WT/DS353/ARB  
 
13 October 2020  
(20-7035) Page: 1/121 
  Original: English  
 
  
UNITED STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL 
AIRCRAFT (SECOND COMPLAINT)  
RECOURSE TO ARTICLE 22.6 OF THE DSU BY THE UNITED STATES  
DECISION BY THE ARBITRATOR  
BCI deleted, as indicated [[***]]  WT/DS353/ARB  
 
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  TABLE OF CONTENTS  
 
1   INTRODUCTION  ................................ ................................ ................................ ........  11 
1.1   Original proceedings and compliance proceedings  ................................ ........................... 11 
1.2   Referral to arbitration and arbitration proceeding  ................................ ........................... 16 
2   PROCEDURAL MATTERS  ................................ ................................ .............................  19 
2.1   Treatment of BCI and HSBI  ................................ ................................ ......................... 19 
2.2   Public presentation of the parties' opening statements  ................................ .................... 20 
2.3   The United  States' allegations regarding the European  Union's use of certain US HSBI 
submitted in the DS316 arbitration proceeding  ................................ ................................ ......20 
2.4   Impact of the Covid -19 pandemic on the work of the Arbitrator  ................................ ........ 21 
2.5   The United  States' request for leave to file an additional submission regarding the  
purported elimination of the Washington State B&O tax rate reduction as of 1  April 2020 ........... 22 
3   MANDATE OF THE ARBITRATOR  ................................ ................................ ................  23 
4   BURDEN OF PROOF  ................................ ................................ ................................ .... 24 
5   THE DS316 PROCEEDINGS AND THE DS316 ARBITRATOR'S VALUATION OF  
ADVERSE EFFECTS ................................ ................................ ................................ ..........  25 
5.1   The DS316 original proceedings  ................................ ................................ ................... 26 
5.2   The DS316 compliance proceedings  ................................ ................................ .............. 27 
5.3   The DS316 arbitration proceeding  ................................ ................................ ................ 31 
6   THE UNITED  STATES' OBJECTIONS TO THE LEVEL OF COUNTERMEASURES  ...............  33 
6.1   Overview of the European  Union's methodology  ................................ ............................. 33 
6.2   The United States' response  ................................ ................................ ......................... 36 
6.3   Order of analysis  ................................ ................................ ................................ ........ 37 
6.4   Assessment of the European  Union's methodology  ................................ .......................... 38 
6.4.1    Valuation of the 2004 -2006 R&D Adverse Effects as part of the "adverse effects   
determined to exist" within the scope of this proceeding  ................................ ......................... 38 
6.4.1.1    Whether "the adverse effects determined to exist" must be those caused in the post -
implementation period  by a subsidy with respect to which an original respondent has failed to 
comply with previously issued DSB recommendations and rulings  ................................ ............ 42 
6.4.1.2    Whether the 2004 -2006 R&D Adverse Effects fall within the scope of "the adverse  
effects determined to exist" under the terms of Article  7.10 ................................ .................... 46 
6.4.1.3    Conclusion  ................................ ................................ ................................ ........... 49 
6.4.2    Structure of the countermeasures in respect of the post -implementation Washington  
State B&O Tax Rate Reduction Adverse Effects  ................................ ................................ ......49 
6.4.3    The reference period for the post -implementation Washington State B&O Tax Rate 
Reduction Adverse Effects  ................................ ................................ ................................ ...50 
6.4.4    Consideration of events occurring after the reference period  ................................ ......... 52 
6.4.5    Conceptual issues regarding the valuations of significant lost sales and threat of  
impedance  ................................ ................................ ................................ ........................ 53 
6.4.5.1    Annualization  ................................ ................................ ................................ .......53 
6.4.5.2    Lost sales  ................................ ................................ ................................ ............. 54 
6.4.5.3    Threat of impedance  ................................ ................................ ............................. 55 
6.4.5.3.1   Primary EU methodology based on the value of the underlying lost sales  .................. 55 WT/DS353/ARB  
 
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  6.4.5.3.2    Alternative EU methodologies based on the value of deliveries  ................................ .58 
6.4.5.3.3    Arbitrator's proposed "delivery -centric" approach  ................................ ................... 60 
6.4.5.3.3.1    Nature of "threat"  ................................ ................................ ............................ 64 
6.4.5.3.3.2    Findings in the compliance proceedings  ................................ .............................. 67 
6.4.5.3.4    Conclusions  ................................ ................................ ................................ .......74 
6.4.6    Technical issues common to the valuation of both forms of adverse effects  ..................... 75 
6.4.6.1    The probability that Airbus would have won each of the five sales campaigns in the 
counterfactual  ................................ ................................ ................................ ................... 75 
6.4.6.2    Valuation of options  ................................ ................................ .............................. 80 
6.4.6.3   The number of firm orders in the counterfactual and the timing of the deliveries  ........... 85 
6.4.6.4    Adjustments for actual cancell ations and potential future cancellations  ........................ 91 
6.4.6.5    Exclusion of [[***]] from counterfactual delivery prices  ................................ ............. 96 
6.4.6.6    Remaining issues regarding counterfactual delivery prices  ................................ ......... 99 
6.4.6.7    Summary of conclusions on technical issues common to the valuations of both forms  
of adverse effects  ................................ ................................ ................................ ............  101 
6.4.7    Technical issues regarding the valuation of significant lost sales  ................................ .. 102 
6.4.7.1    Temporal adjustment of delivery prices to the time of the lost sales  ..........................  102 
6.4.7.2    Expressing the lost sales' values on a c ommon monetary basis  ................................ . 105 
6.4.7.3    Annualization period  ................................ ................................ ............................  108 
6.4.8    Technical issues regarding the valuation of threat of impedance  ................................ .. 108 
6.4.8. 1   Temporal adjustment of delivery -date values  ................................ .........................  108 
6.4.8.2    Annualization period(s)  ................................ ................................ ........................  110 
6.4.9    Summary of technical valuations of the adverse effects determined to exist  ..................  114 
6.4.9.1    Valuation of significant lost sales ................................ ................................ ...........  114 
6.4.9.2    Valuation of threat of impedance  ................................ ................................ ..........  116 
6.4.9.3    Aggregated annualized value of significant lost sales and of the threat of impedance  
in the two geographic markets  ................................ ................................ ...........................  117 
6.5   Countermeasures commensurate with the annualized value of the adverse effects  
determined to exist  ................................ ................................ ................................ ..........  118 
6.5.1    Adjustment of the annualized value of adverse effects determined to exist for inflation  
to April 2020 dollars and for future years in which countermeasures are applied  ......................  118 
6.5.2    The "commensurate" 2015 Annualized Value  ................................ .............................  119 
7   THE UNITED  STATES' CLAIM CONCERNING THE PRINCIPLES AND PROCEDURES  
SET OUT IN ARTICLE  22.3 OF THE DSU (CROSS -RETALIATION)  ................................ ... 120  
8   CONCLUSION ................................ ................................ ................................ ...........  121  
 
  WT/DS353/ARB  
 
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  LIST OF ANNEXES  
ANNEX A  
WORKING PROCEDURES OF THE ARBITRATOR  
Contents  Page  
Annex  A-1 Working Procedures of the Arbitrator  4 
Annex  A-2 Additional Working Procedures for the Protection of Business Confidential 
Information and Highly Sensitive Business Information ("BCI/HSBI 
Procedures")  9 
Annex  A-3 Additional Working Procedures for the Substantive Meeting with the Arbitrator  21 
ANNEX B  
ARGUMENTS OF THE PARTIES  
Contents  Page  
Annex  B-1 Integrated executive summary of the arguments of the European Union  23 
Annex  B-2 Integrated executive summary of the arguments of the United States  40 
ANNEX  C 
DECISION AND OTHER COMMUNICATIONS OF THE ARBITRATOR  
Contents  Page  
Annex C -1 Arbitrator's communication to the parties regarding the timetable and Working 
Procedures, dated 8  July 2019 49 
Annex  C-2 Arbitrator's communication to the parties regarding certain HSBI, dated 
6 February  2020 50 
Annex  C-3 Arbitrator's communication regarding the United  States' request for extension 
of the date for responses to questions, dated 14  February  2020 51 
Annex C -4 Arbitrator's communication to the parties regarding restrictions on access to 
the WTO premises and to HSBI due to Covid -19, dated 1  April 2020 52 
Annex C -5 Arbitrator's communication to the parties regarding access to HSBI in the 
context of Covid -19, date d 23 April 2020 54 
Annex C -6 Arbitrator's communication to the parties regarding phased relaxation of 
restrictions on access to WTO premises due to Covid -19, dated 4  May 2020 55 
Annex C -7 Arbitrator's decision on the United  States' request for leave to f ile an additional 
submission regarding the implications of the purported elimination of the 
Washington State B&O tax rate reduction on the permitted level of 
countermeasures, dated 17  June 2020 56 
Annex C -8 Arbitrator's communication to the parties, dated 26  June 2020 61 
Annex C -9 Arbitrator's communication to the parties requesting authorization to discuss 
specific EU HSBI, dated 5  August  2020 62 
Annex C -10 Arbitrator's communication to the parties requesting authorization to discuss 
additional specific EU HSBI, dated 19  August  2020 63 
Annex C -11 Arbitrator's communication to the parties regarding media reports containing 
the Arbitrator's calculated level of countermeasures, dated 9 October 2020  64 
 
 
 
  WT/DS353/ARB  
 
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  CASES CITED IN THIS DECISION  
Short Title  Full Case Title and Citation  
Brazil – Aircraft 
(Article  22.6 – Brazil)  Decision by the Arbitrator, Brazil – Export Financing Programme for Aircraft – 
Recourse to Arbitration by Brazil under Article  22.6 of the DSU and Article  4.11 of 
the SCM  Agreement , WT/DS46/ARB , 28 August  2000, DSR 2002:I, p.  19 
Canada – Aircraft Credits  
and Guarantees 
(Article  22.6 – Canada)  Decision by the Arbitrator, Canada – Export Credits and Loan Guarantees for  
Regional Aircraft – Recourse to Arbitration by Canada under Article  22.6 of the  
DSU and Article  4.11 of the SCM  Agreement , WT/DS222/ARB, 17  February  2003, 
DSR 2003:III, p.  1187 
EC – Bananas III (US)  
(Article  22.6 – EC) Decision by the Arbitrator, European  Communities  – Regime for the  Importation, 
Sale and Distribution of Bananas – Recourse to Arbitration by the  
European  Communities  under Article  22.6 of the DSU , WT/DS27/ARB, 
9 April 1999, DSR 1999:II, p.  725 
EC – Bananas III 
(Ecuador)  
(Article  22.6 – EC) Decision by the Arbitrator, European  Communities  – Regime for the Importation, 
Sale and Distribution of Bananas – Recourse to Arbitration by the 
European  Communities  under Article  22.6 of the DSU , WT/DS27/ARB/ECU, 
24 March  2000, DSR 2000:V, p.  2237 
EC – Hormones  Appellate  Body Report, European  Communities  – Measures Concerning Meat and 
Meat Products (Hormones) , WT/DS26/AB/R, WT/DS48/AB/R,  adopted 
13 February  1998, DSR 1998:I, p.  135 
EC – Hormones (US)  
(Article  22.6 – EC) Decision by the Arbitrators, European  Communities  – Measures Concerning  Meat 
and Meat Products (Hormones), Original Complaint by the United  States  – 
Recourse to Arbitration by the European  Communities  under Article  22.6 of the  
DSU, WT/DS26/ARB, 12  July 1999, DSR 1999:III, p.  1105 
EC and certain member 
States – Large Civil 
Aircraft  Appellate  Body Report, European  Communities  and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/AB/R , adopted 
1 June 2011, DSR 2011:I, p.  7 
EC and certain member 
States – Large Civil 
Aircraft  Panel  Report , European  Communities  and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , WT/DS316/R , adopted 1  June 2011, as 
modified by Appellate  Body Report WT/DS316/AB/R, DSR 2011:II, p.  685 
EC and certain member 
States – Large Civil 
Aircraft (Article  21.5 – US) Appellate  Body Report, European  Communities  and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft  – Recourse to Article  21.5 of the 
DSU by the United  States , WT/DS316/AB/RW  and Add.1, adopted 28  May 2018 
EC and certain member 
States – Large Civil 
Aircraft (Article  21.5 – US) Panel  Report , European  Communities  and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft  – Recourse to Article  21.5 of the DSU by 
the United  States , WT/DS316/RW  and Add.1, adopted 28  May 2018, as modified 
by Appellate  Body Report WT/DS316/AB/RW  
EC and certain member 
States – Large Civil 
Aircraft (Article  22.6 – EU) Decision by the Arbitrator, European  Communities  and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft  – Recourse to Article  22.6 of the 
DSU by the European  Union , WT/DS316/ARB  and Add.1, 2  October  2019 
EU – Energy Package  Panel  Report , European  Union  and its member States – Certain Measures 
Relating to the Energy Sector , WT/DS476/R  and Add.1, circulated to WTO 
Members 10  August  2018 
Japan – DRAMS (Korea)  Appellate  Body Report, Japan – Countervailing Duties on Dynamic Random 
Access Memories from Korea , WT/DS336/AB/R  and Corr.1, adopted 
17 December  2007, DSR 2007:VII, p.  2703 
Russia – Pigs (EU)  Panel  Report , Russian Federation – Measures on the Importation of Live Pigs, 
Pork and Other Pig Products from the European  Union , WT/DS475/R  and Add.1, 
adopted 21  March  2017, as modified by Appellate  Body Report WT/DS475/AB/R, 
DSR 2017:II, p.  361 
Thailand – Cigarettes 
(Philippines)  Appellate  Body Report, Thailand – Customs and Fiscal Measures on Cigarettes 
from the Philippines , WT/DS371/AB/R , adopted 15  July 2011, DSR 2011:IV, 
p. 2203 
US – 1916 Act (EC) 
(Article  22.6 – US) Decision by the Arbitrator, United  States  – Anti-Dumping Act of 1916, Original  
Complaint by the European  Communities  – Recourse to Arbitration by the  
United  States  under Article  22.6 of the DSU , WT/DS136/ARB, 24  February  2004, 
DSR 2004:IX, p.  4269 
US – Anti-Dumping 
Methodologies (China) 
(Article  22.6 – US) Decision by the Arbitrator, United  States  – Certain Methodologies and Their 
Application to Anti -Dumping Proceedings Involving China – Recourse  to 
Article  22.6 of the DSU by the United  States , WT/DS471/ARB  and Add.1, 
1 November  2019 
US – Carbon Steel (India)  Appellate  Body Report, United  States  – Countervailing Measures on Certain 
Hot-Rolled Carbon Steel Flat Products from India , WT/DS436/AB/R , adopted 
19 December  2014, DSR 2014:V, p.  1727 WT/DS353/ARB  
 
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  Short Title  Full Case Title and Citation  
US – Coated Paper 
(Indonesia)  Panel  Report , United  States  – Anti-Dumping and Countervailing Measures on 
Certain Coated Paper from Indonesia , WT/DS491/R  and Add.1, adopted 
22 January  2018 
US – Continued 
Suspension  Appellate  Body Report, United  States  – Continued Suspension of Obligations in 
the EC – Hormones Dis pute, WT/DS320/AB/R , adopted 14  November  2008, 
DSR 2008:X, p.  3507 
US – COOL  
(Article  22.6 – US) Decisions by the Arbitrator, United  States  – Certain Country of Origin Labelling  
(COOL) Requirements – Recourse to Article  22.6 of the DSU the United  States , 
WT/DS384/ARB and Add.1 / WT/DS386/ARB and Add.1, circulated to 
WTO Members 7  December  2015 
US – FSC  
(Article  21.5 – EC II)  Appellate  Body Report, United  States  – Tax Treatment for "Foreign Sales 
Corporations" – Second Recourse to Article  21.5 of the DSU by the 
European  Communities , WT/DS108/AB/RW2 , adopted 14  March  2006, 
DSR 2006:XI, p.  4721 
US – FSC  
(Article  22.6 – US) Decision by the Arbitrator, United  States  – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Arbitration by  the United  States  under Article  22.6 
of the DSU and Article  4.11 of the SCM  Agreement , WT/DS108/ARB , 
30 August  2002, DSR 2002:VI, p.  2517 
US – Gambling  Appellate  Body Report, United  States  – Measures Affecting the Cross -Border 
Supply of Gambling and Betting Services , WT/DS285/AB/R , adopted 
20 April 2005, DSR 2005:XII, p.  5663 (and Corr.1, DSR 2006:XII, p.  5475)  
US – Gambling 
(Article  22.6 – US) Decision by the Arbitrator, United  States  – Measures Affecting the Cross -Border 
Supply of Gambling and Betting Services – Recourse to Arbitration by the 
United  States  under Article  22.6 of the DSU , WT/DS285/ARB , 
21 December  2007, DSR 2007:X, p.  4163 
US – Lamb  Appellate  Body Report, United  States  – Safeguard Measures on Imports of Fresh, 
Chilled or Frozen Lamb Meat from New Zealand and Australia , WT/DS177/AB/R, 
WT/DS178/AB/R, adopted 16  May 2001, DSR 2001:IX, p.  4051 
US – Large Civil Aircraft 
(2nd complaint)  Appellate  Body Report, United  States  – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) , WT/DS353/AB/R , adopted 23  March  2012, 
DSR 2012:I, p.  7 
US – Large Civil Aircraft 
(2nd complaint)  Panel  Report , United  States  – Measures  Affecting Trade in Large Civil Aircraft 
(Second Complaint) , WT/DS353/R , adopted 23  March  2012, as modified by 
Appellate  Body Report WT/DS353/AB/R, DSR 2012:II, p.  649 
US – Large Civil Aircraft 
(2nd complaint) 
(Article  21.5 – EU) Appellate  Body Report, United  States  – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) – Recourse to Article  21.5 of the DSU by the 
European  Union , WT/DS353/AB/RW  and Add.1, adopted 11  April 2019 
US – Large Civil Aircraft 
(2nd complaint) 
(Article  21.5 – EU) Panel  Report , United  States  – Measures Affecting Trade in Large Civil Aircraft 
(Second Complaint) – Recourse to Article  21.5 of the DSU by the 
European  Union , WT/DS353/RW  and Add.1, adopted 11  April 2019, as modified 
by Appe llate Body Report WT/DS353/AB/RW  
US – Line Pipe  Appellate  Body Report, United  States  – Definitive Safeguard Measures on 
Imports of Circular Welded Carbon Quality Line Pipe from Korea , 
WT/DS202/AB/R , adopted 8  March  2002, DSR 2002:IV, p.  1403 
US – Offset Act (Byrd 
Amendment) (EC) 
(Article  22.6 – US) Decision by the Arbitrator, United  States  – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by the European  Communities  – Recourse 
to Arbitration by the United  States  under Article  22.6 of the DSU , 
WT/DS217/ARB/EEC , 31 August  2004, DSR 2004:IX, p.  4591 
US – Offset Act (Byrd 
Amendment) (Chile) 
(Article  22.6 – US) Decision by the Arbitrator, United  States  – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by Chile – Recourse to Arbitration by the 
United  States  under Article  22.6 of the DSU , WT/DS217/ARB/CHL , 
31 August  2004, DSR 2004:IX, p.  4511 
US – Section 110(5) 
Copyright Act (Article  25) Award of the Arbitrator, United  States  – Section 110(5) of the US Copyright Act – 
Recourse to Arbitration under Article  25 of the DSU , WT/DS160/ARB25/1, 
9 November  2001, DSR 2001:II, p.  667 
US – Tax Incentives  Appellate  Body Report, United  States  – Conditional Tax Incentives for Large Civil 
Aircraft , WT/DS487/AB/R and Add.1, adopted 22  September  2017, DSR 2017:V, 
p. 2199 
US – Tuna II (Mexico) 
(Article  21.5 – Mexico)  Appellate  Body Report, United  States  – Measures Concerning the Impor tation, 
Marketing and Sale of Tuna and Tuna Products – Recourse to Article  21.5 of the 
DSU by Mexico , WT/DS381/AB/RW and Add.1, adopted 3  December  2015, 
DSR 2015:X, p.  5133 
US – Tuna II (Mexico) 
(Article  22.6 – US) Decision by the Arbitrator, United  States  – Measures Concerning the Importation, 
Marketing and Sale of Tuna and Tuna Products – Recourse to Article  22.6 of the 
DSU by the United  States , WT/DS381/ARB, 25  April 2017 WT/DS353/ARB  
 
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  Short Title  Full Case Title and Citation  
US – Upland Cotton  Appellate  Body Report,  United  States  – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21  March  2005, DSR 2005:I, p.  3  
US – Upland Cotton  Panel  Report , United  States  – Subsidies on Upland Cotton , WT/DS267/R , Add.1 
to Add.3 and Corr.1, adopted 21  March  2005, as modified by Appellate  Body 
Report WT/DS267/AB/R, DSR 2005:II, p.  299 
US – Upland Cotton 
(Article  21.5 – Brazil)  Appellate  Body Report, United  States  – Subsidies on Upland Cotton – Recourse to 
Article  21.5 of the DSU by Brazil , WT/DS267/AB/RW, adopted 20  June 2008, 
DSR 2008:III, p.  809 
US – Upland Cotton 
(Article  21.5 – Brazil)  Panel  Report , United  States  – Subsidies on Upland Cotton – Recourse to 
Article  21.5 of the DSU by Brazil , WT/DS267/RW  and Corr.1, adopted 
20 June 2008, as modified by Appellate  Body Report WT/DS267/AB/RW, 
DSR 2008:III, p.  997 
US – Upland Cotton 
(Article  22.6 – US I) Decision by the Arbitrator, United  States  – Subsidies on Upland Cotton – 
Recourse to Arbitration by the United  States  under Article  22.6 of the DSU and  
Article  4.11 of the SCM  Agreement , WT/DS267/ARB/1, 31  August  2009, 
DSR 2009:IX, p.  3871 
US – Upland Cotton 
(Article  22.6 – US II)  Decision by the Arbitrator, United  States  – Subsidies on Upland Cotton – 
Recourse to Arbitration by the United  States  under Article  22.6 of the DSU and  
Article  7.10 of the SCM  Agreement , WT/DS267/ARB/2 and Corr.1, 
31 August  2009, DSR  2009:IX, p.  4083 
US – Washing Machines 
(Article  22.6 – US) Decision by the Arbitrator, United  States  – Anti-Dumping and Countervailing 
Measures on Large Residential Washers from Korea – Recourse to Article  22.6 of 
the DSU by the United  States , WT/DS464/ARB  and Add.1, 8  February  2019 
US – Wool Shirts and 
Blouses  Appellate  Body Report, United  States  – Measure Affecting Imports of Woven 
Wool Shirts and Blouses from India , WT/DS33/AB/R , adopted 23  May 1997, and 
Corr.1, DSR 1997:I, p.  323 
 
 
 WT/DS353/ARB  
 
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  EXHIBITS REFERRED TO IN THIS DECISION  
Exhibit  Title 
EU-1 Ascend database  
EU-2 (BCI)  Historical escalation rates and escalation rate forecasts  
EU-3 (HSBI)  Air Canada final offer, [[HSBI]] 
EU-4 (HSBI)  Delta Airlines final offer, [[HSBI]] 
EU-5 (HSBI)  Fly Dubai 2008 final offer, [[HSBI]] 
EU-6 (HSBI)  Fly Dubai 2014 final offer,  [[HSBI]] 
EU-8 (HSBI)  Icelandair final offer, [[HSBI]] 
EU-12 (HSBI)  Airbus LCA Inflation Index  
EU-13 Air Canada Press Release, "Air Canada Selects Boeing 737 MAX to Renew Mainline 
Narrowbody Fleet", 11  December  2013 (Exhibit EU -1571 CP)  
EU-16 Icelandair Press Release, "Icelandair Group and Boeing Finalize Orders for 737 MAX", 
13 February  2013 
EU-19 Fly Dubai Press Release, "flydubai commits to USD 11.4 Billion 737 aircraft order", 
17 November  2013 (Exhibit EU -1597 CP)  
EU-20 Delta Press Release, "Delta Announces Order for 100 Boeing 737 -900ER Aircraft", 
25 August  2011 (Exhibit EU -1001 CP)  
EU-21 Delta Airlines Supplemental Agreement, 25  August  2011 
EU-22 (HSBI)  Delta Airlines previous offer, [[HSBI]]  
EU-25 (HSBI)  Valuation of twin -aisle LCA lost sales  
EU-44 (BCI)  Airbus 10 -year yield rates; various years  
EU-45 (BCI)  Expected survival rates for Airbus LCA  
EU-46 (BCI)  Historic order cancellations in the single -aisle and twin -aisle LCA sales campaigns at issue  
EU-46a FlightGlobal, "Analysis: No crisis for 787 despite big Qantas cancellation", 
23 August  2012 
EU-51 (HSBI)  US – Large Civil Aircraft (Article  21.5 – EU), EU First Written Submission, 28  March  2013 
EU-54 (HSBI)  US – Large Civil Aircraft (Article  21.5 – EU), EU Responses to Panel Questions, 
8 October  2015 
EU-58 (HSBI)  Updated valuation of single -aisle lost sales  
EU-59 Ascend database update  
EU-60 (HSBI)  Updated valuation of single -aisle threat of impedance  
EU-62 (HSBI)  Valuation of lost sales in the single -aisle market based on delivery numbers contained in 
Airbus' final offers  
EU-63 (HSBI)  Valuation of lost sales in the twin -aisle market based on delivery numbers contained in 
Airbus' final offers  
EU-64 (BCI)  Airbus 10 -year yield rates and WACC (2005 -2018)  
EU-65 (BCI)  United  States  — Measures Affecting Trade in Large Civil Aircraft (Second Complaint) – 
Recourse to Article  21.5 of the DSU by the EU (WT/DS353 -Art.21.5) , Report from the 
Panel, Appendix 2  
EU-66 (BCI)  Declaration by [[ ***]], 21  February  2020 ( "Airbus production capacity ") 
EU-67 (HSBI)  IndiGo, [[HSBI]] 
EU-68 (HSBI)  IndiGo, [[HSBI]] 
EU-69 (HSBI)  [[HSBI]] 
EU-70 (HSBI)  [[HSBI]] 
EU-71 (HSBI)  [[HSBI]] 
EU-72 (HSBI)  Avianca, [[HSBI]] 
EU-73 (HSBI)  Avianca,  [[HSBI]] 
EU-74 (BCI)  Updated Historic order cancellations in the single -aisle and twin -aisle LCA markets  
EU-75 2RPQ Ascend database update  
EU-76 (HSBI)  2RPQ valuation of single -aisle threat of impedance – Boeing delivery schedules  
EU-77 (HSBI)  2RPQ valuation of single -aisle threat of impedance – Airbus delivery schedules  
EU-79  Daves, Philip R.; Michael C. Ehrhardt and Robert A. Kunkel, 2002, "Estimating systematic 
risk: the choice of return interval and estimation period ", Journal of Financial and 
Strategic Dec ision, volume 13, number 1  
EU-83 (HSBI)  Updated LCA indices, escalation rates and Airbus LCA Inflation Index  
EU-84 (HSBI)  2RPQ valuation of single -aisle lost sales – Boeing delivery schedules  
EU-85 (HSBI)  2RPQ valuation of single -aisle lost sales – Airbus delivery schedules  
EU-87 (HSBI)  2RPQ valuation of twin -aisle lost sales – Airbus delivery schedules  
USA-10 Airbus WACC and Discount Factors  
USA-11 Producer Price Indexes – Program Overview, U.S. Department of Labor, Bureau of Labor 
Statistics  
USA-12 PPI Industry Data File for Aircraft Manufacturing – Civilian Aircraft, Not Seasonally 
Adjusted (Jan. 2008 - March 2019), U.S. Department of Labor, Bureau of Labor Statistics  
USA-13 Survival Rate Calculation  
USA-15 Shannon Ackert, Commercial Aspects of Aircraft Customization, Aircraft Monitor (2013)  
USA-25 (HSBI)  Corrected Annualized Value of the Adverse Effects in 2014 and March 2019 Dollars  
USA-32 (BCI)  Boeing E -mail regarding Question 10  WT/DS353/ARB  
 
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  Exhibit  Title 
USA-33 (BCI)  Boeing E -mail regarding Qu estion 32  
USA-36 Revised Survival Rate Calculation  
USA-37 Updated Airbus WACC and Discount Factors  
USA-44 (HSBI)  Corrected Annualized Value of the Adverse Effects in July 2015 Dollars  
USA-45 Airbus 2018 Financial Statements  
USA-51 (BCI)  Declaration of [[ ***]] (Feb. 28, 2020) ("Boeing Declaration")  
USA-52  Iceland air press release, Icelandair Group and Boeing Finalizes Order for 737 MAX 
(Feb. 13, 2013)  
USA-59 (HSBI)  Expected Value of the 2014 Fly Dubai Lost Sale in Order Year Dollars (Revised)  
USA-60 (HSBI)  Annualized Value of the Adverse Effects in 2015 Dollars (Revised)  
USA-77 (HSBI)  2008 Fly Dubai Purchase Agreement  
USA-79 (HSBI)  2011 Delta Airlines Purchase Agreement  
USA-81 (HSBI)  2013 Air Canada Purchase Agreement  
USA-82 (HSBI)  2013 Icelandair Final Offer  
USA-83 (HSBI)  2013 Icelandair Purchase Agreement  
USA-85 (HSBI)  2014 Fly Dubai Purchase Agreement  
USA-87 (HSBI)  Boeing [[ ***]] for 2008 Fly Dubai and 2011 Delta Sales Campaigns  
USA-99 Brealey, Myers, and Allen, Principles of Corporate Finance, 9th Edition.  
USA-104 (HSBI)  Expected Value of the [[ ***]] Lost Sale in Order Year Dollars (Revised)  
USA-105 (HSBI)  Annualized Value of the Adverse Effects in 2015 Dollars (Revised)  
 
  WT/DS353/ARB  
 
- 10 - 
 
  ABBREVIATIONS USED IN THIS DECISION  
Abbreviation  Description  
737MAX  Boeing 737MAX  
737NG  Boeing 737 new generation  
747-8I Boeing 747 -8 International  
A320neo  Airbus A320 new engine option  
A320ceo  Airbus A320 current engine option  
A350XWB  Airbus A350 "eXtra widebody"  
ALII Airbus LCA Inflation Index  
B&O Business and Occupation  
BCI Business Confidential Information  
[[***]] [[***]] 
CA Civil Aircraft  
CPI Consumer Price Index  
DOD United  States Department of Defense  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes  
EC European  Communities  
ETI Act  FSC Repeal and Extraterritorial Income Exclusion Act of 2000  
EU European  Union  
FSC Foreign Sales Corporation  
GATS  General Agreement on Trade in Services  
GATT  General Agreement on Tariffs and Trade  
HSBI Highly Sensitive Business Information  
IRB Industrial Revenue Bond  
JAL Japan Airlines  
LCA large civil aircraft  
NASA  U.S. National Aeronautics and Space Administration  
NPV net present value 
PPI for CA Manufacturing  United  States  Producer Price Index for Aircraft Manufacturing of Civilian 
Aircraft  
R&D research and development  
R&TD  research and technological development  
RDT&E  Research, Development, Test and Evaluation  
RfP Request for Proposal  
SCM Agreement  Agreement on Subsidies and Countervailing Measures  
UAE United Arab Emirates  
UK United Kingdom  
US United  States  of America  
USD United  States  Dollar  
USDOD  United  States  Department of Defense  
Vienna  Convention  Vienna  Convention  on the Law of Treaties, Done at Vienna, 23  May 1969, 
1155 UNTS 331; 8 International Legal Materials 679  
VLA very large aircraft  
WACC  Weighted Average Cost of Capital  
WTO World Trade Organization  
 
  WT/DS353/ARB  
 
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  1  INTRODUCTION  
1.1  Original proceedings and compliance proceedings  
1.1.  The present arbitration proceeding arise s in the dispute initiated by the European  Union1 
concerning certain measures by the United  States  affecting trade in large civil aircraf t (LCA).2 
1.2.  The original proceedings in this dispute commenced on 27  June 2005, when the 
European  Union  requested consultations with the United  States  pursuant to Articles 4.1, 7.1 , and 30 
of the Agreement on Subsidies and Countervailing Measures (SCM  Agree ment), Article  XXIII:1 of 
the General Agreement on Tariffs and Trade (GATT) 1994 and Article  4 of the Understanding on 
Rules and Procedures Governing the Settlement of Disputes (DSU), with regard to measures 
affecting trade in LCA.3 On 20  January  2006, th e European  Union  requested the establishment of a 
panel pursuant to Article  6 of the DSU, Article  XXIII:2 of the GATT  1994 and Articles 4, 7 and 30 of 
the SCM  Agreement  (to the extent that Article  30 incorporates by reference Article  XXIII of the 
GATT  1994).4 
1.3.  The panel report and the Appellate  Body report in the original proceedings were circulated to 
Members on 31  March  2011 and 12  March  2012, respectively. The Dispute Settlement Body (DSB) 
adopted the Appellate  Body report and the panel report, as modified by the Appellate  Body report, 
on 23  March  2012.5 The panel and the Appellate  Body in the original proceedings found that certain 
measures of the United  States , including measures adopted at a sub -federal level, co nstituted 
specific subsidies to the US LCA industry6 and were inconsistent with the SCM  Agreement .  
1.4.  First, the panel found that certain tax exemptions and tax exclusions provided to Boeing under 
the Foreign Sales Corporation (FSC) legislation and the FSC Repeal and Extraterritorial Income 
Exclusion Act of 2000 (ETI  Act), including the transition and grandfather provisions of the ETI Act 
 
1 In the original panel proceedings, the complaining party was the European  Communities. The 
European Union replaced and succeeded the European  Communities as of 1 December 2009 following the entry 
into force of the Treaty of Lisbon amending the Treaty on European  Union and the Treaty establishing the 
European Community on 1 December  2009. For ease of reference, we refer to the "European Union" whether 
discussing events that occurred before or after the entry into force of the Treaty of Lisbon.  
2 In the original proceedings, the panel referred to a footnote in the European Union's request for 
establishment of a panel which stated that, in accordance with the 1992 Agreement between the 
European  Communities and the Government of the United  States of America concerning the Application of the 
GATT Agreement on Trade in Civil Aircraft , "LCA" included  all aircraft as defined in Article  1 of the GATT 
Agreement on Trade in Civil Aircraft, except engines as defined in Article  1.1(b) thereof, that are designed for 
passenger or cargo transportation and have 100 or more passenger seats or its equivalent in c argo 
configuration. (Panel  Report, US – Large Civil Aircraft (2nd complaint ), paras.  2.1 and 7.1. See also 
Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1) 
3 WT/DS353/1 (originally circulated as WT/DS317/1/Add. 1 as corrected by WT/DS353/1). The original 
proceedings must be seen against the background of an earlier proceeding, which was initiated in 
October  2004 when the European Union requested consultations with the United  States in respect of alleged 
prohibited and actionable subsidies provided to US producers of LCA. On 20 July 2005, the DSB established a 
panel in that proceeding ( US – Measures Affecting Trade in  Large Civil Aircraft  (DS317) ), which was com posed 
on 17  October 2005. In September 2005, the DSB initiated an Annex V procedure in the DS317 dispute and 
designated Mr Mateo Diego -Fernández as the DSB representative for that procedure. (DSB, Minutes of the 
meeting held on 23 September 2005, WT/DSB/M/ 197, paras.  6-10) In its June 2005 request for consultations 
in the DS353 dispute, the European Union referred to the United  States' statement at the meeting of the DSB 
on 13 June 2005 asserting that 13 of the 28 subsidy programmes listed by the European U nion in its DS317 
panel request were not listed in the DS317 consultation request of 6  October  2004. The European Union 
indicated that it was unable to agree with the United  States' contention but that it was prepared to pursue 
consultations on the issues raised in these subsequent proceedings in order to clarify and, if possible, resolve 
them.  
4 Request for the establishment of a panel by the European Union, WT/DS353/2 (originally circulated as 
WT/DS317/5 , as corrected by WT/DS353/2 and WT/ DS353/2/Corr.1).  
5 DSB, Minutes of the meeting held on 23  March  2012, WT/DSB/M/313 (circulated 29 March 2012), 
para. 79. 
6 In the original proceedings, the European Union used the term "US large civil aircraft industry" to refer 
to The Boeing Company and the McDonnell Dou glas Corporation prior to its 1997 merger with Boeing. 
(Panel  Report, US – Large Civil Aircraft (2nd complaint) , paras.  2.1, 7.1, and fn  1042)  WT/DS353/ARB  
 
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  and the American Jobs Creation Act of 2004, were prohibited export subsidies under Articles  3.1(a) 
and 3.2 of the SCM  Agreement .7 This finding was not appealed.  
1.5.  Second, the panel and the Appellate  Body found that the following measures were inconsistent 
with Articles 5(c) and 6 of the SCM  Agreement : 
a. payments provided to Boeing by the National Aeronautics and Space Administ ration 
(NASA) pursuant to procurement contracts entered into under eight aeronautics research 
and development (R&D) programmes and access to facilities, equipment and employees 
provided to Boeing pursuant to procurement contracts and Space Act Agreements e ntered 
into under these programmes;  
b. payments and access to facilities provided to Boeing by the United States Department of 
Defense (DOD) pursuant to assistance instruments entered into under 23 Research, 
Development, Test and Evaluation (RDT&E) programmes ;  
c. tax exemptions and tax exclusions provided to Boeing pursuant to the FSC/ETI measures;  
d. Washington State Business and Occupation (B&O) tax rate reduction for commercial 
aircraft and component manufacturers; and  
e. property and sales tax abatements related  to Industrial Revenue Bonds (IRBs) issued by 
the City of Wichita, Kansas.  
1.6.  These five groups of measures were found to involve specific subsidies within the meaning of 
Articles 1 and 2 of the SCM  Agreement  and to cause serious prejudice to the interests o f the 
European  Union  within the meaning of Articles 5(c) and 6.3 of the SCM  Agreement  as follows:  
a. the NASA and DOD aeronautics R&D measures caused serious prejudice within the 
meaning of Articles 5(c) and 6.3(b) and (c) with respect to the 200 -300 seat LCA  product 
market in the form of a threat of displacement and impedance of European  Union  exports 
in certain third -country markets and significant lost sales ; 
b. the tax exemptions and tax exclusions provided to Boeing pursuant to the FSC/ETI 
measures, together  with the Washington State B&O tax rate reduction, caused serious 
prejudice within the meaning of Articles 5(c) and 6.3(c) with respect to the 100 -200 seat 
LCA product market in the form of significant lost sales ; and  
c. property and sales tax abatements rela ted to IRBs issued by the City of Wichita, Kansas 
complemented and supplemented the price effects of the FSC/ETI subsidies and the 
Washington State B&O tax rate reductions, thereby causing serious prejudice to the 
interests of the European  Union  within the meaning of Articles 5(c) and 6.3(c) in the 
100-200 seat LCA product market in the form of significant lost sales.  
1.7.  In relation to the finding that the FSC/ETI measures were prohibited subsidies within the 
meaning of Articles 3.1(a) and 3.2 of th e SCM  Agreement , the original panel refrained from making 
a new recommendation under Article  4.7. The panel noted "the conclusion of the {p}anel in 
US – FSC (Article  21.5 – EC II) , which was upheld by the Appellate  Body, that the recommendation 
made by the  panel in the dispute in US – FSC continued to be 'operative'".8 
1.8.  In respect of the findings of serious prejudice caused by certain subsidies, the Appellate  Body 
recommended that:  
{T}he DSB request the United  States  to bring its measures, found in this rep ort, and in 
the panel report as modified by this Report, to be inconsistent with the SCM Agreement , 
into conformity with its obligations under that Agreement. More specifically, having 
regard to the recommendations made by the Panel in paragraph 8.9 of its  Report and 
the provisions of Article  7.8 of the SCM  Agreement , the Appellate  Body recommends  
 
7 Panel  Report, US – Large Civil Aircraft (2nd complaint), paras.  7.1434 -7.1464 and 8.2.  
8 Panel  Report, US – Large Civil Aircraft (2nd complaint ), para.  8.7.  WT/DS353/ARB  
 
- 13 - 
 
  that the United  States  take appropriate steps to remove the adverse effects found to 
have been caused by its use of subsidies, or to withdraw those subsidies.9  
1.9.  According to Articles 7.8 and 7.9 of the SCM  Agreement , the United  States  had six months 
from the date of adoption of the panel report or the Appellate  Body report to take appropriate steps 
to remove the adverse effects of the subsidies or withdraw the sub sidies (implementation period). 
This implementation period expired on 23  September  2012. On 23  September  2012, the 
United  States  provided a notification to the DSB identifying "a number of actions to withdraw the 
subsidies found to have caused adverse effects or to remove their adverse effects", in light of which 
the United  States  considered that it "ha{d} fully complied with the r ecommendations and rulings of 
the {DSB} in this dispute".10 
1.10.   On 24 April 2012, the parties informed the DSB of their Agreed Procedures under Articles 21 
and 22 of the DSU and Article  7 of the SCM  Agreement (the Sequencing Agreement).11 
On 25 September  2012,  the European  Union  requested consultations with the United  States , 
explaining that it was of the view that "{t}he actions and events listed by the United States in 
its 23 September 2012 notification do not withdraw the subsidies or remove their adverse ef fects, 
as required by Articles 4.7 and 7.8 of the SCM Agreement" and that "the United  States  has failed to 
achieve compliance with the recommendations and rulings of the DSB".12 The European  Union  and 
the United  States  held consultations on 10  October  2012, but the consultations failed to resolve the 
dispute. On 11  October  2012, the European  Union  requested the establishment of a panel "in 
accordance with Articles 4.4 and 7.4 of the SCM  Agreement  and Article  21.5 of the DSU", with 
standard terms of referenc e.13 At its meeting on 23  October  2012, the DSB referred this dispute to 
the original panel if possible, in accordance with Article  21.5 of the DSU .14 In accordance with 
Article  21.5 of the DSU, the panel was composed on 30  October  2012.15 
1.11.   The compliance panel issued its Interim Report to the parties on 16 September 2016.16 On 
5 December  2016, the Appellate  Body received a letter from the European  Union  referring to an 
anticipated appeal in this dispute, to the ongoing appeal in EC and certain m ember States – Large 
Civil Aircraft (Article  21.5 – US) (DS316 compliance proceedings) and to an imminent appeal in 
US – Tax Incentives  (DS487 ). In its letter, the European Union request ed that the hearings in all 
three appeals  be sufficiently proximate in  time so that a particular matter would not be effectively 
disposed of in one appeal before the related matter is heard in the other appeals.17 Following receipt 
of comments on the European  Union 's request by the United  States  and third participants, the 
Appellate  Body indicated by letter dated 22  December  2016 that it would bear in mind the 
 
9 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  1352. ( emphasis  original)  
10 Communication by the United  States, WT/DS353/15 (Compliance Communication), para.  2.  
11 Communication by the Parties, WT/DS353/14 (Understanding between the European Union and the 
United  States Regarding Procedures under Articles 21 and 22 of the DSU). Under the Sequencing Agreement, 
the parties agreed, inter alia , that if the matter should be referred to arb itration prior to the adoption by the 
DSB of its rulings following Article 21.5 proceeding s, they would, at the earliest possible moment, request the 
arbitrator under Article 22.6 to suspend its work.  
12 Request for consultations by the European Union, reco urse to Article  21.5 of the DSU, WT/DS353/16 
(European Union's consultations request), p.  2. 
13 Request for the establishment of a panel by the European Union, recourse to Article  21.5 of the DSU, 
WT/DS353/18 (European Union's panel request), para.  34.  
14 DSB, Minutes of Meeting held on 23  October  2012, WT/DSB/M/323, para.  81. At this meeting, the 
United  States stated its view that the panel was being established only under Article  21.5 of the DSU 
(WT/DSB/M/323, paras.  78 and 79).  
15 US – Large Civil Aircra ft (2nd complaint ), Recourse to Article 21.5 of the DSU by the European Union, 
Constitution of the Panel, Note by the Secretariat, WT/DS353/21 (circulated 5 November 2012), para. 3.  
16 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  5.1. 
17 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  1.21. The 
compliance panel in the DS316 dispute had circulated its report on 22  September  2016, and the 
European  Union had filed a notice of appea l in that dispute on 13  October  2016. (Appellate  Body Report, EC 
and certain member States – Large Civil Aircraft (Article  21.5 – US), paras.  1.11 and 1.14) The Appellate Body 
report in the DS316 compliance proceedings was circulated on 15  May 2018. (See Appellate  Body Report, US – 
Large Civil Aircraft (2nd complaint) (Article  21.5 – EU)) The DS316 proceedings are discussed further in 
section  5 below . WT/DS353/ARB  
 
- 14 - 
 
  European  Union 's request, as well as the comments received, during the appellate proceedings in 
the three disputes.18 
1.12.   On 9 June 2017, the compliance panel issued its report, finding, inter alia , that:  
a. the United  States  had failed to withdraw the subsidy  within the meaning of Article  7.8 of 
the SCM  Agreement  with regard to the pre -2007 NASA and DOD aeronautics R&D 
subsidies that were the sub ject of the DSB recommendations and rulings, and certain 
post-2006 measures of the United  States  that were challenged in the compliance 
proceeding s and which were found by the compliance panel to involve specific subsidies 
within the meaning of Articles 1 and 2 of the SCM  Agreement19; and  
b. the United  States  had failed to take appropriate steps to remove the adverse effects  within 
the meaning of Article  7.8 of the SCM  Agreement  as regards the Washington State B&O 
tax rate reduction, the effects of which were demonstrated by the European  Union  to be: 
(i) a genuine and substantial cause of significant lost sales within the meaning of 
Articles  5(c) and 6.3 of the SCM  Agreement  of A320neo and A320ceo families of LCA in 
the single -aisle LCA market, in respect of th e sales campaigns for Fly Dubai in 2014, Air 
Canada in 2013 and Icelandair in 2013, in the post -implementation period; and (ii) a 
genuine and substantial cause of threat of impedance of imports of the A320ceo to the 
United  States  single -aisle market, and a  threat of impedance of exports of Airbus 
single -aisle LCA in the United Arab Emirates (UAE) third -country market, within the 
meaning of Articles 5(c) and 6.3(a) and (b) of the SCM  Agreement  in the 
post-implementation period.20  
1.13.   The compliance panel also m ade a number of other findings, including the following:  
a. with respect to the European  Union 's claim that the United  States  had failed to comply 
with its obligation to take appropriate steps to remove the adverse effects within the 
meaning of Article  7.8 of the SCM  Agreement , the European  Union  had failed to establish : 
(i) that the effects of certain aeronautics R&D subsidies and other subsidies were a genuine 
and substantial cause of significant lost sales, significant price suppression, impedance of 
imports to the United  States  market or impedance of exports to various third -country 
markets, or threats of any of the foregoing , within the meaning of Articles 5(c) and 6.3(a), 
(b) and (c) of the SCM  Agreement , in respect of the A350XWB in the post -implementation 
period; or (ii) that the original adverse effects of the pre -2007 aeronautics R&D subsidies 
in respect of the A330 and Original A350 continue in the post -implementation period as 
significant price suppression of the A330 and A350XWB, significant lost sales of the 
A350XWB, or a threat of impedance of exports of the A350XWB in the twin -aisle LCA 
market, within the meaning of  Articles 5(c) and 6.3(a), (b) and (c) of the SCM  Agreement  
in the post -implementation period; and (iii) that the effects of the pre -2007 aeronautics 
R&D subsidies and the post -2006 subsidies are a genuine and substantial cause of 
significant price suppres sion of the A320neo or A320ceo, impedance of imports of the 
A320neo or A320ceo to the United  States ' market, or displacement and impedance of 
exports of the A320neo or A320ceo to the third -country markets of Australia, Brazil, 
Canada, Iceland, Indonesia, M alaysia, Mexico, Norway, Russia, and Singapore, within the 
meaning of Articles 5(c) and 6.3(a), (b) and (c) of the SCM  Agreement , or threats of any 
of the foregoing, in the post -implementation period21; and  
 
18 See Appellate  Body Reports, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  1.21; 
US – Tax Incentives , para.  1.5; and EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 1.23. 
19 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para. 11.7. The post -2006 
measures that were found to constitute specific subsidies within the meaning of Articles 1 and 2 of the 
SCM Agreement are listed in paragraph  11.7(b) of the panel repo rt. With respect to the tax exemptions and 
exclusions under FSC/ETI legislation and successor legislation, the compliance panel found that the 
European  Union had failed to establish that Boeing actually received the FSC/ETI tax benefits after 2006, and 
that the measure therefore involved a financial contribution within the meaning of Article  1.1(a)(1)(ii) of the 
SCM Agreement. (Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para. 11.7(c)(ii))  
20 Panel  Report, US – Large Civil Ai rcraft (2nd complaint) (Article  21.5 – EU), para. 11.8. 
21 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  9.177, 9.186, 9.197, 
9.216 -9.217, 9.218 -9.220, 9.355, 9.372 -9.373, and 11.8(a), (b) , and (e).  WT/DS353/ARB  
 
- 15 - 
 
  b. with respect to the European  Union 's claims under  Articles 3.1 and 3.2 of the 
SCM Agreement  and Article  III:4 of the GATT  1994 that, to the extent that the compliance 
panel had found that the claims were within the scope of the compliance proceeding, and 
that the measures at issue were subsidies within t he meaning of Article  1 of the 
SCM Agreement , the European  Union  had failed to establish  that the subsidies were 
inconsistent with Articles 3.1(a) and 3.2 or Articles 3.1(b) and 3.2 of the SCM  Agreement , 
or with Article  III:4 of the GATT  1994.22  
1.14.    In light  of the foregoing, the compliance panel concluded that, by continuing to be in violation 
of Articles 5(c) and 6.3(a), (b) and (c) of the SCM  Agreement , the United  States  had "failed to 
comply with the DSB recommendations and rulings and, in particular, the  obligation under Article  7.8 
of the SCM  Agreement  to 'take appropriate steps to remove the adverse effects or … withdraw the 
subsidy'".23  
1.15.   On 27 June 2017, the European Union notified  the DSB of its intention to appeal the 
compliance panel report and filed a notice of appeal.24 
1.16.   On 28  March  2019, the Appellate  Body issued its report in the compliance proceedings in this 
dispute. The Appellate  Body upheld the panel's findings concerning the existence of adverse effects 
in the post -implementation period , namely, that the European  Union  had established that the 
Washington State B&O tax rate reduction caused significant lost sales, within the meaning of 
Articles  5(c) and 6.3(c) of the SCM  Agreement , in the single -aisle LCA market, with respect to the 
Fly Dubai 2014, Icelandair 2013 and Air Canada 2013 sales campaigns, as well as a threat of 
impedance of imports of Airbus single -aisle LCA to the United  States  and exports of Airbus 
single -aisle LCA to the UAE, within the meaning of Articles 5(c) and 6.3(a) and (b) of the 
SCM Agreement , in the post -implementation period.25  
1.17.   The Appellate  Body also reversed various other findings of the compliance panel. Among the m 
were the findings that the Europ ean Union  had failed to demonstrate that the pre -2007 aeronautics 
R&D subsidies continued to cause adverse effects in the post -implementation period and that the 
United  States  continued to grant or maintain the FSC/ETI subsidy in the post -implementation pe riod. 
More specifically, the Appellate  Body: 
a. reversed the compliance panel's finding  that the European  Union  had failed to 
demonstrate: (i) that the acceleration effects of the pre -2007 aeronautics R&D subsidies 
in relation to Boeing's technology developme nt for the 78726 have continued into the 
post-implementation period; (ii) the existence of original subsidy technology effects of the 
pre-2007 aeronautics R&D subsidies in relation to Boeing's technology development for 
the 787 in the post -implementation p eriod; and (iii) the existence of spill -over technology 
effects of the pre -2007 aeronautics R&D subsidies on the 787 -9/10, the 777X, and the 
737MAX in the post -implementation period, as a consequence of which (and to that extent) 
the Appellate  Body also re versed the compliance panel's findings  that the European  Union  
had failed to establish that the pre -2007 aeronautics R&D subsidies are a genuine and 
substantial cause of any of the forms of serious prejudice alleged with respect to the 
A350XWB and A320neo in the post -implementation period, through a technology causal 
mechanism. The Appellate  Body further found that it was unable to complete the analysis  
 
22 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  11.9. 
23 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  11.10.  
24 WT/DS353/27; Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), 
para. 1.22.  
25 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  5.569 and 
6.13(b). The Appellate  Body report presents the compliance panel's findings as being in relation to the " tied 
tax" subsidies. However, the compliance panel's findings in paragraphs 9.407, 9.444 , and 11.8.c -d of the 
compliance panel report refer specifically to the Washington State B&O tax rate reduction. In its report, the 
compliance panel identifies the meas ures included within the category of "tied tax" subsidies in the twin -aisle 
market at paragraph 9.234 (" {t}he tied tax subsidies … are the Washington State and City of Everett B&O tax 
rate reductions") and in the single -aisle market at paragraph 9.378 ("{t }he subsidy within the tied tax 
subsidies aggregated category … is the Washington State B&O tax rate reduction").  
26 These acceleration effects are described in paragraph 5.373 of the Appellate  Body report in the 
compliance proceedings.  WT/DS353/ARB  
 
- 16 - 
 
  with regard to whether there remained acceleration effects of the pre -2007 aeronautics 
R&D subsidies in the post -implementation period27; and  
b. reversed the compliance panel's finding  that the European  Union  had failed to establish 
that, after the expiry of the implementation period, the United  States  grants or maintains 
subsidies to Boeing in the  form of FSC/ETI tax concessions. The Appellate  Body completed 
the analysis  and found that, to the extent that Boeing remained entitled to FSC/ETI tax 
concessions in the post -implementation period, the United  States  had not ceased to 
provide a financial co ntribution and thus had not withdrawn FSC/ETI subsidies with respect 
to Boeing within the meaning of Article  7.8 of the SCM  Agreement .28 
1.18.   The Appellate  Body report and the compliance panel report, as modified by the 
Appellate  Body, were adopted by the DSB o n 11 April 2019.29  
1.2  Referral to arbitration and arbitration proceeding  
1.19.   On 27  September  2012, the European  Union  requested authorization from the DSB to "take 
countermeasures that are appropriate {within the meaning of Article 4.10 of the SCM Agreement}, 
and commensurate with the degree and nature of the adverse effects determined to exist {within 
the meaning of Art icle 7.9 of the SCM Agreement}". In its request, the European  Union  considered 
that "countermeasures consistent with these standards total{led} approximately {United  States  
Dollar (USD)} 12 billion annually".30 
1.20.   The European  Union 's request states that the European  Union  intends, in the first instance, 
to take countermeasures in the goods sector but that, consistent with Article  22.3(c) of the DSU, 
the European  Union  considers that it is not practicable or effective to take countermeasures in the 
goods secto r up to the full amount of USD 12 billion, and that the circumstances are serious enough, 
given, inter alia , the degree and nature of the adverse effects and serious prejudice. Accordingly, 
the European  Union  advised that its countermeasures would consist of one or more of the following:  
a. suspension of tariff concessions and other related obligations under the GATT  1994 on a 
list of US products to be established in due course;  
b. suspension of concessions and other obligations under the SCM  Agreement ; and 
c. under the General Agreement on Trade in Services (GATS), suspension of horizontal or 
sectoral commitments contained in the consolidated EU Schedule of Specific 
Commitments, as supplemented to incorporate the individual Schedules of Specific 
Commitments of its Member States, with regard to all principal sectors identified in the 
Services Sectoral Classification List.31 
1.21.   On 22  October  2012, the United  States  objected to the level of suspension of concessions or 
other obligations proposed by the European  Union  and claimed that the European  Union  had not 
followed the principles and procedures set forth in Article  22.3 of the DSU. Further, the United  States  
stated that there was no legal basis for the European  Union  to request authorization for 
 
27 Appellate  Body Re port, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  5.416, 
5.420 -5.421, 5.443, and 6.11. The Appellate  Body expressly upheld the compliance panel's finding (in 
paragraphs 9.332 and 11.8(b) of the compliance panel report) that the Eu ropean Union had failed to establish 
that the effects of the pre -2007 aeronautics R&D subsidies continued into the post -implementation period as 
present serious prejudice in relation to the A330 and A350XWB, within the meaning of Articles 5(c) and 6.3 of 
the SCM  Agreement. (Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), 
paras.  5.362 -5.363 and 6.10(b))  
28 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), 
paras.  5.171 -5.172 and 6.4.  
29 Appellate  Body Report and Panel  Report pursuant to Article  21.5 of the DSU, Action by the Dispute 
Settlement Body , WT/DS353/32.  
30 Recourse to Article  22.2 of the DSU, and Articles 4.10 and 7.9 of the SCM  Agreement by the 
European  Union, WT/DS353/17. The Eur opean Union's request indicates that the European Union may update 
this amount annually using the most recently available data.  
31 Recourse to Article  22.2 of the DSU, and Articles 4.10 and 7.9 of the SCM  Agreement by the 
European  Union, WT/DS353/17.  WT/DS353/ARB  
 
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  countermeasures pu rsuant to Article  4.10 of the SCM  Agreement  considering that there were no 
DSB recommendations under Article  4 of the SCM  Agreement .32 
1.22.   At the DSB meeting on 23  October  2012, the DSB agreed that the matter raised by the 
United  States in document WT/DS353/19  had been referred to arbitration, as required by 
Article  22.6 of the DSU.33 The Arbitrator was constituted on 5  November  201234 and was composed 
of the original panelists:  
Chairperson:  Mr Crawford Falconer  
 
Members:   Mr Francisco Orrego Vicuña  
   Mr Vira chai Plasai  
   
1.23.   In accordance with the terms of the parties' Sequencing Agreement, and upon a joint request 
from the parties, the Arbitrator suspended the arbitration proceeding from 28  November  2012 until 
either party requested the resumption of its work.35  
1.24.   On 5 June 2019 (55 days following the DSB's adoption of the Appellate  Body and panel reports 
in the compliance proceedings on 11  April 2019), the European  Union  requested the resumption of 
the Arbitrator's work. The Arbitrator resumed its work on that d ay.36 Due to the unavailability of the 
original appointees to serve as members of the Arbitrator, the Director -General appointed a new 
Chairperson and new members of the Arbitrator on 3  June 2019, pursuant to a request from the 
European  Union  made on 20  May 2019.37 The new composition of the Arbitrator was as follows:  
 
Chairperson:  Ms Andrea Marie Dawes ( née Brown)  
 
Members:   Ms Tracey Epps  
   Mr Eduardo Muñoz  
 
1.25.   An organizational meeting was held on 27  June 2019 to discuss procedural aspects of the 
arbitration proceeding. Both prior and subsequent to the organizational meeting, in letters dated 
25 June 2019 and 1  July 2019, respectively, the European  Union  raised concerns regarding the draft 
timetable that the Arbitrator had sent to the parties in ad vance of the meeting. The European  Union  
argued that the timetable proposed by the Arbitrator was unacceptable in light of the timetable that 
had been adopted by the arbitrator in EC and certain member States – Large Civil Aircraft 
(Article  22.6 – EU) (DS316 arbitration proceeding). The European  Union  urged the Arbitrator, in the 
interests of "even -handedness", to reconsider the proposed timetable and hold the substantive 
meeting with the parties in December 2019 rather than 11 -13 February  2020 as had been proposed 
by the Arbitrator in its draft timetable.38  
1.26.   The United  States  responded at the organizational meeting and subsequently in writing on 
1 July 2019 that it had no objections to the timetable proposed by the Arbitrator. It argued that the 
European  Union's proposal for rigid correspondence between the timetables adopted by this 
Arbitrator and the arbitrator in the DS316 arbitration proceeding  was misplaced and would raise 
concerns of improper linking of disputes, which would be contrary to Article  3.10 of the DSU. The 
United  States  argued that, in any event, the draft timetable proposed by the Arbitrator was 
substantially similar to the timetable adopted in the DS316 arbitration proceeding . The United  States  
urged the Arbitrator to base its timetable on  the substantive complexity of the matter, the time the 
parties needed to address the issues fully, and the time the Arbitrator needed to render a decision 
consistent with its mandate.39 
 
32 Recourse to Article  22.6 of the DSU by the United  States, WT/DS353/19.  
33 DSB, Minutes of the meeting held on 23  October  2012, WT/DSB/M/323, para.  74. 
34 Constitution note of the Arbitrator, WT/DS353/20.  
35 Communication from the Arbitrator, W T/DS353/22 (Suspension of the Work of the Arbitrator). See 
fn 11 above.  
36 Communication from the Arbitrator, WT/DS353/33 (Resumption of the Work of t he Arbitrator).  
37 Constitution note of the Arbitrator, WT/DS353/3/Add.1.  
38 European Union's communications (25  June 2019 and 1  July 2019).  
39 United  States' communication (1  July 2019).  WT/DS353/ARB  
 
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  1.27.   On 8 July 2019, the Arbitrator sent a revised draft timetable to the parties along with a 
communication addressing the various points raised by the European  Union  regarding the timetable  
and advising that the Arbitrator had decided that it would be possible to bring the dates of the 
substantive meeting forward by two weeks without unduly compromising its ability to adequately 
prepare for the meeting .40 After ensuring that the parties had no conflicts that would prevent them 
from participating in the substantive meeting on the dates 28 -30 January  2020, the Arbitrator 
adopted its timetable on 9  July 2019.41 
1.28.   On 8  July 2019, the Arbitrator adopted its Working Procedures and Additional Working 
Procedures Concerning Protection of Business Confidential Information (BCI) and Highly Sensitive 
Business Information (HSBI) (BCI/HSBI Proc edures).42 On 6 December  2019, the Arbitrator adopted 
Additional Working Procedures for the Substantive Meeting with the Arbitrator concerning the 
recording and delayed public presentation of the opening oral statements of the parties at the 
substantive me eting  (see section 2.2 below).43 
1.29.   In accordance with the timetable and Working Procedures adopted by the Arbitrator, the 
European  Union  submitted on 25  July 2019 a communication explaining its methodology for 
calculating the proposed level of suspension , "correspond{ing} to approximately {USD}  10.02 
billion" annually .44 The United  States  filed its written submission on 12  September  2019. The 
European  Union  filed its written submission on 17  October  2019. The Arbitrator sent a first set of 
questions to the parties for written responses on 7  November  2019, to which the parties responded 
on 21  November  2019.  
1.30.   The Arbitrator held its substanti ve meeting with the parties from 28 -30 January  2020. On 
6 February  2020, following the substantive meeting with the parties, the Arbitrator sent a second 
set of written questions to the parties for written responses by 20  February  2020 and comments, if 
any, on the other party's responses by 5  March  2020.  
1.31.   In a letter dated 10  February  2020, the United  States  requested the Arbitrator to extend the 
deadline for responses to 2  March  2020 and the deadline for comments on responses to 
16 March  2020. In support of its request, the United  States  advised that it would need to consult 
with Boeing to obtain the documents and the information requested by the Arbitrator, and identified 
various steps in this process that would require time and resources on the p art of the United  States  
and of Boeing. Finally, the United  States  noted that the arbitrator in the DS316 arbitration 
proceeding had , in similar circumstances,  extended by ten days the deadline to submit responses to 
the questions sent by that arbitrator a fter the substantive meeting.45 
1.32.   The European  Union  responded that the Arbitrator should reject the United  States ' request, 
arguing that the United  States ' comparison of the current circumstances with those in which the 
arbitrator in the DS316 arbitration p roceeding extended the deadline for responses as a basis to 
justify its request  was flawed and unavailing because the number of questions posed and documents 
sought by that arbitrator were far greater than what was being requested by the Arbitrator in this 
proceeding. It also noted that many of the questions that formed part of the second set of written 
questions had already been posed orally to the parties at the substantive meeting with the parties, 
which further reduced the number of questions to which t he United  States  had to prepare fresh 
responses. Finally, the European  Union  argued that, as a prudent litigant, the United  States  would 
 
