UICC GLOBALink
The International Tobacco-Control Network

Morgan Stanley Dean Witter:
WHO Will Regulate Tobacco?


   

Equity Research Europe

March 14, 2001

 

WHO Will Regulate Tobacco?

 

      Table of Contents

 

      Executive Summary                                          

      An Introduction to the World Health Organisation           

      Areas of Low/Moderate Risk to the Industry                 

      Areas of Higher Risk to the Industry                       

      Areas with Potential Upside for the Industry              

      Time Line                                                  

      Limited Ability to Enforce on National Governments ... but

           Tobacco Industry May Need to Comply                  

      Health Agenda Drives Process That Could Result in an

                    Unenforceable Treaty                         

      Thoughts on Additional US Tobacco Regulation              

      March Litigation Time Line                                

      Company Profit and Loss Accounts                          

 

 

Executive Summary

 

We believe that the World Health Organisation (WHO) tobacco initiative has some important risks that investors will see as

becoming increasingly high profile as the 2003 deadline approaches.

 

Despite a currently low profile among the investment community, we see the WHO's attempts to create a framework within which to become the global tobacco regulator as potentially one of the most important regulatory developments for several years. Regulation could affect a range of key areas including cigarette taxation, advertising and promotion, packaging, smuggling, litigation and health warnings. This new regulatory threat is emerging at a time of an improving litigation outlook.

 

In summary, we anticipate that there will be some over-run in the negotiations beyond the 2003 deadline and that many member states will ultimately fail to ratify the treaty. However, will think that there will be significant political pressure pin on the companies that we follow to comply with the treaty to the extent that they are able, even if this puts them at a competitive disadvantage relative to smaller local emerging market companies that are unlikely to comply.

 

The WHO has become very astute at using the media to create anger about tobacco issues and this will increase pressure on both national governments to enact local legislation and more importantly on the tobacco multinationals to comply with WHO regulation as we move through the next several years.

 

Key areas of risk

 

Advertising promotion and sponsorship is likely to be restricted significantly under a WHO treaty, given the points raised in the draft.  While most western markets probably already comply, the provisions are likely to make a more significant  impact on emerging markets. We believe the most   company would be BAT, which will deliver   approximately 55% of its group 2001 EBIT from emerging markets, on our estimates. However, all the companies we follow are currently gaining market share in emerging markets based on brand equity, which could potentially be at risk.

 

Product descriptors such as light and mild, are likely to be banned. Brands like Philip Morris's Marlboro Light and Japan Tobacco's Mild Seven would seem most at risk.  However, we believe that packaging can communicate tar and nicotine content differences more subtly through colour difference, for example.

 

The size of health warnings required may be increased to the extent of infringing on brand equity. If a sufficient part of the pack surface is taken over by a health warning the brand imagery is likely to be compromised clearly an issue for all the companies that we follow that charge premium prices based more an brand imagery than product content. A further significant risk to brand equity would be any move towards generic packaging.

 

Although the WHO is keen to make progress on issues such as harmonisation of cigarette taxation and encouraging more global litigation, we see the risks in these areas as low.

 

Key areas of opportunity

 

The WHO initiative could provide the industry with the opportunity to reduce the political pressure on it by addressing key areas of concern such as youth smoking and attempts to produce a safer cigarette. We think a key  opportunity would be the introduction of a global minimum age for smoking of 18, a measure that the industry supports and which would seem to be in line with the aims of the WHO. It seems to be in the public interest to encourage the tobacco industry to work towards a safer cigarette. While the major companies do invest resources in R&D into safer cigarettes, a framework within which the companies could operate and then communicate to smokers any health benefits relative to conventional cigarettes would, we believe, be a clear positive for the industry.

 

The WHO has a tobacco agenda

 

The WHO (a specialised agency of the UN) has 3,800 fulltime experts working for it, and tobacco is one of the most high-profile issues currently being addressed by the Organisation.

 

The WHO has never before issued a legally binding treaty on any issue. This attempt to create a legally binding treaty on tobacco is therefore unique. The WHO wants to create a framework convention on tobacco control (FCTC) that has general provisions and separate protocols addressing the detail of specific tobacco issues.

 

The nearest parallel, in our opinion, is the UN Climate Change Treaty, which took 12 years to agree. Tackling tobacco provides the WHO with a high media profile and a great deal of support from non government organisation (NGO) health lobby groups.

 

The WHO has already developed a draft FCTC that covers tobacco excise tax, advertising, sponsorship and promotion, packaging and labelling, smuggling, youth smoking and passive

smoking.

 

It will be the health ministers of states of the UN who vote on the negotiated treaty. The treaty will have to be ratified by at least two-thirds of the heath ministers to be passed. The process by which this is then put into national law varies by country. In many countries this is automatic, in others there will have to be a separate acceptance process. There is therefore a risk to the WHO that a treaty is agreed but does not get passed into law by national governments because it fails to address the concerns of these governments on issues like tax and employment.

 

The WHO focus is on western multinational tobacco companies

 

In our opinion, the WHO is likely to focus on modifying the behaviour of western multinational tobacco corporations rather than focusing on local emerging tobacco issues. We base this view an the focus of WHO documents and those of health lobby groups involved in the negotiating process. There is a clear view that tobacco is a western 'disease' sold to developing markets. Although the WHO will not be able to enforce the treaty itself (national governments must enforce it), it will have access to the world's media, which can focus attention on those companies that fail to comply. It is important to note that BAT operates in most emerging markets as a long established local company, with local employees and often with local shareholders. For example, ITC is a 32% owned associate company of BAT, which has over 60% of the Indian cigarette market. We believe that, to an extent, BAT will be able to mitigate some of the pressure focused on 'western companies' through this local ownership.

 

Timeline

 

The initiative to create a FCTC started in 1999 and the deadline for completion is May 2003. We expect that there will be some over-run on the FCTC and that the more important and specific issues will have to be dealt with in separate protocols that could take a further two to three years.

 

Increased regulatory threat at a time of reducing litigation threat.

 

We see the underlying US litigation outlook as improving. We base this on a declining outstanding case load against the US industry (ex Broin II), numerous recent positive court room developments, the fact that in only one case to date has money been paid to a smoker in a product liability claim (US$l million, which is on appeal to the US Supreme Court) and the election of George W. Bush as president (see appendix for a detailed update).

 

We believe that the tobacco industry would welcome moderate increases in the regulation in sensible areas (such as FDA (Food and Drug Administration) regulation in the US), since this could help reduce the political pressure on the industry and reduce controversy in areas such as youth smoking.

