[Federal Register: August 11, 1995 (Volume 60, Number 155)]
[Proposed Rules ]
[Page 41313-41375]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[[Page 41313]]

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Part V

Department of Health and Human Services

_______________________________________________________________________

Food and Drug Administration

_______________________________________________________________________

21 CFR Part 801, et al.

Regulations Restricting the Sale and Distribution of Cigarettes and
Smokeless Tobacco Products To Protect Children and Adolescents;
Proposed Rule

Analysis Regarding FDA's Jurisdiction Over Nicotine-Containing
Cigarettes and Smokeless Tobacco Products; Notice

[[Page 41314]]

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 801, 803, 804, and 897

[Docket No. 95N-0253]


Regulations Restricting the Sale and Distribution of Cigarettes
and Smokeless Tobacco Products To Protect Children and Adolescents

AGENCY: Food and Drug Administration, HHS.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Food and Drug Administration (FDA) is proposing new
regulations governing the sale and distribution of nicotine-containing
cigarettes and smokeless tobacco products to children and adolescents
in order to address the serious public health problems caused by the
use of and addiction to these products. The proposed rule would reduce
children's and adolescents' easy access to cigarettes and smokeless
tobacco as well as significantly decrease the amount of positive
imagery that makes these products so appealing to them. The proposed
rule would not restrict the use of tobacco products by adults.
    Specifically, the proposed rule would establish 18 years of age as
the Federal minimum age of purchase and would prohibit cigarette
vending machines, free samples, mail-order sales, and self-service
displays. It would also require that retailers comply with certain
conditions regarding sales of tobacco, especially verification that the
purchaser is at least 18 years of age before a tobacco sale is made.
Finally, the proposed rule would limit advertising and labeling to
which children and adolescents are exposed to a text-only format; ban
the sale or distribution of branded non-tobacco items such as hats and
tee shirts; restrict sponsorship of events to the corporate name only;
and require manufacturers to establish and maintain a national public
education campaign aimed at children and adolescents to counter the
pervasive imagery and reduce the appeal created by decades of pro-
tobacco messages and thus to help reduce young people's use of tobacco
products.
    The objective of the proposed rule is to meet the goal of the
report ``Healthy People 2000'' by reducing roughly by half children's
and adolescents' use of tobacco products. If this objective is not met
within seven years of the date of publication of the final rule, the
agency will take additional measures to help achieve the reduction in
the use of tobacco products by young people. FDA is requesting comment
regarding the type of additional measures that would be most effective.

DATES: Written comments and recommendations by November 9, 1995.

ADDRESSES: Submit written comments and recommendations to the Dockets
Management Branch (HFA-305), Food and Drug Administration, rm. 1-23,
12420 Parklawn Dr., Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT: Philip Chao, Office of Policy (HF-23),
Food and Drug Administration, 5600 Fishers Lane, Rockville, MD, 20857,
301-827-3380.

SUPPLEMENTARY INFORMATION:

I. Introduction

    Approximately 50 million Americans currently smoke cigarettes and
another 6 million use smokeless tobacco products.<SUP>1 These tobacco
products are responsible for more than 400,000 deaths each year due to
cancer, respiratory illnesses, heart disease, and other health
problems.<SUP>2 Cigarettes kill more Americans each year than acquired
immune deficiency syndrome (AIDS), alcohol, car accidents, murders,
suicides, illegal drugs, and fires combined.<SUP>3 On average, smokers
who die from a disease caused by smoking lose 12 to 15 years of life
because of tobacco use.<SUP>4
    In a separate document,<SUP>5 FDA is addressing the issue of its
jurisdiction over nicotine-containing cigarettes and smokeless tobacco
products. The results of an extensive investigation and comprehensive
legal analysis support a finding at this time that the nicotine in
these products is a drug and that these products are nicotine-delivery
devices within the meaning of the Federal Food, Drug, and Cosmetic Act
(the act). FDA proposes to regulate cigarettes and smokeless tobacco
products by employing its restricted device authority, which affords
the most appropriate and flexible mechanism for regulating the sale,
distribution, and use of these products.
    The primary objective of the proposed rule is to reduce the death
and disease caused by tobacco products. Rather than banning tobacco
products for the millions of Americans who are currently addicted to
them, this regulation focuses on preventing future generations from
developing an addiction to nicotine-containing tobacco products. In
addition, the scientific evidence strongly suggests that nicotine
addiction begins when most tobacco users are teenagers or younger and,
thus, is a pediatric disease. Therefore, reducing the number of young
people who regularly start to use tobacco products will help to prevent
future generations of individuals from becoming addicted to nicotine.
    The goal of the proposed rule is to help the country achieve one of
the objectives of ``Healthy People 2000,'' which is to reduce the
number of children and adolescents who use tobacco products by roughly
one half by the year 2000. The agency has modified the goal to include
a different measurement tool and established 7 years after publication
of the final rule as the goal's endpoint. ``Healthy People 2000''
discussed national health promotion and disease prevention objectives
in this country. It was facilitated by the Institute of Medicine of the
National Academy of Sciences, with the help of the U.S. Public Health
Service, and included almost 300 national membership organizations and
all State health departments.<SUP>6
    To determine the most appropriate regulatory measures, the agency
reviewed the current patterns of use of tobacco products. According to
the 1994 Surgeon General's Report, ``Preventing Tobacco Use Among Young
People: A Report of the Surgeon General'' (the 1994 Surgeon General's
Report), more than 3 million American adolescents currently smoke
cigarettes and an additional 1 million adolescent males use smokeless
tobacco.<SUP>7 Every day, another 3,000 young people become regular
smokers.<SUP>8 U.S. data suggest that anyone who does not begin smoking
in childhood or adolescence is unlikely to ever begin.<SUP>9 Eighty-two
percent of adults who ever smoked had their first cigarette before age
18, and more than half of them had already become regular smokers by
that age.<SUP>10 Moreover, the younger one begins to smoke, the more
likely one is to become a heavy smoker.<SUP>11
    Many young tobacco users become addicted to nicotine, a chemical
substance in tobacco. Although they believe that they will not become
addicted to nicotine or become long-term users of tobacco products,
they often find themselves unable to quit smoking.<SUP>12 In fact,
among smokers aged 12-17 years, 70 percent already regret their
decision to smoke and 66 percent state that they want to quit.<SUP>13
Those who are able to quit experience relapse rates and withdrawal
symptoms similar to those reported in adults.<SUP>14
    Long-term addiction to nicotine can result in serious chronic
diseases and premature death. An adolescent whose cigarette use
continues into adulthood increases his or her risk of dying from

[[Page 41315]]
cancer, cardiovascular disease, or lung disease.<SUP>15 In addition,
smokeless tobacco use has been linked to oral cancer and other adverse
effects.<SUP>16
    Although most segments of the American adult population have
decreased their use of cigarettes, the prevalence of smoking by young
people has failed to decline for more than a decade. Recently, smoking
among young people has begun to rise.<SUP>17 Between 1991 and 1994, the
prevalence of smoking by eighth graders increased 30 percent, from 14.3
percent to 18.6 percent. Among 10th grade students, it increased from
20.8 percent to 25.4 percent and for 12th grade students, it rose from
28.3 percent to 31.2 percent.<SUP>18 Between 1985 and 1994, smoking
among college freshmen increased from 9 percent to 12.5 percent.<SUP>19
    Millions of American children and adolescents can easily buy or
obtain cigarettes and smokeless tobacco products. The large number of
young people who use these products is especially noteworthy because
all States prohibit the sale of tobacco products to persons under the
age of 18, and a few States prohibit cigarette sales to persons under
the ages of 19 or 21.<SUP>20 These State laws, however, are rarely
enforced. It is estimated that each year children and adolescents
consume between 516 million and 947 million cigarette packages and 26
million containers of smokeless tobacco products.<SUP>21
    In addition to easy access to tobacco products, advertising and
promotional activities can influence a young person's decision to smoke
or use smokeless tobacco products. Tobacco products are among the most
heavily advertised products in the United States.<SUP>22 In 1993, the
tobacco industry spent a total of $6.2 billion on the advertising,
promotion, and marketing of cigarettes and smokeless tobacco. Of that
number, 31 percent ($1.9 billion) was spent on advertising and
promotional activities; 26 percent ($1.6 billion) was given to
retailers in the form of cash allowances or retailer items to
facilitate and enhance the sale of tobacco products, and finally, 43
percent ($2.6 billion) was in the form of financial incentives (e.g.
coupons, cents off, buy one/get one free, free samples) to
consumers.<SUP>23
    Tobacco product brand names, logos, and advertising messages are
pervasive, appearing on billboards, on buses and trains, in magazines
and newspapers, and on clothing and other goods. These ubiquitous
images and messages convey to young people that tobacco use is
desirable, socially acceptable, safe, healthy, and prevalent in
society. One study found that 30 percent of 3 years olds and 91 percent
of six year olds associate the ``Joe Camel'' cartoon figure with
cigarettes.<SUP>24 Studies also show that most young people buy the
most heavily advertised cigarette brands, whereas many adults buy
generic or ``value category'' cigarette brands, which have little or no
image advertising.<SUP>25
    In proposing this regulation, FDA examined many domestic and
foreign tobacco control statutes, regulations, and legislation, as well
as numerous studies and reports. FDA also reviewed recommendations from
various public health organizations, including the World Health
Organization, the Office of the Surgeon General, the Centers for
Disease Control and Prevention (CDC), the National Cancer Institute
(NCI), and the Institute of Medicine (IOM). Two reports, the 1994
Surgeon General Report and the 1994 IOM Report ``Growing Up Tobacco
Free: Preventing Nicotine Addiction in Children and Youths,'' were
especially helpful and informative.
    The agency has examined many options for reducing tobacco use by
children and adolescents, and believes that an effective program must
address the following two areas: (1) Restrictions on cigarette and
smokeless tobacco sales that will make these products less accessible
to young people; and (2) restrictions on labeling and advertising to
help reduce the appeal of tobacco products to young people along with
requirements for a manufacturer- funded national education campaign
aimed at those under 18 years of age to help reduce the products'
appeal to these young people. A brief description of the major
provisions of the proposed rule follows.

A. Sale and Distribution

    The proposed rule would restrict the sale of cigarettes and
smokeless tobacco products to individuals age 18 and older. This age
restriction is based on the fact that most adult smokers became regular
smokers before age 18.
    The proposed rule would require retailers to verify the age of
persons who wish to buy cigarettes or smokeless tobacco products and
would eliminate ``impersonal'' methods of sale that do not readily
allow age verification, such as mail orders, self-service displays, and
vending machines.
    The proposed rule would make each manufacturer, distributor, and
retailer of tobacco products responsible for complying with the
proposed restrictions. Manufacturers would be required to remove all
manufacturer-supplied or manufacturer-owned self-service displays,
advertising, labeling, and other items that do not conform to the
requirements in the proposed rule.
    The proposed rule would prohibit the distribution of free samples
and would allow the exchange of coupons and other non-cash certificates
only by individuals 18 or older and only in face-to-face transactions.
Currently, young people, including children in elementary school, are
often able to obtain free samples despite industry-imposed age
restrictions on such distributions.
    The proposed rule would also prohibit the sale of single cigarettes
(``loosies'') and ``kiddie packs (less than 20 to a pack) which, due to
their relatively low price and easy concealment, have been shown to be
particularly appealing to children and adolescents.
    Further, the proposed rule would prohibit manufacturers from using
a trade name or brand name of a non-tobacco product for a cigarette or
smokeless tobacco product. This will prevent a manufacturer from
transferring the images, good will, and appeal of a popular non-tobacco
product to a tobacco product.

B. Labeling, Advertising and Educational Programs

    Advertising that reaches children would be in black and white,
text-only format. Studies indicate that children and adolescents are
very receptive to images and cartoons and less attentive to texts.
However, the proposed rule would not affect advertising in publications
with primarily adult readership--imagery and color would continue to be
permitted in such publications. Finally, outdoor advertising of tobacco
products located within 1,000 feet of schools and playgrounds would be
banned. Consequently, the proposed rule would help reduce the appeal of
advertising to children and adolescents without affecting informational
messages conveyed to adults.
    The proposed rule would prohibit the sale or distribution of brand
identifiable non- tobacco items and services, proof-of-purchase sales,
games and contests, and sponsorship of events in the brand name, as
well as advertising for these items, services, and events.
    The proposed rule would require manufacturers to establish and
maintain a national educational campaign in order to counter the
pervasive imagery and reduce the appeal created by decades of pro-
tobacco messages and, thus, help reduce young people's use of tobacco
products. Evidence exists that mass media antismoking campaigns
conducted nationally between 1967 and 1970, and more recently, in
Vermont and California, have had a sustained

[[Page 41316]]
effect on preventing teens from starting to smoke and on significantly
reducing per capita cigarette consumption.

C. Healthy People 2000 Objective

    Seven years after publication of the final rule, the agency would
determine whether additional restrictions on tobacco products are
required by using outcome-based objectives modeled on the ``Healthy
People 2000'' report. One of the goals for tobacco use established by
that report is to reduce by roughly one half the percentage of young
people using tobacco products by the year 2000. If this objective is
not met within the time specified by the rule, FDA would take
additional measures to help achieve the reduction in young people's use
of tobacco products. The proposed rule requests comment on which
additional measures should be adopted.
    The agency intends to adopt one or more additional provisions only
if the continued use of cigarettes and smokeless tobacco products by
children and adolescents indicates that the goal of reducing tobacco
use by young people by roughly half had not been met.
    The remainder of this discussion of the proposed rule (hereinafter
``preamble'') is organized as follows: Chapter II examines the use of
cigarettes and smokeless tobacco products by children and adolescents,
and the health consequences of using nicotine- containing tobacco
products; Chapter III describes the provisions of the proposed rule and
provides the rationale for each of the requirements; Chapter IV reviews
the legal authority for these specific requirements, and Chapters V
through VIII provide analyses required by the Paperwork Reduction Act
of 1980, various Executive Orders, as well as provides analyses of
various economic and environmental impacts.

References

    1. Substance Abuse and Mental Health Services Administration,
``National Household Survey on Drug Abuse: Population Estimate
1993,'' Rockville, MD: Department of Health and Human Services,
Public Health Service, Substances Abuse and Mental Health Services
Administration, Office of Applied Studies, DHHS Pub. No. (SMA) 94-
3017, 1994, pp. 89, 95; ``Cigarette Smoking Among Adults--United
States, 1993,'' in ``Morbidity and Mortality Weekly Report (MMWR),''
CDC, Department of Health and Human Services (DHHS), vol. 43, No.
50, pp. 925-930, 1994; ``Use of Smokeless Tobacco Among Adults--
United States, 1991,'' in ``MMWR,'' CDC, DDS, vol. 42, pp. 263-266,
1993; Unpublished data from the 1992 Youth Risk Behavior Survey,
National Health Interview Supplement, CDC.
    2. ``Cigarette Smoking--Attributable Mortality and Years of
Potential Life Lost--United States, 1990,'' in ``MMWR,'' CDC, DHHS,
vol. 42, no. 33, pp. 645-649 (1993).
    3. IOM, p. 3. Collectively, AIDS, alcohol, car accidents,
murders, suicides, illegal drugs and fire combined cause nearly
251,000 deaths a year.
    4. ``Cigarette Smoking--Attributable Mortality and Years of
Potential Life Lost--United States, 1990, in ``MMWR,'' CDC, DHHS,
vol. 42, no. 33, pp. 645-649, 1993; Peto, R., et al., ``Mortality
from Tobacco in Developed Countries: Indirect Estimation from
National Vital Statistics,'' The Lancet, vol. 339, pp. 1268-1278,
1992.
    5. ``Nicotine In Cigarettes and Smokeless Tobacco Products is a
Drug and These Products are Nicotine-Delivery Devices Under the
Federal Food, Drug, and Cosmetic Act,'' FDA, DHHS, August, 1995.
    6. DHHS, ``Healthy People 2000, ``U.S. Department of Health and
Human Services, Public Health Service, Intro. pp. 1-8, September
1990.
    7. DHHS, ``Preventing Tobacco Use Among Young People: A Report
of the Surgeon General,'' Atlanta, Georgia: DHHS, PHS, CDC, NCCDPHP,
OSH, 1994 pp. 5 (hereinafter cited as ``1994 SGR'').
    8. IOM Report p. 8.
    9. 1994 SGR, pp. 5, 58, 65-67.
    10. 1994 SGR, p. 65.
    11. Taioli, E., E.L. Wynder, ``Effect of the Age at Which
Smoking Begins on Frequency of Smoking in Adulthood,'' The New
England Journal of Medicine, vol. 325, No. 13 pp. 968-969, 1991; and
L.G. Escobedo, et al., ``Sports Participation, Age of Smoking
Initiation, and the Risk of Smoking Among U.S. High School
Students,'' Journal of the American Medical Association, vol. 269,
No. 11, pp. 1391-1395, 1993.
    12. IOM Report, pp. 51-52.
    13. The George H. Gallup International Institute. ``Teenage
Attitudes and Behavior Concerning Tobacco,'' at p. 54, September
1992.
    14. Reasons for Tobacco Use and Symptoms of Nicotine Withdrawal
Among Adolescent and Young Adult Tobacco Users--United States,
1993,'' in ``Morbidity and Mortality Weekly Report,'' CDC, DHHS,
vol. 43, No. 41, pp. 745-750, 1994; 1994 SGR, p. 78.
    15. McGinnis, J.M., and W.H. Foege, ``Actual Causes of Death in
the United States,'' Journal of the American Medical Association,
vol. 270, No. 18, pp. 2207-2212, 1993; see generally DHHS,
``Reducing the Health Consequences of Smoking: 25 Years of Progress,
A Report of the Surgeon General.'' DHHS, PHS, CDC, NCCDPHP, OSH.
DHHS Publication No. (CDC) 89-8411, p. 5, 1989 (hereinafter cited as
``1989 SGR''); DHHS, ``The Health Consequences of Smoking Chronic
Obstructive Lung Disease: A Report of the Surgeon General, ``DHHS,
PHS, OSH, 1984 (hereinafter cited as ``1984 SGR''); DHHS, ``The
Health Consequences of Smoking: Cardiovascular Disease, A Report of
the Surgeon General,'' Public Health Service, OSH, DHHS, p. 76,
1983; DHHS, ``The Health Consequences of Smoking--Cancer--A Report
of the Surgeon General,'' DHHS, PHS, OSH, p. 8, 1982 (hereinafter
cited as ``1982 SGR'').
    16. 1994 SGR, p. 39; DHHS, ``The Health Consequences of Using
Smokeless Tobacco: A Report of the Advisory Committee to the Surgeon
General,'' p. 32-47, Bethesda, Md., DHHS, PHS, NIH Publication No.
86-2874, April, 1986 (hereinafter cited as ``1986 SGR'').
    17. ``Cigarette Smoking Among Adults--United States 1991, ``in
``MMWR,'' CDC, DHHS, Vol. 42, no. 12, pp. 230-233, 1993; Johnston,
L.D., P.M. O'Malley, and J.G. Bachman, ``National Survey Results on
Drug Use from The Monitoring the Future Study, 1975-1993, Volume I:
Secondary School Students,'' Rockville, MD: U.S. Department of
Health and Human Services, Public Health Service, National Institute
of Health, National Institute on Drug Abuse, NIH Pub. No. 94-3809,
pp. 9, 19, 1994; The University of Michigan, News and Information
Service, July 20, 1995, ``Smoking rates climb among American
teenagers, who find smoking increasingly acceptable and seriously
underestimate the risks.'' Table 1.
    18. Johnston, L.D., P.M. O'Malley, and J.G. Bachman, ``National
Survey Results on Drug Use from the Monitoring the Future Study,
1975-1993, Volume I: Secondary School Students,'' Rockville, MD:
U.S. Department of Health and Human Services, Public Health Service,
National Institute of Health, National Institute on Drug Abuse, NIH
Pub. No. 94-3809, 1994; The University of Michigan, News and
Information Service, July 20, 1995, ``Smoking rates climb among
American teenagers, who find smoking increasingly acceptable and
seriously underestimate the risks.'' Table 1.
    19. ``Washington Post,'' January 9, 1995, at p. A5, col. 3
(describing findings from a survey of approximately 238,000 freshman
conducted by the UCLA Higher Education Research Institute) and UCLA,
Health Education Research Institute, ``The American Freshman:
National Norms for Fall 1994.
    20. Coalition on Smoking OR Health, ``State Legislated Actions
on Tobacco Issues,'' at Appendix G, 1993.
    21. DiFranza, J.R., and J.B. Tye, ``Who Profits From Tobacco
Sales to Children?'' Journal of the American Medical Association,
vol. 263, No. 20, pp. 2784-2787, 1990; Cummings, K.M., T. Pechacek,
and D. Shopland, ``The Illegal Sale of Cigarettes to U.S. Minors:
Estimates by State,'' American Journal of Public Health, vol. 84,
No. 2, pp. 300-302, 1994 (conservative estimates of cigarette use by
teenagers in 1991 have teenagers smoking 516 million packs of
cigarettes and spending $962 million (of which the industry gained a
profit of $190 million); an estimated 255 million packs were sold
illegally to minors).
    22. 1994 SGR, p. 160.
    23. Federal Trade Commission, ``Report to Congress for 1993,
Pursuant to the Federal Cigarette Labeling and Advertising Act,''
Table 3D (1995) and Federal Trade Commission, ``Report to Congress,
Pursuant to the Comprehensive Smokeless Tobacco Health Education Act
of 1986,'' Table 4D (1995).
    24. Pierce, J.P., et al., ``Does Tobacco Advertising Target
Young People to Start Smoking? Evidence from California,'' Journal
of the American Medical Association, vol. 266, No. 22, pp. 3154-
3158, 1991; See also Fischer, P.M. et al., ``Brand Logo Recognition

[[Page 41317]]
by Children Aged 3 to 6 Years, Mickey Mouse and Old Joe Camel,''
Journal of the American Medical Association, vol. 266, No. 22, pp.
3145-3148, 1991.
    25. ``Changes in Cigarette Brand Preference of Adolescent
Smokers, United States, 1989-1993,'' in ``MMWR,'' DHHS, CDC, vol.
42, No. 32, pp. 577-581, 1994; Teinowitz, I., ``Add RJR to List of
Cigarette Price Cuts,'' Advertising Age, pp. 3, 46, April 26, 1993.

II. Cigarette and Smokeless Tobacco Product Use Among Children and
Adolescents

    Each year, the cigarette industry loses about 1.7 million customers
in the United States; about 400,000 die from diseases caused by their
smoking and another 1.3 million quit smoking.\1\ To offset the sales
lost to smokers who die or quit smoking, cigarette manufacturers rely
on young people as the primary source of new customers. Each day,
approximately 3,000 young people become regular smokers,\2\ serving as
the industry's major domestic source of replacement smokers.

A. Epidemiology of Tobacco Use Among Children and Adolescents

    In 1965, the year following the first Surgeon General's Report \3\
describing the relationship between smoking and diseases such as lung
cancer, chronic bronchitis, and emphysema, 42.4 percent of the overall
adult population in the United States smoked.\4\ By 1990, the
prevalence of smoking in the United States had declined to 25.5
percent.\5\ The greatest reduction in adult smoking occurred from 1987
to 1990, when the prevalence of smoking declined by 1.1 percentage
point annually, twice the rate of decline during the preceding 20
years.\6\ The prevalence of smoking among adults leveled off at 25.6
percent in 1991 and was 26.5 percent in 1992. This change was due to a
change in the definition of current smokers, rather than an increase in
prevalence. The new definition incorporates some day (i.e., less than
daily, occasional, or infrequent) smoking.\7\ The estimate for 1992
with the old definition was 25.6 percent--the same as in 1991. In 1993,
under the new definition, prevalence was 25.0 percent.\8\
    The long-term downward trend in adult smoking contrasts with the
trends in smoking among young people. The Institute of Medicine noted
that the number of high school seniors who have smoked in the last 30
days remained ``basically unchanged since 1980,'' at approximately 30
percent, and further reported that 16.7 percent of 8th grade students
were current smokers (that is, had smoked within the past 30 days), and
8.3 percent smoked daily.\9\ The prevalence of cigarette smoking in
recent years among 8th and 10th grade students has risen significantly
and provides cause for great concern. For example, among 8th grade
students, 14.3 percent in 1991 and 18.6 percent in 1994 were current
smokers; among 10th grade students, 20.8 percent in 1991 and 25.4
percent in 1994 were current smokers.\10\
    The 1994 Surgeon General's Report reviewed several different
surveys and found that the estimated percentage of adolescents who have
ever smoked cigarettes ranged from approximately 42 percent (as
reported by the 1991 National Household Survey on Drug Abuse) to 70
percent (as reported by the 1991 Youth Risk Behavior Survey).\11\ The
1994 Surgeon General's Report also found that 28 percent of high school
seniors were current smokers.\12\ (The most recent data reported by the
Monitoring the Future Project indicates that in 1994 the number of high
school seniors who were current smokers had risen to 31.2 percent.)\13\
Further, the 1994 Surgeon General's Report states that seven to 13
percent of adolescents were frequent or heavy smokers, consuming at
least one-half pack daily or smoking 20 days or more of the 30 days in
a survey period.\14\
    Approximately 3 million children under the age of 18 are daily
smokers.\15\ One study found that children between the ages of 8 and 11
who are daily smokers consume an average of 4 cigarettes daily, and
those who are between the ages of 12 and 17 average nearly 14
cigarettes daily. The study also estimated that adolescents consume an
estimated 947 million packs of cigarettes and 26 million containers of
smokeless tobacco annually and account for annual tobacco sales of
$1.26 billion.\16\ Another study estimates that teenagers in 1991
smoked 516 million packs of cigarettes and spent $962 million
purchasing them.\17\ As stated previously, these figures are especially
significant given that all States prohibit the sale of tobacco to
persons under the age of 18 (with some States prohibiting sales to
persons under the age of 19 and one State, Pennsylvania, prohibiting
cigarette sales to persons under the age of 21).\18\ Unfortunately, few
States successfully enforce their laws restricting tobacco sales to
minors.\19\
    Studies have also suggested that the age one begins smoking can
greatly influence the amount of smoking one will engage in as an adult
and will ultimately influence the smoker's risk of tobacco related
morbidity and mortality. Those who started smoking by early adolescence
were more likely to be heavy smokers than those who began smoking as
adults.\20\ Another study found that high school students who smoked
their first cigarette during childhood smoked more often and in greater
amount than those who first tried smoking during adolescence.\21\
    The escalating use of smokeless tobacco products by underage
persons presents an additional and growing public health problem.
Smokeless tobacco products include chewing tobacco and snuff and are
also known as ``spit tobacco'' or ``spitting tobacco.'' In 1970, the
prevalence of snuff use among males was lowest in those 17 to 19 years
of age and the highest use was by men aged 50 or more. By 1985, a
dramatic shift had occurred, and males between 16 and 19 were twice as
likely to use snuff as men aged 50 and over.\22\ An estimated 3 million
users of smokeless tobacco products were under the age of 21 in
1986,\23\ when Congress enacted the Comprehensive Smokeless Tobacco
Health Education Act (the Smokeless Act) (15 U.S.C. 4401). The
Smokeless Act required the Secretary of Health and Human Services (the
Secretary) to inform the public of the health dangers associated with
smokeless tobacco use, required warning labels on packages, banned
advertising on electronic media subject to the Federal Communications
Commission's jurisdiction (such as television and radio), and
encouraged States to make 18 years the minimum age for purchasing
smokeless tobacco products. Despite the Smokeless Act and State laws
prohibiting sales to minors, a high percentage of persons under the age
of 18 use smokeless tobacco products. For example:
    <bullet> 1991 school-based surveys estimated that 10.7 percent of
U.S. high school seniors and 19.2 percent of male 9th to 12th grade
students use smokeless tobacco.\24\
    <bullet> A 1992 national household-based survey of U.S. children
found that 11.9 percent of males 12-17 years of age were using
smokeless tobacco.\25\
    <bullet> Among high school seniors who had ever tried smokeless
tobacco, 73 percent did so by the ninth grade.\26\
    In some parts of the United States the rates are especially high.
According to the 1990-91 Youth Risk Behavior Survey, the smokeless
tobacco product use rates among males in grades 9 through 12 were as
high as 34 percent in Tennessee, 33 percent in Montana, 32 percent in
Colorado, and 31 percent in Alabama and Wyoming.\27\
    Native American youth are especially vulnerable to smokeless
tobacco product use. The rates for both males and females are extremely
high, ranging from 24 percent to 64 percent, and at rates that, in some
areas, are 10 times higher than those for non-Native

[[Page 41318]]
Americans.\28\ Studies also suggest that Native Americans begin using
smokeless tobacco products at much earlier ages than non-Native
Americans. A 1986 survey at the Rosebud Sioux Reservation in South
Dakota revealed that 21 percent of kindergarten children used smokeless
tobacco products,\29\ and a survey of Native Americans in the state of
Washington indicated that 33 percent of former users and 57 percent of
current users started using smokeless tobacco products before the age
of 10.\30\
    The recent and very large increase in the use of smokeless tobacco
products by young people and the addictive nature of these products has
persuaded the agency that these products must be included in any
regulatory approach that is designed to help prevent future generations
of young people from becoming addicted to nicotine-containing tobacco
products.

B. The Health Effects Associated With Cigarettes and Smokeless Tobacco
Products

    Over 400,000 Americans die each year from smoking-related
illnesses. This equates to more than one of every five deaths in the
United States.\31\ If an adolescent's tobacco use continues for a
lifetime, there is a 50 percent chance that the person will die
prematurely as a direct result of smoking.'' \32\ Moreover, the earlier
a young person's smoking habit begins, the more likely he or she will
become a heavy smoker and therefore suffer a greater risk of smoking
related diseases.\33\ Smoking is responsible for about 30 percent of
all cancer deaths,\34\ including 87 percent of all lung cancer deaths;
82 percent of deaths from chronic obstructive pulmonary disease (COPD);
\35\ 21 percent of deaths from coronary heart disease; \36\ and 18
percent of deaths from stroke.\37\ Further, a causal relationship
exists between cigarette smoking and cancers of the larynx, mouth,
esophagus, and bladder; and atherosclerotic peripheral vascular
disease, cerebrovascular disease (stroke), and low-birth weight
babies.\38\ Cigarette smoking is also a probable cause of infertility
and peptic ulcer disease and contributes to, or is associated with,
cancers of the pancreas, kidney, cervix, and stomach.\39\
    Much of the following brief discussion is abstracted from several
Surgeon General's reports. The Surgeon General's reports summarize
thousands of peer-reviewed scientific studies and are themselves peer-
reviewed and subjected to significant scientific scrutiny.
1. Health Effects of Cigarette Smoking
    Epidemiologic studies provide overwhelming evidence that smoking
causes lung cancer.\40\ The risk of getting lung cancer may be more
than 20 times greater for heavy smokers than nonsmokers.\41\ The
relationship between smoking and lung cancer is due to the numerous
carcinogens in cigarette smoke.\42\ Cigarette smoking caused an
estimated 117,000 deaths from lung cancer in 1990.\43\
    The risk of getting lung cancer increases with the number of
cigarettes smoked and the duration of smoking, and decreases after
cessation of smoking.\44\ Starting smoking at an earlier age increases
the potential years of smoking and increases the risk of lung
cancer.\45\ Studies have shown that lung cancer mortality is highest
among adults who began smoking before the age of 15.\46\
    Cigarette smoking also causes cancer of the larynx, mouth, and
esophagus.<SUP>47 According to current estimates, 82 percent of
laryngeal cancers are due to smoking and about 80 percent of the 10,200
deaths from esophageal cancer in 1993 can be attributed to
smoking.<SUP>48 The risk of oral cancer among current smokers ranges
from 2.0 to 18.1 times the risk in people who have never smoked and can
be reduced more than 50 percent after quitting.<SUP>49 The risk of
esophageal cancer among current smokers ranges from 1.7 to 6.4 times
the risk in people who have never smoked and can also be reduced by
about 50 percent after quitting.<SUP>50
    Epidemiologic studies demonstrate that cigarette smoking
contributes to the development of pancreatic cancer.<SUP>51 The reason
for this relationship is unclear, but may be due to carcinogens or
metabolites present in the bile or blood.<SUP>52 In 1985, the
proportion of pancreatic cancer deaths in the United States
attributable to smoking was estimated to be 29 percent in men and 34
percent in women.<SUP>53
    Cigarette smoking accounts for an estimated 30 to 40 percent of all
bladder cancers and is a contributing factor for kidney cancer.<SUP>54
The increased risk of kidney and bladder cancer may be related to the
number of cigarettes smoked per day, and the risk decreases following
smoking cessation.<SUP>55
    Smoking appears to be a contributing factor for cancer of the
cervix. The association between cigarette smoking and cervical cancer
persists after control is made for risk factors, such as age at first
intercourse and the number of sexual partners, that predispose a woman
to developing sexually-transmitted diseases. The inclusion of these
risk factors, however, may not completely rule out confounding by
sexually-transmitted diseases. However, the findings that components of
tobacco smoke can be found in the cervical mucus of smokers, that the
mucus of smokers is mutagenic, and that former smokers have a lower
risk of getting cervical cancer than current smokers are consistent
with the hypothesis that smoking is a contributing cause of cervical
cancer.<SUP>56
    The 1982 Surgeon General's Report concluded that stomach cancer is
associated with cigarette smoking.<SUP>57 Studies show a slight
increase in mortality from stomach cancer in smokers compared with
nonsmokers.<SUP>58
    Smoking is a leading cause of heart disease. The 1964 Surgeon
General's Report noted that male cigarette smokers had higher death
rates from coronary heart disease than nonsmokers.<SUP>59 Subsequent
reports have concluded that cigarette smoking contributes to the risk
of heart attacks, chest pain, and even sudden death.<SUP>60 Overall,
smokers have a 70 percent greater death rate from coronary heart
disease than nonsmokers.<SUP>61
    Ischemic heart disease resulting from cigarette smoking claimed
nearly 99,000 lives in 1990.<SUP>62 One study estimates that 30 to 40
percent of all coronary heart disease deaths are attributable to
smoking.<SUP>63 Smokers between the ages of 40 and 64, who smoked more
than one pack a day, were shown to have a risk of coronary heart
disease that is 3.2 times higher than people who do not smoke.<SUP>64
    Several processes that are likely to contribute to heart attacks
are influenced or caused by smoking: atherosclerosis, thrombosis,
coronary artery spasm, cardiac arrhythmia, and reduced capacity of the
blood to deliver oxygen. The nicotine and carbon monoxide in cigarette
smoke are believed to be responsible for heart disease, but other
components, such as cadmium, nitric oxide, hydrogen cyanide, and carbon
disulfide, have also been implicated.<SUP>65 Female smokers who also
use oral contraceptives increase their risk of heart attacks
tenfold.<SUP>66
    Smoking also increases a person's risk of atherosclerotic
peripheral vascular disease, especially if the smoker is
diabetic.<SUP>67 Complications of this disease include decreased blood
delivery to the peripheral tissues, gangrene, and ultimately loss of
the affected limb. Smoking cessation is the most important intervention
in the management of peripheral vascular disease.<SUP>68
    Smoking is a cause of stroke.<SUP>69 Stroke is the third leading
cause of death in the United States.<SUP>70 The association of

[[Page 41319]]
smoking with stroke is believed to be mediated by the mechanisms
responsible for atherosclerosis (narrowing and hardening of the
arteries), thrombosis, and decreased cerebral blood flow in
smokers.<SUP>71 Female smokers who use oral contraceptives are at an
increased risk of having a stroke.<SUP>72
    Cigarette smoking is the leading cause of chronic obstructive
pulmonary disease (COPD) in the United States. Approximately 84 percent
of the COPD deaths in men and 79 percent of the COPD deaths in women
are attributable to cigarette smoking.<SUP>73 The risk of death from
COPD may depend on how many cigarettes a person smokes daily, how
deeply the person inhales, and the age when the person began
smoking.<SUP>74 The number of cigarettes smoked per day is a strong
indicator for the presence of the principal symptoms of chronic
respiratory illness, including chronic cough, phlegm production,
wheezing, and shortness of breath.<SUP>75
    Smoking's effects on lung structure and function appear within a
few years after cigarette smoking begins.<SUP>76 Children who smoke
suffer from respiratory illnesses more than children who do not smoke.
Adolescents who smoke may experience inflammatory changes in the lung,
reduced lung growth, and may not achieve normal lung function as an
adult.<SUP>77
    Cigarette smoking is a probable cause of peptic ulcer
disease.<SUP>78 Peptic ulcer disease is more likely to occur in smokers
than in nonsmokers, and the disease is less likely to heal, and more
likely to cause death in smokers than nonsmokers.<SUP>79 Quitting
smoking reduces the chances of getting peptic ulcer disease and is an
important component of effective peptic ulcer treatment.<SUP>80
    Studies also show that women who smoke have reduced
fertility.<SUP>81 One study showed that smokers were 3.4 times more
likely than nonsmokers to take more than 1 year to conceive.<SUP>82
    Smoking's severe detrimental effects during pregnancy are well
documented.<SUP>83 Women who smoke are twice as likely to have low
birth weight infants as women who do not smoke. <SUP>84 Smoking also
causes intrauterine growth retardation of the fetus.<SUP>85 Mothers who
smoke also have increased rates of premature delivery.<SUP>86
    Smoking may lead to premature infant death. Babies of mothers who
smoke are more likely to die than babies born to nonsmoking
mothers.<SUP>87 A recent meta-analysis reported that use of tobacco
products by pregnant women results in 19,000 to 141,000 miscarriages
per year, and 3,100 to 7,000 infant deaths per year. In addition, the
meta-analysis attributed approximately two-thirds of deaths from sudden
infant death syndrome to maternal smoking during pregnancy.<SUP>88 By
another estimate, if all pregnant women stopped smoking, there would be
4,000 fewer infant deaths per year in the United States.<SUP>89
2. Health Effects of Smokeless Tobacco Products
    Smokeless tobacco use can cause oral cancer.<SUP>90 The risk of
oral cancer increases with increased exposure to smokeless tobacco
products, particularly in those areas of the mouth where smokeless
tobacco products are used.<SUP>91 The risk of cheek and gum cancers is
nearly 50 times greater in long-term snuff users than in
nonusers.<SUP>92 Snuff and chewing tobacco contain potent carcinogens,
including nitrosamines, polynuclear aromatic hydrocarbons, and
radioactive polonium.<SUP>93
    Smokeless tobacco use can cause oral leukoplakia, a precancerous
lesion of the soft tissue that consists of a white patch or plaque that
cannot be scraped off.<SUP>94 One study of 117 high school students who
were smokeless tobacco users revealed that nearly 50 percent of these
students had oral tissue alterations.<SUP>95 There is a 5 percent
chance that oral leukoplakias will transform into malignancies in 5
years.<SUP>96 The leukoplakia appears to decrease or resolve upon
cessation of smokeless tobacco use.<SUP>97
    Smokeless tobacco use causes oral cancer and oral leukoplakia and
may be associated with an increased risk of cancer of the esophagus.
Smokeless tobacco use has been implicated in cancers of the gum, mouth,
pharynx, and larynx. Snuff use also causes gum recession and is
associated with discoloration of teeth and fillings, dental caries, and
abrasion of the teeth.<SUP>98

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1980 (hereinafter cited as ``1980 SGR''); 1989 SGR, pp. 100, 197;
1990 SGR, pp. i, viii, 11, 12, 371, 372, 373, 378, 381, 382, 387,
389, 410; Schramm, W., ``Smoking and Pregnancy Outcome,'' Missouri
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Appleton and Lange, p. 725, 1992.
    85. 1989 SGR, p. 72; Ounsted, M., V.A. Moar, and A. Scott,
``Risk Factors Associated With Small-for-Dates and Large-for-Dates
Infants,'' British Journal of Obstetrics and Gynecology, vol. 92,
No. 1, pp. 226-232, March 1985; Shiono, P.H., M.A. Klebanoff, and
GG. Rhoads, ``Smoking and Drinking During Pregnancey--Their Effects
on Pre-term Birth,'' Journal of the American Medical Association,
vol. 225, No. 1, pp. 82-84, 1986.
    86. 1990 SGR, p. 386; Andrews, J., and J.M. McGarry, ``A
Community Study of Smoking in Pregnancy,'' The Journal of Obstetrics
and Gynecology of the British Commonwealth, vol. 79, No. 12, pp.
1057-1073, December 1972; Alameda County Low Birth Weight Study
Group, ``Cigarette Smoking and the Risk of Low Birth Weight: A
Comparison in Black and White Women,'' Epidemiology, vol. 1, No. 3,
pp. 201-205, May 1990; van den Berg, B.J. and F.W. Oechsli,
``Prematurity,'' in ``Perinatal Epidemiology,'' Oxford University
Press, p. 77, 1984; Meyer, M.B. B.S. Jonas, and J.A. Tonascia,
``Perinatal Events Associated with Maternal Smoking During
Pregnancy,'' The American Journal of Epidemiology, vol. 103, No. 5,
pp. 454-476, 1976.
    87. 1989 SGR, p. 73.
    88 DiFranza, J.R., and R.A. Lew, ``Effect of Maternal Cigarette
Smoking on Pregnancy Complications and Sudden Infant Death
Syndrome,'' Journal of Family Practice, vol. 40, No. 4, pp. 1-10,
April 1995.
    89. 1989 SGR. p. 73.
    90. 1994 SGR, p. 39; 1986 SGR, pp. 33-47.
    91. 1986 SGR, p. 44.
    92. 1986 SGR, p. 40; Winn, D.M., et al., ``Snuff Dipping and
Oral Cancer Among Women in the Southern United States,'' The New
England Journal of Medicine, vol. 304, No. 13, pp. 745-749, March
26, 1981.
    93. 1986 SGR, pp. 58-69.
    94. 1994 SGR, p. 39; WHO Collaborating Centre for Oral
Precancerous Lesions, ``Definition of Leukoplakia and Related
Lesions: An Aid to Studies on Oral Precancer,'' Oral Surgery, Oral
Medicine Oral Pathology, vol. 46, No. 4, pp. 518-539, October 1978.
    95. Greer, R.O., and T.C. Poulson, ``Oral Tissue Alterations
Associated With the Use of Smokeless Tobacco by Teen-Agers,'' Oral
Surgery, Oral Medicine, Oral Pathology, vol. 56, No. 3, pp. 275-284,
September 1983.
    96. 1994 SGR. p. 39.
    97. Id.
    98. Id., pp. 39-40; see generally 1986 SGR.

III. Description of the Proposed Rule

    The proposed rule would create a new part 897 of Title 21 of the
Code of Federal Regulations governing the labeling, advertising, sale,
and distribution of cigarettes and smokeless tobacco. The Commissioner
has proposed that nicotine-containing cigarettes and smokeless tobacco
products be regulated as restricted devices within the meaning of
section 520(e) of the act (21 U.S.C. 360j(e)). The regulations are
being proposed pursuant to the authority of section 520(e) of the act,
which authorizes the agency to regulate the sale, distribution, and use
of certain devices. Certain of the provisions in the regulation are
also being proposed pursuant to the authority of sections 201, 502,
510, 701, and 704 of the act.
    In brief, the proposed rule is intended to support current State
laws regarding sales to minors by reducing the appeal of cigarettes and
smokeless tobacco to, and limiting access by, persons under 18 years of
age. The overall goal of the proposed rule is to decrease the rates of
death and disease caused by tobacco products by substantially reducing
the number of young people who begin using cigarettes or smokeless
tobacco products.
    The proposed rule consists of five subparts. Subpart A, General
Provisions, would set forth scope and purpose provisions and provide
definitions. Subpart B, Sale and Distribution to Persons Under 18 Years
of Age, would describe the responsibilities of manufacturers,
distributors, and retailers concerning the manufacture, sale, and
distribution of cigarettes and smokeless tobacco products. Subpart C,
Labels and Educational Messages, would require each manufacturer to
establish and maintain a national public educational program, including
major reliance on television messages, in order to combat the pervasive
imagery and appeal created by decades of pro-tobacco messages, and,
thus, to discourage young people from using cigarettes and smokeless
tobacco products. Subpart D, Labeling and Advertising, would limit
advertising and labeling to which children and adolescents are exposed
to a text-only format; ban the sale or distribution of branded non-
tobacco items such as hats and tee shirts; and restrict sponsorship of
events to the corporate name only. Finally Subpart E, Miscellaneous
Requirements, would describe the records and reports that must be
submitted to FDA or made available for inspection, discuss the rule's
relationship to State and local laws or requirements, and require one
or more additional measures to be taken if the prevalence of tobacco
use is not significantly reduced within seven years of the publication
of the final rule.

A. Subpart A--General Provisions

    Subpart A would contain three provisions that describe the rule's
scope and purpose and provide definitions that apply throughout part
897.

[[Page 41322]]

1. Section 897.1--Scope
    Proposed Sec. 897.1(a) would state that part 897 is intended to
establish conditions under which nicotine-containing cigarettes and
smokeless tobacco products may be sold, distributed, or used. The
proposed rule would not apply to pipe tobacco or to cigars because the
agency does not currently have sufficient evidence that these products
are drug delivery devices under the act. FDA has focused its
investigation of its authority over tobacco products on cigarettes and
smokeless tobacco products, and not on pipe tobacco or cigars, because
young people predominantly use cigarettes and smokeless tobacco
products. Proposed Sec. 897.1(b) would note that all references to
regulatory sections in the Code of Federal Regulations are to Title 21
unless otherwise noted.
2. Section 897.2--Purpose
    Proposed 897.2(a) would state that part 897 is intended to help
prevent persons younger than 18 years of age from becoming addicted to
nicotine, thereby avoiding the life-threatening consequences often
associated with tobacco use. The proposed rule would accomplish this
goal by reducing the appeal of and access to cigarettes and smokeless
tobacco products by persons under 18 years of age; it would preserve
access to cigarettes and smokeless tobacco products by persons 18 years
of age and older. Proposed Sec. 897.2(b) would add that the provisions
are intended to provide important information about product use to
users and potential users.
3. Section 897.3--Definitions
    Proposed 897.3 would establish definitions of terms used in the
proposed rule, such as ``cigarette'' (897.3(a)) and ``distributor''
(897.3(c)). In drafting the definitions, FDA examined existing
definitions in Federal laws and regulations and paid special attention
to existing definitions in other FDA regulations. These definitions are
contained in the proposed codified language.
    Proposed 897.3(e) contains the definition of ``nicotine,''which is
based, in part, on the chemical name and formula for nicotine in the
``Merck Index''(10th Edition). The agency also notes that, while the
proposed rule defines ``cigarette,'' in part, as a product that
``contains or delivers nicotine,'' it is aware that some companies are
trying to develop chemical substances that are pharmacologically active
or are as addictive as nicotine or that would be used to enhance
nicotine's pharmacological qualities. The agency's investigation has
focused primarily on cigarettes and smokeless tobacco products that
contain nicotine, and FDA would therefore consider a cigarette-like
product that contains a pharmacologically active or addictive substance
in place of nicotine to be a ``new'' drug delivery device that would be
outside the scope of this regulation. To be legally marketed, such a
product would require premarket approval.