40 Arbitrator's communication to the parties regarding the timetable a nd Working Procedures, 
(8 July 2019), Annex C -1. 
41 On 10 September 2019, the Chairperson of the Arbitrator received a letter from the CEO of Air Baltic 
Corporation, co -addressed, inter alia , to the Chairperson of the DS316 arbitrator and the Director -Gener al of 
the WTO and urging "the WTO to encourage and facilitate the parties towards settlement discussions by 
coordinating the decisions of the {arbitrators} in both proceedings". On 13 September 2019, the Arbitrator 
forwarded the letter of 10 September 2019  to the parties. On 18 September 2019, the Arbitrator replied by 
letter to the CEO of Air Baltic Corporation, acknowledging receipt of the letter of 10 September 2019 and 
advising that the Arbitrator had forwarded the letter to the parties.  
42 See Working Procedures of the Arbitrator, Annex A -1; and Additional Working Procedures for the 
Protection of Business Confidential Information and Highly Sensitive Business Information, Annex A -2. 
43 See Additional Working Procedures for the Substantive Meeting with th e Arbitrator, Annex A -3. 
44 European Union's methodology paper, para. 216 (emphasis omitted). But see para. 6.6.c below and 
fns 123 and 597 for subsequent revisions by the European Union of the proposed level of suspension . 
45 United  State s' communication (10  February  2020).  WT/DS353/ARB  
 
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  have consulted the documents requested by the Arbitrator in developing its positions so far in th is 
proceeding.46 
1.33.   In a communication to the parties dated 14  February  2020, the Arbitrator advised that it had 
decided to revise the deadlines for responses to the Arbitrator's second set of written questions to 
2 March  2020 and for comments on responses to 16  March  2020. In its  communication, the 
Arbitrator acknowledged the European  Union 's concerns and noted that it did not expect this 
extension to materially delay the Arbitrator's overall work.47 The timetable was accordingly revised 
on 14  February  2020.  
1.34.   The Arbitrator on 28 September 2020  issued to the parties a version of its Decision containing 
BCI and a redacted version intended for public circulation. The Arbitrator provided its HSBI 
calculat ions underlying the number in paragraph 6.311 of this Decision on the same date. The parties 
returned with requests for changes to redactions on 2 October 2020 . In response to media reports 
that appeared beginning on 30 September 2020, which contained the Arbitrator's calculated level of 
countermeasures, the Arbitrator issued a communication to the parties contained in Annex C -11. 
The Decision of the Arbitrator was circulated to WTO Members on  13 October 2020 .  
2  PROCEDURAL MATTERS  
2.1.  In this section, the Arbitrator addresses five procedural matters: (a) the treatment of BCI and 
HSBI; (b) the decision to record portions of the substantive meeting for a later presentation to the 
public; (c) an objection raised by the United  States  regarding the use of certai n HSBI by the 
European  Union  in its responses to the Arbitrator's questions to the parties; (d) communications 
between the Arbitrator and the parties pertaining to the effects of the C ovid-19 pandemic on the 
work of the Arbitrator; and (e) the United  State s' request for leave to file an additional submission 
regarding the purported elimination of the Washington State B&O tax rate reduction as of 
1 April 2020.  
2.1  Treatment of BCI and HSBI  
2.2.  As previously noted, the Arbitrator adopted BCI/HSBI Procedures on 8  July 2019.48 The 
BCI/HSBI Procedures, inter alia , (a) define BCI and HSBI for the purposes of th is proceeding, (b) 
limit access to, and permissible use of, BCI and HSBI submitted during the proceeding to certain 
pre-designated persons and at certain designated  secure locations where applicable, and (c) provide 
for the treatment and handling of BCI and HSBI in a party's submissions to the Arbitrator.49 
2.3.  Additionally, the BCI/HSBI Procedures provide that the Arbitrator shall not disclose BCI and 
HSBI in its Decisi on but may make statements or draw conclusions that are based on the information 
drawn from BCI and HSBI. The BCI/HSBI Procedures also provide that, prior to circulating the 
Decision of the Arbitrator to the WTO membership, the parties shall be given an op portunity to 
ensure that the Decision does not contain any BCI or HSBI. The relevant paragraphs of the BCI/HSBI 
Procedures form the "legal basis"50 on which the Arbitrator has redacted words or statements that 
are BCI or HSBI from the public version of thi s Decision. Accordingly, the text of the version 
circulated to Members is identical to the text of the confidential version issued to the parties, with 
the exception of passages that are redacted to protect BCI and HSBI. Such passages have been 
replaced by  "[[***]]" and " [[HSBI]]", respectively.  
2.4.  In the adoption and application of the BCI/HSBI Procedures, the Arbitrator has strived to 
"ensure that an appropriate balance is struck between the need to guard against the risk of harm 
that could result from the d isclosure of particularly sensitive information, on the one hand, and the 
 
46 European Union's communication (12 February 2020).  
47 Arbitrator's communication to the parties regarding the United  States' request for extension of the 
date for responses to questions, (14  February  2020), Annex C -3. 
48 See Additional Working Procedures for the Protection of Business Confidential Information and Highly 
Sensitive Business Information, Annex A -2. 
49 The BCI/HSBI Procedures , as originally adopted, additionally provide d that the Arbitrator would , in 
consultation with the parties, establish appropriate procedures for return and destruction of BCI and HSBI 
submitted by the parties to the Arbitrator in due course, but at no time later than the Conclusion of the 
Arbitration Process as defined in the BCI/HSBI Procedures.  Such procedures were adopted on 9 October 2020.   
50 Appellate  Body Report, US – Tuna II (Mexico) (Article  21.5 – Mexico) , para.  5.4. WT/DS353/ARB  
 
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  integrity of the adjudication process … and the rights of and systemic interests of the WTO 
membership at large, on the other hand".51 We have also tried to ensure that the public ve rsion of 
the Decision circulated to all Members of the WTO is comprehensible .52 Having said that, we consider 
it important to note that a substantial portion of the evidence submitted by the parties in th is 
proceeding is protected under the BCI/HSBI Proced ures and that, therefore, the Arbitrator has had 
to have reference to information designated as BCI or HSBI.  
2.5.  In accordance with the BCI/HSBI Procedures, the parties on 2 October 2020 submitted specific 
requests regarding the redaction of confidential info rmation from the public version of this Decision 
and on 6 October 2020 submitted comments on each other's requests. In response to these 
communications, we made appropriate changes to the public version of our Decision .  
2.2  Public presentation of the parties'  opening statements  
2.6.  At the organizational meeting, both parties agreed that the substantive meeting of the 
Arbitrator with the parties should be made available to the public to the extent that it was reasonable 
to do so. In this context, r ecognizing the ne ed to protect the confidentiality of BCI and HSBI that 
could be referred to at the substantive meeting, both parties agreed that additional working 
procedures should be adopted for the substantive meeting of the parties with the Arbitrator. On 
6 December  2019, the Arbitrator adopted Additional Working Procedures for the Substantive Meeting 
with the Arbitrator (Additional Working Procedures).53 The Additional Working Procedures address 
issues pertaining to the treatment of BCI and HSBI during the substantive meeting generally, as 
well as issues more specifically pertaining to the parts of the meeting intended to be made available 
to the public.  
2.7.  The substantive meeting of the Arbitrator with the parties was held from 28 -30 January  2020, 
during which the parties' opening oral statements were recorded for a later presentation to the public 
in accordance with the terms of the Additional Working Proce dures. The parties were invited to a 
preview of the video recording on 10  February  2020, which both parties attended and at which the 
parties identified utterances of BCI during the opening oral statements that were later deleted before 
the public presenta tion. The public presentation of the redacted recording of the parties' opening 
oral statements took place on 5  March  2020 at the WTO.  
2.3  The United  States ' allegations regarding the European  Union 's use of certain US HSBI 
submitted in the DS316 arbitration p roceeding  
2.8.  Shortly prior to the close of business on 27  January  2020, the day before the substantive 
meeting of the Arbitrator with the parties, the United  States  sent a letter to the Chairperson of the 
Arbitrator objecting to the alleged improper use of US  HSBI by the European  Union  in its written 
responses to Arbitrator question Nos. 23 and 26 submitted by the European  Union  on 
21 November  2019. Specifically, the United  States  complained that the European  Union  had 
included certain information related to t he methodology and related terminology used by Boeing to 
calculate the "Boeing Net Price" and "Boeing Gross Price" which had been provided by Boeing to the 
United  States  and had been in turn submitted as US HSBI in the DS316 arbitration proceeding. The 
United States  argued that the European  Union 's submission in th is proceeding of information that 
had been designated as US HSBI in the DS316 arbitration proceeding was improper. The 
United  States  further considered that, under the terms of the BCI/HSBI proced ures in place in the 
DS316 arbitration proceeding, the European  Union  should previously have destroyed all US HSBI in 
its possession. Thus, the United  States  considered that this information was no longer validly in the 
European  Union 's possession and had been disclosed by the European  Union  in this proceeding in 
violation of the BCI/HSBI procedures in the DS316 arbitration proceeding. The United  States  
requested the Arbitrator to instruct the European  Union  to re-submit its responses to the Arbitrator's 
question Nos. 23 and 26 with all references to improperly sourced US HSBI duly removed and to 
instruct the European  Union  and WTO authorized persons to destroy all copies of the 
European  Union 's responses containing references to improperly sourced US HSBI.54  
 
51 Appellate  Body Reports, US – Tuna II (Mexico) (Article  21.5 – Mexico) , para . 5.3; and EC and certain 
member States – Large Civil Aircraft , Annex III, Procedural Ruling of 10 August 2010, para.  15.  
52 Appellate  Body Report, Japan – DRAMS (Korea) , para.  279. 
53 See Additional Working Procedures for the Substantive Meeting with the Arbitrator, Annex A -3. 
54 United  States' communication (27  January  2020).  WT/DS353/ARB  
 
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  2.9.  In a letter to the Arbitrator dated 31  January  2020, the European  Union  objected "in the 
strongest terms" to the United  States ' allegations. The European  Union  stated that it did not include 
US HSBI material from the DS316 arbitration proceeding in its responses to the Arbitrator's questions 
and that it had not shared US HSBI from the DS316 arbitration proceeding with Airbus. Rather, the 
European  Union  had obtained the information on the elements of Boeing's pricing contained in its 
responses to Arbitrat or question Nos. 23 and 26 exclusively from Airbus. Moreover, the 
European  Union  confirmed that, as required by the BCI/HSBI procedures in that proceeding, the 
European  Union  had destroyed all US HSBI material from the DS316 arbitration proceeding within 
the time limits set by the DS316 arbitrator. The European  Union  requested that the Arbitrator  reject 
the United  States ' allegations as unsupported and without merit. Additionally, the European  Union  
expressed regret that the United  States  had chosen to raise its concerns in a letter filed more than 
two months after receiving the European  Union 's responses to the Arbitrator's questions and "a mere 
15 minutes before the close of business on the day bef ore the oral hearing". Finally, the 
European  Union  argued that the United  States ' action had the result of depriving the Arbitrator and 
the European  Union  of the opportunity for an exchange of views at the substantive meeting on the 
issues covered by the E uropean  Union 's responses to the particular questions of the Arbitrator, 
thereby compromising the European  Union 's due process rights. It therefore requested the Arbitrator 
to issue a ruling to the effect that the United  States  should not be allowed to dev elop further its 
arguments and evidence on those issues for the remainder of th is proceeding.55 
2.10.   On 4 February 2020, the United  States  referred to the European  Union 's letter of 
31 January  2020, noting that it had no basis to question the veracity of the Eu ropean  Union 's 
assertions that it had obtained the relevant Boeing pricing information from its discussions with 
Airbus, and accordingly withdrew its objections to the use of the information in the European  Union 's 
response to Arbitrator question Nos. 23 a nd 26.56 
2.11.   The Arbitrator sent a communication to the parties on 6  February  2020 in which it noted that 
the United  States ' withdrawal of its objections to the use of the information in the European  Union 's 
response to Arbitrator question Nos. 23 and 26 effectively made moot the United  States ' objection 
and associated requests for Arbitrator action included in its letter of 27  January  2020. Therefore, the 
Arbitrator considered it unnecessary, and accordingly declined, to rule on the United  States ' 
objecti on and its associated requests for Arbitrator action. With regard to the European  Union 's 
allegation that the United  States  had compromised its due process rights, the Arbitrator stated that 
it was unable to discern a way in which the European  Union  was de prived of a meaningful opportunity 
to comment on any particular issue before the Arbitrator relating to the topics covered in question 
Nos. 23 and 26. It further noted that the European  Union  had had an opportunity to comment on 
the issues presented by the  Arbitrator in question Nos. 23 and 26 in its responses to those questions, 
and that the European  Union  would have an opportunity to further offer its comments with respect 
to these issues following the Arbitrator's second set of questions to the parties.57 
2.4  Impact of the C ovid-19 pandemic on the work of the Arbitrator  
2.12.   The Arbitrator issued a series of communications to the parties related to facilitating the work 
of the Arbitrator in the light of the difficulties arising from the Covid -19 pandemic.58 In par ticular, 
on 1 April 2020, the Arbitrator informed the parties that the WTO Director -General had directed that 
all staff members (with the exception of certain "critical" staff members) should work from home as 
of 16 March  2020, until the end of April 2020, due to concerns arising from the Covid -19 pandemic. 
The Arbitrator indicated that these restrictions on Secretariat access to the WTO premises had 
implications for the Secretariat's ability to work with HSBI, which could not be stored, or accessed 
from, outside the WTO premises under the BCI/HSBI Procedures. The Arbitrator therefore asked the 
parties if they would be willing to waive relevant restrictions imposed by those procedures in order 
to enable certain Secretariat s taff to store and work with the parties' HSBI at their homes, and to 
 
55 European Union's communication (31  January  2020).  
56 United  States' communication (4 February 2020).  
57 Arbitr ator's communication to the parties regarding certain HSBI, (6  February  2020), Annex C -2.  
58 See Arbitrator's communication to the parties regarding restrictions on access to the WTO premises 
and to HSBI due to Covid -19, (1  April 2020), Annex C -4; Arbitrat or's communication to the parties regarding 
access to HSBI in the context of Covid -19, (23  April 2020), Annex C -5; and Arbitrator's communication to the 
parties regarding phased relaxation of restrictions on access to WTO premises due to Covid -19, (4  May 2020), 
Annex C -6.  WT/DS353/ARB  
 
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  discuss HSBI over secure communications platforms.59 On 8 April 2020, the parties responded to 
this communication but there was a lack of agreement between the parties as to whether the 
proposed alternative arrangements for working with HSBI should be implemented.  
2.13.   On 23  April 2020, the Arbitrator informed the parties that, in the light of the parties' lack of 
agreement on whether to implement alternative HSBI storage and access arrangemen ts as proposed 
in its communication of 1  April 2020, the Arbitrator would not implement such alternative 
arrangements. The Arbitrator assured the parties that it would continue advancing  its work in this 
proceeding while the restrictions on access to the W TO premises remained in effect, and would make 
every effort to minimize the effects of the Covid -19 pandemic on the Arbitrator's work.60  
2.14.   On 4 May 2020, the Arbitrator informed the parties that a phased reintroduction of Secretariat 
staff to the WTO premis es was planned to begin on 11  May 2020 (at which time Secretariat staff 
members assisting the Arbitrator could once again begin to access HSBI). Further, the Arbitrator 
informed the parties that the Arbitrator continued to make progress with its work in th is proceeding, 
and expected to continue to do so while restrictions on access to the WTO premises remained in 
effect.61 
2.15.   On 17  June 2020, the Arbitrator informed the parties that it had carefully considered the 
adjustments required by the Covid -19 pandemic,  and that, in the light of such adjustments, the 
earliest time that it expected to provide the Decision to the parties for purposes of ensuring proper 
redaction of BCI and HSBI would be the end of September 2020.62 The European  Union  sent a 
subsequent comm unication to the Arbitrator on 22  June 2020 objecting to that estimated date. In 
response, on 26  June 2020, the Arbitrator assured the parties that, despite the multiple challenges 
arising from the Covid -19 pandemic that impaired the Secretariat's and Arbi trator's modalities for 
work and that greatly affected their workplaces, families, communities, and countries, the Arbitrator 
was working diligently towards fulfilling the Arbitrator's mandate in th is proceeding.63 
2.16.   Further, on 5 and 19  August  2020 (in resp onse to a letter from the European Union on 10 
August 2020 ), the Arbitrator issued communications to the European  Union  indicating that the 
Covid -19 pandemic had presented serious challenges for air travel and, as a result, the Arbitrator 
was considering conducting its final meetings remotely. In such communications, the Arbitrator 
therefore requested the European  Union 's permission for the Arbitrator and other WTO Approved 
persons to discuss certain, limited amounts of European  Union  HSBI on Skype for Business in order 
to facilitate such potential remote meetings of the Arbitrator.64 The European  Union  agreed to these 
requests. 
2.5  The United  States ' request for leave to file an additional submission regarding the 
purported elimination of the Washington State B&O tax rate reduction as of 1  April  2020  
2.17.   On 13  May 2020, the Arbitrator received a letter from the United  States  advisi ng that the 
State of Washington had, effective 1  April 2020, eliminated the B&O tax rate reduction. In that letter, 
the United  States  requested leave to file an additional "Submission of the United States regarding 
the Withdrawal of the Washington State B& O Tax Rate Subsidy", attached to the letter of 
13 May 2020, and purporting to set out "the implications of the elimination of this measure on the 
permitted level of countermeasures".65 The European  Union  responded to the United  States ' letter 
on 20 May 2020, arguing that the Arbitrator should reject the United  States ' request. The 
United  States  submitted a reply to the European  Union 's response on 22  May 2020. The 
 
59 Arbitrator's communication to the parties regarding restrictions on access to the WTO premises and to 
HSBI due to Covid -19, (1  April 2020), Annex C -4.  
60 Arbitrator's communication to the parties regarding access to HSBI in the context of Covid -19, 
(23 April 2020), Annex C -5. 
61 Arbitrator's communication to the parties regarding phased relaxation of restrictions on access to 
WTO premises due to Covid -19, (4  May 2020), Annex C -6. 
62 Arbitrator's decision on the United  States' reque st for leave to file an additional submission regarding 
the implications of the purported elimination of the Washington State B&O tax rate reduction on the permitted 
level of countermeasures, (17  June 2020), Annex C -7. 
63 Arbitrator's communication to the p arties, (26  June 2020), Annex C -8. 
64 Arbitrator's communication to the parties requesting authorization to discuss specific EU HSBI , 
(5 August  2020), Annex C -9; and Arbitrator's communication to the parties requesting authorization to discuss 
additional sp ecific EU HSBI , (19 August  2020), Annex C -10. 
65 United  States' communication  (13 May 2020). WT/DS353/ARB  
 
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  European  Union  was invited by the Arbitrator, but declined, to submit further comments on the 
United  States ' reply.  
2.18.   On 17  June 2020, the Arbitrator issued a ruling denying leave on the grounds that the 
United  States ' request for leave lack ed substantive merit, was untimely, and/or was moot, and that 
filing an additional submission was accordingly neither necessary for purposes of rebuttal nor 
supported by good cause. The Arbitrator's ruling on the United  States ' request is appended to this 
Decision at Annex C -7. 
3  MANDATE OF THE ARBITRATOR  
3.1.   This arbitration proceeding result s from the U nited States ' objection to the European  Union 's 
request for countermeasures. In having recourse to arbitration under Article  22.6 of the DSU, the 
United  States  objects to the level of countermeasures contained in the European  Union 's request for 
authorizat ion to take countermeasures under Article  22.2 of the DSU and Article  7.9 of the 
SCM Agreement . The United  States  also claims that the principles and procedures set forth in 
Article  22.3 of the DSU have not been followed.  
3.2.  Article  7.9 of the SCM  Agreement  provides that if certain conditions are met, "the DSB shall 
grant authorization to the complaining Member to take countermeasures, commensurate with the 
degree and nature of the adverse effects determined to exist, unless the DSB decides by consensus 
to rej ect the request ." Article  7.10 of the SCM  Agreement  provides that "{i}n the event that a party 
to the dispute requests arbitration under paragraph 6 of Article  22 of the DSU, the arbitrator shall 
determine whether the countermeasures are commensurate with the degree and nature of the 
adverse effects determined to exist."  
3.3.  This arbitration proceeding  is governed by both Article  7.10 of the SCM  Agreement  and 
Article  22.6 of the DSU.66 Article  22.7 of the DSU defines the mandate for an arbitrator acting 
exclusi vely under Article  22.6; that is, the arbitrator "shall determine whether the level of suspension 
is equivalent to the level of nullification or impairment". Article  7.10 of the SCM  Agreement  defines 
the mandate of an arbitrator somewhat differently. It st ates that in the event that a party to a 
dispute requests arbitration under Article  22.6 of the DSU, the arbitrator "shall determine whether 
the countermeasures are commensurate with the degree and nature of the adverse effects 
determined to exist". In acc ordance with the status of Article  7.10 of the SCM  Agreement  as one of 
the special or additional rules and procedures listed in Appendix 2 of the DSU, we conduct this 
arbitration with reference to the mandate set out in Article  7.10 of the SCM  Agreement .67  
3.4.  Articles 7.9 and 7.10 constitute "special or additional rules and procedures" under Appendix 2 
of the DSU. According to Article  1.2 of the DSU, "{t}o the extent that there is a difference between 
the rules and procedures of this Understandin g and the special or additional rules and procedures 
set forth in Appendix 2, the special or additional rules and procedures in Appendix 2 shall prevail".  
3.5.  As indicated in Article  7.10, our mandate in th is arbitration proceeding is to determine whether 
the countermeasures proposed by the European  Union  are "commensurate with the degree and 
nature of the adverse effects determined to exist". However, should we find that the level of 
countermeasures proposed by the European  Union  is not commensurat e, we must go on to make 
our own determination of the level of countermeasures that is commensurate with the degree and 
nature of adverse effects determined to exist.68 Similarly, should we determine that the methodology 
proposed by the European  Union  for calculating the level of countermeasures, or any alternative 
methodology proposed by the United  States , has shortcomings and is not appropriate, as presented, 
 
66 Article  7.10 refers explicitly to a request for arbitration under Article  22.6 of the DSU, thereby 
confirming that arbitrations governed by Article  7.10 of the SC M Agreement are, at the same time, governed 
by Article  22.6 of the DSU. Article  4.11 of the SCM  Agreement, which begins with an introductory clause that 
states: "In the event a party to the dispute requests arbitration under paragraph 6 of Article  22 of th e {DSU}", 
likewise confirms that arbitrations under Article  4.11 are, at the same time, arbitrations under Article  22.6 of 
the DSU.  
67 This is consistent with the approach of the DS316 arbitrator, another arbitration under Article  7.10 of 
the SCM  Agreement.  (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft 
(Article  22.6 – EU), para.  3.4 and fn  75 thereto ) 
68 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft 
(Article  22.6 – EU), para.  3.4 and aut horities referred to in fn  76 thereto.  WT/DS353/ARB  
 
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  we may either make appropriate adjustments, or develop another, appropriate, methodology 
ourselve s.69 
3.6.  In that context, regarding the standard that governs our assessment of the assumptions 
underlying the parties' proposed methodologies, we agree with previous arbitrators' statements to 
the effect that any "'assumptions {used by the parties' methodolog ies} should be reasonable, taking 
into account the circumstances of the dispute'. We also find relevant the finding made in several 
arbitration proceedings that assumptions should be based on 'credible, factual, and verifiable 
information'".70 Furthermore,  our assessment of the parties' arguments and the evidence on the 
record must be performed in an objective manner.  
3.7.  The general provisions of Article  22.7 of the DSU are also relevant to our mandate. They specify 
that "if the matter referred to arbitration includes a claim that the principles and procedures set 
forth in {Article 22.3 of the DSU} have not been followed, the arbitrator shall examine that claim". 
It is therefore also within our mandate to examine the United  States ' claim that the European  Union  
did not follow the principles and procedures set forth in Article  22.3 of the DSU. While the 
United  States ' objection to the level of suspension of concessions or other obligations included a 
claim that the principles and procedures set forth in Article  22.3 of the DSU have not been followed 
by the European  Union  in considering what countermeasures to take, the United  States  does not 
pursue that claim in its submissions in this proceeding.  
4  BURDEN OF PROOF  
4.1.  The United  States , in having recourse to arbitratio n under Article  22.6 of the DSU, objects to 
the level of countermeasures proposed by the European  Union .  
4.2.  The United  States  submits that it therefore bears the initial burden of establishing a prima facie  
case that the countermeasures proposed by the Europ ean Union  are not commensurate with the 
degree and nature of the adverse effects determined to exist. It considers that, having done this, 
the burden then shifts to the European  Union  to rebut the United  States ' case.71 The European  Union  
argues that the United  States  bears the burden of proof and the burden of persuasion that the 
European  Union 's methodology results in countermeasures that are "inconsistent" with Articles 7.9 
and 7.10 of the SCM  Agreement ; i.e. that the United  States  must establish that the countermeasures 
proposed by the European  Union  are not "commensurate with the degree and nature of the adverse 
effects determined to exist."72 The European  Union  refers to three paragraphs from the decision of 
the DS316 arbitrator regar ding the allocation of the burden of proof where the original respondent 
objects to the level of countermeasures. The relevant portions of these paragraphs are as follows:  
It is clear from previous arbitrations under Article  22.6, and the parties do not di spute, 
that the party challenging the proposed countermeasures bears the burden of 
establishing a prima facie  case that such countermeasures are inconsistent with the 
relevant requirements of the SCM  Agreement  and/or the DSU. Thereafter, the burden 
shifts to the party proposing the countermeasures to rebut such prima facie  case. …  
In the present proceeding, therefore, the European  Union  bears the burden to submit 
arguments and evidence sufficient to establish a prima facie  case that the 
countermeasures prop osed by the United  States  are not "commensurate with the 
degree and nature of the adverse effects determined to exist" and are, consequently, 
inconsistent with Article  7.9. To satisfy its burden of proof, the European  Union  must 
 
69 Decisions by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 3.4; and US – Tuna II (Mexico) (Article  22.6 – US), para.  5.152.  
70 Decision by the Arbitrator, EC and certa in member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.173 (quoting US – Tuna II (Mexico) (Article  22.6 – US), para.  5.16 (fns  omitted) ( in turn quoting 
Decisions by the Arbitrator, US – COOL (Article  22.6 – United  States) , para.  4.5; US – Gambling (Article  22.6 – 
US), para.  3.3; and US – 1916 Act (EC) (Article  22.6 – US), para.  5.54)). See also Decision by the Arbitrator, 
US – Washing Machines (Article  22.6 – US), para.  3.127 (indicating that "'it is necessary to rely only on 
credible, verifiable information, and not on speculation' in calculating the level of nullification or impairment") 
(quoting Decision by the Arbitrator, US – 1916 Act (EC) (Article  22.6 – US), para.  5.63).  
71 United  States' response to Arbitrator question No. 1, para.  5. 
72 European Union's response to Arbitrator question No. 1, para.  5; but see European Union's written 
submission, paras.  2-4, 6, 27, 124, 125, 134, 162 -163, 165, 171, 179, 184, 1 86, 218, 230, 237, 243, 277, 
286, 345, 361, 386 , and 405.  WT/DS353/ARB  
 
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  engage with the methodology  used by the United  States  to arrive at the proposed level 
of countermeasures, and it is "not sufficient merely to assert that another methodology 
is more appropriate". If the European  Union  meets its burden, it is for the United  States , 
thereafter, to sub mit arguments and evidence sufficient to rebut the prima facie  case 
established by the European  Union . … 
Furthermore, each party has the duty to produce evidence in support of its assertions 
of fact and to collaborate with an Article  22.6 arbitrator in pre senting evidence.73 
4.3.  The burden shifting framework to which the United  States  and the DS316 arbitrator  allude has 
long been referred to by the Appellate  Body, dispute settlement panels and Article  22.6 arbitrators.74 
For present purposes, it is sufficient t o state that we regard the United  States , as the party 
challenging the proposed level of countermeasures, to bear the overall burden of demonstrating that 
the European  Union 's methodology results in countermeasures that are not "commensurate" with 
the degr ee and nature of the adverse effects determined to exist. To discharge that burden, it is not 
sufficient for the United  States  merely to propose an alternative methodology that it asserts is more 
appropriate. Rather, the United  States  must engage with the methodology used by the 
European  Union , in the sense that the United  States  must demonstrate why that methodology would 
result in countermeasures that are not "commensurate" within the meaning of Article  7.10 of the 
SCM Agreement . 
4.4.  We agree with the DS316 a rbitrator that each party has the duty to produce evidence in support 
of its assertions of fact and to collaborate with an Article  22.6 arbitrator in presenting evidence. 
Consistent with this duty and prior arbitrations, we requested that, as a first step in the proceeding, 
the European  Union  as the party seeking authorization to take countermeasures submit a 
methodology paper substantiating how it arrived at the proposed countermeasures.75 
5  THE DS316 PROCEEDINGS AND THE DS316 ARBITRATOR'S VALUATION OF ADVERSE 
EFFECTS  
5.1.  This arbitration proceeding is the third occasion on which an arbitrator acts under both 
Article  7.10 of the SCM  Agreement  and Article  22.6 of the DSU.76 Of particular relevance to th is 
proceeding is the decision of the DS316 arbitrator in  the arbitration proceeding arising from the 
dispute initiated by the United  States  concerning certain measures by the European  Union  and 
certain member states affecting trade in LCA.77 In particular, we note that the parties often present 
their arguments and valuation methodologies in this proceeding as being supported by, or as justified 
departures from, methodologies adopted by the DS316 arbitrator (which valued significant lost sales 
and impedance caused by sales of subsidized LCA).  
5.2.  As explained in more  detail below, the DS316 arbitration involved the valuation of adverse 
effects in the form of lost sales and impeded deliveries of 47 747 -8Is, 20 777 -300ERs, 30 787 -10s, 
and a n additional  number of 7 47-8I sales, in each case in the period December 2011 -December 
2013. Expressed in 2013 US dollar terms, the annualized value of these adverse effects was 
calculated to be USD 7,496.623 million.78  
5.3.  The DS316 arbitration proceeding, like the present proceeding, involved the valuation of 
adverse effects in the LCA industry. Both proceedings concern the valuation of lost sales and impeded 
 
73 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
paras.  4.2-4.4. (fns  omitted)  
74 See e.g. Appellate  Body Reports, US – Wool Shirts and Blouses , p. 14; EC – Hormones , para.  104; 
US – Upland Cotton , para.  644; and US – Carbon Steel (India) , para. 4.505; Panel  Reports, EU – Energy 
Package , para.  7.8; Russia – Pigs ( EU), para.  7.589; and EC and certain member States – Large Civil Aircraft 
(Article  21.5 – US), para. 6.50; and Decisions by the Arbitrator, US – FSC (Article  22.6 – US), para. 2.10; and 
US – Gambling (Article  22.6 – US), para.  2.22. 
75 See para.  1.29 above. See also Decision by the Arbitrator s, EC – Hormones ( US) (Article  22.6 – EC), 
para. 11. 
76 The two other arbitrations conducted under Article  7.10 of the SCM  Agreement and Article  22.6 of the 
DSU are EC and certain member States – Large Civil Aircraft (Article  22.6 – EU) and US – Upland Cotton 
(Article  22.6 – US II) . 
77 Decision by the Arbitrato r, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU). 
78 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.500.  WT/DS353/ARB  
 
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  deliveries of particular sizes and models of LCA at particular po ints in time. Both parties agree in 
principle that the Arbitrator should approach specific valuation issues consistently with the approach 
taken to those same issues by the DS316 arbitrator. However, there are also important differences 
between the two dis putes including, notably, the subsidies at issue and the causal mechanisms 
through which they resulted in the adverse effects in question, the specific adverse effects findings 
(including the forms of serious prejudice, the aircraft concerned and the time periods in question), 
as well as the parties' arguments and the evidence presented. In certain circumstances, these 
differences may justify, or even require, this Arbitrator to adopt different valuation approaches to 
those of the DS316 arbitrator. In addit ion, the parties have, throughout their arguments, relied on 
aspects of the DS316 arbitrator's decision in support of their positions in this proceeding. For this 
reason, portions of our decision in this proceeding involve extensive discussion and consider ation of 
aspects of the DS316 arbitrator's decision.  
5.4.  With those considerations in mind, we summarize below the key elements of the DS316 
proceedings that are relevant to the valuation issues before us in this arbitration proceeding.  
5.1  The DS316 original pro ceedings  
5.5.  The DS316 dispute originally commenced with a request for consultations by the United  States  
on 6 October  2004, and a request for establishment of a panel on 31  May 2005.79 The United  States  
originally claimed that the European  Union  and certain of its member States, namely, France, 
Germany, Spain, and the United Kingdom (UK), had caused, through the use of specific subsidies, 
adverse effects to the United  States ' interests in the form of serious prejudice under Articles 5(c) 
and 6.3 of the SCM  Agreement . In addition, the United  States  also claimed that certain subsidies 
were prohibited subsidies within the meaning of Article  3.1(a) and footnote 4 of the SCM  Agreement  
and, therefore, pursuant to Article  3.2 of the SCM  Agreement , they must not be gr anted or 
maintained. The original panel found that the following specific subsidies related to the production 
and development of LCA were inconsistent with Articles 5(c) and 6.3(a), (b), and (c) of the 
SCM Agreement : (a) "launch aid" or "member State financing" (LA/MSF) for the A300, A310, A320, 
A330, A330 -200, A340, A340 -500/600 and A380 models of Airbus LCA; (b) French and German 
government "equity infusions" provided in connection with the corporate restructuring of French and 
German aerospace manufacturers, Aérospatiale Société Nationale Industrielle  and Deutsche Airbus 
GmbH; (c) certain infrastructure and infrastructure -related measures provided by the German and 
Spanish authorities to Airbus in the form of, inter alia, regional development grants; and (d) certain 
research and technological development (R&TD) funding provided to Airbus for LCA -related R&TD 
projects in which Airbus participated. In addition, the original panel found that the United  States  had 
estab lished that the German, Spanish, and UK LA/MSF for the A380 constituted prohibited export 
subsidies within the meaning of Article  3.1(a) of the SCM  Agreement . 
5.6.  On appeal, the Appellate  Body reversed the original panel's finding that the German, Spanish 
and UK A380 LA/MSF contracts constituted prohibited export subsidies under Article  3.1(a) of the 
SCM Agreement , but was unable to complete the analysis with regard to Article  3.1(a) due to 
insufficient factual findings or undisputed facts on the panel record. The Appellate  Body further 
reversed or modified several other aspects of the original panel's findings, and completed the legal 
analysis where it considered that it had sufficient factual findings or undisputed facts on the record. 
With regard to issues of  subsidization and adverse effects, the Appellate  Body completed the analysis 
and ultimately concluded that: (a) the use of the challenged LA/MSF measures had caused adverse 
effects to the United  States ' interests; and (b) the equity infusions and infrastr ucture measures (but 
not the R&TD subsidies) that were found by the original panel to constitute specific subsidies 
"complemented and supplemented" the effects of the LA/MSF measures. The Appellate  Body upheld 
the original panel's recommendation pursuant t o Article  7.8 of the SCM  Agreement , and 
recommended that the DSB request the European  Union  to bring its measures that were found to 
be inconsistent with the SCM  Agreement  into conformity with its obligations under that Agreement.80  
5.7.  The DSB adopted the Ap pellate  Body report and the original panel report, as modified by the 
Appellate  Body report, on 1  June 2011.81 
 
79 Request for consultations by the United  States, WT/DS316/1; an d Request for the establishment of a 
Panel by the United  States, WT/DS316/2.  
80 Appellate  Body Report, EC and certain member States – Large Civil Aircraft , paras.  1416 and 1418.  
81 DSB, Minutes of the m eeting held on 1  June 2011, WT/DSB/M/297.  WT/DS353/ARB  
 
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  5.2  The DS316 compliance proceedings  
5.8.  On 1 December  2011, the European  Union  informed the DSB that it had "taken appropriate 
steps" to bring its measu res into conformity with its WTO obligations, thereby ensuring "full 
implementation of the DSB's recommendations and rulings".82 On 30  March  2012, following a 
request for consultations with the European  Union  and the four member States, the United  States  
requested the establishment of a panel pursuant to Article  21.5 of the DSU with standard terms of 
reference.83 The panel was established by the DSB on 13  April 2012.84 
5.9.  Before the compliance panel, the United  States  argued that the relevant subsidies found t o 
have caused adverse effects in the original proceedings continued to cause adverse effects and that, 
by agreeing to provide Airbus with LA/MSF for the A350XWB family of aircraft, the four member 
States have "continued and even expanded" the subsidization  of Airbus' LCA activities, thereby 
causing "additional adverse effects" within the meaning of Articles 5(c) and 6.3 of the 
SCM Agreement .85 
5.10.   The compliance panel report was circulated on 22  September  2016. The compliance panel 
found, inter alia , that the French, German, Spanish, and UK A350XWB LA/MSF measures fell within 
the scope of the compliance proceedings and that the United  States  had demonstrated that these 
measures were specific subsidies withi n the meaning of Articles 1 and 2 of the SCM  Agreement .  
5.11.   With regard to Article  7.8 of the SCM  Agreement , the compliance panel found that the 
European  Union  had demonstrated that the ex ante  "lives" of (a) the French, German, and Spanish 
LA/MSF subsidies f or the A300B/B2/B4, A300 -600, A310, A320 and A330/A340; (b) the UK LA/MSF 
subsidies for the A320 and A330/A340; and (c) the capital contribution subsidies, had "expired" 
before June 2011, while (d) the ex ante  "lives" of the French LA/MSF subsidies for the  A330-200 and 
the French and Spanish LA/MSF subsidies for the A340 -500/600 had "expired", respectively, on 
dates that were classified as BCI, and (e) that the ex ante  "lives" of five regional development grant 
subsidies would not "expire" until sometime be tween 2054 and 2058, while the other two "expired" 
around 2014.  
5.12.   The compliance panel also found that the fact that one or more of the subsidies challenged in 
the compliance proceedings may have ceased to exist prior to 1  June 2011 did not ipso facto  mean 
that the European  Union  and the four member States did not have a compliance obligation under 
the terms of Article  7.8 of the SCM  Agreement  in relation to those subsidies.86 Further, the 
compliance panel found that the fact that the ex ante  "lives" of cert ain subsidies had "passively 
'expired'" before the end of the implementation period, did not amount to "withdrawal" of those 
subsidies for the purpose of Article  7.8, and that the European  Union  had therefore failed to comply 
with the obligation to "withdr aw the subsidy" for purposes of Article  7.8.87 
5.13.   With regard to the obligation under Article  7.8 to take appropriate steps to remove the 
adverse effects, the compliance panel found that:  
 
82 Communication by the European Union, WT/DS316/17, para.  5. 
83 Request for the establishment of a panel by the United  States, WT/DS316/23.  
84 DSB, M inutes of the meeting held on 13  April 2012, WT/DSB/M/314.  
85 Panel  Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), para.  6.3. We 
note that two compliance panels have been established in the DS316 proceedings thus far. For ease of 
reference, we refer to the first compliance panel in the DS316 dispute as the "compliance panel". The s econd 
compliance panel, which we do not discuss in this Decision, was established on 15 August 2018 and circulated 
its report on 2 December 2019.  
86 Panel  Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), para.  6.841. 
The com pliance panel further found that the European Union had failed to demonstrate that the "alleged partial 
privatization of Aérospatiale in 1999, the transactions leading to the creation of EADS in 2000 and BAE 
Systems' 2006 sale of its 20% ownership stake in  Airbus SAS to EADS, were 'intervening events' that resulted 
in the 'extinction' of the benefit of all of the subsidies at issue in this proceeding that were granted prior to 
those transactions", and rejected also the European Union's arguments on "extract ion" of subsidies, which had 
been rejected by the original panel and the Appellate  Body in the original proceedings. (See Panel  Report, 
EC and certain member States – Large Civil Aircraft (Article  21.5 – US), para.  7.1.d.i -vi) 
87 Panel  Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 7.1.d.viii -ix. WT/DS353/ARB  
 
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  a. the direct and indirect effects of the aggregated pre -A350X WB LA/MSF s ubsidies continued 
to be a genuine and substantial cause of the current market presence of the A320, A330 
and A380, using either the "plausible" or "unlikely" counterfactual scenarios adopted in 
the original proceedings in relation to the effects of the sa me subsidies in the 2001 to 
2006 period as the starting point of the analysis88;  
b. the direct and indirect effects of the aggregated LA/MSF subsidies (i.e. including the 
A350XWB LA/MSF subsidies) were a genuine and substantial cause of the current market 
presence of the A350XWB using either the "plausible" or "unlikely" counterfactual 
scenarios adopted in the original proceedings in relation to the effects of the pre -A350XWB 
LA/MSF subsidies in the 2001 -2006 period as the starting point of the analysis ; and  
c. the so -called "product" effects of these subsidies were a genuine and substantial cause of:  
i. displacement and/or impedance of imports of a like product of the United  States  into 
the markets for (i) single -aisle LCA, (ii) twin -aisle LCA, and (iii) very large aircraft 
(VLA) in the European  Union , within the meaning of Article  6.3(a) of the 
SCM Agreement ;  
ii. displacement and/or impedance of exports from the markets for (i) single -aisle LCA in 
Australia, China, and India, (ii) twin -aisle LCA in China, Korea and Singapore, and (iii) 
VLA in Australia, China, Korea, Singapore and the United Arab Emirates, within the 
meaning of Article  6.3(b) of the SCM  Agreement ; and  
iii. significant lost sales in the global markets for (i) single -aisle LCA, (ii) twin -aisle LCA, 
and (iii) VLA, within the meaning of Article  6.3(c) of the SCM  Agreement .89 
5.14.   The compliance panel also found that the effects of the aggregated non -LA/MSF subsidies (i.e. 
the capital contribution subsidies and certain regional development grants) "complement and 
supplement" the "product" effects of the aggregated LA/MSF subsidies and, therefore, were a 
"genuine" cause of serious prejudice to the interests of the Unite d States , within the meaning of 
Article  5(c).90 
5.15.   Having found that the challenged subsidies caused present serious prejudice to the 
United  States ' interests, within the meaning of Article  5(c) of the SCM  Agreement , the compliance 
panel made no findings with  respect to the United  States ' conditional claim that the challenged 
subsidies threatened to cause serious prejudice to its interests.91 
5.16.   On 13  October  2016, the European  Union  notified the DSB of its intention to appeal certain 
issues of law covered in the  compliance panel report and certain legal interpretations developed by 
the compliance panel, and filed a Notice of Appeal pursuant to Article  20 of the Working Procedures 
for Appellate Review.92 
5.17.   As regards the aspects of the appeals related to Article  7.8 of the SCM  Agreement , the 
Appellate  Body reversed  the compliance panel's interpretation of Article  7.8. According to the 
compliance panel, the obligation under Article  7.8 to "withdraw the subsidy" or "take appropriate 
steps to remove the adverse effects"  needed to be understood as requiring an implementing Member 
 
88 Panel  Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), para.  7.1.d.xii.  
89 Panel  Report, EC and certain member Sta tes – Large Civil Aircraft (Article  21.5 – US), 
para. 7.1.d.xiv -xvi. 
90 Panel  Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 7.1.d.xvii. The compliance panel found, however, that the United  States had failed to demons trate that 
the Spanish regional development grants used for Airbus' military aircraft activities benefited Airbus' LCA 
activities and thus failed to establish that these subsidies complement and supplement the "product" effects of 
the LA/MSF subsidies. (Pa nel Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 7.1.d.xviii)  
91 Panel  Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), para.  7.1.d.xix.  
92 Notification of appeal by the European Union , WT/DS316/29. The United  States notified the DSB of its 
intention to appeal certain issues of law covered in the compliance panel report and certain legal 
interpretations developed by the compliance panel, and filed a Notice of Appeal and other appellant' s 
submission pursuant to Article  23 of the Working Procedures for Appellate Review on 10 November 2016 . 
(Notification of appeal by the United  States, WT/DS316/30)  WT/DS353/ARB  
 
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  to take appropriate action with respect to the subsidy or the relevant market that would bring it into 
conformity with the effects -based disciplines of Article  5 of the SCM  Agreement . For the com pliance 
panel, this was so  irrespective of whether the subsidy previously found to have caused adverse 
effects "expired" prior to the end of the relevant implementation period. The Appellate  Body 
disagreed and found that Article  7.8 did not impose a compli ance obligation with respect to subsidies 
that "expired" prior to the end of the implementation period. Consequently, the Appellate  Body 
concluded that the European  Union  had no compliance obligation with respect to subsidies that had 
"expired" before 1  December  2011.93  
5.18.   The Appellate  Body therefore considered that the pertinent question for purposes of the 
compliance proceedings was whether the subsidies existing in the post-implementation period (i.e. 
after 1  December  2011) caused adverse effects . Accor dingly, the Appellate Body focused its review 
on the compliance panel's analysis and findings regarding the effects of the A380 LA/MSF and the 
A350XWB LA/MSF subsidies, as the subsidies that existed in the post -implementation period.  
5.19.   As to the European  Union's appeal of aspects of the compliance panel's causation analysis 
regarding the effects of the A380 LA/MSF and the A350XWB LA/MSF subsidies, as the only subsidies 
that existed in the post -implementation period, the Appellate  Body found that the original panel's 
findings, together with the compliance panel's analysis, indicated that:  
a. the A380 LA/MSF had "direct effects" on Airbus' ability to launch, bring to market, and 
continue developing the A380 as and when it did, given that the A380 LA/MSF subsidies 
had not expired, as well as the fact that Airbus continued to receive disbursements under 
the French, German, and Spanish LA/MSF contracts at a time when it was experiencing 
severe financial difficulties resulting from the extensive production delays in th e A380 
programme94; and   
b. the compliance panel's findings regarding the "direct effects" of the A350XWB LA/MSF, 
read together with its findings regarding the "indirect effects" of the A380 LA/MSF, also 
indicated that, without the aggregated "product effects " of the existing LA/MSF subsidies 
for the A380 and A350XWB programmes, Airbus would not have been able to launch the 
A350XWB as and when it did.95 
5.20.   The Appellate  Body reversed  all of the compliance panel's findings of significant lost sales and 
displacemen t and/or impedance under Articles 6.3(a), 6.3(b) and 6.3(c), in the single -aisle LCA 
market.96 The Appellate  Body considered further that it was unable to complete the legal analysis of 
the United  States ' claims of displacement and/or impedance in the sing le-aisle LCA markets in 
 
93 Appellate  Body Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 6.11. The Appellate  Body additionally upheld the compliance panel's finding that the European Union had 
demonstrated that the ex ante  "lives" of the French, German, and Spanish LA/MSF subsidies for the 
A300B/B2/B4, A300 -600, A310, A320, and A330 /A340 and the UK LA/MSF subsidies for the A320 and 
A330/A340 had "expired" before 1  June 2011. (Appellate  Body Report, EC and certain member States – Large 
Civil Aircraft (Article  21.5 – US), para.  6.12)  
94 Appellate  Body Report, EC and certain member State s – Large Civil Aircraft (Article  21.5 – US), 
para. 6.22. 
95 The Appellate  Body considered that the compliance panel's findings revealed that the LA/MSF 
subsidies existing in the post -implementation period, i.e. the A380 and A350XWB LA/MSF subsidies, enable d 
Airbus to proceed with the timely launch and development of the A350XWB, and to bring to market and to 
continue developing the A380, and that both such events were crucial to renewing and sustaining Airbus' 
competitiveness in the post -implementation peri od. (Appellate  Body Report, EC and certain member 
States  – Large Civil Aircraft (Article  21.5 – US), para.  6.23)  
96 In this regard, the Appellate  Body noted that the compliance panel's findings regarding the "product 
effects" of LA/MSF subsidies on the mark et presence of the A320 concerned primarily the effects of subsidies 
that had "expired" prior to the end of the implementation period. Owing to the absence of analysis by the 
compliance panel of whether, and to what extent, Airbus' competitiveness in the s ingle-aisle LCA market, 
gained through the pre -A380 LA/MSF subsidies, was renewed and sustained beyond the original reference 
period as a result of the subsidies that the European Union granted or maintained in the post -implementation 
period, the Appellate  Body reversed the compliance panel's findings under Articles 6.3(a), 6.3(b) , and 6.3(c) of 
the SCM  Agreement, insofar as they related to the single -aisle LCA market. (Appellate  Body Report, EC and 
certain member States – Large Civil Aircraft (Article  21.5 – US), paras.  6.26-6.27)  WT/DS353/ARB  
 
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  Australia, China, and India, and impedance in the single -aisle LCA market in the European  Union , 
or, in the alternative, threat of displacement or impedance in that market.97  
5.21.   The Appellate  Body upheld  the compliance panel's finding s of significant lost sales in the 
twin-aisle market, based on modified reasoning, finding that the orders identified in Table 19 of the 
compliance panel report for A350XWBs represented significant lost sales to the US LCA industry and, 
therefore, that the  LA/MSF subsidies existing in the post -implementation period were a genuine and 
substantial cause of serious prejudice to the United  States  within the meaning of Article  6.3(c) of 
the SCM  Agreement .98  
5.22.   The Appellate  Body reversed  the compliance panel's findings of displacement and/or 
impedance of twin -aisle LCA in the relevant third -country markets.99 Moreover, the Appellate  Body 
found that it was unable to complete the legal analysis of the United  States ' claims of displacement 
in the twin -aisle markets in China, Korea and Singapore, and impedance in the twin -aisle markets 
in the European  Union , China, Korea and Singapore  markets .100 
5.23.   The Appellate  Body upheld  the compliance panel's findings of significant lost sales in the VLA 
market, based on modified reasoning, finding that the sales of the A380 identified in Table 19 of the 
compliance panel report represented significant lost sales to the US LCA industry and that the 
LA/MSF subsidies existing in the post -implementation period con tinued to be a genuine and 
substantial cause of serious prejudice to the United  States  within the meaning of Article  6.3(c) of 
the SCM  Agreement .101 
5.24.   The Appellate  Body reversed  the compliance panel's findings of displacement of VLA in certain 
geographic markets.102 The Appellate  Body further found that it was unable to complete the legal 
analysis of the United  States ' claim of displacement in these markets.103  
 
97 Appellate  Body Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 6.29. 
98 Appellate  Body Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 6.31. 
99 The Appellate  Body stated that, while its review of the compliance panel's finding on the "product 
effects" of LA/MSF subsidies on the A350XWB indicated that, in the absence of the LA/MSF subsidies for the 
A380 and A350XWB existing in the post -implementat ion period, Airbus would not have been able to offer the 
A350XWB at the time it did and with the features the A350XWB had, the United  States had "framed" its claim 
of displacement and/or impedance in the twin -aisle LCA market on the basis of data concernin g market shares 
and deliveries of Airbus and Boeing LCA during the 2011 -2013 period. The Appellate  Body explained that, as 
there were no deliveries of the A350XWB during that period, the compliance panel had relied on market share 
and delivery data relatin g to the A330, rather than orders of the A350XWB in making its finding. The 
Appellate  Body recalled, moreover, that the compliance panel had found that the "product effects" of LA/MSF 
subsidies on the A330 concerned primarily the effects of those subsidies  that had "expired", and that the 
Appellate  Body had found that the European Union has no compliance obligation with respect to such expired 
subsidies. The Appellate  Body concluded that, because the compliance panel had not explored or made findings 
on whe ther, and if so, how, the A380 and A350XWB subsidies existing in the post -implementation period may 
have contributed to the deliveries of the A330 occurring during that period, it would reverse the compliance 
panel's conclusion that the "product effects" o f the LA/MSF subsidies were a genuine and substantial cause of 
displacement and/or impedance of United  States LCA in the twin -aisle markets in the European Union, China, 
Korea , and Singapore. (Appellate  Body Report, EC and certain member States – Large Civ il Aircraft 
(Article  21.5 – US), para.  6.33)  
100 Appellate  Body Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 6.35. 
101 Appellate  Body Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 6.37. 
102 Appellate  Body Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 6.39. While the Appellate  Body's review of the compliance panel's findings, as well as the findings from 
the original proceedings, indicated th at, in the absence of the LA/MSF subsidies existing in the 
post-implementation period, Airbus would not have been able to offer the A380 at the time that it did, the 
Appellate  Body faulted the compliance panel for failing to examine whether there were any discernible trends in 
volumes and market shares in the VLA markets at issue, including whether there were declining trends that 
could have supported the compliance panel's findings. The Appellate  Body therefore found that the compliance 
panel's finding of displacement of US LCA in the VLA markets in the European Union, Australia, Korea and 
Singapore was not sufficiently supported.  
103 Appellate  Body Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 6.40. WT/DS353/ARB  
 
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  5.25.   The Appellate  Body found that the compliance panel's finding of impedance of VLA in the 
European  Union , Australia, China, Korea, Singapore and the United Arab Emirates was sufficiently 
supported by the evidence and therefore upheld  (on a modified basis) the compliance panel' s 
impedance findings for VLA in these geographic markets.104 
5.26.   Accordingly, in respect of the subsidies existing in the post -implementation period, the 
Appellate  Body upheld (albeit for different reasons), the compliance panel's overall conclusions that, 
by continuing to be in violation of Articles 5(c) and 6.3(a), (b) and (c) of the SCM  Agreement , insofar 
as the twin -aisle LCA and VLA markets are concerned, the European  Union  and certain member 
States had failed to comply with the DSB recommendations and ruli ngs, and in particular, the 
obligation under Article  7.8 of the SCM  Agreement  to "take appropriate steps to remove the adverse 
effects or … withdraw the subsidy".  
5.27.   In sum, following the appeal in the compliance proceedings, the compliance panel's findings 
in respect of the subsidies identified in paragraphs 5.13 and 5.14 above, and the forms of serious 
prejudice caused by those subsidies identified in paragraph 5.13.c  above, were modified by the 
Appellate  Body. As a result of those modifications,  (a) the only subsidies found to exist in the 
post-implementation period were the A350XWB and A380 LA/MSF subsidies and (b) the "product 
effects" of these LA/MSF s ubsidies were a genuine and substantial cause of serious prejudice only in 
respect of significant lost sales in the twin -aisle market and VLA market, and impedance of VLA in 
six geographic markets.  
5.28.   On 28  May 2018, the DSB adopted the Appellate  Body report,  together with the report of the 
compliance panel, as modified by the Appellate  Body report.105 
5.3  The DS316 arbitration proceeding  
5.29.   On 13  July 2018, the United  States  requested that the DS316 arbitrator, which had originally 
been constituted on 13  January  2012, and whose work had been suspended in accordance with the 
terms of the parties' Sequencing Agreement, resume its work.106  
5.30.   In its Decision, the DS316 arbitrator determined that, in accordance with its mandate under 
Article  7.10 of the SCM  Agreement , it was  appropriate to determine a maximum level of 
countermeasures that the United  States  could then impose annually, with reference to the value of 
the adverse effects determined to exist in the December 2011 -2013 reference period used in the 
compliance proceed ings.107 Those adverse effects were: (a) three lost sales of twin -aisle LCA 
involving Cathay Pacific Airways, Singapore Airways, and United Airlines; (b) two lost sales of VLA 
involving Emirates and Transaero Airlines; and (c) impeded deliveries of VLA in Australi a, China, the 
European  Union, Korea, Singapore and the United Arab Emirates. More specifically, Airbus sold 
10 A350XWB -1000s to Cathay Pacific, 30 A350X WB-900s to Singapore Airways, and 
10 A350XWB -1000s to United Airlines. Airbus sold 50 A380s to Emirates and 4 A380s to Transaero. 
Airbus delivered a total of 47 A380s into the six geographic markets during the reference period. It 
should be noted that the A350XWB is Airbus' most advanced twin -aisle LCA family, and the A380 is 
the largest Airbus LCA.  
5.31.   The arbi trator determined that the value of these adverse effects was the total value of the 
LCA that Boeing would have sold and delivered had it won the five lost sales in the counterfactual, 
and the value of the additional VLA that Boeing would have delivered in to the six geographic markets 
during the reference period in the counterfactual had Boeing not suffered impedance in those 
geographic markets. The first key technical step in this process was identifying which Boeing LCA 
models would have been sold and del ivered in the counterfactual. The arbitrator determined this by 
identifying the closest competing Boeing model vis-à-vis each Airbus LCA model that was involved 
in the lost sales or delivered into the six geographic markets. With respect to the twin -aisle product 
 
104 Appellate  Body R eport, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
paras.  6.41-6.42. 
105 Appellate  Body Report and Panel  Report pursuant to Article  21.5 of the DSU, Action by the Dispute 
Settlement Body , WT/DS316/35.  
106 Decision by the Arbitrator , EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
paras.  1.7-1.8. The Sequencing Agreement is referred to in para. 1.10 above.  
107 Decision by  the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.76. WT/DS353/ARB  
 
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  market, the arbitrator identified these models as the Boeing 777 -300ER and the 787 -10 (vis-à-vis 
the A350XWB -1000 and A350XWB -900, respectively). With respect to the VLA product market, the 
arbitrator identified this model as the Boeing 747 -8I (vis-à-vis the A380).108  
5.32.   The next key technical step for the arbitrator was determining the number of 777 -300ERs, 
787-10s, and 747 -8Is that Boeing would have sold to each airline in the counterfactual had it won 
the lost sales, and the number of additional 747 -8Is that Boeing would have delivered into the six 
geographic markets during the reference period. Regarding the former number, the parties agreed, 
and the arbitrator accepted, that Boeing would have sold the same number of twin -aisle LCA to each 
of the fi ve airlines in the counterfactual as Airbus actually sold to each airline in reality.109 
Determining the latter number required an additional determination. This was so because, in the 
view of the arbitrator, the compliance panel had not specified how many additional 747 -8Is Boeing 
would have delivered into the six geographic markets in the counterfactual, only having found that 
the number of Boeing's deliveries would have been "higher" in the counterfactual.110 The parties 
thus contested how much "higher" Bo eing's deliveries would have been. The arbitrator resolved this 
issue by conducting a detailed examination of the adopted findings in the dispute, and of the 
evidence and argumentation on the record before the arbitrator. That analysis led the arbitrator t o 
conclude that it was reasonable to assume that Boeing would have delivered an additional number 
of 747 -8Is into the six geographic markets equal to the number of A380s that Airbus actually 
delivered into those six geographic markets in the reference peri od (i.e. an additional 47 747 -8Is).  
5.33.   In order to determine the counterfactual prices of the relevant Boeing LCA, the arbitrator relied 
on the prices of the relevant Boeing LCA models sourced from so -called "comparator orders", i.e. 
actual orders for those B oeing LCA models placed in sales campaigns deemed by the arbitrator to 
be sufficiently similar to the actual sales campaigns which underlay the lost sales and deliveries into 
the six geographic markets.111  
5.34.   In sum, the DS316 arbitrator considered the value of "the adverse effects determined to exist" 
to be the sum of the values of: (a) 47 747 -8Is that would have been delivered into the six geographic 
markets in the counterfactual; and (b) the 20 777 -300ERs that Boeing would have sold to Cathay 
Pacific and Un ited Airlines, 30 787 -10s that Boeing would have sold to Singapore Airways, and a BCI 
number of 7 47-8Is that Boeing would have sold to Emirates.112 The arbitrator determined the 
delivery prices of all such LCA and, after performing certain other technical a djustments, adjusted 
all such delivery prices into common 2013 US  dollar terms. The arbitrator then divided that total 
2013 dollar value by the number of months in the reference period and multiplied the resulting value 
by 12 to yield an annualized value o f "the adverse effects determined to exist". That annualized 
value was USD 7,496.623 million.  
 
