This is a rush transcript of "Special Report With Brit Hume" from August 14, 2007. This copy may not be in its final form and may be updated.

JIM ANGLE, FOX NEWS ANCHOR: Next on SPECIAL REPORT, yet another problem with p roducts from China, as nine million Chinese mad toys are recalled from American shelves, raising serious questions about trade with China.

With Karl Rove and other old hands gone, what does the White House hope to accomplish in the nex t year or so? We'll have the inside scoop on that.

Seven military officers will be disciplined for promoting their faith while in uniform. We will explain.

On the border, another dispute over the fence, this time over who is building it.

The latest on problem with the shuttle, and an act of kindness in a war zone. All that right here, right now.

Welcome to Washington. I'm Jim Angle, in for Brit Hume. The parade of tainted, defective and even poisonous products from China seems almost unending. In the latest recall, millions of toys, representing some of America's most popular cartoon characters, and sold by one of America's best-known toy companies, are being pulled from American store shelves. Correspondent Caroline Shively reports.


CAROLINE SHIVELY, FOX NEWS CORRESPONDENT (voice-over): Mattel is voluntarily recalling more than 18 million Chinese-made toys worldwide, with half of them in the U.S., including play sets that have magnets that can puncture intestines if swallowed, and toy cars that are covered in lead paint.

NANCY NORD, CONSUMER PRODUCT SAFETY COMM: There is absolutely no excuse for lead to be found in toys entering this country. It is totally unacceptable and it needs to stop.

SHIVELY: That word coming from the Consumer Products Safety Commission today. It's the second time in less than two weeks that Mattel has recalled Chinese-made toys. The commission is monitoring the removal of the items from store shelves and trying to get word to parents, because some of those items are five years old.

NORD: Our challenge is to get recalled products out of consumers' homes. And the extent that this focuses consumers' attention on what they have in their toy box.

SHIVELY: More than eight million of the recalled items with magnets are Polly Pocket and Barbie play sets and Batman action figures. If a child swallows more than one of the magnets, those magnets can attract each other and block and even puncture the intestines and kill a child. Today's recall is actually an expansion of one from last November, where three children who swallowed the magnets had to have surgery.

Mattel is also recalling about a million and a half die-cast cars that are covered in lead paint, including a quarter of a million toy Jeeps that are based on the Sarge character from the movie "Cars." High enough exposure to lead over a period of time can cause brain damage.

ROBERT ECKERT, MATTEL CHAIRMAN/CEO: What we have seen here is more than one isolated incident of lead paint in a subcontractor or vendor plant. So we changed our testing protocols so that we test every batch of toys before it is shipped.

SHIVELY: The latest recalls follow a string of other problems in the U.S. with Chinese exports. A month ago, the head of China's state Food and Drug Administration was executed for dereliction of duty and taking bribes from drug companies. Five weeks ago, U.S. officials recalled children's jewelry made in China that had toxic levels of lead.

In June, 450,000 Chinese-made tires were recalled here and counterfeit brand toothpaste, possibly containing dyetholene glycol (ph), an ingredient often found in anti-freeze, was being sold at stores in the Northeast. That followed a massive recall in March of Chinese-made dog food that killed pets across the U.S.


SHIVELY: I talked to the Chinese embassy spokesman this afternoon. He was trying to reassure American consumers, saying, quote, the majority of the Chinese exports to the U.S. are safe. And we should not single out the isolated cases of the faulty products and blow this issue out of proportion."

But U.S. consumer protection officials seem anything but satisfied. They have a meeting scheduled for next month with the Chinese here in Washington. They are going to talk about the manufacturing of the toys, lighters, fireworks and electronics. Jim?

ANGLE: Caroline, thank you. Despite that string of recalls, the Commerce Department says imports from China hit an all-time high in June, even as the U.S. trade deficit dropped to its lowest level in four months. The trade deficit stood at 58.1 billion dollars in June. Record exports of farm goods and autos helped to offset a jump in the price of oil we import.

But here at home, rising gasoline and energy prices helped fuel inflation at the wholesale level in July. The Labor Department says wholesale inflation, including the volatile energy and food sectors, rose .6 percent.