B. Subpart B--Sale and Distribution to Persons Under 18 Years of Age

    Subpart B would establish certain conditions or requirements for
the sale and distribution of cigarettes and smokeless tobacco pursuant
to section 520(e) of the act. These provisions are intended to reduce
access to cigarettes and smokeless tobacco products by children and
adolescents. Studies show that it is easy for most young people to
obtain tobacco products. The University of Michigan Monitoring the
Future Study in 1993 reported that 75 percent of 8th graders and nearly
90 percent of 10th graders said it would be fairly easy or very easy to
get cigarettes.<SUP>1 According to a 1990 survey of 9th graders, 67
percent of current smokers said they usually buy their own
cigarettes.<SUP>2 Further, interviews conducted by the Department of
Health and Human Services' (DHHS) Office of the Inspector General in
1986 found that 94 percent of junior and high school students said that
``it was either never or only rarely difficult'' to buy smokeless
tobacco products.<SUP>3
    Most children and adolescents who smoke purchase their own
cigarettes. A 1991 study showed that an estimated 516 million packs are
consumed by young people every year; almost half of these packs are
sold to minors.<SUP>4 The 1994 Surgeon General's Report examined 13
studies of over-the-counter sales and determined that approximately 67
percent of minors are able to purchase tobacco illegally. Moreover,
successful cigarette purchases by children and adolescents averaged 88
percent in studies of vending machines.<SUP>5
    A significant percentage of young people can also easily purchase
smokeless tobacco products directly from retailers. Studies examining
smokeless tobacco product purchases by young people suggest that direct
successful underage purchases range from 30 percent (for junior high
school students) to 62 percent (for senior high school students).<SUP>6
Interviews conducted by the DHHS' Office of the Inspector General in
1986 found that 90 percent of smokeless tobacco users in junior and
senior high schools said they purchased their own smokeless tobacco
products.<SUP>7
    Youth access restrictions have been found to be effective in
reducing illegal sales and some studies have demonstrated that efforts
to reduce access have led to a decrease in tobacco use by young people.
In Woodridge, IL, for example, a comprehensive community intervention
involving retailer licensing, regular compliance checks, and penalties
for merchant violations significantly reduced illegal sales from 70
percent to less than 5 percent almost 2 years later. Further, rates of
experimentation and regular smoking dropped by more than 50 percent
among seventh and eighth graders.<SUP>8
    In contrast, attempts to reduce sales to young people by relying
exclusively on educational programs for retailers were not nearly as
effective. For example, one study found that minors were able to buy
cigarettes in 73 percent of stores receiving informational packages on
preventing illegal sales to minors.<SUP>9 After a comprehensive
retailer education program was conducted, illegal sales to minors
decreased to 68 percent of stores. However, after citations were issued
to violative establishments, over-the-counter illegal sales dropped to
31 percent.<SUP>10
    The proposed rule would prohibit the sale and distribution of
cigarettes and smokeless tobacco products to individuals younger than
18. This restriction parallels the age restrictions established by
almost all States. Moreover, it is based on the fact that most people
who become regular smokers do so at a young age. For instance, the IOM
reported that the average age when people become ``daily'' smokers is
17.7 years.<SUP>11 According to the National Household Surveys on Drug
Abuse (1991), 53 percent of people who ever smoked became regular
smokers by the time they were 18 years old.<SUP>12 Further, 82 percent
of those who had ever smoked daily first tried a cigarette before the
age of 18.<SUP>13
    Available data documenting the course of a young person's ability
to quit smoking after initiating smoking support the need for an age
restriction. A study tracking students from grades 6 to 12 in six
Minnesota communities noted a ``striking pattern'' that:

    * * * once students become weekly smokers, they are unlikely to
give up cigarettes. Of the students who were current smokers, an
increasing percentage remained smokers over the years of follow-up;
they were either unable or unwilling to quit smoking. Of the self-
reported quitters, 13% to

[[Page 41323]]
46% returned to weekly smoking by the next year's measurement
period.<SUP>14

The study found that ``students who smoke are increasingly unlikely to
quit as they get older.'' <SUP>15
    Effectively prohibiting sales to people younger than 18 years of
age will therefore help reduce the number of adolescents and youths who
become daily smokers. FDA also selected the age limit of 18 to be
consistent with the 1992 Alcohol, Drug Abuse, and Mental Health
Administration (ADAMHA) Reorganization Act <SUP>16 that conditions
receipt of substance abuse grants on States adopting laws prohibiting
the sale and distribution of cigarette and smokeless tobacco products
to minors under age 18, and because the majority of States have set 18
as the age of purchase of these products.
1. Section 897.10--General Responsibilities of Manufacturers,
Distributors, and Retailers
    Proposed 897.10 would describe the general responsibilities of
manufacturers, distributors, and retailers, and would make
manufacturers, distributors, and retailers responsible for ensuring
that the cigarettes and smokeless tobacco products they manufacture,
label, advertise, package, sell, distribute, or otherwise hold for sale
comply with all the applicable regulations under proposed Part 897.
2. Section 897.12--Additional Responsibilities of Manufacturers
    Proposed 897.12 would provide that, in addition to its other
responsibilities, each manufacturer would be responsible for removing
all self-service displays, violative advertising, labeling, and other
manufacturer- or distributor-supplied items from each point of sale.
Proposed Sec. 897.12(b) would require each manufacturer to monitor,
through visual inspection on each visit to a point of sale (carried out
in the normal course of the manufacturer's business), to assure the
proper labeling, advertising, and distribution of its products. This
provision would not create a new responsibility or burden for companies
(typically the smaller ones) who do not visit retail locations as part
of their usual business practice. The obligation to inspect exists only
for those companies (typically the larger ones) for whom visits are
part of their usual business practice.
    Further, because there are detailed contracts between the larger
cigarette manufacturers and retailers, proposed 897.12 should not
impose a significant burden on these manufacturers. For example, a Non-
Self-Service Carton Shelf Plan for the R.J. Reynolds Tobacco Co.
specified that `` [t]he height of the top shelf cannot exceed 72 inches
and must have a height capacity of seven cartons * * * '' and that the
cigarette display or shelves `` * * * must be in total view of the
consumer * * * '' and `` * * * may not be placed more than 10 feet from
point-of-purchase.'' <SUP>17 Another plan, titled ``R.J. Reynolds
Tobacco USA Savings Center Display Plan,'' created six different pay
scales for retailers; the retailers would receive more money if they
sold a large volume of cigarettes. Under this plan, R.J. Reynolds would
also provide a ``merchandiser'' to display its products, and the
retailer would agree to stock the ``designated RJR shelf rows'' ``no
less than five cartons high,'' and not alter the shelves or reduce the
amount allocated to R.J. Reynolds products.<SUP>18 In both plans, the
retailer also agreed to permit R.J. Reynolds representatives to ``plan-
o-gram, adjust, and divide its allocated space as deemed necessary''
and to ``make reasonable audits of performance and to inspect and
rotate R.J.R's products in stores under contract.'' <SUP>19
    Former sales representatives and managers interviewed by FDA stated
that manufacturers keep extremely detailed records about each retailer.
Some records noted whether the retailer should be visited weekly,
biweekly, monthly, etc.; other entries included the types of displays
in the retailer's establishment. At least one company also gave
portable computers to its representatives; the data entered into these
computers were downloaded nightly and sent to company headquarters.
These detailed contracts and records demonstrate that the manufacturers
are heavily involved in establishing and maintaining retailers'
displays and that the proposed rule's requirements that each
manufacturer be responsible for removing violative advertising,
labeling, and self-service displays, and for performing a visual
inspection on each subsequent business call are both feasible and
reasonable.
3. Section 897.14--Additional Responsibilities of Retailers
    Proposed 897.14 would establish additional responsibilities for
retailers. Proposed 897.14(a) would require the retailer or the
retailer's employees to verify that people who intend to purchase
cigarettes or smokeless tobacco products are legally entitled to do so.
Verification would be by direct visual inspection of each prospective
purchaser and, if necessary, would include the use of a photographic
identification card with a birth date. Examples of documents that would
be acceptable are a driver's license or a college identification card.
The proposal would require an identification card with a picture and a
birth date because such identification cards are more reliable than
other forms of identification. FDA invites comment on whether the final
rule should contain more specific requirements concerning the types of
identification that would comply with this provision.
    The agency has found strong support for the additional retailer
responsibilities that this section would impose. According to a recent
report endorsed by 26 State attorneys general, industry training films
and programs used by retailers regarding tobacco sales had little or no
impact on preventing illegal sales to minors and, in some retail
sectors, high employee turnover rates complicated training efforts.
Moreover, determining a young customer's age through visual examination
alone proved to be difficult. Thus, the attorneys general recommended
requiring proof of age of anyone who does not appear to be at least 26
years old.<SUP>20
    Additionally, studies indicate that minors who are able to purchase
cigarettes and other tobacco products from stores are rarely asked to
verify their age. For example, in one study, 67 percent of minors (mean
age: 15 years) were asked no questions when they attempted to purchase
cigarettes.<SUP>21 Store cashiers tried discouraging the minors from
buying cigarettes in only 7 percent of the spot checks conducted by the
authors. In 14 percent of the cases, the cashiers actually ``encouraged
the minor's purchase by offering matches, suggesting a cheaper brand,
or offering to make up the difference if the minor was `short on
cash'.'' <SUP>22
    In another report, five minors between the ages of 13 and 16 were
sent to various locations to buy cigarettes. Despite signs at some
locations that prohibited entry by persons under the age of 21, the
minors were able to buy cigarettes, even when they admitted they were
under 21. For smokeless tobacco products, studies show that half of the
stores examined were willing to sell smokeless tobacco products to
minors.<SUP>23 In contrast, in Everett, WA, where a local ordinance
required proof of age if the prospective buyer did not appear to be of
legal age to purchase cigarettes, over 60 percent of students between
the ages of 14 and 17 reported being asked for proof of age when they
attempted to buy cigarettes, and tobacco use, among 14 to 17-year-olds,
declined from 25.3 percent to 19.7 percent overall.<SUP>24

[[Page 41324]]

    Proposed Sec. 897.14(b) would prevent the retailer or an employee
of the retailer from using any electronic or mechanical device in
providing cigarettes or smokeless tobacco products to the purchaser.
Requiring the retailer's employees to hand cigarettes or smokeless
tobacco products to customers, after checking identification, has the
practical effect of making access to such products more difficult for
young people.
    Proposed Sec. 897.14(c) would prohibit the retailer or an employee
of the retailer from opening a cigarette, cigarette tobacco, or
smokeless tobacco product package to sell or distribute a cigarette, or
cigarettes (often referred to as ``singles'' or ``loosies'') or any
quantity of cigarette tobacco or of a smokeless tobacco product from
that package. The agency is proposing this restriction because the
primary market for ``loosies'' is children and adolescents. One
California study found that 101 of 206 stores sold single cigarettes to
minors and adults, and more stores sold single cigarettes to minors
than to adults.<SUP>25 A survey in Nashville, TN, found that one-
quarter of the stores sold single cigarettes.<SUP>26
    Additionally, the IOM noted that the sale of single cigarettes is
attractive to children due to the low costs, could make children more
willing to experiment with tobacco products, and that single cigarettes
may be easier for children to shoplift.<SUP>27 Consequently, the IOM
advocated banning the sale of single cigarettes.<SUP>28 Several States,
including Mississippi, Oklahoma, South Dakota, Tennessee, and
Washington, already restrict the sale of unpackaged tobacco products,
and a working group of State attorneys general recently recommended
that single cigarette sales be prohibited.<SUP>29
4. Section 897.16--Conditions of Manufacture, Sale and Distribution
    a. Restrictions on product names. Proposed 897.16(a) would prohibit
prospectively the use of a trade or brand name for a non-tobacco
product as the trade or brand name for a cigarette or smokeless tobacco
product. The agency is aware of three brands of cigarettes that have
used this strategy: Harley-Davidson, Cartier, and Yves St. Laurent's
Ritz cigarettes. In the final rule, the agency intends to exempt those
brands that already use the trade or brand name of a non-tobacco
product.
    This provision would complement the requirements in proposed
subpart D (regarding labeling and advertising) that would reduce the
appeal of cigarettes and smokeless tobacco products to people younger
than 18. FDA believes that this provision is necessary to prevent
manufacturers from circumventing the purpose of this proposed rule. As
discussed elsewhere, the imagery associated with tobacco products is an
important factor in why young people smoke. This provision would
prevent tobacco manufacturers from capitalizing on the imagery of other
consumer products by using the brand name of those products for tobacco
products.
    b. Minimum package size. Proposed Sec. 897.16(b) would make 20
cigarettes the minimum package size for cigarettes. FDA selected 20
because the vast majority of cigarette packs in the United States
contain 20 cigarettes. The proposal is intended to preclude firms from
manufacturing packages that contain fewer than 20 cigarettes; these
packs, sometimes referred to as ``kiddie'' packs, usually contain a
small number of cigarettes, are easier to conceal, and are less
expensive than full-size packs. (Young people, who generally have
little disposable income, can be particularly sensitive to the price of
cigarettes and may choose not to smoke as the price increases.<SUP>30)
Further, FDA is aware that Lorrilard Tobacco Company is offering a pack
containing only 10 cigarettes of its Newport brand for sale and that
another firm is experimenting with single cigarettes packed in
individual tubes.<SUP>31
    One study showed that 56.3 percent of all 14 to 15 year old
adolescent smokers surveyed in one urban area of Australia had
purchased kiddie packs in the month prior to the survey, compared with
only 8.8 percent of adult smokers. The study concluded, ``If we fail to
take strong action against the well targeted marketing methods of
tobacco companies then the adolescent smoking rates recorded in this
study are likely to remain high.'' <SUP>32
    The Nova Scotia Council on Smoking and Health reported that 49
percent of tobacco users in the sixth grade purchased kiddie packs of
15 cigarettes.<SUP>33 Another study of Australian schoolchildren
reported that 30 percent of the 12-year olds preferred packages
containing 15 cigarettes compared to 11 percent of the 17-year
olds.<SUP>34 The Australian study, however, also reported that older
children preferred cigarette packages that contained 25 cigarettes.
Consequently, even though FDA has no evidence that firms intend to
market cigarette packages that contain more than 20 cigarettes, the
agency invites comment as to whether proposed Sec. 897.16(b) should
also state the maximum package size for cigarettes.
    c. Impersonal modes of sale. Proposed Sec. 897.16(c) would permit
cigarettes and smokeless tobacco products to be sold only in a direct,
face-to-face exchange between the retailer or the retailer's employees
and the consumer. The proposal would prohibit specifically cigarette
vending machines, self-service displays, mail-order sales, and mail-
order redemption of coupons.
    i. Vending Machines. Studies indicate that a significant percentage
of adolescents are able to obtain their cigarettes from vending
machines and that such purchases occur regardless of locks, warning
signs, and other restrictions. In 1994, CDC examined 15 recent tobacco
inspection surveys to investigate underage sales to minors. While 73
percent of over-the-counter outlets made illegal sales to children and
adolescents, 96 percent of vending machine sales were
successful.<SUP>35
    A 1989 survey of 10th grade students in Minnesota indicated that 71
percent had purchased tobacco from vending machines.<SUP>36 Another
1989 report found that, in California, minors between the ages of 14
and 16 were able to purchase cigarettes from vending machines 100
percent of the time.<SUP>37 A 1992 study in Minnesota involving minors
between the ages of 12 and 15 reported a 79 percent success rate in
purchasing cigarettes from vending machines.<SUP>38 Children in the
Washington, D.C. area, New York, Colorado, and New Jersey who were sent
to purchase cigarettes from vending machines achieved 100 percent
success rates.<SUP>39 The 1994 Surgeon General's Report examined nine
studies on cigarette purchases from vending machines and found that
underage persons were able to purchase cigarettes 82 to 100 percent of
the time, with a weighted-average rate of 88 percent.<SUP>40
    Moreover, younger children use vending machines to purchase
cigarettes more often than older adolescents. A study commissioned by
the vending machine industry revealed that 22 percent of 13-year olds
who smoke reported purchasing cigarettes from vending machines
``often'' compared with only 2 percent of 17-year olds. Twenty-two
percent of 13- to 17-year- olds who smoke report purchasing cigarettes
from vending machines ``often''or ``occasionally.''<SUP>41
    FDA is aware that some jurisdictions have attempted to place locks,
post warning signs, or restrict placement of vending machines to
curtail access by young people. These efforts have had only limited
success. A 1992 report examining vending machines in St. Paul, MN,
indicates the limitations of requiring locking devices on vending
machines. Despite a 1990 city ordinance requiring locking devices on
vending machines, the rate of noncompliance by

[[Page 41325]]
merchants was 34 percent after 3 months and 30 percent after 1
year.<SUP>42 Underage buying increased from 30 percent 3 months after
the ordinance had been enacted to 48 percent after 1 year.<SUP>43
Further, in those locations where locking devices were not placed on
vending machines, underage buying was successful 91 percent of the
time.<SUP>44 The study concluded that the use of locking devices on
vending machines was less effective than a vending machine ban.
    In 1994, CDC examined minors' access to cigarette vending machines
in Texas. CDC noted that Texas law requires cigarette vending machine
owners to post signs on their machines stating that sales to persons
under the age of 18 are illegal. Despite these laws, minors between the
ages of 15 and 17 successfully bought cigarettes from vending machines
98 percent of the time.<SUP>45
    Laws restricting placement of vending machines also appear to be
ineffective. In one study, 14-year-old children were able to purchase
cigarettes from vending machines 77 percent of the time despite State
laws requiring the machines to be ``in the immediate vicinity, plain
view and control of an employee'' and to bear signs concerning illegal
purchases by minors.<SUP>46 Six surveys conducted in bars, taverns,
private clubs, and liquor stores in five states found that minors were
able to successfully purchase cigarettes in vending machines between 70
percent and 100 percent of the time, about the same rate as
elsewhere.<SUP>47 In these surveys, the sales rates for ``adult only''
locations were similar to the rates for vending machine cigarette sales
located elsewhere in the communities, indicating that restricting
cigarette vending machines to places such as bars and liquor stores
does not serve as an impediment to young people buying cigarettes.
Additionally, according to the vending machine industry's research,
77.5 percent of all cigarette vending machines are already in ``adult''
areas such as bars, lounges, offices, college campuses, and industrial
plants.<SUP>48 Therefore, it is likely that restricting cigarette
vending machines to these areas would have a minimal effect on reducing
sales to young people.
    Studies also have shown that the use of vending machines by young
people appears to be highest in those areas with strong access
restrictions. In Santa Fe, New Mexico, where selling to minors was not
against the law, vending machines were used 18 percent of the time by
teen smokers.<SUP>49 By contrast, in Vallejo, California, where local
merchants were actively requiring photographic identification, a survey
found that teen smokers used vending machines 56 percent of the time
(thereby making vending machines the most common source of cigarettes
for young people.<SUP>50) Therefore, if access restrictions are imposed
such as requiring retailers to verify age, it is likely that vending
machines may become an even more important source of cigarettes for
young people.
    Because minors, especially very young children who try smoking,
rely on vending machines to purchase tobacco products, and because
State and local laws restricting placement of, or requiring locking
devices on, vending machines appear to be ineffective, the agency
believes that the only practical approach to curtailing young people's
access to such products is to eliminate vending machines and other
impersonal modes of sale. Moreover, government enforcement of vending
machine locking devices would entail a greater regulatory burden than
enforcing a complete ban because authorities would need to ensure the
devices were installed and operating properly, and that store employees
were using them correctly.<SUP>51
    Consequently, proposed Sec. 897.16(c) would require retailers to
hand the product to the consumer. This proposed requirement would have
the added effect of preventing persons younger than 18 from evading the
proposed rule's age requirement by shifting their purchasing patterns
from stores to vending machines or mail orders. Further, the agency
notes that this aspect of the proposed rule is consistent with
recommendations from the IOM,<SUP>52 the Public Health Service,<SUP>53
a working group of State attorneys general,<SUP>54 and findings by the
Office of the Inspector General, DHHS.<SUP>55
    Finally, data from the vending machine industry show that
cigarettes account for a small and declining portion of total vending
machine revenues.<SUP>56 Using industry data from 1993, calculations
indicate that daily sales from cigarette vending machines average
approximately $10 per machine/per day.<SUP>57 In 1993, cigarettes
comprised 4.7 percent of total vending machine revenues compared to
45.5 percent in 1960.<SUP>58 Between 1992 and 1993, vending machine
revenues from cigarettes dropped 25 percent.<SUP>59 While total
revenues from cigarette vending machines have been decreasing, revenues
from most other product categories sold in vending machines, such as
juice and other cold drinks, rose dramatically.<SUP>60 Further, the
number of cigarette vending machines decreased significantly from
373,800 to 181,755 between 1988 and 1993.<SUP>61 Recognizing that more
and more states and localities have enacted restrictions or bans on
cigarette vending machines, machines are being produced that can be
converted to dispense other products.<SUP>62 Furthermore, according to
the National Automatic Merchandising Association, the association
representing the vending machine industry, virtually no new shipments
of cigarette vending machines have been made since 1990, compared with
32,065 shipments in 1976.<SUP>63
    ii. Self-service displays. Proposed Sec. 897.16(c) would also
prohibit self-service displays. Self-service displays enable young
people to quickly, easily, and independently obtain tobacco products.
This restriction is intended to prevent young people from helping
themselves to tobacco products and to increase the direct interaction
between the sales clerk and the underage customer. This restriction is
also consistent with the 1994 IOM Report's recommendation. IOM reviewed
surveys of grade school students in New York, and Wisconsin, and noted
that many students--over 40 percent of daily smokers in Erie County, NY
and Fond du Lac, WI--shoplifted cigarettes from self-service
displays.<SUP>64 IOM found that eliminating self-service displays would
make it more difficult for children to obtain cigarettes, especially if
the children had to purchase the cigarettes from a store clerk (as
would be required under this proposal). IOM further noted that
``placing the products out of reach reinforces the message that tobacco
products are not in the same class as candy or potato chips.'' <SUP>65
    A California study compared smoking prevalence among minors in five
counties before and after the institution of ordinances prohibiting
self-service merchandising (display and sale) and requiring only
vender-assisted sales. The rate of tobacco sales to minors in the five
counties dropped 40 to 80 percent and the decrease was still in
evidence 2 years after the survey. Moreover, the study found that the
ban on self-service significantly increased the checking of young
purchasers' identification by retail clerks and, in particular,
discouraged younger adolescents from attempting to buy tobacco.<SUP>66
    iii. Mail-order sales. In addition to prohibiting the sale of
tobacco products in vending machines and the use of self-service
displays, proposed Sec. 897.16(c) would prohibit mail-order sales and
redemption of mail-order coupons. Mail-order sales provide no face-to-
face interaction to verify the age of the consumer. The current
industry practice merely requires that the customer provide a birth
date or check a box on

[[Page 41326]]
the mail-order card to verify, for example, that he/she is 21. The
agency concludes that proposed Sec. 897.16(c) would significantly
reduce access to cigarettes and smokeless tobacco products by persons
younger than 18. The ban of mail-order sales is recommended by the IOM
<SUP>67 and Philip Morris recently announced that it would discontinue
mail-order sales in order to reduce access to young people.<SUP>68
    d. Free samples. Proposed Sec. 897.16(d) would prohibit
manufacturers, distributors, and retailers from distributing free
samples of tobacco products. The agency is proposing this restriction
because many young people, including elementary school children,
receive free samples.<SUP>69 Free samples are often distributed at
``mass intercept locations'' such as street corners and shopping malls,
and events such as music festivals, rock concerts, and baseball games.
They have been distributed at zoos, at bars and restaurants where
entertainers perform and promote the product, and through the
mail.<SUP>70 Free samples give young people a ``risk-free and cost-free
way to satisfy their curiosity'' about tobacco products and, when
distributed at cultural or social events, may increase social pressure
on young people to accept and use the free samples.<SUP>71
    For smokeless tobacco products, distribution of free samples to
young people has been a foundation of the growth strategy of the UST
(makers of Skoal, Copenhagen, Happy Days, and other smokeless tobacco
products).<SUP>72 In 1992 and 1993, the smokeless tobacco industry
spent nearly $16 million annually on the distribution of free samples.
The industry's largest expenditure in 1993 was on coupons and retail
value-added articles to encourage trial use ($32 million).<SUP>73
    Despite industry-imposed age restrictions on the distribution of
samples, underage persons are able to obtain samples either by lying
about their age or by enlisting older friends and relatives to obtain
samples for them.<SUP>74 The lure of free samples can also be quite
attractive; one advertising campaign offering a sample pack of Skoal
Bandits reportedly generated 400,000 responses in a 3-month
period.<SUP>75
    Even elementary school children are able to obtain free cigarette
samples easily. One survey examined five schools in Chicago and a
sample of students at DePaul University. Four percent of the elementary
school students reported receiving free samples of cigarettes
themselves. Nearly half of the elementary and high school students and
one-quarter of the college students ``* * * reported having seen free
cigarettes given to children and adolescents.'' <SUP>76 In another
survey, one-third of approximately 500 New Jersey high school students
who were current or former smokers reported receiving free cigarette
samples before the age of 16.<SUP>77
    The distribution of free samples to minors occurs despite the
industry's voluntary code against distributing cigarettes to persons
under the age of 21. The recent IOM report noted several problems with
the industry's voluntary code, stating that ``distribution to minors
appears to be nearly inevitable.'' <SUP>78 While the voluntary code
instructs employees distributing samples to ask for identification and
ask other questions if they suspect a potential recipient to be under
age, distribution of samples to minors occurs anyway because the
samplers are often placed in crowded places and constrained by time:

    There is a significant time constraint in asking for proof of
age from all young-looking individuals who solicit samples, not to
mention the time required for the myriad of other questions which
samplers are instructed to ask. Samplers are often surrounded on all
sides by those soliciting samples and a dozen or more outstretched
arms waiting (or grabbing) for samples * * * those passing out
samples are usually quite young themselves. These youthful
distributors may lack the psychological wherewithal to request proof
of age and refuse solicitations from those in their own peer
group.<SUP>79

Consequently, the ineffectiveness of the industry's voluntary code and
the fact that State laws that ban or restrict the distribution of free
samples are rarely enforced led IOM to recommend prohibiting
distribution of free samples in public places and through the
mail.<SUP>80 The National Cancer Institute reached a similar conclusion
in 1991, and stated, ``The offer of free cigarettes and smokeless
tobacco products is reminiscent of the drug pusher who gives the first
sample free to get his customer hooked.'' <SUP>81 The proposed rule is
consistent with IOM's and NCI's recommendations.
C. Subpart C--Labels and Educational Programs

    Proposed subpart C would provide the established name for
cigarettes and smokeless tobacco products that is required by sections
502 of the act. In addition, it would require that cigarette and
smokeless tobacco manufacturers fund a national program including
educational messages in order to undo the effects of young people's
near constant exposure to pro-tobacco messages and, thus, to discourage
young people from using cigarettes and smokeless tobacco products,
pursuant to sections 201, 502, and 520(e) of the act.
1. Section 897.24--Established Names for Cigarettes and Smokeless
Tobacco Products
    Proposed Sec. 897.24 would provide the ``established name'' for
cigarettes, cigarette tobacco, and smokeless tobacco products. This
provision is intended to implement section 502(e)(2) of the act, which
states that a device shall be deemed misbranded if its label fails to
display the established name for the device ``in type at least half as
large as that used thereon for any proprietary name or designation for
such device.'' Section 502(e)(4) of the act, in turn, explains that the
``established name'' for a device is the applicable official name of
the device designated under section 508 of the act (21 U.S.C. 358), the
official title in a compendium if the device is recognized in an
official compendium but has no official name, or ``any common or usual
name of such device.''
    In this case, no official names have been designated under section
508 of the act, and no compendium provides an established name for
these products. Consequently, proposed Sec. 897.24 would consider
``cigarettes,'' ``cigarette tobacco,'' and the common or usual names
for smokeless tobacco products (such as ``moist snuff'' or ``loose leaf
chewing tobacco'') as established names.
2. Section 897.29-Educational Programs Concerning Cigarettes and
Smokeless Tobacco Products
    The Surgeon General's 1994 Report suggested that ``a nationwide,
well-funded antismoking campaign could effectively counter the effects
of cigarette advertising in its currently permitted media forms.''
<SUP>82 IOM also recommended that ``counter-tobacco advertisements
should be intensified to reverse the image appeal of pro-tobacco
messages, especially those that appeal to children and youths.''
<SUP>83
    FDA's proposal is consistent with the Surgeon General's and IOM's
findings. Proposed 897.29 would require each manufacturer to establish
and maintain a national public educational program, including major
reliance on television messages, to combat the effects of the pervasive
and positive imagery that has for decades helped to foster a youth
market for tobacco products.
    FDA based proposed 897.29, in part, on historical experience. From
July 1, 1967 to December 31, 1970, the Federal Communications
Commission, as part of

[[Page 41327]]
the ``Fairness Doctrine,'' required broadcasters to provide a
significant amount of time for antismoking messages on television and
radio. Thus, one antismoking message appeared for every three or four
industry-sponsored, prosmoking advertisements. This amounted to
approximately $75 million (in 1970 dollars) in commercial air time for
antismoking messages annually, until a ban on prosmoking advertisements
on television and radio became effective on January 1, 1971. Thus, for
several years, the American public was exposed to both pro- and
antismoking messages.
    During this time, per capita cigarette consumption declined 7
percent, from 4,280 in 1967 to 3,985 in 1970. Most of the 7 percent
decline (6.2 percent) was attributable to the anti-smoking
messages.<SUP>84 This was the first time since the early 1930's that
per capita consumption declined consecutively for 3 years and was one
of the largest declines ever recorded. Additionally, a study of nearly
7,000 adolescents found that adolescent smoking rates declined during
this period.<SUP>85 The greatest decline occurred in the first year
that the antismoking messages appeared. A 1972 econometric analysis
confirmed that the antismoking messages had up to a 5.6 times greater
effect on cigarette consumption than promotional cigarette
advertising.<SUP>86 When the antismoking messages ended on television
and radio (due to the Federally-mandated ban on advertising on
television and radio, thereby ending the application of the Fairness
Doctrine), per capita cigarette consumption began to rise.
    A similar experience occurred in Greece during the late
1970's.<SUP>87 In an effort to reduce cigarette consumption, the Greek
government launched an antismoking campaign and, in 1978, banned
cigarette advertising on television and radio. In 1979, the Greek
Government intensified its antismoking effort by adding television and
radio counter-advertising as well as a community-based print education
campaign. This enhanced campaign lasted 2 years but was discontinued
following a change in government, with the ban on television and radio
advertising remaining. Evaluation of this experience revealed that,
during the counter-advertising phase, the annual increase in per capita
tobacco consumption dropped to zero, compared to the pre-campaign
advertising ban rate of 6 percent increase in consumption. When the
campaign ended, the annual rate of increase in tobacco consumption
quickly increased to earlier levels. This experience suggests that
intensive health education and counter-advertising campaigns can be
effective.
    There have been numerous research and demonstration projects
evaluating the effectiveness of counter-advertising and mass-media
smoking cessation programs.<SUP>88 As the research designs have
evolved, more has been learned about which types of programs are
effective and under what conditions. Most recently, well-evaluated
studies of programs in Vermont, California, and elsewhere suggest that
mass-media and counter-advertising campaigns can have a sustained
effect on both preventing teens from starting to smoke and in helping
smokers quit.
    In Vermont, researchers tested the effect of mass-media and school
health education programs.<SUP>89 Students exposed to both school and
media interventions were 35 percent less likely to have smoked in the
past week than students exposed only to the school program, and this
preventive effect persisted for at least 2 years following the
completion of the intervention program. The decrease occurred even in
students who were considered to be at slightly higher risk of becoming
smokers because of demographic considerations (lower family income).
    There have been similar results in helping smokers interested in
quitting. In California, the Department of Health Services has been
conducting a $26 million multi-year media campaign to prevent teens
from starting to smoke and help adult smokers quit. In a preliminary
study of the campaign's effectiveness, researchers found that the state
media campaign ``had a negative impact on cigarette consumption, while
industry advertising had a positive impact on cigarette consumption.''
The authors concluded that ``[t]his suggests, as one would expect, that
increasing state media expenditures and decreasing industry advertising
are both effective ways to deter smoking.'' <SUP>90 According to a
recent evaluation, the media campaign's advertisements directly
influenced 7 percent (33,000) of Californians who quit smoking in 1990
to 1991, and contributed to the quitting of another 173,000.<SUP>91 The
California media program has also resulted in high levels of awareness
among young people,<SUP>92 and may have contributed to stopping the
rise in teen smoking that had been occurring in California prior to the
campaign.<SUP>93
    FDA has proposed general criteria in the codified language. The
following describes one set of requirements for such a program that the
agency is considering requiring in a final rule. FDA is soliciting
comments on whether the described program would accomplish the goal of
creating an effective national program that would correct and combat
the effects of the pervasive positive imagery in advertising and, thus,
help reduce young people's use of tobacco products or whether
additional or different requirements would be preferable. The program
would be national in scope and could require that the companies
purchase certain times and places on television programming (referred
to in the industry as a ``buy''). For example, a television buy could:
(1) Devote at least 80 percent of its resources to television messages,
both on network and on cable television, during prime time hours
(between the hours of 8 p.m. and 11 p.m.), early fringe time (between
the hours of 4 p.m. and 6 p.m.), and access time (time that is
allocated to local broadcasting stations); (2) be directed to persons
between the ages of 12 and 17 years; and (3) be national in scope.
Moreover, the buy could include advertising time in at least 50 percent
of television programs rated by a national rating service as being in
the top 20 for persons between the ages of 12 and 17 and corresponding
to the demographic profile of underage tobacco users by gender, racial,
and ethnic characteristics, and the remaining percentage in programs
with either high concentration or high coverage to young people. The
buy could ensure that the manufacturer reach an average of 70 to 90
percent of all persons between the ages of 12 and 17 years five to
seven times per 4-week period. (The 4-week period is often referred to
as a ``flight.'') Such requirements would help to ensure that the
educational messages reach large numbers of young people and are
consistent with the way in which advertising is typically purchased. In
addition, to ensure that the messages change over time and remain novel
and of interest to young people, each message could be limited in use
so that each message would be presented no more than 15 times per
quarter to the top two-fifths (referred to as top two quintiles) of
television viewers between the ages of 12 and 17 and who watch the most
television.
    The industry members could select from a variety of messages
maintained by FDA. FDA could collect and maintain a file of messages
developed by states with active tobacco control programs (such as
California and Massachusetts), from voluntary health organizations (as
was done by broadcasters during the Fairness Doctrine period), and from
other appropriate sources, including messages developed and submitted
by the tobacco

[[Page 41328]]
companies. FDA could determine which messages would be appropriate in
consultation with other entities and offices within the Department of
Health and Human Services, such as CDC's Office on Smoking and Health;
with other federal agencies with expertise in consumer behavior and
marketing, such as the Federal Trade Commission; and with consultants
and contractors who are expert in communications theory and practice.
FDA, in consultation with other federal agencies and other experts,
could review the messages to ensure that their language and imagery are
effective with 12- to 17-year olds. Each message would be evaluated to
determine if it were designed to influence those beliefs and attitudes
of 12- to 17- year olds that are most likely to affect the initial
decision to smoke (or to start using smokeless tobacco products), the
decision to continue smoking (or continue to use smokeless tobacco
products), and/or the decision to quit. Examples of appropriate
messages include those addressing addiction, weight control, effective
ways to refuse a cigarette and other social influences that are related
to youth smoking.
    Moreover, an appropriate educational program could require each
manufacturer to submit, on a quarterly basis, analyses of every
television buy by time period on network television (referred to as
``day part''), cable, and other media, prepared and executed by the
party or parties responsible for the advertising. This requirement
could fulfill the manufacturer's responsibility to report on the
effectiveness of the program.
    In addition, each manufacturer could conduct tracking studies of
persons between the ages of 12 and 17. This would enable the
manufacturers to determine how effective their educational programs and
buys were. The studies could be performed twice per year and would need
to meet recognized industry standards for tracking studies, such as
measuring recall and recognition of the televised messages. These
studies could be given to FDA, which could review the results of the
industry's testing in consultation with other experts as needed, in
order to help the agency refine its selection criteria for messages.
    Finally, the remaining 20 percent of the messages could be placed
in other media, with emphasis on radio and outdoor advertising.
Consideration should be given to ensuring that these messages appear in
media that are heavily used by young people.
    Under proposed Sec. 897.29, each manufacturer would devote an
amount of money to the corrective educational program proportionate to
its share of the total advertising and promotional expenditures of the
cigarette and smokeless tobacco industry. Thus, a company whose
expenditures equal 40 percent of total industry expenditures would be
required to allocate an amount equal to 40 percent of the total monies
required. The agency calculated the amount of money that would be
allocated to the initial corrective educational program by looking at
the period of time when the Fairness Doctrine was in effect. It was
estimated that, at that time, approximately $75 million a year in air
time was provided by broadcasters for anti-smoking messages, which
translates to $290 million in 1994 dollars. In order to ensure an
effective program, the agency is proposing that approximately half that
amount, or $150 million a year, be allocated initially. Under this
proposal, the agency could determine each manufacturer's proportionate
share of the overall advertising and promotional expenditures of the
cigarette or smokeless tobacco industry by referring to the most recent
figures reported to the FTC under the Cigarette Act or the Smokeless
Act. This provision is intended to ensure that the corrective
educational programs are adequately funded in proportion to each
manufacturer's overall reported advertising and promotion expenses.

D. Subpart D--Labeling and Advertising

1. Introduction
    Proposed subpart D would establish certain requirements for
cigarette and smokeless tobacco product labeling (excluding product
labels) and advertising pursuant to sections 520(e), 502(q), and 502(r)
of the act. The proposal would apply similar requirements to labeling
and advertising in print media because both are used to convey
information about the product; to promote consumer awareness, interest,
and desire; to change or shape consumer attitudes and images about the
product; and/or to promote good will for the product. Therefore, FDA
has decided to place the labeling provisions with the advertising
requirements rather than place the labeling provisions with those
pertaining to product labels.
    Regulating cigarette and smokeless tobacco product labeling and
advertising is essential to decrease young people's use of tobacco
products. Proposed subpart D would preserve the informational component
of labeling and advertising while decreasing their appeal to children
and adolescents.
    Briefly, the proposed regulations would require that advertising in
any publication with a youth readership of more than 15 percent (youth
being defined as under 18) or more than 2 million children and
adolescents under 18 be limited to a text-only format in black and
white. Advertising in any publication that is read primarily by adults
would be permitted to continue to use imagery and color. Pursuant to
section 502(r), the proposed regulations would require that cigarette
advertising contain a statement of the product's established name,
intended use, and a brief statement regarding relevant warnings,
precautions, side effects, and contradictions. In addition, brand
identifiable non-tobacco items, such as hats and tee shirts, and brand
identifiable sponsorship of events, such as the Virginia Slims Tennis
Tournament or a sponsored event using a tobacco product logo or symbol,
would be prohibited.
    Section 201(m) of the act (21 U.S.C. 321(m)) defines ``labeling''
as ``all labels and other written, printed, or graphic matter'' that
are on an article or its containers or wrappers, or ``accompanying such
article.'' In interpreting the phrase ``accompanying such article,''
the Supreme Court has held that it is not necessary for the labeling to
physically accompany the product (see Kordel v. United States, 338 U.S.
345, 350 (1948)). Thus, labeling includes traditional promotional
items, such as booklets, calendars, movies, etc., and also less obvious
types of labeling, such as clocks, coffee mugs, desktop toys, and even
tee shirts.<SUP>94 FDA would, therefore, consider non-tobacco items
distributed by cigarette and smokeless tobacco companies with the
product's brand name or product identification printed on them (e.g.,
tee shirts, hats, pens, golf tees) to be ``labeling,'' and these would
be prohibited.
    Subpart D is based, in part, on the recommendations of major U.S.
and world health organizations and on current efforts by other
countries to reduce tobacco use. These organizations and countries
support advertising restrictions as an essential part of any
comprehensive program to reduce or eliminate smoking by young people.
The American Medical Association, American Heart Association, American
Cancer Society, American Lung Association, American Academy of Family
Physicians, the World Health Assembly, and the World Health
Organization have recommended restrictions on advertising and promotion
including a total ban of all promotional and advertising
activities.<SUP>95

[[Page 41329]]

    Additionally, the recent IOM report recommended that, to ensure
that one clear message about the health risks of tobacco use is
disseminated, the government should see to it that the ``contradictory
message [minimizing the risk] now conveyed by the tobacco industry''is
stopped.<SUP>96 The report recommended many restrictions that are
similar to those in the proposed rule. For example, the report
recommended that advertising either be banned entirely or restricted to
a text-only format.<SUP>97 The IOM said that such an approach would
``eliminate all the images that imply that tobacco use is beneficial
and make it attractive, and that encourage young people to use tobacco
products.'' <SUP>98
    The proposed labeling and advertising regulations are also based
upon numerous studies and reports. The first and most compelling piece
of evidence supporting restrictions on cigarette and smokeless tobacco
product labeling, advertising, and promotion is that these products are
among the most heavily advertised products in America. Between 1970 (1
year before Federal law prohibited cigarette advertisements on
television and radio) and 1993, cigarette advertising and promotional
expenditures increased from $361 million to $6 billion, a 1,562 percent
increase.<SUP>99 These messages were disseminated in print media, on
billboards, at point of sale, by direct mail, on specialty items (hats,
tee shirts, lighters), at concerts and sporting events, in direct mail
solicitations, as sponsorships on television, and in other media. FDA
is concerned that the amount of advertising, its attractive imagery,
and the fact that it appears in so many forums, overwhelms the
government's health messages.
    Advertising and promotion of smokeless tobacco products, although a
much smaller market than cigarettes, also increased over the years. The
largest increase in advertising expenditures for smokeless tobacco
products occurred for moist snuff. U.S.Tobacco (UST), the market leader
in moist snuff, increased its television advertising expenditures from
$800,000 in 1972 to $4.6 million in 1984,<SUP>100 an increase of 485
percent. By 1993, total advertising and promotional expenditures for
smokeless tobacco products exceeded $119 million. This increase was
largely attributable to the advertising of moist snuff ($71.4
million).<SUP>101 This increase in expenditures corresponds to the
growth of the moist snuff portion of the smokeless tobacco market, from
36 million pounds in 1986 to 50 million pounds in 1993. All other
segments of the smokeless tobacco market declined during that
period.<SUP>102
    In addition to spending large amounts on advertising, the cigarette
and smokeless tobacco product industries have disseminated a variety of
advertising and promotional messages that have had an enormous impact
upon young people's attitudes towards smoking. In summarizing its
analysis of the industry's advertising practices, IOM stated:

    The images typically associated with advertising and promotion
convey the message that tobacco use is a desirable, socially
approved, safe and healthful, and widely practiced behavior among
young adults, whom children and youths want to emulate. As a result,
tobacco advertising and promotion undoubtedly contribute to the
multiple and convergent psychosocial influences that lead children

them.<SUP>103

    The pervasiveness and magnitude of the labeling and advertising for
these products create an atmosphere of ``friendly familiarity''
<SUP>104 that affects and shapes a young person's views towards tobacco
products. Thus, FDA's decision to propose stringent regulations for
labeling and advertising is based upon compelling evidence that
advertising and labeling play an important role in shaping a young
person's attitude towards, and willingness to experiment with,
cigarettes and smokeless tobacco products.
2. Advertising, Labeling, and Adolescents
    Products may be advertised and promoted for their symbolic or
fanciful attributes. Advertising utilizing this technique tries to
convey that consumption of the product will enhance the user's self
image <SUP>105 or image in the community. Consumers purchasing products
for these symbolic attributes hope to acquire the image as well as the
product itself.<SUP>106 This psychosocial consumer phenomenon is
particularly descriptive of adolescent consumer behavior. As one
consumer psychologist remarked:

    [adolescence] create[s] a lot of uncertainty about the self, and
the need to belong and to find one's unique identity as a person
becomes extremely important. At this age, choices of activities,
friends, and ``looks''often are crucial to social acceptance. Teens
actively search for cues from their peers and from advertising for
the ``right''way to look and behave.* * * Teens use products to
express their identities, to explore the world and their new-found
freedoms in it, and also to rebel against the authority of their
parents and other socializing agents. Consumers in this age sub-
culture have a number of needs, including experimentation,
belonging, independence, responsibility, and approval from others.
Product usage is a significant medium to express these
needs.<SUP>107

    For example, adolescent males often use ``such 'macho' products as
cars, clothing, and cologne to bolster developing and fragile masculine
self-concepts.'' <SUP>108
    Adolescents view cigarettes as a symbol to be used in helping to
create a desired self image and to communicate that image to others.
Cigarette advertising reinforces this symbolism and links smoking to
success, social acceptance, sophistication, and a desirable lifestyle.
The rugged and masculine Marlboro Man conveying, in the words of the
Chief Executive Officer and President of Philip Morris, ``elements of
adventure, freedom, being in charge of your own destiny,'' <SUP>109 and
the cool Joe Camel, giving humorous dating tips, provide imagery that
adolescents can accept as identifying badges. Not surprisingly, these
brands are among the most popular with young people. One Canadian
tobacco company described its ``masculine''targeting in these words:

    Since 1971, [the company's] marketing strategy has been to
position [a cigarette brand] as a ``masculine trademark for young
males.'' It has been our belief that lifestyle imagery conveying a
feeling of independence/freedom should be used to trigger the desire
for individuality usually felt by maturing young males.<SUP>110

    Advertising for cigarette brands targeted to women have proven
successful in attracting young female smokers. One study correlated
trends in rising smoking initiation rates among girls with the
introduction of several brands targeted at women. Some of these
campaigns utilized themes thought to be appealing to women (e.g.
liberation and feminism, images of slimness and sophistication). The
advertising campaigns preceded a rapid increase in smoking initiation
rates among girls under 18 that was not accompanied by any increase in
smoking rates for women, boys, or men.
    Thus, advertising can play an important role in a youth's decision
to use tobacco. Many researchers, including those within the cigarette
industry, have advanced a stage-based model of smoking uptake.<SUP>111
The first, preparatory stage is when a child or adolescent starts
forming his or her attitudes and beliefs about smoking, and sees
smoking as a coping mechanism, as a badge of maturity, as a way to
enter a new peer group, or as a means to display independence.<SUP>112
During this stage, pervasive advertising imagery that glamorizes
tobacco use may be an important factor in shaping beliefs. The

[[Page 41330]]
middle, trying and experimenting stages occur when the first cigarette
is smoked, often at the urging of a peer, and becomes repeated but
irregular. It is important to note that those who experiment often, or
begin smoking at an early age, are much more likely to become regular
smokers.<SUP>113 Therefore, age of initiation is important.
    The final stage, nicotine dependence and addiction, is
characterized by a physiological need for nicotine. At this stage, the
adolescent develops a tolerance for nicotine and can experience
withdrawal symptoms (such as dysphoric or depressed mood, insomnia,
irritability, frustration or anger, anxiety, and difficulty
concentrating) if he or she attempts to quit. However, of those who try
to quit, few succeed without help, and there is a high probability of
relapse.<SUP>114
    In the early stages of smoking, i.e., at initiation, psychosocial
factors are decisive, and those factors are most often capitalized on
in the themes used in tobacco product advertising. In the final stage,
as smoking takes hold, physiological factors (and even health concerns)
dominate. A document prepared by Imperial Tobacco Ltd. stated:

    At a younger age, taste requirements and satisfaction in a
cigarette are thought to play a secondary role to the social
requirements. Therefore taste, until a certain nicotine dependence
has been developed, is somewhat less important than other
things.<SUP>115

    Many behavioral and personal characteristics influence an
adolescent's decision to use cigarettes or smokeless tobacco products,
including: rebelliousness; risk-taking personality; use of other legal
or illegal drugs; belief in the perceived utility of smoking (to cope
with stress, control weight, or improve one's self-image); low self-
esteem or depression; disbelief of or discounting health risks; and
poor academic achievement.<SUP>116 Cognitive factors specific to
children and adolescents also play a role in the early decision to
smoke. Children and adolescents often focus on present needs and
concerns, and ignore risks that might exist in the future. They exhibit
a sense of personal invulnerability that permits them to act as if they
were immortal.<SUP>117 Tobacco advertising plays on these feelings and
exploits these adolescent vulnerabilities. As one report, created for a
Canadian cigarette company, stated:

