WT/DS353/R W 
 
9 June  2017 
(17-3038) Page: 1/624 
  Original: English  
  
 
 UNITED STATES – MEASURES AFFECTING T RADE IN LARGE CIVIL 
AIRCRAFT (SECOND COM PLAINT)  
RECOURSE TO ARTICLE 21.5 OF THE DSU BY T HE EUROPEAN UNION  
REPORT OF THE PANEL  
 
 
 
 
BCI deleted , as indicated  [***]  
HSBI omitted, as indicated [[HSBI]]  
 WT/DS353/R W 
 
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  TABLE OF CONTENTS  
 
1   INTRODUCTION  ................................ ................................ ................................ ........  21 
1.1   Complaint by the European Union  ................................ ................................ ...............  21 
1.2   Panel establishment and composition  ................................ ................................ ..........  22 
1.3   Panel proceedings  ................................ ................................ ................................ ..... 23 
1.3.1   General  ................................ ................................ ................................ ................  23 
1.3.2   The Panel's ruling and decisions regarding Annex V of the SCM Agreement and 
requests of the parties that the Panel seek information under Article 13 of the DSU  ...................  24 
1.3.3   Requests for preliminary rulings on the Panel's terms of reference and other 
procedural rulings  ................................ ................................ ................................ ............  25 
1.3.3.1    The United States' request for preliminary rulings  ................................ ....................  25 
1.3.3.2    The European Union's request for leave to file an additional submission 
pertaining to Washington State Legislature Substitute Bill 5952  ................................ ..............  26 
1.3.3.3   Other procedural rulings  ................................ ................................ ......................  26 
2   PARTIES' REQUESTS FO R FINDINGS AND RECOM MENDATIONS  ................................  26 
3   ARGUMENTS OF THE PAR TIES  ................................ ................................ ...................  27 
4   ARGUMENTS OF THE THI RD PARTIES  ................................ ................................ ........  28 
5   INTERIM REVIEW  ................................ ................................ ................................ ...... 28 
5.1   Introduction  ................................ ................................ ................................ .............  28 
5.2   Specific requests for review submitted by the parties  ................................ .....................  28 
5.2.1   Explicit attributions of arguments to the parties  ................................ .........................  28 
5.2.2   Introduction to Panel findings  ................................ ................................ ..................  29 
5.2.3   Whether certain measures and claims are outside the Panel's terms o f reference 
or are otherwise outside the scope of this proceeding  ................................ ............................  30 
5.2.4   Whether the United States has failed to withdraw the subsidy within the meaning 
of Article 7.8 of the SCM Agreement  ................................ ................................ ...................  33 
5.2.5   Whether the United States has failed to take appropriate steps to remove the 
adverse effects within the meaning of Article 7.8 of the SCM Agreement  ................................ .. 39 
5.2.6   Appendix 1  ................................ ................................ ................................ ...........  44 
5.3   The BCI or HSBI designation of certain information  ................................ .......................  45 
6   INTRODU CTION TO PANEL FINDI NGS ................................ ................................ ....... 45 
6.1   Alleged non -compliance of the United States with Article 7.8 of the SCM Agreement 
as the main subject of this compliance proceeding  ................................ ................................  45 
6.2   Article 7.8 of the SCM Agreement and Article 19 of the DSU  ................................ ...........  46 
6.3   Structure of the European Union's case that the United States has failed to wi thdraw 
the subsidy and take appropriate steps to remove the adverse effects, within the 
meaning of Article 7.8 of the SCM Agreement  ................................ ................................ ...... 49 
6.4   Organization of Panel's analysis  ................................ ................................ ..................  55 
7   WHETHER CERTAIN MEAS URES AND CLAIMS ARE OUTSIDE THE PANEL'S 
TERMS OF REFERENCE O R ARE OTHERWISE OUTS IDE THE SCOPE OF THI S 
PROCEEDING  ................................ ................................ ................................ .................  56 
7.1   Introduction  ................................ ................................ ................................ .............  56 
7.2   Washington state and local measures  ................................ ................................ ..........  57 WT/DS353/R W 
 
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  7.2.1   Whether the four original Washington tax measures are ou tside the scope of this 
proceeding  ................................ ................................ ................................ ......................  58 
7.2.1.1    Main arguments of the parties and third parties  ................................ .......................  59 
7.2.1.2    Evaluation by the P anel ................................ ................................ ........................  62 
7.2.2   Whether the Washington State Joint Center for Aerospace Technology Innovation 
measure is outside the scope of this proceeding  ................................ ................................ ... 68 
7.2.2.1    Main arguments of the parties and third parties  ................................ .......................  69 
7.2.2.2    Evaluation by the Panel  ................................ ................................ ........................  70 
7.3   DOD aer onautics R&D measures  ................................ ................................ .................  75 
7.3.1   Background  ................................ ................................ ................................ ..........  75 
7.3.2   Whether the pre -2007 DOD procurement contracts funded under the original 23 
RDT&E program elements are outside the scope of this compliance proceeding  .........................  80 
7.3.2.1    Main arguments of the parties and third parties  ................................ .......................  80 
7.3.2.2    Evaluation by the Panel  ................................ ................................ ........................  82 
7.3.2.2.1    The European Union's appeal regarding the pre -2007 DOD procurement 
contracts  ................................ ................................ ................................ ........................  83 
7.3.2.2.2    The Appellate Body's approach to the European Union's appeal of the panel's 
interpretation of Article 1.1(a)(1)  ................................ ................................ .......................  84 
7.3.3   Whether the seven "additional" RDT&E progr am elements are outside the scope of 
this proceeding  ................................ ................................ ................................ ................  87 
7.3.3.1    Background  ................................ ................................ ................................ ........  88 
7.3.3.2    Main arguments of the parties and thir d parties  ................................ .......................  89 
7.3.3.3    Evaluation by the Panel  ................................ ................................ ........................  90 
7.3.4   Whether DOD "equipment and employees" provided through procurement 
contracts and assistance instruments funded under the challenged RDT&E program 
elements are outside the scope of this compliance proceeding  ................................ ..............  106 
7.3.4.1    Main arguments of the parties  ................................ ................................ .............  106 
7.3.4.2    Evaluation by the Panel  ................................ ................................ ......................  107 
7.3.5   Summary of the Panel's rulings as to whether various certain DOD aeronautics 
R&D measures  are outside the scope of this proceeding ................................ .......................  109 
7.3.6   Whether the alleged "dual -use" nature of research conducted under the 
procurement contracts challenged by the European Union is relevant t o the Panel's terms 
of reference  ................................ ................................ ................................ ..................  110 
7.4   FAA aeronautics R&D measure  ................................ ................................ ..................  112 
7.4.1   Main arguments of the parties and third parti es ................................ ........................  113 
7.4.2   Evaluation by the Panel  ................................ ................................ ........................  118 
7.5   South Carolina measures  ................................ ................................ .........................  123 
7.5.1   Whether  the Project Gemini and Project Emerald measures are outside the scope 
of this proceeding.  ................................ ................................ ................................ .........  125 
7.5.1.1    Main arguments of the parties and third parties  ................................ .....................  125 
7.5.1.2    Evaluation by the Panel  ................................ ................................ ......................  130 
7.5.1.2.1    The relevant original measures  ................................ ................................ .........  132 
7.5.1.2.2    The Project Gemini measures and Project Emerald measures  ................................  134 
7.5.1.2.3    Whether there is a sufficiently close nexus between the Project Gemini and 
Project Emerald me asures, and the relevant original measures  ................................ .............  135 WT/DS353/R W 
 