Much was made a year ago of President Bush's plan to send National Guard units to the Mexican border to help beef up enforcement against illegal immigrants and build a fence. Some in the Guard will soon move on to other assignments and that has many people asking who is going to build the fence? National correspondent Catherine Herridge reports.


CATHERINE HERRIDGE, FOX NEWS NATIONAL CORRESPONDENT (voice-over): In May of 2006, the decision to send 6,000 members of the National Guard to the Southwest border was hailed by the administration as a significant step towards stronger border security.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The United States must secure its borders. This is a basic responsibility of a sovereign nation. It is also an urgent requirement of our national security.

HERRIDGE: At the time, the administration said that under Operation Jump start the border patrol would remain in the lead and the Guard would be in a support position.

BUSH: The Guard will assist the border patrol by operating surveillance systems, analyzing intelligence, installing fences and vehicle barriers, building patrol roads and providing training.

HERRIDGE: According to an email sent earlier this month, the border patrol is looking for volunteers among its agents who can and have built fences in the past because the goal of building more than 70 miles of fence by September 30th has not been met. According to the email, "the border patrol is now going back into the fence-building business."

A spokesman for the union representing 14,000 border agents said it was a bad use of resources.

TJ BONNER, BORDER PATROL UNION PRESIDENT: Why have these highly- trained officers out there doing a job for which they were not trained and detracting from their primary job, which is to stop terrorists, drug smugglers and illegal aliens from coming into the country.

HERRIDGE: The decision to draw down the Guard troops from 6,000 to 3,000 this year alone has one Arizona lawmaker incensed, claiming Operation Jump start is little more than a public relations exercise.

RUSSELL PEARCE (R), AZ STATE REPRESENTATIVE: We have an FBI investigation going on about al Qaeda coming through the border with Mexican smugglers. We are really a nation at risk and a nation that has an obligation to put America first and secure the borders and enforce the laws.

HERRIDGE: But the national deputy chief for the U.S. Border Patrol said that the recruitment of agents to help build the fence was separate from Operation Jump start, but part of a broader and legitimate plan to secure the border.

RONALD COLBURN, CUSTOMS AND BORDER PROTECTION: All I have to do is go down to the line and look down the line at the primary and secondary fencing that our border patrol agents have constructed in the last two decades, and say that was not a waste. That was a huge achievement. And the kudos do go to the same men and women that you refer to, that have been doing this voluntarily for years.


HERRIDGE: Colburn also told FOX that the strategy on the border has three pillars, technology, infrastructure, such as fences, as well as more border agents. He believes the number of illegals trying to cross into the country is down as a result. Jim?

ANGLE: Catherine, thank you. NASA experts are trying to chose between two difficult options for bringing the Shuttle Endeavor home safely. One involves astronauts executing a repair job they have never done before in space to fix damaged tiles. The other would bring the orbiter down with the damage unrepaired. Correspondent Phil Keating is standing by with more. Phil?

PHIL KEATING, FOX NEWS CORRESPONDENT: Jim, the current conventional wisdom here at mission control at the Johnson Space Center is that the actual gouge itself, which is three inches by three inches, and an inch and a half deep, is not as serious as it could be, in that it would not cause catastrophic damage to the orbiter or to the lives of the seven astronauts on re-entry through the super-heated Earth's atmosphere.

The mission issue for NASA mission managers here is they don't want to take Endeavor out of its rotation for its next mission, because they want to keep the shuttles going up and down, because the mission expired deadline of 2010 when no more shuttles would fly up here. Thanks to laser analysis, NASA mission managers have outstanding details as to the contour, the shape and the depth of this gouge.

If NASA chooses to do a space walk repair, that will require an astronaut boot-strapped on the end of the 100 foot long boom arm, an extension floating out into space. And according to a space walker who has been there, if this option is chosen it will be kind of tricky.


PIERS SELLERS, ASTRONAUT: It would be a little bit like standing in a rowing boat and painting the side of a ship, or doing something to the side of the ship. The rowing boat might be going up and down, swaying a little bit, but nothing you couldn't compensate for if you are paying attention.


KEATING: Today here in Houston, and crucial for the repair or no- repair decision, involves this replicate tile with a replicate gouge. NASA engineers are heat testing it in an arch jet, which stimulates the heat upon re-entry. This is important, for it will indicate whether the gouge is not potentially catastrophic, as NASA currently believes.