 

There are, however, significant areas that the WHO hopes to address that go far beyond what the industry would consider appropriate, in our view. The WHO has limited the involvement of the industry in negotiations, creating, we believe, a higher degree of risk than in cases where national governments have increased the level of regulation.

 

Conclusion

 

We do not see the WHO initiative as having an impact an forecasts for the companies we follow on a five year view and we are not changing our price targets or ratings on the stocks we follow. However, there is potential for the WHO to put regulatory pressure on the companies we follow, which could moderate their long-term emerging market growth rates.

 

We believe the company most at risk is BAT, as it has strong emerging market positions in Latin America, East Europe, Africa and Asia. However, all the companies we follow currently benefit from strong export growth into emerging markets, which may moderate if the competitive playing field becomes too biased against them.

 

Tobacco - March 14, 2001

 

An Introduction to the World Health Organisation

 

The World Health Organisation was formed in 1948 at the suggestion of members of the United Nations. The WHO is a specialised agency of the UN, which is staffed and financed by member governments. The WHO's mission statement makes it clear that it sees itself as the authority on organising and coordinating international health work.

 

The WHO has 3,800 full-time health and other experts working both at the headquarters in Geneva and at its six regional offices. These staff support the day-to-day running of the WHO as well as work on policy proposals. Suggested regulations and frameworks are voted on by the Executive Board of 32 appointed health experts, which meats at least twice a year in Geneva.

 

Above the Executive Board sits the World Health Assembly, which meats once a year and has one representative from each of the 191 member states. The Executive Board fully reflects the political interests of all member states, and is therefore very bureaucratic. Its key role is to set the WHO's budget.

 

Prior to 1998, the UN Commission for Trade and Development had responsibility for tobacco issues. The UN had issued pronouncements on the subject of tobacco, but with no meaningful real world impact. In 1998 the responsibility for tobacco issues was transferred to the WHO.

 

The current General of the WHO, Dr. Gro Harlem Brundtland (the former Prime Minister of Norway), took office in July 1998, having previously worked at the UN. Dr. Brundtland has been closely associated with the proposed tobacco treaty, which has generated much support from NGO health lobby groups as well as a high media profile. It is our assessment that Dr Brundtland has placed tobacco as one of the WHO's top three priorities.

 

The WHO has established a working group to deal exclusively with tobacco issues. The working group is called the Tobacco Free Initiative. On our estimates, there are approximately 25 professional staff based in Geneva working in this group with approximately a further 20 people based in regional offices in other countries.

 

Although the WHO has had an important impact on world health, helping to eradicate smallpox, for example, the WHO has not yet passed any legally binding treaties. Instead, the WHO has focused on offering advice and help where requested. The current tobacco initiative is therefore unique in that it is an attempt to agree a legally binding treaty to deal with tobacco issues on a global basis.

 

What Is the Framework Convention on Tobacco Control (FCTC)?

 

According to the WHO, the FCTC is intended to provide a way of ensuring that national government health policies on tobacco are consistent both between countries and with achieving the overall goal of reducing tobacco consumption and moderating the rate of increase in tobacco related deaths. Note that this is a moderation from the original WHO intent of eradicating smoking entirely.

 

From our analysis of WHO and health lobby group documents we conclude that the driving factor behind the FCTC is the WHO's desire to be seen to tackle western multinational tobacco corporations like Philip Morris and BAT, which sell cigarettes into emerging markets.

 

The framework convention will have legal status, but will have general rather than specific legal obligations. These legal obligations will be enforceable on the member states. For example, there will be an obligation to ensure that taxation on cigarettes increases over time.

 

It is intended that, alongside the FCTC, specific protocols are developed. These protocols will be much more tightly drafted, address specific issues and have specific legal obligations, for example, a minimum level of excise tax per pack.

 

We believe that it is the development of the protocols that is the highest risk area for the tobacco industry.

 

WHO's track record on tobacco is mixed.

 

The World Health Assembly has, over the last 25 years, adopted 16 resolutions on tobacco. Resolutions do not have legally binding status. These resolutions have had mixed success, with some member governments adopting them and others failing to implement them. Probably the main benefit of the resolutions has been to raise the profile of tobacco issues with governments and indirectly encourage local legislation to be passed.

 

This lack of tangible success can be blamed partly, we believe,  on the WHO's failure to include all interested  parties in negotiations, including the tobacco industry.  This, combined with the high media profile of tobacco  and the perception of tobacco being a western 'disease' spread to emerging markets, has created the desire within the WHO to move to a more legally binding set of conventions and protocols.

 

 

Areas of Low/Moderate Risk to the Industry

 

The following are areas that the WHO draft FCTC has set out to address but that we believe have low relative risk in terms of the likely impact on tobacco industry earnings.

 

Excise Tax

 

The original draft drawn up by the WHO working group had suggested a minimum of two-thirds of the retail price of cigarettes in all countries be accounted for by taxation. However, this has since been modified to the requirement that governments "impose taxes on tobacco products so as to achieve a stable and continuous reduction in tobacco consumption". While the WHO has said that this may mean that tax in excess of two-thirds of the retail price is appropriate, we believe that the modification reflects the difficulty of getting governments to agree to substantial tax increases.

 

Although we see prices rising in real terms as one of the most important factors in creating volume decline in the tobacco industry, the WHO's FCTC is unlikely to have a material short-term impact on national government policy, in our view. However, over time it may prove to be a catalyst to national governments reviewing their tobacco taxation policies.

 

In many emerging markets, the current level of taxation is substantially below this level (for example, Russia in January 2001 nearly doubled the level of excise tax, but the current rate is still only approximately 10% on cigarettes priced above the commodity cigarette Prima). Moving to a substantially higher level of tax would reduce levels of consumption, and therefore have an impact on our earnings forecasts for tobacco companies.

 

It must be noted that increasing tax may also reduce levels of government revenue if smuggling and counterfeit product are not controlled, meaning that practical implementation may prove difficult.

 

The WHO believes that there are no examples of increases in excise tax leading to a lower overall tax take for governments. However, we see a clear and current example of this in the UK market where even on UK government estimates up to œ3 billion per annum in tax revenue is lost due to the smuggling of cigarettes triggered by price differentials driven by high taxes.

 

Smuggling

 

Some form of international action to reduce smuggling is proposed by the working group. Cigarettes are by value the most smuggled consumer product in the world. We see this as a function of 1) the high weight to value ratio, 2) the substantial price differences between markets, and 3) the ease with which known international brands can be sold through informal distribution networks.

