RESTRICTED  
  
WT/DSB/M/401  
 
8 November  2017 
(17-5850) Page: 1/4 
Dispute Settlement Body  
22 September 2017    
 
 MINUTES OF MEETING  
HELD IN THE CENTRE W ILLIAM RAPPARD  
ON 22 SEPTEMBER  2017 
Chairman: Mr. Junichi I hara (Japan ) 
Table of Contents  
1   UNITED  STATES – CONDITIONAL TAX INCE NTIVES FOR LARGE CIV IL 
AIRCRA FT ................................ ................................ ................................ ........................  1 
A  Report of the Appellate Body and Report of the Panel  ................................ ..........................  1 
2   CHINA – TARIFF RATE QUOTAS F OR CERTAIN AGRICULTU RAL PRODUCTS  .................  3 
A  Request for the establishment of a panel by the United  States  ................................ ..............  3 
 
 
1  UNITED  STATES – CONDITIONAL TAX INCE NTIVES FOR LARGE CIV IL AIRCRAFT  
A  Report of the Appe llate Body (WT/DS487/AB/R and WT/DS487/AB/R/Add.1) and 
Report of the Panel (WT/DS487/R and WT/DS487/R/Add.1)  
1.1.  The Chairman  drew attention to the communication from the Appellate Body contained in 
document WT/DS487/10 transmitting the Appellate Body Report i n the dispute: "United  States – 
Conditional Tax Incentives for Large Civil Aircraft", which had been circulated on 
4 September  2017 in document WT/DS487/AB/R and Add.1, in accordance with Article  17.5 of the 
DSU. The Chairman recalled that the Appellate Bo dy Report and the Panel Report pertaining to this 
dispute had been circulated as unrestricted documents. As Members were aware, Article  17.14 of 
the DSU and Article  7.7 of the SCM Agreement, as applicable to this case, required that: 
"An Appellate Body rep ort shall be adopted by the DSB and unconditionally accepted by the parties 
to the dispute unless the DSB decides by consensus not to adopt the Appellate Body report within 
20 days following its circulation to Members. This adoption procedure is without pr ejudice to the 
right of Members to express their views on an Appellate Body report".  
1.2.  The representative of the European  Union  said that his delegation considered that, now more 
than ever, the WTO needed a dispute settlement system that was mandatory, bindi ng and 
independent, that strove to be objective, and that was properly resourced. The EU remained as 
committed as ever to those principles, with respect to all aspects of the design and operation of 
the overall system, as well as the disposition of individ ual cases. The EU believed that all Members, 
and all other actors within the system, shared or should share this perspective. Nevertheless, the 
EU was very surprised and disappointed with the result in this particular dispute. Normally, the EU 
would refrai n from commenting in great detail. However, in this particular instance, the EU was 
compelled to make certain observations.  
1.3.  The first observation concerned paragraph  5.17 of the Appellate Body Report, which could be 
taken to suggest that the analysis of co ntingency was different under Articles  3.1(a) (export 
subsidies) and 3.1(b) (import substitution subsidies) of the SCM  Agreement. The EU found such a 
proposition to be highly problematic. In the EU's view, given that adverse impact was generally 
presumed p ursuant to Article  3.8 of the DSU, WTO cases were always about what measures at WT/DSB/M/401  
 