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  7.5.2   Whether the Phase II measures are outside the Panel's terms of reference  ...................  137 
7.5.2.1    Main arguments of the parties  ................................ ................................ .............  137 
7.5.2.2    Evaluation by the Panel  ................................ ................................ ......................  138 
7.6   Claims under Articles 3.1(a) and (b)  of the SCM Agreement and Article III of the 
GATT 1994  ................................ ................................ ................................ ...................  141 
7.6.1   Conformity of the panel request with Article 6.2 of the DSU  ................................ ....... 141 
7.6.1.1    Main arguments of the parties  ................................ ................................ .............  141 
7.6.1.2    Evaluation by the Panel  ................................ ................................ ......................  142 
7.6.2   Whether claims under Articles 3.1(a ), 3.1(b), and 3.2 of the SCM Agreement and 
under Article III of the GATT 1994, in respect of certain measures, are outside the scope 
of this proceeding  ................................ ................................ ................................ ..........  145 
7.6.2.1    Claims under Articles 3.1 (a) and 3.2 of the SCM Agreement with respect to 
original Washington State tax measures enacted under HB 2294  ................................ ..........  145 
7.6.2.1.1    Main arguments of the parties and third parties  ................................ ..................  146 
7.6.2.1.2    Evaluation  by the Panel  ................................ ................................ ...................  147 
7.6.2.2    Claims  under Articles  3.1(a) and 3.2 of the SCM Agreement against certain 
original measures;  and claims under Articles 3.1(b) and 3.2 of the SCM Agreement and 
Article III:4 of the GATT 1994 against all original measures  ................................ .................  152 
7.6.2.2.1    Main arguments of the parties and third parties  ................................ ..................  153 
7.6.2.2.2    Evaluation by the Panel  ................................ ................................ ...................  155 
7.7   Reasons for Declining the European Union's Request for Leave to File an Additi onal 
Submission Regarding SSB 5952  ................................ ................................ ......................  159 
7.7.1   Introduction  ................................ ................................ ................................ ........  159 
7.7.2   Background to the European Union's request  ................................ ...........................  160 
7.7.3   The Panel's consideration of the argument and factual material provided in the 
European Union's request of 4 March 2014  ................................ ................................ ........  161 
7.7.4   The Washington State tax measures challenged by the European Union in this 
proceeding  ................................ ................................ ................................ ....................  163 
7.7.5   SSB 5952 and its implications for the European Union's claims regarding the 
Washington Stat e tax measures  ................................ ................................ .......................  164 
7.7.5.1    SSB 5952  ................................ ................................ ................................ ........  164 
7.7.5.2    The European Union's claims under Articles 3.1(b) and 3.2 of the SCM 
Agreeme nt with respect to the Washington State tax measures in its written submissions 
and as foreshadowed in its 4 March 2014 letter, as a result of SSB 5952  ................................  166 
7.7.5.3    The European Union's claim s under Article III:4 of the GATT 1994 with respect 
to the Washington State tax measures in its written submissions and as foreshadowed in 
its 4 March 2014 letter, as a result of SSB 5952  ................................ ................................ . 167 
7.7.5.4    The European Union's adverse effects claims with respect to the Washington 
State tax measures in its written submissions and as foreshadowed in its 4 March 2014 
letter, as a result of SSB 5952  ................................ ................................ .........................  168 
7.7.5.5    Conclusion  ................................ ................................ ................................ ....... 169 
7.7.6   Whether the Washington State tax measures as amended by SSB 5952 are within 
the Panel's terms of reference  ................................ ................................ .........................  170 
7.7.6.1    Main arguments of the parties  ................................ ................................ .............  170 
7.7.6.1.1    United States  ................................ ................................ ................................ . 170 
7.7.6.1.2    European Un ion ................................ ................................ .............................  172 WT/DS353/R W 
 
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  7.7.6.2    Evaluation  ................................ ................................ ................................ ........  173 
7.7.6.3    Conclusion  ................................ ................................ ................................ ....... 186 
7.8   Summary of the Panel's conclusions as to whether certain measures and claims are 
outside the Panel's terms of reference or are otherwise outside the scope of this 
proceeding  ................................ ................................ ................................ ....................  186 
8   WHETHER TH E UNITED STATES HAS FAILED TO WITHDRAW T HE SUBSIDY, 
WITHIN THE MEANING O F ARTICLE 7.8 OF THE  SCM AGREEMENT  ...............................  188  
8.1   Whether the United States has failed to withdraw the subsidy by modifying t he 
terms of the NASA and DOD aeronautics R&D subsidies the subject of the DSB 
recommendations and rulings  ................................ ................................ ..........................  188 
8.1.1   Introduction  ................................ ................................ ................................ ........  188 
8.1.2   Main arguments of the parties and third parties  ................................ ........................  190 
8.1.3   Evaluation by the Panel  ................................ ................................ ........................  195 
8.1.3.1    The allocation of intellectual property rights and data rights under NASA 
procurement contracts and under DOD assistance instruments and procurement contracts  ....... 196 
8.1.3.2    The commercial use licence granted  under the Boeing Patent Licence 
Agreements  ................................ ................................ ................................ ..................  199 
8.1.3.3    NASA Space Act Agreements at issue in the original proceeding  ...............................  202 
8.2   Whether the United States has failed to withdraw the subsidy, within the meaning of 
Article 7.8 of the SCM Agreement, by granting or maintaining certain post -2006 subsidies  ....... 203 
8.2.1   Introduction  ................................ ................................ ................................ ........  203 
8.2.2   Post-2006 NASA aeronautics R&D measures  ................................ ............................  205 
8.2.2.1    Introduction  ................................ ................................ ................................ ..... 205 
8.2.2.2    The measures at issue  ................................ ................................ .......................  206 
8.2.2.2.1    The European Union's panel request  ................................ ................................ .. 206 
8.2.2.2.2    The existence of the measures  ................................ ................................ .........  208 
8.2.2.2.3    The instruments and processes through which R&D is commissioned under 
NASA's aeronautics R&D programmes  ................................ ................................ ...............  210 
8.2.2.3    Whether there is a financial contribution  ................................ ...............................  212 
8.2.2.3.1    Main arguments of the parties and third parties  ................................ ..................  212 
8.2.2.3.2    Evaluation by the Panel  ................................ ................................ ...................  217 
8.2.2.3.2.1    Post-2006 NASA cooperative agreements and Space Act Agreements  ..................  217 
8.2.2.3.2.2    Post-2006 NASA procurement contracts  ................................ ..........................  218 
8.2.2.4    Whether there is a benefit  ................................ ................................ ..................  234 
8.2.2.4.1    Main argume nts of the parties and third parties  ................................ ..................  234 
8.2.2.4.2    Evaluation by the Panel  ................................ ................................ ...................  237 
8.2.2.4.2.1    Post-2006 NASA procurement contra cts and cooperative agreements that 
have been modified by the NASA -Boeing Patent Licence Agreement  ................................ ...... 239 
8.2.2.4.2.2    Post-2006 NASA procurement contracts and cooperative agreements that 
have n ot been modified by the NASA -Boeing Patent Licence Agreement  ................................ . 239 
8.2.2.4.2.3    Space Act Agreements  ................................ ................................ .................  240 
8.2.2.5    Whether the su bsidy is specific  ................................ ................................ ...........  243 
8.2.2.5.1    Main arguments of the parties  ................................ ................................ ..........  243 
8.2.2.5.2    Evaluation by the Panel  ................................ ................................ ...................  245 WT/DS353/R W 
 
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  8.2.2.6    Amount of the subsidy and amount of the financial contribution  ...............................  251 
8.2.2.6.1    The amount of the post -2006 NASA aeronautics R&D subsidies to Boeing  ...............  251 
8.2.2.6.1.1    Main arguments of the parties  ................................ ................................ ....... 251 
8.2.2.6.1.2    Evaluation by the Panel  ................................ ................................ ................  252 
8.2.2.6.2    The amount of the financial contribution provided to Boeing through the NASA 
aeronautics R&D subsidies  ................................ ................................ ..............................  253 
8.2.2.6.2.1    Main arguments of t he parties  ................................ ................................ ....... 253 
8.2.2.6.2.2    Evaluation by the Panel  ................................ ................................ ................  256 
8.2.2.7    Conclusion  ................................ ................................ ................................ ....... 266 
8.2.3   Post-2006 DOD aeronautics R&D measures  ................................ .............................  267 
8.2.3.1    Introduction  ................................ ................................ ................................ ..... 267 
8.2.3.2    The measures at issue  ................................ ................................ .......................  268 
8.2.3.2.1    The European Union's panel request  ................................ ................................ .. 268 
8.2.3.2.2    DOD procurement contracts and assistance instruments  ................................ ...... 269 
8.2.3.2.3    R&D conducted under the RDT&E program elements  ................................ ...........  270 
8.2.3.2.4    How R&D is commissioned under the RDT&E program elements  ............................  271 
8.2.3.2.5    Legal restrictions on the dissemination of military technologies and data  ................  274 
8.2.3.3    Whether there is a finan cial contribution  ................................ ...............................  275 
8.2.3.3.1    Introduction  ................................ ................................ ................................ .. 275 
8.2.3.3.2    Main arguments of the parties and third parties  ................................ ..................  276 
8.2.3.3.3    Evaluation by the Panel  ................................ ................................ ...................  279 
8.2.3.3.3.1    DOD assistance instruments  ................................ ................................ ..........  282 
8.2.3.3.3.2    DOD procurement contracts  ................................ ................................ ..........  282 
8.2.3.4    Whether there is a benefit  ................................ ................................ ..................  291 
8.2.3.4.1    Main arguments of the p arties and third parties  ................................ ..................  291 
8.2.3.4.2    Evaluation by the Panel  ................................ ................................ ...................  294 
8.2.3.4.2.1    Certain post -2006 DOD assistance instruments that have been modified by 
the DOD -Boeing Patent Licence Agreement  ................................ ................................ ........  295 
8.2.3.4.2.2    Post-2006 assistance instruments that have not been modified by the DOD -
Boeing Patent Licence Agreement  ................................ ................................ .....................  295 
8.2.3.4.2.3    DOD procurement contracts  ................................ ................................ ..........  296 
8.2.3.5    Whether the subsidy is specific  ................................ ................................ ...........  301 
8.2.3.5.1    Main arguments of the parties  ................................ ................................ ..........  301 
8.2.3.5.2    Evaluation by the Panel  ................................ ................................ ...................  302 
8.2.3.6    Amoun t of the subsidy and amount of the financial contribution  ...............................  307 
8.2.3.6.1    Amount of the subsidy provided to Boeing through the DOD assistance 
instruments  ................................ ................................ ................................ ..................  307 
8.2.3.6.2    Amount of the financial contribution provided to Boeing through the DOD 
assistance instruments  ................................ ................................ ................................ ... 308 
8.2.3.6.2.1    Main arguments of the parties  ................................ ................................ ....... 309 
8.2.3.6.2.2    Evaluation by the Panel  ................................ ................................ ................  310 
8.2.3.7    Conclusion  ................................ ................................ ................................ ....... 313 WT/DS353/R W 
 
