WT/DS487/AB/R  
 
4 September 2017  
(17-4695) Page: 1/35 
    
 
UNITED STATES – CONDITIONAL TAX INCE NTIVES  
FOR LARGE CIVIL AIRC RAFT  
AB-2016-8 
Report of the Appellate  Body 
 
 
 
 
 
 WT/DS487/AB/R  
 
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  Table of Contents  
 
1 INTRODUCTION  ................................ ................................ ................................ ............  5 
2 ARGUMENTS OF THE PAR TICIPANTS  ................................ ................................ .............  8 
3 ARGUMENTS OF THE THI RD PARTICIPANTS  ................................ ................................ .. 9 
4 ISSUES RAISED IN THI S APPEAL  ................................ ................................ ..................  9 
5 ANALYSIS OF THE APPE LLATE BODY  ................................ ................................ .............  9 
5.1  Interpretation of Article 3.1(b) of the SCM  Agreement  ................................ ................... 10 
5.2  Whether the Panel erred in its interpretation of Article  3.1(b) of the 
SCM Agreement  ................................ ................................ ................................ ........ 14 
5.3  Whether the Panel erred in its application of Article  3.1(b) of the SCM  Agreement in 
the context of its de jure contingency analysis in respect of the First Siting 
Provision  ................................ ................................ ................................ .................. 19 
5.4  Whether the Panel erred in its application of Article  3.1(b) of the SCM  Agreement, 
or under Article  11 of the DSU, in the context of its de jure contingency analysis in 
respect of the Second Siting Provision ................................ ................................ .......... 21 
5.5  Whether the Panel erred in its de facto contingency  analysis under Article 3.1(b) of 
the SCM  Agreement  ................................ ................................ ................................ ...25 
6 FINDINGS AND CONCLUS IONS  ................................ ................................ ....................  33 
 
  WT/DS487/AB/R  
 
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ABBREVIATIONS  USED IN THIS REPORT  
Abbreviation  Description  
aerospace tax measures  The B&O aerospace tax rate and a  series of other tax credits or 
exemptions relating to product development activities, property and 
leasehold taxes, and sales and use taxes  
B&O business and occupation  
B&O aerospace tax rate  B&O tax rate that applies to business activities concerning the 
manufacture and sale of commercial airplanes  
BCI business confidential information  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes  
ESSB 5952  Engros sed Substitute Senate Bill 5952 , Chapter 2, Laws of 2013 3 rd 
Special Session, 2014 Wash. Sess. Laws 2 , codified in the Revised 
Code of Washington  (Panel Exhibit EU -3) 
First Siting Provision  ESSB 5952 (Panel Exhibit EU -3), Section 2  
GATT 1994 General Agreement on Tariffs and Trade 1994  
Panel Report  Panel Report, United States – Conditional Tax Incentives for Large 
Civil Aircraft , WT/DS 487/R 
SCM Agreement  Agreement on Subsidies and Countervailing Measures  
Second Siting Provision  ESSB  5952 (Panel Exhibit EU -3), Sections 5 -6(11)(e)(ii)  
Washington  state of Washington  
Working Procedures  Working Procedures for Appellate Review, WT/AB/WP/6 , 16 August 
2010 
WTO World Trade Organization  
CASES CITED IN THIS R EPORT  
Short Title  Full Case Title and Citation  
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R , adopted 20 August 1999, DSR 1999:III, p. 1377  
Canada – Aircraft 
(Article  21.5 – Brazil)  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft – Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/AB/RW , 
adopted 4 August 2000, DSR 2000:IX, p. 4299  
Canada – Autos  Appellate Body Report, Canada – Certain Measures Affecting the Automotiv e 
Industry , WT/DS139/AB/R , WT/DS142/AB/R , adopted 19 June 2000, DSR 
2000:VI, p. 2985  
EC and certain member 
States – Large Civil Aircraft  Appellate Body Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircra ft, WT/DS316/AB/R , adopted 1 
June 2011, DSR 2011:I, p. 7  
EC and certain member 
States – Large Civil Aircraft 
(Article 21.5 – US) 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, circulated t o WTO Members 22  September 
2016 [Panel Report  currently  under appeal]  
US – Anti-Dumping Measures 
on Oil Country Tubular 
Goods  Appellate Body Report, United States – Anti-Dumping Measures on Oil Country 
Tubular Goods (OCTG) from Mexico , WT/DS282/AB/R , adopted 28 November 
2005, DSR 2005:XX, p. 10127  WT/DS487/AB/R  
 
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  Short Title  Full Case Title and Citation  
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  
US – Continued Zeroing  Appellate Body Report, United States – Continued Existence and Application of 
Zeroing Methodology , WT/DS350/AB/R , adopted 19 Februar y 2009, 
DSR 2009:III, p. 1291  
US – Superfund  GATT Panel Report, United States – Taxes on Petroleum and Certain Imported 
Substances , L/6175, adopted 17  June 1987, BISD  34S, p. 136 
US – Tax Incentives  Panel Report, United States – Conditional Tax Incentives for Large Civil 
Aircraft , WT/DS487/R  and Add.1, circulated to WTO Members 
28 November  2016 
 
 WT/DS487/AB/R  
 
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  WORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
United States – Conditional Tax Incentives 
for Large Civil Aircraft   
 
United States, Appellant/Appellee  
European Union, Other Appellant/Appellee  
 
Australia, Third Participant  
Brazil, Third Participant  
Canada, Third Participant  
China, Third Participant  
Japan, Third Participant  
Korea, Third Participant  
Russia, Third Participant  
 AB-2016-8 
 
Appellate Body Division:  
 
Graham, Presiding Member  
Servansing , Member  
Van den Bossche , Member  
 
 
 
1  INTRODUCTION  
1.1.  The United States and the European Union each appeals certain issues of law and legal 
interpretations developed in the Panel Report, United States – Conditional Tax Incentives for Large 
Civil Aircraft1 (Panel Report). The Panel was established on 23 February 2015 to consider a 
complaint by the European Union2 with respect to measure s taken by the United States concerning 
certain tax incentives  for large civil aircraft.  
1.2.  Before the Panel, the European Union challenged certain tax -related measures provided by 
the state of Washington (Washington), as amended by Washington Engrossed Substitute Senate 
Bill 59523 (ESSB 5952), specifically : (i) a reduc tion in the business and occupation (B&O)  tax rate  
that applies to business activities concerning the manufacture and sale of commercial airplanes  
(B&O  aerospace tax rate) ; and (ii)  a series of other tax credits or exemptions relating to product 
developmen t activities, property and leasehold taxes, and sales and use taxes  – collectively, the 
"aerospace tax measures ".4 The European  Union claimed that these tax incentives are prohibited 
under Articles  3.1(b) and 3.2 of the Agreement on Subsidies and Counterva iling Measures 
(SCM Agreement ) as subsidies contingent upon the use of domestic over imported goods.5 
1.3.  The European Union identified two "siting" provisions in ESSB 5952 that govern the 
availability of the challenged tax incentives.6 The First Siting Provision  pertains to all of the 
aerospace tax measures and  states that the tax incentives will take effect "upon the siting of a 
significant commercial airplane manufacturing program" in Washington.7 Both parties agreed that 
the First Si ting Provision has been fulfilled in respect of Boeing's 777X aircraft program, and that 
the challenged tax incentives are therefore in effect.8 The Second Siting Provision concerns the 
continued availability of the B&O aerospace tax rate only, and provide s that the reduced tax rate 
will no longer apply if there is a determination by the Washington Department of Revenue "that  
any final assembly or wing assembly of any version or variant of a commercial airplane that is the 
basis of a siting of a significant  commercial airplane manufacturing program" under the First Siting 
Provision has been sited outside of Washington.9 
                                                
1 WT/DS487/R , 28 November 2016 . 
2 Request for the Establishment of a Panel by the European Union of 12 February 2015, WT/DS487/2.  
3 Engrossed Substitute Senate Bill 5952, Chapter 2, Laws of 2013 3rd Special Session, 2014 Wash. 
Sess. Laws 2, codified in the Revised Code of Washington  (ESSB 5952) (Panel Exhibit EU -3). (Panel Report, 
paras. 2.1 and  7.15)  
4 Panel Report, section 7.3.1.  
5 Panel Report, paras. 7.1 and 7.3.  
6 Panel Report, section 7.3.2.  
7 Panel Report, para. 7.28 (quoting ESSB 5952 (Panel Exhibit EU -3), Section 2).  
8 Panel Report, paras. 7.31 and 7.33.  
9 Panel Report, para. 7.32 (quoting ESSB 5952 (Panel Exhibit EU -3), Sections 5 -6(11)(e)(ii)), and 
para. 7.33. WT/DS487/AB/R  
 
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  1.4.  In the Panel Report, circulated to Members of the World Trade Organization (WTO) on 
28 November  2016, the Panel found that  each of the aeros pace tax measures at issue constitutes 
a subsidy within the meaning of Article 1 of the SCM Agreement .10 The Panel also found that, 
although the European Union had not demonstrated that any of the aerospace tax measures are 
de jure contingent upon the use o f domestic over imported goods with respect to the First or 
Second Siting Provisions in ESSB 5952, whether considered jointly or separately11, the 
B&O aerospace tax rate for the manufacturing or sale of commercial airplanes under Boeing's  777X 
aircraft program is a subsidy de facto contingent upon the use of domestic over imported goods 
within the meaning of Article 3.1(b) of the SCM Agreement .12 Accordingly, the Panel also found 
that the United States had acted inconsistently with Article 3.2 of the SCM Agreement .13  
1.5.  On 5 December 2016, the Appellate Body received a letter from the European Union referring 
to an imminent appeal in this dispute, to the ongoing appeal in EC and certain member  
States – Large Civil Aircraft (Article 21.5 – US) (DS316), and to the anticipated appeal in  
US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EC) (DS353 ). Referring to Rules 16(1) 
and 16(2) of the Working Procedures for Appellate Review14 (Working Procedures)  and Article 9 of 
the Understanding on  Rules and Procedures Governing the Settlement of Disputes  (DSU), the 
European Union requested that the schedules for these three appeals be harmonized to the 
greatest extent possible and that the hearings 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 one of the other appeals. The Chair of the Appellate Body invited the other party in these 
disputes, the United States, and the third parties to submit co mments by 9 December 2016. The 
United States argued that the European  Union's request was not supported by the DSU or the 
Working Procedures, and would result in delays in the proceedings, but that it remained open to 
proposals to set deadlines for submiss ions and dates for oral hearings in a way that would allow 
the participants and third participants in each dispute to advocate effectively their positions on 
appeal, and for the Appellate Body to co nsider fully the issues raised.15 The participants and thir d 
parties were invited to s ubmit additional comments by 16  December  2016. The European Union 
reiterated its request that any oral hearings in these appeals be sufficiently proximate in time, but 
noted that it was conte nt to leave it to the Appellate  Body t o determine what that would mean i n 
practice.16 By letter dated 22  December 2016, the Appellate Body indicated that it would bear in 
mind the European Union's request, as well as the comments received, during the appellate 
proceedings in these three dispute s.  
1.6.  On 16 December 2016 , the United States notified the Dispute Settlement Body (DSB), 
pursuant to Article s 16.4 and 17  of the DSU, of its intention to appeal certain issues of law covered 
in the Panel Report and certain legal interpretations developed by the Panel, and filed a Notice of 
Appeal17 pursuant to Rule  20 of the Working Procedures.  
1.7.  Also on 16 December 2016 , the Appellate Body received a joint letter from the 
European  Union and the United States requesting the Division hearing this appeal to adopt 
additional procedures to protect business confidential information (BCI) in these appellate 
proceedings. In their letter, the European  Union and the United  States argued that BCI procedures 
are needed in these proceedings to avoid the undue risk of detrime ntal disclosure of particularly 
sensitive confidential information provided by the United States to the Panel, and proposed that 
the additional procedures adopted by the Appellate  Body in the ongoing appeal in EC and certain 
member States – Large Civil Air craft (Article  21.5 – US) (DS316), with adjustments to remove 
references to highly sensitive business information, form the basis for any procedural ruling on 
confidentiality in these appellate proceedings . 
1.8.  On the same day, the Chair of the Appellate Body sent a lette r to the participants and 
third parties indicating that the Division hearing this appeal had decided to suspend the deadlines 
that would otherwise apply under the Working Procedures for the filing of submissions and other 
documents in this appe al. On behalf of the Division, t he Chair of the Appellate Body invited the 
                                                
10 Panel Report, paras. 7.165 and 8.1.a.  
11 Panel Report, paras. 7.297, 7.311, 7.317, and 8.1.b.  
12 Panel Report, paras. 7.369 and 8.1.c.  
13 Panel Report, para. 8.2.  
14 WT/AB/WP/6 , 16 August 2010.  
15 Comments were also received from Canada, China, and Japan.  
16 Comments were also received from the United States and Australia.  
17 WT/DS487/6.  WT/DS487/AB/R  
 
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  third parti es to comment in writing on the joint request by the European Union and th e 
United  States by 20  December  2016. Australia submitted written comments, indicating that it di d 
not object to the joint request, provided that the proposed procedures were not implemented in a 
manner that unduly restrict ed the ability of third participants to gain reasonable access to 
information, or to engage in meaningful participation in the pro ceedings . Taking into account the 
arguments made by the participants and the comments by Australia,  the Chair of the 
Appellate  Body, on behalf of the Division hearing this appeal, issued a Procedural  Ruling on 
22 December  2016 adopting additional procedure s to protect the confidentiality of BCI in these 
appellate proceedings.18 On the same day, the Division provided the participants and third parties 
with a Working Schedule for Appeal, setting out the dates for the filing of written submissions.  
1.9.  On 5 January  2017, the Chair of the Appellate  Body received a communication from the 
United  States requesting that the Division modify the deadline for the filing of the United States' 
appellant's submission. Relying on Rule  16(2) of the Working  Procedures, the United  States 
maintained that exceptional circumstances in these proceedings justified an extension of the 
deadline from 10  January to 17 January 2017. On the same da y, the Chair of the Appellate Body, 
on behalf of the Division hearing this appeal, invited the European Union and the third parties  to 
comment in writing on the United States' request. The European Union indicated that it did not, in 
principle, oppose the United States' request, but observed that the United States had had more 
than five  months since  receipt of the final Panel Report to prepare its appellant's submission, and 
that the time periods in this dispute were subject to the expedited treatment required by 
Article  4.12 of the SCM Agreement . No comments were received from the third parti es. 
1.10.   On 6 January 2017, the Chair of the Appellate Body, on behalf of the Division hearing this 
appeal, issued a Procedural Ruling19 in which the Division observed that: (i) under normal 
circumstances – i.e. where the schedule had not been revised to allow for addi tional procedures to 
protect BCI – the United  States would have already prepared and filed its appellant's submission 
on 16 December 2016; (ii) at the time of the request for additional procedures to protect BCI, the 
United States had not request ed more ti me to prepare the contents of it s appellant's submission; 
(iii) the scheduling of the deadlines for the United States' submissions in this appeal  and in EC and 
certain member States – Large Civil Aircraft (Article  21.5 – US) would not impede its ability to  
finalize the submissions; (iv) there had already been a delay in th e deadline due to the WTO's 
end-of-year closure ; and (v) the United States itself had indicated that its appellant's submission 
would not be exceptionally lengthy. For these reasons, the D ivision declined the United  States' 
request, and affirmed the deadline for the filing of its appellant's submission for 10 January 2017.  
1.11.   On 17 January 2017 , the European Union notified the DSB, pursuant to Articles  16.4 and  17 
of the DSU  and Article 4.8 of the SCM Agreement , of its intention to appeal certain issues of law 
covered in the Panel Report and certain legal interpretations developed by the Panel, and filed a 
Notice of Other Appeal20 and an other appellant's submission pursuant t o Rule 23 of the 
Working  Procedures . On 8 February 2017, the European Union and the United States each filed an 
appellee's submission.21 On 21 February 2017, Australia, Brazil, Canada, China, and Japan  each 
filed a third participant's submission.22 On the sa me day, Korea and Russia  each notified its 
intention to appear at the oral hearing as a third participant.23  
1.12.   By letter of 3 March 2017, the Chair of the Appellate Body notified the Chair of the DSB  that 
the Appellate Body would not be able to circulate its Report in this appeal within the 30 -day or 
60-day period  set out in Article 4.9 of the SCM Agreement .24 The Chair of the Appellate Body 
explained that this was due to a number of factors, including  the time needed for adopting and 
complying with additional procedures to protect BCI, the consequent extensions of the deadlines 
for filing submissions, overlapping issues identified by the participants in parallel proceedings, as 
                                                