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  issue implied for competitive opportunities. That was, they were about what the design and 
architecture of the measure implied for future trade. It had never been the case that  complainants 
had to wait for a measure to have actual effects before initiating dispute settlement proceedings. 
The EU thought that this was true irrespective of whether the case was a de jure case or a de facto 
case. Thus, even if the "geared to induce" language used with respect to Article  3.1(a) of the 
SCM Agreement had found some additional support in the term "anticipated" in footnote  4, it was 
at the same time a specific expression of the more general principle that the EU had just outlined. 
Therefor e, while it agreed that the legal "test" consisted of the terms actually used by the treaty, 
and that the "geared to induce" language was a useful analytic tool that did not in itself answer the 
question under either Article  3.1(a) or 3.1(b), the EU did no t agree that the concept of contingency 
was different in the two  provisions. Both parties and all third parties in this dispute had agreed 
with this proposition, which the EU thought was self -evident. The EU considered that any 
determination to the contrar y would constitute manifest legal error.  
1.4.  The second observation concerned the three reasons given in paragraph  5.79 of the Appellate 
Body Report. With respect to the first reason, given that the second siting provision had made the 
subsidy in this case con ditional on the production or assembly of the wing in Washington State, 
and thus not in any other WTO Member, the EU did not understand why that had not constituted a 
breach of Article  3.1(b). Nor did the EU understand why that conclusion might change as a  
function of the three factors to which the Appellate Body had referred : (i) the existence of a 
multi-stage production process; (ii) the level of specialization of the subsidized inputs; and (iii) the 
level of integration of the manufacturing and assembly chain in the aircraft industry.  With respect 
to the second reason, the EU did not understand how a US hypothetical that it could make the 
wing in Washington State , export it for painting, then re -import it, without losing the subsidy, had 
any bearing on th e plain language of the second siting condition . With respect to the third reason, 
the EU again did not understand how a US hypothetical regarding an isolated instance of final 
assembly outside Washington State had any bearing on the plain language of the second siting 
condition.  
1.5.  The third observation concerned the Appellate Body's use of the term "consequence". The EU 
agreed that the economic consequences of a subsidy were not caught by the prohibition in 
Article  3.1(b). Thus, the EU agreed that a producti on subsidy to a local input that increased the 
supply and lowered the price of that local input, making it more attractive and displacing imports 
was not caught by the prohibition. However, the EU did not think this should be confused with the 
legal conseq uence associated with a contingency. In this dispute, that legal consequence was 
clear: use of one imported wing would have entailed the loss of the subsidy. This was something 
that, in effect, the United States had admitted in this particular case. For th ese reasons, as and 
when future disputes arose under Article  3.1(b) of the SCM  Agreement, and panels were generally 
called upon to apply the guidance contained in this Appellate Body Report, the EU anticipated that 
panels would be sure to give more extensi ve consideration to any explanations emanating from 
the defendant and relating to the matters referred to by the Appellate Body, no matter how 
far-fetched they may be. However, having done so, the EU also firmly anticipated that, faced with 
the kind of fac t pattern arising in this dispute, such panels would affirm a breach of Article  3.1(b). 
In other words, the EU firmly anticipated that this Appellate Body Report would not be construed 
as a blank cheque for protectionism and the disruption of the global su pply chains that had such a 
central role to play in the modern and evolving international trading system. Rather, the EU hoped 
that this particular Report would prove unique, and, in essence, a dead end.  
1.6.  The representative of the United  States  said that th e United States would like to begin by 
thanking  the members of the Panel, the Appellate Body, and the Secretariat staff assisting them 
for their hard work during this proceeding.  In a way, the United  States was pleased that the EU 
had requested the DSB to adopt these Panel and Appellate Body Reports at the present meeting. 
The Reports, after all, affirmed the US position in this dispute: that the United States had not 
granted prohibited subsidies to Boeing.  While the  United  States was not convinced that thi s item 
was an efficient use of Members' time, it nonetheless took the opportunity to explain why the EU 
had lost this dispute. First, before the Panel, the EU had challenged certain measures of the state 
of Washington, specifically : (i) a reduction in the business and occupation (B&O) tax rate that 
applied to business activities concerning the manufacture and sale of commercial airplanes ; and 
(ii) other tax credits or exemptions relating to product development activities, property and 
leasehold taxes, and s ales and use taxes.  The EU had claimed th at these tax incentives were  WT/DSB/M/401  
 