108 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
paras.  6.185 -6.187. We note that the Boeing 777 -300ER, the 787 -10, and the 747 -8I are relatively large and 
expensive LCA.  
109 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.221 ( referring to  Appellate  Body Report, EC and certain member States – Large Civil Aircraft 
(Article  21.5 – US), paras.  6.31(a) (noting that "the orders identified in Table 19 of the Panel  Report in the 
twin-aisle LCA market represent 'significant lost sales' to the US LCA industry") and 6.37(a)  (noting that "the 
orders identified in Table 19 of the Panel  Report in the VLA market represent 'significant lost sales' to the US 
LCA industry")); and Panel  Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – US), 
para. 6.1798 (noting that all of the orders identified in Table 19 of that report represent "significant" "lost 
sales" to the United  States LCA industry and, therefore, that the challenged LA/MSF subsidies continue to be a 
"genuine and substantial" cause of seri ous prejudice to the United  States within the meaning of Article  6.3(c) 
of the SCM  Agreement).  
110 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.366.  
111 Decision by the Arbitrator, EC and certain  member States – Large Civil Aircraft (Article  22.6 – EU), 
section 6.3.4.3.6.1.  
112 The Transaero Airlines lost sale was valued at zero. This was so because Transaero had previously 
gone bankrupt and cancelled its four A380 orders from Airbus. The arbitrator  considered that, in the 
counterfactual, Transaero also would have cancelled its counterfactual orders for 747 -8Is. (Decision by the 
Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), para.  6.226).  WT/DS353/ARB  
 
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  6  THE U NITED  STATES ' OBJECTIONS TO THE LEVEL OF COUNTERMEASURES  
6.1.  In this part of the Decision, we address the United  States' objections to the level of suspension 
of concessions or other obligations proposed by the European Union.113 We first provid e an overview 
of the European  Union's valuation methodology , before summarizing  the United  States' principal 
objections.114 We then set forth our general order of analysis and  finally, undertake our assessment 
of the European Union's methodology.   
6.1  Overview of the European  Union 's methodology  
6.2.  The European  Union 's methodology quantifies the level of countermeasures based on the value 
of adverse effects caused by:  
a. the Washington State B&O tax rate reduction operating through a price effects causal 
mechanism in the single -aisle LCA market, these adverse effects being (a) three significant 
lost sales that were found in the compliance proceedings to have occurred in the 
post-implementation period115, and (b) threat of impedance of imports to the 
United  States  geographic market and exports to the UAE geographic market, that was 
found in the compliance proceedings to have occurred in the post -implementation 
period116; and  
b. the pre-2007 aeronautics R&D subsidies operating through a technology effects causal 
mechanism in the twin -aisle LCA market, these adverse effects being significant lost sales 
of the A330 and Original A350 that the original panel had found in the original proce edings 
to exist in the 2004 -2006 reference period.117 
6.3.  The European  Union  notes that all of these adverse effects derive from findings that the 
subsidies in question caused Airbus to lose certain LCA sales campaigns, and therefore proposes to 
value the adver se effects by quantifying the value to Airbus of each of these underlying lost sales.118 
Accordingly, the European  Union  proposes that the Arbitrator calculate the values of the lost sales 
and assign those values to the applicable reference period. For the adverse effects pertaining to the 
Washington State B&O tax rate reduction in the compliance proceedings ( the post -implementation 
Washington State B&O Tax Rate Reduction Adverse Effects ), the European  Union  proposes that the 
reference period is the 33 -month  period from January 2013 until September 2015. For the adverse 
effects pertaining to the pre -2007 aeronautics R&D subsidies found in the original proceeding (the 
2004-2006 R&D Adverse Effects), the European  Union  proposes that the reference period is the 
36-month period from 2004 -2006.119  
6.4.  For each of the post -implementation B&O Tax Rate Reduction Adverse Effects and the 
2004-2006 R&D Adverse Effects, the European  Union  (a) expresses the values of the lost sales on a 
common basis (2015 US dollars), (b) sums  them together, and (c) annualizes their respective total 
 
113 See para. 1.21 above.  
114 The European Union's proposed methodology for determining the level of countermeasures is set 
forth initially in its methodology paper. The Europea n Union subsequently revised aspects of its methodology in 
response to the United  States' written submission and in the light of the issuance of the decision of the DS316 
arbitrator. The European Union submitted its methodology paper on 25  July 2019, the U nited States submitted 
its written submission on 12  September  2019, and the DS316 arbitrator issued its decision on 2  October  2019.  
115 The three significant lost sales were the 2013 Icelandair, 2013 Air Canada , and 2014 Fly Dubai lost 
sales.  
116 The threat of impedance finding in the US geographic market was based on an intermediate finding 
of a 2011 Delta Airlines lost sale, and in the UAE geographic market, on an intermediate finding of the 2008 
and 2014 Fly Dubai lost sales. T he European Union indicated t hat the 2014 Fly Dubai lost sale is already 
included in its valuation of adverse effects as a significant lost sale and would not be valued again as part of 
the threat of impedance valuation. (European Union's written submission, para.  283; and response to  
Arbitrator question No. 31, para.  131) 
117 These significant lost sales involve four sales campaigns in 2005 in which the 787 was selected over 
the A330 and Original A350 during the 2004 -2006 original reference period (Qantas Airways, Ethiopian 
Airlines, Ic elandair , and Kenya Airways). (European Union's methodology paper, para.  177) 
118 We present here the European Union's primary proposed methodology for valuing the threat of 
impedance findings that are part of the post -implementation B&O Tax Rate Reduction A dverse Effects. For the 
presentation and discussion of the other proposed methodologies, see section 6.4.5.3.2  below.  
119 European Union's methodology paper, paras.  78, 83, 175 , and 181 ; written submission, paras.  391, 
396, and 403; and response to Arbitrator question No. 66, paras.  269-270. WT/DS353/ARB  
 
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  values. It then adds the two annualized total values together to arrive at an aggregated annualized 
level of countermeasures that it seeks authorization to impose for every year going forward, until  
the authority to impose countermeasures ends under the terms of Article  22.8 of the DSU. In other 
words, the European  Union  proposes a single, maximum level of countermeasures that it is 
authorized to impose annually. The level of countermeasures would re flect the annualized value of 
adverse effects that were determined to exist in past reference periods (i.e. 2013 -2015 for the 
post-implementation Washington State B&O Tax Rate Reduction Adverse Effects, and 2004 -2006 for 
the 2004 -2006 R&D Adverse Effects). For ease of reference, we refer to this structure of 
countermeasures as "Annual Suspension". The overall structure of the European  Union 's 
methodology can be illustrated as follows : 
Figure 1: O verall structure of European  Union 's methodology  
 
6.5.  As for the determination of the value of the lost sales underlying the post -implementation B&O 
Tax Rate Reduction Adverse Effects and the 2004 -2006 R&D Adverse Effects, the various steps in 
the European  Union's methodology can be generally summarized as follows. For each of the relevant 
lost sales, the European  Union :  
a. assumes a counterfactual scenario in which Airbus would have received LCA orders for the 
same number of Boeing LCA that were actually ordere d from Boeing in those sales 
campaigns (including options, where applicable) and that Airbus would have delivered the 
LCA according to the same delivery schedule as the actual Boeing deliveries ; 
WT/DS353/ARB  
 
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  b. for cancellations that  occur red prior to 2020, adjusts the co unterfactual delivery numbers 
downward to account for such cancellations ; 
c. determines a delivery -date price120 for each counterfactual Airbus order not affected by 
pre-2020 cancellations  (by applying the contractual escalation factors from the Airbus final 
offers in each sales campaign to the Net Fly -Away Price expressed in the Airbus final offer), 
then adjusts that price by a survival rate to reflect the risk of future cancellation of 
deliveries ; 
d. discounts the adjusted delivery -date prices back to the date a t which the lost sale occurred 
(using Airbus' cost of debt as the discount factor) to determine the value of each LCA order 
at the time of the order ; and  
e. performs a temporal adjustment to restate all of the order -date values on a common 2015 
US dollar basi s using the Airbus LCA Inflation Index (ALII)121, 2015 being the last year of 
the compliance panel's reference period, to arrive at a value for each lost sale (in 2015 US 
dollars).  
6.6.  Once the 2015 US dollar values of each lost sale are obtained, the European  Union : 
a. calculates total values for each of the post -implementation B&O Tax Rate Reduction 
Adverse Effects and 2004 -2006 R&D Adverse Effects by aggregating the values of the lost 
sales relevant to each.  
b. divides the values of post -implementation B&O Tax Rat e Reduction Adverse Effects and 
2004-2006 R&D Adverse Effects by the number of months in the applicable annualization 
period, and multiplies those amounts by 12, to arrive at annualized values of the 
post-implementation B&O Tax Rate Reduction Adverse Effec ts and 2004 -2006 R&D 
Adverse Effects122; and  
c. sums the annualized values of post -implementation B&O Tax Rate Reduction Adverse 
Effects and 2004 -2006 R&D Adverse Effects and determines the level of Annual 
Suspension (USD 8,581,019,068).123 
 
120 We use in some places the term "date" rather than "year" when referring to compone nts of the 
parties' and Arbitrator's methodology since certain of the underlying calculations are specific to a given month 
and are therefore not applied to a given year as a whole.  
121 The European Union states that it compiled the ALII based on Airbus' sta ndard contractual price 
escalation formulae, and argues that the ALII accordingly reflects [[ ***]] changes in labour and material costs 
resulting from inflation and other economic changes over time. (European Union's methodology paper, 
para. 101; and writt en submission, para.  396, sixth bullet)  
122 For the post -implementation B&O Tax Rate Reduction Adverse Effects, the values of (a) the three 
significant lost sales found to exist in the compliance panel's reference period and (b) the two lost sales 
underlying  the threat of impedance findings in the reference period ( which lost sales occurred prior to the 
expiration of the implementation period) are added together , divided by the 33 -month period that the 
European Union asserts was the compliance panel's referen ce period , and multiplied by 12 (i.e. the number of 
months in a year). As discussed further in section 6.4.5.3  below , the European Union has proposed  a number 
of valuation methodologies for the threat of impedance findings. The methodology described here is the 
methodology it proposed in its written submission. For the 2004 -2006 R&D Adverse Effects, the values of the 
four significant lost sales are div ided by the 36 -month period that was the original panel's reference period and 
multiplied by 12.  
123 European Union's written submission, paras.  407-408. Over the course of the proceeding, the 
European Union presented alternate methods of calculating the an nual level of adverse effects, which have 
given rise to different proposed levels of Annual Suspension. (See e.g. European Union's response to question 
No. 10; Valuation of lost sales in the single -aisle market based on delivery numbers contained in Airbus ' final 
offers (Exhibit EU -62 (HSBI)); Valuation of lost sales in the twin -aisle market based on delivery numbers 
contained in Airbus' final offers (Exhibit EU -63 (HSBI)); 2RPQ valuation of single -aisle lost sales – Airbus 
delivery schedules (Exhibit EU -85 (HSBI)); 2RPQ valuation of single -aisle threat of impedance – Airbus delivery 
schedules (Exhibit EU -77 (HSBI)); 2RPQ valuation of twin -aisle lost sales – Airbus delivery schedules (Exhibit 
EU-87 (HSBI));  2RPQ valuation of single -aisle threat of impedance – Boeing delivery schedules (Exhibit EU -76 
(HSBI)); 2RPQ valuation of single -aisle lost sales – Boeing delivery schedules (Exhibit EU -84 (HSBI)); and 
2RPQ valuation of twin -aisle lost sales – Boeing delivery schedules (Exhibit EU -86 (HSBI))).  The merits of  the 
alternative proposed valuation methodologies are discussed later in this Decision. See section 6.4 below . WT/DS353/ARB  
 
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  6.7.  The European  Union  had initially proposed that the amount of Annual Suspension be adjusted 
for inflation and expressed in US dollar values as of April 2020 and that countermeasures for each 
year subsequent to 2020 be adjusted annually for inflation. However, the Europ ean Union  
subsequently indicated that, in light of the fact that the DS316 arbitrator rejected the United  States ' 
request to make analogous inflation adjustments to the countermeasures that the United  States  was 
authorized to impose from that proceeding, a nd in the interests of ensuring even -handedness 
between the two proceedings, it no longer proposes these inflation adjustments.124  
6.2  The United States' response  
6.8.  The United  States  does not object to countermeasures in the form of Annual Suspension at a 
level that reflects the annualized value of adverse effects determined to exist in a past reference 
period. However, the United  States  argues that the Arbitrator cannot value the 2004 -2006 R&D 
Adverse Effects because they are not within the scope of the phrase " the adverse effects determined 
to exist" for purposes of Article  7.10 in the circumstances of this proceeding.  
6.9.  As for the valuation of the post -implementation B&O Tax Rate Reduction Adverse Effects, the 
United  States  argues that the compliance panel's ref erence period was the 36 -month period of 
September 2012 -September 2015 and not the 33 -month period of January 2013 to September 2015 
as asserted by the European  Union . The United  States  does not object to the European  Union  valuing 
the adverse effects in t he form of the threat of impedance on the basis of the underlying lost sales, 
and proposes itself that the post -compliance B&O Tax Rate Reduction Adverse Effects all be valued 
as lost sales. However, the United  States  argues that when the total values of t he five lost sales are 
annualized, the denominator must reflect the fact that two of the five lost sales occurred prior to the 
expiration of the implementation period (2008 and 2011, respectively), and thus proposes that the 
annualization calculation refle ct this longer period of 2007 -2015 over which the lost sales 
occurred.125  
6.10.   The United  States  also makes a number of objections to more technical aspects of the 
valuations of the five lost sales related to the post -implementation B&O Tax Rate Reduction Adver se 
Effects. First and foremost, it challenges the European  Union 's assumption that, in the 
counterfactual, Airbus would have won each of the sales campaigns. According to the United  States , 
the causation findings from the compliance proceedings do not esta blish that, absent the Washington 
State B&O tax rate reduction, Airbus would have won each of the sales campaigns. The United  States  
therefore proposes that the value of each of the lost sales include a probabilistic adjustment to 
account for the uncertain ty of Airbus actually winning each of the sales campaigns in the 
counterfactual.  
6.11.   Also related to the number of Airbus LCA that should be valued as part of each of the 
underlying lost sales, the United  States  objects to the European  Union 's proposal that t he Arbitrator 
should include the value of certain LCA options contained in the Airbus final offers or Boeing purchase 
agreements, mainly on the basis that to do so would be contrary to the findings of the compliance 
panel, which distinguished firm orders f rom options. Moreover, the United  States  considers that the 
counterfactual order numbers should be based on the number of firm orders for Airbus LCA that 
Airbus proposed in its final offers to customers, rather than the actual number of orders obtained by 
Boeing in its purchase agreements, and that the counterfactual delivery schedules for the Airbus 
LCA should correspond to the delivery schedule s in the Airbus final offers. With respect to the 
reflection of the actual and potential cancellation of LCA orde rs in the counterfactual, the 
United  States  proposes the application of estimated "survival rates" that differ in various respects 
from the survival rate estimates proposed by the European  Union .  
6.12.   The United  States  agrees generally with the European  Union 's proposal to value the lost sales 
according to the value of that lost sale at the time of order, by calculating the delivery -date values 
 
124 European Union's response to Arbitrat or question No. 40, para.  159 and fn  165 thereto . See also 
section 6.5.1 below.  
125 United  States' written submission, paras.  103-106. The United  State s explains that, since the 
compliance panel examined all of the evidence concerning sales campaigns from the end of the 2004 -2006 
reference period in the original proceeding until the evidentiary cut -off for the compliance proceeding s 
(September 2015), the  valuation of the five lost sales should be annualized over a period beginning in 2007 
rather than in 2008 , which is the date of the first lost sale. (United  States' written submission, para.  101 
(referring to Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.381))  WT/DS353/ARB  
 
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  for the LCA in accordance with the contractual escalation formulae in Airbus' final offers, discounting 
those values b ack to the time of the relevant order and then adjusting those values forward in time 
so that they are expressed on a common 2015 US dollar basis. However, the United  States  objects 
to the inclusion of a particular cost item in the Airbus LCA prices used f or these calculations (i.e. 
[[***]] ) on the basis that this item, while part of Airbus' Net Fly -Away Price, is not reflected in 
Airbus' revenues, and therefore should not be part of the valuation of adverse effects. It also 
proposes that the Arbitrator use Airbus' Weighted Average Cost of Capital (WACC) as the appropriate 
index for discounting the delivery -date prices back to their values at the date of order.  
6.13.   The United  States  proposes that, after correcting for the alleged errors in the 
European Union 's methodology, and taking into account recent data regarding some of these 
adverse effects, the level of countermeasures that the European  Union  can be authorized to impose 
cannot exceed USD 411.8 million.126  
6.3  Order of analysis  
6.14.   Based on the Europ ean Union 's proposed methodology and the United  States ' objections, we 
structure our assessment in the following manner:  
a. we first address whether the "adverse effects determined to exist" in this proceeding 
include the 2004 -2006 R&D Adverse Effects (in se ction 6.4.1); 
b. we then address issues regarding the overall structure of the countermeasures in respect 
of the post -implementation B&O Tax Rate Reducti on Adverse Effects. The first issue 
concerns the appropriateness of determining the maximum level of countermeasures in 
the form of Annual Suspension based on the value of the post -implementation B&O Tax 
Rate Reduction Adverse Effects determined to exist i n the compliance panel's reference 
period (section 6.4.2). We also address the disputed issue of what the beginning and end 
dates of the compliance p anel's reference period were (section 6.4.3 ), and issues 
regarding our consideration of events occurring after the reference period (section 6.4.4); 
c. we next address conceptual issues regarding the European  Union 's methodologies 
concerning significant lost sales and threat of impedance. More specifi cally, we consider 
whether the general approaches proposed by the European  Union  to valuing these adverse 
effects are acceptable  in the light of the nature of those adverse effects (section 6.4.5); 
d. we then address technical valuation issues that are common to the valuations of both 
forms of adverse effects , i.e. lost sales and threat of i mpedance  (section 6.4.6), and then 
remaining technical issues specific to valuing significant lost sales (section 6.4.7) and 
threat of impedance (section 6.4.8 ); 
e. in the light of all the previous  decisions made up to this point, we then summarize the 
technical methodology that we will follow to value significant lost sales and threat of 
impedance (sectio n 6.4.9 ); 
f. in section 6.5 we present our valuation of the aggregated annualized value of the adverse 
effects ; and  
g. in section 7 we make some observations concerning the United  States ' claim regarding 
cross-retaliation in accordance with Article  22.3 of the DSU before setting forth our 
conclusions in section 8. 
 
126 United  States' written submission, para.  174; and Corrected Annualized Value of the Adverse Effects 
in 2014 and March 2019 Dollars (Exhibit USA -25 (HSBI)) . Over the course of the proceeding, the United  States 
subsequently revised its calculation of the An nual Suspension that could be authorized for various reasons. 
(See United States' response to Arbitrator question No. 33, paras. 97 -106; Corrected Annualized Value of the 
Adverse Effects in July 2015 Dollars (Exhibit USA -44 (HSBI)) ); United  States' respons e to Arbitrator question 
Nos. 57, 66 and 85; Annualized Value of the Adverse Effects in 2015 Dollars (Revised) (Exhibit USA -60 
(HSBI)); United  States' comments on the European Union's response to Arbitrator question No. 85, para. 214; 
and Annualized Value of the Adverse Effects in 2015 Dollars (Revised) (Exhibit  USA-105 (HSBI)).  WT/DS353/ARB  
 
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  6.4  Assessment of the European  Union 's methodology  
6.4.1   Valuation of the 2004 -2006 R&D Adverse Effects as pa rt of the "adverse effects 
determined to exist" within the scope of this proceeding  
6.15.   The European  Union  argues that the Arbitrator must value certain of the adverse effects that 
the original panel and Appellate  Body determined were caused by the pre -2007 ae ronautics R&D 
subsidies in the reference period used in the original proceeding, i.e. 2004 -2006 (the 2004 -2006 
R&D Adverse Effects).127 According to the European  Union , this is so because the 2004 -2006 R&D 
Adverse Effects are among "the adverse effects determined to exist" within the meaning of 
Article  7.10 of the SCM  Agreement  in the circumstances of this proceeding. The European  Union  
maintains that the "trigger condition" governing its right to impose countermeasures relative to the 
2004-2006 R&D Adverse Effects is found in Article  7.9 of the SCM  Agreement , which begins with the 
phrase: "In the event the Member has not {complied} within six months … ".128 The European  Union  
argues that this "trigger condition" in Article  7.9 has been satisfied i n three different ways, each 
individually allowing the Arbitrator to value the 2004 -2006 R&D Adverse Effects.129 
6.16.   First and foremost, the European  Union  argues that the trigger condition has been satisfied 
"by virtue of the Appellate  Body's reversal  of the c ompliance panel's finding that the United  States  
achieved compliance in relation to pre -2007 aeronautics R&D subsidies, leaving operative the 
multilateral DSB recommendations to comply flowing from the original proceedings".130 More 
specifically, the European  Union  notes that this reversal means that the DSB's recommendations 
and rulings as a result of the original proceeding (i.e. that the United  States  acted inconsistently 
with its obligations under Article  5 and 6.3 of the SC M Agreement  with respect to the pre -2007 
aeronautics R&D subsidies, and that the United  States  should bring itself into compliance with such 
obligations) are still operative. I n the European  Union 's view, therefore, " absent a 'multilaterally 
confirmed' fin ding of compliance, the default position is not compliance, but that which is expressed 
by the recommendation of the Members sitting collectively as the DSB, i.e., non-compliance ".131 The 
European  Union  asserts that the United  States  cannot overcome this "d efault position" of 
non-compliance by unilaterally claiming compliance, as this would be contrary to the DSU's 
preference for multilateral over unilateral action by Members and the object and purpose of 
countermeasures which is to induce a respondent's com pliance. Rather, according to the 
European  Union , the United  States  must obtain a "multilateral finding of compliance"132, and "{u}ntil 
that day, the dispute settlement mechanism has not achieved 'a positive solution to {the} dispute', 
under Article  3.7 of the DSU, and there remains a 'valid rationale' for requesting and authorising 
countermeasures".133 
 
127 The adverse effects that the European Union asks the Arbitrator to value in this context are certain 
lost sales under Article  6.3(c) of the SCM  Agreement that occurred in the 200 -300 seat LCA product market 
(specifically relating to sales involving the Boeing 787). (See European Union's methodology paper, 
paras.  177-213; and Valuation of twin -aisle LCA lost sales (Exhibit EU -25 (HSBI)))  
128 European Union's comments on the United  States' response to Arbitrator question No. 43, para.  17. 
The European Union has also asserted, however, that this language simply means "that, normally, one would 
expect the retaliation request to be made and the arbitrat{or} to be convened after the six -month 
implementation period". (European Union's response to Arbitrator question No. 44, para.  47) The European 
Union also asserts that the term "nature" in Articles 7.9 and 7.10 "'invites a consideration of the specific  type 
of 'adverse effects' that have bee n determined to exist as a result of the specific  measure in relation to which 
countermeasures are being requested'". (European Union's response to Arbitrator question No. 43, para.  35 
(quoting Decision by the Arbitrator, US – Upland Cotton (Articles 22.6 – US II) , para.  4.43) (emphasis added 
by the European Union) ) 
129 The European Union "disagrees that, under Article  7.9 of the SCM  Agreement, the basis for 
authorization of countermeasures is a failure to comply after the end of the" compliance deadline. 
(European  Union's response to Arbitrator question No. 44, para.  42) 
130 European Union's comments on the United  States' response to Arbitrator question No. 43, para.  18. 
(emphasis original)  
131 European Union's response to Arbitrator question No. 42, para.  7. (fn and emphas is omitted) See 
also European Union's response to Arbitrator question No. 44; and comments on the United  States' response to 
Arbitrator question No. 45, para.  67 ("It follows that multilateral  DSB recommendations 'remain operative … 
until the ' problem' is entirely 'fixed''") (quoting Panel  Report, US – FSC (Article  21.5 – EC II) , para.  7.36) 
(emphasis original) ) 
132 European Union's response to Arbitrator question No. 42, para.  10. (emphasis omitted)  
133 European Union's response to Arbitrator quest ion No. 42, para.  10 (quoting Decision by the 
Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), para.  6.52). See also 
 WT/DS353/ARB  
 
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  6.17.   The European  Union  emphasizes in this context that Article  7.9 "does not require a finding of 
non-compliance with respect to a reference period  after the end of the implementation period"134, 
and therefore "the adverse effects determined to exist" do not necessarily have to be those identified 
in a temporal period following the implementation period. This is so, in the European  Union 's view, 
because the phrase " adverse effects determined to exist" in Article  7.9 is "not grammatically linked" 
to the "trigger condition" language, and, relatedly, neither Article  7.9 nor 7.10 indicate that "the 
adverse effects determined to exist" must be adverse effects determined t o exist in a compliance 
proceeding to the exclusion of those determined to exist in an original proceeding. The 
European  Union  supports this line of reasoning further by asserting that, in an instance where the 
parties agree that no compliance has occurred  following an original proceeding, the adverse effects 
identified in the original proceeding might be the only "adverse effects determined to exist" before 
an arbitrator. The European Union therefore argues that there would be "serious systemic 
consequence s" if Articles 7.9 and 7.10 were to be interpreted as requiring an affirmative finding of 
non-compliance in the post -implementation period in a compliance proceeding  as a prerequisite for 
authorising countermeasures. Notably, the European  Union  argues that  such an interpretation would 
diminish the rights and obligations provided for in the covered agreements, which would be contrary 
to Article  3.2 of the DSU.135 
6.18.   The European  Union  argues that relevant provisions of the DSU provide contextual support 
for its position as set out above. In particular, the European  Union  notes that: (a) under the "normal 
and timely operation of the relevant dispute settlement provisions", "it is not {a t} all problematic … 
that the countermeasures should be considered commensurate also, where appropriate, as here, 
with the adverse effects determined to exist by the original adjudicators"136; and (b) Article  22.6 of 
the DSU provides that arbitrations be ca rried out by the "original panel", not the compliance panel.137 
6.19.   The second way in which the European  Union  argues that the "trigger condition" in Article  7.9 
has been satisfied is that "the European  Union  has established non -compliance in the compliance 
proceedings with respect to the B&O tax rate reduction".138 It argues that "{s}pecifically, the 
European  Union  successfully demonstrated that … the United  States  continues to provide WTO -
inconsistent subsidies to Boeing that cause adverse effects to EU interes ts {and} that the B&O tax 
rate reduction causes adverse effects to the European  Union ".139 In effect, the European  Union  
appears to argue that the adopted finding in the compliance proceeding s that the United  States  
failed to comply with respect to the Wash ington State B&O subsidy  means that the "trigger condition" 
in Article  7.9 should be deemed satisfied with respect to the pre-2007 aeronautics R&D subsidies as 
well. 
6.20.   Third, and finally, the European  Union  broaches the possibility that the "trigger conditio n" in 
Article  7.9 has been satisfied because "the European  Union  has established non -compliance in these 
arbitration panel proceedings  with respect to the pre -2007 aeronautics R&D subsidies".140 However, 
"the European  Union  considers that the Arbitrat{or} s hould not go down th{e} path of making its 
own adverse effects determination".141 The European  Union  emphasizes that " Article  7.10 of the 
SCM Agreement  does not direct an {arbitrator} to make a de novo determination of the existence 
 
European Union's methodology paper, para.  174; written submission, paras.  292-344; response to Arbitrat or 
question No. 2, paras.  6-9, 11, and 16; No. 42, paras.  7-9; No. 43, paras.  36-39; No. 44 ; and No. 46; and 
comments on the United  States' response to Arbitrator question No. 43, paras.  25-27; No. 44, paras.  50-51; 
and No. 45, para.  66. 
134 European Union's  comments on the United  States' response to Arbitrator question No. 44, para.  31. 
See also European Union's comments on the United  States' response to Arbitrator question No. 44, para.  33.  
135 European Union's response to Arbitrator question No. 42, paras.  6 and 11. See also European Union's 
comments on the United  States' responses to Arbitrator question Nos. 42 and 43. The European Union further 
states that WTO Members agree that the covered a greements do not expressly address this "sequencing issue" 
surrounding compliance proceedings and arbitration proceedings. (European Union's response to Arbitrator 
question No. 42, para.  18) 
136 European Union's response to Arbitrator question No. 42, para.  19. 
137 European Union's response to Arbitrator question No. 42, para.  20. 
138 European Union's comments on the United  States' response to Arbitrator question No. 43, para.  19. 
(emphasis original)  
139 European Union's comments on the United  States' response to Arbitrator question No. 44, 
paras.  40-42. 
140 European Union's comments on the United  States' response to Arbitrator question No. 43, para.  19. 
(emphasis original)  
141 European Union's written subm ission, para.  357. WT/DS353/ARB  
 
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  of adverse effects".142 Further, in the European  Union 's view, "{d}oing so would improperly conflate 
the role of the {arbitrator} with that of a compliance panel"143 because if there is " a disagreement 
between the parties as to  {the} compliance status of the respondent, that is a matter to be 
addressed under Article  21.5 of the DSU, before a different adjudicator".144 The European  Union  also 
stresses that if the Arbitrator were to address this compliance issue, the Arbitrator mus t "respect{} 
its duty, under Article  22.6 of the DSU, to complete this arbitration on an expedited basis".145 In 
sum, " it is not the European  Union 's position that, in the procedural circumstances of this case, the 
Arbitrat{or} is mandated, or even entitled , to make a determination of whether  the pre -2007 
aeronautics R&D subsidies cause adverse effects";146 and even if the Arbitrator were to address this 
question, the European  Union  maintains that the Arbitrator's work should  not delay the 
proceeding.147  
6.21.   Notwithstanding this argument, the European  Union  asserts that it provided evidence with its 
written submission demonstrating that the pre -2007 aeronautics R&D subsidies continue to cause 
adverse effects after the end of the implementation period.148 Accord ing to the European  Union , if 
the Arbitrator "decides that, to meet the trigger of Article 7.9, a finding of non -compliance after the 
end of the implementation period in relation to the pre -2007 R&D aeronautics subsidies  is a 
prerequisite", it must conclud e that such prerequisite has been met. This, the European Union 
argues, is because the United  States  has failed to engage with, or rebut, that evidence, and the 
Arbitrator must therefore find that the European  Union  has demonstrated the United  States ' 
non-compliance with respect to the pre -2007 aeronautics R&D subsidies in the post -implementation 
period.149 If the Arbitrator did not so find, the European  Union  argues that the Arbitrator would be 
"making the case" for the United  States . This is especially so, according to the European  Union , 
because it would be the United  States ' burden in this proceeding to demonstrate that the pre -2007 
aeronautics R&D subsidie s no longer cause adverse effects in the post -implementation period, and 
the United  States  has failed in carrying that burden.150  
6.22.   The United  States  argues that the Arbitrator cannot value the 2004 -2006 R&D Adverse Effects 
because they are not within the sc ope of the phrase "the adverse effects determined to exist" for 
purposes of Article  7.10 in the circumstances of this proceeding. The United  States  asserts that  the 
phrase "the adverse effects determined to exist" has the same meaning in both Articles 7.9 and 
7.10.  This is because the procedural purpose of an arbitration conducted under Article  7.10 is to 
advise the DSB as to what countermeasures, commensurate with "the adverse effects determined 
to exist", the DSB may authorize under Article  7.9. The Unite d States  emphasi zes the requirement 
in Article  7.9 of the SCM  Agreement  that the DSB shall grant authorization to take countermeasures 
"in the event the Member has not taken appropriate steps to remove the adverse effects or withdraw 
the subsidy". It argue s that this creates a condition requiring that before the countermeasures with 
respect to a particular subsidy be authorized, it must be established that the responding party 
neither took appropriate steps to remove the adverse effects caused by that subsi dy nor withdrew 
the subsidy . It further argues that this condition has not been established vis-à-vis the pre -2007 
aeronautics  R&D subsidies.151 
6.23.   The United  States  argues that, with respect to a particular subsidy, the trigger condition 
created in Article  7.9 could be established in one of three ways. First, the United  States  asserts that 
 
142 European Union's response to Arbitrator question No. 2, para.  6. 
143 European Union's response to Arbitrator question No. 4, para.  28. 
144 European Union's response to Arbitrator question No. 4, para.  29. 
145 European Union's written submiss ion, para.  356. (internal quotation marks and citation omitted)  
146 European Union's response to Arbitrator question No. 5, para.  32. (emphasis original)  
147 See e.g. European Union's opening statement at the meeting of the Arbitrator with the parties, 
para. 137. 
148 The European Union refiled its submissions from the compliance panel proceedings as exhibits to its 
written submission , which it argues "provides evidence and argument left unaddressed in these proceedings by 
the United  States concerning the continue d serious prejudice caused by the pre -2007 aeronautics R&D 
subsidies during the post -implementation period through a technology effects causal mechanism". 
(European  Union's written submission, para.  358) 
149 European Union's comments on the United  States' re sponse to Arbitrator question No. 44, 
para. 50(c).  
150 See European Union's comments on the United  States' response to Arbitrator question No. 44, 
paras.  41-51. 
151 United States' comments on the European Union's response to Arbitrator question No. 42, para.  3. 
See also United States ' response to Arbitrator question No. 43 ; No. 44, para.  11; and No. 45; and comments 
on the European Union's response to Arbitrator question No. 42.  WT/DS353/ARB  
 
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  the parties may agree that the respondent has not complied with the recommenda tions and rulings 
of the DSB, which the United  States  notes is not the case here. Second, the United  States  asserts 
that an arbitrator established under Article  22.6 of the DSU might be able to address compliance 
issues. In the United  States ' view, however , the ability of an arbitrator to do this is debated among 
Members. Further, the United  States  asserts that the European  Union  has explained that it is not 
pursuing this option, has offered insufficient evidence to support a showing of non -compliance in 
this arbitration proceeding and, to the extent that it has offered such evidence, it has done so at an 
inappropriate time. The United  States  also argues that the European  Union 's pursuit of this option 
would be inappropriate in the light of the parties' Sequencing Agreement. Third, and finally, the 
United  States  asserts that a compliance panel can establish the respondent's non -compliance after 
the end of the implementation period. The United  States  notes that this has not occurred with respect 
to the pre -2007 aeronautics R&D subsidies, and stresses in this context that it was the 
European  Union 's burden in the compliance proceeding s to demonstrate the United  States ' continued 
non-compliance in the post -implementation period, a burden that the European  Union  failed to carry. 
In the light of the first two options discussed in this paragraph, the United  States  emphasizes that 
it does not therefore argue that "the adverse effects determined to exist" may only be those 
identified in a compliance proceeding, as the European  Union  claims.152 
6.24.   The United  States  emphasizes that findings in an original proceeding that a particular subsidy 
is inconsistent with Articles 5 and 6 of the SCM  Agreement  cannot alone satisfy the trigger condition 
in Article  7.9 with respect to tha t subsidy, as the European  Union  argues. This is so, in the 
United  States ' view, because an original panel cannot by definition establish a respondent's 
non-compliance after the implementation period that follows the original panel's report. The 
United  States therefore argues that, insofar as the European  Union  relies on the findings of 
inconsistency with Articles 5 and 6 of the SCM  Agreement  in the original proceedings to satisfy the 
trigger condition in Article  7.9, the European  Union  effectively asks the Arbitrator to find that the 
2004-2006 R&D Adverse Effects continue to exist in the post -implementation period. The 
United  States  notes tha t the European  Union  attempted, but failed, to prove that proposition in the 
compliance proceedings. Moreover, in the United  States ' view, adopting such an assumption would 
be incongruous because key market conditions changed between the 2004 -2006 referenc e period 
and the post -implementation period.153 
6.25.   The United  States  also: (a) asserts that the Sequencing Agreement between the parties 
demonstrates that the European  Union  shared the United  States ' proffered interpretation of Articles 
7.9 and 7.10 until this  arbitration proceeding was initiated; (b) dismisses the European  Union 's 
arguments related to contextual aspects of the DSU because such considerations in no way remove 
the trigger condition in Article  7.9; and (c) argues that the European  Union  miscasts passages from 
prior arbitration decisions and panel reports in its arguments.154 
6.26.   In response to certain of the United  States ' arguments, the European  Union : (a) clarifies that 
its position is not that the 2004 -2006 R&D Adverse Effects continue to exist in t he post -
implementation period, but, rather, that the Arbitrator should value the 2004 -2006 R&D Adverse 
Effects even in the absence of an affirmative finding of non -compliance in the post -implementation 
period; (b) states that the Sequencing Agreement betwe en the parties cannot be interpreted as 
indicating that the European  Union  has waived any of its relevant rights under the DSU or 
SCM Agreement ; and (c) rejects the United  States ' apparent suggestion that the allocation of the 
burden of proof in a complian ce proceeding is a meaningful consideration in this context.155 
 
152 United States' written submission, paras.  53-54 and 69 -81; response to Arbitrator  question No. 2, 
paras.  7 and 9 ; No. 4 ; and No. 44; and comments on the European Union's response to Arbitrator question No. 
42, paras.  8 and 9 ; and No. 43, para.  18. The United States also asserts that the allocation of the burden of 
proof in compliance p roceedings " could  affect the nature of those findings and a subsequent adjudicator's 
understanding of them" and in particular "whether the compliance report{s} establish non -compliance in the 
post-implementation period". (United States' response to Arbitra tor question No. 47, para.  30 (emphasis 
omitted). See also United States' written submission, para.  70) 
153 United States' response to Arbitrator question No. 2, paras.  9 and 14 ; No. 41 ; No. 44, paras.  18-20; 
and No. 45.  
154 United States' response to Arbitrat or question No. 45, para.  28; and comments on the European 
Union's response to Arbitrator question No. 42.  
155 European Union's response to Arbitrator question No. 42, para.  25; and comments on the United 
States' response to Arbitrator question No. 41, paras . 1-2; No. 45, paras.  68-69; and No. 47.  WT/DS353/ARB  
 
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  6.27.   The Arbitrator recalls that, at the end of the compliance proceedings, the Appellate  Body 
reversed the compliance panel's findings that the European  Union  had failed to establish that the 
pre-2007 aeronautics R&D subsidies still caused adverse effects after the end of the implementation 
period. However, the Appellate  Body was unable to complete the analysis as to whether there 
remained acceleration effects of the pre -2007 aeronautics R&D subsidi es in the post -implementation 
period.156 Thus, at this time, there are no findings adopted by the DSB as to whether the pre -2007 
aeronautics R&D subsidies cause adverse effects in the post -implementation period. Relatedly, there 
are also no DSB -adopted find ings as to whether the United  States  brought the pre -2007 aeronautics 
R&D subsidies into compliance with the recommendations and rulings of the DSB issued as a result 
of the original proceeding by the end of the implementation period.157 
6.28.   That being said, in  our view, the parties' arguments raise two key issues:  
a. first, whether Article  7.9 creates a condition that "the adverse effects determined to exist" 
within the meaning of Article  7.10 must be those caused in the post -implementation period 
by a subsidy wi th respect to which an original respondent has failed to comply with 
previously issued recommendations and rulings of the DSB. Understanding the relationship 
between Article  7.9 and Article  7.10 is critical for determining what, if any, scope  the 
Arbitrator has within its mandate to value the 2004 -2006 R&D Adverse Effects because, 
as the European  Union  argues, Article  7.10, which establishes the Arbitrator's mandate, 
places no explicit limitations on the scope of what may comprise "the adverse effects 
determined to exist" ; and  
b. second , if Article  7.9 does create the condition referenced in paragraph (a) above (i.e. that 
"the adverse effects determined to exist" are those caused in the post -implementation 
period by a subsidy that the respondent ha s not brought into compliance), whether the 
presence of the 2004-2006 R&D Adverse Effects can serve to establish adverse effects in 
the post-implementation period  caused by a subsidy with respect to which a respondent 
has failed to comply with the recommen dations and rulings of the DSB.  
6.29.   We address each in turn.  
6.4.1.1   Whether "the adverse effects determined to exist" must be those caused in the 
post-implementation period  by a subsidy with respect to which an original respondent has 
failed to comply with previousl y issued DSB recommendations and rulings  
6.30.   Article  7.10 of the SCM  Agreement  contains the Arbitrator's mandate:  
In the event that a party to the dispute requests arbitration under paragraph 6 of 
Article  22 of the DSU, the arbitrator shall determine whether  the countermeasures are 
commensurate with the degree and nature of  the adverse effects determined to exist.  
6.31.   Article  7.10 does not specify whether "the adverse effects determined to exist" must be those 
caused in the post -implementation period by a subsidy  with respect to which the respondent has 
failed to comply with previously issued recommendations and rulings of the DSB. However, we note 
that the term "countermeasures" has been (in our view, instructively) interpreted by both previous 
arbitrators operat ing under Article  7.10 as referring to "measures taken to 'counteract' something, 
and specifically … measures taken to act against, or in response to, a failure to remove the adverse 
effects of, or withdraw, an actionable subsidy within the required time p eriod".158 This appears a 
reasonable interpretation in the light of the purpose of countermeasures, which is to induce a 
respondent's compliance.159 Thus, the nature of countermeasures suggests that countermeasures 
should only be determined and applied vis-à-vis a subsidy with respect to which the respondent has 
 
156 See para.  1.17 above; and Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) 
(Article  21.5 – EU), paras.  5.416, 5.420 -5.421, 5.443, and 6.11.  
157 See paras.  1.16-1.17 above (explaining these findings).  
158 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 5.2 (citing US – Upland Cotton (Article  22.6 – US II) , para. 4.26). (emphasis added)  
159 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 5.2 ("Arbitrators have further observed that the purpose of authorized countermeasures and suspension 
of concessions or other obligations is to induce a responding party's compliance ."). WT/DS353/ARB  
 
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  failed to comply by the end of the implementation period, i.e. a subsidy that has not been withdrawn 
and still causes adverse effects in the post -implementation period.  
6.32.   We next consider the context of  Article  7.10. Article  7.10 is the last paragraph of Article  7 of 
the SCM  Agreement , addressing "Remedies" for actionable subsidies. The paragraphs of Article  7 
provide for a general sequence of events during a dispute. As such, these paragraphs are 
interc onnected just as the stages of a dispute are interconnected.160 We therefore specifically note 
Article  7.9, which provides the most immediate context for interpretation of Article  7.10. It provides:  
In the event the Member has not taken appropriate steps to remove the adverse effects 
of the subsidy or withdraw the subsidy within six months from the date when the DSB 
adopts the panel report or the Appellate  Body report, and in the absence of agreement 
on compensation, the DSB shall grant a uthorization to the complaining Member to take 
countermeasures, commensurate with the degree and nature of the adverse effects 
determined to exist, unless the DSB decides by consensus to reject the request.  
6.33.   Article  7.9 has two relevant parts. The latter p art of Article  7.9 provides the basis for the DSB 
to "grant authorization to the complaining Member to take countermeasures, commensurate with 
the degree and nature of the adverse effects determined to exist". The former part conditions the 
DSB's authoriza tion to grant such countermeasures with respect to a given "subsidy" on the 
occurrence of an "event" vis-à-vis that subsidy, which the parties refer to as a "trigger" event. The 
"trigger" event is the respondent's failure to comply with the recommendations  and rulings of the 
DSB issued as a result of an original proceeding before the end of the six -month implementation 
period specified in Article  7.8.161 As per the terms of Article  7.8, that status of non -compliance arises 
if the respondent has neither withd rawn the subsidy nor taken appropriate steps to remove its 
adverse effects. It follows, therefore, that Article  7.9 establishes that, for countermeasures to be 
authorized with respect to a particular subsidy, that subsidy must still cause adverse effects in the 
post-implementation period . Accordingly, "the adverse effects determined to exist", within the 
meaning of Article  7.9, must be those caused in the post -implementation period  by a subsidy with 
respect to which a respondent has failed to comply with th e DSB recommendations and rulings.  
6.34.   In the light of the above observations regarding Article  7.9, we note that Articles 7.9 and 7.10 
are closely connected and should be read together. The procedures that they prescribe are 
intertwined both temporally and su bstantively. Indeed, an arbitration occurring under Article  7.10 is 
a step that occurs before  the DSB authorizes countermeasures pursuant to the latter part of 
Article  7.9. Moreover, the overarching procedural purpose of an arbitration conducted under 
Article 7.10 is to advise the DSB as to what constitutes "countermeasures, commensurate with the 
degree and nature of the adverse effects determined to exist".162 We thus consider that the phrase 
"the adverse effects determined to exist" should be interpreted t he same way in Articles 7.9 and 
7.10. That being the case, we consider that the scope of the phrase "the adverse effects determined 
to exist" within the context of both Articles 7.9 and 7.10 is limited to adverse effects caused in the 
post-implementation p eriod by a subsidy with respect to which a respondent has failed to comply 
with previously issued DSB recommendations and rulings. Indeed, if this were not the case, 
Article  7.10 may incongruously direct an arbitrator to advise the DSB to authorize somethi ng that 
the DSB is not permitted to authorize under the terms of Article  7.9.163 
 
160 The text of Article  7 reflects that interconnectivity. For example, paragraphs cross -reference each 
other (see e.g. Article  7.2 of the SCM  Agreement (referring back to "consultations under paragraph 1")) and/or 
presuppose awareness of previous paragraphs (see e.g. Article  7.5 of the SCM  Agreement (stating "{t}he 
panel shall review the matter and shall submit its final report to the parties to the dispute", where "the panel" 
is the panel described in the preceding paragraphs)).  
161 The context of Article  7.9 further indicates that Article  7.9 is focused on "adverse effects" caused by 
a particular "subsidy" that has not been brought into compliance by the end of the six -month implementation 
period specified in Article  7.8. Article  7 speaks consistently of a "su bsidy" in the singular, including Article  7.8, 
which also refers to "adverse effects" as being caused by a particular "subsidy".  
162 Article  22.7 of the DSU indicates that "{t}he DSB … shall upon request, grant authorization to 
suspend concessions or other o bligations where the request is consistent with the decision of the arbitrator ". 
(emphasis added)  
163 We note that if the phrase "the adverse effects determined to exist" within the meaning of 
Article  7.10 is read in isolation, it may be unclear why the Arbi trator would, for example, and as both parties 
accept that we should, value the adverse effects caused by the Washington State B&O tax rate reduction 
identified in the compliance  proceeding s but not those identified in the original  proceeding s, as both wer e 
literally "adverse effects determined to exist".  WT/DS353/ARB  
 
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  6.35.   It will also be recalled that this arbitration is governed by both Article  7.10 of the 
SCM Agreement  and Article  22.6 of the DSU, which Article  7.10 cross -references.164 It will  further 
be recalled that Articles 22.2 and 22.6 of the DSU contain conditional language similar to that of 
Article  7.9 of the SCM  Agreement .165 The arbitrator in EC – Bananas III (US) (Article  22.6 – EC) 
explained that the language of Articles 22.2 and 22.6 of the DSU "confirm{ed}" that "any 
assessment of the level of nullification or impairment {as mandated under Article  22.7 of the DSU} 
presupposes an evaluation of consistency or inconsistency with WTO rules of the implementation 
measures  taken by the {respondent}".166 In other words, the "nullification or impairment" that 
should be valued by an arbitrator under Article  22.7 is that caused by : (a) a measure with respect 
to which there has been an evaluati on regarding whether the responding Member failed to comply 
with recommendations and rulings of the DSB ; and (b) that exists at the end of deadline to 
comply.167 We agree with this interpretation of Articles 22.2 and 22.6. We further recall that 
suspension of concessions or other obligations authorized under Article  22 of the DSU and 
countermeasures authorized under Article  7 of the SCM  Agreement  have the same purpose, i.e. to 
induce compliance.168 Thus, we observe that there is no compelling reason to conclu de that Article  22 
of the DSU and Article  7 of the SCM  Agreement  should be interpreted differently in this specific 
context . That is,  under both provisions , arbitrators should value the effects of measures that occur 
as a result of the failure of the respo ndent to comply with the relevant recommendations and rulings 
of the DSB.  
6.36.   Our interpretation of Articles 7.9 and 7.10 further appears consistent with instructive aspects 
of how both previous arbitrators that have conducted arbitrations under Article  7.10 i nterpreted their 
mandates. When the arbitrator in US – Upland Cotton ( Article  22.6 – US II) — the first arbitrator to 
conduct an arbitration under Article  7.10 — interpreted its mandate, it interpreted the terms 
"countermeasures", "commensurate with", and "degree and nature of the adverse effects 
determined to exist" with reference to these terms as contained in Article  7.9169, even though 
Article  7.10 contains the mandate of the arbitrator. This illustrates not only the close connection 
assumed to exist bet ween Articles 7.9 and 7.10, generally, but also suggests that the arbitrator 
considered that the term "the adverse effects determined to exist", specifically, should be interpreted 
similarly in the contexts of Article  7.9 and 7.10. In delineating its manda te under Article  7.10, the 
DS316 arbitrator stated that "a complaining party's impetus to request authorization to take 
countermeasures or suspend concessions or other obligations is triggered by a responding party's 
 
164 Decisions by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 3.4 ("This arbitration is governed by both Article  7.10 and Article  22.6"); and US – Upland Cotton 
(Article  22.6 – US II) , para.  4.19 ("Article  22.6 of the DSU remains relevant, as the general legal basis under 
which the proceedings are conducted .").  
165 See Article 22.6 (" When the situation described in paragraph 2 occurs , the DSB, upon request, shall 
grant authorization to suspend concessions or other obligations within 30 days of the expiry of the reasonable 
period of time") (emphasis added) and Article 22.2 (" If the Member concerned fails to bring the measure found 
to be inconsistent with a covered agreement into compliance therewith or otherwise comply  with the 
recommendations and rulings within the reasonable period of time … . If no satisfactor y compensation has 
been agreed within 20 days after the date of expiry of the reasonable period of time, any party … may request 
authorization from the DSB to suspend the application to the Member concerned of concessions or other 
obligations under the cov ered agreements .") (emphasis added).  Article  22.7 supplies the mandate of an 
arbitrator, providing, in relevant part: " The arbitrator acting pursuant to paragraph 6 … shall determine 
whether the level of such suspension is equivalent to the level of nullif ication or impairment ." 
166 Decision by the Arbitrator, EC – Bananas III ( US) (Article  22.6 – EC), paras.  4.3-4.4. (emphasis 
added)  
167 The Bananas III ( US) arbitrator rejected the notion that it "could resort to the option of measuring 
the level of nullificat ion or impairment on the basis of our findings in the original dispute, as modified by the 
Appellate  Body and adopted by the DSB", because "{t}o do that would mean to ignore altogether the 
undisputed fact that the {respondent} has taken measures to revise {the measure at issue}. That is certainly 
not the mandate that the DSB has entrusted to us". (Decision by the Arbitrator, EC – Bananas III ( US) 
(Article  22.6 – EC), para.  4.7) See also Decision by the Arbitrator, US – Tuna II (Mexico) (Article  22.6 – US), 
fn 55 ("{W}e consider that the 'level of nullification or impairment' referred to in Article  22.7 is the level of 
nullification or impairment caused by the WTO -inconsistent original or compliance measure that exis ted at the 
time of expiry of the {reasonable period of time to comply}"); and Award of the Arbitrator, US – Section 
110(5) Copyright Act (Article  25), para.  4.19 (explaining that "{u}nlike Article  22.6, which closely relates to 
compliance (or absence there of) at the end of the reasonable period of time, Article  25 is silent as to the date 
on which a matter referred to arbitration should be assessed"). (fns omitted)  
168 See fn 159 above.  
169 Decision by the Arbitrator, US – Upland Cotton ( Article  22.6 – US II) , section IV.C.1 (examining 
relevant textual terms under heading entitled "The terms of Article  7.9 of the SCM  Agreement").  WT/DS353/ARB  
 
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  failure to bring its measures into comp liance with its relevant WTO obligations after being 
recommended to do so by the DSB".170 The arbitrator continued:  
We consider that for purposes of the present arbitration proceeding, the relevant panel 
and Appellate  Body reports {identifying the "adverse  effects determined to exist" that 
the Arbitrator should value} are the compliance reports (rather than the original panel 
and Appellate  Body reports) . It is the findings from the compliance proceedings, by 
establishing that the European  Union "has not taken appropriate steps to remove the 
adverse effects of the subsidy or withdraw the subsidy within six months" (Article  7.9 
of the SCM  Agreement), which provide the basis for the DSB to grant authorization to 
the United  States to t ake countermeasures .171 (emphasis added)  
6.37.   Our interpretation of Article  7.10 is also consistent with previous, instructive arbitrator 
practice concerning the choice of reference periods used to determine levels of Annual Suspension. 
We thus recall that "lev els of … Annual Suspension have generally been determined based on the 
trade effects of relevant measures during past time -periods … . The past time -periods selected have 
usually been short -term periods immediately following or including the time at which the responding 
party should have come into compliance . Arbitrators … have commented on the appropriateness of 
{this method}, observing that the basic purpose of an arbitration proceeding is to determine the 
harm to the complaining party caused by that prec ise failure ".172 Valuing economic harm caused by 
a respondent's failure to comply by the necessary time presuppose s some kind of an evaluation 
regarding whether such a failure occurred. In other words, the practice of using a single reference 
period occurri ng at or around the time by when a respondent should have complied173 to determine 
maximum levels of Annual Suspension appears derivative of a more substantive understanding of 
the object and purpose of arbitration proceedings, i.e. valuing harm arising fro m the occurrence of 
the "situation" and/or "event" referenced in Article  22.6 of the DSU and Article  7.9 of the 
SCM Agreement .174 
6.38.   Based on the for egoing , we find that "the adverse effects determined to exist", within the 
meaning of Article  7.10 of the SCM  Agreement , are those caused in the post -implementation period 
by a subsidy with respect to which a respondent has failed to comply with the recommendations and 
rulings of the DSB.175 
 
170 Decision by the Arbitrator, EC and certa in member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 5.2 (citing  Articles 22.2 and 22.6 of the DSU; Article  7.9 of the SCM  Agreement; and Decision by the 
Arbitrator, US – Tuna II (Mexico) (Article  22.6 – US), para.  3.20).  
171 Decision by the Ar bitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 5.5. See also Ibid. fn 67 ( opining that an Article 7.10 arbitration is "link{ed} … to the WTO -inconsistent 
original measure or a subsequent WTO -inconsistent compliance  measure that was in existence at the time of 
the expiry of the implementation period" ); and Decision by the Arbitrator, US – FSC (Article  22.6 – US), 
para. 4.3 (indicating that the term "appropriate countermeasures" within the meaning of Article  4.11 shou ld be 
interpreted in a manner respecting the "parameters of what is permissible under" Article  4.10, which allows the 
DSB to authorize such countermeasures).  
172 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.56 and fn 162 thereto. (emphasis added )  
173 We note that the arbitrator in EC and certain member States – Large Civil Aircraft (Article  22.6 – EU) 
did not value "the adverse effects determined to exist" in the reference period used in the origi nal proceedings. 
This was so even though "the adverse effects determined to exist" in the original and compliance proceedings 
in DS316 differed in both nature (e.g. displacement was found in the original but not compliance proceedings) 
and degree (e.g. adv erse effects were found to exist in different sets of product markets). Also, the European 
Union has not argued that we should value "the adverse effects determined to exist" in the original proceedings 
that were caused by the Washington State B&O subsidy.  
174 See also fn  167 above. Previous arbitrators have also emphasized that the provisions of Article  22 of 
the DSU compel the conclusion that it is the effects of the measure existing at the time the reasonable period 
of time in which to comply expires that should be examined when assessing proposed levels of suspension of 
concessions, rather than the effects of the measure as it may have existed at the time of an origi nal 
proceeding or a measure that came into existence after the expiry of the implementation period . 
175 We recall that the European Union notes that the DS316 arbitrator stated that "{u}ntil and unless 
substantive compliance has been achieved and is multilat erally confirmed or a mutually agreed solution has 
been reached, there remains a valid rationale for granting Annual Suspension and maintaining it at the 
authorized level". (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft 
(Article 22.6 – EU), para.  6.52) This quote is inapposite. In making this statement the arbitrator was not 
determining whether countermeasures could be granted with reference to the effects caused by a particular 
 WT/DS353/ARB  
 
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  6.4.1.2   Whether the 2004 -2006 R&D Adverse Effects fall within the scope of "the adv erse 
effects determined to exist" under the terms of Article  7.10  
6.39.   In the previous section, we found that "the adverse effects determined to exist", within the 
meaning of Article  7.10, are those caused in the post -implementation period by a subsidy with 
respect to which a respondent has failed to comply with the recommendations and rulings of the 
DSB. This section therefore considers whether the 2004 -2006 R&D Adverse Effects may be 
considered as among, or somehow representing, such "adverse effects determin ed to exist". The 
European  Union  has advanced two ways in which we could determine this to be the case. We address 
each in turn.  
6.40.   First, the European  Union 's principal argument in this context is that the 2004 -2006 R&D 
Adverse Effects qualify as "the advers e effects determined to exist" within the meaning of 
Article  7.10 because the Appellate  Body reversed the compliance panel's findings that the 
European  Union  had not demonstrated that the United  States  failed to bring the pre -2007 
aeronautics R&D subsidies  into compliance. In other words, the European  Union  argues that the 
United  States ' non-compliance in the post -implementation period (i.e. the satisfaction of the "trigger 
condition" in Article  7.9) is established via the continued validity of the original  panel's findings that 
the pre -2007 aeronautics R&D subsidies were inconsistent with Article  5 and 6 of the 
SCM Agreement . As a formal matter, we first observe that the original proceedings did not and 
indeed, could not, determine whether the United  States  had failed to comply with the 
recommendations and rulings of the DSB that flowed from such original proceedings, or, relatedly, 
whether the pre -2007 aeronautics  R&D subsidies caused adverse effects in the post -implementation 
period.176 Beyond that observation, we note that the original panel identified adverse effects caused 
by the pre -2007 aeronautics R&D subsidies in the time -period of 2004 -2006, i.e. the 2004 -2006 
R&D Adverse Effects. The end of that temporal period occurred years be fore the end of the 
implementation period (i.e. September 2012). In the light of these circumstances, and recalling that 
the "adverse effects determined to exist" are those caused in the post -implementation period by a 
subsidy with respect to which a respo ndent has failed to comply with the recommendations and 
rulings of the DSB, we discern no grounds upon which to find that the 2004 -2006 R&D Adverse 
Effects may be considered among, or somehow representing, "the adverse effects determined to 
exist" in this proceeding based on the findings in the original proceedings.177 
6.41.   Second, the European  Union  also argues that the 2004 -2006 R&D Adverse Effects qualify as 
"the adverse effects determined to exist" within the meaning of Article  7.10 because  "the 
European  Union has established non -compliance in the compliance proceedings with respect to the 
B&O tax rate reduction".178 "Specifically, the European  Union  successfully demonstrated that … the 
United  States  continues to provide WTO -inconsistent subsidies to Boeing tha t cause adverse effects 
to EU interests" and "that the B&O tax rate reduction causes adverse effects to the 
European  Union ".179 This observation, while accurate, is, in our view, inapposite in this context. As 
described above, Articles 7.9 and 7.10 operate with respect to a particular "subsidy". The particular 
subsidies here are the pre -2007 aeronautics R&D subsidies, not the B&O tax rate reduction found in 
the compliance proceeding s to continue to cause adverse effects in the post -implementation period. 
We therefore find no grounds upon which to conclude that the compliance proceeding s findings 
concerning the adverse effects caused by the B&O tax rate reduction imply that the 2004 -2006 R&D 
 
subsidy, but was addressing the propriety of granting countermeasures in the form of Annual Suspension, 
specifically.  
176 We further recall that the Appellate  Body has explained that the "effects of a subsidy will ordinarily 
dissipate over time" and, further, that a respondent may not have a complianc e obligation with respect to a 
subsidy regardless of whether the subsidy still causes adverse effects. (Appellate  Body Report, EC and certain 
member States – Large Civil Aircraft (Article  21.5 – US), para.  5.373 and fn  932) 
177 We note that the European Unio n has cited the panel and Appellate  Body reports in US – FSC 
(Article  21.5 – EC II)  for the proposition that the recommendations and rulings from the original proceeding 
remain "operative" until the "problem is entirely fixed" (i.e. until compliance is ach ieved). Even if true as a 
general proposition, as explained above, the findings of the original panel still do not, in these circumstances, 
resolve the key issues before us, i.e. the compliance -related issues that flow from the recommendations and 
rulings resulting from the original panel report.  
178 European Union's comments on the United States' response to Arbitrator question No. 43, para.  18. 
(emphasis original)  
179 European Union's comments on the United States' response to Arbitrator question No. 44, 
paras. 40-42. WT/DS353/ARB  
 
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  Adverse Effects may also be considered among, or somehow representing , "the adverse effects 
determined to exist" for the purpose of this proceeding.180 
6.42.   The European  Union  also raises the possibility of the Arbitrator determining whether the 
"trigger" condition in Article  7.9 is satisfied vis-à-vis the pre -2007 aeronautics R& D subsidies, 
i.e. whether the pre -2007 aeronautics R&D subsidies cause adverse effects in the 
post-implementation period, but at the same time, it has also stated that the Arbitrator does not 
have the mandate to do so. The United  States  similarly broaches the general possibility of an 
arbitrator being able to address compliance -related issues.  
6.43.   Our mandate under Article  7.10 is silent as to determining a respondent's compliance status 
– a determination that involves, in this case, evaluating whether the pre -2007 aeronautics R&D 
subsidies cause adverse effects in the post -implementation period. We thus consider that we are not 
required to address this compliance issue. We further consider that we need not determine whether 
an arbitrator acting under Article  7.10 of the SCM  Agreement  has the discretion to engage in 
compliance -related inquiries of this kind, because even if we had such discretion181, we would decline 
to exercise it in these circumstances. First, we note that addressing compliance issues would conflate 
our role with that of a panel established under Article  21.5 of the DSU.182 Moreover, arbitration 
proceedings are intended to proceed on expedited timelines and addressing the relevant compliance 
issues would lead to, in our estimation, unavo idable and significant delays.183 In this regard, the 
compliance panel engaged in lengthy and complex analyses in making determinations regarding the 
effects of the pre -2007 aeronautics R&D subsidies. It appears clear to us that we would also need 
to engage  in complex factual analyses if we were to address this compliance -related question.184 We 
 
180 We recognize that the United States broaches the possibility that an agreement between the parties 
might suffice as to satisfy relevant conditions imposed by Article  7.9 of the SCM  Agreement. We do not exclude 
the possibility that party agreeme nts (or perhaps even lack of disagreements) with respect to 
compliance -related issues could be taken into account by an arbitrator. No agreement exists here, however, 
with respect to whether the pre -2007 aeronautics R&D subsidies cause adverse effects in t he 
post-implementation period. Further, in the compliance proceedings, the parties vigorously contested whether 
the United States achieved compliance with respect to the pre -2007 aeronautics R&D subsidies by removing 
the relevant adverse effects by the end  of the implementation period. This possibility is thus moot for our 
purposes.  
181 It will be recalled that it is the Arbitrator's mandate to value "the adverse effects determin ed to 
exist". Previous arbitrators have interpreted this phrase as referring to a dverse effects identified by previous 
panels and the Appellate  Body. (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft 
(Article  22.6 – EU), para.  5.5 (citing, inter alia , Decision by the Arbitrator, US – Upland Cotton 
(Articl e 22.6 – US II) , paras.  4.49-4.50))  
182 See e.g. Decisions by the Arbitrator, EC and certain member States – Large Civil Aircraft 
(Article  22.6 – EU), para.  6.65 ("{I}f we therefore were to determine only present adverse effects, this would 
conflate our role with that of a compliance panel established under Article  21.5 of the DSU ."); and US – Tuna II 
(Mexico) (Article  22.6 – US), para.  3.52 ("The Arbitrator notes that the existence of Article  21.5 as a separate 
provision suggests that generally, complian ce issues should be dealt with separately from the assessment of 
the level of nullification or impairment, by a compliance panel ."). One early arbitrator, acting under Article  22.7 
of the DSU and in the absence of a previous compliance proceeding, did addr ess compliance -related issues, 
apparently impelled by special instructions issued to the arbitrator from the DSB and the perceived need to 
determine "equivalence" between the proposed level of suspension and the "nullification and impairment" 
caused by the  respondent's alleged failure to comply by the necessary time. (Decision by the Arbitrator, 
EC – Bananas III ( US) (Article  22.6 – EC), section IV and para.  4.15 (indicating that the arbitrator's approach 
was related to the "special circumstances of this ca se")) We discern no similar "special circumstances" in this 
proceeding.  
183 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft 
(Article  22.6 – EU), para.  6.65 (explaining that "an inquiry into the existence of adverse effects  requires fact -
intensive analyses. Engaging in such analyses would therefore substantially lengthen the duration of this 
expedited proceeding").  
184 Based on the parties' arguments in the compliance proceeding s and in this proceeding, resolving this 
questio n would likely turn on ascertaining the precise extent to which the acceleration effects of the pre -2007 
aeronautics R&D subsidies had an impact, not only on the timing of the launch of the 787, but also on the 
timing of its first delivery. (Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), 
para. 5.415) The European Union further alleges that the pre -2007 aeronautics R&D subsidies also affected the 
market presence of the 777X and 737 MAX. (European Union's written submiss ion, para.  359) WT/DS353/ARB  
 
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  consider that this would require seeking both parties' views on this issue, seeking additional 
information from, and asking questions of, the parties, in addition to drafting the relevant findings.185 
6.44.   We further note that in this proceeding, neither party has expressed its outright support for 
the Arbitrator determining the effects of the pre -2007 aeronautics  R&D subsidies in the 
post-implementation period in the circum stances. We specifically recall that the European  Union  has 
stated that " the European Union considers that the Arbitrat{or} should not go down th{e} path of 
making its own adverse effects determination".186 Moreover, the European  Union  has stated that "it 
is not the European  Union 's position that, in the procedural circumstances of this case, the 
Arbitrat{or} is mandated, or even entitled , to make a determination of whether  the pre -2007 
aeronautics R&D subsidies cause adverse effects"187, and that even if the  Arbitrator did address this 
issue, the European  Union  maintains that it "may not result in a delay of these proceedings"188 
(which, as discussed, is a practical impossibility). The United  States  has also indicated that it 
considers it inappropriate for the Arbitrator to address this compliance question in these 
circumstances.189 
6.45.   Finally, we consider it a relevant point that, in this dispute, as per the parties' Sequencing 
Agreement, compliance pro ceeding s under Article  21.5 of the DSU ha ve been completed. In th ose 
compliance proceeding s the European  Union  attempted, but ultimately failed, to establish that the 
pre-2007 aeronautics  R&D subsidies caused adverse effects in the post -implementation peri od. As 
a result, the  European Union was unsuccessful in making its case that the  United  States  had failed 
to comply with the recommendations and rulings of the DSB with respect to those subsidies.  
6.46.   In sum, we find that we are not required under the terms of  Article  7.10 to determine whether 
the pre -2007 aeronautics  R&D subsidies cause adverse effects in the post -implementation period. 
Even if  Article  7.10 provides us with the discretion to do so, we would decline to exercise such 
discretion in the light of, in our estimation, the compelling set of circumstances set out above.190  
 
