This is a rush transcript from "Special Report," May 17, 2011. This copy may not be in its final form and may be updated.


SEN. JOHN KERRY, D-MA: This relationsh ip will not be measured by words or by communiques after meetings like the ones that I engaged in. It will only be measured by actions.

RETIRED GEN. JAMES JONES, FORMER NATIONAL SECURITY ADVISER: They're interested in what we're going to do tomorrow and the next day. A drone attack throws off the relationship if there's collateral damage. We're always living from day-to-day and it's very difficult to get them engaged in, ya know, what their country might look like ten or 20 years from now as a result of their -- the actions that they take today.


BAIER: "They" of course, Pakistan, and the relationship between the U.S. and Pakistan is getting and has been getting tense. But this is a new element to it. Take a look at these satellite photos, you'll see one on the left. A barren site is about 100 miles south of Islamabad, the one on the right was taken April 20th of this year indicating Pakistan is it building a fourth nuclear reactor to produce plutonium. It already has 100 nuclear weapons, now four reactors in the country at this location right there.

What about this and what it says about going forward with Pakistan, we're back with the panel, Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: This is a country with a lot of abject poverty that can barely feed itself and is spending a fortune on nukes. You have to ask yourself why. This is all about India, this is an insane arms race with India as if India's gonna unleash nukes on Pakistan.

But that tells us a lot about the paranoia of Pakistan. Which is shared by all of the elites. All they care about is India. It colors their understanding of Afghanistan, it's why they founded and still support the Taliban. They are afraid that India will extend influence into Afghanistan and also having their own homegrown terrorists who occasionally attack India is a way to keep India on the defensive and that's what colors all of its thinking.

So its interests are in part, coincident with ours in attacking extremism, but only in part. And I think as a result we have to have a grownup understanding of what our alliance is like with them. It's like our alliance with the Soviets in World War II, use 'em as you can, but never trust them.

BAIER: That may be the explanation of why they're paying for this arms race with India, but U.S. officials are saying -- ya know they're scratching their heads, Juan, because the U.S. has paid Pakistan -- or given Pakistan $20 billion since 9/11.

JUAN WILLIAMS, SENIOR EDITOR, THE HILL: Well, it's just unbelievable when you stop and think about the presence of, as Senator Kerry was saying, American troops on the ground in Afghanistan who have been fighting extremists. We have cooperated with Pakistan not only in terms of supply routes, but as you point out, in terms of foreign aid.

And the idea is that that foreign aid not only is to help with the abject poverty that Charles was talking about, but to bolster their military for the fight against extremists, therefore, the idea is that there should be elements in that military that are loyal to the U.S. that understand that the dollar is coming in because you have some relationship with the U.S. But clearly that is not carrying the day. And it makes it very complicated when people don't respond to money.

BAIER: Tucker?

TUCKER CARLSON, EDITOR, THEDAILYCALLER.COM: We respond to money. Pakistan has an enormous lobbying operation in Washington. We have a piece in "The Daily Caller" up tomorrow on this, and it illustrates how a lot of people whose names you recognize are in the employ of Pakistan right now.

And the net effect of that is to blind us to the obvious. Which is they look a lot like our enemy at this point. As Charles said, they sustain [INAUDIBLE] of the Taliban, they harbored Usama bin Laden in Afghanistan pre-9/11 and in Pakistan after. They've disseminated nuclear technology to our enemies. Ask yourself, which country is a greater threat to the U.S. and the world right now, Pakistan or North Korea? Probably Pakistan, and almost nobody recognizes that or says so out loud. And I think that's about to change.

BAIER: But they also provide 70 percent of the supply routes into Afghanistan --

CARLSON: That's correct.

BAIER: -- and the exit U.S. troops would take to get out of the country.

CARLSON: They are geographically necessary. And they have been -- the British discovered this on their retreat from Kabul. I mean, right, you need Pakistan if you're engaged in Afghanistan. And this may provide the impetus to get out of Afghanistan. I don't see how you solve the problem there. I mean, at the very highest levels going up to the former president they were implicated in sustaining the Taliban --


BAIER: What do you say to the people, Charles, who say, ya know, we should pull the funding, we should stop, you know, cut it off in the middle of what is a very complex issue?

KRAUTHAMMER: Until we decide how we're going to deal with Afghanistan, stay, accelerate, or look for a sort of low level insurgency on the defensive and counterinsurgency as a defensive maneuver. When we decide what we want out of Afghanistan, it will then tell us how to deal with Pakistan.

If we leave Afghanistan, we can abandon our alliance with Pakistan essentially. If not, we're going to need them and we have to deal with them in a way that understands that they're going to play a double game.

BAIER: That's it for the panel. But before we go, just moments ago in the Senate, the Democratic sponsored bill to end $21 billion dollars in subsidies for the country's top five oil companies failed to get the necessary 60 votes to proceed as expected. The final tally was 52 in favor and 48 against. Democrats say they will try again in their debt reduction proposal. Stay tuned to see a side of a big story we brought to you Monday.

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