18 The Procedural Ruling of 22 December 2016 is contained in Annex D -1 of the Addendum to this 
Report, WT/DS487/AB/R/Add.1.  
19 The Procedural Ruling of 6 January 2017 is contain ed in Annex D -2 of the Addendum to this Report, 
WT/DS487/AB/R/Add.1.  
20 WT/DS487/7.  
21 Pursuant to Rules 22 and 23(4) of the Working Procedures.  
22 Pursuant to Rule 24(1) of the Working Procedures.  
23 Pursuant to Rules 24(4) and 24(2), respectively, of the Wo rking Procedures. India is not a third 
participant in these appellate proceedings as it did not file a written submission pursuant to Rule 24(1) of the 
Working Procedures or appear at the oral hearing.  
24 WT/DS487/8/Rev.1.  WT/DS487/AB/R  
 
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  well as the substantial workload faced by the Appellate Body, the overlap in the composition of  the 
Divisions hearing several concurrent appeals, and the shortage of staff in the Appellate Body 
Secretariat.  
1.13.   On 1 June 2017, the Division received a communication from the United St ates proposing 
additional procedures to protect BCI during the oral hearing and requesting public observation of 
the opening statements at the hearing. On the same da y, the Division invited the European  Union 
and the third participants to comment in writin g on the United States' request.  The European 
Union expressed its support for the United States' request, but noted that it should be for the 
Appellate Body to decide whether or not sufficient time remained to organize public observation of 
the opening sta tements. Australia supported the United States' request, indicating that it 
considered that the request helpfully provided transparency and appropriately protected BCI. 
Brazil expressed its concern regarding  the timeliness of the request and what measures might be 
needed to comply with the request. China submitted that the United States' request to exclude 
non-BCI-Approved Persons of the third participants from the question -and-answer session would 
significantly constrain the ability of third participants to engage fully in the oral hearing. No 
comments were received from the remaining third participants.  
1.14.   On 2 June 2017, the Division issued a Procedural Ruling25 regarding the United States' 
request. In that Ruling , the Division indicated that, as provided  in its Procedural Ruling of 
22 December  2016 on the protection of BCI, Third Participant BCI -Approved Persons were invited 
to attend the session of the oral hearing in which BCI may be discussed. The Division considered 
that this was sufficient to allow the third participants to be r epresented properly at the 
oral hearing. Regarding the United States' request concerning public observation of the opening 
statements at the oral hearing, the Division expressed its strong concern regarding the timeliness 
of that request. While deciding, by majority, to grant exceptionally the United States' request  
regarding public observation , as supported by the European Union, the Division also underscored 
the importance for participants wishing to request public observation of  all or part of oral hearings 
in disputes to make such requests in a timely fashion, taking into account the due process rights of 
other participants and third participants and the burden on WTO Secretariat resources. Th e 
Division thus adopted in its P rocedural Ruling additional proced ures on the conduct of the 
oral hearing, including procedures pertaining to public observation of the opening statements of 
Member delegations that had agreed to have their statements made public.  
1.15.   The oral hearing in this appe al was held on 6 June 2017. The participants and 
third participants (with the exception of Russia) made oral statements and responded to questions 
posed by the Members of the Appellate Body Division hearing the appeal. Delayed public broadcast 
of the openi ng statements of the participants and third participants (with the exception of Brazil 
and China) took place on 5 July 2017.  
1.16.   On 9 August 2017 , the Division informed the participants and third participants that it had 
not found it necessary to include  BCI in the Appellate Body Report  in this appeal . On 
28 August  2017, t he Division provided a confidential advance copy of the Report to the 
participants , and the participants confirmed that no  BCI had been inadvertently included in the 
Report. On 31 August  2017, the Chair of the Appellate Body informed the Chair of the DSB that 
the Appellate  Body Report in these proceedings would be circulated on 4 September  2017.26 
2  ARGUMENTS OF THE PAR TICIPANTS  
2.1.  The claims and arguments of the participants are reflected in the e xecutive summaries of 
their written submissions provided to the Appellate Body.27 The Notices of Appeal and Other 
Appeal, and the executive summaries of the participants' claims and arguments, are contained in 
Annexes  A and B of the Addendum to this Report,  WT/DS487/AB/R/Add.1.  
                                                
25 The Procedural Ruling of 2 June 2017 is contained in Annex D -3 of the Addendum to this Report, 
WT/DS487/AB/R/Add.1.  
26 WT/DS487/9.  
27 Pursuant to the Appellate Body communication on "Executive Summaries of Written Submissions in 
Appellate Proceedings" and "Guidelines in Respect of Executiv e Summaries of Written Submissions in 
Appellate  Proceedings" (WT/AB/23, 11 March 2015).  WT/DS487/AB/R  
 
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  3  ARGUMENTS OF THE THIRD PARTICIPANTS  
3.1.  The arguments of the third participants that filed written submissions are reflected in the 
executive summaries of those submissions provided to the Appellate Body28, and are contained in 
Annex  C of the Addendum to this Report, WT/DS487/AB/R/Add.1.  
4  ISSUES RAISED IN THI S APPEAL  
4.1.  The following issues are raised in this appeal:  
a. with respect to the Panel's interpretation of Article  3.1(b) of the SCM Agreement  in the 
context of its de jure contingency analy ses in respect of the First and Second Siting 
Provisions, and its  de facto contingency analysis in respect of the First Siting Provision:  
i. whether the Panel erred in articulating a legal standard requiring the use of domestic 
goods to the complete exclusion of imported goods (raised by the European Union);  
b. with respect to the Panel's application of Article  3.1(b) of the SCM Agreement  in the 
context of its de jure contingency analysis in respect of the First Siting Provision:  
i. whether the Panel erred  in finding that the First Siting Provision does not, expressly 
or by necessary implication from its words, require Boeing to use domestic over 
imported goods (raised by the European Union);  
c. with respect to the Panel's  application of Article  3.1(b) of the SCM Agreement in the 
context of its  de jure contingency analysis in respect of the Second Siting Provision:  
i. whether the Panel erred in its application of Article 3.1(b) by unduly restricting the 
scope of the evidence from which it assessed de jure conting ency in respect of the 
Second Siting Provision (raised by the European  Union); and  
ii. whether the Panel failed to make an objective assessm ent of the matter under 
Article  11 of the DSU by providing an improper reading of the Second Siting 
Provision (raised b y the European Union);  
d. with respect to the Panel's de facto contingency analysis under Article  3.1(b) of the 
SCM Agreement :  
i. whether the Panel erred in its interpretation and application of Article  3.1(b) in 
finding that the measure, in particular the Seco nd Siting Provision, reflects a 
condition requiring the use of domestic over imported goods (raised by the 
United  States); and  
ii. whether the Panel failed to make an objective assessm ent of the matter under 
Article  11 of the DSU in respect of various aspects  of the Panel's reasoning (raised b y 
the United States and the European Union).  
5  ANALYSIS OF THE APPE LLATE BODY  
5.1.  The European Union and the United States appeal different findings by the Panel.  
5.2.  In its appeal, the European Union challenges the Panel's findings that the European Union did 
not demonstrate that the First and Second Siting Provisions, considered separately or jointly, 
make the United States' aerospace tax measures de jure contingent, or that the First Siting 
Provision makes such measures de facto contingent , upon the use of domestic over imported 
goods under Article 3.1(b) of the SCM Agreement . In particular, the European Union argues that 
the Panel erred: (i) in its interpretation and  application of Article 3.1(b) , in not finding that the 
                                                
28 Pursuant to the Appellate Body communication on "Executive Summaries of Written Submissions in 
Appellate Proceedings" and "Guidelines in Respect of Executive  Summarie s of Written Submissions in 
Appellate  Proceedings" (WT/AB/23, 11 March 2015).  WT/DS487/AB/R  
 
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  First Siting Provision makes the aerospace tax measures de jure contingent upon the use of 
domestic over imported goods; (ii) in its interpretation of Article 3.1(b), and in failing to conduct 
an obje ctive assessment of the matter under Article 11 of the DSU, in not finding that the First 
Siting Provision makes the aerospace tax measures de facto contingent upon the use of domestic 
over imported goods; and (iii) in its interpretation and application of  Article 3.1(b), and in failing to 
conduct an objective assessment of the matter under Article 11 of the DSU, in not finding that the 
Second Siting Provision makes the B&O aerospace tax rate de jure contingent upon the use of 
domestic over imported goods.  
5.3.  For its part, the United States appeals the Panel's finding that, with respect to the First and 
Second Siting Provisions, considered jointly, the B&O aerospace tax rate is a subsidy de facto 
contingent upon the use of domestic over imported goods under Ar ticle 3.1(b) of the 
SCM Agreement . In particular, the United States argues that the Panel erred: (i) in interpreting 
and applying Article 3.1(b) as if it prohibits subsidies conditional upon the domestic siting of 
production activities; (ii) in its interpr etation and application of Article 3.1(b) , in finding that the 
B&O aerospace tax rate for Boeing's  777X aircraft program is contingent upon the "use" of wings 
for the 777X because Boeing does not and will not "use" wings to produce the 777X; and (iii) in i ts 
interpretation and application of Article 3.1(b) , in finding that the subsidy is contingent upon the 
use of "domestic" over "imported" wings because it did not address the meaning of the terms 
"domestic" and "imported", or examine whether wings resultin g from wing assembly in 
Washington would necessarily be "domestic". Moreover, the United States claims that the Panel 
failed to make an objective assessment of the matter under Article 11 of the DSU.  
5.4.  We first set out our interpretation of Article 3.1(b) of the SCM Agreement before turning to 
the claims on appeal by the European Union and the United States.  
5.1  Interpretation of Article 3.1(b) of the SCM Agreement  
5.5.  Article  3.1(b) of the SCM Agreement  reads:  
Except as provided in the Agreement on Agriculture, the following subsidies, within 
the meaning of Article 1, shall be prohibited:  
… 
(b) subsidies contingent, whether solely or as one of several other conditions, upon 
the use of domestic over imported goods.  
Article 3.2 adds that "[ a] Member shall neither grant  nor maintain subsidies referred to in 
paragraph  1." 
5.6.  The SCM Agreement  distinguishes between two categories of subsidies: prohibited subsidies 
(Part II of the Agreement) and actionable subsidies (Part  III of the Agreement). The  granting of 
subsidies is not , in and of itself, prohibited under the SCM Agreement ; nor does the granting of 
subsidies constitute, without more, an inconsistency with that Agreement.29 Only subsidies 
contingent upon export performance within the meaning of Article  3.1(a) (commonly ref erred to as 
export subsidies), or contingent upon the use of domestic over imported goods within the meaning 
of Article  3.1(b) (commonly referred to as import substitution subsidies), are prohibited per se 
under Article  3 of the SCM Agreement .30 In any event, subsidies, if specific, are disciplined under 
Part III of the SCM Agreement , but a complaining Member must demonstrate the existence of 
adverse effects under Article 5 of that Agreement . 
5.7.  Article  3.1(b) of the SCM Agreement  prohibits subsidies  the granting of which is 
"contingent  … upon the use of domestic over imported goods". The Appellate Body has found that 
the legal standard for establishing  the existence of "contingency" under Article 3.1(b) is the same 
                                                
29 See Appellate Body Report, Canada – Aircraft (Article  21.5 – Brazil) , para.  47. 
30 In accordance with Article  2.3 of the SCM  Agreement, any subsidy falling under the provisions of 
Article  3 shall be deemed to be specific. A complaining Member that is able to prove the existence of such a 
prohibited subsidy need not demonstrate that the subsidy also causes adverse effects to the interests of other 
Members within the meaning of Art icles 5 and 6 of the SCM  Agreement.  WT/DS487/AB/R  
 
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  as under Article 3.1(a) of th e SCM  Agreement.31 Since the ordinary meaning of "contingent" is 
"conditional" or "dependent for its existence on something else", a subsidy would be prohibited 
under Article  3.1(b) if it is "conditional" or "dependent for its existence on" the use of domestic 
over imported goods.32 Therefore, a subsidy would be "contingent" upon the use of domestic over 
imported goods if the use of those goods were a condition, in the sense of a requirement33, for 
receiving the subsidy.34  
5.8.  The word "use" has been interpreted by the Appellate Body as referring to the action of using 
or employing something.35 Article  3.1(b) does not elaborate on what constitutes "use of … goods" ; 
nor do other provisions of the SCM Agreement  or other covered agreements define this term.36 In 
the absence o f any further guidance, the term "use" may, depending on the particular 
circumstances, refer to consuming a good in the process of manufacturing, but may also refer to, 
for instance, incorporating a component into a separate good, or serving as a tool in t he 
production of a good.  
5.9.  The term "goods" can be read as a synonym for "products".37 Neither the text nor the context 
of Article  3.1(b) provides any clarification of the type or nature of the goods that are the subject of 
this provision.38 Thus, this term m ay refer to any type of good that may be used by the subsidy 
recipient, including parts or components that are incorporated into another good, materials or 
substances that are consumed in the production process of another good, or tools or instruments 
that are used in the production process. In Article  3.1(b), the term "goods" is qualified by the 
adjectives "domestic" and "imported", which implies that the goods concerned shou ld be at least 
potentially trad able. However, the broad scope of the terms "use" a nd "goods"  supports the view 
that the meaning of the term "goods" is not confined to those goods that are actually traded.   
5.10.   The text of Article 3.1(b) does not qualify the terms "domestic" and "imported". The 
interpretation of these terms may be informed b y Article  III:4 of the General Agreement on Tariffs 
and Trade 1994  (GATT  1994)39, which applies to "products of the territory of any Member  
imported into the territory of any other Member " and requires that the imported products "be 
accorded treatment no less favourable than that accorded to like products of national origin". 
                                                
31 Appellate  Body Report, Canada – Autos , para.  123. 
32 Appellate  Body Report, Canada – Autos , para.  123 (referring to Appellate  Body Report, Canada – 
Aircraft , para. 166).  
33 For instance, the Appellate  Body observed in Canada – Autos  that the measure at issue in that case 
would be inconsistent with Article  3.1(b) if "the use of domestic goods [was] a necessity and thus … required 
as a condition for eligibility" under the measure. (Appellate  Body Report, Canada – Autos , para.  130 (emphasis 
original))  
34 Appellate  Body Report, Canada – Autos , para.  126. The link between "contingency" and 
"conditionality" is also borne out by the text of Article 3.1(b), which states that import substitution contingency 
can be the sole or "one of several other conditions ". (Appellate Body Report, Canada – Aircraft , para. 166 
(emphasis added by the Appellate Body)) As with Article  3.1(a), this "relationship of conditionality or 
dependence" lies at the "very heart" of the legal standard in Ar ticle 3.1(b) of the SCM  Agreement. ( Appellate 
Body Reports, Canada – Aircraft , para. 171; Canada – Aircraft (Article  21.5 – Brazil) , para.  47) 
35 See Appellate  Body Report, US – Carbon Steel (India) , para.  4.374 and fn 1009 thereto (referring to 
Shorter Oxf ord English Dictionary , 6th edn, A.  Stevenson (ed.) (Oxford University Press, 2007), Vol. 2, 
p. 3484).  
36 The term "use" appears in different contexts in the covered agreements. For instance, footnote  61 of 
Annex II to the SCM  Agreement defines "inputs cons umed in the production process" as "inputs physically 
incorporated, energy, fuels and oil used in the production process and catalysts which are consumed in the 
course of their use  to obtain the exported product", and paragraph II(3) of Annex II defines "p hysically 
incorporated" inputs as "inputs … used in the production process and …  physically present  in the product 
exported". (emphases added) Furthermore, Article 2 of the Agreement on Trade in Civil Aircraft requires 
signatories to eliminate customs duti es and charges of products classified under the tariff headings in Annex I 
to that Agreement, "if such products are for use in a civil aircraft and incorporation therein , in the course of its 
manufacture, repair, maintenance, rebuilding, modification or co nversion". (emphasis added)  
37 This is also reflected in the other authentic language versions of the SCM  Agreement: " produits " and 
"productos " in the French and Spanish texts, respectively . 
38 The terms "goods" and "products" appear in various provisions th roughout the SCM  Agreement and 
other covered agreements, and do not appear to be restricted in themselves to specific types of goods, unless 
qualified. Thus, e.g. Article  6.3(d) of the SCM  Agreement refers to "subsidized primary  product", and 
footnote  46 to Article  15 of the SCM  Agreement defines "like product" as "a product which is identical , i.e. alike 
in all respects to the product under consideration ". (emphases added) Articles  III:2 and III:4 of the GATT  1994 
also broadly refer to "[t]he products of t he territory of any Member imported into the territory of any other 
Member".  
39 See Appellate Body Report, Canada – Autos , para. 140.  WT/DS487/AB/R  
 