    Starters no longer disbelieve the dangers of smoking, but they
almost universally assume these risks will not apply to themselves
because they will not become addicted. Once addiction does take
place, it becomes necessary for the smoker to make peace with the
accepted hazards. This is done by a wide range of
rationalizations.<SUP>118
3. Industry's Marketing Practices
    Industry documents indicate that cigarette manufacturers have
conducted extensive research on smoking behavior and attitudes in young
people and how advertisements should be made to appeal to young people.
Documents from Philip Morris' files indicate that the company did, at
least on one occasion, conduct research about the smoking habits of
young people, questioning people in Iowa, including teen-agers as young
as 14.<SUP>119 More specifically, research conducted for a Canadian
affiliate of one U.S. cigarette firm focused on the need to attract
young consumers, stating:

    Ads for teenagers must be denoted by a lack of artificiality,
and a sense of honesty. Attempts at use of celebrities ***do not
seem to really click. If freedom from pressure and authority can
also be communicated, so much the better.<SUP>120

    Research conducted by an American cigarette firm, and confirmed by
other tobacco companies, revealed another significant behavior: most
smokers continue to purchase the brand they smoked when they became
regular smokers. Brand loyalty is seen in many consumer products (such
as toothpaste, coffee, and automobiles) but is particularly strong for
tobacco products. A 1989 ``Wall Street Journal''article showed
cigarettes as having the highest percentage of brand loyalty among
consumers of any consumer product, at 71 percent.<SUP>121
    Knowledge about brand loyalty among cigarette smokers, coupled with
the fact that most smokers began smoking before the age of 18, may
explain why cigarette manufacturers have focused advertising and
promotional efforts on younger people. R.J. Reynolds devised what it
called a ``Young Adult Smokers'' (``YAS'') program that was apparently
designed to appeal specifically to young smokers, 18 to 24 year olds,
and more narrowly to 18 to 20 year olds. An element of that program,
known as FUBYAS, an acronym for First Usual Brand Young Adult Smokers,
captured the concept that a smoker's first regular brand is the brand a
smoker will stay with for years. This program featured the use of
promotional items, such as hats and tee shirts bearing the Camel brand
name, the cartoon Joe Camel, and imagery, that appealed to young
people. Although these programs were ostensibly directed at people
between the ages of 18 and 24, company memoranda suggest that the
target population included high school students. For example, on
January 10, 1990, a manager in Sarasota, Florida, issued a memorandum
asking cigarette sales representatives to identify stores:

    * * * that are heavily frequented by young adult shoppers. These
stores can be in close proximity to colleges [,] high schools or
areas where there are a large number of young adults [who] frequent
the store.<SUP>122

    On May 3, 1990, when the ``Wall Street Journal'' published this
memorandum, the cigarette firm stated that the memorandum was a
``mistake'' and violated company policy by targeting high
schools.<SUP>123
    Yet, on April 5, 1990, a manager in Moore, OK, issued a similar
memorandum regarding the YAS program asking sales and service
representatives to identify what was termed ``Retail Young Adult Smoker
Retailer Accounts.''One criterion for identifying a YAS account
included facilities ``located across from, adjacent to are [sic] in the
general vicinity of the High Schools or College Campus [sic].''
<SUP>124 This second memorandum suggests that promotions aimed at high
school students were part of the company's marketing strategy.
    Sales figures suggest that the YAS program was extremely effective.
Camel quickly became one of the most popular cigarette brands among
people under age 18. Prior to the introduction of the Joe Camel
campaign, Camel cigarettes commanded no more than 3 or 4 percent of the
youth market. One year into the campaign, the youth share rose to 8.1
percent and by 1991 it was at least 13 percent.<SUP>125
    While not all advertising campaigns are so blatantly directed at
juveniles, campaigns using more universal themes can be as effective
with young people. According to an advertising executive with the
advertising agency that created the Marlboro cowboy, ``The Marlboro
cowboy dispels the myth that in order to attract young people, you've
got to show young people.'' The cowboy theme of independence can be
translated into other venues that have appeal for young people and be
sold as an appropriate and desirable image. According to John Landry,
the Philip Morris executive credited with designing the Marlboro
campaign, the Marlboro theme sells because it fits young people's
desires. In 1973, Philip Morris sponsored the Marlboro Cup for the
first time. Landry recalls that ``Secretariat [the winning horse]
became a hero to young people. Youth were reaching out for something,
and someone they could identify with * * *

[[Page 41331]]
`Marlboro Country' fit these desires, this search people were going
through.'' ``Something young people could trust.''A candid appraisal of
the purpose of the Marlboro theme was provided by the marketing
director with Philip Morris in Argentina, ``Marlboro magic--people
using things with [the] Marlboro logo * * * was projected to other
products around it and when those kids who were playing with Marlboro
merchandise 5 to 10 years ago--when they start smoking they'll smoke
Marlboro.'' <SUP>126
    With regard to smokeless tobacco products, the U.S. Tobacco Company
(UST) successfully revived a declining market by targeting young
people, especially young men, in its promotion and advertising. In
1970, the segment of the population with the highest use of these
products was men over age 50, and young males were among the lowest.
Fifteen years later, there had been a 10-fold increase in the use of
smokeless tobacco products among young males, whose use was double that
of men over age 50.<SUP>127
    The increased use of smokeless tobacco products by young people was
precisely the objective of a marketing strategy of UST set in motion
almost 30 years ago. In 1968, officials at UST held a marketing meeting
where, according to the ``Wall Street Journal,'' the vice-president for
marketing said, ``We must sell the use of tobacco in the mouth and
appeal to young people * * * we hope to start a fad.'' <SUP>128 Another
official who attended the meeting was quoted as saying, ``We were
looking for new users--younger people who, by reputation, wouldn't try
the old products.'' <SUP>129 When a rival company developed a smokeless
tobacco product that 9-year-old children began using, a UST regional
sales manager reported to UST's national sales manager that the product
was mostly used by children and young adults ``from 9 years old and
up'' and noted that this age was ``four or five years earlier than we
have reached them in the past.'' <SUP>130
    Responding to a question years later about why so many young males
were buying smokeless tobacco, Louis F. Bantle, then chairman of the
board of UST said, ``I think there are a lot of reasons, with one of
them being that it is very `macho'.'' <SUP>131 Playing to this
``macho'' perception of smokeless tobacco by young males,
advertisements for smokeless tobacco products have traditionally used a
rugged, masculine image and have been promoted by well-known
professional athletes. UST's successful penetration into the youth
market is indicated in a statement by Mr. Bantle: ``In Texas today, a
kid wouldn't dare to go to school, even if he doesn't use the product,
without a can in his Levis'.'' <SUP>132
    UST distributes free samples of low nicotine-delivery brands of
moist snuff and instructs its representatives not to distribute free
samples of higher nicotine-delivery brands. The low nicotine-delivery
brands also have a disproportionate share of advertising relative to
their market share. For example, in 1983, Skoal Bandits, a starter
brand, accounted for 47 percent of UST's advertising dollars, but
accounted for only 2 percent of the market share by weight. In
contrast, Copenhagen, the highest nicotine-delivery brand, had only 1
percent of the advertising expenditures, but 50 percent of the market
share. This advertising focus is indicative of UST's ``graduation
process'' of starting new smokeless tobacco product users on low
nicotine-delivery brands and having them graduate to higher nicotine-
delivery brands as a method for recruiting new, younger users.<SUP>133
    Tobacco companies deny any youth-directed advertising and promotion
activities.<SUP>134 Moreover, the industry claims that advertising
plays no role in a person's decision to start smoking; that tobacco
advertising is designed solely to capture brand share from competitors
and maintain product loyalty. The industry further claims that the
tobacco market is a ``mature'' market in which awareness of the product
is universal and overall demand is either stable or declining.<SUP>135
In a mature market, the industry contends, advertising functions to
merely shift customers from one brand to another, but does not act as a
stimulus to new customers to enter the market.
    One purpose of cigarette advertising may be to encourage or
discourage brand switching among current tobacco users. Some experts
believe, however, that this same advertising encourages new consumers
to begin using these products.<SUP>136 Tobacco advertising, promotion,
and marketing, on which the industry spends over $6 billion each year,
may serve both purposes largely out of market necessity. Market
expansion, in the sense of new customers entering the market, must
occur to maintain total tobacco sales and avoid a significant market
decline. ``[T]he cigarette industry has been artfully maintaining that
cigarette advertising has nothing to do with total sales * * * [T]his
is complete and utter nonsense. The industry knows it is nonsense,''
wrote a former cigarette advertising executive.<SUP>137
    Evidence indicates that acquiring a portion of the ``starter''
market, overwhelmingly people in their teens, is regarded by the
industry as essential to a company's continuing economic viability. One
document acquired from Imperial Tobacco Limited (ITL) of Canada, a
sister company of the Brown & Williamson Company in the United States,
states:

    If the last ten years have taught us anything, it is that the
industry is dominated by the companies who respond most effectively
to the needs of younger smokers.''<SUP>138

    To further this goal, ITL hired a consulting research company to
investigate attitudes about smoking among people aged 15 years and
older. The purpose of the research, i.e., how best to recruit new
smokers, is indicated in the following statement:

    It is no exaggeration to suggest that the tobacco industry is
under siege. The smoker base is declining, primarily as a function
of successful quitting. And the characteristics of new smokers are
changing such that the future starting level may be in
question.<SUP>139

    Similar attitudinal research was done for R.J.R.-MacDonald, Inc.,
the Canadian subsidiary of R.J. Reynolds.<SUP>140 A report entitled
YOUTH 1987 closely examined the lifestyles and value systems of ``young
men and women in the 15-24 age range.'' The report said the research
would:

    provide marketers and policymakers with an enriched
understanding of the mores and motives of this important emerging
adult segment which can be applied to better decision making in
regard to products and programs directed at youth.<SUP>141

    A similar research objective was described in a 1969 research paper
presented to the Philip Morris Board of Directors.<SUP>142 The paper
stated that one of its objectives was to probe ``[w]hy do 70 million
Americans * * * smoke despite parental admonition, doctors'' warnings,
governmental taxes, and health agency propaganda?'' <SUP>143 The paper
continues:

    There is general agreement on the answer to the first
[question--why does one begin to smoke.] The 16 to 20-year old
begins smoking for psychosocial reasons. The act of smoking is
symbolic; it signifies adulthood, he smokes to enhance his image in
the eyes of his peers.<SUP>144

    Cigarette manufacturers are also aware of the difficulties young
people encounter when they try to quit smoking. Studies prepared for a
Canadian affiliate of a U.S. cigarette company state:

    However intriguing smoking was at 11, 12, or 13, by the age of
16 or 17 many regretted their use of cigarettes for health reasons
and because they feel unable to stop smoking when they want
to.<SUP>145

[[Page 41332]]

    Another document declares:

    [T]he desire to quit seems to come earlier now than before, even
prior to the end of high school. In fact, it often seems to take
hold as soon as the recent starter admits to himself that he is
hooked on smoking. However, the desire to quit, and actually
carrying it out, are two quite different things, as the would-be
quitter soon learns.<SUP>146

    Thus, these documents and reports suggest that cigarette
manufacturers know that young people are vital to their markets and
that they need to develop advertising and other promotional activities
that appeal to young people. They also suggest that cigarette
manufacturers know that once those young people become regular smokers,
that they, like adult smokers, find quitting smoking to be very
difficult, and most young people fail in their attempts to quit.
4. Empirical Research on the Effects of Cigarette Advertising
Activities on Young People
    The 1994 Surgeon General's Report concluded that ``[a] substantial
and growing body of scientific literature has reported on young
people's awareness of, and attitudes about, cigarette advertising and
promotional activities.'' The report also found that ``[c]onsidered
together, these studies offer a compelling argument for the mediated
relationship of cigarette advertising and adolescent smoking.''
<SUP>147 The Surgeon General's Report and the Institute of Medicine's
report <SUP>148 find that there is sufficient evidence to conclude that
advertising and labeling play a significant and important contributory
role in a young person's decision to use cigarettes or smokeless
tobacco products.
    a. Studies of advertising recall, approval of advertising, and
young people's response to advertising. Many studies have shown that
young people are aware of, respond favorably to, and are influenced by
cigarette advertising.<SUP>149 Even relatively young children are aware
of cigarette advertisements and can recall salient portions. A recent
Gallup survey found that 87 percent of adolescents surveyed could
recall seeing one or more tobacco advertisements and that half could
identify the brand name associated with one of four popular cigarette
slogans.<SUP>150 One study found that over 34 percent of 12- to 13-
year-old California children surveyed could name a brand of cigarettes
that was advertised, despite the fact that Federal law bans cigarette
and smokeless tobacco product advertising on both radio and television,
the usual medium of information for children and adolescents.<SUP>151
    Other studies show that children who smoke are more likely to
correctly identify cigarette advertisements and slogans in which the
product names have been removed than are non-smokers.<SUP>152 One study
surveyed a group of U.S. high school students and found a positive
relationship between smoking level and cigarette advertisement
recognition. Regular smokers recognized 61.6 percent of the tobacco
advertisements while non-smokers recognized 33.2 percent.<SUP>153
    Another study measured cigarette advertising exposure among
adolescents by determining which magazines they read and the number of
cigarette advertisements in each magazine. The study found that two
factors, advertising exposure and whether a friend or friends smoked,
were predictive of smoking status or intention to smoke. The authors
contended that the findings are consistent with the theory that
cigarette advertising successfully represents, through attractive
imagery, that smoking is a facilitator for acquiring a desired
characteristic or goal.<SUP>154
    These studies raised the question of whether smoking causes a
person to recognize advertisements or whether a person's exposure to or
recognition of advertisements leads to smoking or increases the
likelihood that a person will smoke. One study designed specifically to
address this issue <SUP>155 showed that causality flowed in both
directions: experimentation with cigarettes prompted subjects to attend
to and retain information from cigarette advertisements (smoking status
determined whether the child attended to advertising) and the amount of
information retained by each subject from cigarette advertisements
predicted the subjects' experimentation with cigarettes
(causality).<SUP>156
    Another study attempted to address the issue of causality by
questioning Glasgow school children at two different times, 1 year
apart. The study asked 640 Glasgow children between the ages of 11 and
14 about their intention to smoke and their recognition of cigarette
advertising. Children who were more inclined to smoke between the time
when the two interviews were conducted tended to be more aware of
cigarette advertising at the first interview than children who were
less inclined to smoke. The study concluded that cigarette advertising
has predisposing, as well as reinforcing, effects on children's
attitudes towards smoking and their smoking intentions.<SUP>157
    Other studies relating children's misperceptions about the
prevalence of smoking to advertising exposure and smoking status have
found that overestimating smoking prevalence appears to be a very
strong predictor of smoking initiation and progression to regular
smoking.<SUP>158 The 1994 Surgeon General's Report found that young
people overestimate the prevalence of cigarette smoking <SUP>159 and
that advertising's pervasiveness plays a role in this misconception.
One unpublished study cited in the Surgeon General's Report supports
this finding. The study found that children in Los Angeles (where
cigarette advertising and promotional campaigns are prevalent) were
nearly three times more likely to overestimate the prevalence of peer
smoking than were children in Helsinki, Finland (where there has been a
total ban on advertising since 1978).<SUP>160 Moreover, adolescent
smokers are more likely to overestimate the prevalence than adolescent
non-smokers.<SUP>161 Overestimating smoking prevalence, as well as
self-reported exposure to advertising, have both been positively
correlated with the intention to smoke.<SUP>162
    Additional evidence indicates that children smoke many fewer brands
than adults and that their choices, unlike adults, are directly related
to the amount and kind of advertising.<SUP>163 CDC recently reported
that 86 percent of underage smokers who purchase their own cigarettes
purchase one of three brands: Marlboro (60 percent), Camel (13.3
percent) and Newport (12.7 percent).<SUP>164 These three brands were
also the three most heavily advertised brands in 1993.<SUP>165 While
Marlboro has long been the most popular brand among young people,
Camel's share of the youth market increased from around 3 percent to
13.3 percent as a result of the invigorated Joe Camel campaign.
    Adult preferences, on the other hand, are more dispersed. The three
most commonly purchased brands among all smokers (as measured by market
share) accounted for only 35 percent of the overall market share.
(Camel had approximately 4 percent of the market and its market share
did not change as a result of the Joe Camel advertising.) Furthermore,
the most popular ``brand'' of cigarette among adult smokers was no
brand at all: 39 percent of all cigarettes sold in the first quarter of
1993 were from the ``price value market'' which includes private label,
generics, and plain-packaged products.<SUP>166 These brands typically
rely on little or no advertising and little or no imagery on their
packaging.
    These studies present evidence that advertising plays a significant
role in children's smoking behavior. There are, in addition, individual
case studies that

[[Page 41333]]
illustrate the profound effect that certain cigarette advertising
campaigns can have on the youth market.
    b. The effect of selected advertising campaigns, which were
effective with children. Two American studies and one British study
analyzed alleged youth-oriented campaigns to determine what effect they
had on the underage market. One U.S. study examined the effect on the
youth market of R.J. Reynolds' advertising campaign for Camel brand
cigarettes. In the mid 1980's, R.J. Reynolds sought to revitalize its
Camel brand cigarettes. It gave its symbol, the Camel, a new, more hip
personality. It transformed the symbol into ``Joe Camel,'' an
anthropomorphic ``spokescamel.'' The campaign featured Joe as a
humorous figure in history, as an advisor to young adults with ``smooth
moves'' and eventually as one of a gang of hip camels (``the hard
pack'' band and the gang at the watering hole bar). The study analyzed
1990 data from the California Tobacco Survey which consisted of a
telephone survey of 24,296 adults and 5,040 children under the age of
18. The study found that teenagers were twice as likely as adults to
identify Camel cigarettes as one of the two most advertised
brands.\167\
    One study explored the power of the Joe Camel campaign to penetrate
the youth market. The study found that children as young as 3 years old
could identify Joe Camel as a symbol for smoking. This recognition
ranged from 30 percent of 3 year olds, to 91 percent of 6 year olds. In
fact, the recognition rates for Joe Camel surpassed the rates for
certain children's products, cereals, computers, and network television
symbols.\168\ A similar study funded by R.J. Reynolds found that 72
percent of 6 year olds and 52 percent of children between the ages of 3
and 6 could identify Joe Camel. These rates exceeded the recognition
rates for Ronald McDonald, which were 62 percent of the 6 year olds and
51 percent of children between the ages of 3 and 6.\169\ The higher
recognition rates for Joe Camel are remarkable because, unlike Ronald
McDonald who appears in television commercials during children's
viewing hours, Federal law prohibits cigarette advertisements on
television.
    Data collected by researchers for the State of California found
that in 1990, 23.1 percent of the under age 18 market in California
purchased Camel as their brand. This represented a 230 percent increase
over its pre-``Joe Camel'' 1986 rate. The same growth rate did not
occur for adults.\170\ Nationally, Camel had less than 3 percent of the
youth market before the brand was repositioned in 1988 and Joe Camel
was introduced.\171\ By 1989, Camel's share of the youth market had
risen to 8.1 percent,\172\ and by 1992, 13 to 16 percent.\173\ During
this same period, Camel's share of the adult market barely moved from
its 4 percent level.\174\
    The other American study used data from the National Health
Interview Survey to study trends in smoking initiation among 10- to 20-
year-olds from 1944 through 1980. The study found that initiation rates
for 18- to 20-year-old women peaked in the early 1960's and steadily
declined thereafter. Initiation rates for girls under 18, however,
increased abruptly around 1967. This was the same period when brands
specifically intended for women were introduced and heavily advertised.
The initiation rate was particularly steep for women who did not attend
college. The initiation rate for girls under the age of 18 peaked in
1973--about the same time that sales for these brands (Virginia Slims,
Silva Thins, and Eve) peaked. Between 1967 and 1973, smoking initiation
rates increased around 110 percent for 12-year-old girls, 55 percent
for 13-year-olds, 70 percent for 14-year-olds, 75 percent for 15-year-
olds, 55 percent for 16-year- olds, and 35 percent for 17-year-
olds.\175\
    In contrast, initiation rates for men declined from 1944 to 1949
and did not decline again until the middle to late 1960's. Initiation
rates for boys under 16 showed little change during the entire study
period. The study concluded that advertising for women's brands during
this period was positively associated with increased smoking uptake in
girls under 18 years of age.\176\
    The British study looked at a campaign featuring a flippant and
humorous character named ``Reg.'' The study found that 91 percent of
11- to 15-year-olds recognized the ads, compared with 52 percent of 33-
to 55-year-olds. Teenagers who liked the advertisements were more
likely to smoke. In fact, it was one of the two brands that most
children smoked. During the period in which Reg was advertised, smoking
by 11- to 15-years-olds in northern England increased from 8 percent to
10 percent, but the rate for this same age group in southern England,
where the advertisements did not appear, remained stable at 7
percent.\177\ The government, pursuant to the industry's voluntary
code, later requested that the company discontinue the advertising
campaign because of its disproportionate appeal to children.
    These studies provide compelling evidence that promotional
campaigns can be extremely effective with young people.
    c. Direct quantitative studies. There are many direct quantitative
studies of the relationship between advertising and tobacco use and of
the effects of advertising restrictions and bans on consumption. These
studies provide insight into the effects of advertising on the general
appeal of and demand for cigarettes and smokeless tobacco products.
They also provide evidence confirming advertising's effects on
consumption and the effectiveness of advertising restrictions on
reducing youth smoking.
    A large, multinational study commissioned by the New Zealand
Government examined consumption trends in 33 countries between 1970 and
1986.\178\ Controlling for income, price, and health education, the
study found that the greater a government's degree of control over
tobacco promotion, the greater the annual average fall in tobacco
consumption and in the rate of decrease of smoking among young
people.\179\ One of the report's most relevant conclusions was that,
among the 18 countries with data on youth smoking, there is evidence of
a relationship between stringent government restrictions on tobacco
promotion and reduced uptake of smoking among young people. The report
concluded that there appeared to be a greater decrease in smoking
uptake in those countries with the most stringent measures compared
with those countries where advertising had not been affected.\180\
    Other studies that have looked at populations in general provide
evidence that restrictions can have an important effect on total
consumption and provide inferential evidence of similar positive
effects on youth smoking. One such study conducted by the Chief
Economic Advisor of the Department of Health of the Government of Great
Britain found that advertising tends to increase consumption of tobacco
products and that restrictions on advertising tend to decrease tobacco
use beyond what would have occurred in the absence of regulation.\181\
After performing an in-depth analysis of data from the four countries
(Norway, Finland, Canada, and New Zealand) which had varying degrees of
tobacco advertising restrictions and for which data exist, the study
concluded that restrictions, including bans on some forms of
advertising or on all advertising, resulted in an overall decrease in
consumption. The study suggests that Norway's restrictions on all
advertising, sponsorship, and indirect advertising produces a 9 to 16
percent reduction in consumption over the long run.\182\ Finland's ban
on advertising and

[[Page 41334]]
restrictions on other nonadvertising measures reduced cigarette smoking
by 6.7 percent.\183\
    Canada's Tobacco Products Control Act, which became effective on
January 1, 1989, banned most print advertising, restricted sponsorship,
and forbade indirect advertising (e.g., use of trade names on non-
tobacco items). Although advertising restrictions often take time to be
fully effective, the study found that in only 2 years following the
institution of government regulation, consumption was reduced 2.8
percent more than would have been expected had there been no
advertising restrictions.\184\
    Another study looked at tobacco consumption per adult in the 22
countries of the Organization for Economic Cooperation and Development
between 1960 and 1986.\185\ The report reaffirmed the New Zealand
Board's conclusion that, as a group, countries prohibiting tobacco
advertising in most or all media experienced more rapid percentage
falls in consumption than the group of countries which permitted
promotion.\186\
    Other studies try to measure the effect that advertising has on the
general level of consumption in a country. Advertising can have an
increased effect on consumption, even in those countries where the
smoking rate has been falling. The analyses are able to determine
whether consumption would have fallen at a greater rate but for the
advertising, and ascribe that difference (the slowed rate of decline)
to advertising.
    One New Zealand study provides evidence that changes in advertising
expenditures can have an effect on youth smoking behavior. The study
analyzed the total sales of cigarettes sold by New Zealand supermarkets
over a 42 week period. The study design included advertising that had
recently been modified to contain newly-mandated, strong, varied
disease warnings that occupied 15 percent of the advertisement.
Moreover, no human form could be displayed in the advertising except a
hand and forearm, and one color apart from black was usually used. The
results indicated that advertising for upscale brands of cigarettes did
not raise cigarette consumption, but that consumption of an inexpensive
brand with a heavy youth appeal did increase with increased
advertising. Moreover, the study found that the advertising for the
new, inexpensive brand had the additional effect of recruiting young
smokers and increasing the market base.\187\
    Studies that assessed the response of large population groups to
changes in advertising generally confirm a finding that advertising has
a positive effect on consumption. The most recent comprehensive
analysis of existing studies on the effect of advertising expenditures
on consumption rates was done in the English study, discussed above.
Among other things, the study looked at the effect of yearly
fluctuations in advertising expenditures within several countries, but
principally within the United States and United Kingdom. The result was
that the ``preponderance of positive results points to the conclusion
that advertising does have a positive effect on consumption.'' \188\
Individual, smaller studies \189\ have examined the same question and
confirmed a finding of effect of advertising on consumption.\190\
5. Summary of Evidence
    The agency concludes that the preponderance of quantitative and
qualitative studies of cigarette advertising suggests: (1) A causal
relationship between advertising and youth smoking behavior, and (2) a
positive effect of stringent advertising measures on smoking rates and
on youth smoking. Moreover, industry statements indicate the importance
of the youth market segment to the industry's continued success.
Actions taken by industry members to attract young smokers have also
resulted in attracting children and adolescents. Finally, examples of
specific campaigns directed at young people support the hypothesis that
cigarette advertising and promotion play an important role in
encouraging young people to start smoking, to sustain their smoking
habit, and to increase consumption. Therefore, the agency finds that
stringent restrictions on advertising are essential if smoking by
adolescents is to be reduced.
6. Proposed Subpart D--Labeling and Advertising
    a. General overview. Proposed subpart D would establish regulations
on the labeling and advertising of cigarettes and smokeless tobacco
products. Proposed subpart D consists of four sections. Proposed
Sec. 897.30 would establish the scope of permissible forms of labeling
and advertising. Proposed Sec. 897.32 would set forth the format and
content requirements. Proposed Sec. 897.34(a) would prohibit the sale
and distribution of non-tobacco items and services that are identified
with a cigarette or smokeless tobacco product brand name or other
identifying characteristics; proposed Sec. 897.34(b) would prohibit
proof of purchase gifts and games of chance and contests; and
Sec. 897.34(c) would prohibit sponsorship of events that are identified
with a cigarette or smokeless tobacco product brand name or other
identifying characteristics. Proposed Sec. 897.36 would address false
and misleading labeling and advertising. These sections are discussed
more fully below.
    The proposed rule would establish different labeling and
advertising requirements for cigarettes and smokeless tobacco products.
These differences result from different Federal preemption provisions
contained in the two Federal laws requiring warning labels on those
products. Briefly, FDA believes that the Cigarette Act only preempts
FDA's authority to require additional statements about smoking and
health on cigarette packages, while the Smokeless Act prohibits FDA
from requiring additional information about health and tobacco use in
advertising as well as on the package of smokeless tobacco products.
For a more complete discussion, see section IV.C. below.
    b. Proposed Sec. 897.30--permissible forms of labeling and
advertising. Proposed Sec. 897.30 would set forth the permissible forms
of labeling and advertising for cigarettes and smokeless tobacco
products. Labeling and advertising are used throughout this subpart to
include all commercial uses of the brand name of a product (alone or in
conjunction with other words), logo, symbol, motto, selling message, or
any other indicia of product identification similar or identical to
that used for any brand of cigarette or smokeless tobacco product.
However, labeling and advertising would exclude package labels, which
would be covered under proposed subpart C. In brief, Sec. 897.30(a) of
the proposed rule would define permissible outlets for labeling and
advertising as newspapers, magazines, periodicals, billboards, posters,
placards, entries and teams in sponsored events, promotional materials,
audio and/or video formats, and delivered at the point of sale.
Proposed Sec. 897.30(b) would prohibit outdoor advertising of tobacco
products from appearing outside of buildings within 1,000 feet of an
elementary or secondary school or playground. These are places where
children and adolescents spend a great deal of time and should
therefore be free of advertising for these products. The agency
believes that this a reasonable restriction and notes that the
cigarette industry's voluntary ``Cigarette Advertising and Promotion
Code,'' revised in 1990, contains a similar

[[Page 41335]]
provision concerning schools and playgrounds.
    These labeling and advertising requirements are an effort to
control the proliferation of promotional messages that attract young
people. As discussed above, advertising and promotion can play a
significant role in young people's smoking behavior. The agency finds
that restricting the permissible forms of media would help prevent
young people from starting to use cigarettes and smokeless tobacco
products and becoming addicted to those products. Proposed Sec. 897.30
(a) would describe the range of known labeling and advertising media
currently used by cigarette and smokeless tobacco product companies.
    It is important to note that the proposal would not affect any
other limitations on labeling or advertising, such as the radio and
television advertising bans placed on cigarette and smokeless tobacco
product advertising (the Cigarette Act, 15 U.S.C. 1331, 1334 and the
Smokeless Act, 15 U.S.C. 4401, 4402(f)) nor any other actions taken by
Federal agencies (e.g., FTC's ``Regulations Under the Comprehensive
Smokeless Tobacco Health Education Act of 1986,'' 16 CFR Part 307
(1994)).
    c. Proposed Sec. 897.32--format and content requirements for
labeling and advertising. Proposed Sec. 897.32 would describe the
format and content requirements for cigarette and smokeless tobacco
product labeling and advertising. This section would establish
requirements in three principal areas: text-only format, the product's
established name, and a brief statement of the risks of using
cigarettes.
    i. Text-only advertising. The agency considered various options
available to control advertising's influence on young people, from a
full ban on all advertising and promotion, to restrictions on
advertising and promotional practices that children actually view.
FDA's proposed rule would address the need to eliminate advertising's
influence on young people and, at the same time, preserve advertising's
informative aspects--that is, to provide useful information to
consumers legally able to purchase these products. Therefore, the
agency agrees with the IOM's recommendation that advertising and
labeling should appear in text-only format because this format would
reduce the attraction and appeal that cigarette and smokeless tobacco
product advertising have for young people. Recognizing that it is
difficult to draw the line between advertising that should be
restricted or regulated and advertising that does not pose an
unreasonable risk of influencing young people, the agency requests
comment on the appropriateness of the proposed regulations and whether
other alternatives would be more appropriate or effective.
    Under proposed Sec. 897.32(a), cigarette and smokeless tobacco
product labeling and advertising, as described in Sec. 897.30 (a), and
(b), would be required to use black text on a white background and
nothing else. This text-only requirement is intended to reduce the
appeal of cigarette and smokeless tobacco product labeling and
advertising to persons younger than 18 without affecting the
informational message conveyed to adults.
    However, FDA believes that advertising in publications that are
read primarily by adults should be allowed to use imagery and color
because the effect of such advertising on young people would be
nominal. Therefore, advertisements in publications with primarily adult
readership would not be restricted to a text-only format. The agency
proposes to define such publications as those: (a) Whose readers age 18
or older constitute 85 percent or more of the publication's total
readership, or (b) that is read by two million or fewer people under
age 18, whichever method results in the lower number of young people.
The readership of a publication is the total number of people that read
any given copy of that publication. It should be measured according to
industry standards and at a minimum by asking a nationally projectable
survey of people what publications they read or looked at during any
given time. A reader is one who said that he/she read the last issue of
a publication. Prior to disseminating advertising containing images and
colors, it would be the company's obligation to establish that the
publication meets the criteria for a primarily adult readership.
    The concept of text-only advertising requirements is not new. The
cigarette industry has employed text-only advertisements in the past,
particularly when it sought to inform or educate consumers about
company policies or important issues. See, e.g., ``In the Matter of
R.J. Reynolds Tobacco Co.,'' 111 F.T.C. 539 (D. 9206) (1988) (a text-
only advertisement that disputed that cigarette smoking was related to
coronary heart disease); ``Washington Post,'' October 18, 1994, at p.
A11; ``Washington Post,'' October 20, 1994, at p. A17; ``Time,''
144(19): 42(1994) (Philip Morris text-only advertisement which
discussed environmental tobacco smoke); ``Tobacco Control and
Marketing: Hearings Before the Subcommittee on Health and the
Environment of the House Committee on Energy and Commerce,'' R.J.
Reynolds, to the Honorable Edolphus Towns (Reynolds' text-only
advertisement about youth smoking).
    Several studies show how strongly images appeal to young people.
Photographs, pictures, cartoons, and other graphics allow the
advertiser to encode its sales message in a way that makes the
advertisement more compelling and memorable.\191\ Imagery ties the
products to a positive visual image that can be used consistently in
all advertising media as well as on the product package itself.\192\
    Adding visual images to a text advertisement can produce greater
recall and a more positive product rating.\193\ Not surprisingly,
studies have shown that children and adolescents react more positively
to advertising with pictures and other depictions than to advertising
(or packaging) that contains only print or text.\194\
    One study examined 243 seventh and eighth grade students in Chicago
to determine the appeal (likability) of different types of cigarette
advertising. The study compared a Joe Camel advertisement, an
advertisement with a model, and a text-only advertisement. The results
indicated that adolescents found advertisements containing pictures and
cartoons to be significantly more appealing than advertisements with
human models; advertisements with any imagery were more appealing than
text-only advertisements. These results are particularly compelling
because a study by the Advertising Research Foundation found that an
advertisement's ``likability'' is the best predictor of product
sales.\195\
    In arriving at its proposal, FDA considered other options,
including banning all advertising or restricting the type of imagery
used.\196\ FDA believes that the evidence detailed above would justify
a ban on all or most advertising and promotion of tobacco products. The
studies cited and industry statements and actions already discussed in
this proposal indicate the positive effect that advertising can have on
young people's smoking behavior, while other studies establish that
bans on cigarette advertising can help reduce overall consumption and
youth initiation. Given the extremely grave health consequences of a
lifetime of smoking, actions taken that would help achieve a lower
initiation rate among young people would be authorized as a matter of
law and justified as a matter of public health policy.
    Moreover, young people are currently exposed to billions of dollars
worth of tobacco advertising and promotion that

[[Page 41336]]
use attractive imagery and do not rely on objective product claims. The
industry's claims that this advertising exists solely to maintain brand
loyalty or induce smokers to switch. However, as noted previously,
tobacco advertising and promotion appear to have a more profound effect
on brand choices by young people (86 percent of young people smoke the
three most advertised brands) than on adults, whose choice is more
often based on price (39 percent of the market is comprised of generic
and discount products.) Furthermore, brand loyalty runs higher for
cigarettes than for any other product. Thus, significant expenditures
would not appear to be necessary to retain loyal consumers and would
appear to be excessive and wasteful if they are expended merely to get
people to switch brands.
    While a total ban on advertising, therefore, would likely be
justified, FDA believes that limiting advertisements and labeling to
which children are exposed to a text-only format is less burdensome and
would effectively reduce the appeal of tobacco products to children and
adolescents. Further, while some have suggested prohibiting only youth-
oriented images, the agency has been unable to define the subset of
advertising and labeling directed to young people based upon the media
selected or the location of the advertising. For example, billboards
are always visible to young people, and there are few, if any,
publications that children and adolescents cannot see. Thus, the
proposed text-only requirement would offer the most protection for
children and adolescents while still enabling informative advertising
to reach persons aged 18 and older. Given the complexities of this
subject, however, FDA invites comment on other potential methods that
may exist for curtailing advertising's appeal to young people.
    ii. Non-tobacco items and sponsorship. Proposed Sec. 897.34(a)
would prohibit the sale or distribution of all non-tobacco items that
are identified with a cigarette or smokeless tobacco product brand name
or other identifying characteristic. As noted above, advertising
expenditures have risen dramatically in the past two decades, and the
distribution of the marketing expenditures represents a major shift in
marketing trends. In 1970, the amounts spent on traditional advertising
represented 82 percent of total spending, but, by 1991, this figure had
fallen to approximately 17 percent.\197\ The remaining funds devoted to
marketing cigarettes are spent on a variety of promotional activities
designed to assure advantageous placement of products in retail
outlets, get products into a prospective consumer's hand through the
use of coupons and samples, and provide gifts, contests, and other non-
tobacco items and gifts to create special appeal and reduce real
price.\198\
    Proposed Sec. 897.34(a) would pertain to non-tobacco items and
services (other than cigarettes or smokeless tobacco products) that the
tobacco companies market, license, distribute, or sell. Manufacturers
often provide branded, non-tobacco items as an inducement to purchase
cigarettes or generate purchases through the use of proof-of-purchase
coupons. Both R.J. Reynolds and Philip Morris utilize this popular
technique by providing either a coupon with each package (Camel cash)
or indicating that each package was worth a number of credits towards a
purchase (Marlboro miles). Each company also printed glossy catalogues
with items and gifts that could be purchased using ``cash'' or credits.
Either method creates an incentive to purchase the tobacco product by
reducing the product's real price; the consumer gets the product and
the non-tobacco ``gift.''
    The IOM found that this form of advertising is particularly
effective with young people.\199\ Young people have relatively little
disposable income, so promotions are appealing because they represent a
means of ``getting something for nothing.'' In many cases, the items--
tee shirts, caps, and sporting goods--are particularly attractive to
young people. Some items, when used or worn by young people, also
create a new advertising medium--the ``walking billboard''--which can
come into schools or other locations where advertising is usually
prohibited. A 1992 Gallup survey found that about half of adolescent
smokers and one quarter of non-smokers owned at least one of these
items.\200\ Similar data were reported for a group of ninth graders
from New York State. Among these ninth-graders, 48 percent of
occasional smokers and 28 percent of non-smokers reported owning
branded clothing.\201\
    A recent report found that tobacco companies spent $600 million on
programs that provide promotional items in exchange for proofs-of-
purchase (usually by catalogue). Although the tobacco industry states
that these items are meant for individuals over the age of 20, many
teens report participating in promotional activities, with
participation ranging from 25.6 percent of 12- to 13-year-olds and 42.7
percent of 16- to 17-year-olds owning a promotional item. The report
found that 68.2 percent of current smokers participated, and 28.4
percent of non-smokers participated. The report concluded that there is
an association between participating in promotions and a person's
susceptibility to tobacco use. It also noted that participation in
promotions has the same ability to predict susceptibility to tobacco
use as does use by a household member.\202\ These proposed provisions
would eliminate these items and therefore would prevent young people
from wearing such items and becoming ``walking advertisements.'' \203\
    Proposed Sec. 897.34(b) would prohibit all proof of purchase sales
or gifts of non-tobacco items as well as all contests, lotteries, or
games of chance that are linked to the purchase of, or in consideration
for the purchase of a tobacco product. Because contests and lotteries
are usually conducted through the mail, the agency has not been able to
devise regulations that would reduce a young person's access to
contests or lotteries.
    Proposed 897.34(c) would also prohibit a sponsored event from being
identified with a cigarette or smokeless tobacco product brand name or
any other brand identifying characteristic. Entries and teams in
sponsored events are to be treated as labeling under Sec. 897.30 and
Sec. 897.32 and would be required to be in text-only, black and white
format. Any other athletic, musical, artistic, or other social or
cultural event would be permitted to be sponsored in the name of the
tobacco company. However, the event would not be permitted to include
any brand name (alone or in conjunction with any other words), logo,
symbols, motto, selling message, or any other indicia of product
identification similar or identical to those used for any brand of
cigarettes or smokeless tobacco products. The corporation in whose name
the sponsorship would be permitted, would be required to have been in
existence on January 1, 1995. This latter provision is intended to
prevent manufacturers from circumventing this restriction by
incorporating separately each brand that they manufacture for use in
sponsorship.
    Sponsorship by cigarette and smokeless tobacco companies associates
tobacco use with exciting, glamorous, or fun events, such as car racing
and rodeos. It provides an opportunity for what sponsorship experts
call ``embedded advertising''\204\ that actively creates a ``friendly
familiarity'' between tobacco and sports enthusiasts, many of whom are
children and adolescents. Those watching a sponsored event, including
children and adolescents, repeatedly see the sponsor's brand or

[[Page 41337]]
corporate name linked with an event they enjoy. For example, sponsoring
a race car, motorcycle, or boat enables manufacturers to place
cigarette brand names and logos on the vehicles and drivers' uniforms;
by sponsoring the event itself, the manufacturers may also place
cigarette brand names and logos on the event and on official's
clothing.
    IEG, the leading source in the United States for sponsorship
information and consulting services, is also the only company that
tracks and analyzes sponsorship of sporting and other events and
causes. It publishes the IEG Sponsorship Report, an international
biweekly newsletter on sponsorship, as well as an industry report
titled, ``IEG's Complete Guide to Sponsorship: Everything you need to
know about sports, arts, event, entertainment and cause
marketing.''\205\ In this primer for companies considering sponsorship,
it defines sponsorship as ``a cash and/or in-kind fee paid to a
property (typically in sports, arts, entertainment, or causes) in
return for access to the exploitable commercial potential associated
with that property.''\206\ According to the IEG, ``[s]ponsorship, the
fastest growing form of marketing, is unregulated in the U.S.''\207\ In
North America, total sponsorship grew from $850 million in 1985 to more
than $4.2 billion in 1994 and is done by thousands of companies.\208\
The IEG further notes that for the cost of a 30-second spot on the
Super Bowl telecast, a company can sponsor a NASCAR Winston Cup car and
receive more than 30 hours of television coverage.\209\
    The report states that companies can link sponsorship directly to
product usage or sales.\210\ The Chairman and CEO of R.J. Reynolds
summed up the underlying purpose of sponsorship for his company by
saying, ``We made it clear from the day we announced our sponsorship of
the Grand National Division that we were in the business of selling
cigarettes, not the racing business.''\211\
    The cigarette \212\ and smokeless tobacco industry \213\ has been
involved in sponsorships for many years and was at one time one of the
dominant sponsors of events. More recently other industries have become
increasingly involved in sponsoring events and causes and today the
packaged goods, retail, and financial service industries are the
leading sponsors of events. Although the tobacco industry accounts for
only 4 percent of all sponsored events,\214\ FDA has concluded that
sponsored events are a significant part of the successful marketing of
tobacco products and that sponsorship should be regulated under this
proposal.
    Companies often choose to sponsor events in order to heighten their
visibility, shape consumer attitudes, communicate commitment to a
particular lifestyle, and to drive sales.\215\ The IEG reports that
sponsorship offers several advantages over traditional advertising.
According to the IEG, sponsorship is generally more effective in
``establishing qualitative attributes, such as shaping consumers' image
of a brand, increasing favorability ratings and generating
awareness.''\216\ IEG also states that companies with huge advertising
budgets and high consumer awareness (such as tobacco companies), ``are
looking to the event to have a rub-off effect on their image and
ultimately their sales.''\217\ One marketing executive of a company
that sponsors professional beach volleyball said, ``Consumer attitudes
are the hardest thing to change * * * the more our brand is part of
events that are part of a consumer's lifestyle, the more we can affect
his or her attitude toward the product.''\218\
    Image compatibility is listed by IEG as the number one factor in
determining which events to sponsor. IEG encourages companies to
consider whether the event offers the imagery it is trying to establish
and whether it depicts a lifestyle with which the company wants to be
associated.\219\ A senior Philip Morris executive explained how the
sponsorship of racing car events by Marlboro is consistent with the
cowboy imagery associated with Marlboro: ``We perceive Formula One and
Indy car racing as adding, if you will, a modern-day dimension to the
Marlboro Man. The image of Marlboro is very rugged, individualistic,
heroic. And so is this style of auto racing. From an image standpoint,
the fit is good.''\220\
    The tobacco industry's sponsorship of events also can lead to
associations (often referred to as ``tie-ins'') with youth-oriented
items that extend the imagery. A sponsored event ``can bring
excitement, color, and uniqueness to a [point-of-purchase] display and
can be merchandised weeks or months in advance.'' <SUP>221 For example,
auto racing's popularity with children led one toy manufacturer to
sponsor a Sprint car team in the 1991 ``World of Outlaw'' series,
sponsored principally by UST. The toy company made toy racing cars with
Marlboro and Camel decals. Another toy company made toy cars with
Copenhagen and Skoal decals; Copenhagen and Skoal are the two major
smokeless tobacco product brands for UST.<SUP>222 Additionally,
``Inside Winston Cup Racing Sports Club Magazine'' reportedly included
a page called Kids Korner with puzzles and games for children.<SUP>223
    Sponsorship's impact can be measured by the amount of ``free''
advertising that appears on television. The amount and financial value
of television exposure gained by a firm can be substantial. According
to one study, Marlboro cigarette's sponsorship of a Championship Auto
Racing Team in the 1989 season gave Marlboro nearly 3 \1/2\ hours of
television exposure and 146 mentions of the brand name. This exposure
had a value of $8.4 million. In the Indianapolis 500, Marlboro received
more than $2.6 million in advertising exposure. In the Marlboro Grand
Prix, race officials wore Marlboro Grand Prix shirts and caps, and the
Marlboro logo or name appeared 5,933 times during the
broadcast.<SUP>224
    Another study used the ``Sponsor's Report'' to estimate the value
of all product exposure for most U.S. auto races. In 1992, 354
motorsport broadcasts were measured. These programs had a total viewing
audience of 915 million people, of whom 64 million were children and
adolescents. Exposure value for all sponsors was $830 million. Tobacco
products accounted for 8.2 percent ($68 million) of the total. The
impact of sponsoring televised events such as these automobile races is
perhaps most apparent when one realizes that over 10 million people
attended these events, while 90 times that number viewed them on
television.<SUP>225
    Sponsorship's effectiveness also can be measured by a change in
consumer awareness of or attitudes toward a product or company.
Evidence regarding sponsorship's impact on young people is somewhat
limited, but reports indicate that cigarette manufacturers' sponsorship
of sporting events can lead young people to associate brand names with
certain life styles or activities or can affect their purchasing
decisions.
    One study of children in Glasgow found that one-third of the 10-
and 11-year-old children surveyed correctly matched cigarette brands to
the sports that their manufacturers sponsored. Many children between
the ages of 6 and 17 surveyed could specify a brand and the sponsored
sport or game, and nearly half of the children associated a life style
or image (such as ``excitement'' and ``fast racing cars'') to cigarette
brands, even when the cigarette advertisement made no reference to the
sport.<SUP>226 Another study also found an increase in awareness of the
sponsored brands and concluded that even fairly brief exposure to
tobacco-sponsored sports on TV may increase considerably

[[Page 41338]]
the levels of brand awareness as long as it is linked to well-
publicized images. <SUP>227
    In Australia, the percentages of children in four different States
between the ages of 12 and 14 who smoked were similar. However, their
cigarette brand purchases mirrored the brands that had sponsored
sporting events in their respective States. For example, more than 44
percent of children in New South Wales and Queensland smoke Winfield,
the sponsor of the Queensland Rugby League, whereas, in South
Australia, about 44 percent of children smoke Escort, which sponsors
the South Australia's Australian Rules Escort Cup. This study
demonstrates the effectiveness of sports sponsorship in influencing
children's choice of cigarettes.<SUP>228
    Finally, a study was conducted in which approximately 100 boys in a
secondary school were shown a 15-minute videotape containing an
advertisement promoting a cigarette company's sponsorship of a sporting
event while another 100 boys were shown the same video with an
advertisement of a non-tobacco company's sponsorship of a sporting
event. Exposure to the advertisement for the tobacco-sponsored event
did not significantly change the boys' general attitudes to smoking.
However, non-smoking students who saw the tobacco sponsorship
advertisement had a significantly higher level of agreement with the
statement that ``smoking doesn't harm people if they play sports'' than
did nonsmokers who were not exposed to this advertisement. According to
the study's authors: ``Our study suggests that advertising of
sponsorships reinforces existing behaviors, and has the potential to
increase the rate at which young males smoke by negating the ill-
effects associated with smoking. We also conclude that these promotions
do affect those under the age of 18 by creating associations with
events, teams or personalities with whom they identify.'' <SUP>229
    The proposed rule is intended to break the link between tobacco
company-sponsored events and use of tobacco. These provisions are
intended to reduce the so-called ``friendly familiarity'' that
sponsorships and items generate among young people.
    iii. Established name and intended use. Proposed Sec. 897.32(b)
would require each piece of advertising for cigarettes, cigarette
tobacco, or smokeless tobacco products, permitted under Sec. 897.30(a),
to state the product's established name and give a statement of its
intended use. Section 502(r)(1) of the act requires, for any restricted
device, that all advertising or other descriptive printed material
contain ``a true statement of the device's established name * * *
printed prominently and in type at least half as large as that used for
any trade or brand name thereof.'' The agency has determined that the
established names for these products are the common and usual names:
``cigarettes,'' ``cigarette tobacco,'' ``loose leaf chewing tobacco,''
``plug chewing tobacco,'' ``twist chewing tobacco, ``moist snuff,'' and
``dry snuff.'' (These names would be codified at proposed Sec. 897.24.)
    The product's established name would be followed by the words, ``a
Nicotine-Delivery Device.'' Under section 502(r)(2) of the act, a
restricted device is misbranded unless all advertising contains ``a
brief statement of the intended uses of the device.'' The agency finds
that it is necessary to require that the product's established name and
intended uses be placed on all advertising, under section 520(e) of the
act, as a measure which affirmatively identifies the products to
persons reading the advertising.
    iv. The brief statement. Under proposed Sec. 897.32(c), cigarette
advertising (permitted under Sec. 897.30(a)) would contain information
regarding relevant warnings, precautions, side effects, and
contraindications. This brief statement is required under section
502(r)(2) of the act. Section 502(r)(2) does not require that labeling
contain a brief statement and the agency does not intend to place such
a requirement on labeling (e.g., vehicles, entries or teams in
sponsored events). Because of the products' serious ``potentiality for
harmful effect,'' the proposal would specify the text of the brief
statement. This would ensure that all advertisements contain the same,
required information in a manner that is consistent, readable, clear
and conspicuous, and not misleading to the reader.
    FDA is generally responsible for approving information in the brief
statement to ensure that the appropriate risks and benefits are
communicated. In this case, the risks associated with cigarettes are
much greater than those for any other consumer product on the market,
and hundreds of different cigarette brands exist. The proposed rule,
therefore, would provide, as an example, the following text for one of
the brief statements to ensure that important information is
communicated in an informative manner to young people and that the
information is consistent for all cigarette brands:
``ABOUT 1 OUT OF 3 KIDS WHO BECOME SMOKERS WILL DIE FROM THEIR
SMOKING.''
    FDA will include in the final rule the exact language for any and
all brief statements to ensure that this important information is
conveyed accurately and effectively. In addition, the agency requests
comment on what other information should be included in the brief
statements concerning relevant warnings, precautions, side effects, and
contraindications.
    Support for the proposed brief statement comes from the European
Union''s report on the labeling of tobacco products. The report states
that ``[t]he warnings which are perceived as being the most credible
are, in general, those which draw attention to the risk of death, the
risk of illness and to the addiction caused by smoking. Credibility is
reinforced when the message is felt to apply personally to the reader
or which describes a risk which may be felt by the reader to concern
them personally.'' <SUP>230
    During the comment period for this proposed rule, FDA intends to
perform extensive focus group testing on the proposed brief
statement[s]. The testing will evaluate the content and various formats
for the brief statement[s] to determine if the warnings are
communicated effectively. The agency will base the design, the format
and content of the brief statement[s] on the results of this testing
and the comments received to the proposed rule.
    FDA is not proposing that advertising list cigarette ingredients,
but FDA is aware that several surveys and studies show that cigarette
users would like to know more about the ingredients in, or the chemical
constituents of, smoke delivered by cigarettes. In a survey of 2,345
adults, 93 percent agreed that tobacco companies should be required to
list additives on package labels the way food and drug companies are
required to list ingredients.<SUP>231 Those surveyed believed that in
order to inform consumers about the risks involved in smoking, more
comprehensive information about cigarette ingredients and combustion
by-products should be provided to the consumer.
    Section 502(r)(2) of the act (21 U.S.C. 352(r)(2)) states that ``in
the case of specific devices made subject to a finding by the Secretary
after notice and opportunity for comment that such action is necessary
to protect the public health,'' a restricted device shall be misbranded
unless its advertising and other descriptive printed matter include ``a
full description of the components of

[[Page 41339]]
such device or the formula showing quantitatively each ingredient of
such device to the extent required in regulations which shall be issued
* * * after an opportunity for a hearing.'' However, the Cigarette Act
and the Smokeless Act both require submissions of reports or lists of
ingredients to the Secretary (see 15 U.S.C. 1335a and 4403) that must
be kept confidential. The agency tentatively concludes that these
provisions may preclude FDA from requiring components or ingredients to
be listed in all advertising and other printed matter. Therefore, FDA
has decided, at this time, not to require a description of components
or ingredients, but invites comment on whether it should initiate
proceedings to determine whether the agency should require a listing of
the component parts or ingredients of these restricted devices and the
impact of the Cigarette Act's and the Smokeless Act's provisions on the
agency's authority.
    IOM recently recommended that a ``regulatory agency should take
steps to inform consumers about the meaning of statements regarding tar
and nicotine yields.'' <SUP>232 Some manufacturers voluntarily disclose
the quantities of tar and nicotine, as determined by the FTC method, in
their labeling or advertising, and one Surgeon General's warning
states, ``Cigarette Smoke Contains Carbon Monoxide.''
    Consumers are aware that cigarettes produce tar and carbon monoxide
and that they contain nicotine. Most consumers, however, do not
understand the FTC rating numbers or the health implications of each
constituent.<SUP>233 The proposed rule would not explain the FTC
ratings because of the controversy surrounding the FTC method for
determining tar, nicotine, and carbon monoxide.
    In December 1994, a conference was held under the auspices of an Ad
Hoc Committee of the President's Cancer Panel (the Ad Hoc Committee) to
consider the continuing usefulness of the FTC method. Although the full
report is not yet available, the Ad Hoc Committee's relevant
conclusions were:

    The smoking of cigarettes with lower machine-measured yields has
a small effect in reducing the risk of cancer caused by smoking, no
effect on the risk of cardiovascular diseases, and an uncertain
effect on the risk of pulmonary disease. * * *
    The FTC test protocol does not accurately reflect actual human
smoking, which is not standardized, but is characterized by wide
variations.

