This is a rush transcript of "Special Report With Bret Baier" from February 19, 2009. This copy may not be in its final form and may be updated.


PRESIDENT BARACK OBAMA: I think we should use the hammer on a potential op t out as leverage to ensure that we actually get labor and environmental standards that are enforced.

Now is a time where we've got to be very careful about any signals of protectionism.


BRET BAIER, HOST: There is candidate O bama and President Obama today in Canada, two very different tones about the question of the North American Free trade Agreement, NAFTA, and talking about trade in Canada today.

What about this? Some analytical observations from Rich Lowry, editor of The National Review, Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer — FOX News contributors all.

Charles, what's your take on the different tones? Obviously the economic situation changed between those times, but it was a very different and stark difference.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: It is. Obama is a guy who has the talent of leaving his past behind. And he considers the candidate Obama is a guy of the past. He has changed a lot of his opinions.

He clearly understands that what he said in the campaign about NAFTA was demagoguery. Even in the campaign, he began hinting that it was not serious.

And, clearly, in the middle of a recession, he is worried about protectionism.

His problem is the Democrats at home, because ever since the passing of NAFTA in the '90s, the Democrats in the Congress have drifted to protectionism, and he has to hold them off.

In the stimulus package, he had a provision about buying America, which is a real problem, a threat to all of our allies. It raised a lot of alarm in Europe, and Obama managed to have added a provision in which you buy America, but only if it is in conjunction with our treaties.

So it softened it. It still leaves loopholes, but it softened it, and made peace with the Canadians.

Obama has a talent of throwing a bone to the left but governing in the center, as he will on trade, as he is doing on Guantanamo and interrogation. He leaves a lot of caveats and loopholes. It looks as if he is hanging left, but at least it looks as if, at the same time, he is governing reasonably, particularly on trade.

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: Look, I think, on foreign policy, especially, President Obama is learning what most new presidents find, that there is only a certain number of options in foreign policy. They are really drawn to the mainstream.

President Clinton campaigned on making trade with China dependent on their progress in human rights. And that went overboard pretty fast. And I think that it was easy to predict that his tough talk about NAFTA was also going to disappear.

He had one of his campaign aides during the campaign reassuring the Canadians that this was just campaign rhetoric —

BAIER: Austan Goolsbee.

LIASSON: Austan Goolsbee, who got into a little bit of trouble about this. But I think whether the economy was in the ditch or not, he is still would have become a free trader after he was elected, and that's exactly what you're seeing there.

BAIER: How did he do today, Rich?

RICH LOWRY, EDITOR, THE NATIONAL REVIEW: I think he did great. And there is something inspiring about seeing a young African-American representing the United States up at that podium with another foreign leader.

But I think he owes Austan Goolsbee an apology. When Obama was engaging this demagogic rhetoric during the campaign, Austan Goolsbee goes up there and supposedly tells the Canadians what turns out to be entirely true — don't believe it. He doesn't mean it. It's just for political reasons.

And the Obama campaign said no, it never happened. We never would have made such an assurance to the Canadians.

And it really goes to a certain cold-bloodedness, admirable in its way, of Obama, where he said exactly what he need to do to secure the Democratic nomination, and now he's going to do what he thinks to do to succeed when he's governing.

But there is still a certain — even with this new tone, there is a certain tepidness. It's not in Bill Clinton. Bill Clinton in the early '90's said we are going to compete, not retreat when it comes to global trade.

And it's nothing like even Steven Harper today, who said NAFTA has been nothing but beneficial. Barack Obama didn't go that far.

BAIER: Mara, the answers to that news conference surprised me. They were very lengthy, and they were pretty detailed. What was your take of the news conference?

LIASSON: Look, I think these two guys see eye to eye on a lot of things, certainly on global warming. The president said what the Canadians wanted to hear.

And by the way, I just want to point out to Rich — Austan Goolsbee has a job in the White House. So it's not like — they didn't throw him under the bus for that one yet.

KRAUTHAMMER: That was the apology.

LIASSON: That was the apology.

Look, I think that the president and this close ally have very little daylight between them, except that he did not ask Canada to give more troops to Afghanistan.

KRAUTHAMMER: But he did the good trope here, and the reason it was sort of a smash in terms of style, is he praised the bravery and the sacrifice of Canadians. They have the highest per capita losses in Afghanistan.

The Canadians are out there in the fight. The Germans don't come out at night in Afghanistan. They're drink a lot of beer in the daytime when the Canadians were losing troops.

So it was good the way he praised them. And he expressed an affinity with Canada and its history of valor in the past.

BAIER: But they're pulling out 2,500 troops by 2011, so they say at this point.

KRAUTHAMMER: So they say, but they made a four-year commitment a year ago, which, in and of itself, is a remarkable commitment.

BAIER: And they have lost 108 Canadians.

LOWRY: We have a real problem getting allies to fight in Afghanistan. And the Brits and the Canadians, to their great credit, have done it — others, not so much.