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  Thus, as a general matter, "domestic" goods can be understood as goods originating within the 
relevant Member's ter ritory and "imported" goods as goods that cross the border into that 
Member's territory.  
5.11.   The term "over" in Article  3.1(b) is a preposition expressing a preference between two 
things.40 This is also reflected in the other authentic language versions of the SCM Agreement , 
with t he French text of Article  3.1(b) reading " subventions subordonnées … à l'utilisation de 
produits nationaux de préférence à  des produits importés ", and the Spanish text reading " las 
subvenciones supeditadas al empleo de productos nacion ales con preferencia a  los importados ".41 
In the context of the phrase "contingent … upon the use of domestic over imported goods", the 
term "over" therefore refers to the use of domestic goods in preference to, or instead of, imported 
goods.  
5.12.   With regard to  the term "contingency", t he Appellate Body s tated in Canada – Autos  that 
Article  3.1(b) of the SCM Agreement  covers contingency both in law and in fact.42 The 
Appellate  Body also noted in Canada – Aircraft  that the legal standard expressed by the term 
"contingent" is the same for de jure and de facto contingency.43 A subsidy will be de jure 
contingent upon the use of domestic over imported goods "when the existence of that condition 
can be demonstrated on th e basis of the very words of the relevant legislation, regulation or other 
legal instrument constituting the measure", or can "be derived by necessary implication from the 
words actually used in the  measure".44 Proving de facto contingency "is a much more d ifficult 
task".45 As the Appellate Body has indicated in the context of Article  3.1(a), the existence of 
de facto contingency "must be inferred  from the total configuration of the facts constituting and 
surrounding the granting of the subsidy, none of which  on its own is likely to be decisive in any 
given case".46 In EC and certain member States – Large Civil Aircraft , the Appellate  Body referred 
to a number of factors that may be relevant in this regard, including the design and structure of 
the measure gran ting the subsidy, the modalities of operation set out in such a measure, and  the 
relevant factual circumstances surrounding the granting of the subsidy , that provide the context 
for understanding the measure's design, structure, and modalities of operation .47 While the 
Appellate Body has relied on these factors in addressing de facto contingency under Article  3.1(a), 
we consider that they are also relevant to a de facto contingency analysis under Article 3.1(b).48  
5.13.   Thus, where an analysis of contingency does not yield a finding of inconsistency under 
Article  3.1(b) on the basis of the words actually used in the measure, or any necessary implication 
therefrom, the existence of a requirement to use domestic over imported goods  may still be found 
on the basis of the above -mentioned factors and factual circumstances that form part of the total 
configuration of the facts constituting and surrounding the granting of the subsidy.49 We 
understand the analysis of de jure and de facto contingency under Article  3.1(b) as a  continuum, 
starting with the terms of the measure and their necessary implications, and continuing with 
factors including the measure's design and structure, its modalities of operation , and other 
                                                
40 Relevant dictionary definitions of "over" include "[a]bove in degree, quality, or action; in preference 
to; more than". ( Shorter Oxford English Dictionary , 6th edn, A.  Stevenson (ed.) (Oxford University Press, 
2007), Vol. 2, p.  2048)  
41 Underlining added.  
42 Appellate  Body Report, Canada – Autos , para. 143.  
43 Appellate  Body Report, Canada – Aircraft , para.  167. 
44 Appellate  Body Report, Canada – Autos , paras.  100 and 123. In particular, the Appellate  Body noted 
that the granting of a subsidy will be de jure contingent upon the use of domestic over imported goods also 
"where the condition … is clearly, though implicitly, in the instrument comprising the measure", so that even if 
the underlying legal instrument does not provide  expressis  verbis  that the subsid y is available only upon 
fulfilment of the condition to use domestic over imported goods, "[s]uch conditionality can be derived by 
necessary implication from the words actually used in the measure." (Ibid., para. 123)  
45 Appellate  Body Report, Canada – Aircraft, para.  167. 
46 Appellate  Body Report, Canada – Aircraft , para.  167. (emphasis original)  
47 Appellate  Body Report, EC and certain member States – Large Civil Aircraft , para.  1046.  
48 See Appellate  Body Report, Canada – Autos , para.  123. 
49 For instance, f actual circumstances potentially relevant to an assessment of whether a subsidy is 
de facto contingent may include the existence of a multi -stage production process, the level of specialization of 
the subsidized inputs, or the level of integration of the p roduction chain in the relevant industry.  WT/DS487/AB/R  
 
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  relevant circumstances.50 A panel should conduct a holistic  assessment of all relevant elements 
and evidence on the record, and need not compartmentalize de jure and de facto analys es, in 
order to reach an overall conclusion as to whether a subsidy is contingent upon the use of 
domestic over imported goods.  
5.14.   Accordingly, reading the terms of Article 3.1(b) of the SCM Agreement  together, we 
understand the provision  to prohibit those subsidies that are de jure or de facto contingent such 
that they require the use of domestic goods in preference to, or instead of , imported goods as a 
condition for receiving the subsidy. While the distinction between de jure and de facto contingency 
lies in the "evidence [ that] may be employed to prove" that a subsidy is contingent upon the use 
of domestic over imported goods51, in both its de jure and de facto analyses, a panel assesses the 
consistency of a subsidy under Article  3.1(b) with the same  obligation and against a single legal 
standard of contingency. In each case, an assessment of whether a subsidy is contingent within 
the meaning of Article 3.1(b) requires a thorough analysis of whether the conditional relationship 
between the granting of the subsidy and the use of domestic over imported goods is objectively 
observable on the basis of a careful and rigorous scrutiny of al l the relevant evidence. This is 
especially important when the alleged contingency is not clearly expressed in the language used in 
the relevant legal instrument.52  
5.15.   We recall that, by its terms, Article  3.1(b) does not prohibit the subsidization of domesti c 
"production" per se but rather the granting of subsidies contingent upon the "use", by the subsidy 
recipient, of domestic over imported goods.53 Subsidies that relate to domestic production are 
therefore not, for that reason alone, prohibited under Articl e 3 of the SCM Agreement .54 We note 
in this respect that such subsidies can ordinarily be expected to increase the supply of the 
subsidized domestic goods in the relevant market, thereby increasing the use of these goods 
downstream and adversely affecting i mports, without necessarily requiring the use of domestic 
over imported goods as a condition for granting the subsidy.  
5.16.   We further note that Article III:8(b) of the GATT 1994 exempts from the national treatment 
obligation in Article  III "the payment of subs idies exclusively to domestic producers". 
Article  III:8(b) makes clear that the provision of subsidies to domestic producers only, and not to 
foreign ones, does not in itself constitute a breach of Article  III. To the extent that "domestic 
producers" may g enerally be expected to manufacture a certain amount of "domestic goods" in a 
Member's territory, Article  III:8(b) comports with our reading of Article  3.1(b) under which 
something more than mere subsidization of domestic production is required for finding  an import 
substitution subsidy.  That said, even if the granting of a subsidy is exempt from the GATT  national 
treatment obligation by virtue of it being paid exclusively to domestic producers within the 
meaning of Article  III:8(b) of the GATT  1994, it may  still be found to be contingent upon the use 
by those producers of domestic over imported goods under Article  3.1(b) of the SCM Agreement . 
                                                
50 To the extent that both de jure and de facto claims have been raised. For instance, a de facto 
contingency  analysis may take into account "the design and structure of the measure", which would 
encompass elements including the terms of the measure. Likewise, an analysis of "the modalities of operation" 
will involve those set out in the measure and how they may be applied and operate in practice. Finally, the 
"relevant factual circumstances surrounding the granting of the subsidy that provide the context for 
understanding the measure's design, structure, and modalities of operation" necessarily include those 
circumstances that inform one's understanding of the above -mentioned factors and their operation. 
(Appellate  Body Report, EC and certain member States – Large Civil Aircraft , para.  1046)  
51 Appellate Body Report, Canada – Aircraft (Article  21.5 – Brazil) , fn 46 to para.  47 (quoting 
Appellate  Body Report, Canada – Aircraft , para.  167). We recall that one aim of the de facto assessment under 
Article  3.1(b) is to avoid "circumvention of obligations by Members", contrary to the object and purpose of the 
SCM Agreement. (Appellate Body Report, Canada – Autos , para.  142) 
52 We recall the Appellate Body's statement that prov ing de facto contingency "is a much more difficult 
task" than establishing de jure contingency. (Appellate  Body Report, Canada – Aircraft , para.  167) 
53 Pursuant to Article  2.1 of the SCM  Agreement, a subsidy covered under that Agreement should be 
specific to certain enterprises "within the jurisdiction of the granting authority", or, in other words, domestic 
producers. Although, pursuant to Article  2.3, prohibited subsidies are "deemed to be specific", they are still 
subsidies granted to domestic producers.  Other provisions of the SCM  Agreement also refer to the "territory" of 
a Member, as well as to "domestic producers" or "domestic production". (See e.g. Article  1.1(a)(1); 
Article  8.2(b), now lapsed, pursuant to Article  31; Article  10; Article  25; and Arti cle 28 of the SCM  Agreement)  
54 In Canada – Aircraft (Article 21.5 – Brazil) , the Appellate Body found it "worth recalling that the 
granting of a subsidy is not, in and of itself, prohibited under the SCM Agreement . Nor does granting a 
'subsidy', without mo re, constitute an inconsistency with that Agreement. The universe of subsidies is vast. Not 
all subsidies are inconsistent with the SCM Agreement . The only 'prohibited' subsidies are those identified in 
Article  3 of the SCM Agreement ". (Appellate Body Repo rt, Canada – Aircraft (Article 21.5 – Brazil) , para. 47)  WT/DS487/AB/R  
 
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  5.17.   Additionally, we observe that the Appellate Body has found that de facto contingency under 
Article  3.1(a) of the SCM Agreement , and in particular whether a subsidy is "in fact tied to … 
anticipated exportation", can be determined  by assessing whether "the granting of the subsidy [is] 
geared to induce the promotion of future export performance by the recipient" and "prov ides an 
incentive to skew anticipated sales towards exports", in a way that  "is not simply reflective of the 
conditions of supply and demand in the domestic and export markets undistorted by the granting 
of the subsidy".55 This test is based on the wording of Article  3.1(a) and footnote 4 thereto and , 
specifically , the terms "actual or anticipated" and "export performance".56 Furthermore, similar 
trade distortions will also occur as a result of subsidies relating to domestic production , which are 
prohibited u nder Article  3.1(b) only when they are contingent upon the use of domestic over 
imported goods. Hence, a test based on an examination of whether a given measure is "geared to 
induce" the use of domestic products over imports does not answer the question of  whether the 
measure requires the recipient to use domestic over imported goods as a condition for receiving 
the subsidy.  
5.18.   In conclu sion, we note that, to the extent that no conditionality on the use of domestic over 
imported goods can be determined , but the effect of the subsidy is to displace or impede, or 
otherwise cause adverse effects to imports, those effects are discip lined under Part III of the 
SCM Agreement . In other words, the relevant question in determining the existence of contingency 
under Ar ticle 3.1(b) is not whether the eligibility requirements under a subsidy may result  in the 
use of more domestic and fewer imported goods. Rather, the question is whether 
a condition  requiring the use of domestic over imported goods can be discerned from th e terms of 
the measure itself, or inferred from its design, structure, modalities of operation , and the relevant 
factual circumstances constituting and surrounding the granting of the subsidy that provide 
context for understanding the operation of these fa ctors.  
5.2  Whether the Panel erred in its interpretation of Article  3.1(b) of the SCM Agreement  
5.19.   The European  Union claims that, in its de jure assessment of the First and Second Siting 
Provisions, the Panel erroneously interpreted Article  3.1(b) of the SCM Agreement  to mean that a 
prohibited contingency would exist only where the measure " per se  and necessarily exclude[s]" 
any use of imported goods.57 According to the European Union, the Panel thereby confined the 
applicability of Article  3.1(b) "to those situat ions where the subsidy recipient is required under the 
terms of the subsidy measure, for a given good, to use domestic goods to the complete exclusion 
of imported goods."58 The European  Union further claims that, since the legal standard expressed 
in the wo rd "contingent" is the same for both de jure and de facto contingency, the error in the 
Panel's interpretation of Article  3.1(b) in the context of its de jure assessment carries over to its 
de facto assessment of the First Siting Provision.59 
5.20.   The United  States responds that both the First and Second Siting Provisions address the 
location of production activities and are silent as to the use of imported or domestic goods.60 The 
United States  characterizes th e Panel statements with which the European Union takes issue as 
merely examples, or responses to arguments made by the European Union, instead of as 
interpretations by the Panel.61 Also, the United States considers that the European  Union's 
                                                
55 Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras.  1044-1045 
and 1047.  
56 See Appellate Body Report, EC and certain member States – Large Civil Aircraft , para.  1043.  
57 European  Union's other appellant's submission, para.  33 (quoting Panel Report, para. 7.291). See 
also paras.  37 and 103 (quoting Panel Report, paras.  7.291 and 7.306).  
58 European  Union's other appellant's submission, para.  40. See also para. 103. 
59 European Union's other appellant's submission, paras.  70-71. 
60 United  States' appellee's submission, paras.  44 and 82 (referring to Panel Report, paras.  7.290, 
7.293, and 7.305). See also para. 83.  
61 In particular, the United States argues that the statem ent made in the context of the Panel's de jure 
analysis of the First Siting Provision "was explicitly an 'example'", and the formulation used in the context of its 
de jure analysis of the Second Siting Provision "appears to have its roots in the terms of t he 
[European  Union]'s argument to the Panel". (United States' appellee's submission, para. 43 (quoting 
European  Union's other appellant's submission, para. 38) and para. 84 (referring to European Union's other 
appellant's submission, para. 103))  WT/DS487/AB/R  
 
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  argument in the context of the Panel's de facto analysis of  the First Siting Provision is no different 
from its argument in the de jure context, and, accordingly, fails for the same reasons.62 
5.21.   We begin our analysis by noting that the European Union does not challenge the Panel's 
articulation of the legal standard u nder Article  3.1(b) of the SCM Agreement  as developed in the 
interpretative sections of its Report.63 Instead, the European Union takes issue with certain 
subsequent statements made by the Panel in the context of its de jure contingency analyses of the 
First and Second Siting Provisions, and its de facto contingency analysis of the First Siting 
Provision, all of which the European Union reads as articulating a legal standard requiring the use 
of domestic goods to the complete exclusion of imported goods.  
5.22.   We agree with the European  Union's contention that the existence of contingency under 
Article  3.1(b) is not limited to cases where the measure requires the subsidy recipient to use 
domestic goods to the complete exclusion of imported goods. Article  3.1(b) re quires establishing 
the existence of contingency upon the use of domestic over imported goods , but does not require 
demonstrat ing any particular quantity or level of displacement of i mported goods by domestic 
goods  in order to determine  such contingency. T he question before us, therefore, is whether in its 
analysis the Panel indeed articulated a legal standard requiring the use of domestic goods to the 
complete exclusion of imported goods.  
5.23.   We observe that, before the Panel, the European  Union submitted that : (i) the terms of the 
First Siting Provision required Boeing to commit to use wings and fuselages produced or assembled 
in Washington in the final assembly of the 777X in Washington64; and (ii) under the Second Siting 
Provision, the B&O aerospace tax rate would continue to apply only if Boeing assembles the wings 
and the 777X exclusively in Washington.65 However, the Panel's reading of these provisions was 
different. The Panel considered that, on its face, the First Siting Provision concerns the siting  of a 
"significant commercial airplane manufacturing program", which "in turn requires that a producer 
commit to manufacture  within the state of Washington" a model of a commercial airplane, as well 
as fuselages and wings for that model.66 The Panel did not  find anywhere "in the words used in the 
First Siting Provision … a requirement that makes the entry into force of the challenged measures 
contingent upon a determination that domestic goods will be used instead of imported products."67 
The Panel thus found  that, by its words, "the First Siting Provision is silent as to the use of 
imported or domestic goods ."68 The Panel also found that "the Second Siting Provision is  silent as 
to the use of imported or domestic goods".69 For the Panel, there is "no express in dication in the 
terms of the [Second Siting P rovision ] that the subsidy … would be lost by importing wings", and 
its words d o not "expressly condition the receipt of a subsidy on the use of domestic over imported 
goods".70  
5.24.   The Panel then went on to examine , in respect of each of the First and Second Siting 
Provisions, whether a prohibited import substitution contingency could be derived "by necessary 
                                                