 

The tobacco industry has argued that the primary reason for smuggling is the large tax-induced price differences between markets, and that without these tax differences the majority of the economic incentive to smuggle the product would be removed. It is unlikely that tax rates will be harmonised in the near term and so the WHO is likely to focus on requiring governments and companies to directly monitor shipments of cigarettes to ensure that duty is paid. This is likely to have only limited success given the enormous volumes involved.

 

We believe that the tobacco companies that we follow would broadly benefit from the introduction of these measures to reduce smuggling and do not therefore see this as an area of concern. This is based on the view that cigarettes tend to be smuggled from low manufacturer margin markets into higher manufacturer margin markets. Most major tobacco companies already cooperate with governments to reduce smuggling through accounting controls, pack markings, restrictions of supply to illegal trade channels, and so on. Note that, within the EU, it would on the face of it be contrary to EU free trade law for a company to refuse to supply a wholesaler in another EU member state.

 

Threat of litigation

 

The WHO intends to promote litigation against tobacco companies. In a WHO document from a February 2001 meeting in Jordan, the aim of this litigation is spelt out: "The primary goal of tobacco litigation should focus on improved tobacco control policies that will reduce the public health impact of tobacco."

 

To an extent, therefore, we believe Philip Morris is correct in its view that the WHO wants to be able to "regulate through the court room!'.

 

 

The WHO lists the areas in which it believes litigation could be used against the tobacco industry as:

 

  • public interest lawsuits;
  • health cost recovery actions;
  • actions in response to smuggling;
  • individual actions under tort law;
  • class or aggregated tort actions;
  • recovery of cost of smoking cessation treatment;
  • criminal prosecution;
  • consumer protection under statute;
  • actions to compel enforcement of existing laws; and
  • defensive litigation in response to legal actions taken by the tobacco industry.

 

The areas in which the WHO hopes litigation will bring positive results include:

 

  • public education regarding tobacco industry conduct;
  • changes in marketing and promotional practices;
  • criminal sanctions;
  • changes in product design;
  • disclosure of documents;
  • smoking restrictions in public places;
  • monetary relief;   and
  • increased price of tobacco products.

 

The tobacco industry has one of the best court room track records of any consumer product industry. It is important to note that there is only one example in the world of the tobacco industry making any payment to a smoker following loss of a product liability law suit and that case (Carter) is still on appeal. This strong track record is based on the traditional tobacco industry defence of the smoker's awareness of and assumption of risk.

 

In order to be successful in the court room, the WHO accepts that it will need to rely upon novel legal theory to avoid this strong industry defence. There are two basic avenues that the WHO is considering following.

 

1) Using a strict liability principle.

 

An example is the United Nations' 'polluter pays' principle. This principle has been used to make industries whose activities cause environmental pollution make payments to reflect the cost to society of the pollution. There have not, however, been any cases of using a UN convention to attempt to create a private civil liability to private individuals. In addition, in many countries the introduction of strict liability in a civil law suit would represent a significant change in the country's legal structure (for example, the US or UK). We see it as relatively unlikely that there will be meaningful progress in this area.

 

2)   Change the legal framework.

 

The WHO's public documents refer to the Canadian province of British Columbia, which has changed its law to facilitate a health cost recovery claim against the tobacco industry, as a leading example of how changes in the legal framework might be structured.

The British Columbia legislation provides for:

 

  • independent right of recovery by the government;
  • admissibility of statistical and epidemiological evidence to prove causation;
  • privacy provision to protect the identity of individuals; and
  • reversal of onus of proof once general liability of the tobacco company is accepted by the court.

 

We see tobacco law of this type being created as a somewhat higher degree of threat for the tobacco industry. it should be noted, however, that it will extremely difficult to argue that new legislation should affect the assessment of past alleged wrong-doing. It is a fundamental principle in the legal system of most countries (including the US. UK, France, Germany and others) that retroactive legislation that changes the legal rules governing private conduct after the conduct has occurred should not be allowed.

 

The WHO is as alive to these shortcomings as we are, but, in our opinion, believes that the mere process of litigation whether ultimately successful or not can raise the profile of the issue with both the public and politicians. In short, it views litigation as one of the methods of keeping the tobacco debate alive and keeping tobacco issues in the media.

 

 

Areas of Higher Risk to the Industry

 

Duty free sales

 

A ban on duty free sales is recommended by the working group. These sales tend to be high margin for both the retailer and the manufacturer. This is clearly a risk area, in our view, as it is one of the few areas that is international in its dimension and where the WHO is likely to have persuasive influence.

 

However, note that intra-EU duty free was banned in 1999, and the company most affected was Philip Morris. We estimate that intra-EU duty free accounted for more than 50% of global duty free and therefore the hit to the industry of the ban being extended to global duty free would not be material to our forecasts.

 

Advertising, promotion and sponsorship

 

We see advertising and promotion as an area where the tobacco companies we follow are most at risk. Although we think the WHO may find it difficult to enforce advertising promotion and sponsorship restrictions on member states, we believe that the tobacco companies that we follow may find it politically difficult not to be seen to comply with the requirements of a WHO protocol in this area. This could lead to a competitive disadvantage opening up relative to local manufacturers that do not comply with the WHO regulations (see enforcement issues below).

 

On our estimates, approximately 25% of the cost of getting a cigarette onto the retailer's shelf is taken up by marketing. Within marketing, price promotion is a very important component.

 

We believe that it is unlikely that the WHO will seek to restrict price promotion (as the Irish government effectively has, for example) but will instead concentrate on tax as a way of increasing price and discouraging consumption.

 

Beyond price promotion, the industry relies upon advertising and sponsorship to help build brand equity, It is this element of the marketing spend that is at risk, we believe. It is critical to the companies we follow that international brands continue to command a price premium to local and discount brands. On average, we estimate that international brands make three times the profit per pack for a manufacturer than local discount brands. This pricing premium would be put a risk if advertising were banned in markets where these international brands are not currently established.

 

The WHO working group has received support from member countries for broad restrictions on tobacco advertising and sponsorship. A number of countries, including the US, have expressed concerns about breaches of constitutions' rights to free speech, but we see this as an area of risk for the tobacco industry.

 

Outright bans on advertising would be unlikely to have a meaningful near-term impact on the overall levels of consumption, but could make it more difficult for international brands to penetrate markets where they currently have limited awareness or market share. The risk to companies we follow is therefore that they will find it difficult to change current market share dynamics. For example, in South Korea, where local brands have 90% of the market an outright ban on all advertising would make it difficult for BAT or Philip Morris to penetrate the market over time as they would otherwise be expected to.

