Of all the disasters that can befall a consumer industry, the nation's paper manufacturers discovered last February that they could be facing one of the worst. Dioxin, the cancer-causing chemical, was believed to be bubbling up in the bleaching process of paper mills, contaminating discharges and pulp in tiny quantities.

It seemed "unavoidable" that the substance would turn up in everyday products, wrote Carol Raulston, of the American Paper Institute (API).

"For at least one year," she warned in a Feb. 23 memo to colleagues, "the industry could be responding to claims of skin rashes, upset stomachs, aches and pains, animal ills, bad-tasting water, etc., all blamed on our products or processes."

But this was not an industry to wait passively for a crisis to engulf it. The dioxin discovery at paper mills set off an elaborate, damage-control strategy fueled by a $300,000 war chest and motivated by an overriding objective of the industry: to manage public and official views of the poison in its product.

Details of the "Dioxin Public Affairs Plan," revealed in industry documents, show how a consumer industry of almost unlimited resources works to influence a regulatory issue vital to the public health -- and the commercial fortunes of the industry.

By the time the news broke Sept. 24 that items ranging from disposable diapers to stationery were tainted by dioxin, the strategy had paid off. The industry, which had worked with the Environmental Protection Agency in surveying the pollution of paper mills, independently tested its products. As API announced the findings and played down their public health implications, top EPA officials -- given only sketchy details of the product tests a few days earlier -- had little choice but to agree. Many environmentalists seemed caught off guard.

"That was not an issue we wanted to leave to chance," Raulston, API's vice president of government affairs, said in an interview.

The documents portray an industry bent on crisis control as soon as the potential for trouble arose. The EPA was targeted for "intelligence gathering." Strategists sought to "temper" news media interest, "minimize" public health concerns and hire outside experts to challenge the EPA's view of dioxin risks. A Washington public relations firm was hired, corporate representatives trained and a consumer survey conducted.

The EPA generally appeared to fall in line with industry objectives, although its spokesman, Dave Cohen, insisted that the agency "was on its own track. If they were attempting to be manipulative, it never entered our thinking."

Copies of memos and minutes of meetings detailing the industry effort were obtained from the API office by an insider and reproduced by the environmental group Greenpeace. The documents were authenticated by Raulston.

"The {financial} bottom line never came into consideration," Raulston said of the industry campaign. "There was the honest feeling that the dioxin detections were of very low levels, not the levels the public was used to hearing about from industrial accidents. Our objective was that accurate information get out."

Dioxin, an unintended byproduct of certain chemical reactions, is one of the most hazardous substances. It causes cancer, reproductive problems and immune system damage in laboratory rodents at very low doses.

The industry became involved in late 1985 when the EPA was sampling U.S. rivers and lakes for dioxin and found unusually high levels downstream of paper mills. In June 1986, the industry entered into an agreement with the EPA for a joint study of five mills whose bleaching process was suspected of creating dioxin.

API president Red Cavaney explained to his executive committee six months later that the industry agreed to the study in part to "forestall major regulatory and public relations difficulties."

The industry rallied under the banner of API, its trade group and chief lobbying arm. A three-tiered "crisis manangement" network was set up in recognition of the "need to have a quick response plan and a team in place for the day when this issue may make extraordinary demands upon our industry," said an API memo. The Dioxin Task Group, to be chaired by top paper industry executives, headed the effort.

At its first meeting Feb. 12, the task group resolved to "maintain the integrity of our products," avoid "unnecessary changes" in production processes prompted by unsound scientific data and, above all, to "preserve the industry's reputation as a concerned and responsible public citizen."

The industry worked to achieve its objectives with a strategy aimed chiefly at the EPA, which regulates hazardous substances and thereby shapes the public perception of contaminated products. The documents underscore the need to moderate the agency's stance on dioxin's risks, which would serve as the basis for regulations. The agency also was to be enlisted to help assuage public health concerns.

How central the EPA was to industry goals was indicated in notes of what Raulston described as a "brainstorming session" in May. Planners spoke of the need to "improve intelligence gathering within the EPA" and to identify "allies" and "adversaries" at the agency, the notes showed.