    The Ad Hoc Committee recommended, among other things, that: (1) The
FTC protocol be changed to produce a range of tar, nicotine, and carbon
monoxide ratings for each brand to better reflect the intensity with
which each cigarette can be smoked; and (2) the range of ratings for
each brand should be communicated to consumers. The Ad Hoc Committee
recognized that designing the new test and determining how to convey
the information to consumers would require the involvement of many
agencies, including the National Institutes of Health, FDA, and CDC,
and would also take time. The Ad Hoc Committee recommended against
measuring other smoke constituents, but suggested that smokers be
informed of ``other hazardous smoke constituents'' in packages and in
advertising.
    The FTC is considering whether and how to implement these
recommendations. Until that occurs, FDA will not propose any
requirements concerning tar, nicotine, and carbon monoxide ratings, but
the agency requests comment on whether it should implement one of the
recommendations of the Ad Hoc Committee by proposing to require
manufacturers to provide information about these substances through a
package insert and/or to provide information about nicotine in labeling
and advertising.
    In considering the design of the warning, FDA notes that research
indicates that novel formats for warnings are most likely to capture
the viewer's attention.<SUP>234 The FTC reported in 1981 on the
noticeability of messages inside a rectangle, octagon, circle and
arrow, and enlarged rectangle.<SUP>235 The report concluded that the
circle and arrow and octagon were noticed and recalled more often.
Recall of the message in the circle and arrow was 64 percent, whereas
recall of the same message in a rectangle (the shape used in current
cigarette advertising) was only 28 percent.<SUP>236 Other studies
describe the importance that format has in conveying the information
and ensuring that it is sufficiently processed.<SUP>237 Factors such as
print size, color, contrast, graphic design, positioning (e.g. at the
top of each page of advertising), shape, spacing, font style, and
highlighting are all important considerations for effectively
communicating information, particularly to young people.
    In addition, FDA notes that several studies have demonstrated that
rotating messages assists in maintaining their noticeability. FTC
concluded, in its 1981 investigation of cigarette advertising
practices, that a ``rotational warning system would provide sufficient
repetition of each message to contribute to long term recall of that
message, while decreasing the likelihood that any one message would
become so familiar and so overexposed that its effectiveness would
`wear out.''' <SUP>238 The report concluded that quarterly rotated
messages would assist in maintaining the novelty of the message, thus
enhancing noticeability.<SUP>239 Additionally, the report concluded
that shorter messages which are rotated are specific and concrete and
are more easily converted into mental images. These messages are
recalled more readily.<SUP>240
    The Centre for Behavioural Research on Cancer in Australia
described a process of ``habituation'' that occurs with warnings and
health messages. Under this process, a person's response to a warning
or health message declines as that person increases his or her exposure
to the warning or health message.<SUP>241 It found that habituation is
greater as the frequency of exposure increases and is reduced if
exposure to the stimulus is stopped for a period of time,<SUP>242 as
can be the case if the messages are dissimilar and rotated.
    The proposed regulation requires that the brief statement be
readable, clear, conspicuous, prominent, and contiguous to the current
Surgeon General's warning. FDA requests comments on the text and design
of the brief statements, particularly in its ability to reach young
people, and/or whether and what design specifications should be
established. Specifically, it requests comment on how best to insure
that the statement will be clear, conspicuous, and prominently
displayed.
    d. False or misleading labeling and advertising. Proposed
Sec. 897.36 would declare the labeling or advertising of cigarettes and
smokeless tobacco products to be false or misleading if the labeling or
advertisement contains ``any express or implied false, deceptive, or
misleading statement, omits important information, lacks fair balance,
or lacks substantial evidence to support any claims made for the
product.'' This provision would implement section 201(n) of the act,
which states that labeling or advertising may be misleading based on
``representations made or suggested by statement, word, design, device,
or any combination thereof, but also the extent to which the labeling
or advertising fails to reveal facts material in the light of such
representations or material with respect to consequences which may
result from the use of the article,'' and section 502(q)(1) of the act,
which declares a restricted device to be misbranded if ``its
advertising is false or misleading in any particular.'' FDA emphasizes
that

[[Page 41340]]
proposed Sec. 897.36 is meant to be illustrative rather than
exhaustive. There may be other ways in which labeling or advertising
would be ``false or misleading.'' For example, advertising or labeling
that stated that a study showed that smoking can cure emphysema would
be false and misleading.
    The agency's regulations concerning prescription drug advertising
provide great specificity as to what constitutes violative advertising,
21 CFR part 202. The agency has decided that this same degree of
specificity is not practical in the case of a widely used consumer
product. Tobacco advertising contains an unlimited variety of claims
that make categorization difficult. Therefore, the agency has
tentatively concluded that it will provide general guidance for the
types of advertising claims that will be considered violative, rather
than to attempt to identify every possible type of false and misleading
claim.

E. Subpart E--Miscellaneous Requirements

    Proposed subpart E would consist of three provisions. These
provisions would provide record and report requirements, describe the
rule's relationship to state and local laws, and require additional
measures if the prevalence of tobacco use is not dramatically reduced
within seven years of the date the final rule is published.
1. Section 897.40--Records and Reports
    Proposed Sec. 897.40 would address reports and records. In brief,
proposed Sec. 897.40(a) would require each manufacturer to submit to
FDA copies of all labels and labeling, and a representative sample of
its advertising for enforcement purposes. The proposal would also
permit a manufacturer to submit a representative sample of its labels
if they would be similar for multiple packages or products. Proposed
Sec. 897.40(a) would direct manufacturers to send information and
reports to the Document and Records Section, 12420 Parklawn Dr.,
Rockville, MD 20857, with each section plainly marked, i.e.,
``Labels,'' or ``Labeling and Advertising,'' whichever is appropriate.
    This provision is the minimum required by section 510(j) of the act
(21 U.S.C. 360(j)), which requires submission to FDA of labels,
labeling, and a representative sample of advertising for restricted
devices. As explained elsewhere in this document, the agency intends to
regulate cigarettes and smokeless tobacco products as restricted
devices rather than as drug products, but will assign all of such
products to the Center for Drug Evaluation and Research (CDER). Thus,
proposed Sec. 897.40(a) reflects the statutory requirement in section
510(j) and would direct copies of labels to the Documents and Records
Section in CDER. Proposed Sec. 897.40(b) would authorize FDA employees
to inspect records, particularly for purposes of review, copying, or
any other use related to the enforcement of the act. This requirement
is similar to the inspection authority under the medical device
tracking regulations at 21 CFR 821.50 and implements the agency's
inspection authority contained in section 704 of the act.
2. Section 897.42--State and Local Requirements
    Proposed Sec. 897.42 would address preemption of State and local
requirements. Section 521(a) of the act (21 U.S.C. 360k(a)) states
that:
    * * * no State or political subdivision of a State may establish or
continue in effect with respect to a device intended for human use any
requirement--
    (1) which is different from, or in addition to, any requirement
applicable under this Act to the device, and
    (2) which relates to the safety or effectiveness of the device or
to any other matter included in a requirement applicable to the device
under this Act.

Proposed Sec. 897.42(a) would require manufacturers, distributors, and
retailers to comply with any more stringent State or local requirements
relating to the sale, distribution, labeling, or advertising of
cigarettes and smokeless tobacco products provided that the State or
local requirement does not conflict with FDA regulations. These more
stringent state requirements would, therefore, be part of the
regulatory scheme and would not be preempted. For example, the proposal
would not preempt a State law raising the minimum age for purchasing
cigarettes to 21 or prohibiting cigarette or smokeless tobacco product
advertisements on billboards located near schools.
    FDA is aware that many States and local governments have enacted
innovative and effective laws and regulations pertaining to cigarettes
and smokeless tobacco products, and the agency encourages future
activity in these areas. Moreover, because the proposed rule addresses
only the sale, distribution, labeling, and advertising of cigarettes
and smokeless tobacco products, State and local requirements in other
areas are not affected. For example, the proposal clearly would not
preempt State laws regarding licensing, taxes, or smoking in public
areas.
    If a State or local government is uncertain whether section 521(a)
of the act preempts a particular law or regulation, proposed
Sec. 897.42(b) would permit the State or local government to easily and
expeditiously request and receive an advisory opinion from FDA.
Regulations governing applications for exemptions from Federal
preemption of State and local requirements applicable to devices can be
found at 21 CFR part 808.
    FDA is aware of several recent court decisions construing section
521 of the act to preempt certain common law tort actions with respect
to medical device products. FDA does not believe that section 521
should be read to give any preemptive effect to these proposed
regulatory requirements over tort actions with respect to tobacco
products. FDA specifically invites comment on this issue.
3. Additional Regulatory Measures
    FDA is also proposing that additional provisions aimed at further
reducing the appeal of tobacco advertising and thus discouraging young
people from using cigarettes or smokeless tobacco products be required
if, seven years from the date the final rule is published, FDA finds
that the percentage of young people under the age of 18 who smoke, or
the percentage of young men who use smokeless tobacco, has not
decreased roughly by 50 percent. This goal could be measured using data
of national tobacco use rates of children and adolescents. One method
would be:
    1. For cigarette manufacturers, the percentage of daily cigarette
smokers among 12th graders is at least 50 percent less than it was in
1994 as measured by an objective, scientifically valid, and generally
accepted program such as the Monitoring the Future Project (MTFP) for
both the reference (1994) and target years (seven years from the date
of the publication of the final rule); or
    2. For smokeless tobacco product manufacturers, the percentage of
male regular smokeless tobacco product users (any use in the past 30
days) among 12th graders is at least 50 percent less than it was in
1994 as measured by an objective, scientifically valid, and generally
accepted program for both the reference (1994) and target years (seven
years from the date of the publication of the final rule) and the
percentage of female regular smokeless tobacco product users among 12th
graders is no greater than it was in 1994 as measured in both the
reference (1994) and target years.
    The Institute for Social Research at the University of Michigan
collects and maintains the data from the MTFP. The

[[Page 41341]]
project is funded through the National Institute on Drug Abuse. The
survey utilizes both a cross-sectional and a longitudinal design, with
self-administered surveys in a sample of selected schools. Data for
daily smoking by 12th graders have been collected annually since 1976.
Smokeless data for any use within past 30 days are available for the
years 1986 to 1989 and 1992 to 1994 for 12th graders. (Twelfth graders
are a suitable surrogate for the upper age of the prohibited smoking
age because twelth graders are 17-18 years old.) The MTFP is one of the
more consistent and complete data sets available on young people and
provides a stable and reliable basis for measuring the proposed
reductions. FDA is requesting comment on the appropriateness of using
this data set, including whether the methodology used by MTFP is
appropriate for this purpose or on whether other measures would be more
reliable and enforceable.
    FDA derived its outcome-based objectives from the ``Healthy People
2000'' objectives. ``Healthy People 2000'' discusses national health
promotion and disease prevention objectives in this country. This
report was facilitated by IOM of the National Academy of Sciences, with
the help of the U.S. Public Health Service, and included almost 300
national membership organizations and all State health departments. The
report was the product of eight regional hearings and testimony from
more than 750 individuals and organizations. Contributors included the
CDC, the National Institutes of Health, the American Academy of
Pediatrics, the American Heart Association, the American Medical
Association, the American Cancer Society, the American Lung
Association, the Blue Cross and Blue Shield Association, the American
College of Physicians, and the Federation of American Societies for
Experimental Biology.
    Recognizing that reducing cigarette smoking by youth is an
important national priority, the ``Healthy People 2000'' report
established a basic goal for the year 2000 to reduce by half the
initiation of cigarette smoking by children and youth and to reduce by
39.4 and 55.1 percent the use of smokeless tobacco by young men.
    The ``Healthy People 2000'' objectives for cigarettes required the
smoking prevalence among young people (ages 20 to 24) to be cut in half
in 13 years--from 30 percent in 1987 to 15 percent by the year 2000.
The proposed regulation takes as its premise the type of outcome
established in ``Healthy People 2000.'' However, because the time frame
is different, the proposed regulation would use data as it measures
actual usage by high school seniors, a group closer in age to the
relevant age group. The prevalence of daily cigarette smoking among
high school seniors was 19.4 percent in 1994. Calculating from 1994,
daily smoking prevalence among high school seniors must be reduced by
half to 9.7 percent seven years after date of the final publication of
the rule. Any major changes in the methodology of this survey would
require a reassessment of the objective in light of the influences of
the changes on the survey's prevalence estimates.
    The ``Healthy People 2000'' smokeless tobacco goals are to reduce
use in 12- to 17-year-old males by 39.4 percent in 12 years--from 6.6
percent in 1988 to 4.0 percent in the year 2000 and for 18- to 24-year-
old males by 55.1 percent--from 8.9 percent in 1987 to 4.0 percent by
the year 2000. The proposed rule also modifies the ``Health People
2000'' goal reflecting the different time frame. The objectives also
will use data for the nation's high school seniors to monitor progress
in reducing the prevalence of smokeless tobacco use. Since high school
seniors are 17- to 18-years-old, the percent reduction for high school
seniors should be about midway between that required for males 12- to
17-years-old (i.e., 39.4 percent) and 18- to 24-years-old (i.e., 55.1
percent). Thus, a 50 percent reduction would be required to be in
compliance with this proposed regulation. Smokeless tobacco use rates
(once in 30 days) for senior high school boys was 20.3 percent in 1994.
Therefore, the goal would be 10.2 percent. (Failure to reach these
objectives would justify the imposition of additional regulatory
requirements on the sale, distribution, and use of cigarettes and
smokeless tobacco products. Recognizing that smokeless tobacco use by
young girls is not extensive (2.6 percent in 1994), the agency believes
that an additional goal might be considered--that smokeless tobacco use
by young females not increase. This goal would help prevent the
development of a new market for smokeless tobacco products.
    While the agency finds that the proposed rule is a comprehensive
approach that should prove effective in regulating these products, it
recognizes that additional measures might be necessary because many
different factors may affect a young person's decision to start smoking
or use smokeless tobacco products. Additionally, the tobacco industry
has shown its ability to find new outlets for promoting its products
when restrictions are imposed; for example, within a relatively short
period of time after the federally imposed electronic media ban became
effective, the cigarette industry redirected the funds spent on
television and radio advertising to traditional print and outdoor
media. Over time, more nontraditional forms of advertising emerged,
including using non-tobacco items (e.g., tee shirts and hats) that
served as ``walking billboards,'' placing products in movies, creating
massive lists of smokers to target by direct mail, publishing magazines
with articles as well as advertising, creating ``friendly familiarity''
and good will for tobacco products by sponsoring sporting and artistic
events and by having its sponsored events appear on television (in
spite of the television advertising ban).<SUP>243 In addition, in
Canada, the cigarette companies evaded a ban on sponsorship in the name
of a brand variety (but not in the company's corporate name), by
creating corporate identities for relevant brands. These new
corporations could then legally sponsor events.<SUP>244
    Therefore, to guard against this possibility, and to provide for an
additional incentive for the companies to take appropriate actions, the
agency is proposing that one or more additional measures would be
imposed in the event that the outcome-base objectives provided in
proposed Sec. 897.44 are not achieved.
    At the time a final rule is published, FDA intends to propose
specific additional measures. The agency invites public comment on what
regulatory measures(s) should be considered. The agency reiterates that
additional measures would become operational only if the outcome-based
objectives are not achieved.
    Finally, the agency requests comment on what would be the
appropriate schedule for implementing the provisions of the final rule.
It is likely that the final rule would contain some provisions that
could not be complied with immediately following the date that the
final rule becomes effective. FDA is seeking comment on, and
information about, such matters as size of inventories, manufacturing
practices, retooling, useful life of equipment, and other similar
business considerations. The agency will take the information provided
on these issues into account when it established the implementation
schedule for the final rule.

F. Other Amendments

    The proposed rule would also make two minor amendments to existing
regulations. The proposal would exempt cigarettes and smokeless tobacco

[[Page 41342]]
products from the Statement of Identity requirements for over-the-
counter devices at 21 CFR 801.61 and from the reporting requirements at
21 CFR parts 803 and 804. Section 801.61 stems, in part, from the Fair
Packaging and Labeling Act, and Tobacco products are exempt from the
statute's requirements. Therefore, the proposed rule would exempt
cigarettes and smokeless tobacco products for 21 CFR 801.61.
    Parts 803 and 804 pertain to the reporting of deaths, serious
injuries, and malfunctions associated with devices. FDA is proposing to
exempt cigarettes and smokeless tobacco products from these reporting
requirements because the adverse health effects attributable to
cigarettes and smokeless tobacco products are extensive and well-
documented, and the agency sees little benefit in requiring
manufacturers and distributors of these products to report such
information to FDA.

References

    1. Institute of Medicine, ``Growing up Tobacco Free: Preventing
Nicotine Addiction in Children and Youths,'' p. 201, 1994
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    2. Id.
    3. DHHS, ``Preventing Tobacco Use Among Young People: A Report
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OSH, p. 141, 1994 (hereinafter cited as ``1994 SGR'').
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    6. Id. p. 141.
    7. Id.
    8. Jason, L.A., et al., ``Active Enforcement of Cigarette
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3159-3161, December 11, 1991.
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22, pp. 3168-3171, December 11, 1991.
    10. Id.
    11. IOM Report, p. 199.
    12. 1994 SGR, p. 65, Table 7.
    13. Id.
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851, 1993.
    27. IOM Report, pp. 215-216.
    28. Id., p. 216.
    29. ``No Sale: Youth, Tobacco and Responsible Retailing,''
Findings and Recommendations of a Working Group of State Attorneys
General, pp. 29-30, December 1994.
    30. Lewit, E.M., D. Coate, and M. Grossman, ``The Effects of
Government Regulation on Teenage Smoking,'' Journal of Law and
Economics, vol. XXIV, No. 3, pp. 545-569, 1981; Warner, K.E.,
``Smoking and Health Implications of a Change in the Federal
Cigarette Excise Tax,'' Journal of the American Medical Association,
vol. 225, No. 8, pp. 1028-1030, 1986; Harris, J.E. ``The 1983
Increase in the Federal Cigarette Excise Tax.'' in ``Tax Policy and
the Economy,'' vol. 1, MIT Press, 1987.
    31. Photocopy of Newport Cigarette pack containing 10
cigarettes; ``USA Today,'' November 22, 1994, at p. B1, col. 4.
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Especially the School Bag: A Survey of Purchases of Packets of 15
Cigarettes by 14 and 15 Year Olds in South Australia,'' Supplement
to Community Health Studies, vol. XI, No. 1, pp. 16S-20S, 1987.
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Australian Secondary Schoolchildren 1987,'' Medical Journal of
Australia, Vol. 152, pp. 124-130, 1990.
    35. Battelle, ``Design of Inspection Surveys for Vendor
Compliance with Restrictions on Tobacco Sales to Minors,'' prepared
for the CDC, OSH, pp. 14, 18, April 1994.
    36. ``Strategies to Control Tobacco Use in the United States: A
Blueprint for Public Health Action in the 1990's,'' National Cancer
Institute, NIH Publication No. 92-3316, p. 235, October 1991.
    37. Altman, D.G., el at., ``Reducing the Illegal Sale of
Cigarettes to Minors,'' Journal of the American Medical Association,
vol. 261, No. 1, pp.80-83, 1989.
    38. Forster, J.L., M. Hourigan, and P. McGovern, ``Availability
of Cigarettes to Underage Youth in Three Communities,'' Preventive
Medicine, vol. 21, pp. 320-328, 1992.
    39. ``Strategies to Control Tobacco Use in the United States: A
Blueprint for Pubic Health Action in the 1990's, '' National Cancer
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    40. 1994 SGR, p. 249.
    41. Response Research, Inc., ``Study of Teenage Cigarette
Smoking and Purchase Behavior,'' for the National Automatic
Merchandising Association, Chicago, p. 23, June/July 1989.
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on Cigarette Vending Machines: Evaluation of a City Ordinance,''
American Journal of Public Health, vol. 82, No. 9, pp. 1217-1219
(Table 1), 1992.
    43. Id., p. 1219 (Table 2).
    44. Id.
    45. ``Minors' Access to Cigarette Vending Machines--Texas,'' in
``MMWR,'' DHHS, CDC, vol. 43, No. 34, pp. 625-627, 1994.
    46. Cismoski, J. And M. Sheridan, ``Availability of cigarettes
to Under-Age Youth in Fond du Lac, Wisconsin,'' Wisconsin Medical
Journal, vol. 92, No. 11, pp. 626-630, 1993.
    47. Forster, J.L., M. Hourigan, and P. McGovern, ``Availability
of Cigarettes to Underage Youth in Three Communities,'' Preventive
Medicine, vol. 21, pp. 320-328, 1992; ``Cigarette Vending Machines
Sell Cigarettes to Children, 11-15 Years Old, 100% of the Time,''
Smokefree Educational Services, Inc., October 1990; Memorandum from
Sgt. Tony Pearsall, City of Valleys Police Department to Chief
Galvin, City of Valleys Police Department, ``Minors Purchasing
Cigarettes from Vending Machines at Local Bars,'' December, 1990;
Mead, R., ``Teen Access to Cigarettes in Green Bay, Wisconsin,''
Wisconsin Medical Journal, pp. 23-24, January 1993; Kotz, K., ``An
Evaluation of the Minnesota State Law to Restrict Youth Access to
Tobacco,'' presented to APHA 121st Annual Meeting, San Francisco,
CA, October 24-28, 1993; ``Springfield Teen Tobacco Purchase
Survey,'' Stop Teenage Addiction to Tobacco (STAT), 1993;
``Cigarette Vending Machine Purchases Easy For Springfield Youth,''
Stop Teenage Addiction to Tobacco (STAT), June 11, 1993.
    48. ``Cigarette Vending Fact Sheet,'' National Automatic
Merchandising Association, 1993.
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cigarettes: a survey of the purchasing habits of 13-16 year olds in
12 US communities,'' Tobacco Control, vol. 1, pp. 264-267, 1992.
    50. Id.
    51. IOM Report, pp. 212-213.
    52. IOM Report, pp. 212-215.
    53. ``Model Sale of Tobacco Products to Minors Control Act,'' A
Model Law Recommended for Adoption by States or Localities to
Prevent the Sale of Tobacco Products to Minors, U.S. Department of
Health and Human Services, May 24, 1990.
    54. ``No Sale: Youth, Tobacco and Responsible Retailing,''
Findings and Recommendations of a Working Group of State Attorneys
General, pp. 31-32, 1994.
    55. ``Youth Access to Cigarettes,'' DHHS, Office of the
Inspector General, Publication No. OEI-02-90-02310, pp. 8-9, May
1990.

[[Page 41343]]

    56. ``Census of the Industry Issue,'' Vending Times, p. 42,
1994.
    57. Id., ``Cigarette Vending Fact Sheet,'' National Automatic
Merchandising Association, 1993, ``State of the Industry Report,''
Automatic Merchandiser, p. A10, August 1994. Calculations from these
reports indicate sales per machine, per day, ranging from $9.41 to
$12.56.
    58. Id.
    59. Id.
    60. ``Census of the Industry Issue,'' Vending Times, p. 9, 1994.
    61. Statement of Richard W. Funk, on behalf of National
Automatic Merchandising Association before the House Subcommittee on
Transportation and Hazardous Materials of the Energy and Commerce
Committee, Serial No. 101-85, p. 242, July 25, 1993; ``Cigarette
Vending Fact Sheet,'' National Automatic Merchandising Association,
1993.
    62. ``Census of the Industry Issue,'' Vending Times, p. 42,
1994.
    63. ``Cigarette Vending Fact Sheet,'' National Automatic
Merchandising Association, 1993.
    64. IOM Report, pp. 214-215.
    65. Id., p. 215. See also Comerford, A.M. and J. Slade,
``Selling Cigarettes: A Salesman's Perspective,'' supported in part
by Institute of Medicine, National Academy of Sciences project, pp.
5-6, July 25, 1994 (self-service displays are an important source of
tobacco products for minors; shoplifting is common, but the
``tobacco industry encourages self-service sales strategies by
citing studies and supporting in-store tests which are targeted at
demonstrating that profits from increased sales outweigh losses due
to pilferage increases''); ``No Sale: Youth, Tobacco and Responsible
Retailing,'' Findings and Recommendations of a Working Group of
State Attorneys General, p. 29, December 1994 (advocating behind the
counter sales to reduce shoplifting by minors and to decrease
purchases by very young buyers from clerks).
    66. Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vender-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Petaluma, CA, November
3, 1994.
    67. IOM Report, pp. 225-226.
    68. Hwang, S.L., ``Philip Morris Cos. Unveils Plan Aimed At
Curbing Cigarette Smoking by Minors,'' Wall Street Journal, A3, col.
2, June 28, 1995.
    69. U.S. Department of Health and Human Services, ``Reducing the
Health Consequences of Smoking: 25 Years of Progress, A Report of
the Surgeon General,'' U.S. Department of Health and Human Services,
Public Health Service, Centers for Disease Control, Center for
Chronic Disease Prevention and Health Promotion, Office on Smoking
and Health, DHHS Publication No. (CDC) 89-8411, p. 597, 1989
(hereinafter cited as ``1989 SGR'').
    70. Davis, R.M., and L.A. Jason, ``The Distribution of Free
Cigarette Samples to Minors,'' American Journal of Preventive
Medicine, vol. 4, No. 1, pp. 21-26, 1988; See also Sales
Merchandiser, R.J. Reynolds Tobacco Co. Sales Dept., p. 8, July-
August 1982 (describing how RJR sales personnel are ``[a]lways on
the lookout for special opportunities'' and how free samples were
provided at events in North Carolina and Tennessee; the article
implies that over 10,000 people saw the ``Work Horse tobacco
Spitting Contest'' and received a sample of ``Work Horse'' chewing
tobacco).
    71. IOM Report, p. 216; See also 1994 SGR, p. 186; Davis, R.M.,
And L.A. Jason, ``The Distribution of Free Cigarette Samples to
Minors,'' American Journal of Preventive Medicine, vol. 4, No. 1,
pp. 21-26, 1988.
    72. ``Strategies to Control Tobacco Use in the United States: A
Blueprint for Public Health Action in the 1990's,'' National Cancer
Institute, NIH Publication No. 92-3316, p. 236, October 1991.
    73. ``Federal Trade Commission Report to Congress Pursuant to
the Comprehensive Smokeless Tobacco health Education Act of 1986,''
1995, p. 24.
    74. ``Wall Street Journal,'' October 26, 1994, at p. A14, col.
5.
    75. ``The New York Times,'' January 13, 1984, at p. D4, col. 5.
    76. Davis, R.M., and L.A. Jason, ``The Distribution of Free
Cigarette Samples to Minors,'' American Journal of Preventive
Medicine, vol. 4, No. 1, pp. 21-26, 1988.
    77. 1989 SGR, p. 597.
    78. IOM Report, p. 216.
    79. Davis, R.M., and L.A. Jason, ``The Distribution of Free
Cigarette Samples to Minors,'' American Journal of Preventive
Medicine, vol. 4, No. 1, pp. 21-26, 1988; See also DHHS, Office of
the Inspector General, ``Spit Tobacco and Youth,'' p. 12, December
1992 (stating that either age is rarely verified before a young
person receives a free sample or that industry procedures to verify
age are ineffective); Ecenbarger, W., ``America's New Merchants of
Death,'' Reader's Digest, vol. 142, No. 852, pp. 50-57, 1993
(describing how, in foreign countries, free samples of American
cigarettes are distributed outside high schools and at video
arcades).
    80. IOM Report, pp. 216-217.
    81. ``Strategies to Control tobacco Use in the United States: A
Blueprint for Public Health Action in the 1990's,'' National Cancer
Institute, NIH Publication No. 92-3316, p. 238, October 1991.
    82. 1994 SGR, p. 188; IOM Report, p. 83.
    83. IOM Report, p. 97.
    84. See Simonich, W.L., ``Government Antismoking Policies,''
Peter Lang Publishing Inc., 1991.
    85. Lewit, E.M., D. Coate, and M. Grossman, ``The Effects of
Government Regulation on Teenage Smoking,'' Journal of Law and
Economics, vol. XXIV, No. 3, pp. 545-573, 1981.
    86. Hamilton, J.L., ``The Demand for Cigarettes: Advertising,
the Health Scare, and the Cigarette Advertising Ban,'' Rev Econ
Stat, vol. 54, p. 406, 1972.
    87. Doxiadis, S.A., D.V. Trihopoulos, and H.D. Phylactou,
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712-713, 1985.
    88. Flay, B.R., ``Mass Media and Smoking Cessation: A Critical
Review,'' American Journal of Public Health, vol. 77, pp. 153-160,
1987.
    89. Flynn, B.S., et al., ``Prevention of Cigarette Smoking
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Journal of Public Health, vol. 82, pp. 827-834, 1992; Flynn, B.S.,
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of Public Health, vol. 84, pp. 1148-1150, 1994.
    90. Hu, T.W., et al., ``The State Antismoking Campaign and the
Industry Response: The Effects of Advertising on Cigarette
Consumption in California,'' AEA Papers and Proceedings, vol. 85,
no. 2, p. 89, May 1995.
    91. Popham, W.J. et al., ``Do Anti-Smoking Media Campaigns Help
Smokers Quit?'' Public Health Reports, vol. 108, pp. 510-513, 1993.
    92. Popham, W.J., et al., ``Effectiveness of the California
1990-1991 Tobacco Education Media Campaign,'' Am J Prev Med, 1994
(in press).
    93. Pierce, J.P., et al., ``Tobacco Use in California, An
Evaluation of the Tobacco Control Program, 1989-1993,'' University
of California, San Diego, La Jolla, CA, 1994.
    94. Adams, D.G., ``FDA Regulation of Promotion of Drugs: A Legal
Primer,'' Drug Information Journal, vol. 23, pp. 626, 1989.
    95. ``American Academy of Family Physicians Urges Greater
Regulation of Tobacco,'' 1994-1995 Compendium of AAFP Positions of
Selected Health Issues, Washington, DC, 1995; ``Resolution WHA
31.56,'' The Thirty-first World Health Assembly, May 1976; Letter
from Thomas P. Houston, M.D., American Medical Association, to
Sharon Natanblut, Food and Drug Administration, August 2, 1995;
World Health Organization, It Can Be Done, p. 33, 1990; Forty-Third
World Health Assembly, ``Tobacco or Health,'' WHA 43.16, May 17,
1990; Coalition on Smoking or Health, Endorses Call for Ban on
Tobacco Advertising and Promotion, June 9, 1986.
    96. IOM Report, p. 131.
    97. Id., p. 132.
    98. Id.
    99. ``Report to Congress for 1993, Pursuant to the Federal
Cigarette Labeling and Advertising Act,'' Federal Trade Commission,
Table 3 and 3D, 1995.
    100. Ernster, V.L., ``Advertising and Promotion of Smokeless
Tobacco Products,'' DHHS, PHS, NIH, NCI, No. 8, p. 87, 1989.
    101. ``Federal Trade Commission Report to Congress: Pursuant to
the Comprehensive Smokeless Tobacco Health Education Act of 1986,''
pp. 25-35, 1995.
    102. Id., pp. 28-35.
    103. IOM Report, p. 131.
    104. ``Friendly familiarity'' is a phrase coined by Leo Burnett,
one of the original ad executives who worked on the Marlboro
account. Multiple exposures, he noted, creates a friendly
familiarity that helps build confidence in a brand. Burnett, Leo
Communications of an Advertising Man, Chicago: Leo Burnett Co., p.
217, 1961, cited in affidavit of Richard W. Pollay in support of the
city's motion for a preliminary injunction, Sterling Doubleday
Enterprises, L.P. v. New York and Philip Morris. Supreme Court of
the State of New York, County of Queens, p. 7, n. 12, June 3, 1994.
    105. Solomon, M., ``The Role of Products as Social Stimuli: A
Symbolic Interactionism

[[Page 41344]]
Perspective,'' Journal of Consumer Research, vol. 10, pp. 319-329,
1983.
    106. Id.; See also, Olsen, J., and J. Peter, ``Consumer Behavior
and Marketing Strategy,'' 3rd edition, 1993; Sirgy, M.J., ``Self-
Concept in Consumer Behavior: A Critical Review,'' Journal of
Consumer Research, vol. 9, pp. 287-289, 1982.
    107. Solomon, M.R., ``Consumer Behavior, Buying, Having, and
Being,'' Allyn and Bacon, p. 448, 1992. See also, IOM Report, p.
119; Tye, J.B., K.E. Warner, and S.A. Glantz, ``Tobacco advertising
and consumption. Evidence of a Causal Relationship,'' Journal of
Public Health Policy, vol. 8, No. 4, pp. 492-508, Winter 1987;
Cohen, J.B., ``Effect of Cigarette Advertising on Consumer
Behavior,'' University of Florida, p. 33, 1990.
    108. Solomon, M., ``The Role of Products as Social Stimuli: A
Symbolic Interactionism Perspective,'' Journal of Consumer Research,
vol. 10, p. 325, 1983.
    109. 1994 SGR, p. 177, quoting from R.W. Murray, Philip Morris'
President and CEO.
    110. ``Foreward to F'85, Marketing Plans for Players'' Imperial
Tobacco Document No. 197, p. 1.
    111. Cohen, J.B., ``Effects of Cigarette Advertising on Consumer
Behavior,'' University of Florida, p. 32, 1990 (citing Jarvik, M.E.,
``The Role of Nicotine on the Smoking Habit,'' in ``Learning
Mechanisms and Smoking,'' Aldine, 1970; Dunn, W.L. Jr., ``Smoking
Behavior: Motives and Incentives,'' V.H. Winston & Sons, pp. 102-
103, 1973; Leventhal, H., and P.D. Cleary, ``The Smoking Problem: A
Review of the Research and Theory in Behavioral Risk Modification,''
Psychological Bulletin, vol. 88, No. 2, pp. 370-405, 1980).
    112. Id.
    113. Chassin, L., et al., ``The Natural History of Cigarette
Smoking: Predicting Young-Adult Smoking Outcomes From Adolescent
Smoking Patterns,'' Health Psychology, vol. 9, No. 6, pp. 701-716,
1990.
    114. 1994 SGR, p. 124 (citing Flay, B.R., ``Youth Tobacco Use:
Risks, Patterns, and Control,'' in ``Nicotine Addiction: Principles
and Management,'' Oxford University Press, 1993); ``Diagnostic and
Statistical Manual of Mental Disorders,'' American Psychiatric
Association, 4th rev. ed., p. 244, 1994.
    115. Imperial Tobacco Document No. 89: Research Brief for
Player's Filter, p. 2; (Imperial Tobacco Ltd. and R.J. Reynolds-
MacDonald Inc. v. Le Procurer General du Canada, Quebec Superior
Court, 1990).
    116. See generally, 1994 SGR, pp. 133-137, 141-145 and studies
cited therein.
    117. Cohen, J.B., ``Effects of Cigarette Advertising on Consumer
Behavior,'' University of Florida, p. 34, 1990.
    118. ``Project Plus/Minus,'' Kwechansky Marketing Research,
Inc., Report for Imperial Tobacco Limited, Study Highlights, p. 1,
May 7, 1982 (cited in Pollay, R., ``The Functions and Management of
Cigarette Advertising,'' Rapport, July 27, 1989).
    119. Hilts, P.J., and G. Collins, ``Documents Disclose Philip
Morris Studied Nicotine's Effect on Body,'' New York Times, June 8,
1995, pp. A1, D6.
    120. Kwechansky Marketing Research, Inc., ``Project 16,'' p. 97,
October 18, 1977.
    121. ``Wall Street Journal,'' October 19, 1989, at p. B1.
    122. Memorandum from J.P. McMahon, Division Manager, RJR Sales
Company, to Sales Reps, January 10, 1990.
    123. ``Wall Street Journal,'' May 3, 1990, at p. B1, col. 3.
    124. Memorandum from R.G. Warlick, Division Manager, RJR Sales
Company, to All Area Sales Representatives, Sales Representatives,
and Chain Service Representatives, April 5, 1990.
    125. 1994 SGR, pp. 70-71; 1978 NHIS reported that 2 percent of
18-19 year old smokers smoked Camels; Adult Use of Tobacco Survey
(1986) 17-18 year olds--2.7 percent, (unpublished data); ``Teenage
Attitudes and Practices Survey,'' U.S. Public Health Service and
U.S. Department of Education, 1989, reported in ``Changes in the
Cigarette Brand Preference of Adolescent Smokers, U.S. 1989-1993,''
in ``MMWR,'' CDC, DHHS, vol. 43, No. 32, pp. 577-581, 1994.
    126. John Benson worked on the Marlboro account for 30 years at
the Leo Burnett advertising agency. This quote and the two other
that follow are from a Marlboro oral history project on file at the
Archives Center, National Museum of American History, Smithsonian
Institution, Washington, D.C. The other quotes are from John Landry,
who worked at Philip Morris for 30 years as a brand manager and
senior vice president (vice president for marketing), and Rafael
Arguelles, who was manager and marketing director of Massalin
Particulares, an Argentinian tobacco company acquired by Philip
Morris in 1964.
    127. See IOM Report, p. 58; ``Spit Tobacco and Youth,'' Office
of Inspector General, December 1992, p. 3.
    128. Freedman, A., ``How a Tobacco Giant Doctors Snuff Brands to
Boost Their `Kick,' '' Wall Street Journal, October 26, 1994, at p.
A14.
    129. Id.
    130. Id.
    131. Blum, A., ``Using athletes to push tobacco to children/
Snuff-dippin' cancer-lipped man,'' New York State Journal of
Medicine, vol. 83, p. 1367, 1983.
    132. Mintz, M., ``Marketing Tobacco to Children,'' The Nation,
vol. 252, No. 17, p. 577 (May 6, 1991).
    133. Connolly, G.N., ``Statement of the Coalition on Smoking or
Health Before the House Energy and Commerce Committee, Subcommittee
on Health and the Environment, November 29, 1994'' amended December
5, 1994. See also ``Wall Street Journal,'' October 26, 1994, at p.
A1, col. 6 (describing different types of smokeless tobacco products
and how underage users perceive them); and at p. A14, col. 1
(describing advertising campaigns by UST).
    134. ``Is the Youth Market Fair Game,'' Advertising Age, pp. M-
16-17, January 31, 1983.
    135. See generally, ``Tobacco Issues (Part 2)'' ``Hearings
Before the House Committee on Energy & Commerce,'' 101st Congress,
Serial No. 101-126, 1989, 302-308 (testimony of S. Ward); 1994 SGR,
p. 174; IOM Report, p. 115.
    136. 1994 SGR, pp. 166-70, 173-77, 188-95; IOM Report 116-24;
Foote, E., ``Advertising and Tobacco,'' Journal of the American
Medical Association, vol. 245, No. 16, pp. 1667-68, 1981.
    137. Foote, E., ``Advertising and Tobacco,'' Journal of the
American Medical Association, vol. 245, No. 16, p. 1668, 1981.
    138. Overall Marketing Objectives-F88, 1988 Imperial Tobacco
Ltd. Marketing Plan, p.6.
    139. The Creative Research Group Limited, ``Project Viking,
Volume I: A Behavioral Model of Smoking,'' Foreword, February-March,
1986.
    140. ``Youth 1987,'' The Creative Research Group Limited, for
RJR Macdonald Inc., Foreword, June 8, 1987.
    141. Id.
    142. Wakeham H. ``Smoker Psychology Research,'' presented to the
Philip Morris Board of Directors on November 26, 1969.
    143. Id., p. 2.
    144. Id. p. 8.
    145. ``Project 16,'' Kwechansky Marketing Research Inc., for
Imperial Tobacco, Ltd., at p. vi, October 18, 1977.
    146. ``Project Plus/Minus,'' Kwechansky Marketing Research Inc.,
for Imperial Tobacco, Ltd., at p. 1, May 7, 1982.
    147. 1994 SGR, p. 188.
    148. IOM Report, p. 131.
    149. IOM Report, pp. 123-124; 1994 SGR, pp. 188-192; Tye, J.B.,
K.E. Warner, and S.A. Glantz, ``Tobacco Advertising and Consumption:
Evidence of a Causal Relationship,'' Journal of Public Health
Policy, vol. 8, pp. 492-508, Winter 1987; Pierce, J.P., et. al.,
``Tobacco Use in California, An Evaluation of the Tobacco Control
Program, 1989-1993,'' A Report to the California Department of
Health Services, University of California, San Diego, p. 85, 1994.
    150. ``Teen-Age Attitudes and Behavior Concerning Tobacco--
Report of the Findings,'' The George H. Gallup International
Institute, Princeton, N.J., p. 18, September 1992.
    151. Pierce, J.P., et al., ``Does Tobacco Advertising Target
Young People to Start Smoking? Evidence from California,'' Journal
of the American Medical Association, vol. 266, No. 22, pp. 3154-
3158, 1991.
    152. Chapman, S. and B. Fitzgerald, ``Brand Preference and
Advertising Recall in Adolescent Smokers: Some Implications for
health Promotion,'' American Journal of Public Health, vol. 72, No.
5, pp. 491-494, 1982; Aitken, P.P., and D.R. Eadie, ``Reinforcing
Effects of Cigarette Advertising on Under-Age Smoking,'' British
Journal of Addiction, vol. 85, pp. 399-412, 1990.
    153. Goldstein, A.O., et al., ``Relationship Between High School
Student Smoking and Recognition of Cigarette Advertisements,''
Journal of Pediatrics, vol. 110, No. 3, pp. 488-491, 1987.
    154. Botvin, G.J., et al., ``Smoking Behavior of Adolescents
Exposed to Cigarette Advertising,'' Public Health Reports, vol. 108,
No. 2 pp. 217-224, 1993.
    155. Klitzner, M., P.J. Gruenewald, and E. Bamberger,
``Cigarette Advertising and Adolescent Experimentation with
Smoking,'' British Journal of Addiction, vol. 86, pp. 287-298, 1991.
    156. Id.

