The NewsHour with Jim Lehrer

GWEN IFILL: Good evening. I'm Gwen Ifill. Jim Lehrer is off. On the NewsHour tonight: Our summary of the news; then, two crime and punishment stories-- a sentencing in Moscow, and a Supreme Court decision in Washington; the Dutch debate the future of the European constitution, while a transatlantic battle rages over airplanes; and Deep Throat, the secret source behind the Watergate scandal, is revealed.

NEWS SUMMARY

GWEN IFILL: President Bush expressed confidence today that U.S. and Iraqi forces will soon quell the violence that has taken the lives of more than 760 Iraqis and at least 75 Americans in the past month. At a Rose Garden news conference today, Mr. Bush said the new government in Iraq is already turning that corner.

PRESIDENT GEORGE W. BUSH: I think the Iraq government will be up to the task of defeating the insurgents. I was heartened to see the Iraqi government announce 40,000 Iraqi troops are well-trained enough to help secure Baghdad. That was a very positive sign. It's a sign that they, the Iraqi leaders, understand they are responsible for their security ultimately.

GWEN IFILL: Vice President Cheney told CNN last night he believes the insurgency is in its "last throes," and will end before the Bush administration leaves office in 2009. In Baghdad today, prime minister al-Jaafari reported "good results" from the latest security crackdown in and around Baghdad. He said a "large number" of suspected insurgents have been detained. An Italian military helicopter crashed in southern Iraq overnight, killing four. It happened near Nasiriyah. The Italian military said it appeared to be an accident. And the U.S. Military announced four Americans died last night when their plane went down northeast of Baghdad. The cause was under investigation. Elsewhere, Iraqi officials said the governor of Anbar Province was found dead Sunday. He was abducted three weeks ago. Iraq's president, Jalal Talabani, today said Saddam Hussein might go on trial before the summer is out. He told CNN the proceedings could start "within two months." Iraqi prosecutors have predicted the trial wouldn't happen until next year. French President Chirac shook up his government today, after voters rejected the European Union Constitution. He chose former Foreign Minister Dominique de Villepin to be the new prime minister. At the U.N. In 2003, de Villepin helped lead opposition to the Iraq invasion. Tomorrow, Dutch voters are also expected to reject the EU Constitution. Supporters and opponents summed up the situation ahead of the vote.

LOUSEWIES VAN DER LAAN: I think it's more urgent than ever to give a very clear signal which way we want Europe to proceed. And even if we don't do it in the specific way of the constitution, if people want more democracy, better cooperation, then I hope there will still be a clear yes, because otherwise we will be stuck with Europe as it is.

GEERT WILDERS: We have in Holland today a major say. People should realize that France's "No" was very important, but if Holland also says no tomorrow, it is the end of the European Constitution.

GWEN IFILL: Unlike the French referendum, the Dutch vote is not binding. The final say will rest with parliament. Nine nations have ratified the EU Constitution so far. All 25 members must do so for it to take effect. A long-running mystery from the Watergate scandal may be over. The Washington Post confirmed today that mark felt said today he was Deep Throat, the source who helped the Washington Post unravel President Nixon's cover- up. Vanity Fair Magazine reported he confided to a friend and to his daughter in 2002. A family statement today said he deserves recognition. Felt is 91 years old. He was second in command at the FBI during the early 1970s. We'll have more on this story later in the program tonight. A Russian court today sentenced oil tycoon Mikhail Khodorkovsky to nine years in prison. He was convicted of fraud and tax evasion. U.S. officials questioned whether Moscow prosecuted Khodorkovsky because he funded opposition parties. President Bush said today he remains concerned about that. We'll have more on this story right after the news summary. The Supreme Court today overturned Arthur Andersen's conviction in the Enron scandal. The court ruled unanimously the jury was given flawed instructions. Three years ago, the accounting firm was found guilty of destroying documents related to Enron. The conviction all but wiped out Andersen. We'll have more on this story later in the program. The European Union and the U.S. faced a trade war today over aircraft subsidies. Last night, the U.S. filed a complaint with the world trade organization over European aid to Airbus. Today, the EU filed a counterclaim that Washington illegally subsidized Boeing. The EU's trade chief, Peter Mandelson, spoke in Brussels, Belgium.

PETER MANDELSON: I am disappointed that the U.S. has chosen this confrontation with Europe. America's decision will, I fear, spark probably the biggest, most difficult, and costly legal dispute in the WTO's history. It will be hard fought on both sides, and I can assure you, Europe's interests will be fully defended.

GWEN IFILL: U.S. Trade representative Rob Portman said the EU triggered the break when it committed to help Airbus develop a new midsize jet. The plane would be a direct competitor to Boeing's new 787. Portman said the Bush administration still hopes for a negotiated solution. United airlines and its machinists agreed today on a new labor deal to cut wages and benefits and avoid a strike. A federal bankruptcy judge threatened to impose a deal if the two sides did not come to terms by today. The union is the largest at United, representing 20,000 workers. On Wall Street today, the Dow Jones Industrial Average lost 75 points to close at 10,467. The NASDAQ fell seven points to close at 2,068. That's it for the news summary tonight. Now it's on to: A sentencing in Moscow; a Supreme Court decision; a campaign in the Netherlands; a trade war about airplanes; and the mystery of Deep Throat is over.

FOCUS -RUSSIAN JUSTICE

GWEN IFILL: The sentencing of a Russian oligarch. Margaret Warner has that story.