Now, up in space today, time for a little fun, as astronaut Tracy Caldwell, celebrating her birthday. Barbara Morgan and Commander Scott Kelly provided the space program the kind of advertising it just can't buy, backwards summersaults in near zero gravity, enthralling every little kid who was watching.

Now teacher turned astronaut Morgan, who was Christa McAuliffe's back up — she trained and waited 20 plus years for this first trip up, and describes it as incredibly rewarding.


BARBARA MORGAN, ENDEAVOR ASTRONAUT: I can speak for all of us to say it's definitely worth it. We are enjoying the work very much. It is hard. It is challenging. And it's a lot of fun.


KEATING: Now she, of course, was a teacher in Idaho back in the early 1980's, when she and Christa McAuliffe beat out thousands of others to be the first teacher in space. Of course, McAuliffe died in the Challenger disaster. This afternoon, Morgan provided some Q&A with some school kids in Boise, Idaho, who had all kinds of great questions, such as how does the sun impact the EBA, the space walk.

So we will know tomorrow night, Jim, whether or not the space walk repair will be actually done.

ANGLE: Thanks very much, Phil. We'll be standing by. later on SPECIAL REPORT, the story of a special little girl and the Americans who care for her in Iraq. But first, after the departure of Karl Rove, what does the White House think it can accomplish in its last year or so? We'll take a look.


ANGLE: President Bush is taking a break in Crawford, Texas and no doubt contemplating life in the White House after Karl Rove. The president has more than a year left in office. But how much can he hope to accomplish in a presidential election year? And what is at the top of the White House agenda? The president's aides say plenty. Chief White House respondent Bret Baier takes a look.


BRET BAIER, FOX NEWS CHIEF WHITE HOUSE CORRESPONDENT (voice-over): President Bush arrived in Texas Monday to spend a week at his ranch after announcing that his senior advisor and long-time friend, Karl Rove, would be packing his bags and leaving the White House at the end of the month. This as the Bush White House prepares without Rove to do battle with the Democratic led Congress.

DANA PERINO, WHITE HOUSE SPOKESPERSON: We are going to have some fights on our hand. We know that.

BAIER: Armed with what promises to be a very active veto pen, aides say President Bush will attempt to hold the line on spending in the looming budget battle. As for other possible legislative accomplishments?

PERINO: While the window on major legislation might be closing, there is certainly enough time to get some things done, especially in the foreign policy realm.

BAIER: Aides say the president expects support for the surge in Iraq to build after the September Congressional testimony of General David Petraeus and Ambassador Ryan Crocker. The president wants Congress to approve free trade agreements with Columbia, Peru and South Korea. He will push Congress to modernize the Foreign Intelligence Surveillance Act beyond the six-month window it just approved.

The president will press the Senate to confirm 28 federal judges, all nominations that are still pending. He will try to get Congress to reauthorize the education legislation, "No Child Left Behind." And he will urge lawmakers to pass energy legislation that reduces U.S. gasoline intake by at least 20 percent in 10 years and pushes for an increase in alternative fuel sources.

PERINO: There is enough time to get a lot done, but we can't afford to waste a single day.

BAIER: But the investigation into the firings of eight U.S. attorneys, the actions of the Attorney General Alberto Gonzales, and the extent of White House involvement is not going away. Today, Senate Judiciary Committee Chairman Pat Leahy sent a letter to the president, calling for a sit-down meeting on the subject. Leahy wants, among others, the now-exiting Karl Rove to testify under oath; quote, "I outlined some of the indications of Karl Rove's involvement. Yet all of my good faith efforts have been rebuffed. The stone walling leaves me and the Senate Judiciary Committee with few options, other than considering citations for contempt of Congress against those who have refused to provide relevant testimony and documents to Congress."

White House officials point to a standing offer to allow Rove and former White House counsel Harriet Myers to be interviewed not under oath and with a transcript. And about the prospects of getting anything done in this atmosphere —

JOEL KAPLAN, WH DEPUTY CHIEF OF STAFF: Ethel Congress is going to have a full plate in front of it. If they decide they want to legislate late instead of engaging in investigation — investigations and other things that have maybe more political advantage in their view, but don't necessarily provide results to the American people.


