All Business

PITY POOR BIG TOBACCO

Cigarette makers are an easy target But these lawsuits are still wrong,

STEVE MAICH July 18 2005
All Business

PITY POOR BIG TOBACCO

Cigarette makers are an easy target But these lawsuits are still wrong,

STEVE MAICH July 18 2005

PITY POOR BIG TOBACCO

All Business

Cigarette makers are an easy target But these lawsuits are still wrong,

STEVE MAICH

THERE IS NO INDUSTRY so reviled in North America as tobacco. The oil barons? The global mining conglomerates? The multinational banking cartels? They all look positively cuddly when compared to the guys in the cancer stick business. The industry is now practically synonymous with corporate misconduct. Not only do tobacco companies peddle a dangerous product, they’ve known about the risks for decades. Not only did they refuse to make smoking safer, they seem to have made it more dangerous and addictive for the sake of higher profits. Now and forever, tobacco wears the scarlet letter of ugly capitalism.

No surprise then, that when the industry trudged off to the Supreme Court of Canada a few weeks back, in a fight against the province of British Columbia, there was little sympathy for Big Tobacco. At issue is B.C.’s attempt to sue three major cigarette makers to recoup an estimated $10 billion in health care costs to treat smokers. The province says the industry’s past misconduct makes it liable for costs to the system.

The B.C. law allowing tobacco suits was passed in 2000, declared unconstitutional by a provincial court in 2003, and reinstated by the B.C. Court of Appeal last year. Now it’s up to the country’s highest court, and there’s an awful lot riding on its verdict. Newfoundland has already passed a copycat law, and every other province except Prince Edward Island has lined up in support of B.C.’s case. If the cigarette makers lose this appeal, the legal floodgates will open across the country.

So far, it’s not looking good.

The justices peppered industry lawyers with questions throughout their presentation, but let the government present its case almost uninterrupted. For the court, the easiest choice is to let the lawsuits go ahead, and that’s likely what will happen. The justices will step aside, the government will gleefully raid the tobacco coffers again, and the public will be comforted by the idea that what’s bad for cigarette makers must be good for the rest of us.

It’ll be a real shame.

B.C. and the other provinces defend their lawsuits on the grounds that they’re defending public health, but really they’re chasing a court-ordered jackpot. In 1998, they

watched as Big Tobacco agreed to pay US$246 billion over 27 years to 47 U.S. states, to compensate for years of misleading claims about the health risks associated with smoking. B.C. lawmakers took one look at that settlement and saw a potential solution for the government’s chronic money troubles.

What the provinces conveniently ignore is the fact that Canada began extracting billions from the tobacco industry long before the U.S. did. While the Americans relied on slow and costly litigation, Canada opted for a more elegant approach: punitive taxation. According to a 2002 study, almost 72 per cent of the cost of a carton of cigarettes in Canada goes to various taxes. In the U.S., the tax portion ranged between 17 and 38

per cent, depending on the state. Most Canadians support these taxes because of the habit’s obvious social costs. But by pouring litigation on top of taxation, governments are demanding the industry and its consumers pay twice for their freedom to puff.

This naked money grab is justified by one central myth: that the industry gets a free ride on public health care. The facts say otherwise. A 2000 study estimated that Canada’s direct health care costs due to tobacco are about $2.68 billion a year. A similar 1991 federal government study reached roughly the same conclusion. By comparison, the federal and provincial governments reaped

about $7.69 billion in tobacco taxes last year, up 57 per cent from a decade earlier. Some free ride. If anything, smokers help subsidize health care for the rest of us.

So, if the government is so desperate to wring more money out of smokers, why don’t they just raise taxes again? Well, because governments learned in the early ’90s that when taxes get too high, smugglers start doing big business. It’s actually possible to raise taxes to the point that government ends up with less revenue.

Rather than risk it, B.C. wrote a law that virtually guarantees a windfall at the expense of consumers and shareholders. The province doesn’t need to prove that any particular person’s illness was caused by tobacco. It doesn’t even have to itemize the cost to the medical system of treating any specific patients. Government simply estimates its costs, and demands restitution. In Vegas, that would be called a rigged game.

Business leaders have been all but silent on this so far—nobody wants to stand up for the cancer industry. But all those executives might want to think hard about the implications should Big Tobacco lose this fight. Are they ready to accept a future in which car companies are held liable for smog-related health problems? Are fast-food chains ready to pay for heart and weightrelated ailments? Are liquor companies prepared to fund liver transplants for their best customers? Tobacco isn’t the only legal product known to cause health problems, and you don’t have to be a legal scholar to see the logical extensions of such a precedent.

Cigarette makers are easy targets. We’ve gotten so used to casting them as villains and ourselves as helpless victims that we’ve created a legal double standard for this one, nasty business. But that’s the tough thing about law: a travesty is still a travesty, even when you don’t like the defendant. Iiül

Read Steve Maich’s weblog, “All Business,” at www.macleans.ca/allbusiness

THIS NAKED money grab is justified

on the basis of one central myth: that the tobacco industry gets a free ride on public health care. The facts say otherwise.