BAIER: Up next, what is going on in Pakistan? The government denies it is helping the U.S. bomb militants, but the facts seem to indicate otherwise.


ROBERT GRENIER, FORMER CIA ISLAMABAD CHIEF: There is an open secret that something may be happening. But it is still big news if that something, whatever it is, is officially confirmed.


BAIER: The all-stars tell you whom they believe when we come back.



SEN. DIANNE FEINSTEIN, D-CALIF., SENATE INTELLIGENCE COMMITTEE CHAIRMAN: Mr. Holbrooke in Pakistan ran into considerable concern about the use of the predator strikes in the Fatah area of Pakistan. And yet, as I understand it, these are flown out of a Pakistani base.

GRENIER: Having a foreign power striking against targets within your borders without your permission obviously is not a good thing in terms of the internal politics of Pakistan.


BAIER: There you see Senator Dianne Feinstein letting the cat out of the bag about the U.S. using bases inside Pakistan to go after militants using predator drones, unmanned aerial vehicles.

Now a senior U.S. official says the Pakistanis have been allowing this, and in some cases even choosing the targets.

What's going on inside Pakistan with that government? We're back with the panel. Rich, on the one hand, you have this report. On the other, you have them reaching out to the Taliban and saying Sharia law is OK in the border area.

LOWRY: It is incredible indiscretion on the part of Senator Feinstein, obviously, because they have wanted to play this double game where they have denounced us for these missile strikes. At the same time they have been cooperating quietly behind the scenes. Not so much quietly behind the scenes now. And, apparently the cooperation, according to reports we have read in the papers recently, is pretty meaningful. We have taken out 11 out of 20 top targets recently, partly because the intelligence is better because they're cooperating.

But, Bret, knowing what is happening inside the Pakistani government is impossible, because the Pakistani government doesn't even know what is happening within the Pakistani government. There are layers upon layers of intrigue here.

As you point out, at the same time they are apparently cooperating more on the missile strikes, they have cut a deal with some very bad characters in the Sway valley, which is not just on the tribal lands. This is creeping into Pakistan proper. So this is a very bad sign.

LIASSON: I think that the double game that Pakistan is playing is a really important one, and we should encourage them at every turn, to help them play the double game. It is really important that they are able to deny that they are helping us.

And, obviously, what Dianne Feinstein did was a big mistake and a gaffe. But the Pakistani government is so unstable and, as Rich said, so riven with conflict, that it's really important that their own people think that they are not being tools of the Americans.

But I think it's a great sign that they're helping us with intelligence and allowing us to use their bases. And, yes, while it's a bad sign they're making a deal with the Taliban in some areas, I think that some kind of deals with some parts of the Taliban actually are the wave of the future in Pakistan and Afghanistan.

BAIER: Charles?

KRAUTHAMMER: I think it will be a disaster. The Indians are extremely upset about the deal with the Islamic militants in the Swat valley, because it tells them how weak the government is in Pakistan. And the weakness of that government is the reason why the gaffe by Feinstein was such a disastrous one.

And it tells you why presidents, not just George Bush, who was accused of secrecy, but all presidents are worried about sharing information of that high secrecy with the congress, and this was the Chairman of the Foreign Relations Committee. It wasn't a low-level staffer.

BAIER: Intelligence?

KRAUTHAMMER: Yes, I'm sorry, Intelligence Committee.

But it tells you that if the government has to play a double game, the government in Pakistan, and it had to concede territory to Islamic militants, you worry about its control in the country.

Our worry today is about Afghanistan. But Afghanistan is a problem. Pakistan is the prize.

BAIER: How has the administration done with this, Rich?

LOWRY: It is a heck of a problem, and it's very early.

And how you get — this is the bottom line. Mara is right. You have to separate the local, regional guerillas from the transnational guerillas. That's ultimately what you want to do. It is what we did in Anbar and other parts of Iraq. That was a big deal.

But if you do it when you're operating from a weak hand, when you don't control the territory, and you are just cutting these deals willy-nilly, it is extremely counterproductive.

And we saw with Musharraf — he cut a deal or two like this in the tribal areas, and it didn't work at all. And it seems as though this deal in the Swat valley is of that nature, rather than analogous to Iraq.

BAIER: And Richard Holbrooke has been over in the region, the special envoy to Afghanistan and Pakistan.

LIASSON: Yes, and they are looking at this as a whole package, which I think is correct—Afghanistan and Pakistan.

And that is what the surge in Afghanistan is supposed to do. So, in the end, when they are making deals, they are making deals with the good Taliban, if you can even imagine that, rather than the Al Qaeda-type Taliban.

BAIER: Does it work?

KRAUTHAMMER: No, it doesn't. It's a sign of weakness. The reason that deal was cut is because the Pakistani military had lost the battle. It was not a magnanimous gesture on the part of Islamabad. It was a loss, and that's why it will regret the day it gave over the Swat Valley.

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