In a list of "short-term objectives" cited in the notes, the industry was to:"Get EPA to discuss issue with media in balanced/nonhysterical manner." "Get EPA to 'rethink' dioxin risk assessment." "Have EPA not seek publicity." "Get EPA to issue statement -- 'No harm to environment or public health.' "

The industry was to "avoid confrontations with government agencies which might trigger concerns about health risks or raise visibility of issue generally," said the notes.

Public perceptions were of key concern to the industry, which rang up $50 billion in sales last year. One goal of strategists in May was to "keep allegations of health risks out of {the} public arena -- or minimize them."

As the EPA was nearing release of its national dioxin survey last summer, and health questions for the industry seemed inevitable, API staff counsel John Thorner suggested casting the findings as "old news" to diminish news media interest.

A press kit, he wrote Aug. 31 to Raulston, should not be packaged in a "formal kit" that "might give the appearance that we consider this a major event."

The strategists recognized that industry would "enter any public debate on dioxin at a disadvantage." It is seen as even "less credible" on health and environmental issues than government, they said, citing surveys that show that regulators and administrators are quoted four times more often than industry experts.

So, they looked to the EPA for help. In negotiating the joint dioxin study, the industry asked for, and received, the right to provide "inputs" to the agency's final report and "separate views" if it disagreed with the government conclusions.

After the EPA granted an environmentalist's Freedom of Information request for preliminary data on the joint study, it agreed to meet with the industry to discuss the "public affairs strategy," according to a Raulston letter.

Cavaney, reporting on a July 31 meeting of industry executives and EPA Administrator Lee M. Thomas, wrote later that Thomas "indicated a willingness to cooperate with the industry to ensure that the public not be unduly alarmed."

According to Cohen, the EPA spokesman, Thomas told the industry that "we would characterize the risk as we saw fit." And, even though EPA officials played down the dioxin risk in paper products two months later, "that was our objective assessment," Cohen said. "At no time did we sit down with them and say 'Let's develop one party line.' "

He noted that while the EPA ruled out public health risks in paper products at the Sept. 24 news conference, its disclosure of dioxin in the pulp and discharges of paper mills "is not the type of news a major corporation would be wild about."

A recurring theme of the documents was how to alter the EPA's view of dioxin's perils. About three years ago, Thomas ordered a review of the chemical's risks. Its outcome could affect not only existing regulations of dioxin in solid waste and incinerator exhausts but long-awaited standards to determine how much of it should be permitted in the air and water.

The stakes for the industry were outlined at a June meeting of its Dioxin Coordinating Committee, as reported later: "If the assessment were to be changed, the basis for questioning the industry's dioxin levels could cease to exist."

Raulston had earlier recommended bringing together a panel of nationally recognized dioxin experts "to provide an external base of authority for the industry's" evaluation of risks. "It further allows us to go to EPA with 'the best scientific advice available' and provides an opportunity for them to utilize these assumptions in their own risk assessment," she said in her Feb. 23 memo.

How such a panel was to be chosen was debated in a June issues paper. A group picked by an independent, third party would preclude charges of bias. The "obvious disadvantages," said the paper, was that "a third party might also insist on the right to publish the report -- favorable or unfavorable to the industry."

API's directors eventually budgeted $150,000 for an outside panel to be chosen by an independent organization to research the risks of dioxin at low levels. The money was also to cover costs of an "in-house" panel of scientific advisers.

A lobbying blueprint revealed in the draft agenda of an industry meeting in June called for "selective" congressional contacts to "provide pressure on {the} agency to change current risk assessments" and "provide assurances" to EPA Administrator Thomas that he "can take appropriate time in resolving {the} issue."

The documents repeatedly call for a meeting with Thomas, who could "provide top-level guidance to rest of {the} agency on how to characterize risk," said the draft.

Thomas met with industry representatives twice. At the July 31 meeting, Cavaney later wrote paper company executives, Thomas "gave no indication that the agency felt that the current situation was a crisis warranting immediate regulations."

At the earlier meeting in September 1986, paper company executives suggested industry participation in the risk assessment review, according to Alec McBride, EPA project director of the joint study.

"They were invited to participate if they had something to offer," he said. "But we didn't want them to come in and browbeat us or lobby us as we did a risk assessment" of a substance in which the industry had a vested financial interest. He said the industry has not submitted substantive material to risk assessors.

"If there was a plan to influence our thinking," Cohen said, "it was either incompetent or nonexistent. No one here felt any pressure."