
[Federal Register Volume 75, Number 218 (Friday, November 12, 2010)]
[Proposed Rules]
[Pages 69524-69565]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-28538]



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Part II





Department of Health and Human Services





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Food and Drug Administration



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21 CFR Part 1141



Required Warnings for Cigarette Packages and Advertisements; Proposed 
Rule

  Federal Register / Vol. 75 , No. 218 / Friday, November 12, 2010 / 
Proposed Rules  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Part 1141

[Docket No. FDA-2010-N-0568]
RIN 0910-AG41


Required Warnings for Cigarette Packages and Advertisements

AGENCY: Food and Drug Administration, HHS.

ACTION: Proposed rule.

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SUMMARY: The Food and Drug Administration (FDA) is proposing to amend 
its regulations to add a new requirement for the display of health 
warnings on cigarette packages and in cigarette advertisements. The 
proposed rule would implement a provision of the Family Smoking 
Prevention and Tobacco Control Act (Tobacco Control Act) that requires 
FDA to issue regulations requiring color graphics depicting the 
negative health consequences of smoking to accompany the nine new 
textual warning statements that will be required under the Tobacco 
Control Act. The Tobacco Control Act amends the Federal Cigarette 
Labeling and Advertising Act (FCLAA) to require each cigarette package 
and advertisement to bear one of nine new textual warning statements. 
This proposed rule, once finalized, would specify the color graphics 
that must accompany each of the nine new textual warning statements.

DATES: Interested persons may submit either electronic or written 
comments on this proposed rule by January 11, 2011. See section IV.G of 
this document for the proposed effective date of a final rule based on 
this proposed rule.

ADDRESSES: You may submit comments, identified by Docket No. FDA-2010-
N-0568 and/or RIN number 0910-AG41, by any of the following methods:

Electronic Submissions

    Submit electronic comments in the following way:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

Written Submissions

    Submit written submissions in the following ways:
     FAX: 301-827-6870.
     Mail/Hand delivery/Courier (for paper, disk, or CD-ROM 
submissions): Division of Dockets Management (HFA-305), Food and Drug 
Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852.
    Instructions: All submissions received must include the agency name 
and Docket No(s). and Regulatory Information Number (RIN) for this 
rulemaking. All comments received may be posted without change to 
http://www.regulations.gov, including any personal information 
provided. For additional information on submitting comments, see the 
``Comments'' heading of the SUPPLEMENTARY INFORMATION section of this 
document.
    Docket: For access to the docket to read background documents or 
comments received, go to http://www.regulations.gov and insert the 
docket number(s), found in brackets in the heading of this document, 
into the ``Search'' box and follow the prompts and/or go to the 
Division of Dockets Management, 5630 Fishers Lane, rm. 1061, Rockville, 
MD 20852.

FOR FURTHER INFORMATION CONTACT: Gerie Voss or Kristin Davis, Center 
for Tobacco Products, Food and Drug Administration, 9200 Corporate 
Blvd., Rockville, MD 20850-3229, 877-287-1373, gerie.voss@fda.hhs.gov 
or kristin.davis@fda.hhs.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Legal Authority and Background
II. Cigarette Use in the United States and the Resulting Health 
Consequences
    A. Smoking Prevalence Among Adults and Children
    B. Initiation of Smoking Among Adults and Children
    C. Costs to Society and Health Effects of Cigarettes
    1. Costs of Smoking to Society
    2. Negative Health Effects of Cigarettes
III. Data Concerning Health Warnings
    A. Current Warnings on Cigarette Packages and Advertisements Are 
Inadequate
    1. Current Warnings Have Not Changed in More Than Twenty-Five 
Years
    2. Current Warnings Often Go Unnoticed
    3. Current Warnings Fail to Convey Relevant Information in an 
Effective Manner
    B. Larger, Graphic Warnings Communicate More Effectively: 
International Experience
    1. Getting Consumers' Attention
    2. Influencing Consumers' Awareness of Cigarette-Related Health 
Risks
    3. Impacting Smoking Intentions and Behaviors
    C. Benefits of FDA's Proposed Required Warnings
    1. The Addition of Graphic Images Will Have a Significant, 
Positive Impact on Public Health
    2. The Revised Textual Statements Will Communicate More 
Effectively
    D. FDA's Process for Development and Plan for Selection of the 
Required Warnings
IV. Description of Proposed Regulations
    A. Section 1141.1--Scope
    B. Section 1141.3--Definitions
    C. Section 1141.10--Required Warnings
    D. Section 1141.12--Incorporation by Reference of Required 
Warnings
    E. Section 1141.14--Misbranding of Cigarettes
    F. Section 1141.16--Disclosures Regarding Cessation
    G. Proposed Effective Date
V. Paperwork Reduction Act of 1995
VI. Executive Order 13132: Federalism
VII. Environmental Impact
VIII. Analysis of Impacts
    A. Introduction and Summary
    B. Need for Rule
    C. Benefits
    1. Reduced Smoking Rates
    2. Expected Life-Years Saved
    3. Benefits of Reduced Premature Mortality
    4. Reduced Emphysema
    5. Reduced Fire Costs
    6. Medical Services
    7. Summary of Benefits
    8. Uncertainty Analysis
    D. Costs
    1. Number of Affected Entities
    2. Costs of Changing Cigarette Labels
    3. Market Testing Costs Associated With Changing Cigarette 
Package Labels
    4. Advertising Restrictions: Removal of Noncompliant Point-of-
Sale Advertising
    5. Government Administration and Enforcement Costs
    6. Summary of Costs
    E. Cost-Effectiveness Analysis
    F. Distributional Effects
    1. Tobacco Manufacturers, Distributors, and Growers
    2. National and Regional Employment Patterns
    3. Retail Sector
    4. Advertising Industry
    5. Excise Tax Revenues
    G. International Effects
    H. Regulatory Alternatives
    1. 24-Month Compliance Period
    2. Six-Month Compliance Period
    3. Summary of Regulatory Alternatives
    I. Impact on Small Entities
    1. Description and Number of Affected Small Entities
    2. Description of the Potential Impacts of the Final Rule on 
Small Entities
    3. Alternatives to Minimize the Burden on Small Entities
IX. Comments
X. References

I. Legal Authority and Background

    The Tobacco Control Act was enacted on June 22, 2009, amending the 
Federal Food, Drug, and Cosmetic Act (FD&C Act) and FCLAA, and 
providing FDA with the authority to regulate tobacco products (Pub. L. 
111-31; 123 Stat. 1776). Section 201 of the Tobacco Control Act 
modifies section 4 of FCLAA (15 U.S.C. 1333) to require that nine new 
health warning statements appear on cigarette packages and in cigarette 
advertisements:
     WARNING: Cigarettes are addictive
     WARNING: Tobacco smoke can harm your children

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     WARNING: Cigarettes cause fatal lung disease
     WARNING: Cigarettes cause cancer
     WARNING: Cigarettes cause strokes and heart disease
     WARNING: Smoking during pregnancy can harm your baby
     WARNING: Smoking can kill you
     WARNING: Tobacco smoke causes fatal lung disease in 
nonsmokers
     WARNING: Quitting smoking now greatly reduces serious 
risks to your health.
    Section 201 also states that ``the Secretary [of Health and Human 
Services] shall issue regulations that require color graphics depicting 
the negative health consequences of smoking'' to accompany the nine new 
health warning statements.
    Section 202(b) of the Tobacco Control Act amends section 4 of FCLAA 
(15 U.S.C. 1333) to add a new subsection \1\ that permits FDA to, after 
notice and an opportunity for the public to comment, adjust the format, 
type size, color graphics, and text of any health warning statement if 
such a change would promote greater public understanding of the risks 
associated with the use of tobacco products. Similarly, section 202(b) 
of the Tobacco Control Act permits FDA to adjust the format, type size, 
and text of any other disclosures required under the FD&C Act, using 
the same process and upon the same basis as for adjusting the health 
warning statements.\2\ Among the provisions of the FD&C Act that 
provide authority to require disclosures is section 906(d) (21 U.S.C. 
387f(d)). This provision authorizes FDA to issue regulations 
restricting the sale or distribution of cigarettes and other tobacco 
products, including restrictions on the advertising and promotion of 
such products, if FDA determines the restriction is appropriate for 
protecting the public health.
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    \1\ Section 202(b) of the Tobacco Control Act amends section 4 
of FCLAA (15 U.S.C. 1333) to add a new subsection (d), ``Change in 
Required Statements.'' However, section 201 of the Tobacco Control 
Act also amends section 4 of FCLAA to add a new subsection (d), 
``Graphic Label Statements.''
    \2\ Provisions regarding adjustments to the health warnings and 
other disclosures are also in sections 4(b)(4) and 4(d) of FCLAA, as 
amended by section 201 of the Tobacco Control Act.
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    These requirements are supplemented by the FD&C Act's misbranding 
provisions, which require that product advertising and labeling include 
proper warnings. For example, a tobacco product is deemed misbranded 
under section 903(a)(1) or (a)(7)(A) of the FD&C Act (21 U.S.C. 
387c(a)(1) or (a)(7)(A)) if its labeling or advertising is false or 
misleading in any particular. Under section 201(n) of the FD&C Act (21 
U.S.C. 321(n)), in determining whether labeling or advertising is 
misleading, the agency considers, among other things, the failure to 
reveal material facts concerning the consequences that may result from 
the customary or usual use of the product. Similarly, under section 
903(a)(8)(B) of the FD&C Act (21 U.S.C. 387c(a)(8)(B)), a tobacco 
product is deemed misbranded unless the manufacturer, packer, or 
distributor includes in all advertisements and other descriptive 
printed matter a brief statement of, among other things, the relevant 
warnings. Moreover, a tobacco product is deemed misbranded under 
section 903(a)(7)(B) of the FD&C Act (21 U.S.C. 387c(a)(7)(B)) if it is 
sold or distributed in violation of regulations prescribed under 
section 906(d) of the FD&C Act. Under section 701(a) of the FD&C Act 
(21 U.S.C. 371(a)), FDA has authority to issue regulations for the 
efficient enforcement of the FD&C Act.
    Cigarette smoking kills an estimated 443,000 Americans each year, 
most of whom began smoking when they were under the age of 18 (Ref. 1). 
Tobacco use is the foremost preventable cause of premature death in 
America, and has been shown to cause cancer, heart disease, and other 
serious adverse health effects (Ref. 2). In enacting the Tobacco 
Control Act, Congress found that providing FDA with authority to 
regulate tobacco products, including the advertising and promotion of 
such products, would result in significant benefits to the American 
public in human and economic terms (section 2(12) of the Tobacco 
Control Act). The U.S. government has a substantial interest in 
reducing the number of Americans, particularly children and 
adolescents, who use cigarettes and other tobacco products in order to 
prevent the life-threatening health consequences associated with 
tobacco use (section 2(31) of the Tobacco Control Act). Virtually all 
new users of tobacco products are minor children and a reduction in 
tobacco use by this population alone could significantly reduce 
tobacco-related death and disease in the United States (Ref. 3 at pp. 
5-6).
    In 1964, the Surgeon General of the Public Health Service issued 
the landmark report titled ``Smoking and Health,'' which 
comprehensively assessed the available scientific evidence relating to 
the health effects of cigarette smoking and concluded that cigarette 
smoking is a health hazard of sufficient importance in the United 
States to warrant appropriate remedial action. Subsequently, Congress 
passed the Federal Cigarette Labeling and Advertising Act (FCLAA) of 
1965 (Pub. L. 89-92); this legislation required that a printed warning 
appear on cigarette packages to warn consumers of the potential hazards 
of cigarette smoking. This warning requirement was modified by later 
amendments to FCLAA, including the Comprehensive Smoking Education Act 
(CSEA) of 1984 (Pub. L. 98-474), which extended the warning requirement 
to cigarette advertising. The current requirements for cigarette 
package and advertising warning statements are set forth in FCLAA.
    Although FCLAA has required the inclusion of textual health 
warnings on cigarette packages and in cigarette advertisements for many 
years, there is considerable evidence that the current warnings are 
given little attention or consideration by viewers (Id. at p. 168). 
These warnings, which have not changed in over twenty-five years, have 
been described as ``invisible'' and fail to convey relevant information 
in an effective way (Ref. 4; Ref. 5 at p. 291). The current warnings 
also fail to include any graphic component. In proposing this current 
regulation, FDA examined the scientific literature and found 
substantial evidence indicating that prominent warnings including a 
graphic component would offer significant public health benefits over 
the current warnings used in the United States (see Section III). FDA 
also found evidence of a strong worldwide consensus that effective 
tobacco health warnings should be large and should include a graphic 
image component. For example, the World Health Organization's (WHO) 
Framework Convention on Tobacco Control (FCTC),\3\ an evidence-based 
treaty that provides a regulatory strategy for addressing the serious 
negative impacts of tobacco products, calls for warnings that are 
rotating, ``large, clear, visible and legible.'' The treaty recommends 
that the warnings occupy 50 percent or more of the principal display 
areas, and states that they may be in the form of or include pictures 
or pictograms. WHO FCTC art. 11.1(b). Worldwide, over 30 countries/
jurisdictions have implemented pictorial warnings on tobacco packages 
and requirements for pictorial warnings are pending in several other 
countries/jurisdictions.\4\
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    \3\ There are 168 signatories to the WHO's Framework Convention 
on Tobacco Control as of August 2010. At this time, the United 
States is a signatory but has not ratified this treaty.
    \4\ Countries/jurisdictions that have implemented pictorial 
warning requirements for tobacco packaging include: Australia; 
Belgium; Brazil; Brunei; Canada; Chile; Colombia; Cook Islands; 
Djibouti; Egypt; Hong Kong; India; Iran; Jordan; Latvia; Malaysia; 
Mauritius; Mexico; Mongolia; New Zealand; Pakistan; Panama; 
Paraguay; Peru; Romania; Singapore; Switzerland; Taiwan; Thailand; 
Turkey; United Kingdom; Uruguay; and Venezuela. Countries/
jurisdictions with pending requirements include: France; Guernsey, 
Honduras; Malta; Norway; Philippines; and Spain.

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    Therefore, as directed by section 201 of the Tobacco Control Act, 
and in the interest of the public health, we are proposing to modify 
the required warnings that appear on cigarette packages and in 
cigarette advertisements to include color graphics depicting the 
negative health consequences of smoking. Specifically, we are proposing 
to add a new part 1141 to Title 21 of the Code of Federal Regulations, 
which would require new warnings on cigarette packages and in cigarette 
advertisements. These new required warnings would consist of the nine 
textual warning statements set forth in section 201 of the Tobacco 
Control Act accompanied by color graphics depicting the negative health 
consequences of smoking. As required by section 201 of the Tobacco 
Control Act, the new warnings would appear prominently on packages and 
in advertisements, occupying at least 50 percent of the area of the 
front and rear panels of cigarette packages and 20 percent of the area 
of advertisements. Under sections 201 and 202 of the Tobacco Control 
Act, FDA may adjust the type size, text, and format of the textual 
warning statements. For example, under section 4(d) of FCLAA (as 
amended by section 201 of the Tobacco Control Act), FDA may adjust the 
type size, text, and format as FDA determines appropriate so that both 
the textual warning statements and the accompanying graphics are clear, 
conspicuous, legible and appear within the specified area. Such 
adjustments, including adjustments to the text of some of the textual 
warning statements, are included for some of the new warnings FDA is 
proposing.
    These proposed modifications to the warnings currently required in 
the United States would promote greater public knowledge of the health 
risks of using cigarettes and would help reduce the initiation of 
smoking and the prevalence of cigarette use among Americans, and thus 
help prevent the life-threatening health risks posed by cigarettes. 
Specifically, the new required warnings are designed to clearly and 
effectively convey the negative health consequences of smoking on 
cigarette packages and in cigarette advertisements, which would help 
both to discourage nonsmokers, including minor children, from 
initiating cigarette use and to encourage current smokers to consider 
cessation to greatly reduce the serious risks that smoking poses to 
their health.

II. Cigarette Use in the United States and the Resulting Health 
Consequences

    In the United States, cigarette smoking is the leading cause of 
preventable death and disease (Ref. 6), resulting in more deaths each 
year than AIDS, alcohol, illegal drug use, homicide, suicide, and motor 
vehicle crashes combined (Ref. 7). Each day, an estimated 6,600 
Americans (nearly 4,000 of them under the age of 18) become new smokers 
(Ref. 8 at p. 59), and due to the highly addictive nature of 
cigarettes, many will find it difficult to quit smoking, despite the 
severe health risks associated with cigarette use. Most smokers begin 
smoking before they are 18 years old (Ref. 3 at p. 6)--more than 80 
percent of established adult smokers began smoking before age 18 (Ref. 
9)--and about half of adolescents who continue to regularly smoke will 
eventually die from smoking-attributable disease (Ref. 10). Smoking 
causes at least 443,000 premature deaths annually in the United States, 
and each year cigarettes are responsible for approximately 5.1 million 
years of potential life lost, direct health care expenditures of 
approximately $96 billion, and at least $96.8 billion in annual 
productivity losses in the United States (Ref. 1). The public health 
benefits that would result from reducing the number of Americans who 
smoke, and thus preventing the life-threatening consequences associated 
with cigarette use, are substantial.

A. Smoking Prevalence Among Adults and Children

    Adults. A significant percentage of U.S. adults are cigarette 
smokers. For example, results from the 2009 National Health Interview 
Survey (NHIS) indicate that approximately 46.6 million U.S. adults (or 
20.6 percent of the adult population) are cigarette smokers (Ref. 6). 
Among these adult smokers, the vast majority--78.1 percent, or 
approximately 36.4 million people--smoke every day (Id.). There are 
also subsets of the adult population with smoking prevalence rates that 
are significantly higher than the overall average. For example, the 
highest prevalence rates have been observed in adults with low 
education levels. Data indicate that 49.1 percent of adults with a 
General Education Development certificate (GED) and 28.5 percent of 
adults with less than a high school diploma were current smokers in 
2009, compared with 5.6 percent of adults with a graduate degree (Id.).
    Children. Among children, data from the 2009 Youth Risk Behavior 
Survey (YRBS), a nationally representative survey of students in grades 
9-12 in the United States, showed that almost half (46.3 percent) of 
U.S. high school students had tried cigarette smoking, and an estimated 
19.5 percent of students were current cigarette smokers (Ref. 11 at p. 
10). Of these current cigarette smokers, 7.8 percent reported that they 
had smoked more than 10 cigarettes per day on the days they smoked (Id. 
at p. 11). Overall, approximately 7.3 percent of high school students 
in 2009 were frequent cigarette users, and 11.2 percent of students 
under the age of 18 had been daily smokers at some point during their 
lifetime (Id. at pp. 10-11). Furthermore, follow-up studies of youth 
smokers have indicated that a significant number of students who are 
light smokers (i.e., students who are not daily smokers or who smoke 
less than 10 cigarettes per day) in high school will become heavy 
smokers after leaving high school (Ref. 12).
    Trends. During the period of 1998-2009, the proportion of U.S. 
adults who were current cigarette smokers declined from 24.1 percent to 
20.6 percent. However, the proportion did not decline from 2008 to 2009 
(20.6 percent in both years), and during the five-year period of 2005 
to 2009, rates showed virtually no change (20.9 percent in 2005 and 
20.6 percent in 2009) (Ref. 6).
    For children, data from the YRBS show that smoking prevalence rates 
increased rapidly in the early 1990s, peaking around 1997. Prevalence 
then declined during the late 1990s, but the rate of decline slowed 
during 2003-2009 (Ref. 13). According to 2009 data from the University 
of Michigan's Monitoring the Future survey, cigarette smoking rates 
among 8th, 10th, and 12th grade U.S. students declined only slightly 
from 2007 to 2009, at a much slower pace than observed previously. 
Specifically, over the two-year time period from 2007 to 2009, smoking 
prevalence fell by just 0.6, 0.9 and 1.5 percentage points among 8th, 
10th, and 12th graders, respectively (Ref. 12). Data from this survey 
also indicate that the proportion of students who perceive a great risk 
associated with being a smoker has leveled off in the past several 
years (Id.).

B. Initiation of Smoking Among Adults and Children

    As discussed in section II.A, roughly one-fifth of Americans are 
current cigarette smokers. Although the cigarette industry regularly 
loses customers through user cessation and

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through deaths caused by smoking, each year millions of U.S. adults and 
children become new smokers.
    For example, results from the 2008 National Survey on Drug Use and 
Health (NSDUH) indicate that the number of persons aged 12 or older who 
smoked cigarettes for the first time within the past 12 months was 2.4 
million (Ref. 8 at p. 59). This estimate was similar to the 2007 
estimate (2.2 million) but statistically significantly higher than the 
estimates for 2002 (1.9 million), 2003 (2.0 million) and 2004 (2.1 
million) (Id.). This 2008 estimate averages out to approximately 6,600 
new cigarette smokers every day (Id.). Most of these new cigarette 
smokers (nearly 4,000) were under the age of 18 (Id.). However, it is 
also notable that the number of people who began smoking at age 18 or 
older showed a significant increase over the last several years, 
jumping from approximately 600,000 in 2002 to 1 million in 2008 (Id. at 
p. 60).
    In addition, data from the 2008 NSDUH indicate that almost 1 
million Americans aged 12 or older had started smoking cigarettes daily 
within the past 12 months. Of these new daily smokers, 37.2 percent 
(350,000 persons) were younger than age 18 when they started smoking 
daily. In other words, each day in 2008 approximately 1,000 U.S. 
children became new daily smokers (Id.). This is particularly 
concerning from a public health perspective, as studies suggest that 
the age individuals begin smoking can greatly influence how much they 
smoke per day and how long they smoke, which will ultimately influence 
their risk of tobacco-related disease and death (Refs. 14 through 16). 
Data from animal studies also suggest that nicotine can cause permanent 
brain changes in the adolescent brain that lead to addiction and that 
these changes are greater in adolescents than in adults (Ref. 17). 
Furthermore, data from human studies indicate that the younger smokers 
start, the more likely they are to become addicted (Id.).

C. Costs to Society and Health Effects of Cigarettes

    Cigarettes are responsible for premature deaths from a variety of 
diseases, a substantial burden on the U.S. healthcare system, and 
significant economic losses to society (Ref. 1). Smoking is the primary 
causal factor for at least 30 percent of deaths from cancer, including 
90 percent of deaths from lung cancer, almost 80 percent of deaths from 
chronic obstructive pulmonary disease (COPD), and nearly one-fifth of 
all deaths from cardiovascular disease (Ref. 1 and Ref. 2 at pp. 39 and 
43).
1. Costs of Smoking to Society
    Data from the Centers for Disease Control and Prevention's (CDC) 
Smoking-Attributable Mortality, Morbidity, and Economic Costs (SAMMEC) 
system for 2000-2004, the most recent years for which analyses are 
available, indicate that cigarette smoking and exposure to cigarette 
smoke are responsible for at least 443,000 premature deaths each year 
(Ref. 1). For every person who dies from smoking, approximately 20 more 
people (8.6 million persons) suffer from at least one serious smoking-
related illness, primarily heart disease and COPD (Ref. 18). The three 
leading causes of smoking-attributable death for current and former 
smokers were lung cancer, ischemic heart disease, and COPD (Ref. 1). 
Cigarettes also have significant deleterious effects on nonsmokers. For 
example, maternal smoking during pregnancy resulted in an estimated 776 
infant deaths annually during 2000-2004, and each year an estimated 
49,400 lung cancer and heart disease deaths were attributable to 
exposure to secondhand smoke (Id.).
    Overall, each year cigarettes are responsible for approximately 5.1 
million years of potential life lost, direct health care expenditures 
of approximately $96 billion, and at least $96.8 billion in 
productivity losses due to premature deaths in the United States (Id.). 
The total costs of smoking to society are much higher, as this estimate 
of productivity losses does not include costs associated with smoking-
related disability, employee absenteeism, or costs associated with 
secondhand-smoke attributable disease morbidity and mortality (Id.). 
These health care expenditures and productivity losses result in a 
combined economic burden from cigarette smoking of approximately $193 
billion per year (Id.). There are also costs to the smoker and his or 
her family. One study estimated that the total cost of smoking over a 
lifetime, including private costs to the smoker and costs imposed on 
society (e.g., second hand-smoke and costs of Medicare, Medicaid, and 
Social Security) come to nearly $40 per pack of cigarettes smoked (Ref. 
19 at p. 11).
2. Negative Health Effects of Cigarettes
    The healthcare burdens, productivity losses, and deaths attributed 
to smoking are related to an array of diseases and health conditions 
caused by cigarettes. Beginning with the landmark 1964 report ``Smoking 
and Health,'' the U.S. Surgeon General has issued a series of reports 
addressing the health consequences of smoking and nicotine addiction. 
According to the most recent Surgeon General's Report, ``The Health 
Consequences of Smoking,'' which summarizes thousands of peer-reviewed 
scientific studies and is itself peer-reviewed, smoking remains the 
leading preventable cause of death in the United States, and cigarettes 
have been shown to cause an ever-expanding number of diseases and 
health conditions (Ref. 2 at pp. 9 and 25). As stated in the 2004 
Report, ``[s]moking harms nearly every organ of the body, causing many 
diseases and reducing the health of smokers in general * * * [and] 
[q]uitting smoking has immediate as well as long-term benefits, 
reducing risks for diseases caused by smoking and improving health in 
general'' (Id. at p. 25). The following discussion presents a summary 
of some of the diseases and conditions caused by cigarettes, and of the 
impact smoking cessation has on some of these conditions.
    Cancer. Cigarette smoking has long been tied to a variety of 
cancers. For example, there is overwhelming evidence that smoking 
causes lung cancer, and that the worldwide epidemic of lung cancer is 
attributable largely to smoking (Id. at p. 43). Studies indicate that 
the risk for developing lung cancer can be 20 or more times higher for 
smokers compared to lifelong nonsmokers, and the risk of lung cancer 
increases in smokers with the duration of smoking and the number of 
cigarettes smoked (Id.). There are extensive data showing that quitting 
smoking decreases the risk of lung cancer, and that this risk continues 
to decline as the duration of not smoking increases in comparison to 
the risk among continuing smokers (Id. at p. 49). However, the risk 
does not decline to the level of risk for those who have never smoked, 
even after 15 to 20 years of not smoking (Id. at p. 43).
    It also has been established for some time that cigarette smoking 
also causes a variety of other cancers, including laryngeal cancer, 
oral cavity and pharyngeal cancers, esophageal cancer, and bladder 
cancer (Id. at pp. 62, 67, 116, and 167). Furthermore, smoking has also 
been shown to cause pancreatic cancer, kidney cancer, stomach cancer, 
cervical cancer, and acute myeloid leukemia (Id. at p. 25).
    For all of these cancers, increasing smoking prevention and 
cessation would cause a significant decrease in the risk (Id. at ch. 
2). For example, smoking cessation halves the risk for cancers of the 
oral cavity and esophagus as soon as five years after cessation (Id. at 
p. 117).
    Cardiovascular disease. Smoking is causally related to all of the 
major