 

We see outright bans as unworkable and not a practical option for the WHO due to the very different local attitudes to tobacco and freedom of speech. It is much more likely that the WHO will attempt to adopt some guidelines on advertising and promotion restrictions. We believe that the industry would support and benefit from an increased level of restriction. A lower profile marketing effort from tobacco companies (particularly in emerging markets) that did not put any one company at a competitive disadvantage would, in our opinion, reduce the political pressure on the industry. It is important to note that BAT and Philip Morris have internal marketing standards and often put themselves at a competitive disadvantage, where local manufacturers are not bound by such strict guidelines. A more level playing field would therefore be to the advantage of the international tobacco companies.

 

Package design

 

The working group is likely, in our opinion, to work on ways to reduce the impact of cigarette brand imagery. We see this area as linked to the concern of the WHO that western cigarette brands are increasing the attraction of smoking to developing market youth. There are several ways the WHO might achieve this, for example by requiring that health warnings cover a certain percentage of the pack surface or requiring that product descriptors are banned.

 

Generic packaging

 

The absolute worst-case scenario for the tobacco industry, in our view, would be a requirement to move to generic packaging.

 

Over time, the increasing restrictions on advertising and promotion are pushing the tobacco industry to focus on the package as the key method of communication with consumers. Given that the quality of the product tends not to vary meaningfully from brand to brand, the ability to charge a premium price for international brands will increasingly depend on the package itself. The inclusion of larger health warnings is clearly a parallel issue (see below) but we believe the worst case is a monotone colour being required for all brands of all companies. This would encourage down trading to lower price and substantially lower manufacturer margin cigarettes. Over time, the lack of brand imagery could reasonably be thought likely to reduce the level of appeal of cigarettes in general to image- conscious upwardly mobile young adults.

 

Ban on product descriptors 'Light'  and 'Mild'.

 

A related area that the WHO is attempting to ban is product descriptors such a, 'Light', 'Ultra Light' and 'Mild', which are thought by the WHO to mislead the public on the relative levels of risk attaching to the product. It seems that Philip Morris, as the leader of the low-tar segment, with Marlboro Lights, is the most at risk, but all the companies we follow benefit to some extent from the sales of light brands extensions. Note that it appears that light families, such as Kent and Silk Cut, would not be affected.

 

If the WHO were to agree and ratify a treaty that included a ban on product descriptors, we believe that the companies we follow would come under political pressure to comply. This could be despite local cigarette companies in emerging markets continuing to use these descriptors at a competitive advantage.

 

Health warnings

 

The working group is likely to work to require that health warnings be put on all cigarette packets worldwide. Note that this would not have a direct impact on the companies we cover as none of them sells cigarettes without health warning labels. In fact, we would argue that the companies we follow would benefit from this requirement given that it would result in competitors having to put health warnings on packets for the first time.

 

The companies we follow make it clear that they support the use of health warnings. Philip Morris states that it supports legislation that requires cigarette manufacturers to place health warnings on packages and in advertisements, and believes that government health officials should determine the text of the message.

 

The main area of conflict between the industry and the WHO will be, in our opinion, on the size and positioning of the health warnings. The WHO is likely to seek to increase the size of health warnings, as the EU is currently attempting to do through a draft directive. This is more of an issue for the manufacturers, since it reduces the amount of the pack surface that is available to communicate the brand message. Philip Morris says that it opposes health warnings that would "dominate the cigarette packages". The tobacco companies clearly need to be able to preserve the ability to communicate brand imagery.

 

Canada has gone farthest with health warnings, which now include graphic photographs of diseased body organs as an attempt to communicate the risks of smoking.

 

The EC is currently drafting legislation that will increase the size of health warnings in Europe. The proposed legislation will require that the health warning covers 30% of the front of the packet and 40% of the back of the packet. The commission is also thought to be considering requiring the same graphic images that are used in Canada.

 

 

Areas with Potential Upside for the Industry

 

Although an adversarial approach to WHO and tobacco industry communication has developed, there are, in our opinion, several areas where the FCTC could be of benefit to the industry. This is particularly true in areas of political controversy such as youth smoking, where a level playing field for all manufacturers with consistently applied rules could help to reduce the political pressure on the industry.

 

Safer Cigarettes

 

The tobacco industry would like to cooperate with governments and health bodies on research into producing a safer cigarette. To date, the industry has felt little incentive to invest meaningful resources in this area (other than lower tar products) because of two factors:

 

1)   the possibility of litigation if the product were to be subsequently criticised as making false health claims; and

 

2)   the limited ability to advertise the product's health benefits as a differentiating point.

 

In its submission to the WHO, Philip Morris sets out its current research programme; innovations have, however, been few. Philip Morris has set out how it would like to see efforts in this area develop:

 

  • design a cigarette that significantly reduces various constituents in the inhaled smoke;

 

  • provide scientific evidence that this change reduces biological activity in appropriate cellular and laboratory animals;
  • measure adult smoker exposure to the smoke from these cigarettes;
  • share these results with the scientific and public health community to build a consensus on the results; and
  • work with regulatory agencies, to appropriately communicate their results and their significance.

 

It is the final point that is vital if the safer cigarette is to achieve commercial success, and it is on this point that the WHO is unlikely, in our opinion, to be willing to cooperate. We believe that the WHO would see the public advertising of a cigarette's reduced health risk as a serious hindrance to efforts to encourage people to quit and may even encourage people to smoke who otherwise would not have done so.

 

We believe that the global tobacco leaders Philip Morris and BAT would be most likely to benefit from changes in attitude to safer cigarette development. We base this on both companies' scale and ability to fund large R&D efforts. However, Philip Morris is the leader in this area and would, in our opinion, be the most advantaged by any change in government attitude to communicating the benefits of lower risk products.

 

Minimum age for smoking

 

The tobacco industry is lobbying for the introduction of a worldwide minimum age for smoking. Philip Morris notes that, of the WHO's 191 member states, nearly 60% do not have any age restrictions at all on the sale of tobacco products. We see this as an area in which the WHO should be able to work with the industry to achieve a common goal, although it is likely that implementation will be slow in some countries. When age restrictions were put in place in 1999 in Rumania, Hungary and parts of India, there was little noteworthy impact on industry volumes in these markets, reflecting the fact that while underage smoking tends to be politically high profile, it has a low share of the overall market. Over time, age restrictions will benefit the industry in reducing the political pressure surrounding the youth smoking issue, in our opinion.