BAIER: Considering Congressional priorities, Kaplan conceded Social Security reform almost certainly won't happen during this administration. And while some administrative changes can be made to immigration policy, a comprehensive immigration reform bill is a long shot as well. The post- Rove White House starts September 1st. Jim?

ANGLE: Thanks a lot, Bret. The cost of the Medicare drug benefit is expected to rise next year for most people enrolled in the program, but only a little. Medicare officials say the average premium for basic coverage will increase from 22 dollars a month to 25 dollars a month. The acting administrator for the Centers for Medicare and Medicaid Services says that still is considerably lower than the 41 dollars per month that was anticipated when the program was first established.

The federal government subsidizes the cost of coverage, with the poorest participants getting the most help.

Later in our program, a mayor in Georgia is in trouble with his town for getting friendly with a controversial south American leader. But first, after a break, what can U.S. military officers do and not do in uniform to express their religious faith?


ANGLE: The U.S. military has confirmed that five American troops died today when their helicopter crashed at an air base west of Baghdad. The military said the CH-47 Chinook helicopter was conducting a routine post- maintenance test flight when it went down. The cause of the crash is under investigation.

In northwestern Iraq, 75 miles west of Mosul today, at least two suicide truck bombers hit a community of ethic Kurds belonging to a little known religious sect. The U.S. military says preliminary numbers show that 60 members of the sect were killed and 30 were wounded. The explosion set shops on fire and damaged apartment buildings.

Seven current or former U.S. military officers have been found in violation of ethics rules for appearing in uniform in a promotional video for a Christian evangelical group. The Defense Department inspector general says the video created a misleading impression that the Pentagon endorsed the group. National security correspondent Jennifer Griffin reports.


UNIDENTIFIED MALE: Through Bible studies, discipleship, prayer breakfast and out reach events, Christian Embassy is mustering these men and women into an intentional relationship with Jesus Christ.

JENNIFER GRIFFIN, FOX NEWS NATIONAL SECURITY CORRESPONDENT (voice- over): This is the video that landed seven U.S. military officers in hot water, for appearing in uniform while espousing their faith in Jesus, and violating a government ethics regulation regarding the endorsement of a non-governmental organization.

The Pentagon inspector general concluded, quote, military officers who appeared in a promotional video for Christian Embassy improperly endorsed and participated with a non-federal entity while in uniform."

The Christian Embassy has organized voluntary Christian fellowship prayer meetings inside the Pentagon since 1978, leading many of the video's participants to believe that it was, in fact, sanctioned by the Pentagon.

COL RALPH BENSON (RET), FORMER PENTAGON CHAPLAIN: We are in a world- wide war on terrorism. What more do we need than Christian people leading us.

GRIFFIN: Pentagon Chaplain Ralph Benson arranged the video shoot for the Christian Embassy. The inspector general now says he should be punished. Benson and his lawyer say his participation should be protected under the constitution's Establishment and Free Exercise clause.

ROBERT ASH, AMERICAN CTR FOR LAW & JUSTICE: The first amendment doesn't stop when somebody puts on a uniform. In this case, this was a private film aimed at a private audience. And it was just thanking a ministry that has been performing marvelously at their own expense, assisting the chaplains for 25 years.

UNIDENTIFIED MALE: Christian Embassy really gives us a tremendous opportunity here in the Pentagon.

GRIFFIN: It was the participation of Brigadier General Vince Brooks, the former head of Army public affairs, and other uniformed officers that motivated Mikey Weinstein, an Air Force veteran of 10 years, who founded MilitaryReligiousFreedom.org, to file a complaint.

MIKEY WEINSTEIN, MILITARYRELIGIOUSFREEDOM.ORG: You put on the U.S. military uniform, as a couple of Air Force academy professors have recently stated, there is only one religion and that religious faith is called patriotism.

GRIFFIN: Weinstein's group says it wants to reestablish the division between church and state in the corridors of the Pentagon. He derogatively refers to the Pentagon as the Pentacostle-gon. So when can an officer espouse his faith in god in uniform?