MARGARET WARNER: The trial was Russia's ongoing soap opera for nearly a year. The defendants: 41-year-old Mikhail Khodorkovsky, former head of Yukos Oil and once Russia's richest man; and his business partner. The charges: Tax evasion, fraud, embezzlement, and more. Judges in this Moscow courthouse spent 12 days reading the voluminous guilty verdict out loud, amidst demonstrations outside from both sides. Today, his critics carried placards that read, "Khodorkovsky, go to jail." The former tycoon's supporters chanted, "Not guilty. Not guilty."

(PEOPLE CHANTING)

MARGARET WARNER: Khodorkovsky was one of Russia's so-called oligarchs, private businessmen who picked up newly privatized state assets at bargain prices after the 1991 breakup of the Soviet Union. Khodorkovsky spent $300 million to buy hundreds of oil wells. Within a few years, his major company, Yukos Oil, was pumping one-fifth of Russia's crude, and carried a market value of $40 billion. Khodorkovsky amassed a personal fortune of some $15 billion. He began to dabble in politics too. He financed opposition candidates, and began criticizing President Putin's government. There was speculation that he might even run for office someday. In October 2003, Russian Special Forces launched a raid on the tarmac of a Siberian Airport, and seized the oil tycoon at gunpoint. After raiding the Yukos offices, Russian authorities leveled seven charges against him and business partner Platon Lebedev, including illegally acquiring state assets through rigged auctions, and using tax shelters to hide company profits and evade billions in taxes. From behind bars, Khodorkovsky denied it all. But last December, with the billionaire still in jail, the Russian government sold off Yukos's prime asset to a state- controlled entity to pay back taxes. The trial has drawn international attention. On a recent visit to Moscow, Secretary of State Condoleezza Rice said the trial's outcome would affect how the world viewed Russia's political and investment future. Two weeks ago, State Department Spokesman Richard Boucher issued these blunt words.

RICHARD BOUCHER: The conduct of the Khodorkovsky-Yukos affair has eroded Russia's reputation and eroded confidence in Russian legal and judicial institutions.

MARGARET WARNER: But President Putin has consistently maintained that it's a simple tax evasion case against a corrupt business and its owner, and nothing else. In an interview last year, Putin said, "It is wrong to cast the criminal side of this case as political." Khodorkovsky's attorneys charged the prosecution was political, a vendetta orchestrated by the Kremlin against a man who was becoming too powerful for its liking. Sanford Saunders is part of the defense team.

SANFORD SAUNDERS: It is both politically motivated and economically motivated. What Khodorkovsky was achieving was a type of independence and strength within Russia that the country has never experienced before. He was -- he had used his financial success to build companies that were not beholden, or apparently he didn't think were beholden, to the government, and he wasn't beholden to the government.

MARGARET WARNER: This morning, President Bush said the entire affair raises questions about Russia's commitment to the rule of law.

PRESIDENT GEORGE W. BUSH: I expressed my concerns about the case to President Putin because, as I explained to him, here you're innocent until proven guilty, and it appeared to us, or at least people in my administration, that it looked like he had been adjudged guilty prior to having a fair trial. In other words, he was put in prison and then was tried. I think what will be interesting -- and so we've expressed our concerns about the system.

MARGARET WARNER: While Khodorkovsky and his lawyers decide whether and how to appeal his nine-year sentence, prosecutors say they're preparing additional charges against him, including money laundering.

MARGARET WARNER: And to explore the likely fallout from today's Khodorkovsky verdict, we go to Donald Jensen, director of communications at Radio Free Europe/Radio Liberty. He's previously served as a former political officer at the U.S. Embassy in Moscow; he's also written extensively on Russian politics. And Charles Movit, a longtime economic analyst of Russia and Eastern Europe; he's currently research director for Emerging Europe at Global Insight, an analysis and forecasting firm based in Reston, Virginia. And, welcome to you both.

Don Jensen, this trial was seen as terribly political. What's the political significance of the trial in today's verdict?

DONALD JENSEN: Indeed it's a political drama above all else. It has a lot of political consequences. First, it is vastly popular, the verdict, with Putin's constituency. The average Russian, poor Russian, sees Khodorkovsky as one of the villains of the 90s, which not only robbed the state but impoverished them. And I think this decision -- and our polls would confirm it - is going to be widely popular. Second, as your film clip said, this eliminates, I think, for the foreseeable future, a possible rival to Putin as well. And third, I think --.

MARGARET WARNER: Let me just interrupt. So Putin took him seriously as a potential political rival?

DONALD JENSEN: I believe among the many motivations of many of the leaders in the Kremlin, one of those was, and I think probably with Putin, President Putin, was that he was a possible leader. I think you have to keep in mind that 20 years ago Yeltsin was also banished into the wilderness by Gorbachev. And the parallels and Yeltsin's eventual comeback are something I'm sure many people in the Kremlin thought a lot about.

MARGARET WARNER: Now, how does this trial and this verdict, how is it being viewed this business circles, both inside Russia and beyond?

CHARLES MOVIT: I don't think anyone in the business community either inside Russia or abroad was surprised by the verdict. There was some hope that the sentence would be lighter, as a signal that President Putin's recent overtures to the business community were very serious, and were not just one more wave of promises to businessmen as had been made in the past.

MARGARET WARNER: But do they see it as a signal to them?