 

Counterfeit product

 

A subject related to smuggling is the recent rapid growth in the production of counterfeit cigarettes, particularly in China. We estimate that counterfeit cigarettes account for a significant part of total world consumption of cigarettes. On Philip Morris's estimates, it is approximately 30% more profitable for smugglers of cigarettes in China to smuggle counterfeit product than to smuggle legitimate product.

 

There is a clear risk to the industry, in our opinion, that if measures to cap smuggling are introduced, the growth in counterfeit product just accelerates to compensate.

 

We believe the company most at risk is BAT, which has substantial market positions in areas where smuggling is an issue, such as Brazil, China and south-east Asia.

 

Imperial Tobacco and Gallaher may also be at some risk given the long-term move in the UK market to non-UK duty paid cigarettes (currently 30% of the market): if the UK Manufacturers where unable to supply these cigarettes there would be a real risk of counterfeit product becoming an issue in the UK market.

 

Sensible regulations supported by tobacco Industry

 

We believe that the tobacco industry supports increased regulation (see appendix for a discussion of the issues in the US).

 

Time Line

 

It is intended that the Framework Convention on Tobacco Control (FCTC) be adopted by May 2003, but we see significant problems in meeting this deadline.

 

What has been achieved so far On May 24, 1999 the governing body of the WHO, the World Health Assembly (WHA), unanimously voted for a resolution that would begin work on a Framework Convention an Tobacco Control.

 

A team has been set up, based in Geneva, to coordinate activities. There has been one round of negotiations so far in October 2000. This set out areas that should be covered by the FCTC. The next round of negotiations will be from April 30 to May 6, 2001 and will concentrate on the more precise measures to be adopted. The negotiations are likely to take place twice a year in April and October, leading to increasingly detailed agreements on the measures to be included in the FCTC and any additional tobacco protocols.

 

Health ministers must get ratification from two-thirds of national governments

 

One of the key challenges that the WHO will face is ensuring that the interests of all ministries are included in the negotiation process.

 

In many countries, including the US and the UK, national government must ratify the WHO treaty before it becomes embodied in law.

 

We see the current low level of involvement of ministers for finance, trade, employment and agriculture as likely to result in friction between national government interests and those of the WHO. For example, a member state's minister for health might see increased excise tax as an important measure to reduce cigarette consumption, but other ministers might be concerned by the impact of large excise tax increases on tax take, employment and trade balances, leading to the national government refusing to ratify the FCTC.

 

The WHO believes that the process of involving both other UN agencies and ministers of all interested departments is on track. It is likely that these interested parties will take an increasingly large part in the negotiation process.

 

Likely over-run at timetable

 

It is important to remember that this is the first time that the WHO will have attempted to negotiate a legally binding convention, so that any time line is unlikely to be adhered to. Note that comparable negotiations of the UN Climate Control Treaty over-ran by eight years.

 

While we think it possible that a broad framework (with general rather than specific legal obligations) could be agreed by 2003, we see it as likely that the timetable to develop detailed protocols on specific issues will be very much longer. In other words, it should be relatively easy to reach agreement where the near-term practical implications are limited, but when specific legal requirements come to be negotiated we expect significantly more delays.

 

 

Limited Ability to Enforce on National Governments ... but Tobacco Industry May Need to Comply

 

Although the FCTC and protocols are technically legally binding once they arc ratified by national government, the WHO does not have the direct legal right to enforce the protocols that it passes. Its primary method of enforcement is to encourage implementation through diplomatic pressure. The WHO sets out three areas where it believes that it can work to bring about the implementation of the international agreements:

 

  • establish review mechanisms that focus pressure on states by holding them up to public scrutiny-,
  • articulate legal rules that may be enforceable in domestic courts; and
  • provide supporters within national governments with additional leverage to pursue the treaty's goals.

 

The WHO accepts that treaties rarely cause a state to immediately reverse its behaviour, but believes that they can produce significant shifts in behaviour, "both because they change a state's calculation of costs and benefits, and because most states feel that they ought to comply with their promises."

 

Politically, the global tobacco companies will need to comply where possible

 

We believe that the major tobacco companies that we follow seek to resolve areas of controversy, such as youth smoking and second hand (or environmental tobacco) smoke, and move to an environment where cigarette manufacturers are treated in a similar way to other consumer companies producing a legal product.

 

Given this strategy we believe that it would be a tactical blunder for the tobacco companies to fail (where able) to comply with a WHO treaty, even if it is not enacted into national law. It would be a high profile media event if a WHO protocol ratified by the majority of member states were not adhered to where possible by a major western tobacco company, particularly in an emerging market setting. To be clear, however, the tobacco companies that we cover all comply with existing national law and generally have higher levels of internal regulation than is currently required by most national governments.

 

There will be some areas where compliance will not be possible. For example, the tobacco companies cannot themselves comply with a protocol on the minimum level of excise tax.

 

In many other areas the tobacco companies will be able to comply with WHO protocols even if national governments and local tobacco companies do not. We see these areas as including, among others: advertising promotion and sponsorship, health warnings, product descriptors, design and ingredients disclosure.

 

Loss of emerging market advertising a risk

 

In our opinion, one of the biggest risk areas will be advertising and promotion restrictions. It would be politically difficult for Philip Morris or BAT to be seen to be advertising their cigarette brands in an emerging market, particularly on bill boards or on TV, if a WHO treaty had recently been passed banning this type of advertising. This would, in our opinion, continue to be the case even if the national government did not implement the ban and local cigarette manufacturers did not comply with it.

 

Local cigarette companies in emerging markets (largely state owned) would therefore gain a competitive advantage over international cigarette companies. The growth rate of international cigarette brands in emerging markets would be likely to be reduced as a result.

 

 

Health Agenda Drives Process That Could Result in an Unenforceable Treaty

 

We, believe there is a real risk that following the passing of the treaty, there is no real change in government behaviour. We see this risk as increased by the limited involvement to date of the ministries for finance, employment trade and agriculture. Given that the treaty will be driven by a health agenda, it is likely to be significantly more onerous than would be the case if these other interest groups were involved. However, in our opinion, there would also be a more limited degree of local political willingness to implement such a treaty when the full impact of the treaty on the economy has not been taken into account.

 

As the negotiation process currently stands, the access of the tobacco industry has been limited to a 5 minute presentation per company, while many NGO health lobby groups have had extensive access to the process. Our assessment is that the interest groups involved in the negotiation process will grow over time to include areas other than health.