[[Page 41345]]

    157. Aitken, P.P., et al., ``Predisposing Effects of Cigarette
Advertising on Children's Intentions to Smoke When Older,'' British
Journal of Addiction, vol. 86, pp. 383-390, 1991. See also,
O'Connell, D.L., et al., ``Cigarette Smoking and Drug Use in School-
children. II Factors Associated with Smoking,'' International
Journal of Epidemiology, vol. 10, No. 3, pp. 223-231, 1981; 1994
SGR, p. 189, (citing Alexander, H.M., et al., ``Cigarette Smoking
and Drug Use in Schoolchildren: IV--Factors Associated with Changes
in Smoking Behavior,'' International Journal of Epidemiology, vol.
12, No. 1, pp. 59-65, 1983).
    158. Chassin, L., et al., ``Predicting the Onset of Cigarette
Smoking in Adolescents; A Longitudinal Study,''Journal of Applied
Social Psychology, vol. 14, No. 3, pp. 224-243, 1984; Collins, L.M.,
et al., ``Psychosocial Predictors of Young Adolescent Cigarette
Smoking: a Sixteen-Month, Three-Wave, Longitudinal Study,'' Journal
of Applied Social Psychology, vol. 17, No. 6 pp. 554-573, 1987;
Sussman, S., et al, ``Adolescent Nonsmokers, Triers and Regular
Smokers' Estimates of Cigarette Smoking Prevalence: When Do
Overestimations Occur and by Whom?'' Journal of Applied Social
Psychology, vol. 18, No. 7, pp. 537-551, 1988.
    159. 1994 SGR, p. 192; Chassin, L., et al., ``Predicting the
Onset of Cigarette Smoking in Adolescents; a Longitudinal Study,''
Journal of Applied Social Psychology, vol. 14, No. 3, pp. 224-243,
1984.
    160. 1994 SGR. pp. 192-193.
    161. Sherman, S.J., et al., ``The False Consensus Effect in
Estimates of Smoking Prevalence, Underlying Mechanisms,''
Personality and Social Psychology Bulletin vol. 9, No. 2, pp. 197-
207, 1983.
    162. See Botvin, G., et al., ``Smoking Behavior of Adolescents
Exposed to Cigarette Advertising,'' Public Health Reports, vol. 108,
No. 2, pp. 217-224, 1993; Sherman, S.J., et al., ``The False
Consensus Effect in Estimates of Smoking Prevalence: Underlying
Mechanisms,'' Personality and Social Psychology Bulletin, vol. 9,
No. 2, pp. 197-207, 1983.
    163. ``Changes in the Cigarette Brand Preferences of Adolescent
Smokers-United States, 1989-1993,'' in ``MMWR,'' CDC, DHHS, vol. 43,
No. 32, pp. 577-581, 1994. See also Goldstein, A.O., et al.,
``Relationship Between High School Student Smoking and Recognition
of Cigarette Advertisements,'' The Journal of Pediatrics, vol. 110,
No. 3, pp. 488-491, 1987.
    164. ``Changes in the Cigarette Brand Preferences of Adolescent
Smokers-United States, 1989-1993,'' in ``MMWR,'' CDC, DHHS, vol. 43,
No. 32, pp. 577-581, 1994.
    165. Id.
    166. Teinowitz, I., ``Add RJR to List of Cigarette Price Cuts,''
Advertising Age, pp. 3, 46, April 26, 1993.
    167. Pierce, J., et al., ``Does Tobacco Advertising Target Young
People to Start Smoking? Evidence from California,'' Journal of the
American Medical Association, vol. 266, No. 22, p. 3145-3148, 1991.
    168. Fischer, P.M., et al., ``Brand Logo Recognition by Children
Aged 3 to 6 Years. Mickey Mouse and Old Joe the Camel,'' Journal of
the American Medical Association, vol. 266, No. 22, pp. 3145-3148,
1991.
    169. Mizerski, R., ``The Relationship Between Cartoon Trade
Character Recognition and Product Category Attitude in Young
Children,'' presented at ``Marketing & Public Policy Conference,''
May 13-14, 1994.
    170. Pierce, J., et al., ``Does Tobacco Advertising Target Young
People to Start Smoking? Evidence from California,'' Journal of the
American Medical Association, vol. 266, No. 22, pp. 605-611, 1994.
Pierce's study was the first to identify the effect Camel
advertising had on the youth market. His study, however, was limited
to California. There is no comparable data for others states. The
California data confirms the national findings reports by Gallup.
    171. 1994 SGR, p. 70 citing 1978 NHIS (18-19 year olds) stating
that 2 percent of current smokers used Camel.
    172. ``Teenage Attitudes and Practices Survey,'' U.S. Public
Health Service and U.S. Department of Education, 1989 cited in
``Changes in the Cigarette Brand Preferences of Adolescent Smokers-
United States, 1989-1993,'' in ``MMWR,'' CDC, DHHS, vol. 43, No. 32,
pp. 557-581, 1994.
    173. ``Teenage Attitudes and Behavior Concerning Tobacco--Report
of the Findings,'' The George H. Gallup International Institute,
Princeton, NJ, p. 64, September 1992; ``Changes in the Cigarette
Brand Preference of Adolescent Smokers, U.S. 1989-1993,'' in
``MMWR,'' CDC, DHHS, vol. 43, No. 32, p. 580, 1994.
    174. ``Changes in the Cigarette Brand Preference of Adolescent
Smokers, U.S. 1989-1993,'' in ``MMWR,'' CDC, DHHS, vol. 43, No. 32,
pp. 577-581, 1994.
    175. Pierce, J., L. Lee, and E.R. Gilpin, ``Smoking Initiation
by Adolescent Girls, 1944 Through 1988,'' Journal of the American
Medical Association, vol. 271, No. 8, pp. 608-611, 1994.
    176. Id.
    177. Hastings, G.B., et al., ``Cigarette Advertising and
Children's Smoking: Why Reg Was Withdrawn,'' British Medical
Journal, vol. 309, pp. 933-937, 1994.
    178. ``Health or Tobacco--An End to Tobacco Advertising and
Promotion,'' Toxic Substances Board Wellington, New Zealand, May
1989.
    179. Id. at pp. xx, xxiv.
    180. Highlights of the report's other findings are:
    <bullet> Tobacco advertising bans for health reasons are, on
average, accompanied by falls in tobacco consumption four times
faster than in partial ban countries.
    <bullet> In countries where tobacco has been promoted virtually
unrestricted in all media, consumption has markedly increased (+1.7
percent per year).
    <bullet> In countries where advertising has been totally banned
or severely restricted, the percentage of young people who smoke has
decreased more rapidly than in countries where tobacco promotion has
been less restricted.
    <bullet> When the results of this study of promotion/consumption
trends in 33 countries between 1970 and 1986 are put alongside the
evidence from econometrics studies * * * it seems more likely than
not that, other factors remaining unchanged, the elimination of
tobacco promotion causes a reduction in tobacco consumption and
smoking prevalence to a level below what it would have been
otherwise.
    <bullet> Tobacco consumption increases when tobacco promotion is
permitted and real price is allowed to fall; consumption declines
markedly when promotion is totally banned and prices [are] raised
Id., pp. xxiii, xxiv, 76. See also IOM Report, p. 125.
    181. Smee, C., ``Effect of Tobacco Advertising on Tobacco
Consumption--A Discussion Document Reviewing the Evidence,''
Department of Health, Economics, and Operational Research Division,
London, 1992 p. 22, (Draft).
    182. Id., p. 18.
    183. Id.
    184. Id., pp. 19-20.
    185. Laugesen, M. and C. Meads, ``Tobacco Advertising
Restrictions, Price, Income and Tobacco Consumption in OECD
Countries, 1960-1986,'' British Journal of Addiction, vol. 86, pp.
1343-1354, 1991.
    186. Id., p. 1344.
    187. Laugesen, M. and C. Meads, ``Advertising, Price, Income and
Publicity Effects on Weekly Cigarette Sales in New Zealand
Supermarkets,'' British Journal of Addiction, vol. 86, pp. 83-89,
1991.
    188. Smee C., ``Effect of Tobacco Advertising on Tobacco
Consumption--A Discussion Document Reviewing the Evidence,''
Department of Health, Economics, and Operational Research Division,
London, 1992, p.16 (Draft).
    189. One study looked at the effect of variations in advertising
expenditures for low-tar cigarettes. The study found that increased
advertising expenditures for low tar cigarettes did not increase the
advertiser's brand share, but instead benefitted all cigarette
manufacturers by increasing overall cigarette consumption. Roberts,
M.J., and L. Samuelson, ``An Empirical Analysis of Dynamic, Nonprice
Oligopolistic Industry,'' Rand J Econ, vol. 19, No. 2, pp. 200-220,
1988.
    190. A study of the complete New Zealand market found that there
was a positive relationship between cigarette consumption and
cigarette advertising over the period 1973-1985 in New Zealand; for
every one percent change in advertising, there was a .07 percent
change in consumption. Moreover the effect lasted for a year after
change in advertising. Chetwynd, J., et al., ``Impact of Cigarette
Advertising on Aggregate Demand for Cigarettes in New Zealand,''
British Journal of Addiction, vol. 83, pp. 409-414, 1988. The New
Zealand Toxic Substances Board reanalyzed the data and confirmed the
conclusion that variations in advertising expenditures did have an
effect upon consumption but found that advertising might have a
greater effect on consumption than the earlier study. Harrison R.,
J. Chetwynd, and R.J. Brodie, ``The Influence of Advertising on
Tobacco Consumption: A Reply to Jackson & Ekelund,'' British Journal
of Addiction,, vol. 84, pp. 1251-1254, 1989; Raftery, J.,
``Advertising and Smoking--A Smoldering Debate, British Journal of
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    Not all studies show a decrease in cigarette consumption in
areas that ban advertising. For example, one study asserts that
advertising bans have not been followed by significant changes in
tobacco consumption. Boddewyn, J.J., ``Tobacco Advertising Bans and
Consumption in 16 Countries,'' International Advertising
Association, 1986.
    191. Hendon, D.W., ``How Mechanical Factors Affect Ad
Perception,'' Journal of Advertising Research, vol. 13, No. 4, pp.
39-45, 1973.
    192. Callcott, M.F., and P.A. Alvey, ``Toons Sell . . . and
Sometimes They Don't.'' An Advertising Spokes-Character Typology and
Exploratory Study,'' Proceedings of the 1991 Conference of the
American Academy of Advertising, pp. 44-52, 1991.
    193. Rossiter, J. and L. Percy, ``Attitude Change Through Visual
Imagery in Advertising,'' Journal of Advertising, vol. 9, No. 2, pp.
10-16, 1980; Lutz, K., and R. Lutz, ``Effect of Interactive Imagery
on Learning: Application to Advertising,'' Journal of Applied
Psychology, vol. 62, No. 4, pp. 493-498, 1977; Rossiter, J. and L.
Percy, ``Visual Imaging Ability As a Mediator of Advertising
Response'' in ``Advances in Consumer Research,'' vol. 5, Association
for Consumer Research, p. 621-629, 1978.
    194. Rossiter, J., ``Visual and Verbal Memory in Children's
Product Information Utilization'' in ``Advances in Consumer
Research,'' vol. 3, Association for Consumer Research, p. 523-527,
1976 (children use non-verbal, visually stored information
differently than adults).
    195. Huang, P., et al., ``Black-White Differences in Appeal of
Cigarette Advertisements Among Adolescents,'' Tobacco Control, vol.
1, No. 4, pp. 249-255, 1992.
    196. FDA recognizes that requiring text-only advertising is not
a total panacea and that not all advertising containing cartoons or
figures will be popular with young people (e.g., popular cartoon
characters advertising life insurance or home insulation). Some
advertisements that contain only words will be attractive (e.g., the
words ``win free tickets'' to a concert or event). However, the
agency finds that the effect of imagery is powerful and that the
proposal represents the best approach regarding labeling and
advertising that appeal to young people.
    197. IOM Report, pp. 107-108.
    198. Id.
    199. Id., p. 108.
    200. ``Teen-Age Attitudes and Behavior Concerning Tobacco--
Report of the Findings,'' The George H. Gallup International
Institute, Princeton, N.J., pp. 17, 59, September 1992.
    201. ``Survey of Alcohol, Tobacco and Drug Use Among Ninth Grade
Students in Erie County, 1992,'' Roswell Park Cancer Institute,
Buffalo, N.Y., p. 26, 1993.
    202. Slade, J., D. Altman, and R. Coeytaux, ``Teenagers
Participate in Tobacco Promotions'' Presented at the 9th World
Conference on Tobacco and Health, October 10-14, 1994.
    203. IOM Report, p. 110.
    204. ``IEG's Complete Guide to Sponsorship: Everything you need
to know about sports, arts, events, entertainment, and cause
marketing,'' IEG Inc., Chicago, IL., p. 5, 1995 (hereinafter cited
as ``IEG Guide'').
    205. IEG Guide.
    206. Id., p. ii.
    207. Id., p. 33.
    208. Id., pp. 2-3.
    209. Id., p. 10.
    211. Chapman, S., ``The Dying Trade,'' International
Organization of Consumers Unions, The Hague, The Netherlands, p. 53,
September 1985.
    212. ``Federal Trade Commission Report to Congress For 1993,
Pursuant to the Federal Cigarette Labeling and Advertising Act,''
Federal Trade Commission, 1995.
    213. ``Federal Trade Commisison Report to Congress for 1993,
Pursuant to the Comprehensive Smokeless Tobacco Health Education Act
of 1986,'' Federal Trade Commission, 1995.
    214. IEG Guide, p. 14.
    215. Id., pp. 10-12.
    216. Id., p. 40.
    217. Id., p. 10.
    218. Id.
    219. Id., p. 15.
    220. 1994 SGR, p. 179 (citing Business of Racing, p. 5A, 1989.)
    221. IEG Guide, p. 11.
    222. Blum, A., ``Sounding Board, The Marlboro Grand Prix:
Circumvention of the Television Ban on Tobacco Advertising,'' The
New England Journal of Medicine, vol. 324, No. 13, pp. 915-916,
March 28, 1991.
    223. Id., p. 916.
    224. Id., pp. 914, 916.
    225. Slade, J., ``Tobacco Product Advertising During Motorsports
Broadcasts: A Quantitative Assessment,'' presentation at 9th World
Conference on Tobacco and Health, October 10-14, 1994.
    226. Aitken, P.P., D.S. Leathar, and S.I. Squair, ``Children's
Awareness of Cigarette Brand Sponsorship of Sports and Games in the
UK,'' Health Education Research, Theory and Practice, vol. 1, No. 3,
pp. 203-211, 1986.
    227. Ledworth, F., ``Does Tobacco Sports Sponsorship on
Television Act as Advertising to Children,'' Health Education
Journal, vol. 43, no. 4, 1984.
    228. Memorandum from Gray, N., (Anti-Cancer Council of
Victoria), to All Members of the Federal Parliament, December 15,
1989.
    229. Hoek, J., P. Gendall, and M. Stockdale, ``Some Effects of
Tobacco Sponsorship Advertisements on Young Males,'' International
Journal of Advertising, vol. 12, No. 1, January 1993.
    230. ``The Labelling of Tobacco Products in the European
Union,'' European Bureau for Action on Smoking Prevention, p. 5,
1993.
    231. Strouse, R., and J. Hall, ``Robert Wood Johnson Foundation
Youth Access Survey: Results of a National Household Survey to
Assess Public Attitudes About Policy Alternatives for Limiting
Minor's Access to Tobacco Products,'' p. 42, December 1994.
    232. IOM Report, P. 249.
    233. Gori, G., ``Cigarette Classification as a Consumer
Message,'' Regulatory Toxicology & Pharmacology, vol. 12, pp. 253-
262, 1990.
    234. Cohen, J.B., and T.K. Srull, ``Information Processing
Issues Involved in the Communication and Retrieval of Cigarette
Warning Information,'' Center for Consumer Research, University of
Florida, p. 12, November 1980.
    235. Myers, M.L. et al., Public Version of the Federal Trade
Commission, ``Staff Report on the Cigarette Advertising
Investigation,'' pp. 5-17 and 5-19, May 1981.
    236. Id.
    237. Biehal, G. and D. Chakravarti, ``Information-Presentation
Format and Learning Goals as Determinants of Consumers' Memory
Retrieval and Choice Processes,'' Journal of Consumer Research, vol.
8, pp. 431-441, March 1982; Beltramini, R. ``Perceived Believability
of Warning Label Information Presented in Cigarette Advertising,''
Journal of Advertising, pp. 26-32, 1988; Bettman, J.R., J.W. Payne,
and R. Staelin, ``Cognitive Considerations in Designing Effective
Labels for Presenting Risk Information,'' Journal of Public Policy &
Marketing, vol. 5, pp. 1-28, 1986.
    238. Myers, M.L. et al., Public Version of the Federal Trade
Commission, ``Staff Report on the Cigarette Advertising
Investigation,'' pp. 5-31 and 5-32, May 1981.
    239. Id. p. 5-32.
    240. Id.
    241. ``Health Warnings and Contents Labelling on Tobacco
Products,'' Centre for Behavioural Research in Cancer, p. 42, 1992.
    242. Id.
    243. ``Wall Street Journal,'' December 27, 1994, at p. B5.
    244. Sweanor, D.T., ``Measures Adopted by the Tobacco Industry
to Circumvent Canada's Tobacco Products Control Act,'' p. 3, August
1994.

IV. Legal Authority

A. Regulation of Nicotine-Containing Tobacco Products

    As more fully described in ``Nicotine In Cigarettes And Smokeless
Tobacco Products Is A Drug And These Products Are Nicotine-Delivery
Devices Under The Federal Food, Drug, And Cosmetic Act,'' the Food and
Drug Administration has conducted an extensive investigation and
comprehensive legal analysis. The results of that inquiry support a
finding at this time that the nicotine in cigarettes and smokeless
tobacco products is a drug within the meaning of the act because it is
intended to affect the structure or function of the body and it
achieves its intended effects through chemical action within the human
body. Based on the evidence now before the agency, cigarettes and
smokeless tobacco products are drug delivery systems whose purpose is
to deliver nicotine to the body in a manner in which it can be most
readily absorbed by the consumer and, hence, are devices.
    Thus, these products are combination products within the meaning of
21 U.S.C. 353 (g) and 21 CFR 3.2(e) that the agency has the discretion
to regulate using drug authorities, device authorities, or a
combination of both

[[Page 41347]]
authorities. The agency proposes to make these products subject to
regulation pursuant to the act's device authorities. The remainder of
this discussion explains the regulatory framework for combination
products; why nicotine-containing cigarettes, loose tobacco, and
smokeless tobacco products are drug/device combination products; and
why the agency can exercise its discretion to regulate them only under
the act's device provisions. Finally, this section discusses a number
of other legal issues raised by the provisions of the proposed rule.
1. The Federal Food, Drug, and Cosmetic Act and Combination Products
    As part of the Medical Device Amendments of 1976, Congress
established, for the first time, a premarket approval mechanism for
certain devices. Congress also expanded the act's device definition to
expressly include items such as implements, machines, implants, and in
vitro reagents. ``Device'' was defined as:

an instrument, apparatus, implement, machine, contrivance, implant,
in vitro reagent, or other similar or related article, including any
component, part, or accessory, which is--
    (1) recognized in the official National Formulary, or the United
States Pharmacopeia, or any supplement to them,
    (2) intended for use in the diagnosis of disease or other
conditions, or in the cure, mitigation, treatment, or prevention of
disease, in man or other animals, or
    (3) intended to affect the structure of any function of the body
of man or other animals, and which does not achieve any of its
principal intended purposes through chemical action within or on the
body of man or other animals and which is not dependent upon being
metabolized for the achievement of any of its principal intended
purposes.

Pub. L. No. 94-295 (1976).
    The act was amended by the Safe Medical Devices Act of 1990, among
other reasons, to recognize and provide for the regulation of products
that constitute a combination of a drug, device, or biological product
(21 U.S.C. 353(g)). The Safe Medical Devices Act also modified the
act's drug and device definitions to conform them to the new section
regarding primary jurisdiction over combination products. (See S. Rep.
101-513). Among these modifications is that the definition of ``drug''
no longer excludes devices or their components, thereby eliminating the
notion that ``drug'' and ``device'' are mutually exclusive terms.
    In light of the act's public health protection purposes, the agency
has consistently construed the device definition broadly, and courts
have upheld this interpretation. United States v. An Undetermined
Number of Unlabeled Cases, 21 F.3rd 1026, 1028 (10th Cir. 1994); United
States v. 22 Rectangular Devices, 714 F. Supp. 1159, 1162 n.7 (listing
additional examples), 1164-65 (D. Utah 1989); see, e.g., United States
v. 23, More or Less, Articles, etc. 192 F.2d 308, 309 (2d Cir. 1951)
(phonograph records used in treating insomnia).
    Because the act's definition of device is a statutory term of art,
it encompasses a very wide assortment of items. Obvious examples of
devices are simple medical implements such as thermometers or tongue
depressors and more complicated electronic products such as X-ray
machines or cardiac pace-makers. Less obvious examples of devices
include in vitro reagents and other products used for diagnostic
purposes, such as culture media made from snake venom (21 CFR 864.8100,
864.8950) and animal and human sera (21 CFR 864.2800). FDA also
regulates many organic substances as devices. For example, a simple
plant product that consists of nothing more than coagulated tree sap,
gutta percha, which is used to fill the root canal in a tooth, is a
device (21 CFR 872.3850). All of these articles are devices because
they are instruments, apparatuses, implements, machines, contrivances,
implants, in vitro reagents, or another similar or related article with
uses or effects encompassed by the act. Therefore, understanding what
can properly be regarded as a device for purposes of the act requires a
statutory, not a lay, understanding of the term. The following
discussion identifies the parts of cigarettes, loose cigarette tobacco,
and smokeless tobacco that are devices, and explains why these products
are drug delivery systems.
2. Cigarettes, Smokeless Tobacco Products, and Loose Tobacco Are Drug
Delivery Systems
    Because drugs cannot be administered in pure chemical form, drug
delivery systems are designed and used to deliver drugs into the body's
circulatory system or to specific target sites in the body at
predetermined, controlled rates.\1\ FDA considers articles such as
instruments, machines, contrivances, implants, or other similar or
related articles, whose primary purpose is the delivery of a drug, and
that are distributed with a drug product to be drug delivery systems.
Intercenter Agreement Between the Center for Drug Evaluation and
Research and the Center for Devices and Radiological Health, Section
VII.A.1.(b) (October 31, 1991). These articles are often called ``pre-
filled delivery systems.'' Examples of these combination products
include contrivances containing drugs, such as pre-filled syringes,
transdermal patches, and metered-dose inhalers. Id. CDER has primary
jurisdiction over the regulation of such products, and has the
authority to use drug provisions, device provisions, or a combination
of drug and device provisions to regulate particular drug delivery
systems. Id.
    Cigarettes and smokeless tobacco products function like drug
delivery systems in that they contain a drug, nicotine; are used to
deliver the drug to the site at which the drug will be absorbed into
the body, the mouth or lungs; and after the drug has been delivered,
the delivery system, the cigarette butt or smokeless tobacco material,
depleted of nicotine, remains and must be discarded. Only the nicotine
delivered by these products achieves its primary intended purpose by
chemical action in or on the body. The subsections below explain in
greater detail why these products are drug delivery systems.
    a. Cigarettes. Cigarettes are drug delivery systems consisting of a
drug, nicotine, and device components that include the tobacco itself,
the paper the tobacco is rolled in and, in the case of filter
cigarettes, the filter. A cigarette is analogous to a metered-dose
inhaler, an instrument that converts a drug into an aerosolized form
for inhalation and delivery to the lungs for absorption into the
bloodstream.
    Although lighting a cigarette appears to be a simple action, there
is, in fact, a complex process taking place within the cigarette. A
cigarette consists of carefully blended and treated nicotine-containing
rolled tobacco. The blended and treated tobacco is wrapped in paper
that is precisely treated so that the entire tobacco rod burns in a
controlled manner. Attached to the tobacco rod (in 95 percent of U.S.
cigarettes) is a filter with many possible design features, including
vents and chambers. The primary purpose of parts of the cigarette, and
the cigarette itself, a consciously engineered and, in the industry's
own words, ``highly-engineered'' <SUP>2 product, is to effectuate the
delivery of a carefully controlled amount of the nicotine to a site in
the human body where it can be absorbed. The drug, nicotine, is
generally contained within the treated rolled tobacco. The delivery
system, the nicotine-containing cigarette, must be lit to have its
intended effect on the structure or function of the body and, once lit
and used, is discarded.
    In this manner, an average American cigarette yields approximately
1.0 mg of nicotine, although the smoker can adjust

[[Page 41348]]
this yield by the manner in which the cigarette is smoked, e.g., by
puffing more or less frequently, by inhaling more or less deeply, or by
covering, with the fingers holding the cigarette or the lips, the vent
holes that may be part of the filter.
    As discussed in ``Nicotine In Cigarettes And Smokeless Tobacco
Products Is A Drug And These Products Are Nicotine-Delivery Devices
Under The Federal Food, Drug, And Cosmetic Act,'' there is significant
evidence now before the agency that the manufacturers of cigarettes
intend, as a primary purpose of these products, to deliver the drug
nicotine to consumers. That evidence supports a finding at this time
that part of a cigarette, the nicotine, is a drug under the act.
However, as described above, cigarettes are not simply packaged
nicotine. Rather, they are carefully engineered, complex products that
are designed to deliver a controlled amount of nicotine to the consumer
using such device components as the tobacco, the paper, and the filter.
    Nicotine-containing loose cigarette tobacco is used by smokers who
roll their own cigarettes usually with paper made for that purpose. The
evidence before the agency supports a finding at this time that the
processed loose cigarette tobacco product is a device for the same
reasons that the tobacco in factory-made cigarettes to be a device: it
contains within it the drug intended to be consumed and is not
dependent upon being metabolized for the achievement of its principal
intended purpose, i.e., the delivery of nicotine, and must be lit and
burned in order for the nicotine to be released in a form in which it
can be absorbed by the body.
    b. Smokeless Tobacco Products. Four principal kinds of smokeless
tobacco are manufactured in the United States: loose leaf, plug, twist
or roll, and oral snuff. Loose leaf chewing tobacco consists of tobacco
leaves that have been heavily treated with licorice and sugars. Plug
tobacco is made from tobacco that is immersed in a mixture of licorice
and sugar and then pressed into a plug. Twist tobacco is produced from
leaves that are flavored and twisted to resemble a rope. Oral snuff is
available in both dry and moist varieties. Dry snuff consists of
powdered tobacco that contains flavor and aroma additives. Moist snuff
is fine particles of tobacco that hold considerable moisture; many
types are made with a variety of flavorings such as wintergreen or
mint.<SUP>3 Chewing tobacco and snuff are treated by the manufacturer
to achieve an alkaline pH that facilitates absorption of
nicotine.<SUP>4
    Smokeless tobacco products function like temporary implants or
infusion devices that deliver a controlled amount of nicotine to the
cheek and gum tissue for absorption into the bloodstream. The device
element of smokeless tobacco products is the tobacco, which contains
the drug nicotine and delivers the nicotine to the cheek and gum tissue
for absorption into the body, but is not intended to be consumed.
Instead, in normal use, most of the tobacco is extruded from the mouth
after absorption of the nicotine. This extrudable portion of the
product does not achieve its primary intended purpose through chemical
action in the mouth, but allows nicotine to be extracted from the
tobacco by the user's saliva and: (a) mechanically holds the nicotine
in a form that is palatable, thereby allowing sufficient time for
absorption of nicotine through the cheek and gum tissue; and (b)
delivers chemical agents, primarily alkalines, to increase the pH
within the oral cavity, to affect the rate of absorption of nicotine
through the cheek and gum tissue.
3. FDA May Exercise Its Discretion to Regulate Cigarettes and Smokeless
Tobacco Products Under the Device Provisions of the Act
    As explained above, the agency's factual and legal inquiry supports
a finding at this time that nicotine-containing cigarettes and
smokeless tobacco products are drug/device combination products,
namely, drug delivery devices. Under the combination product authority
of section 503 of the act, FDA must designate a component of FDA to
regulate combination products based on a determination of the product's
``primary mode of action.'' In the case of cigarettes and smokeless
tobacco, the primary mode of action is that of a drug, due to the
nicotine, and, therefore, primary jurisdiction over these products
belongs in CDER. CDER's primary jurisdiction over cigarettes and
smokeless tobacco is not determinative, however, of which provisions of
the act apply. Rather, the agency has the discretion to regulate these
drug delivery systems using drug authorities, device authorities, or a
combination of both authorities. (See 21 CFR 3.2(e)(1994); 56 FR 58754
at 58754 and 58755 (November 21, 1991); Intercenter Agreement, Section
VII.A.1.(b).) It is within FDA's discretionary power to determine
which, if any, of the available regulatory authorities it will employ
in the regulation of a product. See Heckler v. Chaney, 470 U.S. 821
(1985).
    In determining which statutory authority to apply to these
products, FDA has carefully considered the regulatory schemes for human
drug products and devices, as well as the differing effects of these
regulatory schemes on the millions of Americans who use these products.
If FDA were to regulate cigarettes, cigarette tobacco, and smokeless
tobacco under the drug authorities of the act, the new drug provisions
would be applied, and each nicotine-containing cigarette, cigarette
tobacco, and smokeless tobacco product would either have to: (a) be
shown to be not a ``new drug'' because it is generally recognized as
safe and effective (21 U.S.C. 321(p)); or (b) be the subject of an
approved new drug application containing, among other things, adequate
tests of the safety and substantial evidence of the effectiveness of
the product. (See 21 U.S.C. 355.) In light of the accumulated data on
the adverse health effects of tobacco, neither of these outcomes can be
viewed as a realistic possibility in currently marketed products. The
products would be unapproved new drugs, and as such, FDA could require
their removal from the market. (See 21 U.S.C. 331(d), 355(a).)
    The agency does not believe that their sudden and total withdrawal
from the market would provide the best means of protecting the public
health. The nicotine in tobacco products is highly addictive and is the
principal reason adults continue to use tobacco products in the face of
clear evidence of harm. Major recent studies reveal that the vast
majority of the Nation's more than 50 million cigarette and smokeless
tobacco users are addicted to the nicotine in these products. Surveys
also show that while as many as 70 percent of current smokers would
like to quit, only a tiny percentage are able to quit permanently.
Studies on smokeless tobacco users show a similar pattern of persistent
attempts to quit with extremely low success rates.<SUP>5
    Because of the high addiction rates and the difficulties smokers
experience when they attempt to quit, there may be adverse health
consequences for many individuals if the products were to be withdrawn
suddenly from the marketplace. Our current health care system and
available pharmaceuticals may not be able to provide adequate or
sufficiently safe treatment for such a precipitous withdrawal.
Moreover, banning all tobacco products may not achieve the primary
health objective addressed in this regulation, i.e. reducing the number
of children and adolescents who become addicted to these products.
Given the long,

[[Page 41349]]
widespread use of these products in this country, it is not
unreasonable to assume that a black market and/or smuggling would
develop to supply addicted users with the products they require. The
products that would be available through a black market could very well
be more dangerous (e.g., cigarettes containing more tar or nicotine, or
more toxic additives) than products currently on the market. Thus, FDA
believes that a ban on all tobacco products would not eliminate smoking
and would not be in the best interest of the public health at this
time.
    Given the dangerous health consequences of the continued use of
cigarettes and smokeless tobacco products, however, the agency believes
that some strong action is necessary to protect the public health. As
explained in the next section, FDA has chosen to regulate these
combination products using the Act's device provisions, rather than the
drug provisions, because application of the device authorities would
allow the continued marketing of the affected products under certain
prescribed conditions established under notice and comment rulemaking
procedures.
    As discussed above, the primary jurisdiction over these combination
products within FDA lies in CDER. This designation is appropriate
because of CDER's expertise in pharmacology and drug delivery;
addiction, the disease associated with tobacco use; and the regulation
of pre-filled drug delivery systems. CDER, however, has the authority
to use drug provisions, device provisions, or a combination of drug and
device provisions in regulating these products.
4. Regulation of Cigarettes and Smokeless Tobacco Under the Device
Authorities
    As currently marketed, cigarettes and smokeless tobacco products
are not safe and effective. Chronic use of tobacco products causes
disease and premature death in a significant proportion of users.
    Both the Medical Device Amendments of 1976 and the Safe Medical
Devices Act of 1990 were designed to provide an array of regulatory
tools that could provide reasonable assurance of the safety and
effectiveness of devices. Since tobacco products are plainly not safe,
one regulatory tool available under the statute is to ban the products,
making their sale illegal. The legal basis for such a ban would be that
tobacco products present an unreasonable and substantial risk of
illness or injury. See section 516 of the act. Because of the
addictiveness of tobacco products, however, tobacco products present
special problems not ordinarily associated with devices. As discussed
in the preceding section, in the case of cigarettes and smokeless
tobacco products, a ban would not be in the best interest of the public
health.
    While premarket approval of a device has generally been regarded as
the regulatory control that provides the greatest assurance of safety
and effectiveness, on occasion the agency has chosen not to use
premarket approval for critical devices that potentially raise
significant safety and efficacy issues. For example, the agency has
announced that it will no longer enforce premarket approval
requirements for heart valve allografts. See the Federal Register of
October 14, 1994 (59 FR 52078). FDA took this action after concluding
that other regulatory controls would be more appropriate than premarket
approval to provide reasonable assurance of the safety and
effectiveness of these products. See also Heckler v. Chaney, 470 U.S.
821 (1985) (upholding agency's decision not to enforce premarket
approval requirements for use of prescription drugs for lethal
injection).
    The Medical Device Amendments of 1976 and the Safe Medical Devices
Act of 1990 provide the agency with considerable flexibility in
identifying the most appropriate scheme for regulating products. These
device provisions authorize the agency to use the regulatory tools that
most appropriately protect the public from unsafe or ineffective
devices. Moreover, these device provisions permit the agency to tailor
the regulatory controls authorized under the statute to address the
specific risks associated with individual devices. The following tools,
among others, may be used to help provide reasonable assurance of
safety and effectiveness for individual devices: special controls
(section 514 of the act); premarket approval (section 515 of the act);
product development protocols (section 515 of the act); notification
and recall (section 518 of the act); device tracking (section 519(e) of
the act); custom devices (section 520(b) of the act); restrictions on
sale, distribution, and use (section 520(e) of the act); and
postmarketing surveillance (section 522 of the act). Where the public
cannot be appropriately protected from a hazardous device using the
tools on which the agency might otherwise rely for a device posing a
substantial risk, FDA has discretion to employ other, more appropriate
regulatory controls provided by the Medical Device Amendments of 1976
and the Safe Medical Devices Act of 1990.
    In the situation presented by widespread addiction to cigarettes
and smokeless tobacco, where restrictions on supply would not be
effective, the goals of the statute can best be achieved by preventing
future users from becoming addicted to tobacco products. Restrictions
on the sale and distribution of cigarettes and smokeless tobacco
products to young people, as well as restrictions on advertising that
fosters appeal and creates a demand for tobacco products among young
people, are therefore the appropriate tools to attain the goal of
reasonable assurance of safety and effectiveness for cigarettes and
smokeless tobacco products, even if the goal can only be reached over
one or more generations.<SUP>6
    The agency believes that the measures proposed in this regulation
will reduce the exposure of children and adolescents to the health
risks associated with tobacco use; will greatly reduce the number of
individuals who are now, or may in the future become, addicted to
nicotine in these products; and, from an epidemiological perspective,
the combined effects of the proposed measures will, under the unique
circumstances of these products, provide the most reasonable assurance
of their safety.
    The Medical Device Amendments provide authority to restrict the
sale and distribution of products, like tobacco, for which there cannot
otherwise be reasonable assurance of safety and effectiveness. Section
520(e) of the act, which authorizes FDA to restrict the sale and
distribution of certain devices, provides regulatory tools that would
enable FDA to achieve the goal of reducing demand for tobacco products.
Therefore, FDA is proposing to declare cigarettes and smokeless tobacco
products ``restricted devices'' and to impose restrictions on the
underage sale and distribution of these tobacco products, pursuant to
section 520(e) of the act.
5. Restricted Device Authority Under Section 520 of the Act
    Section 520(e)(1)(B) of the act authorizes FDA to issue regulations
restricting the sale, distribution, or use of a device:

if, because of its potentiality for harmful effect or the collateral
measures necessary to its use, the Secretary determines that there
cannot otherwise be reasonable assurance of its safety and
effectiveness.

Because of the potentiality for harmful effects from cigarettes and
smokeless tobacco products, there cannot be reasonable assurance of the
safety and effectiveness of these products short of

[[Page 41350]]
additional restrictions designed to prevent new users from becoming
addicted to nicotine-containing tobacco products and to provide
information to current users on how to quit.
    As discussed earlier in this document, cigarettes and smokeless
tobacco products have substantial ``potentiality for harmful effect''
because they are both addictive and pose a significant risk to the
health of users. The most effective way to provide reasonable assurance
of the safety and effectiveness of tobacco products is to prevent
future generations from using and becoming addicted to these products
in the first instance, and as explained elsewhere in this document,
tobacco use is typically initiated during childhood and adolescence.
The mean average age when people become daily smokers is 17.7 years of
age.<SUP>7 Moreover, those who start smoking in childhood are more
likely to become heavier smokers than those who start smoking in
adolescence, and those who start as adolescents are more likely to
become heavier smokers than those who start as adults. Thus, the age at
which an individual starts smoking is an important factor that
influences the intensity of that person's smoking as an adult, and
consequently his or her ultimate health risks. These facts are echoed
in one of the major conclusions of the 1994 Surgeon General's Report:
``Nearly all first use of tobacco occurs before high school graduation;
this finding suggests that if adolescents can be kept tobacco-free,
most will never start using tobacco.'' <SUP>8
    The proposed restrictions on sale and distribution of tobacco
products are therefore designed to substantially reduce the number of
children and adolescents who become addicted to tobacco. The proposed
regulations would restrict young people's access to tobacco (see
proposed Secs. 897.12, 897.14, and 897.16), decrease the allure of the
advertising and promotion of these products (see proposed Secs. 897.30,
897.32, 897.34, and 897.36), and provide educational messages aimed at
young people to combat pervasive pro-tobacco messages and thus to help
them resist tobacco use (see proposed Sec. 897.29).
    Access. Although State and local laws impose certain restrictions
on the access of young people to tobacco, over a million children and
adolescents continue to become regular tobacco users each year. Unless
additional measures are imposed to substantially reduce this number,
cigarettes and smokeless tobacco will continue to cause disease and
death in each subsequent generation. Thus, without additional
restrictions designed to eliminate or substantially reduce the
initiation of cigarettes and smokeless tobacco use by children and
adolescents, there cannot be reasonable assurance of the safety of
these products.
    Advertising. For the many reasons described in this document,
advertising plays a role in influencing a young person's decision to
purchase and use these products. This advertising is particularly
attractive to persons under the age of 18. Sections 502 (q) and (r) of
the act give the agency specific authority over the advertising of
restricted devices to ensure that it is truthful, nonmisleading, and
contains important information about the risks associated with the use
of the product. Thus, section 502(q) of the act declares misbranded any
restricted device whose advertising is ``false or misleading in any
particular'' (see proposed Sec. 897.36) and section 502(r) requires
that ``all advertisements and other descriptive printed matter''
associated with a restricted device must contain certain specified
information, including a brief statement of ``relevant warnings,
precautions, side effects, and contraindications'' (see proposed
Sec. 897.32).
    In addition, the agency has proposed restrictions on the sale of
these products, specifically to prohibit all sales to those under the
age of 18. Advertising with attractive imagery, brand identifiable non-
tobacco items, and sponsorship of events are appealing to young people
under age 18 and are effective in influencing their decision to use
tobacco products. The advertising techniques that would be prohibited
by the proposed rule encourage an unauthorized use of these products
and thus cause them to be misbranded.
    Most importantly, FDA also has been granted broad authority in
section 520(e) of the act, under which the agency may place
restrictions on the sale, the distribution, or the use of certain
devices where the potentiality for harm makes these restrictions
necessary. The broad sweep of this language implies authority to
regulate many aspects of the commercialization of a restricted device.
FDA is interpreting this section to authorize restrictions on the
product's distribution, its offering for sale (including inducements to
sale), the sale itself, and the consumer's use (including the product's
misuse). This reading of section 520(e) of the act is required if the
agency is to have the ability to regulate restricted devices
effectively and avoid having its efforts undercut. For example, the
agency is proposing to prohibit the sale of tobacco products to those
under age 18. If a manufacturer advertises its tobacco products in such
a way that it has the effect of encouraging underage individuals to
purchase these products, the restriction on the sale of the product
would be significantly undermined. In such a case, section 520(e) of
the act provides the agency the additional authority to curtail the
advertising practices that threaten the effectiveness of its sale
restrictions.
    Just as restrictions must be placed on young people's access to
tobacco products in order to limit their ability to purchase these
products, it is equally important to place restrictions on the
marketing practices (including advertising and promotion) of the
tobacco industry. Certain advertising and promotional practices of the
tobacco industry play a significant and important contributory role in
a young person's decision to use cigarettes and smokeless tobacco
products.
    As detailed more fully in Chapter III, subpart D, individual
studies illustrate the profound effect that certain tobacco campaigns
have had upon the youth market. Moreover, studies have indicated that
comprehensive restrictions on advertising can help reduce children's
demand for these products.
    Restrictions on advertising are necessary in order to reduce the
demand for tobacco products by young people and therefore their desire
to purchase these products. Accordingly, placing restrictions on
certain marketing and advertising practices of the tobacco industry is
necessary to restrict the ``sale, distribution, or use'' of these
products.
    Information and Educational Messages. FDA has determined that an
educational program about cigarettes and smokeless tobacco products is
a restriction that is necessary because of the ``potentiality for
harmful effect'' of these products. As discussed above, it is necessary
to impose restrictions to discourage children and adolescents from
using and becoming addicted to these products and to provide important
health information to those who are currently addicted to these
products to allow them to decrease or cease their use of these
products. The brief statements that would be mandated by the proposed
rule will be designed to provide some information for current users,
but are not specifically addressed to, nor narrowly targeted to, the
adolescent nonuser. Consequently, given the effect of the pervasive and
long standing pro-tobacco messages on young people, FDA is proposing an
educational campaign, national in scope

[[Page 41351]]
and specifically directed to adolescent nonusers. The goal of this
effort is to combat the attractive imagery fostered by decades of
tobacco advertising, in order to reduce the number of individuals,
especially children and adolescents, who will become addicted to the
nicotine in these products.
    In addition, company-financed educational messages are not an
uncommon remedy. FDA has imposed a similar educational requirement for
hearing aids, which are also regulated as restricted devices under
section 520(e) of the act. The agency requires that a User
Instructional Brochure be distributed to each prospective hearing aid
user. In addition to providing directions for the safe and effective
use of this product, this brochure describes the adverse reactions,
side effects, warnings, and limitations associated with the hearing
aid. It also encourages prospective users to seek medical evaluation by
a licensed physician before purchasing the product. The agency requires
that specified user information be provided to educate consumers about
the risks of other FDA-regulated products such as Shiley heart valves,
silicone breast implants, and certain childhood immunizations.
    Finally, FDA regulations provide specific language for certain
disclosures in prescription and over-the-counter drug labeling, see
``Pregnancy--Nursing Warning'' for aspirin and aspirin- containing
products, 21 CFR 201.63; ``Disclosure of Drug Efficacy Study
Evaluations in Labeling, and Advertising,'' 21 CFR 201.200; warning
concerning ``Isoproterenol Inhalation Preparations,'' 21 CFR 201.305;
and warning concerning ``Drugs with Thyroid Hormone Activity,'' 21 CFR
201.316.
    Unlike the users of other restricted devices, however, the youthful
potential users of tobacco products are not easily identified. Because
tobacco products and tobacco advertising are distributed so widely, and
have been so effective at creating positive images of tobacco use,
educational information cannot realistically be specifically targeted
to those particular individuals susceptible to taking up smoking.
Therefore, the most effective way to reach the target audience is to
mandate a widespread educational campaign as described in Sec. 897.29
of the proposed rule.
    The proposed provision on educational messages is also authorized,
in addition to section 520(e) of the act, under sections 502(a),
502(q), and 201(n) of the act (21 U.S.C. 352(a), 352(q), and 321(n)).
Sections 502 (a) and (q) of the act state that a device shall be deemed
to be misbranded if either its labeling or advertising is false or
misleading in any particular. Section 201(n) of the act directs FDA, in
determining whether the labeling or advertising of an article is
misleading, to examine the representations made or suggested in the
labeling or advertising as well as ``the extent to which the labeling
or advertising fails to reveal facts material in the light of such
representations or material with respect to consequences which may
result from the use of the article * * *.'' The proposed educational
message requirement is consistent with these statutory provisions
because it is intended to help ensure that cigarette and smokeless
tobacco product advertising and labeling is not false or misleading and
to counteract the appeal of these products previously created by
advertising, thereby providing important, material information
regarding the consequences of cigarette or smokeless tobacco product
use by young people in a manner that is appropriate for that age group.
FDA's interpretation of sections 502(a)' and 201(n) of the act and its
authority to require the dissemination of information to persons who
use human drug products has been upheld in federal court. (See
Pharmaceutical Manufacturers Association v. Food and Drug
Administration, 484 F.Supp. 1179 (D.Del.), aff'd, 634 F.2d 106 (3rd
Cir. 1980) (per curiam) (upholding FDA's authority to require mandatory
patient package inserts)).
    Finally, although the Cigarette and Smokeless Tobacco Acts <SUP>9
prohibit advertising for cigarettes and smokeless tobacco in specified
communications media, including television and radio, they do not
prohibit all discussions of cigarettes and smokeless tobacco on
television. Specifically, they do not prevent broadcasters from airing
public service announcements regarding the dangers of tobacco use and
they likewise would not prohibit tobacco manufacturers from purchasing
air time to broadcast government mandated and approved educational
messages to young people to encourage them not to smoke or use
smokeless tobacco.
    Although the required messages would concern smoking and smokeless
tobacco use, they do not constitute ``advertising'' within the meaning
of those acts. The U.S. Court of Appeals for the District of Columbia
in Public Citizen v. FTC, 869 F. 2d 1541 (D.C. Cir. 1989), gave a
common sense definition of the word ``advertising'' in its recent
interpretation of the Smokeless Act:

    Our understanding of the common meaning of the term
``advertising,'' consistent with that contained in Webster's Third
New Int'l Dictionary (1976), is that it involves any action to
``call public attention to a [a product] * * * so as to arouse a
desire to buy.'' At the most basic level this is surely what
smokeless tobacco companies are doing when they splash their brand
logos and selling messages across T-shirts and other promotional
items.