[[Page 69528]]

clinical cardiovascular diseases, with higher levels of smoking and 
longer duration of smoking increasing the risk of disease (Id. at p. 
397). Heart disease and stroke are the main types of cardiovascular 
disease caused by smoking and represent the first and third leading 
causes of death in the United States (Id. at p. 363). Studies have 
shown that smokers have a 70 percent greater death rate from coronary 
heart disease than nonsmokers, a twofold to fourfold greater incidence 
of coronary heart disease, and a twofold to fourfold greater risk of 
sudden death than nonsmokers (Ref. 20 at pp. 58-59). The beneficial 
impact of smoking cessation on these risks has also been well 
established. For example, one year after quitting smoking, a former 
smoker's additional risk of heart disease compared to a person who has 
never smoked is reduced by about half and, after 15 years of 
abstinence, this risk is similar to that of a person who never smoked 
(Ref. 2 at p. 363).
    Current smoking is also associated with a twofold to fourfold 
increase in the risk of stroke; smoking cessation steadily decreases 
this risk and, after 5 to 15 years of not smoking, the risk of stroke 
is indistinguishable from that for lifetime nonsmokers (Id. at p. 394).
    Smoking has also been shown to cause abdominal aortic aneurysm. 
Studies have shown that the risk of death from abdominal aortic 
aneurysm was increased more than fourfold in current smokers and 
twofold in former smokers; smoking is one of the few avoidable causes 
of this frequently fatal condition (Id. at pp. 396-97).
    Respiratory diseases. Smoking has negative effects on the entire 
lung--it impairs lung defenses against infection and causes the 
sustained lung injury that leads to COPD (Id. at p. 423). Cigarettes 
have been shown to cause a range of acute respiratory illnesses, 
including increased risk of pneumonia, and chronic respiratory 
diseases, which are leading causes of illness and death in the United 
States and worldwide (Id. at pp. 423, 508-509).
    For example, cigarette smoking is the leading cause of COPD in the 
United States, and this major public health problem could be almost 
completely prevented by smoking abstinence (Id. at p. 501). Although 
smoking cessation reduces the risk of COPD, the risk of COPD mortality 
among former smokers, even after 20 years or more of abstinence, 
remains elevated compared with the risk among people who have never 
smoked (Id.).
    Maternal smoking during pregnancy causes a reduction in lung 
function in infants, and children who smoke experience impaired lung 
growth and an early onset of lung function decline (Id. at pp. 508-
509). Smoking during adulthood also leads to a premature onset of 
accelerated age-related decline in lung function, while smoking 
cessation can return the rate of lung function decline to that of 
persons who have never smoked (Id. at pp. 480 and 509). Results from 
several investigations suggest that the benefits of smoking cessation 
for FEV1 decline (a measure of the air capacity of the lungs) are 
greatest for persons who stop smoking at younger ages (Id. at p. 480).
    Smoking also results in poor asthma control and it causes a range 
of respiratory symptoms in children, adolescents, and adults, including 
coughing, phlegm, wheezing, and shortness of breath (Id. at p. 509). 
Smoking cessation reduces the rates of these respiratory symptoms and 
of respiratory infections (Id. at p. 467).
    Reproductive effects. Smoking has well-documented negative effects 
on fertility, on pregnancies, and on infants and children born to women 
who smoke. For example, studies show that women who smoke have reduced 
fertility (Id. at p. 541). Women who smoke during pregnancy are more 
likely to experience premature rupture of the membranes, placenta 
previa, and placental abruption (Id. at p. 576). Smoking also increases 
rates of preterm delivery and shortened gestation, and studies have 
indicated that women who smoke are twice as likely to have low birth 
weight infants as women who do not smoke (Id. at pp. 576 and 569). 
Smoking also causes an increased risk of sudden infant death syndrome 
(SIDS) for infants whose mothers smoke during and after pregnancy (Id. 
at pp. 587 and 601).
    Other effects. Smoking has been shown to have a variety of other 
negative health effects. For example, cigarette smokers have poorer 
overall health status compared to nonsmokers; this may manifest as 
increased absenteeism from work and increased use of medical care 
services (Id. at p. 818). Smokers have an increased risk of adverse 
surgical outcomes related to wound healing and respiratory 
complications compared to nonsmokers (Id.). In postmenopausal women who 
smoke, smoking is associated with low bone density (Id. at p. 716). 
Smokers are also at an increased risk for hip fractures, which account 
for a significant proportion of the morbidity and mortality associated 
with osteoporosis (Id. at pp. 717-719). Smoking also increases the risk 
for periodontitis, cataract, and for the occurrence of peptic ulcer 
disease in persons who are Helicobacter pylori positive (Id. at pp. 
736, 777, 780 and 813). Furthermore, smokers are at a greater risk of 
dying from peptic ulcer disease than nonsmokers (Id. at p. 807).
    Addiction. Nicotine addiction is another negative effect of 
cigarette smoking. Nicotine is the primary chemical compound in tobacco 
that causes addiction, and the magnitude of public health harm caused 
by cigarettes is inextricably linked to the addictive nature of these 
products (Ref. 21 at p. 14; Ref. 5 at p. xi). Nicotine is psychoactive 
(mood altering) and can provide pleasurable effects; it also causes 
physical dependence characterized by withdrawal symptoms that usually 
accompany nicotine abstinence (Ref. 21 at p. 14). The pharmacologic and 
behavioral processes that determine tobacco addiction are similar to 
those that determine addiction to drugs such as heroin and cocaine (Id. 
at p. 9). Smokers develop tolerance to the effects of nicotine over 
time as well as a physical dependence on these effects, and as a result 
need greater amounts of nicotine over time to produce the same effects; 
thus smokers tend to smoke more over time to avoid withdrawal symptoms 
(Id. at pp. 50, 197-98). Withdrawal symptoms are common among persons 
attempting to quit smoking--in one study, 78 percent of subjects 
reported significant withdrawal symptoms (Id. at pp. 201-202).
    In addition to physical dependence, nicotine addiction also results 
in conditioned behavior in smokers in response to situations and 
environmental stimuli associated with cigarette use. Smokers typically 
use cigarettes in certain patterns--e.g., upon waking in the morning, 
after a meal, with a cup of coffee or an alcoholic beverage--and this 
patterned behavior is strongly reinforced by the pleasurable effects of 
nicotine (Id. at pp. 306-308; Ref. 17). Other stimuli associated with 
smoking itself, such as the smell of cigarette smoke or the sight of 
cigarette-associated paraphernalia, also become part of the 
conditioning process by repeated association with the desired 
physiological effects of nicotine (Ref. 21 at p. 307; Ref. 17). As 
these processes repeat over time as a result of regular smoking, these 
situations and stimuli become a powerful cue to smoke due to their 
association with the rewarding effects of nicotine, and the desire to 
smoke triggered by these situations can persist long after withdrawal 
symptoms subside (Ref. 17).
    As a result of nicotine addiction, only a minority of smokers can 
achieve permanent abstinence in an initial quit

[[Page 69529]]

attempt. There are data suggesting that more than 70 percent of smokers 
in the United States report that they want to quit, and approximately 
44 percent report that they try to quit each year (Ref. 19 at p. 15). 
This estimate is likely a significant underestimate of the actual 
number of quit attempts because unsuccessful quit attempts, 
particularly if short-lived or in the past, are often not reported in 
surveys. One study reported that at three months, 90.1 percent of quit 
attempts lasting less than one day, 63.7 percent of those lasting 
between a day and one week, and 38.9 percent of those lasting between 
one week and one month failed to be reported to researchers conducting 
surveys (Ref. 22). Many of the quit attempts that are reported are 
unsuccessful. For example, among the 19 million adults who reported 
attempting to quit in 2005, epidemiologic data suggest that only 4 to 7 
percent were successful (Ref. 19 at p. 15). Similarly, the Institute of 
Medicine (IOM), considering data for 2004, found that although 
approximately 40.5 percent of adult smokers reported attempting to quit 
in that year, only between 3 and 5 percent were successful (Ref. 5 at 
p. 82). Furthermore, adults with education levels at or below the 
equivalent of a high school diploma have the highest smoking prevalence 
levels but the lowest quit ratios (i.e., the ratio of persons who have 
smoked at least 100 cigarettes during their lifetime but do not 
currently smoke to persons who report smoking at least 100 cigarettes 
during their lifetime) (Ref. 23).
    Adolescents also experience low success rates when attempting to 
quit. Most Americans who use tobacco products begin using when they are 
under the age of 18 and become addicted before reaching the age of 18 
(Refs. 3 and 7). Although many adolescents believe ``they can quit 
[smoking] at any time and therefore avoid addiction,'' nicotine 
dependence can be rapidly established (Ref. 5 at p. 89; see also Ref. 
19 at p. 158). Research has shown that some adolescents report symptoms 
of withdrawal and craving within days or weeks of beginning to smoke 
(Ref. 24). As a result, many adolescents are nicotine dependent despite 
their relatively short smoking histories (Ref. 25). An analysis of data 
from the 2007 YRBS found that 60.9 percent of high school students who 
ever smoked cigarettes daily tried to quit smoking, but only 12.2 
percent were successful (Id.). Research among adolescents also 
highlights their poor understanding of the difficulty of quitting 
smoking--for example, one study found that only 3 percent of 12th grade 
daily smokers estimated that they would still be smoking in 5 years, 
while in reality 63 percent of this population is still smoking daily 7 
to 9 years later (Ref. 5 at p. 91).
    Benefits of reduced prevalence. Dramatic declines in the deaths 
caused by the conditions discussed above can be achieved by further 
reducing smoking prevalence rates. Smoking cessation has major and 
immediate health benefits for men and women of all ages, regardless of 
health status (Ref. 26 at p. i). Smoking cessation decreases the risk 
of the health consequences of smoking, and former smokers live longer 
than continuing smokers. For example, persons who quit smoking before 
age 50 have one-half the risk of dying in the next 15 years compared 
with continuing smokers (Id. at p. v).
    More importantly, preventing nonsmokers, particularly children, 
from starting smoking in the first instance would allow them to avoid 
nicotine addiction and the severe adverse health consequences of 
smoking. Preventing initiation would result in enormous public health 
benefits. As Congress found when enacting the Tobacco Control Act, 
``reducing the use of tobacco by minors by 50 percent would prevent 
well over 10,000,000 of today's children from becoming regular, daily 
smokers, saving over 3,000,000 of them from premature death due to 
tobacco-induced disease. Such a reduction in youth smoking would also 
result in approximately $75,000,000,000 in savings attributable to 
reduced health care costs'' (section 2(14) of the Tobacco Control Act).

III. Data Concerning Health Warnings

A. Current Warnings on Cigarette Packages and Advertisements Are 
Inadequate

    Section 201 of the Tobacco Control Act requires FDA to issue 
regulations mandating the use of color graphics depicting the negative 
health consequences of smoking to accompany the nine warning statements 
that are specified in section 4(a)(1) of FCLAA (15 U.S.C. 1333(a)(1)). 
The warning statements must be randomly displayed (i.e., in each 12-
month period, all of the different warnings must appear in as equal a 
number of times as is possible on each brand of the product and be 
randomly distributed in all areas of the United States in which the 
product is marketed) on cigarette packages and rotated quarterly in 
alternating sequence in cigarette advertisements, as provided by 
sections 4(c)(1) and 4(c)(2) of FCLAA (15 U.S.C. 1333(c)(1), (2)), as 
amended by the Tobacco Control Act. Congress directed that stronger and 
larger warning statements, accompanied by graphics, would replace the 
current text-only requirements. Data from studies indicate the current 
warnings on cigarette packages and advertisements are ineffective at 
communicating health risk information to consumers.
    Cigarette packages and advertisements can be effective channels for 
communication of important health information. The warning on a 
cigarette package can provide a clear, visible vehicle to communicate 
risk at the most crucial time for smokers and potential smokers. Pack-
a-day smokers are potentially exposed to warnings more than 7,000 times 
per year (Refs. 27-29). When utilized effectively, cigarette packages 
and advertisements can serve as an important channel for communicating 
health information to broad national audiences that include both 
smokers and nonsmokers.
    The inclusion of strong health warnings on packages and in 
advertisements can thus provide a critical opportunity to educate 
consumers about the health risks of cigarettes, support intentions 
among current smokers who want to quit or decrease cigarette 
consumption, and discourage nonsmokers, particularly youth, from 
initiating cigarette use. Prominent displays of warnings increase their 
effectiveness; larger warnings, with pictures, are more likely to be 
noticed by consumers, communicate information about health risks to 
consumers, and reinforce intentions among tobacco users who want to 
quit (Ref. 30).
    However, cigarette warnings in the United States have not been 
changed or improved in more than 25 years. The unchanging nature of 
these warnings, as well as their relatively small size and lack of a 
graphic image component, severely impairs their ability to effectively 
communicate to consumers. Research has repeatedly illustrated that the 
current warnings used in the United States frequently go unnoticed or 
fail to convey relevant information regarding health risks.
1. Current Warnings Have Not Changed in More Than Twenty-Five Years
    In response to the Surgeon General's first major report on smoking 
and health in 1964, Congress passed FCLAA to require warning labels on 
all cigarette packages. The warning, which was required to be 
conspicuous and legible, was written in small print and located on one 
of the side panels of each cigarette package. It stated ``CAUTION: 
Cigarette Smoking May Be Hazardous to

[[Page 69530]]

Your Health.'' This language appeared on all cigarette packs sold from 
January 1, 1966, through October 31, 1970. In 1969, Congress passed the 
Public Health Cigarette Smoking Act (Public Law 91-222), which slightly 
modified the warning statement on cigarette packages, but did not yet 
require any warnings on cigarette advertisements. The new warning 
language, ``Warning: The Surgeon General Has Determined That Cigarette 
Smoking Is Dangerous to Health,'' appeared on cigarette packages sold 
in the United States from November 1, 1970, through October 11, 1985. 
In 1972, the Federal Trade Commission (FTC) issued consent orders 
requiring six major cigarette manufacturers and distributors to include 
in all their cigarette advertisements a clear and conspicuous 
disclosure of the warning required to be on packages (Ref. 31 at 460-
65).
    In 1981, the FTC issued a report to Congress that concluded that 
the then-current health warning labels had little effect on public 
awareness and attitudes toward smoking. The FTC stated that the 
existing warning likely was ineffective because it ``(1) is overexposed 
and worn out, (2) lacks novelty, (3) is too abstract, and (4) lacks 
personal relevance'' (Ref. 32 at pp. 7-16).
    Subsequently, Congress again modified cigarette warnings by passing 
the CSEA, which required the following four rotational health warnings 
on packages and advertisements \5\:
---------------------------------------------------------------------------

    \5\ Slightly different health warnings were required on outdoor 
billboard advertisements.
---------------------------------------------------------------------------

     ``SURGEON GENERAL'S WARNING: Smoking Causes Lung Cancer, 
Heart Disease, Emphysema, and May Complicate Pregnancy.''
     ``SURGEON GENERAL'S WARNING: Quitting Smoking Now Greatly 
Reduces Serious Risks to Your Health.''
     ``SURGEON GENERAL'S WARNING: Smoking by Pregnant Women May 
Result in Fetal Injury, Premature Birth and Low Birth Weight.''
     ``SURGEON GENERAL'S WARNING: Cigarette Smoke Contains 
Carbon Monoxide.''
    In addition, the law established the location and format for these 
warning statements and mandated that the warnings be rotated quarterly, 
which helped keep them from becoming stale. Despite a FTC 
recommendation to change the size and shape of warnings, Congress 
retained the size and rectangular format of previous warnings.
    More than twenty-five years have passed since these last changes, 
and there is a substantial body of evidence that these warnings do not 
effectively communicate information about the adverse health effects of 
smoking to the American public, as discussed in more detail below. 
Given the extreme hazards cigarettes pose to the public health, the 
revised warnings required under section 4 of FCLAA (15 U.S.C. 1333) and 
provided in this proposed rule are critical to the effective 
communication of the health risks of smoking, and should encourage 
current smokers to consider cessation and discourage nonsmokers from 
initiating use of cigarettes.
2. Current Warnings Often Go Unnoticed
    The CSEA requires the current warnings to be ``conspicuous and 
legible'' with the same package location and font size required on the 
date of enactment (i.e., October 12, 1984). However, researchers have 
found that these health warnings go largely unnoticed and unconsidered 
by both smokers and nonsmokers. For example, a major study into tobacco 
policy in the United States by the IOM in 2007 concluded that U.S. 
package warnings are both ``unnoticed and stale'' (Ref. 5 at p. 291). 
The Chair of the IOM's Committee on Reducing Tobacco Use has described 
the warnings on cigarette packs as ``invisible'' (Ref. 4).
    Research regarding warning statements in cigarette advertisements 
has shown similar results. For example, one study of the recall and 
eye-tracking of adolescents viewing tobacco advertisements found: 43.6 
percent of adolescents did not even look at the warning statement 
included in the advertisement; just 36.7 percent looked at the warning 
long enough to read any of its words; and the average viewing of the 
warning only accounted for 8 percent of the total viewing time (Ref. 
33). Researchers in this study also determined that adolescents are 
unable to recall the content of the current cigarette warnings or to 
correctly recognize the warnings from a list, indicating that the 
current warnings are likely to be ineffective among younger consumers 
(Id.).
    Another study of adolescents also found that they are not seeing, 
reading, and remembering health warnings on cigarette packages and 
advertisements (Ref. 34). In this study of ninth-grade students, only 
32 percent of regular smokers recalled seeing one of the current 
warnings which states: ``Quitting Smoking Now Greatly Reduces Serious 
Risks To Your Health'' (Id.). In addition, almost 20 percent 
incorrectly reported having seen a simulated health warning that is not 
among one of the four current required warnings (Id.).
    Data from a 1989 study indicate that consumers also fail to notice 
or read health warnings on outdoor billboards and taxicab cigarette 
advertisements (though these advertising media are no longer in common 
use). According to this study, which was published in the Journal of 
the American Medical Association, drivers only read the entire warning 
message on 5 percent of highway billboard advertisements and were only 
able to fully read the health warning on 18 of the 39 street 
advertisements used in this study (Ref. 35). Participants were unable 
to read, even partially, the Surgeon General's warnings in any of the 
47 taxicab advertisements used in this study (Id.). Yet, those same 
consumers were able to identify the brand name and imagery on 100 
percent of the highway billboards (Id.). Likewise, these participants 
were able to identify the brand name in 100 percent and the imagery in 
95 percent of the taxicab advertisements (Id.). These results indicate 
that the current warnings are not appropriately conspicuous in 
advertisements compared to the rest of the advertising message, as 
discussed in more detail below.
3. Current Warnings Fail To Convey Relevant Information in an Effective 
Manner
    Even when consumers notice and contemplate the current health 
warnings on cigarette packages and in advertisements, there is clear 
evidence that these warnings fail to appropriately convey crucial 
information such as the nature and extent of the health risks 
associated with smoking cigarettes. The current small, wordy text-based 
messages are ambiguous, providing less health information than is 
provided regarding many other consumer goods that have significantly 
less harmful impact on people's health (Ref. 36).
    In its 2007 Report, the IOM concluded that the current U.S. 
warnings fail to convey relevant health information in an effective way 
(Ref. 5 at p. 291). The IOM cited an International Tobacco Control 
Policy Evaluation Study, which found that 85 percent of Canadian 
respondents cited packages (which, in Canada, contain prominent text 
and graphic health warnings) as a source of health information, while 
only 47 percent of U.S. smokers cited packages as a health information 
source (Id. at 294, citing Ref. 37).
    Studies also have shown that the current warnings do not motivate 
consumers to look at them long enough to consider the concept being 
communicated. For example, researchers have found that the warning

[[Page 69531]]

statements fail to attract attention or to make the consumer 
appropriately aware of the health risks of smoking (Ref. 38). In a 
study of U.S. and Canadian smokers and nonsmokers, researchers found 
that participants voluntarily examined warnings on Canadian packages, 
which include prominent text and graphics, for longer durations than 
U.S. package warnings, because the current text-only messages used in 
the United States are not memorable for consumers (Id.). The mere 
textual presentation of vague hazard information in the current U.S. 
warnings is not sufficient to motivate perceptions of risk (Id.).
    The content and format of the current warnings have failed to 
successfully draw and hold consumers' attention, especially when placed 
in competition with the other text, images, and graphics that cigarette 
companies have used on packaging and in advertising, which have been 
thoroughly tested, regularly updated, and artfully crafted by tobacco 
companies. According to the most recent data from the FTC, tobacco 
companies spent approximately $12.49 billion on advertising and 
promotion in 2006 (Ref. 39 at p. 1). Tobacco companies frequently have 
employed marketing and advertising experts to craft campaigns with 
messages targeted to certain demographics (Ref. 40 at p. 7). The 
messages developed by companies in cigarette advertisements cover 96 
percent of the space, are continuously updated to incorporate current 
trends, and are targeted based on market research. In contrast, the 
current health warnings cover only 4 percent of advertising space, are 
solely textual, are not targeted to any population group, and consist 
of only four rotating messages that have not been updated for more than 
two and a half decades. On cigarette packages, these warnings appear 
only on one side panel. As a result, the important health messages 
frequently are functionally invisible in comparison to the rest of the 
advertisement and package (Ref. 33 at p. 88).
    Moreover, even if consumers notice the current warnings, those with 
less education may not be able to adequately comprehend the text-only 
messages. In its 2007 Report, the IOM expressed concern about the 
ability of consumers with less education to recall the information 
included in text-based messages (Ref. 5 at p. 295). The IOM cited a 
study of Canadian smokers' knowledge about the country's prior warning 
requirements, which, like the current U.S. health warnings, only 
contained four textual warning statements. In that study, researchers 
noted that comparatively few women with lower educational attainment 
were aware of messages warning of the impacts of smoking on life 
expectancy, heart disease, or pregnancy (Ref. 41). Because the current 
U.S. smoking population has various levels of education (including a 
high percentage of people with low educational attainment) and includes 
teenagers (who have yet to complete their education), the current text-
only warnings are inadequate.

B. Larger, Graphic Warnings Communicate More Effectively: International 
Experience

    In 2001, Canada introduced graphic health warnings depicting the 
adverse health consequences of smoking on the upper 50 percent of the 
two primary panels of cigarette packages. Those warnings, like the 
warnings proposed here, include a photograph or other image, a marker 
word ``WARNING,'' and a warning statement. By mid-2009, 28 countries 
also required graphic warnings and more countries are planning to do 
so.
    In its 2007 Report, the IOM concludes that the available scientific 
evidence indicates that larger, graphic health warnings would promote 
greater public knowledge of the health risks of using tobacco and would 
help reduce consumption (Ref. 5 at p. 295). Similarly, an article 
published by WHO concludes that, taken as a whole, the research on 
graphic health warnings show that they are (1) more likely to be 
noticed than text-only warnings, (2) more effective for educating 
smokers about the health risks of smoking and for increasing the time 
smokers spend thinking about the health risks, and (3) associated with 
increased motivation to quit smoking (Ref. 42).
1. Getting Consumers' Attention
    Several design features are associated with greater salience (i.e., 
noticeability and readability) of health warnings, including the size 
and position of warnings on the cigarette package. Smokers are more 
likely to recall larger warnings, as well as warnings that appear on 
the front of packages (Ref. 5 at p. C-3). Warnings that include 
pictures or graphics likewise are more noticeable and more likely to be 
recalled than text-only warnings (Id. at p. C-4).
    In Canada, awareness of warnings on cigarette packages was almost 
universal among smokers and very high even among nonsmokers after that 
country required cigarette packages to display large, graphic warnings 
on the front and rear panels. In a 2001 cross-sectional survey 
sponsored by the Canadian Cancer Society, 90 percent of Canadian 
smokers and 49 percent of nonsmokers noticed changes to the Canadian 
health warnings after the introduction of pictorial warnings (Ref. 43). 
Similarly, a survey of youth sponsored by Health Canada showed that 73 
percent of those who have never smoked, 86 percent of ``puffers'' 
(i.e., those who had tried smoking but never smoked a whole cigarette), 
and 90 percent of those who have smoked beyond puffing reported seeing 
health warnings on cigarette packages in 2002, a year after the 
introduction of graphic warnings in Canada (Ref. 44). In a study of 
young adults, 98.5 percent of smokers, 88.9 percent of occasional 
smokers, and 67.5 percent of those who have never smoked reported that 
they were aware of the Canadian graphic health warnings (Ref. 45).
    Survey evidence also shows that awareness of health warnings on 
cigarette packages increased significantly after Australia required 
large, graphic warnings in 2006. In one study, smokers were more likely 
to report that over the past month they noticed the enhanced warnings 
and read or looked closely at them compared to the old warnings (Ref. 
46). Among students in year levels 8 to 12 in Melbourne, cognitive 
processing of cigarette warnings (i.e., reading, attending to, thinking 
and talking about the warnings) increased in the year that Australia 
adopted graphic warnings (Ref. 47). Developmental focus group research 
conducted for Australia as it considered whether to require graphic 
warnings similarly reported that graphic warnings on cigarette packs 
were potentially more likely to help people remember the health effects 
and warnings (Ref. 48).
    Experimental studies also indicate that requiring large, graphic 
warnings would significantly increase the salience of health warnings 
on cigarette packages. In one experimental study, U.S. college students 
were shown images of the Canadian cigarette warnings and the current 
warnings appearing on cigarette packs sold in the United States. 
Compared to the U.S. warnings, the Canadian graphic warnings 
significantly increased aided recall of the warnings, increased depth 
of message processing, and increased the perceived strength of the 
message (Ref. 49). Similarly, in focus group research conducted among 
young adults in the United States, participants reported that the 
Canadian warnings were more visible and more informative than the 
warnings appearing on cigarette packages in the United States (Ref. 
50).

