October 13,2000

Roth Urges Senate to Pass Miscellaneous Tariff Bill and End Trade of "Gray Market" Cigarettes (106-491)

WASHINGTON -- Senate Finance Committee Chairman William V. Roth Jr. (R-DE) today urged his colleagues to pass legislation to end the siphoning of money from the states' tobacco settlement through the trade in so-called "gray market" cigarettes. Manufactured abroad and bearing U.S.- registered trademarks, "gray market" cigarettes are diverted to the United States market, thus undermining funding for the states' tobacco settlement funds and potentially evading federal health requirements. Saying "we must stop this end-run around the states," Roth authored a provision in the Tariff Suspension and Trade Act of 2000 that would end this practice by banning the importation of such cigarettes. These "gray market" cigarettes may account for as much as 14% of all cigarette sales in the united States.

"Gray market cigarettes often don't fully comply with our health and safety standards," Roth stated. "The flood of these cigarettes has also led to a reduction in payments to the states, including Delaware. This has meant a loss of up to several hundred million dollars a year for the states and several million dollars a year for Delaware. These are funds that could be used to fund health costs, to educate our children about the dangers of smoking, and to undertake other important initiatives.

"I urge my colleagues to pass the Tariff Suspension and Trade Act of 2000, and end the 'gray market' cigarette trade," Roth concluded.


The Balanced Budget Act of 1997 (BBA '97) imposed restrictions on the reimportation of export-label cigarettes manufactured in the United States. This provision was intended to prevent the evasion of federal excise taxes and assist the states in implementing the goals the tobacco settlement agreements then in place between certain states (Florida and Mississippi) and cigarette manufacturers. BBA '97, however, did not impose any restrictions on the importation of cigarettes manufactured abroad that bear the trademark of a product manufactured in the United States and which are diverted from foreign markets for sale in the United States, so called "gray market" cigarettes.

There is great concern that imports of gray market cigarettes have increased dramatically since the Master Settlement Agreement was reached, thereby displacing sales of domestically manufactured cigarettes bearing the same trademark. This is of concern because such cigarettes may not fully comply with U.S. health and safety standards. It is also a concern because the foreign manufactured cigarettes are not counted in the formulae used to calculate payments that the tobacco companies are required to make under the tobacco settlement agreements, including the Master Settlement Agreement, individual state settlements and the Phase II Agreement between tobacco manufacturers and U.S. tobacco farmers and quota holders.