Id. at 1554 (modifications in original). Government approved messages
that seek to discourage young people from using tobacco are intended to
have the opposite effect of advertising as defined in Public Citizen
and, therefore, do not constitute advertising.
    Information for current smokers. FDA has carefully tailored these
restrictions to aspects of the sale and distribution of tobacco
products that create a demand for these products among children and
adolescents and that permit their continued access to tobacco products
despite State and local laws against sale to young people. The most
effective regulatory tool available to FDA to help current smokers stop
using tobacco products is to require that information be provided
through advertising. FDA is therefore proposing to require a brief
statement in cigarette advertising giving the health risks of tobacco
use. (See Sec. 897.32(c)).
6. Conclusion
    Without the restrictions contained in this proposed rule designed
to prevent future generations from becoming addicted to tobacco
products, there cannot be reasonable assurance of the safety and
effectiveness of cigarettes and smokeless tobacco products. FDA seeks
the most rational regulatory structure for cigarettes, cigarette
tobacco, and smokeless tobacco products permitted under the act to
achieve an important public health goal, and simultaneously, to avoid
what might be widely regarded as an unwanted and ultimately
unsuccessful result.
    The agency's comprehensive investigation and legal analysis support
a finding at this time that cigarettes, cigarette tobacco, and
smokeless tobacco are subject to regulation on the basis of their
nicotine content and intended use. Each of these products employs a
device component to achieve its effect on the body, and therefore each
is a drug/device combination product. As such, FDA may, in its
discretion, regulate them using the act's device provisions.
    The device provisions permit the continued marketing of the
affected products under certain prescribed conditions designed to
substantially reduce the number of young people who become addicted to
tobacco products and thereby to break the cycle of

[[Page 41352]]
addiction and disease fostered by tobacco products.

References

1. Smolen V.F., and L. Ball, eds., ``Controlled Drug
Bioavailability,'' John Wiley & Sons, New York, vol. 1, p. 3; id.
vol. 3, preface at p. xi, 1984.
2. FDA Docket No. 94P-0069/CPI, 94P-0077/CPI, Response of R.J.
Reynolds Tobacco Company to the Petitions Filed by Action on Smoking
and Health and the Coalition on Smoking OR Health, p. 78, November
2, 1994.
3. Institute of Medicine, ``Growing Up Tobacco Free: Preventing
Nicotine Addiction in Children and Youths,'' pp. 60-61, 1994.
4. Benowitz, N., ``Nicotine and Smokeless Tobacco,'' CA-A Cancer
Journal for Clinicians, vol. 38, No. 4, pp. 244-247, 1988.
5. Severson, H.H., ``Enough Snuff: St Cessation from the Behaviorial
Clinical, and Public Health Perspectives,'' in ``Smokeless Tobacco
or Health, An International Perspective,'' Smoking and Tobacco
Control Monograph 2, DHHS, PHS, NIH, NIH Publication No. 93-3461,
pp. 281-282; Glover, E.D., ``Conducting Smokeless Tobacco Cessation
Clinics,'' American Journal of Public Health, vol. 76, No. 2, p.
207, 1986; Hatsukami, D., R. Nelson, and J. Jensen ``Smokeless
Tobacco: Current Status and Future Directions, British Journal of
Addiction, vol. 86, pp. 559-563, 1991; Glover, E.D. and P.N. Glover,
``Smokeless Tobacco Cessation and Nicotine Reduction Therapy,'' in
``Smokeless Tobacco or Health, An International Perspective, Smoking
and Tobacco Control,'' Monograph 2, DHHS, PHS, NIH, NIH Publication
No. 93-3461, pp. 291-295; Ary, D.V., et al., ``An In-Depth Analysis
of Male Adolescent Smokeless Tobacco Users: Interview with Users and
Their Fathers,'' Journal of Behavioral Medicine, vol. 12, pp. 449-
467, 1989.
6. The Medical Device Amendments also provide authority to remedy
unsafe products by forcing corrections in their design. See sections
514 and 518 of the Act. FDA has determined, however, that there are
insufficient data available at this time to permit the conclusion
that modifications in cigarettes and smokeless tobacco products
would make them safe or even substantially safer.
7. 1994 SGR, p. 67.
8. 1994 SGR, p. 5.
9. 15 U.S.C. 1335 and 15 U.S.C. 4402(f).

B. Other Requirements

    As explained above, FDA is proposing to regulate cigarettes and
smokeless tobacco products as devices and, in accordance with section
520(e) of the act, is proposing to restrict their sale, distribution,
and use. As devices, the products would also be subject to various pre-
existing requirements in the statute and the regulations. These
regulations include the general labeling requirements for devices at 21
CFR part 801 (excluding Sec. 801.62); establishment registration and
device listing requirements at 21 CFR part 807; and good manufacturing
practice requirements at 21 CFR part 820.
    Under section 502(q)(2) of the act, a restricted device that is
sold, distributed, or used in violation of regulations prescribed under
section 520(e) of the act shall be deemed to be misbranded. Therefore,
nicotine-containing cigarettes and smokeless tobacco products that are
marketed in violation of the proposed rule would be regarded by FDA as
misbranded. It is already the case under the laws of all 50 States that
retailers are liable when a sale of cigarettes or smokeless tobacco
products is made to an underage individual. Perhaps the most
significant effect of the proposed rule with regard to potential legal
liability is that manufacturers, as well as retailers and distributors,
could be held responsible for violations of the regulations. As with
other violative manufacturer activities under the act, such a finding
could result in various sanctions, including: fines, injunctions, civil
money penalties, product seizure, and prosecution.
C. Preemption Under the Federal Cigarette Labeling and Advertising Act
and the Comprehensive Smokeless Tobacco Health Education Act

    Although sections 502(q), 502(r), and 520(e) of the act give FDA
authority to regulate the sale, distribution, and use of a restricted
device and to impose certain requirements on all advertisements and
other descriptive printed matter, both the Cigarette Act and the
Smokeless Act contain provisions that limit the exercise of Federal,
State, and local authorities. The agency has reviewed its statutory
authority in light of these two statutes and concludes that neither the
Cigarette Act nor the Smokeless Act preclude FDA from regulating these
products or enacting each of the provisions in the proposed regulation.
1. The Cigarette Act
    The Cigarette Act requires, among other things, specific warning
notices on cigarette packages and advertisements. The Cigarette Act
contains express language regarding other Federal and State regulation:

    (a) No statement relating to smoking and health, other than the
statement required by [15 U.S.C. 1333], shall be required on any
cigarette package.
    (b) No requirement or prohibition based on smoking and health
shall be imposed under State law with respect to the advertising or
promotion of any cigarettes the packages of which are labeled in
conformity with the provisions of this Act.

15 U.S.C. 1334. The proposed rule takes into account the Federal
preemption provision of the Cigarette Act and is consistent with this
statutory prohibition.
    The preemption provision of the Cigarette Act regarding advertising
and promotion applies only to State action. Hence, because the proposed
rule would impose Federal, not State, requirements, the proposed rule's
labeling and advertising requirements are permissible under 15 U.S.C.
1334(b).
    In addition to being permissible under the Cigarette Act, the
proposed rule would actually further Congressional intent to protect
cigarette packages from diverse, nonuniform, and confusing cigarette
labeling and advertising regulations. The proposal would require
inclusion of certain information in cigarette advertisements, and these
requirements would apply to cigarettes sold and distributed throughout
the United States. Under this scheme, States could not impose
``diverse, nonuniform, and confusing'' labeling or advertising
requirements, Cigarette Act, Public Law 89-92, as amended by Public Law
91-222 (April 1, 1970) and Public Law 93-109 (September 21, 1973); 15
U.S.C. 1331 (1973).
    Two recent cases support the interpretation that the Cigarette Act
does not establish an absolute prohibition against Federal action. In
Cipollone v. Liggett Group, Inc., the Supreme Court considered whether
the Cigarette Act preempted an action by an individual against a
cigarette manufacturer for breach of express warranty that cigarettes
``did not present any significant health consequences,'' failure to
warn consumers about health hazards, fraudulent misrepresentation of
health hazards to consumers, and conspiracy to ``deprive the public of
medical and scientific information about smoking.'' 112 S. Ct. 2608,
2613-14 (1992). The Court examined the preemption provision in the
Cigarette Act and the amendments contained in the Public Health
Cigarette Smoking Act and stated that,

    When Congress has considered the issue of pre-emption and has
included in the enacted legislation a provision explicitly
addressing that issue, and when that provision provides a ``reliable
indicium of congressional intent with respect to state authority,''
* * * ``there is no need to infer congressional intent to pre-empt
state laws from the substantive provisions'' of the legislation * *
* Congress'' enactment of a provision defining the pre-emptive reach
of a statute implies that matters beyond that reach are not pre-
empted.

[[Page 41353]]

Id. at 2618 (citations omitted) (emphasis added).
    The Court found that the preemption provisions ``merely prohibited
state and federal rulemaking bodies from mandating particular
cautionary statements on cigarette labels'' and held that the
preemption provisions did not constitute an absolute prohibition
against all Federal and State action. Id.
    The Supreme Court in Freightliner Corp. v. Myrick, 115 S. Ct. 1483
(1995) clarified its language in Cipollone. The Court stated ``[t]he
fact that an express definition of the preemptive reach of a statute
``implies''--i.e., supports a reasonable inference--that Congress did
not intend to pre-empt other matters does not mean that the express
clause entirely forecloses any possibility of implied preemption.'' Id.
at 1488 (emphasis added.) The Court noted that it would still be
appropriate to conduct the proper analysis to determine if preemption
should be implied. Having said that, the Court stated that such an
analysis had been done in Cipollone. Finally, the Court found no
implied preemption in Freightliner even in the absence of federal
regulation.
    The California Supreme Court, in Mangini v. R.J. Reynolds Tobacco
Co., 875 P.2d 73 (Cal. en banc), cert. denied, 115 S.Ct. 577 (1994),
considered whether the Cigarette Act precluded an action under
California law for engaging in an ``unlawful, unfair, or fraudulent
business act or practice'' by using ``unfair, deceptive, untrue, or
misleading advertising.'' The petitioner claimed that R.J. Reynolds had
illegally targeted minors in its Joe Camel advertising campaign. R.J.
Reynolds asserted that its cigarettes were properly labeled and,
therefore, that California could not impose any regulation regarding
cigarette advertising if the regulation were based on smoking and
health. It added that a prohibition against selling cigarettes to
minors was based on underlying health concerns and that only the
Federal Government could prevent advertisements that urge minors to
smoke. The California Supreme Court applied the analysis in Cipollone
and held that, while the petitioner's action would prohibit cigarette
advertising directed at minors, the underlying legal duty for the
petitioner's action was not based on smoking and health. The California
Supreme Court held that, ``The predicate duty is to not engage in
unfair competition by advertising illegal conduct or encouraging others
to violate the law.'' Id. at 80. As for the argument that allowing
state law claims to proceed would violate congressional policy favoring
a comprehensive Federal program for cigarette labeling and advertising,
the court disagreed, stating,

    State law prohibitions against advertisements targeting minors
do not require Reynolds to adopt any particular label or
advertisement ``with respect to any relationship between smoking and
health;'' rather, they forbid any advertisements soliciting unlawful
purchases by minors. The prohibitions do not create `` `diverse,
nonuniform, and confusing'' standards. Unlike state law obligations
concerning the warning necessary to render a product `reasonably
safe,' state law proscriptions'' against advertisements targeting
minors `rely on a single, uniform standard:'' ' do not target
minors.

Id. at 80 (quoting 112 S.Ct. at 2624). Consequently, the court held
that,

    It is now asserted that plaintiff's effort to tread upon Tobacco
Road is blocked by the nicotine wall of congressional preemption.
The federal statute does not support such a view. Congress left the
states free to exercise their police power to protect minors from
advertising that encourages them to violate the law. Plaintiff may
proceed under that aegis.

Id. at 83. The Supreme Court later denied R.J. Reynolds' petition for a
writ of certiorari. See 115 S.Ct. 577 (1994). Although Mangini
concerned preemption of State action, the California Supreme Court's
decision and the U.S. Supreme Court's denial of certiorari indicate a
judicial intent not to extend the Cigarette Act's preemption provisions
beyond its literal terms. Thus, restrictions on cigarette companies
allegedly targeting children are not restrictions based on ``smoking
and health.'' See also Banzhaf v. Federal Communication Commission, 405
F.2d 1082, 1089 (D.C. Cir. 1968), cert. denied, 396 U.S. 842 (1969)
(preemption provision of the 1965 Cigarette Act did not bar the Federal
Communication Commission from requiring radio and television stations
to broadcast anti smoking messages: ``Nothing in the Act indicates that
Congress had any intent at all with respect to other types of
regulation by other agencies--much less that it specifically meant to
foreclose all such regulation.'' (footnote omitted))
    Applying these cases to FDA's proposed rule, the agency believes
that the proposed requirement for a brief statement about smoking and
health is not preempted.
2. The Smokeless Act
    For smokeless tobacco products, the Smokeless Act states in part:

(a) Federal action
    No statement relating to the use of smokeless tobacco products
and health, other than the statements required by [this title,]
shall be required by any Federal agency to appear on any package or
in any advertisement (unless the advertisement is an outdoor
billboard advertisement) of a smokeless tobacco product.

15 U.S.C. 4406(a). The proposal would not require any messages in
advertising because the Smokeless Act's preemption provision is broader
than the preemption provision in the Cigarette Act and preempts any
Federal (as well as State) action mandating health/safety messages in
advertising.
    Thus, given these statutory restrictions and court precedent, FDA
has determined that neither the Cigarette Act nor the Smokeless Act
preempts any aspect of the proposed rule.

D. Constitutional Issues--Regulation of Speech and the First Amendment
    The proposed rule's restrictions on commercial speech are
consistent with the First Amendment's protection of freedom of
expression. The Supreme Court distinguishes between commercial speech
and other forms of speech with respect to First Amendment rights.
Traditionally, commercial speech was not granted any protection under
the Constitution. More recently, the Supreme Court has granted
commercial speech limited constitutional protection. See Ohralik v.
Ohio State Bar Ass'n, 436 U.S. 447, 456, reh'g denied, 439 U.S. 883
(1978); Virginia State Board of Pharmacy v. Virginia Citizens Consumer
Council, Inc., 425 U.S. 748 (1976); Bigelow v. Virginia, 421 U.S. 809,
818 (1975). The Supreme Court, in Edenfield v. Fane, 113 S. Ct. 1792
(1993), stated:

    [c]ommercial speech [ ] is ``linked inextricably'' with the
commercial arrangement that it proposes, * * * so the State's
interest in regulating the underlying transaction may give it a
concomitant interest in the expression itself. * * * For this
reason, laws restricting commercial speech, unlike laws burdening
other forms of protected expression, need only be tailored in a
reasonable manner to serve a substantial state interest in order to
survive First Amendment scrutiny.

Id. at 1798 (citations omitted).
    It is undisputed that the ``Constitution * * * affords a lesser
protection to commercial speech than to other constitutionally
guaranteed expression.'' United States and Federal Communication
Commission v. Edge Broadcasting Co., 113 S.Ct. 2696, 2703 (1993)
(citations omitted). Accord, City of Cincinnati v. Discovery Network,
Inc., 113 S.Ct. 1505, 1513 (1993); Board of Trustees of the State
University of New York v. Fox, 492 U.S. 469, 475, mot. denied, 493 U.S.
887 (1989); Central Hudson Gas and Electric Corp. v. Public

[[Page 41354]]
Service Commission, 447 U.S. 557, 563 (1980); Ohralik, 436 U.S. at 455-
56. Therefore, although commercial speech is protected, the government
has latitude to regulate commercial speech in ways it could not
regulate other forms of expression. Friedman v. Rogers, 440 U.S. 1, 10
n.9 (1979) (``When dealing with restrictions on commercial speech we
frame our decisions narrowly, ``allowing modes of regulation [of
commercial speech] that might otherwise be impermissible in the realm
of noncommercial expression.'' (citation omitted).
    In Central Hudson Gas & Electric Corp. v. Public Service Commission
of New York, the Supreme Court established a four-prong test to
determine whether restrictions on commercial speech are
unconstitutional. The first prong states that for commercial speech to
come within the protection of the First Amendment the speech must
concern lawful activity. The other prongs relevant to an analysis of
restrictions on commercial speech are:
    (2) The government interest that is asserted to justify the
proposed limitation must be substantial;
    (3) The proposed limitation must directly advance the government's
interest; and
    (4) The proposed limitation should be no more extensive than is
necessary to serve that interest.

Central Hudson, 447 U.S. 557, 566 (1980).
    Since Central Hudson, the Supreme Court has taken a permissive view
of the government's regulation of commercial speech and has upheld
several restrictions on commercial speech. FDA believes that the
proposed restrictions on the labeling and advertising of cigarettes and
smokeless tobacco products, and the requirement that manufacturers fund
and disseminate a media-based educational campaign, also would
withstand any First Amendment challenge.
    The Central Hudson analysis begins with the second prong. The
proposed rule meets the requirements of the second prong because it
serves the substantial government interest of protecting the public
health. The Supreme Court has held that the government's ``interest in
the health, safety, and welfare of its citizens constitutes a
`substantial' governmental interest.'' Posadas de Puerto Rico
Associates v. Tourism Company of Puerto Rico, 478 U.S. 328, 341 (1986)
(Court upheld restrictions on advertising of casino gambling to
residents of Puerto Rico). Accord, Fox, 492 U.S. 469 (1989); Metromedia
Inc. v. City of San Diego, 453 U.S. 490, 507-08 (1981). National
Council for Improved Health v. Shalala, Memorandum Decision and Order,
Civil No. 94-C-5090 (June 30, 1995) (U.S. District Court for the
district of Utah rejected claim that FDA's regulation of dietary
supplements violated First Amendment protection.) In this instance, the
proposed rule's labeling and advertising restrictions and mandated
educational campaign would reduce the use of cigarettes and smokeless
tobacco products by those young individuals who are the most vulnerable
to addiction and, perhaps, the least capable of deciding whether to use
the products. Decreased use of these products will reduce the risk of
tobacco-related illnesses and deaths. The proposed rule, therefore,
reflects a substantial government interest in public health.
    The proposed rule also meets the third prong of the Central Hudson
test by directly advancing the government's substantial interest. The
Supreme Court has stated that, when determining whether an action
advances the governmental interest, it is willing to defer to the
``common-sense judgments'' of the regulatory agency as long as they are
not unreasonable. Metromedia, 453 U.S. at 509 (``We likewise hesitate
to disagree with the accumulated, common-sense judgments of local
lawmakers and of the many reviewing courts that billboards are real and
substantial hazards to traffic safety.'')
    The agency's proposed restrictions on advertising and labeling are
based on its review of the evidence that shows that advertising plays
an important role in young people's decisions to use tobacco products.
Such evidence, consisting of numerous published studies, reports, and
recommendations by the industry, health professionals, consumer groups,
and public health organizations, demonstrates how advertising and
labeling may make young people more receptive to using cigarettes and
smokeless tobacco products and how the regulatory approach proposed by
FDA may reduce the potential harm to young people. See Florida Bar v.
Went for It, 63 U.S.L.W. 4644 (1995) (anecdotal record sufficient to
meet third prong of Central Hudson). The Supreme Court has specifically
deferred to the government's conclusion that advertising increases
consumption of a product. In Edge, the Court stated:

    Within the bounds of the general protection provided by the
Constitution to commercial speech, we allow room for legislative
judgments. Here, as in Posadas de Puerto Rico, the Government
obviously legislated on the premise that the advertising of gambling
serves to increase the demand for the advertised product. Congress
clearly was entitled to determine that broadcast of promotional
advertising of lotteries undermines North Carolina's policy against
gambling, even if the North Carolina audience is not wholly unaware
of the lottery's existence. Congress has, for example, altogether
banned the broadcast advertising of cigarettes, even though it could
hardly have believed that this regulation would keep the public
wholly ignorant of the availability of cigarettes.

Edge, 113 S.Ct. at 2707 (citations omitted). Accord, Posadas, 478 U.S.
at 341-42 (Puerto Rican legislature's belief that advertising of casino
gambling aimed at Puerto Rican residents would increase demand for it
was a reasonable one); Dunagin v. City of Oxford, Miss., 718 F.2d 738,
748 n.8 (5th Cir. 1983) (``whether there is a correlation between
advertising and consumption is a legislative and not an adjudicative
fact question''), cert. denied, 467 U.S. 1259 (1984).
    The proposed rule's requirement that the manufacturers provide
funds for a media-based educational campaign is similarly supported by
ample evidence that such educational campaigns have been very effective
in reducing initiation and prevalence of tobacco use by young people.
The proposed rule directly addresses the serious public health problem
caused by tobacco use by young people in a manner that ``will in fact
alleviate [the harm] to a material degree.'' Edenfield, 113 S.Ct. at
1800.
    Unlike the advertising restrictions (text-only format, ban on
promotional items, and restrictions on sponsorship), which would help
reduce the appeal of future advertising to young people, the proposed
education campaign is necessary to address the widespread
misconceptions about tobacco use among young people that have in part
been created by the ubiquitous advertising and promotional practices of
the tobacco industry. For example, the industry currently spends nearly
$2 billion creating appealing imagery and sponsoring and advertising
events that associate their products with lifestyles that are
attractive and popular with young people.
    The amount of advertising, the variety of its format (e.g.
advertisements, on hats, at concerts, on televised sponsored events),
and the appeal of its messages compete effectively with the health
messages of the government and health authorities. One consequence is
that many young people believe that tobacco products are an important
part of growing up and being ``cool.'' Another consequence is that
young people remain ignorant of the strength of the

[[Page 41355]]
addiction to tobacco products and the relevance to them of the long-
term health risks. In the short run, the educational messages would
help counter these information deficits and, in the long run, they
would provide young people with appropriate information to help them
resist tobacco use.
    The agency gathered enough evidence regarding the association
between promotion and use of cigarettes and smokeless tobacco products
and the efficacy of an appropriately designed educational campaign to
tentatively conclude that the proposed rule's restrictions on
commercial speech would alter young people's smoking behavior.
Therefore, the restrictions can be said to ``directly advance'' the
legitimate government goal of decreasing the use of these harmful
products. (For a discussion of the evidence, see the discussion
pertaining to proposed Subpart D, ``Labeling and Advertising.'')
    Finally, the proposed rule meets the fourth prong of the Central
Hudson test, which the Court has modified to require that the
governmental regulation of commercial speech not be over broad. The
Supreme Court has made it clear that this prong does not require a
``least restrictive means test,'' but rather that there be a
``reasonable fit'' between the government's regulation and the
substantial governmental interest sought to be served. Fox, 492 U.S. at
4774-4780. The Supreme Court stated:

    What our decisions require is a fit between the legislature's
ends and the means chosen to accomplish those ends,''--a fit that is
not necessarily perfect, but reasonable; that represents not
necessarily the single best disposition but one whose scope is ``in
proportion to the interest served,'' that employs not necessarily
the least restrictive means but, as we have put it in other contexts
discussed above, a means narrowly tailored to achieve the desired
objective. Within those bounds we leave it to governmental
decisionmakers to judge what manner of regulation may best be
employed.

Id. at 480 (citations omitted) (emphasis added). Accord, Edenfield, 113
S.Ct. at 1798 (``[L]aws restricting commercial speech, unlike laws
burdening other forms of protected expression, need only be tailored in
a reasonable manner to serve a substantial state interest in order to
survive First Amendment scrutiny.''); Zauderer v. Office of
Disciplinary Counsel, 471 U.S. 626, 651 (1985) (``[W]e hold that an
advertiser's rights are adequately protected as long as disclosure
requirements are reasonably related to the State's interest in
preventing deception of consumers.'')
    This holding is consistent with the Supreme Court's earlier
decisions regarding the overbreadth doctrine. The Supreme Court has
held that the overbreadth doctrine--which permits an attack on a
statute on the basis that it might be applied unconstitutionally in
circumstances other than those before a court--applies weakly, or not
at all, to commercial speech.
    Since advertising is linked to commercial well-being, it seems
unlikely that such speech is particularly susceptible to being
crushed by overbroad regulation. Moreover, concerns for uncertainty
in determining the scope of protection are reduced; the advertiser
seeks to disseminate information about a product or service that he
provides, and presumably he can determine more readily than others
whether his speech is truthful and protected.

Bates v. State Bar of Arizona, 433 U.S. 350, 381 (citations omitted),
reh'g denied 434 U.S. 881 (1977).
    As with the third prong, the Supreme Court has expressed a
willingness to defer this determination to the regulating body. Since
Fox, the courts have applied the ``reasonable fit'' standard to uphold
the regulation of commercial speech. See Edge, 113 S.Ct. at 2705
(upholding restrictions on the broadcast of lottery advertisements);
South-Suburban Housing Center v. Greater South Suburban Bd. of
Realtors, 935 F.2d 868, 892 (7th Cir. 1991) (upholding restrictions on
the mailing of solicitations to people who had registered with the
municipality their desire not to receive them, as ``reasonable fit''
with the desire to protect residential privacy), cert. denied. 502 U.S.
1074, 112 S.Ct. 971 (1992); Puerto Rico Tele-Com, Inc. v. Ocasio
Rodriguez, 747 F.Supp. 836, 845 (D.P.R. 1990) (upholding a cease and
desist order by the Puerto Rico Department of Consumer Affairs (DACO)
prohibiting a long-distance phone carrier from using a price study in a
deceitful or misleading way as ``a reasonable `fit' between DACO's
orders against plaintiff and its mandate to protect consumers'');
Central American Refugee Center v. City of Glen Cove, 753 F.Supp. 437,
440 (E.D.N.Y. 1990) (upholding ordinance prohibiting solicitation of
employment from a vehicle or by a pedestrian on a public street as a
``reasonable fit'' with the governmental interest in protecting vehicle
passengers and people crossing the street). Moreover, the Court has
granted greater leeway and upheld reasonable regulations of commercial
speech with regard to socially harmful activities. Edge, 113 S.Ct. 2696
(upholding Federal prohibition of lottery advertising on radio in non
lottery State); Posadas de Puerto Rico Associates, 478 U.S. 328 (1986)
(upholding ban of advertising of casino gambling directed to Puerto
Rican citizens); Capital Broadcasting Co. v. Mitchell, 333 F.Supp. 582
(D.D.C. 1971), affd. mem, 405 U.S. 1000 (1972) (upholding broadcast ad
ban on cigarette advertising); nothing in Rubin v. Coors Brewing
Company, 63 U.S.L.W. 4319 (April 19, 1995) is to the contrary
(statutory prohibition against statements of alcohol content of beer on
labels or in advertising failed completely to advance the governmental
interest asserted of preventing ``strength wars'' among brewers).
    The agency believes that, because it could have banned the sale or
distribution of the product, or banned certain of the marketing and
promotional practices of the tobacco industry, the lesser steps of
regulating labeling and advertising and requiring manufacturers to fund
a government approved educational campaign are reasonable. As the
Supreme Court has stated:

    [I]t is precisely because the government could have enacted a
wholesale prohibition of the underlying conduct that it is
permissible for the government to take the less intrusive step of
allowing the conduct, but reducing the demand through restrictions
on advertising.

Posadas, 478 U.S. at 346 (emphasis in original). More specifically, the
Court stated:

    Legislative regulation of products or activities deemed harmful,
such as cigarettes, alcoholic beverages, and prostitution, has
varied from outright prohibition on the one hand. * * * to
legalization of the product or activity with restrictions on
stimulation of demand on the other hand. * * * To rule out the
latter, intermediate kind of response would require more than we
find in the First Amendment.

Id. at 346-347 (citations omitted). This analysis applies not only to
the restrictions on the type of advertising permitted (text-only), but
also the requirement that the manufacturers fund and disseminate a
government approved educational campaign. The Supreme Court has stated
that the government may dictate the form of, and information in,
commercial speech. Virginia Pharmacy, 425 U.S. at 771 n.24 (``They may
also make it appropriate to require that a commercial message appear in
such a form, or include such additional information, warnings, and
disclaimers, as are necessary to prevent its being deceptive.''); In re
R.M.J., 455 U.S. 191, 201 (1982) (``warning or disclaimer might be
appropriately required* * *in order to dissipate the

[[Page 41356]]
possibility of consumer confusion or deception''); Bates, 433 U.S. at
384.
    As noted above, on several occasions the agency has imposed similar
educational requirements--e.g., user instructional brochures--in order
to reduce consumer confusion or to prevent the misuse of a device. In
those circumstances, the agency has required that the company use
agency approved language. Courts have approved of similar
``corrective'' or ``coerced'' speech ordered by other federal agencies.
See Warner-Lambert Co. v. FTC, 562 F.2d 749 (D.C. Cir. 1977), cert.
denied, 435 U.S. 950 (1978) (corrective advertising is appropriate
where company has engaged in a long history of deceptive advertising
and the misperceptions continue even in the absence of current
advertising); United States v. Frame, 885 F.2d 1119 (3rd Cir. 1989)
(court upheld legislation that required beef producers, including those
who objected, to pay an assessment to fund pro-beef commercials written
and disseminated by a quasi-government board), cert. denied, 493 U.S.
1094 (1990).
    In conclusion, the agency believes that the evidence would support
a ban on all advertising and, therefore, that the more limited
restrictions imposed by this proposed rule are reasonable as
proportionate to the agency's desired goal--to reduce tobacco-related
illnesses and deaths by helping to prevent young people from becoming
addicted to the nicotine in cigarettes and smokeless tobacco products.
The requirements proposed here serve to prevent distribution of these
products to young people, to reduce the effectiveness of advertising
and promotion on young people, and to ensure that an appropriate
educational campaign is aimed at young people. Thus, the means chosen
are a reasonable fit to the substantial interest and, consequently,
pass the final prong of the Central Hudson test.

V. Paperwork Reduction Act of 1980

    The proposed rule contains information collections which are
subject to review by the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1980. The title, description, and
respondent description of the information collection requirements are
shown below with an estimate of the annual reporting and recordkeeping
burden. Included in the estimate is the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
    Title: Regulations Restricting the Sale and Distribution of
Cigarettes and Smokeless Tobacco Products to Protect Children and
Adolescents.
    Description: The proposed rule would collect information from
manufacturers and retailers of cigarettes and smokeless tobacco
products. The proposed rule would require such persons to: use
established names for cigarettes and smokeless tobacco products;
establish and maintain educational programs; observe certain format and
content requirements for labeling and advertising; and submit labels,
labeling, and advertising to FDA.
    Description of Respondents: Businesses.

                               Estimated Annual Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                     Annual
                   CFR Section                       No. of     Annual      Average burden per     Annual burden
                                                   responses  frequency          response              hours
----------------------------------------------------------------------------------------------------------------
897.24...........................................      1,000          1  40 hours................  40,000
897.29...........................................      1,000          1  1,000 hours.............  1 million
897.32...........................................    200,000          1  20 minutes..............  66,667
897.40...........................................    200,000          1  20 minutes..............  66,667
                                                                                                  --------------
      Total......................................  .........  .........  ........................  1,173,334
----------------------------------------------------------------------------------------------------------------

    The agency has submitted a copy of the proposed rule to OMB for its
review of these information collections. Interested persons are invited
to send comments regarding this burden estimate or any other aspect of
this collection of information, including any of the following
subjects: (1) The necessity and utility of the proposed information
collection for the proper performance of the agency's functions; (2)
the accuracy of the estimated burden; (3) ways to enhance the quality,
utility, and clarity of the information to be collected; and (4) the
use of automated collection techniques or other forms of information
technology to minimize the information collection burden. Comments
should be sent to FDA's Dockets Management Branch (address above) and
to the Office of Information and Regulatory Affairs, OMB, rm. 3208, New
Executive Office, Washington, DC 20503, Attn: Desk Officer for FDA.
VI. Executive Orders

A. Executive Order 12606: The Family

    Executive Order 12606 directs Federal agencies to determine whether
policies and regulations may have a significant impact on family
formation, maintenance, and general well-being. FDA has analyzed this
proposed rule in accordance with Executive Order 12606, and has
determined that it has no potential negative impact on family
formation, maintenance, and general well-being.
    FDA has determined that this rule will not affect the stability of
the family, and particularly, the marital commitment. It will not have
any significant impact on family earnings.
    The proposed rule would not impede the parental authority and
rights in the education, nurture, and supervision of children. Rather,
the proposed rule would, if finalized, help the significant majority of
American families that seek to discourage their children from using
cigarettes and smokeless tobacco products. The pervasive promotion and
easy availability of these products, despite existing laws in all 50
States prohibiting their sale to children, severely hinder the
individual family from carrying out this function by itself.
    Section 1(g) of Executive Order 12606 requires that FDA assess the
proposed rule in light of the message, if any, it sends to young people
``concerning the relationship between their behavior, their personal
responsibility, and the norms of our society.'' The proposed rule
would, if finalized, help reduce the conflict between the anti-smoking
messages issued by Federal and State authorities and the pro-tobacco
messages seen in advertising. This would enable young people to
understand how prevalent tobacco use is in society and also appreciate
how their decisions regarding cigarette and smokeless tobacco use can
affect their health.

[[Page 41357]]

    Although Executive Order 12606 does not require that individuals or
organizations be permitted to participate in proposed rulemaking
proceedings, FDA expressly requests all such interested parties to
submit comments and suggestions regarding this rule's effect on the
family.

B. Executive Order 12612: Federalism

    Executive Order 12612 requires Federal agencies to carefully
examine regulatory actions to determine if they would have a
significant effect on federalism. Using the criteria and principles set
forth in the order, FDA has considered the proposed rule's impact on
the States, on their relationship with the Federal Government, and on
the distribution of power and responsibilities among the various levels
of government. FDA concludes that this proposal is consistent with the
principles set forth in Executive Order 12612.
    Executive Order 12612 states that agencies formulating and
implementing policies are to be guided by certain federalism
principles. Section 2 of Executive Order 12612 enumerates fundamental
federalism principles. Section 3 states that, in addition to these
fundamental principles, executive departments and agencies shall
adhere, to the extent permitted by law, to certain listed criteria when
formulating and implementing policies that have federalism
implications. Section 4 lists special requirements for preemption.
    Executive Order 12612 recognizes that Federal action limiting the
discretion of State and local governments is appropriate ``where
constitutional authority for the action is clear and certain and the
national activity is necessitated by the presence of a problem of
national scope'' (section 3(b)). The constitutional basis for FDA's
authority to regulate drugs and devices is well established.
    Moreover, in developing the provisions of this proposed rule, the
agency carefully considered the provisions of the proposed rule
implementing section 1926 of the Public Health Service Act, the
Substance Abuse Prevention and Treatment block grant program. As a
condition of receipt of such grants, a State must have in place a law
that prohibits the sale or distribution of any tobacco product to
individuals under age 18 and enforce the law in a manner that can
reasonably be expected to reduce the extent to which tobacco products
are available to individuals under the age of 18. The statute
prescribes random, unannounced inspections, but otherwise allows the
States considerable flexibility in designing their enforcement
programs. By imposing the explicit obligations on manufacturers,
distributors, and retailers to control access by children and
adolescents to nicotine-containing cigarettes and smokeless tobacco
products, the FDA proposals will help States achieve their goals under
their substance abuse programs. FDA therefore believes that the two
programs complement each other.
    The proposed rule would establish uniform minimum standards with
respect to the labeling, advertising, sale, and distribution of
nicotine-containing cigarettes, cigarette tobacco, and smokeless
tobacco products. The proposed rule would expressly provide, however,
that these regulations do not preempt State and local laws,
regulations, and ordinances that establish higher standards with
respect to these products, or affect these products in areas not
covered by the proposed rule, e.g., environmental smoke.
    The proposed regulation of nicotine-containing cigarettes,
cigarette tobacco, and smokeless tobacco is narrowly drawn. First, it
focuses on reducing methods of promotion that are either expressly
designed to appeal to American youths, or that are designed without
regard to their appeal to American youths. Second, it focuses on
reducing the easy access of these nicotine containing products by
American youths.
    The agency concludes that the policy proposed in this document: Has
been assessed in light of the principles, criteria, and requirements in
Executive Order 12612; is not inconsistent with that Order; will assist
States in fulfilling their obligation under the Substance Abuse
Prevention and Treatment block grant program; will not impose
additional costs or burdens on the States; and will not affect the
States' ability to discharge traditional State governmental functions.
    Section 4 of Executive Order 12612 states that an executive
department or agency proposing to act through rulemaking to preempt
State law is to provide all affected States notice and opportunity for
appropriate participation in the proceedings. As required by the
Executive Order, States have, through this notice of proposed
rulemaking, an opportunity to participate in the proceedings (section
4(e)). Consistent with Executive Order 12612, FDA requests information
and comments from interested parties, including but not limited to
State and local authorities, on these issues of federalism.

C. Executive Order 12630: Governmental Actions and Interference With
Constitutionally Protected Property Rights

    Executive Order 12630 directs Federal agencies to ``be sensitive
to, anticipate, and account for, the obligations imposed by the Just
Compensation Clause of the Fifth Amendment in planning and carrying out
governmental actions so that they do not result in the imposition of
unanticipated or undue additional burdens on the public fisc.'' Section
3(a). Section 3(c) of the order states that actions taken to protect
the public health and safety ``should be undertaken only in response to
real and substantial threats to public health and safety, be designed
to advance significantly the health and safety purpose, and be no
greater than is necessary to achieve the health and safety purpose.''
Additionally, section 4(d) requires, as a prerequisite to any proposed
action regulating private property use for the protection of public
health and safety, each agency to: (1) Clearly identify the public
health or safety risk created by the private property use that is the
subject of the proposed action; (2) establish that the proposed action
substantially advances the purpose of protecting the public health and
safety against the identified risk; (3) establish, to the extent
possible, that the restrictions imposed on private property are not
disproportionate to the extent to which the use contributes to the
overall risk; and (4) estimate, to the extent possible, the potential
cost to the government should a court later determine that the action
constitutes a taking.
    The agency has considered whether the proposed rule would result in
a ``taking'' of private property. The proposed rule would, if
finalized, restrict outdoor advertising from being placed within 1,000
feet of any elementary or secondary school or playground, eliminate
cigarette vending machines and self-service displays, ban all brand
identifiable non-tobacco items, such as hats and tee shirts, prohibit
the use of a trade name of a non-tobacco item for any tobacco product,
and require established names and a brief statement on labels,
labeling, and/or advertising. In addition, the proposed rule would
require that all sponsored events be carried out only in the corporate
name. While these requirements might affect private property, they do
not constitute ``takings.''
    In determining whether a governmental action has resulted in a
``taking,'' recent court decisions have

[[Page 41358]]
generally required either a physical invasion of the property or a
denial of all economically beneficial or productive use of the property
(other than real property), and have examined the degree to which the
governmental action serves the public good, the economic impact of that
action, and whether the action has interfered with ``reasonable
investment-backed expectations.'' See Lucas v. South Carolina Coastal
Council, ______ U.S. ______, 112 S.Ct. 2886, 2893 (1992); Andrus v.
Allard, 444 U.S. 51, 65 (1979) (reduction in value is not necessarily a
taking); Golden Pacific Bancorp v. United States, 15 F.3d 1066, 1071-73
(Fed. Cir. 1994) (heavily regulated bank could not have developed a
historically rooted expectation of compensation so Federal take-over
did not require compensation), cert. denied, 115 S.Ct. 420 (1994);
Midnight Sessions, Ltd. v. City of Philadelphia, 945 F.2d 667 (3rd Cir.
1991) (denial of license to operate an all-night dance hall did not
constitute a taking because it did not deny all economically viable use
of the property), cert. denied, 503 U.S. 984 (1992); Elias v. Town of
Brookhaven, 783 F.Supp. 758 (E.D.N.Y. 1992) (loss of profit or the
right to make the most profitable use does not constitute a taking);
Nasser v. City of Homewood, 671 F.2d 432 (11th Cir. 1982) (deprivation
of most beneficial use of land or severe decrease in property value
does not constitute a taking). Indeed, in Andrus v. Allard, the Supreme
Court wrote,

    Suffice it to say that government regulation--by definition--
involves the adjustment of rights for the public good. Often this
adjustment curtails some potential for the use or economic
exploitation of private property. To require compensation in all
such circumstances would effectively compel the government to
regulate by purchase. ``Government hardly could go on if to some
extent values incident to property could not be diminished without
paying for every such change in the general law.''

Andrus, 444 U.S. at 65 (emphasis in original; citations omitted).
    Here, the proposed rule would not require the government to
physically invade or occupy private property, so the first inquiry is
whether the proposed rule, if finalized, would deny all economically
beneficial or productive use of property. The proposal would prohibit
outdoor advertising from being located within 1,000 feet of any
elementary or secondary school or playground. However, cases involving
advertising restrictions illustrate that restrictions on the size and
placement of advertising may be acceptable if they represent a valid
exercise of governmental authority or do not deny all economically
viable uses of the property. See Sign Supplies of Texas, Inc. v.
McConn, 517 F.Supp. 778, 782 (S.D. Tex. 1980) (city ordinance on sign
and billboard size, height, and location did not constitute a taking
and was a valid regulation of injurious and unlawful acts). In this
instance, the proposed restriction against outdoor advertising
represents an exercise of the agency's statutory authority to restrict
certain devices and permit labeling and advertising to continue under
certain conditions.
    Neither would the proposed rule effect a taking of vending machines
or self-service displays. Although vending machines would no longer be
permitted to be used to sell cigarettes or smokeless tobacco products,
they would continue to have economic value if they were modified for
other uses. FDA notes that a recent issue of Vending Times stated that
cigarette vending sales declined in 1993 and that:

    Many traditional machines were modified to sell both full-value
and generic/subgeneric styles at two prices, and glass-front
machines gained favor as cigarette merchandisers because of their
high selectivity, flexible pricing, attractive display, and
convertibility to other uses if cigarette vending becomes illegal.

``Vending Cigarettes,'' Vending Times, Census of the Industry Issue,
1994 at p. 42 (emphasis added).
    This statement indicates that compliance with this regulation would
not result in a ``taking'' of vending machines. Similarly, self-service
displays, in many instances, could be moved, adapted, or locked to
comply with the requirement of direct transfer from retailers to
consumers. Thus, like vending machines, self-service displays would
retain their utility rather than losing their value.
    Non-tobacco items that bear the brand name, logo, symbols, mottos,
selling messages, or any other indicia of a cigarette or smokeless
tobacco product are often given away free as promotional items or
packaged with tobacco products as incentives to purchase the product.
Banning brand identifiable non-tobacco items as a marketing tool and
limiting sponsorship of events would not constitute a taking because,
like vending machines and self-service displays, they can be modified
or adapted to fit other needs. FDA notes that the FTC, in 1991, had to
consider whether its proposal to require warning messages on
``utilitarian objects'' bearing the names, logos, or selling messages
of smokeless tobacco product firms or brands constituted a taking. The
FTC acknowledged that small businesses and one advertising association
claimed that the FTC's rule would impose economic burdens on them, but
felt that such claims were unsubstantiated. The FTC quoted an authority
in consumer product regulation as stating that firms that produce these
``utilitarian items'' must be ``adaptable and flexible to meet
different needs of changing marketplace demands'' and that they are
able to transfer resources to other potential customers with only short
term sales transaction costs. See 56 FR 11653, at 11661 (Mar. 20,
1991); see also Georgia-Pacific Corp. v. United States, 640 F.2d 328,
360 (Ct. Cl. 1980) (``It is settled that not all losses suffered by the
owner are compensable under the fifth amendment. The government must
pay only for what it takes, not for opportunities which the owner may
have lost.'') (citation omitted). FDA also notes that, until a final
rule becomes effective, firms could easily adjust their business
practices to adapt to the proposed regulations or to phase out
utilitarian items and, therefore, not have such items in stock when the
rule becomes effective.
    Finally, prohibiting the use of non-tobacco names on tobacco
products and requiring labels, labeling, and advertising to carry the
product's established name and a brief statement would represent too
slight a ``taking'' to warrant constitutional concern. With respect to
the prohibition against the use of non-tobacco names, the non-tobacco
product firm would lose its ability to license its name to any tobacco
company, but it would be free to exploit its trade name with any other
industry. There have been very few instances (such as ``Harley-
Davidson' cigarettes) of tobacco companies licensing a non-tobacco
trade name. The agency recognizes that these brands might still be in
the marketplace and would apply this provision prospectively only.
    Nevertheless, even if the agency's proposed actions could
constitute a ``taking,'' FDA finds that the actions are consistent with
section 4(d) of the order. The labels, labeling, and advertising for
cigarettes and smokeless tobacco products convey images of status,
sophistication, maturity, and adventure or excitement that are
particularly appealing to young people. Their effectiveness at
attracting young people is reflected in studies showing that young
people tend to smoke the most heavily advertised brands and that very
young children are able to recognize brand logos and imagery. The
appeal generated by labels, labeling, and advertising, coupled with
easy access, creates the risk that young people will

[[Page 41359]]
smoke cigarettes or use smokeless tobacco products, thereby exposing
themselves to the long-term health risks associated with those
products. Consequently, FDA has carefully drafted the proposed rule to
convey information regarding warnings, precautions, side effects, and
contraindications in order to inform consumers about the use of these
products. The advertising requirements in proposed subpart D are also
narrowly drafted to allow advertising to continue under certain
conditions rather than prohibit all advertising. This will enable
adults to continue receiving advertising messages while decreasing the
advertisements' appeal to young people.
    Vending machines and self-service displays offer young people easy
access to cigarettes and smokeless tobacco products even though State
laws prohibit cigarette sales to minors and some States or localities
require locking devices on or specific placement of vending machines.
Thus, the requirement that retailers physically provide the product to
the consumer substantially advances the purpose of protecting the
public health by eliminating easy, unmonitored access to such products
by underage persons. This requirement is not disproportionate to the
risk presented by vending machines and self-service displays because
many studies demonstrate how easily minors can purchase cigarettes from
vending machines, and other documents indicate that shoplifting is
another method young people use to acquire these products.
    Non-tobacco items and sponsored events that bear the brand name,
logo, symbols, mottos, selling messages, or any other indicia of a
cigarette or smokeless tobacco product act like advertising, conveying
images of status, sophistication, maturity, and adventure or excitement
that appeal to young people. Reports demonstrate that many young
people, even those under the legal age, possess these items or seek
coupons or certificates to obtain these items. The items, in
conjunction with labeling, other advertising activities, and sponsored
events, create the impression that smoking or smokeless tobacco product
use is more prevalent and acceptable in society than it actually is
and, as a result, increase the risk that young people will smoke
cigarettes or use smokeless tobacco products and expose themselves to
the long-term health risks associated with those products. Thus,
banning tobacco promotions on non-tobacco items and in conjunction with
sponsored events is appropriate.
    As for the estimated potential cost to the government in the event
that a court finds a taking to exist, FDA is unable to provide an
approximate figure. There is little publicly available and precise data
or information on each activity that would arguably be the subject of a
regulatory taking, and section 704 of the act prohibits FDA from
requiring financial, sales, or pricing data during an inspection.
Consequently, the agency would appreciate receiving information to
enable it to determine the potential cost to the government if a court
found the actions described in this proposed rule to be a taking.
VII. Environmental Impact

    The agency has determined under 21 CFR 25.24(a)(8), (a)(11), and
(e)(6) that this action is of a type that does not individually or
cumulatively have a significant effect on the human environment.
Therefore, neither an environmental assessment nor an environmental
impact statement is required.