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  8.2.4   FAA aeronautics R&D  measure  ................................ ................................ ...............  314 
8.2.4.1    Introduction  ................................ ................................ ................................ ..... 314 
8.2.4.2    The measure at issue  ................................ ................................ ........................  314 
8.2.4.2.1    The European Union's panel request  ................................ ................................ .. 314 
8.2.4.2.2    The FAA CLEEN Program and the Boeing CLEEN Agreement  ................................ .. 315 
8.2.4.3    Whether there is a financial contribution  ................................ ...............................  316 
8.2.4.3.1    Main arguments of the parties and third parties  ................................ ..................  316 
8.2.4.3.2    Evaluation by the Panel  ................................ ................................ ...................  317 
8.2.4.4    Whether there is a benefit  ................................ ................................ ..................  320 
8.2.4.4.1    Main argument s of the parties and third parties  ................................ ..................  320 
8.2.4.4.2    Evaluation by the Panel  ................................ ................................ ...................  321 
8.2.4.5    Whether the subsidy is specific  ................................ ................................ ...........  323 
8.2.4.5.1    Main arguments of the parties  ................................ ................................ ..........  323 
8.2.4.5.2    Evaluation by the Panel  ................................ ................................ ...................  324 
8.2.4.6    Amount of the subsidy and amount of the financial contribution  ...............................  326 
8.2.4.6.1    The amount of the subsidy provided to Boeing through the FAA CLEEN 
Agreement  ................................ ................................ ................................ ....................  326 
8.2.4.6.2    The amount of the financial contribution provided to Boeing through the 
Boeing CLEEN Agreement  ................................ ................................ ...............................  326 
8.2.4.6.2.1    Main a rguments of the parties  ................................ ................................ ....... 326 
8.2.4.6.2.2    Evaluation by the Panel  ................................ ................................ ................  327 
8.2.4.7    Conclusion  ................................ ................................ ................................ ....... 328 
8.2.5   Tax exemptions and exclusions under FSC/ETI legislation and successor legislation  ....... 328 
8.2.5.1    Introduction  ................................ ................................ ................................ ..... 328 
8.2.5.2    Main arguments of the parties  ................................ ................................ .............  330 
8.2.5.3    Evaluation by the Panel  ................................ ................................ ......................  333 
8.2.5.4    Conclusion  ................................ ................................ ................................ ....... 337 
8.2.6   Property and sales tax abatements provided through IRBs issued by the City of 
Wichita  ................................ ................................ ................................ .........................  337 
8.2.6.1    Introduction  ................................ ................................ ................................ ..... 337 
8.2.6.2    Main arguments of the parties  ................................ ................................ .............  339 
8.2.6.3    Evaluation by the Panel  ................................ ................................ ......................  340 
8.2.6.4    Conclusion  ................................ ................................ ................................ ....... 342 
8.2.7   Washington state and local measures  ................................ ................................ ..... 342 
8.2.7.1    Whether the Washington stat e and local measures constitute specific subsidies 
within the meaning of Articles 1 and 2 of the SCM Agreement  ................................ ..............  342 
8.2.7.1.1    Introduction  ................................ ................................ ................................ .. 342 
8.2.7.1.2    Main arguments of the parties  ................................ ................................ ..........  343 
8.2.7.1.3    Evaluation by the Panel  ................................ ................................ ...................  344 
8.2.7.2    Amount of the su bsidy ................................ ................................ .......................  345 
8.2.7.2.1    Main arguments of the parties  ................................ ................................ ..........  345 
8.2.7.2.2    Evaluation by the Panel  ................................ ................................ ...................  347 WT/DS353/R W 
 
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  8.2.7.2.2.1    The Washington State B&O tax rate reduction  ................................ ..................  347 
8.2.7.2.2.2    The amounts of the Washington State B&O tax credits for 
preproduction/aerospace prod uct development and for property taxes and the 
Washington State sales and use tax exemptions for computer hardware, software, and 
peripherals  ................................ ................................ ................................ ...................  351 
8.2.7.2.2.3    The amount of the City of Everet t B&O tax rate reduction  ................................ .. 353 
8.2.7.3    Conclusion  ................................ ................................ ................................ ....... 354 
8.2.8   The South Carolina measures  ................................ ................................ ................  354 
8.2.8.1    Introduction  ................................ ................................ ................................ ..... 354 
8.2.8.2    The measures at issue  ................................ ................................ .......................  354 
8.2.8.3    Relevant factual backgrou nd regarding the Project Gemini and Project Emerald 
incentive packages  ................................ ................................ ................................ .........  356 
8.2.8.3.1    Project Gemini incentive package ................................ ................................ ...... 356 
8.2.8.3.2   Project Emerald incentive package  ................................ ................................ .... 359 
8.2.8.4    The Panel's order of analysis  ................................ ................................ ...............  360 
8.2.8.5    Whether the sublease of the Project Site is a specific subsidy to Boeing  ....................  361 
8.2.8.5.1    Introduction  ................................ ................................ ................................ .. 361 
8.2.8.5.2    Main arguments of the parties  ................................ ................................ ..........  364 
8.2.8.5.3    Evaluation by the Panel  ................................ ................................ ...................  367 
8.2.8.5.3.1    Whether the sublease of the Project Site involves a financial contribution to 
Boeing within the meaning of Article 1.1(a) (1)(iii) of the SCM Agreement  ..............................  367 
8.2.8.5.3.2    Whether Boeing's assumption of Vought's interests under the Vought 
Sublease on 30 July 2009 is a dire ct financial contribution to Boeing  ................................ ..... 369 
8.2.8.5.3.3    Whether South Carolina Public Railway's entering into the Amended and 
Restated Sublease with Boeing on 19 November 2009 is a new direct fi nancial 
contribution to Boeing  ................................ ................................ ................................ .... 374 
8.2.8.5.4    Conclusion  ................................ ................................ ................................ .... 376 
8.2.8.6    Whether specific subsidies exist by virtue of South Caro lina's provision of 
Gemini and Emerald facilities and infrastructure to Boeing  ................................ ...................  376 
8.2.8.6.1    Introduction  ................................ ................................ ................................ .. 376 
8.2.8.6.2    Main arguments of the parties  ................................ ................................ ..........  378 
8.2.8.6.3    Evaluation by the Panel  ................................ ................................ ...................  383 
8.2.8.6.3.1    Whether there is a financial contribution  ................................ .........................  383 
8.2.8.6.3.2    Whether there is a benefit ................................ ................................ .............  389 
8.2.8.6.3.3    Whether the subsidy is specific within the meaning of Article 2.1 o f the SCM 
Agreement  ................................ ................................ ................................ ....................  392 
8.2.8.6.4    The amount of the subsidy  ................................ ................................ ..............  397 
8.2.8.6.5    Conclusion  ................................ ................................ ................................ .... 398 
8.2.8.7    Whether property tax reductions through the Boeing and Project Emerald FILOT 
Agreements are specific subsidies to Boeing  ................................ ................................ ...... 398 
8.2.8.7.1    Introduction  ................................ ................................ ................................ .. 398 
8.2.8.7.2    Main arguments of the parties  ................................ ................................ ..........  401 
8.2.8.7.3    Evaluation by the Panel  ................................ ................................ ...................  403 
8.2.8.7.3.1    Whether there is a financial contribution  ................................ .........................  403 WT/DS353/R W 
 
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  8.2.8.7.3.2    Whether there is a benefit ................................ ................................ .............  408 
8.2.8.7.3.3    Whether the subsidy is specific  ................................ ................................ ...... 408 
8.2.8.7.4    Conclusion  ................................ ................................ ................................ .... 414 
8.2.8.8    Whether the corporate income tax credits in connection with the designation of 
the Project Gemini and Project Emerald portions of the Project Site as part of the 
Charleston -Colleton multi -county industrial park involve specific subsidies to Boeing  ...............  415 
8.2.8.8.1    Introduction  ................................ ................................ ................................ .. 415 
8.2.8.8.2    Main arguments of the parties  ................................ ................................ ..........  416 
8.2.8.8.3    Evaluation by the Pane l ................................ ................................ ...................  417 
8.2.8.8.3.1    Whether there is a financial contribution  ................................ .........................  417 
8.2.8.8.3.2    Whether there is a benefit ................................ ................................ .............  418 
8.2.8.8.3.3    Whether the subsidy is specific  ................................ ................................ ...... 418 
8.2.8.8.4    Conclusion  ................................ ................................ ................................ .... 421 
8.2.8.9   Whether reductions of state corporate income taxes through an income 
allocation and apportionment agreement are a specific subsidy to Boeing  ..............................  421 
8.2.8.9.1    Introduction  ................................ ................................ ................................ .. 421 
8.2.8.9.2    Main arguments of the parties  ................................ ................................ ..........  423 
8.2.8.9.3    Evaluation by the Panel  ................................ ................................ ...................  425 
8.2.8.9.3.1    Whether there is a financial contribution  ................................ .........................  425 
8.2.8.9.4    Conclusion  ................................ ................................ ................................ .... 432 
8.2.8.10    Whether the property  tax exemption in respect of Boeing's large cargo 
freighters is a specific subsidy to Boeing  ................................ ................................ ............  432 
8.2.8.10.1    Introduction  ................................ ................................ ................................ . 432 
8.2.8.10.2    Main arguments of the parties  ................................ ................................ ........  433 
8.2.8.10.3    Evaluation by the Panel  ................................ ................................ .................  435 
8.2.8.10.3.1    Whether there is a financi al contribution ................................ ........................  435 
8.2.8.10.3.2    Whether there is a benefit  ................................ ................................ ...........  437 
8.2.8.10.3.3    Whether the subsidy is specific  ................................ ................................ .... 437 
8.2.8.10.4    The amount of the subsidy  ................................ ................................ .............  439 
8.2.8.10.5    Conclusion  ................................ ................................ ................................ ... 442 
8.2.8.11   Whether the sales and use tax exemptions for aircraft fuel, computer 
equipment, and construction materials are specific subsidies to Boeing  ................................ .. 442 
8.2.8.11.1    Introduction  ................................ ................................ ................................ . 442 
8.2.8.11.2    Main arguments of the parties  ................................ ................................ ........  443 
8.2.8.11.3    Evaluation by the Panel  ................................ ................................ .................  445 
8.2.8.11.3.1    Whether there is a financial contribution ................................ ........................  445 
8.2.8.11.3.2    Whether there is a benefit  ................................ ................................ ...........  448 
8.2.8.11 .3.3   Whether the subsidy is specific  ................................ ................................ .... 448 
8.2.8.11.4    The amount of the subsidy  ................................ ................................ .............  452 
8.2.8.11.5    Conclusion  ................................ ................................ ................................ ... 455 
8.2.8.12    Whether the workforce recruitment, training and development programme 
provided to Boeing is a specific subsidy to Boeing  ................................ ...............................  455 WT/DS353/R W 
 