62 United S tates' appellee's submission, para.  69. 
63 The Panel observed that, "[i]n order to find contingency in the sense of Article  3.1(b), such 
contingency must be a necessary condition so that the recipient would not benefit from the subsidy unless 
domestic goods  are used instead of, or in preference to, imported goods." (Panel Report, para. 7.274) In 
setting out the standard for determining the existence of de jure contingency under Article  3.1(b), the Panel 
observed that "a contingency that is not set out expres sly in the relevant legislation may nevertheless be 
derived by necessary implication if such contingency results inevitably from the words actually used in the 
legislation, or if any other interpretation would be unreasonable." (Ibid., para.  7.273 (fn omit ted)) In setting 
out the standard for determining the existence of de facto contingency under Article 3.1(b), the Panel noted 
that "the European  Union will need to demonstrate that there is something about the design and structure of 
the challenged measure s and their operation, in the circumstances in which the measures have been 
introduced and exist, that establishes the contingency, and does so with the requisite standard of certainty." 
(Ibid., para.  7.321)  
64 Panel Report, para. 7.288 (referring to Europe an Union's first written submission to the Panel, 
para. 44). 
65 Panel Report, para. 7.304 (referring to European Union's first written submission to the Panel, 
para. 52). 
66 Panel Report, para.  7.287. (emphasis original) See also paras. 7.289 and 7.293.  
67 Panel Report, para.  7.290.  
68 Panel Report, para.  7.290.  
69 Panel Report, para.  7.305.  
70 Panel Report, para.  7.305. See also para. 7.308.  WT/DS487/AB/R  
 
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  implication " from the language of the provisions.71 It was in this context that the Panel, first in 
respect o f the First Siting Provision, made the statement with which the European  Union takes 
issue:  
The Panel sees nothing in the language of the siting contingency contained in the First 
Siting Provision that would per se  and necessarily exclude  the possibility for the 
airplane manufacturer to use wings or fuselages from outside the state of Washington 
(if, for example, it continued manufacturing some  fuselages and wings in the state of 
Washington, with the additional use  of fuselages and wings that were manufact ured 
separately elsewhere).72 
5.25.   Similarly, in respect of the Second Siting Provision, the Panel stated that:  
… the siting contingency contained in the Second Siting Provision would not per se  and 
necessarily exclude  the possibility for the airplane manufactur er to use wings from 
outside the state of Washington …, as long as it did not relocate the previously sited 
manufacturing of wings outside the state of Washington.73 
5.26.   We recognize that, if read in isolation, these statements could possibly be understood as 
suggesting a legal standard under Article  3.1(b) that requires the use of domestic goods to the 
complete exclusion of imported goods. However, when these words are considered in the context 
of the rest of the Panel's de jure contingency analys es of the First and Second Siting Provisions , it 
becomes clear that the Panel did not articulate such a legal standard.  
5.27.   To begin with, as the Panel found, by their terms, both the First and Second Siting 
Provisions speak of "siting" and a commitment to "man ufacture" or "assemble" certain goods, and 
are silent as to the "use" of any imported or domestic goods. Turning to the "necessary 
implication" of the terms of the First and Second Siting Provisions, the Panel considered that a 
reading under which Boeing w ould be required to use domestic over imported goods was just one 
among several possible readings of these provisions. In the Panel's view, while the terms of the 
First Siting Provision could result in the use by Boeing of some wings and fuselages produced  in 
Washington, this did not necessarily mean that the provision, by its terms, requires Boeing to use 
domestic over imported wings and fuselages.74 Similarly, with respect to the Second Siting 
Provision, the Panel found that it does not inevitably result f rom the terms of the provision that the 
importation of wings would amount to the "siting" of production activities outside Washington, 
"even if such an outcome is not excluded by [its] text".75 Having considered other possible 
readings of the terms of both provisions76, the Panel concluded that "[t]he contingency on siting 
certain production activities within the state of Washington [under the First Siting Provision] does 
not entail any explicit, or any necessarily implied, requirement to use domestic goods"77, and that 
"[n]o express or obvious contingency results from the terms used in the [Second Siting Provision], 
nor can one be derived inevitably from its terms."78 Thus, the Panel found that the First and 
Second Siting Provisions do not, by their terms or by  necessary implication therefrom, require the 
use of domestic over imported goods as a condition for receiving the subsidies.  
5.28.   When read in this context, we understand the Panel's statements challenged by the 
European  Union – that nothing in the terms of th e First and Second Siting Provisions would " per se 
and necessarily exclude" the possibility for Boeing to use goods from outside Washington  – as 
referring to the "implications" of those terms and merely recognizing that a condition requiring the 
                                                
71 Panel Report, paras.  7.291 and 7.306.  
72 European  Union's other appellant's submission, para.  37 (quoting Panel Report, para.  7.291 (italics 
original; underlining added by the European Union)).  
73 Panel Report, para. 7.306. (underlining added)  
74 According to the Panel, while "[t]he terms actually  used in the [First Siting Provision] do not preclude 
a scenario in which … wings and fuselages manufactured in the state of Washington were 'used' in the final 
assembly of 777X commercial airplanes in the state of Washington", the fact "[t]hat such a scen ario may be 
possible on the basis of terms used in the First Siting Provision … is not the same as concluding that it is a 
requirement or condition for the subsidies that necessarily derives from those terms." (Panel Report, 
para. 7.293)  
75 Panel Report, pa ra. 7.310. See also para. 7.306.  
76 Panel Report, paras.  7.294 and 7.309.  
77 Panel Report, para. 7.296.  
78 Panel Report, para. 7.310.  WT/DS487/AB/R  
 
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  use of dom estic over imported goods could not be "necessarily" derived from the language of the 
First and Second Siting Provisions. In particular, in our view, the phrase " per se and necessarily 
exclude" links back to the Panel's understanding of the words "necessar y implication" as referring 
to contingency that must "result inevitably from the words actually used in the legislation", or that 
"any other interpretation would  be unreasonable".79 In this light, we understand the Panel to have 
simply recognized that, base d on both the words actually used in the First and Second Siting 
Provisions and by the necessary implication from those words, no de jure requirement existed for 
Boeing to use domestic over imported goods.  
5.29.   Moreover, we recall the European  Union's assertion s before the Panel that, under the First 
Siting Provision, Boeing "commit[ted] to use wings and fuselages produced or assembled in 
Washington  State"  and "[i]f Boeing had not committed to using US -made wings and fuselages [it 
would have] thereby failed to s atisfy the [First Siting Provision]".80 Furthermore, the 
European  Union argued before the Panel that, "under the S econd Siting Provision, the 
B&O aerospace tax rate would only continue in force 'if Boeing assembles the wings and assembles 
the aircraft exclusively  in Washington State'" and "if Boeing purchases any 777X wings from 
outside the state of Washington, it would lose the B&O aerospace tax rate for all revenue related 
to sales of the 777X aircraft."81 In our view, it appears that , in making its stateme nt that the First 
and Second Siting Provisions do not " per se and necessarily exclude" the possibility for Boeing to 
use wings outside Washington, the Panel was not articulating a legal standard , but was rather 
addressing certain contentions advanced by the European  Union. The European Union also takes 
issue with the Panel's statements that the Second Siting Provision "does not make the receipt or 
continued enjoyment of subsidies dependent on refr aining from using imported products" and 
"does not require that the goods for that production (whether they be wings or anything else) 
need to be sourced only from within the state of Washington".82 For the same reason as just 
explained, we do not consider that these statements reflect a legal standard requiring the use of 
domestic good s to the complete exclusion of imported goods.83 
5.30.   Finally, we also do not see that a legal standard requiring the complete exclusion of imports 
is reflected in the Panel's ultim ate conclusions. The Panel found that the terms of the First Siting 
Provision "in no case condition, either explicitly or by necessary implication, the availability of 
subsidies on the use of domestic over imported goods by the manufacturer"84 and that "the  
Second Siting Provision does not indicate on its face that the B&O aerospace tax rate would cease 
to apply if the aircraft manufacturer in question 'uses' imported products instead of domestic 
products."85 Therefore, as we see it, the Panel's conclusions t hat the First and Second Siting 
Provisions are not de jure contingent under Article  3.1(b) were based on its findings that: (i) the 
contingencies set out in the terms of these provisions relate to the location of certain assembly 
operations within Washingt on; (ii) the provisions are silent as to the use of domestic or imported 
goods; and (iii)  the terms of the provisions do not, by necessary implication, prevent the 
possibility of using imported goods. We therefore do not consider that the Panel, by stating  that 
the terms of these provisions d o not " per se and necessarily exclude" the possibility of using 
imported wings and fuselages, was articulating a legal standard under Article  3.1(b) that requires 
the use of domestic goods to the complete exclusion of i mported goods, but rather was casting 
doubt on the European  Union's proposition that the terms of these provisions necessarily required 
Boeing to use wings and fuselages produced in Washington.  
5.31.   In connection with its argument regarding the Panel's de jure analysis of the First Siting 
Provision, the European  Union advances several additional arguments by which it essentially 
maintains that, for various reasons, the legal standard under Article  3.1(b) should not be read as 
                                                
79 Panel Report, paras.  7.291 and 7.306.  
80 Panel Report, para. 7.288 (quoting European Union's first written submission to the  Panel, para. 44; 
and opening statement at the first Panel meeting, para. 68).  
81 Panel Report, para. 7.304 (quoting European Union's first written submission to the Panel, para.  52). 
(emphasis added)  
82 Panel Report, para.  7.305. (emphasis original)  
83 We note, in particular, that these statements were made immediately after the Panel's summary of 
the European Union's arguments set out above.  
84 Panel Report, para. 7.295.  
85 Panel Report, para.  7.310.  WT/DS487/AB/R  
 
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  requiring the use of domestic goods to the complete exclusion of imported goods.86 Since we have 
agreed with the European Union on that point, but have concluded that we do not understand the 
Panel to have articulated such a legal standard, we see no need to further address those 
arguments.  
5.32.   The European Union also argues that, since the Panel recognized that the legal standard 
reflected in the term "contingent" is the same for both de jure and de facto contingency, and 
having erred in its de jure contingency analysis under Article  3.1(b), the  Panel also erred in its 
interpretation of Article  3.1(b) in the context of its de facto contingency analysis  of the First Siting 
Provision.87 We note that the Panel focused its analysis on the "actual operation" of the First Siting 
Provision as confirmed b y "additional evidence" available regarding the satisfaction of th is 
provision by the Boeing 777X aircraft program.88 As we see it, the Panel's conclusion that the First 
Siting Provision does not demonstrate  de facto contingen cy was based on the absence of any 
"factual evidence in the Department of Revenue's determination or in how Boeing will organize the 
sourcing for the production of the 777X indicating a de facto requirement to use any domestic 
goods, including wings or fuselages", and not on an understanding that , in order to establish a 
violat ion of Article  3.1(b) , the First Siting Provision must require the use of domestic goods to the 
complete exclusion of import ed good s.89 Nowhere in its de facto analysis did the Panel express a 
legal standard  requiring that the modalities of operation of the First Siting Provision " per se and 
necessarily exclude" any possibility of importing wings and fuselages.90 Accordingly, in our view, 
the legal standard articulated by the Panel in its de facto contingency analysis  of the First Siting 
Provision is also in keeping with our interpretation of Article  3.1(b)  of the SCM Agreement .  
5.33.   Furthermore, we do not consider that, as the European Union argues, the Panel's finding of 
"no indication that the activation of the First Siting Provision was the result of any other factor 
[besides the siting of the aircraft program], such as a commitment by the manufacturer to use 
domestic over imported goods"91 was based on an erroneous interpretation of the words "use of 
domestic ov er imported goods".92 Instead, the Panel's analysis is in line with its understanding that 
it was for the European  Union "to demonstrate that there is something about the design and 
structure of the challenged measures and their operation, in the circumstan ces in which the 
measures have been introduced and exist, that establishes the contingency ."93 Therefore, as we 
see it, rather than articulating a legal standard that required the use of domestic goods to the 
complete exclusion of imported goods, the Panel simply found that the additional evidence before 
it confirmed its understanding of the First Siting Provision in the context of its de jure contingency  
analysis, and was insufficient to establish under Article  3.1(b) that the measure require d the use of 
domestic over imported goods as a condition for granting the subsidy.  
5.34.   In sum, we consider that, in its de jure contingency analyses of the First and Second Siting 
Provisions, the Panel did not articulate a legal standard under Article 3.1(b) of the SCM Agreement  
                                                
86 The European  Union argues that a subsidy subject to the r equirements that 50% of all inputs used be 
domestic and 50% of all inputs be imported would still be contingent upon the use of domestic over imported 
goods. Similarly, the European  Union asserts that the Appellate  Body's guidance in Canada – Autos  support s 
the proposition that a measure conditioning receipt of a subsidy on the use of a particular domestic good, 
without requiring that 100% of the goods used are domestic, can give rise to an Article  3.1(b) violation. 
Furthermore, the European Union contends that the distortion envisaged by Article  3.1(b) arises "where a 
subsidy distorts the ratio between domestic and imported goods", so that the recipient would use "a larger 
proportion of domestic goods (and consequently a smaller proportion of imported goods ) than it otherwise 
would have". The European Union also takes the view that the Appellate  Body's interpretation of Article  3.1(a) 
of the SCM  Agreement in EC and certain member States – Large Civil Aircraft  developed in the course of its 
de facto contingen cy analysis is relevant to the interpretative question in the present case. Finally, the 
European Union argues that the case law under Article  III:4 of the GATT  1994 supports "[t]he proposition that 
a measure requiring less than the per se exclusion of imp orted goods can give rise to the distortion envisaged 
by Article  3.1(b)." (European  Union's other appellant's submission, paras.  41-51) 
87 European  Union's other appellant's submission, para.  70. 
88 Panel Report, paras. 7.342 -7.345. The Panel considered this  evidence to constitute "the entire 
universe of relevant evidence regarding that provision's operation". (Ibid., para.  7.345)  
89 Panel Report, para.  7.344.  
90 For instance, the Panel speaks of conditioning "the availability of subsidies based on whether certain 
components are sourced from a foreign or domestic origin", or the existence of evidence indicating "a particular 
use of goods of specific origins", and "of any requirement to use domestic goods in respect of the triggering of 
that availability". (Panel Report, paras. 7.341, 7.344, and 7.346)  
91 Panel Report, para.  7.343.  
92 European Union's other appellant's submission, para.  71. 
93 Panel Report, para.  7.321 . WT/DS487/AB/R  
 