WEINSTEIN: You can pray as much as you want to, but you can't force it on a helpless subordinate. In the U.S. military today, if you're being even gently evangelized by your military superior, get out of my damn face, sir or ma'am, is not an option for you.

ASH: I think it is ironic in this case that men and women who put on the uniform to defend our rights to free exercise, to free speech and everything else, now are having the tables turned on them and being denied that same right themselves.


GRIFFIN: The officers whom I have spoken to, who were mentioned in the report, say that they did not know that the video was not authorized. They thought they had permission because the request came through the Chaplain's office and the Christian Embassy has been operating in the Pentagon for so many years. Jim?

ANGLE: Jennifer, thanks. Back in Baghdad, leaders of Iraq's divided Kurdish, Shiite and Sunni Muslim communities held a series of informal talks today. They are preparing for an expected summit later this week. The summit has been called by Prime Minister Nouri al-Maliki in an effort to keep the Shiite led government from collapsing. About half of the seats in Maliki's coalition cabinet are now vacant after the country's largest Sunni bloc pulled out of the government.

Meantime, a report from Iraq on an act of kindness in the midst of war. A baby found in the war zone, abandoned in a pile of trash and given a slim chance of survival, has found a place in the hearts of some American troops. Correspondent Courtney Kealy has that story.


COURTNEY KEALY, FOX NEWS CORRESPONDENT (voice-over): Found in a garbage strewn lot, Fatima can't sit up or crawl yet. Malnourishment slowed her development, but with her one tooth grin, she keeps the nurses smiling.

LT KELLY DUNN, US ARMY NURSE: Anyway, we had to kick her out of her room because we got so many patients. So she is back here, because she was not sleeping in the nurse's station for a week. When we put her up there again, she was not used to the noise and people running around all the time, so she wouldn't sleep at all up there.

KEALY: She spends most of her time at the nurse's station. They take turns baby sitting during their busy days of treating wounded U.S. soldiers and Iraqi civilians, including many children wounded in attacks.

DUNN: She wants to tell you her side.

KEALY: This ward also experienced its own personal tragedy. On July 10th, a rocket attack on the street outside of the hospital killed the head nurse. Fatima arrived shortly afterwards. The staff focused on nursing her to health during their own grieving process.

COL JOHN LAMMIE, 28TH COMBAT SUPPORT HOSPITAL: I think it's been kind of a little therapy baby for us. A lot of people have given her snuggles. I think it helped both ways.

KEALY (on camera): Fatima has had the most tragic start to life. Both of her parents were murdered. Her fortune is changing. She's being nurtured and taken care of here by U.S. military personnel at the hospital. The question remains, what will happen to her in the future?

LAMMIE: I am very hopeful still that she will be able to get married back up with somebody in the family that will love her and continue to give her an environment where she can grow and thrive.

KEALY: For now, during this brutal war, she is a bright light for everyone caring for her.

In Baghdad, Courtney Kealy, Fox News.


ANGLE: And when we come back, one big northwestern city is thinking of penalizing you for doing something healthy. That's next on the Grapevine.



Click here to read the "Political Grapevine."

ANGLE: Some members of the city council in Macon, Georgia want to clip the wings of Mayor Jack Ellis. They don't like what he says, and they don't like where he goes on the city dime. Right now they are unhappy about his plans to express goodwill and friendship toward a country whose leader has had harsh words for the American government.

Correspondent Jonathan Serrie explains.


JONATHAN SERRIE, FOX NEWS CORRESPONDENT: Mayor Jack Ellis made national headlines last winter when he announced his conversion to Islam. Now residents of Macon, Georgia are buzzing about the mayor's formal overtures to Venezuela and it controversial president Hugo Chavez.

MARY ANNE SHIPLEY, MACON RESIDENT: Our country doesn't have great relationships with Venezuela, so why would he do such foolish things.

SERRIE: Mayor Ellis, who also serves as Vice President of Tourism for the World Conference of Mayors, dispatched couriers to Caracas to deliver a declaration of solidarity. The mayor has indicated he wants to travel to Venezuela and meet President Chavez, whom he has had praised for using oil revenue to fund programs for the poor here in the U.S.

