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Federal Reserve Cuts Interest Rates in a Suprise Move; Bush Administration Calls Talks With China 'Not Productive'

Aired April 18, 2001 - 17:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: Live from Washington, this is INSIDE POLITICS, with Judy Woodruff.

A surprise from Alan Greenspan's Fed sends stock prices soaring.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: There's nothing like giving a market an extra tailwind that already has some wind to it.

(END VIDEO CLIP)

ANNOUNCER: Also ahead...

(BEGIN VIDEO CLIP)

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Why do Republicans like bagels while Democrats prefer pizza?

(END VIDEO CLIP)

ANNOUNCER: Bill Schneider chews on a metaphor to help explain congressional redistricting.

And while we're cooking: the fish are near the fire, and the campaign season already is smoking in Virginia.

Now, Judy Woodruff takes you INSIDE POLITICS.

FRANK SESNO, CNN ANCHOR: Hello, everybody, thanks for joining us. I'm Frank Sesno, sitting in today for Judy.

Well, you could say there was a surprise party on Wall Street today, courtesy of the Federal Reserve. Stock prices were already heading upward this morning when the Fed unexpectedly cut a key interest rate by a half a point. Within seconds, the Dow Jones Industrials started rocketing upward even more, along with the spirits of many investors.

CNN financial correspondent Myron Kandel joins us now with more on the markets, the move by the Fed and the reasoning behind it all -- Myron. MYRON KANDEL, CNN FINANCIAL EDITOR: Well, Frank, the Fed took Wall Street and everybody else by surprise today by cutting interest rates by a half point, the fourth such cut so far this year. And the twice -- and two of those cuts have come in-between regularly scheduled Fed meetings.

It's unusual for the Fed to do that. They did it January 3rd and they did it again today. The Fed, obviously, reacting to worries about a slowing economy, a growing number of layoffs, the threat that consumer spending may tail off on top of all the other problems the economy has suffered in the recent months.

And so, as you indicated, the stock market really took off right after the fed announcement was made. Wall Street likes lower interest rates, and the stock market. The Dow was up 470 points at its high. The Nasdaq was up 157. They gave back a little bit of those gains, but still closed with very hefty gains. Wall Street was very pleased by the Fed's move, Frank.

SESNO: Myron, as we see in those number, the Dow up by nearly 400 points, a blip, something that is sort of a one-time response to this interest rate cut or a harbinger of things to come?

KANDEL: Well, I think the latter, in my own opinion, Frank, because the market had been rallying already last week. The Nasdaq went up 13 percent in just four trading days. The Dow is up strongly. The markets did OK this week coming after those big gains and as a matter of fact, the market was up strongly today. Even before the Fed acted, the Dow was up more than 100 points.

So, there is a -- there's a good feeling now on Wall Street. One analyst put it just a little bit ago, on our FN network, he said people are less negative, and that kind of thinking permeates not only the stock market, but it may even spread to the economy, Frank.

SESNO: All right, Myron Kandel, thank you very much, and we're going to follow up on that point and the politics of this whole thing now, as we turn to several experts who are with us. We are joined by former Clinton Labor Secretary Robert Reich, former Reagan budget director Jim Miller and Knight Kiplinger, editor of "The Kiplinger Letter."

And Knight Kiplinger, let's start with you and pick up on that point that Myron Kandel ended with, and that is the impact of this rate cut on the economy. Before we look at politics, let's look at the economy.

KNIGHT KIPLINGER, "THE KIPLINGER LETTER": Well, it's kind of a good news/bad news story. The bad news is the Fed thinks the economy is weak enough, that is, growth is slow enough, to need a big, surprise half-point rate cut. The good news is this rate cut greatly reduces the chances of a recession, which we at "The Kiplinger Letter" already though were very low, but this improves the growth outlook further.

SESNO: So, you at "The Kiplinger Letter" no longer or do not predict a recession?

KIPLINGER: No, we haven't, as a matter of fact. Remember, growth was positive in the fourth quarter of last year, only 1 percent, but still positive.

About nine days from now, we'll have a report on first quarter growth. It's going to be very weak, maybe 1 percent, maybe flat, no growth at all. But let's not confuse slow growth with an actual contraction of the economy, which for two consecutive quarters would define a recession. We don't see a recession on the horizon.

SESNO: All right, Robert Reich and Jim Miller, let's then take this Fed action and what we've just heard from Knight Kiplinger as background music, and apply it to what happens here in Washington, principally, President Bush's main objective at this point, which is convincing the Congress to get his budget through and cut taxes. Jim Miller, start with you, impact?

JIM MILLER, FORMER REAGAN BUDGET DIRECTOR: Well, I think it will help him in part. Keep in mind, as Myron was pointing out, the economy has been expanding. It might have -- excuse, the stock market has been rallying. It might have rallied more if it had not been for the episode in China, and having that settled, I think, helps the stock market. It gives people more confidence that trade with China will continue, and it also gives more confidence in the president, and perhaps the president's ability to get that tax cut through Congress.

SESNO: Robert Reich.

ROBERT REICH, FORMER CLINTON LABOR SECRETARY: Well, I agree with Jim Miller. The psychology is turning, obviously. Wall Street has been ready and willing and desirous to turn around, based upon Alan Greenspan. Alan Greenspan finally did it. We knew he was going to do it. The question was when was he going do it -- better late than never.

SESNO: Gentlemen, let look at the politics of the economy for just a minute, because they've played hugely into this whole calculation throughout. President Bush has tried to frame, at least in part, the rationale for his tax cut as stimulating the economy, and getting the economy moving again. Knight Kiplinger, start us off here.

KIPLINGER: Well, first of all, the economic impact of a tax cut coming this summer will be negligible. The greatest impact on the economy will be psychological because the benefit of a few more dollars in most consumer's pocketbooks won't have a significant effect until sometime next year.

But we are going to see tax cuts. Not nearly as big as the president wanted, but he knew that all along. He is going to compromise, and we're going to see something over a trillion dollars in tax cuts. But the combination of the psychology of the tax cut; lower interest rates; a reduction in inventories, which is happening right now as manufacturing production picked up a little bit last month. This will all keep the economy from skirting the edge of recession and dipping downward.

SESNO: So, Robert Reich, does this take some of the political wind out of the president's sails.

REICH: Undoubtedly, it does, Frank. The big selling point for the tax cut, obviously, was that the economy was in the doldrums. To the extent that the psychology has shifted, and people now feel a little but more optimistic, it's less necessary to have that kind of a tax cut, particularly a tax cut that after all, this year and next year, would be very, very small.

As Knight was saying just now, it really would not have anything more than a psychological impact. All you're having is psychology here. It's not economics, and there is very little psychological justification any longer for that tax cut, assuming that this interest rate cut really does hold, and that's the big question.

MILLER: Could I say that I agree with Bob Reich, I think there's a lot of psychology going in the market right now. People tend to impute too much, I think, to the Fed, as if the Fed can control the economy in ways that it really can't.

On the other hand, I disagree with what Knight has said and I disagree with what I heard Bob say before about how minuscule this tax cut would be. People tend to respond to the -- not just what will happen in the first year, but what will happen over a series of years.

And the president's tax cut will keep more people -- people's -- people will have more money. People will have more incentive to invest in their own physical, human capital as well as fiscal capital, and that's going to make the economy grow and that's going to provide a big incentive for the stock market to rally and as well for the economy to grow.