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  requiring the use of domestic goods to the complete exclusion of imported goods.  Instead, the 
Panel found that, by their terms, the First and Second Siting Provisions relate to the location of 
certain assembly operations within Washington and are silent as to the use of domestic or 
imported goods. Therefore, in stating that these provi sions do not " per se  and necessarily exclude" 
the possibility for the airplane manufacturer to use inputs from outside Washington, the Panel was 
not articulating a legal standard, but was r ather r ecognizing that, based on the necessary 
implications of the provisions' terms, no de jure requirement existed for Boeing to use domestic 
over imported goods. Neither did the Panel articulate such a legal standard in assessing the 
de facto contingency of the First Siting Provision. Rather, the Panel found that the a dditional 
evidence before it confirmed its understanding of the First Siting Provision in the context of its 
de jure contingency  analysis that the measure d oes not require the use of domestic over imported 
goods as a condition for granting the subsidy.   
5.35.   On the basis of the foregoing, we reject  the European Union's claims that the Panel erred in 
its interpretation of Article 3.1(b) of the SCM Agreement  in the context of its de jure contingency 
analyses of the First and Second Siting Provisions, as well as it s de facto contingency analysis of 
the First Siting Provision.  
5.3  Whether the Panel erred in its application of Article  3.1(b) of the SCM Agreement  in 
the context of its de jure contingency analysis in respect of the First Siting Provision  
5.36.   The European  Union claims that the Panel's finding that the First Siting Provision does not, 
expressly or by necessary implication, require the use of domestic over imported goods constitutes 
an error in the application of Article  3.1(b) of the SCM Agreement .94 In the Europea n Union's view, 
since the First Siting Provision requires Boeing "to establish the 777X production program in 
Washington State, ' in which ' the wings and fuselages are to be integrated", and since "at least 
some 777X wings and fuselages " have to be manufact ured in Washington, the provision 
"appropriates Boeing's commercial decision -making, leaving it with precisely one option if it wants 
to benefit from billions of US dollars in subsidies – to use at least some of the wings and fuselages 
manufactured in Wash ington State, in the final assembly of the 777X in Washington State."95  
5.37.   The United  States responds that "there is no plausible situation absent the alleged subsidies 
in which Boeing could have, and would have, imported 777X fuselages or wings."96 Moreover, the 
United States submits that the First Siting Provision "was a one -time determination that was 
triggered by a decision to site an airplane program" before any manufacturing occurred , and 
"there was no mechanism to reverse the extension of the B&O aerospace tax rate taking effect 
even if in the end no manufacturing occurred."97 
5.38.   As we noted, the Panel considered several possible readings of the First Siting Provision. 
The Panel observed that "[t]he terms actually used in the provision do not precl ude a scenario in 
which separately produced wings and fuselages were 'used' in the manner alleged by the 
European  Union, i.e. that wings and fuselages manufactured in the state of Washington were 
'used' in the final assembly of 777X commercial airplanes in  the state of Washington."98 However, 
according to the Panel, two other "possible and equally reasonable" readings of the terms of the 
First Siting Provision exist  that "would allow the manufacturer to benefit from the subsidies" if it: 
(i) "used wings and fuselages manufactured outside the state of Washington in the final assembly 
of 777X commercial airplanes in the state of Washington, so long as it manufactured at least some 
wings and fuselages in the state of Washington"; or (ii) "stopped manufacturing f uselages, wings, 
and even commercial airplanes in the state of Washington, as the First Siting Provision involves a 
one-time decision on the initial establishment, but not the continuation, of certain manufacturing 
activities."99 
5.39.   In the European  Union's vie w, under all scenarios examined by the Panel, the production 
requirements in the First Siting Provision leave Boeing with no choice but to use at least some 
                                                
94 European  Union's other appellant's submission, para. 64.  
95 European  Union's other appellant's submission, paras. 60 -61. (emphases original)  
96 United  States' appellee's submission, para.  53. 
97 United  States' appellee's submission, paras.  63 (emphasis or iginal) and 66.  
98 Panel Report, para.  7.293.  
99 Panel Report, para.  7.294.  WT/DS487/AB/R  
 
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  domestically produced wings and fuselages in its production of the 777X aircraft in Washington.100 
Thus, according to the European Union, "the express text of the First Siting Provision or 
alternatively, the necessary implications from that text, should have led the Panel to a finding of 
de jure contingency."101  
5.40.   We begin by observing that, as the European  Union argues, the requirement to produce 
wings and fuselages in Washington would in all likelihood result in the use of at least some 
domestically produced wings and fuselages in the final assembly of the 777X. In this regard, we 
recall that the relevant q uestion in determining the existence of contingency under Article 3.1(b) is 
not whether the eligibility requirements under a subsidy may result  in the use of more domestic 
and fewer  imported goods, but whether the measure, by its terms or by necessary impl ication 
therefrom, sets out a condition requiring the use of domestic over imported goods. Thus, in our 
view, whether any reading of the First Siting Provision "would allow the subsidy recipient to avail 
itself of the subsidy without the use of domestic ov er imported wings and fuselages, at least for 
some aircraft for some time"102 does not directly address the issue of contingency under 
Article  3.1(b). Even if, under all scenarios discussed by the Panel, Boeing would likely use some 
amount of domestically pr oduced wings and fuselages, this observation is not in itself sufficient to 
establish the existence of a condition, reflected in the measure's terms or arising by necessary 
implication therefrom, requiring the use of domestic over imported goods.  
5.41.   In this light, we note the Panel's finding that the condition set out in the terms of the First 
Siting Provision does not relate to the use of domestic or imported goods but rather to the siting  of 
certain manufacturing activities in Washington.103 In this respect, the Panel was correct in 
observing that the fact that the terms actually used in the First Siting Provision do not preclude a 
scenario in which "wings and fuselages manufactured in the state of Washington were 'used' in the 
final assembly of 777X commercia l airplanes in the state of Washington  … is not the same as 
concluding that it is a requirement or condition for the subsidies that necessarily derives from 
those terms."104  
5.42.   Moreover, the two "alternative" readings of the First Siting Provision by the Panel confirm 
that the conditionality established on the basis of its terms is linked to the manufacture  of wings 
and fuselages, and that the use of those products in the final a ssembly of the 777X is not a 
condition for receiving the subsidy, but is rather a consequence of the requirement to manufacture 
them domestically.105 It appears that the absence of any express language in the First Siting 
Provision, or any necessary implicat ion therefrom, that would relate to a condition requiring the 
use of domestic over imported goods in the First Siting Provision, coupled with the fact that it 
"involves a one -time decision on the initial establishment, but not the continuation, of certain 
manufacturing activities"106, were particularly relevant considerations for the Panel's ultimate 
conclusion that "[t]he contingency on siting certain production activities within the state of 
Washington does not entail any explicit, or any necessarily implie d, requirement to use domestic 
goods."107  
5.43.   Likewise, we draw attention to the Panel's discussion of whether the First Siting Provision 
requires the same entity to manufacture both the commercial airplane and the fuselages and 
                                                
100 According to the European Union, with regard to the first alternative scenario envisaged by the 
Panel, "[i]f all of the 777X wings and fuselages manufactured in Washington State were destroyed, discarded, 
or indefinitely stored, such that none of them  would be used in the final assembly of the 777X produced in 
Washington State, it is impossible to understand in what  sense there would be a 777X production program in 
Washington State ' in which ' 777X wings and fuselages would be integrated – which is what the terms actually 
used in the measure say and require." Under the second alternative scenario, the European  Union a rgues, 
"there is a period of time during which the First Siting Provision obligates Boeing to establish the 777X 
production program in Washington State, ' in which ' the wings and fuselages are to be integrated." Therefore, 
according to the European Union, " it results from the very words used in the First Siting Provision that even if 
Boeing could import all of the wings and fuselages some of the time ( quod non ), and some of the wings and 
fuselages all of the time ( quod non ), it certainly can't import all of the wings and fuselages all of the time ." 
(European  Union's other appellant's submission, paras.  59, 60, and 62 (emphases original))  
101 European  Union's other appellant's submission, para. 64.  
102 European  Union's other appellant's submission, para.  62. 
103 Panel Report, para. 7.293.  
104 Panel Report, para.  7.293.  
105 Panel Report, para. 7.294.  
106 Panel Report, para. 7.294.  
107 Panel Report, para. 7.296.  WT/DS487/AB/R  
 
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  wings. The Panel observed that, in light of its reading of the terms of th is provision, "even if [it] 
could have been satisfied by two different entities siting two different operations in the state of 
Washington, this situation would neither expressly require nor necessarily imply that domestic 
goods instead of imported goods would have to be used by either entity."108 We therefore 
understand the Panel to have reasoned that, to the extent that no element in the terms of the 
provision "condition[s], either explicitly or by necessary implica tion, the availability of subsidies on 
the use of domestic over imported goods by the manufacturer or manufacturers involved"109, the 
existence of such conditionality cannot be established, as the European Union contends, based 
solely on the fact that the Fi rst Siting Provision obliges the subsidy recipient to commence 
manufacture of both a commercial airplane and fuselages and wings as part of the same 
production program in Washington.110  
5.44.   In sum, the relevant question in determining the existence of de jure contingency under 
Article  3.1(b) is not whether the production requirements under the First Siting Provision may 
result  in the use of more domestic and fewer  imported goods, but whether the measure, by its 
terms or by necessary implication therefrom, sets out a condition requiring the use of domestic 
over imported goods. Therefore, even if, under the scenarios discussed by the Panel, Boeing would 
likely use som e amount of domestically produced wings and fuselages, this observation is not in 
itself sufficient to establish the existence of a condition, reflected in the measure's terms or arising 
by necessary implication therefrom, requiring the use of domestic ove r imported goods.  
5.45.   We therefore reject  the European  Union's claim that the Panel erred in its application of 
Article  3.1(b) of the SCM Agreement  in finding that the First Siting Provision does not make the 
aerospace tax measures de jure contingent upon the use of domestic over imported goods.  
5.4  Whether the Panel erred in its application of Article  3.1(b)  of the SCM Agreement , or 
under Article  11 of the DSU, in the context of its de jure contingency analysis in respect 
of the  Second Siting Provision  
5.46.   The Europ ean Union further claims that the Panel erred in its application of Article  3.1(b) of 
the SCM Agreement  by unduly restricting the scope of the evidence from which it assessed de jure 
contingency in respect of the Second Siting Provision, and in particular by failing to rely on the 
United  States' "admission" that , "if the completed fuselages and wings were produced outside the 
United  States and then imported, [the Washington Department of Revenue] would likely determine 
that some final assembly or wing assem bly had been sited outside Washington, meaning the 
Second Siting Provision would be triggered".111 According to the European Union, the 
United  States' "admission" constitutes "an agreement between the parties " on the meaning of the 
Second Siting Provision an d evidence as to the "relevant practices of administering agencies"112 
that should have been taken into account by the Panel in its de jure contingency analysis, insofar 
as "[a] de jure case is built upon the text of the municipal law measure and its meaning ."113  
                                                
108 Panel Report, para. 7.295.  
109 Panel Report, para. 7.295.  
110 European Union's other appellant's submission, paras. 6 0-62. The European Union also considers 
that "the conclusion that the measure is de jure contingent on the use of domestic over imported goods is 
confirmed and corroborated by the 'fact' that aircraft producers are rational commercial actors and would act in 
a rational manner (e.g., they would not agree to produce the 777X in Washington State and to manufacture 
777X wings and fuselages in Washington State, only to destroy, discard, or indefinitely store the 777X wings 
and fuselages instead of using them in the 777X program established in Washington State)." (Ibid., para. 63) 
In our view, however, this observation does not alter the assessment as to whether the First Siting Provision, 
by its terms, makes the granting of the subsidy de jure contingent upon the  use of domestic over imported 
goods. In particular, to the extent that this factor does not seem to relate to the terms of the First Siting 
Provision itself, or to any meaning derived by necessary implication from those terms, we do not see how 
Boeing's p urported conduct as a rational economic actor would be relevant to an analysis of de jure 
contingency. Furthermore, the language of the First Siting Provision is general, and does not refer to specified 
addressees, but to an "airplane program" that, under certain conditions, may qualify for certain tax benefits. 
Therefore, we do not see the relevance of Boeing's conduct as a rational economic actor for assessing the 
meaning of the terms of the First Siting Provision.  
111 European  Union's other appellant's sub mission, para.  109 (quoting United  States' response to Panel 
question No.  80, para.  119; and referring to response to Panel question No.  43, para.  103).  
112 European  Union's other appellant's submission, para.  113 (quoting Panel Report, para.  7.8). 
113 Europea n Union's other appellant's submission, para.  116. WT/DS487/AB/R  
 
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  5.47.   The United  States responds that "the supposed 'admission' … does not address the meaning 
of the terms used in the Second Siting Provision [but] predicts what [the Washington Department 
of Revenue] would likely do in a particular hypothetical factual s cenario, based on a number of 
assumptions", and that its response "makes clear that the Second Siting Provision places 
conditions on the siting of production activity, not the domestic or imported character of any goods 
that are used ."114  
5.48.   We recall that, wh ereas de jure contingency is demonstrated on the basis of the very words 
of the measure, or by necessary implication therefrom115, the existence of de facto contingency is 
"inferred  from the total configuration of the facts constituting and surrounding the granting of the 
subsidy".116 The factors relevant for establishing the existence of de facto contingency include the 
design and structure of the measure, its modalities of operation,  as well as the relevant factual 
circumstances that provide the context for understanding the measure's design, structure, and 
modalities of operation.117 However, the legal standard expressed by the word "contingent" is the 
same for both de jure and de facto contingency.118 As we have observed, the relevant question  
under Article 3.1(b)  is whether a condition requiring the use of domestic over imported goods can 
be discerned from the terms of the measure itself, or inferred from its design, structure, modaliti es 
of operation , and relevant factual circumstances. The factual circumstances potentially relevant to 
an assessment of whether a subsidy is de facto contingent in the circumstances of this case could 
include, for example, the existence of a multi -stage pr oduction process, the level of specialization 
of the subsidized inputs, or the level of integration of the production chain in the relevant industry.  
5.49.   We further observe that both import substitution subsidies and other subsidies that relate to 
domestic pro duction may have adverse effects in respect of imported goods. Subsidies contingent 
upon import substitution, by their nature, adversely affect competitive conditions of imported 
products. Yet, also subsidies that relate to the production of certain goods in a Member's domestic 
territory can ordinarily be expected to increase the supply of the subsidized domestic goods in the 
relevant market, which would have the consequence of increasing the use of these subsidized 
domestic goods downstream and adversely a ffecting imports. In the specific case of subsidies 
granted for the production of both an input and a final good, subsidy recipients would likely both 
"produce" and "use" the subsidized inputs in the production of the subsidized final good. Indeed, 
such su bsidies would have consequences for the subsidized producers' input -sourcing decisions to 
the extent that, having been required to produce an input domestically, and for reasons of 
production costs and efficiency, they would likely use at least some of the se inputs in their 
downstream production activities. This is even more so in instances where the subsidized input is 
specialized in nature or where vertical integration between the upstream and downstream stages 
of the production chain exists. However, whi le such subsidies may foster the use of subsidized 
domestic goods and result in displacement in respect of imported goods, such effects do not, in 
and of themselves, demonstrate the existence of a requirement to use domestic over imported 
goods.  
5.50.   At the sa me time, whether a subsidy is contingent upon the use of domestic over imported 
goods is to be " inferred  from the total configuration of the facts constituting and surrounding the 
granting of the subsidy".119 In particular, factual circumstances, where relev ant, may form part of 
the context for understanding the measure's design, structure, and modalities of operation in a 
particular market,  all of which may assist in discerning whether or not a de facto contingency 
exists . The design and structure of a measu re granting a subsidy may be adapted to factual 
circumstances – such as a multi -stage production process where specialized inputs and final goods 
are subsidized, or where the production chain is vertically integrated. The modalities of a measure 
so designe d or structured may then operate, such that conditions for eligibility or access to the 
subsidy may entail a condition requiring the use of domestic over imported goods.120 However, 
whether a subsidy is simply conditional upon the domestic production of cert ain goods, or upon the 
                                                
114 United  States' appellee's submission, paras.  93-94. 
115 See Appellate  Body Report, Canada – Autos , para.  100. See also para.  123. 
116 Appellate  Body Report, Canada – Aircraft , para.  167. (emphasis original)  
117 See Appellate  Body Report, EC and certain member States – Large Civil Aircraft , para.  1046.  
118 See Appellate  Body Report, Canada – Aircraft , para.  167. 
119 Appellate  Body Report, Canada – Aircraft , para.  167. (emphasis original)  
120 We note, in this respect , that a subsidy could be contingent upon import substitution "solely or as 
one of several other conditions", and that therefore subsidies that are conditional upon the production  of 
certain goods domestically may at the same time be contingent upon the use of domestic over imported goods.  WT/DS487/AB/R  
 