[[Page 69532]]

2. Influencing Consumers' Awareness of Cigarette-Related Health Risks
    Large, pictorial warnings graphically convey the harm and danger 
that tobacco use causes, eliciting an immediate impact. Effective 
communication of the health risks associated with cigarette use is 
critical from a public health perspective, as smokers who perceive a 
greater health risk from smoking are more likely to want to quit and to 
be successful in their quit attempts (Ref. 37). National surveys 
conducted on behalf of Health Canada indicate that approximately 95 
percent of youth smokers and 75 percent of adult smokers report that 
the Canadian pictorial warnings have been effective in providing them 
with important health information (Ref. 5 at p. 294). The 2001 survey 
conducted by the Canadian Cancer Society found that the country's 
pictorial warnings, which had recently been introduced, resulted in 58 
percent of smokers reporting that they thought about the health effects 
of smoking more frequently than previously (Ref. 43). Among Canadian 
adult smokers in Ontario, 51 percent of study participants reported 
that the pictorial warnings made them think about the health effects of 
smoking (Ref. 51). Canadian smokers were more likely to report 
cigarette packages as a source of information about the health risks of 
smoking than smokers in the United States and other countries with 
text-only warnings (Ref. 37).
    Similarly, a study conducted for officials in Australia found that 
graphic warnings increased participants' knowledge and awareness of the 
health risks of smoking, especially among current smokers and recent 
quitters (Ref. 52). A street intercept study in Australia suggests that 
graphic warnings may also increase smokers' perceptions of their 
personal risks of smoking. In that study, 51 percent of participants 
stated that the graphic warnings on cigarette packs increased their 
perceived risk of dying from smoking (Ref. 53).
    Graphic warnings appear to influence risk perceptions among youth 
as well as adults. In a cross-sectional survey of middle and high 
school students in Greece, participants were shown several graphic 
warnings prepared by the European Union as well as text-only warnings. 
Study participants consistently selected the graphic warnings as more 
effective in making them think about the effects of smoking on health 
(Ref. 54). Similarly, in a youth survey conducted by Health Canada, 
approximately two-thirds of youth nonsmokers reported looking at the 
pictorial warnings at least once a week and, as indicated above, 95 
percent agreed that the warnings had been effective in providing them 
with important information about the health effects of smoking (Ref. 5 
at p. C-5).
    In an Internet-based study of current and former young adult 
smokers in the United States, the Canadian graphic warnings were rated 
as significantly more effective than the current U.S. warnings on 
cigarette packs for conveying concerns about the health risks of 
smoking (Ref. 55).
3. Impacting Smoking Intentions and Behaviors
    In addition to increasing consumer awareness of the health risks of 
smoking, the proposed graphic warnings also seek to impact changes in 
smoking behavior. There are some studies indicating that large, graphic 
warnings increase smokers' intentions to quit smoking or motivate them 
to quit smoking.
    The 2001 survey sponsored by the Canadian Cancer Society shows that 
44 percent of adult smokers stated that the Canadian graphic health 
warnings increased their motivation to quit smoking (Ref. 43). In 
another study of Canadian young adults (ages 20 to 24), 37 percent of 
male participants and 48 percent of female participants reported that 
the warnings on cigarette packs led them to think about quitting 
smoking (Ref. 45). In this same study, 36 percent of male participants 
and 34 percent of female participants also indicated that the cigarette 
warnings might make young people less likely to start smoking. Some 
studies indicate that exposure to graphic warnings increases quit 
intentions among youth smokers as well. A study of Australian 
adolescents shows that experimental and established youth smokers 
thought more about quitting after the introduction of graphic warnings 
in Australia (Ref. 47).
    There is also evidence suggesting that graphic warnings may be more 
effective at preventing youth initiation than text-only warnings. For 
example, in a cross-sectional survey of middle and high school students 
in Greece where participants were shown several graphic warnings 
prepared by the European Union as well as text-only warnings, the 
adolescents rated the graphic warning labels as more effective in 
preventing them from smoking (Ref. 54).
    A few studies also indicate that large graphic health warnings may 
increase quit attempts. In Canada, smokers who quit smoking after the 
introduction of graphic warnings were 2.78 times more likely to 
identify health warnings as a motivation for their quitting than former 
smokers who quit during the two years before graphic warnings appeared 
on Canadian cigarette packages (Ref. 29). In one Australian study, 
participants reported increased attempts to quit smoking after 
cigarette packs displayed graphic warnings, although there was no 
association with short-term quit success (Ref. 46).
    Some studies also indicate that large, graphic warnings may induce 
individual smokers to reduce consumption. The Canadian Cancer Society 
survey indicated that 21 percent of smokers reported that on one or 
more occasions they chose not to smoke a cigarette due to the warnings 
on cigarette packages (Ref. 43). The survey also indicated that 27 
percent of participants reported that the then-new graphic warnings 
motivated them to smoke less inside their homes (Id.). In another study 
involving young adults in Canada, 22.6 percent of current male smokers 
and 26.6 percent of current female smokers reported that in the past 
month, noticing the warning on cigarette packages led them to decide 
not to have a cigarette (Ref. 45). In a study of Australian youth 
smoking behavior, adolescents who were experimenting with smoking or 
were established smokers indicated that they thought more about 
forgoing cigarettes after graphic warnings appeared on cigarette 
packages in 2006 (Ref. 47).
    One study suggests that graphic warnings may help persons who have 
quit smoking remain abstinent from smoking. In that study, 26 percent 
of former smokers in Canada reported that the then-new graphic warnings 
on cigarette packages helped them remain abstinent (Ref. 29).
    Canadian national survey data also suggest that graphic warnings 
may reduce smoking rates. Smoking prevalence among Canadians aged 15 or 
older dropped from 24 percent in 2000 (before the graphic warnings were 
introduced) to 22 percent in 2001 and 21 percent in 2002 (Ref. 56). It 
is not possible to draw a direct causal connection between the graphic 
warnings and these data because other smoking control initiatives, 
including an increase in the cigarette tax and new restrictions on 
public smoking also occurred during the same period. At the same time, 
however, these data are suggestive that large graphic warnings may 
reduce smoking consumption.
    After considering the available scientific evidence, the IOM 
concluded in its 2007 Report that ``[o]n the basis of the evidence 
accumulated thus far, [larger,] graphic warnings of the kind required 
in Canada, Brazil and Thailand `would promote greater public 
understanding of the risks' of using

[[Page 69533]]

tobacco and would help reduce consumption'' in the United States (Ref. 
5 at p. 295).

C. Benefits of FDA's Proposed Required Warnings

    FDA has carefully assessed the scientific literature studying the 
impact of graphic images on the salience (i.e., noticeability and 
readability) of warnings, on the effective communication of the health 
risks of smoking, and on changes to smoking behavior. Although much of 
the available research involved comparisons of warnings that differ in 
more than one aspect (i.e., text size, use of graphics, and number of 
images), the overall body of available research has illustrated that 
the use of large text, color graphics, and multiple rotating health 
statements will significantly improve the communication of the health 
risks of smoking to the general public in the United States and delay 
wear-out of these important health messages.
    Our assessment of the literature and our experience as a public 
health agency provide support for requiring that the nine textual 
warning statements listed in section 4(a)(1) of FCLAA (15 U.S.C. 
1333(a)(1)) appear on cigarette packages and in cigarette 
advertisements, and that each textual warning statement be accompanied 
by a specified color graphic image. It also supports the proposal that 
the required warnings should comprise the top 50 percent of the area of 
each of the front and rear panels of cigarette packages and 20 percent 
of the area of cigarette advertisements in the United States in 
accordance with section 4 of FCLAA (15 U.S.C. 1333(b)). The statute and 
this proposal is consistent with the international consensus reflected 
in the WHO's Framework Convention on Tobacco Control, i.e., the 
proposed warnings would be rotating, large, clear, visible, and 
legible, and would occupy ``50 percent or more of the principal display 
areas'' of packages. WHO FCTC art. 11.1(b). Further, we believe that 
the available evidence demonstrates that the addition of color graphics 
to the nine new textual warning statements would ensure that warnings 
on packages and in advertisements effectively provide critical 
information to consumers while continuing to afford tobacco 
manufacturers and retailers ample space (over 50 percent of packages 
and 80 percent of advertisements) to convey other information regarding 
the product.
1. The Addition of Graphic Images Will Have a Significant, Positive 
Impact on Public Health
    As summarized in section III.B, research on cigarette warnings with 
a graphic component has found that they are more effective in educating 
consumers about smoking risks than text-only warnings (Ref. 42), and 
are more likely to be effective in impacting smoking behaviors (Ref. 
27). Moreover, the available scientific literature suggests that 
cigarette packages with larger, text-only warnings are inferior to 
cigarette warnings with a graphic component in both communicating 
health information and encouraging smoking cessation.
    For example, data comparing the Canadian graphic warnings and the 
United Kingdom (UK) text-only warnings, after the UK substantially 
increased the number and size of its warnings (from 6 warnings that 
covered 6 percent of the front and back of cigarette packages to 16 
warnings that covered 30 percent of the front and 40 percent of the 
back of the packages), found that the Canadian pictorial warnings had a 
greater impact on smokers than the new UK warnings (Ref. 36). 
Specifically, data collected 2.5 years after the implementation of the 
Canadian pictorial warnings and 2.5 years after the implementation of 
the larger, text-only UK warnings found that, while the UK respondents 
reported greater levels of salience (i.e., noticing and reading the 
warnings) than Canadian smokers, Canadian smokers were significantly 
more likely to stop smoking a cigarette as a result of the graphic 
warnings and to report that the graphic warnings had led them to think 
about quitting. Canadian smokers also were significantly more likely 
than those in the UK to report that the warnings made them think about 
the health risks of smoking.
    Likewise, data comparing the impact of Australia's graphic warnings 
(introduced in 2005) and the UK's larger, text-only warnings showed 
similar support for the use of a graphic component (Ref. 46). 
Specifically, researchers found greater increases in the two strongest 
predictors of subsequent quitting--cognitive responses (i.e., thinking 
about the health risks of smoking) and foregoing cigarettes--after 
Australia introduced its graphic warnings than after the UK introduced 
its enhanced text-only warnings. This is especially noteworthy, given 
that when the border is taken into account, the graphic warnings on the 
front of the packages in Australia were smaller than the UK's text-only 
warnings on the front of the packages.
    It is worth noting that the UK amended its Tobacco Products 
(Manufacture, Presentation and Sale) (Safety) regulations in 2007 to 
require graphic warnings to appear on all cigarette packages as of 
October 2009.
    Furthermore, although both text and graphic cigarette warnings are 
subject to wear-out over an extended period of time, research has shown 
that graphic warnings maintain their impact longer than text-only 
warnings. Approximately four years after the introduction of the 16 
Canadian graphic warnings, youth and adult smokers reported little or 
no decrease in their effectiveness (Ref. 42; Ref. 36; Ref. 5 at C-4). 
Similarly, the use of color graphics in the proposed required warnings, 
coupled with the increase in the number of rotating health statements 
required under section 4 of FCLAA (15 U.S.C. 1333) and this proposed 
rule from four to nine, will help ensure that the new cigarette health 
warnings being proposed will retain beneficial effects over time (Ref. 
5 at C-4).
2. The Revised Textual Statements Will Communicate More Effectively
    The proposed required warnings would also modify the textual 
warning statements currently required on cigarette packages and in 
advertisements. Section 201(a) of the Tobacco Control Act sets forth 
nine text statements that will replace the four statements currently 
required under FCLAA once any final rule becomes effective. These nine 
statements objectively communicate some of the major health risks 
associated with smoking in a more effective manner compared to the 
warning statements currently required in the United States. As the IOM 
explained, specific, unambiguous warnings (e.g., ``cigarettes cause 
lung cancer'') are more likely to be noticed and less likely to be 
discounted than vague warnings (e.g., ``cigarettes are hazardous to 
your health''), and warnings should target an appropriate literacy 
level (Id. at C-3). The new textual warning statements set forth in the 
Tobacco Control Act represent an improvement over the current warnings 
in that they are specific and unambiguous and they succinctly describe 
documented outcomes of cigarette use and exposure. For example, the 
vague warning that ``Cigarette Smoke Contains Carbon Monoxide'' will no 
longer be used, and two of the longer warnings currently in use, 
``Smoking Causes Lung Cancer, Heart Disease, Emphysema, and May 
Complicate Pregnancy'' and ``Smoking

[[Page 69534]]

by Pregnant Women May Result in Fetal Injury, Premature Birth, and Low 
Birth Weight,'' will be replaced with shorter, more readable statements 
(e.g., ``Cigarettes cause fatal lung disease,'' ``Cigarettes cause 
cancer,'' ``Cigarettes cause strokes and heart disease,'' ``Smoking 
during pregnancy can harm your baby,'' and ``Smoking can kill you''). 
The proposed required warnings also will be easier to understand 
because of the addition of the graphic component (Id. at 295).
    Thus, the nine specific textual warning statements set forth in 
section 201(a) of the Tobacco Control Act would effectively convey the 
major health risks of smoking, which will help discourage nonsmokers 
from initiating cigarette use, and encourage current smokers to 
consider cessation, particularly when combined with graphic images 
depicting the negative consequences of smoking. We intend to monitor 
the effects of these required warnings once they are put into use. In 
addition, there will continue to be social science research conducted 
regarding the relative efficacy of various required warnings. We will 
use the results of our monitoring and such research to determine 
whether any of the textual warning statements or accompanying graphic 
images should be revised in a future rulemaking.

D. FDA's Process for Development and Plan for Selection of the Required 
Warnings

    Section 4(d) of FCLAA (15 U.S.C. 1333(d)), as amended by section 
201 of the Tobacco Control Act, requires FDA to issue ``regulations 
that require color graphics depicting the negative health consequences 
of smoking'' to accompany the textual warning statements specified in 
section 4(a)(1) of FCLAA (15 U.S.C. 1333(a)(1)). In considering and 
developing appropriate color graphics to accompany the textual warning 
statements, FDA assessed the graphic warnings that other countries have 
required for tobacco products. In addition, FDA worked with various 
experts in the fields of health communications, marketing research, 
graphic design and advertising to develop the required warnings 
published with the proposed regulation.
    The proposed required warnings, consisting of the color graphics 
FDA developed and the textual warning statements, are available as 
electronic files in portable document format (PDF) in this docket and 
on FDA's Web site at http://www.fda.gov/cigarettewarnings. For the 
final rule, the required warnings will be contained in documents titled 
``Cigarette Required Warnings--English and Spanish'' and ``Cigarette 
Warnings--Other Foreign Language Advertisements,'' as is further 
discussed in section IV.D. Drafts of these two documents are included 
in the docket as well.
    The set of required warnings available with this proposed rule 
encompasses a variety of themes and graphic techniques. The required 
warnings are designed to communicate risk information to a diverse 
range of audiences, including youth, young adults, and adults, and of 
smokers as well as potential smokers. The images in some of the 
required warnings are photographic while others are graphic 
illustrations. Some images are more visually disturbing than others. 
The fonts, typography, and layouts vary.
    FDA believes that the graphics in the proposed required warnings 
appropriately depict the negative health consequences of smoking. 
Further, FDA believes that these graphics are consistent with the types 
of pictorial warnings required or developed by other international 
governmental authorities, such as Canada, the European Union, and 
Australia, whose sets of warnings include a balance of images, some 
more visually disturbing than others. FDA also believes that including 
a varied set of warnings is consistent with the existing scientific 
literature concerning the effectiveness of graphic health warnings.
    The existing research shows that the effectiveness of health 
warnings in communicating the health risks of smoking may vary 
according to the audience, reflecting factors such as socioeconomic 
background, gender, age, and smoking status and behavior (Ref. 57 at p. 
22). A variety of health warnings facilitates better targeting of 
specific groups whose primary concerns about smoking tend to vary (Id. 
at p. 46). Specific issues that may make smoking desirable (or 
undesirable) for one group might be quite different for another group 
(Id. at p. 44). Similarly, using a variety of different warnings has 
been found to be significant in counteracting over-exposure and wear-
out of health warnings (Id. at p. 46). In addition, in some cases, the 
strength of the content of the message is what determines its impact, 
while in other cases, peripheral factors, such as how and where the 
message is delivered and its visual impact are the most significant 
determinants (Id. at p. 28). In order to be effective with a broad 
audience, health warnings should be developed with these different 
factors in mind (Id.).
    The existing research indicates that a balanced set of graphic 
warnings that includes a range and variety of images is effective. For 
example, the use of health warnings with ``frightening'' or 
``disturbing'' tonal qualities appears effective (Id. at pp. 37-39). 
Consistent with this research, some of the images published with the 
proposed regulation are more ``frightening'' or visually disturbing 
than others.
    Research also indicates that other types of graphic warnings, 
including those that do not include ``frightening'' or ``disturbing'' 
imagery, can be effective (Ref. 52 at pp. 24-25). For example, graphic 
health warnings that convey the risks of secondhand smoke for babies 
and children without being ``frightening'' or ``disturbing'' appear to 
have widespread impact (Id.; Ref. 57 at pp. 34-35). The set of proposed 
required warnings includes health warning statements and accompanying 
images that convey the risk of secondhand smoke on children and babies 
and the risk of smoking while pregnant.
    Similarly, evidence also shows that warnings about specific health 
risks, such as cancer, heart disease, and stroke, are more effective 
than general warnings, and that the effectiveness of graphic warnings 
relating to specific health concerns tends to vary for different smoker 
groups, reflecting their perceived relevance (Ref. 52 at pp. 24-25; 
Ref. 57 at p. 34). The statements and images published with this 
proposed rule portray specific health risks using a variety of themes 
and techniques in order to reach different smoker groups.
    According to the existing research, graphic warnings that focus on 
the benefits of quitting may also be effective (Ref. 57 at p. 35). The 
set of published images includes warnings addressing the benefits of 
quitting.
    In addition to the types of messages and images, the salience or 
noticeability of health warnings is enhanced by the use of larger type 
size, contrasting colors, and different typography (Id. at p. 28). 
Research assessing responses to warnings on tobacco product packaging, 
as well as responses to safety warnings generally, indicate that the 
effectiveness of warnings is enhanced through techniques such as larger 
font sizes, upper case lettering, and bold type (Id. at p. 33). A 
number of the proposed required warnings utilize these techniques.
    Although FDA expects that any final rule will include a total of 
nine different required warnings, it has developed a larger set of 
images for the proposed rule. FDA is seeking comments on what required 
warnings to include in the final rule, including comments on the color 
graphics that are included in this proposal.

[[Page 69535]]

    In addition to seeking comment on what color graphics to require in 
the final rule, FDA is conducting research on the proposed required 
warnings. The larger set of required warnings developed for this 
proposed rule will allow for more productive research into the relative 
efficacy of the different proposed color graphics. The research will: 
(1) Measure consumer attitudes, beliefs, and intended behaviors related 
to cigarette smoking in response to the proposed color graphics and 
their accompanying textual warning statements; (2) determine whether 
consumer responses to the proposed color graphics and their 
accompanying textual warning statements differ across various groups 
based on smoking status, age, or other demographic variables; and (3) 
evaluate the relative effectiveness of the proposed color graphics and 
their accompanying textual warning statements at conveying information 
about various health risks of smoking, and additionally, at encouraging 
smoking cessation and discouraging smoking initiation (See 75 FR 7604 
(February 22, 2010); 75 FR 52352 (August 25, 2010)). FDA is in the 
process of conducting this research. Once the research is complete and 
final analyses of the results are available, FDA will place a report of 
the results of the analyses in the docket and announce the report's 
availability by a notice in the Federal Register so the public has an 
opportunity to comment on the results.
    After considering the public comments, research results, and 
scientific literature, FDA plans to select a set of nine required 
warnings for the final rule, each of which is comprised of one color 
graphic that is paired with one of the nine textual warning statements. 
Thus, FDA intends to select nine images from among the larger set of 
images in this proposed rule for actual use. The agency believes that 
nine required warnings will be sufficient to achieve its goal of 
effectively communicating the health risks of smoking and to prevent 
wear-out of the proposed required warnings for several years.
    In addition, another set of color graphics is proposed for use 
solely in advertisements with a small surface area (i.e., less than 12 
square inches). The color graphics in this set differ in their 
composition from the other color graphics in that the details of the 
images should be clear, conspicuous, and legible even when the graphics 
are reduced in size to be placed on surfaces with a relatively small 
area. FDA proposes that the final version of ``Cigarette Required 
Warnings--English and Spanish'' also contain graphics from this set, 
which would only be used in advertisements with a small surface area. 
But even an advertisement with a relatively small surface area would 
need to be large enough so that the required graphic and accompanying 
textual warning statement are clear, conspicuous, and legible.

IV. Description of Proposed Regulations

    The Tobacco Control Act mandates that FDA issue regulations 
requiring color graphics depicting the negative health consequences of 
smoking to accompany the nine health warning statements that must 
appear on cigarette packages and in cigarette advertisements under 
FCLAA (15 U.S.C. 1333). FDA proposes to implement this requirement for 
cigarette packages and advertisements by adding a new part 1141 to 
title 21 of the Code of Federal Regulations governing cigarette package 
and advertising warnings.
    The graphic warnings rule, when finalized, is intended to help 
educate consumers about the health risks of cigarettes, to support 
intentions among current smokers to quit or decrease cigarette 
consumption, and to discourage nonsmokers, particularly youth, from 
initiating cigarette use. We seek comment on the proposed part 1141 
described below. If you have comments on specific provisions of the 
proposed regulation, we request that you identify these provisions in 
your comments. In addition, if you have concerns that would be 
addressed by alternative text, we request that you provide this 
alternative text in your comments.

A. Section 1141.1--Scope

    Proposed Sec.  1141.1 would set forth the scope of the proposed 
regulations. Proposed Sec.  1141.1(a) explains that part 1141 would set 
forth the requirements for the display of the health warnings on 
cigarette packages and advertisements required by section 4 of FCLAA 
(15 U.S.C. 1333), as amended by the Tobacco Control Act. This paragraph 
would also indicate that FDA has the authority to require additional 
statements on cigarette packages and advertisements in accordance with 
the FD&C Act or other authorities (such as FCLAA). For example, section 
4 of FCLAA, as amended by section 206 of the Tobacco Control Act, 
requires the agency to initiate a rulemaking to determine whether 
cigarette and other tobacco product manufacturers should be required to 
disclose the tar and nicotine yields in advertisements and/or on 
packages. In addition, section 906(d) of the FD&C Act authorizes FDA to 
issue regulations restricting the sale or distribution of cigarettes 
and other tobacco products, including restrictions on the advertising 
and promotion of such products, if FDA determines the restriction is 
appropriate for protecting public health.
    Proposed Sec.  1141.1(b) would limit the applicability of the 
proposed requirements by clarifying that these requirements would not 
apply to manufacturers or distributors of cigarettes that do not 
manufacture, package, or import cigarettes for sale or distribution in 
the United States.
    In accordance with section 4(a)(4) of FCLAA (15 U.S.C. 1333(a)(4)), 
proposed Sec.  1141.1(c) would provide that a cigarette retailer would 
not be in violation of the proposed rule if cigarette packages 
displayed or sold by the retailer do not comply with all the 
requirements set forth in the proposed rule, so long as the packages 
contain a health warning, are supplied by a license- or permit-holding 
tobacco product manufacturer, importer, or distributor, and are not 
altered by the retailer in a way that materially impacts the display of 
the required warnings on the packages. Thus, manufacturers, importers, 
and distributors would have primary responsibility for ensuring that 
the required warnings on cigarette packages comply with all the 
provisions of proposed part 1141, but retailers would have some 
responsibility as well. Specifically, retailers would be responsible 
for ensuring that all cigarette packages they display or sell contain a 
warning regarding the health risks associated with smoking cigarettes. 
In addition, retailers could not alter the warning in a way that is 
material to the requirements of FCLAA and this proposed rule, including 
by obscuring the warning (e.g., by placing a sticker or other item on 
top of it), by shrinking or severing the warning (in whole or in part), 
or by otherwise changing it in a material way. However, retailers would 
not be responsible for verifying that the warnings on packages they 
display or sell contain the combination of textual statements and 
accompanying color graphics required by FCLAA, or that they comply with 
other specifications required in FCLAA or proposed part 1141.
    Similarly, proposed Sec.  1141.1(d) implements section 4(c)(4) of 
FCLAA (15 U.S.C. 1333(c)(4)) and would provide that a retailer would 
not be considered in violation of part 1141 if it posts an 
advertisement that does not comply with all of the proposed 
requirements, so long as the advertisement was not created by or on 
behalf of the cigarette retailer and the

[[Page 69536]]

retailer is not otherwise responsible for inclusion of the required 
warnings. Note that, in accordance with section 4(b) of FCLAA (15 
U.S.C. 1333(b)), any manufacturer, distributor, importer, or retailer 
who is responsible for the creation of a cigarette advertisement is 
responsible for compliance with FCLAA and proposed part 1141. This 
paragraph also specifies that this provision would not relieve a 
retailer of liability if it publicly displays an advertisement that 
fails to contain a health warning or if it alters an advertisement in a 
way that materially impacts the display of the required warning. 
Therefore, except for when it is responsible for the creation of an 
advertisement or otherwise responsible for the inclusion of the 
warning, a retailer is not responsible for ensuring that its cigarette 
advertisements contain the combination of textual statements and 
accompanying color graphics required by FCLAA, or that they comply with 
other specifications required in FCLAA or proposed part 1141. However, 
retailers must ensure that their cigarette advertisements contain a 
warning of smoking's risks. They are also responsible for complying 
with the other requirements applicable to retailers, including those in 
part 1140 of Title 21 of the Code of Federal Regulations.

B. Section 1141.3--Definitions

    Proposed Sec.  1141.3 would establish definitions of terms used in 
the proposed rule.
    Proposed Sec.  1141.3 would define the terms ``cigarette,'' 
``commerce,'' ``package,'' ``person,'' and ``United States,'' 
respectively, for the purposes of part 1141, as those terms are defined 
in section 3 of FCLAA (15 U.S.C. 1332).
    Proposed Sec.  1141.3 would define ``distributor,'' for the 
purposes of part 1141, as any person who furthers the distribution of 
cigarettes at any point from the original place of manufacture to the 
person who sells or distributes the product to individuals for personal 
consumption. In addition, this paragraph would specify that common 
carriers are not considered distributors for the purposes of part 1141.
    Proposed Sec.  1141.3 would define the terms ``front panel'' and 
``rear panel'' as the two largest display surfaces of the cigarette 
package. FDA is proposing this definition to ensure that all entities 
properly identify the sides or surfaces of the cigarette package on 
which the required warnings must appear. On almost all cigarette 
packages, these two panels are oriented directly opposite from one 
another and are the same size.
    Proposed Sec.  1141.3 would define ``importer,'' for purposes of 
this part, as any person who introduces into commerce any cigarette 
that (1) was not manufactured in the United States and (2) is intended 
for sale or distribution to consumers in the United States.
    Proposed Sec.  1141.3 would define ``manufacturer'' as any person, 
including any repacker or relabeler, who manufactures, fabricates, 
assembles, processes, or labels a finished cigarette product.
    Proposed Sec.  1141.3 would provide a definition of ``required 
warning.'' This term is used to refer to the combination of one of the 
textual warning statements and the accompanying color graphic depicting 
the negative health consequences of smoking required under section 4 of 
FCLAA and this part.
    Proposed Sec.  1141.3 would define ``retailer'' as any person who 
sells cigarettes to individuals for personal consumption, or who 
operates a facility where vending machines or self-service displays of 
cigarettes are permitted.