SESNO: But did I hear you say, Jim Miller, that you agree with Bob Reich that the rate cut today, politically speaking, anyway, makes George W. Bush's tax cut sell more difficult.

MILLER: Well, it cuts both ways. It takes away that argument that the economy is so weak we have to have a tax cut to stimulate the economy. But on the other hand, it may -- it's reflective of the fact the president's doing a good job, people have confidence in him and he has more power and more affect on Capitol Hill.

SESNO: What does he replace that argument with?

MILLER: Well, he says, look, I'm doing a good job. The economy has turned around. I took care of the problem in China. Rally behind me, boys, and I think Congress will pay some attention to that.

(CROSSTALK)

SESNO: Secretary Reich, doesn't he have a point there?

REICH: I think, Frank, that the real issue is the extent to which it's not so much the stock market. Average working Americans are looking at the layoffs, and big announcements of layoffs did occur over the last couple of days. If they continue, and if that's a big if given the reduction of interest rates, but if those big announcements of layoffs continue, then George Bush still has an argument as to a tax cut.

Now you know and I know and Jim Miller and Knight, we all know that that tax cut next year is going to be minuscule, and most of its benefits are going to go to people who are not going to spend most of the tax cut. Those are people who are at the top. So, in economic terms, it has almost no significance at all.

SESNO: Knight Kiplinger, let me get you in here.

KIPLINGER: I agree, the short-term effect is going to be negligible in this calendar year. The long-term effects will be something else altogether. The momentum for this tax cut, the power behind it is much greater than just the psychology of the moment.

People want marriage penalty tax relief. They want relief from an alternative minimum, which now it nicks millions of more people, far more than the tax-evading millionaires for whom it was invented. Estate tax relief -- we're not going to abolish the estate tax, but there's going to be a significant raising of the exemption.

The long-term stimulative effect of this tax cut will be dramatic over the next decade, but in this calendar year, the effect will be largely psychological.

SESNO: Bob Reich, back to you very quickly here. The tax cut notwithstanding -- or rather, the interest rate cut notwithstanding, it doesn't make these big surpluses go away. That, too, is a gigantic rationale for returning some of this money or turning some of it back over to the people, right.

REICH: Well, Frank, interestingly, most of the recent polls -- if the public is given a choice between a huge tax cut or something like universal health care, they still choose universal health care. If you want a stimulus...

SESNO: You're saying they'd rather spend the money than get it back?

REICH: Well, I think that they would rather spend the money on something that is important to them than give a huge tax cut to the rich.

SESNO: I think Jim Miller might want to comment...

MILLER: Well, Bob, I'll bring my polls to oppose your polls.

(LAUGHTER)

MILLER: My polls show that people want the money back. They have overpaid the federal government. They've gone and they've bought a Big Mac, paid a $5 bill. They want their change back, and that's what they're going to get. REICH: Jim, the fact of the matter is that this has changed. This has changed the average working American. You're talking about just a few dollars. We're talking about big money to Dick Cheney and to all of the other people who have made off very, very well in the 1990s. The average working family increased their real incomes by about 2 percent in the 1990s, and they're going to get a big tax cut. You know it as well as I do.

SESNO: Robert Reich, Jim Miller, and Knight Kiplinger, thanks to you all very much. We'll see how your crystal balls hold up, as our prognostications continue.

For more on today's economic twists, be sure to watch "WOLF BLITZER REPORTS." Wolf's guest: the once and future host of CNN's "MONEYLINE," Lou Dobbs, who knows something about these interest rates and how the Fed operates. He'll join Wolf tonight at 8:00 p.m. Eastern time.

Turning over to the president of the United States, sticking with his education message today. President Bush, as usual, refused to comment on action by the Federal Reserve. He also steered clear of reporter's questions about the U.S. talks with China. That, following the recent standoff between the two countries.

His administration, however, did offer an assessment of the meeting in Beijing. And as our John King explains, the White House says the talks were not productive.

(BEGIN VIDEOTAPE)

JOHN KING, CNN CORRESPONDENT (voice-over): The U.S. delegation left the talks frustrated, and Washington warns there will be no second meeting unless Beijing changes its tone. The initial session lasted just 2 1/2 hours, breaking down, administration officials say, when the U.S. side raised its request to repair and retrieve the EP-3 surveillance plane and the Chinese side refused to discuss the issue.

RICHARD BOUCHER, STATE DEPARTMENT SPOKESMAN: Since there was not a productive discussion of the return of our airplane at the meeting today, we want to the be reassured that they are willing do to that before we continue these discussions.

KING: U.S. Ambassador Joseph Prueher will meet with Chinese officials Thursday, and warned that the U.S. delegation is prepared to leave Beijing if there are not immediate talks about returning the plane.

GERRIT GONG, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES: Part of this is public posturing. Both sides think that they have principles to assert, both sides think that what has happened can be explained from their perspective. One of the dangers, of course, is that the negotiating teams get locked into those public positions and find it difficult to move away from them, even in private discussions.

KING: The discussions were testy from the outset. The U.S. side made its case that China was to blame for the collision. China insisted the United States was responsible. Beijing demanded an end to U.S. surveillance flights, but was told by the U.S. delegation those missions will resume within days.

There has been tough rhetoric from both governments in the recent days, and it was perhaps too much to expect immediate progress.

JAMES STEINBERG, FORMER DEPUTY NATIONAL SECURITY ADVISER: The Chinese know well that the United States is going to be making a decision about Taiwan arms sales in the next few days or weeks. And so I think it would be surprising to seeing them moving off of their initial position until they have some better sense about what the overall U.S. strategy is. And vice versa for the United States.

KING: President Bush waved off questions about the talks, but was described by a top aide as disappointed.

(END VIDEOTAPE)

KING: The president's hope, aides say, though, is that this setback is only temporary, and that China quickly comes to realize that progress in these talks -- including the return of the surveillance plane -- is critical if the overall U.S.-China relationship is to be put back on track -- Frank.

SESNO: John, what are the expectations for those talks you mentioned for tomorrow?

KING: A big question in the mind of U.S. officials is: Was this just posturing on day one, the Chinese delegation playing to domestic politics back home and taking a hard-line, and will the compromise come in the next 24 hours? Or have the Chinese settled on a hard-line strategy from here on out? That is the big question, most expecting some progress when the ambassador meets with foreign ministry officials. But they say they're not certain. That is the big question. Tomorrow, indeed, could be much more important than what happened today.

SESNO: And, John, you mentioned politics, but let's take it a step further. How is the U.S. side reading the political equation in China, and how is the U.S. side reading the way in which the Chinese read the politics here in Washington?

KING: Well, some on the U.S. side, including very senior administration officials, have voiced surprise from time to time at what they consider a hard Chinese line.

And as this standoff goes on, and now the diplomacy after it goes on, more and more people thinking here that perhaps they underestimated the impact of the succession politics in China.

President Jiang Zemin has to step aside next year. Anyone who wants to succeed him would need the support of the military. The administration thinking perhaps it underestimated the impact of that on the Chinese decision-making process.

Now, as for the Chinese analysis of the politics in the United States, the U.S. side say it has been making clear to the Chinese that the longer this goes on, the more difficult it will be for the president to keep publicly saying he wants to maintain trade relations with China. He will be under pressure from the Congress to pull the plug on that. Also, the administration would like the sanctions against China to be relatively modest. Things like ending military- to-military exchanges, perhaps opposing the bid for the 2008 Olympics in Beijing.