 

We believe that, although the tobacco industry has been effectively excluded from this process, and does not have influence over national governments, it is able to encourage from the side lines a fuller participation of all interest groups.

 

Although we see these views as unlikely to find approval among member states, as an example of a health lobby group's submission to the WHO we summarise what the Third World Network has proposed to be included in the Convention.

 

·    Ban the export of tobacco from developed to developing countries. Such a ban (OECD to non-OECD countries) already exists for hazardous wastes in the Basel Convention under the UN Environment Programme. It should be extended to tobacco since it is the only consumer product that kills when used as intended by the manufacturer. Besides merely classifying nicotine as an addictive drug, its trade should be banned to make tobacco control effective in developing countries.

 

·    Export only with prior informed consent.   If an export ban is not yet possible, at least the Convention should specify that no country should be allowed to export tobacco unless there is "Prior informed consent" in writing from the importing countries. Developing countries should have the right not to import tobacco if they so choose. Exporting countries must also furnish the importing countries all knowledge and information about the product.

 

·    Liability and compensation by manufacturers for adverse effects. The Convention should include the principle that tobacco companies be liable for disease and death from their products in all their global markets. The compensation paid by the tobacco industry to the state and federal governments and to individual victims in the US should be an example of a similar type of liability and compensation system in the Convention. far, the US companies have remained silent about compensation outside the US. The Convention should also promote the shift away from tobacco cultivation and production, and not deal only with control of marketing.

 

 

Thoughts on Additional US Tobacco Regulation

 

US regulation could provide some upside for the industry.

 

We set out below the prospects, benefits and risk, as we see them, of pursuing incremental US federal government tobacco regulation.

 

The US tobacco industry is already highly regulated.

 

It is important to place any proposed incremental industry regulation into context, recognising that the US tobacco industry is already highly regulated. For example, rotating warning labels are required on each pack of cigarettes sold in the US and in all advertisements; federal and state governments levy significant excise taxes on tobacco products, and the cigarette industry makes approximately US$ ll billion in annual payments under the Master Settlement Agreement (MSA); the FTC tests the 'tar' and nicotine level of each cigarette brand (which is disclosed on all advertisements), and approves all tobacco advertising; manufacturers annually disclose to the government all ingredients and additives used in cigarettes (none of which has ever been objected to); federal state and local regulations restrict the sale and marketing of tobacco products; and the MSA places severe additional restrictions on the advertising and marketing of tobacco products. For instance, the MSA explicitly prohibits the targeting of rumors, the use of cartoon characters in advertising, the use of brand named sponsorships and brand name non-tobacco products, and all outdoor and transit brand advertising.

 

There selected advantages to added regulation.

 

Despite the relatively extensive existing US tobacco regulatory regime we envisage four primary benefits of sensible additional tobacco regulation. Sensible regulation would neither allow the government to ban tobacco products nor set product standards that would make legal products unacceptable to consumers, and would regulate cigarettes as cigarettes, rather than as drugs, food or medical devices.

 

First, increased regulation could enhance the stability and predictability of the US tobacco industry.  Second, such regulations could strengthen the industry's legal defence and public relations efforts, in essence providing a US government 'stamp of approval' on cigarettes. Third, a FDA-like regulatory regime could allow manufacturers to make legitimate, government - endorsed health-claims on future 'reduced-risk' tobacco products. Finally. although the industry's  harshest critics will settle for nothing less than prohibition of cigarettes, many more moderate critics of the industry - and a majority of the public – favour incremental tobacco industry regulation. Hence, additional regulations could allow the industry to align itself more closely with US societal expectations.

 

Philip Morris is driving the FDA regulation bus.

 

Philip Morris is the US manufacturer pursuing most aggressively incremental industry regulation (specifically, sensible FDA regulation). We believe this is due partly to the fact that Philip Morris has developed a 'conventional' burn-down cigarette that it claims delivers to smokers approximately 90% fewer tobacco-related carcinogens than traditional cigarettes. The company has indicated that it is placing significant resources towards the development and commercialisation of a conventional reduced-risk cigarette.

 

Although there has been a secular long-term reduction in cigarette 'tar' levels - largely through a general reduction in all smoke constituents - Philip Morris's R&D) product would provide a step-function improvement over existing cigarette technology. We believe that the product relies on the aggressive reduction in specific, select tobacco-specific carcinogens. Although it does not 'taste' as good as a traditional cigarette and does not burn down as consistently as a conventional product, we believe that the R&D cigarette could be acceptable to many smokers, and is far more satisfying than existing unconventional reduced-risk technology (for example, RJR's (RJ Reynolds) Eclipse and MO's (Philip Morris) Accord).

 

Ability to make a health claim is a necessary, but not sufficient, condition to ensure reduced-risk success.

 

We have long been intrigued by the prospects of a 'safer' cigarette. Such a product could reduce the health risks associated with long-term cigarette use, and could greatly enhance the industry's image with all of its key constituencies. However, the development of a safer cigarette faces several significant hurdles, including the following.

 

i)   Technological issues. Conventional cigarettes are an inherently risky product, due largely to their burning of organic matter. Hence, in the absence of a significant structural design change, there are limitations on how safe any commercially acceptable cigarette can be. If it were easy to develop a reduced-risk product, given the size of the market opportunity, one would have been introduced long ago.

 

ii)  Frequency of use. Unlike most consumer products, cigarette consumers typically smoke 20-25 cigarettes per day. As a result they are generally extremely sensitive to even modest modification in product taste or quality.

 

iii) Extremely high brand loyalty. Cigarette consumers are extremely brand loyal. For example, it is quite difficult to convert a Marlboro smoker to the Camel brand, and as a result it would probably be extremely difficult to convert a Marlboro smoker to a less risky product with a sub-optimal taste.

 

iv)  US cigarette smokers tend to be risk takers, and are less likely to trade-off taste for reduced risk. The frequently unappealing character traits of many of the smoking and health individual plaintiffs over the last decade is due in part to the fact that long-term US cigarette smokers tend not to be representative of the overall US population. Rather, they skew towards risk takers. For example, versus the overall population, US smokers are more likely to be overweight, less likely to wear a seat-belt and less likely to seek regular medical care.

 

As a result, US smokers, in our opinion, would be less willing than the overall population to trade-off long-term reduced risk for a compromise in near-term smoking 'pleasure'. Stated differently, if a long-term smoker were truly concerned with the risks associated with smoking, he/she would probably have already quit.

