Tobacco Companies Could Gain $2 Billion if Signing 1998 Agreement

The largest cigarette producers could compensate $2 billion under an advised deal with attorney general of the State in order to settle a prolonged dispute over payments required by the landmark 1998 tobacco settlement.

Negotiators for Altria Group Inc.’s Philip Morris USA and other cigarette enterprises have achieved a provisional deal with officials representing the 46states that signed the 1998 Settlement Agreement.

Tobacco Companies Could Gain $2 Billion

Native American cigarette brands, as for instance Seneca, account for more than 4% of U.S. volume.

The given agreement would permit leading tobacco companies to keep part of the funds they have kept from states or disputed under the 1998 pact, in accordance to which they agreed to pay about $200 billion in order to help states charge the costs of curing sick smokers.

In concordance with the new deal, moneyless states would obtain several billion of the contested dollars. The deals also would review the rules to how states charge fees and taxes from smaller enterprises that haven’t joined the 1998 agreement.

If the deal will be introduced, the main loser could be Native American tobacco companies, which have become powerful competitors with their cheap brands. The deal would require states to introduce rules demanding these enterprises to start paying sate excise duties and fees for sales on tribal lands, which could oblige them to raise prices. Advocates representing Indian cigarette interests are currently threatening legal challenges.

“What the states and companies are doing is not right. All states under the present deal would be disputing tribal economies in order to protect largest tobacco companies’ market shares,” stated Lance Morgan, chief manager of the Ho-Chunk Inc., which distributes tobacco products on tribal lands.

Native American brands as King Mountain, Mohawk and Seneca account for approximately 4% of the U.S. cigarette volumes, according to Morgan Stanley findings.

Altria, Reynolds American Inc. and Lorillard Inc. refused to comment on the issue.

Several states have adopted laws requiring the nonparticipating enterprises to put money aside in escrow accounts. In 2010, the U.S. market share of nonparticipating enterprises increased to 6.5%, the highest figure since 2004, when it remained at 8.27%.

In order to decrease their annual payment, the largest tobacco companies should demonstrate that their market-share loss is mostly due to the agreement. They successively have observed the condition, according to enactments by independent consultants.

An arbitration committee has started examining the issue in determining how to proceed with about $1.1 billion in disputed 2003 payments.

How much the enterprises would gain through the new agreement depends mostly on how many states participate in it. In case all states and U.S. territories in the 1998 agreement sign on, the tobacco enterprises would gain nearly $2 billion.

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