CHARLES MOVIT: They would see it, if the verdict had been lighter, they might have seen it as a signal, I think they would have seen it as a signal that the government was very serious about improving relations with investors. But they see it instead as a confirmation of the manipulability of the court system, which is a primary problem for investors in Russia.

MARGARET WARNER: Don Jensen, did the Russian prosecutors have a good case against Khodorkovsky?

DONALD JENSEN: I haven't read every minutia of evidence, --

MARGARET WARNER: No, but -

DONALD JENSEN: -- but I'm sure they did. I think it's important to keep in mind that with these kind of oligarch -- big businessmen, the question is not almost what the charges were, because they could are been gotten on numerous things. And you saw after a few months waves and waves of back tax assessments on the tax police rating and other allegations raised. These businessmen like Khodorkovsky, they made their fortunes not because they were great businessmen but because they made it through connections with the state, and that involved cutting corners.

MARGARET WARNER: So, what you're saying is they did have a good case against him, but he had a defense, what, selected defense?

DONALD JENSEN: He had a, they had a good reason to charge him undoubtedly with a variety of misdeeds in the past. That's not to cast support to the judicial process which was highly biased and not partial -- and very partial to the state. The problem is that, not what he was charged with, but why Khodorkovsky. And that could have involved numerous charges, as well as discussion of why other oligarchs, and there are many out there, were not charged and Khodorkovsky was.

MARGARET WARNER: Would you agree that in the business climate that existed, business and political climate in the early 90s when all these assets were privatized, that Khodorkovsky's actions weren't unusual?

CHARLES MOVIT: Absolutely not. No, there was a pattern that was repeated by most of the people that are identified as oligarchs now in order to amass assets formerly owned by the state for very low prices. It was clearly the fact that he was chosen at the point he was chosen among so many others that indicated that the fact that law was not being applied equally across the board. However, in terms of seeking back taxes, what has concerned the business community in Russia is that there's a number of outstanding claims, very large outstanding claims against other Russian enterprises for back taxes, and the tax authorities have been extremely aggressive. And if you look at the stock market, the Russian stock market over the course of the trial and the investigation, it was up and down, up and down, as investors tried to convince themselves that this was merely political and could not affect them. And on the other hand it also became evident that at many points that the tax authorities were going beyond what the Kremlin itself would have wanted to see, particularly for public relations and international relations at that point. So that became a concern.

MARGARET WARNER: Do other oligarchs of Khodorkovsky's sort of ilk and era feel they have something to fear, and do they?

DONALD JENSEN: I think they, many do, and in fact they do. I think the key is often the closeness to the Kremlin. And what's happened in the last, under the Putin years so far is not difficult to be oligarchs, or oligarchy as a monopolistic capitalism has been routed, in fact, -- it has - and arguably the state is more monopolistic today than under the Yeltsin period. It's just that a, certain oligarchs are targeted, others are not, and other friends of the government are enriched by their proximity and control over money and big business, and others are not. If I could add a point to your previous question, however, which is to say that you Mikhail Khodorkovsky, like many of these other entrepreneurs, let's call them, has reinvented himself continually over the past 20 years. The film clip mentioned oil, but before that he was in banking, and before that he was a young Communist leader who profited on his insider training to profit that way.

MARGARET WARNER: And in his later years before being arrested he patterned himself or portrayed himself as a champion of the political opposition.

DONALD JENSEN: Exactly. Exactly. And as a champion of building a civil society, and strengthening the humane face of Russian business. Now while that may be the case in the last few years, certainly his career earlier raises a lot of questions, and is I think to a significant extent unsavory.

MARGARET WARNER: So Mr. Movit, I won't ask you about the businesses you advise. But in the international investment community, are they saying to themselves, if you want to do business in Russia you have to play ball with the Kremlin?

CHARLES MOVIT: Well, I think that's always been an understanding. The problem is when you make an investment anywhere, you're looking for an acceptable rate of return; when the degree of uncertainty is greater, you look for a higher return as a risk premium. To the extent that events like this make the environment more uncertain in terms of the application of law, the ability to turn to the courts, for an equitable solution, the uncertainty is greater, so that when you weigh investments in Russia with investments elsewhere, it affects that choice --.

MARGARET WARNER: So, for instance, do you think it's already happened - I mean, this trial has been going on for a year, he's been under arrest for eighteen months -- I notice capital flight is supposedly up over the past year, money leaving Russia. And investment in the oil sector is down. Do you think that's attributable in whole or in part to this whole trial?

CHARLES MOVIT: I think in part, yes. And, as you say, that's already happened. People were looking for a signal that the climate is going to change. That signal can still come; this isn't the end of things. The proof is in the pudding, and this was on the negative side. But there can be indications on the positive side. And the 25th of April President Putin made his state of the federation address and made very overt overtures to businessmen that he was going to change the tax laws. He talked about the self serving bureaucracy, about the tax authorities having terrorized business, and gave his cabinet a deadline of Nov. 1 to introduce legislation that would help to reduce the uncertainties that these generate.

MARGARET WARNER: But you say that in fact that hasn't had any measurable effect, you said earlier they've been out filing other back tax claims against other companies.

CHARLES MOVIT: That's gone before really, and that was part of what the president was -- Putin was referring to.

MARGARET WARNER: What's your assessment, Don Jensen, of - how -- if you're sitting where Putin is sitting, and, you know, you heard Condoleezza Rice, we heard the president say essentially Russia is already paying a price, and after today will pay a price in the international community. But from where he sits, has he paid too high a price? Or is the calculation worth it to him?

