By John Schwartz
Washington Post Staff Writer
Thursday, April 9, 1998; Page A01

The nation's major tobacco companies yesterday announced that they were abandoning their efforts to shape federal tobacco legislation and vowed instead to fight bills they said would bankrupt them.

Saying that tobacco politics is "broken beyond repair," RJR Nabisco Chief Executive Officer Steven F. Goldstone said, "There is no process which is even remotely likely to lead to an acceptable comprehensive solution this year." The other leading tobacco companies immediately followed with similar statements.

The announcements appear to mark the end of a nearly year-long strategy by the historically defiant industry to take a conciliatory path by working with Congress and the White House to reach a national tobacco settlement. After months of negotiations, the leading bill to emerge in Congress calls for the industry to pay $516 billion -- much more than it had agreed to pay in a deal announced last June -- while providing far less legal protection than it had sought.

"Washington," Goldstone said, "has rushed to collect more tobacco revenues while playing the politics of punishment."

For the most part, President Clinton and members of Congress said they would proceed toward comprehensive tobacco legislation without the industry's cooperation.

"I'm very disappointed," Clinton said as he toured new classrooms at an elementary school on Chicago's South Side. "I have been working for two years on this and I don't intend to stop now," he added.

"Poor babies," needled Sen. Kent Conrad (D-N.D.), who heads the Senate Democratic working group on tobacco issues. "We don't need their blessing to pass tough tobacco legislation. In many ways this is liberating -- do it right, and not try to dance around their approval. They weren't going to approve of anything that was any good anyway."

Sen. John McCain (R-Ariz.), who sponsored the leading bill on Capital Hill, said Congress must go forward "with or without the industry's support," adding that "we could never be placed in a position where the terms of this agreement are dictated."

An ally of the industry, however, Sen. Wendell H. Ford (D-Ky.), said he understood the "frustration shared by tobacco companies." Yesterday's announcements, he said, would either "cause the legislative process to disintegrate" or "inject some needed fiscal responsibility into the debate."

Rep. Thomas J. Bliley Jr. (R-Va.), who as chairman of the House Commerce Committee was likely to have a leading role in shaping legislation, called the industry pullout "unfortunate" but said it was "not a reason for inaction."

In his speech yesterday at the National Press Club, Goldstone blamed the president for showing "precious little" leadership on the issue, and anti-tobacco activists for taking a proposal "which should have been a public health advocate's dream come true" and promoting instead "a surprising new public agenda -- the need to promote litigation and punitive damages against this industry."

In the original proposal, the industry agreed to pay $368 billion and accept broad new restrictions on its advertising and marketing activities to try to reduce youth smoking in exchange for protections against major lawsuits. Today, Goldstone said, he had "no hope whatsoever" of getting that agreement.

"Why did this political process break down?" Goldstone asked. "My answer is one word -- money." The prospect of billions in new tax revenue from the politically unpopular industry, paid for by smokers, drove the political process beyond rational bounds, he said. The White House, as well as Democrats and Republicans in Congress, had already begun to plan for how they would spend money from a tobacco settlement. McCain, Goldstone said, excluded the industry from negotiations over the bill.

Goldstone acknowledged that the tobacco companies shared some of the blame. "Those of us in the industry did not fully appreciate the depth of the mistrust and anger that existed about the industry's past controversies," he said.

Now, he said, the industry would devote its energies and money to fighting the McCain bill, by taking its case to the American public. The industry's public relations campaign begins today with advertisements in leading newspapers reading, "We Agreed To Change The Way We Do Business . . . Not To Go Out Of Business."

The industry also planned, Goldstone said, to return to a combative stance in courtrooms across the nation. The industry, which faces an onslaught of lawsuits around the country, had agreed in the past year to pay billions of dollars to several of the states that had sued to recover the costs of paying for the health care of sick smokers.

The industry, Goldstone said, is not "like a Brinks truck overturned in the middle of a highway."

Maryland Attorney General J. Joseph Curran Jr., who filed one of 41 state suits against the industry, said that he welcomed the industry's return to a combative stance. "We're just moving ahead with our law case," he said.

Some observers yesterday said that the industry move was a bargaining ploy. William Novelli of the National Center for Tobacco-Free Kids said that the industry might even be secretly willing to live with the McCain bill, and be pursuing "the Br'er Rabbit strategy" of pleading not to be thrown to safety.

But J. Philip Carlton, the lead negotiator for the tobacco industry with the White House, said that top industry executives had met Monday and decided to cut off all negotiations because the McCain bill would be ruinous. "Our orders are clearly to not go to the White House anymore -- there's nothing to negotiate," Carlton said.

Washington attorney John Coale, who helped negotiate the original deal, noted, however, that the "posturer never admits the posturing." Coale also said that the fight was far from over: "It's only the fifth inning."

Public health advocates reacted angrily to the industry announcement. "For years the tobacco manufacturers have waged war on kids; now they're declaring war on the public health," said former surgeon general C. Everett Koop and former Food and Drug Administration commissioner David A. Kessler in a joint statement. "The companies have thrown down the gauntlet to the Congress, saying are you for public health or are you for tobacco? We believe the Congress will support public health," they said.

"I'm profoundly disappointed that R.J. Reynolds has not chosen to respect the democratic process," said Matthew L. Myers of the National Center for Tobacco-Free Kids, who helped negotiate the settlement and has since worked to toughen the deal on Capitol Hill. Congress, he said, "is not going to be held hostage" by the companies.

The industry move appears unlikely to prompt any immediate defections by any of the powerful Republican and Democratic lobbyists that have signed up to represent the industry -- although there are likely to be strains. For some, the strategic shift by the industry may cause significant personal or political problems.

"None of us knows what we're going to do," said Harry McPherson of the lobbying powerhouse Verner, Liipfert. "I hope very much that there is a renewed effort to adopt legislation built on the principles of the settlement."

Scott Williams, managing partner in Bozell, Sawyer, Miller Group, said he and fellow Democratic partners Lance Morgan and Carter Eskew had not represented tobacco interests before but were drawn to this issue because "the comprehensive agreement was one of the most interesting, complex and fascinating proposals I've seen come through Washington in years."

Asked if the announcement yesterday did not change all that, Williams said: "There is a very interesting question. I don't think we are the black hats here, although people will try to portray it that way."

A Republican lobbyist speaking on background said: "Now we have to mobilize and try to stop the bill. This changes the nature of the assignment." He said he would rather be part of a drive to win approval of a comprehensive settlement agreed to by all the principals, but he acknowledged that killing the pending legislation may well be an easier task than trying to pass a comprehensive solution.

writers Thomas B. Edsall, Ceci Connolly and John F. Harris contributed to this report.