C. Section 1141.10--Required Warnings

    The Tobacco Control Act directs FDA to require that color graphics 
depicting the negative health consequences of smoking accompany each of 
the textual warning statements that must be randomly displayed (i.e., 
in each 12-month period, all of the different warnings must appear in 
as equal a number of times as is possible on each brand of the product 
and be randomly distributed in all areas of the United States in which 
the product is marketed) on cigarette packages and rotated quarterly in 
alternating sequence in cigarette advertisements under FCLAA. FDA is 
proposing that cigarette packages and advertisements contain such a 
combination graphic-textual warning in proposed Sec.  1141.10.
    Proposed paragraph (a) would set forth the requirements specific to 
cigarette packages. Proposed Sec.  1141.10(a)(1) would require that 
each cigarette package sold, offered for sale, distributed, or imported 
for sale or distribution within the United States contain a required 
warning. This required warning would have to appear on both the front 
and rear panels of the cigarette package. As defined in proposed Sec.  
1141.3, this required warning would consist of one of the nine textual 
warning statements set forth in FCLAA (15 U.S.C. 1333) and the 
accompanying color graphic depicting the negative health consequences 
of smoking.
    Proposed Sec.  1141.10(a)(2) would provide that the warnings 
required under paragraph (a)(1) must be obtained from the document 
titled ``Cigarette Required Warnings--English and Spanish.'' Due to the 
multi-color nature of the required warnings, they cannot be printed in 
the Code of Federal Regulations, and due to the visual complexity of 
the images, it will not be feasible to accurately describe the images 
and their colors in the Code of Federal Regulations. Thus, FDA proposes 
to provide the required warnings for regulated entities in ``Cigarette 
Required Warnings--English and Spanish,'' which will contain 
downloadable electronic files used to generate each required warning. 
This approach would also help regulated entities ensure that their 
packages contain required warnings that are consistent with the 
requirements of FCLAA and proposed part 1141, when finalized.
    Proposed Sec.  1141.10(a)(2) would also mandate that the required 
warnings be accurately reproduced from the electronic images in 
``Cigarette Required Warnings--English and Spanish.'' Thus, regulated 
entities would have to ensure that the required warnings they place on 
packages are not distorted or otherwise inaccurately reproduced from 
the electronic images in ``Cigarette Required Warnings--English and 
Spanish.'' For example, the colors used to display the required images 
would have to be reproduced accurately from the colors used in 
``Cigarette Required Warnings--English and Spanish.'' The use of the 
electronic files from ``Cigarette Required Warnings--English and 
Spanish'' to generate the required warnings should enable companies to 
reproduce the warnings with relative ease. FDA recognizes that there 
may be minor variations in the exact colors used to reprint the 
required warnings across all cigarette packages due to differences in 
inks and printing processes, but FDA expects that the colors in the 
graphics that appear on packages and in advertisements will look the 
same as the colors in the graphics set forth in ``Cigarette Required 
Warnings--English and Spanish.''
    Finally, proposed Sec.  1141.10(a)(2) would also specify that the 
electronic images obtained from ``Cigarette Required Warnings--English 
and Spanish'' must be adapted as necessary to meet the requirements of 
section 4 of FCLAA (15 U.S.C. 1333) and this part, and the electronic 
files provided in ``Cigarette Required Warnings--English and Spanish'' 
would be in a format that could be modified as necessary to comply with 
this proposed rule. Specifically, regulated entities would be able to 
modify the size of the required warnings to ensure they are the 
required

[[Page 69537]]

size and occupy the required area of the cigarette package. However, 
any modifications to such files would need to result in an accurate 
reproduction of the electronic images contained in ``Cigarette Required 
Warnings--English and Spanish,'' as proposed by Sec.  1141.10(a)(2). 
For example, the width-to-height ratio (i.e., the aspect ratio) of the 
images should be preserved when the images are compressed or expanded, 
so that the resulting image is not distorted.
    Proposed Sec.  1141.10(a)(3) would mandate that the required 
warnings appear directly on the package and be clearly visible 
underneath the cellophane or other clear wrapping. In order for the 
required warnings to appear conspicuously and legibly as mandated by 
section 4 of FCLAA (15 U.S.C. 1333), they must not be obscured. Thus, 
any outer wrappings on the package must be clear so that the warnings 
can be seen and read by consumers. Similarly, any other material that 
is placed on the outside of packages, such as price information or 
promotional material (e.g., coupons), must not be placed over or 
otherwise obscure the required warning.
    As required under section 4 of FCLAA (15 U.S.C. 1333), proposed 
Sec.  1141.10(a)(4) would mandate that the required warnings occupy at 
least 50 percent of the area of the front panel and rear panel of each 
cigarette package. These area requirements would help ensure that the 
required warnings are prominent and conspicuous enough to gain 
consumers' notice in the first instance, and are easily viewed and read 
by consumers once they are noticed. This will help ensure that 
consumers comprehend the critical information conveyed in the required 
warnings. As to location, proposed Sec.  1141.10(a)(4) states that the 
required warnings must occupy at least the top 50 percent of the area 
of the front and rear panels of the packages. For cigarette cartons, 
where the front and rear panels have significantly longer horizontal 
than vertical axes, the textual warning statement and accompanying 
graphic might be distorted if they were placed on the top 50 percent of 
these panels because the top runs along the longer horizontal axis. 
Thus, under section 4(b)(4) and (d) of FCLAA, proposed Sec.  
1141.10(a)(4) would specify a format for these warnings so that they 
occupy at least the left 50 percent of the front and rear panels. With 
this format, the required warnings can be sized for placement on 
cigarette cartons without distortion.
    Proposed Sec.  1141.10(a)(5) would mandate that the required 
warnings and the other information on the panels be oriented in the 
same direction. Thus, for example, if the front panel of a cigarette 
package contains information, such as the brand name of the product, in 
a left to right orientation, the required warning must not be placed 
such that it appears at a right angle to this text. Rather, the 
required warning and its component textual statement should also appear 
in a left to right orientation. This requirement would help ensure the 
required warnings on cigarette packages are conspicuous and legible to 
consumers, as required by section 4 of FCLAA. In addition, FDA is 
proposing this restriction under section 906(d) of the FD&C Act (21 
U.S.C. 387f(d)). Requiring all the text on the panel of a cigarette 
package that contains a required warning to be oriented in the same 
direction would help ensure that the warnings are noticed and read by 
consumers and, therefore, would be appropriate for the protection of 
the public health.
    Proposed paragraph (b) of proposed Sec.  1141.10 would set forth 
the requirements specific to cigarette advertisements. Proposed Sec.  
1141.10(b)(1) would mandate that manufacturers, importers, 
distributors, and retailers include required warnings in all their 
cigarette advertising within the United States. Thus, all 
advertisements, regardless of form--which could include materials such 
as magazine and newspaper ads, pamphlets, leaflets, brochures, coupons, 
catalogues, retail or point-of-sale displays (including functional 
items such as clocks or change mats), posters, billboards, direct 
mailers, and Internet advertising (e.g., Web pages, banner ads, etc.)--
would have to contain required warnings.
    Consistent with section 4(b) of FCLAA (15 U.S.C. 1333(b)), proposed 
Sec.  1141.10(b)(2) would mandate that the textual component of the 
required warning appear in the English language, with two exceptions. 
First, per proposed Sec.  1141.10(b)(2)(i), if an advertisement appears 
in a non-English language publication, the textual portion of the 
required warning would need to appear in the predominant language of 
the publication. The predominant language is the primary language used 
in the non-sponsored content in the publication. For example, in the 
case of a newspaper where the non-sponsored content (e.g., news 
stories, articles of opinion, and features) are in a foreign language 
but the sponsored content (e.g., advertising) is wholly or partially in 
English, the predominant language would be the foreign language used in 
the non-sponsored content, and the required warning would have to 
appear in that foreign language. Because such non-English language 
publications in the United States are targeted towards consumers who 
speak the predominant language of the publication, this will help 
ensure that the required warning effectively communicates to the target 
audience that will view the advertisement. Second, per proposed Sec.  
1141.10(b)(2)(ii), if an advertisement is in an English language 
publication but is presented in a language other than English, the 
textual portion of the required warning would need to be presented in 
the same foreign language principally used in the advertisement. 
English language publications in the United States are generally 
targeted towards the consumer population as a whole or towards 
consumers with a particular interest in the subject matter of the 
publication rather than towards consumers who speak a particular 
language; however, foreign language advertisements in English-language 
publications are targeted towards consumers who speak the foreign 
language used in the advertisement. Therefore, requiring foreign 
language advertisements in English-language publications to present the 
required warning in the same language that is used elsewhere in the 
advertisement will help ensure that the target audience of the 
advertisement is able to read and understand both the promotional 
content and the important warning information.
    Proposed Sec.  1141.10(b)(3) would require that English and Spanish 
language required warnings be obtained and accurately reproduced from 
``Cigarette Required Warnings--English and Spanish.'' As discussed 
above, the required warnings cannot be accurately reprinted or 
described in the Code of Federal Regulations, and FDA is thus proposing 
to provide the required warnings for regulated entities in ``Cigarette 
Required Warnings--English and Spanish,'' which will contain 
downloadable copies of the electronic files used to generate each 
required warning. In addition to offering the English-language versions 
of the required warnings that would be used on all packages and in most 
advertisements, the document would offer Spanish-language versions of 
the required warnings for use in advertisements that either appear in 
Spanish-language publications or that are presented primarily in 
Spanish (see 15 U.S.C. 1333(b)). These versions are offered in 
recognition of the fact that Spanish is the foreign language most 
commonly used for cigarette

[[Page 69538]]

advertisements in the United States. However, color graphics for other 
foreign language warnings would need to be obtained from the document 
titled ``Cigarette Required Warnings--Other Foreign Language 
Advertisements,'' as is discussed in more detail below. As with 
cigarette packages, the required warnings placed in cigarette 
advertisements would have to be accurate reproductions of those set 
forth in ``Cigarette Required Warnings--English and Spanish.'' In 
addition, the required warnings would need to be adapted as necessary 
to meet the requirements of section 4 of FCLAA (15 U.S.C. 1333) and 
part 1141. The electronic files provided in ``Cigarette Required 
Warnings--English and Spanish'' would be in a format that would allow 
regulated entities to resize the required warnings as necessary to 
comply with the other provisions of this part, though any modifications 
made would need to result in an accurate reproduction of the electronic 
images contained in the documents.
    Proposed Sec.  1141.10(b)(4) would require regulated entities to 
obtain color graphics for foreign language required warnings, other 
than Spanish language warnings, from the electronic files contained in 
``Cigarette Required Warnings--Other Foreign Language Advertisements,'' 
into which they must insert a true and accurate translation of the 
textual warning language required by FCLAA. ``Cigarette Required 
Warnings--Other Foreign Language Advertisements'' would offer 
downloadable electronic files of the color graphics and specify (in 
English) the text that is to accompany each color graphic. These files 
would allow for insertion of foreign language translations of the 
required textual statements, so that regulated entities can generate 
the appropriate required warnings for their foreign language 
advertisements, as well as for their advertisements that appear in 
foreign language publications. Advertisers would need to ensure that 
the required English textual statements are accurately and 
appropriately translated into the appropriate foreign language. If a 
warning statement is not accurately translated, the advertisement would 
be in violation of FCLAA. In addition to ensuring accurate translation, 
it would be the advertiser's responsibility to ensure that the foreign 
language text complies with the format specifications set forth in 
section 4 of FCLAA (15 U.S.C. 1333). Thus, for example, the text should 
not be placed in a manner that interferes with the accompanying color 
graphic. Proposed Sec.  1141.10(b)(4) would also mandate that the 
required warnings be adapted as necessary to meet any other 
requirements of section 4 of FCLAA (15 U.S.C. 1333) and proposed part 
1141. The electronic files provided in ``Cigarette Required Warnings--
Other Foreign Language Advertisements'' would allow regulated entities 
to resize the required warnings as necessary to comply with the other 
provisions of part 1141, though any modifications would need to result 
in accurate reproductions of the electronic images contained in the 
documents.
    As required by section 4 of FCLAA (15 U.S.C. 1333), proposed Sec.  
1141.10(b)(5) would mandate that the required warnings comprise at 
least 20 percent of the area of each advertisement. This will help 
ensure that the required warnings are appropriately clear, conspicuous, 
and legible by consumers, so that the important health information in 
the required warnings can be adequately seen and comprehended. Proposed 
Sec.  1141.10(b)(5) would also specify that the required warnings are 
to be placed in accordance with the other requirements set forth in 
FCLAA for the display of such warnings. For example, section 4 of FCLAA 
(15 U.S.C. 1333) contains requirements related to the placement of the 
required warnings, as well as requirements related to the border that 
must enclose each warning in cigarette advertising. FDA intends to 
separately address some of these other FCLAA requirements, as well as 
the provisions in section 4(c) of FCLAA (15 U.S.C. 1333(c)) related to 
the submission of plans regarding the random display of warnings on 
packages and rotation of warnings in advertisements.
    Proposed Sec.  1141.10(c) would mandate that the required warnings 
be indelibly printed on or permanently affixed to packages and 
advertisements. Removable or impermanent warning displays on packages 
and in advertisements would not comply with the requirements of FCLAA, 
in that the required warnings could become separated from the package 
or advertisement and thus would not meet the requirement that they be 
conspicuous on the package or advertisement. The purpose of the 
amendments made to FCLAA by the Tobacco Control Act is to strengthen 
the warnings for greater impact on consumers. Removable warnings would 
run counter to this purpose. For example, if the required package 
warning was printed or stickered on a clear outer wrapper, and this 
wrapper was meant to be removed in order for the package (or cigarettes 
within the package) to be accessed, the consumer could access the 
package of cigarettes numerous times without viewing the warning and 
receiving the impact of the critical health message.

D. Section 1141.12--Incorporation by Reference of Required Warnings

    Section 1141.12 proposes that two documents, ``Cigarette Required 
Warnings--English and Spanish'' and ``Cigarette Required Warnings--
Other Foreign Language Advertisements,'' be incorporated by reference 
in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Any final 
regulation will provide information on how to obtain the two documents. 
Draft versions of both documents are available in the docket. These 
draft versions of the documents contain placeholders for the color 
graphics; once FDA selects the required warnings for the final rule, it 
intends to include the electronic files for these required warnings in 
the final versions of both documents. The material incorporated by 
reference must meet the Office of the Federal Register's requirements 
for incorporating material by reference, and thus the way these two 
documents are displayed may be changed for the final rule to meet such 
requirements.
    Section 1141.12(a) proposes the incorporation by reference of 
``Cigarette Required Warnings--English and Spanish.'' This document 
would contain the required warnings that must be included on all 
cigarette packages, and in cigarette advertisements in which the text 
of the required warning must be set forth in the English language or 
the Spanish language. Regulated entities would utilize ``Cigarette 
Required Warnings--English and Spanish'' to obtain the required 
warnings and reproduce them on cigarette packages and in advertisements 
in accordance with proposed part 1141. This document would offer 
downloadable electronic files for each of the required warnings.
    FDA expects that the final version of ``Cigarette Required 
Warnings--English and Spanish'' will provide a total of nine different 
images, each of which is comprised of one color graphic that is paired 
with one of the nine textual warning statements set forth in FCLAA. In 
addition, for each of these nine sets, FDA expects that the final 
version would include six formatting options in accordance with 
sections 4(a)(2) and 4(b)(2) of FCLAA (15 U.S.C. 1333(a)(2) and 
(b)(2)). Specifically, each of the nine sets would have one formatting 
option where the textual portion of the required warning is presented 
in black text on a white background and one

[[Page 69539]]

formatting option where the textual portion of the required warning is 
presented in white text on a black background for use on packages. In 
addition, each of these sets would include a version of the two 
previous formatting options enclosed in a rectangular border for use in 
advertisements in accordance with section 4(b)(2) of FCLAA (15 U.S.C. 
1333(b)(2)). Furthermore, each of the nine sets would contain an 
English version of these advertisement formatting options and a Spanish 
version of these advertising formatting options. FDA is requesting 
comments on the different proposed required warnings (i.e., the 
combinations of the textual warning statements and accompanying color 
graphics). For more information regarding FDA's research analyses, see 
section III.D.
    In addition, FDA is proposing a subset of color graphics for use in 
advertisements with a small surface area (i.e., less than 12 square 
inches). These color graphics differ in their composition from the 
other color graphics in this document. FDA is proposing this subset of 
color graphics to ensure that the details of the images are clear, 
conspicuous, and legible even when the image is reduced in size to 
occupy 20 percent of a surface with an area of less than 12 square 
inches. FDA proposes that a final version of ``Cigarette Required 
Warnings--English and Spanish'' contain such options, which would be 
used (in combination with one of the nine textual statements) only in 
advertisements with a small surface area. However, even an 
advertisement with a relatively small surface area would need to be 
large enough so that the required graphic and accompanying textual 
warning statement are clear, conspicuous, and legible.
    Section 1141.12(b) proposes the incorporation by reference of 
``Cigarette Required Warnings--Other Foreign Language Advertisements.'' 
This document would contain the electronic files that are to be used to 
generate the required warnings for advertisements in which the text of 
the required warning must be set forth in a foreign language (other 
than Spanish) under proposed Sec.  1141.12(b). Regulated entities would 
utilize ``Cigarette Required Warnings--Other Foreign Language 
Advertisements'' to generate the required warnings for such 
advertisements. This document will offer downloadable files of the 
color graphic for each of the required warnings and specify (in 
English) the text that is to accompany each color graphic. The 
downloadable files would allow for insertion of foreign language 
translations of the required textual statements, so that regulated 
entities can generate the appropriate required warnings for their 
foreign language advertisements, as well as for their advertisements 
that appear in foreign language publications.

E. Section 1141.14--Misbranding of Cigarettes

    Section 1141.14(a) proposes that a cigarette shall be deemed to be 
misbranded unless its labeling and advertising bear one of the required 
warnings. Under section 903(a)(1) and (a)(7)(A) of the FD&C Act (21 
U.S.C. 387c(a)(1) and (a)(7)(A)), a tobacco product, including a 
cigarette, is deemed misbranded if its labeling or advertising is false 
or misleading in any particular. Under 201(n) of the FD&C Act (21 
U.S.C. 321(n)), in determining whether something is misleading, it: 
``shall be taken into account * * * not only representations made or 
suggested * * * but also the extent to which the labeling or 
advertising fails to reveal facts * * * material with respect to 
consequences which may result from the use of the article to which the 
labeling or advertising relates * * * under such conditions of use as 
are customary or usual.'' The required warnings, which concern risks 
associated with the use of cigarettes, are clearly material with 
respect to consequences that may result from the use of cigarettes. 
These required warnings convey information about the addictive nature 
of cigarettes (which is inextricably linked to all the health harms 
caused by cigarettes) as well as the major, potentially deadly health 
consequences of smoking, including the causal relationship between 
smoking and cancer (cigarettes have been shown to cause more than 10 
different cancers), fatal lung disease (e.g., COPD, which is a major 
public health problem in the United States), heart disease and stroke 
(the first and third leading causes of death in the United States), and 
negative pregnancy outcomes. In addition, the warnings provide 
information on the negative, potentially fatal health effects 
cigarettes can have for non-users, including the harm tobacco smoke can 
cause to children and non-smoking adults (e.g., fatal lung disease). 
The warnings also provide critical information on the significant 
health benefits of quitting. Overall, the required warnings provide 
highly material information that every consumer should know about the 
consequences of cigarettes under customary conditions of use.
    In order to ensure that the required warnings are conspicuous, 
prominent, and legible, each individual cigarette package or 
advertisement is required to contain only one of the nine required 
warnings under this proposed rule, although all nine statements are 
material for cigarettes in general. It generally would not be feasible 
to fit all nine statements and their accompanying color graphics and 
have them be conspicuous, prominent, and legible. Moreover, while any 
individual package or advertisement will not convey the information 
from all nine required warnings, all nine warnings will be on public 
display at any given time as the Tobacco Control Act requires the 
warnings to be randomly displayed in as equal a number of times as 
possible on cigarette packages for all cigarette brands and in 
quarterly rotation in advertisements under section 4(c) of FCLAA (15 
U.S.C. 1333(c)). Thus, consumers will be exposed to conspicuous, 
prominent, and legible displays of all nine warning statements (which 
apply to all cigarettes) in the marketplace at any given time, and as a 
result will receive a summary of the major risks of smoking.
    It is worth noting that the warning disclosure requirements for 
tobacco products are different than the disclosure requirements that 
apply to other products that FDA regulates, as (1) the warning 
information for cigarettes is different in its applicability than the 
warning information for other products, (2) the disclosure requirements 
for other products have a different purpose than the cigarette 
warnings, and (3) the mechanisms for exposure to warning information 
are different for tobacco products than for other products FDA 
regulates. For example, medical products such as drugs and devices have 
risks that are specified for each particular product; these risks are 
set forth in the FDA-required product labeling for each product. The 
statutory and regulatory requirements for prescription and restricted 
medical products require that each product's labeling and advertising 
disclose all material risk information about the particular product 
(See 21 U.S.C. 352(a), (c), (f), (n), (q) and (r); 321(n); see also 21 
CFR 201.100(d)(1) and (d)(3); 201.105(c)(1); 801.109(d); and 21 CFR 
part 202). This information also has a different purpose than cigarette 
warning information. For example, disclosure of all the material risk 
information associated with a particular prescription or restricted 
medical product helps healthcare professionals by giving them some of 
the information they need to

[[Page 69540]]

know about the medical product that will enable them to safely use or 
prescribe it. Similarly, this risk information helps consumers know 
whether medical products may be appropriate for them as well as what 
they should tell their healthcare professionals about before taking or 
using or while taking or using a product. It also lets consumers know 
what risks they might experience and what steps they need to take for 
safety reasons (e.g., no driving) because of taking or using a product. 
It would not be appropriate to provide partial information of this type 
because the full summary of information is needed to ensure safe use.
    In contrast, the warnings for cigarette products set forth in FCLAA 
apply to every cigarette product. Cigarettes have health risks that are 
associated with their use generally. Furthermore, there is no safe 
method of using cigarette products, so this warning information has a 
different purpose than medical product warning information, in that it 
is intended to influence awareness of cigarette-related health risks 
and, as a result, encourage cessation and discourage initiation, rather 
than to help ensure that a particular cigarette product is safely used.
    The exposure to product information is also different for medical 
products versus cigarette products. For cigarette products, the 
warnings will be printed prominently and conspicuously on all packages. 
These required warnings will thus be seen by smokers, such as each time 
that smokers buy cigarettes or take a cigarette out of its package (as 
discussed in Section III.A, pack-a-day smokers can be exposed to 
warnings more than 7,000 times per year). All nine of the required 
warnings also will be seen by potential smokers each time they are at a 
point-of-sale considering purchasing a package of cigarettes. The same 
is not true of prescription or restricted medical products, as the risk 
information is specific to each product, is not commonly displayed 
prominently and conspicuously for all products at the point of 
purchase, and is not likely to be seen by consumers each time they take 
or use a product.
    In addition, section 1141.14(b) proposes that a cigarette 
advertisement or package will be deemed to include a brief statement of 
relevant warnings for the purposes of section 903(a)(8) of the FD&C Act 
(21 U.S.C. 387c(a)(8)) if it bears one of the required warnings. Under 
section 903(a)(8)(B) of the FD&C Act (21 U.S.C. 387c(a)(8)(B)), a 
tobacco product is deemed misbranded unless the manufacturer, packer, 
or distributor includes in all advertisements and other descriptive 
printed matter a brief statement of, among other things, the relevant 
warnings. The warnings required by section 4 of FCLAA for cigarette 
advertising and packages are ``relevant warnings'' with respect to 
cigarettes as that phrase is used in section 903. For the purpose of 
this provision, ``descriptive printed matter'' includes the product 
package label, which, under this proposed rule, would be required to 
bear certain warnings. FDA is thus proposing that packages and 
advertisements that bear one of the required warnings in accordance 
with the proposed rule would satisfy the requirement to include a brief 
statement of the relevant warnings for the purposes of section 
903(a)(8). Similarly, FDA is proposing that a cigarette distributed or 
offered for sale in any State shall be deemed to be misbranded under 
section 903(a)(8) unless the manufacturer, packer, or distributor 
includes in all advertisements and packages issued or caused to be 
issued by the manufacturer, packer, or distributor with respect to the 
cigarette one of the required warnings.

F. Section 1141.16--Disclosures Regarding Cessation

    Section 1141.16 proposes that one or more of the required warnings 
include specified information about an appropriate smoking cessation 
resource. The goal would be to provide a place where smokers and other 
members of the public can obtain smoking cessation information from 
staff trained specifically to help smokers quit by delivering unbiased 
and evidence-based information, advice, and support. There are a number 
of possible alternatives here, including use of an existing or new 
quitline or Web site, where smokers and other members of the public can 
obtain current unbiased, factual smoking cessation information. We are 
proposing that the final rule require that a specified reference to a 
smoking cessation resource be included in the required warnings. We 
propose that the resource that is required to be referenced must meet 
specific criteria designed to ensure that the cessation information, 
advice, and support provided are unbiased and evidence-based. 
Specifically, we are proposing that the referenced resource must meet 
the following criteria:
     It must provide factual information about the harms to 
health from smoking and the health benefits of quitting.
     It must provide factual information about what to expect 
when trying to quit smoking (e.g., common withdrawal symptoms and their 
duration, circumstances that can trigger cravings).
     It must provide practical advice (problem-solving/skills 
training) about how to deal with common issues faced by users trying to 
quit (e.g., how to deal with cravings and withdrawal).
     It must provide evidence-based advice about how to 
formulate a plan to quit smoking.
     It must provide evidence-based information about effective 
relapse prevention strategies.
     It must provide factual information on smoking cessation 
treatments, including FDA-approved cessation medications.
     The information, advice, and support provided must be 
evidence-based; must be unbiased, including with respect to products, 
services, persons, and other entities; and must be relevant to tobacco 
cessation. For example, it can include factual information about the 
health risks of smoking but it cannot include derogatory statements 
regarding cigarette manufacturers, importers, distributors, or 
retailers or advocate public policy changes.
     Other than as described in the criteria for what 
information may or must be provided, the resource must not advertise or 
promote any particular product or service. The resource may provide one 
or more FDA-approved over-the-counter cessation products, provided it 
does so in a manner that does not advertise or promote a particular 
product.
     It must not selectively present information about a subset 
of FDA-approved cessation products or product categories while failing 
to mention other FDA-approved cessation products or product categories 
or reference any drug or other medical product that FDA has not 
approved for tobacco cessation.
     It must not encourage the use of any non-evidence based 
smoking cessation practices.
    If the resource chosen is a Web site, we propose that it meet the 
following additional criteria:
     The Web site must not contain a link to any Web site 
unless it meets all of the listed criteria.
     The Web site may refer to one or more toll-free telephone 
numbers, provided they meet the applicable criteria.
    If the resource chosen is a toll-free telephone number, we propose 
that it meet the following additional criteria:
     The staff that provide smoking cessation information and 
advice are trained specifically to help smokers quit by delivering 
unbiased and evidence-based information, advice, and support.
     The service has appropriate controls to ensure the 
applicable criteria are met.

[[Page 69541]]

    The smoking cessation information would be included as part of one 
or more of the required warnings and therefore would not appear outside 
of the areas specified for the required warning (i.e., 50 percent of 
the area of each of the front and rear panels of cigarette packages and 
20 percent of the area of advertisements). Thus, no additional space on 
cigarette packages or in advertising would be needed to display this 
information. Some or all of the images in the two documents that will 
be incorporated by reference in the final rule would contain this 
smoking cessation referral information where this information, along 
with the textual warning statement and accompanying graphic, are clear, 
legible, and fit within the specified area. FDA requests comments 
regarding the selection of an appropriate smoking cessation resource 
and the applicable criteria identified in the bullets above.
    Reducing the number of Americans who smoke by increasing the 
likelihood that smokers will quit smoking would provide substantial 
public health benefits by reducing the life-threatening consequences 
associated with continued cigarette use. Moreover, studies have found 
that health warnings are more effective if they are combined with 
cessation-related information (Ref. 5 at p. C-7). Thus, FDA is 
proposing to require information about an appropriate smoking cessation 
resource under section 906(d) of the FD&C Act as appropriate for the 
protection of the public health.