185 In this proceeding, the European Union has adduced its submissions from the compliance 
proceeding s and also offered to submit its exhibits from that proceeding. We note that these submissions are, 
by nature, argumentation. Further,  such submissions and exhibits pertain to the September 2012 -September 
2015 reference period. If we were to address the compliance issue, it is not clear that we would examine only 
that same reference period, essentially performing a remand of the first com pliance proceeding. Considering an 
updated reference period would instead appear more consistent with the role of a compliance adjudicator. (See 
Panel  Report, EC and certain member States – Large Civil Aircraft (Article  21.5 – EU), para.  6.1443 (explaining  
that "{i}t is well established that a panel tasked with reviewing the merits of claims made under Article  6.3(a), 
(b), and (c) of the SCM  Agreement must focus its efforts on determining the extent to which the challenged 
subsidies are a 'genuine and subst antial' cause of serious prejudice in the present .") (emphasis original) ) If the 
Arbitrator were to address present  compliance, the Arbitrator might also have to examine whether the 
United  States has now "withdraw{n}" the subsidies within the meaning of Ar ticle 7.8. This examination  may 
also involve: (a) determining whether those subsidies had ceased to exist (see Appellate  Body Report, EC and 
certain member States – Large Civil Aircraft (Article  21.5 – US), paras.  5.383 and 6.11.a (explaining that the 
obligation to "take appropriate steps to remove the adverse effects or … withdraw the subsidy" concerns only 
subsidies that continue to be granted or maintained by the implementing Member at the end of the 
implementation period, and that a Member cannot be req uired to withdraw a subsidy that had ceased to 
exist)); and/or (b) examining any alleged "measures taken to comply" within the meaning of Article  21.5 of the 
DSU. ( see Appellate  Body Reports, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para. 5.328; 
and US – Continued Suspension , paras.  305-309).   
186 European Union's written submission, para.  357. 
187 European Union's response to Arbitrator question No. 5, para. 32. (first emphasis added)  
188 See e.g. European Union's opening statement, para. 1 37. We note the European Union's suggestion 
that the Arbitrator could address this compliance -related issue and avoid material delays in the proceeding. 
This is so because, in the European Union's view, the United States has not engaged with the European U nion's 
argumentation or evidence offered with respect to this compliance -related inquiry. Thus, the European Union 
asserts that the Arbitrator would be "making the case" for the United States if we were to decline to find that 
the European Union has demons trated, in this arbitration, the United States' non -compliance following the 
implementation period with respect to the pre -2007 aeronautics R&D subsidies. We note, however, that we 
would consider it inappropriate simply to accept the European Union's argum ents on this front without further 
and thoroughly exploring the compliance issue with the parties. As noted, addressing compliance issues is not 
specified by our mandate. We cannot thus assume that the United States should have engaged in 
compliance -relate d argumentation without our prompting. Therefore, we do not believe that the 
European  Union's suggested approach could avoid significant delays in this proceeding.  
189 United States' response to Arbitrator question No.  4, para.  29; and No. 44, para.  13. 
190 We do not, and need not, determine whether adverse effects found to exist in an original proceeding 
can serve to evidence "the adverse effects determined to exist" in a subsequent arbitration.  WT/DS353/ARB  
 
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  6.4.1.3   Conclusion  
6.47.   Based on the for egoing , we decline to value the 2004 -2006 R&D Adverse Effects because we 
discern no grounds upon which to conclude that the 2004 -2006 R&D Adverse Effects ar e, or 
somehow represent, adverse effects caused in the post -implementation period by a subsidy with 
respect to which a respondent has failed to comply with the recommendations and rulings of the 
DSB.191 The 2004 -2006 R&D Adverse Effects do not, therefore, f all within the scope of what "the 
adverse effects determined to exist" are for purposes of this specific proceeding.  
6.4.2   Structure of the countermeasures in respect of the post -implementation 
Washington State B&O Tax Rate Reduction Adverse Effects  
6.48.   As previousl y noted, the European  Union  proposes countermeasures in the form of Annual 
Suspension based on the adverse effects determined to exist in a past period, which relevantly for 
the post -implementation B&O Tax Rate Reduction Adverse Effects, is the reference p eriod used by 
the compliance panel to ascertain the existence of adverse effects of the B&O tax rate reduction in 
the post -implementation period. The United  States  agrees with this proposed form of 
countermeasures.  
6.49.   In the DS316 arbitration proceeding, the parties dedicated significant portions of their 
submissions to debating whether it was permissible for the arbitrator to determine the maximum 
level of countermeasures in the form of Annual Suspension based on the value of the adverse effects 
determined to  exist in the reference period of the compliance panel in that dispute (December 
2011-2013).192  
6.50.   The DS316 arbitrator explained, inter alia , that the findings from the compliance proceedings 
in that dispute were that LA/MSF for the A380 and A350XWB programmes caused adverse effects in 
the form of significant lost sales within the meaning of Article  6.3(c) of the SCM  Agreement  and 
impedance within the meaning of Articles 6.3(a) and (b) of the SCM  Agreement . The DS316 
arbitrator concluded that it was consistent with its mandate under Article  7.10 to determine the 
maximum level of countermeasures based on the instances of lost sa les and impedance that were 
determined to exist in the compliance panel's reference period and to consider these as the "adverse 
effects determined to exist" for purposes of that proceeding.193 Moreover, the DS316 arbitrator 
considered that under the SCM  Agreement  and the DSU, the maximum level of countermeasures or 
suspension of concessions that may be authorized can be a function of the effects of relevant 
measures during a past reference period . However, the maintenance of suspension of concessions 
at tha t maximum level is predicated, not on the ongoing effects of the relevant measures, but on 
continued non -compliance of the responding party.194 The DS316 arbitrator accordingly concluded 
that it was appropriate to determine the maximum level of Annual Suspe nsion based on the value 
of the adverse effects determined to exist in the temporally circumscribed compliance panel 
reference period and to grant countermeasures in the form of Annual Suspension.195 
6.51.   We agree with the analysis and reasoning of the DS316 arb itrator in this regard.196 In this 
proceeding, both parties also advocate that we value the adverse effects determined to exist based 
 
191 We emphasize that, in so finding, we make no assumptions regard ing whether the United States did 
or did not comply with the relevant recommendations and rulings of the DSB (and relatedly, whether the 
pre-2007 aeronautics R&D subsidies cause adverse effects in the post -implementation period). We also note 
that, because  we do not reach the compliance issue, we "make a case" for neither party with respect to this 
issue. (See European Union's comments on the United States' response to Arbitrator question No. 44, 
para. 50(c))  
192 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.31. 
193 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.44. 
194 Decision by the Arbitrato r, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
paras.  6.46-6.60. For a more detailed discussion of this issue, see Decision by the Arbitrator, EC and certain 
member States – Large Civil Aircraft (Article  22.6 – EU), Annex C -1, Communication from the Arbitrator 
Preliminary Ruling (Conclusion).  
195 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.76. 
196 This analysis and reasoning is also consistent with the reasoning underl ying the Arbitrator's ruling 
declining the United States' request for leave to file an additional submission regarding the purported 
 WT/DS353/ARB  
 
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  on a past reference period and use the annualized value of such adverse effects as the maximum 
level of Annual Suspension.197 In section 6.4.1 above, we explained why we decline to value the 
2004-2006 R&D Adverse Effects. Our valuation of the "adverse effects determined to  exist" in the 
present proceeding therefore concerns the post -implementation Washington State B&O Tax Rate 
Reduction Adverse Effects.  
6.4.3   The reference period for the post -implementation Washington State B&O Tax Rate 
Reduction Adverse Effects  
6.52.   In this section we address a factual issue regarding the temporal period over which the 
compliance panel assessed the existence of adverse effects caused by the Washington State B&O 
tax rate reduction (the so -called reference period). The resolution of this issue is relev ant to our 
task of assessing the proposed level of countermeasures because both parties agree, as do we, that 
the value of the adverse effects must be annualized  in order to fashion a "commensurate" level of 
Annual Suspension. The length of the reference p eriod is the period over which both parties agree 
that at least some of the adverse effects determined to exist should be annualized (see sections 
6.4.5 , 6.4.5.1 , 6.4.7.3 , and 6.4.8.2  below).  
6.53.   The European  Union  argues that the reference period used by the  compliance panel to 
determine the existence of the post -implementation B&O Tax Rate Reduction Adverse Effects was a 
33-month period from January 2013 until September 2015. The European  Union  considers that, 
although the reasonable period of time for imple mentation under Article  7.9 (which we will refer to 
generally as the "implementation period") expired on 23  September  2012, the compliance panel 
adopted a reference period that commenced in January 2013. It bases this argument on the 
compliance panel's sta tement in footnote 3368 of the compliance panel report (referring to a 
"reference period of 2013 -2015").198 The European  Union  refers also to similar references by the 
Appellate  Body to a "2013 -2015 reference period".199 
6.54.   The United  States  argues that the com pliance panel assessed the existence of adverse effects 
over a 36 -month period that commenced with the expiration of the implementation period in 
September 2012, until September 2015. It considers the compliance panel's reference in footnote 
3368 of the co mpliance panel report to a "reference period of 2013 -2015" to be a "useful, rough 
shorthand" for the post -implementation period.200 In addition, the United  States  argues that the 
compliance panel's references elsewhere in its report to the "post -implementat ion period" support 
its position that the compliance panel understood the post -implementation reference period to be 
the period after 23  September  2012.201 
6.55.   The Arbitrator notes that, aside from the single reference in footnote 3368 of the compliance 
panel r eport to a "reference period of 2013 -2015", the compliance panel does not use the concept 
of reference period in its analysis or findings. Nor does the compliance panel define such a period.202 
 
elimination of the Washington State B&O tax rate reduction as of 1  April 2020. (See Arbitrator's decision on the 
United Sta tes' request for leave to file an additional submission regarding the implications of the purported 
elimination of the Washington State B&O tax rate reduction on the permitted level of countermeasures, dated 
17 June 2020, Annex C -7) 
197 We further note, as d id the DS316 arbitrator, that "{w}e recognize that there may be other 
permissible ways to structure countermeasures. We make no judgments as to the permissibility of other 
structures, whether in this dispute or others ." (Decision by the Arbitrator, EC and certain member States – 
Large Civil Aircraft (Article  22.6 – EU), fn 188) 
198 See European Union's written submission, para.  153. 
199 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  5.480, 
5.494, and 5.497 and fn 1117 thereto . 
200 United States' written submission, para.  109. The United States argues additionally that the 
2013-2015 period referred to in footnote 3368 of the compliance panel report is also a 36 -month period. 
(United States' written submission, para.  110) 
201 United States' response to Arbitrator question No. 37, para.  117 (referring to para.  9.37 of the 
compliance panel report). As noted in para 6.9 above, the United States proposes that the post -compliance 
B&O Tax Rate Reduction Adverse Effects all be valued as lost sales and that the total value is annualized, not 
over the compliance panel's reference period, but over the 105 -month period over which t hose sales occurred.  
202 The European Union used the term "reference period" in its argumentation before the compliance 
panel, and in response to a question from the panel, clarified that the reference period, for purposes of 
determining whether any of the n on-withdrawn subsidies presently causes adverse effects, is the period since 
the end of the implementation period. (Panel  Report, US – Large Civil Aircraft (2nd complaint) 
(Article  21.5 – EU), para.  9.97)  WT/DS353/ARB  
 
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  Rather, the compliance panel consistently refers throughout its  analysis to the "post -implementation 
period".203 The post -implementation period to which the compliance panel refers began on 
24 September  2012 because that is the day after the expiration of the implementation period.204  
6.56.   The question is therefore whether the compliance panel, in determining whether the 
European  Union  had demonstrated that the unwithdrawn subsidies caused adverse effects in the 
post-implementation period, nevertheless examined the existence of those adverse effects in a 
period which began only in January 2013 rather than from the expiration of the impl ementation 
period in September 2012.  
6.57.   As we explain further below, we do not see anything in the findings of the compliance panel 
to suggest that the compliance panel's examination of the existence of the adverse effects in the 
post-implementation period wa s confined to a period that began only in January 2013, as opposed 
to September 2012.  
6.58.   By way of background, in its first written submission in the compliance proceedings, the 
European  Union  had presented evidence of alleged lost sales, impeded and displac ed imports and 
exports and price suppression, based on sales campaigns that had occurred in the period 
2007-2012.205 In September 2015, the compliance panel asked the European  Union  to update the 
information on which it relied to demonstrate its adverse eff ects claims, to include 2013 and 2014, 
and to the extent possible, the elapsed portion of 2015.206 The European  Union  submitted such 
information, which included the outcomes of LCA sales campaigns since September 2012 that the 
European  Union  considered were  additional significant lost sales, as well as order and delivery data 
based on information current to September 2015.207  
6.59.   The compliance panel examined all of the information on single -aisle sales campaigns 
occurring between 2007 and 2015 which the Europea n Union  had submitted as evidence of adverse 
effects of the subsidies.208 In section 9.2.4 of its report209 the compliance panel explained that its 
conclusions as to whether the European  Union  had demonstrated that any or all of the US subsidies 
that the United  States  had failed to withdraw, within the meaning of Article  7.8, caused adverse 
effects, "will focus  on serious prejudice data presented by the parties with respect to the 
post-implementation period , as it is only with respect to the effects found to exist in this period that 
the United States may be found to have failed to comply with its obligation und er Article 7.8 to take 
appropriate steps to remove the adverse effects".210 The compliance panel therefore indicated that 
its findings of adverse effects concerned adverse effects demonstrated to exist at some point after 
23 September  2012.  
6.60.   Of the single -aisle sales campaigns, the compliance panel identified five in the 2007 -2015 
period in which the outcome of the campaign turned on the prices offered by Airbus and Boeing, 
rather than on other factors.211 There were no such "price -sensitive" sales campaigns i dentified for 
 
203 See Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  9.13-9.15, 
9.89, 9.107, 9.108 -9.109, 9.117, 9.122, 9.336, 9.342, 9.376, 9.402, 9.407, 9.426 , 9.427  and fn 3362 thereto,  
9.438, 9.444, and 9.467, table 12, and fns  3335 and 3380. The Appellate  Body's find ings similarly refer to the 
existence of adverse effects in the post -implementation period , rather than in a "reference period". 
(Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  6.13)  
204 See e.g. Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.101.  
205 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  9.98-9.99. 
206 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.103. 
207 See Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), fn 3274 
(Exhibit  EU-1568), fn  3303 (Exhibit EU -1658), and fn  3369 (Exhibits EU -1660 and EU -1659).  
208 See tables 9 and 10 for the twin -aisle sales campaigns (Panel  Report, US – Large Civil Aircraft 
(2nd complaint) (Article  21.5 – EU), para.  9.244) and table 12 for the single -aisle sales campaigns 
(Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.381).  
209 This section of the compliance p anel report is titled , "The relevant time -period over which to assess 
whether the European Union has demonstrated that the United States has failed to take appropriate steps to 
remove the adverse effects".  
210 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.107. (emphasis 
added)  
211 These five sales campaigns were: Fly Dubai 2008, Delta Airlines 2011, Air Canada 2013, Icelandair 
2013, and Fly Dubai 2014. (Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), 
paras.  9.378 -9.385)  WT/DS353/ARB  
 
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  2012, including for the final quarter of 2012.212 However, the fact that the first price -sensitive sales 
campaign that was identified by the compliance panel in the post -implementation period arose only 
in 2013 (rather than in the final quarte r of 2012) does not mean that the compliance panel 
determined the existence of the adverse effects  only from January 2013 rather than from the 
expiration of the implementation period in September 2012. Nor does it mean that the compliance 
panel determined whether the United  States  had complied with its obligation under Article  7.8 of the 
SCM Agreement  only from January 2013. This would be at odds with the multiple places in the 
compliance panel's report where the findings are expressly formulated in terms o f the adverse effects 
found to exist in the post -implementation period, without qualification.  
6.61.   We therefore conclude that the period over which the compliance panel examined the 
existence of adverse effects in the post -implementation period ran from the co mmencement of that 
period (September 2012) until the date of the latest submission of the relevant sales campaign, 
order and delivery data, which was September 2015. We accordingly consider that the period over 
which the compliance panel determined the exi stence of adverse effects in the post -implementation 
period is the 36 -month period from September 2012 through  September 2015. Going forward in this 
Decision, we will refer to this 36 -month period as the "reference period".  
6.4.4    Consideration of events occurr ing after the reference period  
6.62.   We recall that our mandate under Article  7.10 of the SCM  Agreement  is to determine 
countermeasures that are "commensurate with the adverse effects determined to exist", which in 
this proceeding means the value of the identifi ed lost sales and threat of impedance. One issue that 
arises in this context is whether evidence of events pertaining to these lost sales and threatened 
impedance that occurred after the reference period and, therefore, was not available to the 
compliance adjudicators, can be taken into account in determining the value of these adverse effects. 
We note that both parties have taken into account events that occurred after the reference period 
in determining the value of adverse  effects and thus appear to implicitly agree that the Arbitrator 
should take into account the most recent information pertaining to the lost sales and threatened 
impedance in determining the value of these adverse effects.213 
6.63.   We observe that there is no leg al impediment in the SCM  Agreement  or in the DSU for the 
Arbitrator to consider facts that were not on the record of a previously conducted proceeding in this 
dispute. Further, as was noted by the DS316 arbitrator, considering that the focus of an arbitrat ion 
proceeding is different from that of an original or compliance proceeding, the factual information 
that is placed on the record of the arbitrator could differ from the factual information that forms part 
of the evidentiary records of previous original or compliance proceedings.214 Accordingly, there is no 
reason not to take information into account in the arbitrator's valuation exercise only because it was 
not available to the previous adjudicators in that proceeding.  
6.64.   We also discern no way in which con sidering events which occurred after the reference period 
in any way disturbs any findings of the compliance panel regarding either significant lost sales or 
threatened impedance. In our view, facts pertaining to events that would have occurred after the 
placement of the relevant LCA order (whether that order was the basis for the finding of significant 
lost sales or threat of impedance), including facts that arose after the reference period 
(e.g. cancellation of a delivery) could have a bearing on the ulti mate value reali zed by Airbus from 
 
212 Moreover, there appeared to have been at least one sales campaign submitted by the 
European  Union in which the order occurred in the fourth quarter of 2012. ( US – Large Civil Aircraft 
(21.5  – EU), EU First Written Submissio n, 28 March  2013 (Exhibit EU -51 (HSBI)), para.  1694)  
213 The European Union has, for instance, adduced evidence to show that one delivery associated with 
the 2014 Fly Dubai sales campaign was cancelled due to airline -specific post -order decisions and actions  and 
therefore, this delivery should be valued at zero. (European Union's written submission, para.  216; and 
response to Arbitrator question No. 61, para.  157. See also European Union's methodology paper, fn  16 
(noting that the "the EU quantification relie s on the most recent data") The United States has also accounted 
for the cancellation of one delivery associated with the 2014 Fly Dubai sales campaign in calculating the value 
of this lost sale. (Expected Value of the 2014 Fly Dubai Lost Sale in Order Yea r Dollars (Revised) (Exhibit 
USA-59 (HSBI))) Additionally, the United States has adjusted its calculation of the [[ ***]] lost sale to account 
for a [[ ***]] associated with this sales campaign. (United States' comments on the European Union's response 
to Arbitrator question No. 85, para.  214; and Expected Value of the [[ ***]] Lost Sale in Order Year Dollars 
(Revised) (Exhibit USA -104 (HSBI)))  
214 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.209.  WT/DS353/ARB  
 
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  the counterfactual orders and deliveries by Airbus.215 Thus, if there is evidence on the record 
indicating that the ultimate value reali zed from a counterfactual order or delivery would have been 
affected by a subsequent e vent, we consider it appropriate to take that evidence into consideration 
in determining the value of the identified lost sale or threatened impeded delivery. Indeed, as the 
DS316 arbitrator recognized, not taking such evidence into account could result in  the complaining 
party being granted countermeasures in response to a quantum of determined adverse effects that 
it would not have suffered in the counterfactual and would not be in keeping with Article  7.10.216 
6.65.   Finally, we emphasize that, insofar as we tak e into account evidence that was not available 
during the reference period, we do so in order to place as accurate a value as reasonably possible 
on the adverse effects identified in the compliance proceedings, and not to alter adverse effects 
already foun d to exist in the compliance proceedings or to establish any additional adverse effects. 
Indeed , in our assessment we take into account evidence, including post -reference period evidence, 
only insofar as it sheds light on how we should quantify the adverse  effects determined to exist, and 
thus assist us in determining a level of countermeasures that is commensurate with the degree and 
nature of those adverse effects.  
6.4.5   Conceptual issues regarding the valuations of significant lost sales and threat of 
impedanc e 
6.66.   We next examine certain conceptual issues raised by the European  Union 's proposed 
methodology. In so doing, we first examine the concept of annualization, a tool the use of which 
both parties agree is necessary in order to determine a maximum level of An nual Suspension that 
is commensurate with the degree and nature of the adverse effects determined to exist. Second and 
third, we consider whether the European  Union 's proposed general methodologies to value the 
findings of significant lost sales and threat  of impedance are consistent with our mandate.  
6.4.5.1   Annualization  
6.67.   It will be recalled that in section 6.4.2  above, we accepted the European  Union 's requ est that 
the countermeasures be structured in the form of Annual Suspension, i.e. setting one maximum 
level of countermeasures that the European  Union  may take per year until the authorization to take 
such countermeasures lapses. The United  States  did not contest that countermeasures be granted 
in the form of Annual Suspension, and both parties calculate proposed levels of countermeasures 
with this structure in mind. Against this background, both parties agree that the maximum level of 
Annual Suspension is not the total aggregate value of the adverse effects determined to exist, but, 
rather, the annualized  value of the adverse effects determined to exist (i.e. the value of the adverse 
effects determined to exist divided by the relevant number of months and m ultiplied by 12). As 
discussed in later sections, however, the parties disagree as to the period of time over which to 
annualize the value of certain adverse effects. We therefore consider it appropriate at this stage to 
elucidate our understanding of annu alization, which will assist us in selecting appropriate 
annualization periods in subsequent sections.  
6.68.   Our understanding of the function, and propriety, of annualization arises from our mandate. 
Article  7.10 of the SCM  Agreement  requires that the level of countermeasures be commensurate  
with the degree and nature  of the adverse effects determined to exist. The term "commensurate" 
indicates a "relationship of correspondence and proportionality between the two elements", which 
may be "qualitative as well as q uantitative".217 It will further be recalled that the purpose of 
countermeasures is to induce compliance, and, more concretely, to enable a complaining Member 
 
215 Panel  Report, EC and certain member States – Large Civil Aircraft , para.  7.1724 (explaining that 
there are "many factors that can intervene between order and actual delivery" that affect the ultimate value 
realized from an order); and Decision by the Arb itrator, EC and certain member States – Large Civil Aircraft 
(Article  22.6 – EU), para.  6.105 (noting that "post -order developments may affect the ultimate value that an 
LCA manufacturer realizes from an LCA order. These include cancellations, delivery del ays, or even 
re-negotiations of the terms of the sale. Such factors can be taken into account when assessing what ultimate 
value {the LCA manufacturer} would have realized had it won the lost sales ."). 
216 Decision by the Arbitrator, EC and certain member St ates – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.214. By the same token, we consider that not taking such evidence into account might result in some 
cases in the complaining party being granted countermeasures that are underinclusive of the economi c harm 
resulting from adverse effects determined to exist.  
217 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 5.4. (internal quotation marks and citation omitted)  WT/DS353/ARB  
 
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  to inflict economic harm on the respondent to induce such compliance. Therefore, we observe that, 
under our mandate, there should be a "relationship of correspondence and proportionality" between 
the maximum level of Annual  Suspension and the annualized value of the adverse effects determined 
to exist. In other words, the maximum level of Annual Suspension should be "commensurate with" 
the economic impact of the adverse effects determined to exist over one year as valued by the 
Arbitrator.  
6.69.   We note that this approach accords with previous arbitrator practice. In particular, arbitrators 
that have fa shioned maximum levels of Annual Suspension have done so with reference to the period 
over which relevant economic effects of measures being valued occurred, including both previous 
arbitrators acting under Article  7.10 of the SCM  Agreement .218 
6.70.   We therefore  conclude that, in this proceeding, the choice of an appropriate period of 
annualization should be made with reference to a period over which the economic harm being 
measur ed occur red. 
6.4.5.2   Lost sales  
6.71.   As previously noted, the European  Union  proposes to value th e significant lost sales of 
single -aisle LCA that occurred in the post -implementation period, i.e. the 2013 Air Canada lost sale, 
the 2013 Icelandair lost sale and the 2014 Fly Dubai lost sale, by discounting back to the date of the 
relevant LCA order the net delivery -date prices of the total number of Airbus LCA that would have 
been delivered in the counterfactual had Airbus won the order. After expressing the discounted 
values in 2015 US dollars, the European  Union  then annualizes those valuations over th e 33-month 
period that the European  Union  argues is the compliance panel's reference period.219 
6.72.   The net delivery -date price of an LCA can be understood generally as the price that the 
customer ultimately pays by the time it takes delivery of the aircraft. It represents the net aircraft 
price agreed between the customer and LCA manufacturer on the date of the purchase agreement. 
The net aircraft price is the price the customer would pay if it were to take delivery of the aircraft 
on the date that i t orders the aircraft. The net delivery -date price is the net aircraft price as adjusted 
for increases in the costs of labour and materials through negotiated price escalation formulae. This 
adjustment is necessary given that the actual delivery will occur  sometime after the date of the 
order (in some cases, several years).220  
6.73.   We recall that, as in the DS316 proceedings, the lost sales were determined to exist in both 
the original and compliance proceedings on the basis that a lost sale of LCA occurs at the  time of 
the LCA order.221 The valuation of a lost sale at the time of the order is the value to the LCA 
manufacturer of the expected future cash flows from the eventual delivery of all LCA that the LCA 
manufacturer would have delivered if it had obtained t he order. In this proceeding, the significant 
lost sales that occurred in the reference period involved firm orders for 163 Boeing single -aisle LCA 
that were to be delivered over a time horizon that extended beyond the reference period. However, 
because a lost sale occurs at the time of the order, the valuation of a lost sale occurring in the 
reference period is a valuation, as of the time of the order, of Airbus' expected future cash flows 
from the deliveries of all of the LCA that are part of that lost sa le, which Airbus would have made if 
 
218 Decisions by the Arbitrators, US – Anti-Dumping Methodologies (China) (Article  22.6 – US); EC and 
certain member States – Large Civil Aircraft (Article  22.6 – EU); US – Tuna II (Mexico) (Article  22.6 – US); US 
– COOL (Article  22.6 – United States) ; US – Upland Cotton (Article  22.6 – US II) ; US – Gambling (Article  22.6 
– US); EC – Bananas III (Ecuador) (Article  22.6 – EC); EC – Hormones (Canada) (Article  22.6 – EC); EC – 
Hormones ( US) (Article  22.6 – EC); and EC – Bananas III ( US) (Article  22.6 – EC). See also Brazil – Aircraft 
(Article  22.6 – Brazil)  where, after determining the present value of the prohibited subsidy granted over a six -
year period (2000 -2005), the arbitrator divided that aggregate amount by six (for the time -period of six years) 
to determine the averag e annualized present value of the subsidy. (Decision by the Arbitrator, Brazil – Aircraft 
(Article  22.6 – Brazil) , para.  3.93)  
219 See section 6.1 above. 
220 See Panel  Reports, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), fns 2723 and 3383; 
and EC and certain member States – Large Civil Aircraft , para.  7.1719 and fn  5199.  
221 See Appellate  Body Reports, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  5.338 
(explaining that the existence of lost sales may be identified using "order data alone"); EC and certain member 
States – Large Civil Aircraft (Article  21.5 – US), paras.  5.716 and 5.731 (stating that the five rel evant orders 
for Airbus LCA in the 2011 -2013 reference period "represent" the lost sales); US – Large Civil Aircraft (2nd 
complaint) , para.  1230; and EC and certain member States – Large Civil Aircraft , para.  1217 (noting that "an 
assessment of lost sales focused on an examination of specific sales campaigns may be appropriate").  WT/DS353/ARB  
 
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  it had won the sale. We further observe that the compliance panel identified the occurrence of the 
relevant lost sales (i.e. the economic events that we value in this context) in the post -implementation 
period over a par ticular temporal period, i.e. the reference period.222  
6.74.   We thus consider that the European  Union 's general methodology for valuing the significant 
lost sales in this proceeding, i.e. discounting back to the date of order the net delivery -date prices 
of all of the Airbus LCA that would have been delivered in the counterfactual for each lost sale, and 
then annualizing such values over the reference period, is consistent with our mandate. That is, it 
will yield a maximum level of Annual Suspension that is comme nsurate with the degree and nature 
of the lost sales determined to exist in the compliance proceedings.223 This methodology is also 
consistent with the methodology proposed by the United  States  in the DS316 arbitration proceeding 
and adopted by the DS316 ar bitrator to value the significant lost sales in that proceeding.224  
6.4.5.3   Threat of impedance  
6.4.5.3.1   Primary EU methodology based on the value of the underlying lost sales  
6.75.   In its methodology paper, the European  Union  originally proposed separate valuation 
methodologies  for the threatened impedance in the US and UAE geographic markets. However, in 
the light of the United  States ' written submission, the European  Union  subsequently proposed, in its 
written submission and in subsequent submissions, that the Arbitrator value  the threatened 
impedance in both the US and UAE geographic markets using a so -called "lost sales" approach.225 
We therefore  consider the lost sales approach to be the primary methodology proposed by the 
European  Union  for valuing the threatened impedance.226 
6.76.   The European  Union  considers that a lost sales valuation approach is appropriate in the 
circumstances because the threat of impedance findings in respect of both the US and UAE 
geographic markets were specifically b ased on intermediate findings of lost sales, namely, the 2011 
Delta Airlines lost sale (with respect to the US geographic market) and the 2008 and 2014 Fly Dubai 
lost sales (with respect to the UAE geographic market).   
6.77.   Under its lost sales approach, the Eu ropean  Union  values the threat of impedance in the US 
and UAE markets, based on the 2011 Delta Airlines and 2008 Fly Dubai lost sales, respectively, in 
the same way that it values the significant lost sales findings in respect of the three lost sales that 
occurred in the post -implementation period (2013 Icelandair, 2013 Air Canada and 2014 Fly 
Dubai).227 Accordingly, the European  Union  calculates the net delivery -date prices of all of the Airbus 
LCA that would have been delivered in the counterfactual in the  2011 Delta Airlines and 2008 Fly 
Dubai campaigns, had Airbus rather than Boeing won those sales campaigns, and discounts those 
values back to the relevant order date to arrive at the expected value of those lost sales at the time 
of the order. After resta ting the valuations in 2015 US dollars, the European  Union  annualizes those 
 
222 The reference period is discussed in section 6.4.3 above.  
223 See section  6.4.7.3  below (further explaining the annualization issue in the context of lost sales).  
224 Decision by the Arbitrator, EC and certain member States  – Large Civil Aircraft (Article  22.6 – EU), 
paras.  6.159 and 6.200 , and section 6.3.3.2.1.  
225 The European Union considers that the parties agree that the threat of impedance in the US market 
is best valued following the same approach applied to the significant lost sales findings, and that it "does not 
object" to the United States' proposal to ap ply a "lost sales" approach to valuing threat of impedance in the 
UAE market. (European Union's written submission, paras.  250, 283, and 390 (second bullet point); opening 
statement, para.  14; but see response to Arbitrator question No. 85, para.  458 (thir d bullet point). See also 
European Union's executive summary, para.  35) 
226 "Since the Parties agree that it is appropriate to adopt a "lost sales" approach to value the threat of 
impedance findings, the {Arbitrator} should adopt that approach". (European Un ion's response to Arbitrator 
question No. 30, para. 120)  
227 The European Union values the threat of impedance in the US geographic market on the basis of the 
2011 Delta Airlines lost sale and the threat of impedance in the UAE geographic market on the basis  of the 
2008 Fly Dubai lost sale (and not additionally on the basis of the 2014 Fly Dubai lost sale). (European Union's 
response to Arbitrator question No. 34, para.  132) The European Union acknowledges that, under a lost sales 
approach, the adverse effect s of the 2014 Fly Dubai lost sale are already valued as a significant lost sale. 
(European Union's written submission, para.  400 (first bullet point); response to Arbitrator question No. 31, 
para. 131; and opening statement, para.  14) WT/DS353/ARB  
 
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  valuations over the 33 -month period that the European  Union  argues is the compliance panel's 
reference period.228 
6.78.   The United  States  considers that it is appropriate to value the spe cific threat of impedance 
findings in the compliance proceedings based on the lost sales underlying those findings. However, 
it argues that annualizing those values over the compliance panel's reference period (whether 
33 months or 36 months), instead of o ver the 105 months over which all five of the lost sales 
underpinning the adverse effects findings occurred, contradicts  the compliance panel's findings.229 
The United  States  notes in this regard that the 2011 Delta Airlines and 2008 Fly Dubai campaigns 
were not found to support a finding of significant lost sales because the orders did not occur in the 
post-implementation period, and contends that to value the threat of impedance related to Airbus' 
loss of those sales as though they had been significant los t sales that occurred in the reference 
period "wipes away the temporal distinction" that led the compliance panel to find two different 
forms of adverse effects.230 
6.79.   The European  Union  rejects the argument that valuing the threat of impedance findings based 
on the underlying lost sales, and annualizing the values over the compliance panel's reference 
period, would not be consistent with Articles 7.9 and 7.10 of the SCM  Agreement . It contends that 
it is "perfectly possible" that a threat of impedance valuation  would result in the same level of 
countermeasures as the valuation of a lost sale in the post -implementation period. Specifically, with 
respect to the 2011 Delta Airlines lost sale, the European  Union  argues that:  
"As a matter of law , that the same underlying transaction (i.e. the 2011 Delta Airlines 
lost sale) results in the same value of countermeasures, whether it is characterized as 
(i) a "lost sale" arising in the compliance reference period (if it would actually have 
arisen in the reference per iod) or (ii) as a threat of impedance arising in the reference 
period, does not turn that valuation methodology into one that would be "inconsistent" 
with Articles 7.10 and 7.9 of the SCM  Agreement ."231  
6.80.   Moreover, the European  Union  notes that in fact, all of the 2011 Delta Airlines deliveries were 
outstanding at the beginning of the compliance panel's reference period. In this situation, the 
European  Union  considers it " perfectly logical  that the very same  phenomenon results in the same 
level of harm, irres pective of whether it is characterized as (a) a threat of impedance in the reference 
period, or (b) a lost sale in the reference period (if it would have occurred in the reference period)".232  
6.81.   The parties both propose that the Arbitrator approach the valua tion of the compliance panel's 
reference period from the perspective of the underlying lost sales as the first step.  In other words, 
the parties agree that all of the deliveries associated with the underlying orders, regardless of when 
 
228 European Union's wr itten submission, paras.  399-400; and response to Arbitrator question No. 35, 
paras.  134-136; and No. 36, paras.  140-149. 
229 United States' written submission, paras.  104-106. 
230 United States' comments on the European Union's response to Arbitrator question  No. 71, para.  163. 
See para. 6.97 below for the United States' argument regarding the temporal distinction between present and 
threatened serious pr ejudice.  
231 European Union's response to Arbitrator question No. 71, para.  339 (emphasis original). See also 
European Union's comments on the United States' response to Arbitrator question No. 70, paras.  339 and 342.  
232 European Union's comments on the Unite d States' response to Arbitrator question No. 70, para.  342. 
(emphasis original) See also European Union's response to Arbitrator question No. 71, para.  340. The 
European Union does not address the issue that its proposed lost sales approach would result i n a valuation of 
threat of impedance that is the same as the valuation of a finding of significant lost sales in the post -
implementation period specifically with respect to the UAE geographic market, even where deliveries from the 
2008 Fly Dubai campaign w ould have been made prior to the end of the implementation period. Rather, in fn 
437 to its comments on the United States' response to Arbitrator question No. 71, the European Union states 
that any apparent concern that the European Union's lost sales appr oach would result in the same annualized 
valuation of threat of impedance for the 2011 and 2008 lost sales that would result from a valuation of those 
particular lost sales as significant lost sales that occurred in the post -implementation period would not  arise 
under a different approach, namely a "threat of impedance" approach as subsequently proposed by the 
European Union. The European Union's subsequently proposed "threat of impedance" approach is discussed 
further in section 6.4.5.3.3  below, along with the conditions to which the European Union subjects its 
agreement to a valuation on that basis.  WT/DS353/ARB  
 
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  those deliveries occ urred, would be part of the valuation.233 However, they disagree on the second 
step of the valuation, which is the time -period over which the resulting valuation should be allocated  
to provide an annualized  value of the threat of impedance that was found to exist in the compliance 
panel's referen ce period.  
6.82.   Our mandate under Article  7.10 of the SCM  Agreement  requires that a maximum level of 
Annual Suspension is commensurate with the nature  of the adverse effects determined to exist. As 
explained in section  6.4.5.2 , lost sales occur at the time of the order for LCA. The valuation of a lost 
sale is thus order -centric, focusing on the value of the order logically at the time that the order 
occurred. By contrast, i mpedance refers to  a phenomen on in which the imports or exports of the 
like product of the complaining Member would have expanded had they not been obstructed or 
hindered by the subsidized product, or did not materialize at all because production was held back 
by the subsidized product.234 In the context of the LCA industry, imports and exports of LCA are 
synonymous with deliveries  of LCA to customers.235 The valuation of impedance is therefore focus ed 
on the value of a delivery  logically at the time that the delivery occurred.236 
6.83.   We consider that a valuation of a threat of impedance  that is based on the valuation of the 
underlying lost sales, as lost sales, is inconsistent with the nature of impedance as a market 
phenomenon focus ed on the deliveries of LCA at the time that the deliveries occurred.237 Simply 
stated, a lost sales approach values a threat of impedance on the basis of the wrong event (the LCA 
order rather than the deliveries that result from the order) occurring at the  wrong time (time of the 
LCA order rather than the times at which the deliveries occur). We are aware that the compliance 
panel's specific threat of impedance findings were dependent on findings of underlying lost sales. 
However, this fact does not, in our  view, mean that it is reasonable to value the adverse effect of 
threat of impedance (concerning deliveries of LCA) as though it were the adverse effect of lost sales 
(concerning the loss of an LCA order). Moreover, in reaching this conclusion, we acknowle dge that 
the value of an LCA order ultimately may be derived from delivery prices. But to obtain that order 
value one still must temporally adjust those prices to, and aggregate them at, the time of order. 
That coordinated temporal adjustment and associate d aggregation make no sense if one focuses on 
the deliveries themselves as independent of the time of the associated order. We further see no 
basis to use a lost sales approach as some kind of acceptable alternate technical approach for the 
value of the de liveries at the time of delivery.238 
 
233 European Union's response to Arbitrator question No. 30, para.  123; and United States' response to 
Arbitrator question No. 30, para.  88. A lost sales valuation approach would therefore include the values of LCA 
orders in respect of counterfactual deliveries that would be made before, during, and after the reference 
period. 
234 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.419 (referring to 
Appellate  Body Reports, EC and certain member States – Large Civil Aircraft , para. 1161; US – Large Civil 
Aircraft (2nd complaint) , paras.  1071 and 1086).  
235 In the DS316 compliance proceedings, the compliance panel's findings of displacement and/or 
impedance were based on delivery data . (Panel  Report, EC and certain member States – Large Civil Aircraft 
(Article  21.5 – US), para.  6.1805  and tables 20, 21 and 22) Similarly, the original panel in this dispute stated 
that the existence of displacement and impedance can only be definitively established by relevant delivery data 
(Panel  Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1686) and the compliance panel examined the 
existence of displacement, impedance and threats thereof based on market share information showing actual 
and projected deliveries of LCA (Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), 
para. 9.432).  
236 Accordingly, in the DS316 arbitration proceeding, the arbitrator valued adverse effects in the form of 
impedance in the December 2011 -2013 reference period based on a "delivery -centric approach" focused on the 
value of the counterfact ual deliveries  made in the relevant geographic market in the 25 -month reference 
period. "{W}e agree with the parties and temporally assign the economic value of the six instances of 
impedance, and more concretely the value of the corresponding counterfactu al Boeing LCA deliveries to the 
relevant geographic markets, to the 2011 -2013 reference period, during which the deliveries would have 
occurred". (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article  22.6 – EU), 
para. 6.117 and section 6.4.3)  
237 We note in this regard that the relevant adverse effect that was determined to exist in the post -
implementation period is threat of impedance , not the intermediate lost sales, which occurred before the 
beginning of the post -impleme ntation period.  
238 In this regard, we recall the European Union's argument that "{t}here is no basis for reducing the 
economic harm caused by the same transaction, because it constitutes a threat of impedance in the 
compliance reference period and a lost s ale prior to the compliance panel reference period". (European Union's 
response to Arbitrator question No. 71, para.  341 (emphasis original) ) The European Union's framing of this 
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  6.84.   We therefore reject the European  Union 's proposal to value the threat of impedance using a 
lost sales approach. This being so, we next consider, as alternatives, the valuation methodologies 
that the European  Union  had or iginally proposed in its methodology paper.  
6.4.5.3.2   Alternative EU methodologies based on the value of deliveries  
6.85.   As noted previously, in its methodology paper, the European  Union  proposed separate 
approaches for valuing the threat of impedance in the US geograph ic market, and the UAE 
geographic market. For the US geographic market (based on the 2011 Delta Airlines lost sale), the 
European  Union  proposed that the Arbitrator value all of the counterfactual deliveries  of the relevant 
Airbus LCA that would have been made if Airbus had secured the order (regardless of whether those 
deliveries occurred in the implementation period, during the compliance panel's reference period, or 
in the post -reference period), and that the value be annualized over the compliance panel 's reference 
period.239  
6.86.   For the UAE geographic market, the European  Union 's valuation was based on the delivery 
prices of all single -aisle LCA that Airbus would deliver into that market from the present day (2020) 
until 2030, assuming a counterfactual Airb us market share of 100%. The European  Union 's use of a 
counterfactual Airbus market share of 100% from 2020 to 2030 was based on the compliance panel's 
conclusion from the evidence before it that, in both the 2009 -2016 period and the "post -2016" 
period, Ai rbus would have 100% of the deliveries in the UAE market.240 In its methodology paper, 
the European  Union  updated the projected delivery information for scheduled single -aisle deliveries 
into the UAE market between 2017 and 2030 (including deliveries based on new orders in a sales 
campaign that occurred after the September 2015 evidentiary cut -off in the compliance 
proceedings). It then  calculated, on the basis of the updated projected delivery information, the 
number of additional aircraft that Airbus would  have delivered over this period, assuming  it were to 
maintain the 100% market share to which the compliance panel referred.241  
6.87.   The European  Union  selected 2020 as the first year from which to measure the threatened 
impedance on the basis that 2020 would b e the first year in which it would be authorized to 
implement countermeasures, and was therefore "an appropriate point of departure to quantify the 
average annual value of deliveries that Airbus could have expected to make in the absence of the 
US subsidie s to Boeing."242 The European  Union  annualized the value of the corresponding number 
of counterfactual Airbus deliveries expected from 2020 -2030 over an 11 -year period, "to reflect the 
number of years in the period spanning 2020 -2030."243 
6.88.    The United  States  responded to the European  Union 's original valuation methodologies for 
the threat of impedance findings by proposing, as previously noted in section 6.4.5.3.1 , that the 
 
argument already assumes that the economic harm that is characterized under A rticles 5(c) and 6.3 as a 
threat of impedance in the post -implementation period is the same as the economic harm that is characterized 
as a lost sale prior to the post -implementation period. However, there is no reason why this should necessarily 
be the ca se – even where all deliveries may be outstanding at the beginning of the post -implementation 
period. Rather, the legal characterization of the economic harm (rather than the underlying transaction) 
dictates the nature and extent of this economic harm that  an arbitrator must value under Article  7.10 of the 
SCM Agreement. Our valuation of the adverse effects determined to exist must be based on the degree and 
nature of the effects that the compliance panel identified, even if those effects relate to a common  underlying 
transaction. Indeed, under the delivery -centric approach that we consider would yield countermeasures 
commensurate with the degree and nature of the threat of impedance identified in the compliance proceedings 
(discussed in section 6.4.9.2  below), we calculate valuations for threat of impedance that do not coincide with 
either of the parties' valuations under an order -centric approach. We wo uld add that the fact that different 
forms of adverse effects may give rise to different valuations, notwithstanding that they are based on the same 
underlying transaction does not mean that a threat of impedance is necessarily a "second -class adverse 
effect", compared with a lost sale. (See European Union's comments on the United States' response to 
Arbitrator question No. 71, para.  341) 
239 The European Union explains that it calculates the net price of each Airbus LCA that would have been 
delivered if Airb us had won the sale, at delivery (i.e. Net Fly -Away Price adjusted according to the contractual 
escalation formula to determine 2013 -2019 delivery prices, which are then time -adjusted into April 2020 
dollars (using the ALII for the relevant delivery months  and years), and annualized over a 33 -month reference 
period). (See European Union's methodology paper, paras.  132-140) 
240 European Union's methodology paper, paras.  144-145; and written submission, para. 285.  
241 European Union's methodology paper, paras. 148 -149 and table 7.  
242 European Union's methodology paper, para.  150. 
243 European Union's methodology paper, paras.  152 and 159.  WT/DS353/ARB  
 
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  underlying lost sales be valued on the same basis as the three significant lost sales that occurred in 
the post -implementation period. However, as previously mentioned, the United  States ' proposal also 
required that the period over wh ich those values would then be divided, to arrive at an annualized 
value of the threat of impedance that was found to exist in the compliance panel's reference period , 
must reflect the total period over which all five of the lost sales occurred, i.e. 2007 -2015 
(105 months) rather than the compliance panel's reference period, as proposed by the 
European  Union .244  
6.89.   As regards the US geographic market in particular, the United  States  noted that many of the 
deliveries of LCA pursuant to the 2011 Delta Airlines l ost sale were made during the compliance 
panel's reference period. According to the United  States , any valuation of threat of impedance based 
on the relevant deliveries, as opposed to lost sales, would therefore need to exclude deliveries that 
were made du ring the implementation period and compliance panel reference period. This is because 
such deliveries would be, at most, evidence of present  impedance, rather than threat of 
impedance.245  
6.90.   As regards the UAE geographic market, the United  States  argued that the European  Union 's 
counterfactual delivery numbers are based on (a) deliveries associated with the 2014 Fly Dubai lost 
sale, which were already valued as part of the valuation of significant lost sales and could not be 
counted again, and (b) a 2017 Fly D ubai single -aisle sales campaign that Boeing won, which occurred 
after the compliance proceedings, and was not subject to any findings in the compliance 
proceedings.246 The United  States  argued that the findings from the compliance proceedings did not 
suppo rt the assumption that, absent the Washington State B&O tax rate reduction, Airbus would 
retain 100% of the counterfactual UAE market share from 2009 throughout the post -implementation 
period, such that the 2017 Fly Dubai sales campaign could implicitly be  assumed to be a lost sale 
attributable to the Washington State B&O tax rate reduction.247 
6.91.   The valuation methodology originally proposed by the European  Union  for the threat of 
impedance in the US geographic market  (a) values all of the LCA deliveries assoc iated with the 2011 
Delta Airlines lost sale, regardless of whether the deliveries in question occurred during the 
compliance panel's reference period or after, and (b) annualizes the resulting valuation over the 
compliance panel's reference period.248 We observe that this methodology displays characteristics 
similar to those that it later proposed in its "threat of impedance" valuation approach, which we 
evaluate in detail further below.249 We therefore consider that our evaluation of the European  Union 's 
threat of impedance valuation approach will effectively resolve the propriety of this approach as 
well.250 
6.92.   The valuation methodology originally proposed by the European  Union  for the threat of 
impedance in the UAE geographic market  focuses on the value of deliveries at the time the deliveries 
occurred (rather than the value of the order that resulted in the deliveries at the time the order 
occurred). In that respect, it accords with the nature of adverse effects in the form of threa t of 
impedance. However, the European  Union 's quantification of the relevant counterfactual deliveries 
is based in part on deliveries made under a 2017 Fly Dubai sales campaign that was not one of the 
five price -sensitive LCA sales campaigns that were foun d to be lost by Airbus due to the Washington 
State B&O tax rate reduction. We recall that the compliance panel's threat of impedance findings 
were dependent on the existence of a causal connection between the subsidy and threatened 
 
244 United States' written submission, paras.  105-106. 
245 United States' written submis sion, para.  148 at fn  171.  
246 United States' written submission, paras.  148-151. The European Union rejects the argument that its 
methodology would involve an improper "double counting" of deliveries related to the 2014 Fly Dubai lost sale, 
arguing that th e compliance panel found that the 2014 Fly Dubai lost sale and threat of impedance in the UAE 
market were "distinct adverse effects" that the Arbitrator must value separately. (European Union's written 
submission, para.  286 at fn  389) In addition, the Euro pean Union argues that the compliance panel's findings 
were based on evidence of market share trends in the UAE market (and not only on the evidence of the 2008 
and 2014 lost sales), such that the proposed valuation approach for the UAE market is supported  by the 
SCM Agreement. (European Union's written submission, paras.  285-286) 
247 United States' written submission, paras.  153-156.  
248 European Union's methodology paper, para. 130. The main difference is that, unlike the significant 
lost sales valuations, the European Union does not propose discounting the delivery -date prices back to their 
equivalent values at the date of the order, bu t rather, adjusts them forward to their equivalent value in April 
2020. (European Union's methodology paper, para.  137) 
249 See para.  6.93 et seq.  
250 See fn 330 below.  WT/DS353/ARB  
 
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  impedance.251 The only ca usal connection identified by the compliance panel was the lost -sales 
findings for those specific price -sensitive campaigns.252 The 2017 Fly Dubai sales campaign was not 
before the compliance panel because it occurred subsequent to the compliance panel's ev identiary 
cut-off of September 2015 and therefore was not identified as a "price -sensitive sales campaign" or 
as a lost sale that was the effect of US subsidies. We therefore do not consider that there is a basis 
on which the Arbitrator can value deliverie s associated with the 2017 Fly Dubai sales campaign as 
part of the compliance panel's threat of impedance findings for the UAE geographic market. 
Therefore, we cannot accept the European  Union 's proposed alternative methodology for valuing the 
threat of im pedance finding in the UAE market, but as was the case with respect to the proposed 
alternative methodology for the US market, we discern certain aspects of the methodology that are 
similar to the so -called "delivery -centric" approach that we discuss next.  
6.4.5.3.3   Arbitrator's proposed "delivery -centric" approach  
6.93.   Following the meeting with the parties, the Arbitrator invited the parties to propose 
methodologies to value the threat of impedance based on the value of the counterfactual deliveries 
stemming from the tw o lost sales at the time of delivery, which it referred to as a "delivery -centric" 
approach.253  
6.94.   The European  Union  responded that it would agree to the Arbitrator valuing a threat of 
impedance (that is, a threat of deliveries) arising at any point in the c ompliance panel's reference 
period  even if any of those LCA were subsequently delivered in the reference period and having 
regard to the value of deliveries scheduled to occur in the post -reference period.254 However, it 
specified that the time -period over which the resulting value of threatened deliveries would be 
annualized must be the "33 -month reference period adopted by the compliance adjudicators".255 
6.95.   The European  Union  argues that the compliance panel's findings of threat of impedance in the 
US and UAE  markets were temporally situated at and from the time of the lost sales (occurring in 
2011 and 2008, respectively) and that the threat of impedance arose and continued to exist  in the 
reference period.256 The European  Union  therefore argues that the correct temporal perspective, and 
 
251 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  9.427 -9.432.  
252 We therefore disagree with the European Union's assertion that the compliance panel's causal 
analysis for the UAE market was not based entirely on the prior lost -sales findings, but also on market share 
trends ( see European Union's written submission, para.  285). See also para.  6.126  below.  
253 See e.g. Arbitrator question Nos. 66, 69 , and 70.  
254 European Union's response to Arbitrator question No. 67, para.  286. The European U nion considers 
that the term "delivery -centric" does not properly characterize the alternative to a lost sales approach because 
it wrongly suggests that the Arbitrator would value a finding of "actual" impedance, whereas it must value the 
threat of  impedan ce findings. The European Union therefore refers to its proposed alternative to a lost sales 
approach as a "threat of impedance" approach (European Union's response to Arbitrator question No. 66, 
paras.  188-189); compare with European Union's comments on t he United States' response to Arbitrator 
question No. 66, para.  215 where the European Union refers to its approach as a "threat of delivery" approach.  
255 European Union's response to Arbitrator question No. 66, paras.  236 and 239. As noted in 
para. 6.102  below, the European Union's agreement to the Arbitrator adopting a "threat of impedance" 
valuation approach is expressly subject to certain conditions , one of which is that the annualization period is 33 
months.  
256 For example, for the US market (2011 Delta Airlines), the European Union argues:  
It is important to note that the compliance adjudicators' precise finding is one of a threat of 
impedance resul ting from the 25  August  2011 Delta Airline order for 100 aircraft. … That threat 
of impedance, which came into existence on 25  August  2011, continued to exist at least until 
such time as the aircraft were delivered. In the first part of the reference perio d, from 1 January 
2013 to the date of first delivery (September 2013), a threat of impedance covering all of those 
threatened deliveries was extant.  
European Union's response to Arbitrator question No. 66, para.  199. See also response to Arbitrator questi on 
No. 67, paras.  307-308; and combined comments on the United States' responses to Arbitrator question Nos. 
66(a) and 69, para.  233. For the UAE market (2008 Fly Dubai), the European Union argues:  
As in the case of the US market, the correct temporal view point, and the one adopted by the 
compliance panel, was also, by definition, the date on which the 2008 Fly Dubai transaction was 
concluded (14 July 2008) (bringing the threat of impedance into existence) and thus, insofar as 
is legally relevant, the start  of the reference period (1 January 2013), when a threat of 
impedance continued to exist. Again, the compliance panel did not situate itself at the end of the 
reference period (30 September 2015) to consider whether there was a threat arising in the 
refere nce period (1 January 2013 to 30 September 2015) due to deliveries that were "clearly 
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  the one adopted by the compliance panel, is that the threat of impedance "arose" on the date the 
relevant order was lost and "remained extant, in its entirety, in the reference period".257 From th at 
perspective, the threat of impedance that existed in the reference period comprised all future 
deliveries that were undelivered at any point in the reference period, and therefore, the appropriate 
annualization period for the threat of impedance would b e the reference period.  
6.96.   The United  States  argues that, under a delivery -centric approach to valuing threat of 
impedance, the Arbitrator should (a) include only those deliveries occurring after the end of the 
compliance panel's reference period258; and (b) a nnualize the corresponding valuation over the time 
over which the counterfactual Airbus deliveries would have been scheduled to occur (all being after 
the compliance panel's reference period).  
6.97.   In support of this position, the United  States  distinguishes be tween serious prejudice that 
arises in the present based on present  harm, and serious prejudice that arises in the present based 
on threatened  harm in the imminent and clearly foreseeable future.259 The United  States  argues that 
threat findings are based on  future, imminent harm that has not yet materialized.260 For the 
United  States , it therefore follows that a threat of serious prejudice finding does not include a finding 
of the present form of that serious prejudice; rather, threat findings are made when t here are no 
current, ongoing adverse effects in the relevant form.261 The United  States  considers that deliveries 
made during the compliance panel's reference period would be the basis for a finding of present  
impedance, which the compliance panel did not m ake in this case.262 According to the United  States , 
had there been a finding of present impedance, there would be no question that the Arbitrator's 
valuation of that finding should be limited to counterfactual deliveries during  the reference period. 
Likewi se, there should be no question that the valuation of threat of impedance findings should be 
limited to counterfactual deliveries occurring after the reference period.263  
6.98.   The United  States  also contrasts the findings before this Arbitrator with the finding s before 
the DS316 arbitrator. It notes that in the DS316 compliance proceedings, the compliance panel 
found present impedance based on deliveries that occurred during the compliance proceeding s 
reference period (but not threat of impedance as regards deli veries due to occur after the end of the 
reference period).264 The DS316 arbitrator valued those reference -period deliveries as present  
impedance and did not value any future deliveries scheduled to occur after the end of the compliance 
panel's reference pe riod because there was no threat of impedance finding made in the compliance 
proceeding.265 The United  States  notes that in this arbitration proceeding, by contrast, there are no 
present impedance findings by the compliance panel, only threat of impedance f indings. The 
United  States  argues that, because there is no finding of present impedance, the Arbitrator should 
not value any deliveries made during the reference period. The United  States  submits that, by asking 
the Arbitrator to value deliveries that occ ur both in the reference period and in the post -reference 
period as threat of impedance, the European  Union  is in reality asking the Arbitrator to treat the 
 
foreseen and imminent" in the post -reference period (i.e. after 30 September 2015). Such an 
assertion flatly contradicts the findings actually made by the compliance pane l.  
European Union's response to Arbitrator question No. 66, para.  205. (emphasis original; fn  omitted) See also 
European Union's combined comments on the United States' responses to Arbitrator question Nos. 66(a) 
and 69, paras.  234 and 250.  
257 European Union's response to Arbitrator question No. 66, paras.  200 and 203; response to Arbitrator 
question No. 67, paras.  299 and 301; and combined comments on the United States' responses to Arbitrator 
question Nos. 66(a) and 69, para.  231. 
258 United St ates' response to Arbitrator question No. 66, para.  84. The United States explains that this 
would mean that only the deliveries under the 2011 Delta Airlines and 2008 Fly Dubai campaigns that occurred 
after the compliance panel's reference period would be  included in the valuation. Deliveries under the 2014 Fly 
Dubai campaigns would have already been valued as part of the 2014 Fly Dubai lost sales valuation and would 
not be counted twice. (United States' response to Arbitrator question No. 66, para.  86) 
259 United States' comments on the European Union's response to Arbitrator question No. 66, para.  111. 
260 The United States explains: "Thus, the threat of impedance findings are necessarily forward looking. 
They are based on a present situation in which Airbus LCA deliveries are not yet being obstructed, hindered or 
held back, but will imminently undergo a change in circumstances that will result in them being 
obstructed/hindered/held back in the future ." (United States' comments on the European Union's response  to 
Arbitrator question No. 66, para.  95 (emphasis original) ) 
261 United States' response to Arbitrator question No. 69, para.  108. 
262 United States' response to Arbitrator question No. 66, paras.  85 and 87; and response to Arbitrator 
question No. 69, para.  109. 
263 United States' comments on the European Union's response to Arbitrator question No. 66, para.  98. 
264 United States' response to Arbitrator question No. 69, para.  110.  
265 United States' response to Arbitrator question No. 69, para.  110. WT/DS353/ARB  
 
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  compliance panel as having found both present impedance and threat of impedance, which is clearly 
erroneous, and would lead to countermeasures that are not commensurate with the degree and 
nature of adverse effects determined to exist.266  
6.99.   We begin by obser ving that, as a factual matter, all of the counterfactual deliveries related to 
the 2011 Delta Airlines lost sale would have occurred either during or after the compliance panel's 
reference period. For the 2008 Fly Dubai lost sale, certain counterfactual d eliveries would have 
occurred prior to  the end of the implementation period, as well as during the reference period. 
Moreover, where the Boeing delivery schedule is used to identify the delivery schedule of the 
counterfactual Airbus deliveries, there would  have been no post -reference period deliveries for the 
2008 Fly Dubai lost sale.  
6.100.   Neither party disputes that , as part of its valuation of the threat of impedance findings,  the 
Arbitrator should value relevant counterfactual deliveries that would have manifested  after the 
reference period.267 The issue we must resolve is whether the Arbitrator's valuation of the threat of 
impedance findings should also include the value of any counterfactual deliveries that would have 
manifested in the reference period  (and possibly, those that would have manifested prior to  the 
expiration of the implementation period ).  
6.101.   We understand the European  Union 's legal argument to be that the threat of impedance that 
"arises" in the reference period comprises all deliveries subsequently made during, as well as after, 
the reference period.268 In other words, the fact that any of the threatened deliveries of LCA that 
"arise" in the reference period may subsequently also be delivered in the reference period (and 
therefore may also have constituted present impedance), does not mean that such threatened 
deliveries should be excluded from the valuation of threat of impedance.269  
6.102.   The European  Union  also states that, subject to the fulfilment of the following "conditions" 
(and only the n), it would  agree to the Arbitrator excluding from its valuation of threat of impedance 
in the UAE geographic market the 2008 Fly Dubai deliveries that would have taken place prior to the 
end of the implementation period270:  
a. That the numerator for the val uation of threat of impedance in each geographic market 
comprise the "threat of deliveries" occurring during and after the reference period,  
b. That the denominator for each valuation (i.e. the annualization period) is the 33 -month 
reference period, and  
c. That the Arbitrator reject the United  States ' argument that the valuation of the lost 
revenues arising from each sales campaign should include a probabilistic adjustment to 
account for the uncertainty that Airbus would have won each sales campaign in the 
counte rfactual .271 
6.103.   For present purposes272, it is clear that the parties therefore disagree as to:  
 
266 United States ' response to Arbitrator question No. 69, para.  112. 
267 See e.g. European Union's response to Arbitrator question No. 66, para.  194; and United States' 
comments on the European Union's response to Arbitrator question No. 66, para.  92. The parties do disagre e, 
however, as to the appropriate time -period over which the resulting values should be annualized.  
268 European Union's response to Arbitrator question No. 66, paras.  190-191. 
269 See European Union's combined comments on the United States' responses to Arbit rator question 
Nos. 66(a) and 69, para.  215; and response to Arbitrator question No. 66, para.  231. In that regard, the 
European Union emphasizes that the Arbitrator's valuation should not be based on a " fictional finding of actual  
impedance", but on the a dopted threat of impedance findings which concern the threat of deliveries resulting 
from the 2011 and 2008 lost sales which did " arise in " the reference period "and remained extant, in its 
entirety, in the reference period." (European Union's response to Arbitrator question No. 66, paras.  188-189, 
198-200 ( emphasis  original) ) 
270 European Union's response to Arbitrator question No. 66, paras.  189-193.  
271 This issue is addressed in section 6.4.6.1  below.  
272 In its response to Arbitrator question No. 66, the European Union states that the parties' 
disagreement concerns the valuation of del iveries that occurred in the reference period as part of the threat of 
impedance findings . (European Union's response to Arbitrator question No. 66,  para. 194) We therefore 
 WT/DS353/ARB  
 
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  a. whether the Arbitrator should value, as part of the compliance panel's threat of impedance 
findings, counterfactual deliveries that would have occurred in the reference period, and 
(closely associated with this)  
b. the appropriate annualization period for va luation of the counterfactual deliveries that 
comprise the threat of impedance findings.  
6.104.   The above disagreement, in turn, is based on differing perspectives as to the point in time 
at which the compliance panel situated itself when making the threat of im pedance findings, and 
more generally, the nature of a threat  of impedance as a specific form of economic harm.  
6.105.   The European  Union  argues that the compliance panel temporally situated itself at the time 
of the lost sales  (i.e. in 2011 and 2008, respectivel y) when finding that those lost sales gave rise to 
a threat of impedance that "arose" in the reference period.273 The European  Union  stresses that it 
does not argue that the compliance panel adopted a "s napshot of the market situation" on the first 
day of t he reference period.274 Rather, the compliance panel "assessed and established the presence 
of adverse effects and threat thereof, arising at any time during  the reference period."275 In other 
words, the European  Union  considers that the threat of deliveries  "arising at any time during  the 
reference period is part and parcel  of the threat of impedance findings, and must therefore be valued 
by the {Arbitrator}".276 The United  States , by contrast, considers that the compliance panel's threat 
of impedance finding s are forward -looking as at the time of the finding , noting that the compliance 
panel issued its report in December 2016, having considered evidence through to late 2015.277 For 
 
consider that the European Union does not ask the Arbitrator, under a "threat of impedance" approach, to 
additionally value the threatened deliveries that manifested as deliveries prior to the expiration of the 
implementation period  (i.e. the 2008 Fly Dubai deliveries that occurred prior to the expiration of the 
implementation period). It is not necessary to determine, from the European Union's submissions, whether the 
European Union's agreement that the Arbitrator may exclude the 20 08 Fly Dubai deliveries that would have 
taken place prior to the end of the implementation period follows from its legal argument, or is a concession 
which is conditional on the fulfilment of the three conditions above, or both.  
273 See European Union's res ponse to Arbitrator question No. 66, with respect to the US market: 
"{t}hus, the correct temporal perspective, and the one adopted by the compliance panel in this particular case, 
and given the particular basis of the threat of impedance finding, is that t he threat of impedance arose on 
25 August  2011 and remained extant, in its entirety, in the reference period" (European Union's response to 
Arbitrator question No. 66, para.  200); "the threat of impedance arose on 25  August  2011 because of the 2011 
Delta A irlines transaction and 'will, to that extent, be obstructed, hindered or held back '" (Ibid. para.  201 
(emphas is omitted) ); and "{r}ather, the compliance panel's findings, by their own terms, establish that the 
relevant particular point in time was 25  August 2011, when the threat of impedance arose. The findings  by the 
compliance panel addressed the future in relation to that point in time (25  August  2011) and, insofar as is 
legally relevant, the start of the reference period (1 January 2013)" (Ibid. para.  203). With respect to the UAE 
market: " {a}s in the case of the US market, the correct temporal viewpoint, and the one adopted by the 
compliance panel, was also, by definition, the date on which the 2008 Fly Dubai transaction was concluded (14 
July 2008) (b ringing the threat of impedance into existence) and thus, insofar as is legally relevant, the start of 
the reference period (1 January 2013), when a threat of impedance continued to exist." (Ibid. para.  205 
(emphasis omitted) ); "by its own terms, the compl iance panel's finding of threat of impedance was grounded, 
inter alia , in the 2008 Fly Dubai transaction on 14 July 2008, which therefore by definition constitutes the 
relevant temporal viewpoint for that transaction." (Ibid. para.  210). See also European Union's combined 
comments on the United States' responses to Arbitrator question Nos. 66(a) and 69, para.  231.  
274 European Union's combined comments on the United States' responses to Arbitrator question Nos. 
66(a) and 69, paras.  235-236. See, however, Eur opean Union's response to Arbitrator question No. 66, para. 
198 ("At the beginning of the reference period, on 1 January 2013 … all deliveries related to the 2011 Delta 
Airlines transaction were still outstanding, and were threatening to impede Airbus LCA imports into the United 
States") ; para. 199 ("In the first part of the reference period, from 1 January 2013 to the date of first delivery 
(September 2013), a threat of impedance covering all of those threatened deliveries was extant") ; para. 203 
("Thus, a s a matter of fact and as a matter of law, the {Arbitrator's} valuation exercise must value the threat 
of impedance that was "clearly foreseen and imminent" on 1 January 2013"). (emphasis omitted)  
275 European Union's comments on the United States' response to Arbitrator question No. 66, para.  236. 
(emphasis original)  
276 European Union's comments on the United States' response to Arbitrator question No. 66, para.  243. 
(emphasis original)  
277 United States' comments on the European Union's response to Arbitrator question No. 68, para.  132, 
and No. 66, para.  102. The United States argues that threat of impedance findings are based on a present 
situation in which Airbus LCA deliveries are not yet being obstructed, hindered, or held back, but will 
imminently undergo a change in circumstances that will result in them being obstructed, hindered , or held back 
in the future . (United States' comments on the European Union's response to Arbitrator question No. 66, 
para. 95) WT/DS353/ARB  
 
