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Tobacco Deal Nearly Done

Key Senators from both parties are nearing a landmark deal fusing two tobacco bills that would represent the most serious Congressional effort to regulate the sale and marketing of cigarettes in five years.

The emerging agreement seeks to cement a filibuster-proof margin by piecing together an unlikely alliance of Northeast liberals, such as Sen. Edward Kennedy (D-Mass.), with some of the staunchest supporters of the industry, led by Sen. Mitch McConnell (R-Ky.), the No. 2 Republican in the Senate.

But the talks have split the tobacco industry.

Hoping to solidify its position as industry leader, Philip Morris is quietly supporting the deal and the new government regulations that come with it.

Rivals R.J. Reynolds and Brown & Williamson, meanwhile, are firing up a public relations and lobbying effort designed to scuttle the plan.

Both sides are targeting negotiations to combine a $13 billion bill authored by McConnell to buy out tobacco farmers with legislation sponsored by Sen. Judd Gregg (R-N.H.), the chairman of the Health, Education, Labor and Pensions Committee, to allow the Food and Drug Administration to regulate the industry.

McConnell’s buyout package enjoys strong support in Kentucky, Virginia, North Carolina, South Carolina, Georgia, Tennessee and other tobacco farming states.

Gregg’s bill appeals to Democrats and moderate Republicans who want the government to crack down on the industry.

The New Hampshire Republican said his legislation, which is already being circulated to tobacco-industry lobbyists and public health groups, “builds on” a similar proposal offered last year by Sens. Mike DeWine (R-Ohio) and Kennedy — and he is now negotiating with the pair for their support.

McConnell and Gregg hope to merge the two bills later this month after Gregg’s panel approves the proposed regulations in a vote tentatively set for Sept. 24.

“Our bill is the engine to pull his bill through,” Gregg said.

Gregg said he believes the plan has the backing of Majority Leader Bill Frist (R-Tenn.).

Even so, the task will be difficult. Some tobacco-state Senators are wary of accepting the new regulations in exchange for the $13 billion buyout.

Even McConnell admitted that the deal is a “bitter pill” to swallow for tobacco states. Brown & Williamson, one of the producers opposing the deal, is based in Louisville, Ky.

Still, he acknowledged that the buyout plan has “no chance” of moving though the Senate unless it is added to Gregg’s legislation to regulate the industry.

In an effort to head off that move, Brown & Williamson and R.J. Reynolds have added lobbyists and laid the groundwork for a public relations campaign.

Last month, Brown & Williamson hired the Smith-Free Group to work Senators on the company’s behalf. Three of the firm’s biggest names have roots in Tennessee politics and with Frist, including Republican Tim Locke and Democrat Jim Free.

Brown & Williamson and R.J. Reynolds plan to launch an advertising campaign this week in Capitol Hill newspapers, including Roll Call, charging that the legislation would be “a complete job killer,” according to one lobbyist who helped prepare the campaign.

The companies fear the legislation would give the federal government “unprecedented regulation of an industry” while imposing burdensome and costly new regulations.

“They would have the ability to decide what products go to market and what products don’t go to market,” said a lobbyist opposed to the deal.

One regulation under consideration would ban clove cigarettes, a restriction that could put several smaller producers out of business.

More worrisome for the smaller players, if the FDA elects to ban tobacco advertising, R.J. Reynolds’ Camel and Winston brands and Brown & Williamson’s Kool, Pall Mall and Lucky Strikes would have few options for swiping market share from Philip Morris’ Marlboros.

As a result, opponents of the legislation deride the bill as “Marlboro Monopoly Act,” because it would help protect the dominance of the nation’s leading cigarette brand.

Together, R.J. Reynolds and Brown & Williamson share about 33 percent of the market for cigarettes; Philip Morris controls roughly half the market.

An official with Altria, Philip Morris’ parent company, said the firm backs FDA regulation of tobacco sales, although it would like to see some changes made to Gregg’s proposal.

For one, the company wants to see limits on the FDA’s ability to unilaterally alter the design of cigarettes in order to impose a “backdoor ban.”

Mark Berlind, Altria’s legislative counsel, also dismissed the complaints from Philip Morris’ competitors as a ruse designed to derail the Gregg legislation.

“Philip Morris USA strongly supports and advocates FDA regulation of tobacco,” said Berlind. “We hope that the [Sept. 24] markup proceeds.”

As for other tobacco companies’ claims that the Gregg bill would grant Philip Morris a huge competitive advantage over its rivals, Berlind suggested, “Their comments don’t withstand any scrutiny.”

A bigger problem facing the legislation is the Senate clock.

Though GOP insiders believe Frist could quickly bring the bill to the Senate floor, the last time the Senate took up a bill to regulate tobacco, debate stretched for three weeks.

“It’s a lot of dominoes that have to tumble just right for this thing to hit,” said Brown & Williamson lobbyist Tim Locke.

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