US cigarette sales last year fell to their lowest level since 1951, but this should not jeopardise the US$ 206 billion settlement states reached with tobacco manufacturers, Iowa's attorney general said on Wednesday.

Cigarette-makers can cut their payments to states if their market share falls more than 2 per cent a year due to the 1998 accord that aimed to make the companies reimburse states for the billions of dollars they spend treating ailing smokers.
Some companies want to withhold US$ 1.2 billion of the US$ 6.5 billion they owe the states on 15 April, Tom Miller, Iowa's attorney general, told reporters in a conference call.
States, cities and counties have sold US$ 31.5 billion in bonds backed by the tobacco payments, according to Fitch Ratings. And Nassau County, New York, and Michigan are preparing deals though concerns about a payment shortfall clipped the prices of outstanding tobacco bonds.
"We've seen about a five basis point shift, which is not a lot for tobacco bonds — they can be very volatile. But yes, it has caused people to take a little step back," said Evan Rourke, municipal market strategist at Popular Securities.
Still, the tobacco settlement obliges states to collect escrow payments from companies that did not sign the accord, Iowa's attorney general said. Cigarette-makers can only win in court if they prove the states failed to do this, he added.
Non-signing companies, often discounters, grabbed 8 percentage points of market share between 1997, the year before the pact was sealed, and 2003, according to a tobacco company official who requested anonymity. Signing firms in 2003 only sold about 91 per cent of all cigarettes in the United States.
This year's 15 April payment to the states is for 2003.
The next decision in the battle will be made by an arbitrator, who has preliminarily held that tobacco companies did lose more than 2 per cent of its market share in 2003.
By 27 March, the arbitrator should rule whether the settlement caused that drop in market share, Miller said.
If the states lose this round, most of them have already said they will take the cigarette-makers to court, he added.
However, the initial escrow requirements had a loophole. Non-signing companies could get back 96 per cent of their money immediately instead of after 25 years, the tobacco company executive said. But Miller said the states met their obligation to diligently enforce the initial escrow requirements, and stiffened them, starting around 2003. (pi)