G. Proposed Effective Date

    Section 201(b) of the Tobacco Control Act specifies that the 
requirements for health warnings on cigarette packages and 
advertisements for cigarettes are effective fifteen months after the 
issuance of the regulations that FDA is proposing in this proposed 
rule, and that a final rule must be issued not later than 24 months 
after the date of enactment of the Tobacco Control Act. Therefore, FDA 
proposes that any final rule will become effective fifteen months after 
the date the final rule publishes in the Federal Register. During this 
time, parties should take whatever steps they need to plan and 
implement business operations that will comply with the final rule. As 
of the effective date, no tobacco product manufacturer, importer, 
distributor, or retailer of cigarettes may advertise or cause to be 
advertised within the United States any cigarette product unless the 
advertising complies with the final regulation. Also, cigarette 
packages that do not comply with the requirements of the final rule 
must not be manufactured for sale or distribution in the United States 
as of the effective date.
    As specified in section 201(b) of the Tobacco Control Act, however, 
if a packaged cigarette product was manufactured prior to the effective 
date of the final rule but does not contain the warning statements and 
graphics required under the final rule, the product may be introduced 
into commerce in the United States within thirty days from such 
effective date. Therefore, manufacturers, distributors, importers, and 
retailers may continue to introduce into domestic commerce existing 
inventory that may not contain the warning statements and graphics 
required under the final rule for an additional thirty days after the 
effective date of any final rule. After the 30-day period, 
manufacturers must not introduce into domestic commerce any cigarette 
packages that do not contain the warning statements and graphics 
required under the final rule, irrespective of the date of manufacture. 
While this limitation only applies to manufacturers, we note that 
keeping products without the new, updated warnings on the market for an 
extended period of time is not in the interest of public health. We 
request comments regarding mechanisms for enforcing this rule and its 
effective date, such as ways to differentiate cigarette packages sold 
from existing inventory from those that were manufactured after the 
effective date.

V. Paperwork Reduction Act of 1995

    The required warning disclosures are the ``public disclosure of 
information originally supplied by the Federal government to the 
recipient for th[at] purpose,'' and are, therefore, not within the 
scope of the Paperwork Reduction Act. See 5 CFR 1320.3(c)(2).

VI. Executive Order 13132: Federalism

    FDA has analyzed this proposed rule in accordance with the 
principles set forth in Executive Order 13132. FDA has determined that 
the proposed rule, if finalized, would not contain policies that would 
have substantial direct effects on the States, on the relationship 
between the National Government and the States, or on the distribution 
of power and responsibilities among the various levels of government. 
Accordingly, the agency tentatively concludes that the proposed rule 
does not contain policies that have federalism implications as defined 
in the Executive order and, consequently, a federalism summary impact 
statement is not required.

VII. Environmental Impact

    FDA has determined under 21 CFR 25.30(k) 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, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the 
Unfunded Mandates Reform Act of 1995 (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). This proposed rule would 
be an economically significant regulatory action under the Executive 
order.
    The Regulatory Flexibility Act requires agencies to analyze 
regulatory options that would minimize any significant impact of a rule 
on small entities. This proposed rule would have a significant economic 
impact on a substantial number of small entities.
    Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires 
that agencies prepare a written statement, which includes an assessment 
of anticipated costs and benefits, before proposing ``any rule that 
includes any Federal mandate that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100,000,000 or more (adjusted annually for 
inflation) in any one year.'' The current threshold after adjustment 
for inflation is $135 million, using the most current (2009) Implicit 
Price Deflator for the Gross Domestic Product. This proposed rule would 
result in a 1-year expenditure that would meet or exceed this amount.
    FDA's estimate of the benefits of the proposed rule is determined 
by the predicted reduction in the number of U.S. smokers and the 
consequent reduction in the number of people who will ultimately become 
ill or die from causes related to smoking. FDA estimates that this 
proposed rule will reduce the number of smokers by 537,000 in 2013, 
with small additional reductions over the following 20 years. We 
estimate the present value of the rule-induced benefits at a 3 percent 
discount rate to be $10.1 to $28.4

[[Page 69542]]

billion, including $8.96 to $26.89 billion in gained life-years, $202.1 
to $606.2 million in reduced non-fatal emphysema, $393.1 million in 
reduced fire losses, and $498.9 million in medical cost reductions. At 
a 7 percent discount rate, our estimates of total benefits become $2.29 
to $6.03 billion, including $1.80 to $5.41 billion due to the increase 
in life-years, $64.9 to $194.7 million in reduced emphysema, $180.6 
million in reduced fire losses and $244.0 million in medical cost 
reductions. The annualized benefits range from $676.0 million to $1.91 
billion with a 3 percent discount rate and from $216.6 to $569.6 
million with a 7 percent discount rate. Most of the public health 
benefits from the proposed rule would be realized in the future; 
perhaps several decades after the rule took effect. In other words, the 
benefits estimated here for the typical dissuaded smoker consist of 
health gains to be realized decades in the future.
    The estimated totals may understate the full public health benefits 
of the proposed rule because they fail to quantify reductions in 
smokers' non-fatal illnesses other than emphysema, the reduction in 
external effects attributable to passive smoking, and the reduction in 
infant and child fatalities caused by mothers' smoking during 
pregnancy.

                                        Table E1--Benefits of Regulation
----------------------------------------------------------------------------------------------------------------
                                                             Annualized benefits ($ mil)
                                   -----------------------------------------------------------------------------
        Impacts of the rule                       3 percent                              7 percent
                                   -----------------------------------------------------------------------------
                                        Low         Medium        High         Low         Medium        High
----------------------------------------------------------------------------------------------------------------
Smokers' Life-Years Saved.........        602.5      1,205.0      1,807.5        170.4        340.7        511.1
Emphysema Reductions..............         13.6         27.2         40.7          6.1         12.2         18.4
Fire Loss Averted.................         26.4         26.4         26.4         17.1         17.1         17.1
Medical Expenditure Reduction.....         33.5         33.5         33.5         23.0         23.0         23.0
                                   -----------------------------------------------------------------------------
    Total.........................        676.0      1,292.1      1,908.2        216.6        393.1        569.6
----------------------------------------------------------------------------------------------------------------
Note: Table entries are annualized over twenty years, but many of the benefits represented will not be realized
  until well beyond the twentieth year of the proposed rule's implementation.

    The total estimated costs of the final rule include $219.2 million 
to $529.5 million in one-time costs and $6.2 million in annual costs. 
Annualized over 20 years, the total costs range from $20.3 million to 
$40.6 million with a 3 percent discount rate and from $25.1 million to 
$52.5 million with a 7 percent discount rate, as shown in Table E2. 
These costs will arise primarily due to the need to change cigarette 
package labels and remove point-of-sale promotions that do not comply 
with the new restrictions. FDA could not quantify every regulatory 
cost. Some commercial sectors will experience costs for short-term 
dislocations of current business activities, but the costs would be 
mitigated for those businesses that anticipate the industry's 
adjustments.
    In addition to the costs described above, the rule will lead to 
private costs in the form of reduced revenues for many firms in the 
affected sectors. These sector-specific revenue reductions are for the 
most part distributional effects and cannot be counted as social costs.

                                          Table E2--Costs of Regulation
----------------------------------------------------------------------------------------------------------------
                                                              Annualized costs ($ mil)
                                   -----------------------------------------------------------------------------
     Requirements of the rule                     3 percent                              7 percent
                                   -----------------------------------------------------------------------------
                                        Low         Medium        High         Low         Medium        High
----------------------------------------------------------------------------------------------------------------
Private Sector
    Labeling Change...............         11.0         20.0         29.2         14.9         27.0         39.4
    Market Testing................          0.3          0.7          2.4          0.4          1.0          3.3
    Point-of-Sale Advertising.....          3.0          3.0          3.0          4.0          4.0          4.0
                                   -----------------------------------------------------------------------------
        Subtotal..................         14.3         23.7         34.6         19.3         32.0         46.7
                                   -----------------------------------------------------------------------------
Government                          ...........  ...........  ...........  ...........  ...........  ...........
    FDA...........................          6.0          6.0          6.0          5.8          5.8          5.8
                                   -----------------------------------------------------------------------------
        Subtotal..................          6.0          6.0          6.0          5.8          5.8          5.8
                                   -----------------------------------------------------------------------------
            Total.................         20.3         29.7         40.6         25.1         37.8         52.5
----------------------------------------------------------------------------------------------------------------

    As tobacco industry revenues decline, state and Federal tobacco tax 
revenues will also fall. If excise tax rates on tobacco products remain 
at current levels, annual state tax revenues would fall by 
approximately $106.1 million and annual Federal tax revenues by $80.5 
million.

B. Need for Rule

    According to the nation's health experts, tobacco use remains the 
most important preventable cause of morbidity and premature mortality 
in the United States, accounting each year for over 400,000 deaths 
(Ref. 58; Ref. 1). Written with the goal of ameliorating the enormous 
toll on the public health that is directly attributable to the 
consumption of cigarettes, the Tobacco

[[Page 69543]]

Control Act mandates the publication of this proposed rule. Section 201 
of the Tobacco Control Act modifies section 4 of FCLAA (15 U.S.C. 1333) 
to require that nine new health warning statements, along with color 
graphics depicting the negative health consequences of smoking, appear 
on cigarette packages and in cigarette advertisements. In the following 
analysis, we estimate the costs and benefits of this statutory 
requirement.

C. Benefits

    We estimate the benefits of the proposed rule by comparing expected 
life-cycle events of smokers with those of nonsmokers. Nonsmokers tend 
to live longer and contract fewer lung and other diseases, so the 
benefits in our analysis include the discounted value of life-years 
gained, cases of emphysema avoided and medical services freed for other 
uses. We also include an estimate of the monetary value of the property 
and lives saved as a result of the rule-induced reduction in the number 
of accidental fires caused by smoking.
1. Reduced Smoking Rates
    The changes outlined in this proposed rule are projected to 
decrease smoking initiation and increase smoking cessation. For each of 
the first twenty years of the proposed rule's implementation (2012-
2031),\6\ FDA calculates the predicted decrease in the number of U.S. 
smokers by multiplying together the following:
---------------------------------------------------------------------------

    \6\ The effects of anti-smoking policies occur over a long 
period of time, so we want to include at least one full generation 
in our analysis. Using a twenty-year time horizon allows us to do 
this while still avoiding the extreme uncertainty regarding effects 
occurring in the more distant future.
---------------------------------------------------------------------------

    (a) The estimated effect (a percentage point change) of cigarette 
warning labels on the national smoking rate, and
    (b) The population in a particular year in the absence of the 
proposed regulation (as projected by the U.S. Census Bureau).
    To obtain estimates of the effect of cigarette warning labels on 
smoking rates (item (a) in the list above), we look to the experience 
of Canada, which has required the use of graphic warning labels since 
December, 2000 (Ref. 59). The advantage of this approach lies in our 
ability to observe actual consumer behavior--in the form of changes in 
smoking rates--before and after a graphic warning label requirement 
went into effect. The warning labels to be required in the proposed 
rule are generally similar to those developed by Health Canada and 
other international authorities. As in Canada, the labels required by 
the proposed rule would occupy at least half the front and rear display 
panels of a cigarette package. Moreover, under the proposed rule, there 
would be a mix of warning statements and images that depict the 
negative consequences of smoking. Although the proposed rule would 
follow much the same approach as the Canadian warning label 
requirements, it would differ in some ways: Canada has 16 labels in 
rotation, rather than 9; warning statements appear in English on one 
side of a package and in French on the other; and health and cessation 
information is included on leaflets within Canadian cigarette packages 
(Ref. 60). These details, combined with general differences in legal 
and social trends, indicate that Canada's experience with warning 
labels can give only a general idea of the changes in smoking rates to 
be expected as a result of the proposed rule. In addition, other 
smoking control initiatives, including an increase in the cigarette tax 
and new restrictions on public smoking also occurred in both the United 
States and Canada during the period of our analysis. These and other 
confounding factors make our estimate of the effect of proposed warning 
labels highly uncertain.
    Health Canada (Ref. 61) reports Canadian smoking rates for ages 15 
and above for each year from 1999 through 2008. FDA obtained smoking 
rates for adults, aged 18 and above, in the United States from the 
National Health Interview Survey (Ref. 62). We used the results from 
these two reports to calculate the U.S.-Canada smoking rate difference 
for each year.
    Using data from Health Canada (Ref. 63), the National Institutes of 
Health (Ref. 64) and the National Health Interview Survey (Ref. 62), 
FDA finds that Canadian smoking rates followed a roughly linear 
downward trend from 1985-2000, while U.S. smoking rates declined 
logarithmically over the same time period; the predicted smoking rate 
decrease was 0.67 percentage points per year in Canada and, as of the 
year 2000, 0.24 percentage points per year in the United States. Using 
the estimated trends, we predict smoking rates for the United States 
and Canada, and the difference between them, for each year up to 2008. 
We then subtract the predicted U.S.-Canada smoking rate differences 
from the actual differences observed in the data. Implicit in this 
method is the assumption that these otherwise unexplained differences 
may be attributed solely to the presence in Canada of graphic warning 
labels. We do not account for potential confounding variables; our 
method is therefore a rudimentary approach to estimating the smoking 
reduction that would be effected by the proposed warning labels and may 
be producing results that are off by one or more orders of magnitude. 
FDA requests comments on this issue.
    Using this rudimentary approach, FDA estimates that the average 
unexplained difference between the United States and Canada in national 
smoking rates is 0.212 percentage points higher for the 2001-2008 
period than for 1999-2000. Applying this estimate to population 
projections (Ref. 65) and summing over all age groups yields an 
estimate that the rule would reduce (either through cessation or 
avoided initiation) the United States' smoking population by 
approximately 537,000 in 2013, with the total decrease rising to 
approximately 619,000 in 2031 due to population growth.
2. Expected Life-Years Saved
    The largest health consequence of smoking is the increased rate of 
mortality from cardiovascular disease, cancer, and certain other 
illnesses. As a result, the largest benefits of this proposed rule stem 
from the increased life expectancies for those individuals who, in the 
absence of this proposed rule, would be smokers and thus susceptible to 
premature mortality from one of these often-fatal diseases. We 
calculate the number of life-years saved using differences in the 
probabilities of survival for smokers and nonsmokers. Sloan et al. 
(Ref. 66) construct life tables for various categories of individuals, 
including ``non-smoking smokers'' and typical 24-year-old smokers. A 
non-smoking smoker is someone who does not use cigarettes but otherwise 
exhibits the lifestyle and personal characteristics \7\ of the average 
smoker. A typical 24-year-old smoker does not necessarily smoke for his 
or her entire life, but instead faces cessation probabilities that are 
in line with values observed for all ages in the National Health 
Interview Survey; the life expectancy effects of cessation at older 
ages are netted out of life expectancy effects of avoiding smoking at 
age 24 (results reported below). Sloan et al.'s life tables allow us to 
calculate how many additional deaths, per 100,000 population, may be 
expected among typical smokers than among non-smoking smokers between 
the 24th and 25th birthdays, the 25th and 26th, and so on until the 
100th birthday. (To simplify the calculation, FDA assumes

[[Page 69544]]

that differences in survival probabilities for smokers and nonsmokers 
are negligible below age 24 and above age 100.) Overall, Sloan et al. 
find that a typical 24-year-old female smoker can expect to live 
another 55.5 years, while a comparable nonsmoker can expect another 
57.8 years of life, producing an overall regulation-induced gain of 2.4 
life-years per individual who is prevented from starting to smoke. 
Comparing male 24-year-old typical and non-smoking smokers, life 
expectancy increases from 49.8 to 54.2 years, producing a gain of 4.4 
years. The gap between male and female life expectancy results may be 
due to different physiological responses to equal amounts of smoking, 
different lifetime cessation patterns or different smoking intensities. 
Taylor et al. (Ref. 67), for instance, find that male smokers are more 
likely than female smokers to consume more than a pack a day. Sloan et 
al. do not report how much of the male-female difference in their 
estimated life expectancy effects may be attributed to each possible 
mechanism.
---------------------------------------------------------------------------

    \7\ In their multivariate regression analysis, Sloan et al. 
control for alcohol intake, body mass index, financial planning 
horizon, race, education and marital status.
---------------------------------------------------------------------------

    While FDA considers Sloan et al.'s methodology to be the most 
suitable in the literature for purposes of the present analysis, 
several other studies of survival probabilities among smokers who quit 
early in life compared with smokers who persist in smoking into later 
decades suggest that the average life expectancy gains of not smoking 
may be much higher for both males and females. Since these other 
studies have found larger increases in life expectancy attributable to 
smoking avoidance, the Sloan et al. results may be considered 
conservative.
    We assume that each person who reaches age 24 during the twenty 
years (2012-2031) of our analysis and is dissuaded from smoking extends 
his or her life by the gender-specific amount Sloan and co-authors 
report. For older individuals, whose post-smoking cessation survival 
probabilities cannot be plausibly assumed to equal those of individuals 
who were nonsmokers at age 24, we predict life extensions using former 
smoker life tables that we construct using Sloan et al.'s results and 
cessation probabilities from the 1998 National Health Interview Survey 
(Ref. 62).
3. Benefits of Reduced Premature Mortality
    OMB Circular A-4 (Ref. 68) 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. Three life-year values (also 
known as values of a statistical life-year, or VSLY) used frequently in 
the literature and in previous analyses are $100,000, $200,000 and 
$300,000 (Ref. 69; Ref. 70; 74 FR 33030, July 9, 2009), which we update 
to $105,000, $210,000 and $315,000 in 2009 prices. These values 
constitute our estimates of willingness-to-pay for a year of life 
preserved in the present. The economic assessment of a future life-year 
requires discounting its value to make it commensurate with the value 
of present events. For this analysis, we use 3 percent and 7 percent 
discount rates to calculate the present value of the life-years we 
predict will be saved.
    For each dissuaded smoker, we multiply a VSLY by the relevant age- 
and gender-specific life extension and then discount appropriately to 
arrive at a per-person value of reduced mortality. For 24-year-olds, 
this value ranges from $9,166 (for a female applying a VSLY of $105,000 
and a 7 percent discount rate to her 2.4 life-years gained due to 
smoking avoidance) to $358,864 (for a male applying a VSLY of $315,000 
and a 3 percent discount rate to his 4.4 life-years gained due to 
smoking avoidance). Multiplying the per-person values by the predicted 
number of dissuaded smokers yields estimates of rule-induced mortality 
benefits that range from $3.61 to $53.78 billion.
    This range tends to overstate the net benefits of reduced smoking 
because it does not account for lost consumer surplus associated with 
the activity of smoking. Cutler (Ref. 69) suggests that lost consumer 
surplus might equal around fifty percent of the dollar value of life-
year gains, which necessitates dividing the estimated gross benefits in 
half. This adjustment is based on a very simple linear model of 
cigarette demand that is not definitive; a more data-intensive model 
may produce an adjustment factor very different from fifty percent. FDA 
requests comments, additional data and research on this adjustment. Net 
benefits estimates, for all VSLY ($105,000, $210,000 and $315,000) and 
both discount rates (3 percent and 7 percent) and produced using the 
Cutler adjustment factor, appear in Table E3.
    These totals may understate the full value of rule-induced 
reductions in mortality because they fail to quantify any reduction in 
either the external effects attributable to passive smoking or the 
infant and child fatalities caused by mothers' smoking during 
pregnancy. Sloan et al. (Ref. 66) indicate that, historically, the 
inclusion of spouse and infant deaths increased estimates of smoking's 
mortality effects by approximately 26.3 percent. We do not incorporate 
this adjustment into our analysis, however, since recent public smoking 
restrictions and educational campaigns have reduced external smoking 
exposure to well below historical levels, though not to zero.

                          Table E3--Present Value of Lifetime Reduced Smoker Mortality
----------------------------------------------------------------------------------------------------------------
 Value of a Statistical Life-Year =    Value of a Statistical Life-Year =    Value of a Statistical Life-Year =
              $105,000                              $210,000                              $315,000
----------------------------------------------------------------------------------------------------------------
 3% Discount rate   7% Discount rate   3% Discount rate   7% Discount rate   3% Discount rate   7% Discount rate
----------------------------------------------------------------------------------------------------------------
 $8,963,863,457     $1,804,953,192    $17,927,726,915     $3,609,906,384    $26,891,590,372     $5,414,859,576
----------------------------------------------------------------------------------------------------------------

4. Reduced Emphysema
    In the previous section, we estimated the benefits that will accrue 
as a result of the rule-induced reduction in premature deaths from lung 
cancer, cardiovascular disease and other smoking-related illnesses. 
Cigarette smoking is also a major risk factor for diseases that are 
less immediately fatal. As with premature death, individuals are 
assumed to be willing to give up valuable resources in the present in 
order to avoid the pain and distress associated with these non-fatal 
illnesses.
    Emphysema, a form of COPD,\8\ is perhaps the most notable such 
illness. Sloan et al. (Id.) estimate young smokers' lifetime illness 
profiles and report that smoking has a larger effect on expected years 
with emphysema than on expected years with cancer, coronary heart 
disease or any of the

[[Page 69545]]

other conditions they study.\9\ In order to quantify the value of rule-
induced reductions in years spent experiencing emphysema, we scale our 
estimates of the value of a statistical life-year ($105,000, $210,000 
and $315,000, as discussed in section VIII.C.3) by a ratio representing 
the tradeoff individuals are willing to make between perfect health and 
the state of having emphysema. Sullivan and Ghushchyan (Ref. 71) 
estimate this tradeoff with a regression of EQ-5D health index scores 
on disease indicators. EQ-5D survey responses--to questions about five 
areas of health, including mobility, pain, and ability to perform usual 
activities--are mapped so that a score of one represents best-
measurable health, a score of zero represents death, and fractional 
values represent intermediate levels of health. Sullivan and 
Ghushchyan's regression analysis indicates that a year with emphysema 
decreases, on average, a patient's welfare as much as the loss of 
0.0667 years of perfect health. Multiplying this average welfare loss 
by life-year values of $105,000, $210,000 and $315,000 yields estimates 
of $7,000, $14,000 and $21,000 for the amounts individuals are willing 
to pay to avoid a year of emphysema.
---------------------------------------------------------------------------

    \8\ Chronic obstructive bronchitis is a smoking-related illness 
that is closely related to emphysema so that the two conditions are 
now generally categorized together as chronic obstructive pulmonary 
disease (COPD). Because the sources we use in this section only 
report the health and welfare effects of emphysema, our resulting 
benefits estimates include only a portion of the total social gains 
associated with rule-induced COPD reductions.
    \9\ Due to the slow progressive nature of emphysema, patients 
with emphysema experience a diminished quality of life for longer 
periods than do patients with other smoking-related illnesses, which 
more rapidly progress to death.
---------------------------------------------------------------------------

    Sloan et al. (Ref. 66) estimate that a 24-year-old smoker can 
expect, on average, an extra 0.46 discounted years (using a discount 
rate of 3 percent) or 0.22 discounted years (using a discount rate of 7 
percent) of emphysema over his or her lifetime, as compared with an 
otherwise equivalent nonsmoker. Sloan and co-authors do not report the 
effect of smoking on emphysema years for members of other age cohorts, 
so FDA takes the conservative approach of estimating benefits only for 
those individuals who reach age 24 sometime during the first twenty 
years of the proposed rule's implementation. (Smoking cessation brought 
about by this rule will almost certainly reduce emphysema for some 
individuals who are over age 24 at the time of the rule's 
implementation. However, due to data constraints, we omit the benefits 
to these older individuals; this is why we describe our estimate as 
conservative.)
    Multiplying our predictions of per-smoker decreased discounted 
disease-years by Sullivan and Ghushchyan's welfare loss per year of 
emphysema and FDA's estimates of the rule-induced reduction in the 
number of smokers (see section VIII.C.1 for a discussion of 
methodology), discounting appropriately, and dividing in half (per Ref. 
69) yields a rule-induced welfare gain of $64.9 to $606.2 million. 
Results appear in Table E4. Smokers also suffer from other non-fatal 
illnesses but we do not include those losses in this analysis. Since we 
do not quantify reductions in smokers' non-fatal illnesses other than 
emphysema, these estimates represent lower bounds on the value of rule-
induced morbidity reductions.

                       Table E4--Present Value of 24-Year-Olds' Lifetime Reduced Emphysema
----------------------------------------------------------------------------------------------------------------
 Value of a Statistical Life-Year =    Value of a Statistical Life-Year =    Value of a Statistical Life-Year =
              $105,000                              $210,000                              $315,000
----------------------------------------------------------------------------------------------------------------
 3% Discount rate   7% Discount rate   3% Discount rate   7% Discount rate   3% Discount rate   7% Discount rate
----------------------------------------------------------------------------------------------------------------
   $202,075,479        $64,886,926       $404,150,958       $129,773,852       $606,226,437       $194,660,778
----------------------------------------------------------------------------------------------------------------

5. Reduced Fire Costs
    Each year, fires started by lighted tobacco products kill and 
injure people and destroy structures and other property. In the United 
States in 2007, civilian deaths caused by smoking-related fires totaled 
720, with direct property damage of $530 million (Ref. 72). A reduction 
in the number of smokers, and the coinciding number of cigarettes 
smoked, will reduce the number of future fires.
    The percentage reduction in fires may not equal the percentage 
reduction in cigarette consumption, however, because since 2003 forty-
nine states have passed legislation that requires cigarettes to be 
self-extinguishing or fire-safe (with the effectiveness dates of some 
of these state laws extending into 2011). FDA acknowledges some 
uncertainty in the effectiveness rate of fire-safe cigarettes; \10\ for 
this analysis, we estimate that 50 percent of apparently rule-induced 
future fire reductions would have been avoided even without the 
proposed rule due to fire-safe cigarette design.
---------------------------------------------------------------------------

    \10\ One of the first states to enact these laws, New York, 
requires cigarettes to self-extinguish 75% of the time (Ref. 73). 
First-year (2004) data in New York show a reduction in smoking-
caused fires by about 33% from the average of the three previous 
years of complete data (Ref. 74).
---------------------------------------------------------------------------

    Using a $7.9 million value of a statistical life (Ref. 75, which is 
the 2006 value updated to 2009 dollars using Ref. 76), FDA projects 
fire-cost savings of $393.1 million (at a three percent discount rate) 
or $180.6 million (at a seven percent discount rate); of these totals, 
9.7% consists of averted property damage and the rest of lives saved. 
These estimated savings may significantly underestimate the potential 
benefits because they exclude the value of reduction in fire-caused 
non-fatal injuries.
6. Medical Services
    Sloan et al. (Ref. 66) estimate that smokers use more medical 
services over their life cycles than do comparable nonsmokers, with a 
specific net cost of $3,757 per female 24-year-old smoker and $2,617 
per male 24-year-old smoker (in 2000 dollars and with a 3 percent 
discount rate). If these payments are distributed equally from ages 24 
to 100, given FDA's projected 20-year reductions in smoking prevalence, 
smoking-related medical expenditures would fall by $1.87 billion, of 
which $997.7 million would be realized as savings by smokers themselves 
and $870.6 million by nonsmokers (in the form of decreases in private 
insurance premiums or taxes used to fund government health programs 
such as Medicare). With a 7 percent discount rate, the total decrease 
in expenditure becomes $915.5 million, with $488.0 million of those 
savings accruing to smokers and $427.5 million to nonsmokers.
    In the absence of the rule, some portion of smoking-related medical 
expenditures accrues to health service providers as economic rent (also 
known as producer surplus). Any reduction of this portion would not 
contribute to the social benefit of the rule but would instead be a 
transfer of value from producers to consumers and other payers. If, 
however, the supply of smoking-related medical services is highly 
elastic, especially in the long run, producer surplus would be small. 
For this reason, FDA does not adjust for potential rent transfer. We 
do, however, include only the decrease in medical expenditure by 
smokers as a contribution to the rule's benefits.