DONALD JENSEN: I think from where he sits, I'll give a two-part answer, one, I think he certainly feels the price is worth it. But second, I think it would be a mistake to think that this has been a centrally orchestrated political phenomenon that's gone over, almost two years with - according to some kind of operatic thought. There are a lot of people involved in this process, a lot of people in the bureaucracy, including and as well as Khodorkovsky's own business rivals, have something to gain from Khodorkovsky being behind bars, either financial or politically. And I think if the Kremlin was in tight control over event this would have been wrapped up long ago, but the fact that it has not I think tells us something central about political and power in Russia, which is that power is money and money is power, and property rights are very weak. And there are a lot of people who stand to gain from Khodorkovsky being behind bars no matter what the charges.

MARGARET WARNER: All right, Don Jensen, Charles Movit, thank you both.

GWEN IFILL: Still to come on the NewsHour tonight: Today's Supreme Court decision; the Netherlands and the EU; a transatlantic trade war; and Deep Throat is revealed.

FOCUS - SUPREME COURT WATCH

GWEN IFILL: Now, to the Supreme Court. In a unanimous decision, the Justices overturned the conviction of former accounting giant Arthur Andersen in connection with the collapse of the Enron Corporation. Why the reversal? For that, we turn to, as always, NewsHour regular Jan Crawford Greenburg of the Chicago Tribune.

Welcome back, Jan. Remind us first of all what it was that Andersen was convicted of in the first place.

JAN CRAWFORD GREENBURG: Arthur Andersen was convicted in 2002 of witness tampering. Now, this case came about the year before when Enron Corporation, the energy giant's, problems began becoming public. Of course Enron was Arthur Andersen's largest client, and relied on the firm for accounting and auditing and consulting advice. So when Enron's problems and accounting difficulties started becoming public, Andersen's lawyers reminded the Arthur Andersen employees of the company's document policy, that they should destroy documents, drafts, and documents that weren't the final version, so the employees set about doing that, and did so from the month, about a month from when they first learned of Enron's problems up until they received a government subpoena.

GWEN IFILL: It was that reminder which was the nut here, about whetherthey were using that reminder as a way of suppressing cooperation in an upcoming government investigation?

JAN CRAWFORD GREENBURG: Right. Obstruction of justice is what the government charged and ultimately convicted Arthur Andersen of doing.

GWEN IFILL: So that was a huge conviction, highly symbolic in a time when corporate scandals were all the rage and everyone was talking about them. Today, big reversal. Why?

JAN CRAWFORD GREENBURG: The court today rejected the government's interpretation of this witness tampering law, and said that the jury instructions in the case were just... misstated the law and were wrong. And throughout this conviction... it was nine to nothing. The decision was short. It came about very swiftly, and showed that the legal issues for these Justices were so clear that the case had to be reversed. Now keep in mind that this was a conviction in 2002 that brought down this once-proud accounting company, one of the world's leading accounting companies, 28,000 employees on board. Now it has about 200. So the reversal of this conviction in many ways is just an astonishing end to this story.

GWEN IFILL: But when you were on the program a few months ago to talk about this case, the arguments in this case, it was fairly clear, even at the arguments, that the Justices were kind of skeptical of it. Why?

JAN CRAWFORD GREENBURG: It was very clear in argument, and I think in this case more than any others that I've seen in covering the Supreme Court, the Justices really tipped their hand and said the government's theory in this case... Justice Scalia said during argument that the government's theory in this case was weird. Other Justices expressed concern that companies that had these kind of document policies that tell employees to destroy documents routinely as part of their recordkeeping could also be coming under prosecution or suspicion if they were ever accused of wrongdoing in the future. So the decision today, if you saw that argument, was not a surprise. But it was so forceful in tone. It was 11 pages long; it was written by the Chief Justice. It came about less than a month after that argument that its message was quite emphatic that the government interpretation here just went too far.

GWEN IFILL: Was it just that the government, that they over informed or under informed these jurors, and that the wording was vague? Or was it about the basic argument here, which was that they had been... that Arthur Andersen was up to no good in trying to get these documents shredded?

JAN CRAWFORD GREENBURG: No, the government -- this case turned on the instructions that the jury received. And the government said that the jury shouldn't have to decide whether Arthur Andersen knowingly was violating the law, whether or not it knew about an official proceeding that was coming down the pike. So the jury... and the jury had a very hard time coming to a verdict in this case. The jury's instructions were just too broad. That was at the heart of the court's ruling today, that the jury should have been required to find that Arthur Andersen's lawyers, when they reminded the employees of the document policy, knowingly were trying to persuade them to violate the law, that they had knowledge that what they were doing was wrong. Of course Arthur Andersen had long argued that they were doing nothing wrong, that they were reminding these employees to follow these standard document policies, that they stopped destroying any documents the second that they got a subpoena that notified them an official proceeding was under way. So they have long argued they didn't violate the law.

GWEN IFILL: Was this the only, as far as you know, the only Enron-related case that has gotten to the Supreme Court so far?

JAN CRAWFORD GREENBURG: Certainly, yes, of this scope. And Arthur Andersen now, as I said, has 200 employees, mainly just working through legal issues, civil lawsuits. But the decision today puts the spotlight back on the Justice Department. The Justice Department today came under some harsh criticism from business groups, civil defense, criminal defense lawyers, who said it overreached. The Justice Department now must decide whether it will try to retry Arthur Andersen using different jury instructions.

