TOBACCO INDUSTRY MAY PAY BILLIONS; SETTLEMENT WOULD CHANGE LANDSCAPE.

Byline: John M. Broder The New York Times

Tobacco negotiators announced a historic settlement proposal Friday that, if ratified, promises to change forever the way cigarettes are marketed in the United States, provide billions of dollars in compensation to states and permanently alter the nation's legal, regulatory and public health landscape.

But despite concessions from the cigarette makers, the groundbreaking proposal would allow the tobacco industry to win reprieve from the gravest legal and financial threats it has ever faced.

The complex agreement, negotiated by a group of state attorneys general, plaintiffs' lawyers and industry representatives, would require cigarette companies to pay $368.5 billion over the next 25 years to compensate states for the costs of treating smoking-related illness, finance nationwide anti-smoking programs and underwrite health care for millions of uninsured children.

Under terms of the proposed settlement, the tobacco industry would admit for the first time in prominent new warning labels on every package of cigarettes that smoking by an estimated 45 million Americans is lethal and addictive. The plan imposes strict new limits on tobacco marketing and advertising, including a ban on vending machines and outdoor billboards. And it gives the Food and Drug Administration new powers to regulate nicotine as a drug and cigarettes as drug delivery devices.

The nation's four major cigarette makers described the proposed settlement as ``a bitter pill'' that required previously unimaginable concessions. In a statement that came as close to a tone of contrition as the industry ever has, the companies said the deal was the best they could hope to achieve in an extremely hostile environment.

``Negotiations of this size and scope create compromise, not perfection,'' the companies said. ``But on balance this plan is preferable to the continuation of a decades-long controversy that has failed to produce a constructive outcome for anyone.''

The statement was released jointly by Philip Morris Cos.; RJR Nabisco Holdings Corp.; BAT Industries PLC, the British parent of Brown & Williamson Tobacco Corp.; and Loews Corp., which owns Lorillard Tobacco Co.

Most of the money the cigarette companies would have to pay - $10 billion upon signing the agreement, $8.5 billion a year for five years and about $15 billion a year thereafter - would be tax-deductible, forcing taxpayers to effectively share in the cost of the settlement.

In exchange for their concessions, the tobacco companies won the promise of relief from dozens of potentially ruinous lawsuits filed by states and diseased smokers. No lawsuit filed against cigarette makers has succeeded thus far, although the Liggett Group, a subsidiary of the Brooke Group Ltd., broke with the industry to negotiate its own settlement last year.

The fund would crimp industry profits for years, but cigarette makers would be allowed to continue to sell their products without the threat of concerted legal action against them. Cigarette company stocks rose this week in anticipation of a deal capping the industry's liability.

The pact faces enormous obstacles, including the opposition of influential members of Congress and health groups, who believe the settlement yields too much to the industry. The political process of debating and approving the deal will take months at a minimum and is certain to make the three months of difficult negotiations leading to Friday's announcement appear easy.

And the proposed accord left vastly more questions than it answered. The negotiators did not release the detailed document that was signed Friday, only a six-page summary. Nor could the seven attorneys general who announced the deal in a Washington hotel ballroom give assurances that the other 33 states that have sued the industry would support it.

The outline of the pact also left broad unanswered questions about enforcement and legal jurisdiction, as well as whether the industry would be able to continue to operate virtually unimpeded overseas. Even before it was announced, one critic vowed to challenge it in court on grounds that it would infringe on the constitutional right of individuals and groups of harmed smokers to seek damages against the industry.

President Clinton, wary of embracing a deal whose outline is still hazy, issued a noncommittal statement late Friday.

``We must now carefully consider whether approving this proposed settlement will protect the public health, and particularly our children's health, to the greatest extent possible,'' Clinton said in a written statement issued by the White House.