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  8.2.8. 12.1   Introduction  ................................ ................................ ................................ . 455 
8.2.8.12.2    Main arguments of the parties  ................................ ................................ ........  456 
8.2.8.12.3    Evaluation by the Panel  ................................ ................................ .................  456 
8.2.8.12.3.1    Whether there is a financial contribution and a benefit  ................................ .... 456 
8.2.8.12.3.2    Whether the subsidy is specific  ................................ ................................ .... 457 
8.2.8.12.4    Conclusion  ................................ ................................ ................................ ... 459 
8.3   Summary of the Panel's conclusions as to whether the United States has failed to 
withdraw the subsidy within the  meaning of Article 7.8 of the SCM Agreement  ........................  459 
9   WHETHER THE UNITED S TATES HAS FAILED TO TAKE APPROPRIATE STE PS 
TO REMOVE THE ADVERS E EFFECTS, WITHIN TH E MEANING OF ARTICLE  7.8 OF 
THE SCM AGREEMENT  ................................ ................................ ................................ .. 461  
9.1   Introduction  ................................ ................................ ................................ ...........  461 
9.2   Preliminary considerations relevant to the Panel's evaluation of the 
European  Union's  serious prejudice case  ................................ ................................ ...........  465 
9.2.1   Developments in the LCA industry since the original proceeding and their 
implications for the identification of the relevant LCA product markets  ................................ ... 465 
9.2.2   The different aspects of LCA prices and how LCA manufacturers such as Boeing 
set LCA prices  ................................ ................................ ................................ ...............  476 
9.2.3   Standard of causation a nd aggregation of subsidies  ................................ ..................  478 
9.2.3.1    Aggregation of the tied tax subsidies  ................................ ................................ ... 481 
9.2.3.2    Aggregation of the state and local  cash flow subsidies  ................................ ............  483 
9.2.3.3    Aggregation of the post -2006 aeronautics R&D subsidies  ................................ ........  486 
9.2.3.4    Whether any of the aggre gated groupings of subsidies should be further 
aggregated with each other  ................................ ................................ .............................  487 
9.2.3.5    Summary of conclusions regarding the aggregation of particular subsidies  .................  488 
9.2.4   The relevant time -period over which to assess whether the European Union has 
demonstrated that the United States has failed to take appropriate steps to remove the 
adverse effects  ................................ ................................ ................................ ..............  489 
9.3   Whether subsidies benefiting the 787 and 777X cause serious prejudice to the 
interests of the European Union, within the meaning of Articles 5(c) and 6.3, in respect of 
the A350XWB and A330 in the post -implementat ion period  ................................ ..................  492 
9.3.1   Introduction  ................................ ................................ ................................ ........  492 
9.3.2   The European Union's main case: Whether the pre -2007 aeronautics R&D 
subsidies a nd certain post -2006 aeronautics R&D subsidies combined with the other 
post-2006 subsidies cause serious prejudice to the interests of the European Union, 
within the meaning of Articles 5(c) and 6.3, in respect of the A350XWB in the 
post-implementation per iod ................................ ................................ .............................  493 
9.3.2.1    Whether the pre -2007 aeronautics R&D subsidies and certain post -2006 
aeronautics R&D subsidies cause serious prejudice to the interests of the European 
Union, within the mean ing of Articles 5(c) and 6.3, in respect of the A350XWB in the 
post-implementation period, through a technology causal mechanism  ................................ ... 495 
9.3.2.1.1    Original subsidy technology effects of the pre -2007 aeronautics R&D subsidies  ........  496 
9.3.2.1.2    Spill-over technology effects of the pre -2007 aeronautics R&D subsidies  ................  513 
9.3.2.1.3   Sleeper technology effects of the pre -2007 aeronautics R&D subsidies  ...................  515 
9.3.2.1.4    New technology effects of certain post -2006 aeronautics R&D subsidies  .................  518 
9.3.2.1.5    Summary of conclusions on whether the pre -2007 aeronautics R&D subsidies 
and certain post -2006 aeronautics R&D subsidies cause serious prejudice to the interests WT/DS353/R W 
 
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  of the European Union, within the meaning of  Articles 5(c) and 6.3, in respect of the 
A350XWB in the post -implementation period, through a technology causal mechanism  ............  524 
9.3.2.1.6    The A350XWB as a competitive response to the 787  ................................ ............  524 
9.3.2.2    Whether the post -2006 subsidies benefiting the 787 and 777X cause serious 
prejudice to the interests of the European Union, within the meaning of Articles 5(c) and 
6.3, in respect of  the A350XWB in the post -implementation period, through a price causal 
mechanism  ................................ ................................ ................................ ...................  526 
9.3.2.2.1    The tied tax subsidies  ................................ ................................ .....................  527 
9.3.2.2.2   The state and local cash flow subsidies  ................................ ..............................  535 
9.3.2.2.3    The post -2006 aeronautics R&D subsidies  ................................ ..........................  542 
9.3.2.2.4    Summary of conclusions on whether the post -2006 subsidies benefiting the 
787 and 777X cause serious prejudice to the interests of the European Union, within the 
meaning of Articles 5(c) and 6.3, in respect of the A350XWB in the post -implementation 
period, through a price causal mechanism  ................................ ................................ .........  546 
9.3.3   The parallel argument: Whether the original serious prejudice caused by the pre -
2007 aeronautics R&D subsidies in respect of the A330 and Original A350 con tinues in 
the post -implementation period as serious prejudice to the interests of the 
European  Union in respect of the A330 and A350XWB  ................................ .........................  547 
9.3.4   Summary of findings on whether subsidies ben efiting the 787 and 777X cause 
serious prejudice to the interests of the European Union in respect of the A350XWB and 
A330 in the post -implementation period  ................................ ................................ ............  555 
9.4   Whether subsidies benefit ing the 737 MAX and 737NG cause serious prejudice to 
the interests of the European Union, within the meaning of Articles 5(c) and 6.3, in 
respect of the A320neo and A320ceo in the post -implementation period  ................................  556 
9.4.1   Introduction  ................................ ................................ ................................ ........  556 
9.4.2   Whether certain aeronautics R&D subsidies benefiting the 737 MAX cause serious 
prejudice to the interests of the European Union, within the meaning of Articles 5(c) and 
6.3, in respect of the A320neo in the post -implementation period, through a technology 
causal mechanism  ................................ ................................ ................................ ..........  559 
9.4.2.1    Spill-over technology effects of the pre -2007 aeronautics R&D subsidies  ...................  559 
9.4.2.2    New technology effects of certain post -2006 aeronautics R&D subsidies  ....................  562 
9.4.2.3    Summary of conclusions on whether certain aeronautics R&D subsidies 
benefiting the 737 MAX cause serious prejudice to the interests of the European Union, 
within the meaning of Articles 5(c) and 6.3, in respect of the A320neo in the 
post-implementation period , through a technology causal mechanism  ................................ ... 565 
9.4.3   Whether the post -2006 subsidies benefiting the 737 MAX and 737NG cause 
serious prejudice to the interests of the European Union, within the meaning of 
Articles  5(c) and 6.3, in respect of the A320neo and A320ceo in the post -implementation 
period, through a price causal mechanism  ................................ ................................ .........  566 
9.4.3.1    The Washington State B&O tax rate redu ction ................................ .......................  567 
9.4.3.1.1    The sales campaigns involving competition between the 737 MAX and 
A320neo and the 737NG and A320ceo  ................................ ................................ ..............  568 
9.4.3.1.2    Whether the Washington State B&O tax rate reduction is a genuine and 
substantial cause of significant lost sales of the A320neo and A320ceo in the 
post-implementation period  ................................ ................................ .............................  571 
9.4.3.1.3   Whether the Washington State B&O tax rate reduction is a genuine and 
substantial cause of impedance or a threat thereof, and displacement or a threat thereof, 
in respect of the A320neo and A320ceo in the post -implementation period  .............................  578 
9.4.3.1.4    Whether the Washington State B&O tax rate reduction is a genuine and 
substantial cause of significant price suppression (including threat thereof) in respect of 
the A320neo and A320ceo in the p ost-implementation period  ................................ ...............  587 WT/DS353/R W 
 