[[Page 69546]]

Because nonsmokers' payments take the form of a subsidy for smoking-
related medical services, some portion of their expenditure in the 
absence of the rule is greater than smokers' own willingness-to-pay for 
medical services. Hence, the avoidance of this portion of the spending 
would transfer value from smokers to nonsmokers but not contribute to 
an overall social benefit of the rule. We do not know the size of this 
portion relative to nonsmokers' overall rule-induced expenditure 
change, so we take the conservative approach of excluding nonsmokers' 
expenditures from our benefits calculation.
    As a final adjustment, we divide the remaining expenditure change 
in half to account for smokers' lost consumer surplus associated with 
the activity of smoking. This yields a rule-induced benefit of $498.9 
million (at a 3 percent discount rate) or $244.0 million (at a 7 
percent discount rate).
7. Summary of Benefits
    The discussion above demonstrates the considerable magnitude of the 
economic benefits available from smoking reduction efforts. Estimates 
are summarized in Table E5. FDA requests comments on the sources and 
methods used to produce these results.

                                                       Table E5--Present Value of Benefits ($ Mil)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  VSLY = $105,000                 VSLY = $210,000                 VSLY = $315,000
                                                         -----------------------------------------------------------------------------------------------
                                                           3%  Discount    7%  Discount    3%  Discount    7%  Discount    3%  Discount    7%  Discount
                                                               rate            rate            rate            rate            rate            rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Life-Years..............................................         8,963.9         1,805.0        17,927.7         3,609.9        26,891.6         5,414.9
Non-Fatal Emphysema.....................................           202.1            64.9           404.2           129.8           606.2           194.7
Fire Loss...............................................           393.1           180.6           393.1           180.6           393.1           180.6
Medical Expenditure Reduction...........................           498.9           244.0           498.9           244.0           498.9           244.0
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................        10,057.9         2,294.5        19,223.8         4,164.3        28,389.8         6,034.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

8. Uncertainty Analysis
    Estimation of the effectiveness of the proposed rule (on reducing 
the future U.S. smoking rate) is subject to a large uncertainty that is 
not fully reflected in the benefits estimates appearing in the 
preceding sections, which only reflect different estimates of the value 
of a statistical life year. In this section, we show the uncertainty 
associated with our estimate of the effectiveness of the proposed rule.
    Our primary estimate, that the U.S. smoking rate will decrease by 
0.212 percentage points, was calculated in the following steps. First, 
we found the decrease in Canadian smoking rates since 1999 over and 
above what would have been expected using the pre-2001 trend. We then 
subtracted the analogous unexplained decrease in the U.S. smoking rate 
over the same period. This middle step was driven by the idea that the 
U.S. experience could proxy for recent social or policy changes (such 
as public smoking restrictions) that may have had effects on Canada's 
smoking rate and thus needed to be subtracted in order to isolate the 
effect of graphic warning labels. The last step was to calculate the 
difference between U.S. and Canadian unexplained decreases in smoking 
before and after graphic warning labels were introduced in Canada. We 
attributed the remaining unexplained difference to graphic warning 
labels.
    However, the U.S. social and policy climate may have been so 
different from Canada's during the years 1999-2008 that this proxy is 
inappropriate. To account for this possibility, we calculate the 
unexplained difference in Canadian smoking rates before and after 
graphic warning labels were introduced, this time omitting any U.S. 
adjustments. (Anti-smoking policies and programs other than the graphic 
warning labels are assumed to be incorporated in the pre-2001 trend, 
with no additional effects of these variables occurring post-
introduction of graphic warning labels.) This approach indicates that 
graphic warning labels may have been responsible for a 1.648 percentage 
point decrease in the Canadian smoking rate. If the proposed rule were 
to achieve this effectiveness level in the United States, benefits 
would be approximately eight times larger than those reported earlier 
in this analysis.
    On the other hand, because FDA has had access to very small data 
sets, our effectiveness estimates are in general not statistically 
distinguishable from zero; we therefore cannot reject the possibility 
that the proposed rule would not change the U.S. smoking rate. In this 
case, the proposed rule would not generate any quantifiable benefits, 
so the appropriate lower bound on benefits is zero. Ranges of benefits, 
representing the zero-effect case and the Canada-only modeling 
approach, appear in Table E6. The wide ranges shown in the table 
highlight the uncertainty inherent in our approach.

                                                 Table E6--Present Value of Benefits, Ranges ($ Billion)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  VSLY = $105,000                 VSLY = $210,000                 VSLY = $315,000
                                                         -----------------------------------------------------------------------------------------------
                                                           3%  Discount    7%  Discount    3%  Discount    7%  Discount    3%  Discount    7%  Discount
                                                               rate            rate            rate            rate            rate            rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Life-Years..............................................       [0, 69.7]       [0, 14.0]      [0, 139.3]       [0, 28.1]      [0, 209.0]       [0, 42.1]
Non-Fatal Emphysema.....................................        [0, 1.6]        [0, 0.5]        [0, 3.1]        [0, 1.0]        [0, 4.7]        [0, 1.5]
Fire Loss...............................................        [0, 3.1]        [0, 1.4]        [0, 3.1]        [0, 1.4]        [0, 3.1]        [0, 1.4]
Medical Expenditure Reduction...........................        [0, 3.9]        [0, 1.9]        [0, 3.9]        [0, 1.9]        [0, 3.9]        [0, 1.9]
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................       [0, 78.2]       [0, 17.8]      [0, 149.4]       [0, 32.4]      [0, 220.1]       [0, 46.9]
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 69547]]

D. Costs

    The proposed rule would create new burdens for cigarette 
manufacturers. In particular, manufacturers would incur the large up-
front costs associated with a major labeling change.\11\ Cigarette 
manufacturers and retailers would be responsible for the removal of 
noncompliant point-of-sale advertising. Consumers are likely to 
ultimately bear a share of these costs in the form of increased prices. 
In addition, the tobacco industry and possibly other sectors will 
experience lost sales and employment, but these revenue transfers will 
be offset by gains to other sectors, as discussed in the 
``Distributional Effects'' section of this document.
---------------------------------------------------------------------------

    \11\ All of the up-front costs of this rule are assumed to occur 
at the beginning of the first period of the time horizon of this 
rule (2011). The cost tables present raw undiscounted calculations 
of these up-front costs. For summary tables requiring a present 
value, these costs are discounted 1 year to the present (2010).
---------------------------------------------------------------------------

1. Number of Affected Entities
    Labeling and advertising requirements would affect domestic 
cigarette manufacturers and importers of foreign-made cigarettes. 
Statistics of U.S. Businesses' data show that there were 24 cigarette 
manufacturing firms in the United States in 2007 (Ref. 77). An 
undetermined number of importers would also be affected.
    Noncompliant point-of-sale advertising would be removed by 
manufacturers (or importers) and retailers. We use detailed data from 
the 2002 Economic Census report on product line sales for 
establishments with payroll to estimate the percentage of various types 
of retail establishments that sell tobacco products. Searching by the 
Economic Census product line 20150 (cigars, cigarettes, tobacco, and 
smokers' accessories), we find accommodation and food service 
establishments (NAICS 72) and retail trade establishments (NAICS 44-45) 
that report tobacco sales (Ref. 78, Ref. 79). Although some 
establishments in other industries may have unreported sales of tobacco 
products, the product line sales data provide a reasonable basis to 
determine which types of establishments would be affected by the 
proposed rule.

             Table E7--Establishments With Payroll That Sell Tobacco Products, 2002 Economic Census
----------------------------------------------------------------------------------------------------------------
                                                                                                    Percentage
                                                                     Number in    Number selling      selling
          Kind of business                      NAICS                  NAICS          tobacco         tobacco
                                                                                     products        products
----------------------------------------------------------------------------------------------------------------
General merchandise................  452........................          40,723           6,991              17
Food & beverage....................  445 excluding 44512........         119,592          65,255              55
Convenience \a\....................  44512......................          29,212          24,871              85
Gasoline stations with convenience   44711......................          93,691          86,152              92
 \a\.
Gasoline stations..................  44719......................          27,755           8,745              32
Health & personal care.............  446........................          81,797          17,761              22
Other retail establishments........  \(a)\......................         595,558           3,470               1
Accommodation and food services....  72 excluding 7224..........         516,734          12,347               2
Drinking places....................  7224.......................          48,856          11,490              24
Tobacco stores.....................  453991.....................           6,184           6,184             100
Nonstore retailers.................  454........................          49,000             848               2
Vending machine operators..........  4542.......................           5,921             892              15
                                    ----------------------------------------------------------------------------
    Total..........................  ...........................       1,615,023         245,006              15
----------------------------------------------------------------------------------------------------------------
\a\ Includes NAICS 441, 443, 444, 448, 451, 453 excluding 453991.
Sources: Ref. 79; Ref. 78.

    Because the 2007 Census data on product line sales for retail 
establishments with employees are not yet available, we update the 
number of various types of retail establishments using 2007 Statistics 
of U.S. Businesses data but assume the share of establishments selling 
tobacco products is unchanged (since 2002) within each category. 
Likewise, we lack 2007 Census data on product line sales for 
nonemployer establishments. Without additional information, we assume 
that, within a NAICS category, the share of establishments selling 
tobacco products will be the same for nonemployer establishments in 
2007 as for establishments with payroll in the 2002 Census. As shown in 
Table E8, we estimate that about 249,000 retail establishments with 
payroll and 126,000 nonemployer establishments sell tobacco products.

                                                   Table E8--Establishments That Sell Tobacco Products
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Establishments with payroll     Nonemployer establishments
                                                                            Percentage   ---------------------------------------------------------------
                                                                              selling                        Estimated                       Estimated
            Kind of business                          NAICS                   tobacco                     number selling                  number selling
                                                                           products \a\     Number \b\        tobacco       Number \c\        tobacco
                                                                                                             products                        products
--------------------------------------------------------------------------------------------------------------------------------------------------------
General merchandise stores.............  452............................              17          47,456           8,147          32,978           5,661
Food & beverage stores.................  445 excluding 44512............              55         122,858          67,037         104,026          56,761
Convenience stores.....................  44512..........................              85          28,173          23,986           (\e\)
Gasoline stations with convenience       44711..........................              92          95,389          87,713           (\e\)
 stores.

[[Page 69548]]

 
Gasoline stations......................  44719..........................              32          20,144           6,347           9,454           2,979
Health and personal care stores........  446............................              22          89,406          19,413         138,800          30,138
Other retail stores....................  (\d\)..........................               1         600,537           3,499         735,266           4,284
Accommodation and food services........  72 excluding 7224..............               2         585,541          13,991         281,104           6,717
Drinking places........................  7224...........................              24          46,948          11,041          27,170           6,390
Tobacco stores.........................  453991.........................             100           6,458           6,458           (\e\)
Nonstore retailers.....................  454 excluding 4542.............               2          42,565             737         782,759          13,547
Vending machine operators..............  4542...........................              15           5,158             777          27,595           4,157
                                        ----------------------------------------------------------------------------------------------------------------
    Total..............................  ...............................              15       1,690,633         249,147       2,139,152         126,477
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Percentage of establishments with payroll from Table E7.
\b\ Ref. 77.
\c\ Ref. 80.
\d\ Includes NAICS 441, 443, 444, 448, 451, 453 excluding 453991.
\e\ Data on nonemployer establishments unavailable for this NAICS category.

2. Costs of Changing Cigarette Labels
    In order to estimate the cost of changing cigarette labels to 
comply with the proposed rule, FDA used three sources. The 
``Methodology Report'' for the forthcoming ``Model to Estimate Costs of 
Using Labeling as a Risk-Reduction Strategy for Consumer Products 
Regulated by the Food and Drug Administration'' provided the basic 
framework (Ref. 81). The Methodology Report contains few numerical 
values, but we obtained preliminary estimates of several cost 
components and updated product counts through personal communication 
with our contractor, RTI International (Ref. 82). Because the 
forthcoming model is not yet complete, we filled in missing pieces 
using the RTI Final Report entitled ``FDA Labeling Cost Model,'' which 
describes an earlier model developed by RTI for FDA to estimate the 
cost of food label changes (Ref. 83). We were able to combine the 
models because the older food labeling model serves as the basis for 
the forthcoming general labeling model.
    The front and back of every cigarette package must be redesigned to 
incorporate graphic warnings occupying the entire top half. This type 
of change requires what is known as a complete redesign in the 2003 
model or as a major change in the forthcoming model. In addition, the 
requirement to incorporate 9 different warnings will increase costs 
beyond what the labeling models estimate. FDA accounted for the 
additional warnings by first calculating the cost of a complete 
redesign for cigarettes and then inflating the specific cost components 
expected to increase due to the requirement for 9 warnings.
    The RTI labeling models incorporate three potential cost components 
of a labeling change: label design costs (incurred on a per-UPC basis), 
testing costs (incurred on a per-formulation basis), and inventory 
costs (incurred on a per-unit basis). For this analysis, we restrict 
the calculation of market testing costs to the largest firms and 
perform certain other modifications to make the estimated cost match 
the likely effects of the proposed rule. The large cigarette 
manufacturers can plausibly be expected to conduct quantitative studies 
and focus group testing for each of their brands to gauge the effect of 
the new graphic warnings and to study how they might best be able to 
mitigate their effects. By contrast, small manufacturers with lower 
sales revenues are highly unlikely to conduct expensive market testing 
in response to the new requirements.
    We estimate that 3,234 cigarette UPCs (Ref. 82), would be affected 
by this proposed rule. FDA conservatively assumes that because the 
required change is so radical, none of the labeling changes can be 
coordinated with a previously-scheduled labeling change.
    Based on communication with RTI about the forthcoming model (Id.), 
FDA estimates that, per UPC, administrative labor costs are $375 to 
$1,014, graphic design labor costs are $1,120 to $3,206, prepress labor 
costs are $1,482 to $3,816, recordkeeping labor costs are $33 to $434, 
prepress materials costs are $100 to $2,439, and printing plate costs 
are $4,840 to $10,580.\12\ Summing these costs yields a per-UPC design 
cost of $7,950 to $21,489. Multiplying by the number of affected UPCs 
and inflating by 10 percent to account for rush charges associated with 
a compliance period shorter than 24 months results in total label 
design costs of $28 million to $76 million (Ref. 83).
---------------------------------------------------------------------------

    \12\ Rotogravure, the most expensive printing method, is used 
for cigarette labeling.
---------------------------------------------------------------------------

    Manufacturers incur inventory costs if they discard unused 
inventory at the end of the compliance period. Because cigarette 
manufacturers do not keep large inventories of labels, FDA assumes that 
all inventory will be exhausted during the 15-month compliance period, 
leaving no inventory cost. Table E9 summarizes the total costs of a 
standard label redesign for cigarettes.

[[Page 69549]]



                                Table E9--Cost of a Label Redesign for Cigarettes
----------------------------------------------------------------------------------------------------------------
                                                                        Low           Medium           High
----------------------------------------------------------------------------------------------------------------
Label Design Cost \a\
Number of UPCs..................................................           3,234           3,234           3,234
    Administrative labor cost ($)...............................             375             695           1,014
    Graphic design labor cost ($)...............................           1,120           2,163           3,206
    Prepress labor cost ($).....................................           1,482           2,649           3,816
    Recordkeeping labor cost ($)................................              33             234             434
    Prepress materials ($)......................................             100           1,225           2,439
    Printing plate cost ($).....................................           4,840           7,710          10,580
Cost per product UPC ($)........................................           7,950          14,676          21,489
Total label design cost, 24-month compliance ($)................      25,710,300      47,462,184      69,495,426
Total label design cost, < 24-month compliance ($)..............      28,281,330      52,208,402      76,444,969
Total Cost ($)..................................................      28,281,330      52,208,402      76,444,969
----------------------------------------------------------------------------------------------------------------
\a\ Undiscounted costs assumed to be incurred at the start of the first period of the time horizon of this rule.

    Administrative costs, recordkeeping costs, and labor costs 
associated with graphic design and prepress activities would probably 
be unaffected by the requirement to use 9 different picture-warning 
pairs. By contrast, we expect printing plate costs and prepress 
materials costs to be 9 times as large as previously calculated because 
of the requirement for 9 warnings. Table E10 shows the total costs of 
the cigarette labeling change, adjusted for the 9 warnings. The 
labeling cost increases to $169 million to $447 million.

                          Table E10--Cost of a Label Redesign With Nine Warning Labels
----------------------------------------------------------------------------------------------------------------
                                                                        Low           Medium           High
----------------------------------------------------------------------------------------------------------------
Label Design Cost \a\
Number of UPCs..................................................           3,234           3,234           3,234
    Administrative labor cost ($)...............................             375             695           1,014
    Graphic design labor cost ($)...............................           1,120           2,163           3,206
    Prepress labor cost ($).....................................           1,482           2,649           3,816
    Recordkeeping labor cost ($)................................              33             234             434
    Prepress materials ($)......................................             900          11,025          21,951
    Printing plate cost ($).....................................          43,560          69,390          95,220
Cost per UPC ($)................................................          47,470          86,156         125,641
Total label design cost, 24-month compliance ($)................     153,517,980     278,628,504     406,322,994
Total label design cost, < 24-month compliance ($)..............     168,869,778     306,491,354     446,955,293
Total Cost ($)..................................................     168,869,778     306,491,354     446,955,293
----------------------------------------------------------------------------------------------------------------
\a\ Undiscounted costs assumed to be incurred at the start of the first period of the time horizon of this rule.

3. Market Testing Costs Associated With Changing Cigarette Package 
Labels
    As stated above, FDA expects that only the large manufacturers will 
conduct market tests for their brands. Using several state directories 
of certified tobacco products, FDA estimates that 75 brands are 
marketed by the 4 largest domestic manufacturers (Refs. 84-89). The 
cost of focus group tests is estimated to range from $18 to $42 
thousand; the cost of a quantitative study is estimated to range from 
$47 to $453 thousand (Ref. 82). The total cost of both types of market 
testing is estimated to be $65 to $495 thousand per brand. Multiplying 
by 75 brands yields a total cost estimate ranging from $5 to $37 
million with a medium estimate of $11 million, as shown in Table E11. 
We assume that the requirement to use 9 different warning-text pairs 
does not affect these costs.

                                        Table E11--Cost of Market Testing
----------------------------------------------------------------------------------------------------------------
                                                                        Low           Medium           High
----------------------------------------------------------------------------------------------------------------
Market Testing Cost \a\
Number of brands to be tested...................................              75              75              75
    Cost of focus group testing ($).............................          18,000          30,000          42,000
    Cost of quantitative studies ($)............................          47,000         114,000         453,000
Market testing cost per brand ($)...............................          65,000         144,000         495,000
Total Market Testing Cost ($)...................................       4,875,000      10,800,000      37,125,000
----------------------------------------------------------------------------------------------------------------
\a\ Undiscounted costs assumed to be incurred at the start of the first period of the time horizon of this rule.

4. Advertising Restrictions: Removal of Noncompliant Point-of-Sale 
Advertising
    The principal effect of the restrictions on advertising in the 
proposed rule stem from the requirement that retailers and 
manufacturers of cigarettes remove any point-of-sale advertising for 
cigarettes that fails to conform to the requirements. In this analysis, 
we estimate the social resource costs for the removal. In the analysis 
of FDA's 1996 final tobacco rule, we based much of our estimate of the 
cost of removing noncompliant point-of-sale advertising on a report 
from the Barents Group that

[[Page 69550]]

used average removal costs for seven types of retail establishments, 
calculated using in-store surveys conducted by A.T. Kearney, Inc (61 FR 
44580). We use the same baseline and retain our assumptions from 1996 
about the level of effort required. We acknowledge, however, that this 
approach may overstate or understate the costs for a particular action 
or type of business.
    Table E12 regroups the information from Table E8 according to the 
categories studied by AT Kearney. Because our analysis considers only 
the removal of point-of-sale advertising from physical retail 
locations, we do not include non-store establishments. Table E13 shows 
that in current dollars one-time per-establishment costs range from 
about $12 for ``other establishments'' to about $198 for convenience 
stores. To estimate the total costs to comply with the restriction on 
point-of-sale advertising, we apply the updated per-establishment costs 
from Table E13 to affected establishments. As shown in Table E14, the 
one-time costs to remove point-of-sale materials would total $45.4 
million.

     Table E12--Estimated Number of Establishments Selling Cigarette Products Affected by the Proposed Rule
----------------------------------------------------------------------------------------------------------------
                                                                  Establishments    Nonemployer
                        Kind of business                           with payroll   establishments       Total
                                                                        \a\             \a\
----------------------------------------------------------------------------------------------------------------
AT Kearney Category
    General Merchandise.........................................           8,147           5,661          13,808
    Supermarket & Grocery.......................................          67,037          56,761         123,799
    Convenience Stores..........................................          23,986  ..............          23,986
    Convenience Stores with Gas.................................          87,713  ..............          87,713
    Service Stations............................................           6,347           2,979           9,326
    Drug Stores.................................................          19,413          30,138          49,552
    Specialty Tobacco Stores....................................           6,458  ..............           6,458
    Other establishments \b\....................................          28,531          17,391          45,922
                                                                 -----------------------------------------------
        Total...................................................         247,633         112,931         360,564
----------------------------------------------------------------------------------------------------------------
\a\ Source: Table E8.
\b\ Includes miscellaneous retail establishments and accommodations and food services establishments (including
  drinking places), but excludes nonstore retailers.


     Table E13--Estimated Average Per-Establishment Costs To Remove
                         Prohibited Materials a
------------------------------------------------------------------------
                                      Remove promotional materials ($)
   AT Kearney business category    -------------------------------------
                                       1996 dollars     Current dollars
------------------------------------------------------------------------
General Merchandise...............              23.42              30.94
Supermarket & Grocery.............             125.14             165.30
Convenience Stores................             150.02             198.16
Convenience Stores with Gas.......             146.43             193.42
Service Stations..................              36.09              47.67
Drug Stores.......................              11.72              15.48
Specialty Tobacco Stores..........             123.21             162.75
Other establishments \b\..........               9.37              12.38
------------------------------------------------------------------------
\a\ Sources: 61 FR 44585, Table 8; 1996 to 2009 (most recent) GDP
  deflator rose 32.1% (Ref. 76).
\b\ Excludes adult-only establishments, nonstore retailers and vending
  machine operators.


       Table E14--Estimated One-Time Costs To Remove Point-of-Sale Materials From Affected Establishments
----------------------------------------------------------------------------------------------------------------
                                                                                                  Total one-time
                      A.T. Kearney category                          Number of     Average cost    costs \b\ ($
                                                                  establishments        ($)          million)
----------------------------------------------------------------------------------------------------------------
General Merchandise.............................................          13,808           30.94             0.4
Supermarket & Grocery...........................................         123,799          165.30            20.5
Convenience Stores..............................................          23,986          198.16             4.8
Convenience Stores with Gas.....................................          87,713          193.42            17.0
Service Stations................................................           9,326           47.67             0.4
Drug Stores.....................................................          49,552           15.48             0.8
Specialty Tobacco Stores........................................           6,458          162.75             1.1
Other establishments \a\........................................          45,922           12.38             0.6
                                                                 -----------------------------------------------
    Total.......................................................         360,564  ..............            45.4
----------------------------------------------------------------------------------------------------------------
\a\ Excludes adult-only establishments and non-store retailers.
\b\ Undiscounted costs assumed to be incurred at the start of the first period of the time horizon of this rule.


[[Page 69551]]

    Sources: Tables E12 and E13.
5. Government Administration and Enforcement Costs
    FDA's estimated internal costs for administering and enforcing this 
regulation are uncertain. As a best estimate, however, FDA projects 
that 25 full-time equivalent employees (FTEs) would be needed to 
implement the proposed rule. Fully loaded employee costs vary with the 
type of employee (e.g. field inspectors versus administrative), but an 
average of $247,049 per FTE places the dollar cost at approximately 
$6.2 million per year.
6. Summary of Costs
    Table E15 summarizes the cost estimates from the preceding sections 
and Table E16 displays the present value and annualized value of costs.

                                           Table E15--Summary of Costs
----------------------------------------------------------------------------------------------------------------
                                                                                 One-Time ($m) \b\
            Requirements of the rule                Annual ($m)  -----------------------------------------------
                                                        \a\             Low           Medium           High
----------------------------------------------------------------------------------------------------------------
Private Sector
    Labeling Change.............................  ..............           168.9           306.5           447.0
    Market Testing..............................  ..............             4.9            10.8            37.1
    Point-of-Sale Advertising...................  ..............            45.4            45.4            45.4
                                                 ---------------------------------------------------------------
        Subtotal................................  ..............           219.2           362.7           529.5
                                                 ---------------------------------------------------------------
Government
    FDA.........................................             6.2  ..............  ..............  ..............
                                                 ---------------------------------------------------------------
        Subtotal................................             6.2  ..............  ..............  ..............
                                                 ---------------------------------------------------------------
        Total...................................             6.2           219.2           362.7           529.5
----------------------------------------------------------------------------------------------------------------
\a\ Undiscounted annual costs assumed to be incurred at the end of each period for a total of 20 years.
\b\ Undiscounted one-time costs assumed to be incurred at the start of the first period of the time horizon of
  this rule.


                                                Table E16--Present Value and Annualized Value of Costs a
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Present value ($ mil)                         Annualized costs ($ mil)
                                                         -----------------------------------------------------------------------------------------------
                Requirements of the rule                         3 percent               7 percent               3 percent               7 percent
                                                         -----------------------------------------------------------------------------------------------
                                                            Low    Med.    High     Low    Med.    High     Low    Med.    High     Low    Med.    High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Private Sector
    Labeling Change.....................................   164.0   297.6   433.9   157.8   286.4   417.7    11.0    20.0    29.2    14.9    27.0    39.4
    Market Testing......................................     4.7    10.5    36.0     4.6    10.1    34.7     0.3     0.7     2.4     0.4     1.0     3.3
    Point-of-Sale Advertising...........................    44.1    44.1    44.1    42.5    42.5    42.5     3.0     3.0     3.0     4.0     4.0     4.0
                                                         -----------------------------------------------------------------------------------------------
        Subtotal........................................   212.8   352.2   514.1   204.8   339.0   494.9    14.3    23.7    34.6    19.3    32.0    46.7
                                                         -----------------------------------------------------------------------------------------------
Government
    FDA.................................................    89.2    89.2    89.2    61.2    61.2    61.2     6.0     6.0     6.0     5.8     5.8     5.8
                                                         -----------------------------------------------------------------------------------------------
        Subtotal........................................    89.2    89.2    89.2    61.2    61.2    61.2     6.0     6.0     6.0     5.8     5.8     5.8
                                                         -----------------------------------------------------------------------------------------------
            Total.......................................   302.0   441.4   603.3   266.0   400.2   556.0    20.3    29.7    40.6    25.1    37.8    52.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The present value of upfront costs differs from previous tables because here these costs have been discounted 1 year back to 2010. Similarly, annual
  costs have been discounted back to 2010 before being annualized, resulting in a slight difference between annual and annualized costs.