But again, if that plane is not returned, administration officials say they will have no choice, because of the reaction here in the United States to be even tougher.

SESNO: And more talks tomorrow.

KING: More talks tomorrow.

SESNO: All right. John King at the White House.

And there is a lot more ahead on INSIDE POLITICS today, including a Supreme Court decision on redistricting. Justices rule on the battle lines of North Carolina's controversial 12th Congressional district.

Also ahead:

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Frankly, I didn't really feel any passionate commitment about it one way or the other.

(END VIDEO CLIP) SESNO: A strong election showing by the Mississippi state flag. We'll hear why those who wanted to make a change came up short.

And later: going back to the future in search of energy. Why nuclear power may be making a comeback.

(COMMERCIAL BREAK)

SESNO: North Carolina's 12th Congressional district has long been exhibit A for those who criticize the use of race as a major factor in redistricting, or drawing the lines of Congressional districts. It was drawn to incorporate major urban areas, including parts of Charlotte, Winston-Salem, and Greensboro. After years of litigation, the Supreme Court had the final say today.

Here's CNN senior Washington correspondent, Charles Bierbauer.

(BEGIN VIDEOTAPE)

CHARLES BIERBAUER, CNN SENIOR WASHINGTON CORRESPONDENT (voice- over): The Supreme Court reinforced its 1992 ruling that Congressional voting districts drawn predominantly on racial lines are unconstitutional. But districts drawn on political lines are OK.

WALTER DELLINGER, ATTORNEY FOR NORTH CAROLINA: This is clearly good news for state legislatures as they enter the 2000 redistricting season. The Supreme Court has given them a fair amount of breathing room.

BIERBAUER: Dellinger argued and won the case for the state of North Carolina on its fourth trip to the Supreme Court. The court reversed a lower court ruling that the snakelike district winding along Interstate 85 was drawn to create a safe district for electing blacks to Congress.

Writing for the 5-4 majority, Justice Breyer noted, "the boundaries created an unusually shaped district, split counties and cities." And "placed almost all heavily Democratic registered, predominantly African-American voting precincts inside the district."

The district was drawn and redrawn following the 1990 Census. It is now 47 percent black, 60 percent democratic and last year elected Congressman Mel Watt to his 6th term with 65 percent of the vote. Justice Breyer said the evidence "does not show that racial considerations predominated, because race in this case correlates closely with political behavior."

The ruling says that the burden of proof for challenging those lines will be "demanding." Political analysts say it will help, not hurt minorities.

DAVID BOSTIS, JOINT CTR. FOR POLITICAL STUDIES: What they have done is, they've said, if you act circumspectly in drawing a majority- minority district, it will probably pass muster.

BIERBAUER: With data from the 2000 Census now in hand, many states were waiting for this ruling before redrawing their Congressional districts in time for the 2002 elections.

(on camera): With this ruling, the court is finally done with North Carolina's 12th district. It remains to be seen though if the justices will see new challenges arising from the next round of redistricting.

Charles Bierbauer, CNN, the Supreme Court.

(END VIDEOTAPE)

SESNO: And for more now on the politics of drawing district lines, I'm joined by CNN senior political analyst Bill Schneider. Get out your Crayolas, I guess.

SCHNEIDER: That is exactly right.

Let me ask a metaphorical question: why do Republicans like bagels, while Democrats prefer pizza? Here's a clue: it's not about carbohydrates. It's about Congressional districts.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Let's say we have a metropolitan area with 1 million voters. We have to split that area up to five house districts, each with 200,000 voters. In the metro area as a whole, 800,000 of the voters are white, and 200,000 are African-Americans. How do we draw the lines?

One way to do it, is to follow the bagel plan for redistricting. This plan works when, as is the case in a lot of metropolitan areas, African-Americans lives in the inner city -- that is the center of the bagel. While whites live in the surrounding suburbs. Now let's say that we turn the inner city into one, all black Congressional district. 200,000 African-American voters, no whites. Given the fact that blacks vote overwhelmly Democrat, the inner-city district will almost certainly elect a Democrat. And almost certainly, a black Democrat.

Now, let's divide the all-white suburbs into four equal districts: each suburban district has 200,000 white voters and no blacks. To carry one of those suburban districts, a Democrat would have to win 50 percent of the white vote. That means, Republicans have a good chance of carrying all four suburban districts. The bagel plan concentrates minority voters in one district. Minority voters like it, because it means that they can elect one of their own.

Republicans like it, because it keeps Democratic-leaning minorities out of their districts. So Republicans end up winning more seats. Republicans and minority voters end up in bed together, eating bagels, we presume. Well, they say that politics makes strange bedfellows.

Democrats prefer the pizza plan. Notice that each slice of pizza includes some suburban territory, but it also cuts into the inner city. In other words, each district includes both black and white voters.

In this hypothetical example, let's say that each district has 160,000 white voters from the suburbs -- that's out towards the crust. And 40,00 black voters from the inner city -- that is the middle of the pie. In each district, a Democrat needs 100,000 votes to win. The Democrat can probably rely on getting 40,000 black votes. To win, the Democrat needs 60,000 white votes. That's 60,000 out of 160,000 white voters, or just 38 percent of the white vote. Is that doable for a Democrat? Probably.

Last year, Democratic House candidates across the country actually got 43 percent of the white vote. With the solid base of black voters in each district, Democrats become competitive in every one of the five districts. They could all go Democratic. But it might be hard to elect any black Democrats, because in each district, white voters outnumber black voters, 4-1.

(END VIDEOTAPE)

SCHNEIDER: To elect a minority representative, not just a Democrat, the district usually has to have a majority of minority voters. For instance, two-thirds of the 36 African-American members of Congress, come from districts that are majority black. And all but two of the 19 Hispanic members of Congress come from districts where Hispanics are a majority. That's why many black and Hispanic leaders go for bagels over pizza. It makes me kind of hungry.

SESNO: I will stay with the food metaphor, if you insist. Has this bagel strategy worked for minorities in the past?

SCHNEIDER: In 1990, before the last redistricting, there were 26 African-Americans and 11 Hispanics in the House of Representatives. The House was redistricted for the 1992 election. Republicans allied with minorities to follow the bagel strategy, which the courts allowed as a way to protect minority rights.

Result? The number of African-Americans in the House grew to 38 and the number of Hispanics grew to 17. In 1994, Republicans took control of the House for the first time in 40 years. How did that affect minority representation? Very, little.

African-Americans kept 37 of their 38 seats, and Hispanics stayed at 17. Even after the 2000 election, the numbers stayed about the same. The last redistricting created minority seats and protected them, even when the Democrats got clobbered. That's why a lot of minority leaders go along with the bagel strategy. Their priority is to elect more minorities, not necessarily more Democrats.

SESNO: What if you take George W. Bush at his word and much of what we heard at the Republican Convention, which is, an effort to make a Republican Party a more inclusive party reflecting more of the diversity in America that there is currently one black Republican member of Congress?

SCHNEIDER: That is right.

SESNO: What strategy would you need to do that?

SCHNEIDER: Well, the Republican would have to assume that they can get or go after some minority voters and that means that they would have to take the risk of putting minority voters in districts that are now overwhelmingly white and figuring that they can make the appeal to those voters. But, so far, there is very, little evidence that kind of strategy has paid off or is likely to at the moment.