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  prohibited import -substitution subsidies under Articles  3.1(b) and 3.2 of the SCM Agreement.1 The 
Panel had fundamentally disagreed.  
1.7.  The United States said that t he Panel, looking carefu lly at the evidence and arguments, had 
found that the EU had failed to demonstrate that any of the tax measures were de jure contingent 
upon the use of domestic over imported goods. The Panel had therefore dismissed all of the EU's 
case except for one de facto prohibited subsidy claim on one tax measure. The EU had appealed all 
of the claims that it had lost before the Panel, and the Appellate Body had rejected all of the EU's 
appeals. The United States had appealed the Panel's one de facto prohibited subsi dy finding, and 
the Appellate Body had reversed the Panel's finding on that one issue. The Appellate Body had 
determined that the Panel had relied on an incorrect legal interpretation of what it meant for a 
subsidy to be "contingent" on "the use of domesti c over imported goods." The Appellate Body had 
explained that under the WTO Agreement, "something more than mere subsidization of domestic 
production is required for finding an import substitution subsidy ". This was consistent with the 
view of the United S tates and third -parties that a requirement that a manufacturer undertake 
certain activities in a territory beyond final production in order to receive an incentive did not, in 
itself, establish the existence of a condition requiring the use of domestic ove r imported goods. 
Thus, as a result of the Panel's findings, unsuccessfully challenged by the EU on appeal, and as a 
result of the Appellate Body's findings, reversing the Panel's one prohibited subsidy finding, all of 
the EU's claims in this dispute had b een rejected.  
1.8.  The United  States welcomed the Panel and Appellate Body's findings in this dispute. It was 
not often that a WTO complaining party lost all of its claims. But the EU had long pursued claims at 
the WTO to validate its view that the EU's many bi llions of dollars in subsidized financing for Airbus 
were comparable to supposed US subsidies to Boeing. At each stage, the WTO had found that 
there was no comparison – the value and adverse effects of any US support were far less than the 
value and advers e effects of the EU's subsidies. The United States said that Members may recall  
that in June  2017, a compliance Panel in the challenge brought by the EU had found that 28 of 29 
US programs were consistent with WTO rules and had found that only a single Was hington State 
tax program had limited effects contrary to WTO rules. The EU had promptly appealed its own 
"win" in that compliance challenge.  The United States said that it looked forward to the outcomes 
in the pending appeals in the compliance  proceedings  that were currently  underway. The United 
States said that it t ook the opportunity under this A genda item to renew  its call to the EU to finally 
negotiate and find a solution that would end all its WTO -inconsistent subsidies.  
1.9.  The representative of Canada  said that his country wished to thank the Panel, the Appellate 
Body and the Secretariat for their work in this dispute. As a third party in this dispute, Canada 
welcomed the Appellate Body's finding that a subsidy that simply required the production by the 
recipient of both specialized input goods and final goods did not violate Article  3.1(b) of the 
SCM Agreement.  
1.10.   The DSB took note  of the statements and adopted  the Appellate Body Report contained in 
document WT/DS487/AB/R and Add.1 and the Panel Report cont ained in document WT/DS487/R 
and Add.1, as modified by the Appellate Body Report.  
2  CHINA – TARIFF RATE QUOTAS F OR CERTAIN AGRICULTU RAL PRODUCTS  
A  Request for the establishment of a panel by the United  States (WT/DS517/6)  
2.1.  The Chairman  recalled that the DSB had considered this matter at its meeting on 
31 August  2017 and had agreed to revert to it. He drew attention to the communication from the 
United  States contained in document WT/DS517/6 and invited the representative of the 
United  States to speak.  
2.2.  The rep resentative of the United  States  said that, as had been stated at the 31  August  2017 
DSB meeting, the United  States had serious concerns regarding China's administration of its 
tariff-rate quotas for wheat, short - and medium -grain rice, long -grain rice, an d corn. When China 
joined the WTO, it had committed to remove its import restrictions and to operate its tariff -rate 
quotas in a transparent, predictable, fair, and reasonable manner. But the reality appeared to be 
                                                
1 Agreement on Subsidies and Countervailing Measures . WT/DSB/M/401  
 
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  very different. Instead, China was failin g to live up to basic WTO commitments on import 
restrictions and tariff -rate quota administration, denying farmers and traders the full market 
access for agricultural products China had committed to when it joined the WTO. The US panel 
request explained th at China did not administer these tariff -rate quotas consistently with its 
commitments in its Accession  Proto col or with the GATT  1994 and specified the US claims under 
these agreements. Accordingly, the United  States requested  at the present meeting , for the 
second time, that the DSB establish a panel to examine the matter set out in its panel request, 
with standard terms of reference.  
2.3.  The representative of China  said that his country regretted the US request for the 
establishment of a panel in this disput e. China said that it was disappointed by the United  States' 
consecutive challenges to China's legitimate measures with respect to vital agricultural staples 
including rice, wheat and corn. Indeed, since its accession to the WTO, China had taken the 
fulfilment of its commitments concerning the administration of TRQs for the agricultural products 
mentioned above seriously. China would defend its interests and demonstrate the 
WTO-consistency of its measures before the Panel.  
2.4.  The DSB took note  of the statement s and agreed  to establish a panel in accordance with the 
provisions of Article  6 of the DSU with standard terms of reference.  
2.5.  The representatives of Australia , Brazil , Canada , Ecuador , the European  Union , Guatemala , 
Indonesia , Japan , Kazakhstan , Korea , Norway, the Russian  Federation , Singapore , Chinese  Taipei  
and Viet Nam reserved their third -party rights to participate in the Panel's proceedings.  
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