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  9.4.3.2    The state and local cash flow subsidies  ................................ ................................ . 594 
9.4.3.3    The post -2006 aeronautics R&D subs idies ................................ .............................  595 
9.4.3.4    Summary of conclusions on whether the post -2006 subsidies benefiting the 737 
MAX and 737NG cause serious prejudice to the interests of the European Union, within 
the meanin g of Articles 5(c) and 6.3, in respect of the A320neo and A320ceo in the post -
implementation period, through a price causal mechanism  ................................ ...................  596 
9.4.3.4.1    Washington State B&O tax rate reduction  ................................ ..........................  596 
9.4.3.4.2    State and local cash flow subsidies  ................................ ................................ .... 597 
9.4.3.4.3    Post-2006 aeronautics R&D subsidies  ................................ ................................  598 
9.4.4   Summary of findings on whether subsidies benefiting the 737 MAX and 737NG 
cause serious prejudice to the interests of the European Union in respect of the A320neo 
and A320ceo in the post -implementation peri od ................................ ................................ . 598 
9.5   Overall conclusion as to whether the subsidies benefiting the 787 and 777X cause 
serious prejudice to the interests of the European Union in respect of the A350XWB and 
A330 in the  post-implementation period, and whether the subsidies benefiting the 737 
MAX and 737NG cause serious prejudice to the interests of the European Union in respect 
of the A320neo and A320ceo in the post -implementation period  ................................ ...........  598 
10   WHETHER THE UNITED S TATES GRANTS OR MAIN TAINS SUBSIDIES 
INCONSISTENT WITH AR TICLES 3.1(A) AND (B ) AND 3.2 OF THE SCM  
AGREEMENT AND ARTICL E III:4 OF THE GATT 1994  ................................ ....................  599  
10.1   Introduction  ................................ ................................ ................................ .........  599 
10.2   Whether the United States grants or maintains subsidies prohibited by 
Articles  3.1(a) and 3.2 of the SCM Agreement  ................................ ................................ .... 599 
10.2.1    Main arguments of the parties and third parties  ................................ ......................  599 
10.2.2    Evaluation by the Panel  ................................ ................................ .......................  603 
10.3   Whether the United States grants or maintains subsidies prohibited by 
Articles  3.1(b) and 3.2 of the SCM Agreement  ................................ ................................ .... 608 
10.3.1    Main arguments of the parties and third parties  ................................ ......................  608 
10.3.2    Evaluation by the Panel  ................................ ................................ .......................  610 
10.4   Whether the United States is maintaining measures inconsistent with Article III:4 
of the GATT 1994 ................................ ................................ ................................ ...........  612 
10.5   Conclusion  ................................ ................................ ................................ ...........  613 
11   CONCLUSIONS AND RECO MMENDATIONS  ................................ .............................  613  
APPENDIX 1  ................................ ................................ ................................ .................  619  
APPENDIX 2  ................................ ................................ ................................ .................  624  
 
 WT/DS353/R W 
 
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  LIST OF ANNEXES  
ANNEX  A 
WORKING PROCEDURES O F THE PANEL  
Contents  Page  
Annex A -1 Working Procedures of the P anel A-2 
Annex A -2 Additional Working Procedures for the Protection of Business Confidential 
Information and Highly Sensitive Business Information (BCI/HSBI Procedures)  A-5 
Annex A -3 Procedures for the Partial Opening to the Public of the Meeting of the Panel  A-17 
ANNEX B  
ARGUMENTS OF THE EUR OPEAN UNION  
Contents  Page  
Annex B -1 Executive Summary of the first written submission of the European Union  B-2 
Annex B -2 Executive Summary of the second written submission of the European Union  B-11 
Annex B -3 Executive Summary of the opening statement of the European  Union  at the 
Panel meeting  B-19 
Annex B -4 Executive Summary of the closing statement of the European  Union  at the 
Panel meeting  B-24 
ANNEX C  
ARGUMENTS OF THE UNI TED STATES  
Contents  Page  
Annex C -1 Executive Summary of the first written submission of the United States  C-2 
Annex C -2 Executive Summary of the second written submission of the United States  C-10 
Annex C -3 Executive Summary of the statement of the United States at the Panel meeting  C-18 
ANNEX D  
ARGUMENTS OF THE THI RD PARTIES  
Contents  Page  
Annex D -1 Executive Summary of the written submission of Brazil  D-2 
Annex D -2 Executive Summary of the statement of Brazil at the Panel meeting  D-7 
Annex D -3 Executive Summary of the written submissi on of Canada  D-9 
Annex D -4 Executive Summary of the statement of Canada at the Panel meeting  D-13 
Annex D -5 Executive Summary of the written submission of Japan  D-17 
Annex D -6 Executive Summary of the statement of Japan at the Panel meeting  D-20 
Annex D-7 Executive Summary of the written submission of the Republic of Korea  D-23 
Annex D -8 Executive Summary of the statement of the Republic of Korea at the Panel 
meeting  D-27 
 WT/DS353/R W 
 
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  ANNEX E  
RULINGS OF THE PANEL  REGARDING ARTICLE 13  OF THE DSU  
Contents  Page  
Annex E -1 Preliminary Rulings and decision regarding information -gathering under Article 
13 of the DSU , dated 26 November 2012  E-2 
Annex E -2 Communication of the Panel , dated 5 December 2012  E-14 
Annex E -3 Communication of the Panel , dated 18 December 2012  E-15 
Annex E -4 Communication regarding third-party rights , dated 25 January 2013  E-17 
ANNEX F  
OTHER PROCEDURAL RULINGS O F THE PANEL  
Contents  Page  
Annex F -1 Decision regarding requests for certain information , dated 23 October 2013  F-2 
 WT/DS353/R W 
 
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CASES CITED I N THIS REPORT  
Short Title  Full Case Title and Citation  
Argentina – Footwear (EC)  Appellate Body Report, Argentina – Safeguard Measures on Imports of 
Footwear , WT/DS121/AB/R , adopted 12 January 2000, DSR 2000:I, p. 515  
Argentina – Footwear (EC)  Panel Repo rt, Argentina – Safeguard Measures on Imports of Footwear , 
WT/DS121/R , adopted 12 January 2000, as modified by Appellate Body Report 
WT/DS121/AB/R, DSR 2000:II, p. 575  
Argentina – Textiles and 
Apparel  Panel Report, Argentina – Measures Affecting Imports o f Footwear, Textiles, 
Apparel and Other Items , WT/DS56/R , adopted 22 April 1998, as modified by 
Appellate Body Report WT/DS56/AB/R, DSR 1998:III, p. 1033  
Australia – Automotive 
Leather II (Article 21.5 – 
US) Panel Report, Australia – Subsidies Provided to  Producers and Exporters of 
Automotive Leather – Recourse to Article 21.5 of the DSU by the United States , 
WT/DS126/RW  and Corr.1, adopted 11 February 2000, DSR 2000:III, p. 1189  
Australia – Salmon  Panel Report, Australia – Measures Affecting Importation of Salmon , 
WT/DS18/R  and Corr.1, adopted 6 November 1998, as modified by Appellate 
Body Report WT/DS18/AB/R, DSR 1998:VIII, p. 3407  
Australia – Salmon 
(Article  21.5 – Canada ) Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse 
to Article 21.5 of the DSU by Canada , WT/DS18/RW , adopted 20 March 2000, 
DSR 2000:IV, p. 2031  
Brazil – Aircraft 
(Article  21.5 – Canada)  Appellate Body Report, Brazil – Export Financing Programme for Aircraft – 
Recourse by Canada to Article 21.5 of the DSU , WT/DS46/AB/RW , adopted 
4 August 2000, DSR 2000:VIII, p. 4067  
Brazil – Desiccated Coconut  Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut , 
WT/DS22/AB/R , adopted 20 March 1997, DSR 1997:I, p. 167  
Canada – Aircraft  Appellate Body Repor t, 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 Automotive 
Industry , WT/DS139/AB/R , WT/DS142/AB/R , adopted 19 June 2000, 
DSR 2000:VI, p. 2985  
Canada – Renewable Energy 
/ Canada – Feed-in Tariff 
Program  Appellate Body Reports, Canada – Certain Measures Affecting the Renewable 
Energy Generation Sector / Canada – Measures Relating to the Feed -in Tariff 
Program , WT/DS412/AB/R / W T/DS426/AB/R, adopted 24 May 2013, 
DSR 2013:I, p. 7  
Chile – Price Band System  Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products , WT/DS207/AB/R , adopted 
23 October  2002, DSR 2002:VIII, p. 3045  (Corr.1, DSR 2006:XII, p. 5473)  
Chile – Price Band System  Panel Report, Chile – Price Band System and Safeguard Measures Relating to 
Certain Agricultural Products , WT/DS207/R , adopted 23 October 2002, as 
modified by Appellate Body Report WT/DS207AB/R, DS R 2002:VIII, p. 3127  
Chile – Price Band System 
(Article 21.5 – Argentina)  Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products – Recourse to Article 21.5 of the DSU 
by Argentina , WT/DS207/AB/RW , adopted 22 May 2007, DSR 2007:II, p. 513  
China – Broiler Products  Panel Report, China  Anti-Dumping and Countervailing Duty Measures on 
Broiler Products from the United States , WT/DS427/R  and Add.1, adopted 
25 September 2013, DSR 2013:IV, p. 1041  
China  – Raw Materials  Appellate Body Reports, China – Measures Related to the Exportation of Various 
Raw Materials , WT/DS394/AB/R  / WT/DS395/AB/R  / WT/DS398/AB/R , adopted 
22 February 2012, DSR 2012:VII, p. 3295  
Dominican Republic – 
Import and Sale of 
Cigarette s Panel Report, Dominican Republic – Measures Affecting the Importation and 
Internal Sale of Cigarettes , WT/DS302/R , adopted 19 May 2005, as modified by 
Appellate Body Report WT/DS302/AB/R, DSR 2005:XV, p. 7425  
EC – Bananas III  Appellate Body Report, European Communities – Regime for the Importation, 
Sale and Distribution of Bananas , WT/DS27/AB/R , adopted 25 September 1997, 
DSR 1997:II, p. 591  
EC – Bananas III  Panel Reports, European Communities – Regime for the Importation, Sale and 
Distribution of Banan as, WT/DS27/R/ECU (Ecuador)  / WT/DS27/R/GTM, 
WT/DS27/R/HND (Guatemala and Honduras)  / WT/DS27/R/MEX (Mexico)  / 
WT/DS27/R/USA (US), adopted 25  September 1997, as modified by Appellate 
Body Report WT/DS27/AB/R, DSR 1997:II, p.  695 to DSR 1997:III, p.  1085 WT/DS353/R W 
 