 

v)   The current inability to make health-based claims makes it difficult to convey the of switching. Despite the industry's 5-4 US Supreme Court FDA victory, we nonetheless believe that the FDA has the authority under existing law to regulate any cigarette where a manufacturer makes an explicit health-based claim. However, without a government-endorsed health claim in our opinion, there is little motivation for a smoker to adopt - or even try - a 'reduced' risk cigarette.

 

While the adverse trade-off of any reduced risk product would be readily apparent (less than optimal taste), it is unclear why anyone would choose a 'reduced' risk product if its benefits were not clearly evident. As an analogy, no one would choose a low fat variant of a packaged food product if he/she were not aware of the lower fat and/or cholesterol content because it would not taste as good as the traditional one. It would also be helpful to the success of any reduced risk technology if existing marketing restrictions on tobacco products were somewhat narrowed for reduced risk products.

 

vi)  Medical and scientific issues.

Although the "dose makes the poison", and less of a potentially harmful substance is certainly better than more, it is extremely difficult to determine at what threshold level of a carcinogen would a cigarette be considered 'safer'. Among other issues, medical tests will not be conducted to determine if a particular cigarette is actually safer (note that such tests would take 30 plus years). As a result, it is unlikely that scientists could claim that any cigarette is 'safe', but there could certainly be reason to believe that a particular product is a safer cigarette,

 

Although some in the industry believe that a necessary prerequisite for a successful safe cigarette would be a lower excise tax rate (to provide a consumer incentive), we do not believe that a favourable tax structure is a necessary precursor to success.

 

vii) Elements of the public health community may object to a genuinely safer cigarette.  Criticism by the public health community of RJR's Premier product, for example, contributed to that company's decision to remove it from the market The traditional reaction of elements of the public health community to safer cigarette technology is due to their fear that a safer cigarette could encourage smoking (for example, ex-smokers returning to smoking). If the attitude of the public health community is that one should not smoke, period, rather than encouraging current smokers to adopt a less risky product, it is likely to make it more difficult for a safer product to achieve commercial - and financial success.

 

Philip Morris is unlikely to commercialise its R&D cigarette product without clear federal guidelines. Although RJR makes certain very limited health claims regarding Eclipse (for example, Eclipse may present smokers with less risk of certain smoking-related diseases, when compared with other cigarettes), Philip Morris has not done so with its Accord product (limiting claims to no lingering odour, ashes or second-hand smoke), and in our opinion, is probably unwilling to do so without a clear federal regulatory regime regarding safer cigarettes (hence, the company's interest in FDA or FDA-like regulations).

 

In our opinion, given Philip Morris's extremely high product standards for Marlboro (for example, the company is very careful even with brand concepts that it places into test markets, and has not added its reduced fire-risk PaperSelect technology to Marlboro yet), we envisage that any commercial application of the R&D product would be on either Merit or a new stand-alone brand.

 

Near-term FDA regulatory outlook

 

We believe that it is very unlikely that any material progress will be made an tobacco FDA regulation during the current congressional year, and we are not particularly optimistic that significant progress will be made over the medium term. Note that tobacco issues are very low on President Bush's relatively narrow agenda, many powerful Republicans object to incremental federal regulation of any kind, and many Southern Democrats are wary of any incremental regulation that could harm tobacco farmers.

 

We see three key risks to pursuing incremental regulation

 

First, when any industry pursues incremental regulations, its motives often become suspect. In particular, the public health community could very well take the position that any legislation that the industry can accept - or promote - is by definition too lenient.

 

Second, although the industry has been - and remains generally effective in keeping tobacco regulation off the national legislative agenda, once a bill emerges for debate on the House or Senate floor, not even the industry's advocates can continue to protect it (take, for example, the McCain Bill debacle). By pursuing moderate legislation, the industry could potentially expose itself to far more onerous legislation than would have ever otherwise been able to emerge.

 

Third, even if 'ideal' regulatory legislation is enacted (such as sensible regulation by which cigarettes are regulated as cigarettes), the industry would still face the longer-term risk that a future administration would evolve then existing legislation into a far more onerous form.  Although we doubt that cigarettes would ever be banned, we believe that the risk of more onerous future advertising, manufacturing or marketing restrictions, for example, would probably increase once the FDA gained even limited tobacco regulatory authority.

 

Current status of the tobacco regulatory effort.

 

Congressional action. Three US Senators - Tom Harkin (D-IA), Robert Graham (D-FL), and Lincoln Chafee (R-RI) - have introduced legislation (S.247, "A Bill to Provide for the Protection of Children from Tobacco") that would essentially authorise the FDA tobacco regulatory regime that the agency had earlier claimed that it had. Under the proposal, the FDA would be granted the power to regulate nicotine as a drug and to control cigarettes as a drug-delivery device. The bill is similar to one that was introduced last year shortly after the Supreme Court ruling stating that Congress did not grant the FDA the power to regulate cigarettes, and from the industry's perspective is a 'non-starter'.

 

Although in a very preliminary stage, we also understand that Senator McCain (R-AZ) is again considering introducing legislation that would grant the FDA tobacco regulatory authority. The proposed legislation would essentially 'carve-out' the FDA regulatory element of the infamous 1998 McCain bill.

 

Industry action. Major US manufacturers, particularly Philip Morris, are engaged in an ongoing dialogue with various members of Congress and key staff regarding incremental additional federal tobacco regulation. Philip Morris has publicly indicated that FDA regulation of tobacco is "an idea whose time has come", and in particular, the company has indicated its support for further advertising limits, revised warning labels and additional ingredient disclosure requirements.

 

Administration action. Although the Bush administration has been relatively quiet on the issue of FDA tobacco regulation, Health and Human Services (HHS) Secretary Tommy Thompson has expressed his personal opinion that he favours giving the FDA tobacco oversight ("I think it would be the right thing to do"). Note that the HHS oversees the FDA. Secretary Thompson was previously the Governor of Wisconsin where, through its Kraft and Miller Brewing subsidiaries, Philip Morris is the state's largest private employer. We conclude from this that Philip Morris has a relatively good dialogue with the Secretary.

 

Note that a presidential commission established by President Clinton recently issued a preliminary recommendation that Congress grant the FDA tobacco regulatory authority.