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  the United  States , the compliance panel's findings of threat of impedance mean that, at least as of 
late 2015, impedance had not materialized.278 
6.106.   The European  Union 's position suggests that it regards the threat of impedance as the 
economic harm represented by the prospect  of impeded deliveries arising out of the 2011 Delta 
Airlines a nd 2008 Fly Dubai lost sales, which at the beginning of the reference period "hung over 
Airbus' head like a mighty wave waiting to crash down upon it".279 The economic harm that the 
European  Union  equates with the threat of impedance is, in other words, the  harm to Airbus of the 
overhanging wave of future impeded LCA deliveries, which arose in the reference period, as opposed 
to the harm to Airbus from the impeded deliveries of Airbus LCA as and when those deliveries would 
have occurred (i.e. during the refe rence period, or in the post -reference period).  The United  States , 
by contrast, considers the economic harm in the form of a threat of impedance to be the same harm 
as present impedance, but from a forward -looking standpoint. Thus, for the United  States , both 
present impedance and threat of impedance concern the harm from impeded deliveries of LCA as 
and when those deliveries occur, the only difference being temporal; i.e. present impedance 
concerns impeded deliveries that occur in the reference period, whi le threat of impedance concerns 
impeded deliveries that occur in the post -reference period.  
6.107.   We again recall that our mandate under Article  7.10 requires that the level of 
countermeasures be commensurate with the degree and nature of the adverse effects de termined 
to exist. 280 We have already considered the nature of impedance above.281 Given our mandate and 
the fact that the threat  of impedance is the relevant form of serious prejudice, we further consider 
it appropriate (and most effective) to evaluate the differing perspectives of the parties as to the 
nature of a threat  of impedance as a specific form of economic harm and the poi nt in time at which 
the compliance panel situated itself when making the threat of impedance findings.  
6.108.   The analysis that follows thus proceeds in three parts. We first consider the nature of a 
threat  of serious prejudice in general, based on a textual anal ysis of that concept as it appears in 
footnote  13 to paragraph (c) of Article  5 of the SCM  Agreement . We then discuss the findings of the 
compliance panel, specifically in order to determine whether, as argued by the European  Union , the 
compliance panel te mporally situated itself at the time of the respective lost sales in 2011 and 2008 
when making its threat of impedance findings. Third, in the light of the first two parts, we explain 
our conclusions as to whether the Arbitrator's valuation of the threat o f impedance findings should 
include the value  of any counterfactual deliveries that would also have manifested in the reference 
period.   
6.4.5.3.3.1   Nature of "threat"  
6.109.   Article  6.3 of the SCM  Agreement  is formulated in the present tense ("the effect of the 
subsidy is") when identifying the specific forms of economic harm that constitute serious prejudice 
for purposes of Article  5(c), including impedance of imports and exports under Articles 6.3(a) and 
(b). Footnote 13 to paragraph (c) of Article  5 provides that the term "serious prejudice to the 
interests of another Member" is used in the SCM  Agreement  in the same sense as it is used in 
paragraph 1 of Article  XVI of GATT  1994 "and includes threat  of seri ous prejudice ".  
6.110.   Footnote 13 also references Article  XVI of the GATT  1994, which states (in Section A):  
If any {Member} grants or maintains any subsidy, including any form of income or price 
support, which operates directly or indirectly to increase export s of any product from, 
or to reduce imports of any product into, its territory, it shall notify … in writing of the 
extent and nature of the subsidization, of the estimated effect of the subsidization on 
the quantity of the affect product or products impor ted into or exports from its territory 
and of the circumstances making the subsidization necessary. In any case in which it is 
determined that serious prejudice to the interests of any other {Member} is caused or 
threatened by any such subsidization , the { Member} granting the subsidy shall, upon 
 
278 United States' comments on the European Union's response to Arbitrator question No. 68, para.  132. 
279 European Union's opening statement, para.  108. 
280 See section 3 above.  
281 See paras.  6.82-6.83 above.  WT/DS353/ARB  
 
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  request, discuss with the other {Member} or {Member s} concerned, … the possibility 
of limiting the subsidization.282 
6.111.   The reference to Article  XVI of the GATT  1994 in footnote 13, coupled with the present -tense 
expression of serious prejudice in Article  6.3, indicates that the scope of serious prejudice under the 
SCM Agreement  includes both present and threatened serious prejudice, thereby aligning with 
Article  XVI of the GATT  1994.283 The SCM  Agreement  does not define a threat of serious prejudice, 
nor does it explain the relationship between serious prejudice as delineated in Article  6.3 and threat 
of serious prejudice, other than as provided in footnote 13.  
6.112.   A "thr eat" is ordinarily understood as "an indication of impending evil".284 Something is 
"impending" when it is "about to fall or happen; hanging over one's head; imminent; or near at 
hand".285 A threat of impedance, in our view, is therefore a forward -looking co ncept, i.e. impedance 
that has not yet occurred but will soon occur.  
6.113.   Instructive guidance by the Appellate  Body accords with this understanding. The 
Appellate  Body has discussed the concept of "threat" in the context of interpreting the phrase "threat 
of serious injury" in Article  4.1(b) of the Agreement on Safeguards, explaining that "threat" refers 
to something that "has not yet occurred, but remains a future event whose actual materialization 
cannot, in fact be assured with certainty".286 This understand ing of threat as something that has not 
occurred at the relevant time, but that will occur at a future time is consistent also with the nature 
of threat of material injury in Article  3.7 of the Anti -Dumping Agreement and Article  15.7 of the 
SCM Agreement .287 We discern no reason to think that the nature of "threat" in these agreements 
and the threat of serious prejudice in the SCM Agreement  should be interpreted differently.  
6.114.   Indeed, in EC and certain member States – Large Civil Aircraft , the Appe llate Body indicated 
a similar understanding of the term "threat" within the context of threat of serious prejudice in the 
 
282 Emphasis added.  
283 We observe a similar structure as regards the concept of injury in Article  5(a): footnote 11 to 
paragraph (a) of Article  5 provides that the term "injury to the dom estic industry" is used in the same sense as 
it is used in Part V of the SCM Agreement. Part V (fn  45 to Article  15) provides that, unless otherwise specified, 
the term "injury" includes both present material injury and a "threat of material injury". The A nti-Dumping 
Agreement is structured in a similar way, with footnote 9 providing that the term "injury" shall, unless 
otherwise specified, be taken to mean material injury to a domestic industry, threat of material injury to a 
domestic industry or material retardation of the establishment of such an industry. Article  10.3 of the 
Anti-Dumping Agreement (dealing with retroactivity) states that, except as provided in paragraph 2 "where a 
determination of threat of injury or material retardation is made (but no injury has yet occurred) a definitive 
anti-dumping duty may be imposed only from the date of the determination of the threat of injury or material 
retardation", suggesting that threat of injury arises where material injury does not yet exist. The Agreement  on 
Safeguards also separately defines "serious injury" and "threat of serious injury", with "serious injury" meaning 
a significant overall impairment in the position of a domestic industry while "threat of serious injury" means 
"serious injury that is cle arly imminent in accordance with the provisions of paragraph  2." 
284 Oxford Dictionaries online, definition of "threat"  
https://www.oed.com/view/Entry/20115 2?rskey=wUnlWk&result=1&isAdvanced=false#eid  (accessed 21 
September 2020).  
285 Oxford Dictionaries online, definition of "impending" 
https://www.oed.com/view /Entry/92216?rskey=nFapJK&result=3&isAdvanced=false#eid  (accessed 21 
September 2020).  
286 Appellate  Body Report, US – Lamb , para.  125 (emphasis original). In the context of the Anti -
Dumping Agreement, the Appellate  Body has explained that , "{i}n terms of the rising continuum of an 
injurious condition of a domestic industry that ascends from a 'threat of serious injury' up to 'serious injury', 
we see 'serious injury' – because it is something beyond  a 'threat' – as necessarily including the concept of a 
'threat' and exceeding the presence of a 'threat'. (Appellate  Body Report, US – Line Pipe , para.  170 (emphasis 
original) ) 
287 Article  3.7 of the Anti -Dumping Agreement provides the basis for a determination of threat of 
material injury, and a no n-exhaustive list of factors that an investigation authority should consider in making 
this determination. It provides, in relevant part, that the totality of factors considered "must lead to the 
conclusion that further dumped exports are imminent and that , unless protective action is taken, material 
injury would occur" . The text of Article  15.7 of the SCM  Agreement largely parallels that of Article  3.7 of the 
Anti-Dumping Agreement, without footnote 10 and with the addition of a factor that the investigati ng authority 
should consider, namely the nature of the subsidy and the trade effects likely to arise therefrom 
(Article  15.7(i)). Prior panels have concluded that decisions concerning Article  3.7 of the Anti -Dumping 
Agreement instruct the understanding of Article  15.7 of the SCM  Agreement, and vice -versa. (See 
Panel  Reports, EC and certain member States – Large Civil Aircraft , para.  7.2157, US – Coated Paper 
(Indonesia ), para.  7.259)  WT/DS353/ARB  
 
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  SCM Agreement . The Appellate  Body observed that neither Article  6.3(a) nor Article  6.3(b) expressly 
refers to "threat of displacement ". Rather, footnote 13 to Article  5(c) provides that the term "serious 
prejudice to the interests of another Member" as used in the SCM  Agreement  "includes threat of 
serious prejudice".288 The Appellate  Body referred to Article  15.7 of the SCM  Agreement  (concerning 
a threat of material injury) which it said provided relevant guidance for understanding the concept 
of threat of serious prejudice in Article  5(c), stating:  
Thus, as with a determination of threat of material injury, we consider that it is 
reason able to require that the determination of threat of serious prejudice "be based on 
facts and not merely on allegation, conjecture or remote possibility" and that "{t}he 
change in circumstances" that would  create a situation in which the subsidy would  cause  
displacement "must be clearly foreseen and imminent."289 
6.115.   Subsequently, in the original appeal in this dispute, the Appellate  Body referred to the above 
paragraph from its earlier report as acknowledging that, although the word "threat" is not expressly 
included in the text of Article  6.3(b), a finding under Article  6.3(b) could include situations in which 
displacement was only threa tened.290 The Appellate  Body's use of the conditional tense in the above 
explanation of a threat of serious prejudice, along with the requirement that the change in 
circumstances that would lead to the existence of displacement must be clearly foreseen and 
imminent  in order to demonstrate a threat of displacement, suggests that the Appellate  Body 
understood a threat of displacement as a situation in which displacement did not presently exist but 
would exist in the future.   
6.116.   More generally, the present -tense f ormulation in Article  6.3 of the types of economic harm 
that constitute serious prejudice, when read with footnote 13 (indicating that serious prejudice 
includes threat  of serious prejudice) suggests that the relationship between present serious prejudice 
in Article  6.3 and threat of serious prejudice, is temporal. We note that the way in which the 
Appellate  Body has referred to the relationship between threatened and present serious prejudice is 
consistent with this understanding:  
A claim of present seriou s prejudice relates to the existence of prejudice in the past, 
and present, and that may continue in the future . By contrast, a claim of threat of 
serious prejudice relates to prejudice that does not yet exist , but is imminent such that 
it will materialize  in the near future. Therefore, a threat of serious prejudice claim does 
not necessarily capture and provide a remedy  with respect to the same scenario as a 
claim of present serious prejudice.291 
6.117.   We also take note of the Appellate  Body's statements when int erpreting "threat" in the 
context of other WTO  agreement s which are also consistent with the notion that a threat refers to 
something that has not yet occurred or is not yet in existence.292 
6.118.   Finally, we consider the object and purpose of the inclusion of th reat of serious prejudice as 
part of serious prejudice within the meaning of Article  5(c) of the SCM  Agreement . Part III of the 
 
288 Appellate  Body Report, EC and certain member States – Large Civil Aircra ft, para.  1171.  
289 Appellate  Body Report, EC and certain member States – Large Civil Aircraft , para.  1171 (emphasis 
added). The panel in the original proceeding in EC and certain member States – Large Civil Aircraft  had found a 
threat of displacement  in the Indian market based on an order in 2005 for 225 Airbus LCA compared with 98 
Boeing LCA orders which represented a "massive increase in the Indian market" and indicated that "as these 
LCA are delivered over the ensuing years, it is likely that Airbus will  have a significantly greater share of the 
Indian market than Boeing". (Panel  Report, EC and certain member States – Large Civil Aircraft , para.  7.1784) 
The order and delivery data before the panel for that geographic market had covered the period 2001 -2006, 
thus indicating that the panel based its threat of displacement finding on a situation of displacement that would 
occur in a (future) period i.e. subsequent to 2006. The Appellate  Body ultimately overturned the panel's finding 
of threat of displacement,  on the grounds that the trends in market share based on orders did not provide a 
sufficient basis for a finding of threat of displacement . (Appellate  Body Report, EC and certain member States – 
Large Civil Aircraft , para.  1202)  
290 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint ), fn 2215.  
291 Appellate  Body Report, U S – Upland Cotton (Article  21.5 – Brazil ), para.  244 (emphasis added). In 
saying that a threat of serious prejudice "does not necessarily capture and provide a remedy with respect to 
the same scenario as a claim of present serious prejudice", we understand the Appellate  Body to mean that a 
threat of serious prejudice does not necessarily include present serious prejudice, because a threat, by 
definition, relates to something  that do es not yet exist.  
292 See para.  6.113  above.  WT/DS353/ARB  
 
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  SCM Agreement  ("Actionable Subsidies") provides that specific subsidies give rise to the remedies 
in Article  7 only where they are demonstrated ( ex post ) to cause adverse effects to the interests of 
a complaining Member. Serious prejudice is one of these forms of adver se effects, as referred to in 
Articles 5(c) and 6.3. The present -tense formulation of serious prejudice in Article  6.3 means that 
the assessment of serious prejudice (and thus the WTO -consistency of a subsidy under Part III) is 
fundamentally backward -looking.293  
6.119.   The inclusion of threat of serious prejudice within the scope of serious prejudice, in the 
context of the effects -based discipline of Part III of the SCM  Agreement , enables Members to obtain 
remedies under Article  7 in respect of serious prejudice t hat does not presently exist but will exist 
in the future. A threat of serious prejudice claim is therefore a means to address subsidization that 
imminently threatens to cause economic harm, without needing to wait until that harm actually 
manifests. Under stood in this context, a threat of serious prejudice is not a form of harm separate 
from the present form of the particular serious prejudice phenomena in Article  6.3. Rather, it 
addresses the same harm as the phenomena in Article  6.3, but from a forward -looking perspective 
because it has not yet occurred but can be expected to do so imminently.294 This temporal difference 
between threatened and present serious prejudice also means that the argumentation and evidence 
in support of a claim of threat of serious prejudice will differ from that required to support a present 
serious prejudice claim.295 
6.120.   The foregoing considerations lead us to expect that, when a threat of impedance is identified 
by a WTO adjudicator working with the disciplines of Part III of the SCM  Agreement , the adjudicator 
would be referring to a situation whereby the threatened impedance has not yet manifested itself as 
impedance in the time -period considered by the adjudicator. In other words, we would expect that 
a panel makes a finding of threat of impedance when it is not yet able to observe the manifestation 
of the threatened impedance (i.e. impedance). Indeed, if this were not the case, it would appear to 
us that the line between findings of threat of serious prejudice and present ser ious prejudice would 
become, at minimum, significantly blurred.296  
6.121.   We further recall that the European  Union  argues, and we agree, that the compliance panel's 
findings regarding threat must be examined in their own right and respected in this proceeding. W e 
therefore consider the compliance panel's findings in greater detail.  
6.4.5.3.3.2   Findings in the compliance proceedings  
6.122.   To recall, the European  Union  argues that the compliance panel temporally situated itself at 
the time of the 2011 and 2008 lost sales when making  its threat of impedance findings. In making 
this argument, the European  Union  places particular importance on the phrases "will, to that extent" 
and "arise in the post -implementation period" appearing in paragraphs 9.437 and 9.438, 
respectively, of the co mpliance panel's report. Before examining these paragraphs, we first recall 
the background against which the compliance panel examined the European  Union 's claims under 
 
293 The effects -based discipline in Part III of the SCM  Agreement can be contrasted with the prohibited 
subsidy discipline in Part II, where the WTO -consistency of the subsidy depends on whether it meets the legal 
criteria in Article  3.1, rather than on a dem onstration of its market effects.  
294 If the drafters had intended that a threat of serious prejudice would be a distinct form of harm from 
the Article  6.3 phenomena, it is reasonable to expect that they would have done so by adding a paragraph (e) 
to Articl e 6.3 that says: "the effect of the subsidy is a threat of the effects set forth in paragraphs (a) through 
(d) of this Article". On the contrary, the reference to threat of serious prejudice in a footnote to Article  5(c), 
the provision that sets forth the obligation not to cause adverse effects through the use of a subsidy, suggests 
that serious prejudice in Article  5(c) can be established where the market harm specified in Article 6.3 does not 
yet exist and not only when it has already occurred.  
295 See Pan el Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), 
para. 6.214 (stating that "{w}hile actual, or present serious prejudice is a distinct phenomenon from 
threatened serious prejudice, and the evidence required to demonstrate  each is necessarily different, we note 
that as a legal interpretative matter, the term 'serious prejudice to the interests of another Member ' as used in 
the SCM  Agreement explicitly includes threat of serious prejudice").  
296 The European Union argues that  "as a matter of law and fact, it is perfectly possible to have a 
situation in which the facts and evidence would be capable of supporting findings of two different types of 
adverse effects in the alternative." (European Union's comments on the United Stat es' response to Arbitrator 
question No. 66, para.  242) We understand from the context of this argument that the European Union meant 
that the evidence before the compliance panel supported threat of impedance findings, as well as present 
impedance findings . We discuss the evidence before the compliance panel further in section 6.4.5.3.3.2  below.  WT/DS353/ARB  
 
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  Article  7.8 of the SCM  Agreement  regarding the existence of present impedance and threa t of 
impedance in the relevant geographic markets in the post -implementation period.  
6.123.   First, in presenting its serious prejudice case, the European  Union  had proposed two distinct 
product markets in which single -aisle LCA competed: (a) an "existing technolo gy" product market 
(comprising the A320ceo and 737NG); and (b) a "new technology" product market (comprising the 
A320neo and 737 MAX). The European  Union  made separate arguments for each alleged product  
market. It supported those arguments with separate order and delivery data for, respectively, 
existing technology LCA and new technology LCA, across each of the geographic markets at issue. 
Moreover, in updating the information in support of its serious p rejudice claims (submitted in October 
2015 as its response to panel question No. 169), the European  Union  submitted delivery data and 
projected (future) delivery data, in each case current as of 22  September  2015.297 The compliance 
panel rejected the Europe an Union 's delineation of two product markets, finding that both existing 
and new technology single -aisle LCA competed in the same product market.298 The compliance panel 
therefore examined the European  Union 's claims of displacement, impedance and threats thereof on 
the basis of aggregated market share data for each geographic market.299 
6.124.   The European  Union 's claims and evidence  were also structured around a temporal 
distinction between present  displacement and impedance, and threatened  displacement and 
imped ance:  
a. For the US geographic market : The European  Union  had claimed that the US subsidies 
caused a threat of impedance  in the new technology US geographic market , referring to 
Boeing's future delivery advantage , based on present orders.300 The European  Union  had 
also claimed that the US subsidies caused present impedance and threat of impedance  in 
the existing technology US geographic market .301  
b. For the UAE geographic market : The European  Union  had claimed that the US subsidies 
caused a threat of impedance  in the new technology UAE geographic market , referring to 
Boeing's future delivery advantage , based on present orders.302 The European  Union  had 
also claimed that the US subsidies caused  displa cement, impedance and threats thereof , 
in the existing technology UAE geographic market .303  
6.125.   The compliance panel discussed the phenomena of displacement and impedance, and the 
evidence "relevant or necessary to support the existence of each phenomenon", ba sed on prior 
Appellate  Body statements.304 In this regard, the compliance panel referred to prior Appellate  Body 
 
297 US – Large Civil Aircraft (Article 21.5 – EU), EU Respo nses to Panel Questions, 8  October  2015 
(Exhibit EU -54 (HSBI) ; EU response to Panel question No. 169 referring to  Ascend database , deliveries made, 
data request as of 22  September  2015 (Exhibit EU -1659 in the compliance proceedings) ; and Ascend data 
base, deliveries due, data request as of 22  September  2015 (Exhibit EU -1660 in the compliance proceedings).  
298 See Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.39-9.40. 
299 See Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.434 -9.439 
and tables 15, 16, 17 , and 18.  
300 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.410. See also 
evidence presented in support in the submission made to the compliance pa nel in October 2015 in which the 
European Union updated the evidence on which it relied. (US – Large Civil Aircraft (Article 21.5 – EU), EU 
Responses to Panel Questions, 8  October  2015 (Exhibit EU -54 (HSBI), European Union's response to Panel 
question No. 169, paras.  491-492)) 
301 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.412. See also 
evidence presented in support in the submission made to the compliance panel in October 2015 in which the 
European Union updated the evidence on which it relied. (US – Large Civil Aircraft (Article 21.5 – EU), EU 
Responses to Panel Questions, 8  October  2015 (Exhibit EU -54 (HSBI) European Union's response to Panel 
question No. 169, paras.  509-510))  
302 Panel  Report, US – Large Civil Aircr aft (2nd complaint) (Article 21.5 – EU), para.  9.410. See also 
evidence presented in support in the submission made to the compliance panel in October 2015 in which the 
European Union updated the evidence on which it relied. US – Large Civil Aircraft (Arti cle 21.5 – EU), EU 
Responses to Panel Questions, 8  October  2015 (Exhibit EU -54 (HSBI), European Union's response to Panel 
question No. 169, paras.  505-506.).  
303 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.412. See al so 
evidence presented in support in the submission made to the compliance panel in October 2015 in which the 
European Union updated the evidence on which it relied. (US – Large Civil Aircraft (Article 21.5 – EU), EU 
Responses to Panel Questions, 8 October  2015 (Exhibit EU -54 (HSBI), European Union's response to Panel 
question No. 169, paras.  527-528)) 
304 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.416 -9.421.  WT/DS353/ARB  
 
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  statements from the original proceedings in this dispute and in the DS316 dispute that evidence of 
discernible  market share trends was necessary  to support findings of displacement and 
impedance.305 The compliance panel also acknowledged that the Appellate  Body in the original 
proceedings had expressly disagreed with the implication of the original panel's reasoning that the 
phenomena of displaceme nt and impedance necessarily followed from a finding of lost sales.306 
6.126.   The compliance panel then recalled its earlier conclusion that there were five LCA sales 
campaigns involving the 737MAX/737NG and the A320neo/A320ceo between 2007 and 2015 which 
were pri ce-sensitive, in that Boeing was under particular pressure to reduce its prices in order to 
secure the sales and there were no non -price factors that explained Boeing's success in obtaining 
the sales.307 On the basis of that conclusion, the panel found that  the Washington State B&O tax 
rate reduction, in those sales campaigns , contributed in a genuine  and substantial way to the 
lowering of Boeing's prices, and that the effects of this subsidy were three significant lost sales of 
Airbus narrow -body, single -aisle LCA in the post -implementation period. The compliance panel 
stated that its evaluation of th e European  Union 's claims of "impedance and/or displacement (and/or 
threats of the foregoing) of imports and/or exports of Airbus single -aisle LCA in the 
post-implementation period", would necessarily begin from its earlier conclusion and findings that 
the effect of the Washington State B&O tax rate reduction was three significant lost sales in the 
post-implementation period, and five significant lost sales between 2007 and 2015.308 The 
compliance panel concluded that there was no basis for it to examine the  European  Union 's 
displacement and impedance claims for country markets other than those that involved the five 
significant lost sales that were the effects of the Washington State B&O tax rate reduction.309 
6.127.   The compliance panel explained that, for those fo ur geographic markets, there was a causal 
connection established, in respect of the five LCA sales campaigns , between the Washington State 
B&O tax rate reduction and Boeing's LCA prices. The compliance panel's evaluation of the 
European  Union 's claims of d isplacement and/or impedance ( and/or threats thereof) therefore 
involved a comparison of the market shares of Airbus single -aisle LCA and Boeing single -aisle LCA 
based on "actual and projected Airbus and Boeing deliveries of single -aisle LCA over the perio d from 
2007 to 2025."310 The compliance panel generally accepted the temporal distinction between the 
present and threatened forms of displacement and impedance and the evidence relevant to the 
demonstration of each, as indicated in footnote 3368:  
As the original panel explained,  displacement, impedance, and threat thereof of the 
complaining party's imports  or exports  necessarily involves the existence of goods 
crossing borders. For the LCA market, in which there is often a significant time -lag 
between order and delivery, this mea ns any demonstration of market share trends for 
 
305 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.418 -9.420 
(referring to Appellate  Body Report, US – Large Civil Aircraft (2nd complaint ), para.  1086: "We observe that 
Article 6.4 of the SCM  Agreement, which applies to both phenomena referred to in Article 6.3(a) an d (b), 
requires that, as with displacement, a finding of impedance should be supported by evidence of changes in the 
relative market share in favour of the subsidized product, over a sufficiently representative period, to 
demonstrate "clear trends" in the development of the market concerned"). The Appellate  Body had reversed 
the original panel's threat of displacement and impedance findings (Appellate  Body Report, US – Large Civil 
Aircraft (2nd complaint ), paras.  1089-1090) because the data was insufficient  to demonstrate the clear trends 
in the third -country markets at issue, as required by Article 6.4.  
306 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.421. We therefore 
understand that the compliance panel was aware that  a finding of impedance could not be made solely on the 
basis of the existence of a lost sale, but would additionally require a demonstration of clear trends in market 
share.  
307 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.426.  
308 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.427. The 
compliance panel observed that the European Union had not provided a causal theory in support of its claims of 
displacement and impedance (and/or thr eats thereof) other than the theory it had advanced in support of its 
claims of significant lost sales. (Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), 
paras.  9.428 and 9.431) The compliance panel rejected the European Union's  argument that for "large volume" 
LCA markets, it could be assumed that the two duopolists would enjoy roughly 50% market share each and 
that any significant deviation from a 50% market share for several years running, along with other evidence of 
causatio n, supported a finding that the deviation is an effect of the subsidy. (Panel  Report, US – Large Civil 
Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.429 -9.430)  
309 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.432 and fn  3366 
thereto . These country markets were the United States (Delta Airlines 2011), United Arab Emirates (Fly Dubai 
2008 and 2014), Canada (Air Canada 2013 ,) and Iceland (Icelandair 2013).  
310 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.432.  WT/DS353/ARB  
 
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  the purposes of a displacement, impedance or threat thereof claim should be based on 
delivery data rather than order data. (See Panel  Report , US – Large Civil Aircraft 
(2nd complaint ), paras.  7.1683 -7.1686). With respect to the time -period over which we 
evaluate the existence of market share trends, 2007 to 2025 is the time -period over 
which the European  Union  presents its market share data. We note that this period 
extends both prior to and beyond the referen ce period of 2013 -2015 that we use 
elsewhere in our findings. We take this longer period in order to ensure, in accordance 
with the Appellate  Body's guidance, that the effects of the subsidy are examined over a 
period of time that is long enough to discern  the existence of clear trends. 
(Appellate  Body Report, US – Large Civil Aircraft (2nd complaint ), para.  1081 (citing 
Appellate  Body Report, EC and certain member States – Large Civil Aircraft , para.  1166; 
and US – Upland Cotton , para.  478)). This is particularly important for the 
European  Union 's threat of displacement and impedance claims, which necessarily 
require evidence of projected future deliveries .311 
6.128.   Given these observations, therefore, we note that the European  Union  presented its claims 
of impedance, on the one hand, and threat of impedance, on the other, based on a clear distinction 
between actual delivery data for the "present" period up to September 2015, and projected delivery 
data (based on orders) for a "future" period post -September 20 15. The compliance panel accepted 
this temporal distinction between present and threatened displacement and impedance in 
footnote  3368 in the context of its examination of the relevant market share trends for the period 
from 2007 -2025.  
  US geographic mar ket 
 
6.129.   In examining the European  Union 's claims of impedance and threat of impedance in the 
US geographic market, the compliance panel considered aggregated new technology and existing 
technology market share data showing actual deliveries to September  2015 and projected deliveries 
from September 2015.312 The compliance panel observed that Boeing had enjoyed the majority of 
the market share for single -aisle LCA deliveries between 2007 and 2016 and that, with minor 
projected fluctuations in 2017 and 2018, Boein g had been and overall would remain, the dominant 
duopolist for deliveries of single -aisle LCA in the United  States  market to 2021, at which time Airbus 
was projected to overtake it.313 It accordingly considered that, if anything, the trend that seemed to 
emerge was that "for the next several years until 2021" Airbus' (rather than Boeing's) market share 
would increase.314  
6.130.   The compliance panel then noted that the only Boeing sale to an LCA customer that was 
"causally connected" to the Washington State B&O tax  rate reduction  was the "order of 100 737NG 
aircraft by Delta Airlines in 2011."315 At paragraphs 9.437 and 9.438 of its report, the compliance 
panel then stated:  
Although it seems logical to us that, owing to Airbus losing the 2011 Delta Airlines sales 
campaign due to the effects of the Washington State B&O tax rate reduction, its imports 
of single -aisle LCA to the United  States  market will, to that extent  be obstructed, 
hindered or held back , we are mindful that the phenomenon of impedance is not 
synonymou s with that of lost sales. In any case, there would be little to be gained by 
the Panel making a finding of impedance of imports in relation solely to lost sales that 
are already the subject of a finding of significant lost sales.  
However, in this instance , because the Delta Airlines order arose in 2011, the Delta 
Airlines 2011 campaign is not part of the Panel's finding of significant lost sales in the 
post-implementation period. The threat of impeded imports of A320ceos into the 
United  States  market that arises from that 2011 Delta Airlines lost sales does, however,  
arise in the post -implementation period . In these circumstances, we consider it 
 
311 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), fn 3368. (italics original; 
underline added)  
312 Panel Report, US – Large Civil Aircraft (2nd complaint ) (Article 21.5 – EU), table 15.  
313 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.435.  In other 
words, there was no discernible trend that would support findings of displacement or impedance or threats 
thereof under Ar ticle 6.3(a).  
314 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.435.  
315 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.436.  WT/DS353/ARB  
 
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  appropriate to make a finding in relation to the threat of impedance arising from that 
lost sale. We therefore find that the effect of the Washington State B&O tax rate 
reduction is a threat of impedance of imports of Airbus single -aisle LCA into the 
United  States  market.316 
6.131.   The use of "will, to that extent" in paragraph 9.437 refers to the logical link be tween the 
Delta Airlines lost sale and the displaced or impeded deliveries that will eventuate from that lost 
sale, notwithstanding that the lost sale was not itself sufficient evidence of displacement or 
impedance.317 We do not consider that, by making thi s logical observation, the compliance panel 
necessarily situated itself in 2011 when it made the finding of a threat of impedance.  
6.132.   Furthermore, we read the reference to "arise in the post -implementation period" in 
paragraph 9.438 of the report, in the con text of paragraph 9.437 and the first sentence of 
paragraph  9.438, as stating that, although the Delta Airlines lost sale was not a finding of significant 
lost sale that occurred in the post -implementation period, there "would be impeded imports " from 
deliveries associated with that lost sale in the post -implementation period and that this made it 
"appropriate" in the circumstances to make a finding of threat of impedance in relation to that lost 
sale.318 
6.133.   We therefore see nothing in the compliance panel's fi ndings in paragraphs 9.437 and 9.438 
of the compliance panel report to suggest that it situated itself at the time of the 2011 Delta Airlines 
lost sale when making the threat of impedance finding in the US geographic market. Rather, we 
understand from para graphs 9.437 and 9.438 that the compliance panel was justifying that (a) even 
though the Appellate  Body had indicated that impedance could not be presumed from the fact of a 
lost sale, and even in the absence of the required clear trends in market share, t here was a logical 
connection between the Delta Airlines lost sale and impedance of future Airbus deliveries into the 
US market, to the extent of deliveries to be made pursuant to that lost sale, and (b) since the Delta 
Airlines lost sale could not itself be the basis for a finding that the United  States  had failed to remove 
the adverse effects of the Washington State B&O tax rate reduction, " {i}n these circumstances" the 
compliance panel "consider{ed} it appropriate" to make a finding of threat of impedanc e.319 
6.134.   Moreover, even if the compliance panel's findings in paragraphs 9.437 and 9.438 could be, 
in isolation, potentially interpreted as meaning that the compliance panel considered the threat of 
impedance to be all future deliveries stemming from the 2011 Delta lost sale that were scheduled 
to occur as of the beginning of the reference period (as the European  Union  argues), the context in 
which these findings were made, in our minds, forecloses this interpretation.320 As noted above in 
paragraph  6.124 , the European  Union  had presented its claims of impedance, on the one hand, and 
threat of impedance, on the other, based on a clear distinction between actual delivery data  for the 
"present" period up to September 2015, and projected delivery data (based on orders) for a "future" 
period post -September 2015. Given the compliance panel's earlier acceptance of the temporal 
distinction between present and threatened displacement  and impedance in the European  Union 's 
case321, it would have been incongruous if the compliance panel had, without further explanation, 
made its threat of impedance findings in the US geographic market with respect to anything other  
than the "projected future deliver{y }" data that the panel had before it (i.e. deliveries projected to 
occur after the reference period), and which it had stated was "necessary" to support a claim of 
threat of impedance.322  
 
316 Italics original; underlining added.  
317 See para.  6.125  above  and fn 305 thereto, above . 
318 This w as despite the Appellate  Body's caution that the phenomena of displacement and impedance 
did not necessarily follow from a finding of significant lost sales in the absence of clear trends in market share.  
319 Panel  Report, US – Large Civil Aircraft (2nd comp laint) (Article 21.5 – EU), para.  9.438.  
320 See para s. 6.94-6.95 above for the European Union's arguments in this regard.  
321 See para.  6.127  above , referring to  Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 
21.5 – EU), fn 3368, where the panel explains that it would examine the data for the 2007 -2025 period as a 
whole in order to identify the market share trends that are required to support findings of displa cement, 
impedance and threats thereof, and notes specifically that an examination of data beyond the reference period 
is particularly important for the examination of the claims of threat of displacement and threat of impedance, 
"which necessarily require evidence of projected future deliveries".  
322 See para.  6.128  above. In this regard, we note that the compliance panel expressly recognized that 
it was only with respect to adverse effects found to exist in the post -implementation period that the 
 WT/DS353/ARB  
 
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  UAE geographic market  
 
6.135.   Table 18 of the compliance panel report sets forth  market share data for the single -aisle UAE 
market over the period 2007 -2025, represented by delivery data up to September 2015 and order 
data (i.e. projected future deliveries) for the period after September 2015. The  compliance panel 
noted that there was no market share trend in favour of Boeing (and adverse to Airbus) until 2017. 
However, the compliance panel then observed a clear trend, from 2017, in which Boeing's 
single -aisle deliveries would increase from 2017 to  2022.323 The compliance panel specifically linked 
this change in the market share trend beginning in 2017 to the 737 MAX deliveries that were 
scheduled to begin in 2017, and which related to the 2014 Fly Dubai campaign:  
In 2017, when deliveries of the 737 MAX are due to begin, Boeing will overtake Airbus and 
retain a market share of between 70 and 100% for the subsequent six years. We also find 
that Fly Dubai's 2008 and 2014 orders of 50 737NG and 75 737 MAX, respectively, are 
significant lost sales for Air bus. We conclude, based on the evidence concerning market 
share trends in the United Arab Emirates market and the evidence of these lost sales, that 
the effect of the Washington State B&O tax rate reduction is a threat of impedance in the 
United Arab Emira tes market in the post -implementation period.324 
 
6.136.   The compliance panel linked the trend indicating an increase in Boeing's single -aisle 
deliveries from 2017 to 2022 to the 737 MAX deliveries that were scheduled to begin in 2017. It is, 
however, clear from t he last sentence in the above excerpt from the compliance panel's findings that 
the compliance panel also referred to the 2008 Fly Dubai campaign as a significant lost sale and 
based its finding of threat of impedance, in part, on the evidence of this lost  sale.  
6.137.   The European  Union  points out that, by September 2015, Boeing had made all of its 
deliveries of the 737NG in connection with the 2008 Fly Dubai lost sale. It considers that, because 
Boeing had made all of the deliveries under the 2008 Fly Dubai los t sale before the end of the 
reference period, and because that lost sale was explicitly referred to as a basis for the threat of 
impedance finding, the compliance panel's temporal viewpoint could not have been the end of 
reference period, and the Arbitrat or must value the 2008 Fly Dubai deliveries that occurred in the 
reference period as part of the threat of impedance finding.  
6.138.   It is apparent from the evidence submitted to the Arbitrator in this proceeding that Boeing's 
last delivery made under the 2008 F ly Dubai campaign was on 14  September  2015; i.e. inside the 
compliance panel's reference period.325 Moreover, it is reasonable to infer that, given that the 
compliance panel had before it evidence of deliveries based on a data request of 22  September  2015 
(submitted as Exhibit EU -1659 in the compliance proceeding), the compliance panel also had 
evidence before it that would have enabled it to determine that the last Boeing  delivery under the 
2008 Fly Dubai campaign occurred on 14  September  2015. However, it is not possible to determine 
from the evidence before us in this proceeding whether the compliance panel also had before it 
evidence of the delivery schedule that Airbus  had proposed in its 2008 final offer to Fly Dubai, or 
 
United  States could be found to have failed to comply with its obligation under Article 7.8 to take appropriate 
steps to remove the adverse effects. (Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – 
EU), para.  9.107) This being so, it is difficult to understand  why, without further explanation, the compliance 
panel would have situated itself significantly before the expiration of the imple mentation period (i.e. in 2011) 
to make its finding of threat of impedance. Additionally, the compliance panel used the past tense when 
describing how the events during the reference period, specifically, orders of LCA that Boeing won at the 
expense of Air bus, supported its finding of present lost sales. (See Panel  Report, US – Large Civil Aircraft (2nd 
complaint) (Article 21.5 – EU), para.  9.404) As the United States points out, it would appear inconsistent and 
illogical for the compliance panel – without explanation – to have phrased findings of significant lost sales 
during the reference period in the past tense but to have analysed the existence of a threat of impedance from 
the perspective of some earlier point in time. (United States' comments on the E uropean Union's response to 
Arbitrator question No. 66, paras.  103-104, and No. 68, para. 142)  
323 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.443.  
324 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.443. (fns  omitted)  
325 See 2 RPQ Ascend Database Update (Exhibit EU -75); and  European Union's response to Arbitrator 
question No. 66 paras.  204, 226, 322, 326, and 330. See also 2008 Fly Dubai Purchase Agreement 
(Exhibit USA-77 (HSBI), pp.  35-37); and Boeing [[ ***]] for 2008 Fly Dubai and 2011 Delta Sales Campaigns 
(Exhibit USA -87 (HSBI)).  WT/DS353/ARB  
 
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  whether the Airbus delivery sche dule had contemplated deliveries in the post -reference period.326 It 
is therefore not possible to identify exactly when the compliance panel believed that Airbus' 
counterfactual deliveries would have occurred had Airbus won the 2008 Fly Dubai sales campaign . 
6.139.   In addition, we note that the compliance panel's reference to the 2008 Fly Dubai lost sale in 
connection with its finding of threat of impedance in the UAE geographic market occurred in a 
particular context described in an HSBI appendix  to the compliance  panel report.327 Based on our 
review of the HSBI appendix, and given that context, we do not consider that the compliance panel's 
reference to the 2008 Fly Dubai lost sale in connection with its finding of threat of impedance in the 
UAE market necessarily shows  that the c ompliance panel must have situated itself at the time of the 
2008 Fly Dubai lost sale when making the finding. On the contrary, the compliance panel's efforts 
to identify a relevant trend in the then -future year 2017 support  the conclusion that the panel 
distinguished the "present" from the "future" according to the evidentiary cut -off of September 2015. 
In other words, we read the compliance panel's findings as being consistent with its having found 
the threat of impedance based on projected future deliver y data as of September 2015. Accordingly, 
the compliance panel's threat of impedance findings in the UAE market refer to impedance in the 
post-reference period and thus consist of post -reference period deliveries.   
Summary – findings of the compliance pane l 
 
6.140.   In light of our analysis of the compliance panel's threat of impedance findings for the US and 
UAE geographic markets, we conclude that  these findings  reflect a temporal distinction between 
deliveries up to September 2015 and projected deliveries post -September 2015.  This is so even 
though the compliance panel based its threat of impedance findings on the impeded deliveries that 
would result from specific lost sales campaigns in 2011 for the US market and, in part, in 2008 for 
the UAE market. The complia nce panel's threat of impedance findings were made with reference to 
post-September 2015 deliveries.328 In particular, this conclusion accords with the way  in which the 
European  Union  structured its arguments and evidence before the compliance panel, the co mpliance 
panel's acceptance of that structure and discussion of such evidence. We therefore do not address 
the European Union's argument that, in principle, it is possible that the facts and evidence before a 
panel would be capable of supporting findings o f two different types of adverse effects in the 
alternative. As explained above, we read the compliance panel in this dispute to have based its 
analysis on a distinction between the evidence that was relevant to the present  displacement and 
impedance claim s, on the one hand, and the threat  of displacement and impedance claims, on the 
other.  
6.141.   We further find no material indications in the panel's findings that appear inconsistent with 
the above  conclusion. Although we reach our conclusions regarding the compliance panel's findings 
based on an independent analysis of those findings , we note that our understanding of the 
compliance panel's findings also accords with the general nature of threat. As described in section 
6.4.5.3.3.1  above, the object and purpose of the "threat" concept is to enable the decision  maker 
to identify the likely future occurrence of forms of serious prejudice discussed in Articl e 6 of the 
SCM Agreement . Consistent with this object and purpose, the compliance panel identified likely then -
future impedance.329 
 
326 Although the European Union submitted to the Arbitrator in this proceeding its submissions to the 
compliance panel in the compliance proceeding, the titles of the relevant exhibits were redacted as HSBI. Other 
than exhibits specifically discussed in the H SBI appendix to the compliance panel report, it is not possible to 
determine whether the evidence before the compliance panel included the Airbus final offers for the 2008 Fly 
Dubai sales campaign.  
327 See United States — Measures Affecting Trade in Large Ci vil Aircraft (Second Complaint) – Recourse 
to Article 21.5 of the DSU by the EU (WT/DS353 -Art.21.5) , Report from the Panel, Appendix 2 (Exhibit EU -65 
(HSBI), paras.  160-166, and 266 -271).  See also Appellate  Body Report, US – Large Civil Aircraft (2nd 
compl aint) (Article 21.5 – EU), paras.  5.516 -5.517 , where the Appellate  Body rejected the United States' 
appeal of the compliance panel's lost sale finding for the 2014 Fly Dubai sales campaign on the basis that "the 
outcome of the challenge concerning this sal es campaign turns on the same question as that raised in 
connection with the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns ."  
328 The compliance panel did not make present  displacement or impedance findings, and did not give a 
specific reason for no t doing so.  
329 We are therefore unable to agree with the European Union that our valuation of the threat of 
impedance findings "deducts" the value of deliveries during the reference period, and thereby invalidates or 
alters the basis on which the complianc e panel found the threat of impedance. (European Union's response to 
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  6.4.5.3.4   Conclusions  
6.142.   In the light of our discussion of the delivery -centric valuation approach above, we must 
decline the European  Union's request to value deliveries occurring before the end of the reference 
period as part of the threat of impedance findings.330  
6.143.   We note that the European  Union  has strongly objected to a valuation of the threat of 
impedance findings made on the basis of any approach according to which the value of threatened 
deliveries during the reference period would be ignored.331 We have reached our conclusion after 
objective , serious and exhaustive consideration of the European  Union 's arguments and the 
compliance panel's analysis of threat of impedance. We have further noted that the compliance 
panel's findings accord with the nature of the relevant serious prejudice concept s in the 
SCM Agreement  in the light of instructive decisions of WTO adjudicators and in accordance with 
customary rules of treaty interpretation . We are mindful  that the European  Union  has insisted that 
it obtain authorization to impose countermeasures in the form of Annual Suspension in respect of a 
"threat of impedance" that values all future deliveries from the 2011 Delta Airlines and 2008 Fly 
Dubai lost sales, whether those deliveries had manifested during or after the reference period.332 
However, as discussed above, we consider that the European  Union 's proposed valuation 
methodologies do not value the threat of impedance findings, and would accordingly result in 
countermeasures that are not commensurate with the degree and nature of the adverse effects 
determined to exist in the compliance proceedings – an outcome that would be inconsistent with our 
mandate.333  
6.144.   We therefore underline that we will value the threat of impedance as it was determined to 
exist by the compliance panel, i.e. wit h respect to counterfactual deliveries from the 2011 Delta 
Airlines and 2008 Fly Dubai lost sales that would have occurred in the post -reference period.334 As 
discussed above, the finding of threat of impedance directs us to the post -reference period where 
the expected impedance would occur. We therefore will value that then -expected impedance, 
updating our understanding of how that then -expected impedance occurred with updated 
information consistent with our discussion in section 6.4.4  above.  
 
Arbitrator question No. 66, paras.  216-219, 227, and 231) Such an argument is premised on the compliance 
panel's threat of impedance findings being forward -looking from the time of the re spective lost sales.  
330 Owing to this conclusion, we do not need to address further at this point the European Union's 
proposal that, under its "threat of impedance" approach, the Arbitrator should annualize the threat of deliveries 
that arose and remained extant in the referenc e period over the reference period. The Arbitrator's explanation 
of how it annualizes the values of threat of impedance findings, consistently with the function and propriety of 
annualization (which we discuss in section 6.4.5.1  above) appears in section 6.4.8.2  below. We further note 
that, due to our conclusions reached in this section, we would also find that we cannot accept the 
European  Union's methodology described in para.  6.85 above, originally proposed in its methodology paper, 
because that methodology also relies on valuing deliveries made during the reference period.  
331 European Union's response to Arbitrator question No. 67, para.  332 and No. 70, para.  335; combined 
comments on the Uni ted States' responses to question Nos. 66(a) and 69, paras.  216 and 259 -261; and 
comments on the United States' response to Arbitrator question No. 70, para.  330 (regarding the 2011 Delta 
Airlines deliveries occurring in the reference period). Compare with  United States' comments on the 
European  Union's response to Arbitrator question No. 68, para.  131. 
332 The European Union also insists that the level of Annual Suspension also be calculated based on the 
annualization of the total value of the threat of impe dance over the compliance panel's reference period. We 
address the issue of annualization of the threat of impedance valuations in section 6.4.8.2  below. 
333 The fact that the Arbitrator's interpretation of the threat of impedance findings from the compliance 
proceedings does not accord with the European Union's requested interpretation does not, in our view, mean 
that the Arbitrator thereby disregards o r alters those findings, or acts inconsistently with its mandate. Compare 
with European Union's response to Arbitrator question No. 67, para.  332; response to Arbitrator question 
No. 70, para.  335; combined comments on the United States' responses to quest ion Nos. 66(a) and 69, 
paras.  216, 259 -261; and comments on the United States' response to Arbitrator question No. 70, para.  330 
(regarding the 2011 Delta Airlines deliveries occurring in the reference period).  
334 We therefore disagree with the European Uni on that a "delivery -centric" approach suggests that the 
Arbitrator is inappropriately valuing a finding of "actual" impedance, rather than a "threat" of impedance. As 
discussed at length above, "threat" of serious prejudice is not a different form of econo mic harm from the 
present form of the particular serious prejudice phenomena in Article 6.3. Rather, threat refers to the likely 
future occurrence of the kind of serous prejudice that is threatened. In accordance with that understanding, we 
value the threa tened (i.e. post -reference period) impedance identified by the compliance panel as likely to 
occur.  WT/DS353/ARB  
 
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  6.145.   Therefore, in accordance with our mandate under Article  7.10 of the SCM  Agreement  to 
ensure that the level of countermeasures is commensurate with the degree and n ature of the adverse 
effects determined to exist, we use the following overall methodologies to value the adverse effects 
determined to exist in the compliance proceedings:  
a. For the adverse effects in the form of significant lost sales, we adopt an "order -centric" 
approach in which we value the net delivery -date prices of all of the Airbus LCA that would 
have been delivered in the counterfactual for each of the three lost sales at the time of 
the relevant LCA order.  
b. For the adverse effects in the form of th reat of impedance, we adopt a "delivery -centric" 
approach in which we value the net delivery -date prices of all of the Airbus LCA that would 
have been delivered in the post -reference period in the counterfactual for the 2011 Delta 
Airlines and 2008 Fly Dub ai lost sales.335 
6.146.   There remain  a number of more technical issues regarding the number of aircraft to be 
valued as part of the lost sales  and threat of impedance, respectively , the time at which the 
counterfactual deliveries would have occurred, the relevant  net delivery -date prices , and whether 
and how the discounting exercise is performed, which are discussed in sections 6.4.6, 6.4.7  and 
6.4.8  below.  
6.4.6   Technical issues common to the valuation of both forms of adverse effects  
6.147.   In this part of the Decision, we address more technical aspects of the European  Union 's 
methodology that are co mmon to the valuations of adverse effects in the form of significant lost 
sales and threat of impedance. These relate to (a) whether, consistent with the causation findings 
from the compliance proceeding, there should be a probabilistic adjustment to Airbu s' lost revenues 
from each of the five sales campaigns to account for the alleged uncertainty of Airbus winning each 
campaign in the counterfactual, (b) whether to value options, (c) determining the number of 
counterfactual Airbus orders and delivery sched ules, (d) how to account for the chance of 
cancellation of counterfactual orders, (e) whether to exclude the value of  [[***]] from delivery 
prices, and (f) remaining issues concerning delivery prices. We address each in turn.  
6.4.6.1   The probability that Airbus wo uld have won each of the five sales campaigns in 
the counterfactual  
6.148.   The United  States  objects to the European  Union 's methodology for valuing the adverse 
effects because it is based on the premise that, in the counterfactual, Airbus would have won each 
of the five single -aisle sales campaigns. According to the United  States , this premise was not 
established in the compliance proceedings and is not accurate. Moreover, the United  States  argues 
that by incorporating this assumption into the valuation, the Euro pean Union 's methodology inflates 
the proposed countermeasures beyond what would be commensurate with the degree and nature of 
the adverse effects determined to exist.336  
6.149.   The United  States  refers to the Appellate  Body's finding regarding the "genuine and 
substantial" causation standard under Article  6.3, namely, that the Washington State B&O tax rate 
reduction needed only to contribute  to (and not be a "but -for" cause of) Boeing winning a sales 
campaign in order to be a genuine and substantial cause of the lost sale. According to the 
United  States , this Appellate  Body finding shows that the significant lost sales findings were not 
based on explicit findings that the pricing advantage afforded to Boeing by the Washington State 
B&O tax rate reduction was great er than the pricing differential between the net prices in the Airbus 
and Boeing final offers in any of the five sales campaigns.337 For the United  States , the causation 
analysis in the compliance proceedings therefore left open which LCA manufacturer would  have won 
the relevant sales campaigns absent the subsidy.338 As a result, the United  States  argues that there 
 
335 We address the appropriate annualization periods for the valuations of each of the threat of 
impedance findings in section 6.4.8.2  below.  
336 United States' written submission, paras.  83-90. 
337 United States' written submission, para.  85. 
338 United States' comments on the European Union's response to Arbitrator question No. 4 8, para.  28. WT/DS353/ARB  
 
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  is no basis for the valuation of the adverse effects in this proceeding to assume that in the 
counterfactual, Airbus would have won those campaigns.  
6.150.   The United  States  proposes that the Arbitrator's valuation of Airbus' lost revenues ari sing 
from each sales campaign should include a probabilistic adjustment to account for the uncertainty 
of Airbus winning that sales campaign in the counterfactual. Based on its empirical modelling, the 
United  States  proposes that the Arbitrator multiply th e net present value (NPV) of the lost revenues 
from each sales campaign by [[***]] to account for the allegedly conservatively calculated 
probability that, absent the Washington State B&O tax rate reduction, Airbus would not have won 
the sales campaign.339  
6.151.   The European  Union  disagrees with the United  States ' proposal on several grounds. First, 
the European  Union  argues that any such adjustment would invalidate and alter the findings from 
the compliance proceedings that the "effect of the subsidy" for purpos es of Article  6.3 is significant 
lost sales.340 The European  Union  recalls that the Appellate  Body has stated that the concept of "lost 
sales" in Article  6.3(c) refers to sales that suppliers of a complainant "failed to obtain" and that 
instead were won by suppliers of the respondent.341 In finding that the effect of the subsidy was 
significant lost sales, the compliance panel and Appellate  Body therefore found that the relevant 
sales campaigns were ones that Airbus failed to obtain as an effect of the Washin gton State B&O tax 
rate reduction. For the European  Union , these findings from the compliance proceedings close the 
door to the United  States  re-arguing in th is arbitration proceeding that, in the counterfactual, Boeing 
nevertheless still had a [[***]] chance of winning each of the five sales campaigns. The 
European  Union  argues that to conclude otherwise would be to revisit the causation findings of the 
compliance panel and Appellate  Body, which is not part of the Arbitrator's mandate.342  
6.152.   Second, the European  Union  argues that the United  States ' argument is also contrary to the 
factual findings underpinning the compliance panel and Appellate  Body findings. Specifically, the 
European  Union  points to the fact that, in its causation analysis, the complian ce panel isolated a 
particular subset of LCA sales campaigns that were "price -sensitive". These were campaigns in which 
the outcome turned primarily on the difference in the prices of the Airbus and Boeing aircraft offered. 
There were no non -price factors that had such an effect on the outcome. The European  Union  
considers that, from this perspective, the compliance panel had eliminated the possibility that Boeing 
could have prevailed in those sales campaigns in the absence of the Washington State B&O tax r ate 
reduction.343  
6.153.   Finally, the European  Union  objects to the appropriateness of the simulation model 
submitted by the United  States  in order to adjust for the probability of Boeing winning the sales 
campaigns in the absence of the Washington State B&O tax rate reduction, referring to various 
conceptual and technical failings that, in its view, render the model unreliable.344 
6.154.   The Arbitrator must determine whether, consistent with the causation analysis in the 
compliance proceedings, it should include a probab ilistic adjustment to the expected value of the 
lost revenues from each of the sales campaigns to account for the alleged uncertainty of Airbus 
winning those sales campaigns in the counterfactual.  
 
339 United States' written submission, paras.  84 and 97. The United States stresses that this probability 
is not an estimate of the percentage of the "harm" suffered by Airbus due to the Washington State B&O tax 
rate reduction (i.e. it is not a measure of the Washington State B&O tax rate reduction's contribution to the 
significant lost sales). Rather, it is an attempt to value adverse effects that reflects "the multiple counterfactual 
outcomes inherent in the compliance proceeding findings". (Un ited States' response to Arbitrator question 
No. 13, paras.  58-59 and No. 14, para.  62) 
340 European Union's written submission, paras.  40, 42, and 44.  
341 European Union's written submission, para.  36 (referring to Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.331).  
342 European Union's opening statement, para.  28; and response to Arbitrator question No. 48, para.  65. 
The European Union adds that the systemic implications of the United States' argument are that, un less a 
subsidy is found by the panel and Appellate  Body to be the sole cause of a serious prejudice phenomenon, an 
arbitrator under Article 7.10 of the SCM  Agreement would implicitly revisit the adopted causation findings by 
assessing the degree of contrib ution of a subsidy to a market phenomenon. (European Union's opening 
statement, para.  30) 
343 European Union's written submission, paras.  44-86; and response to Arbitrator question No. 48, 
paras.  67-73. 
344 European Union's written submission, paras.  87-123. WT/DS353/ARB  
 
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  6.155.   The United  States  argues that the European  Union 's methodology in this proceeding 
assumes that, absent the subsidy, Airbus would have won each of the relevant sales campaigns, and 
thereby reflects a "but -for" causation approach. It suggests that the "but -for" approach is more 
demanding than the "genuine an d substantial" standard accepted in the compliance proceedings. 
According to the United  States , the counterfactual employed in this proceeding to assess the degree 
and nature of the adverse effects determined to exist must reflect the causation findings in  the 
compliance proceedings. Thus, the United States asserts that t he counter factual  cannot be premised 
on findings that the Washington State B&O tax rate reduction was a "but -for" cause of Airbus losing 
the sales campaigns, when the actual causation findi ngs establish only that the Washington State 
B&O tax rate reduction was a "contributing cause".345 
6.156.   We recall at the outset that, in reaching its finding that the Washington State B&O tax rate 
reduction was a genuine and substantial cause of significant lost  sales in respect of the five 
single -aisle LCA sales campaigns, the compliance panel first made factual findings that those 
campaigns were "price -sensitive". This meant that Boeing was under particular pressure to reduce 
its prices in order to secure the s ales, and that there were no non -price factors that explained 
Boeing's success in obtaining the sale s.346 The United  States  had argued in the compliance 
proceeding s that, in order to sustain a finding of significant lost sales, the per -aircraft magnitude of  
the Washington State B&O tax rate reduction must be shown to be sufficient to cover the difference 
in the final net prices of Boeing and Airbus in each of those sales campaigns.347 There was no direct 
evidence before the compliance panel of the final net p rices of Boeing and Airbus in the sales 
campaigns.348 The compliance panel evaluated the evidence of the approximate differences in net 
prices between the competing Airbus and Boeing offers where data regarding such approximate 
differences were available. T he compliance panel also compared its estimate of the per -aircraft 
amount of subsidization represented by the Washington State B&O tax rate reduction to evidence 
on the record of a NPV difference that "can be determinative of the outcome" of single -aisle s ales.349 
The compliance panel concluded that the magnitudes of the Washington State B&O tax rate reduction 
"were capable of enabling at least a portion of Boeing's pricing advantage, contributing in substantial 
part to its winning" the five sales campaigns,  and accordingly, that the Washington State B&O tax 
rate reduction "contributed in a genuine and substantial  way to determining the outcome  of those 
price-sensitive sales campaigns ".350  
6.157.   Earlier in its report, the compliance panel had explained at some leng th the "genuine and 
substantial" causation standard that the Appellate  Body had previously articulated as the appropriate 
standard for establishing that the subsidy is the cause of the market phenomena identified in 
Article  6.3.351 In particular, the compliance panel explained that the Appellate  Body had stated in 
the original proceeding that a subsidy need not be the sole cause, or only substantial cause, of such 
market phenomena in order for it to be found to be a genuine and subs tantial cause.352 The 
 
345 The United States argues that Article 7.10 of the SCM  Agreement requires that the countermeasures 
"reflect the findings from the compliance proceeding, which include the finding that the subsidy contributed  to 
Airbus losing the sale, but was not establish ed to be a but -for cause of Airbus losing the sale". (United States' 
response to Arbitrator question No. 13, para.  56 (emphasis added) ) See also United States' written submission, 
paras.  85-90.  
346 Examples of such non -price factors include Boeing's incumbe ncy and a consequent switching cost 
advantage, or the suitability of the aircraft for the particular customer's requirements (in terms of range, 
capacity and delivery availability). (Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), 
paras.  9.383 -9.385)  
347 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.503.  
348 See Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.403 and 
fn 3322 thereto . 
349 Panel  Report,  US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.402.  
350 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.403 and 9.404 
and fn  3329 thereto . (emphas is added)  
351 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.58-9.61, and 
fn 2742 (referring to Appellate  Body Reports US – Upland Cotton , para.  438; US – Upland Cotton (Article 21.5 
– Brazil) , para.  374; EC and certain member States – Large Civil Aircraft , para . 1232; and US – Large Civil 
Aircraft (2nd complaint ), para.  913 (articulating this causation standard under Articles 5(c) and 6.3 of the 
SCM Agreement)).  
352 See Panel  Report,  US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.61 and 
fn 2747 thereto (referring to Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – 
EU), para.  914).  WT/DS353/ARB  
 
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  compliance panel applied this standard in reaching its conclusion above, regarding the causal 
connection between the Washington State B&O tax rate reduction and the significant lost sales.  
6.158.   Before the Appellate  Body, the United  States  argued that the compliance panel could not 
make significant lost sales findings under Article  6.3 of the SCM  Agreement  unless it could be shown 
that, absent the Washington State B&O tax rate reduction, Boeing's prices would have been 
sufficiently higher such that Airbus would have won the sales campaigns.353 According to the 
United  States , the proper application  of the "genuine and substantial" causation standard required 
that the compliance panel determine that the per -aircraft subsidy amount represented by the 
Washington State B&O tax rate reduction was sufficient to cover the entirety of the price gap 
between Airbus' and Boeing's respective final offers for each of the sales campaigns.354  
6.159.   The Appellate  Body equated the United  States ' argument with a "but -for" test, and observed 
that it had previously expressed reservations about using a but -for test to determine the existence 
of a causal link for purposes of Article  6.3 at the "genuine and substantial" standard.355 The 
Appellate  Body explained that this was b ecause a but -for test may be "too undemanding" if the 
subsidy is "necessary, but not sufficient to bring about" a market phenomenon, and by contrast, 
may be "too rigorous" if it required that the subsidy be the only cause.356 The Appellate  Body then 
stated:  
In light of these considerations, we do not believe that, when a panel chooses to make 
a comparison between the degree of price reduction made available with the use of the 
subsidy in a particular sale, on the one hand, and the degree of price difference that 
could change the outcome of that sale for purposes of assessing causation, on the other 
hand, the panel is required to establish that the former exceeds the latter in order to 
conclude that the subsidy contributed in a genuine and substantial way to t he subsidized 
firm winning the sale. For example, in a situation where price is effectively the only 
consideration for the customer's decision to purchase the product of the subsidized firm 
instead of the product of the competing firm – as with the particu larly price -sensitive 
campaigns that the Panel identified – it may not be necessary for the subsidy to account 
for the entire pricing advantage enjoyed by the subsidized firm. Indeed, requiring the 
subsidy to explain the entirety of the price advantage in such a case may equate to a 
requirement that the subsidy constitute the sole cause of the subsidized firm winning 
the sale.357 
6.160.   In addition, the Appellate  Body noted that (a) a strict comparison of net prices of the 
competing aircraft models was not an exclu sive indicator of whether the subsidy contributed in a 
genuine and substantial way to the outcome of particular LCA sales campaigns358, and (b) the 
compliance panel had also based its lost -sales findings on evidence pertaining to NPV differences 
and not jus t on a comparison between the per -aircraft subsidy amounts and the net price differentials 
in the relevant sales campaigns.359 The Appellate  Body ultimately dismissed all of the United  States ' 
appeal points regarding the effects of the Washington State B&O tax rate reduction in the single -aisle 
market.360 Accordingly, the Appellate  Body found that the compliance panel did not err in finding 
that the effect of the subsidy was significant lost sales within the meaning of Article  6.3(c), without 
 
353 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.503.  
354 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.503.  
355 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.507.  
356 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.507 
(referring to Appellate  Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para.  374).  
357 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.508. 
(emp hasis original)  
358 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.509.  
359 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.510. The 
Appellate  Body also dismissed the United States' appeals alleging error under Articles 5(c) and 6.3 of the 
SCM Agreement regarding the compliance panel's specific lost -sales findings for each of the five sales 
campaigns, and failure to make an objective assessment under Article 11 of the D SU, in respect of the Fly 
Dubai 2014, Icelandair 2013 , and Air Canada 2013 sales campaigns. (See Appellate  Body Report, US – Large 
Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  5.515, 5.517, 5.520, 5.524, and 5.526)  
360 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  5.515 and 
5.525 -5.526. In other words, the United States did not persuade the Appellate  Body that, to determine 
causation at the "genuine and substantial" causation standard, the complianc e panel had to be satisfied that 
the per -aircraft amount of the subsidy was greater than the price differential between the final net prices of 
Boeing and Airbus in each of the sales campaigns.  WT/DS353/ARB  
 
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  necessarily being satisfied that the per -aircraft amount of the subsidy was itself sufficiently large to 
"cover the margin of victory" between Airbus' and Boeing's final net prices in each sales campaign.361  
6.161.   As explained earlier, our mandate under Article  7.10 of the SCM  Agreement  is to determine 
whether the countermeasures proposed by the European  Union  are "commensurate with the degree 
and nature of the adverse effects determined to exist".362 The adverse effects in question are 
significant lost sales, within the meaning of Articl e 6.3(c) and threatened impeded imports and 
exports within the meaning of Articles 6.3(a) and (b) (based on underlying lost sales).  
6.162.   The Appellate  Body has previously explained that "lost sales" are sales that suppliers of the 
complaining Member "failed to  obtain" and that instead were won  by suppliers of the respondent 
member.363 The Appellate  Body has further explained that an assessment of lost sales normally 
entails a counterfactual assessment in order to establish that "sales won by the subsidized firm( s) 
of the respondent Member would have been made instead  by the competing firm(s) of the 
complaining Member".364 The findings of significant lost sales in the compliance proceedings in this 
dispute were based on a counterfactual assessment that the Washingt on State B&O tax rate 
reduction  contributed in a genuine and substantial way to determining the outcome of the relevant 
sales campaigns.365  
6.163.   As previously observed, the United  States  argues that the causation findings in the 
compliance proceedings do not pr ovide a basis for the assumption that Airbus would have won the 
relevant sales campaigns in the counterfactual. This argument, however, appears to be based on 
the premise that the relevant causation standard, as applied by the compliance panel as part of i ts 
counterfactual assessment, should have been consistent with the United  States ' proposed "but -for" 
inquiry. The above discussion shows, however, that this premise was rejected by the Appellate  Body. 
Rather, the Appellate  Body found that, to make the sign ificant lost sales findings, the compliance 
panel need only have found that the subsidy in question was a "genuine and substantial" cause of 
the lost sales.  By now arguing that the Arbitrator's valuation should reflect the United  States ' but-
for approach, the United  States  is effectively seeking to re -litigate an issue that the Appellate  Body 
resolved in the compliance proceedings (i.e. whether the correct application of the "genuine and 
substantial" causation standard required a demonstration  that "but -for" the subsidy, Airbus would 
have won the sale). We do not consider that we can revisit this issue without thereby reopening and 
altering the causation findings from the compliance proceedings.  
6.164.   In sum, and as explained above, the counterfactu al assessment reflected in the adopted 
findings from the compliance proceedings is that, absent the Washington State B&O tax rate 
reduction, Airbus would have won the five sales campaigns in question. Once there is a legal finding 
that a subsidy causes sig nificant lost sales within the meaning of Article  6.3(c), it follows that the 
sales in question are sales that would have been won by the complaining Member, absent the 
subsidy.366 The Appellate  Body upheld the compliance panel's causation findings, at the genuine and 
substantial causation standard . The European  Union 's methodology in this proceeding is consistent 
with the counterfactual assessment from the compliance proceedings, and with the findings of 
significant lost sales.  
6.165.   We therefore reject the Unite d States ' proposal to include in our valuation of the adverse 
effects a probabilistic adjustment to the expected value of each of the sales campaigns to account 
for the alleged uncertainty of Airbus winning that sales campaign in the counterfactual. Doing so, as 
explained above, would be inconsistent with the degree and nature of the adverse effects determined 
to exist.  
 