GWEN IFILL: So what do they have to take into account, based on what the court told them today in their decision, to retry this?

JAN CRAWFORD GREENBURG: An assistant attorney general said today they will carefully examine this decision and look at what actually is required the way that the court has said they have to read the law. One thing they're going to have to show if they do retry Arthur Andersen is that these lawyers knowingly were doing something wrong. Many people I spoke with today said that would be very difficult, and they pointed back to the original trial in 2002, in which the government had a hard time getting a jury to convict without that additional element, without that knowledge of wrongdoing. It took the jury ten days to convict Arthur Andersen. They were deadlocked. A judge had to order them back to the table to resume their deliberations, so it could be very difficult to get a conviction with even different jury instructions.

GWEN IFILL: Jan Crawford Greenburg, as always, thank you very much.

JAN CRAWFORD GREENBURG: You're welcome.

FOCUS - JA OR NEE?

GWEN IFILL: Another referendum on the European Constitution tomorrow, and another "no" vote is likely. Sarah Smith of Independent Television News reports from the Netherlands.

SARAH SMITH: Every major political party, government and opposition, out on the street, asking people to vote for a constitution even they admit is already dead, and that Dutch voters never wanted anyway. The distance between Europe's politicians and its people is at its most obvious here.

LOUISWIES VAN DER LAAN, Yes Campaign: The rift is already there. The feeling is that the politicians are out of tune, and that's something that we really need to address, and the only way we can do that is by taking people's concerns very seriously.

SARAH SMITH: And not trying to ram a constitution down their throats?

LOUISWIES VAN DER LAAN: Precisely. I think that there has been a "No" in France. Regardless of what happens now, this treaty is dead, and we have to make sure that that is the clear message that we give out: The Europeans have the last word, not their political leadership. That's the only way to rebuild the confidence.

SARAH SMITH: While the "No" camp claims Holland would lose its famous dope-smoking coffee shops and red light districts in a homogenized Europe, the Dutch now want to be distinctive more than they want to be European, even if they cause a crisis in the union they founded.

SARAH SMITH (in shop): Thank you very much.

SARAH SMITH: The Dutch are furious about the Euro. It's cost them a lot of money because it's been very inflationary. The guilder went in at the wrong rate. And of course, the Dutch weren't asked about that at the time. This, in fact, is their first referendum, and many of them will probably use it to protest against not being asked about the Euro in the first place. Theyare also angry about the amount of money Europe costs them in general. Holland is a net contributor to the EU, and some people are now saying they want a refund like the British won, and voting "yes" will not help them get their money back.

SARAH SMITH: 180 Euros for what?

GEER WILDERS: Well, this is what the Dutch are paying per capita today to Europe-- the most amount of any European country.

SARAH SMITH: Geert Wilders and his famous hairstyle are the stars of the "No" campaign. His populist anti-immigration stance won many supporters and serious death threats, hence the heavy security. Two other public figures who criticized Islam have already been murdered. With a large Muslim population, immigration and Islam are unavoidable in Dutch politics. And those who want to close Holland's borders insist the constitution means they'll lose control.

The constitution doesn't actually say anything about immigration, so aren't you just trying to appeal to people's worst fears when you campaign about immigration?

GEERT WILDERS: I'm not campaigning on fear. And we are in a lot of struggles in Holland today when it comes to immigration, when it comes to integration, even when it comes to terrorism, because we were always too politically correct. We ignored the facts; we put them under the carpet, and we thought that tomorrow the sun would shine again. Well, unfortunately, the sun might shine, but the problems don't go away. So we should face our problems, and immigration is one of them. And there are major changes that are not in the interest of our kingdom in the constitution.

SARAH SMITH: Even the cows here say "boo!" to the constitution and to today's EU. "Europe can't change without this new constitution," say its leaders, but voters who feel they have been ignored too long aren't listening any more. Popular discontent is sweeping the continent. A French non has given the Dutch voters the confidence to say nee in an even louder voice.

FOCUS - AIR WAR

GWEN IFILL: Now, the transatlantic battle over the buying, selling, and building of big airplanes. Ray Suarez has more.

RAY SUAREZ: A big trade dispute is escalating between the United States and Europe over whether the two leading aircraft makers, Airbus and Boeing, are getting subsidies. Today the European Union's top trade official, Peter Mandelson, said the EU will sue the U.S. Government for its subsidies to Chicago-based Boeing. That came less than a day after the U.S. Announced it's filing suit at the world trade organization over the EU's support of French-based aircraft maker Airbus. For more on the case and what's at stake, I'm joined by Edward Alden, Washington bureau chief with the Financial Times. What precipitated this now?

EDWARD ALDEN: I think it's largely Boeing's commercial interests. Airbus is about to launch the a-350, which is going to be a competitor to Boeing's 787 Dreamliner Jet. It's the first successful new launch by Boeing in a decade. Orders for the 787 are very strong. It's a long-range, mid-size, fuel-efficient jet. And now Airbus wants to build a competitor, and wants European government support for building a competitor, and Boeing has gone to the U.S. Government and said, "it's got to stop now. They're going to hurt us commercially, and now is the time to escalate this dispute and really pick a fight over this issue."

RAY SUAREZ: It's being called one of the largest commercial disputes ever. Is that hyperbole, or are we dealing with those kind of numbers?