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  Short Title  Full Case Title and Citation  
EC – Bed Linen (Article 21.5 
– India) Appellate Body Report, European Communities – Anti-Dumping Duties on 
Imports of Cotton -Type Bed Linen from India – Recourse to Article  21.5 of the 
DSU by India , WT/DS141/AB/RW , adopted 24 April 2003, DSR 2003:III, p.  965 
EC – Bed Linen (Article 21.5 
– India) Panel Report, European Communities – Anti-Dumping Duties on Imports of 
Cotton -Type Bed Linen from India – Recourse to Article  21.5 of the DSU  by 
India, WT/DS141/RW , adopted 24 April 2003, as modified by Appellate Bo dy 
Report WT/DS141/AB/RW, DSR 2003:IV, p.  1269 
EC – Chicken Cuts  Appellate Body Report, European  Communities – Customs Classification of 
Frozen Boneless Chicken Cuts , WT/DS269/AB/R , WT/DS286/AB/R , adopted 
27 September 2005, and Corr.1, DSR 2005:XIX, p.  9157 
EC – Chicken Cuts  Panel Reports, European Communities – Customs Classification of Frozen 
Boneless Chicken Cuts , WT/DS269/R (Brazil)  / WT/DS286/R (Thailand) , 
adopted 27 September 2005, as modified by Appellate Body Report 
WT/DS269/AB/R, WT/DS286/AB/R, D SR 2005:XIX, p. 9295 / DSR 2005:XX, 
p. 9721 
EC – Fasteners (China)  Appellate Body Report, European Communities – Definitive Anti -Dumping 
Measures on Certain Iron or Steel Fasteners from China , WT/DS397/AB/R , 
adopted 28 July 2011, DSR 2011:VII, p. 3995  
EC – Fasteners (China)  Panel Report, European Communities – Definitive Anti -Dumping Measures on 
Certain Iron or Steel Fasteners from China , WT/DS397/R  and Corr.1, adopted 
28 July 2011, as modified by Appellate Body Report WT/DS397/AB/R, 
DSR 2011:VIII, p. 428 9 
EC – IT Products  Panel Reports, European Communities and its member States – Tariff 
Treatment of Certain Information Technology Products , WT/DS375/R  / 
WT/DS376/R  / WT/DS377/R , adopted 21 September 2010, DSR 2010:III, 
p. 933 
EC – Selected Customs 
Matter s Appellate Body Report, European Communities – Selected Customs Matters , 
WT/DS315/AB/R , adopted 11 December 2006, DSR 2006:IX, p. 3791  
EC and certain member 
States – Large Civil Aircraft  Appellate Body Report, European Communities and Certain Member Stat es – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/AB/R , adopted 
1 June 2011, DSR 2011:I, p. 7  
EC and certain member 
States – Large Civil Aircraft  Panel Report, European Communities and Certain Member States – Measures 
Affecting Trade in Larg e Civil Aircraft , WT/DS316/R , adopted 1 June 2011, as 
modified by Appellate Body Report, WT/DS316/AB/R, DSR 2011:II, p. 685  
EC and certain member 
States – Large Civil Aircraft 
(Article 21.5 – US) Panel Report, European Communities and Certain Member State s – 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 to WTO Members 22 
September 2016 {appealed by European Union 13 October 2016 } 
Guatemala – Cement I  Appellate  Body Report, Guatemala – Anti-Dumping Investigation Regarding 
Portland Cement from Mexico , WT/DS60/AB/R , adopted 25 November 1998, 
DSR 1998:IX, p. 3767  
Japan – DRAMs (Korea)  Appellate Body Report, Japan – Countervailing Duties on Dynamic Random 
Access Me mories from Korea , WT/DS336/AB/R  and Corr.1, adopted 
17 December 2007, DSR 2007:VII, p. 2703  
Korea – Dairy  Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of 
Certain Dairy Products , WT/DS98/AB/R , adopted 12 January 2000, DSR 2000:I,  
p. 3 
Mexico – Corn Syrup 
(Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose 
Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the 
DSU by the United States , WT/DS132/AB/RW , adopted 21 Novem ber 2001, 
DSR 2001:XIII, p. 6675  
Mexico – Olive Oil  Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from the 
European Communities , WT/DS341/R , adopted 21 October 2008, DSR 2008:IX, 
p. 3179  
Thailand – Cigarettes 
(Philippines)  Panel Report, Thailand – Customs and Fiscal Measures on Cigarettes from the 
Philippines , WT/DS371/R , adopted 15 July 2011, as modified by Appellate Body 
Report WT/DS371/AB/R , DSR 2011:IV, p. 2299  
US – 1916 Act  Appellate Body Report, United States – Anti-Dumping  Act of 1916 , 
WT/DS136/AB/R , WT/DS162/AB/R , adopted 26 September 2000, DSR 2000:X, 
p. 4793  
US – Anti-Dumping and 
Countervailing Duties 
(China)  Appellate Body Report, United States – Definitive Anti -Dumping and 
Countervailing Duties on Certain Products fro m China , WT/DS379/AB/R , 
adopted 25 March 2011, DSR 2011:V, p. 2869  
US – Anti-Dumping and 
Countervailing Duties 
(China)  Panel Report, United States – Definitive Anti -Dumping and Countervailing 
Duties on Certain Products from China , WT/DS379/R , adopted 25 M arch 2011, 
as modified by Appellate Body Report WT/DS379/AB/R, DSR 2011:VI, p. 3143  WT/DS353/R W 
 