E. Cost-Effectiveness Analysis

    We measure the effectiveness of the proposed rule as the sum of 
saved life-years and quality-adjusted life years. In order to assess 
the cost-effectiveness of the proposed rule, we must adjust the costs 
to account for effects that are not captured by life-years or quality-
adjusted life years. As shown in detail in the previous section, we 
calculated the first twenty years' costs attributable to the proposed 
rule and found present values of $266.0 to $556.0 million (using a 7 
percent discount rate) or $302.0 to $603.3 million (using a 3 percent 
discount rate). We add to each total the estimated monetary value of 
lost consumer surplus (previously netted out of life-years and 
emphysema benefits estimates); this yields overall costs of $2.14 to 
$6.17 billion (using a 7 percent discount rate) or $9.47 to $28.10 
billion (using a 3 percent discount rate). In order to focus on the 
costs associated with extensions of quality-adjusted life (see Ref. 68 
at pp. 11-12), we then subtract both medical cost reductions and the 
value of property savings due to reductions in accidental fires and 
arrive at a net cost of $1.88 to $5.91 billion (using a 7 percent 
discount rate) or $8.93 to $27.57 billion (using a 3 percent discount 
rate).
    Discounting over the same twenty-year time period, we calculate 
that this proposed rule would lead to 476,000 to 549,000 discounted 
smoking preventions or cessations. Similarly, we find that 34,627 to 
171,660 discounted quality-adjusted life-years would be saved (this 
includes both fractional life-years associated with reduced emphysema 
and full life-years associated with reduced premature

[[Page 69552]]

mortality).\13\ This yields a cost per smoking prevention of $3,940 to 
$50,204, and a cost per life-year saved of $52,047 to $170,552.
---------------------------------------------------------------------------

    \13\ This total reflects reduced premature mortality for smokers 
themselves and for others caught in the path of cigarette-related 
fires. The National Fire Protection Association (Ref. 90) reports 
the percentages of fire fatalities by age category; along with the 
CDC's estimate of average American life expectancy (Ref. 91), these 
data allow FDA to calculate that the expected number of life-years 
lost by fire victims is 37.3.

                                          Table E17--Cost-Effectiveness
----------------------------------------------------------------------------------------------------------------
                                                  3 Percent                              7 Percent
             Cost ($)              -----------------------------------------------------------------------------
                                        Low         Medium        High         Low         Medium        High
----------------------------------------------------------------------------------------------------------------
Per Smoking Prevention............       16,271       33,217       50,204        3,940        8,149       12,403
Per Life-Year Saved...............       52,047      106,255      160,594       54,176      112,050      170,552
----------------------------------------------------------------------------------------------------------------

F. Distributional Effects

    This proposed rule would bring about a variety of distributional 
effects not yet discussed in detail. Sectors affiliated with tobacco 
and tobacco products would lose sales revenues. Simultaneously, non-
tobacco-related industries would gain sales, because dollars not spent 
for tobacco products would be spent on other commodities.
1. Tobacco Manufacturers, Distributors, and Growers
    FDA estimates that implementation of the proposed regulation may 
reduce the annual cigarette consumption of U.S. smokers by 80 million 
packs. Meanwhile, the FTC (Ref. 39) reports that, in 2006, 1.75 billion 
cigarette packs were manufactured and distributed to consumers. These 
numbers imply that tobacco manufacturer revenues would be 0.68 percent 
lower in the rule's first year, and 0.79 percent lower in 2031, than 
they were in 2006. The U.S. Census Bureau (Ref. 92) reports that 
tobacco manufacturers' revenues totaled $41.6 billion in 2006; hence, 
the rule-induced decrease in annual tobacco sales would range from 
approximately $284 to $328 million. These estimates would rise somewhat 
higher if we were accounting for the decrease in price that accompanies 
the decrease in demand for a good (in this case, cigarettes). 
Experimental evidence from Mexico (Ref. 93) indicates that graphic 
warning labels may decrease smokers' willingness-to-pay for cigarettes 
by 17 percent; however, without supply elasticity data, we cannot 
determine how much this decline in willingness-to-pay would change 
cigarettes' market price.
    We estimate that the tobacco manufacturing, warehousing and 
wholesale trade sectors employ about 74,000 full-time workers (Ref. 
77). Under the assumption of constant production-to-employment ratio, 
we project that a 0.68-0.79 percent reduction in sales would result in 
the displacement of 500-600 jobs among manufacturers, warehouses, and 
wholesalers.
    Effects of the rule would also be observed in the agricultural 
sector. According to USDA's 2007 Census of Agriculture (Ref. 94), there 
are 16,234 tobacco farms. Upon implementation of the proposed rule, 
these farms may shift some of their acreage from growing tobacco to 
producing other agricultural products.
2. National and Regional Employment Patterns
    Several studies estimate the contribution of tobacco to the U.S. 
economy or, alternatively, the losses to the U.S. economy that would 
follow a decline in tobacco-related consumption. Economists have shown 
both theoretically and empirically that, for the nation as a whole, 
employment gains from spending on other products would offset any 
employment losses from reduced spending on tobacco products (Ref. 95). 
The major tobacco-growing states, however, would experience some 
adverse economic effects. An economic simulation of the regional 
impacts of spending on tobacco products carried out in 1994 found that 
after 8 years, a 2 percent per year fall in tobacco consumption (which 
substantially exceeds the FDA forecast for this regulation) would cause 
the loss of 36,600 jobs for the Southeast Tobacco region of the United 
States (0.2 percent of regional employment), whereas the nontobacco 
regions of the United States would gain 56,300 jobs (Ref. 96). That 
study, if carried out today, would find a much smaller net effect 
because total employment in tobacco-related industries has fallen. 
Overall, FDA finds that the income and employment impacts associated 
with reduced tobacco consumption would be quite small.
3. Retail Sector
    As would tobacco growers, distributors and manufacturers, tobacco 
retailers would be affected by any decrease in cigarette sales. 
Retailers would, however, be in a position to shift shelf space and 
promotional activities to non-tobacco products, in order to take 
advantage of the increase in demand for other products that would be 
expected to accompany the decrease in spending on cigarettes.
4. Advertising Industry
    The overall impact of the proposed rule on the advertising industry 
is uncertain. Advertiser revenue may decrease because advertisements 
with graphic warning labels are less desirable from a cigarette 
seller's standpoint and thus tobacco manufacturers would choose to 
conduct less advertising. On the other hand, advertising industry 
revenue may increase due to cigarette sellers' need to re-design ads to 
accommodate new warning labels and to devise new promotional 
strategies. In either case, few net social costs or benefits would be 
generated. Moreover, the effect on advertising would likely be 
relatively small since spending on cigarette advertising has been 
declining substantially in recent decades. By 2006, expenditures on 
magazine advertising had fallen to about $50 million and outdoor 
advertising to under $1 million. Most of the remaining affected 
advertising expenditures were point-of sale promotions, which totaled 
$240 million (Ref. 39).
5. Excise Tax Revenues
    In 2009, Federal tobacco tax revenues totaled $16.3 billion, while 
state and local tax revenues totaled $16.5 billion (Ref. 97). The 
proposed rule would decrease government tobacco tax revenues as fewer 
Americans consume cigarettes.
    FDA estimates this change in excise tax revenues by multiplying 
together the percentage change in smoking, whose calculation was 
described in section C1, the projected population in a given year (Ref. 
65), age-appropriate discounted lifetime cigarette consumption (in

[[Page 69553]]

packs) per smoker, and current Federal and average state tax rates 
(Ref. 98; Ref. 99). FDA calculates average consumption for 15-year-
olds, 16- to 17-year-olds, and 18- to 23-year-olds using the May 2006, 
August 2006, and January 2007 Tobacco Use Supplements to the Current 
Population Survey (Ref. 100). Sloan et al. (Ref. 66) report lifetime 
discounted consumption for typical 24-year-old smokers.
    FDA estimates that annual rule-induced decreases in excise tax 
collections would be approximately $106 million for state governments 
and $80.5 million for the Federal government. Assuming that excise 
taxes rise, on average, at the rate of inflation allows us to sum these 
values over the time horizon of our analysis, yielding an overall 
revenue loss to state governments of $1.35 to $2.93 billion and to the 
Federal government of $1.03 to $2.23 billion. Given inelastic cigarette 
demand (Ref. 95), some state governments could raise tobacco product 
excise rates to offset these revenue losses.

G. International Effects

    Of the $87.9 billion worth of tobacco products consumed in the 
United States in 2009 (Ref. 101), only $156 million consisted of 
imported cigarettes, with another $897 million imported as tobacco in a 
less-processed state (Ref. 102; Ref. 103). As in the United States, 
foreign manufacturers, distributors, and growers of tobacco and tobacco 
products would lose revenue as a result of the proposed rule, though 
their loss would be a small fraction of the overall revenue loss. As 
consumers who would have been smokers purchase other products, there 
would be a shift in patterns of international trade. If the preferred 
substitute products are American-made, there would be a (very small) 
decrease in overall imports into the United States; otherwise, there 
would be a small increase in imports from the source countries of the 
newly-demanded goods and services and a corresponding decrease in 
imports from tobacco-producing countries.
    The proposed rule does not apply to cigarettes manufactured for 
export, whose value totaled $417 million in 2009 (Ref. 102).

H. Regulatory Alternatives

    We compare the proposed rule to two hypothetical alternatives: An 
otherwise identical rule with a 24-month compliance period and an 
otherwise identical rule with a 6-month compliance period. Even though 
we estimate costs and benefits for these alternatives, they do not 
provide viable regulatory options, as they are inconsistent with FDA's 
statutory mandate.
1. 24-Month Compliance Period
    The cost of the labeling changes for this proposed rule depends far 
less than most labeling rules on the compliance period. The main effect 
of a longer compliance period would be to eliminate the 10 percent 
premium for overtime and rush charges added to the per-UPC label design 
activities for compliance periods shorter than 24 months (Ref. 83). All 
other costs are the same as in the 15-month analysis.
    Table E18 shows that extending the compliance period to 24 months 
would reduce the up-front labeling change cost by $15 to $41 million, 
to a total of $154 to $406 million.

      Table E18--Cost of a Cigarette Label Redesign With Nine Warnings With a 24-Month Compliance Period a
----------------------------------------------------------------------------------------------------------------
                                                                        Low           Medium           High
----------------------------------------------------------------------------------------------------------------
Label Design Cost
Number of UPCs..................................................           3,234           3,234           3,234
    Administrative labor cost ($)...............................             375             695           1,014
    Graphic design labor cost ($)...............................           1,120           2,163           3,206
    Prepress labor cost ($).....................................           1,482           2,649           3,816
    Recordkeeping labor cost ($)................................              33             234             434
    Prepress materials ($)......................................             900          11,025          21,951
    Printing plate cost ($).....................................          43,560          69,390          95,220
Cost per product UPC ($)........................................          47,470          86,156         125,641
    Total label design cost, 24-month compliance ($)............     153,517,980     278,628,504     406,322,994
    Total Cost ($)..............................................     153,517,980     278,628,504     406,322,994
                                                                 -----------------------------------------------
Change from 15-month Compliance Period..........................     -15,351,798     -27,862,850     -40,632,299
----------------------------------------------------------------------------------------------------------------
\a\ Undiscounted costs assumed to be incurred at the start of the first period of the time horizon of this rule.

    Extending the compliance period to 24 months would delay the 
accrual of health and fire reduction benefits by nine months. An 
approximation of the effect of this delay may be found by discounting, 
at three and seven percent discount rates, the previously-calculated 
total benefits. As shown in Table E19, FDA finds that a 24-month 
compliance period would decrease benefits by between $113.5 and $622.5 
million.

                                      Table E19--Present Value of Benefits With 24-Month Compliance Period ($ Mil)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  VSLY = $105,000                 VSLY = $210,000                 VSLY = $315,000
                                                         -----------------------------------------------------------------------------------------------
                                                           3%  Discount    7%  Discount    3%  Discount    7%  Discount    3%  Discount    7%  Discount
                                                               rate            rate            rate            rate            rate            rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Life-Years..............................................         8,767.3         1,715.6        17,534.7         3,431.3        26,302.0         5,146.9
Non-Fatal Emphysema.....................................           197.6            61.7           395.3           123.4           592.9           185.0
Fire Loss...............................................           384.5           171.7           384.5           171.7           384.5           171.7
Medical Expenditure Reduction...........................           487.9           231.9           487.9           231.9           487.9           231.9
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................         9,837.4         2,180.9        18,802.4         3,958.3        27,767.3         5,735.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 69554]]

 
Change from 15-Month Compliance Period..................          -220.5          -113.5          -421.5          -206.0          -622.5          -298.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Six-Month Compliance Period
    In the 2003 labeling-cost model, overtime and rush charges equal 10 
percent of the per-UPC label design costs with a 6-month compliance 
period. The model further assumes that 12 months is the shortest 
compliance period that can be met without resorting to covering up the 
old labels with stickers as a temporary solution. Therefore, the cost 
of discarded inventory is the same as under a 12-month compliance 
period, but there is an additional cost for applying appropriate 
stickers to cover the old package label design for a period of 6 
months.
    FDA assumes that no additional inventory will remain unused after 6 
months of applying stickers. The number of units sold annually is about 
10.7 billion.\14\ Therefore, 5.3 billion units would be relabeled with 
stickers. We estimate the per-unit cost for the sticker and application 
cost to be between $0.017 and $0.045 (Ref. 83). Reducing the compliance 
period to 6 months would then increase compliance costs by $91 to $239 
million to a total of $259 to $686 million. The use of 9 graphic-text 
combinations is not expected to materially affect this cost.
---------------------------------------------------------------------------

    \14\ The AC Nielsen data for total equivalent units show sales 
totaling 38,632 million sticks in 2008 (Ref. 104), whereas The 
Maxwell Report states that industry volume was 345,300 million 
sticks in 2008 (Ref. 105). Thus the Nielsen data capture 38,632/
345,300 = 11.2 percent of cigarettes sold. Nielsen data show total 
sales units of 1.195 billion in 2008. Dividing by 0.112 yields an 
estimate of 10.7 billion sales units per year.

      Table E20--Cost of a Cigarette Label Redesign With Nine Warnings With a Six-Month Compliance Period a
----------------------------------------------------------------------------------------------------------------
                                                                        Low           Medium           High
----------------------------------------------------------------------------------------------------------------
Label Design Cost
Number of UPCs..................................................           3,234           3,234           3,234
    Administrative labor cost ($)...............................             375             695           1,014
    Graphic design labor cost ($)...............................           1,120           2,163           3,206
    Prepress labor cost ($).....................................           1,482           2,649           3,816
    Recordkeeping labor cost ($)................................              33             234             434
    Prepress materials ($)......................................             900          11,025          21,951
    1Printing plate cost ($)....................................          43,560          69,390          95,220
Cost per product UPC ($)........................................          47,470          86,156         125,641
Total label design cost, 24-month compliance ($)................     153,517,980     278,628,504     406,322,994
Total label design cost, < 24-month compliance ($)..............     168,869,778     306,491,354     446,955,293
Sticker Costs
    Stick and application costs per unit ($)....................           0.017           0.031           0.045
    Number of units sold in 6 months............................   5,338,051,475   5,338,051,475   5,338,051,475
    Total sticker cost ($)......................................      90,501,325     168,073,889     239,182,072
Total Cost ($)..................................................     259,371,103     474,565,243     686,137,366
                                                                 -----------------------------------------------
Change from 15-month Compliance Period..........................      90,501,325     168,073,889     239,182,072
----------------------------------------------------------------------------------------------------------------
\a\ Undiscounted costs assumed to be incurred at the start of the first period of the time horizon of this rule.

    Reducing the compliance period to six months would hasten the 
accrual of health and fire reduction benefits by nine months. An 
approximation of the effect of this change in timing may be found by 
compounding, at three and seven percent discount rates, the previously-
calculated total benefits. As shown in Table E21, FDA finds that a six-
month compliance period would increase benefits by between $119.4 and 
$636.4 million.

                                      Table E21--Present Value of Benefits With Six-Month Compliance Period ($ Mil)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  VSLY = $105,000                 VSLY = $210,000                 VSLY = $315,000
                                                         -----------------------------------------------------------------------------------------------
                                                           3%  Discount    7%  Discount    3%  Discount    7%  Discount    3%  Discount    7%  Discount
                                                               rate            rate            rate            rate            rate            rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Life-Years..............................................         9,164.8         1,898.9        18,329.6         3,797.8        27,494.4         5,696.7
Non-Fatal Emphysema.....................................           206.6            68.3           413.2           136.5           619.8           204.8
Fire Loss...............................................           401.9           190.0           401.9           190.0           401.9           190.0
Medical Expenditure Reduction...........................           510.0           256.7           510.0           256.7           510.0           256.7
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................        10,283.4         2,413.9        19,654.8         4,381.1        29,026.2         6,348.2
                                                         -----------------------------------------------------------------------------------------------
Change from 15-Month Compliance Period..................           225.5           119.4           430.9           216.8           636.4           314.1
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 69555]]

3. Summary of Regulatory Alternatives
    Table E22 summarizes the regulatory alternatives by displaying 
ranges for the present values of the total benefits and total costs. 
Estimated ranges for the cost ratios (per smoking prevention and per 
life-year saved) of the proposed rule and its regulatory alternatives 
appear in Table E23.

                                                      Table E22--Summary of Regulatory Alternatives
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Present value of total benefits ($ mil) \a\                   Present value of total costs ($ mil) \b\
       Compliance period        ------------------------------------------------------------------------------------------------------------------------
                                               3%                            7%                            3%                            7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
24-Month Total.................  9,837.4 to 27,767.3..........  2,180.9 to 5,735.6..........  285.2 to 561.9..............  248.6 to 515.0.
(Proposed Rule) 15-Month Total.  10,057.9 to 28,389.8.........  2,294.5 to 6,034.1..........  302.0 to 603.3..............  266.0 to 556.0.
6-Month Total..................  10,283.4 to 29,026.2.........  2,413.9 to 6,348.2..........  391.9 to 837.5..............  353.8 to 782.7.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Range in benefits is based on a VSLY of $105,000 to $315,000.
\b\ Range in costs is based on low cost and high cost values.


                                          Table E23--Incremental Cost-Effectiveness of Regulatory Alternatives
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Discount rate = 3 percent                         Discount rate = 7 percent
                                                     ---------------------------------------------------------------------------------------------------
                                                                  Incremental              Incremental              Incremental              Incremental
                                                          Low         CE *        High         CE *         Low         CE *        High         CE *
--------------------------------------------------------------------------------------------------------------------------------------------------------
24-Month Compliance:
    Per Smoking Prevention..........................     $16,252          N/A     $50,152          N/A      $3,819          N/A     $12,024          N/A
    Per Life-Year Saved.............................      51,986          N/A     160,426          N/A      52,512          N/A     165,336          N/A
15-Month Compliance:
    Per Smoking Prevention..........................      16,271      $17,121      50,204      $52,545       3,940       $9,337      12,403      $29,324
    Per Life-Year Saved.............................      52,047       54,768     160,594      168,081      54,176      128,383     170,552      403,225
6-Month Compliance:
    Per Smoking Prevention..........................      16,419       23,021      50,597       68,133       4,207       16,118      13,170       47,376
    Per Life-Year Saved.............................      52,521       73,641     161,852      217,946      57,847      221,637     181,095      651,438
--------------------------------------------------------------------------------------------------------------------------------------------------------
* As the compliance period decreases, the number of rule-induced smoking preventions and life-years saved increases. Hence, the incremental costs of 15-
  Month Compliance are calculated relative to 24-Month Compliance, and the incremental costs of 6-Month Compliance are calculated relative to 15-Month
  Compliance.

I. Impact on Small Entities

    The Regulatory Flexibility Act requires agencies to prepare an 
initial regulatory flexibility analysis if a proposed rule would have a 
significant effect on a substantial number of small entities. We expect 
this proposed rule to have a significant effect on a substantial number 
of small entities. Consequently, this analysis, together with other 
relevant sections of this document, serves as the Initial Regulatory 
Flexibility Analysis, as required under the Regulatory Flexibility Act.
1. Description and Number of Affected Small Entities
    The proposed rule would affect small entities in several 
industries, from tobacco farming to the retail industry. Most of the 
nation's 16,234 tobacco farms are small; between 90.7 and 95.8 percent 
(between 14,732 and 15,555) of the farms growing tobacco in 2007 had 
total farm sales under the U.S. Small Business Administration (SBA) 
small business size standard of $750,000 (Ref. 94; Ref. 106).
    Table E24 shows the breakdown of domestic cigarette manufacturers 
by employment size. Census data indicate that most cigarette 
manufacturing firms are small businesses, with only 4 of 24 firms 
employing more than 500 employees, while the small business size 
standard established by the SBA for this industry is 1,000, so a 
minimum of 20 small cigarette manufacturers would be affected (Ref. 77; 
Ref. 106).

        Table E24--Cigarette Manufacturers by Number of Employees
------------------------------------------------------------------------
                                                              Number of
                Size by number of employees                     firms
------------------------------------------------------------------------
Less than 20...............................................            9
20 to 99...................................................            7
100 to 499.................................................            4
------------------------------------------------------------------------
Source: Ref. 106.
SBA size standard: 1,000 employees.

    Statistics of U.S. Businesses data show that 1,067 of 1,159 tobacco 
wholesale trade firms (92 percent) employ fewer than the 100-employee 
threshold that constitutes a small business according to the SBA (Ref. 
77; Ref. 106). If the size distribution of cigarette importers is 
similar to that of all tobacco wholesale trade firms, then 92 percent 
of them would be affected small businesses.
    Also likely to be affected by the regulation are small retail and 
service entities that sell cigarettes. Retail establishments bear 
shared responsibility with manufacturers for the cost of removing 
noncompliant advertising. SBA size standards for the retail trade and 
the accommodations and food services industries differ from size 
categories used by the U.S. Census. Table E25 shows the 2002 Census 
size categories that most closely match the SBA size standards. In all 
cases, the closest Census size category is smaller than the SBA size 
standard. As a consequence, any estimate based on the Census size 
categories may underestimate the number of small entities.

[[Page 69556]]



 Table E25--SBA Size Standards and Census Size Categories for Retail and Service Firms in NAICS Categories With
                                          Tobacco Product Line Sales a
----------------------------------------------------------------------------------------------------------------
                                                                     SBA size standard     Census size category
  NAICS with tobacco product line        Description of NAICS         (employees or $         (employees or $
               sales                           category                  million)                million)
----------------------------------------------------------------------------------------------------------------
General Merchandise
    452990.........................  Other General Merchandise..  11....................  10.
    452 excluding 452990...........  Department, Discount         27....................  25.
                                      Department, Warehouse
                                      Clubs, and Superstores.
Supermarket and Grocery
    4452 and 4453..................  Other Food and Beverage      7.....................  5.
                                      Stores.
    445110.........................  Supermarkets and Grocery...  27....................  25.
    445120.........................  Convenience Stores.........  27....................  25.
    447110.........................  Convenience Stores with Gas  27....................  25.
    447190.........................  Service Stations...........  9.....................  5.
    446............................  Health and Personal Care     7.....................  5.
                                      Stores.
    453991.........................  Specialty Tobacco Stores...  7.....................  5.
    B..............................  Other Kinds of Business....  Varies................  Varies.
----------------------------------------------------------------------------------------------------------------
Source: Refs. 106-108.
\a\ Includes only firms with payroll.
\b\ Includes NAICS 4413, 443112, 444, 448, 451, 4532, 453998, 72 (excluding 72231), 722310.

    The Census reports establishment numbers for business by product 
line, and establishment and firm size by type of business, but provides 
no size data by type of business and product line. To estimate the 
number of affected entities that SBA classifies as small, we begin by 
counting the number of firms that fall below the Census size standard 
shown in Table E25, including only firms in NAICS categories with 
tobacco product line sales. Next, we calculate the percentage of small 
firms in each NAICS category. Depending on the type of business, the 
percentage of small firms ranges from 41 percent for Discount 
Department, Warehouse Clubs, and Superstores to almost 100 percent for 
Convenience Stores.

 Table E26--Estimated Percentage of Small Retail and Service Firms in NAICS Categories With Tobacco Product Line
                                                     Sales a
----------------------------------------------------------------------------------------------------------------
                                                                                         Number of
                                                                                        firms below   Percentage
                  NAICS                    Description of NAICS category    Number of   census size    of small
                                                                              firms       standard      firms
                                                                                            \b\
----------------------------------------------------------------------------------------------------------------
General Merchandise
452110, 452910..........................  Discount Department, Warehouse            88           36         40.9
                                           Clubs, and Superstores.
452990..................................  Other General Merchandise......        7,451        7,320         98.2
    General Merchandise Subtotal          ...............................        7,539        7,356         97.6
Supermarket & Grocery
445110..................................  Supermarkets & Grocery.........       34,017       33,328         98.0
4452 and 4453...........................  Other Food and Beverage Stores.       34,807       34,082         97.9
    Supermarket & Grocery Subtotal......  ...............................       68,824       67,410         97.9
                                                                          --------------------------------------
445120..................................  Convenience Stores.............       18,705       18,676         99.8
447110..................................  Convenience Stores with Gas....       37,437       36,848         98.4
447190..................................  Service Stations...............       19,822       18,103         91.3
4461....................................  Drug Stores....................       36,198       33,894         93.6
453991..................................  Tobacco Stores.................        3,238        3,017         93.2
                                          Other Kinds of Business........      589,400      572,619         97.2
----------------------------------------------------------------------------------------------------------------
Source: Refs. 107, 108, 78, 79.
\a\ Includes only firms with payroll.
\b\ Based on the Census size standards shown in Table E25.

    Finally, we apply the percentages in Table E26 to our current 
estimate of the number of affected establishments with payroll (Table 
E7). This approach implicitly assumes that small establishments are 
similar whether or not they sell tobacco products. In addition, we 
classify all nonemployer establishments as small. In total, we estimate 
that about 355,000 small retail and service establishments would be 
affected by the proposed rule. This number represents about 98 percent 
of the estimated 361,000 establishments selling tobacco products.

[[Page 69557]]



     Table E27--Estimated Number of Small Establishments With Tobacco Product Line Sales by Kind of Business
----------------------------------------------------------------------------------------------------------------
                                                                                                     Estimated
                                   Percentage of    Number with     Small with    Non- employers   total number
        Kind of business             small \a\      payroll \b\       payroll           \b\          of small
                                                                                                  establishments
----------------------------------------------------------------------------------------------------------------
General Merchandise.............            97.6           8,147           7,949           5,661          13,611
Supermarket & Grocery...........            98.0          67,037          65,679          56,761         122,441
Convenience Stores..............            99.8          23,986          23,949               0          23,949
Convenience Stores with Gas.....            98.4          87,713          86,333               0          86,333
Service Stations................            91.3           6,347           5,797           2,979           8,775
Drug Stores.....................            93.6          19,413          18,178          30,138          48,316
Specialty Tobacco Stores........            93.2           6,458           6,017               0           6,017
Other Establishments............            97.2          28,531          27,719          17,391          45,110
                                 -------------------------------------------------------------------------------
    Total.......................  ..............         247,633         241,621         112,931         354,552
----------------------------------------------------------------------------------------------------------------
a From Table E26.
b From Table E12.