Chavez has reportedly quoted Ellis's comments on his weekly radio and television show, which has angered city leaders back in Macon, Georgia.

COUNCILMAN ERICK ERICKSON, (R) MACON COUNTY, GEORGIA: He only has a few more months in office, he could have waited. But he wanted to use his bully pulpit as mayor of Macon to do this. And it is something that most of the people in the city feel strongly about.

And he has also wanted to go to Venezuela. He has a pattern of using city tax dollars to fly around the world.

SERRIE: City Councilman elect Erick Erickson, a Republican, is proposing a resolution that would block municipal funds from being used for trips to Venezuela, or any other country deemed hostile to U.S. interests.

Councilman Rick Hutto, a Democrat, says he supports the resolution.

COUNCILMAN RICK HUTTO, (D) MACON COUNTY, GEORGIA: I think the mayor has absolutely every right to express his personal opinion, as we all do. But I want to make sure that the rest of the world doesn't think that the entire city of Macon supports what he is doing.

SERRIE: As the controversy comes to a boil, Mayor Ellis is on a trip to Africa and unavailable for comment. His office was unable to provide copies of his declaration of solidarity with Venezuela, but a spokesman insists the document has been blown out of proportion, and that it was intended as a show of friendship with the Mayors of Venezuela, and not a statement on international politics. In Macon, Georgia, Jonathan Serrie, FOX News.


ANGLE: It has been a long time since this country experience a pandemic, a widespread epidemic of a disease such as flu, that could cripple the economy. But such an event is not impossible, and some say it is even likely. So health experts are preparing for the worse.

Correspondent Laura Ingle reports.


LAURA INGLE, FOX NEWS CORRESPONDENT: It would be devastating—a new, stronger strain of the bird flu virus, one with no vaccine that would spread as easily as the common cold by coughing and sneezing, causing a pandemic.

DR MARC SIEGEL, NEW YORK UNIVERSITY PROFESSOR: We are not prepared for the next pandemic. We rely on other countries for our food, for our energy, for our medications. If there was a scare here, or an emerging pandemic, we would quickly be shut off.

INGLE: Medical experts say right now there is little evidence that the Type-A Avian Influenza can be easily transferred from human-to-human. But the possibility exists.

The Centers for Disease Control kicked off an influenza pandemic emergency drill Tuesday, playing out a scenario where an infectious, a- symptomatic person traveled from Southeast Asia to the U.S.

DR JULIE GERBERDING, CDC DIRECTOR: We have some states that have reported far advanced planning, and have even begun the exercise process. We have other states that are still working on the first steps of their preparedness. They have to show us what they can do before they are going to get their next patch of money.

INGLE: Currently most vaccines are produced with 1950s technology. Experts widely recognize that this is still a reliable and cost-effective way to manufacture vaccines, but it takes nine months to gear up for a proper vaccine for millions of people.

GERBERDING: Our hope would be that sometime we would find a vaccine providing universal coverage no matter what the strain is. And there are some promising approaches to that, but nothing that we can rely on right now.

INGLE: In the event of a pandemic, many assume that borders would be closed, service industries would suffer, and mass transit comes to a screeching halt.

SIEGEL: Half the filters on airplanes do filter out influenza and very small viruses. But, of course, if you had an influenza on an airplane and you coughed on someone one row away from you, the filters aren't going to help.

INGLE: And while some experts suggest we are overdue for a pandemic, others insist there is no way to predict when it can happen.

SIEGEL: We could have had a pandemic last year and have another one this year, or we can go 100 years without any pandemic.

INGLE: Scientists and doctors caution it may not be the bird flu which causes the next pandemic. It could be bioterrorism, someone who manufacturers a strain of deadly influenza. The question then will be, what is deadlier? Man, or nature?

In New York, Laura Ingle, FOX News.


ANGLE: Next on Special Report, the FOX all stars on the recall of Chinese made toys and what is says about how that country is run, the coming Olympics, and U.S.-China trade relations.



NANCY NORD, CONSUMER PRODUCT SAFETY COMMITTEE: There's absolutely no excuse for lead to be found in toys entering this country. It is totally unacceptable and it needs to stop.