VIII. Analysis of Impacts

A. Introduction and Summary

    FDA has examined the impacts of the proposed rule under Executive
Order 12866, under the Regulatory Flexibility Act (Pub. L. 96-354) and
under the Unfunded Mandates Reform Act (Pub. L. 104-4). Executive Order
12866 directs agencies to assess all costs and benefits of available
regulatory alternatives and, when regulation is necessary, to select
regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other
advantages; distributive impacts and equity). The Regulatory
Flexibility Act requires agencies to analyze regulatory options that
would minimize any significant impact of a rule on small entities. The
Unfunded Mandates Reform Act requires (in Section 202) that agencies
prepare an assessment of anticipated costs and benefits before
proposing any rule that may result in an annual expenditure by State,
local and tribal governments, in the aggregate, or by the private
sector, of $100,000,000, (adjusted annually for inflation). That Act
also requires (in Section 205) that the agency identify and consider a
reasonable number of regulatory alternatives and from those
alternatives select the least costly, most cost-effective or least
burdensome alternative that achieves the objective of the rule. The
following analysis, in conjunction with the remainder of this preamble,
demonstrates that this proposed rule is consistent with the principles
set in the Executive Order and in these two statutes. In addition, this
document has been reviewed by the Office of Management and Budget as an
economically significant regulatory action under Executive Order 12866.
    The estimated benefits of the proposed rule were based on FDA's
finding that compliance with the proposed requirements would help to
achieve the Department's ``Healthy People 2000'' goals. Each year, an
estimated 1 million adolescents begin to smoke cigarettes. This
analysis calculates that at least 24 percent of these youngsters will
ultimately die from causes related to their nicotine habit. (Other
epidemiological studies suggest even higher rates of excess mortality.
For example, CDC projections indicate that 1 in 3 adolescents who smoke
will die of smoking-related disease.) As a result, FDA projects that
the achievement of the ``Healthy People 2000'' goals would prevent well
over 60,000 early deaths, gaining over 900,000 future life-years for
each year's cohort of teenagers who would otherwise begin to smoke. At
a 3 percent discount rate, the monetary value of these benefits are
projected to total from about $28 to $43 billion per year and are
comprised of about $2.6 billion in medical cost savings, $900 million
in productivity gains from reduced morbidity, and $24.6 to $39.7
billion per year in willingness-to-pay values for averting premature
fatalities. (Because of the long periods involved, a 7 percent discount
rate reduces total benefits to about $9.1 to $10.4 billion per year.)
In addition, the proposed rule would prevent numerous serious illnesses
associated with the use of smokeless tobacco products.
    The full realization of this goal would require the active support
and participation of State and local governments, civic and community
organizations, tobacco manufacturers, and retail merchants. Even if
only a fraction of the goal were achieved, the benefits would be
substantial. For example, as shown in Table 1, halting the onset of
smoking for only \1/20\ of the 1 million adolescents who become new
smokers each year would provide annual benefits valued at from $2.9 to
$4.3 billion a year.
    To comply with the initial requirements of the rule, FDA projects
that manufacturers and retailers of tobacco products would incur one-
time costs ranging from $26 to $39 million and annual operating costs
of about $227 million (see Table 2). Manufacturers would be responsible
for about $15 to $28 million of the one-time costs and $175 million of
the annual

[[Page 41360]]
costs (mostly for educational programs). In addition, they would face
significant advertising restrictions. Retailers would pay $11 million
in one-time costs and $52 million in annual costs. On an annualized
basis, using a 3 percent discount rate over 15 years, costs for these
initial requirements total about $230 million (also about $230 million
at a 7 percent discount rate). Achieving the ``Healthy People 2000''
goals, however, could demand still further efforts by tobacco
manufacturers to restrict youth access to tobacco products. Moreover,
FDA plans to propose additional requirements that would become
effective only if these goals were not met.

                                       Table 1--Annual Illness-Related Benefits of Alternative Effectiveness Rates
                                        [Undiscounted lives and life-years; 3% discount rate for monetary values]

                                                                                                                Mortality-related      Total benefits
                                                                                                 Morbidity-    willingness-to-pay  ---------------------
                                                      Fewer      Lives      Life-     Medical      related   ----------------------
        Fraction of teenage cohort deterred           adult      saved      years     savings   productivity    Life-
                                                     smokers                saved                  savings      years      Lives       Low        High
                                                        **                                                      saved      saved
                                                        (No.)      (No.)      (No.)   ($bils.)     ($bils.)    ($bils.)   ($bils.)   ($bils.)   ($bils.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1/2\ *...........................................    250,000     60,200    905,300        2.6          0.9        24.6       39.7       28.1       43.2
\1/3\.............................................    167,000     40,100    603,600        1.8          0.6        16.4       26.4       18.8       28.8
\1/5\.............................................    100,000     24,100    362,100        1.1          0.4         9.9       15.9       11.4       17.4
\1/10\............................................     50,000     12,000    181,100        0.5          0.2         4.9        7.9        5.6        8.6
\1/20\............................................     25,000      6,000     90,500        0.3          0.1         2.5        4.0        2.9        4.3
* Estimate used in analysis.
** Assumes 50% of adolescents who are deterred from smoking refrain as adults.

               Table 2--Industry Costs for Core Provisions
                                [$mils.]
------------------------------------------------------------------------
                                                   Annual       Total
     Requirements by sector *        One-time    operating    annualized
                                      costs        costs       costs **
------------------------------------------------------------------------
Tobacco Manufacturers............        15-28          175          177
    Visual Inspections...........                        24           24
    Training.....................                         1            1
    Label Changes................         4-17                         1
    Self-Service Ban.............           11                         1
    Educational Programs.........                       150          150
Retail Establishments............           11           52           53
    Training.....................                        10           10
    I.D. Checks..................                        28           28
    Self-Service Ban.............           11           14           15
      TOTAL......................        26-39          227          230
------------------------------------------------------------------------
* Advertising restrictions are considered under distributional effects.
** Sum of one-time costs annualized over 15 years at 3 percent and
  annual operating costs.

    Consumers would incur costs to the extent that they lose positive
utility received from the imagery embodied in product advertising
campaigns. Consumers would also lose the convenience offered by the use
of cigarette vending machines. Costs for these compliance activities
were based on the agency's best estimate of the resources that would be
needed to establish effective programs for decreasing the incidence of
lifelong addictions to nicotine-containing cigarettes and smokeless
tobacco products.
    In addition to the costs described above, the proposal would create
distributional and transitional effects. While the overall impact of
these changes on the national economy would be small, because dollars
not spent on tobacco-related expenditures would be spent on other goods
or services, several individual industries would be affected. Tobacco
manufacturers and suppliers would face increasingly smaller sales,
because reduced tobacco consumption by youth would lead, over time, to
reduced tobacco consumption by adults. The impact of this trend on
industry revenues would be extremely gradual, requiring over a decade
to reach an annual decrease of even 4 percent, substantially mitigating
the costs associated with any resource dislocation. Also, if State
excise tax rates on tobacco products remain at current levels, State
tax revenues would decrease slowly over time, falling by $252 million
by the tenth year.
    Tobacco manufacturers spent $6.2 billion on advertising,
promotional, and marketing programs in 1993, and about 30 percent would
be substantially altered to reflect the various ``text only''
restrictions or other prohibitions. If tobacco advertising outlays
declined, various service agencies and communications media (including
suppliers of retail counter and other display space) would need to
attract replacement sponsors. Similarly, vending machine operators
would need to find substitute products to replace that portion of their
revenue that is currently derived from the sale of cigarettes. Many of
these adjustments would occur quickly (e.g., TV networks reportedly
recouped advertising revenues within 1 year of the 1971 ban), but
others could create short-term disruptions as businesses moved to
replace lost product lines.
    In sum, FDA finds that compliance with this proposed rule would
impose some economic costs on the tobacco industry and short-term costs
on several other industry sectors. With regard to small businesses,
most impacts would

[[Page 41361]]
be small or transitory. For a small retail convenience store not
currently complying with this proposal, the additional first year costs
could reach $320. For those convenience stores that already check
customer identification, these costs fall to $35. Moreover, the
proposed rule would not produce significant economic problems at the
national level, as the gradual displacement in tobacco-oriented sectors
would be largely offset by increased output in other areas. Thus,
pursuant to the Unfunded Mandates Act, FDA concludes that the
substantial benefits of this regulation would greatly exceed the
compliance costs that it would impose on the U.S. economy. In addition,
the agency has considered other alternatives and determined that the
current proposal is the least burdensome alternative that would meet
the ``Healthy People 2000'' goals.

B. Statement of Need for Proposed Action

    The need for action stems from the agency's determination to
ameliorate the enormous toll on the public health that is directly
attributable to the consumption by adolescents of cigarettes and
smokeless tobacco products. According to the nation's most
knowledgeable health experts, tobacco use is the most important
preventable cause of morbidity and premature mortality in the United
States, accounting each year for over 400,000 deaths (approximately 20
percent of all deaths). Moreover, these morbidity and mortality burdens
do not spare middle aged adults--with the average smoking-related death
responsible for the loss of up to 15 life-years.<SUP>1
    In its guidelines for the preparation of Economic Impact Analyses,
OMB asks that Federal regulatory agencies determine whether a market
failure exists and if so, whether that market failure could be resolved
by measures other than new Federal regulation. The basis for this
request derives from standard economic welfare theory, which by
assuming that each individual is the best judge of his/her own welfare,
concludes that perfectly competitive private markets provide the most
efficient use of societal resources. Accordingly, the lack of perfectly
competitive private markets (market failure) is frequently used to
justify the need for government intervention. Common causes of such
market failures include monopoly power, inadequate information, and
market externalities or spillover effects.
    While FDA believes that various elements of market failure are
relevant to the problem of teenage tobacco addiction, the agency also
believes that the proposed regulatory action could be justified even in
the absence of a traditional market failure. As noted above, the
implications of the market failure logic are rooted in a basic premise
of the standard economic welfare model--that each individual is the
best judge of his/her own welfare. However, FDA is convinced that this
principle does not apply to children and adolescents. Even steadfast
defenders of individual choice acknowledge the difficulty of applying
the ``market failure'' criterion to non adults. Littlechild, for
example, adds a footnote to the title of his chapter on ``Smoking and
Market Failure'' <SUP>2 to note that ``[t]he economic analysis of
market failure deals with choice by adults.'' FDA finds this statement
consistent with its view that even if many children make rational
choices,<SUP>3 the agency's regulatory determinations must reflect the
societal conviction that children under the age of legal consent cannot
be assumed to act in their own best interest.<SUP>4
    In particular, FDA finds that the imagery used in industry
advertising and promotional programs obscures adolescent perceptions of
the significance of the associated health risks and the strength of the
addictive power of tobacco products. The preceding sections of this
preamble describe numerous studies on the shortcomings of the risk
perceptions held by children. Although most youngsters acknowledge the
existence of tobacco-related health risks, the abridged time horizons
of youth make them exceptionally vulnerable to the powerful imagery
advanced through targeted industry advertising and promotional
campaigns. In effect, these conditions constitute an implicit market
and youths to begin using these products and become addicted to
    Moreover, the agency does not view these results as inconsistent
with the growing economic literature based on the Becker and Murphy
models of ``rational addiction.'' <SUP>5 Although several empirical
studies have demonstrated that, for the general population, cigarette
consumption is ``rationally addictive'' in the sense that current
consumption is affected by both past and future consumption,<SUP>6
Chaloupka notes that this ``rationality'' does not hold for younger or
less educated persons, for whom past but not future consumption
maintains a significant effect on current consumption. He concludes,
``[t]he strong effects of past consumption and weak effects of future
consumption among younger or less educated individuals support the a
priori expectation that these groups behave myopically.'' <SUP>7
    A further market failure would exist if the use of tobacco imposed
external or spillover costs on nonusers. Many studies have attempted to
calculate the societal costs of smoking, but few have addressed these
externalities. The most detailed research on whether smokers pay their
own way is the 1991 study by Manning, et al., ``The Cost of Poor Health
Habits,'' <SUP>8 which develops estimates of the present value of the
lifetime external costs attributable to smoking. This study examines
differences in costs of collectively financed programs for smokers and
nonsmokers, while simultaneously controlling for other personal
characteristics that could affect these costs (e.g., age, sex, income,
education, and other health habits, etc.). The authors found that
nonsmokers subsidize smokers' medical care, but smokers (who die at
earlier ages) subsidize nonsmokers' pensions. On balance, they
calculated that before accounting for excise taxes, smoking creates net
external costs of about $0.15 per pack of cigarettes in 1986 dollars
($0.33 per pack adjusted to 1995 dollars by the medical services price
index.) While acknowledging that these estimates ignored external costs
associated with lives lost due to passive smoking, perinatal deaths due
to smoking during pregnancy, and deaths and injuries caused by smoking-
related fires, the authors concluded that there is no net externality,
because the sum of all smoking-related externalities is probably less
than the added payments imposed on smokers through current Federal and
State cigarette excise taxes. A Congressional Research Service report
to Congress examined estimates of the potential magnitude of the
omitted costs and concurred with this finding.<SUP>9

C. Regulatory Benefits

1. Prevalence-Based Studies
    The benefits of the proposed regulation include the costs that
would be avoided by eliminating the adverse health effects associated
with the consumption of tobacco products. Most research on the costs of
smoking-related illness has concentrated on the medical costs and
productivity losses associated with the prevalence of death and illness
in a given year. These prevalence-based studies typically measure three
components: (1) The contribution of smoking to annual levels of illness
and death, (2) the direct costs of providing extra medical care, and
(3) the indirect

[[Page 41362]]
costs, or earnings foregone due to smoking-related illness or
death.<SUP>10
    In a recent statement, the U.S. Office of Technology Assessment
(OTA) declared that ``the greatest 'costs' of smoking are immeasurable
insofar as they are related to dying prematurely and living with
debilitating smoking-related chronic illness with attendant poor
quality of life.'' Nonetheless, OTA calculated that in 1990 the
national cost of smoking-related illness and death amounted to $68
billion and included $20.8 billion in direct health care costs, $6.9
billion in indirect morbidity costs, and $40.3 billion in lost future
earnings from premature death.<SUP>11 More recently, the CDC estimated
the 1993 smoking-attributable costs for medical care, alone, at $50
billion.<SUP>12 Unfortunately, these prevalence-based studies do not
answer many of the most important questions related to changes in
regulatory policy, because they present the aggregate cost of smoking-
related illness in a single year, rather than the lifetime cost of
illness for an individual smoker. As noted in the 1992 Report of the
Surgeon General, most prevalence-based studies fail to consider issues
concerning ``the economic impact of decreased prevalence of cigarette
smoking, the length of time before economic effects are realized, the
economic benefits of not smoking, and a comparison of the lifetime
illness costs of smokers with those of nonsmokers.'' <SUP>13 In effect,
although these studies are designed to measure the smoking-related draw
on societal resources, they are not well-suited for analyzing the
consequences of regulatory-induced changes in smoking behavior.
2. FDA's Methodology
    An alternative methodology, termed incidence-based research,
compares the lifetime survival probabilities and expenditure patterns
for smokers and nonsmokers. As this approach models the individual
life-cycle consequences of tobacco consumption, FDA has relied on these
incidence-based studies to value the beneficial effects of the proposed
rule over the lifetime of each new cohort of potential smokers. The
methodology incorporates the following steps:
    <bullet> A projection of the extent to which the rule would reduce
the incidence, or the annual number of new adolescent users of tobacco
products
    <bullet> A projection of the extent to which the reduced rates of
adolescent tobacco consumption would translate to reduced rates of
lifetime tobacco consumption
    <bullet> A projection of the extent to which the reduced rates of
lifetime tobacco consumption would decrease the number of premature
deaths and lost life-years
    <bullet> An exploration of various means of estimating the monetary
value of the expected health improvements.
    The annual benefits of the proposed regulation are measured as the
present value of the lifetime benefits gained by those youngsters, who
in the absence of the proposed regulation, would have become new
smokers.
3. Reduced Incidence of New Young Tobacco Users
    Each year, an estimated 1 million youngsters become new smokers.
The proposed regulation targets this group by restricting youth access
to tobacco products and by limiting advertising activities that affect
adolescents. Several communities have demonstrated that access
restrictions are extremely effective when vigorously applied.
Woodridge, IL, for example, achieved a compliance rate of over 95
percent. Moreover, 2 years after that law was enacted, a survey of 12
to 14 year-old students indicated that overall smoking rates were down
by over 50 percent (over \2/3\ for regular smokers).<SUP>14
    The proposed advertising and promotional restrictions would augment
these efforts to limit the attraction of tobacco products to underage
consumers. As discussed in detail in the preamble above, no one study
has definitively quantified the precise impact of advertising or of
advertising restrictions. Nevertheless, the majority of the relevant
research indicates that advertising restrictions would reduce consumer
demand. For example, according to the 1989 report of the Surgeon
General, ``The most comprehensive review of both the direct and
indirect mechanisms concluded that the collective empirical,
experiential, and logical evidence makes it more likely than not that
advertising and promotional activities do stimulate cigarette
consumption.'' <SUP>15 Similarly, after a careful examination of
available studies, Clive Smee, Chief Economic Adviser to the UK
Department of Health determined that, ``the balance of evidence thus
supports the conclusion that advertising does have a positive effect on
consumption.'' <SUP>16
    In Northern California, 24 cities and unincorporated areas in 5
counties adopted local youth tobacco access ordinances that prohibit
self-service merchandising and point-of-sale tobacco promotional
products in retail stores. Survey measures of the impact of these
ordinances by the Stop Tobacco Access for Minor Project (STAMP) found
that, on average, tobacco sales to minors dropped 40 percent to 80
percent.<SUP>17
    In the August 26, 1993, Federal Register, the Substance Abuse and
Mental Health Services Administration (SAMHSA) proposed a program of
State-operated enforcement activities that would restrict the sale or
distribution of tobacco products to individuals under 18 years of age.
FDA strongly supports the basic objectives of this program, but
believes that their full achievement would demand a broad arsenal of
controls; including industry programs to complement and fortify the new
State inspectional programs, together with restrictions on industry
advertising and promotions to counter the influence of ongoing
marketing activities. While quantitative estimates of the effectiveness
of these activities cannot be made with certainty, FDA believes that,
if aggressively implemented and supported by both industry and public
sector entities, comprehensive programs designed to discourage youthful
tobacco consumption could reasonably achieve the ``Healthy People
2000'' goal of halting the onset of smoking for at least half, or
500,000, of the 1,000,000 youngsters who presently start to smoke each
year.
    The agency acknowledges the imposing size of the required effort
and understands that the performance goals may not be fully attainable
if the affected industry sectors choose to ignore the new incentives
established by the proposed regulation. After all, the industry's long-
term profits hinge on attracting new customers. Nonetheless, FDA is
confident that the combined effect of the proposed restrictions on
advertising and promotion, prohibition of self-service tobacco products
(including vending machines), new labeling information and educational
programs, and age verification obligations for retailers would
significantly diminish the allure as well as the access to tobacco
products by youth. Moreover, if the performance goals are not met 7
years after the effective date of the final rule, additional
requirements would enhance the effectiveness of these activities. Thus,
this study projects regulatory benefits on the presumption that the
``Healthy People 2000'' goals would be met, but also presents results
for effectiveness levels that are considerably smaller.
4. Reduced Rate of Lifetime Tobacco Use
    As part of its regulatory proposal, SAMHSA assumed that its new
monitoring program would significantly reduce the amount of underage

[[Page 41363]]
smoking, but its methodology did not project these reduced smoking
rates into adult years. SAMHSA acknowledged the conservative nature of
its estimate and noted the likelihood that the majority of the cost
savings would accrue over long time spans, ``as each cohort of non-
smoking youth ages into non-smoking adults.'' Nevertheless, SAMHSA did
not quantify these lifetime benefits, ``because there are so many
uncertainties as to future outcomes.'' While agreeing that long term
benefit projections are uncertain, FDA is convinced that estimates
based on valid assumptions can provide reasonable approximations of
future cost savings.
    The major beneficiaries of the proposed rule are those individuals
who would otherwise become addicted to tobacco early in life, but who
are unlikely to start using tobacco products as an adult. Evidence from
SAMHSA suggests that this percentage will be high as most smokers
become daily cigarette smokers before the age of 18. The 1994 Surgeon
General's Report indicates that 82 percent of persons (aged 30 to 39)
who ever smoked daily began to smoke before the age of 18. That report
concludes that ``if adolescents can be kept tobacco-free, most will
never start using tobacco.'' FDA agrees with that assessment, but notes
that the above percentage may not reflect the ultimate demand for
tobacco consumption that may occur if adolescent access is effectively
limited. Thus, to account for this possibility, FDA conservatively
assumed that this proposed regulation would prevent the use of tobacco
as an adult for only one half of the estimated 500,000 youngsters who
would be deterred from starting to smoke each year. Accordingly, FDA
has calculated the annual benefits of the proposed rule from the
lifetime health gains associated with preventing 250,000 adolescents
from ever smoking as an adult.
5. Lives Saved
    FDA calculated the number of smoking-related deaths that would be
averted by the 250,000 lifetime nonsmokers (who in the absence of the
proposed regulation would be smokers) from age-specific differences in
the probability of survival for smokers and nonsmokers. The probability
of survival data for the agency's estimate were derived from the
American Cancer Society's Cancer Prevention Study II, as shown in Table
3.

                        Table 3--Probability of Survival by Age, Sex, and Smoking Status
                             [Probabilities of a 17-Year-Old Surviving to Age Shown]
----------------------------------------------------------------------------------------------------------------
                                                       Male          Male all         Female        Female all
                   Age (years)                     neversmokers       smokers      neversmokers       smokers
----------------------------------------------------------------------------------------------------------------
 35.............................................           1               1               1               1
45..............................................           0.986           0.966           0.988           0.984
55..............................................           0.951           0.893           0.962           0.939
65..............................................           0.867           0.733           0.901           0.831
75..............................................           0.689           0.466           0.760           0.630
85..............................................           0.336           0.159           0.453           0.289
----------------------------------------------------------------------------------------------------------------
Source: Thomas Hodgson, ``Cigarette Smoking and Lifetime Medical Expenditures,'' ``The Milbank Quarterly,'' vol.
  70, no. 1, 1992, p. 91. Based on data from the American Cancer Society's Cancer Prevention Study II.

    FDA initially compared the probability of death for smokers versus
nonsmokers within each 10-year period. Differences in the probabilities
of death were then multiplied by the number of smokers remaining at the
start of each 10-year period. Excess deaths among smokers in all age
groups totaled almost 28 percent of the 250,000 cohort. Because these
data do not account for potentially confounding variables, such as
alcohol consumption, or other lifestyle differences, FDA adjusted the
mortality estimate to 24 percent to reflect findings by Manning et
al.<SUP>18 that such nontobacco lifestyle factors may account for 13
percent of excess medical care expenditures. FDA recognizes that this
24 percent mortality estimate may be too low. For example, Peto, et al.
found that about half of all adolescents who continue to smoke
regularly will eventually die from smoking-related disease.<SUP>19
Moreover, CDC projects that up to 1 in 3 adolescent smokers may die
prematurely. Nevertheless, for this analysis, FDA relied on the
probabilities shown in Table 3, corrected by the 13 percent lifestyle
influence adjustment, to project that achieving the ``Healthy People
2000'' performance goal would prevent about 60,200 smoking-related
fatalities among each year's cohort of potential new smokers.<SUP>20
    The economic assessment of health-related variables requires
discounting the value of future events to make them commensurate with
the value of present events. For this analysis, a 3 percent discount
rate was used to calculate the present value of the projections. (Most
health-related cost-effectiveness studies use rates of from 3 to 5
percent. FDA presents summary estimates below for rates of both 3 and 7
percent.) On the assumption that it would be 20 years before each
year's cohort of new adults reached the midpoint of the 35 to 45 age
bracket and 60 years to reach the 75 to 85 age bracket, these
calculations indicate that, on a present value basis, the proposed rule
would save 15,863 lives per year.
6. Life-Years Saved
    The number of life-years that would be saved by preventing each
year's cohort of 250,000 adolescents from acquiring a smoking addiction
was calculated from the same age-specific survival differences between
smokers and non-smokers. In each 10-year life span, the number of years
lived for each cohort of persons who would have been smokers but who
were deterred was compared to the number of years that would have been
lived by that same cohort if they had been smokers. The difference
between these two measures is the life-years saved for that 10-year
period.<SUP>21 Deducting the 13 percent lifestyle adjustment indicates
that over the full lifetime of each cohort, the proposed regulation
would gain an estimated 905,000 life-years, or about 15 years per life
saved. On a discounted basis, the proposed rule would save an estimated
211,391 life-years annually.
7. Monetized Benefits of Reduced Tobacco Use
    There is no fully appropriate means of assigning a dollar figure to
represent the attendant benefits of averting thousands of tobacco-
induced illnesses and fatalities. However, to quantify important
components of the expected economic gains, FDA has developed estimates
of the value of the reduced medical costs and the increased worker
productivity that would result from

[[Page 41364]]
fewer tobacco-related illnesses. In addition, since productivity
measures do not adequately value the avoidance of premature death, FDA
has adopted a willingness-to-pay approach to value the benefits of
reduced tobacco-related fatalities.
8. Reduced Medical Costs
    On average, at any given age, smokers incur higher medical costs
than nonsmokers. However, nonsmokers live longer and therefore continue
to incur medical costs over more years. Several analysts have reported
conflicting estimates of the net outcome of these factors, but the most
recent research is the incidence-based study by Hodgson,\22\ who found
that lifetime medical costs for male smokers were 32 percent higher
than for male neversmokers and lifetime medical costs for female
smokers were 24 percent higher than for female neversmokers. Hodgson
determined that the present value of the lifetime excess costs were
about $9,400 in 1990 dollars (future costs discounted at 3
percent).\23\ As noted earlier, the incidence-based study by Manning et
al., implies that about 13 percent of the excess medical costs are
attributable to factors other than smoking. Accounting for this
reduction and adjusting by the consumer price index (CPI) for medical
care raises the present value of Hodgson's excess medical cost per new
smoker to $10,590 in 1994 dollars. Thus, those 1,000,000 young people
under the age of 18, who currently become new smokers each year, are
responsible for excess lifetime medical costs measured at a present
value of $10.6 billion (1,000,000 x $10,590). Since FDA projects that
the proposed regulation would prevent 250,000 of these individuals from
smoking as adults, the medical cost savings attributable to the
proposed regulation is estimated at $2.6 billion per year.
9. Reduced Morbidity Costs
    An important cost of tobacco-related illness is the value of the
economic output that is lost while individuals are unable to work.
Thus, any future reduction in such lost work days contributes to the
economic benefits of the proposed regulation. Several studies have
calculated prevalence-based estimates of U.S. productivity losses due
to smoking-related morbidity, but FDA knows of no incidence-based
estimates. Hodgson, however, has shown that in certain situations,
incidence measures can be derived from available prevalence measures.
For example, he demonstrates that in a steady-state model, the only
difference between prevalence and incidence-based costs are due to
discounting.\24\ Consequently, FDA has adopted Hodgson's method to
develop a rough approximation of incidence-based costs from an
available prevalence-based estimate of morbidity costs.
    Rice et al. \25\ found that lost wages due to tobacco-related work
absences in the United States amounted to $9.3 billion in 1984. This
equates to $12.3 billion in 1994 dollars when adjusted by the
percentage change in average employee earnings since 1984. Although FDA
does not have a precise estimate of the life-cycle timing of these
morbidity effects, the relevant latency periods would certainly be
shorter than for mortality effects. Thus, to account for the deferred
manifestation of smoking-related morbidity effects, FDA assumed that
they would occur over a time horizon equal to 80 percent of that
previously measured for mortality effects. Further, because the long-
term decline in smoking prevalence has exceeded the growth in
population, the estimated incidence-based costs were reduced by another
20 percent. At a 3 percent discount rate, this methodology implies that
the incidence-based cost of smoking-related morbidity, or the present
value of the future costs to one year's cohort of 1,000,000 new
smokers, is about $3.5 billion. Based on FDA's estimate that the
proposed regulation would prevent 250,000 youths per year from smoking
as adults, the estimated annual benefits from reduced morbidity amount
to about $879 million.
10. Benefits of Reduced Mortality Rates
    From a societal welfare perspective, OMB advises that the best
means of valuing benefits of reduced fatalities is to measure the
affected group's willingness-to-pay to avoid fatal risks.
Unfortunately, the specific willingness-to-pay of smokers is unknown,
because institutional arrangements in the markets for medical care
obscure direct measurement techniques.\26\ Nevertheless, many studies
have examined the public's willingness-to-pay to avoid other kinds of
life-threatening risks, especially workplace and transportation
hazards. An EPA-supported study \27\ found that most empirical results
support a range of $1.6 to $8.5 million (in 1986 dollars) per
statistical life saved, which translates to $2.2 to $11.6 million in
1994 dollars. However, the uncertainty surrounding such estimates is
substantial. Moreover, Viscusi has shown that smokers, on average, may
be willing to accept greater risks than nonsmokers. For example,
smokers may accept about one-half the average compensation paid to face
on-the-job-injury risks.\28\ FDA therefore has conservatively used $2.5
million per statistical life, which is towards the low end of the
research findings, to estimate society's willingness-to-pay to avert a
fatal smoking-related illness. Thus, the annual benefits of avoiding
the discounted number of 15,863 premature fatalities would be $39.7
billion.
    An alternative method of measuring willingness-to-pay is to
calculate a value for each life-year saved. This approach, which is
intuitively appealing because it places a greater value on the
avoidance of death at a younger than at an older age, is the
traditional means of assessing the cost-effectiveness of medical
interventions. Nevertheless, there have been few attempts to determine
the appropriate value of a life-year saved. OMB suggests several
approaches, including annualizing with an appropriate discount rate the
estimated value of a statistical life over the average expected life-
years remaining. For example, at a 3 percent discount rate, a $2.5
million value per statistical life for an individual with 35 years of
remaining life-expectancy translates to about $116,500 per life year.
Since the proposed regulation would save 211,391 discounted life-years
annually, this approach yields annual benefits of $24.6 billion. FDA
notes that this approach does not attribute any value to lost consumer
utility from tobacco product consumption and solicits public comment on
this methodology.
11. Reduced Fire Costs
    Every year lighted tobacco products are responsible for starting
fires which cause millions of dollars in property damage and thousands
of casualties. In 1992, fires started by lighted tobacco products
caused 1,075 deaths and $318 million in direct property damage.\29\ A
reduction in the number of smokers, and the coinciding number of
cigarettes smoked, would result in a drop in the number of fires over
the years. If the number of fires fell by the same percentage as the
expected reduction in cigarette sales, this would imply present value
savings due to fewer fires of $203 million for the value of lives saved
and $24 million for the value of averted property damage, totaling $227
million annually over a 40-year period. Moreover, these estimates do
not include costs for nonfatal injuries or for providing temporary
housing.
12. Summary of Benefits
    The discussion above demonstrates the formidable magnitude of
plausible estimates of the economic benefits available from smoking
reduction efforts. As described, FDA forecasts

[[Page 41365]]
annual net medical cost savings of $2.6 billion and annual morbidity-
related productivity savings of $900 million. From a willingness-to-pay
perspective, the annual benefits of reduced tobacco- related disease
mortality range from $24.6 to $39.7 billion. As a result, the value of
the annual disease-related benefits of achieving the ``Healthy People
2000'' goal is projected to range from $28.1 to $43.2 billion.
(Following Hodgson, this analysis uses a 3 percent discount rate. A 7
percent rate reduces these benefits to a range of $9.1 to $10.4
billion.) These totals do not include the benefits expected from fewer
fires (over $200 million annually), reduced passive smoking, or
decreased use of smokeless tobacco products. Moreover, while FDA
believes these effectiveness projections are plausible, much lower
rates would still yield impressive results. Table 1 above summarized
the disease-related health benefits and illustrates that youth
deterrence rates as small as 1/20, which would prevent the adult
addiction of at least 25,000 of each year's cohort of 1,000,000 new
adolescent smokers, would provide annual benefit values measured in the
billions of dollars. Moreover, the higher risk estimates suggested by
Peto, et al. could significantly increase these values.

D. Regulatory Costs

    OMB guidelines for Regulatory Impact Analysis direct that agency
cost estimates reflect the opportunity costs of the proposed
alternative (i.e., the value of the benefits foregone as a consequence
of that alternative.)\30\ According to these guidelines, estimates
should include ``private-sector compliance costs, government
administrative costs, and costs of reallocating workers displaced as a
result of the regulation * * * Such costs may include the value
(opportunity cost) of benefits foregone, losses in consumers' or
producers'' surpluses, discomfort or inconvenience, and loss of
time.''\31\ Accordingly, FDA finds that the proposed rule would impose
new burdens on the manufacturers of tobacco products and less stringent
requirements on retailers of tobacco products. In addition, certain
other industry sectors would experience lost sales and employment, but
these effects would be largely offset by gains to other sectors, as
discussed in section VIII.E. of this document.
    A critical variable underlying several of the cost estimates is the
number of retail outlets that sell tobacco products. According to the
Retail Trade Census, a total of 2.4 million retail trade establishments
operated in 1987. Unfortunately, the Retail Trade Census publishes
product line data for only the 1.5 million retail establishments with
payroll. Of these, about 275,000 report sales for the broad merchandise
line of ``Cigars, cigarettes, and tobacco.'' FDA does not know how many
of the nonpayroll outlets sell tobacco products. There were about
215,000 nonpayroll outlets among the most likely establishment types
(grocery stores, service stations, drug stores, liquor stores, drinking
places, general merchandise, and eating places.) If all of these
nonpayroll stores sold tobacco products (an unreasonably high estimate
considering that only 34 percent of those with payroll reported sales
of tobacco merchandise), the total number of retail establishments
selling over-the-counter tobacco products would be 275,000 + 215,000,
or 490,000. Moreover, these data may overstate the number of outlets
operating at any one time, because they represent the number of
establishments in business at any time during the year and outlet
turnover is significant. The figure may be understated, however, if a
substantial number of nonpayroll stores that sell tobacco products are
classified among other establishment types.
    Alternatively, New Jersey issued about 18,300 retail cigarette
sales licenses in 1988, but the census estimate for the number of
retail establishments with payroll selling tobacco products in that
state was only about 6,000. This implies that over twice as many
nonpayroll outlets sell tobacco products as outlets with payrolls. If
the New Jersey licensing data, which imply about 2.4 cigarette licenses
per 1,000 population, were extrapolated to the United States, they
project to about 600,000 such outlets nationwide. However, this
estimate also may overstate the current number of establishments
selling tobacco products at any one time, because of the high failure
rate among small businesses obtaining licenses (i.e. more licenses
issued than establishments surviving).
    Neither the census nor the New Jersey data account for those
outlets that may convert cigarette vending machine sales to over-the-
counter sales once vending machines are banned as proposed in this
regulation. Industry estimates of the number of cigarette vending
machines in operation in 1993 vary from 182,000 <SUP>32 to 480,000
<SUP>33. FDA does not know how many of these operations would convert
to over-the-counter sales, but for this study, the agency has assumed
that about 100,000 establishments would initiate new over-the-counter
operations to replace lost vending machine sales. Thus, FDA estimates
that a maximum of about 700,000 retail outlets would continue to sell
tobacco products.
1. Costs to Manufacturers
    a. Core requirements. Under the proposed regulation, manufacturers
of tobacco products would incur compliance costs for the following
requirements: visual inspections of retail outlets, training
manufacturers' representatives, changing package labels, assisting
self-service bans, and financing consumer education programs.
    b. Visual inspections. The manufacturer is responsible for removing
all items that do not comply with the requirements of this proposal and
for visually inspecting each retail establishment during any visit to
such establishment, to ensure that the products are appropriately
labeled, advertised, and sold, or distributed. Thus, manufacturer
inspections would be required during every business visit to a tobacco-
selling outlet by a manufacturer's representative. As manufacturers'
representatives routinely visit most retail outlets selling their
products, the proposed requirement would provide a periodic scrutiny of
retail tobacco operations without imposing additional travel costs. FDA
cannot project these costs precisely, as the intensity of the audit
would vary with the characteristics of the retail operation, but the
agency believes that most manufacturers' representatives would need
little incremental time to conduct routine audits. On average, FDA
estimates that each audit would be accomplished by a relatively quick
assessment that would take no more than 2 to 3 minutes. The assumption
of an additional 3 minutes per visit implies a total of 30 minutes a
day for a manufacturer's representative who may visit an average of 10
outlets daily. At a labor cost of $25 per hour, the annual cost of the
additional one-half hour spent daily on monitoring would be $3,250 per
employee.
    FDA does not know how many manufacturers' representatives currently
make sales calls on tobacco product retailers, but preliminary results
from the 1992 U.S. Census of Manufacturers indicate that cigarette
manufacturers employ about 7,300 nonproduction workers. Thus, if all
nonproduction workers were engaged in retail sales, the industry
monitoring costs would approach $24 million per year ($3,250  x
7,300). However, many nonproduction employees serve in management or
clerical positions. Moreover, the above cost estimate fails to account
for the likely relationship between the total time needed for a
manufacturers'

[[Page 41366]]
representative to visit a retail outlet and the type of promotional
activities permitted. For instance, the ban on self- service displays
may cause manufacturers' representatives to spend less time conducting
display inspections. Thus, FDA suspects that the above cost estimate
may be high.
    c. Training. Each manufacturer's representative would have to
receive training on the requirements of the regulation and the new
monitoring responsibilities of their position. FDA estimates that this
training could be accomplished in about 8 hours. Thus, assuming that
the 7,300 estimate for the number of manufacturers' representatives
adequately accounts for normal employee turnover, the annual training
costs would total about $1 million.
    d. Label changes. The proposed regulation requires that the tobacco
product package contain the established name of the tobacco product in
a specified size. FDA has estimated the compliance costs for printing
new labels in the event that new labels would be needed.
    Approximately 933 varieties of cigarettes are currently produced in
the United States.<SUP>34 FDA does not have information on the number
of smokeless tobacco varieties, but has assumed that the total number
of cigarette and smokeless tobacco varieties is 1,000. FDA also assumes
that most varieties of cigarettes are packaged in both single packs and
cartons, but that each variety of smokeless tobacco is packaged in only
one type of package. Consequently, the total number of labels was
calculated as: 933 cigarette varieties  x  2 package types per variety
(individual packs and cartons) + 67 smokeless tobacco varieties = 1,933
package types.
    FDA used two approaches to estimate the cost to industry of
changing these labels. The first approach used information compiled by
The Research Triangle Institute (RTI) in its report to FDA on the cost
of changing food labels.<SUP>35 RTI reported a cost of about $700 for a
1-color change in a lithographic printing process. FDA multiplied this
figure by 4 to account for a 2 color change on the actual warning
labels and an additional 2 colors for modifications to the existing
label to make room for the warning label. This calculation yielded
incremental printing costs of about $2,800 per label, or $5,412,400 for
all 1,933 varieties of affected tobacco products. Adjusting this figure
downward by RTI's methodology to account for the current frequency of
label redesign predicts that the total one-time cost of completing
these label changes within a 1-year compliance period would be
approximately $4 million.
    The second approach was to use cost information provided in the
regulatory impact analysis of a roughly comparable Canadian
regulation.<SUP>36 The Canadian Government estimated a cost of $30
million to change labels for about 300 cigarette varieties. Most
Canadian cigarettes are sold in two sizes and about 20 percent are also
sold in flip top packages.<SUP>37 Canadian labels, however, are
typically printed using a gravure method; which, according to RTI, is
about 3.5 times as expensive as the lithography process used in the
United States. Adjusting the Canadian estimate upward, to account for
the larger number of cigarette and smokeless tobacco varieties; and
downward, for the smaller number of packages per variety and the
smaller cost of the lithography printing process, provides a $17
million estimate for the total cost of these label changes.
    e. Self-service ban. The proposed regulation would ban the use of
self-service displays by requiring vendors to physically provide the
regulated tobacco product to all purchasers. An estimated one-time cost
of $22.5 million for effecting this change is derived below in section
VIII.D.3. Although any new behind-the-counter shelving or locking cases
must be located at the retail level, the prevailing business practice
is for tobacco manufacturers' sales representatives to assist and even
pay for this equipment.<SUP>38 Since FDA cannot know if manufacturers
would continue this practice, this study assumes that manufacturers and
retailers would share these costs equally by apportioning $11 million
to each.
    f. Educational program. The proposed regulation requires
manufacturers of both cigarettes and smokeless tobacco products to fund
consumer educational programs. FDA estimates that the requirements of
this provision equate to a total cost of about $150 million annually
for cigarette and smokeless tobacco product manufacturers.
    g. Restricted advertising/promotion. The determination of the
industry costs attributable to the proposed restrictions on tobacco
product advertising is complex. While there is no doubt that individual
companies realize enhanced goodwill asset values from advertising
programs, the industry has long held that advertising prompts brand-
switching, but does not increase aggregate sales. Of course, if this
were true, advertising would be unprofitable from the standpoint of the
industry as a whole and reduced levels would increase rather than
decrease aggregate industry profits. FDA does not accept industry's
stated views on this issue, particularly with respect to the impact of
advertising and promotional programs on youth. Nevertheless, FDA does
not consider it appropriate to count as a societal cost the voluntary
reduction in the consumption of tobacco products that would result from
reduced advertising outlays. Although industry sales would fall,
consumer dollars no longer used on tobacco products would be redirected
to other more highly valued areas. Thus, for the most part, the
resulting reduction in industry sales and profits would not be societal
costs, but rather distributional effects, as discussed below under that
heading. Moreover, as shown in that section, any short-term frictional
or relocation impacts would be significantly moderated by the gradual
phase-in of the economic effects. As there are different views
regarding the appropriate methodology for assessing these advertising
consequences, FDA asks for public comment on the correct approach.
    h. Producer surplus. Although voluntary decreases in the sale of
tobacco products would not impose substantial long-term societal costs,
mandatory restraints on the access of consumers to desired products
would imply economic costs. Economists typically measure inefficiencies
attributable to product bans by calculating lost ``producers'
surplus,'' which is a technical term for describing the difference
between the amount a producer is paid for each unit of a good and the
minimum amount the producer would accept to supply each unit, or the
area between the price and supply curve. Data from Cummings et al.
indicate that youngsters under the age of 18 consume 318 million packs
of cigarettes per year, leading to industry profits of $117
million.<SUP>39 On the assumption that the proposed regulation would
reduce teenage smoking by one-half, these profits would fall by about
$58 million. However, since most of this profit is derived from illegal
sales to youths, FDA has not counted this figure as a societal cost.
2. Outcome-Based Activities
    FDA plans to propose additional requirements that would become
effective only if the rule's outcome-based objectives are not met. To
avoid these consequences, manufacturers may decide it is in their best
interest to initiate or to increase their support of programs that
discourage underage purchasing of tobacco products.
    Alternative activities. Tobacco manufacturers may decide to
actively support the achievement of the

[[Page 41367]]
``Healthy People 2000'' goals in order to avoid the need to comply with
any optional provisions. For example, the industry could work to reduce
the prevalence of underage tobacco use by contributing either financial
or staffing resources to local civic or public programs, by developing
and disseminating effective educational materials, or by establishing
its own surveillance programs. FDA does not know which of these
activities, if any, the industry might support; but the cost of such
activities could be substantially less than the cost of complying with
an optional provision of the outcome-based objective. For example, if
the cost of a retail surveillance visit were $25, an industry program
to monitor selling procedures in all 700,000 retail outlets twice a
year would cost $35 million. SAMHSA estimated that the establishment
and implementation of effective State-administered retail surveillance
systems would cost about $30 million annually.
3. Costs to Retail Outlets
    SAMHSA recognized that retail businesses would bear new costs for
duties such as training staff, posting signs, and checking for
compliance. It believed the largest component of these costs would be
for the ``time spent in instructing sales clerks that they must avoid
selling to minors and in dealing with occasional lapses.'' SAMHSA
projected these costs at roughly $100 per year per establishment, or
$100 million for an estimated 1 million establishments. SAMHSA noted,
however, that ``effective training may already be in place in a third
or more of all businesses.'' <SUP>40 FDA has developed its own
estimates of the costs likely to be incurred by the retail sector for
additional employee time or other expenses and finds that they do not
differ substantially from the SAMHSA estimate.
    Training. SAMHSA reports that the average retail store has 12
employees, which implies a total of 8.4 million (12  x  700,000)
affected retail employees. Assuming retail employee compensation of
$15,410 annually,<SUP>41 providing instructions for 15 minutes per
employee amounts to about $16 million per year. Adopting the SAMHSA
finding that one-third of the retail outlets are already conducting
some training lowers this cost to $10 million.
    I.D. checks. Retail establishments would bear additional costs if
they must check the identification of purchasers, because many
establishments do not currently conduct such checks. The burden imposed
would vary with the flow of business in any particular outlet. In some
instances, the additional workload might compel the hiring of
additional employees. At other times, the age verification would cause
little productive time loss, or the establishment would shift some of
the cost to customers through an increase in the average amount of time
customers wait in line to make purchases. For this analysis, FDA has
assumed that the affected establishments would bear all of the costs
imposed by this requirement. Based on data from the 1994 Surgeon
General's Report <SUP>42 on the tobacco consumption of cigarette
smokers 5 to 6 years after high school, and national data on the annual
per capita consumption of smokeless tobacco,<SUP>43 FDA estimates that
consumers aged 18 to 26 purchase 2.4 billion tobacco products a year.
Since FDA does not know how many of these purchases are for multiple
items, the agency has conservatively assumed that the number of
consumer transactions is about 2.2 billion. The time needed to conduct
identification checks for these transactions would vary, but if 75
percent of the transactions were extended by 10 seconds and the average
value of employee time was $15,410,<SUP>44 the added time cost would
amount to 2.1 cents per purchase, or $35 million per year. Assuming
current compliance at 20 percent reduces the incremental costs to $28
million. Tobacco transactions involving underage smokers were excluded
from this calculation, based on the assumption that they would decline
dramatically once compliance with the regulation was achieved.
    Self-service ban. The proposed ban on self-service displays would
affect a number of retail stores, although shoplifting concerns have
already caused many establishments to place tobacco products in areas
not directly accessible to customers. Retailers that have discontinued
self-service displays have typically modified their stores by either:
(1) Placing tobacco products on shelving located directly behind or
near all checkout lines, (2) placing tobacco products behind one or two
checkout lines only, similar to the ``cash only'' or ``less than 10
items'' lines commonly found in supermarkets, (3) dispensing tobacco
products from a controlled area of the store, where store employees
typically conduct other administrative or customer-service tasks, or
(4) installing a signaling system, whereby assigned store clerks bring
requested tobacco products to individual checkout stations. Each
store's physical configuration determines the most cost-effective
approach, but at least one regional survey found that retail outlets
readily complied with comparable local ordinances without architectural
remodeling or substantial refitting of checkout counters or store
aisles.<SUP>45
    Certain retail outlets that sell large volumes of cigarettes by the
carton would bear the greatest burden from this proposed provision,
because the physical size of cartons may preclude their placement in
close proximity to a cashier. Most cigarette cartons are sold in the
56,000 largest retail outlets, including 23,000 supermarkets,<SUP>46
12,800 general merchandise outlets, and 20,200 chain drug
stores.<SUP>47 If three-quarters of these outlets spent an average of
$300 each for labor and materials to accomplish this relocation, the
one-time cost would be about $12.6 million. The remaining 645,000
smaller retail establishments would typically need to do much less,
since small packages can almost always be stored adjacent to or
directly above a cashier. Most outlets already keep the majority of
cigarette packs in such restricted areas, although most smokeless
tobacco products may have to be relocated. FDA has assumed that 50
percent of these smaller outlets would take 2 hours, and 25 percent
would take 4 hours to complete any necessary relocation of stock. At an
estimated $7.70 labor cost per hour, this adds a one-time cost of $9.9
million, for a total of about $22.5 million. As noted above under the
``Cost to Manufacturers'' section, manufacturers often pay partially or
even completely for behind-the-counter shelving or locking cases for
use in retail establishments. Thus, FDA assumed that this $22.5 million
one-time cost would be shared equally by manufacturers and retail
outlets.
    The required reconfiguration of tobacco displays may also impose
added labor costs for each purchase transaction, especially for those
outlets that adopt signaling-type systems or that move inventory to
areas located further from employee workstations. To estimate any
additional labor costs, FDA has assumed that the ban on self-service
tobacco displays would require 10 seconds of additional labor time for
75 percent of all retail transactions involving cartons of cigarettes.
Based on an estimated 900 million retail transactions for cigarette
cartons and an annual employee compensation of $15,410,<SUP>48 this
added labor cost projects to about $14 million per year. This estimate
understates actual costs if the required changes have a greater than
expected adverse affect on labor productivity, but overstates actual
costs if current compliance exceeds 25

[[Page 41368]]
percent. Also, some of the added costs would be offset by reductions in
product pilferage. Since FDA does not know the relative magnitude of
these potentially offsetting factors, the agency has retained the $14
million figure as its best preliminary estimate of the labor costs that
would be imposed by the self-service ban.
    In total, FDA projects that the retail sector would incur one-time
costs of about $11 million and annual costs of about $52 million. As
shown above in Table 2, the sum of the one-time costs imposed on the
manufacturing and retail sectors for the initial provisions would range
from about $26 to $39 million, whereas the total annual costs would be
about $227 million. For these provisions, the sum of these annualized
one-time costs (15 years at 3 percent discount rate) and annual
operating costs yield about $230 million per year (also about $230
million at 7 percent discount rate).
4. Costs to Consumers
    a. Advertising restrictions. Advertising restrictions may impose
costs on society if they disrupt the dissemination of relevant
information to consumers. According to the Bureau of Economics of the
FTC, the benefits of advertising derive from:

    * * * its role in increasing the flow and reducing the cost of
information to consumers * * * First, advertising provides
information about product characteristics that enables consumers to
make better choices among available goods * * * Second, theoretical
arguments and empirical studies indicate that advertising increases
new entry and price competition and hence reduces market power and
prices in at least some industries * * * Third, advertising
facilitates the development of brand reputations. A reputation, in
turn, gives a firm an incentive to provide products that are of
consistently high quality, that live up to claims that are made for
them, and that satisfy consumers.<SUP>49

    FDA has considered each of these issues in turn. While agreeing
that certain forms of advertising offer substantial benefits to
consumers, the agency nevertheless believes that the proposed tobacco
product advertising restrictions would impose few significant societal
costs. As discussed in the preamble above, the proposed regulation does
not prohibit factual, written advertising. Thus, the proposed rule
would not impede the dissemination of important information to
consumers. While imagery and promotional activities may be important
determinants of consumer perceptions and sales, they typically provide
little meaningful information on essential distinctions among competing
tobacco products. The implications of FTC's second point, which
addresses the effect of advertising restrictions on market power and
prices, is less obvious, as various empirical studies have reached
conflicting conclusions. Nevertheless, from FDA's perspective, even if
advertising restrictions led to higher prices, this result would
discourage tobacco consumption and thereby enhance the public health.
Finally, FTC's third point, which emphasizes the positive aspects of
advertising in supporting brand reputations, is more relevant for long-
lived items, such as consumer durables, where purchases are infrequent
or personal experience is inadequate. Advertising is less likely to
play a key role in assuring high quality levels for tobacco products,
where consumer search costs are low and a brand's reputation for
quality is tested by consumers every day. For these products, high
quality would remain a prerequisite of commercial success irrespective
of advertising strategies.
    Other analysts suggest still other potential attributes of product
advertising. For example, according to F.M. Scherer, author of a widely
read text on industrial organization:

    Advertising is art, and some of it is good art, with cultural or
entertainment value in its own right. In addition, it can be argued
that consumers derive pleasure from the image advertising imparts to
products, above and beyond the satisfaction flowing in some organic
sense from the physical attributes of the products. There is no
simple case in logic for distinguishing between the utility people
obtain from what they think they are getting and what they actually
receive. As Galbraith observed, ``The New York housewife who was
forced to do without Macy's advertising would have a sense of loss
second only to that from doing without Macy's.'' \50\

    Similarly, Becker and Murphy have argued that advertisements should
be considered ``goods'' if people are willing to pay for them and as
``bads'' if people must be paid to accept them.\51\ They explain that,
in general, the more easily the advertisements can be ignored, the more
likely it is that the ads themselves provide utility to consumers.
Newspaper and magazine advertisements, for example, must provide
positive consumer utility or they would be ignored by readers. The
proposed rule would allow such advertisements to continue, some in
their current form, others in a text-only format. (In fact, industry
outlays for newspaper and magazine advertisements have dropped
dramatically over the years, currently constituting only about 5
percent of the industry's total advertising and promotion budget.)
Conversely, the extraordinary growth in industry advertising and
promotion has been in areas that are typically bundled with other
products, or placed in prominent public settings that are difficult to
ignore. Thus, there is considerable question about the contribution of
these programs to consumer utility.
    b. Consumer surplus. Consumer surplus is a concept that represents
the amount by which the utility or enjoyment associated with a product
exceeds the price charged for the product. Since it reflects the
difference between the price the consumer would be willing to pay and
the actual market price, it is used by economists to measure welfare
losses imposed by consumer product bans. However, FDA's proposed rule
imposes no access restrictions on adults, who would be free to consume
tobacco products if they so desired. Thus, FDA has not included any
value for lost consumer surplus in its estimate of societal costs.
    c. Inconvenience. Some adult consumers would be inconvenienced by
the unavailability of cigarette vending machines. FDA believes that
over time, most smokers would adjust their purchasing patterns to
reflect this circumstance. However, the agency has not attempted to
quantify the degree of this disutility and asks public comment on its
potential cost.