EDWARD ALDEN: It's the largest in the history of the World Trade Organization, no doubt about that. I mean, Boeing is still the largest single U.S. exporter. It's by far the biggest manufacturing exporter in the U.S., and Airbus is the flagship European champion. So these are critical companies for both the U.S. and Europe. So I don't think it's hyperbole to call... at least in the trade world, this is the biggest dispute we've ever seen.

RAY SUAREZ: Now, why did it get to this point? Hadn't the two sides been in a kind of truce recently?

EDWARD ALDEN: They had. They signed an agreement in 1992 which essentially capped the level of support for each side. Both European support for Airbus and American support for Boeing were capped at certain levels. Boeing is essentially unhappy with that deal. Now, since that deal was signed, Airbus has gone from being a distant second to Boeing to being the world's leader in civil aircraft sales. So as for as Boeing is concerned, they got the raw end of that 1992 agreement, and they no longer want to live by its terms. So the U.S. has torn up that agreement and said, we'd rather fight this out in the World Trade Organization, which is another forum to try to adjudicate these kind of disputes.

RAY SUAREZ: Now, Airbus is 35 years old, and hadn't it always survived on subsidies from national governments? Isn't it a consortium that was really given its seed money by state money?

EDWARD ALDEN: There's no question about that. The issue is what you mean by subsidies. The European governments argue that they are essentially investors in the company. They offer up-front support for the launch of each new Airbus model, but then they get repaid in royalties, based on the success of sales. And the European governments argue each of these Airbus models has been successful; we've got our money back and more. Therefore, it's not a subsidy. The U.S. argument is, well, if you couldn't get a commercial investor to invest up front on those terms, then it is a subsidy, and that, in fact, it's kind of risk-free money that has allowed Airbus to be daring and a bit innovative in the design of new aircraft models, and has really provided, as far as the U.S. is concerned, an unfair advantage in the competition against Boeing.

RAY SUAREZ: Doesn't Boeing say, in fact, that they're not even paying back after the jets are airborne?

EDWARD ALDEN: Well, I don't think there's... you know, so far the money has been paid back. The question is whether it's on commercial terms. And the way the European deals are structured, if one of the Airbus models is to fail, that money doesn't have to be repaid. The case in point now is the A-380, which is the new jumbo Airbus competitor to the 747. Sales of the aircraft have not been strong. And if it doesn't sell as well as expected, then Airbus does not have to pay the European governments the full amount of the money it took up front, so that would be a rather clear case of a subsidy, if that turned out to be the situation.

RAY SUAREZ: Under the regulations of the WTO, is what Airbus is doing, what Boeing says Airbus is doing, kosher? Is it okay?

EDWARD ALDEN: Probably not. Probably not. I mean, both sides will present elaborate legal briefs laying out their side. I think on the face of it, the U.S. has a pretty strong case that this is indeed a subsidy under world trade rules. The question is what happens after the WTO ruling. But I think there's a pretty good chance the U.S. will win that argument. Of course, the Europeans may also win their argument against Boeing, which is the other side of the coin.

RAY SUAREZ: Well, what is the argument that Peter Mandelson and the EU team are making against Boeing?

EDWARD ALDEN: It's a bit weaker, but it focuses on two things. One is what they call indirect supports, which is defense money, NASA money that goes into Boeing, because Boeing is also a big defense contractor, and the argument is that that has spin-off benefits for their commercial aircraft. The second thing the Europeans will go after is state-level tax breaks for production. Washington State, for instance, is cutting taxes for Boeing quite dramatically to encourage it to build the air frame for the 787 in its Everett plant in Washington, rather than moving that work abroad. The Europeans say that's a tax subsidy, and we're going to go after that as well. Their case is harder to make, but I think there's a chance that they will probably win on some of their points as well.

RAY SUAREZ: Well, does Boeing, when it develops something for the Air Force and comes up with a material or a design of a wing or something, does it become proprietary information? Does it get to keep that stuff?

EDWARD ALDEN: Well, I mean, it has to share it with the air force, obviously, so it's used in defense aircraft. But yes, I mean, it can be used for their commercial aircraft. There's no question, I think, that Boeing has used some of the wing designs that have been made in the defense context in their commercial aircraft. But they would argue the Airbus gets the same benefits. Airbus is also a big defense contractor, and presumably receives some of the same kinds of spin-off benefits from its defense work.

RAY SUAREZ: Well, the trade representatives for both sides, the United States and the European Union, have been very, very careful to confine all their remarks to jet aircraft, and say, well, this doesn't affect all these other things that we've fought about in the past. Why have they been so careful to add that kind of language to their public statements?

EDWARD ALDEN: I think there's always a fear, when you're talking about a trade dispute of this magnitude, that it will poison other aspects of the economic relationship. Right now both the U.S. and Europeans are working very hard to conclude what's called the Doha round of global trade talks. This will be a new world trade agreement that will hopefully reduce tariff barriers and agriculture subsidies, other things they care about. They want to work together on this. So I do think each side has an interest in isolating this dispute and saying, "this is a big dispute, this is an important dispute, but we're not going to let it poison other aspects of our trading relationship." That will be a challenge, though, just because these are companies that each side cares about very, very deeply. So the stakes are very high here, even while they are trying to insulate other issues from the effects of the dispute.

RAY SUAREZ: How is the timing seen in the wider air world? Isn't a big show coming up right now?