SESNO: A piece of pizza with a piece of the bagel.

SCHNEIDER: That's right. A pizzabagel. I think that they make those at McDonald's.

(LAUGHTER)

SESNO: All right. Bill Schneider, thank you very much.

SCHNEIDER: Sure.

SESNO: An update now of the investigation into Senator Robert Torricelli. The New Jersey Democrat said today he's told his lawyers to work with prosecutors, looking into his 1996 campaign finances. Reading a statement in Newark today, Torricelli denied any wrongdoing.

(BEGIN VIDEO CLIP) SEN. ROBERT TORRICELLI (D), NEW JERSEY: I have never, ever done anything at any time to betray the trust of the people of the state of New Jersey. Never!

(END VIDEO CLIP)

SESNO: The "New York Times" reports today that prosecutors are now concentrating on evidence that Torricelli may have accepted tens of thousands of dollars in unreported gifts and cash from one of his former political supporters, David Chang.

(BEGIN VIDEO CLIP)

TORRICELLI: To challenge my integrity based on the claims of David Chang is beneath contempt. I do not deserve this treatment. And I will fight for my reputation with every ounce of strength in my body. These issues of illegal activities are not only false, but unbelievably, I have heard about these unfounded allegations for the first time today.

(END VIDEO CLIP)

SESNO: The "Times" reports that David Chang told investigators he gave Torricelli at 10 Italian-made suits and a Rolex watch, among other things, as part of an effort to win the senator's help with several international business deals.

Just ahead, a vote for the status quo: Mississippi says "no" to altering the state flag.

(COMMERCIAL BREAK)

SESNO: Now a story about a new battle over an old and symbolic issue. Mississippi voters overwhelmingly said no to change and voted in favor of the state's current flag, Confederate battle emblem and all. The vote yesterday was a setback for those who were fighting to change Mississippi's status as the last state to predominately display the Confederate symbol. CNN's Brian Cabell was in Mississippi for the vote.

(BEGIN VIDEOTAPE)

BRIAN CABELL, CNN CORRESPONDENT (voice-over): For 107 years, the Mississippi flag with the Confederate emblem has flown here. Mississippians, by almost a two-to-one margin, voted to keep it flying.

WAYNE MCDANIELS, NAACP: The fight will continue. We will get back out there and beat the pavement, walk the halls in the building behind me, until the flag come down.

CABELL: A dejected coalition of civil rights and business organizations lost the referendum to some poorly funded Confederate heritage groups. But the flags triumph, some say, will be the state's loss in terms of image to the rest of the country and the world. BLAKE WILSON, MISSISSIPPI ECONOMIC COUNCIL: That's the unfortunate thing. I mean, I have lived here in Mississippi now for three years and I don't see this as a racist state. I see this as a state that's ready to move forward and trying to send that signal.

CABELL: In spite of the flag, Mississippi has attracted new business in the last decade. A new Nissan plant recently broke ground here. And casinos have sprouted up along the Gulf coast and the Mississippi River.

EARL FAGGERT, SONS OF CONFEDERATE VETERANS: Most businesses located in Mississippi because of the labor market. Certainly, they are looking at the bottom line and other factors. I don't believe they have much concern about our flag.

CABELL: Or enough Mississippians concerned about the flag and its possibly negative image? Clearly not.

UNIDENTIFIED MALE: We want better things (UNINTELLIGIBLE) make no steps, you know, to make progress.

UNIDENTIFIED MALE: Frankly I didn't feel any passionate or commitment about it one way or the other.

UNIDENTIFIED FEMALE: It's not a sad day for me; it's business as usual. It just gives me more of an incentive to continue to try to make change.

CABELL: Turnout actually was solid, comparable to the last gubernatorial election in 1999. And the verdict was undeniable: most Mississippians are comfortable with their flag.

(on camera): So far, there's been no serious talk about a possible boycott of the state because of the flag, but Mississippians well know that a boycott and the threat of a boycott spurred both South Carolina and Georgia into action over their state flags.

Brian Cabell, Jackson, Mississippi.

(END VIDEOTAPE)

SESNO: And speaking of Georgia, it has become the first state to require a uniform electronic voting system for all precincts by 2004. Governor Roy Barnes signed the law today citing the lessons learned from the 2000 election.

(BEGIN VIDEO CLIP)

GOV. ROY BARNES (D), GEORGIA: This bill is an important step in making sure that every vote cast in Georgia will be counted.

(END VIDEO CLIP)

SESNO: The new Georgia law creates a 17 member commission to decide on a statewide method of voting. Electronic and computer voting to be tested in select municipal elections this fall. A check of some of the other top stories just ahead, plus a look at the long road back for nuclear power.

(COMMERCIAL BREAK)

SESNO: We will have more of the day's political news coming up, but now a look at some other top stories.

Officials in Canada today announced the arrest of six people allegedly planning to disrupt an international summit in Quebec City. Officials say those arrested were carrying smoke bombs, grenades, and shields. The Summit of the Americas, as it's called, is due to start on Friday. President Bush is scheduled to attend, along with leaders from 33 other countries. Those arrested are said to be in their 20s.

(BEGIN VIDEO CLIP)

SGT. MIKE GAUDETTE, RCMP: They were certainly intentioned on attacking the security that is in place for the summit. Where and when is a detail that we cannot disclose. But, from all indications, they were a very well-structured group.

(END VIDEO CLIP)

SESNO: Leaders attending the summit are expected to discuss expanding the North American Free Trade Agreement.

In Florida this hour, a huge wildfire is threatening a subdivision in Sarasota County. It's just one of several burning in the state. Making matters worse, Florida is in the grips of its worst drought in decades. But officials blame arson for at least two of the fires. Strong breezes are fanning fires in the central part of the state. Dozens of people have been evacuated from their homes.

Spring flooding, meanwhile, continues to disrupt the lives of 100s of people in the upper Midwest, but many residents are pretty calm about the situation. What is happening to them now is nothing new. CNN's Keith Oppenheim reports.

(BEGIN VIDEOTAPE)

KEITH OPPENHEIM, CNN CORRESPONDENT (voice-over): The site of a blue heron in flight is a reminder of the Mississippi River's natural beauty. The sight of a gas station and railroad tracks submerged is a reminder of its devastating power.

In Prarie-Du-Chien, Wisconsin, is it now not unusual to see people talk from boat to bow on residential streets. The corner of Washington and 6th is a deep pool. Up the street, a mailbox barely sticks out.

But while those neighborhoods are very well flooded, the attitude is surprisingly positive, because people in these communities have been through this before.

CHIEF MARK HOPPENJAN, PRARIE-DU-CHIEN FIRE DEPARTMENT: Most of them are handling it pretty well. They know they've got to deal with it. We have some elderly people that are concerned they can't move their equipment and their stuff up out of the basement like they need to. We've been getting the Boy Scouts to help with that, and the city crew's been taking care of the heavy stuff for them. Everybody pulls together in a situation like this.

OPPENHEIM: Across the river in McGregor, Iowa, the problems are similar. McGregor resident Jerry Haas took us on a tour in his motorboat.

This stretch of the Mississippi between Iowa and Wisconsin is now a good 15 feet above normal for this time of year. Haas told us the currents are so strong this five-ton buoy got moved a mile from its original position. Indeed, there are some houses that are flooded here, but for the most part, the dike system built after record floods in 1965 is working. The concern is more rain in the forecast, which could overwhelm this community.