 

Is there a substantial risk that a smaller manufacturer has leading-edge 'reduced risk' technology?  Given MO and RJR's significant scale, historical and current R&D spending, internal and external funding of smoking and health research, and alternative product introductions (Next, a no nicotine cigarette (MO)-, Premier and Eclipse, non-burndown alternative technology cigarettes (RJR); and the Accord smoking system (MO)), we believe that it is unlikely that any smaller cigarette manufacturer possess superior 'safer' cigarette technology. Further, as in the pharmaceutical industry, in the development of safer products, we believe that the victors may well be those companies with superior sales and distribution capability, rather the best technology (in the unlikely event that a smaller manufacturer had superior technology).

 

Liggett

 

According to published reports, Liggett intends to introduce by mid 2002 Omni, a potentially less dangerous cigarette that relies on speciality treated and genetically modified tobacco. Evidently, the technology is based in part on work Liggett explored during the 1970s relying on the use of the metal palladium (project XA). We understand that the palladium-based research was dropped, in part because it created additional carcinogens in tobacco smoke. Also, the feasibility of the use of palladium could potentially be an issue because of the limited supply and relatively high cost of the precious metal.

 

Star Tobacco.

 

Star has a product in development, Advance, which utilises tobacco cured in a manner that evidently reduce nitrosamines levels. Note that the company has filed suit to overturn Virginia's MSA, although similar efforts in other states have been unsuccessful. Note that Star has not entered into the MSA.

 

Importantly, both MO and RJR have efforts under way to reduce tobacco specific nitrosamines (TSNAS) in flue-cured tobacco. For example, Philip Morris has provided a US$35 million grant to help fund the conversion of all flue-curing tobacco barns to include heat exchangers, which significantly reduce the development of TSNAs during the curing process.

 

 

March Litigation Time Line

 

We list below key near-term and medium-term legal developments in the order we think they are likely to occur

 

  • The jury verdict in the Grinell versus B&W individual smoker suit in Beaumont, TX.
  • A ruling by the Tenth Circuit regarding an industry motion to dismiss a third-party payer union claim.
  • Appellate review of the HenLey (an appeal was filed on December 6, 1999), Williams-Branch and Whiteley cases.
  • A ruling by the Fourth Circuit on whether the EPA's determination that environmental tobacco smoke is a Group A (known human) carcinogen was valid. Oral arguments were held on June 7, 1999.
  • The filing of the industry's appeal in the Engle Florida class action lawsuit to the Third District Court of Appeals.
  • Ruling by the Louisiana Supreme Court as to whether state legislation, which bars medical monitoring claims, can be applied retroactively (which would bar the Scott class action claim).

 

Major events scheduled for 2001

 

March 19: Fontana.

The first of approximately 3,125 "Broin II' individual flight attendants' second-hand smoke claim is scheduled to begin. Under the Broin settlement, punitive damages are not allowed. Contrary to our reading, Judge Robert Kaye has ruled that the Broin settlement established liability.

 

March 19: Blue Cross-Blue Shield of new Jersey.

The industry's motion to dismiss has been denied, and the Second Circuit denied the industry's mandamus request. We note that the Empire Blue Cross-Blue Shield of New York case will be tried first (claims limited to RICO and state fraud). Given the Second Circuit's Laborers Local 17 ruling, we believe that the industry has strong grounds for appeal, should it lose at trial. We also note that the two 'sister' Blue Cross cases - three were originally filed - have been dismissed by a Seattle trial court and the Seventh Circuit Court of Appeals in Chicago.

 

March 21: Inzerilla.

Supreme Court Queens County, New York. Individual smoking and health claim.

 

June 2: Paiute Tribe.

Native American healthcare reimbursement claim is scheduled to begin. In June 2000, the court denied the industry's motion to dismiss (Superior Court, San Diego).

 

June 4: West Virginia consolidated trial.

A consolidated 'common issues' Phase I trial of approximately 1,200 West Virginia individual smoking and health cases is scheduled to begin. The case consists of all smoker claims that had been filed in Ohio County. 'Individual issues', including punitive damages, will be litigated separately. Judge Arthur Recht (Judge in Blankenship).

 

June 18: Scott

Phase I of the Scott Louisiana Medical Monitoring class action trial is scheduled to begin before Judge Richard Gonucheau In the initial liability phase, the jury will determine if nicotine caused class representatives to smoke, if cigarettes are defective, and whether addiction justifies medical monitoring. Louisiana bars punitive damages, limiting the claims' potential financial scale.

 

July 20: Fibreboard

  Asbestos contribution claim, US District Court for the Northern District of San Francisco.

 

July:     Owens Corning vs. Philip Morris.

Trial is scheduled to begin in this asbestos contribution claim in Jefferson County, Mississippi.

 

December 31: MSA

Deadline for state-specific finality under the Master Settlement Agreement (MSA).

 

December 31: Deadline for participation by smaller oral-tobacco manufacturers in the smokeless-tobacco state settlement agreement. If manufacturers choose to participate, we believe it would likely trigger an increase in UST's settlement payments.

 

Other Weinstein cases

The other major pending cases proceeding before Judge Jack Weinstein are listed below. Judge Weinstein plans to hold serial this in these cases, one after another.

 

April 9: H.K. Porter versus American Tobacco.

The Second Circuit recently denied the industry's writ of mandamus request to dismiss this asbestos contribution case.

 

May 14: Raymark versus American Tobacco.

This is the asbestos contribution case before Judge Weinstein.

 

May 2l:   National Asbestos Workers.

The industry's motion to dismiss has been denied, and the Second Circuit denied the industry's mandamus request to force Judge Weinstein to dismiss the case. We believe that this claim consistent with unanimous decisions by the Second, Third, Fifth, Seventh, Eighth, Ninth and Eleventh Circuits, will ultimately be dismissed an appeal if the industry should lose at trial.

 

The industry also filed a mandamus motion before the Second Circuit in an effort to force Judge Weinstein to either certify the claims as a class action prior to trial (which would allow pre-trial appellate review), or to reject class certification prior to trial (which would remove the claim's financial threat). Although the court did not accept the motion, it expected Judge Weinstein to rule "promptly" and he ultimately denied class certification. The plaintiffs have appealed that ruling.

 

Date TBD. Bergeron

Third-party healthcare cost reimbursement claim brought by the Massachusetts State Carpenters health and welfare trust fund

 

Major events scheduled for 2003

May: Deadline for the World Health Organisation to develop a "global tobacco framework convention".

 

July 15: Start of the DOJ's tobacco claim? Judge Kessler has indicated that the trial in the DOJ's tobacco suit could begin in July 2003. If the suit is not dismissed prior to trial (or dropped by George W. Bush), we believe that her timing forecast is probably aggressive.