361 Appellate  Body Report, US – Large Civil Aircraft (2nd compl aint) (Article 21.5 – EU), para.  5.503.  
362 See section 3 above.  
363 Appellate  Body Reports, EC and certain member States – Large Civil Aircraft , para.  1220; and 
US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.331.  
364 Appellate  Body Reports, EC and certain member States – Large Civil Aircraft , para.  1216; and 
US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.331. (emphasis added)  
365 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.404; and 
Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.526 . 
366 In this regard, the United States appears to conflate the standard according to which the adverse 
effects findings were made, with the findings themselves. The Arbitrator's role is simply to value the findings 
that were made, not to re -engage on the is sue of the standard at which they were made, which is an issue that 
was raised and addressed on appeal.  WT/DS353/ARB  
 
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  6.4.6.2   Valuation of options  
6.166.   The European  Union  argues that, in determining a maximum level of Annual Suspension, the 
Arbitrator should include the  value of certain LCA options contained in (a) the Airbus final offers or 
(b) Boeing purchase agreements in connection with the five lost sales campaigns that underlie the 
compliance panel's findings of threat of impedance and lost sales. More concretely, according to the 
European  Union , if the Arbitrator relies on Airbus' final offers submitted in the relevant sales 
campaigns to determine the number of aircraft Airbus would have sold in the counterfactual, then 
the Arbitrator should also value the options contained in those final offers as if they represented 
additional counterfactual firm orders. The European  Union  argues that this is so because: (a) it is 
necessary to do so "in light of the airline's express need for the specific number of Boeing aircraft  
actually ordered"367; and (b) options are an integral part of LCA purchasing agreements and reflect 
what Airbus believed to be the customer's requirements, preferences, and views, and Airbus' own 
constraints. Alternatively, according to the European  Union , if the Arbitrator relies on the Boeing 
purchase agreements in the relevant sales campaigns to determine the number of aircraft Airbus 
would have sold in the counterfactual, then the Arbitrator should value 30 options that were 
exercised as a result of the  2011 Delta Airlines sale.368 
6.167.   The United  States  argues that the European  Union 's request to value options should be 
rejected mainly because it is contrary to the findings of the compliance panel. The United  States  
asserts that the compliance panel distingui shed firm orders from options when it rejected the 
European  Union 's claim that the existence of options negotiated in connection with certain Boeing 
purchase agreements should give rise to a finding of threat of significant lost sales. The United  States  
also argues that, with respect to the 2011 Delta Airlines campaign, as a factual matter, none of the 
options associated with the 2011 Delta Airlines sale were ever exercised. The United  States  submits 
that the European  Union 's assertion that 30 options formed part of the Delta Airlines 2011 order is 
factually incorrect because it is based on an erroneous understanding of the contractual documents 
between Delta Airlines and Boeing.369 
6.168.   In response to the European  Union 's assertion that the relevant airlines' need for the specific 
number of Boeing aircraft ordered supports the inclusion of options in the Arbitrator's valuation of 
the lost sales in question, the United  States  argues that an airline order for a specific number of 
Boeing aircraft does no t mean that Airbus would have sold the airline the same number of Airbus 
aircraft. The United  States  therefore concludes that there is no reason to add proposed options to 
the number of firm orders which Airbus offered to make up for any difference between  the number 
of Boeing LCA actually ordered and Airbus LCA offered in any sales campaign. The United  States  
also asserts that although many things are an "integral" part of LCA purchasing agreements, the 
compliance panel recognized that not all such things are the same and that a firm order and an 
option are different.370 
6.169.   Responding to the United  States ' arguments, the European  Union  argues that valuing at 
least the Delta Airlines options is consistent with the compliance panel's findings. This is so, 
accordi ng to the European  Union , because the compliance panel found that the 2011 Delta Airlines 
sales campaign was a "lost sale" and thus the Arbitrator must value all of the deliveries  that result 
from it. Further, the European  Union  argues that the compliance panel's relevant findings to which 
the United  States  refers do not discuss options in connection with the 2011 Delta Airlines lost sale, 
but the European  Union 's claim of "threat of significant lost sales" based on the existence of options 
in connection wi th the 2013 Icelandair, 2013 Air Canada, and 2014 Fly Dubai lost sales. In any case, 
the European  Union  is of the view that the compliance panel's findings to which the United  States  
refers are inapposite because the compliance panel stated that it did "no t possess sufficient 
information about the nature of these options and purchase rights, including the conditions under 
which they may be exercised, to justify treating them as firm orders that are waiting to 
materialize"371, but this Arbitrator has enough i nformation showing that all 30 options in connection 
with the Delta Airlines 2011 lost sale have been exercised. The European  Union  further rejects the 
United  States ' position that the European  Union 's assertion that 30 options formed part of the Delta 
 
367 European Union's written submission, para.  231.  
368 European Union's written submission, paras.  231-232 and 251 -277; and response to Arbitrator 
questi on No. 10.  
369 United States' written submission, paras.  157-158; and response to Arbitrator question No. 15 ; 
No. 32; No. 50, paras.  41-42; and No. 72.  
370 United States' response to Arbitrator question No. 15.  
371 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), fn 3330.  WT/DS353/ARB  
 
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  Airlines 2011 order is factually incorrect because it is based on an erroneous understanding of the 
contractual documents between Delta Airlines and Boeing, arguing that the European  Union 's 
understanding of the relevant documentation is sound.372 
6.170.   The European  Union  develops two additional arguments that it considers weigh in favour of 
valuing the relevant options: (a) just as the DS316 arbitrator took into account cancellations that 
occurred after the time of order, this Arbitrator must, using the same logic, value options that were 
exercised subsequently to the Delta Airlines order in 2011; and (b) unlike the compliance panel, 
whose task was to determine the existence of adverse effects, this Arbitrator must quantify those 
adverse effects by taking into consid eration the most recent evidence available, including 
information on the exercise of options.373 
6.171.   The Arbitrator finds it helpful to first frame the relevant issue. The European  Union  argues 
that the Arbitrator may value options374 in connection with sales ca mpaigns underlying the 
compliance panel's findings concerning both significant lost sales and threat of impedance. It will be 
recalled that the compliance panel's findings concerning threat of impedance were expressly 
predicated on findings that certain sa les campaigns involved significant lost sales to Airbus.375 In 
short, all the relevant findings of the compliance panel are based on findings of significant lost sales. 
We also note that the European  Union  argues that the Arbitrator may, depending on whethe r it bases 
the number of additional counterfactual Airbus orders on the Airbus final offers or the Boeing 
purchase agreements, value options in and of themselves (i.e. as contractual clauses effectively 
representing sales of LCA376) or options as actually exercised (i.e. the Delta options). Thus, the 
question that we must resolve in this context is whether options in either the Boeing purchase 
agreements or Airbus final offers, whether exercised or not, can be considered as part of the relevant 
"lost sales" identified by the compliance panel.  
6.172.   We answer this question in the negative. In doing so, we first note that we see no basis on 
which to value contractual options clauses as part of the relevant "lost sales" , as the European  Union  
suggests we may do. We accept that, in losing the sales campaigns in question, Airbus may have 
lost sales of contractual options clauses to airline customers. Options are sold in many commercial 
contexts and themselves have value.377 In relev ant part, however, this dispute concerns the 
subsidization of Boeing LCA and, in turn, lost sales of Airbus LCA. What we are concerned with, 
therefore, is valuing lost sales of Airbus LCA , not contractual options clauses. The parties, panels, 
and Appellate  Body have consistently, throughout this dispute (and the EC and certain member 
States – Large Civil Aircraft  dispute), identified lost sales of LCA with reference to LCA orders  arising 
out of sales campaigns.378  
6.173.   The question thus becomes whether the compl iance panel considered the "lost sales" of 
Airbus LCA to be: (a) orders that would have been placed with Airbus instead of with Boeing in the 
 
372 European Union's written submission, paras.  253-272; response to Arbitrator question No. 56, 
para. 135; oral response to Arbitrator question No. 71 at the meeting of the Arbitrator; and comments on the 
United States' response to Arbitrator question No. 50, paras. 96 -99; and No. 72.  
373 European Union's written submission, paras.  273-275. 
374 Going forward, we will refer to "options" as including both "options" and "purchase rights". The 
European Union has explained  that the only difference between the two is that purchase agreements assign 
delivery schedules in connection with the former but not in connection with the latter. (European Union's 
response to Arbitrator question No. 10, para.  59)  
375 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  9.428, 9.438, and 
9.478 -9.482.  
376 We note that the number of options in the Airbus final offers is HSBI.  
377 European Union's response to Arbitrator question No. 52, para.  88 (explaining that "un der Airbus 
PAs, [[ ***]] to an airline" because they [[ ***]]); and United States' comments on the European Union's 
response to Arbitrator question No. 56, para.  68 (noting that options [[ ***]]). 
378 We also note that "the word 'sale' is defined as '{t}he acti on or an act of giving or agreeing to give 
something to a person in exchange for money'". (Decision by the Arbitrator, EC and certain member 
States  – Large Civil Aircraft (Article 22.6 – EU), para.  6.98 (quoting Shorter Oxford English Dictionary , 6th edn, 
A. Stevenson (ed.) (Oxford University Press, 2007), Vol.  2, p. 2652)) Viewing an option to purchase an LCA at 
a specific price to be exercised in the future, particularly when in the sole discretion of the purchaser, as being 
an "agree{ment} to give {an LC A} to a{n LCA customer} in exchange for money" appears problematic. 
Indeed, it is possible that the option may never be exercised or that the customer's decision to purchase 
additional aircraft, which it could do through the exercise of an option, may gene rate a competition in which 
the competing LCA manufacturer secures those orders instead. ( Declaration of [[ ***]] (Feb.  28, 2020)  (Exhibit 
USA-51(BCI)), para.  6) WT/DS353/ARB  
 
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  counterfactual in connection with the five relevant five sales campaigns at the conclusion of such 
sales campaigns  (practically speaking, in Airbus' counterfactual purchase agreements); or (b) any 
order that would have been placed with Airbus in the counterfactual instead of with Boeing at any 
time had Airbus won the sales campaigns in question (at least insofar as su ch orders would have 
arisen from the exercise of options that Airbus would have secured in connection with those sales 
campaigns).379 The European  Union 's position in this context depends on the latter interpretation.  
6.174.   We recall that, in its lost  sales anal yses, the compliance panel generally focused on the 
extent to which the Washington State B&O tax rate reduction helped Boeing prevail in the five 
relevant sales campaigns.380 At first glance, that mode of analysis might suggest that the compliance 
panel's l ost-sales findings are broad enough to encompass any order (including an order arising from 
subsequent exercises of options) that Airbus would have won instead of Boeing in the counterfactual 
had Airbus won the sales campaigns. This is so essentially becau se the total value of winning a sales 
campaign could be interpreted as meaning the value of any and all orders that Airbus would have 
secured had it won the campaign, no matter how or when in the future such orders would have 
arisen.381 Upon closer examinat ion of the compliance panel's findings, however, it is sufficiently clear 
to us that the compliance panel confined its lost -sales findings to the orders that Airbus would have 
secured at the time the relevant sales campaigns were lost.  
6.175.   We recall footnote 3 330 of the compliance panel report:  
The European  Union  further argues that U.S. subsidies benefiting the 737 MAX and 
737NG cause a present threat of significant lost sales , within the meaning of 
Article  6.3(c) and footnote 13 of the SCM  Agreement . … In sup port of this argument, 
the European  Union  relies on evidence of the existence of options and purchase rights  
negotiated in connection with the relevant orders … . The European  Union  makes this 
threat of significant lost sales argument in relation to the fol lowing sales campaigns that 
we find to evidence significant lost sales: Icelandair 2013 … , Air Canada 2013 … , and 
Fly Dubai 2014 … .382 (emphasis added)  
6.176.   The compliance panel continued:  
 
379 The only relevant counterfactual orders that the European Union specifically argues Airbus wo uld 
have secured as a result of options exercised (i.e. beyond what Airbus would have secured in its five additional 
counterfactual purchase agreements) are the 30 options that the European Union argues were exercised that 
arose out of the 2011 Delta Airli nes sales campaign. (See section 6.4.6.3  below, finding that Airbus would have 
secured more firm orders in the [[***]]  sales campaigns than Airbus proposed in its final offers because such 
additional orders would have been firm orders placed at the time the sales campaigns were lost, rather than  
due to the exercise of options). We note that these orders were placed with Boeing after the reference period 
used in the compliance proceeding s ended, and, accordingly, the compliance panel report never mentions 
these orders. (European Union's comments o n United States' response to Arbitrator question No. 72 ) 
380 See e.g. Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.385 
(indicating that the Washington State B&O tax rate reduction subsidy "affected Boeing's pricing beh aviour with 
respect to the 737 MAX and 737NG in five price -sensitive sales campaigns between 2007 and 2015") ; para. 
9.400 (discussing the "potential for a comparatively small price reduction to determine the outcome of a sales 
campaign") ; para 9.404 ("We a re therefore satisfied that the Washington State B&O tax rate reduction, 
through the effects on Boeing's pricing, contributed in a genuine and substantial way to determining the 
outcome of price -sensitive sales campaigns involving the 737 MAX and 737NG and  the A320neo and A320ceo 
in the Fly Dubai 2014, Air Canada 2013 and Icelandair 2013 campaigns") ; para.  9.407 ("We find that the 
Washington State B&O tax rate reduction is a genuine and substantial cause of serious prejudice in the form of 
significant lost sales of A320neo and A320ceo families of LCA in the post -implementation period, in respect of 
the sales campaigns Fly Dubai 2014, Air Canada 2013, and Icelandair 2013") ; para.  9.479 ( "{T}he Panel finds 
that the Washington State B&O tax rate reduction is a genuine and substantial cause of serious prejudice in the 
form of significant lost sales of A320neo and A320ceo families of LCA in the post -implementation period, in 
respect of the sales campaigns for Fly Dubai in 2014, Air Canada in 2013, and Icelandair i n 2013") ; 
para. 11.8(c) (containing similar statements) ; and fn  3329 (" {W}e also consider that the Washington State 
B&O tax rate reduction was a genuine and substantial cause of lost sales of the A320ceo in the Fly Dubai 2008 
and Delta Airlines 2011 sales campaigns").  
381 We note that, under this interpretation, the value of the sales campaigns might also include follow -on 
orders that the winning aircraft manufacturer secured as a result of, for example, incumbency advantages 
resulting from the sales campaign . We discern nothing in the compliance panel report indicating that such an 
interpretation was intended, however.  
382 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), fn 3330.  WT/DS353/ARB  
 
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  We do not consider that the mere fact that an LCA customer was addition ally granted 
options or purchase rights is sufficient to demonstrate that  lost sales in relation to these 
options and purchase rights are clearly foreseen and imminent, and thus give rise to a 
threat of significant lost sales . The Panel does not possess su fficient information about 
the nature of these options and purchase rights including the conditions under which 
they may be exercised, to justify treating them as firm orders that are waiting to 
materialize.  Indeed, there is evidence before us to suggest t hat not all options will be 
exercised. …  We are therefore not persuaded that the European  Union  has 
demonstrated that  further significant lost sales are likely and "imminent".383 (emphasis 
added)  
6.177.   Two key points emerge from the above passage: (a) that the compliance panel considered 
firm orders, but not contractual options clauses, to be LCA "sales"; and (b) that firm orders resulting 
from the exercise of options, if and when they may arise after th e reference period, are outside the 
scope of "lost sales" that the compliance panel identified. This is so because the compliance panel 
implicitly accepted that the presence of options could form the basis of a finding of a threat  of 
"further " lost sales, but only if it was sufficiently clear that the options would be exercised  and thus 
result in firm orders.  In other words, and logically speaking, the compliance panel necessarily treated 
"lost sales" in connection with options (i.e. future firm orders) as distinct from the "lost sales" that 
it identified in connection with the relevant lost sales campaigns. Indeed, if the compliance panel 
had considered options and/or firm orders resulting from their potential exercise as part and parcel 
of the "lost sales"  that the compliance panel identified, footnote 3330 would become nonsensical — 
there would have been no logical basis upon which to analyse options as potential "further  significant  
lost sales " at all. That is, unless one could characterize options as com prising both lost sales in and 
of themselves at the time of their exercise and as forming part of previous lost sales at a previous 
time. That characterization, however, appears illogical and unsupported by the findings of the 
compliance panel.   
6.178.   We recogni ze that footnote 3330 addresses options concluded by Boeing in connection with 
the Icelandair 2013, Air Canada 2013, and Fly Dubai 2014 sales campaigns. It does not mention, in 
particular, the 2011 Delta Airlines sales campaign or any options that Boeing m ay have secured in 
that sales campaign. The European Union, however, has pointed to, and we discern, nothing in the 
compliance panel's report that suggests that the compliance panel would have treated such options 
differently  and found that such options we re within the scope of its lost -sales findings . Indeed, with 
respect to the Delta Airlines options the exercise of which the European Union wishes us to value, 
we note that the compliance panel stressed that the 2011 Delta Airlines "lost sale" occurred before 
the post -implementation period – a statement we find difficult to reconcile with the notion that we 
should value the exercise of options purportedly forming part of this "lost sale" that occurred in the 
post-implementation period . We also note  that the compliance panel did not even mention such 
options when summarizing the "main details" of this sales campaign.384 
6.179.   Certain key aspects of the compliance panel's analysis regarding significant lost sales in the 
reference period are also consistent with the understanding that the compliance panel confined its 
lost-sales findings to the orders that Airbus would have secur ed at the time the relevant sales 
campaigns were lost. The compliance panel identified lost sales in the reference period by identifying 
price-sensitive LCA sales campaigns that Boeing had won, and then assessing the extent to which 
the Washington State B& O tax rate reduction enabled Boeing to prevail in those campaigns by 
allowing Boeing to lower its LCA prices. As noted in section 6.4.6.1  above, as pa rt of that analysis 
the compliance panel calculated a "per -aircraft rate of subsidization" for the aircraft that Boeing sold 
in the Fly Dubai 2014, Air Canada 2013 and Icelandair 2013 campaigns .385 The compliance panel 
calculated this rate by dividing the a verage yearly amount of subsidies granted under the 
Washington State B&O tax rate reduction by  "an average of 54.3 single -aisle aircraft orders  per year 
for 2013 -2015 (calculated from the total of 11 737NGs  and 152 737 MAX ordered from the Fly Dubai 
2014, Air Canada 2013 and Icelandair 2013 campaigns , divided by three)".386 These numbers 
referenced by the compliance panel are firm orders . The compliance panel was silent as to options 
in this context, which indicates that the compliance panel was focused on t he Washington State B&O 
 
383 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), fn 3330.  
384 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), table 12 and paras. 9.436, 
9.438, and 9.481.  
385 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.402.  
386 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), fn 3321. (emphasis added)  WT/DS353/ARB  
 
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  rate reduction's ability to enable Boeing to lower prices for and win (and Airbus to lose) firm orders, 
specifically. This is significant because the compliance panel was well aware that Boeing had 
concluded options in connection wi th both the 2014 Fly Dubai and 2013 Air Canada sales 
campaigns.387 
6.180.   Additionally, the compliance panel's reasoning as to why the 2014 Fly Dubai, 2013 Air 
Canada, and 2013 Icelandair lost sales were "significant" within the meaning of Article  6.3(c) is 
consis tent with the understanding that the compliance panel confined its lost -sales findings to the 
orders that Airbus would have secured at the time the relevant sales campaigns were lost. The 
compliance panel found that those three lost sales were "significant " due to the "size of the orders 
that Boeing had won" and the fact that the sales campaigns were "strategically important to Boeing 
and Airbus".388 When discussing the former consideration, the compliance panel noted that "{t}he 
Fly Dubai, Air Canada and Ic elandair sales campaigns involve orders  for approximately 152 737 MAX 
and 11 737NG aircraft".389 These "orders" are the numbers of firm orders . The compliance panel did 
not mention options in this context, which indicates that the "significance" of the lost  sales lay in the 
significance of orders secured at the conclusion of the sales campaign alone.390 This is significant 
because, as already noted above, the compliance panel was well aware that Boeing had concluded 
options in connection with both the 2014 Fl y Dubai and 2013 Air Canada sales campaigns.  
6.181.   With respect to the compliance panel's analysis regarding threat of impedance (which, as 
explained, was predicated on findings of certain significant lost sales), the compliance panel found 
"that Fly Dubai's 200 8 and 2014 orders of 50 737NG and 75 737 MAX, respectively, are significant 
lost sales for Airbus".391 It will be recalled that as a result of the 2014 Fly Dubai sales campaign 
Boeing secured not only 75 firm orders for 737 MAX LCA but also 25 purchase rights  for 737 MAX 
LCA, of which the compliance panel was well aware.392 Again, therefore, in this context the 
compliance panel was focused solely on the firm orders on the record before the compliance panel  
when making findings of lost sales , not on options or firm orders that may have resulted from the 
firm orders on the rec ord in the then -future.  
6.182.   Finally, we underline that  we discern no point in the compliance panel's report where the 
compliance panel indicated in any meaningful way that it considered the eventual exercise of options 
to be part and parcel of the "lost sales"  that it had otherwise identified.393 As discussed above, we 
only find statements indicating the contrary.  
6.183.   For the foregoing reasons, the Arbitrator finds that relevant options clauses, whether 
exercised or not, are outside the scope of the compliance panel 's relevant lost -sales findings. Valuing 
them would therefore be inconsistent with the degree and nature of the adverse effects determined 
 
387 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), table 12; 2013 Air Canada 
Purchase Agreement (Exhibit USA -81 (HSBI)), pp.  144-148 (containing options pricing information); Air 
Canada final offer, [[HSBI]] (Exhibit EU -3 (HSBI)), pp.  2, 8, 37 and schedules 3 -5 (containing options pricing 
information); 2014 Fly Dubai Purchase Agree ment (Exhibit USA -85 (HSBI)), pp. 154 and 155 (containing 
options pricing information); and Fly Dubai 2014 final offer, [[HSBI]] (Exhibit EU -6 (HSBI)), pp. 15 and 28 
(containing options pricing information)).  
388 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  9.405 -9.406.  
389 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.406. (emphasis 
added)  
390 The compliance panel also found that the 2011 Delta Airlines and 2008 Fly Dubai sales were 
"significant", but did not elaborate on this topic. (Panel  Report, US – Large Civil Aircraft (2nd complaint) 
(Article  21.5 – EU), fn 3335)  
391 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.443. In 2014 Fly 
Dubai also orde red 11 737NGs as part of this sales campaign. (Panel  Report, US – Large Civil Aircraft 
(2nd complaint) (Article  21.5 – EU), table 12 and fn 3321)  
392 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), table 12.  
393 We also note that t he Appellate  Body has explained that, under certain circumstances, "options or 
purchase rights … may be indicative of an ongoing phenomenon of lost sales" which temporally extends beyond 
the initial relevant "transactions", although whether this "ongoing p henomenon" exists requires fact -specific 
inquiries. (Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  5.333) 
Neither the compliance panel nor the Appellate  Body engaged in any fact -specific inquiries regarding whether, 
let alone establishing that, the relevant "lost sales" identified by the compliance panel would be "ongoing" 
through the period in which options were exercised or up until any time beyond the point at which the sales 
campaigns were lost at all. Further, we are mindful that any finding on our part indicating that such an 
"ongoing phenomenon of lost sales" (e.g. up until the time of any options exercises) existed with respect to the 
lost sales in question could be taken as substantively per taining to the United States' temporal compliance 
obligations with respect to such lost sales.  WT/DS353/ARB  
 
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  to exist. We accordingly decline to consider options, whether exercised or not, in the Arbitrator's 
determination of a maximum level of Annual Suspension.  
6.4.6.3   The number of firm orders in the counterfactual and the timing of the deliveries  
6.184.   The European  Union  argues that, in the counterfactual, it should be assumed that the airlines 
in the five relevant sales campaigns would  have placed the same number of firm orders for Airbus 
LCA as the airlines actually placed with Boeing, not the number of firm orders proposed in the Airbus 
final offers in those campaigns. In the European  Union 's view, this approach is consistent with how  
the DS316 arbitrator valued lost sales and with the adopted findings in the compliance proceeding s 
in this dispute. The European  Union  also asserts that the "best proxy for counterfactual negotiation 
results, in terms of aircraft delivery numbers, is refl ected not in Airbus'  final offers, but in the 
demonstrated  demand by each airline, as manifested in the actual results of Boeing's  negotiation 
with each airline".394 According to the European  Union , this is so because although Airbus' final offers 
reflect f eedback from the airlines, they represent just a "snapshot of the actual  bilateral negotiations 
between Airbus and each airline at a particular point in time"395, negotiations that would have 
continued and eventually concluded had it not been for relevant s ubsidies.  
6.185.   In cases where the Airbus final offer contained fewer  proposed firm orders than what Boeing 
obtained (i.e. in the [[***]] sales campaigns), the European  Union  explains that Airbus had the 
commercial incentive to secure additional  orders and had the production capacity to deliver them, 
demonstrated by the presence of options  in the relevant final offers. Also, the European  Union  argues 
that the Boeing and Airbus models at issue with respect to any particular sales campaign are 
substitutable, and thus that it is reasonable to think that customers would have ordered the same 
number of LCA from Airbus in the counterfactual as they d id from Boeing. This is especially so, 
according to the European  Union , because in the [[ ***]] relevant campaigns  "the [[***]] airlines 
could only have satisfied their proven demand for seating capacity by ordering the same number of 
Airbus LCA as actually  ordered from Boeing".396 According to the European  Union , these [[***]] 
airlines could have done so by either placing additional firm orders in the purchase agreement or 
exercising options contained in the purchase agreements. The European  Union  further as serts that 
the manner in which Boeing negotiated with [[***]] supports the European  Union 's position in this 
context. The European  Union  also argues that the United  States ' suggestion that the relevant 
customers would have decreased the number of firm orde rs proposed in the relevant Airbus final 
offers is contrary to commercial realities in the LCA industry and unsupported by material 
evidence.397 
6.186.   Regarding counterfactual delivery schedules, the European  Union  argues that Airbus would 
have delivered its LCA in accordance with the delivery schedules to which Boeing and the airline 
agreed in the relevant purchase agreements. According to the European  Union , it is reasonable to 
conclude that relevant demand -side pressures would have led Airbus to agree to the sa me delivery 
schedules as those contained in those purchase agreements. The European  Union  further asserts 
that this approach is consistent with the approach used in the DS316 arbitration, in which the 
arbitrator assumed that the counterfactual delivery sch edule would be the delivery schedule that 
Airbus (i.e. the actual winner of the relevant campaigns) actually secured in the relevant sales 
campaigns. In the European  Union 's view, even -handedness compels the Arbitrator to use that same 
approach here.398 
 
394 European Union's response to Arbitrator question No. 51, para.  83. (emphas is omitted; internal 
quotation marks omitted; fn  omitted)  
395 European Union's response  to Arbitrator question No. 51, para.  82. (emphas is omitted)  
396 European Union's response to Arbitrator question No. 54, para.  99. (BCI brackets added ; emphasis 
omitted)  
397 European Union's written submission, paras.  221-229; response to Arbitrator question No. 8, 
para. 46; No. 9 ; No. 10 ; and Nos. 51 -56; and comments on the United States' responses to Arbitrator question 
Nos. 50 and 54 -56. 
398 European Union's written submission, paras.  221-222; and response to Arbitrator question No. 9. 
The European Union reca lls that the DS316 arbitrator found it less problematic to use as Boeing's 
counterfactual delivery schedules the delivery schedules to which Airbus agreed with the airline customers as 
they "reflect the actual pressures from the demand side because they ha ve been accepted by the customers 
involved in the lost sales at issue". (European Union's written submission, para.  226 (citing Decision by the 
Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), para.  6.263))  WT/DS353/ARB  
 
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  6.187.   The United  States  argues that, in the counterfactual, it should be assumed that the airlines 
in the five relevant sales campaigns would have placed the number of firm orders for Airbus LCA 
that Airbus proposed in its final offers to the airlines, and that Air bus would have delivered those 
aircraft according to the delivery schedule in each such final offer. The United  States  argues that 
this is consistent with the findings in the compliance proceeding s because the compliance panel 
never specified the number of  firm orders that Airbus would have secured in the counterfactual. The 
United  States  also argues that the approach taken in the DS316  arbitration with respect to 
counterfactual order numbers and delivery schedules need not be followed here because the rele vant 
findings and evidence in this arbitration are different from those in the DS316 arbitration. Further, 
the United  States  asserts that the Airbus final offers represented the result of a negotiating process 
in which Airbus understood the customer's need s in relation to Airbus' supply -side constraints. 
Moreover, in the United  States ' view, airlines rarely increase the number of firm orders between the 
receipt of final offer and signing a subsequent purchase agreement, in particular because airlines 
will m ore commonly solicit offers for larger numbers of aircraft than they actually need in the hopes 
of securing volume discounts. The United  States  also asserts that the presence of options in Airbus 
final offers does not establish that Airbus had sufficient p roduction capacity to fill more firm orders 
than were proposed in the final offers because LCA manufacturers, as part of their so -called "skyline 
management" practices, [[***]] . Additionally, according to the United  States , customers have 
incentives to secure options rather than firm orders from Airbus because the former [[***]] for 
airlines than firm orders.  
6.188.   The United  States  also asserts that Airbus and Boeing single -aisle LCA are differentiated 
products (including with respect to seating capacities) and therefore customers may want different 
numbers of Boeing versus Airbus single -aisle LCA. In addition, t he United  States  asserts that delivery 
availability may differ as between Airbus and Boeing LCA, which may cause an ai rline to desire 
different numbers of Airbus or Boeing LCA  at a given point in time . Finally, with respect to the 
[[***]] sales campaign, the United  States  explains that the customer's order size with Boeing 
reflected Boeing -specific considerations. The Uni ted States  thus argues that any finding that Airbus 
would have secured the same number of firm orders in the relevant sales campaigns as Boeing 
actually secured would be based on speculation.399 
6.189.   The Arbitrator notes that the parties disagree regarding two r elated subjects in this context, 
i.e. the number of counterfactual orders that Airbus would have received as a result of the five 
relevant sales campaigns and the delivery schedules that would have govern ed the deliveries of such 
orders. We address each in  turn below.  
a. Counterfactual order numbers  
6.190.   In this section, we address the issue of the number of firm orders that Airbus would have 
received in the five relevant sales campaigns in the counterfactual.  
6.191.   At the outset, we recall the European  Union 's argument  that the findings in the compliance 
proceeding s establish that, in the counterfactual, the airlines in the five relevant sales campaigns 
would have ordered the same number of Airbus LCA as they did from Boeing in reality. This is so 
because, according to the European  Union , the compliance panel specified that the number of firm 
orders that Boeing received as a result of the five relevant sales campaigns and of which the 
compliance panel was aware were themselves the "lost sales".400 We observe that certain of the 
compliance panel's findings regarding relevant sales campaigns do suggest this401 while findings with 
respect to other sales campaigns are more ambiguous.402 We consider, however, that even if the 
 
399 United Stat es' written submission, section VIII and paras.  135-142; responses to Arbitrator question 
Nos. 8 -10, 50, and 54 -56; and comments on the European Union's responses to Arbitrator question 
Nos. 51-54, and 56. 
400 See e.g. European Union's response to Arbitrator  question No. 54, para.  96 and accompanying bullet 
points (stating, inter alia , that "the findings by the compliance adjudicators are that Airbus suffered lost sales 
of 16 LCA in the Icelandair campaign, and 86 LCA in the Fly Dubai 2014 campaign" (emphas is omitted) ). 
401 See e.g. Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.443 
(stating that "that Fly Dubai's 2008 and 2014 orders of 50 737NG and 75 737 MAX , respectively, are significant 
lost sales  for Airbus" (emphas is added) ). 
402 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), para.  9.404 ("Accordingly, 
we consider that the effects of the Washington State B&O tax rate reduction were lost sales of the A320neo 
and A320ceo in the Fly Dubai, Air Canada, and Icelandair sales campaigns in the 2013 -2015 period ."). (Ibid., 
fn omitted)  WT/DS353/ARB  
 
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  compliance panel did not specify the number of "lost s ales" with respect to any particular sales 
campaign, other adopted findings in this dispute and evidence on the record of this arbitration 
proceeding establish that it is reasonable to assume that, in the counterfactual, Airbus would have 
secured the same number of firm orders in its purchase agreements in all five relevant sales 
campaigns as Boeing secured in its actual purchase agreements.  
6.192.    In examining such findings and evidence, we first note that the European  Union  and 
United  States  direct their arguments in this context at the [[***]] sales campaigns because in each 
such campaign Airbus proposed fewer firm orders in its final offer than Boeing secured in its purchase 
agreements with each of these airlines. We direct our attention to these [[***]] sales campaigns 
here for the same reason.403  
6.193.   Regarding those [[***]] sales campaigns, we recall that all the Boeing and Airbus LCA 
involved comp ete in the same product market (i.e. the single -aisle LCA product market) and are 
"sufficiently substitutable".404 Further, we note that the [[***]] airlines determined that they in fact 
required the number of single -aisle LCA that appear in the Boeing purc hase agreements. We consider 
these factors strong evidence that each airline would likely have ordered an equal number of Airbus 
single -aisle LCA in the counterfactual. The United  States  argues, however, that the fact that Airbus 
proposed fewer firm orders  in its relevant final offers than Boeing actually secured demonstrates 
that each airline would have only ordered that proposed number of LCA from Airbus. The 
United  States  presents five main arguments in support of its position.  
6.194.    First, and with respect t o the [[***]] sales campaign, the United  States  argues that the 
airline could have wanted fewer  Airbus LCA because the overall seating capacity of the Boeing LCA 
ordered was lower  than the overall seating capacity of an equivalent number of Airbus LCA.405 At 
the outset, we note that the materiality of the overall  seating capacity of the multiple LCA offered 
to [[***]] is not immediately apparent to us. As the United  States  itself notes, "airlines fly aircraft, 
not seats".406 Therefore, even if the overall s eating capacities of the relevant Airbus and Boeing LCA 
would have differed somewhat, we do not consider that it necessarily follows that the airline would 
have wanted different numbers of LCA from the manufacturers to fly the desired routes, as the 
United  States  suggests. Insofar as [[***]] would have desired to obtain similar overall seating 
capacities as between Airbus and Boeing LCA, however, we consider that the evidence indicates that 
it is reasonable to assume that [[***]] would still have wanted the  same number of LCA from Airbus 
and Boeing, for the reasons discussed in the following paragraph.  
6.195.   According to an [[***]] , the [[***]] LCA ordered had a seating capacity of 153 passengers 
each (for a total of [[***]] seats) and the [[***]] LCA had a seatin g capacity of 172 (for a total of 
[[***]] seats).407 Although Airbus' final offer to [[***]] , the European  Union  has provided the most 
"typical" seating configuration for the relevant Airbus LCA.408 A comparison of the seating capacity 
of the [[***]] Boeing LCA that [[***]] actually ordered and the typical seating capacity of the 
relevant Airbus LCA demonstrates that [[***]] would have been able to match the seating capacity 
 
403 This issue [[ ***]] with respect to the other [[***]] . ([[***]]). 
404 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), paras.  9.33 and 9.47. 
405 United States' response to Arbitrator question No. 54, para.  44. 
406 United States' comments on the European Union's response to Arbitrator question No. 54, para.  64. 
This means, according to the United States, that there are features other than the overall seating capacity, per 
se, that a customer  would consider while placing an order such as the [[ ***]], factors which may, however, to 
some degree be linked to seating capacity.  
407 [[***]].  
408 The United States does not contest the correctness of the t ypical seating capacity of Airbus LCA 
provided by the European Union. Instead, the United States provides the maximum seating capacity for a 
relevant Airbus LCA model to demonstrate that that Airbus LCA would have had more seats than the Boeing 
LCA that [[***]]  actually ordered and consequently establish that [[***]]  would have ordered fewer LCA from 
Airbus than it did from Boeing. (United States' response to Arbitrator question No. 54, para.  44) We see little 
rationale for using such maximum seating capaci ties, given that they are in excess of not only the typical 
seating capacities of both the Boeing and Airbus LCA in question, but also the actual seating capacities of the 
Boeing LCA sold to [[***]] . (See European Union's response to Arbitrator question No . 54, paras.  100-109 
table 3 (citing Panel  Report, EC and certain member States – Large Civil Aircraft (Article 21.5  – US), table 16); 
comments on United States' response to Arbitrator question No. 54, paras.  114 and 115 (making similar 
observations); and United States' response to Arbitrator question No. 54, fn  43) Therefore, to help ensure a 
fair comparison in this context, we consider it most reasonable to assume that the seating capacities of the 
Airbus LCA models that [[***]]  would have ordered would h ave been their typical (and not maximum) seating 
capacities, which are also closer to the actual seating capacities of the Boeing LCA actually ordered.  WT/DS353/ARB  
 
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  of the Boeing aircraft only by ordering the same number of Airbus LCA as it ordered f rom Boeing.409 
In the light of these observations, we do not consider that it has been reasonably demonstrated that 
[[***]] would have desired fewer LCA from Airbus than it did from Boeing for reasons relating to 
seating capacity.  
6.196.   Second, and specifically with respect to the [[***]] sales campaign, the United  States  notes 
that the airline ordered [[***]] LCA from Boeing. The United  States  explains that the airline ordered 
the "[[***]] ".410 Thus, Boeing [[***]] .411 In our minds, however, this evidence indicates that the 
airline wanted a certain number of single -aisle LCA delivered [[***]] (which both Boeing and Airbus 
could accommodate), not that the airline desired a different number of LCA from Airbus and Boeing 
in that [[***]]. Indeed, although the United  States  apparently casts the sale of the [[***]] as a 
[[***]] , we note that the airline still purchased them along with all the other [[***]] LCA. The 
United  States  also does not direct us to any evidence on the r ecord indicating that the [[***]] LCA, 
once received, [[***]] . Simply put, [[***]] wanted, and received, [[***]] single -aisle LCA from 
Boeing. In the end, therefore, we consider that this United  States  argument is not pertinent to the 
question of whether [[***]] would have wanted a different number of Airbus LCA.  
6.197.   Third, the United  States  argues that Airbus may have lacked the production capacity to 
include additional orders in the counterfactual [[***]] purchase agreements, and that the presence 
of options in those final offers does not necessarily demonstrate the existence of sufficient additional 
production capacity because Boeing and Airbus [[***]] .412 The United  States , however, adduces no 
evidence indicating that Airbus in fact did lack additional releva nt production capacity at any 
particular relevant time. We further note that the European  Union  has submitted a document from 
[[***]] at Airbus, attesting to the fact that Airbus had sufficient production capacity to satisfy orders 
for all of the [[***]] contained in the Airbus final offers in the [[***]] sales campaigns had the 
airlines [[***]] .413 The number of such [[***]] in each case was greater than the number of 
additional orders needed to increase the number of firm orders in the final offers  to the number of 
firm orders that Boeing actually received in each campaign. We discern no reason to doubt the 
veracity of the evidence put forth by the European  Union  concerning Airbus' production capacity in 
this context, and therefore consider that it is r easonable to conclude that Airbus would have had 
sufficient production capacity to include additional firm orders in the [[***]] sales campaigns had 
they been placed by the airlines, such that Airbus could have matched the number of firm orders 
that Boeing  secured in reality from each airline.  
6.198.   Fourth, the United  States  argues that Airbus and Boeing LCA are differentiated products 
featuring different technical capabilities. Aside from issues already discussed above, the 
United  States  notes that certain techn ical characteristics differ as between the relevant Airbus and 
Boeing LCA.414 We discern no evidence on the record, however, indicating why [[***]] would have 
concluded, based upon such differences, that it would have preferred a different number of LCA fro m 
 
409 The European Union performs similar comparisons in this context wherein it compares the typical  
seating capacity of the Boeing models ordered by [[***]]  (which is similar to the actual seating capacities of 
Boeing models ordered by [[***]] ) with the typical  seating capacity of the relevant Airbus LCA, making certain 
assumptions about the specific Airbus L CA models that [[***]]  would have ordered had it  ordered  additional 
Airbus LCA, and arrives at the same conclusion as we do in the body text above (i.e. with respect to [[***]]  
need to order the same number of Airbus and Boeing LCA). (European Union's resp onse to Arbitrator question 
No. 54, paras.  100-109) These assumptions appear not inconsistent with how the United States itself has 
advocated in other contexts as to how to determine the prices of the model(s) of additional Airbus LCA that 
would have been ordered in the counterfactual in this sales campaign. (See United States' response to 
Arbitrator question No. 58, para.  57) We accordingly use the same assumptions in our calculations referenced 
in the body text. The United States implies at one point that  the mix of additional Airbus models should be 
assumed to be different in this specific context, however, for reasons that are HSBI. (United States' comments 
on the European Union's response to Arbitrator question No. 54, para. 64, penultimate sentence) Bu t the 
reasons underlying the United States' suggestion appear to indicate that the additional Airbus LCA should have 
[[***]] seating capacity than what we assume in our seating -capacity calculations, a reasoning that would not 
thus alter our relevant concl usions regarding seating capacities. Thus, we consider the United States' 
suggestion in this context ultimately immaterial.  
410 United States' response to Arbitrator question No. 54, para.  45.  
411 United States' response to Arbitrator question No. 54, para.  45; and comments on the 
European  Union's response to Arbitrator question No. 54, para.  65. 
412 United States' response to Arbitrator question No. 50, paras.  37-39. 
413 Declaration by [[ ***]], 21  February  2020 ("Airbus production capacity") (Exhibit EU -66 (BCI) ). 
414 United States' response to Arbitrator question No. 54; and comments on the European Uni on's 
response to Arbitrator question No. 54.  WT/DS353/ARB  
 
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  Airbus and Boeing. Ultimately, therefore, and in the light of the sufficiently substitutable nature of 
the Airbus and Boeing LCA involved, we do not consider that the existence of such technical 
differences is a significant consideration in this context.   
6.199.   Finally, the United  States  argues that the situation whereby an airline, after having accepted 
a final offer from an LCA manufacturer, would negotiate for additional firm orders between the 
acceptance of that final offer and the conclusion of a purchase agreement "rarely, if ever occurs".415 
The United  States  suggests that this is so because, [[***]] . Further,  the negotiating parties are 
generally unwilling to re -open "key term s" of the deal at that stage.416 The United  States  asserts 
that the European  Union is in agreement as to this latter point.417 The European  Union  responds that 
it is "not uncommon" that negotiations occurring after the acceptance of a final offer can lead to the 
parties agreeing, in a subsequent purchase agreement, to a [[***]] .418 The E uropean  Union  also 
contests the United  States ' assertion that airlines should be expected to negotiate the number of 
orders down  after the acceptance of the final offer, arguing that LCA manufacture rs are unlikely to 
be misled by a customer in this manner and that such a negotiation strategy on the part of a 
customer may backfire and result in the entirety of the deal terms being revisited.419 
6.200.   We note that the parties agree that, as a general proposition, negotiations between an LCA 
customer and LCA manufacturer continue following the submission of a final offer. Neither party 
argues that an increase in firm orders as a result of such continuing negotiations is common. We 
observe, however, that such increases do occur at times. HSBI evidence submitted  by the 
European  Union  supports the European  Union 's assertion that, in multiple instances involving Airbus, 
such negotiations have led to an airline placing more firm orders for LCA than what was proposed in 
a preceding final offer . This has,  at times , involved  [[***]] .420 We therefore note that in [[***]] 
sales campaigns the Airbus final offers contain [[***]] .421 The United  States  does not contest that, 
in the three instances referenced by the European  Union  in its HSBI evidence , the airline a djusted 
the number of [[***]] after the receipt of a final offer, but argues that these instances occurred 
over a ten -year period, and thus  illustrates that [[***]] .422  
6.201.   In the light of the above discussions, we consider that, on balance, it is reasonable t o assume 
that, had Airbus completed its negotiations with [[***]] in the relevant sales campaigns in the 
counterfactual, the resulting purchase agreements would have contained a number of firm orders 
equal to that which appears in the corresponding Boeing purchase agreements. We recognize that 
such increases in firm orders (i.e. occurring after the receipt of a final offer) may be uncommon. We 
further note that Airbus' final offers in the [[***]] relevant sales campaigns were [[***]] based on 
Airbus' unders tanding of the airlines' needs based on, inter alia , input from the airlines, and 
competitive pressures from Boeing.423 However, we consider the demonstrated customer demand 
for a particular number of sufficiently substitutable Boeing single -aisle LCA compe lling, particularly 
when coupled with the fact that post -final-offer increases  in numbers of firm orders  can and do in 
fact occur, and in the absence of any specific evidence indicating why [[***]] would have desired 
different numbers of Airbus LCA and Boe ing LCA. Moreover, with respect to the [[***]] sales 
campaign, we find particularly significant evidence that [[***]] increased the number of firm orders 
with Boeing following Boeing's final offer.424 We discern nothing on the record indicating that that 
change was the product of factors specific to Boeing, and thus would not also have occurred in the 
counterfactual had Airbus won the campaign.  
 
415 Boeing E -mail regarding Question 10 (Exhibit USA -32 (BCI)).   
416 United States' response to Arbitrator question No. 56, para.  49 (citing Declaration of [[ ***]] (Feb. 
28, 2020)  (Exhibit USA -51 (BCI))). See also U nited States' comments on the European Union's response to 
Arbitrator question No. 53.  
417 United States' comments on the European Union's response to Arbitrator question No. 56, para.  66. 
The United States indicates that sometimes an airline may attempt to [[***]]. (Declaration of [[ ***]] (Feb. 
28, 2020)  (Exhibit  USA-51 (BCI)), para.  15) 
418 European Union's response to Arbitrator question No. 51, para.  84. See also European Union's 
response to Arbitrator question No. 56.  
419 European Union's response to Arbitra tor question No. 53.  
420 See IndiGo, [[HSBI]] (Exhibit EU -67 (HSBI)) and IndiGo, [[HSBI]] (Exhibit EU -68 (HSBI)); 
[[HSBI]] (Exhibit EU -69 (HSBI)) [[HSBI]] (Exhibit EU -70 (HSBI)), and [[HSBI]] (Exhibit EU -71 (HSBI)); and 
Avianca [[HSBI]] (Exhibit EU -72 (HSBI) ) and Avianca [[HSBI]] (Exhibit EU -73 (HSBI)).  
421 See [[***]] .  
422 United States' comments on the European Union's response to Arbitrator question No. 56, para.  69. 
423 European Union's response to Arbitrator question No. 51, para.  80. 
424 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article  21.5 – EU), table 12;  [[*** ]]. WT/DS353/ARB  
 
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  b. Counterfactual delivery schedules  
6.202.   With respect to Airbus' counterfactual delivery schedules, we have two basic choices: (a)  use 
Boeing's actual delivery schedules in connection with the five relevant sales campaigns 
(as advocated by the European  Union) ; or (b) us e the delivery schedules found in Airbus' final off ers 
in the five relevant sales campaigns (as advocated by the United  States ). We note at the outset that 
the European  Union  argues that the principle of "even -handedness" compels the Arbitrator to use 
the actual Boeing  delivery schedules because the DS316 arbitrator, in the context of valuing lost 
sales, used the actual Airbus delivery schedules  governing the relevant sales campaigns as the 
counterfactual Boeing delivery schedules had Boeing won the sales instead. This being the reverse 
situation, and as a matter of consistency as between the two arbitrations, the European  Union  
asserts that the Arbitrator should use Boeing's actual delivery schedules.  
6.203.   We consider that there are material differences between the records of this arbitration 
proceeding and the DS316 arbitration proceeding. The DS316 arbitrator, in this context, framed its 
choice as between using as Boeing's counterfactual delivery schedules either the delivery schedules 
in the Airbus purchase agreements in the lost sales campaigns, or the delive ry schedules from Boeing 
"comparator orders" (i.e. actual orders Boeing had secured from customers in sales campaigns 
deemed generally comparable to the sales campaigns at issue). The arbitrator considered that "in 
the absence of direct evidence of the cou nterfactual negotiating results {between Boeing and the 
customers in the relevant sales campaigns}, we consider it less problematic to use Airbus' 
contractual delivery schedules concluded in connection with the lost sales than using the delivery 
schedules of Boeing{} in comparator orders".425 This was so because the actual Airbus schedules 
could "be reasonably assumed to reflect the actual pressures from the demand side because they 
have been accepted by the customers involved in the lost sales at issue".426 Also, the arbitrator 
found it "unlikely that Boeing, which has limited production capacity in a given period of time, would 
conclude contracts containing identical delivery schedules with multiple customers, rather than 
trying to sequence overall deliverie s in a more even fashion over time".427 The arbitrator instructively 
noted, however, that the Airbus contractual delivery schedules had the drawback of only capturing 
important supply -side constraints with respect to Airbus, rather than with respect to Boei ng, but 
"they at least represent a compromise that was acceptable to the negotiating parties at the time of 
order"428 and the arbitrator could "discern no other option for constructing Boeing's relevant 
counterfactual delivery schedules that, in our minds, would yield a more reliable result than using 
Airbus' contractually agreed delivery schedules".429 
6.204.   In contrast to the situation as described by the arbitrator in the DS316 arbitration 
proceeding, in this proceeding the Arbitrator has "direct evidence of the  counterfactual negotiating 
results" between Airbus and the relevant customers in each of the specific sales campaigns at issue, 
i.e. the delivery schedules in the Airbus final offers. Although we recognize that these negotiating 
results were not final in the sense that they are contained in final offers rather than contractual 
purchase agreements, we note that they were the product of not only "Airbus' overall understanding 
of the airlines' needs" but also "feedback and active input from the airlines".430 In our minds, 
therefore, they represent a reasonably reliable indication of what the ultimate delivery schedules as 
between Airbus and the relevant customers would have been had Airbus completed the negotiations 
with the customers. We also note that the Boe ing delivery schedules capture Boeing's, but, 
importantly, not Airbus', supply -side constraints. Thus, we consider that the delivery schedules in 
the Airbus final offers most reasonably capture relevant demand - and supply -side pressures, which 
the DS316 ar bitrator indicated its desire, but inability, to do in the circumstances it faced.  
 