JERRY HAAS, MCGREGOR, IOWA RESIDENT: We hope that the forecast, the 23 feet, 5 inches on Thursday here, will work out, because we're prepared for that. But then you have to rush, all of the sudden if that changes, you've got to rush like mad to keep up with it.

OPPENHEIM (on camera): The worst part of the flooding may be several days away and down river. The National Weather Service is reporting higher cresting levels for the quad cities area about 100 miles to the south from here. And that's an area that was hard-hit in the floods of 1993.

Keith Oppenheim, CNN, Guttenberg, Iowa.

(END VIDEOTAPE)

SESNO: And now to the forecast, we turn to Karen Maginnis at the CNN Weather Center.

Karen, relief?

(WEATHER BREAK)

SESNO: Karen Maginnis, thanks.

Will it be Bush versus Bush on the issue of offshore drilling, of all things? Well, we'll have the details on a brewing debate over energy exploration off the Florida coast. And can nuclear power help fill the nation's energy needs? Some lawmakers say they're now willing to listen.

(COMMERCIAL BREAK)

SESNO: It's come to this, or it could: President Bush could face a political showdown with his own brother on the issue of offshore oil and gas drilling.

Interior Secretary Gale Norton plans to decide in October whether to approve an auction of oil and gas leases off the Florida coast. The president campaigned in favor of more domestic drilling, but the governor of Florida, who happens to be named Jeb Bush and is up for re-election next year, opposes the idea and he's asked Norton to cancel the auction.

In a recent letter to Jeb Bush, Norton said -- quoting here -- "I share you commitment to protect the environment of Florida's coastline as well as the eastern Gulf of Mexico.

"At the same time," she continues, "I must consider our nation's energy needs and appropriate management of the American public's natural resources."

A spokeswoman for the Florida governor said, to her knowledge, Jeb Bush has not discussed the matter with the president, his brother.

In addition to more exploration, a committee chaired by the vice president is expected to recommend next month that nuclear power get a second look as an energy source in this country: a remarkable turnaround considering it wasn't so long ago that nuclear power was considered a political untouchable.

CNN congressional correspondent Kate Snow reports on signs of a political power comeback.

(BEGIN VIDEOTAPE)

KATE SNOW, CNN CORRESPONDENT (voice-over): Inside the North Anna nuclear site an hour north of Richmond, the generators roar 24 hours a day. Two reactors produce enough electricity for a quarter million Virginia homes. Nationwide, nuclear plants provide roughly one-fifth of the country's power and supporters say that number could grow.

JOE COLVIN, NUCLEAR ENERGY INSTITUTE: It's amazing what a little shortage of electricity will do for your view on what's needed for the future.

SNOW: The nuclear industry is sensing a shift. For the first time in decades, politicians talk openly about using nuclear power to diversify America's energy supply.

COLVIN: This is an industry today that is not the industry that it was 20 years ago. This is an industry today that is operating these plants safely, reliably, competitively, and at performance levels that exceed any other source of generation that we have in the United States.

SNOW: On Capitol Hill, support for nuclear power is in part a response to constituents. Nuclear plants operate in 31 states.

SEN. BOB GRAHAM (D), FLORIDA: I think it has changed, and it's changed in part based on personal experience. One of the reasons that I have been a supporter of nuclear is because we've had such a good experience in Florida where we have three nuclear farms and they contribute about 20 percent of our total energy supply.

SNOW: And with the Bush administration backing nuclear power, it's no longer as politically dangerous for members of Congress to be pro-nuclear. Vice President Cheney first endorsed the idea on a talk show.

"If you want to do something about carbon dioxide emissions," he said, "then you ought to build nuclear power plants."

It's been nearly 25 years since the last commercial reactor was ordered, 1978, one year before the accident at Pennsylvania's Three Mile Island. That incident prompted fears about public safety. The industry was accused of financial mismanagement.

Then in the mid-'80s, the Chernobyl disaster. In the '90s, nuclear power companies worked to soften their imagine, but critics say that's only part of the reason for nuclear energy's rebirth.

DAVID LOCHBAUM, UNION OF CONCERNED SCIENTISTS: If it's fought in the public domain, nuclear power will lose, so they have to fight it behind closed doors, where there's a better chance of winning

SNOW: The top six operators run about half of the nation's 103 nuclear reactors. Those six contributed more than $1 million to federal candidates in the 2000 elections, about two-thirds of that to Republicans.

Opponents of nuclear power contend the politics have changed but the danger hasn't.

PAUL GUNTER, NUCLEAR INFORMATION & RESOURCE SERVICE: Right now, we believe that we're in more danger with the nuclear power industry than in the earlier days when public concern focused on construction programs, because now is the time that the industry is seeking new bottom lines that pit profit margins against safety margins.

SNOW: Industry officials insist the plants are safe, but they also have concerns.

UNIDENTIFIED MALE: This is a storage location for all the fuel that's been burned at North Anna since it went into operation in 1978.

SNOW: Right now, plants store their own high-level radioactive waste, either in pools or in dry containers.

(on camera): The federal government was supposed to take control of commercial nuclear waste in 1998, but that didn't happen. One thing both pro- and anti-nuclear forces agree on, if there's the political will to build more nuclear reactors, there must also be the will to deal with the waste.

Kate Snow, CNN, Capitol Hill.

(END VIDEOTAPE)

SESNO: And when we return, from the environment to the economy, Margaret Carlson and Tucker Carlson weigh in on the weighty issues of the day.

(COMMERCIAL BREAK)

SESNO: Joining us now, Margaret Carlson of "TIME" magazine, Tucker Carlson of CNN's "SPIN ROOM."

You liked that, didn't you?

MARGARET CARLSON, "TIME": Where did that picture come from?

TUCKER CARLSON, CO-HOST, CNN'S "THE SPIN ROOM": Our own graphic, amazing.

SESNO: Well, we're trying to surprise you. We're...

M. CARLSON: (UNINTELLIGIBLE) theme music.

T. CARLSON: We need mugs, Margaret.

M. CARLSON: Yeah.

SESNO: Oh, we shouldn't have done this.

OK, let's start with the news here today: China. OK, the White House is saying "not productive" these talks, this first round of talks with China, and still that plane is on the ground -- Tucker.

T. CARLSON: Well, I mean, and they're also saying apparently -- the NSC is saying, or said in a meeting today, it's going to recommend to the president the United States not sell these advanced weapon systems to Taiwan, or sell less advanced or less potent weapon systems. And I think there's going to be criticism from conservative Republicans, who are going to say, gee, this is exactly the right time to sell more arms to Taiwan, the point at which China is at its most bellicose, and in the interest of stabilizing the region you ought to do this, et cetera.

It strikes me as a weird tact.

M. CARLSON: Well, it's going to be hard to get past the plane, but the plane is symbolic at this point. It's not as if that plane is ever going to fly again. It'd be like getting a stolen car back.

You know, it's been to the chop shop. There's no value in the plane except for its symbolism. And we're going to have to work around that in order to get these other things.

But you know, the United States holds all of the long-term cards against China, so we have to get past -- we had to get past the crew. And we're going to have to finesse a little on the plane. We don't need it.