SEN HILLARY CLINTON, (D) NEW YORK: We have to have tougher standards on what they import into this country. I do not want to eat bad food from China, or have my children having toys that are going to get them sick.

GOV BILL RICHARDSON, (D) NEW MEXICO: China is a strategic competitor, and we have to be tougher on China when it comes to human rights and trade.


ANGLE: OK. So the Chinese have got yet another trade problem with defective products. Now some analytical observations now from Fred Barnes, Executive Editor of The Weekly Standard, Nina Easton, Washington Bureau Chief of Fortune Magazine, and syndicated columnist Charles Krauthammer, Fox News contributors all. Obviously, this will generate a political response as well. But before we get to that, let me just ask first—is this what happen—and I have got a two-page list here of recalls, just since March, mind you. Is this what happens when communists try to engage in capitalism, or is it something else?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, that is a lot of the story. They have a semi-capitalist economy, deeply corrupt, and, in many ways, centrally directed—fairly efficient for their own growth, but quite dangerous for the rest of the world.

They don't have anything like the regulatory schemes here, and they don't have the consumer advocacy, the kind of resistance that you get in the west in an open democracy. So all of this happened as we saw the scandals—the head of the Chinese FDA was executed for taking bribes.

But the problem here is that this issue is going to be exploited. It is a real issue, we have to protect ourselves. But the people who oppose free trade are going to exploit it as a way—we heard Richardson speaking about it as a way to shut it down.

That is why the administration and conservatives who believe in free trade have to be very tough here, insist on spending a lot of money, regulations and a new regulatory scheme, inspectors, and insisting that the Chinese contribute for our inspection and not rely on their inspections.

ANGLE: Nina, what do you think?

NINA EASTON, WASHINGTON BUREAU CHIEF, FORTUNE MAGAZINE: I think there is an element, actually, of cowboy capitalism that we are seeing here, much like you saw when the Soviet Union became Russia. This guy that they executed, who was head of, essentially, their Food and Drug administration, was a crook, he was taking bribes. And his actions actually killed people, and so they took his life.

I think it's something—this is a country—it's a complex relationship, and it's a complex country. They have an interest and a stake in remaining part of the global economy, so you're going to see dramatic actions like that.

ANGLE: They have a lot at stake here.

EASTON: They have a lot at stake. And the other thing to keep in mind, it is a baby in terms of capitalism. We didn't have a health and safety regime in the country even 30, 40 years ago. The administration is pushing them in that direction. Other world players are pushing them in that direction.

We can talk about this later, the Democrats want to act to try to force them in that direction, and that is going to be a real big political issue here in the presidential campaign.

ANGLE: Fred, you have a government here that is known for ferreting out family if they want to have more than one child, or finding political dissidents in an enormous population.

You would think they would be able to figure out a way to deal with this, because this is, after all, the engine of their economic growth, and one they depend on to create jobs for their people.

FRED BARNES, EXECUTIVE EDITOR, WEEKLY STANDARD: Look, all they want is to generate the growth, they don't care about any side effects that it has. And this is a bad side effect. We might not have had a regulatory state here years 40, 50 years ago, but consumers could decide, and I don't think that is the case in China.

And I think, right now, the biggest threat to China is the American consumer. You mentioned—I have that same list—two pages of problems with Chinese products—

ANGLE: Killing pets, among other things.

BARNES: I know—just in the last few months. American consumers, I think, are going to start looking at "Made in China" as a being a signal of a product they don't want to buy.

I already had to throw away a bunch of toothpaste last Marcy or April that was this fake toothpaste, I think from China, and I didn't know whether I had gotten it or not, so I just threw it away.

And this is gong to be a huge problem for China—the American consumer.

ANGLE: And as this becomes as political issue, I don't think the Chinese could possibly appreciate what a political football this will be in a presidential election.

EASTON: In a presidential year, and in a year, by the way, with the Olympics in Beijing next summer, at the same time that both candidates will have their nominees.

And I think what you are already seeing is this casting a long shadow over the presidential campaign, for the Democrats see China more as an adversary, the Republicans believe more in quiet talk.

KRAUTHAMMER: The Chinese are going to learn that you ethnically cleanse, the world will give you a pass, but you don't mess with Elmo.