425 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.263.  
426 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.263.  
427 Decision by  the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.263.  
428 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.263.  
429 Decision by the Arbitrator, EC an d certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.263.  
430 European Union's response to Arbitrator question No. 51, para.  80. WT/DS353/ARB  
 
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  6.205.   In light of the foregoing, we consider that the delivery schedules in the Airbus final offers 
better reflect both the demand - and supply -side pressures431 in the relevant neg otiations had Airbus 
won the lost sales than do the Boeing delivery schedules, and therefore it is reasonable to select 
them as Airbus' counterfactual delivery schedules in the circumstances before us.  
6.206.   We recognize that, in the immediately preceding subse ction, we concluded that, in the 
counterfactual, Airbus would have received the same number of firm orders from each customer in 
all five relevant sales campaigns as Boeing did in its relevant purchase agreements, even though in 
the [[***]] sales campaigns  Airbus proposed fewer firm orders in its final offers than Boeing secured 
in the purchase agreements with these customers.432 Thus, with respect to these [[***]] sales 
campaigns, we must add an HSBI number of additional delivery slots onto the Air bus delivery 
schedules contained in the final offers that Airbus put forth to [[***]] . In order to do so, the 
United  States  proposes that "the Arbitrator … calculate an average time between deliveries based 
on the Airbus schedule, and then assume additiona l deliveries at that interval following the final 
delivery date in the Airbus final offer".433 The United  States  argues that this method has the 
advantage of "hewing more closely to the Airbus final offers".434 The European  Union  proposes that 
the Arbitrator  assume that Airbus would have delivered the additional aircraft "along the same 
delivery schedule as actual deliveries by Boeing".435 More specifically, for each sales campaign, the 
deliveries of the additional number of Airbus LCA would be assumed to be [[***]] .436 The 
European  Union  argues that this method is preferable to the United  States ' approach because the 
European  Union 's method captures demand -side pressures, i.e. reflecting delivery positions that 
were acceptable to the relevant airlines with resp ect to these additional  LCA.437  
6.207.   We consider the European  Union 's proposal reasonable and accordingly adopt it. Airbus 
[[***]] for the relevant additional firm orders in its relevant final offers.  We observe, however, that 
the timing of such Boeing deliveries  represented an acceptable arrangement between the negotiating 
parties .438 We further discern nothing on the record indicating to us that using the United  States ' 
approach would lead to a more r eliable result.  
6.4.6.4   Adjustments for actual cancellations and potential future cancellations  
6.208.   The European  Union  asserts that it is reasonable to adjust the value of orders that Airbus 
would have won in the counterfactual as a result of the five relevant lost sa les for the risk that such 
orders would have been cancelled in the counterfactual, consistent with the approach used in the 
DS316  arbitration. The European  Union  addresses the risk of cancellation differently with respect to 
three groups of counterfactual deliveries: (a) those that would have definitely been cancelled in the 
counterfactual; (b) those that would have been scheduled to occur before the present day ( i.e. 
before January 2020); and (c) those that would have been scheduled to occur after the present day 
(i.e. after December 2019).  
6.209.   With respect to the counterfactual deliveries in group (a), the European  Union  argues that 
only one counterfactual delivery associated with the 2014 Fly Dubai sales campaign would have been 
cancelled in the counterfactual. It acknowledges that this delivery should thus be valued at zero.439 
With respect to remaining counterfactual deliveries falling into group (b), the European  Union  
 
431 The supply -side pressures in this context refer to the fact that Boeing and Airbus have limited 
product ion capacity at any given point in time and thus the two LCA manufacturers may not always be able to 
satisfy their customers' specific demands for particular delivery schedules.  
432 See para.  6.201  above.  
433 United States' response to Arbitrator question No. 58. See also United States' comments on the 
European Union's response to Arbitrator question No. 58, paras.  75-76. 
434 United States' comments on the European Union's  response to Arbitrator question No. 58, para.  76. 
435 European Union's comments on the United States' response to Arbitrator question No. 58, para.  148. 
See also European Union's response to Arbitrator question No. 58.  
436 European Union's response to Arbitra tor question No. 58, tables 13 and 14.  
437 European Union's comments on the United States' response to Arbitrator question No. 58, 
paras.  148-149. 
438 See D ecision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – 
EU), para . 6.263.  
439 The European Union claims that Fly Dubai cancelled one delivery of a Boeing LCA in connection with 
this sales campaign "due to exogenous events in the form of airline -specific post -order decisions and actions 
(and not due to issues experienced by {Boeing} )". (European Union's response to Arbitrator question No. 61, 
para. 157 (citing Decision by the Arbitrator,  EC and certain member States – Large Civil Aircraft 
(Article  22.6 – EU), para. 6.225) (internal quotation marks omitted) ) WT/DS353/ARB  
 
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  proposes that the Arbitrator assume that any order scheduled to be delivered under the Arbitrator's 
chosen delivery schedule up through to the present day should be assumed to already have been 
delivered in the counterfactual, and thus assigned a 0% risk of cancellation.  With respect to 
remaining counterfactual deliveries falling into group (c), the European  Union  argues that the 
Arbitrator should adjust their value by multiplying the delivery price of each by a "survival rate", i.e. 
the chance that s uch deliveries would not be cancelled (the European  Union  assigns a 0% chance of 
cancellation to all such deliveries up through 2019). The European  Union  asserts that the Arbitrator 
should calculate that survival rate by using an average cancellation rate of Airbus single -aisle LCA 
models from the years 2009 -2012. This method of construction is appropriate in the 
European  Union 's view because first, single -aisle cancellation rates most accurately reflect the 
chance that Airbus single -aisle LCA at issue woul d have been cancelled because historic cancellation 
rates for single -aisle and other types of LCA differ, reflecting different reasons as to why airlines 
may cancel orders of certain types of LCA. Second, the DS316  arbitrator used historic cancellation 
data from a period unaffected by the additional counterfactual orders placed and thus "only data 
from before  the 2013 to 2015 reference period should be used for purposes of quantifying 
cancellation rates, actual survival rates, and estimated survival rates".  This is because cancellation 
data taken from years in which the relevant lost sales occurred (i.e. 2013 -2017) "would likely have 
changed in the counterfactual world, in which Airbus would have made additional sales".440 The 
European  Union  also argues, howe ver, that "the most granular, most specific, and, indeed, most 
relevant historical cancellation information can be found in the actual cancellations  that Boeing 
experienced in the five price -sensitive single -aisle transactions at issue ".441 
6.210.   The United  State s also argues that the risk of cancellations should be taken into account via 
the application of a survival rate applied to the delivery prices of Airbus' relevant counterfactual 
deliveries.442 In contrast to the European  Union 's approach, the United  States  applies its most recent 
methodology in this context with reference to two, rather than three, groups of counterfactual LCA 
deliveries, i.e. (a) counterfactual deliveries scheduled to occur before present day (i.e. before, but 
not during, 2020); and (b) th ose that would have been scheduled to occur in and after 2020. Under 
the United  States ' most recently proposed methodology, regarding counterfactual deliveries 
scheduled to occur before present day (i.e. before, but not during, 2020), the United  States  asserts 
that the Arbitrator should calculate a survival rate "based on Boeing's  actual experience on a 
per-delivery stream basis { i.e. per sales transaction at issue,} and apply this ratio to the applicable 
deliveries for the Airbus lost sale in the counterfa ctual".443 We note, however, that in a methodology 
previously proposed by the United  States  with respect to pre -2020 counterfactual deliveries, the 
United  States  does not contest the European  Union 's positions that the number of Airbus 
counterfactual delive ries that should be valued at zero because they would have been cancelled in 
the counterfactual before present day is one, and that the risk of cancellation that should be assigned 
to all other Airbus counterfactual deliveries that were scheduled to occur up until present day 
(i.e. before, but not including, 2020) under the delivery schedules in the Airbus final offers is zero.444 
6.211.   In its most recent methodology, regarding other Airbus counterfactual deliveries (i.e. those 
that would have been scheduled to occur after 2019), the United  States  agrees with the 
European  Union  that the Arbitrator should adjust their value by multiplying the delivery price of each 
by a survival rate. In this respect, the United  States  proposes "apply{ing} a generic Airbus survival 
rate"445 based on Airbus' historic cancellation rates (assigning a 0% chance of cancellation to all 
such deliveries up through 2019, consistent with the European  Union 's approach). The United  States  
argues that the Arbitrator should construct  that survival rate using an average cancellation rate of 
all Airbus LCA models from the years 2003 -2007, i.e. "the period directly preceding the period in 
 
440 European Union's written submission, paras.  204-205. (emphasis original)  
441 European Union's response to Arbitrator question No. 61, para.  177 (emphas is original). See also 
European Union's written submission, section II.C.2 and paras.  390, 396, 399, and 400; responses to 
Arbitrator question Nos. 60 and 61; and comments on United States' responses to Arbitrator question 
Nos. 60-65.  
442 United States' written submission, section VII.  
443 United States' response to Arbitrator question No. 63, para.  79.  
444 See a lso United States' response to Arbitrator question No. 20 and No. 60, paras.  65-69. 
445 United States' response to Arbitrator question No. 63, para.  79. See also  United States' response to 
Arbitrator question No. 60, paras.  64 (explaining that "the Arbitrato r could reasonably rely on Airbus's 
experience more generally, which reflects supply -side factors influencing cancellations, or Boeing's experience 
for these specific sales, which in part reflects demand -side factors, to develop a theoretical cancellation rate") 
and 70.  WT/DS353/ARB  
 
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  which the counterfactual sales and deliveries might have been made".446 This method of construction 
is appropriate in the United  States ' view because: (a) using historic cancellation data from all Airbus 
LCA models is consistent with the approach used in the DS316 arbitration in which the arbitrator 
used historic cancellation rates for all Boeing LCA mode ls to construct a survival rate; (b) the DS316 
arbitrator used historic cancellation data from a period unaffected by the additional counterfactual 
orders placed and the first relevant lost sale in this proceeding was the 2008 Fly Dubai campaign; 
and (c) c ancellation situations may occur vis-à-vis certain types of LCA (e.g. twin -aisle or VLA) more 
than single -aisle over a certain period of time but this does not mean that such LCA are necessarily 
prone to cancellations more than single -aisle LCA; thus, usin g cancellation data regarding twin -aisle 
LCA and VLA should not be expected to lead to an inaccurate estimated survival rate.447 
6.212.   The Arbitrator notes that the parties agree in principle that we should account for the risk 
that the relevant counterfactual Ai rbus deliveries (i.e. deliveries arising from the counterfactual 
orders that Airbus would have secured as a result of the five relevant sales campaigns) would have 
been cancelled. The parties differ on how to calculate and apply that risk for any given LCA  delivery. 
In resolving these disagreements between the parties, we find it most useful to examine certain 
aspects of the European  Union 's methodology and determine whether such aspects are reasonable 
in the light of the record before us.  
6.213.   The first aspect of the European  Union 's methodology that we address is the assignment of 
a 100% cancellation risk to one counterfactual delivery in connection with the 2014 Fly Dubai sales 
campaign, i.e. to value one delivery at zero. The European  Union  asserts that we sh ould do so 
because one Boeing delivery associated with that sales campaign has, in fact, been cancelled, and, 
further, the cancellation was due to reasons specific to the airline and unrelated to Boeing. In 
response, the United  States  asserts that whether Airbus would have made any particular delivery in 
the counterfactual is subject to uncertainty, and thus advocates assigning a general risk of 
cancellation (that takes into account the 2014 Fly Dubai cancellation) over all Airbus counterfactual 
deliveries instead of assigning a zero value to one specific delivery slot.448 We note that the parties 
agree that Fly Dubai in fact cancelled one delivery associated with the 2014 Fly Dubai lost sale. 
Further, the European  Union  has asserted that this cancellation wa s for reasons unrelated to Boeing, 
an assertion that the United  States  has not contested. Moreover, the Boeing and Airbus LCA at stake 
in this sales campaign compete in the same product market (i.e. the single -aisle LCA product 
market)449 and are "sufficien tly substitutable".450 [[***]] We therefore consider that the 
European  Union 's assumption in this context is reasonable, i.e. Fly Dubai would have cancelled one 
Airbus single -aisle LCA order just as it cancelled one Boeing single -aisle LCA order.  
6.214.   The questi on thus becomes to which delivery slot in the counterfactual Airbus 2014 Fly Dubai 
delivery schedule to assign a zero value. The European  Union  has proposed assigning a zero value 
to the last delivery in the counterfactual 2014 Fly Dubai delivery schedule.451 This is so because 
although "there is no overarching principle as to which delivery positions are cancelled in a sales 
campaign"452, "it is often in both the airline's and Airbus' interests if the airline cancels delivery 
positions [[***]] " in order to g ive [[***]] .453 The European  Union  also notes that the cancelled 737 -
800 was assigned to the [[***]] that Fly Dubai had ordered from Boeing in the relevant sales 
campaign, indicating Fly Dubai's desire to cancel later -in-time delivery positions vis-à-vis that LCA 
model.454 The United  States  offers no alternative delivery position for the counterfactual cancellation. 
To the contrary, to the extent that the United  States  has proposed a methodology for assigning a 
 
446 United States' response to Arbitrator question No. 19, para.  79. 
447 United States' response to Arbitrator question No. 18 ; No. 19 ; No. 33, para.  101; No. 61 ; and 
No. 62; and comments on the European Union's response s to Arbitrator question Nos. 60, 61, and 64.  
448 United States' response to Arbitrator question No. 65.  
449 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.47(b).  
450 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.33. (internal 
quotation marks omitted)  
451 We note that in footnote  458 below we determine that Airbus would have delivered [[ ***]] in the 
counterfactual in connection with the 2014 Fly Dubai sales campaign.  
452 European Union's response to Arbitrator question No. 64, para.  181.  
453 European Union's response to Arbitrator question No. 64, para.  182.  
454 European Union's comments on the United State s' response to Arbitrator question No. 64, 
paras.  210-211 (citing, inter alia , Ascend Database (Exhibit EU -1)).  WT/DS353/ARB  
 
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  zero value to specific deliveries due to cancellations, the United  States  has als o chosen to value at 
zero delivery slots "'closest to the end of {the} model's delivery schedule'".455 
6.215.   We note that the delivery cancelled by Fly Dubai was [[***]] .456 The reason for Fly Dubai's 
decision to cancel the specific delivery slot that it did is not on the record. We further note that Fly 
Dubai in fact cancelled the [[***]] that Fly Dubai ordered.457 We further consider as logical and 
reasonable that, as a gene ral matter, there may be [[***]] , as elucidated by the European  Union . 
Under such circumstances, we consider the European  Union 's assumption that Fly Dubai would have 
cancelled the latest -in-time delivery of the Airbus LCA [[***]] that would have been sold  in 
connection with the 2014 Fly Dubai sales campaign reasonable.458 
6.216.   In this context we also note that the United  States , in its comments on the European  Union 's 
responses to the second set of Arbitrator questions, stated that "on [[***]] ".459 With that 
subm ission, the United  States  further provided an updated proposed valuation of this [[***]] 
excluding the value of [[***]] deliveries to account for these [[***]] .460 The United  States , however, 
provides no evidence – and indeed, never specifically states – that these [[***]] would also have 
occurred in the counterfactual, i.e. that the airline [[***]] for reasons unrelated to Boeing. We thus 
consider that, in the light of the record before us, an assumption that such [[***]] would have 
occurred in the counterf actual (i.e. that the airline would have similarly [[***]] orders for Airbus 
LCA) is overly speculative. We accordingly decline to adopt that assumption.461 We will therefore not 
exclude the value of those [[***]] deliveries as proposed by the United  States .  
6.217.   The second aspect of the European  Union 's methodology that we address is the assignment 
of a 0% chance of cancellation to deliveries that would have been scheduled to occur before present 
day (i.e. before January 2020) in the counterfactual. The Europea n Union  argues that such deliveries 
should be all those that were scheduled to occur in the counterfactual before present day under the 
Arbitrator's chosen counterfactual delivery schedules. "This is because … the timing of the 
counterfactual deliveries … is determined by the delivery schedules , as contained in the final offers 
submitted by Airbus to the airlines at issue".462 The United  States  asserts that whether Airbus would 
have made any particular delivery scheduled before present day in the counterfactual is subject to 
uncertainty, and thus advocates assigning a general risk of cancellation over all relevant Airbus 
counterfactual deliverie s.463 The European  Union  responds that the United  States ' methodology is 
contrary to the methodology used in the DS316  arbitration, and there is no evidence that any such 
counterfactual delivery would have been cancelled thus warranting the application of a  survival rate 
reflecting such a risk.464  
6.218.   We recall that, thus far in our analysis, we assume that Airbus would only have had one 
specific LCA order cancelled in connection with the five relevant lost sales (i.e. the one order in 
connection with the 2014 F ly Dubai sales campaign discussed above) and that we assume that this 
would correspond to the last delivery slot in the 2014 Fly Dubai counterfactual delivery schedule 
(i.e. corresponding to a delivery slot in a [[***]] ). Thus, the relevant airline custome rs have 
demonstrated [[***]] a willingness to take delivery of the rest of the LCA ordered in these sales 
 
455 United States' comments on the European Union's response to Arbitrator question No. 85 , para. 214 
(quoting European Union's response to Arbit rator question No. 64, para.  183) (alteration original); and 
Expected Value of the [[ ***]] Lost Sale in Order Year Dollars (Revised) (Exhibit USA 104 (HSBI)).  
456 United States' response to Arbitrator question No. 65, fn  82; 2014 Fly Dubai Purchase Agreemen t 
(Exhibit USA -85 (HSBI)); Ascend Database (Exhibit EU -1); and Boeing [[ ***]] for 2008 Fly Dubai and 2011 
Delta Sales Campaigns (Exhibit USA -87 (HSBI)).  
457 Ascend Database (Exhibit EU -1).  
458 The European Union assumes that [[ ***]] of Airbus LCA would have been ordered in the 
counterfactual 2014 Fly Dubai sales campaign. The United States has not argued that any other [[ ***]] would 
have been sold in this counterfactual sales campaign. We further note that certain HSBI evidence supports the 
assumption that [[ ***]] would have been ordered in this sales campaign. (See Fly Dubai 2014 final offer, 
[[HSBI]] (Exhibit EU -6 (HSBI)))  
459 United States' comments on the European Union's response to Arbitrator question No. 85, para.  214. 
460 Expected Value of the [[ ***]] Lost Sale in Order Year Dollars (Revised) (Exhibit  USA-104 (HSBI)).  
461 We note that our approach regarding whether to assume that certain [[***]]  would have occurred in 
the counterfactual is consistent with the arbitrator's approach to cancellations in the  DS316 arbitration. 
(Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. [[*** )]] 
462 European Union's response to Arbitrator question No. 60, para.  155. (emphasis original)  
463 See e.g. United States' res ponse to Arbitrator question No. 65.  
464 See e.g. European Union's comments on the United States' response to Arbitrator question No. 60.  WT/DS353/ARB  
 
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  campaigns.465 Moreover, we again recall that the Boeing and Airbus LCA at stake in these sales 
campaigns compete in the same product market (i.e. the s ingle-aisle LCA product market)466 and 
are "sufficiently substitutable"467, and that in section 6.4.6.3  above, we conclude that all five 
customers would  have ordered the same number of single -aisle LCA from Airbus in the counterfactual 
as they actually ordered from Boeing. In the light of such considerations, we agree with the 
European  Union  that it is reasonable to assume that the relevant airlines would  have taken delivery 
of the number of Airbus LCA that would have been scheduled for delivery before present day (i.e. 
before 2020).  
6.219.   The third aspect of the European  Union 's methodology that we address is the construction 
and application of a "survival rate " to the remainder of the counterfactual Airbus orders associated 
with the five lost sales in question. These remaining deliveries consist of the deliveries that would 
have been scheduled to occur after present day (i.e. after December 2019) in the counter factual, 
[[***]] . The European  Union  and the United  States  agree that the Arbitrator should adjust the value 
of these deliveries by multiplying their delivery prices by a survival rate, i.e. the chance that such 
deliveries would not be cancelled. The parti es differ, however, on how to construct that survival rate.  
6.220.   The survival rate's purpose is to reflect the risk of future cancellations. The question thus 
arises as to how best to estimate that risk. We note that the parties agree that historic cancellatio n 
data should be used to calculate that risk, but disagree regarding which historic data should be used 
to do so. The European  Union  advocates using a survival rate based on cancellations from the five 
sales campaigns at issue as actually experienced by Bo eing or, less preferably, on the universe of 
single -aisle Airbus LCA cancellations in the period 2009 -2012. The European  Union  states that the 
more "specific" the historical data used is to the sales campaigns at issue (with respect to, e.g.  the 
relevant L CA models and the airlines), the more relevant and therefore accurate the estimated 
survival rate will be.468 The United  States  argues that we should base the survival rate on the 
universe of Airbus LCA cancellations in the time -period 2003 -2007 following the methodology of the 
DS316 arbitrator in light of the factual similarities across the two disputes.469 
6.221.   We agree with the Europ ean Union  that the specificity of the historic data used to construct 
a survival rate vis-à-vis the five relevant sales campaigns (in particular, and as discussed more 
below, with respect to the kinds of LCA at issue) is a valid consideration in meaningful ly predicting 
additional cancellations that may occur in connection with those campaigns.470 We consider, 
however, that such data should also be derived from a sufficiently large sample so as to limit the 
influence of potential outlier data points. In our v iew, therefore, to best predict future cancellations 
we should rely on data comprising as many observations as possible and as specific to the campaigns 
at issue as possible. This may present a trade -off between data specificity and sample size to some 
degree.  
6.222.   We consider that a reasonable way to resolve this trade -off is by using a survival rate based 
on the universe of Airbus single -aisle LCA cancellations in the period 2003 -2007 for three reasons. 
First, the universe of Airbus single -aisle LCA cancellat ions over a five -year time -period provides a 
sample size that is larger and, hence, sta tistically preferable to a sample size based solely on the 
campaigns at issue. The single -aisle Airbus LCA market provides for [[***]] cancellable deliveries 
from 2003 -2007.471 In contrast, cancellations based on Boeing's actual experience would base the 
survival rate on only 313 cancellable deliveries. In terms of sample size, the gains from using Airbus 
single -aisle cancellations in 2003 -2007 are therefore very large, i. e. increasing the data set from 
313 to [[***]] cancellable deliveries. The European  Union  further presents no specific arguments as 
to why the single -aisle delivery data from 2003 -2007 would produce materially inaccurate results in 
this context.  
 
465 We recall that we find no basis upon which to conclude that, in the counterfactual, [[ ***]]. (See 
para. 6.216  above)  
466 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.47(b).  
467 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para.  9.33. (internal 
quotation marks omitted)  
468 European Union's response to Arbitrator question No. 61, para.  175. 
469 United States' response to Arbitrator question No. 19, para.  78. 
470 The parties have provided no historic  cancellation data organized by customer.  
471 Updated Historic order cancellations in the single -aisle and twin -aisle LCA markets (Exhibit EU -74 
(BCI)).  WT/DS353/ARB  
 
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  6.223.   Second, in  terms of specificity, we consider that using historic single -aisle cancellation rates 
is preferable to using cancellation rates from not only single -aisle LCA but also LCA that were not 
found to compete in the single -aisle LCA product market (i.e. twin -aisle and VLA) in the compliance 
proceeding. The European  Union  has provided reasons why single -aisle LCA cancellation rates may 
differ from, for example, twin -aisle LCA cancellation rates, including the lower cost savings of single -
aisle LCA cancellations f or airlines relative to cancellations of larger LCA, "delivery slot pressure" due 
to longer production backlogs for single -aisle LCA, a larger resale market for single -aisle LCA, and 
greater versatility of single -aisle LCA.472 The United  States  counters tha t cancellations occur for 
various reasons that do "not necessarily indicate that the relevant type of LCA is particularly prone 
to cancellation".473 We recall that single -aisle LCA comprise their own product market, i.e. twin -aisle 
LCA and VLA differ materi ally from single -aisle LCA. We therefore consider it a reasonable proposition 
that single -aisle LCA orders and orders for other types of LCA may be cancelled for different reasons. 
The available evidence suggests that this may in fact be the case; over the  last 20 years Airbus 
single -aisle cancellation rates were (often significantly) lower in almost all years.474 We further 
observe that using the universe of all Airbus LCA cancellations, as suggested by the United  States , 
would increase the sample size from  [[***]] to [[***]] possible deliveries, which represents in our 
view a not insignificant, but not decisive, increase in sample size. We therefore see significant 
potential risks and little gain from using cancellation rates involving LCA not inhabiting th e single -
aisle LCA product market.  
6.224.   Third, and finally, we consider that the time -period 2003 -2007 is preferable to the time -
period 2009 -2012 as it provides for more data, and avoids years that might be not representative 
due to the impact of the financial crisis during the late 2000s and early 2010s.475 
6.4.6.5   Exclusion of [[***]] from counterfactual delivery prices  
6.225.   As explained in section 6.1 above,  the European  Union  proposes to value the significant lost 
sales and threatened impeded deliveries by basing the counterfactual prices of the relevant aircraft 
on the "Net Fly -Away Price" in the Airbus final offers. The Net Fly -Away Price includes the basic 
airframe price pl us charges for changes to standard specifications and other cost elements, including 
[[***]] , plus the engine price, less concessions, credits and purchase incentives for each of those 
cost elements.476 The Net Fly -Away Price is also the price that is negot iated with and presented to 
airline customers as part of Airbus' final offers and purchase contracts at the outset of an LCA sale, 
and that is subsequently escalated to the time of delivery.477 The European  Union  considers that the 
Net Fly -Away Price best m easures the total value of an Airbus LCA because it is the price that an 
LCA customer would have paid for each aircraft in the counterfactual.478  
6.226.   The United  States  argues that the value of [[***]] should be excluded from the calculation 
of the counterfactu al prices of the Airbus LCA. [[***]] .479 Accordingly, [[***]] is not charged to 
customers by the aircraft manufacturer and is not recorded in the aircraft manufacturer's books as 
 
472 European Union's response to Arbitrator question No. 61, paras. 165 -168. 
473 United States' response to A rbitrator question No. 61, para. 71 (citing Declaration of [[ ***]] (Feb. 
28, 2020)  (Exhibit USA -51(BCI), para. 10)).  
474 Updated Historic order cancellations in the single -aisle and twin -aisle LCA markets (Exhibit EU -74 
(BCI)) . 
475 Our methodology in this context closely follows that applied by the DS316 arbitrator in its valuation 
of lost sales, although the United States ha s noted that the DS316 arbitrator used historical cancellation rates 
from all LCA product markets (rather than just the single -aisle product market) to construct a survival rate. We 
note, however, that there are material differences between this arbitratio n and the DS316 arbitration in this 
context. For instance, the DS316 arbitrator valued LCA inhabiting more than one LCA product market, whereas 
we value LCA inhabiting just one (i.e. the single -aisle product market). Moreover, we note that, unlike here, in  
the DS316 arbitration the parties engaged in no substantive debate regarding whether to use product -market -
specific historic cancellation rates to construct the survival rate, and thus the arbitrator was not called on 
specifically to engage with that issu e. (Decision by the Arbitrator, EC and certain member States – Large Civil 
Aircraft (Article 22.6 – EU), section 6.3.4.3.4.2)  
476 See Panel  Reports, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.49-9.50; 
and US – Large Civil Aircraf t (2nd complaint) , para.  7.1693.  
477 European Union's response to Arbitrator question No. 23, para.  92. 
478 European Union's comments on the United States' response to Arbitrator question No. 78, para.  422. 
479 The United States has submitted evidence describing  [[***]]. (Shannon Ackert, Commercial Aspects 
of Aircraft Customization , Aircraft Monitor (2013), p.  [[***]] (Exhibit USA -15)) The European Union advises 
that, for Airbus, [[ ***]] covers all types of costs in connection with airline -specific choices [[ ***]]. (European 
Union's response to Arbitrator question No. 23, para.  90) WT/DS353/ARB  
 
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  revenue. The United  States  considers that, because the value of [[***]] is not  revenue that Airbus 
would potentially have received if it had won the relevant sales campaigns in the counterfactual, it 
should be excluded from the counterfactual prices of the Airbus aircraft.480 The United  States ' 
argument is based on the proposition th at the value of a lost sale or threatened delivery of an LCA 
is determined from the perspective of the aircraft manufacturer, and, importantly, that this 
perspective is captured by measuring the aircraft manufacturer's expected revenues in the 
counterfactu al.481 The United  States  also argues that, in the DS316 arbitration, [[ ***]] was excluded 
from the value of the counterfactual aircraft prices because [[ ***]] was not part of the revenue 
recognized from the sale of LCA from Boeing's perspective.482 
6.227.   In respon se, the European  Union  submits that the focus of the valuation of the product that 
would have been sold in the counterfactual must be on the product at issue, namely, Airbus LCA, 
and that this is confirmed by both the findings of the DS316 arbitrator and t he "logic" of the LCA 
market.483 More specifically, the European  Union  argues that the relevant portions of the DS316 
arbitrator's decision make clear that the adverse effects determined to exist in that dispute related 
to a specific product (Boeing LCA) an d not particular components thereof.484 Additionally, the 
European  Union  notes that a fundamental aspect of the LCA business model is revenue -sharing, 
according to which an LCA manufacturer assembles and delivers an LCA, collects the sales price, 
and passes  a portion of the proceeds back to certain suppliers. Whether revenue is directly passed 
to the supplier without going through the LCA manufacturer's accounts, or is first recorded as 
revenue in Airbus' financial accounts before being passed through to sup pliers is, according to the 
European  Union , irrelevant to the valuation of the adverse effects to the European  Union 's interests 
resulting from the WTO -inconsistent subsidies at issue.485 
6.228.   The issue before the Arbitrator is whether we should exclude the valu e of [[ ***]] from the 
"Net Fly -Away Price" in the Airbus final offers that will be used to calculate the counterfactual prices 
of the relevant Airbus LCA when valuing the lost sales and threatened impeded deliveries.  
6.229.   We begin by observing that the United  States  in this dispute caused adverse effects to the 
interests of the European  Union  through the economic impact of the Washington State B&O tax rate 
reduction on Airbus' orders and deliveries of LCA, the product at issue in this proceeding. We value 
the a dverse effects determined to exist from Airbus' perspective as a reliable assessment of the 
adverse effects sustained by the European  Union  in the same way, and for the same reasons, that 
the DS316 arbitrator assessed the adverse effects sustained by the United  States  in the DS316 
arbitration proceeding by valuing the adverse effects determined to exist from Boeing's 
perspective.486 
6.230.   The advers e effects in this dispute concern LCA sales campaigns that Airbus lost, which 
resulted in orders that Airbus did not secure and in deliveries that Airbus would not make in the 
 
480 United States' written submission, para.  143; and response to Arbitrator question No. 78, para.  133. 
481 The United States argues that "the revenue that Boeing or Airbus, as the LCA man ufacturer and 
seller, realizes from the sale of an LCA is the proper measure of the delivery value of an LCA for purposes of 
this arbitration ." (United States' response to Arbitrator question No. 78, para.  131) 
482 The United States argues that the inclusion  of [[***]] in the valuation of the counterfactual sales 
would instead reflect the total value of the sales from the perspective of (multiple) customers. (United States' 
response to Arbitrator question No. 78, para.  132) 
483 European Union's comments on the United States' response to Arbitrator question No. 78, para.  416. 
484 European Union's written submission, paras.  238-240; and comments on the United States' response 
to Arbitrator question No. 78, paras.  417-418. The European Union argues that the DS316 arb itrator did not 
make any decision to include or exclude [[ ***]] from the counterfactual prices of Boeing LCA in that 
proceeding because the Boeing comparator prices presented by the United States in that proceeding did not 
include [[ ***]] and the European Union did not object to the United States' decision not to include [[ ***]] in 
those prices. (European Union's response to Arbitrator question No. 26, paras.  108-109) The European Union 
contends that in any case, multiple customer cost items that A irbus typically considers part of [[ ***]] appear 
to be excluded from the [[ ***]] category by Boeing. (European Union's response to Arbitrator question No. 23 , 
paras.  94, 97, and 99; and No. 26, para.  111) 
485 European Union's comments on the United States' r esponse to Arbitrator question No. 78, para.  421. 
486 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.220. We note that Article  5(c) of the SCM  Agreement provides that "{n}o Member should cause, 
through the use of any subsidy … adverse effects to the interests of other Members", including "serious 
prejudice to the interests of another Member". The adopted findings in this dispute indicate that the 
Washington  State B&O subsidy "cause{d} serious preju dice to the interests of the European Union". Those 
findings do not mention Airbus' commercial interests. (Panel  Report, US – Large Civil Aircraft (2nd complaint) 
(Article 21.5 – EU), paras.  9.486(b) and 9.487(b))  WT/DS353/ARB  
 
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  future. It is logical that a valuation of those lost sales and threatened impede d deliveries should be 
based on the counterfactual "prices" of the relevant Airbus LCA. The compliance panel discussed 
various aspects of LCA prices, noting that they comprise numerous elements, including airframes, 
changes to standard specifications, buye r furnished equipment, and engines, and that some of those 
elements are negotiated with the airframe manufacturers, while others are negotiated directly with 
the relevant suppliers.487 
6.231.   As previously noted, the European  Union  proposes that we use the Net Fly -Away Price that 
appears in the Airbus final offers for the relevant sales campaigns to calculate the counterfactual 
price of the relevant Airbus LCA. The Net Fly -Away Price is the price negotiated with, and ultimately 
presented to, Airbus customers as par t of Airbus' final offers. It is also the price on which the 
customer bases its economic evaluations of Airbus' proposal to arrive at an assessment of the NPV 
of that proposal.488 
6.232.   The United  States  does not dispute that the Net Fly -Away Price is the appropr iate price on 
which to base the value of the lost sales and threatened impeded deliveries, other than the fact that 
this price [[ ***]], which the United  States  argues should be subtracted from the Net Fly -Away Price. 
The United  States ' argument that [[ ***]] should not be part of the counterfactual delivery prices 
appears to rest on the proposition that only the price elements that are directly recorded as revenue 
by Airbus should be included in the valuation of the adverse effects in this proceeding. The 
United States  considers that this proposition was accepted by the DS316 arbitrator when it used the 
"Boeing Net Price" to calculate the value of the counterfactual Boeing lost sales and impeded 
deliveries in that dispute, given that the Boeing Net Price does  not include [[***]].489 
6.233.   In the DS316 arbitration, the United  States  proposed to value the lost sales and impeded 
deliveries by basing the counterfactual delivery prices of the relevant aircraft on the "Boeing Net 
Prices". When discussing the United  States ' response to the European  Union 's arguments regarding 
the appropriate Boeing comparator orders in th at proceeding, the DS316 arbitrator observed (but 
not as part of any reasoning resolving any disagreement between the parties) that the United  States  
had as serted that [[ ***]].490 It is true that the DS316 arbitrator accepted the United  States ' proposal 
to base the counterfactual delivery prices in that proceeding on the Boeing Net Price, but there is no 
indication in the decision that this was because the Boe ing Net Price excluded [[ ***]], or because 
the DS316 arbitrator considered that the counterfactual delivery prices should include only price 
elements that are directly recorded as revenue by the aircraft manufacturer.  
6.234.   On the contrary, the Boeing Net Price , like the Airbus Net Fly -Away Price, included  the price 
of engines.491 Engines are generally contracted for separately between the airline customer and 
engine supplier.492 The European  Union  in the DS316 arbitration proceeding did not argue that the 
counterfactual delivery prices of the Boeing comparator aircraft should exclu de the cost of engines. 
However, if the DS316 arbitrator had sought to value the relevant Boeing LCA on the basis of the 
 
487 Panel  Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.49-9.51. 
488 See Panel  Reports, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras.  9.20-9.21; 
and US – Large Civil Aircraft (2nd complaint) , para.  7.1694. This is also evident from the compliance panel's 
evaluations of the effects of the Washington State B&O tax rate reduction on the outcomes of the sales 
campaigns in the HSBI Appendix to the compliance panel report. (See e.g. Panel  Report, US – Large Civil 
Aircraft (2nd complaint) (Article 21.5 – EU), Appendix 2, fns  570-571) 
489 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
paras.  6.274 and 6.466.  
490 European Union's written submission, fn 324; and response to Arbitrator question No. 26, para. 108 
(citing Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.282 ). (emphasis omitted)  
491 The Boeing Net Price is the "Boeing Gross Price" minu s any price concessions (i.e. discounts to the 
gross price offered by Boeing which are expressed in purchase agreements with the customer as a discount 
from the base -year gross price). The Boeing Gross price, in turn, includes the airframe price and the en gine 
price. (United States' response to Arbitrator question No. 79, paras.  135-136) 
492 The United States notes that there may not always be separate contracting for engines, particularly 
where there is no choice of engine for a particular model. (United Sta tes' response to Arbitrator question 
No. 21, para.  83) Engines are manufactured by engine manufacturers, are not part of the airframes 
manufactured by Airbus and Boeing, and generally (but not always) are not part of the airframe price. The 
original panel noted that, in many cases, neither the airline customer nor the engine manufacturer discloses 
the engine price to the airframe manufacturers. Additionally, the original panel noted that engines are the 
single most expensive component of an LCA, representin g between 20% and 30% of its total cost. 
(Panel  Report, US – Large Civil Aircraft (2nd complaint) , para.  7.1690)  WT/DS353/ARB  
 
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  revenues recognized by Boeing when it sold such LCA, it stands to reason that it would have 
determined whether Boeing recognized revenu es from engine sales and would have expressly 
included the value of engines in the counterfactual delivery prices , or excluded the value of engines 
from those prices,  on the basis of that determination. The United  States  in this proceeding has also 
not spe cifically argued that we should subtract the cost of engines from the Net Fly -Away Price.493 
6.235.   Even leaving aside whether Airbus' revenue recognition practices differ as between engine 
sales and [[ ***]], we remain unconvinced, more generally, by the United  States ' argument that 
"what should be understood as part of {an} LCA product is evidenced by what is included in the 
revenue recognized by the LCA manufacturer in the sale of the LCA".494 The manufacture of an LCA 
is an immensely complex process from engin eering, supply -chain, and financial perspectives, 
involving not just the LCA manufacturer but also manufacturers of engines, of sub -assemblies, and 
of all other parts and components incorporated into the aircraft.495 Based on the evidence before us, 
and on our understanding of the LCA industry as reflected in the reports of the original and 
compliance panels, we are not persuaded by the United  States ' proposition that the revenue 
recognized by the LCA manufacturer (in this case Airbus) in relation to the pro duction of any specific 
model of LCA is necessarily dispositive of whether a given element of the LCA price should be 
included in the counterfactual delivery prices of the LCA that comprise the lost sales and threatened 
impeded deliveries in th is proceedin g. As explained above, the focus of our valuation centres on the 
product at issue, Airbus LCA  and the adverse effects sustained by the European Union . The 
United  States  has not explained how focusing instead on revenues to the LCA manufacturer would 
lead t o a more reasonable valuation of a product manufactured by means of several complex 
commercial arrangements, including cost -sharing arrangements with certain suppliers. Thus, we fail 
to see an objective basis as to why our valuation of the relevant lost sa les or threatened impeded 
deliveries should be affected by Airbus' accounting treatment of elements of the LCA price that a 
customer pays.496 We find support for our view in the DS316 arbitrator's refusal to exclude the value 
of non -US LCA inputs incorporat ed into Boeing LCA from the maximum level of countermeasures, in 
part because doing so would be "exceedingly complicated" since LCA production is reliant on 
"complex and dynamically optimized international supply chains".497 
6.236.    In conclusion, we consider that  excluding the value of [[ ***]] from the "Net Fly -Away Price" 
in the Airbus final offers that will be used to calculate the counterfactual prices of the relevant Airbus 
LCA when valuing the lost sales and threatened impeded deliveries, as proposed by the 
United States , would be inconsistent with the degree and nature of the adverse effects determined 
to exist , as sustained by the European Union . We therefore reject the United  States ' proposal in this 
context.  
6.4.6.6   Remaining issues regarding counterfactual delive ry prices  
6.237.   In this section, and taking into account the decisions that we have made in this Decision 
thus far, we describe the European  Union 's methodology to determine the counterfactual delivery 
prices of the Airbus aircraft from the five sales campaigns,  in delivery -date US dollar terms, using 
information contained in the Airbus final offers. The United  States  does not contest this aspect of 
the European  Union 's methodology with respect to the large majority of Airbus LCA that would have 
been sold in the counterfactual had Airbus won the five relevant sales campaigns.  
 
493 United States' response to Arbitrator question No. 21, para.  82. This is significant, in our view, 
because the European Union's definition of  "LCA" for purposes of this dispute, as specified in fn  4 to the 
European Union's panel request in the original proceedings, excludes  engines. (See Panel  Report, US – Large 
Civil Aircraft (2nd complaint) , para.  2.1 at fn  20; and Appellate  Body Report, US – Large Civil Aircraft 
(2nd complaint) , para.  1 and fn  3 thereto . See also fn 2 above) By contrast, there is no equivalent definition of 
LCA in the Un ited States' panel request in the DS316 proceedings. (See WT/DS316/2; and Panel Report, EC 
and certain member States – Large Civil Aircraft , para.  2.1) 
494 United States' response to Arbitrator question No. 78, para.  131. 
495 For example, as regards the design, manufacture, and assembly of the Boeing 787, the original panel 
in this dispute discussed in some detail Boeing's focus on completion of sub -assemblies and integration of 
systems designed and manufactured by third -party suppliers, many of which wer e risk -sharing partners. ( See 
Panel  Report, US – Large Civil Aircraft (2nd complaint) , Appendix  VII.F.1, paras.  24-25) 
496 The European Union has explained, for example, that its revenue recognition practices as regards 
[[***]] will often differ depending on whether the customer is an airline or a leasing company. 
(European  Union's comments on the United States' response to A rbitrator question No. 78, para.  420) 
497 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
paras.  6.145 and 6.148.  WT/DS353/ARB  
 
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  6.238.   To determine delivery -date prices, the European  Union  applies two components found in a 
given final offer vis-à-vis the LCA model(s) contained in that final offer that were the subject of 
proposed firm orders. The first component is the Net Fly -Away Price which is the total aircraft price 
minus all price concessions extended to the customer as agreed at the time of order.498 The 
European  Union  uses the Net Fly -Away Price as found in Airbus' fi nal offers. The second component 
is an escalation formula that brings the order price forward to the delivery date.499 As explained by 
the European  Union , the escalation formula "reflects the fact that there is typically a considerable 
time lag between the order of an LCA and its delivery"500 and is "designed to offset the increase in 
labour and material costs over time, which result from inflation and other economic changes".501 
Each Airbus final offer also contains an escalation formula. The escalation formu la produces an 
escalation factor that transforms Net Fly -Away Prices in base date b prices into delivery date d prices 
and can be applied as follows502: 
𝐴𝑖𝑟𝑏𝑢𝑠𝑁𝑒𝑡𝐹𝑙𝑦𝐴𝑤𝑎𝑦𝑃𝑟𝑖𝑐𝑒𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖,𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑𝑖𝑛 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑 𝑈𝑆𝐷
=(𝐴𝑖𝑟𝑏𝑢𝑠𝑇𝑜𝑡𝑎𝑙𝐴𝑖𝑟𝑐𝑟𝑎𝑓𝑡𝑃𝑟𝑖𝑐𝑒𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖,𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚,𝑜𝑟𝑑𝑒𝑟  𝑑𝑎𝑡𝑒  𝑜𝑖𝑛 𝑏𝑎𝑠𝑒  𝑑𝑎𝑡𝑒  𝑏 𝑈𝑆𝐷
−𝐶𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖𝑖𝑛 𝑏𝑎𝑠𝑒  𝑑𝑎𝑡𝑒  𝑏 𝑈𝑆𝐷) 𝑥 𝐸𝑠𝑐𝑎𝑙𝑎𝑡𝑖𝑜𝑛𝐹𝑎𝑐𝑡𝑜𝑟 𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑
− 𝑂𝑡ℎ𝑒𝑟 𝑐𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖𝑖𝑛 𝑏𝑎𝑠𝑒  𝑑𝑎𝑡𝑒  𝑏 𝑈𝑆𝐷, (1) 
 
 
where  
 
𝐴𝑖𝑟𝑏𝑢𝑠𝑇𝑜𝑡𝑎𝑙𝐴𝑖𝑟𝑐𝑟𝑎𝑓𝑡𝑃𝑟𝑖𝑐𝑒𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖,𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚,𝑜𝑟𝑑𝑒𝑟  𝑑𝑎𝑡𝑒  𝑜𝑖𝑛 𝑏𝑎𝑠𝑒  𝑑𝑎𝑡𝑒  𝑏 𝑈𝑆𝐷: total aircraft  price of Airbus model m competing in 
sales campaign with airline i lost to Boeing at order date o and expressed in US 
dollar terms of base date b.503 
 
𝐶𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖𝑖𝑛 𝑏𝑎𝑠𝑒  𝑑𝑎𝑡𝑒  𝑏 𝑈𝑆𝐷: price concessions contained  in final offer by Airbus to airline i in US dollar 
terms of base date b and [[ ***]]. 
 
𝑂𝑡ℎ𝑒𝑟𝐶𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖𝑖𝑛 𝑏𝑎𝑠𝑒  𝑑𝑎𝑡𝑒  𝑏 𝑈𝑆𝐷: price concessions contained  in final offer by Airbus to airline i in US 
dollar terms of base date b but [[ ***]]. 
 
𝐸𝑠𝑐𝑎𝑙 𝑎𝑡𝑖𝑜𝑛𝐹𝑎𝑐𝑡𝑜𝑟 𝐴𝑖𝑟𝑙𝑖𝑛𝑒  𝑖,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑: escalation factor for delivery date d calculated  using the escalation 
formula contained in Airbus' final offer to airline i in sales campaign lost to 
Boeing.504 
 
6.239.   As can be seen from Equati on (1), the Net Fly -Away Price expressed in delivery -date US 
dollar terms is obtained by deducting price concessions, [[ ***]], from the total aircraft price set by 
Airbus in its final offer to airline i in the sales campaign at issue, both expressed in base -date US 
dollar terms, multiplied by the escalation factor corresponding to delivery date d minus additional 
concessions e xpressed in base -date US dollar terms, [[ ***]]. The escalation formula that leads to 
the escalation factor is [[ ***]].  
6.240.   Equation (1) requires information on the delivery date of each aircraft. As per section 6.4.6.3  
on counterfactual delivery schedules, this information is available in the final offers by Airbus to 
airline i for each of the relevant sales campaigns. The final offers also contain the req uired 
 
498 For additional information about the Net Fly -Away Price, see para.  6.225  above.  
499 European Union's methodology paper, paras.  93-95. 
500 European Union's methodology paper, para.  93. 
501 European Union's methodology paper, para.  93. See also Pa nel Report, US – Large Civil Aircraft 
(2nd complaint) (Article 21.5 – EU), fn 3383. "The European Union explains that pricing escalation is used by 
Airbus and by Boeing to reflect increased costs in the same period. An escalation formula is applied to airc raft 
pricing to reflect changing costs and economic conditions over time ." (Ibid.)  
502 Equation 1 takes into account that [[ ***]]. 
503 The base date does not necessarily correspond to [[ ***]]. 
504 Escalation factors are available at a monthly frequency. However, for simplicity the European Union 
assumes that all deliveries take place in July of any given year. (See European Union's methodology paper, 
fn 149) WT/DS353/ARB  
 
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  information on Net Fly -Away Prices, LCA models, and the escalation formula. The escalation factor, 
which is based on the formula, becomes known only at the delivery date when [[***]].505  
6.241.   As previously noted, the United  States  does not contest the above -described methodology. 
We note that this methodology is also conceptually in line with the approach used in the DS316  
arbitration with differences arising only where the facts of the disputes require it. We further see no 
reason  to question its validity. We accordingly adopt this approach as reasonable for determining 
the delivery prices of counterfactual Airbus deliveries resulting from the five relevant sales 
campaigns.  
6.242.   We recall, however, that, as explained in section 6.4.6.3  above506, we must add an HSBI 
number of additional firm orders to [[***]] of the Airbus final offers, i.e. those for the [[***]] sales 
campaigns.507 The United  States  and European  Union  have presented two alternative ways of 
determining the Net Fly -Away Prices of the additional  firm orders.508 However, under the valuation 
framewo rk that we have adopted thus far, the parties' proposed methods lead to the same ultimate 
valuation of [[ ***]].509 We therefore need not choose between the parties' methodologies in this 
context. Instead, as we discern nothing unreasonable about the valuati on that the parties' 
methodologies achieve, we adopt such valuations in this context.510 
6.4.6.7   Summary of conclusions on technical issues common to the valuations of both 
forms of adverse effects  
6.243.   In this section, we summarize our conclusions regarding the technic al issues common to the 
valuation of both forms of adverse effects.  
6.244.   We conclude that the relevant counterfactual from the compliance proceedings  was 
that, absent the Washington State B&O tax rate reduction, Airbus would have won the five LCA sales 
campaign s. We therefore reject the United  States ' proposal to include in our valuation of the adverse 
effects a probabilistic adjustment to the expected value of the sales campaigns to account for the 
alleged uncertainty of Airbus winning those sales campaigns in the counterfactual.  
6.245.   We also conclude that options  clauses, whether exercised or not, are outside the scope of 
the compliance panel's relevant lost -sales findings, and accordingly decline to consider options, 
whether exercised or not, in the Arbitrator's de termination of a maximum level of Annual 
Suspension.  
6.246.   As regards the number of firm orders  that Airbus would have received in the five relevant 
sales campaigns in the counterfactual, and their respective delivery schedules , we conclude that:  
a. it is reasonab le to assume that, in the counterfactual, Airbus would have secured the same 
number of firm orders in its purchase agreements in all five relevant sales campaigns as 
Boeing secured in its actual purchase agreements;  
b. the delivery schedules in the Airbus fi nal offers better reflect both the demand - and supply -
side pressures in the relevant negotiations had Airbus won the sales campaigns than do 
 
505 European Union's methodology paper, fn  153. Information on realized and forecasted escalation 
factors is available in Updated LCA indices, escalation rates and Airbus LCA Inflation Index. (Exhibit EU -83 
(HSBI))  
506 See para.  6.206  above.  
507 The limited applicability of this issue [[ ***]] is the result of the decisions taken by the Arbitrator on 
options in section 6.4.6.2  above .  
508 See United States' response to Arbitrator question No. 58; European Union's response to Arbitrator 
question No. 58; and 2RPQ valuation of single -aisle lost sales – Airbus delivery schedules (Exhibit EU -85 
(HSBI )). 
509 That is, we obtain the same value for significant lost sales, indicated in para. 6.304  below , with 
either method.  
510 Technically, we follow the methodology proposed by the European Union to determine the Net 
Fly-Away Prices of the additional firm orders. We then apply the European Union's otherwise uncontested 
methodology described in the body text above to reach delivery -date prices. That is, we escalate the prices 
using the escalation formulae in the applicable final offers up to the delivery times determined in section  
6.4.6.3  above . WT/DS353/ARB  
 
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  the Boeing delivery schedules and we therefore select the delivery schedules in the Airbus 
final offers as Airbus' counterfactual delivery schedules; and  
c. the delivery of the additional number of Airbus LCA is assumed to be [[ ***]].  
6.247.    As regards the calculation and application of the risk that the relevant counterfactual Airbus 
deliveries would have been cancelled , we m ake the following assumptions:  
a. Fly Dubai would have cancelled one Airbus single -aisle LCA order had Airbus won the 2014 
Fly Dubai sales campaign, just as it cancelled one Boeing single -aisle LCA order, and the 
cancelled order would have been the latest -in-time delivery of the Airbus LCA [[ ***]] that 
would have been sold in connection with the 2014 Fly Dubai sales campaign511; 
b. each relevant airline would have taken delivery of, at least, the number of Airbus LCA that 
would have been scheduled for de livery before present day (i.e. before 2020); and  
c. for the counterfactual Airbus orders associated with the five lost sales where the 
counterfactual deliveries are scheduled to occur after the present day (i.e. after 2019), we 
apply a survival rate to take into account the risk of future cancellations which is based on 
the universe of Airbus single -aisle LCA cancellations in the period 2003 -2007.  
6.248.   It is reasonable to value the lost sales and threatened impeded deliveries by basing the 
counterfactual delivery prices  of the relevant Airbus aircraft on the Net Fly -Away Prices in the 
Airbus final offers. We reject the United  States ' proposal to exclude the value of [[ ***]] from the 
counterfactual prices of the Airbus LCA.  
6.249.   Finally, the formula used to determine th e delivery -date prices of the Airbus LCA that would 
have been ordered in the counterfactual, based on the Net Fly -Away Prices in the relevant Airbus 
final offers, is specified in section 6.4.6.6  above.  
6.4.7   Technical iss ues regarding the valuation of significant lost sales  
6.250.   In this part of the Decision, we address technical aspects of the European  Union 's 
methodology that are specific to the valuation of adverse effects in the form of significant lost sales. 
These relate t o: (a) how to temporally adjust counterfactual delivery prices back to the time of the 
lost sale; (b) how to express the values of the significant lost sales on a common monetary basis; 
and (c) the appropriate temporal period with which to annualize the ag gregated value of the lost 
sales. We address each in turn.  
6.4.7.1   Temporal adjustment of delivery prices to the time of the lost sales  
6.251.   As explained in section 6.1 above, the penultimate step in the European  Union 's valuation 
methodology with respect to lost sales consists of (a) discounting the value of the counterfactual 
delivery prices of scheduled LC A deliveries (i.e. in delivery -date US dollar terms) back to the date at 
which the relevant order was lost (i.e. in order -date US dollar terms), and (b) subsequently 
aggregating the discounted prices to generate the order -date value of each lost sale.512 
6.252.   The European  Union  argues that the discounting exercise should be performed from the 
perspective of the LCA manufacturer, and that Airbus' cost of debt (expressed as euro -denominated 
ten-year Airbus bond yield rates) is an appropriate discount rate for the  valuation of lost sales in 
this proceeding.513 The European  Union  submits that its position is consistent with the DS316 
arbitrator's use of Boeing's cost of debt with a ten -year maturity to discount the delivery -date prices 
in that proceeding, and that us ing the cost of debt is therefore mandated by the notion of even -
 
511 We decline to assume that [[ ***]], just as it [[ ***]], and therefore do not exclude the value of 
those [[ ***]] as proposed by the United States. (See para. 6.216  above)  
512 European Union's written submission, para.  396. 
513 European Union's written submission, para.  396; and  response to Arbitrator question No. 75, 
para. 432; and No. 28, para.  118. WT/DS353/ARB  
 
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  handedness.514 Alternatively, the European  Union  argues that another suitable discount rate is the 
ALII, which is an index compiled by the European  Union  based on Airbus' contractual escalatio n rates 
representing [[ ***]] changes in labour and materials costs resulting from inflation and other 
economic changes.515 
6.253.   The United  States  objects to the discount rates proposed by the European  Union , arguing 
that Airbus' WACC is a better indicator of the  time value of money from Airbus' perspective.516 In 
particular, the United  States  asserts that, unlike the cost of debt, the WACC adequately measures 
Airbus' overall opportunity cost of capital (i.e. from both debt and equity) when investing in the 
product ion of LCA and deferring full payment for the LCA until delivery.517 The WACC is broadly used 
as a discount rate to determine the present value of a company's average -risk projects.518 Thus, 
since the business valuation of an aircraft manufacturer is itself based on selling and delivering LCA, 
the United  States  argues that Airbus' WACC is a relevant metric to discount the value of the sales 
campaigns at issue.519 
6.254.   The European  Union  responds that, while the WACC may befit present value determinations 
of macro -level projects involving significant long -term risks520, it is not suited to discount the value 
of the lost sales at stake in this proceeding, which (compared to such macro -level projects) represent 
"relatively small -scale investments with low transaction -specific risk", especially when the risk of 
cancellation is addressed separately.521 Accordingly, the European  Union  considers that the WACC 
is excessively high as a discount factor because it accounts for risks that are not presented by or 
relevant to the LC A deliveries associated with the lost sales. It thus argues that using the WACC 
would therefore artificially depress the order -date value of the lost sales.522 
6.255.   The Arbitrator notes that the parties' disagreement as to the choice of a discount rate 
requires that we assess, in light of the evidence before us, whether the discount rate applied by the 
European  Union  – i.e. Airbus' cost of debt – is reasonable to determine the value of the 
counterfactual delivery prices of scheduled LCA deliveries at the time the  relevant order was lost. 
We start by noting that, consistent with the approach taken in the DS316 arbitration, the 
European  Union  asserts that an appropriate discount rate should reflect the LCA manufacturer's 
perspective. It further asserts that, in so d oing, the discount rate used should capture Airbus' risks 
associated with realizing future revenue streams in an LCA -sales-contract scenario with a view to 
determining the present value of those revenue streams, i.e. at the time of order. The 
European  Union identifies two key factors that a discount rate should capture in this context: (a) the 
risk that inflation may erode the value of Airbus' future revenue streams relative to the order date, 
and (b) the "opportunity cost" to Airbus of waiting to receive t he payment linked to the delivery of 
the ordered aircraft.523 We understand "opportunity cost" in this context as meaning the potential 
 
514 European Union's response to Arbitrator question No. 17, paras.  79, 82, and 85 (referring to Decision 
by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), paras.  6.345 and 
6.352 -6.354).  
515 European Union's methodology paper, para.  101; and  response to Arbitrator question No. 27, 
para. 114; and No. 75, paras.  392 and 443.  
516 United States' written submission, paras.  112-121. 
517 United States' opening statement at the meeting of the Arbitrator with the parties, para.  56; and 
comments on the European Union's response to Arbitrator question No. 75, p aras. 193-194 (referring to 
Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.344).  
518 United States' comments on the European Union's response to Arbitrator question No. 75, 
paras.  201-202 (referri ng to Brealey, Myers, and Allen, Principles of Corporate Finance, 9th Edition, p.  239 
(Exhibit USA -99)). 
519 United States' comments on the European Union's response to Arbitrator question No. 75, para.  201 
(referring to European Union's response to Arbitrat or question No. 75, para.  391).  
520 European Union's response to Arbitrator question No. 75, para.  413 (referring to Daves, Philip R.; 
Michael C. Ehrhardt and Robert A. Kunkel, 2002, "Estimating systematic risk: the choice of return interval and 
estimation p eriod", Journal of Financial and Strategic Decision, volume 13, number 1, pp.  7-13 (Exhibit 
EU-79)). 
521 European Union's response to Arbitrator question No. 75, paras.  411-418. 
522 European Union's response to Arbitrator question No. 75, para.  421. 
523 European  Union's response to Arbitrator question No. 75, paras. 394, 396, and 434 (citing Decision 
by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), paras.  6.343 -6.344 , 
6.350,  and 6.348 ). We note that the DS316 arbitrator recognized that an LCA manufacturer also faces the risk 
that the order may be cancelled, and that the future revenue streams may thus never be realized, but the 
arbitrator made separate adjustments for this risk by using  a survival rate. As discussed in section 6.4.6.4  
 WT/DS353/ARB  
 
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  benefits that Airbus for egoes  when it allocates capital to the production of ordered LCA and waits to 
receive the payment  for the production and delivery of those LCA, rather than putting those funds 
to alternative potential uses.524 We note that, because riskier projects demand higher rates of return, 
risks play an important role in determining the opportunity cost associate d with a project.525 As 
presented by the European  Union , specifically, the level of "opportunity cost" to be accounted for in 
the choice of a discount rate depends on the risks arising in an LCA -sales-contract scenario in 
addition  to inflation (but excluding the risk of cancellation of the orders, as we have accounted for 
that risk separately). The United  States  does not contest these assertions, and we disce rn no reason 
to question them. We thus proceed to examine whether the European  Union  has proposed a discount 
rate that reasonably captures the risk of inflation and opportunity cost, as the European  Union  uses 
those terms.  
6.256.   The European  Union  submits that A irbus' cost of debt effectively captures the two key factors 
that must be considered in this context (i.e. expected inflation and the opportunity cost).526 As 
support for using the cost of debt, the European  Union  also adduces evidence of Airbus' historic d ebt 
financing costs and of the nominal interest rates in Europe for the years 2005 to 2018. Based on the 
DS316 arbitrator's explanation that a nominal interest rate captures expected inflation, the 
European  Union  argues that the relative proximity between the values of the two metrics (cost of 
debt and the nominal interest rate) further supports using the cost of debt as a discount rate.527 We 
note that the value of Airbus' cost of debt was higher than the nominal interest rate in both of the 
years in which the relevant two orders occurred.528 Thus, it appears reasonable to conclude that 
Airbus' cost of debt effectively captures not only the nominal interest rate (i.e. expected inflation) 
but also some level of opportunity cost. Additionally, neither party has  produced any evidence or 
argumentation specifically indicating that Airbus' cost of debt inappropriately captures Airbus' 
relevant opportunity cost in individual sales (i.e. reflecting estimated risks additional to inflation).529 
In the light of such consi derations using Airbus' cost of debt as the relevant discount rate in this 
context appears reasonable.530 
6.257.   We recall that the United  States  argues that the WACC properly measures Airbus' overall 
opportunity cost of capital  when investing in the production of  LCA and deferring full payment of the 
LCA until delivery.531 The United  States  also explains that, because the WACC is intended to serve 
as a discount rate to value a company's average -risk projects, it should be used in this context since 
the valuation of  an aircraft manufacturer is itself based on selling and delivering LCA.532 The 
European  Union  argues that the WACC encompasses risks that are not pertinent to individual sales 
transactions, which are "relatively small -scale investments with low transaction -specific risk", 
particularly when divorced from the risk of cancellation.533 The European  Union  provides examples 
of risks incorporated into the WACC that it states do not specifically arise in individual sales and that 
 
above, we adjust the value of orders that Airbus would have won in the counterfactual taking into ac count the 
risk of cancellation in the counterfactual. Thus, consistent with the approach of the DS316 arbitrator, we do not 
further consider the risk of cancellation in this section of our Decision.  
524 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – 
EU), para.  6.345.  
525 Brealey, Myers, and Allen, Principles of Corporate Finance, 9th Edition, p.  239 (Exhibit USA -99). 
526 European Union's response to Arbitr ator question No. 17, para.  82. 
527 European Union's response to Arbitrator question No. 75, para.  434 and fn  461 thereto (referring to 
Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
paras.  6.348 and 6.35 3).  
528 European Union's response to Arbitrator question No. 75, para.  435 and table 17 (comparing Airbus ' 
cost of debt, WACC, ALII, and nominal interest rates (2005 -2018)).  
529 The relatively small differential between the cost of debt and the nominal intere st rate appears 
consistent with the European Union's assertion that Airbus' relevant opportunity cost is "very low" when the 
risk of cancellation is accounted for separately, an assertion the United States does not specifically contest. 
(European Union's r esponse to Arbitrator question No. 75, para.  402 and fn  422 thereto) We further note that 
the differential between the WACC and the nominal interest rate is significantly greater.  
530 We further note that using Airbus' cost of debt would be consistent with t he DS316 arbitrator's 
selection of Boeing's cost of debt to discount LCA delivery -year prices back to the order years when valuing 
significant lost sales under an identical general methodology.  
531 United States' opening statement at the meeting of the Arbit rator with the parties, para.  56; and 
comments on the European Union's response to Arbitrator question No. 75, paras.  193-194 (referring to 
Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 6.344).  
532 United States' comments on the European Union's response to Arbitrator question No. 75, para.  202 
(citing Brealey, Myers, and Allen, Principles of Corporate Finance, 9th Edition, p.  239 (Exhibit USA -99)). 
533 European Union's response to Arbitrator question  No. 75, paras.  411-418. WT/DS353/ARB  
 
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  make the WACC over-inclusive of risk in the specific circumstances of the valuation exercise before 
us, which, to recall, "concerns … future cash flows from expected LCA deliveries under the individual 
sales campaigns at issue".534  
6.258.   We see no basis to question the accura cy of the European  Union 's illustration of the range 
of risks captured by the WACC, and the United  States  has not advanced any. We also concur with 
the European  Union  that it is reasonable to conclude that, once an order has been secured through 
an LCA sal es contract, Airbus does not incur all of the same elements of risk as those reflected in 
the WACC.535 In short, therefore, we consider that the record indicates that the WACC is over -
inclusive  with respect to risks specific to the LCA sales at issue.536 We thus consider that the 
United  States  has not demonstrated that the WACC is a more reasonable discount rate than Airbus' 
cost of debt in this context.  
6.259.   Finally, we recall that the European  Union  has proposed using the ALII as an alternative 
discount rate to the cost of debt.537 We further recall, however, that the European  Union  (a) has 
applied Airbus' cost of debt as the relevant discount factor in its calculation methodology throughout 
this proc eeding, and (b) has consistently argued that the notion of even -handedness requires that 
we use Airbus' cost of debt to ensure consistency with the DS316 arbitrator's use of Boeing's cost 
of debt.538 As a result, we do not further consider using the ALII fo r purposes of discounting the 
value of the lost sales.  
6.260.   For these reasons, we find Airbus' cost of debt in the form of euro -denominated ten -year 
Airbus bond yield rates to be a reasonable discount factor to account for Airbus' risks in producing 
and delive ring LCA in the relevant sales campaigns before us. We therefore proceed to use it when 
discounting counterfactual delivery -date prices back to the relevant order -dates.  
6.4.7.2   Expressing the lost sales' values on a common monetary basis  
6.261.   In the section immediatel y above, the Arbitrator determined how it will temporally adjust 
the delivery prices of counterfactual deliveries stemming from the Icelandair 2013, Air Canada 2013, 
and Fly Dubai 2014 lost sales back to the times of the respective lost sales. These values  have thus 
far been expressed in order -date US dollars terms, depending on the date at which Airbus lost each 
sale, consistent with the European  Union 's methodology.  
6.262.   Against that background, in this section, we address the next step in the European  Union 's 
methodology, whereby the European  Union  converts the order -date values into 2015 US dollar 
values. The European  Union  submits that this is an appropriate step because putting the values of 
lost sales on a common monetary basis allows them to be summed and  then divided by the number 
of months in the reference period and multiplied by 12 in order to obtain an aggregated annualized 
value of lost sales. That value will then be summed with the aggregated annualized value of the 
threat of impedance to obtain the  final maximum level of Annual Suspension. The European  Union  
argues that the common monetary basis should be the US dollar value as expressed in the final year 
 
534 The European Union asserts that the WACC encompasses such risks as: profit risk to shareholders; 
the risk of bankruptcy for Airbus; the risk that a programme may fail due to the inability to develop the 
aircraft; the risk that th e market may not demand as many aircraft as projected at the launch of a programme; 
the risks associated with the manufacture and supply of the aircraft; exchange -rate risks; and political risks. 
The European Union additionally asserts that building a new production facility or launching a new LCA 
programme are examples of investments for which use of the WACC would be appropriate. (European Union's 
response to Arbitrator question No. 75, paras.  413-414) 
535 We note that evidence produced by the United States  supports the European Union's underlying 
assumption that the opportunity cost of capital depends on the use to which that capital is put, particularly on 
the risk associated with the project at issue. (See Brealey, Myers, and Allen, Principles of Corporat e Finance, 
9th Edition, p.  239 (Exhibit USA -99)) 
536 In making this observation, we make no judgment as to the propriety of using the WACC to discount 
expected revenue streams in other contexts.  
537 The European Union asserts that the ALII also captures inflat ion and reflects project -specific risk. 
(European Union's response to Arbitrator question No. 27, para.  114; and No. 75, section A)  
538 See e.g. European Union's written submission, para.  396; and response to Arbitrator question 
No. 17, para.  85. WT/DS353/ARB  
 
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  of the compliance panel's reference period (i.e. 2015), as "has been firmly established by the {DS316 
arbitrator}".539  
6.263.   The European  Union  proposes to perform this forward adjustment by applying an inflation 
factor to the order -date lost -sales values, i.e. the ALII. According to the European  Union , the ALII 
compiles Airbus' standard contractual escal ation rates, and as such performs the forward adjustment 
from Airbus' perspective by reflecting industry participants' best assessment of cost dynamics in the 
LCA industry over time, as they affect Airbus.540 The European  Union  argues that use of the ALII i s 
supported by the approach taken by the DS316 arbitrator because, in performing an equivalent 
inflation adjustment, that arbitrator relied on the [[ ***]] contractual escalation formulae contained 
in relevant Boeing contracts as the best way to capture the  price evolution of Boeing aircraft.541 
Accordingly, in bringing the order -date values forward to 2015, the European  Union  divides the 
average of the 2015 monthly values of the ALII by the ALII of the month in which each lost sale 
occurred in 2013 or 2014 a nd multiplies the lost sales values by that ratio.542  
6.264.   The United  States  does not contest the European  Union 's adjustment of order -date values 
forward to 2015 in a way that reflects Airbus' perspective for the ultimate purpose of determining a 
maximum level  of Annual Suspension.543 The United  States  rejects, however, the European  Union 's 
proposal to do so using the ALII. According to the United  States , a generic measure of inflation such 
as the producer price index (PPI) for civilian aircraft (CA) manufacturi ng "makes more sense" than 
a negotiated and customer -specific measure.544 In the United  States ' view, this is so because the 
purpose of the inflation adjustment is merely to restate a valuation of adverse effects as an 
equivalent real value in a future year , and thus it would be more logical to use a single inflation rate 
for the entire value of adverse effects, as opposed to different [[ ***]] contractual escalation factors 
that may vary under each lost sale.545 The United  States  nonetheless acknowledges that , if the 
Arbitrator opted to follow the DS316 arbitrator's reliance on contractual escalation rates, then "use 
of the ALII would be appropriate".546 
6.265.   The Arbitrator notes that the parties agree that the Arbitrator should, in order to obtain an 
aggregate annu alized value of the lost sales, restate the order -date values of the Icelandair 2013, 
Air Canada 2013, and Fly Dubai 2014 lost sales on a common monetary basis using an index that 
reflects the perspective of Airbus. We agree that this proposed adjustment i s a logical step in arriving 
at an aggregate annualized value of the lost sales from which a maximum level of Annual Suspension 
will be determined.547 The parties further agree that an appropriate common monetary basis in which 
to express the values of the lost sales is 2015 US dollars. We discern no reason to question this 
approach, 2015 being the most recent year in the reference period. We further no te that this 
approach is consistent with how the DS316 arbitrator calculated an aggregate annualized value of 
 
539 European Union's written submission, para.  396. 
540 European Union's methodology paper, paras.  102-103; and response to Arbitrator question No. 16, 
para. 72. 
541 European Union's written submission, para.  396. The European Union observes that the DS316 
arbitrator said that it chose "[[ ***]] escalation factor ratio" because such "escalation factor reflects [[ ***]] 
changes in labour and material costs resulting from  inflation and other economic changes" . (European Union's 
response to Arbitrator question No. 1 6, para.  74 (citing Decision by the Arbitrator, EC and certain member 
States – Large Civil Aircraft (Article 22.6 – EU), para. 6.497)  (emphasis omitted))  
542 Europ ean Union's written submission, para.  396. 
543 United States' written submission, para.  172; and response to Arbitrator question No. 16, para.  69. 
While the United States initially proposed to express the value of each lost sale on a common basis of 2014 US 
dollars, "2014 {being} the year in which the latest lost sale occurred", the United States subsequently revised 
its position to convert all order -date values into 2015 US dollar values. (See e.g. Annualized Value of the 
Adverse Effects in 2015 Dollars (Rev ised) (Exhibit USA -105 (HSBI)) ) 
544 United States' written submission, para. 123 (citing Producer Price Indexes – Program Overview, 
U.S. Department of Labor, Bureau of Labor Statistics (Exhibit USA -11)). See also  PPI Industry Data File for 
Aircraft Manufactu ring – Civilian Aircraft, Not Seasonally Adjusted (Jan. 1986 – March 2019), U.S. Department 
of Labor, Bureau of Labor Statistics (Exhibit USA -12). 
545 United States' written submission, paras.  123-125; and response to Arbitrator question No. 16, 
para. 70. Th e United States explains that using [[ ***]] contractual escalation factors may result in (the portion 
of the countermeasures that reflects) the adverse effects quantified with respect to one lost sale being inflated 
from one year to the next more than the equivalent measure for another lost sale. (United States' written 
submission, para.  125) 
546 United States' response to Arbitrator question No. 16, para.  71. 
547 See section 6.4.2 above.  WT/DS353/ARB  
 
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  adverse effects using a multi -year reference period (i.e. adjusting, from Boeing's vantage point, all 
values of adverse effects into US dollar val ues in the final year of the reference period).548 
6.266.   The only disagreement between the parties to resolve in this context is what index to use to 
convert the order -date lost -sales US dollar values into 2015 US dollar values. The European  Union  
proposes the AL II, whereas the United  States  advocates using the PPI for CA manufacturing.  
6.267.   We recall that the United  States ' objection to using the ALII rests on its view that, because 
the adjustment at issue is only intended to maintain the real value of adverse effect s over time, a 
single and generic measure of inflation should be used to inflate all lost sales instead of different 
[[***]] contractual escalation factors susceptible to change between each sale.549 We do not see a 
justification in the United  States ' sugge stion that using the ALII might result in variations in the 
inflation rates applied to each lost sale, thereby yielding a different inflation effect on the different 
portions of the adverse effects. We recall that the ALII is an inflation index that reflec ts Airbus' 
standard price escalation formulae (in a non -[[***]] manner) and, hence, fixes a single escalation 
factor for each month of each year between the base date and December 2019. It follows that all 
lost sales are inflated based on the same inflatio n index, not potentially different [[ ***]] indices as 
the United  States  suggests. To that extent, because the ALII conforms with the United  States ' 
acknowledgement that using a single measure of inflation would be appropriate to adjust the real 
value of ad verse effects associated with all three lost sales, we are unconvinced by the reason 
advanced by the United  States  for using the PPI for CA instead of the ALII.  
6.268.   We further note that the DS316 arbitrator also rejected the United  States ' arguments for 
using the PPI for CA manufacturing for purposes of the same restatement of values. Noting that the 
United  States had proffered "mostly practical justifications"550 for using the PPI for CA 
manufacturing, the DS316 arbitrator considered that, insofar as infl ation in this context relates to 
"values concerning Boeing aircraft", "price evolution" would be "best captured  by the [[***]] 
escalation formula", which contains a "[[***]] escalation factor ratio" reflecting " [[***]] changes in 
labour and material costs resulting from inflation and other economic changes" .551 Essentially the 
same logic supports using the ALII as an inflation index in this proceeding. As with the "[[***]] 
escalation factor ratio" used in the DS316 arbitration, the ALII is specific to the re levant LCA 
manufacturer's viewpoint and accounts for [[ ***]] changes in labour and material costs resulting 
from inflation and other economic changes. Indeed, the ALII is more specific to Airbus' perspective 
than the PPI for CA manufacturing, as it more pr ecisely tracks the evolution of prices from Airbus' 
perspective (which the parties agree is the perspective that an appropriate inflation index should 
reflect).  
6.269.   In the light of the above, we consider that the European  Union 's method of using the ALII 
to restate the order -date values of the lost sales on a common 2015 -dollar basis is reasonable. Thus, 
for the Icelandair 2013, Air Canada 2013, and Fly Dubai 2014 lost sales, and as proposed by the 
European  Union , we will multiply the values of the lost sales (expressed in order -date US dollar 
terms) by the 2015 -to-2013 and  2015-2014 ratios of the relevant ALII figures respectively in order 
to express all such values on the same 2015 US dollar monetary basis, and then sum those individual 
values to determine on e aggregate value for the lost sales.  
 