SESNO: I want to come back, Tucker, to something said a moment ago in reference to conservatives here in this town. You know, conservatives have pretty well held their tongues, certainly bit their lips throughout the standoff involving the crew members themselves. But the crew members are out now.

What is George W. Bush going to confront in terms of the right wing of his own party on this issue?

T. CARLSON: Well, it's been, I mean, it's been amazingly, as you said, reticent, hesitant to criticize Bush's policy. Pat Robertson famously on Monday on Wolf Blitzer's show saying, well, you know, we probably ought not even to criticize the Chinese for their forced abortion policies. It's been remarkable.

Only a couple of people -- Gary Bauer, Bill Kristol, et cetera -- criticizing the response. It strikes me, though, that this is all about symbolism.

I mean, you said, Margaret, the plane is a symbolic matter, but so is the apology. And in this case, symbolism matters, and it comes down to the question of "Are you going to reward bullying behavior and by so doing encourage more, or not?"

M. CARLSON: Well, Pat Robertson strikes me as perhaps he'd lost it. That was so against everything he believes in, to come out with that statement. He pulled it back.

On China, what you find is that the right is a little bit conflicted because they want to do symbolic things, but they, for insurance, don't want to hurt trade with China. I mean, we still want to get those cheap sneakers, and China, remember, they got frightened when Kmart said, listen, we're hearing our customers don't want to buy Chinese goods as long as you're holding our crew.

These are the practical matters that is keep, I think, the right wing slighted muted on this.

SESNO: But from a political point of view, how does, or does, George W. Bush, president of the United States of America, register his disapproval or his anger -- that of his government -- toward the Chinese while maintaining this relationship that -- use whatever word you want; everybody uses the term "strategic," whether it's competitors or partners or what have you?

T. CARLSON: Well, I mean, as Margaret said, the issue, the cards that people keep making reference to us holding is trade, and nobody...

SESNO: You're going to cut it off?

T. CARLSON: Well, virtually -- well, there -- there's -- it's a continuum between free trade and no trade, and there are, you know, many steps along the way. I'm struck by the fact that nobody -- from China critics on the left like Nancy Pelosi to conservative Republicans -- is even mentioning that. I mean, you really do get the sense that that is completely off the table, and so instead people are arguing about, well, should we oppose China trying to get the Olympics in 2000, really marginal issue. Trade is the issue.

M. CARLSON: It is the marginal, because, you know, in some ways on China we don't have a foreign policy, we have a trade policy. And that's what the untouchable thing, and we hardly even rattle the trade saber, whatever, because nobody wants to give that up. SESNO: Let me bring you home to the economy and the surprise move by the Federal Reserve today to cut interest rates. Talked earlier with our panel of experts here as to the impact of this on George W. Bush's drive to get his $1.6 trillion tax cut. What's your read?

M. CARLSON: Well, he has a stake actually in probably not having this blip today in the stock market as we saw this interest rate cut. And the economy seems, or the stock market, part of it, doesn't seem to respond unless it's a surprise. Like you can have interest rate cuts, but if you know about them ahead of the time the market discounts them, the market does nothing.

Bush's argument is we have to be a little bit depressed to want this tax cut. So I'm not sure that he's cheering the market on at this point.

T. CARLSON: Well, I don't know. I mean, this decision apparently was made at 8:30 in the morning on an emergency conference call. That's the way it was described by the Federal Open Market Committee. You know, you get the sense that these board governors and Alan Greenspan just sort of decided, as Margaret said, just kind of surprised the market. And the -- and the implication is that wouldn't have been done unless there was some urgent need to do it. That's why it was an emergency conference call, and I think it bolsters Bush's argument that, gee, something needs to be done...

SESNO: And there are still, Margaret, there are still the layoffs, and there is still a gigantic surplus that President Bush can say should be returned to the taxpayers.

M. CARLSON: Well, in fact, the FOMC strikes me as not a body that does anything haphazardly or by surprise. What it was, was a surprise to the market and gave them a boost where these other interest rate cuts have not done it.

SESNO: Buy, sell or hold?

M. CARLSON: Buy low, sell high, Frank.

(LAUGHTER)

SESNO: Brilliant, Margaret.

M. CARLSON: We're a panel of experts.

SESNO: It's the kind -- it's the kind of insight we've come to expect from you every day.

M. CARLSON: Yeah, right.

T. CARLSON: We'll provide it.

(LAUGHTER)

M. CARLSON: Yeah. SESNO: All right. Margaret and Tucker Carlson, thanks to you both very much.

And we're going to compare the U.S. and the Chinese views of the two countries talks today in Beijing when INSIDE POLITICS continues at the top of the hour.

And after another Israeli attack on Palestinian territory, is the Bush administration as critical as it was yesterday, and what might that mean? Stay with us to find out.

(COMMERCIAL BREAK)

SESNO: News from Beijing after tense talks between officials from China and the United States.

And in Virginia, people have been lining up today for a hearty serving of fish and politics.

ANNOUNCER: From Washington, this is INSIDE POLITICS with Judy Woodruff.

SESNO: And welcome back to INSIDE POLITICS. I'm Frank Sesno sitting in for Judy today, who is off. The United States insists there will not be another round of talks with China unless Beijing is willing to discuss returning the U.S. surveillance plane at the center of the recent standoff. As China tells it, there will be more talks tomorrow.

As CNN's Rebecca MacKinnon reports, there are many other areas where two countries remain at odds.

(BEGIN VIDEOTAPE)

REBECCA MACKINNON, CNN CORRESPONDENT (voice-over): Chinese bystanders booed and jeered as U.S. negotiators drove out of the Foreign Ministry. This man holding up a sign, aggression will be revenged.

The Chinese state-controlled media put out its version of the talks right away, announcing a second meeting on Thursday and quoting the Foreign Ministry official who led the Chinese delegation as saying quote,: "The Chinese side has plenty of evidence that responsibility for the incident lies entirely with the U.S. side. Statements and so- called evidence presented by the U.S. the past few days are completely groundless."

That includes video clips like this one, showing Chinese fighter pilot Wang Wei close enough on previous encounters to hold up his e- mail address.

YAN XUETONG, TSINGHUA UNIVERSITY: I think this picture won't provide any evidence that China is responsible for this collision because now everyone believes that just because American flying along two coasts to the Chinese border at cost of this clearance. MACKINNON: According to the Chinese media, Wang Wei not only did nothing wrong, he is a hero. There are also hints that others may be encouraged to imitate him.

"The martyr of the sky, Wang Wei, used his precious life to protect his country's sovereignty and our nation's honor," says this fighter pilot on state television. "He makes us very proud. We should be like him, and risk our own precious lives to protect our nation's airspace."

(on camera): China's stand has not changed since the release of the U.S. crew. And now that neither side appears willing to compromise its position on the spy plane collision, it's unclear just how much the bad feeling over this incident will impact the rest of the U.S.-China relationship.

Rebecca MacKinnon, CNN, Beijing

(END VIDEOTAPE)

SESNO: For the administration's view, let's turn back to our senior White House correspondent, John King. John, you just heard Rebecca's report on the view from Beijing. What would the White House add to that?

KING: Well, what White House is saying, Frank, is number one, they're very disappointed with what happened in yesterday's meeting in Beijing. It is now Thursday morning there, though, and they're hoping Ambassador Prueher has better luck. And remember, this is a president who throughout the tax cut debate here said he would not negotiate with himself, that there is a right time to compromise.