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  Short Title  Full Case Title and Citation  
US – Anti-Dumping 
Measures on Oil Country 
Tubular Goods  Panel Report, United States – Anti-Dumping Measures on Oil Country Tubular 
Goods (OCTG) from Mexico , WT/DS282/R , adopted 28 November 2005, as 
modified by Appellate Body Report WT/DS282/AB/R, DSR 2005:XXI, p. 10225  
US – Carbon Steel  Appellate Body Report, United States – Countervailing Duties on Certain 
Corrosion -Resistant Carbon Steel Flat Products from Germany , WT/DS 213/AB/R  
and Corr.1, adopted 19 December 2002, DSR 2002:IX, p. 3779  
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 20 14, DSR 2014:V, p. 1727  
US – Carbon Steel (India)  Panel Report, United States – Countervailing Measures on Certain Hot -Rolled 
Carbon Steel Flat Products from India , WT/DS436/R  and Add.1, adopted 19 
December 2014, as modified by Appellate Body Report WT/DS 436/AB/R, 
DSR 2014:VI, p. 2189  
US – Continued Zeroing  Appellate Body Report, United States – Continued Existence and Application of 
Zeroing Methodology , WT/DS350/AB/R , adopted 19 February 2009, 
DSR 2009:III, p. 1291  
US – Countervailing and 
Anti-Dumping M easures 
(China)  Appellate Body Report, United States – Countervailing and Anti -Dumping 
Measures on Certain Products from China , WT/DS449/AB/R  and Corr.1, adopted 
22 July 2014, DSR 2014:VIII, p. 3027  
US – Countervailing 
Measures (China)  Appellate Body Repo rt, United States – Countervailing Duty Measures on 
Certain Products from China , WT/DS437/AB/R , adopted 16 January 2015  
US – Countervailing 
Measures (China)  Panel Report, United States – Countervailing Duty Measures on Certain 
Products from China , WT/DS43 7/R and Add.1, adopted 16 January 2015, as 
modified by Appellate Body Report WT/DS437/AB/R  
US – Customs Bond 
Directive  Panel Report, United States – Customs Bond Directive for Merchandise Subject 
to Anti -Dumping/Countervailing Duties , WT/DS345/R , adopted 1 August 2008, 
as modified by Appellate Body Report WT/DS343/AB/R / WT/DS345/AB/R, 
DSR 2008:VIII, p. 2925  
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R , adopted 20 March 2000, DSR 2000:III, 
p. 1619 
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" , 
WT/DS108/R , adopted 20 March 2000, as modified by Appellate Body Report 
WT/DS108/AB/R, DSR 2000:IV, p. 1675  
US – FSC (Article 21.5 – 
EC II) Appellate Body Repor t, United States – Tax Treatment for "Foreign Sales 
Corporations" – Second Recourse to Article 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW2 , adopted 14 March 2006, DSR 2006:XI, 
p. 4721 
US – FSC (Article 21.5 – 
EC II) Panel Report, United S tates – Tax Treatment for "Foreign Sales Corporations" – 
Second Recourse to Article 21.5 of the DSU by the European Communities , 
WT/DS108/RW2 , adopted 14 March 2006, upheld by Appellate Body Report 
WT/DS108/AB/RW2, DSR 2006:XI, p. 4761  
US – FSC (Article 2 1.5 – 
EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Article 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW , adopted 29 January 2002, DSR 2002:I, p. 55  
US – FSC (Article 21.5 – 
EC) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – 
Recourse to Article 21.5 of the DSU by the European Communities , 
WT/DS108/RW , adopted 29 January 2002, as modified by Appellate Body 
Report WT/DS108/AB/RW, DSR 2002:I, p. 119  
US – Hot-Rolled Steel  Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot -
Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001, 
DSR 2001:X, p. 4697  
US – Large Civil Aircraft (2nd 
complaint)  Appellate Body Report, United States – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) , WT/DS353/AB/R , adopted 23 March 2012, 
DSR 2012:I, p. 7  
US – Large Civil Aircraft (2nd 
complaint)  Panel Report, United States – Measures Affecting Trade in Large Civil Aircraf t 
(Second Complaint) , WT/DS353/R , adopted 23 March 2012, as modified by 
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649  
US – Oil Country Tubular 
Goods Sunset Reviews 
(Article 21.5 – Argentina)  Appellate Body Report, United States – Sunset Reviews  of Anti -Dumping 
Measures on Oil Country Tubular Goods from Argentina – Recourse to 
Article  21.5 of the DSU by Argentina , WT/DS268/AB/RW , adopted 11 May 2007, 
DSR 2007:IX, p. 3523  
US – Shrimp (Thailand ) Panel Report, United States – Measures Relating to S hrimp from Thailand , 
WT/DS343/R , adopted 1 August 2008, as modified by Appellate Body Report 
WT/DS343/AB/R / WT/DS345/AB/R, DSR 2008:VII, p. 2539  
US – Softwood Lumber IV  Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada , WT/DS257/AB/R , 
adopted 17 February 2004, DSR 2004:II, p. 571  WT/DS353/R W 
 
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  Short Title  Full Case Title and Citation  
US – Softwood Lumber IV 
(Article 21.5 – Canada ) Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Cer tain Softwood Lumber from Canada – Recourse by Canada 
to Article 21.5 of the DSU , WT/DS257/AB/RW , adopted 20 December 2005, 
DSR 2005:XXIII, p. 11357  
US – Upland Cotton  Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R , adop ted 21 March 2005, DSR 2005:I, p. 3  
US – Upland Cotton  Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R , Add.1 
to Add.3 and Corr.1, adopted 21 March 2005, as modified by Appellate Body 
Report WT/DS267/AB/R, DSR 2005:II, p. 299  
US – Upland Cotton 
(Article  21.5 – Brazil)  Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse 
to Article 21.5 of the DSU by Brazil , WT/DS267/AB/RW , adopted 20 June 2008, 
DSR 2008:III, p. 809  
US – Upland Cotton 
(Article  21.5 – Brazil)  Panel Report, United States – Subsidies on Upland Cotton – Recourse to 
Article  21.5 of the DSU by Brazil , WT/DS267/RW  and Corr.1, adopted 
20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW, 
DSR 2008:III, p. 997  
US – Upland Cotton 
(Article  22.6 – US II)  Decision by the Arbitrator, United States – Subsidies on Upland Cotton – 
Recourse to Arbitration by the United States under Article 22.6 of the DSU and 
Article 7.10 of the SCM Agreement , WT/DS267/ARB/2  and Corr.1, 
31 August  2009, DSR 2009:IX, p.  4083 
US – Washing Machines  Appellate Body Report,  United States – Anti-Dumping and Countervailing 
Measures on Large Residential Washers from Korea , WT/DS464/AB/R  and 
Add.1, adopted 26 September 2016  
US – Washing Machines  Panel Report, United States – Anti-Dumping and Countervailing Measures on 
Large Residential Washers from Korea , WT/DS464/R  and Add.1, adopted 
26 September 2016, as modified by Appellate Body Report WT/DS464/AB/R  
US – Zeroing (EC) 
(Article  21.5 – EC) Appellate Body Report, United States – Laws, Regulations and Methodology for 
Calculating Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU 
by the European Communities , WT/DS294/AB/RW  and Corr.1, adopted 
11 June 2009, DSR 2009:VII, p. 2911  
US – Zeroing (EC) 
(Article  21.5 – EC) Panel Report, United States – Laws, Regulations and Methodology for 
Calculating Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU 
by the European Communities , WT/DS294/RW , adopted 11 June 2009, as 
modified by Appellate Body Report WT/DS294 /AB/RW, DSR 2009:VII, p. 3117  
US – Zeroing (Japan ) Appellate Body Report, United States – Measures Relating to Zeroing and 
Sunset Reviews , WT/DS322/AB/R , adopted 23 January 2007, DSR 2007:I, p. 3  
US – Zeroing (Japan) 
(Article 21.5 – Japan ) Appellate Body  Report, United States – Measures Relating to Zeroing and 
Sunset Reviews – Recourse to Article 21.5 of the DSU by Japan , 
WT/DS322/AB/RW , adopted 31 August 2009, DSR 2009:VIII, p. 3441  
US – Zeroing (Japan) 
(Article 21.5 – Japan ) Panel Report, United States  – Measures Relating to Zeroing and Sunset Reviews 
– Recourse to Article 21.5 of the DSU by Japan , WT/DS322/RW , adopted 
31 August 2009, upheld by Appellate Body Report WT/DS322/AB/RW, 
DSR 2009:VIII, p. 3553  
 
 WT/DS353/R W 
 
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  ABBREVIATIONS USED I N THIS REPORT  
Abbreviatio n Description  
ACT Program  NASA Advanced Composites Technology Program  
AECA  Arms Export Control Act  
AFRL Air Force Research  Laboratory  
AJCA American Jobs Creation Act of 2004  
AMC American Metalcasting Consortium  
Anti-Dumping Agreement  Agreement on Imp lementation of Article VI of the General Agreement on Tariffs 
and Trade 1994  
ARMD  NASA Aeronautics Research Mission Directorate  
AST Program  NASA Advanced Subsonic Technology Program  
ATCAS Program  NASA Advanced Technology Composite Aircraft Structures Pr ogram  
AWACS program element  DOD Airborne Warning and Control System program element  
Bayh-Dole Act  United States Code , chapter 35, sections 200 -212 
B&O Business and Occupation  
BCI Business Confidential Information  
BOA Basic Ordering Agreement  
CASP  NASA Cross Agency Support Program  
CATT Program  South Carolina Center for Accelerated Technology Training Program  
CFD Computational Fluid Dynamics  
CFRP Carbon Fibre Reinforced Plastic  
FAA CLEEN Program  FAA Continuous Lower Energy Emissions, and Noise Pro gram 
CRA Charles River Associates  
DARPA  Defense Advanced Research Project Agency  
DAS Defense Acquisition System  
D.O. Delivery Order  
DOD U.S. Department of Defense  
DRAGON Project  Diminishing Manufacturing Sources Replacement of Avionics for Global 
Operations and Navigation Project under the DOD AWACS program element  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes  
DUS&T program element  DOD Dual Use Science & Technology program element  
EADS  European Aeronautics Defence and Space Company N.V.  
EAR Export Administration Regulations  
EMD Engineering, Manufacturing and Development  
ERA Project  Environmentally Responsible Aviation Project under the NASA Integrated 
Systems Research Program  
ETI Act  FSC Repeal and Extraterritorial Income Exclusion Act of 2000  
FAA U.S. Federal Aviation Administration  
FAR U.S. Federal Acquisition Regulation  
FILOT  Fee-in-lieu-of taxes  
FOIA Freedom of Information Act  
FPDS-NG Federal Procurement Data Base – Next Gener ation 
FSC Foreign Sales Corporation  
FSC/ETI  Foreign Sales Corporation/Extraterritorial Income  
FY Fiscal Year  
FYDP Future Years Defense Program  
GAO U.S. Government Accountability Office  
GATT 1994  General Agreement on Tariffs and Trade 1994  
HB 2294  House Bill 2294 in the State of Washington  
HB 2466  House Bill 2466 in the State of Washington  
HLFC Hybrid Laminar Flow Control  
HSBI Highly Sensitive Business Information  
HSR Program  NASA High Speed Research Program  
ICAO International Civil Aviation Orga nization  
IDIQ Indefinite Delivery/Indefinite Quantity  
IP Intellectual Property  
IR&D Independent Research and Development  
IRB Industrial Revenue Bond  
IRS U.S. Internal Revenue Service  
ITAR U.S. International Traffic in Arms Regulations  
ITR Internatio nal Trade Resources LLC  
JCATI  Joint Center for Aerospace Technology Innovation in the State of Washington  
JCIDS  DOD Joint Capabilities Integration and Development System  
LCA Large Civil Aircraft  
LCF Large Cargo Freighter  
LERD  Limited Exclusive Rights Data WT/DS353/R W 
 