548 Decision by the Arbitrator,  EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
paras.  6.493 -6.495.  
549 United States' written submission, paras.  123-125; and response to Arbitrator question No. 16, 
para. 70. 
550 The DS316 arbitrator considered, but was not persuaded by, the arguments advanced by the 
United  States for using the PPI for CA manufacturing, inclu ding that the PPI for CA manufacturing is a 
reasonable proxy for the increased dollar value of LCA over time; that it is a publicly available and regularly 
updated index, published by a government institution; that it is unlikely to be subject to manipulat ion by 
industry participants; and that it is also not specific to airlines. (See Decision by the Arbitrator,  EC and certain 
member States – Large Civil Aircraft (Article 22.6 – EU), paras.  6.496 -6.497)  
551 Decision by the Arbitrator,  EC and certain member St ates – Large Civil Aircraft (Article 22.6 – EU), 
paras.  6.496 -6.497 . (fn omitted) We note that the bracketed text in this quotation was treated as BCI in the 
DS316 arbitration decision, and that the European Union re -submitted the information as BCI in thi s 
proceeding. (European Union's response to Arbitrator question No. 16, para.  74) WT/DS353/ARB  
 
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  6.4.7.3   Annualization period  
6.270.   In their most recent valuations of the adverse effects, both parties propose to annualize the 
aggregated value of the lost sales over the length of the reference period. We consider this an 
appropr iate methodology. As discussed in section 6.4.5.1  above, the choice of an appropriate period 
of annualization should be made with reference to a period over which the economic harm being 
measured occurs. In this dispute, the compliance panel identified the occurrence of the relevant lost 
sales (i.e. the economic events that we value in this context) in the post -implementation period over 
a particular temporal period, i.e. the reference period. We further recall that the DS316 arbitrator 
instructively explained at some length why it makes both legal and ec onomic sense to temporally 
assign the value of LCA lost sales to the time -period over which they were identified (in that case, 
and in our case, the reference period used in the respective compliance proceedings).552 We 
therefore see no reason to question t he parties' proposal that annualizing the value of the lost sales 
over the length of the reference period will result in a maximum level of Annual Suspension that is 
commensurate with the degree and nature of the adverse effects determined to exist.  
6.4.8   Techn ical issues regarding the valuation of threat of impedance  
6.271.   In this part of the Decision, we address technical aspects of the European  Union 's 
methodology that are specific to the valuation of adverse effects in the form of threat of impedance. 
These relate  to: (a) how to temporally adjust counterfactual delivery prices back to the reference 
period; and (b) the appropriate temporal period(s) over which to annualize the aggregate values of 
threat of impedance in the two geographic markets. We address each in turn. 
6.4.8.1   Temporal adjustment of delivery -date values  
6.272.   In its valuation methodology with respect to threat of impedance using a "delivery -centric " 
approach553, the European  Union  discounts the value of the counterfactual delivery prices of 
scheduled LCA deliveri es to determine their value at the beginning of the reference period (which, 
according to the European  Union , is January 2013) . It then  aggregates these January 2013 values 
to determine the value of threat of impedance in January 2013 dollar terms. The Eur opean  Union  
uses Airbus' cost of debt (in the form of the 2013 Euro -denominated 10 -year Airbus bond yield rate) 
as the discount factor to perform this discounting exercise.554 
6.273.   The United  States  also performs a discounting exercise in the valuation methodolo gy that it 
proposes with respect to threat of impedance using a delivery -centric approach. The United  States  
argues that in the compliance proceedings the threat of impedance was found to exist during  the 
reference period based on deliveries of LCA that we re scheduled to be delivered in the future. 
Therefore, according to the United  States , the objective of the discounting exercise is to determine 
the expected value of these future LCA deliveries during the reference period. For this purpose, the 
United  States discounts the value of the counterfactual delivery prices of scheduled LCA deliveries 
to determine their expected value to Airbus in 2015 (i.e. the last year of the reference period) and 
subsequently aggregates these 2015 values to determine the aggreg ated value of threat of 
impedance in 2015 dollar terms. The United  States  maintains that, as was proposed in the case of 
lost sales, the appropriate discount rate to determine the expected value of future deliveries to 
Airbus is Airbus' WACC.555 
6.274.   The Arbitra tor recalls that, in valuing threat of impedance, we value Airbus' post -reference 
period counterfactual deliveries resulting from the 2008 Fly Dubai and the 2011 Delta Airlines sales 
 
552 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
section 6.3.3.2.1. In particular, the DS316 arbitrator noted that the "lost sales" occurred during the reference 
period used in the compliance proceedings, and further that "the value of a 'lost sale', when evidenced by an 
agreement constituting an order  for subsequent delivery of the purchased goods and assessed at the time of 
that agreement, would be the expected value of the goods that would have been traded if the supplier that lost 
the sale had won the sale". (Decision by the Arbitrator, EC and certa in member States – Large Civil Aircraft 
(Article 22.6 – EU), para.  6.98)  
553 We recall that the European Union refers to the approach it adopts in this regard as a "threat of 
impedance" approach rather than a "delivery -centric" approach for reasons discussed  in fn 254 above.  
554 European Union's response to Arbitrator question No. 66, paras.  269-270; and comments on the 
United States' response to Arbitrat or question No. 66, para.  290.  
555 United States' response to Arbitrator question No. 66, paras.  92-94; and comments on the 
European  Union's response to Arbitrator question No. 66, para.  129. WT/DS353/ARB  
 
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  campaigns. Both parties agree, as do we, that such delivery -date values s hould be temporally 
adjusted back to the reference period. This adjustment allows us to put such values on a common 
US dollar basis (both parties ultimately express the values on a 2015 US  dollar  basis) in order to 
allow us to calculate an annualized aggre gated value of the threat of impedance . The annualized 
aggregated value of the threat of impedance, expressed on a 2015 US dollar basis,  can then be 
summed with the annualized aggregated value of lost sales to obtain a maximum value of Annual 
Suspension.  
6.275.   We therefore note that each party proposes to perform this temporal adjustment by 
discounting  the delivery -date prices back to the reference period (albeit to different dates in the 
reference period). As discussed in section 6.4.7.1  above, discounting is necessary in the context of 
lost sales in order to capture Airbus' risk and cost of waiting to receive the payment between the 
time of order and the time of delivery. In other words, and more generally, the need to discount 
arises where the cash streams to be realized from, for instance, the conclusion of an LCA sales 
contract are tem porally removed from the conclusion of that contract.  
6.276.   In the light of the above observation, in valuing threat of impedance, we consider it 
inappropriate to adjust the delivery -date values back to the reference period by discounting (i.e.  by 
using an instr ument that captures Airbus' risks and costs of waiting) . As explained in detail in section 
6.4.5.3 , the adverse effect finding that we value here, i.e. the threat of impedance, did not refer to 
an event that caused economic harm to the European  Union  in the reference period. Rather, the 
threat  component of the adverse effect directs us to a future  period (i.e. the post -reference period) . 
It is in this future period that the economic harm (i.e. impedance evidenced by deliveries of Boeing 
LCA) was expected to occur.556 Consistent with the finding of threat of impedance, therefore, we 
value deliveries at the times that Airbus' relevant counterfactual delive ries would have occurred in 
the post -reference period. As Airbus receives the full outstanding payment upon delivery, no relevant 
cash stream associated with a deliver y occurs in the future relative to the deliver y. Hence, there is 
no reason to account for the risk and cost to Airbus  of waiting to receive any such cash stream . Both 
Airbus' cost of debt and Airbus ' WACC, in our view, are instruments that capture such risk and 
cost.557 Thus, we consider that both are inapprop riate tools with which to perform the temporal 
adjustment of these delivery prices back to the reference period since using them would be 
inconsistent with the nature of the threat findings that we are valuing.  
6.277.   In selecting an appropriate tool with which t o perform this temporal adjustment, we recall 
that, in the context of valuing threat of impedance, the purpose of the temporal adjustment of 
relevant delivery -date prices back to the reference period is to allow us to place their values on a 
common monetar y basis with respect to each other and with respect to the value of lost sales so 
that all these values can be summed. This aggregation of values on a common monetary basis will 
allow us to determine a maximum level of Annual Suspension. We therefore recal l that we already 
have selected the ALII as the appropriate tool with which to convert 2013 and 2014 lost sales values 
into 2015 US dollar values in section 6.4.7.2  above. The purpose of that temporal adjustment is the 
same as the purpose of the temporal adjustment under examination here, i.e. to place US dollar 
values at different dates on a common US dollar basis from the perspective of Airbus. For t he same 
reasons discussed in that section, therefore, we consider it appropriate to use the ALII in this context 
to temporally adjust delivery prices to the reference period as well.  
6.278.   For the foregoing reasons, and in the context of valuing threat of impeda nce, we will 
temporally adjust the relevant counterfactual delivery -date prices from the times the deliveries 
would have occurred back to the reference period using the ALII . Using the ALII is consistent with 
the nature of the threat findings that we value  in this context. We select the year 2015 as the year 
to which to adjust such prices. Indeed, both parties, in their most recent methodologies, ultimately 
express the value of threat of impedance in 2015 US dollar values, and we further note that 2015 is 
the year to which we will adjust the values of lost sales in order to aggregate them. Adjusting 
delivery prices to 2015 is thus appropriate. Accordingly, we divide the average of the 2015 monthly 
 
556 This stands in contrast to valuing lost sales, as the lost sale s that occurred during the reference 
period were the economic events that we value as having caused economic harm to the European Union 
(i.e. the time at which Airbus lost the relevant sales).  
557 See section 6.4.7.1  above.  WT/DS353/ARB  
 
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  values of the ALII by the ALII of the month to which we assig n each counterfactual delivery and 
multiply the threat of impedance value by that ratio.558 
6.4.8.2   Annualization period(s)  
6.279.   Above, we concluded that, in our valuation of threat of impedance, we will only value 
counterfactual deliveries resulting from the 2011 Delt a Airlines lost sale and 2008 Fly Dubai lost sale 
that would have occurred after the end of the reference period. That being the case, the parties 
disagree as to the annualization period of those values, i.e. the number of months by which we will 
divide the value of such deliveries before multiplying them by 12 to arrive at an annuali zed value of 
the threat of impedance.  
6.280.   The European  Union  argues that we should use the reference period as the annualization 
period for any valuation of the threat of impedance, including in the event that we take a "delivery -
centric" approach.559 This position appears generally grounded in the European  Union 's underlying 
position that the threat of impedance that existed in the reference period comprised all future 
deliveries that were undelivered at any point in the reference period, and therefore, the  appropriate 
annualization period for this threat of impedance would be the reference period.560 The 
European  Union  makes three more specific arguments in support of this position.561 First, it argues 
that annualization should reflect the average annual valu e of the adverse effects, and because "the 
correct numerator is the value of the threat of impedance that arose during the {36-month} 
reference period ", the denominator in the annualization calculation should be the same time -
period.562 Second, it argues th at the DS316 arbitrator used as its reference period for valuing the 
adverse effects the 25 -month reference period used by the compliance panel in that dispute and 
annualized the adverse effects over the same 25 -month period, and that even -handedness deman ds 
that this Arbitrator follow the same approach.563 Finally, the European  Union  argues that the 
United  States  has failed to demonstrate that the European  Union 's approach is inconsistent with 
Articles 7.9 and 7.10 of the SCM  Agreement .564  
6.281.   The United  States  argues that we should use the length of the time -period over which the 
relevant post -reference period deliveries would have occurred in the counterfactual as the 
annualization period. T he United  States  submits that the essence of annualization is achievin g a 
correspondence between the numerator (i.e. number of deliveries giving rise to threat of impedance 
in the US and UAE markets) and the denominator (i.e. the period over which those deliveries were 
scheduled to occur).565 Accordingly, the United  States  takes as the denominator the time over which 
the counterfactual Airbus deliveries under the 2011 Delta Airlines and 2008 Fly Dubai sales would 
have been scheduled to occur after the end of the compliance panel's reference pe riod.566 
 
558 To facilitate the technical calculations and to account for uncertainty regarding the specific delivery 
months of the counterfactual deliveries, after determining the number of counterfactual deliveries that would 
have occurred in a given calendar year, w e assume that all counterfactual deliveries would have occurred in 
July of that year, as proposed by both parties in their calculations. We also note that the arbitrator in DS316 
did the same in this context. (Decision by the Arbitrator, EC and certain mem ber States – Large Civil Aircraft 
(Article 22.6 – EU), fn 675) 
559 European Union's response to Arbitrator question No. 66, paras.  236 and 239.  
560 See para.  6.95 and, more generally, section 6.4.5.3.2  above.  
561 European Union's response to Arbitrator question No. 66, paras.  236 and 239.  
562 European Un ion's response to Arbitrator question No. 66, paras.  240-243 and 301 . 
563 European Union's response to Arbitrator question No. 66, paras.  244-248. 
564 European Union's response to Arbitrator question No. 66, paras.  248-250. 
565 United States' comments on the Eur opean Union's response to Arbitrator question No. 66, para.  115. 
See also United States' response to Arbitrator question No. 35, para. 110 (indicating that annualizing the value 
of relevant deliveries by the number of years over which such deliveries were scheduled to occur is proper 
when deliveries occur over "multiple years").  
566 Assuming  the end of the reference period to be September 2015, the United States notes that 
counterfactual Airbus deliveries would have occurred in the [[ ***]] as well as [[ ***]]. Accordingly, the United 
States argues that the 2015 expected value of the post -reference period deliveries under both sales campaigns 
would be divided by [[ ***]] to arrive at an annualized value of the threat of impedance findings. (United 
States' respons e to Arbitrator question No. 66, para.  96) Alternatively, if the compliance panel reference period 
were 2013 -2015, the United States submits that the value of scheduled deliveries on or after 1 January 2016 
would be divided by [[ ***]] because the numerator  would reflect deliveries made over [[ ***]]. (See United 
States' comments on the European Union's response to Arbitrator question No. 66, para.  115) WT/DS353/ARB  
 
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  6.282.   The Arbitrator notes that the annualization periods that the parties propose are of different 
durations.567 We therefore begin by examining whether using the reference period as the 
annualization period, as proposed by the European  Union , would be c onsistent with our mandate. At 
the outset, we emphasize in this context what the reference period is and what it is not. The 
reference period is a time -period in the post -implementation period in which the compliance panel 
identified adverse effects and, m ore specifically, forms of serious prejudice. We discern nothing 
about that exercise that indicates that the period was also intended to be a period of time to which 
relevant economic value flowing from such adverse effects was necessarily to be assigned f or the 
purpose of determin ing a maximum level of Annual Suspension under Article 7.10 of the 
SCM Agreement . Such assignment and determinations were not the task of the compliance panel. 
Thus, there is no basis on which to conclude that our task of fashioni ng a "commensurate" level of 
countermeasures, insofar as annualization is concerned, is ipso facto  controlled by the duration of 
the reference period in all cases.  
6.283.   We therefore recall our earlier conclusion that our mandate and the purpose of 
countermeasu res compels the conclusion that the choice of an appropriate period of annualization 
should be made with reference to a period over which the economic harm being measured occurs. 
We therefore observe that the compliance panel's findings with respect to thr eat of impedance and 
the nature of threat of impedance, indicate that we should value the threatened impedance with 
reference to counterfactual LCA deliveries occurring after the reference period and at the times those 
deliveries would have occurred.568 Thus, the economic harm flowing from the threat of impedance 
is measured by the value of the relevant counterfactual LCA deliveries at the times they would have 
been delivered. For threat of impedance, therefore, we consider that an appropriate annualization 
period should be made with reference to a period over which the relevant counterfactual deliveries 
being valued occurred. In  light of this conclusion, we see no way to consider the reference period 
alone as being that period since no relevant counterfactua l deliveries would have occurred during 
the reference period.569 We therefore cannot accept the reference period as an appropriate 
annualization period.570 
6.284.   We note that this conclusion is consistent with how the DS316 arbitrator valued present 
impedance, i.e . by valuing the relevant counterfactual deliveries in a time -period in which deliveries 
would have occurred (in that proceeding, in the compliance panel's reference period) .571 Our 
approach to annualization, therefore, gives consistency to how present  and threatened  (i.e. future) 
impedance are valued, while making due allowance for the different time -periods in which they may 
materialize and result in economic harm to the compla inant in the form of deliveries.  
6.285.   We further note that the European  Union  observes that the DS316 arbitrator annualized the 
adverse effects in th at proceeding over the compliance panel's reference period and refers in 
particular to the DS316 arbitrator's st atement that "we see no need to ensure that our 'chosen 
period of reference', i.e. the 2011 -2013 reference period, 'may lead to a reasonable estimation' of 
any present and future adverse effects" . The European Union argues that this statement  effectively 
dispenses with any requirement of consistency between the time periods in the numerator and the 
 
567 The reference period's duration is 36 months. The number of months over which the counterfactual 
deliveries would have occurred in the post -reference period in the US and UAE markets is HSBI, as it is derived 
from the HSBI proposed delivery schedules in t he Airbus final offers in the 2011 Delta Airlines and 2008 Fly 
Dubai sales campaigns.  
568 See para.  6.144  above.  
569 This stands in contrast to a situatio n involving lost sales, whereby we temporally assign the value of 
the resulting deliveries to the time of the lost sale that occurred during the reference period. As described in 
detail in the DS316 arbitration, it makes legal sense to do this because the "lost sale" itself is the adverse 
effect that occurred during the reference period, but it also makes economic sense to do so because "an LCA 
order contract is reasonably characterized as having an expected economic value such that when the order is 
lost, the supplier who would have won the sale in the relevant counterfactual (in this case, Boeing) can be said 
to have lost that expected value at the time of the lost sale". (Decision by the Arbitrator, EC and certain 
member States – Large Civil Aircraft (Art icle 22.6 – EU), para.  6.104) In the case of threat of impedance, the 
"threat" element temporally directs us to after the reference period to identify the economic event, i.e. 
"impedance" taking the form of LCA deliveries.  
570 We note that we are not dealin g with an instance where present impedance was found to exist during 
the reference period and then was expected to continue after the reference period by virtue of an additional  
threat finding. We make no judgments as to the appropriate annualization perio d in such a situation.  
571 In doing so, the Arbitrator noted that "other arbitrators likewise established maximum levels of 
suspension based on the relevant effects of the measures in question over one year". (Decision by the 
Arbitrator, EC and certain memb er States – Large Civil Aircraft (Article 22.6 – EU), para.  6.495)  WT/DS353/ARB  
 
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  denominator in an annualization exercise.572 We disagree  with the European Union's argument . The 
DS316 arbitrator's referenced statement was made in the context o f resolving a different issue, 
namely whether an arbitrator's valuation of "adverse effects determined to exist"  identified in a past 
time-period , expressed as a maximum level of Annual Suspension, must reflect the value of adverse 
effects caused by the su bsidies that were not previously identified by the compliance panel 
(specifically, adverse effects that the relevant subsidies may cause at the time of the arbitration 
proceeding, and into the then-future).573 We agree with the DS316 arbitrator's conclusion  in this 
context, i.e. that it is not necessary for the valuation to do so  under such circumstances.   
6.286.   In keeping with that conclusion, we fashion a maximum level of Annual Suspension solely 
with reference to the adverse effects determined to exist in the c ompliance panel's reference period, 
and not with reference to what adverse effects the Washington State B&O tax rate reduction may 
cause now or in the future.574 Finally, although we decide this issue with reference to what is 
permissible under our mandate,  we also note that we have concerns as to the systemic implications 
of the European  Union 's proposed approach in this context. This is so because the European  Union 's 
approach to temporal assignment of economic value of threatened serious prejudice, and re sulting 
annualization, reserves a significant role for the duration of a reference period. We thus observe 
that, under the European  Union 's approach, in two disputes where all other things are equal, 
significantly different levels of countermeasures could be authorized simply by virtue of different 
reference periods having been used (both temporally disconnected from the economic harm being 
valued) to identify the same threatened serious prejudice. We have doubts that such a result could 
be considered legal ly or economically sound575 and are concerned about the potential of such an 
approach to yield arbitrary and/or punitive levels of countermeasures.576 
6.287.   With these observations in mind, we turn to determining what the appropriate annualization 
period is for the finding of threat of impedance in the two relevant geographic markets, i.e. the 
United  States  and the UAE.  
a. Annualization period for the United  States  market  
6.288.   With respect to the annualization period for the threat of impedance in the US geographic 
market, the United  States  proposes that we use the time -period beginning at the end of the 
reference period and through the end of the last calendar year in which Airbus' counterfactual 
deliveries stemming from the 2011 Delta Airlines campaign would have occur red (which is a 
[[***]]).577 The European Union has proposed no alternative annualization period (other than the 
reference period, which we have already rejected as an appropriate annualization period immediately 
 
572 European Union's response to Arbitrator question No. 74, para.  381 (referring to Decision by the 
Arbitrator, EC – Large Civil Aircraft (Article 22.6 – EU), para.  6.74).  
573 Indeed, after th e DS316 arbitrator determined that it could fashion a maximum level of Annual 
Suspension based on the adverse effects identified in the compliance panel's reference period, the arbitrator 
still engaged in a multi -page discussion about whether it would be l egally and economically appropriate to 
temporally assign the value of lost sales to that reference period. (Decision by the Arbitrator, EC and certain 
member States – Large Civil Aircraft (Article 22.6 – EU), pp. 51-56) It is difficult to discern why such a lengthy 
discussion would have been necessary if the arbitrator had previously determined that all values of the adverse 
effects should ipso facto  be assigned to that reference period.  
574 See Decision by the Arbitrator, EC and certain member States – Large  Civil Aircraft 
(Article  22.6 – EU), Annex C -1 (explaining this issue further).  
575 We also note that, under the European Union's approach, in instances where threat of serious 
prejudice is identified but the time -period over which it would materialize is not previously specified, the level 
of countermeasures could further be significant ly altered by arbitrators choosing to value the same rate of 
harm over different durations following the same reference period. Annualizing such harm with reference to the 
time-period over which it occurs may mitigate such potential variations.  
576 It is gen erally recognized that WTO remedies are not intended to be "punitive". (Decisions by the 
Arbitrator, US – Washing Machines (Article  22.6 – US), para.  1.17 (citing Decisions by the Arbitrator, 
US – Upland Cotton (Article  22.6 – US I), para.  4.109); US – 1916 Act (EC) (Article  22.6 – US), para.  5.8; and 
US – FSC (Article  22.6 – US), para.  5.62 (noting that even though in prohibited subsidies disputes Article  4.10 
of the SCM  Agreement authorizes "appropriate" countermeasures that are not "disproportionate", th ere is 
nothing in that Article  or its context "which suggests an entitlement to manifestly punitive 
{countermeasures}" ). See also Decision by the Arbitrator, Brazil – Aircraft (Article  22.6 – Brazil) , para.  3.55 
(explaining that "{a} countermeasure becomes  punitive when it is not only intended to ensure that the {WTO 
Member} in breach of its obligations bring its conduct into conformity with its international obligations, but 
contains an additional dimension meant to sanction the action of that {WTO Member} ")). 
577 United States' response to Arbitrator question No. 66, para.  96; and comments to European Union's 
response to Arbitrator question No. 66, para.  130.  WT/DS353/ARB  
 
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  above). The Arbitrator considers that, under  the particular circumstances of this proceeding, the 
United  States ' proposed approach to annualization with respect to the US geographic market is 
acceptable under our mandate. That approach purportedly uses the temporal period that 
corresponds to the per iod over which the relevant deliveries would have occurred in the 
counterfactual in the post -reference period.578 We further recall that the finding of threat of 
impedance in the United  States  market was based on expected post -reference period deliveries 
stemming from the 2011 Delta Airlines sales campaign, specifically. Further, the Airbus proposed 
delivery schedule envisioned a temporal spread of deliveries that is [[ ***]] over the delivery p eriod. 
We note, however, that we use an annualization period in this context that is [[ ***]] than the 
United  States ' proffered time -period. This is so because the Airbus delivery schedule does not 
actually envision deliveries occurring for the [[ ***]] of t he United  States ' proffered annualization 
period. We thus use an annualization period that corresponds to the number of months over which 
the Airbus proposed delivery schedule envisioned deliveries to occur, which is still a [[ ***]] period.  
b. Annualization p eriod for the UAE market  
6.289.   With respect to the annualization period for the threat of impedance in the UAE geographic 
market, the United  States  proposes that we use the entire time -period in the post -reference period 
over which Airbus' counterfactual delive ries stemming from the 2011 Delta Airlines and 2008 Fly 
Dubai sales campaigns would have occurred. The end of this proposed period is apparently based 
on the year of the last counterfactual Airbus delivery associated with the 2011 Delta Airlines sales 
camp aign, which is [[ ***]] the date of the last counterfactual Airbus delivery in the 2008 Fly Dubai 
sales campaign. The United  States  has offered no other justification for this annualization period. 
We therefore recall that the threat of impedance findings f rom the compliance proceedings were 
expressed as separate findings for the US and UAE geographic markets , based on specific and 
different lost sales . We thus see no reason stemming from the compliance panel's findings to 
annualize them with reference to th e same time -period. We therefore consider that,  in the 
circumstances of this proceeding, the United  States  has failed to properly justify its proposed 
annualization period as acceptable under our mandate, and we accordingly decline to use it.  
6.290.   We observe t hat neither party offers a method for annualizing the value of the threat of 
impedance in the UAE market with reference to anything other than the temporal periods that we 
have already rejected. We therefore must select an annualization period in this cont ext that is 
consistent with our task of determining a maximum level of Annual Suspension that is 
"commensurate with" the value of the adverse effects determined to exist. In selecting an 
annualization period, we first establish what we consider to be relev ant factual assumptions. In 
particular, we note that the counterfactual Airbus deliveries [[ ***]] based on Airbus schedules . In 
other words, the relevant deliveries would have occurred over a time -period of [[ ***]]. Moreover , 
we note that the presentation of the counterfactual Airbus deliveries in the Fly Dubai final 2008 offer 
does not enable us to determine precisely [[ ***]].579 We note, however, that the United  States , in 
its most recently updated calculations concerning a "delivery -centric" approach to valuing threat of 
impedance, assumes an HSBI number of Airbus counterfactual deliveries postdating the reference 
period by apparently assuming an even temporal spread of deliveries over the maximum number of 
relevant months o ver which deliveries could have occurred under the Airbus proposed delivery 
schedule. In the light of the previously noted uncertainties surrounding the exact timing of Airbus' 
counterfactual post -reference period deliveries, we consider this methodology r easonable and 
accordingly adopt it. We therefore assume the same HSBI number of post -reference period deliveries 
over the same number of months as the United  States  appears to do in its most recent calculations.  
6.291.   With such reasonable assumptions established , we turn to selecting an appropriate 
annualization period. We  have, as set out above, selected an annualization period for threat of 
impedance in the US market that corresponds to the number of months in the post -reference period 
over which the relevant c ounterfactual deliveries would have been made. In the light of the facts 
and circumstances of this proceeding, and in the absence of any alternative suggestions from the 
parties, we consider it appropriate to adopt the same method here, i.e. selecting an a nnualization 
 
578 We also note that the resulting annualized number of deliveries in the post -reference period 
generally corresponds to the average annual number of deliveries envisioned under the entire Airbus delivery 
schedule.  
579 We note that Boeing had delivered all of its aircraft under the 2008 Fly Dubai sales campaign by the 
end of the third quarter of 2015. (See  2 RPQ Ascend Database Update (Exhibit EU -75); and  European Union's 
response to Arbitrator question No. 66 paras.  204, 226, 322, 326, and 330. See also [[ ***]]. WT/DS353/ARB  
 
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  period that corresponds to the number of months over which Airbus' post -reference period 
counterfactual deliveries that we value would have occurred, which is an HSBI number of months. 
This implies that we divide the total value of all post -reference period deliveries by the number of 
months between the end of the reference period and the last counterfactual delivery and multiply 
this value by 12 to obtain an annualized value.  
6.292.   We note that this HSBI number of months is [[ ***]]. Under the speci fic circumstances of 
this proceeding, however, we still consider this an appropriate annualization period. Both parties 
have proffered ways to annualize the adverse effects in this proceeding over time periods that have 
not always coincided with a whole nu mber of years . Also, this method accords with the United  States ' 
general position that the relevant counterfactual deliveries should be annualized over the time during 
which they would have occurred. Further, we note that the resulting number of annual del iveries 
reached under this method generally corresponds to the average number of annual deliveries 
envisioned under the Airbus proposed delivery schedule for the 2008 Fly Dubai sales campaign  as a 
whole , and to the average number of annual post -reference p eriod deliveries in the UAE market had 
we included 2014 Fly Dubai deliveries in the threat of impedance calculation. Finally, and relatedly, 
we note that the period over which relevant deliveries would have occurred in the UAE market would 
have been greate r than [[ ***]] had we valued the deliveries resulting from the 2014 Fly Dubai lost 
sale as threat of impedance, rather than valuing the 2014 Fly Dubai sales campaign as a lost sale 
(as was proposed by both parties).  
a. Conclusion  
6.293.   For the for egoing  reasons, in  the context of valuing the threat of impedance, and in the light 
of the specific circumstances of this proceeding, we will annualize the value of relevant post -
reference period counterfactual Airbus deliveries in the US and UAE markets with reference to t he 
number of months over which such counterfactual deliveries would have occurred in each market.  
6.4.9   Summary of technical valuations of the adverse effects determined to exist  
6.294.   In the sections above, we have made various decisions regarding the methodology tha t we 
consider appropriate to determine a maximum level of Annual Suspension. In the light of such 
decisions, this section summarizes how we will determine that maximum value. In accordance with 
our findings made thus far, we follow a three -step approach wh ereby we calculate: (a) an aggregate 
annualized value for significant lost sales expressed in 2015 US  dollars ; (b) an aggregate annualized 
value for threat of impedance expressed in 2015 US  dollars ; and (c) an aggregate value given by 
the sum of these two values. We address each in turn in the following subsections.  
6.4.9.1   Valuation of significant lost sales  
6.295.   As noted, in the preceding sections, we have adopted aspects of the methodology proposed 
by the European Union regarding the valuation of significant lost sal es while making adjustments to 
other aspects. This section summarizes those decisions and describes how we will determine an 
aggregate annualized value of adverse effects in the form of significant lost sales.  
6.296.   As explained in section 6.4.5.2  the findings of significant lost sales relate to three separate 
sales campaigns that occurred during the reference period, i.e. Icelandair 2013, Air Canada 2013, 
and Fly Dubai 2014. The value of adverse effects in the form of significant lost sales is equal to the 
sum of the values of the Airbus LCA that would have been ordered and delivered had Airbus won 
the campaigns in the counterfactual. To calculate the value  of each sales campaign, we follow an 
order -centric approach, i.e. we determine the total value of each sales campaign at the time the 
orders were lost before adjusting those values to a common 2015 US dollar basis.  
6.297.   We found it reasonable to assume that, i n the counterfactual, Airbus would have won all 
three sales campaigns and would have received orders for as many LCA as Boeing actually received  
in connection with each sales campaign (not including options, whether exercised or not).580 We rely 
on Airbus' final offers in the respective sales campaigns to obtain counterfactual delivery models, 
delivery schedules, and Net Fly -Away Prices. In sales campaigns in which differences between Airbus' 
final offers and Boeing's purchase agreements require additional a ssumptions regarding (a) certain 
 
580 See section s 6.4.6.1  and 6.4.6.2  above.  WT/DS353/ARB  
 
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  counterfactual delivery dates and (b) LCA models that would have been ordered, we resolve the 
former issue with the aid of the delivery schedules in Boeing's purchase agreements and the latter 
issue in the light of the mode ls that were offered by Airbus in its relevant final offers (see section 
6.4.6.3 ). 
6.298.   The value of each sales campaign is equal to the sum of the discou nted value of Airbus' Net 
Fly-Away Price s (including [[ ***]], and as escalated to the time of delivery) for each counterfactual 
delivery associated with that given sales campaign. For each delivery we account for the risk of 
cancellation and discount the delivery -date price back to the time of order as follows:  
𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖𝑖𝑛 𝑜𝑟𝑑𝑒𝑟  𝑑𝑎𝑡𝑒  𝑜 𝑈𝑆𝐷
= ∑ ∑ 𝐴𝑖𝑟𝑏𝑢𝑠𝑁𝑒𝑡𝐹𝑙𝑦𝐴𝑤𝑎𝑦𝑃𝑟𝑖𝑐 𝑒𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖,𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑𝑖𝑛 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑 𝑈𝑆𝐷
𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚 
𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑
×𝑁𝑢𝑚𝑏𝑒𝑟𝑂𝑓𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑒𝑑𝐴𝑖𝑟𝑐𝑟𝑎𝑓𝑡 𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖,𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑 
× 𝑆𝑢𝑟𝑣𝑖𝑣𝑎𝑙𝑅𝑎𝑡𝑒 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑 × 1
(1+𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝐹𝑎𝑐𝑡𝑜𝑟 𝑜𝑟𝑑𝑒𝑟  𝑑𝑎𝑡𝑒  𝑜)𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑 −𝑜𝑟𝑑𝑒𝑟  𝑑𝑎𝑡𝑒  𝑜 , (2) 
 
where 
 
 𝑆𝑢𝑟𝑣𝑖𝑣𝑎𝑙𝑅𝑎𝑡𝑒 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑={  1                                                                                                    𝑖𝑓 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑<𝐽𝑎𝑛 2020
(1−𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝐴𝑖𝑟𝑏𝑢𝑠𝑆𝑖𝑛𝑔𝑙𝑒𝐴𝑖𝑠𝑙𝑒𝐶𝑎 𝑛𝑐𝑒𝑙𝑙𝑎𝑡𝑖𝑜𝑛𝑅𝑎𝑡𝑒 2003 −2007 )𝑑−𝐽𝑢𝑙 2019                    𝑒𝑙𝑠𝑒, 
 
and 𝐴𝑖𝑟𝑏𝑢𝑠𝑁𝑒𝑡𝐹𝑙𝑦𝐴𝑤𝑎𝑦𝑃𝑟𝑖𝑐𝑒𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑎𝑝𝑖𝑔𝑛  𝑖,𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑𝑖𝑛 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑 𝑈𝑆𝐷 is defined by Equation (1) in 
section  6.4.6.6  on counterfactual delivery prices.  
 
6.299.   We adjust counterfactual delivery numbers to reflect cancell ations that would have occurred 
before 2020 in the counterfactual, as described in section 6.4.6.4 . This affects only one delivery 
from the Fly Dubai  2014 campaign as summarized in Table 1. We assume that all other 
counterfactual Airbus deliveries scheduled to occur before 2020 would have occurred.  
Table 1: Counterfactually ordered and delivered aircraft  
 
6.300.   We adjust the counterfactual delivery prices of all orders that would have been delivered in 
2020 or later and are unaffected by a pre -2020 cancellation  by a survival rate to reflect the risk that 
such deliveries might be cancelled in the coun terfactual future. The survival rate gives the probability 
that a counterfactual delivery will not be cancelled in the counterfactual. We construct a survival 
rate for all counterfactual deliveries scheduled from 2020 onwards based on Airbus' average histo ric 
cancellation rate between 2003 and 2007 for single -aisle LCA (section 6.4.6.4 ).  
6.301.   Once we have thus obtained the delivery prices of the relevant counterfactual LCA, we 
discount those delivery prices back to the time that the relevant sales campaign was lost. The 
discount factor accounts for the fact that monetary flows associated with o rders resulting from sales 
campaigns are temporally removed from the time at which such orders are placed. It addresses 
resulting risks and harmonizes the monetary basis of delivery values at the date of order. As 
 
581 See section 6.4.6.3  above for a detailed explanation regarding the determination of the number of 
counterfactual orders. It will be recalled that, to obtain these numbers, we predicated our analysis on the 
proposed number of order s in the Airbus final offers, which are HSBI. That analysis ultimately concluded, 
however, that we should use the number of orders that coincided with the number of firm orders in the Boeing 
purchase agreements, which the numbers in this column represent.  Lost sale Order year  Number of 
counterfactually 
ordered aircraft581 Number of 
counterfactually 
delivered aircraft  
Icelandair  2013 16 16 
Air Canada  2013 61 61 
Fly Dubai  2014 86 85 WT/DS353/ARB  
 
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  discussed in section 6.4.7.1 , we use Airbus' average cost of debt in the order year as the appropriate 
discount factor.582  
6.302.   Having obtained the adjusted values of the lost sales expressed in o rder-date US dollars, we 
proceed by bringing them to a common monetary basis in order to be able to sum the values of the 
three lost sales. Both parties agree to use the year 2015 as the common monetary basis. We use 
the yearly average of the 2015 monthly ALII for this purpose as outlined in section 6.4.7.2  and 
calculate the sum to generate a total aggregate value for the significant lost sales express ed in 2015 
US dollar terms as follows:  
𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑖𝑛 2015  𝑈𝑆𝐷= ∑ 𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖𝑖𝑛 𝑜𝑟𝑑𝑒𝑟  𝑑𝑎𝑡𝑒  𝑜 𝑈𝑆𝐷 × 𝐴𝐿𝐼𝐼 2015
𝐴𝐿𝐼𝐼 𝑜𝑟𝑑𝑒𝑟  𝑑𝑎𝑡 𝑒 𝑜𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖. (3) 
 
6.303.   In the light of the European Union's request to impose countermeasures on an annual basis, 
we annualize the value of significant lost sales expressed in 2015 USD. We annualize the aggregate 
lost sales value expressed in 2015 US dollars over the length of r eference period, which was 
determined in section 6.4.7.3  to last 36 months from October 2012 to September 2015, as follows:  
𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝐿𝑜 𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑖𝑛 2015  𝑈𝑆𝐷
= ∑ 𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖,𝑜𝑟𝑑𝑒𝑟  𝑑𝑎𝑡𝑒  𝑜𝑖𝑛 2015  𝑈𝑆𝐷
𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖
× 12
𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛𝑂𝑓𝑅𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑃𝑒𝑟𝑖𝑜𝑑. (4) 
 
6.304.   The resulting aggregate annualized value of the significant lost sales expressed in 2015 
US dollars is USD [[ ***]]. 
6.4.9.2   Valuation of threat of impedance  
6.305.   As was the case for the valuation of significant lost sales, we have in the preceding sections 
adopted aspects of the methodology proposed by the European Union regarding the valuation of 
threat of impedance while making adjustments to other aspects. This section summarizes those 
decisions and describes how we will determine an aggregate annualized value of adverse  effects in 
the form of threat of impedance.  
6.306.   The compliance panel found threat of impedance in two different geographic markets, 
i.e. the United  States  and the UAE. We value the threat of impedance in each such market separately 
but follow the same methodology for each. We then express the value of threat of impedance in 
each market on a common monetary basis, annualize those values, and sum the two so a s to 
calculate a final aggregate annualized value for adverse effects in the form of threat of impedance. 
The common monetary basis is 2015 US  dollars , corresponding to the last year of the reference 
period and to the monetary basis of the significant lost  sales, so that we can subsequently calculate 
a maximum level of Annual Suspension by summing the aggregate annualized values of significant 
lost sales and threat of impedance.  
 
582 As mentioned in footnote 558 above , as proposed by both parties in their calculations, to facilitate 
the calculations and to account for the uncertainty regardin g the specific delivery months of the counterfactual 
deliveries, we assume that all counterfactual deliveries would have occurred in July of a given year. We note 
that the arbitrator in DS316 did the same in this context. (Decision by the Arbitrator, EC an d certain member 
States – Large Civil Aircraft (Article 22.6 – EU), fn 675) Regarding the dates of the relevant sales campaigns, 
i.e. the date on which Airbus would have secured the orders in the counterfactual, the European Union uses the 
exact month in w hich Boeing actually won the relevant sales campaigns, whereas the United States assumes in 
its calculations that all sales campaigns would have taken place in July of the relevant year. We discern nothing 
unreasonable in the European Union's approach, and  accordingly adopt it. We note that while the DS316 
arbitrator assumed that all orders associated with lost sales would have occurred in July in the relevant year, 
that was the methodology proposed by the United States in that proceeding, with respect to w hich the 
arbitrator noted no objection by the European Union. (Decision by the Arbitrator, EC and certain member 
States – Large Civil Aircraft (Article 22.6 – EU), fns 350 and 675) We further note that, although this Decision 
is circulated after July 2020,  the parties' last substantive submissions were received in March 2020.  WT/DS353/ARB  
 
- 117 - 
 
  6.307.   We value threat of impedance using a delivery -centric approach.583 That is, and as explained 
in section s 6.4.5.3.2  and 6.4.5.3.3 , we value the counterfactual deliveries that Airbus would have 
made had Airbus not suffered impedance in the two geographic markets in the post -reference period. 
These counterfactual deliverie s would have resulted from Airbus winning one sales campaign in each 
relevant geographic market, i.e. the 2011 Delta Airlines sales campaign for the US market and the 
2008 Fly Dubai sales campaign for the UAE market.  
6.308.   To determine delivery prices of the rel evant deliveries, we proceed with the same steps as 
when valuing deliveries stemming from lost sales. Thereafter, as described in section 6.4.8.1 , we 
temporally adjust the delivery prices directly back to 2015 using the ALII. The aggregate 2015 US 
dollar value of the threat of impedance in each geographic market is thus given by:  
𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝑇 ℎ𝑟𝑒𝑎𝑡𝑂𝑓𝐼𝑚𝑝𝑒𝑑𝑎𝑛𝑐𝑒𝑔𝑒𝑜𝑔𝑟𝑎𝑝 ℎ𝑖𝑐 𝑚𝑎𝑟𝑘𝑒𝑡 𝑔𝑖𝑛 2015  𝑈𝑆𝐷
= ∑ ∑ 𝐴𝑖𝑟𝑏𝑢𝑠𝑁𝑒𝑡𝐹𝑙𝑦𝐴𝑤𝑎𝑦𝑃𝑟𝑖𝑐𝑒𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖,𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑𝑖𝑛 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑 𝑈𝑆𝐷
𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚 
𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑
×𝑁𝑢𝑚𝑏𝑒𝑟 𝑂𝑓𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑒𝑑𝐴𝑖𝑟𝑐𝑟𝑎𝑓𝑡 𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛  𝑖,𝐿𝐶𝐴  𝑚𝑜𝑑𝑒𝑙  𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑 
×𝑆𝑢𝑟𝑣𝑖𝑣𝑎𝑙𝑅𝑎𝑡𝑒 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑× 𝐴𝐿𝐼𝐼 2015
𝐴𝐿𝐼𝐼 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦  𝑑𝑎𝑡𝑒  𝑑. (5) 
 
6.309.   As described in section 6.4.8.2 , we annualize the aggregate 2015 US dollar value of the 
threat of impedance in both geographic markets over the time  during which, in the post -reference 
period, the relevant deliveries would have occurred. We then sum those two aggregate annualized 
values in order to obtain one aggregate annualized value for the two threat of impedance findings 
as follows:  
𝐴𝑛𝑛𝑢𝑎𝑙 𝑖𝑧𝑒𝑑𝑇 ℎ𝑟𝑒𝑎𝑡𝑂𝑓𝐼𝑚𝑝𝑒𝑑𝑎𝑛𝑐𝑒𝑖𝑛 2015  𝑈𝑆𝐷
= ∑ 𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑 𝑇ℎ𝑟𝑒𝑎𝑡𝑂𝑓𝐼𝑚𝑝𝑒𝑑𝑎𝑛𝑐𝑒𝑔𝑒𝑜𝑔𝑟𝑎𝑝 ℎ𝑖𝑐 𝑚𝑎𝑟𝑘𝑒𝑡  𝑔𝑖𝑛 2015  𝑈𝑆𝐷
𝑔𝑒𝑜𝑔𝑟𝑎𝑝 ℎ𝑖𝑐 𝑚𝑎𝑟𝑘𝑒𝑡  𝑔
× 12
𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛𝑂𝑓𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑖𝑒𝑠 𝑠𝑎𝑙𝑒𝑠  𝑐𝑎𝑚𝑝 𝑎𝑖𝑔𝑛  𝑖.  (6) 
 
The resulting annualized value of threat of impedance expressed in 2015 US  dollars is USD [[ ***]]. 
 
6.4.9.3   Aggregated annualized value of significant lost sales and of the threat of 
impedance in the two geographic markets  
6.310.   We have in the previous two subsections calculated aggregate annualized values for adverse 
effects in the form of significant lost sales and threat of impedance. To obtain the maximum level of 
Annual Suspension, therefore, we sum these t wo values as follows584: 
 
583 See para. 6.145  above.  
584 We note the argument made several times in this  proceeding by the United States (most recently in 
United States ' response to Arbitrator question  No. 66, paras.  98-105) that valuations for different findings 
regarding adverse effects (i.e. significant lost sales and the two findings of threat of impedance) cannot be 
simply summed to obtain an aggregate value when their annualization periods differ. The  United States argues 
that since the findings of significant lost sales and threat of impedance are based on a "single economic 
phenomenon", their total value should in this case be a weighted average of "the two annual values" for lost 
sales and threat of  impedance. We note that the United States predicates its argument here on the fact that 
different types of harm (lost sales and threat of impedance) arise from the same subsidy. (United States 
response to Arbitrator question No. 66, para.  101) We fail to see why this is relevant in this context. What we 
value is not the subsidy itself, but two distinct forms of harm arising from it, i.e. lost sales and threat of 
impedance. The deliveries that we value for each stem from different, i.e. not overlapping, LCA  orders. We 
further do not see why the choice of annualization periods should affect these considerations. Annualization 
standardizes the length of the periods over which the different findings have been valued at one year. While 
annualization mathematical ly leads initially to differential denominators, we note that we reduce the fractions 
to the common denominator one before summing them. Given the common denominator and the re -stating of 
all values on a common monetary basis, we do not discern any reason why we cannot aggregate the values 
through summation. Accordingly, we reject the argument by the United States.  WT/DS353/ARB  
 
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  𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝐴𝐸𝐷𝑇𝐸𝑖𝑛 2015  𝑈𝑆𝐷
=𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝑇 ℎ𝑟𝑒𝑎𝑡𝑂𝑓𝐼𝑚𝑝𝑒𝑑𝑎𝑛𝑐𝑒𝑖𝑛 2015  𝑈𝑆𝐷+ 𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑖𝑛 2015  𝑈𝑆𝐷.  (7) 
 
6.311.   The total annualized val ue of the adverse effects determined to exist, expressed in 2015 
US dollar terms, amounts to USD 3,993,212,564. We will refer to this as the 2015 Annualized Value.  
6.5  Countermeasures commensurate with the annualized value of the adverse effects 
determined to exist  
6.312.   In section 6.4.9.3  above, we determined that the 2015 Annualized Value is USD 
3,993,212,564. It will be recalled that the European Union reques ted that we adjust the 2015 
Annualized Value for inflation from 2015 up to April 2020 and thus express the level of Annual 
Suspension in 2020 US dollar terms (the 2020 Annualized Value). The European Union also 
requested that it be authorized to adjust the  2020 Annualized Value for inflation arising in future, 
post-2020, years in which the European Union would apply countermeasures.  
6.313.   It will further be recalled that, in accordance with Article  7.10 of the SCM  Agreement, the 
maximum level of Annual Suspensio n must be "commensurate" with the annualized value of adverse 
effects determined to exist. We must therefore examine whether the level of countermeasures 
proposed by the European Union is "commensurate" with the 2015 Annualized Value of adverse 
effects tha t we calculated.  
6.314.   We address these two issues – the requested adjustment for inflation up to 2020 and 
beyond, and the "commensurate" 2015 Annualized Value – in the following sections.  
6.5.1   Adjustment of the annualized value of adverse effects determined to exist  for 
inflation to April 2020 dollars and for future years in which countermeasures are applied  
6.315.   The European Union proposed in its methodology paper to calculate a "present  value" of 
adverse effects determined to exist by adjusting delivery -date prices (of all deliveries associated 
with significant lost sales and threat of impedance) for inflation up to April 2020, the month in which 
the European Union stated that it expected the Arbitrator to issue its Decision.585 The European 
Union proposed this adjustment "{t}o prevent inflation from affecting the real value of 
countermeasures due", noting that the European Union will be authorized to impose 
countermeasures several years after the end of the implementation period .586 The European Union 
performed this adjustment based on relative changes in the value of the ALII, i.e. by multiplying 
delivery -date prices by a ratio of the ALII for April 2020 divided by the ALII for the month of the 
delivery at issue. That April 2020 US dollar value would then be divided by the number of months in 
the reference period and multiplied by 12 in order to yield the 2020 Annualized Value.587  
6.316.   The European Union also asserted that the 2020 Annualized Value of adverse effects was to 
be adjusted for inflation in all subsequent years in which countermeasures could be applied, 
assuming "the United States fails to demonstrate … that it has achieved compliance".588 The 
European Union sought to implement this inflation adjustment by multiplying  the 2020 Annualized 
Value  by a ratio of the ALII in the year in which the countermeasures would be imposed, divided by 
the ALII for April 2020.589  
6.317.   The European Union later revised certain aspects of its methodology "in an effort to ensure 
consistency betw een the approaches taken in {the DS316 arbitration} and by the Arbitrat{or} … in 
 
585 European Union's methodology paper, paras.  8, 78, 97, 104 , 138, and 158 , and fn 146 . In its 
methodology paper, the European Union first perfo rmed a temporal adjustment seeking to express adverse 
effects in April 2020 US dollars, before restating those adverse effects on an annualized basis. In its written 
submission, however, the European Union updated its calculation methodology in several res pects, including by 
reversing the order in which it undertook the temporal adjustment and the annualization exercise. (See e.g. 
European Union's written submission, paras.  396-400) 
586 European Union's methodology paper, para.  82. 
587 European Union's methodol ogy paper, paras.  97-103. 
588 European Union's written submission, para.  408 and fn  578 thereto ; and methodology paper, 
para. 78 and fns  143 and 146.  
589 European Union's methodology paper, fn  146. WT/DS353/ARB  
 
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  the present proceedings".590 Accordingly, and acknowledging that the DS316 arbitrator declined the 
United  States ' requests to adjust for inflation the annualized value of adver se effects to the then -
present day and for future years, the European Union explained that it "no longer undertakes time -
adjustments for inflation until April 2020" or "seeks to inflation -adjust the level of countermeasures 
going forward".591  
6.318.   The United  States, in its written submission, did not specifically object to the European 
Union's determination of the 2020 Annualized Value of adverse effects but challenged the European 
Union's use of the ALII to do so. The United  States  argued that, to the extent th is inflation 
adjustment serves to state an equivalent real value in a future year, it should not be made using 
[[***]] but rather using a producer price index specific to civilian aircraft manufacturing.592 The 
arguments raised by the United  States  in this context are the same as those we considered above 
in section 6.4.7.2  in relation to the restatement of adverse effects on a common 2015 US dollar 
basis. The United  States  did not appear to have specifically responded to the European Union's 
request to adjust for inflation the level of countermeasures for each year going forward.  
6.319.   The United  States  subsequently revised its position on the propriety of in flation adjustments 
up to April 2020 in light of the DS316 arbitrator's decision not to make such adjustments, and now 
suggests that the Arbitrator follow this guidance.593 The United  States  relies on the DS316 
arbitrator's observation that adjusting for in flation to obtain a present value was neither necessary 
to preserve the effectiveness of the countermeasures that the United  States  sought authorization to 
impose, nor in keeping with the absence of such adjustments in virtually all prior arbitration decis ions 
in which a similar structure of countermeasures has been adopted.594  
6.320.   The Arbitrator notes that, in making explicit that its revised valuation methodology no longer 
accounts for inflation up to the present day and going forward, the European Union has effectively 
abandoned its requests that the Arbitrator include those steps in determining the maximum level of 
Annual Suspension. We see no reason to decline the European Union's updated valuation approach 
in this regard . We consider this approach to be particularly reasonable in the circumstances of this 
proceeding in that it comports with the DS316 arbitrator's decision not to adjust for inflation the 
value of the maximum level of Annual Suspension to the then -present day and for each year going 
forward.595  
6.321.   Thus, we decide not to adjust the  maximum level of Annual Suspension for inflation up to 
the present day (2020) and in future years in which countermeasures  may be applied.596 
6.5.2   The "commensurate" 2015 Annualized Value  
6.322.   We recall that we have calculated the 2015 Annualized Value (i.e. the maximum level of 
Annual Suspension), to be USD 3,993,212,564. The European Union calculates the 2015 Annualized 
 
590 European Union's written submission, para.  394. 
591 European U nion's response to Arbitrator question No. 85, para.  458. See also response to Arbitrator 
question No. 39, paras.  152-157; and No. 40, paras.  158-159.  
592 United States' written submission, paras.  112-126. 
593 United States' response to Arbitrator question No s. 38-39, paras.  120-121.  
594 United States' response to Arbitrator question No s. 38-39, para.  120 (referring to Decision by the 
Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), paras.  6.512 -6.513). The 
United States subm its that the same considerations as to the propriety of inflation adjustments up to April 
2020 apply with equal force in this proceeding. Thus, because no relevant factors distinguish this dispute and 
the DS316 arbitration on this issue, the United States asserts that the Arbitrator may take the same approach.  
595 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
paras.  6.514 and 6.522. We note that the DS316 arbitrator, at least in part, based its decision i n the light of 
prior arbitrator practice. ( Ibid., para.  6.512)  
596 Additionally, we would question the European Union's argument that the ALII would be the 
appropriate inflation index to use. As noted above in section 6.1, the ALII is an index compiled by the European 
Union based on Airbus' contractual escalation rates representing [[ ***]] changes in labour and materials costs 
resulting from inflation and  other economic changes. (European Union's methodology paper, para.  101) Thus, 
the ALII is specific to Airbus' viewpoint. Yet, and as the DS316 arbitrator observed, the value that would have 
needed to be protected from being eroded by inflation is the valu e of the countermeasures, which, here, may 
be imposed by the European Union on a potentially wide range of goods and/or services imported from the 
United States.  WT/DS353/ARB  
 
- 120 - 
 
  Value as USD 8,581,019,068.597 We thus examine whether the European Union's value of USD 
8,581,019 ,068 may be considered "commensurate" with the 2015 Annualized Value of adverse 
effects that we calculated.  
6.323.   The phrase "commensurate with" within the meaning of Article  7.10 of the SCM  Agreement 
connotes a correspondence of a "less precise degree of equiva lence than exact numerical 
correspondence" between the "adverse effects determined to exist" and "countermeasures" 
proposed.598 The European Union, however, does not request that it be allowed to take 
countermeasures in the form of a maximum level of Annual  Suspension higher than the annualized 
value of adverse effects  (nor do we perceive any justification for doing so in the circumstances of 
this proceeding) . We further note that our calculated 2015 Annualized Value of adverse effects (i.e. 
USD 3,993,212,56 4) is significantly lower than the European Union's proposed 2015 Annual 
Suspension Value (i.e. USD 8,581,019,068) , a value that we have determined in this Decision was 
derived from an at -times flawed methodology . Even assuming that, as a general matter, t he 
commensurateness standard could permit some limited degree of discrepancy between the proposed 
level of countermeasures and the value of the adverse effects determined to exist, an adjustment 
from USD 3,993,212,564 to USD 8,581,019,068 would in our view  exceed, by far, any permissible 
degree of discrepancy. We are accordingly unable to accept USD 8,581,019,068 as the 
"commensurate" 2015 Annualized Value.599  
6.324.   We thus perceive neither a need nor a justification, in the particular circumstances of this 
proce eding, for establishing the 2015 Annual Suspension Value at a level that is higher than the 
2015 Annualized Value of adverse effects that we have established . Accordingly, we determine that 
the "commensurate" 2015 Annualized Value, and thus the maximum lev el of Annual Suspension, is 
USD 3,993,212,564.  
7  THE U NITED  STATES ' CLAIM CONCERNING THE PRINCIPLES AND PROCEDURES SET OUT 
IN ARTICLE  22.3 OF THE DSU (CROSS -RETALIATION ) 
7.1.  It will be recalled that the European Union requests authorization to take countermeasures 
under the GATT  1994 and the SCM  Agreement , as well as the GATS.600 In its request, the European 
Union states that it is neither practicable nor effective for the European Union to suspend concessions 
or other obligations only in the goods se ctor up to a value of approximately USD 12,000 million. The 
European Union's request also states that, given the degree and nature of the adverse effects and 
serious prejudice, the circumstances are "serious enough" within the meaning of Article  22.3(c) of  
the DSU.601 The European Union thus requests authorization to impose countermeasures consisting 
of one or more of the following:  
 
597 We note that over the course of the proceeding, the European Union presented several alterna te 
methods of calculating the level of Annual Suspension which have given rise to different levels of Annual 
Suspension . (See fn 123 above). Most recently, and at the request of the Arbitrator, the European Union 
offered a methodology in which it uses an order -centric approach for calculating the value of significant lost 
sales and a delivery -centric approach (i.e. a "threat of impedance" approach) for calculating the value of threat 
of impedance (see section 6.4.5.3.3  above). Based on  this approach, the European Union calculated the 2015 
Annualized Value to be USD [[***]] (excluding the value of the 2004 -2006 R&D Adverse Effects ). (See 2RPQ 
valuation of single -aisle lost sales – Airbus delivery schedules (Exhibit EU -85 (HSBI)); and 2RP Q valuation of 
single -aisle threat of impedance – Airbus delivery schedules (Exhibit EU -77 (HSBI)))  We therefore note that, in 
this subsection, even if we were to use the USD [[***]] value instead of the USD 8,581,019,068 value, our 
conclusion with respect  to the "commensurate" 2015 Annualized Value would be the same.  
598 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 5.4 (citing Decision by the Arbitrator, US – Upland Cotton (Article 22.6 – US II) , paras.  4.35-4.39). See 
also section 6.4.5.1  above.  
599 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – 
EU), paras.  6.505 -6.509 (resolving the same issue similarly).  
600 See para 1.20 above. 
601 Article 22.3(c) of the DSU provides that:  
In considering what concessions or other obligations to suspend, the complaining party shall 
apply the following principles and procedures:  
… 
(c) if that party considers that it is not practicable or effecti ve to suspend concessions or 
other obligations with respect to other sectors under the same agreement, and that the 
circumstances are serious enough, it may seek to suspend concessions or other obligations under 
another covered agreement.  WT/DS353/ARB  
 
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  a. suspension of tariff concessions and other related obligations under the GATT  1994 on a 
list of US products to be established i n due course;  
b. suspension of concessions and other obligations under the SCM  Agreement ; and 
c. under the GATS, suspension of horizontal or sectoral commitments contained in the 
consolidated EU Schedule of Specific Commitments, as supplemented to incorporate th e 
individual Schedules of Specific Commitments of its Member States, with regard to all 
principal sectors identified in the Services Sectoral Classification List.602 
7.2.  In response, the United  States  claimed that the European Union did not follow the principle s 
and procedures set forth in Article  22.3 in considering what countermeasures to take.603 The 
United  States  thus reserved the right to raise a claim before the Arbitrator that the European Union 
had not followed the principles and procedures set forth in A rticle 22.3. It is for the United  States  to 
make out a prima facie  case that the European Union did not follow the principles and procedures in 
Article  22.3.604 
7.3.  The United  States  advanced no such claim under Article  22.3 in its written submission or oral 
statement. Since the United  States  did not pursue its claim before the Arbitrator, we cannot examine 
this issue further in the present Decision. We note that in WTO dispute settlement practice, a 
Member's measure is treated as WTO -consistent until it has bee n proven otherwise.605 Accordingly, 
we consider that a complaining party's request under Article  22.3(c) must be treated as 
DSU-consistent until proven otherwise.606 Consequently, it has not been demonstrated that the 
European Union's request for cross -retaliation is inconsistent with Article  22.3(c) of the DSU.  
8  CONCLUSION  
8.1.  For the reasons set out above, the Arbitrator concludes as follows:  
a. with reference to Articles 7.10 of the SCM  Agreement and 22.6 of the DSU, the level of 
countermeasures "commensurate with the degree and nature of the adverse effects 
determined to exist" amounts to USD 3,993,212,564 per annum; and  
b. with reference to Article  22.3 of the DSU, the Unit ed States  has not demonstrated that the 
European Union failed to follow the principles and procedures set forth in Article  22.3 of 
the DSU in determining that it is not practicable or effective to suspend concessions or 
other obligations in trade in goods and that the circumstances are serious enough.  
8.2.  The European Union may therefore request authorization from the DSB to take 
countermeasures with respect to the United  States  at a level not exceeding, in total, 
USD 3,993,212,564 annually. These countermeasur es may take the forms enumerated in 
points  (1)-(3) in the penultimate paragraph of document WT/DS353/17, which are also referenced 
in paragraph 7.1 a.-c. above.  
 
__________  
 
602 Recourse to Art icle 22.2 of the DSU, and Articles 4.10 and 7.9 of the SCM  Agreement by the 
European Union, WT/DS353/17.  
603 Recourse to Article 22.6 of the DSU by the United States, WT/DS353/19.  
604 Decisions by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 7.3; US – Upland Cotton (Article 22.6 – US II) , para.  5.55; US – Gambling (Article 22.6 – US), 
para. 2.27; and EC – Bananas III (Ecuador) (Article 22.6 – EC), para.  59. 
605 Appell ate Body Report, US – Carbon Steel , para.  157. 
606 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), 
para. 7.5.