The administration hoping that what happened on day one was posturing by the Chinese side, a hard line for domestic consumption. You saw those protesters there, and that on day two, the Chinese will realize that U.S.-China relations are quite important, and it's time to start negotiating.

SESNO: And John, on the list and the roster of possibilities, what is there for the president if he should decide to register additional U.S. displeasure?

KING: Well, what the president has hoped to do is to end some military-to-military exchanges, perhaps cut back some other cultural exchanges, and one thing on the table that most people believe is likely is to ultimately oppose Beijing's effort to host the 2008 Olympics.

What the president made clear he does not want to do is end or suspend or have any sanctions in the trade relationship with China. But what the administration is telling China through diplomatic channels is the president may have no choice. If that plane is not returned, Congress has to vote in a couple of months on whether to keep China's normal trade relation status in place, and the message administration is giving Beijing is return that plane or the president will be under heavy pressure to go along with those who think China should be punished even more.

SESNO: OK, John King at the White House, thanks.

Now, as those U.S.-China talks appear to be near an impasse, President Bush is moving closer to a decision on what kind of U.S. weapons to sell Taiwan. That decision is expected next week.

CNN military affairs correspondent Jamie McIntyre has latest on what Taiwan may get, and how that may affect China and the region.

(BEGIN VIDEOTAPE)

JAMIE MCINTYRE, CNN CORRESPONDENT (voice-over): The goal of U.S. weapons sales is to ensure that Taiwan's military is able to defend the tiny island of 23 million against an invasion from mainland China, while not emboldening Taiwan's leaders to the point where they invite an attack by declaring independence.

China has announced a 17 percent increase in defense spending, and is pointing more short-range missiles at Taiwan, which it regards as part of China. To counter that threat, Taiwan wants to buy as much advanced U.S. weaponry as it can.

C.J. CHEN, TAIWAN REP. TO U.S.: The People's Republic of China has been increasing its deployment of missiles across the Taiwan Strait, and at the same they have been acquiring new weapons.

MCINTYRE: But sources say the Pentagon has decided Taiwan's military is not ready for, and doesn't immediately need, state-of-the art Aegis destroyers, which have advanced radar and air defense systems. Instead, sources say, the Pentagon favors selling Taiwan four Kidd-class destroyers built for Iran in the 1970s, which could be outfitted with upgraded electronics to improve defenses against planes and cruise missiles.

Also, sources say, to counterbalance China's new ships and submarines, Taiwan will likely get U.S. submarine-hunting P-3 aircraft, as well as help in augmenting it obsolete fleet of four World War II vintage submarines. Only problem is the U.S. only has nuclear subs, which it doesn't sell. So a deal might have to be brokered with a third country.

LARRY WORTZEL, HERITAGE FOUNDATION: The United States hasn't made a diesel sub for 40 or 50 years. I think that a Dutch and a German consortium have suggested they work with an American company to build them for Egypt.

MCINTYRE: Sources say the Pentagon is also recommending against selling Taiwan the new improved version of the Patriot missile defense system.

(on camera): The thinking seems to be that if the U.S. holds off on selling Taiwan Patriot missiles and Aegis destroyers, it may end up with more leverage. The not-so-subtle message to China's leaders is stop the threatening build up of missile, or the U.S. may sell Taiwan technology to neutralize them next time around. Jamie McIntyre, CNN, the Pentagon.

(END VIDEOTAPE)

SESNO: And still on the international front, we turn now to the Bush administration's stance on Middle East violence. A day after some rare U.S. criticism of Israel, more fighting erupted between Israeli forces and Palestinians today.

CNN's State Department correspondent Andrea Koppel has more on the clashes and Washington's reaction

(BEGIN VIDEOTAPE)

ANDREA KOPPEL, CNN STATE DEPARTMENT CORRESPONDENT (voice-over): For the second day in a row, Israeli defense forces conduct a military incursion into Palestinian territory. But in Washington, the Bush administration refrains from repeating its pointed criticism of Israel, and instead urges restraint from all parties.

RICHARD BOUCHER, STATE DEPARTMENT SPOKESMAN: For the Palestinians to stop the shootings, to stop the provocative attacks; for Hezbollah to stop its provocative attacks; but for the Israelis also to exercise maximum restraint in terms of the way they react.

KOPPEL: Despite its desire to keep some distance from the ongoing violence between Israel and its neighbors, the Bush Administration is quickly finding out just how difficult that is. Case in point, State Department officials tell CNN the U.S. hopes to facilitate another Israel-Palestinian security meeting in the region as soon as Thursday.

Already in recent weeks the U.S. has hosted two such security meetings. And in recent days Secretary of State Powell has been working the phones urging restraint from Israeli and Palestinian leaders.

Then on Tuesday, Powell issued a strongly worded statement, telling Israel, the Palestinians and Hezbollah to end the cycle of violence. With especially pointed language aimed at Israel, calling its military incursion into Gaza, quote, "Excessive and disproportionate." Analysts say it was an important message to send.

SHIBLEY TELHAMI, UNIVERSITY OF MARYLAND: Because unless the U.S. makes that clear, that there are redlines that the U.S. Will not accept, the escalation will get out of hand.

KOPPEL: Still, the Clinton Administration's former point man on the Middle East says the U.S. needs to do even more.

DENNIS ROSS, FORMER U.S. MIDEAST ENVOY: The question is how the U.S. will be engaged, will there be people from our side on the scene who are authorized to be working with both sides to see if you can help them construct a mechanism to climb down from where they are.

KOPPEL (on camera): But wary of getting roped back into full- time Middle East mediation, the Bush Administration has no plans to dispatch a special envoy and will instead rely on U.S. diplomats in the region to assist where they can.

Andrea Koppel, CNN, the State Department.

(END VIDEOTAPE)

SESNO: And this late footnote on this story: The White House saying that President Bush today, called and spoke with, for 15 minutes, Israeli Prime Minister Ariel Sharon. The two men, according to White House, agreeing on the need for restraint between the Israelis and the Palestinians.

Straight ahead: the political importance of shad planking. A Virginia tradition that keeps politics on the front burner in the Old Dominion.

(COMMERCIAL BREAK)

SESNO: We have a late-breaking story we want to take you to, and for that our senior White House correspondent John King joins us from the lawn of White House -- John.

KING: Well, Frank, the administration, through the environmental protection agency announcing a short time ago it is going to conduct a new study to set a standard for the level of arsenic that should be allowed in drinking water. Now why is this significant? You'll remember not long ago, the administration pulled the plug on standards set late in the Clinton Administration.

There was an outcry from environmental groups and some public health groups about that, saying the administration was turning its back on environmental protection. The administrator, Christy Whitman, said at the time, no, that she wanted to take another look at this, and wanted any review to be based on science. They thought the Clinton level was arbitrary.

Today Administrator Whitman announcing the National Academy of Sciences will conduct a new study to try to determine what is the safe level of arsenic in drinking water, and at the same time she said while she awaits that recommendation, she has also asked for an independent study of the economic impact that new standard would have on business. But the administrator promising to move very quickly to put in place a new standard for arsenic in drinking water, promising it will be lower than existing standards.

This again, part of the administration's effort to counter the criticism that it has been anti-environment in the first 100 days of this administration. Just this week, three consecutive days, on Monday, an announcement about wetlands protection. Yesterday, the unusual move of Mrs. Whitman being here at the White House to announce, new lower levels on lead that can be released into environment, and now, moving quickly, the administration to counter the criticism about that arsenic decision -- Frank.

