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HEAR NO EVIL, SEE NO EVIL ADS IN 1997?;LEGISLATORS IN NORTH AMERICA EYE EXTRA RULES FOR SIN-FREE AD ENVIRONMENT

By Published on .

After a year in which tobacco advertising was the biggest issue of U.S. advertising regulation, the advertising industry is expecting. . .a break? A change? No, it's expecting a year when tobacco advertising is the biggest issue for advertising regulation both in the U.S. and Canada.

U.S. ad groups are already looking to the new Congress that takes over in January as the likely next battleground for tobacco and for other major issues as well.

Exactly what happens could depend on who wins the Nov. 5 election, with Democrats trying to retake Congress from the Republicans.

Ad groups believe U.S. courts will quickly overturn all or most of the rules drafted by the Food & Drug Administration to regulate tobacco advertising.

An oral hearing on challenges to the rules from tobacco companies and advertising groups is set for February in U.S. District Court in Greensboro, N.C. Ad groups expect the court there will set aside the rules at least temporarily and thereby increase pressure for Congress to act.

Some legal challenges to the FDA rules question that agency's authority to regulate tobacco and those issues could be resolved by legislation. The other much broader challenges to the constitutionality of some of the ad restrictions could be much harder to resolve through legislation.

"We think what will happen is the court will throw the FDA regulation for a serious loop," said Jeff Perlman, senior VP-government affairs for the American Advertising Federation. "You have to assume some in Congress, who are not happy, will contest and fight it."

Advertising groups are also deeply worried that a major new issue is emerging over advertising taxes. They say the push to turn the U.S. graduated income tax to a flat tax will translate into a major re-examination of the tax system next year, and say some legislators of both parties are questioning advertising's deduction as a business expense.

"Whoever wins, the odds for a significant re-evaluation of the tax structure are high and our experience is whenever there is broad ranging examination, we are thrown into the mix," said Dan Jaffe, exec VP of the Association of National Advertisers, noting that both conservative Republicans and liberal Democrats have questioned the deduction, the latter as examples of "corporate welfare."

Unclear is exactly how the measures will be presented. In the current Congress, some legislators had offered proposals to eliminate or reduce the deductibility of advertising expenses only for tobacco or liquor. Others have suggested reducing the deductibility of all advertising expenses.

Advertising groups argue that ad expenses should be treated no differently than any other business expenses.

"For the life of me, I can't understand how the purchase of cash register tapes for a business should be treated any differently than the cost of advertising to sell a product," Mr. Perlman said.

Congress is also likely to consider revised restriction of "pornographic" Internet content next year, at least if the U.S. Supreme Court affirms a lower court decision overturning much of Congress' original attempts at regulation.

U.S. groups say they are also concerned that the focus on the Internet could bring forth additional attempts to restrict marketers' ability to collect and use database information. Among the proposals this year were several sharply limiting marketers' ability to collect information from children on the Web and in some cases for general mailing lists.

Several lawmakers also are considering legislation to extend the FDA's tobacco advertising restrictions to alcohol ads.

While much of the North American focus appears to be on the U.S., Canada too, has been acting, even as some advertisers take great caution in their latest ads.

Canadian tobacco companies, awaiting new regulations from federal health department Health Canada this fall, have been very cautious in the ads that followed last year's Supreme Court of Canada decision overturning an advertising ban.

A voluntary advertising code adopted by the tobacco industry last spring, however, has been criticized as ineffective. The Canadian Cancer Society charged, for instance, that despite the code, ads were appearing too close to schools and several ads were removed.

A big issue in Canada right now is restrictions on drug advertising to consumers. (Similar restrictions are also being challenged in the U.S.).

The Drugs Directorate at Health Canada is expected to release its findings and possibly new draft regulations concerning the Food & Drug Act in the next few weeks. The proposed rules will be in response to a pharmaceutical and health industry conference in June that in part focused on how the FDA regulates advertising of over-the-counter and prescription drugs.

While OTC drug advertising is permitted, though heavily regulated, drug manufacturers aren't allowed to advertise prescription drugs directly to consumers, only to physicians.

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