ANGLE: Next up with our panel, the all stars look at the Bush administration strategy, tactics, and agenda in the post Karl Rove White House. We will be right back.



DANA PERINO, WHITE HOUSE DEPUTY PRESS SECRETARY: I think we are going to have to see in terms of how much of a showdown Congress wants to have. The president has said he needs the appropriations bills to his desk, they have not sent him one.

JEFF KAPLAN, WHITE HOUSE DEPUTY CHIEF OF STAFF: The tank is full. The president's priorities haven't changed, nor has his ambitious agenda. When we come back in the Fall, the Congress is going to have a full plate in front of it.


ANGLE: Nor has the Democrats determination to block everything the president intends to do. So we are back with our panel to talk about what happens now in the remaining little more than a year of the Bush administration, especially as you have new people picking up the task that Karl Rove, among others—Dan Bartlett, Rob Cortman were playing. How much time does the president really have, Charles, to press his agenda at this point as we go into a presidential election year?

KRAUTHAMMER: None. It's over. When Kaplan talks about an ambitious agenda, he is really taking one for the team.

That is absurd, there is no agenda. The only agenda on domestic issues is to stop the spending bills with the veto and create a crisis over that, and create an issue for the November election.

And even the Democrats are not going to be serious about having an agenda. Everything between now and next year is about forcing a vote on an issue, not as a way to get it enacted, but as a way to embarrass the other side.

The only agenda of this administration is Iraq and related terror issues, like the FISA law. And the title of the most important person in this administration long ago left Karl Rove and attached to David Petraeus.

ANGLE: Now, the veto strategy is one possibility. And I have talked to one official who said don't throw us in that briar patch. The Democrats came in saying low taxes will hold spending down. And, of course, now you have all sorts of proposals for tax increases and higher spending, and the president probably will veto some of those bills.

EASTON: Including the SCHIP proposal, which is a children's health care bill, with lots of legitimate concerns, I guess, about it. But how does it look that one of your few vetoes has to do with children's health insurance.

But I disagree. I think there are some important domestic policy items on the agenda still. One is free trade, some real critical free trade things coming down the road.

The other thing—energy. There could conceivably be some work on energy, and fuel conservation measures.

There's 28 federal judicial nominees hanging out there.

And, to me, the person to watch, everyone is saying that Karl Rove is gone, but the person to watch is Ed Gillespie, Senior Advisor. He already ran the RNC during the 2004 campaign, played a critical role there. He played a critical role in getting John Roberts through, the Chief Justice through, getting Supreme Court nominee Alito through the Congress.

He knows how to work with Congress, and I think he is the person to watch now.

BARNES: I know about Gillespie, but I don't think he is responsible for getting Roberts and Alito through. They were great witnesses and the did a good job.

I will break the tie, here—Charles is right, Bush has no agenda. I am all for free trade—it's gone. Democrats are rejecting all four of those free trade treaties. They didn't extend—so you can't amend what a treatise does.

Look, here is what the Bush administration wants to do, and it is what they would do if Karl Rove were there. They are going to hammer away at certain issues. One is they want Republicans to get back their reputation for restraining spending. You do that by vetoing all those bills.

And the Democrats say we are only over your number by about $22 billion. And the truth is, for what they like to do, that is not much, but it doesn't sound good around the country. Bush will push away at consumer- driven health care rather than government-run health care.

And here is where Bush is going to have his biggest role, I think, in the campaign next year. He is going to inject himself in the foreign policy issues. And Charles mentioned FISA—that is going to be a huge issue about intelligence gathering. Iraq will be a big issue. The war on terror will be a big issue.

And if the Democratic nominee—we know in early February who it is—if strays and really goes to the left, I think that person will get hammered by Bush over and over and over again.

ANGLE: All right. Stay tuned to see what happens in Washington when insects get hold of politicians.


ANGLE: Finally tonight, one late night television program thinks that Lyme disease may be to blame for some strange behavior at the White House.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA: And in recent weeks, Americans have seen those emotions on display on the streets of major cities.

We will continue to enhance protection at our borders and coast lines and airports and bridges and nuclear power plants.

Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we.


ANGLE: You never get a chance to make a mistake when you are president.

That is Special Report. More news is on the way. Fair and balanced as always.

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