E. Distribution and Transitional Effects

    The proposed regulation would impose a variety of sector-specific
distributive effects. Those sectors affiliated with tobacco and tobacco
products would lose sales revenues and these losses would grow over
time. On the other hand, nontobacco related industries would gain
sales, because dollars not spent on tobacco would be spent on other
commodities.
1. Tobacco Industry
    For its calculation of regulatory benefits, FDA estimated that
implementation of the proposed regulation would reduce the cigarette
consumption of underage smokers by one-half. As discussed above, based
on data presented in Cummings et al., FDA estimates that teenage
smokers under the age of 18 consumed about 318 million packs of
cigarettes in 1991. If the proposed regulation cuts these sales by one-
half, the resulting annual drop in industry revenue would be $143
million (assuming manufacturer share of 50 percent of retail price, or
90 cents per pack.) Moreover, FDA has assumed that at least one-half of
those 500,000 teenagers who would be deterred from starting to smoke
each year would refrain from smoking as adults,

[[Page 41369]]
increasing the number of adult nonsmokers by 250,000 per year. Since
each adult smoker consumes about 500 packs per year, lost sales
revenues would amount to an additional $113 million per year.
    In sum, FDA estimates that annual cigarette revenues would decline
slowly over time; falling by $143 million in the first year (while only
teenagers are affected), by $593 million in the fifth year, and by $1.2
billion in the tenth year. The U.S. Bureau of the Census reports the
value of 1992 cigarette shipments at $28.8 billion. Thus, this
regulation is projected to reduce revenues from cigarette sales by only
0.5 percent in the first year, 2.1 percent in the fifth year, and 4.0
percent in the tenth year following implementation. While these
reductions are significant, the gradual phasing of the impacts would
significantly dissipate any associated economic disruption. For
example, data from a 1992 report on the contribution of the tobacco
industry to the U.S. economy prepared by Price Waterhouse for the
Tobacco Institute \52\ implies that, over a 10-year period, a 4 percent
reduction in sales would result in the displacement of about 1,000 jobs
annually among warehousers, manufacturers, tobacco growers and
wholesalers.
2. Vending Machine Operators
    The proposed regulation would prohibit all vending machine sales of
regulated tobacco products. In recent years, cigarette vending sales
have dropped precipitously, due to numerous restrictive State and local
ordinances. FDA does not have a definitive estimate of the intensity of
this decline, but is aware of two industry surveys that confirm its
importance. The Vending Times 48th Annual Census of the Industry \53\
shows a 6 percent drop in the number of cigarette vending machines from
1992 to 1993, but a 39 percent decline since 1983. The total number of
packs sold reportedly dropped almost 60 percent over this decade, from
2.7 billion to 1.1 billion. A second survey, the ``1994 State of the
Industry Report,'' Automatic Merchandiser (The Monthly Management
Magazine for Professional Vending and OCS Operators) \54\ found an even
steeper recent decline; reporting that the projected number of
cigarette vending machines fell from 250,425 in 1992 to 181,755 in
1993, a drop of over 27 percent. That survey shows operator revenues
from cigarettes falling from $835 million in 1992 to $624 million in
1993, down 25 percent. While the impact of this one product area is
significant for the vending operators, the report found that this
sector currently generates about $18 billion in total sales volume and
explains that ``Cigarettes, which have been on the downslide for
several years, are fortunately only a small percentage (3.4 percent in
1993) of the total pie, thus the drop did not hurt total revenues
significantly.'' The proposed prohibition of vending sales would
require these firms to develop new markets to replace these sales
revenues.
3. Advertising Sector
    In their annual reports to the FTC, manufacturers of cigarettes and
smokeless tobacco reported 1993 advertising and promotional/marketing
expenditures of $6.0 billion and $119 million, respectively.
Approximately $1.9 billion (31 percent) of these outlays would be
significantly impacted by the proposed rule as they are primarily
directed to consumer advertising and promotion. Of the remaining
outlays, about $2.6 billion (43 percent) go to consumers as financial
incentives to induce further sales (e.g., coupons, cents-off, buy-one-
get one free, free samples), and $1.6 billion (26 percent) to retailers
to enhance the sale of their product. The affect on these expenditures
would be much more modest.
    FDA cannot reasonably forecast the future marketing strategies of
tobacco manufacturers, but can foresee some fall in the approximately
$1.0 billion worth of current advertising that would be affected by the
proposed ``text only'' requirement. (The ``text only'' restriction does
not apply to publications where children comprise less than 15 percent
of the readership or are fewer than 2 million.) The impact of these
restrictions on the various advertising media and agencies is difficult
to determine. For example, in response to Canada's recently imposed
advertising ban, that country's billboard industry ``quickly replaced
$20 million in lost cigarette revenues with ads for food, soap,
toothpaste and beer.'' \55\ ``In 1971, network TV ad revenue dropped 6
percent without cigarette advertising * * *, but by 1972 network TV * *
* had recouped its ad base.'' \56\ Current advertising revenues
affected by the restrictions on billboard advertising near schools and
playgrounds are also likely to be replaced by advertising revenues for
other products. Nevertheless, if the tobacco industry were to cut its
advertising outlays by one-half of the ``text only'' categories, this
dollar figure amounts to less than one-half of 1 percent of the
reported $131.3 billion spent on U.S. media advertising in 1992.\57\
FDA is also aware that prohibiting the distribution of nontobacco
specialty items bearing the name or logo of tobacco products would
affect a substantial number of specialty manufacturers. In comments to
the FTC,\58\ the Specialty Advertising Association International noted
that it ``represents 4,400 firms that manufacture or sell utilitarian
objects imprinted with advertising * * * predominantly small
businesses.'' To the extent that these products include only a
corporate name without brand association, they could remain marketable.
However, it is likely that some of these firms would, at least
initially, lose part of this $760 million market and would experience
short-term costs while exploring other business options.
4. Retail Outlets
    In addition to incurring the direct costs of compliance described
above, some retail establishments may receive smaller promotional
allowances (slotting fees) from manufacturers, following the
prohibition of self-service displays and advertising imagery. Industry
promotional allowances totaled about $1.6 billion in 1993, or $2,600
per outlet if spread evenly among the estimated 600,000 retail outlets
currently selling tobacco products over-the-counter. It is likely that,
notwithstanding these restrictions, manufacturers would continue to
compete vigorously for the best display space available, so that few
fees would be discontinued. For example, a recent Canadian study \59\
suggests that, ``[i]n the absence of advertising and promotion outlets
* * * the cigarette industry may be expected to provide greater
incentives to retailers to provide more and better shelf space for
their brands in order to provide availability to the buyer in the
store.'' In addition, alternative opportunities for point of purchase
(POP) advertising have climbed briskly, as POP experts ``cite in-store
advertising as the fastest growing segment of the media industry.''
\60\ Nevertheless, the agency is aware of at least one report
indicating the ``[l]oss of industry-paid slotting fees to some retail
merchants because of the removal of self-service promotional tobacco
displays, racks and kiosks.'' \61\
5. Other Private Sectors
    The Tobacco Institute's Price Waterhouse report <SUP>62 purports to
measure the induced effect on the national economy of spending by the
tobacco core and supplier sector employees and their families. It
calculates that induced or multiplier effects result in 2.4 jobs for
every 1 job

[[Page 41370]]
in the core and supplier sectors combined, and over $3 in compensation
for every $1 in the other two sectors. However, other analysts conclude
that such ratios should not be used to assess longer term national
economic impacts, because resources diverted from the production of
tobacco would be reallocated to the production of other goods and
services. ``If the focus is longer term, involving a period of, say,
more than two years, then the induced effect should not be included in
the measure because money not spent in one industry would find another
outlet with equal (undistinguishable) induced effects.'' <SUP>63
Furthermore, over the long term, regional impacts of the regulation
would be similarly diffused.
    6. State Tax Revenues
    The proposed rule would decrease State tobacco tax revenues as
fewer youths become addicted to tobacco products. These excise tax
losses would increase as more of these youths become non-smoking
adults. According to the Tobacco Institute, State cigarette excise
taxes totaled $6.2 billion for the year ending June 30, 1993.<SUP>64
Since State excise taxes on other tobacco products (including smokeless
tobacco) were $226 million, FDA assumes that the total State excise
taxes on tobacco products affected by this proposal are about $6.3
billion annually. As described above, FDA estimated that compliance
with this proposal would reduce cigarette sales by a gradually
increasing rate over time, falling by 0.5 percent in the first year,
2.1 percent in the fifth year, and 4 percent in the tenth year. Thus,
the proposed rule would decrease State excise taxes on affected tobacco
products by from $31 million in the first year to $252 million in the
tenth year. Since tobacco taxes represented less than 1 percent of
total State tax revenues in 1992,<SUP>65 even the estimated tenth year
impact measures only 0.03 percent of all State tax revenues.
Nonetheless, if necessary, State governments could raise tobacco
product excise rates to offset these revenue losses. The issue is
complex, however, because a full evaluation of the fiscal consequences
of this proposal must consider a variety of public health impacts. For
example, state Medicaid programs would benefit from reduced medical
care expenditures, but they may also need to finance nursing home
expenditures that climb with increased life expectancy.

F. Small Business Impacts

    The Regulatory Flexibility Act requires agencies to determine
whether the effects of regulatory options would impose a significant
impact on a substantial number of small entities and to consider those
options which would minimize these impacts. Although most manufacturers
of tobacco products are large corporations, the distribution of the
product involves numerous small enterprises that would be affected by
the proposed rule. For example, as explained earlier, the proposal
would initially reduce the revenues of vending machine operators by at
least 3.4 percent and almost three quarters of all vending machine
operators are small businesses, having annual sales of less than $1
million.<SUP>66 Further, the proposed rule would affect the
distribution of specialty items showing a tobacco product logo or name.
According to the Specialty Advertising Association International, 80
percent of the manufacturers and 95 percent of the distributors in this
industry have annual sales below $2 million. While the market place in
which these firms compete traditionally demands a quick response to
constantly shifting market trends, this rule would have at least short-
term impacts on many of these firms.
    The proposed regulation would also affect numerous retail
establishments, primarily convenience stores, but also small grocery
stores, small general merchandise stores and small gasoline stations.
Table 4 displays the relative share of the tobacco market for major
types of tobacco-dispensing outlets in 1987. As shown, food stores and
service stations received almost 75 percent of all tobacco sales
revenue and tobacco products comprised 5 to 6 percent of the total
sales of many of these establishments. The great majority of these
retail outlets are small businesses.

Table 4.--Sales of Tobacco Products as a Percentage of Total Sales--1987
                   [Establishments with Payroll Only]
------------------------------------------------------------------------
                          Tobacco sales          % of total sales
                       -------------------------------------------------
  Establishment type                      Establishments
                         ($ mils)   (%)      handling           All
                                              tobacco     establishments
------------------------------------------------------------------------
All...................     23,231    100          5.0             1.6
Food Stores...........     13,057     56          5.0             4.3
Service Stations......      4,280     18          6.5             4.2
Drug and Proprietary..      2,152      9          5.1             4.0
General Merchandise...      1,470      6          2.1             0.8
Liquor Stores.........        706      3          7.2             3.8
Eating and Drinking...        182      1          2.4             0.1
------------------------------------------------------------------------
Source: 1987 Census of Retail Trade, Merchandise Line Sales.

    To illustrate the effects of this proposal on a typical small
retail store, FDA separately estimated the likely compliance costs for
an average-sized convenience store that sells 300 packages of tobacco
products daily, of which about 50 might be purchased by young adults
aged 18 to 26. Based on the cost assumptions described above, the
outlet's first year costs would total about $320, with the largest
single cost, $285, the labor cost for checking identification. For
those stores that already verify the age of young customers of tobacco
products, the additional costs fall to $35. This estimate does not
account for the possible reduction in promotional allowances, although
these allowances might fall following a ban on self-service marketing.
Alternatively, as noted above, manufacturers would continue to compete
for the best shelf space for their products, perhaps even

[[Page 41371]]
more so if they find that ``text only'' advertising erodes the stimulus
effect of point-of-purchase advertising. Thus, the proposed advertising
restrictions could enhance the share of the industry's advertising and
promotion budget that is directed towards promotional allowances in
retail outlets.

G. Alternatives

    One alternative considered by the agency was a far more
prescriptive monitoring requirement for tobacco manufacturers. Under
this rule, each manufacturer of tobacco products would have been
required to adopt a system for monitoring the sales and distributions
of retail establishments. These monitoring systems were to: (1) Include
signed written agreements with each retailer, (2) contain adequate
organizational structure and personnel to monitor the labeling,
advertising, and sale of tobacco products at each retail distribution
point, and (3) establish, implement, and maintain procedures for
receiving and investigating reports regarding any improper labeling,
advertising, or distribution. The additional costs for this monitoring
was estimated at about $85 million per year. FDA rejected this
alternative, because it decided that the industry might employ its
resources more efficiently if permitted to choose among alternative
compliance modes. It is possible, however, that the industry might
implement certain features of this approach in order to avoid the
optional performance-based provision that would become effective if the
``Healthy People 2000'' goals were not met.
    A second alternative considered by the agency was to require
package inserts containing educational information in cigarette and
smokeless tobacco products. FDA had incomplete date to estimate the
additional cost of this requirement, but based on comments submitted by
industry in response to a Canadian proposal, preliminarily projected
one-time costs of about $490 million and annual operating costs of
about $54 million. FDA did not select this alternative as the agency
was not certain that the benefits of this provision would justify the
large compliance costs.
    FDA also considered setting the permissible age for purchase at 19
rather than 18, because many 18-year-old adolescents are still in high
school, where they can easily purchase tobacco products for classmates.
This alternative would have added costs of about $34 million annually,
mostly due to lost producer profits. The proposed regulation restricts
access to regulated tobacco products for persons under the age of 18,
because most adult smokers have already become regular smokers by the
age of 18, and because that age limit is already consistent with most
State and local laws.
    The agency also considered restricting rather than prohibiting
sales from vending machines. However, as stated in the preamble above,
studies indicated that measures such as placing locks on vending
machines or restricting their placement failed to prevent young people
from purchasing cigarettes from vending machines.

References

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Deaths and Financial Costs: Office of Technology Assessment
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1994, pp. 1-2.
    2. Littlechild, S.C., ``Smoking and Market Failure,'' in
``Smoking and Society: Toward a More Balanced Assessment,'' R.D.
Tollison, editor, Lexington Books, p. 271, 1986.
    3. Viscusi, W.K., ``Smoking: Making the Risky Decision,'' Oxford
University Press, 1992; see also Beales, J.H., ``Teenage Smoking:
Fact and Fiction,'' The American Enterprise, pp. 20-25, March/April
1994.
    4. Goodin, R.E., ``No Smoking: The Ethical Issues,'' University
of Chicago Press, pp. 30-32, 1989.
    5. Becker, G.S., and K.M. Murphy, ``A Theory of Rational
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700, 1988.
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Rand Study,'' Harvard University Press, Cambridge, 1991.
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Congressional Research Service, p. 1, March 8, 1994.
    10. See the 1992 Report of the Surgeon General, pp. 105-112, for
a full summary of these methodologies and findings.
    11. Statement of Clyde Behney and Maria Hewitt on Smoking-
Related Deaths and Financial Costs: Office of Technology Assessment
Estimates for 1990 Before the Senate Finance Committee, April 28,
1994, p. 2.
    12. ``Medical-Care Expenditures Attributable to Cigarette
Smoking--United States, 1993,'' in ``MMWR,'' CDC, DHHS, vol 43, No.
26, July 8, 1994, pp. 469-472.
    13. 1992 SGR, p. 111.
    14. Jason, L.A., et al., ``Active Enforcement of Cigarette
Control Laws in the Prevention of Cigarette Sales to Minors,'' The
Journal of the American Medical Association, vol 266, No. 22,
December 11, 1991, p. 3159.
    15. U.S. Department of Health and Human Services, ``Reducing the
Health Consequences of Smoking: 25 Years of Progress,'' A Report of
the Surgeon General, U.S. Department of Health and Human Services,
Public Health Service, Centers for Disease Control, National Center
for Chronic Disease Prevention and Health Promotion, Office on
Smoking and Health, DHHS publication No. (CDC) 89-8411, p. 517,
1989.
    16. Economics and Operational Research Division, Department of
Health, ``Effect of Tobacco Advertising on Tobacco Consumption: A
Discussion Document Reviewing the Evidence,'' p. 22, October 1992.
    17. Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Petaluma, California, p.
4, November 3, 1994.
    18. Manning, W.G., et al., ``The Costs of Poor Health Habits, A
Rand Study,'' Harvard University Press, Cambridge, 1991.
    19. Peto et al., ``Mortality from Smoking in Developing
Countries, 1950-2000,'' Oxford University Press, p. A10, 1994.
Indirect estimates from national vital statistics.
    20. Assumes new non-smokers are 50 percent male and 50 percent
female.
    21. For each 10-year age interval, the number of life-years is
calculated as the number of people in each cohort (250,000) times
the probability of surviving until the end of that age interval
times 10 years of life, plus the number expected to die in that
interval times an assumed 5 years of life.
    22. Hodgson, T.A., ``Cigarette Smoking and Lifetime Medical
Expenditures,'' The Milbank Quarterly, vol. 70, No. 1, p. 91, 1992.
(Based on data from the American Cancer Society's Cancer Prevention
Study II).
    23. id., p. 97 (Using the average of the male and female
totals).
    24. Hodgson, T.A., ``Annual Costs of Illness Versus Lifetime
Costs of Illness and Implications of Structural Change,'' Drug
Information Journal, vol. 22, No. 3, p. 329, 1988.
    25. Rice, D.P., et al., ``The Economic Costs of the Health
Effects of Smoking, 1984,'' The Milbank Quarterly, vol. 64, No. 4,
p. 526, 1986.
    26. Schelling, T.C., ``Economics and Cigarettes,'' Preventive
Medicine, vol. 15, pp. 549-560, 1986.
    27. Fisher, A., L.G. Chestnut, and D.M. Violette, ``The Value of
Reducing Risks of Death: A Note on New Evidence,'' Journal of Policy
Analysis and Management, vol. 8, No. 1, pp. 88-100, 1989.
    28. Viscusi, W.K., ``Fatal Tradeoffs: Public and Private
Responsibilities for Risk,'' Oxford University Press, p. 24, 1992.
    29. Miller, A.L., ``The U.S. Smoking-Material Fire Problem
Through 1992: The Role of Lighted Tobacco Products in Fire,''
National Fire Protection Association, p.2, 1994.

[[Page 41372]]

    30. ``Appendix V: Regulatory Impact Analysis Guidance,'' in
``Regulatory Program of the United States Government,'' Office of
Management and Budget, pp. 663-666, April 1, 1990-March 31, 1991.
    31. Id., p. 663.
    32. ``1994 State of the Industry Report,'' in Automatic
Merchandiser, August 1994, p. A8.
    33. ``Census of the Industry Issue,'' in Vending Times, August
1994.
    34. ``Tar, Nicotine, and Carbon Monoxide of the Smoke of 933
Varieties of Domestic Cigarettes,'' Federal Trade Commission, 1994.
    35. French, M.T., et al., ``Compliance Costs of Food Labeling
Regulations,'' Final Report, RTI Project Number 233U-3972-02 DFR,
January 1991.
    36. Department of National Health and Welfare, ``Tobacco
Products Control Regulations, amendment,'' Canada Gazette, Part II,
vol. 127, No. 16, pp. 3277-3294, August 11, 1993.
    37. Kaiserman, M., Department of National Health and Welfare,
Canadian Government, personal communication, February 1, 1995.
    38. Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring only Vendor Assisted Tobacco
Sales,'' North Bay Health Resources Center, Petaluma, California, p.
5, November 3, 1994.
    39. Cumings, K. M., T. Pechacek, and D. Shopland, ``The Legal
Sale of Cigarettes to U.S. Minors: Estimates by State,'' American
Journal of Public Health, vol. 84, No. 2, February 1994, p. 301,
(Derived by substracting sales to 18-year-olds from the reported 516
million packs consumed).
    40. 58 FR 45156, 45159-45160 (August 26, 1993).
    41. ``The Economic Impact of the Tobacco Industry on the United
States in 1990,'' Price Waterhouse, p. II-10, October 1992
    42. 1194 SGR, p. 85.
    43. U.S. Department of Commerce, ``Statistical Abstract of the
United States 1993,'' 113 edition, 1993, p. 137; Department of
Health and Human Services, Office of Inspector General, ``Spit
Tobacco and Youth'' Additional Analysis, June 1993.
    44. ``The Economic Impact of the Tobacco Industry on the United
States in 1990,'' Price Waterhouse, P. II-10, October 1992.
    45. Kropp, R. ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of
Welfare Merchandising and Requiring only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Pentaluma, California,
p. 5, November 3, 1994.
    46. U.S. Department of Commerce, ``Statistical Abstract of the
United States 1994,'' 114th edition, no. 1284, 1994, p. 787.
    47. National Association of Chain Drug Stores, ``Prescription
Drug Marketplace Simulation Mode; User's Guide,'' Appendix B, 1992.
    48. ``The Economic Impact of the Tobacco Industry on the United
States in 1990,'' Price Waterhouse, p. II-10, October 1992.
    49. Recommendations of the Staff of the Federal Trade
Commission, ``Omnibus Petition for Regulation of Unfair and
Deceptive Alcoholic Beverage Advertising and Marketing Practices,''
Appendix A, pp. 3-4, March 1985.
    50. Scherer, F.M. ``Industrial Market Structure and Economic
Performance,'' 2nd Edition, Rand McNally College Publishing Co.,
Chicago, p. 380, 1980.
    51. Becker, G.S. and K.M. Murphy, ``A Simple Theory of
Advertising as a Good or Bad,'' Quarterly Journal of Economics, vol.
108, p. 941, November 1993.
    52. ``The Economic Impact of the Tobacco Industry on the United
States in 1990,'' Price Waterhouse, October 1992, p. ES-3.
    53. Vending Times, ``Census of the Industry Issue,'' 1994, p.
42.
    54. Automatic Merchandiser, ``State of the Industry Report,'' p.
A8, August, 1994.
    55. Wolfson, A. ``Canada's Ad Ban Puts Cigarettes Out of
Sight,'' The Courier-Journal, pp. A1,-A4, August 1, 1994.
    56. Teinowitz, I., ``First Smoke, Then Fire'', Advertising Age,
p. 30, Spring 1995.
    57. Endicott, R.C., ``Top Advertisers Rebound, Spending to $36
Billion,'' Advertising Age, vol. 64, No. 41, p. 1, September 29,
1993.
    58. 56 FR 11661, (March 20, 1991).
    59. Expert Panel Report, ``When Packages Can't Speak: Possible
impacts of plain and generic packaging of tobacco products,''
Prepared at the request of Health Canada, p. 140, March 1995.
    60. ``An Advertising Supplement'' Advertising Age, p. 2,
September 26, 1994.
    61. Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Petaluma, California, p.
2, November 3, 1994.
    62. ``The Economic Impact of the Tobacco Industry on the United
States in 1990,'' Price Waterhouse, October 1992.
    63. Gray, H.P., and I. Walter, ``The Economic Contribution of
the Tobacco Industry,'' in ``Smoking and Society: Toward a More
Balanced Assessment'', R.D. Tollison, editor, Lexington Books, p.
248, 1986.
    64. The Tobacco Institute, ``The Tax Burden on Tobacco,'' vol.
28, 1993, p. 4.
    65. U.S. Department of Commerce, ``Statistical Abstract of the
United States 1994,'' 114th edition, no. 464, 1994, p. 298.
    66. ``1994 State of the Industry Report,'' in Automatic
Merchandiser, August 1994, p. A2.

List of Subjects

21 CFR Part 801

    Labeling, Medical devices, Reporting and recordkeeping
requirements.

21 CFR Part 803

    Imports, Medical devices, Reporting and recordkeeping requirements.

21 CFR Part 804

    Imports, Medical devices, Reporting and recordkeeping requirements.

21 CFR Part 897

    Cigarettes, Smokeless tobacco, Labeling, Advertising, Sale and
Distribution, Reporting and recordkeeping requirements.

    Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs, it is
proposed that 21 CFR parts 801, 803, and 804 be amended and that a new
part 897 be added as follows:

    Note: The part number for part 897 as proposed at 60 FR 32417
will be changed by the agency in a future issue of the Federal
Register.

PART 801--LABELING

    1. The authority citation for 21 CFR part 801 continues to read as
follows:

    Authority: Secs. 201, 301, 501, 502, 507, 519, 520, 701, 704 of
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 331, 351,
352, 357, 360i, 360j, 371, 374).

    2. Section 801.61 is amended by adding a new paragraph (d) to read
as follows:

Sec. 801.61  Statement of identity.

* * * * *
    (d) This provision does not apply to cigarettes or to smokeless
tobacco products as defined in part 897 of this chapter.

PART 803--MEDICAL DEVICE REPORTING

    3. The authority citation for 21 CFR part 803 continues to read as
follows:

    Authority: Secs. 502, 510, 519, 701, 704 of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 352, 360, 360i, 371, 374).

    4. Section 803.1 is amended by adding a new paragraph (d) to read
as follows:

Sec. 803.1  Scope.

* * * * *
    (d) This part does not apply to cigarettes or to smokeless tobacco
products as defined in part 897 of this chapter.
PART 804--MEDICAL DEVICE DISTRIBUTOR REPORTING

    5. The authority citation for 21 CFR part 804 continues to read as
follows:

    Authority: Secs. 502, 510, 519, 520, 701, 704 of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 352, 360, 360i, 360j, 371,
374.

    6. Section 804.1 is amended by adding a new paragraph (c) to read
as follows:

Sec. 804.1  Scope.

* * * * *

[[Page 41373]]

    (c) This part does not apply to distributors of cigarettes or
smokeless tobacco products as defined in part 897 of this chapter.
    7. New part 897 is added to read as follows:

PART 897--CIGARETTES AND SMOKELESS TOBACCO PRODUCTS

Subpart A--General Provisions

Sec.
897.1  Scope.
897.2  Purpose.
897.3  Definitions

Subpart B--Sale and Distribution to Persons Under 18 Years of Age

897.10  General responsibilities of manufacturers, distributors, and
retailers.
897.12  Additional responsibilities of manufacturers.
897.14  Additional responsibilities of retailers.
897.16  Conditions of manufacture, sale, and distribution.

Subpart C--Labels and Educational Programs

897.24  Established names for cigarettes and smokeless tobacco
products.
897.29  Educational programs concerning cigarettes and smokeless
tobacco products.

Subpart D--Labeling and Advertising

897.30  Scope of permissible forms of labeling and advertising.
897.32  Format and content requirements for labeling and
advertising.
897.34  Sale and distribution of non-tobacco items and services,
contests and games of chance and sponsorship of events.
897.36  False or misleading labeling and advertising.

Subpart E--Miscellaneous Requirements

897.40  Records and reports.
897.42  Preemption of State and local requirements and requests for
advisory opinions.
897.44  Additional regulatory measures.

    Authority: Secs. 502, 510, 520, 701, 704 of the Federal Food,
Drug and Cosmetic Act (21 U.S.C. 352, 360, 360j, 371, 374).

Subpart A--General Provisions

Sec. 897.1  Scope.

    (a) This part is intended to establish the conditions under which
cigarettes and smokeless tobacco products that contain or deliver
nicotine, because of their potential for harmful effect, shall be sold,
distributed, or used under the restricted device provisions of the
Federal Food, Drug, and Cosmetic Act.
    (b) References in this part to regulatory sections of the Code of
Federal Regulations are to chapter I of Title 21, unless otherwise
noted.

Sec. 897.2  Purpose.

    The purpose of this part is to establish conditions for the sale,
distribution, and use of cigarettes and smokeless tobacco products in
order to:
    (a) Reduce the number of people under 18 years of age who become
addicted to nicotine, thus avoiding the life-threatening consequences
associated with tobacco use; and
    (b) Provide important information regarding the use of these
products to users and potential users.

Sec. 897.3  Definitions.

    (a) Cigarette means any product (including components, accessories,
or parts) which contains or delivers nicotine, is intended to be burned
under ordinary conditions of use, and consists of:
    (1) Any roll of tobacco wrapped in paper or in any substance not
containing tobacco;
    (2) Any roll of tobacco wrapped in any substance containing tobacco
which, because of its appearance, the type of tobacco used in the
filler, or its packaging and labeling, is likely to be offered to, or
purchased by, consumers as a cigarette described in paragraph (a)(1) of
this section; or
    (3) Any roll of tobacco wrapped in leaf tobacco or any substance
containing tobacco (other than any roll of tobacco described by
paragraphs (a)(1) or (a)(2) of this section) and as to which 1,000
units weigh not more than 3 pounds.
    (b) Cigarett tobacco means any loose tobacco that contains or
delivers nicotine and is intended for use by consumers in a cigarette.
Unless otherwise stated, the requirements pertaining to cigarettes
shall also apply to cigarette tobacco.
    (c) Distributor means any person who furthers the marketing of
cigarettes or smokeless tobacco products, whether domestic or imported,
at any point from the original place of manufacture to the person who
makes final delivery or sale to the ultimate user, but who does not
repackage or otherwise change the container, wrapper, or labeling of
the cigarettes or smokeless tobacco products, or the package of the
cigarettes or smokeless tobacco products.
    (d) Manufacturer means any person, including any repacker and/or
relabeler, who manufactures, fabricates, assembles, processes, or
labels a finished cigarette or smokeless tobacco product. The term does
not include any person who only distributes finished cigarettes or
smokeless tobacco products.
    (e) Nicotine means the chemical substance named 3-(1-Methyl-2-
pyrrolidinyl) pyridine or C<INF>10H<INF>14N<INF>2, including any salt
or complex of nicotine.
    (f) Package means a pack, box, carton, or container of any kind in
which cigarettes or smokeless tobacco products are offered for sale,
sold, or otherwise distributed to consumers.
    (g) Point of sale means any location at which a consumer can
purchase or otherwise obtain cigarettes or smokeless tobacco products
for personal consumption.
    (h) Retailer means any person who sells or distributes cigarettes
or smokeless tobacco products to individuals for personal consumption.
    (i) Smokeless tobacco means any cut, ground, powdered, or leaf
tobacco that contains or delivers nicotine and that is intended to be
placed in the oral cavity.

Subpart B--Sale and Distribution to Persons Under 18 Years of Age

Sec. 897.10  General responsibilities of manufacturers, distributors,
and retailers.

    Each manufacturer, distributor, and retailer is responsible for
ensuring that the cigarettes or smokeless tobacco products it
manufactures, labels, advertises, packages, distributes, sells, or
otherwise holds for sale comply with all applicable requirements under
this part.

Sec. 897.12  Additional responsibilities of manufacturers.

    In addition to the other responsibilities under this part, each
manufacturer shall:
    (a) Remove, from each point of sale, all self-service displays,
advertising, labeling, and other manufacturer-supplied or manufacturer-
owned items that do not comply with the requirements under this part;
    (b) Through its representatives, when they visit any point of sale
in their normal course of business, visually inspect and ensure that
the products are labeled, advertised, and distributed in accordance
with this part.

Sec. 897.14  Additional responsibilities of retailers.

    In addition to the other requirements under this part, each
retailer is responsible for ensuring that all sales of cigarettes or
smokeless tobacco products to any person (other than a distributor or
retailer) comply with the following requirements:
    (a) The retailer or an employee of the retailer shall verify by
means of photographic identification containing the bearer's date of
birth that no person purchasing or intending to purchase the product is
younger than 18 years of age;

[[Page 41374]]

    (b) The cigarette or smokeless tobacco product shall be provided to
the person purchasing the product by the retailer or by an employee of
the retailer, without the assistance of any electronic or mechanical
device (such as a vending machine or remove-operated machine); and
    (c) The retailer or an employee of the retailer shall not break or
otherwise open any cigarette package or smokeless tobacco product to
sell or distribute individual cigarettes or number of cigarettes or any
quantity of cigarette tobacco or of a smokeless tobacco product that is
smaller than the quantity in the unopened product.

Sec. 897.16  Conditions of manufacture, sale, and distribution.

    (a) Restriction on product names. A manufacturer may not use a
trade or brand name of a nontobacco product as the trade or brand name
for a cigarette or smokeless tobacco product, except for tobacco
products on which a trade or brand name of a nontobacco product was in
use on January 1, 1995.
    (b) Minimum cigarette package size. No manufacturer, distributor,
or retailer shall sell or cause to be sold, distribute or cause to be
distributed, any cigarette package that contains fewer than 20
cigarettes.
    (c) Vending machines, self-service displays, mail-order sales, and
other ``impersonal'' modes of sale. Cigarettes and smokeless tobacco
products may be sold only in a direct, face-to-face exchange between
the retailer and the consumer. Examples of methods of sale that are not
permitted include, but are not limited, vending machines, self-service
displays, mail-order sales, and mail-order redemption of coupons.
    (d) Free samples. Manufacturers, distributors, and retailers may
not distribute or cause to be distributed any free samples of
cigarettes or smokeless tobacco products.

Subpart C--Labels and Educational Programs

Sec. 897.24  Established names for cigarettes and smokeless tobacco
products.

    Each cigarette or smokeless tobacco product package, carton, box,
or container of any kind that is offered for sale, sold, or otherwise
distributed shall bear the following established name: ``Cigarettes'',
``Cigarette Tobacco'', ``Loose Leaf Chewing Tobacco'', ``Plug Chewing
tobacco'', ``Twist Chewing Tobacco'', ``Moist Snuff'', or ``Dry
Snuff'', whichever name is appropriate.

Sec. 897.29  Educational programs concerning cigarettes and smokeless
tobacco products.

    (a) Each manufacturer shall establish and maintain an effective
national public educational program to discourage persons under 18
years of age from using cigarettes and smokeless tobacco products. The
major portion of this program must appear on television.
    (b) Each manufacturer shall allocate an amount for the educational
program that is proportionate to its share of the total advertising and
promotional expenditures for the most recent year reported by all
manufacturers to the Federal Trade Commission pursuant to the Federal
Cigarette Labeling and Advertising Act or the Comprehensive Smokeless
Tobacco Health Education Act. The Total amount to be spent shall be
$150,000,000 per year.

Subpart D--Labeling and Advertising

Sec. 897.30  Scope of permissible forms of labeling and advertising.

    (a) This subpart does not apply to cigarette or smokeless tobacco
product package labels. A manufacturer, distributor, or retailer may
distribute or cause to be distributed:
    (1) Advertising which bears the cigarette or smokeless tobacco
product brand name (alone or in conjunction with any other word) or any
other indicia of tobacco product identification only in newspapers; in
magazines; in periodicals or other publications (whether periodic or
limited distribution); on billboards, posters, an placards in
accordance with paragraph (b) of this section; and in nonpoint of sale
promotional material (including direct mail); and
    (2) Labeling which bears the cigarette or smokeless tobacco product
brand name (alone or in conjunction with any other word) or any other
indicia of tobacco product identification only in point of sale
promotional material; audio and/or video formats delivered at a point
of sale; and on entries and teams in sponsored events.
    (b) No outdoor advertising, including but not limited to
billboards, posters, or placards, may be placed within 1,000 feet of
any playground, elementary school or secondary school.

Sec. 897.32  Format and content requirements for labeling and
advertising.
    (a) Each manufacturer, distributor, and retailer advertising or
causing to be advertised, disseminating or causing to be disseminated,
labeling and advertising permitted under Sec. 897.30 shall use only
black text on a white background. This section shall not apply to
advertising appearing in adult newspapers, magazines, periodicals, or
other publications (whether periodic or limited distribution). For the
purposes of this section, an adult newspaper, magazine, periodical, or
publication, as measured by competent and reliable survey evidence, is
any newspaper, magazine, periodical, or publication:
    (1) Whose readers aged 18 years or older constitute 85 percent or
more of the total readership, and
    (2) That is read by fewer than 2 million persons under age 18.
    (b) Each manufacturer, distributor, and retailer advertising or
causing to be advertised, disseminating or causing to be disseminated,
advertising, but not labeling, permitted under Sec. 897.30(a), shall
include, as provided in section 502 of the Federal Food, Drug, and
Cosmetic Act, the product's established name and a statement of its
intended use as follows: ``Cigarettes--A Nicotine-Delivery Device'',
``Cigarette Tobacco--A Nicotine-Delivery Device'', or ``Loose Leaf
Chewing Tobacco'', ``Plug Chewing Tobacco'', ``Twist Chewing Tobacco'',
``Moist Snuff'' or ``Dry Snuff'', whichever is appropriate for the
product, followed by the words ``A Nicotine-Delivery Device''.
    (c) Each manufacturer, distributor, and retailer of cigarettes
shall include, in all advertising, but not labeling, permitted under
Sec. 897.30(a), a brief statement, such as the one specified below,
printed in black text on a white background:
    About one out of three kids who become smokers will die from their
smoking.
    (d) The statement required under paragraph (c) of this section
shall be readable, clear, conspicuous, prominent, and contiguous to the
Surgeon General's warning.

Sec. 897.34  Sale and distribution of non-tobacco items and services,
contests and games of chance and sponsorship of events.

    (a) No manufacturer, distributor, or retailer shall market,
license, distribute, sell, or cause to be marketed, licensed,
distributed, or sold any item or service (other than cigarettes or
smokeless tobacco products), which bears the brand name (alone or in
conjunction with any other word), logo, symbol, motto, selling message,
recognizable color or pattern of colors, or any other indicia of
product identification similar or identifiable to those used for
cigarettes or smokeless tobacco products.
    (b) No manufacturer, distributor, or retailer shall offer or cause
to be offered any gift or item, or the right to participate in any
contest, lottery, or

[[Page 41375]]
game of chance to any person purchasing cigarettes or smokeless tobacco
products in consideration of the purchase thereof, or to any person in
consideration of furnishing evidence, such as credits, proofs-of-
purchase, or coupons, of such a purchase.
    (c) No manufacturer, distributor, or retailer shall sponsor or
cause to be sponsored any athletic, musical, artistic or other social
or cultural event, in the brand name, logo, motto, selling message,
recognizable color or pattern of colors, or any other indicia of
product identification similar or identical to those used for
cigarettes or smokeless tobacco products. A manufacturer, distributor,
or retailer may sponsor or cause to be sponsored any athletic, musical,
artistic or other social or cultural event in the name of the
corporation which manufactures the tobacco product, provided that both
the registered corporate name and the corporation were in existence
prior to January 1, 1995.

Sec. 897.36  False or misleading labeling and advertising.

    Labeling or advertising of any cigarette or smokeless tobacco
product is false or misleading if the labeling or advertising contains
any express or implied false, deceptive, or misleading statement, omits
important information, lacks fair balance, or lacks substantial
evidence to support any claims made for the product.
Subpart E--Miscellaneous Requirements

Sec. 897.40  Records and reports.

    (a) Each manufacturer shall, on an annual basis, submit:
    (1) Copies of all labels, except that a manufacturer may submit a
representative sample of such labels if the labels will be similar for
multiple packages or products; and
    (2) Copies of all labeling and a representative sampling of
advertising.
    (b) The manufacturer shall send this information to the Document
and Records Section, 12420 Parklawn Dr., Rockville, MD 20852. The
information should be plainly marked as ``Labels'', or ``Labeling and
Advertising'', whichever is appropriate.
    (c) Manufacturers, distributors, and retailers shall, upon the
presentation by an FDA representative of official credentials, make all
records and other information collected under this part and all records
and other information related to the events and persons identified in
such records available to the FDA representative for purposes of
inspection, review, copying, or any other use related to the
enforcement of the Federal Food, Drug, and Cosmetic Act and this part.

Sec. 897.42  Preemption of State and local requirements and requests
for advisory opinions.

    (a) General. In addition to the requirements imposed under this
part, manufacturers, distributors, and retailers shall comply with any
more stringent State or local requirements relating to the sale,
distribution, labeling, advertising, or use of cigarettes and smokeless
tobacco products, provided that those State or local requirements do
not conflict with the requirements under this part. These more
stringent State or local requirements are not preempted under section
521(a) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360k(a)).
    (b) Requests for advisory opinions. (1) Any State or political
subdivision of a State may request an advisory opinion from the Food
and Drug Administration with respect to the preemptive effect of this
part on any particular State or local requirement. The request for an
advisory opinion should comply with the requirements at Sec. 10.85 of
this chapter. The agency may, in its discretion and after consulting
the State or political subdivision, treat a request for an advisory
opinion as an application for exemption from preemption under
Sec. 808.20 of this chapter.
    (2) The Commissioner, on his or her own initiative, may issue an
advisory opinion relating to a State or local requirement if he or she
finds that:
    (i) Section 521(a) of the Federal Food, Drug, and Cosmetic Act does
not preempt a State or local requirement for which an application for
exemption from preemption has been submitted under Sec. 808.20 of this
chapter because the State or local requirement is equal to or
substantially equivalent to a requirement under the Federal Food, Drug,
and Cosmetic Act, is not a requirement within the meaning of section
521(a) of the Federal Food, Drug, and Cosmetic Act, or is more
stringent than and does not conflict with the requirements under this
part, or
    (ii) Issuance of an advisory opinion is in the public interest.

Sec. 897.44  Additional regulatory measures.

    Seven years after the publication date of any final rule based on
the proposed rule published in the Federal Register on (date of
publication of the final rule), if the percentage of people under the
age of 18 years who smoke cigarettes has not decreased by 50 percent
since 1994 (as determined by an objective, scientifically valid, and
generally accepted program), and/or if the percentage of males under
the age of 18 years who use smokeless tobacco products has not
decreased by 50 percent since 1994 (as determined by an objective,
scientifically valid, and generally accepted program), and the
percentage of females under the age of 18 years who use smokeless
tobacco products has increased since 1994 (as determined by an
objective, scientifically valid, and generally accepted program), then
the agency shall take additional measures to help achieve the reduction
in the use of tobacco products by children and adolescents described
above.

    Dated: August 9, 1995.
David A. Kessler,
Commissioner of Food and Drugs.
Donna E. Shalala,
Secretary of Health and Human Services.
[FR Doc. 95-20051 Filed 8-10-95; 8:45 am]
BILLING CODE 4160-01-P