EDWARD ALDEN: Yeah, again that's part of what triggered it. Airbus has asked the four European governments that are part of the Airbus consortium-- the UK, France, Spain, and Germany -- to announce by the middle of June, when the Paris air show takes place, whether they are going to provide this up-front aid for the A-350, the next model that Airbus wants to launch. So a decision is imminent. And basically, what happened this week is, the U.S. reached the conclusion that aid is forthcoming. There's no point anymore in trying to negotiate a settlement. We need to go to the WTO and litigate this matter.

RAY SUAREZ: Edward Alden, thanks for joiningus.

EDWARD ALDEN: Thank you, Ray.

FOCUS - DEEP THROAT REVEALED

GWEN IFILL: Finally tonight, the mystery of Deep Throat, solved. Jeffrey Brown has our media unit story.

JEFFREY BROWN: In a terse two-line statement, the Washington Post late today confirmed that Mark Felt is Deep Throat, the famous anonymous source for the paper's reporting about Watergate. Earlier today, amidst a bevy of cameras and great curiosity, Felt's grandson read this statement this afternoon.

FELT'S GRANDSON: The family believes my grandfather, Mark Felt, Sr., is a great American hero who went well above and beyond the call to duty at much risk to himself to save his country from a horrible injustice. We sincerely hope the country will see him this way as well.

JEFFREY BROWN: Mark Felt, 91 years old, is a former number two at the FBI. Today, his grandson said failing health would prevent Felt from speaking to the press, but his story, as presented in July's Vanity Fair Magazine, is bringing to a close one of recent history's great mysteries.

SPOKESMAN: The Watergate apartment hotel...

KURT BARNARD: As the Watergate story played out in the early 1970s, the coverage was led by two young Washington Post reporters, Bob Woodward and Carl Bernstein. The scandal and cover-up resulted in the resignation of President Richard Nixon. "All the President's Men," a book and later a movie, popularized the role of the two reporters, and their key source, nicknamed "Deep Throat," a government insider who would meet Woodward in secret and pass along information.

ACTOR: Where are you?

ACTOR: Stuck. The story has stalled on us.

ACTOR: And you thought I'd help?

JEFFREY BROWN: Today's revelation brings to an end several decades' worth of theories as to the identity of Deep Throat.

JEFFREY BROWN: The author of the Vanity Fair article joins us now. John D. O'Connor is a lawyer in California, who was asked by Mark Felt's family to tell his story. Also with us is Michael Putzel, a former correspondent for the Associated Press. He covered Watergate in the mid-1970s, and was later a White House and foreign correspondent. And David Gergen, who has advised four presidents, including President Nixon. He is the editor-at-large at "U.S. News & World Report" and a professor at Harvard's Kennedy School of Government. Welcome to all of you.

Starting with you, Mr. O'Connor, you wrote that Mark Felt was an FBI agent -- official who "came to believe that he was fighting an all out war for the sole of the FBI". Tell us a little bit about what led him to become Deep Throat.

JOHN D. O'CONNOR: Well, I think it probably starts with the famous Adida Beard, ITT scandal back in early '72 when he was pressured by the White House to declare a forgery, a memo implicating the Republican Party in what was claimed to be by Brit Hume a rigged antitrust case. And I think that and several other incidents led him to conclude that the White House was not above putting the serious political pressure on the FBI to compromise itself. I think Felt saw himself after Jay Edgar Hoover's death, which happened right before Watergate, he saw himself as the guardian of the FBI and its incorruptible image.

JEFFREY BROWN: Mr. O'Connor, he himself has denied in the past that he was Deep Throat. Why did he reveal it now?

JOHN D. O'CONNOR: Well, he's getting very old; he's been able to talk to his family for three years now about this. And over time he has realized that Deep Throat was a true American hero. His family has talked to him about this and they have convinced him through their communication,their love that Deep Throat is nothing to be ashamed of. And I think Mark has gradually over time come to that view, so now he embraces it and sees this as an opportunity to honor the Bureau which he loved so much, and he sees this as a way to honor all the people below him who served in the Bureau and were incorruptible through a very, very tough time in our nation's history.

JEFFREY BROWN: Mr. Putzel, take us back to that time. What was the key information that Deep Throat provided?

MICHAEL PUTZEL: Well, there were several occasions when he played a critical role. We didn't as readers, even reporters, we didn't know what role he was playing at the time. But according to Bob Woodward's account and the Woodward and Bernstein book, he played a critical role by confirming information they got elsewhere. They were under -- the Post was under tremendous pressure at the time, basically to give up on the Watergate story. Other people weren't pursuing it that much and the White House was trying very hard to confine it just to the burglars and the Post was trying to, trying to prove that there were people from the committee to reelect the president and perhaps the White House who had financed the burglary and were involved. And he was, that is Deep Throat, was instrumental in encouraging them to keep after that line, as if they were on the right course.

JEFFREY BROWN: And David Gergen, does knowing who Deep Throat is now help us in some way understand that era?