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  use by the subsidy recipient of domestic over imported goods , should be assessed on a 
case-by-case basis.  
5.51.   We have observed above that we understand the analysis of de jure and de facto 
contingency under Article  3.1(b) as a continuum,  starting with the terms of the measure and their 
necessary implications, and continuing with factors including the measure's design and structure, 
its modalities of operation , and other relevant circumstances.121 Ultimately, in determining the 
existence of contingency, a panel should conduct a holistic assessment of all relevant elements 
and evidence on the record, and need not compartmentalize de jure and de facto  analys es in order 
to reach an overall conclusion as to whether a subsidy is contingent upon the use of domestic over 
imported goods. A finding of contingency, whether made on a de jure or de facto basis, yields a 
finding of inconsistency with Article 3.1(b) of the SCM Agreement  under the same legal stand ard of 
contingency, namely , whether the measure reflects  a condition requiring the use of domestic over 
imported goods.  
5.52.   We recall that determining the meaning of domestic law by a panel calls for particular care, 
and that, in its de jure contingency analy sis, the Panel in this case had to examine the meaning of 
the terms of the Second Siting Provision and the necessary implications that flow from those 
terms. The Panel found that the language of the Second Siting Provision concerns the "siting " of 
the asse mbly of certain goods in Washington, rather than the "use" of any goods as a condition for 
receiving the subsidy122, and that several possible readings of its terms exist, such that "an 
import -substitution contingency [could not] be derived by necessary impl ication" from those 
terms.123 The Panel then turned to analyse whether the Second Siting Provision entails a de facto 
contingency, and posed a series of questions to the United  States in respect of certain 
counterfactual scenarios.124 The European Union consid ers that, while the Panel found the 
United  States' responses to these questions "to be  of crucial  importance , and in fact determinative, 
in its analysis of de facto contingency with respect to the Second Siting Provision", they 
"inexplicably find[] no ment ion in the Panel's de jure analysis", even though they reflect an 
"agreement between the parties on the meaning of [the] Second Siting Provision" and a 
clarification as to the "relevant practices of administering agencies".125  
5.53.   We note that the Panel considered the United  States' responses to be "significant in 
understanding the modalities of operation  of the conditions of the Second Siting Provision", which 
were subject to the Washington Department of Revenue's administrative di scretion, and concluded 
that "the likely actions  of the relevant administrative agency in response to possible factual 
scenarios are indicative  of whether, in practice, a subsidy would remain available so long as a 
manufacturer used domestic goods, while t hat same subsidy would be terminated if a 
manufacturer used those same goods from a foreign source."126 The Panel therefore conducted an 
analysis of, and relied upon, these responses in the context of its de facto contingency analysis. 
While it is conceivabl e that the United  States' responses to the Panel's questions may have shed 
light on the necessary implication of the terms of the Second Siting Provision, they may have been 
equally relevant for understanding the measure's design, structure, and modalities  of operation in 
the context of the relevant factual circumstances. We recognize that the Panel compartmentalized 
its de jure and de facto contingency analyses. It would have been preferable if it had conducted a 
more holistic assessment of all relevant el ements and evidence on the record. However, we do not 
consider that the Panel erred in considering the United  States' responses to its questions in the 
context of examining the design, structure , and modalities of operation of the Second Siting 
Provision  in the context of  the relevant factual circumstances.  
5.54.   The European  Union also claims that , by adopting in the context of its de jure analysis an 
interpretation of the Second Siting Provision "devoid of any evidentiary basis", the Panel failed to 
make an obj ective assessment of the matter under Article  11 of the DSU.127 The European  Union 
takes issue with the Panel's statement s that "the terms 'any final assembly or wing assembly' [in 
the Second Siting Provision] are explicitly tied, and arguably limited, to th e specific assembly 
operations that were 'the basis of a siting' under the First Siting Provision", and therefore "the 
                                                
121 To the extent that both de jure and de facto claims have been raised.  
122 Panel Report, para.  7.308.  
123 Panel Report, para.  7.306. See also para. 7.309.  
124 Panel Report, para.  7.361.  
125 European  Union's other appellant's sub mission, paras.  111 and 113.  
126 Panel Report, para.  7.365. (emphases added)  
127 European  Union's other appellant's submission, para.  119. WT/DS487/AB/R  
 
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  terms of the Second Siting Provision could rather be understood to address the situation in which 
production activities that had been pre viously sited in the state of Washington, and had been the 
basis of the determination by the Department of Revenue pursuant to the First Siting Provision, 
were subsequently sited outside the state of Washington."128  
5.55.   We agree with the European Union that the  words of the Second Siting Provision do not 
appear to limit its scope of application to the relocation of specific assembly operations that were 
the basis of a siting under the First Siting Provision.129 At the same time, since compliance with the 
First Sit ing Provision meant that the 777X wings should have at least been planned to "commence 
manufacture at a new or existing location within Washington", we consider it reasonable to 
conclude that one situation in which the Second Siting Provision would be trig gered is where the 
production of wings, once sited in Washington pursuant to the First Siting Provision, has been 
subsequently sited outside of this state. In this regard, we note the Panel's statement that , 
"[b]ased purely on the wording of [the Second Si ting Provision], the terms 'any final assembly or 
wing assembly' are explicitly tied, and arguably  limited, to the specific assembly operations that 
were 'the basis of a siting' under the First Siting Provision."130 The Panel also explicitly referred to 
the possibility of "[a]nother reading of the terms of the Second Siting Provision".131 In this light, 
while we do not consider that the scope of application of the Second Siting Provision is limited to 
the relocation of specific assembly operations that have bee n previously sited in Washington , we 
do not see that, in making the statements with which the European  Union takes issue, the Panel 
adopted such an understanding. Instead, the Panel merely described one possible  situation under 
which the Second Siting Prov ision would be activated.  
5.56.   In any event, we do not see that the Panel's statements were critical for its ultimate 
conclusion that the contingency set out in the Second Siting Provision is not that products 
manufactured in Washington should be "used", but ra ther that the manufacturing of certain 
products should not be "sited" outside Washington.132 The Panel's finding that the Second Siting 
Provision does not demonstrate  de jure contingen cy upon the use of domestic over imported goods 
was based more generally on the words used in th is provision which do not speak of "component 
sourcing decisions" and the necessary implication that might flow therefrom, rather than on the 
fact that the terms "any final assembly or wing assembly" may be limited to the relocation of 
specific assembly operations that have been previously sited in Washington .133 We therefore 
disagree with the European  Union's contention that the Panel's understanding of the Second S iting 
Provision is "devoid of any evidentiary basis".134 
5.57.   In sum, we do not consider that the Panel erred in its application of Article  3.1(b) by not 
examining the United States' responses to its questions in the context of its de jure contingency 
analysis  of the Second Siting Provision. In determining the existence of contingency, a panel 
                                                
128 Panel Report, para.  7.305. See European  Union's other appellant's submission, para.  120. 
129 In this regard, we recognize  that, whereas  the "siting" requirements under the First Siting Provision 
are that a new or existing model of a commercial airplane, as well as "[f]uselages and wings" of such model, 
should "commence manufacture" in Washington, the "siting" requirements un der the Second Siting Provision 
concern any "final assembly or wing assembly" of the same model.  
130 Panel Report, para.  7.305. (emphasis added)  
131 Panel Report, para. 7.309.  
132 Panel Report, para. 7.308.  
133 Panel Report, paras.  7.305 and 7.315.  
134 European Unio n's other appellant's submission, para. 119. The European Union raises a number of 
additional arguments, all of which appear to focus on the same central concern that the Panel understood the 
Second Siting Provision as limited to the relocation of the asse mbly operations that were the basis of a siting 
under the First Siting Provision. In particular, the European  Union contends that the Panel's interpretation is 
contradicted by the words of the First Siting Provision, and that nothing in this provision or i n ESSB 5952 
"requires the aircraft manufacturer to indicate to the [Washington Department of Revenue] which specific 
aircraft and wings within the given aircraft model, or how many such aircraft and wings, would be assembled in 
Washington". The European  Union also argues that both parties understood the words of the Second Siting 
Provision as referring "to the aircraft model in respect of which the First Siting Provision was satisfied, the 
777X, and not to ' specific  assembly operations'". Furthermore, the E uropean  Union recalls its argument that 
"the Parties agreed that 'if the completed fuselages and wings were produced outside the United  States and 
then imported', the [Second Siting Provision] would be triggered." Finally, according to the European  Union, 
"the Panel's view that the Second Siting Provision does not ' per se  and necessarily exclude the possibility for 
the airplane manufacturer to use wings from outside the state of Washington […], as long as it did not relocate 
the previously sited manufacturi ng of wings outside the state of Washington'", is contradicted by certain 
statements made by the United States before the Panel. ( Ibid., paras.  126, 127 (emphasis original), 130, 
and 131 (fn omitted) ) WT/DS487/AB/R  
 
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  should conduct a holistic assessment of all relevant elements and evidence on the record, and 
need not compartmentalize  its de jure and de facto analyse s in order to reach a n overall 
conclusion as to whether a subsidy is contingent upon the use of domestic over imported goods. 
The United  States' responses may have shed light on the necessary implication of the terms of the 
Second Siting Provision, but they may have been equal ly relevant for understanding the measure's 
design, structure, and modalities of operation in the context of the relevant factual circumstances. 
Therefore, we do not consider that the Panel erred by unduly restricting the scope of the evidence 
from which i t assessed de jure contingency with respect to the Second Siting Provision. We also do 
not consider that the Panel understood the scope of application of the Second Siting Provision as 
limited to the relocation of specific  assembly operations that were the  basis of a siting  under the 
First Siting Provision. Instead, the Panel was merely describing one possible  situation under which 
the Second Siting Provision would be activated.  
5.58.   In view of the above, we reject  the European Union's claim that the Panel erred  in the 
application of Article 3.1(b) of the SCM Agreement  in finding that the Second Siting Provision, 
considered separately or jointly  with the First Siting Provision, does not make the B&O aerospace 
tax rate de jure contingent upon the use of domestic over imported goods. We also reject  the 
European Union's claim that the Panel failed to make an objective assessment of the matter under 
Article 11 of the DSU in finding that the Second Siting Provision, considered separately or join tly 
with the First Siting Provision, does not make the B&O aerospace tax rate  de jure contingent upon 
the use of domestic over imported goods.  
5.5  Whether the Panel erred in its de facto  contingency analysis under Article 3.1(b) of 
the SCM Agreement  
5.59.   The United  States claims that the Panel erred in the interpretation and application of 
Article  3.1(b) of the SCM Agreement  in finding that the B&O aerospace tax rate is de facto 
contingent upon the use of domestic over imported goods. The United States argues that  the Panel 
erroneously interpreted and applied Article 3.1(b) of the SCM Agreement  as if it prohibited 
subsidies conditional upon the domestic siting of production activities.135 The United States further 
submits that , because Boeing does not and will not "use" wings to produce the 777X, the Panel 
erred  in its interpretation and application of Article 3.1(b) in finding that the B&O aerospace tax 
rate for the 777X aircraft program is contingent upon the "use" of wings for  the 777X.136 Moreover , 
the United  States argues that the Panel erred in the interpretation and application of Article 3.1(b) 
in finding that the subsidy is contingent upon the use of "domestic" over "imported" wings because 
it did not address the meaning of  the terms "domestic" or "imported", and did not conduct "a 
meaningful analysis" as to whether wings resulting from wing assembly in Washington would 
necessarily be "domestic".137 In addition , the United States claims that the manner in which the 
Panel used  hypothetical scenarios to determine what would trigger the Second Siting Provision 
constitutes an error in the interpretation and application of Article 3.1(b) of the SCM Agreement , 
or, in the alternative, a failure to make an objective assessment of the m atter under Article 11 of 
the DSU.138 
5.60.   In response , the European Union submits that the Panel did not find that a subsidy 
contingent solely upon domestic production, without more, would be inconsistent with 
Article  3.1(b). Rather, for the European Union, "the Panel found that the evidence before it 
demonstrated the subsidy at issue to be contingent on the use of domestic over imported goods, 
and in fact going even further, one which ' per se  and necessarily exclude[s] ' the possibility that 
any wing could be imported without the loss of the subsidy."139 The European Union submits that, 
if the United States' argument that wings are not "used" in the production of the 777X were 
accepted, this would mean that Boeing itself could determine whether or not a challenge d subsidy 
                                                
135 United States' appellant's submission, para. 99.  
136 United States' appellant's submission, para. 124. In this respect, the United States underscores that 
wings "do not come into existence until the finished airplane itself is completed through the final assembly 
process". (United States' appellant's submissio n, para. 115 (fn omitted))  
137 United States' appellant's submission, para. 126.  The United States also contends that the Panel's 
failure to address the meaning of the terms "domestic" and "imported" constitutes a failure to provide a basic 
rationale for its findings as required under Article 12.7 of the DSU.  (United States' appellant' s submission, 
para. 133)  
138 United States' appellant's submission, para. 135.  
139 European Union's appellee's submission, para. 79 (quoting Panel Report, para. 7.367).  WT/DS487/AB/R  
 
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  would be consistent with Article 3.1(b) by the way it organized its production process.140 The 
European Union argues that, even if currently Boeing does not "use" wings, it may do so in the 
future, but , nevertheless, the subsidy would act to preven t Boeing from using imported wings.141 
With respect to the United States' allegation that the Panel did not address the meaning of the 
terms "domestic" and "imported", the European Union contends that the Panel "revealed an 
interpretation of the word 'domest ic'" in stating that wings sourced from Washington "by definition 
would be domestic wings".142 Finally, the European  Union submits that, in the present case, the 
use of hypothetical scenarios by the Panel was inevitable  because the Panel was called upon to 
examine  the relationship between the requirements of the Second Siting Provision and events that 
may occur in the future.143 
5.61.   As the Panel noted, the First and Second Siting Provisions are focused on the siting of 
assembly activities and do not contain any lan guage requiring in explicit terms, or by necessary 
implication there from, the use of domestic over imported goods.144 Above we have rejected the 
European Union's claims that the Panel erred in its interpretation and application of Article 3.1(b) 
in its analy sis of de jure contingency. As we have noted, where an analysis of de jure contingency 
does not yield a finding of inconsistency under Article  3.1(b) on the basis of the terms of the 
measure, or any necessary implication there from, a panel may still make a  determination that 
contingency exists on a de facto basis where a contingency to use domestic over imported goods 
can be inferred from the total configuration of the facts surrounding the granting of the subsidy. 
Analysis of de facto contingency may take into account the measure's design and structure, and 
modalities of operation, as well as the factual circumstances providing context for understanding 
the subsidy measure and its operation with a view to ascertaining whether a condition requiring 
the use o f domestic over imported goods exists.  
5.62.   The participants, in their arguments relating to de facto contingency under Article  3.1(b), 
referred to factual circumstances that we consider potentially relevant to an assessment of 
whether the subsidy at issue is de facto contingent. These include the multi -stage nature of the 
production process, the level of integration of the subsidy recipient, and the degree of 
specialization of the subsidized inputs, to the extent that they inform and provide context for 
unders tanding the measure's design, structure, and modalities of operation. In respect of the 
Second Siting Provision, the question at issue is whether, notwithstanding that the measure itself 
expressly concerns only the siting of certain manufacturing and assem bly operations, which w as 
found not to demonstrate  de jure contingency , a condition requiring the use of domestic over 
imported goods nevertheless exists  on a de facto basis. 
5.63.   The Second Siting Provision provides that the B&O aerospace tax rate ceases to ap ply in a 
case where the Washington Department of Revenue "makes a determination that any final 
assembly or wing assembly of any version or variant of a commercial airplane that is the basis of a 
siting of a significant commercial airplane manufacturing pro gram in [Washington pursuant to the 
First Siting Provision] has been sited outside the state of Washington ."145 By its express terms, the 
Second Siting Provision is triggered in the event of a future determination by the Washington 
Department of Revenue that  final assembly or wing assembly "has been sited" outside 
Washington , and thus t he condition contained in the measure concerns the siting or location of the 
relevant assembly activities. It is the Second Siting Provision's reference to wing assembly, rathe r 
than to  final assembly, that the Panel considered most relevant to the European Union's claim of 
de facto contingency upon the use of domestic over imported wings.146 
5.64.   We recall the relevant aspects of the Panel's analysis of the European Union's claim of 
de facto contingency. The Panel started by noting that its de facto analysis "must go beyond the 
                                                
140 European Union's appellee's submission, para. 94.  
141 European Union's appellee's submissio n, paras. 108 -109. 
142 European Union's appellee's submission, para. 119 (quoting Panel Report, para. 7.364). The 
European Union points out that the Panel also revealed an interpretation of the terms "domestic" and 
"imported" by stating that "wings made in W ashington State are domestic goods and any imported wings 
would by definition be made outside of Washington State". (Ibid. (quoting Panel Report, para.  7.367))  
143 European Union's appellee's submission, paras. 140-141. 
144 Panel Report, paras. 7.297, 7.311, and 7.317.  
145 Panel Report, para. 7.32 (quoting ESSB 5952 (Panel Exhibit EU -3), Sections 5 -6(11)(e)(ii)).  
146 Panel Report, para.  7.349. This condition of the Second Siting Provision with respect to the siting of 
any wing assembly is in force for the entirety  of the period during which the B&O aerospace tax rate is in effect 
under ESSB 5952. (Ibid.)  WT/DS487/AB/R  
 
