advertised, and
significantly less than is needed to treat the Medicaid population suffering from
tobacco-induced disease. The advertising and lobbying provisions would have very
little impact . The Agreement would require all settling states to criminalize
rather than protect kids who do get hooked by the industry's seductive pitch and addictive
products. Above all, the unprecedented manner in which the states have been given a five
and a half day period to sign it or forget it is an unconscionable and anti-democratic way
to force state governments to accept the industry's terms without adequate time for
review.
All that glitters is not gold.
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