2. Description of the Potential Impacts of the Final Rule on Small 
Entities
    a. Effect on manufacturers. In order to estimate how much of the 
label design and inventory costs would be incurred by small domestic 
cigarette manufacturers, FDA subtracts the proportion of those costs 
estimated to be incurred by large domestic manufacturers and foreign 
manufacturers. Scanner data indicate that, approximately 55 percent of 
UPCs can be readily identified as belonging to a brand marketed by one 
of the 4 largest cigarette firms by volume (Ref. 105; Refs. 84-89). 
Because the costs of labeling changes are roughly proportional to the 
number of UPCs, FDA then attributes 55 percent of the total label 
design and inventory costs to the 4 firms employing at least 500 
people. FDA attributes an additional 3 percent of the labeling change 
costs to foreign manufacturers.\15\ These adjustments leave 42 percent 
of labeling change costs, or $71 to $188 million, to be incurred by the 
20 small manufacturers. Assuming costs are equal among these firms 
implies a per-firm cost of $3.5 to $9.4 million. Table E28 compares 
this estimated compliance cost to average annual receipts in order to 
gauge the potential impact of labeling change requirements on small 
cigarette manufacturing firms. Because the number of UPCs is probably 
larger for larger firms, costs are likely greater for larger firms than 
for smaller firms; if so this method overstates the impact on the 
smallest firms and understates the impact on the largest firms (within 
the category of firms employing fewer than 500 people).
---------------------------------------------------------------------------

    \15\ In 2008, 9.9 billion out of 345.3 billion individual 
cigarettes sold were imported. FDA assumes the same proportion holds 
for UPCs. These UPCs should not overlap with those produced by the 4 
largest domestic producers.

     Table E28--Potential Impact of Labeling Change Compliance Costs on the 20 Small Cigarette Manufacturers
----------------------------------------------------------------------------------------------------------------
                                                                  Average labeling          Average labeling
                                                   Average        compliance costs        compliance costs as a
                                     Number of      annual            ($1,000)             percent of average
    Size by number of employees        firms       receipts  --------------------------      annual receipts
                                                   ($1,000)                            -------------------------
                                                                  Low          High         Low          High
----------------------------------------------------------------------------------------------------------------
Less than 20......................            9       11,195        3,546        9,386           32           84
20 to 99..........................            7       21,265        3,546        9,386           17           44
100 to 499........................            4      147,896        3,546        9,386            2            6
----------------------------------------------------------------------------------------------------------------
Source: Ref. 77.
SBA size standard: 1,000 employees.

    b. Effect on retailers. As shown in Table E29, retail trade 
businesses account for almost all sales of tobacco products (Ref. 78; 
Ref. 79). About 90 percent of tobacco product line sales occur at 
gasoline stations, food and beverage stores, general merchandise 
stores, or tobacco stores. Convenience stores (with gasoline stations 
and stand-alone convenience stores) account for about half of all 
tobacco product line sales.

               Table E29--Sales of Tobacco Product Line by Kind of Business and Industry Sector a
----------------------------------------------------------------------------------------------------------------
                                                              Sales of tobacco product  Sales of tobacco product
                                                              line by kind of business   line by industry sector
            Kind of business and industry sector             ---------------------------------------------------
                                                                ($ bil)        (%)        ($ bil)        (%)
----------------------------------------------------------------------------------------------------------------
Retail Trade
NAICS 447--Gasoline Stations................................  ...........  ...........         22.2         43.3
    Convenience Stores with Gas.............................         21.2         41.3  ...........  ...........

[[Page 69558]]

 
    Gasoline Stations.......................................          1.0          2.0  ...........  ...........
NAICS 445--Food and Beverage Stores.........................  ...........  ...........         13.4         26.2
    Supermarket & Grocery...................................          7.7         15.0  ...........  ...........
    Convenience Stores......................................          4.5          8.8  ...........  ...........
    Liquor Stores...........................................          1.2          2.4  ...........  ...........
NAICS 452--General Merchandise..............................  ...........  ...........          7.1         13.9
    General Merchandise.....................................          7.1         13.9  ...........  ...........
NAICS 453--Miscellaneous Store Retailers....................  ...........  ...........          5.8         11.3
    Tobacco Stores..........................................          5.7         11.1  ...........  ...........
    Miscellaneous store retailers...........................          0.1          0.3  ...........  ...........
NAICS 446--Health and Personal Care Stores..................  ...........  ...........          1.5          3.0
    Drug Stores.............................................          1.5          3.0  ...........  ...........
NAICS 454--Nonstore Retailers...............................  ...........  ...........          0.7          1.3
    Nonstore Retailers......................................          0.5          1.0  ...........  ...........
    Vending machine operators...............................          0.2          0.4  ...........  ...........
Other Subsectors \b\........................................  ...........  ...........          0.1          0.2
    Other Kinds of Business.................................          0.1          0.2  ...........  ...........
Accommodation & Food Services
NAICS 72....................................................  ...........  ...........          0.4          0.8
    Other establishments....................................          0.3          0.5  ...........  ...........
    Drinking places.........................................          0.1          0.3  ...........  ...........
                                                             ---------------------------------------------------
        Total...............................................  ...........  ...........         51.2          100
----------------------------------------------------------------------------------------------------------------
\a\ Includes establishments with payroll with tobacco product line sales.
\b\ Includes establishments in NAICS 441320, 443112, 444130, 444220, 448110, 448320, 451110, 451211, 451212, and
  451220.

    To illustrate the effects of the proposed rule on a typical small 
retail store, we look at one-time costs for a convenience store and a 
convenience store with gasoline. We select these businesses because, as 
illustrated in Table E29, sales of tobacco products in these stores 
account for about 50 percent of all tobacco sales. In addition, tobacco 
products are an important part of overall revenue for these stores, 
composing over 12 percent of total sales (as shown in Table E30).

 Table E30--The Importance of Tobacco Sales by Kind of Business: Ranked
       by the Percentage of Total Sales From Tobacco Product Line
------------------------------------------------------------------------
                                                              Percentage
                                    Sales from  Total sales    of total
                                     tobacco      from all    sales from
         Kind of business            product      product      tobacco
                                    line a ($     lines ($     product
                                       bil)        bil) b        line
------------------------------------------------------------------------
Tobacco Stores...................          5.7          6.5         86.9
Convenience Stores...............          4.5         18.1         25.0
Nonstore Retailers...............          0.5          2.4         20.3
Convenience Stores with Gas......         21.2        173.4         12.2
Vending Machine Operators........          0.2          1.7         11.2
Miscellaneous store retailers....          0.1          1.2         11.2
Liquor Stores....................          1.2         12.8          9.7
Other Kinds of Business..........          0.1          1.4          6.5
Drinking places..................          0.1          3.9          3.5
Gasoline Stations................          1.0         29.4          3.5
General Merchandise..............          7.1        246.1          2.9
Supermarket & Grocery............          7.7        383.5          2.0
Drug Stores......................          1.5         80.0          1.9
Other Accommodation & Foodservice          0.3         33.3          0.8
                                  --------------------------------------
    Total........................         51.2        993.9          5.2
------------------------------------------------------------------------
a Tobacco sales from Table E29.
b Includes total sales for firms with tobacco product line sales. Refs.
  78, 79.

    For both types of convenience stores, Table E31 shows that for the 
smallest firms with less than $250,000 in annual sales, the one-time 
costs of the proposed rule would equal less than 2 percent of annual 
average sales of tobacco products. Furthermore, one-time costs total 
less than 0.1 percent of annual average sales of tobacco products for 
stores with $1 million or more in average annual sales. Although the 
impact on other small retail and service entities is uncertain, this 
example suggests that the proposed rule would be unlikely to create a 
significant direct

[[Page 69559]]

burden on small retail stores or service establishments.

    Table E31--One-Time Costs as a Percentage of Average Sales of Tobacco Products for Convenience Stores and
                                        Convenience Stores With Gasoline
----------------------------------------------------------------------------------------------------------------
                                                                                            Sales of tobacco
                                                                                                products
                                                                                       -------------------------
                    Sales size of firm                        Number of     Sales  ($                  One-time
                                                           establishments      mil)     Average  ($    costs as
                                                                                            mil)      percentage
                                                                                                      of average
----------------------------------------------------------------------------------------------------------------
Convenience Store--NAICS 445120 \a\:
    Less than $250,000...................................          4,231           653          0.0          0.5
    $250,000 to $499,999.................................          5,296         1,920          0.1          0.2
    $500,000 to $999,999.................................          5,150         3,646          0.2          0.1
    $1,000,000 to $2,499,999.............................          3,586         4,915          0.3          0.1
    $2,500,000 to $4,999,999.............................            659         1,601          0.6          0.0
$5,000,000 to $9,999,999.................................            324           712          0.5          0.0
$10,000,000 to $24,999,999...............................            215           440          0.5          0.0
Convenience Stores with Gasoline--NAICS 447110 \b\:
    Less than $250,000...................................          2,246           343          0.0          1.0
    $250,000 to $499,999.................................          3,801         1,425          0.0          0.4
    $500,000 to $999,999.................................          7,667         5,624          0.1          0.2
    $1,000,000 to $2,499,999.............................         14,309        22,303          0.2          0.1
    $2,500,000 to $4,999,999.............................          7,977        22,786          0.3          0.1
----------------------------------------------------------------------------------------------------------------
Source: Ref. 108.
\a\ Tobacco product line sales account for 25.0 percent of sales for all firms in NAICS 445120 (see Table E30);
  One-time costs equal $198.16 (see Table E13).
\b\ Tobacco product line sales account for 12.2 percent of sales for all firms in NAICS 447110 (see Table E30);
  One-time costs equal $193.42 (see Table E13).

3. Alternatives To Minimize the Burden on Small Entities
    a. Increase the compliance period to 24 months for small 
manufacturers or all manufacturers. Allowing all manufacturers, or only 
small manufacturers, 24 months to comply with the labeling changes 
would reduce overtime and rush charges. Under a 24-month compliance 
period, labeling change costs would fall on average by $0.32 to $0.85 
million per small firm. Table E32 compares the reduced estimated 
compliance cost to average annual receipts in order to gauge the 
potential impact of this regulatory alternative on cigarette 
manufacturing firms employing fewer than 500 people. As a comparison 
with Table E28 shows, this option would provide only modest relief. It 
would also delay the public health benefits of the proposed rule and be 
inconsistent with the statutory requirement.

 Table E32--Potential Impact of Labeling Change Compliance Costs on the 20 Small Cigarette Manufacturers With a
                                           24-Month Compliance Period
----------------------------------------------------------------------------------------------------------------
                                                                  Average labeling          Average labeling
                                                   Average        compliance costs      compliance costs  as a %
                                     Number of      annual            ($,1000)             of average  annual
    Size by number of employees        firms       receipts  --------------------------         receipts
                                                   ($1,000)                            -------------------------
                                                                  Low          High         Low          High
----------------------------------------------------------------------------------------------------------------
Less than 20......................            9       11,195        3,224        8,533           29           76
20 to 99..........................            7       21,265        3,224        8,533           15           40
100 to 499........................            4      147,896        3,224        8,533            2            6
----------------------------------------------------------------------------------------------------------------
Source: Ref. 77
SBA size standard: 1,000 employees

    b. Exempt small manufacturers from the labeling change 
requirements. Exempting small manufacturers from the labeling change 
requirements would eliminate their incremental labeling costs (an 
average reduction of $3.5 to $9.4 million), thus providing maximum 
relief. The combined market share of the 4 largest manufacturers was 
89.7 percent in 2008 (Ref. 105). The immediate impact would therefore 
be to allow 10.3 percent of cigarettes to be marketed without graphic 
warning labels when the rule went into effect. This proportion would 
grow over time, however, as some consumers would be expected to switch 
to brands marketed without graphic warnings. This approach would be 
inconsistent with both the statutory mandate and the public health 
objectives of this rule.
    c. Exempt small cigarette retailers from the point-of-sale 
advertising requirements. Exempting small cigarette retailers from the 
point-of-sale advertising requirements would eliminate their need to 
remove noncompliant advertising, reducing their direct costs to zero. 
However, Table E27 shows that the overwhelming majority of retail 
establishments selling cigarettes are small. Although the few 
establishments operated by large firms might be expected to have higher 
volume, a significant proportion of consumers would continue to be 
exposed to advertising lacking the new graphic warnings. This situation 
would be inconsistent with the public health

[[Page 69560]]

objective of the proposed rule as well as FDA's statutory mandate.

IX. Comments

    Interested persons may submit to the Division of Dockets Management 
(see ADDRESSES) either electronic or written comments regarding this 
document. As noted above, if you have comments on specific provisions 
of the proposed regulation, we request that you identify these 
provisions in your comments. In addition, if you have concerns that 
would be addressed by alternative text for the regulation, we request 
that you provide this alternative text in your comments. It is only 
necessary to send one set of comments. It is no longer necessary to 
send two copies of mailed comments. Identify comments with the docket 
number found in brackets in the heading of this document. Received 
comments may be seen in the Division of Dockets Management between 9 
a.m. and 4 p.m., Monday through Friday.

X. References

    The following references have been placed on display in the 
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interested persons between 9 a.m. and 4 p.m. Monday through Friday. 
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    108. U.S. Census Bureau, 2005b, Establishment and Firm Size: 
2002, 2002 Economic Census, Retail Trade, Subject Series, available 
at http://www.census.gov/prod/ec02/ec0244ssszt.pdf.

List of Subjects in 21 CFR Part 1141

    Advertising, Incorporation by reference, Labeling, Packaging and 
containers, Tobacco, and Smoking.

    Therefore, under the Federal Cigarette Labeling and Advertising 
Act, the Federal Food, Drug, and Cosmetic Act, and under authority 
delegated to the Commissioner of Food and Drugs, it is proposed that 
chapter I of title 21 of the Code of Federal Regulations be amended by 
adding part 1141 to subchapter K to read as follows:

PART 1141--CIGARETTE PACKAGE AND ADVERTISING WARNINGS

Subpart A--General Provisions
Sec.
1141.1 Scope.
1141.3 Definitions.
Subpart B--Cigarette Package and Advertising Warnings
1141.10 Required warnings.
1141.12 Incorporation by reference of required warnings.
1141.14 Misbranding of cigarettes.
Subpart C--Additional Disclosure Requirements for Cigarette Packages 
and Advertising
1141.16 Disclosures regarding cessation.


    Authority: Secs. 201 and 202, Pub. L. 111-31, 123 Stat. 1776; 15 
U.S.C. 1333; 21 U.S.C. 371, 387c, 387f.

Subpart A--General Provisions


Sec.  1141.1  Scope.

    (a) This part sets forth the requirements for the display of health 
warnings on cigarette packages and in advertisements for cigarettes. 
FDA may require additional statements to be displayed on packages and 
in advertisements under the Federal Food, Drug, and Cosmetic Act or 
other authorities.
    (b) The requirements of this part do not apply to manufacturers or 
distributors of cigarettes that do not manufacture, package, or import 
cigarettes for sale or distribution within the United States.
    (c) A cigarette retailer shall not be considered in violation of 
this part as it applies to the display of health warnings on a 
cigarette package if the package:
    (1) Contains a health warning;
    (2) Is supplied to the retailer by a license- or permit-holding 
tobacco product manufacturer, importer, or distributor; and

[[Page 69563]]

    (3) Is not altered by the retailer in a way that is material to the 
requirements of section 4(a) of the Federal Cigarette Labeling and 
Advertising Act (15 U.S.C. 1333(a)) or this part, including by 
obscuring the warning, by reducing its size, by severing it in whole or 
in part, or by otherwise changing it in a material way.
    (d) A cigarette retailer shall not be considered in violation of 
this part, as it applies to the display of health warnings in an 
advertisement for cigarettes if the advertisement is not created by or 
on behalf of the retailer and the retailer is not otherwise responsible 
for the inclusion of the required warnings. This paragraph shall not 
relieve a retailer of liability if the retailer displays, in a location 
open to the public, an advertisement that does not contain a health 
warning or that contains a warning that has been altered by the 
retailer in a way that is material to the requirements of section 4(b) 
of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 
1333(b)), this part, or section 4(c) of the Federal Cigarette Labeling 
and Advertising Act (15 U.S.C. 1333(c)), including by obscuring the 
warning, by reducing its size, by severing it in whole or in part, or 
by otherwise changing it in a material way.


Sec.  1141.3  Definitions.

    For the purposes of this part,
    Cigarette means:
    (1) Any roll of tobacco wrapped in paper or in any substance not 
containing tobacco; and
    (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 (1) of 
this definition.
    Commerce means:
    (1) Commerce between any State, the District of Columbia, the 
Commonwealth of Puerto Rico, Guam, the Virgin Islands, American Samoa, 
Wake Island, Midway Islands, Kingman Reef, or Johnston Island and any 
place outside thereof;
    (2) Commerce between points in any State, the District of Columbia, 
the Commonwealth of Puerto Rico, Guam, the Virgin Islands, American 
Samoa, Wake Island, Midway Islands, Kingman Reef, or Johnston Island, 
but through any place outside thereof; or
    (3) Commerce wholly within the District of Columbia, Guam, the 
Virgin Islands, American Samoa, Wake Island, Midway Island, Kingman 
Reef, or Johnston Island.
    Distributor means any person who furthers the distribution of 
cigarettes at any point from the original place of manufacture to the 
person who sells or distributes the product to individuals for personal 
consumption. Common carriers are not considered distributors for the 
purposes of this part.
    Front panel and rear panel mean the two largest sides or surfaces 
of the package.
    Importer means any person who introduces into commerce any 
cigarette that:
    (1) Was not manufactured inside the United States; and
    (2) Is intended for sale or distribution to consumers in the United 
States.
    Manufacturer means any person, including any repacker or relabeler, 
who manufactures, fabricates, assembles, processes, or labels a 
finished cigarette product.
    Package means a pack, box, carton, or container of any kind in 
which cigarettes are offered for sale, sold, or otherwise distributed 
to consumers.
    Person means an individual, partnership, corporation, or any other 
business or legal entity.
    Required warning means the combination of one of the textual 
warning statements and its accompanying color graphic, which are set 
forth in ``Cigarette Required Warnings--English and Spanish'' and 
``Cigarette Required Warnings--Other Foreign Languages,'' which are 
incorporated by reference at Sec.  1141.12.
    Retailer means any person who sells cigarettes to individuals for 
personal consumption, or who operates a facility where vending machines 
or self-service displays of cigarettes are permitted.
    United States, when used in a geographical sense, includes the 
several States, the District of Columbia, the Commonwealth of Puerto 
Rico, Guam, the Virgin Islands, American Samoa, Wake Island, Midway 
Islands, Kingman Reef, and Johnston Island. The term ``State'' includes 
any political division of any State.

Subpart B--Cigarette Package and Advertising Warnings


Sec.  1141.10  Required warnings.

    (a) Packages--(1) It shall be unlawful for any person to 
manufacture, package, sell, offer to sell, distribute, or import for 
sale or distribution within the United States any cigarettes the 
package of which fails to bear, in accordance with section 4 of the 
Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1333) and 
this part, one of the required warnings on both the front and the rear 
panel.
    (2) The required warning shall be obtained and accurately 
reproduced from the electronic images contained in ``Cigarette Required 
Warnings--English and Spanish,'' which is incorporated by reference at 
Sec.  1141.12, except that it must be adapted as necessary to meet the 
requirements of section 4 of the Federal Cigarette Labeling and 
Advertising Act (15 U.S.C. 1333) and this part.
    (3) The required warning shall appear directly on the package and 
shall be clearly visible underneath the cellophane or other clear 
wrapping.
    (4) The required warning shall be located in the upper portion of 
the front and rear panels of the package and shall comprise at least 
the top 50 percent of these panels; Provided, however, that on 
cigarette cartons, the required warning shall be located on the left 
side of the front and rear panels of the carton and shall comprise at 
least the left 50 percent of these panels.
    (5) The required warning shall be positioned such that the text of 
the required warning and the other information on that panel of the 
package have the same orientation.
    (b) Advertisements--(1) It shall be unlawful for any manufacturer, 
importer, distributor, or retailer of cigarettes to advertise or cause 
to be advertised within the United States any cigarette unless its 
advertising bears, in accordance with section 4 of the Federal 
Cigarette Labeling and Advertising Act (15 U.S.C. 1333) and this part, 
one of the required warnings.
    (2) The text in each required warning shall be in the English 
language, except that:
    (i) In the case of an advertisement that appears in a non-English 
publication, the text in the required warning shall appear in the 
predominant language of the publication whether or not the 
advertisement is in English; and
    (ii) In the case of an advertisement that appears in an English 
language publication but that is not in English, the text in the 
required warning shall appear in the same language as that principally 
used in the advertisement.
    (3) For English-language and Spanish-language warnings, each 
required warning shall be obtained and accurately reproduced from the 
electronic images contained in ``Cigarette Required Warnings--English 
and Spanish,'' which is incorporated by reference at Sec.  1141.12, 
except that it must be adapted as necessary to meet the requirements of 
section 4 of the Federal Cigarette Labeling and Advertising Act (15 
U.S.C. 1333), including area and other formatting requirements, and 
this part.

[[Page 69564]]

    (4) For foreign-language warnings, except for Spanish-language 
warnings, each required warning shall be the color graphic obtained and 
accurately reproduced from the electronic images contained in 
``Cigarette Required Warnings--Other Foreign Language Advertisements,'' 
which is incorporated by reference at Sec.  1141.12, and into which a 
true and accurate translation of the textual warning is inserted in 
accordance with ``Cigarette Required Warnings--Other Foreign Language 
Advertisements,'' except that the required warning must be adapted as 
necessary to meet the requirements of section 4 of the Federal 
Cigarette Labeling and Advertising Act (15 U.S.C. 1333), including area 
and other formatting requirements, and this part.
    (5) The required warning shall occupy at least 20 percent of the 
area of each advertisement, and shall be placed in accordance with the 
requirements in the Federal Cigarette Labeling and Advertising Act.
    (c) Irremovable or permanent warnings. The required warnings shall 
be indelibly printed on or permanently affixed to the package or 
advertisement. Such warnings, for example, must not be printed or 
placed on a label affixed to a clear outer wrapper that is likely to be 
removed to access the product within the package.


Sec.  1141.12  Incorporation by reference of required warnings.

    Certain material entitled: ``Cigarette Required Warnings--English 
and Spanish,'' (edition 1.0, June 2011, Food and Drug Administration), 
appearing in Sec. Sec.  1141.10(a)(2), (b)(3), and 1141.16(a); and 
``Cigarette Required Warnings--Other Foreign Language Advertisements,'' 
(edition 1.0, June 2011, Food and Drug Administration), appearing in 
Sec. Sec.  1141.10(b)(4) and 1141.16(a) are incorporated by reference 
into this part with the approval of the Director of the Federal 
Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. You may 
obtain a copy from the Food and Drug Administration, Center for Tobacco 
Products, Office of Compliance, 9200 Corporate Blvd., Rockville, MD 
20850, 1-877-CTP-1373, and from the Web sites listed in paragraphs (a) 
and (b) of this section. Also, this material is available for 
inspection at the National Archives and Records Administration (NARA). 
For more information on the availability of the following material, 
call NARA at 202-741-6030 or go to http://www.archives.gov/Federal_register/codeof_Federal_regulations/ibr_locations.html:
    (a) ``Cigarette Required Warnings--English and Spanish,'' available 
from FDA at http://www.fda.gov/Tobacco, referred to at Sec. Sec.  
1141.10(a)(2) and (b)(3) and Sec.  1141.16.
    (b) ``Cigarette Required Warnings--Other Foreign Language 
Advertisements,'' available from FDA at http://www.fda.gov/Tobacco, 
referred to at Sec. Sec.  1141.10(b)(4) and Sec.  1141.16.


Sec.  1141.14  Misbranding of cigarettes.

    (a) A cigarette shall be deemed to be misbranded under section 
903(a)(1) of the Federal Food, Drug, and Cosmetic Act unless its 
labeling bears one of the required warnings in accordance with section 
4 of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 
1333) and this part. A cigarette shall be deemed to be misbranded under 
section 903(a)(7)(A) of the Federal Food, Drug, and Cosmetic Act unless 
its advertising bears one of the required warnings in accordance with 
section 4 of the Federal Cigarette Labeling and Advertising Act (15 
U.S.C. 1333) and this part.
    (b) A cigarette advertisement or package will be deemed to include 
a brief statement of relevant warnings for the purposes of section 
903(a)(8) of the Federal Food, Drug, and Cosmetic Act if it bears one 
of the required warnings in accordance with section 4 of the Federal 
Cigarette Labeling and Advertising Act (15 U.S.C. 1333) and this part. 
A cigarette distributed or offered for sale in any State shall be 
deemed to be misbranded under section 903(a)(8) of the Federal Food, 
Drug, and Cosmetic Act unless the manufacturer, packer, or distributor 
includes in all advertisements and packages issued or caused to be 
issued by the manufacturer, packer, or distributor with respect to the 
cigarette one of the required warnings in accordance with section 4 of 
the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1333) and 
this part.

Subpart C--Additional Disclosure Requirements for Cigarette 
Packages and Advertising


Sec.  1141.16  Disclosures regarding cessation.

    (a) The required warning shall include a reference to a smoking 
cessation assistance resource in accordance with, and as specified in, 
``Cigarette Required Warnings--English and Spanish'' (incorporated by 
reference at Sec.  1141.12) or ``Cigarette Required Warnings--Other 
Foreign Language Advertisements'' (incorporated by reference at Sec.  
1141.12), whichever is applicable.
    (b) The smoking cessation assistance resource required to be 
referenced by paragraph (a) of this section must:
    (1) Provide factual information about the harms to health 
associated with cigarette smoking and the health benefits of quitting 
smoking;
    (2) Provide factual information about what smokers can expect when 
trying to quit;
    (3) Provide practical advice (problem solving/skills training) 
about how to deal with common issues faced by users trying to quit;
    (4) Provide evidence-based advice about how to formulate a plan to 
quit smoking;
    (5) Provide evidence-based information about effective relapse 
prevention strategies;
    (6) Provide factual information on smoking cessation treatments, 
including FDA-approved cessation medications;
    (7) Provide information, advice, and support that is evidence-
based, unbiased (including with respect to products, services, persons, 
and other entities), and relevant to tobacco cessation;
    (8) Other than as described in this section, not advertise or 
promote any particular product or service;
    (9) Not selectively present information about a subset of FDA-
approved cessation products or product categories while failing to 
mention other FDA-approved cessation products or product categories or 
reference any drug or other medical product that FDA has not approved 
for tobacco cessation; and
    (10) Not encourage the use of any non-evidence-based smoking 
cessation practices.
    (c) If the smoking cessation assistance resource required to be 
referenced by paragraph (a) of this section is a Web site, it:
    (1) Must not contain a link to any Web site unless it meets all of 
the criteria described in paragraph (b) of this section; and
    (2) May include references to one or more toll-free telephone 
numbers only if they meet the criteria described in paragraphs (b) and 
(d) of this section.
    (d) If the smoking cessation assistance resource required to be 
referenced by paragraph (a) of this section is a toll-free telephone 
number, it must:
    (1) Ensure that staff providing smoking cessation information, 
advice, and support are trained specifically to help smokers quit by 
delivering unbiased and evidence-based information, advice, and 
support; and
    (2) Maintain appropriate controls to ensure the criteria described 
in paragraph (b) of this section are met.


[[Page 69565]]


    Dated: November 8, 2010.
Margaret A. Hamburg,
Commissioner of Food and Drugs.
    Dated: November 8, 2010.
Kathleen Sebelius,
Secretary of Health and Human Services.
[FR Doc. 2010-28538 Filed 11-10-10; 8:45 am]
BILLING CODE 4160-01-P