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  text of the legislation and … be based on a holistic examination of all the available evidence" 
pertaining to the design, structure, modalities of operation , and the relevant factual circumstances 
surrounding the granting of the subsidies.147  
5.65.   In its de facto analysis , the Panel evaluated relevant circumstances relating to the Second 
Siting Provision, in particular, the circumstances in which the provision would be  triggered. The 
Panel distinguished the enforcement mechanism of the Second Siting Provision from that of the 
First Siting Provision. With respect to the First Siting Provision, the Panel noted that it 
contemplates "a one -time decision" by the Washington Department of Revenue and that there is 
"no legal mechanism under Washington State law that would allow the Department of Revenue to 
revoke that determination" .148 Thus, the Panel concluded that "the First Siting Provision is not a 
measure whose operation will occur in repeated instances over some (definite or indefinite) 
period."149 By contrast, the Panel found that "the role of the Second Siting Provision is to esta blish 
conditions for the airplane manufacturing program me that had activated the First Siting Provision 
(and thus effected the extended availability of the tax benefits) to maintain that program me's 
access to one of those tax benefits, namely the B&O aeros pace tax rate."150 The Panel recalled 
that "the Second Siting Provision provides that the 'siting' of 'wing assembly' of the airplane model 
in question (the 777X) outside Washington  State would result in the loss of the B&O aerospace tax 
rate for the manufac turing or sale of that airplane."151 Noting that "the conditionality in the Second 
Siting Provision is phrased in the negative", the Panel understood the Second Siting Provision to 
set forth the factual circumstances that would, if they arose, cause Boeing's  777X aircraft program 
to lose access to the subsidy.152 It was thus clear to the Panel that so long as such "siting" does 
not happen, the Second Siting Provision "remain s dormant, operating passively as a deterrent to 
safeguard the status  quo (or at least p articular aspects thereof) that satisfied the First Siting 
Provision ".153 For the Panel, t his "passive, deterrent nature of the measure " raised "the question as 
to what sort s of factual evidence could inform the analysis of wh ether ongoing access to the 
B&O aerospace tax rate … is contingent de facto on the use of domestic over imported 777X 
wings."154 At the time of the Panel's assessment of this claim, the Second Siting Provision had not 
been triggered, and therefore no evidence existed as to its actual opera tion and, in particular,  as 
to what would trigger the Second Siting Provision.155 
5.66.   Because the Second Siting Provision had not been triggered, the Panel observed that it was 
"confronted by the counterfactual question of what would trigger the Second Siting Pr ovision, that 
is, what action by Boeing would result in the Department of Revenue determining that 777X wing 
assembly 'has been sited' outside Washington State."156 The Panel considered "particularly 
relevant the discretion granted … to the Department of Rev enue to terminate the availability of the 
B&O aerospace tax rate … if it determines that Boeing has 'sited' assembly of wings … outside of 
Washington State".157 The Panel underscored that the exercise of discretion granted to the 
Washington  Department of Rev enue "would be inconsistent with Article  3.1(b) of the 
SCM Agreement  if, in practice, it resulted in the termination of the B&O aerospace tax rate for … 
the 777X programme on the basis of a determination that Boeing, by virtue of using imported 
777X wings,  had 'sited' 777X wing assembly outside Washington State."158  
                                                
147 Panel Report, para. 7.327. The Panel observed that, since the First Siting Provision was satisfied by 
Boeing's 777X siting decision, the operation of the First a nd Second Siting Provisions could not be dissociated. 
The Panel thus considered "the manner in which the measures at issue are structured, designed, and operate, 
under the terms of ESSB 5952, and as a result of the First Siting Provision and the Second Sit ing Provision". 
(Ibid., para. 7.331)  
148 Panel Report, para. 7.345. (fn omitted)  
149 Panel Report, para. 7.345.  
150 Panel Report, para.  7.346.  
151 Panel Report, para. 7.358. The Panel recalled that the expression "has been sited" (used in the 
Second Siting Provisi on in the passive tense) is related to a manufacturer locating a manufacturing program in 
a particular place, which is consonant with the definition of "siting" in the First Siting Provision. (Ibid., fn 663 to 
para. 7.358 (referring to para. 7.304))  
152 Panel Report, para.  7.346.  
153 Panel Report, para. 7.358.  
154 Panel Report, para.  7.358.  
155 Panel Report, para.  7.358.  
156 Panel Report, para. 7.359.  
157 Panel Report, para. 7.360.  
158 Panel Report, para.  7.360.  WT/DS487/AB/R  
 
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  5.67.   In an effort to understand what would trigger the Second Siting Provision, the Panel posed 
two questions to the United States (Panel questions Nos. 40 and 80) based on hypothetical 
scenarios. Under the first scenario, the Panel asked whether the Second Siting  Provision would be 
triggered if, assuming arguendo  that it w as possible for Boeing to purchase completed wings, 
Boeing would continue manufactur ing wings itself in Washington and, in addition, would purchase 
wings from another manufacturer in Washington.159 With respect to the first hypothetical scenario, 
the United  States stated the following:  
As alluded to in the Panel's question, and as noted elsewhere, it is not possible for 
Boeing to purchase completed 777X fuselages and wings. However, assuming 
arguendo  that this was not the case, the wording of the question – in particular, the 
focus on Boein g rather than all t axpayers, and on Boeing "remain[ ing] eligible" rather 
than becoming eligible – assumes that Boeing already fulfilled the First Siting 
Provision. Once that provision is fulfilled, it contains no legal mechanism for reversing 
course or oth erwise affecting the tax treatment provided for in ESSB 5952. Therefore, 
assuming arguendo  that Boeing could purchase completed 777X fuselages and wings, 
the First Siting Provision still would have no relevance to a decision by Boeing to make 
such purchase s. 
Continuing with this same arguendo  assumption, to determine whether the Second 
Siting Provision was triggered, DOR would have to evaluate whether Boeing had sited 
any wing assembly or final assembly outside Washington. The question implies that no 
such siting outside Washington would have taken place. Therefore, DOR likely would 
not determine that the Second Siting Provision had been triggered. This is no different 
than if Boeing cancelled the 777X program altogether. In short, unless DOR 
determines that  777X final assembly or wing assembly has been sited outside 
Washington, the Second Siting Provision is not triggered.160 
5.68.   Under the second hypothetical scenario, the Panel asked whether the Second Siting 
Provision would be triggered if Boeing would continue manufacturing wings in Washington and, in 
addition, would purchase them from another producer outside of Washington.161 With respect to 
the second hypothetical scenario, the United  States explained:  
Under the Second Siting Provision, the fact that fuselages and wings are imported is 
irrelevant. Rather, the Second Siting Provision is triggered only if DOR determines that 
any final assembly or wing assembly is sited outside Washington. It is the siting of 
that production activity, not the domestic or imported c haracter of any goods, that is 
relevant.  
Thus, as the United  States noted in response to Question 39 – and assuming 
arguendo , contrary to fact, that it is possible for Boeing to import completed fuselages 
and wings for use in the production of the 777X – if the completed fuselages and 
wings were produced outside the United  States and then imported, DOR would likely 
determine that some final assembly or wing assembly had been sited outside 
Washington, meaning the Second Siting Provision would be triggered. H owever, taking 
another hypothetical that ignores for the sake of argument what is realistic, and 
applying the EU's approach to "domestic" and "imported," if Boeing assembled 
completed fuselages and wings in Washington, sent them to a foreign company to 
conduct non -assembly operations (e.g.  cosmetic painting of logos or testing), and 
then imported them, the Second Siting Provision would not be triggered, despite that 
under the EU's approach, Boeing was using imported goods.  
Again, the Second Siting Provision  is focused on the siting of production activity – in 
particular, the siting of assembly operations. This is significant in light of the 
distinction drawn by the EU at the second Panel meeting between the use of goods 
within the meaning of Article  3.1(b), and what are "just assembly operations."162 
                                                
159 Panel question No. 40.  
160 United  States' response to Panel question No. 40, paras.  96-97. (emphasis original)  
161 Panel question No. 80.  
162 United  States' response to Panel question No. 80, paras.  118-120. (emphasis original)  WT/DS487/AB/R  
 
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  5.69.   In addition, we note that, in answering Panel question  No. 7 as to whether the B&O 
aerospace tax rate would still apply if there were a single instance of assembly outside 
Washington, the United States responded : 
At the outset, it is important to note that there is no realistic scenario in which only a 
single instance of final assembly or wing assembly would take place outside of 
Washington . These are complex manufacturing activities that require large 
investments in sophisticated facilities and tools, a trained workforce, and integration 
into the larger production process . And as the United States has explained, the wing 
assembly for the 777X is only completed as part of the final assembly of the finished 
airplane . However assuming for the sake of argument that there was an isolated 
instance of final assembly or wing assembly outside Washington, such isolated 
assembly may not be a siting outside the state that would trigger the Second Siting 
Provision.  
The Second Si ting Provision refers to a determination by DOR that any final assembly 
or wing assembly "has been sited outside the state of Washington. " The word "sited, " 
particularly in conjunction with a process like "assembly, " connotes a decision not 
associated with  a one -off exception.  In essence, there is no such thing as a siting of a 
one-time final assembly or wing assembly.  Thus, if such an exception did occur in a 
single instance, it is unlikely DOR would determine that Boeing had sited any final 
assembly or wi ng assembly outside of Washington . Accordingly, the 0.2904 percent 
B&O tax rate would continue to apply.163 
5.70.   The Panel  considered the United States'  responses to Panel questions  Nos. 40 and 80 
"significant in understanding the modalities of operation of the c onditions of the Second Siting 
Provision".164 On the basis of the United States' responses, the Panel concluded that "the Second 
Siting Provision is not only aimed at ensuring that [Boeing] itself assemble the 777X wings or 
conduct the final assembly of the 777X"165; rather, for the Panel, "[i]t also concerns the 'use' of 
certain goods  [i.e. wings], and specifically the origin of those goods that enter into the production 
process for the 777X as a condition for the continued availability of a subsidy."166 In the Panel 's 
view, whether or not the Second Siting Provision would be triggered would be determined by the 
origin of the wings. The Panel concluded that "the only decision by Boeing to source wings which it 
would then 'use' in producing the 777X that would not  trigger the Second Siting Provision would be 
to source such wings within Washington State, which by definition would be domestic wings."167 
The Panel further considered that the United States' responses clarified that the term "or" in the 
Second Siting Prov ision "contemplates, and seeks to prevent inter alia , any wings  … from being 
produced as separate products outside Washington  State … that would  then be shipped to 
Washington State for incorporation in the final assembly process. "168 On this basis, the Panel  found 
that no wings can "be sourced by Boeing from outside the state of Washington without the 
consequence of activating the Second Siting Provision".169 Thus, the Panel based its conclusions on 
the United States' responses  to Panel questions  Nos. 40 and 80 . We note that the Panel did not 
address in its analysis the relevance of the United States' response  to Panel question  No. 7 that a 
single instance of assembly outside Washington would not trigger the Second Siting Provision.  
5.71.   In evaluating  the Panel's ass essment of the Second Siting Provision, we take note of the 
Panel's key conclusion that the United  States' responses clarify that the Second Siting Provision is 
"not only aimed at" preventing the siting of assembly operations outside of Washington, but "al so 
concerns the 'use' of certain goods, and specifically the origin of those goods".170 We do not 
consider that a statement by the Panel that a measure may "concern" the domestic or imported 
origin of goods is in itself sufficient to establish the existence of de facto contingency to use 
domestic over imported goods within the meaning of Article 3.1(b). As we have noted, the relevant 
question in determining the existence of contingency under Article 3.1(b) is not whether a 
condition for eligibility under  a subsidy may result  in the use of more domestic and fewer  imported 
                                                
163 United  States' response to Panel question No. 7, paras.  15-16. (fn omitted; emphasis original)  
164 Panel Report, para. 7.365.  
165 Panel Report, para. 7.364.  
166 Panel Report, para. 7.366.  
167 Panel Report, para.  7.364. (emphasis original)  
168 Panel Report, para. 7.366.  
169 Panel Report, para. 7.368.  
170 Panel Report, para. 7 .366. See also para. 7.364.  WT/DS487/AB/R  
 
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  goods. Rather, the question is whether a condition requiring the use of domestic over imported 
goods can be discerned from the terms of the measure itself, or inferred from the measure's 
design, structure, and modalities of operation, in light of  the relevant factual circumstances that 
provide the context for unders tanding the measure and its operation.  
5.72.   Other statements by the Panel underscore its understanding that the operation of the siting 
condition under the measure at issue may relate only to certain consequences  for the importation 
of goods. The Panel conside red that "so long as th is 'siting' d oes not happen", the Second Siting 
Provision "remain s dormant" , and that it was this " particular passive, deterrent nature of the 
measure" that raised the question "as to what sorts of factual evidence could inform the a nalysis 
of whether ongoing access to the  B&O aerospace  tax rate … under the 777X programme is 
contingent de facto on the use of domestic over imported 777X wings."171 For the Panel, this made 
the question as to how the Washington Department of Revenue would exercise the discretion 
granted to it under the measure and, specifically, the Second Siting Provision "particularly 
relevant".172 The Panel concluded that the responses provided by the United States regarding what 
might trigger the Second Siting Provision d emonstrate that the language of th is provision 
"contemplates, and seeks to prevent inter alia , any wings … from being produced as separate 
products outside Washington State … that would then be shipped to Washington State for 
incorporation in the final ass embly process".173  
5.73.   While the Panel is correct to note that the measure may prevent  assembly of completed 
wings abroad, in our view, this does not mean that the Second Siting Provision "contemplates" and 
"seeks to prevent" imports of completed  wings . While i t is not unusual that, in order to receive a 
subsidy, the recipient is required to meet certain conditions, it is not entirely clear how the 
Washington Department of Revenue would exercise its discretion and whether a loss of the subsidy 
by the recipient, if these conditions are not met, would demonstrate the existence of a 
requirement to use domestic over imported goods. In any event, it is the location of production, 
not the imported or domestic origin of the resulting product, that wo uld trigger the loss  of the 
B&O aerospace tax rate.  
5.74.   Thus, we do not consider that the Panel's analysis and reasoning is sufficient to establish 
that the way the Second Siting Provision operates with respect to the siting of production and 
assembly makes the B&O aerospace tax  rate de facto contingent upon the use of domestic over 
imported goods.  In addition, we do not understand how statements made by the Washington 
Governor "about the goal of keeping 777X wing production in Washington" are, in the Panel's 
words, "consistent" with its conclusion th at the Second Siting Provision demonstrate s de facto 
contingen cy.174 If anything, these statements simply underscore that the Second Siting Provision 
relates to a requirement not to site certain production and assembly activities outsid e Washington.  
5.75.   We consider it significant that the Second Siting Provision is focused on the "siting" of 
assembly activities. As we have noted, although conditions for eligibility and access to a subsidy 
may entail certain consequences for a domestic produc er's sourcing decisions between domestic 
and imported goods, this alone does not equate to a condition requiring the use of domestic over 
imported goods. The Panel itself appears to have recognize d this when it stated that the focus of 
its assessment was " not whether the measures at issue have had an import substitution effect or a 
detrimental impact on imports, as this would [have] require [d] the Panel to trespass into an 
adverse effects analysis of the type that is not contemplated by Article 3.1 ."175 Yet, by relying on 
the consequence that a domestic siting provision has for the importation of goods produced 
through assembly operations sited abroad, the Panel itself, in our view, built its reasoning on the 
very observations concerning any consequential "imp ort substitution effect" and "detrimental 
impact on imports" that the Panel stated would be inappropriate in an Article 3.1(b) analysis.  
5.76.   We recall, in this respect, that a subsidy requiring the siting of certain production activities 
in a Member's domestic  territory can ordinarily be expected to increase the supply of the 
subsidized domestic goods in the relevant market, which would have the consequence of 
increasing the use of these subsidized domestic goods in downstream production and adversely 
                                                
171 Panel Report, para. 7.358.  
172 Panel Report, para. 7.360.  
173 Panel Report, para. 7.366.  
174 Panel Report, para. 7.366.  
175 Panel Report, para. 7.357.  WT/DS487/AB/R  
 