SESNO: John. clearly, critics will seize on this and say this is political, just as you suggest, by stringing these things together. And specifically, that there were years of study that went into the Clinton administration guidelines on arsenic. What's the administration's likely response to that?

KING: On the scientific question, this administration disputes that and says the Clinton Administration did not do the right research. As for the politics of all this, this administration insisting that it believes its record on environment will be quite good in the long run.

They do concede behind scenes here that they did a terrible job in the marketing of all this, that they should have put some their pro-environment announcements sprinkled in there with the rollback of some Clinton Administration regulations that the Bush Administration argues were too extreme. Another argument they make, if these regulations were so good, that President Clinton announced, why did he wait until his final days in office to announce them?

SESNO: So the administration is to study again the levels of arsenic in drinking water.

KING: And promising a lower standard.

SESNO: John King at the White House for that late-breaking development.

Well, every state has it's political traditions, and Virginia is no exception. This year's Shad Planking event, that is right -- Shad Planking -- was its 53rd. The candidates for governor were out in full force and so was CNN's Jonathan Karl.

(BEGIN VIDEOTAPE)

JONATHAN KARL, CNN CORRESPONDENT (voice-over): The rest of the country may be taking a year off from politics, but not so Virginia.

The Old dominion is in the midst of a heated governor's race, one of only two in the nation this year.

And nowhere is politics more front and center than here at the 53rd annual Shad Planking event: A Virginia tradition of politics, free beer an of course, Shad.

DR. CHARLES NETTLES, SAUCE MAKER: We use about 2,200 pounds of fish. They are opened from the back and spread as you can see. They are basted several times and cooked over a White Oak fire.

KARL: The secret to good Shad is the sauce.

NETTLES: There's Worcestershire sauce, 38 pounds of butter, 24 quarts of lemon juice, and the secret ingredient.

KARL: All that fish attracts about 3,000 Virginians of all political stripes.

UNIDENTIFIED MALE: Those who are running for political office are here because that is where the votes are.

KARL: And here, all three major candidates for governor: Republicans, John Hager and Mark Earley, and Democrat Mark Warner. The road to the Shad Planking marked by signs, signs -- and more signs.

And the winner of battle of the signs this year seems to be Warner, whose signs start appear on the roadside about 40 miles away from the event.

MARK WARNER (D), VIRGINIA GOV. CANDIDATE: I thought the campaign did great job. I hope they make sure they take them all down tonight.

KARL (on camera): Virginians like to call their state the Old Dominion. And it increasingly has looked like a Republican Dominion. Republicans controlled the state legislature, both U.S. Senate seats, and have not lost a governor's race here in more than a decade.

(voice-over): So with the election still more than six months away, Democrat Warner has emerged as the early front-runner, while Republicans face a divisive battle for G.O.P. nomination, Warner is unopposed in the Democratic primary.

A businessman who ran unsuccessfully for Senate in 1996, Warner also has a big money advantage. His campaign has more than 10 times the cash on hand, than the Republican candidates combined. Warner, who is worth more than 200 million dollars, can also tap his own personal fortune.

How much of your own money are you going to spend?

WARNER: As little as possible.

KARL: Warner is the kind of Democrat who puts a gun on his political signs, and talks like a Republican, promising to cut taxes and grow the economy. But Republicans say Warner has peaked too early.

MARK EARLEY (R), VIRGINIA GOV. CANDIDATE: Mark Warner has a lot of money. He's almost a billionaire, but he's never served in public office before. He ran for the state Senate four years ago and lost, and now he wants to try buy a governor's seat in Virginia. But I think at end of the day, Virginians don't want people to buy a governor's seat.

KARL: Republicans will choose their man at their state convention in June. Once the nomination battle is over, they will stop fighting each other, and set their sights on their Democratic rival. Shad planking is a spring tradition, and in Virginia, front runners in the spring often find fortunes change by the time the fall brings another tradition, voting.

Jonathan Karl, CNN, Wakefield, Virginia.

(END VIDEOTAPE) SESNO: And just ahead on INSIDE POLITICS, a crash course on the finer points of protesting, as activists prepare to take their message to the Summit of the Americas.

(COMMERCIAL BREAK)

SESNO: On Friday, President Bush travels to Canada to participate in the Summit of the Americas. He will join the leaders of more than 30 countries to discuss, among other things, a free trade agreement. Scores of protesters opposed to the globalization of world trade will be there, too.

And as CNN's John Vause reports, these protesters have been undergoing some rigorous training.

(BEGIN VIDEOTAPE)

JOHN VAUSE, CNN CORRESPONDENT (voice-over): In the backwaters of Florida, boot camp for protesters.

UNIDENTIFIED MALE: You can't emphasize enough, like don't attach yourself...

VAUSE: A week of specialized training.

UNIDENTIFIED MALE: Come over and grab the exterior of the rope and bring it over your head, keeping your right hand where it's at.

VAUSE: How to climb buildings

UNIDENTIFIED MALE: Super. Nice job.

VAUSE: Blockade roads.

UNIDENTIFIED FEMALE: Do you always have to stand?

CROWD: No.

UNIDENTIFIED FEMALE: So we can sit.

VAUSE: The camp is organized by the Ruckus Society, veteran protesters, bringing together more than 100 aspiring activists from across the United States: environmentalists, human rights campaigners and unions.

ILYSE HOGUE, RUCKUS SOCIETY: Organizing is the best method that we have, when we don't have the financial might of the corporate giants. So the better organized we are, the better equipped we are.

VAUSE: They use solar power, and are highly organized.

UNIDENTIFIED MALE: We've got to go and do a conference call right now.

VAUSE: With classes on legal issues, media training and street theater. CROWD: Resist! Resist! Raise up your fists.

VAUSE: Many were at the World Trade Organization meeting in Seattle, three days marred by confrontations and property damage. The Ruckus Society denies any responsibility for that. It says its methods, which are being taught at this camp, have always been nonviolent.

PATRICK REINSBOROUGH, RAINFOREST ACTION NETWORK: They're been learning skills like grassroots organizing, political education, how to engage in effective non-violent civil disobedience and how to communicate their message to the media.

VAUSE (on camera): Camp organizers say not only is their focus peaceful protest, but they also train students how to deal with police to try to avoid violent confrontations.

(voice-over): The next big action will be in Quebec City in Canada, where 34 countries from North, South and Central America will work on establishing a free trade zone, which supporters say will be worth billions from increased competition and economic growth.

But for this strange alliance, it is the common enemy.

REINSBOROUGH: We cannot continue to have a global economy that puts interests of multinational corporations ahead of the environment, ahead of workers and ahead of future generations.

VAUSE: This get-together is about inspiring the followers.

HOGUE: Victory is possible. And it is possible when we test our commitment within ourselves.

VAUSE: For yet another campaign, guaranteed to raise a ruckus.

John Vause, CNN, Arcadia, Florida.

(END VIDEOTAPE)

SESNO: And INSIDE POLITICS will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

LAURA BUSH, FIRST LADY: ... their parents, be read to more...

(END VIDEO CLIP)

SESNO: You can see the first lady on "LARRY KING LIVE" tonight, 9:00 p.m. Eastern time. I'm Frank Sesno. "MONEYLINE" is next.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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