DAVID GERGEN: I think it does. It certainly helps us unravel that one of the greatest mysteries that we've had in our political life over the last 30 years. So it's good to know. And Mr. O'Connor deserves credit for having brought this to light and finally up unraveling it. I think that while we've unraveled the great mystery, it does open some additional doors. As much as I want to believe the story that Mr. O'Connor has printed about why he did it, I'm not sure that we have all the facts yet. Mark Felt is a more complex man than he may seem on the surface. He may well have been doing this out of conscience. And he may well have been a force for right and good. But it's worth remembering that he was also pardoned by Ronald Reagan in 1981 for his participation in burglaries by the FBI against the Weather men and others. This man's participating on the rough side of the FBI, and I think that to this day we don't know whether there were those in the FBI who may have had reasons to want to bring down the president or bring down the White House. I think, I don't think we yet know all the facts on this. I think we know the most important fact and that is who was Deep Throat, and that's been very helpful, and there's no question, to go to Mike Putzel's point, that Deep Throat was extraordinarily important, not just to corroborating but also to giving tips and guides by Bob Woodward in particular that did help with him his reporting and that reporting of course was a critical part of the whole Watergate saga.

JEFFREY BROWN: So, David, can you say how Mr. Felt will be seen now? You heard Mr. O'Connor say that the family wanted him seen as a hero.

DAVID GERGEN: I think there are many Americans who will believe he's a hero. And there are families and certainly one would want their family, the daughter and the grandchildren and others to believe that. I just would caution that this was a very much a cloak and dagger era in our political history, in which there were a lot of rough things going on, not only in the White House, as they were, but they were going on elsewhere in Washington and other agencies including Jay Edgar Hoover's FBI. And we know that from a lot of records, a lot of things, weird things were happening, things that we find, that we object to today in the light of history, the bugging of Martin Luther King and that sort of thing went on at the FBI. So I just think we ought to be cautious as to whether we know all the facts. I think it's helpful that we do know this particular fact, because this has certainly been a longstanding mystery, and I think it adds to our knowledge of our public life, which is a positive thing.

JEFFREY BROWN: Mr. O'Connor, can you shed some lie on this? I mean, do you feel like you know him enough to understand some of the motives behind what was going on at the time?

JOHN D. O'CONNOR: Well, I've read many, many pages of documents about Mark Felt and about his wars within the Bureau. And, you know, David is a brilliant guy and I'm a big fan of his. I think he might be a tad off on this. For years, Mark Felt led the forces in the Bureau that were against incursions on civil liberties, the wiretapping done by what they call the Sullivan Faction, Mark Felt led the good guys in trying to keep civil liberties protected within the Bureau. What happened was these so-called burglaries, let me give you what David is talking about with the burglary. If Osama bin Laden, one of his twenty-seven wives, was living in Brooklyn Heights, and is a hairdresser, according to David, it's a burglary if you go open her mail to find out where the next attack is coming from. It was always thought that the FBI through the attorney general had inherent authority in times of national security to do things like mail openings, to go into an apartment and look for writings or mails, not to convict anybody, but to get intelligence on a foreign power. The Weather Underground had bombed 52 buildings between 1970 and 1972, and there were five of these so-called, there may have been nine of these so-called black bag jobs where someone went in from the FBI to look at mail to see where the next bombing was coming from, and tried to save lives. It's one of the debates that's still raging in this country. But to say that somebody doing something like that is a criminal, Ronald Reagan pardoned him the second he got into office. The man was railroaded, it makes for a very heart rending story for everyone who believes that we should protect against terrorism. You should read what Mark Felt writes about terrorism; he predicted what would happen with al-Qaida. And so he's very prescient in that regard and really he is quite a hero for all seasons: protecting civil liberties on one hand and protecting against terrorism on the other. So his legacy is really heroic. The more one understands that the more one will understand that Mark Felt is a hero.

JEFFREY BROWN: All right. Let me ask - because there are also some journalism issues here, Mr. Putzel, what's the significance for journalism even today, because it strikes me that this question of anonymous sources is still very much with us?

MICHAEL PUTZEL: I think it's very important from that point of view. I think that Woodward and Bernstein were vindicated a long time ago in terms of the quality of their reporting. And there are still some tantalizing elements of this mystery that we have not learned. Good as Mr. O'Connor's story was, he didn't get into some of the details that Felt apparently did disclose to Woodward. But in the bigger picture, the importance of this man's role as a confidential source and Woodward's role in protecting his identity and the Post backing him up is critical, today as it was then because this is still a fundamental function of the press in this country as a watchdog of government, and it needs the cooperation, sometimes of very high government officials who cannot risk being identified.

JEFFREY BROWN: David, what do you think about the journalistic effects of this?

DAVID GERGEN: I think the journalistic effects were to, that Bob Woodward and Carl Bernstein deserve all tell awards they've received over the years; they were fabulous reporters on this. There were some elements that I think in retrospect that people questioned, particularly when they went to a number of grand juries and got some information from them. But I think if you look at the whole record, I think Mike Putzel is absolutely right; they've been vindicated on this, they were vindicated today in an important way because their critics have said for a long time they doubted there was a Deep Throat, that it must have been a composite, and today I think they lo and behold, we now know through Mr. O'Connor's story and their own confirmation that there was a single individual. So I think as a journalistic matter, the Washington Post really made it, its modern reputation on this story and they've been vindicated. I think the question remains about what the role of government official with, in terms of blowing whistles, should be. I think this is a really hard one. We need to know more about this. If --.

JEFFREY BROWN: David, we're going to have to leave that for another time, one mystery solved and many new questions. David Gergen, Mike Putzel and John O'Connor, thanks very much.

RECAP

GWEN IFILL: Again, the other major developments of the day: President Bush expressed confidence that coalition forces will soon quell the violence in Iraq. And French President Chirac chose former Foreign Minister Dominique de Villepin to be the new prime minister. We'll see you online and again here tomorrow evening. I'm Gwen Ifill. Thank you, and good night.