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  affecting  imports. In the specific case of subsidies granted for the production of inputs  – e.g. wings 
and fuselages  – the subsidy recipient would likely both "produce" and "use" the subsidized inputs 
in the production and assembly of the subsidized final good. Ind eed, subsidies in these 
circumstances have consequences for the input -sourcing decisions of the subsidized producers to 
the extent that, having been required to produce an input domestically, and for reasons of 
production costs and efficiency, they will li kely use these inputs in their downstream production 
activities. This holds particularly true in circumstances where the subsidized inputs are very 
specialized in nature and the manufacturing and assembly stages of the production chain are 
highly integrate d. However, while a subsidy may operate in such factual circumstances so as to 
foster the use of subsidized domestic inputs , and thereby result in adverse effects on imports 
within the meaning of Part III  of the SCM Agreement , such effects do not, in and o f themselves, 
demonstrate the existence of a requirement to use domestic over imported goods within the 
meaning of Article 3.1(b)  of that Agreement . 
5.77.   We also take note of the United States' responses to Panel questions involving certain 
"counterfactual scen arios"176 regarding what determination the Washington Department of 
Revenue would likely make if Boeing were to import completed fuselages and wings. At the outset , 
we wish to recall that using counterfactual or hypothetical scenarios is a permissible tool o f legal 
analysis that may be particularly relevant in WTO dispute settlement, including in the context of 
the SCM Agreement .177 Moreover, the absence of evidence pertaining to the actual application of a 
measure should not preclude the possibility for a Memb er to challenge a law that has not yet been 
applied.178 Especially when the alleged contingency is not clearly expressed in the language of the 
relevant legal instrument, a thorough analysis of the relationship between the granting of the 
subsidy and the con dition requiring the use of domestic over imported goods on the basis of a 
careful scrutiny of all relevant factors and factual circumstances is required. We emphasize , in this 
respect , that the manner in which the Washington Department of Revenue would ex ercise its 
discretion to terminate the availability of the B&O aerospace tax rate was "particularly relevant"179 
for the Panel. Thus, critical parts of the Panel's reasoning depended on whether the exercise of 
discretion by the Washington Department of Revenue would trigger the Second Siting Provision , 
and the United States' responses were, therefore, of central imp ortance for the Panel's conclusion 
regarding de facto contingency. That said, we consider that panels should exercise caution in 
basing their findings of de facto inconsistency solely or primarily on hypothetical scenarios in 
situations where limited evide nce exists as to a measure's operation.  
5.78.   With th is in mind, we are concerned about the limited consideration that the Panel gave to 
the United States' responses to the Panel 's questions and the conclusions that the Panel drew from 
them. While we do not tak e issue with the Panel's use of questions based on hypothetical 
scenarios, we question the conclusions the Panel drew from the United States' responses. The 
questions posed by the Panel were conjectural and based on arguendo  assumptions. We also note 
the p robabilistic nature of the United States' response about how the Washington Department of 
Revenue might exercise its discretion if certain hypothetical factual circumstances were to arise in 
the future. Because the Washington Department of Revenue has neve r made a determination as to 
what consequence would follow the importation by Boeing of completed 777X wings and fuselages, 
the Panel called upon the United States to hypothesize as to what determination the Washington 
Department of Revenue would make at s ome future point in time, and in respect of market 
circumstances that do not presently exist. In this regard, the United States limited itself to stating 
that the Washington Department of Revenue "would likely determine"180 that importation of 
completed wing s and fuselages would mean that some assembly had been sited outside 
                                                
176 Panel Report, para. 7.361.  
177 For example, in examining whether there is a financial contribution within the meaning of 
Article  1.1(a)(1)(ii) of the SCM  Agreement, a panel must determine what revenue would have been "otherwise 
due", i.e. absent the alleged subsidy. (See Appellate Body  Report, Canada – Autos , para.  91) Similarly, in 
examining whether a "benefit" is conferred by a financial contribution within the meaning of Article  1.1(b) of 
the SCM Agreement, a panel must determine the position of the alleged subsidy recipient in the m arket absent 
the alleged subsidy. (See Appellate Body Report, Canada – Aircraft , paras.  157-158) In addition, in the context 
of causation and non -attribution analyses under the Anti -Dumping Agreement, the Safeguards Agreement, and 
the SCM  Agreement, panels  are frequently called upon to assess "counterfactual scenarios" in reviewing 
domestic determinations as to whether injury to the domestic industry would exist in the absence of dumping, 
increased imports, or subsidized imports.  
178 See GATT Panel Report, US – Superfund , para. 5.2.2.  
179 Panel Report, para. 7.360.  
180 United  States' response to Panel question No. 80, para. 119.  WT/DS487/AB/R  
 
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  Washington, thereby triggering the Second Siting Provision. While this statement is no doubt 
relevant, it appears to have been almost the sole basis for the Panel's conclusion regarding t he 
prospective modalities of operation of the Second Siting Provision.  
5.79.   We note certain other statements that the United States made in it s responses to the 
Panel's questions. First, the United States emphasized that whether fuselages and wings are 
imported  is "irrelevant" for purposes of the Second Siting Provision because it is the siting of 
production activit ies, not the domestic or imported character of goods, that determines whether or 
not the Second Siting Provision would be triggered.181 This underscore s our assessment that any 
requirement that is to be discerned in the Second Siting Provision relates to the location of 
assembly  activities, and does not in itself demonstrate the existence of a de facto requirement to 
use domestic over imported goods.  In our view,  the circumstances present in this dispute  – such 
as the existence of a multi -stage production process, the level of specialization of the subsidized 
inputs, and the level of integration of the manufacturing and assembly chain in the aircraft 
industry – should have received more careful consideration by the Panel.  Second, as the 
United  States also noted in its response to Panel q uestion  No. 80, even if importation of completed 
777X wings and fuselages were technically possible, not all importation of such structures would 
carry the consequence that the United States outlined, for there could be a scenario in which 
assembly would still occur in Washington, but the export of such structures for non -assembly 
operations and the subsequent importatio n of those structures  would not trigger the Second Siting 
Provision. Third, we recall that, in response to Panel question No. 7, the United States ind icated 
that an isolated instance of final assembly or wing assembly outside Washington "may not be a 
siting outside the state that would trigger the Second Siting Provision".182 This response by the 
United States calls into question the Panel's conclusion d rawn on the basis of the United  States' 
responses to Panel questions  Nos. 40 and 80.  
5.80.   Read together, the above statements by the United States reflect important caveats that 
further attenuate the United States' response as to the Washington Department of Rev enue's 
"likely" determination if Boeing were to import completed wings or fuselages. Importantly, we also 
note that the Panel did not refer in its Report to any of the statements set out in the preceding 
paragraph, either in its description of the United S tates' responses to the Panel's questions, or 
when it reasoned its finding of de facto contingency. Given the Panel's near sole reliance on the 
United States' responses to Panel questions  Nos. 40 and 80, we would have expected the Panel to 
have conducted a  more careful analysis and provided an explanation as to how it could justify its 
singular reliance on the United States' responses in light of the various caveats in th ose responses. 
We recall, in this connection, the Appellate Body's statement in Canada – Aircraft  that, in 
examining the total configuration of facts constituting and surrounding the granting of the subsidy, 
no one factor "on its own is likely to be decisive in any given case".183 In our view, the United 
States' responses to the Panel's questi ons do not seem to have indicated anything more than a 
consequence of not fulfilling the conditions for the granting of the subsidy. Such consequences, 
together with other possible consequences of the subsidy at issue that may have some bearing on 
Boeing's  input-sourcing decisions, are not sufficient to demonstrate that the Second Siting 
Provision, which w as found not to demonstrate  de jure contingen cy, nevertheless entails a de facto 
requirement to use domestic over imported goods.  
5.81.   In sum, we do not see th at the Panel properly established that the Second Siting Provision, 
in addition to the conditions relating to the siting of production activities, also entails a condition 
requiring the use of domestic over imported goods. The United States' response to  Panel question 
No. 80 regarding the Washington Department of Revenue's "likely" determination in the event that 
completed fuselages and wings were imported clarifies that it is the location of production 
activities, not the imported or domestic character of the goods produced, that triggers the Second 
Siting Provision. In light of the various caveats to the United States' responses, the implications of 
which were neither mentioned nor reasoned in the Panel Report, we do not consider that the 
Panel's analysis and reasoning provided a sufficient basis for its finding that the Second Siting 
Provision makes the B&O aerospace tax rate de facto contingen t upon the use of domestic over 
imported goods within the meaning of Article 3.1(b) of the SCM Agreement .  
                                                
181 United  States' response to Panel question No. 80, para. 118.  
182 United  States' response to Panel question No. 7, para.  15. 
183 Appellate B ody Report, Canada – Aircraft , para. 167.  WT/DS487/AB/R  
 
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  5.82.   For the foregoing reasons, we reverse  the Panel's finding , in paragraphs 7.369 and 8.1.c of 
its Report,  that the B&O aerospace tax rate is de facto contingent upon the use of domestic over 
imported goods within the meaning of Article  3.1(b) of the SCM Agreement . Accordingly, we also 
reverse  the Panel's finding, in paragraph 8.2 of its Report, that the United States has acted 
inconsistently with Article 3.2 of the SCM Agreement.  
5.83.   We note that the United States raised a number of additional claims concerning t he Panel's 
interpretation and application of Article 3.1(b) of the SCM Agreement . In particular, th e 
United  States takes issue with the Panel's finding that  Boeing "uses" wings to manufacture the 
777X and argues that the Panel did not conduct "a meaningful  analysis" as to whether wings 
resulting from wing assembly in Washington  would necessarily be "domestic".184 The United  States 
also submits that the Panel's evaluation of the operation of the Second Siting Provision in the 
context of its de facto analysis is inconsistent with the Panel's duty under Article  11 of the DSU to 
make an objective assessment of the matter.185 Having reversed the Panel's finding that the 
B&O aerospace tax rate is de facto contingent upon the use of domestic over imported go ods 
within the meaning of Article  3.1(b) of the SCM Agreement , we do not consider it necessary to 
address further the United States' other claims and arguments.  
5.84.   We further note the European Union's claim that the Panel failed to make an objective 
assessmen t of the matter under Article  11 of the DSU by treating as conclusive the language of 
the contingency described in the First Siting Provision and the Washington Department of 
Revenue's determination regarding Boeing's  decision to locate "a significant comm ercial airplane 
manufacturing program"  in Washington , and thereby "failing to properly consider the implications 
of that condition on Boeing's incentives to use domestic over imported 777X wings or 777X 
fuselages in its Washington  State production of the 7 77X".186 In light of our reversal of the Panel's 
finding that the B&O aerospace tax rate is de facto contingent upon the use of domestic over 
imported goods  under Article 3.1(b)  of the SCM Agreement , we do not consider it necessary to 
address the European Un ion's claim. Insofar as the Panel could not have relied on the mere 
implications of such a domestic siting condition for the importation of goods manufactured abroad, 
we do  not consider that the European  Union's argument could have altered the Panel's 
understanding that the activation of the First Siting Provision was based exclusively on Boeing's 
decision to locate a significant commercial airplane manufacturing program in Washington, and not 
on the particular use of goods of specific origins.187 
6  FINDINGS AN D CONCLUSIONS  
6.1.  For the reasons set out in this Report, the Appellate Body makes the following findings and 
conclusions.  
6.2.  With respect to the Panel's interpretation of Article  3.1(b) of the SCM Agreement  in the 
context of its de jure contingency analyses of t he First and Second Siting Provisions, we consider 
that the Panel did not articulate a legal standard under Article 3.1(b) requiring the use of domestic 
goods to the complete exclusion of imported goods.  Instead, the Panel found that, by their terms, 
the First and Second Siting Provisions relate to the location of certain assembly operations within 
Washington and are silent as to the use of domestic o r imported goods. Therefore, in stating that 
these provisions do not " per se  and necessarily exclude" the p ossibility for the airplane 
                                                
184 United  States' appellant's submission, paras.  124 and 126.  
185 First, the United States argues that the Panel's findings, drawn primarily from the United States' 
answers to Panel questions Nos. 40 and 80, relied on a flawed understanding of how the Second Siting 
Provision would operate in hypothetical scenarios that had no basis in evidence. Second, the United States 
challenges the Panel's conclusion that the expression "or" in the Second Siting Provision "contemplates, and 
seeks to prevent inter alia , any wings … from being produced as separate products outside Washi ngton State". 
Third, the United States challenges the weight that the Panel attributed to certain elements of evidence, in 
particular, to certain statements by the Governor of Washington. Finally, the United States points out that the 
Panel did not rely in  its analysis on its own statement that Section 12 wing structures are not "wings". 
(United  States' appellant's submission, paras. 165 -191) 
186 European Union's other appellant's submission, para.  75. (emphasis original)  For the 
European  Union, the requireme nts for "Boeing to both (i)  produce the 777X aircraft, and (ii) manufacture 777X 
wings and 777X fuselages, all in Washington State" "together necessarily imply  that the 777X wings and 777X 
fuselages manufactured in Washington State were for use in the prod uction of the 777X aircraft in Washington 
State." (Ibid., para. 76 (emphasis original; fn omitted) ) 
187 Panel Report, paras. 7.343 -7.344.  WT/DS487/AB/R  
 
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  manufacturer to use inputs from outside Washington, the Panel was not articulating a legal 
standard , but was rather recognizing that, based on the necessary implications of the provisions' 
terms, no de jure requirement existed f or Boeing to use domestic over imported goods. Neither did 
the Panel articulate such a legal standard in assessing the de facto contingency of the First Siting 
Provision. Rather, the Panel found that the additional evidence before it confirmed its 
understa nding of the First Siting Provision in the context of its de jure contingency  analysis that 
the measure does  not require the use of domestic over imported goods as a condition for granting 
the subsidy.  
a. We therefore reject  the European Union's claims that the Panel erred in its interpretation 
of Article 3.1(b) of the SCM Agreement  in the context of its de jure contingency analyses 
of the First and Second Siting Provisions, as well as its de facto contingency analysis of 
the First Siting Provision.  
6.3.  With respect to the Panel's application of Article  3.1(b) of the SCM Agreement  in the context 
of its de jure contingency analysis of the First Siting Provision, we consider that the relevant 
question in determining the existence of  de jure contingency under Article  3.1(b) is not whether 
the production requirements under the First Siting Provision may result  in the use of more 
domestic and fewer  imported goods, but whether the measure, by its terms or by necessary 
implication therefrom, sets out a condition requiring the use of domestic over imported goods. 
Therefore, even if, under the scenarios discussed by the Panel, Boeing would likely use som e 
amount of domestically produced wings and fuselages, this observation is not in itself sufficient to 
establish the existence of a condition, reflected in the measure's terms or arising by necessary 
implication therefrom, requiring the use of domestic ove r imported goods . 
a. We therefore reject  the European  Union's claim that the Panel erred in its application of 
Article  3.1(b) of the SCM Agreement  in finding that the First Siting Provision does not 
make  the aerospace tax measures de jure contingent upon the use of domestic over 
imported goods.  
6.4.  With respect to the Panel's  application of Article 3.1(b) of the SCM Agreement  in the context 
of its  de jure contingency analysis of the Second Siting Provision, we do not consider that the 
Panel erred by not examining the United  States' responses to its questions in the context of that 
analysis . In determining the existence of contingency, a panel should conduct a holistic 
assessment of all relevant elements and evidence on the record, and need not compartmentalize 
its de jure and de facto analyse s in order to reach an overall conclusion as to whether a subsidy is 
contingent upon the use of domestic over imported goods. The United  States' responses may have 
shed light on the necessary implication of the terms of the Seco nd Siting Provision, but they may 
have been equally relevant for understanding the measure's design, structure, and modalities of 
operation in the context of the relevant factual circumstances. Therefore, we do not consider that 
the Panel erred by unduly r estricting the scope of the evidence from which it assessed de jure 
contingency with respect to the Second Siting Provision. We also do not consider that the Panel 
understood the scope of application of the Second Siting Provision as limited to the relocat ion of 
specific  assembly operations that were the basis of a siting  under the First Siting Provision. 
Instead, the Panel was merely describing one possible  situation under which the Second Siting 
Provision would be activated . 
a. We therefore reject  the European Union's claim that the Panel erred in the application of 
Article 3.1(b) of the SCM Agreement  in finding that the Second Siting Provision, 
considered separately or jointly with the First Siting P rovision, does not make the 
B&O aerospace tax ra te de jure contingent upon the use of domestic over imported 
goods.  
b. We also reject  the European Union's claim that the Panel failed to make an objective 
assessment of the matter under Article 11 of the DSU in finding that the Second Siting 
Provision, consi dered separately or jointly with the First Siting P rovision, does not make 
the B&O  aerospace tax rate de jure contingent upon the use of domestic over imported 
goods.  
6.5.  With respect to the Panel's de facto contingency analysis under Article 3.1(b) of the 
SCM Agreement , we do not see that the Panel properly established that the Second Siting