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  Abbreviatio n Description  
IP ManTech program 
elements  Manufacturing Technology/Industrial Preparedness  program elements 
administered individually by the Defense Logistics Agency, Air Force, Navy and 
Office of Secretary of Defense   
MCIP Multi-County Industrial Park  
MTOW  Maximum take -off weight  
NASA  U.S. National Aeronautics and Space Administration  
NATO  North Atlantic Treaty Organization  
NIAR National Institute for Aviation Research  
NPD NASA Policy Directive  
NPV Net Present Value  
NRA NASA Research Announcement  
PBBES  Planning, Programming, Budgeting, and Execution System  for commissioning 
RDT&E under systems acquisition/military aircraft program elements  
PRO-ACT Project  Procurement Readiness Optimization -Advanced Casting Technology Project 
under the Defense Logistics Ag ency IP ManTech program element  
PRSEUS  Pultruded Rod Stitched Efficient Unitized Structure  
R&D Research and Development  
R&T Base Program  NASA Research and Technology Base Program  
RDT&E  Research, Development, Test and Evaluation  
RDT&E Program  DOD Resea rch, Development, Test and Evaluation Program  
readySC  South Carolina Technical College System's job training programme  
RFID Radio Frequency Identification  
RFI Request for Information  
RFP Request for Proposal  
ROA Research Opportunities in Aeronautics  
S&T Science and Technology  
SBU Standard Billing Units  
S.C. State of South Carolina  
SCM Agreement  Agreement on Subsidies and Countervailing Measures  
SOW Statement of Work  
Space Act  National Aeronautics and Space Act of 1958, as amended  
SEC U.S. Securi ties and Exchange Commission  
TIPRA  Tax Increase Prevention and Reconciliation Act of 2005  
TRL Technology Readiness Level  WT/DS353/R W 
 
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  1  INTRODUCTION  
1.1  Complaint by the European Union1 
1.1.  The European Union 's complaint in this proceeding under Article 21.5 of the Understan ding 
on Rules and Procedures Governing the Settlement of Disputes (DSU) concerns the alleged failure 
of the United States to implement the recommendations and rulings adopted by the Dispute 
Settlement Body (DSB) in the original proceeding US – Large Civil Aircraft (2nd complaint) .  
1.2.  The panel report and Appellate Body report in the original proceeding were circulated to 
Members on 31 March 2011 and 12 March 2012, respectively. The DSB adopted the Appellate 
Body report and the panel report, as modified by the  Appellate Body report, on 23 March 2012.2  
1.3.  In its report, as modified by the Appellate Body report, the original panel found that certain 
measures of the United States, including measures adopted at a sub -federal level, constituted 
specific subsidies to t he U.S. large civil aircraft (LCA) industry3 and were inconsistent with the 
Agreement on Subsidies and Countervailing Measures (SCM Agreement).  
1.4.  First, the panel found that certain tax exemptions and tax exclusions provided to Boeing 
under the Foreign Sale s Corporation (FSC) legislation and the FSC Repeal and Extraterritorial 
Income Exclusion Act of 2000 (ETI), including the transition and grandfather provisions of the ETI 
Act and the American Jobs Creation Act of 2004  (AJCA) , were prohibited export subsidi es under 
Articles  3.1(a) and 3.2 of the SCM Agreement.4 This finding was not appealed.  
1.5.  Second, the panel and the Appellate Body found that the following measures were 
inconsistent with Articles 5(c) and 6 of the SCM Agreement:  
a. payments provided to Boeing by the National Aeronautics and Space Administration 
(NASA) pursuant to procurement contracts entered into under eight aeronautics research 
and development (R&D) programmes and access to facilities, equipment, and employees  
provided to Boeing pursuant to p rocurement contracts and Space Act Agreements 
entered into under these programmes;  
b. payments and access to facilities provided to Boeing by the Department of Defense 
(DOD) pursuant to assistance instruments entered into under 23 Research, 
Development, Test and Evaluation (RDT&E) programmes;  
c. tax exemptions and tax exclusions provided to Boeing pursuant to the FSC/ETI 
measures;  
d. Washington State Business and Occupation (B&O) tax rate reduction for commercial 
aircraft and component manufacturers; and  
e. property  and sales tax abatements related to Industrial Revenue Bonds (IRBs) issued by 
the City of Wichita, Kansas.  
1.6.  These five groups of measures were found to involve specific subsidies , within the meaning of 
Articles 1 and 2 of the SCM Agreement , and to cause s erious prejudice to the interests of the 
European Communities,  within the meaning of Articles 5(c) and 6.3 of the SCM Agreement , as 
follows:  
a. The NASA and DOD aeronautics R&D measures caused serious prejudice , within the 
meaning of Articles 5(c), 6.3(b), an d (c), with respect to the 200 -300 seat LCA product 
                                               
1 The European Union replaced and succeeded the European Communities as of 1 December 2009.  
2 Dispute Settlement Bo dy, Minutes of the Meeting held on 23 March 2012,  WT/DSB/M/313 (circulated 
29 May 2012), para. 79.  
3 The European Communities in the original proceeding used the term "U.S. large civil aircraft industry" 
to refer to the Boeing Company and the McDonnell Do uglas Corporation prior to its merger with Boeing. (Panel 
Report, US – Large Civil Aircraft (2nd complaint) , paras. 2.1 and 7.1).  
4 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1434 -7.1464 and 8.2.  WT/DS353/R W 
 
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  market in the form of a threat of displacement and impedance of European 
Communities ' exports in certain third -country markets and significant lost sales.  
b. The tax exemptions and tax exclusions provided t o Boeing pursuant to the FSC/ETI 
measures, together with the Washington State B&O tax rate reduction, caused serious 
prejudice , within the meaning of Articles 5(c) and 6.3(c) , with respect to the 100 -200 
seat LCA product market in the form of significant l ost sales.  
c. Property and sales tax abatements related to IRBs issued by the City of Wichita, Kansas 
complemented and supplemented the price effects of the FSC/ETI subsidies and the 
Washington State B&O tax rate reduction, thereby causing serious prejudice to the 
interests of the European Communities,  within the meaning of Articles 5(c) and 6.3(c) , in 
the 100 -200 seat LCA product market in the form of significant lost sales.  
1.7.  In relation to the finding that the FSC/ETI measures were prohibited subsidies , within the 
meaning of Articles 3.1 (a) and 3.2 of the SCM Agreement, the original panel refrained from 
making a new recommendation under Article 4.7. The panel noted "the conclusion of the Panel in 
US – FSC (Article 21.5 – EC II), which was upheld by the Appe llate Body, that the 
recommendation made by the panel in the dispute in US – FSC continued to be 'operative '".5 
1.8.  In respect of the findings of serious prejudice caused by certain subsidies, the Appellate Body 
recommended that:  
{T}he DSB request the United S tates to bring its measures, found in this report, and 
in the panel report as modified by this Report, to be inconsistent with the SCM 
Agreement, into conformity with its obligations under that Agreement. More 
specifically, having regard to the recommendat ion made by the Panel in paragraph  8.9 
of its Report and the provisions of Article 7.8 of the SCM Agreement, the Appellate 
Body recommends  that the United States take appropriate steps to remove the 
adverse effects found to have been caused by its use of s ubsidies, or to withdraw 
those subsidies.6  
1.9.  On 23 September 2012, the United States provided a notification to the DSB identifying "a 
number of actions to withdraw the subsidies found to have caused adverse effects or to remove 
their adverse effects ", in light of which the United States considered that it "ha{d} fully complied 
with the recommendations and rulings of the Dispute Settlement Body in this dispute ".7 
1.10.  On 25 September 2012, the European Union requested consultations with the United States, 
explain ing that it was of the view that "{t}he actions and events listed by the United States in its 
23 September 2012 notification do not withdraw the subsidies or remove their adverse effects, as 
required by Articles 4.7 and 7.8 of the SCM Agreement " and that "the United States has failed to 
achieve compliance with the recommendations and rulings of the DSB ".8  
1.11.  The European Union and the United States held consultations on 10 October 2012, but the 
consultations failed to resolve the dispute.  
1.2  Panel establishment  and composition  
1.12.  On 11 October 2012, the European Union requested the establishment of a panel "in 
accordance with Articles 4.4 and 7.4 of the SCM Agreement and Article 21.5 of the DSU ", with 
                                               
5 Panel Report, US – Large Civil Ai rcraft (2nd complaint) , para. 8.7.  
6 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1352. (emphasis original)  
7 US – Large Civil Aircraft (2nd complaint) , Communication from the United States, WT/DS353/15 (dated 
23 September 2012,  circulated 26 September 2012) (United States' Compliance Communication), para. 2.  
8 US – Large Civil Aircraft (2nd complaint) , European Union's request for consultations, recourse to 
Article 21.5 of the DSU, WT/DS353/16 (dated 25 September 2012, circulat ed 2 October 2012) 
(European  Union's request for consultations), p. 2.  WT/DS353/R W 
 
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  standard terms of reference.9 At its meeting on 23 October 2012,  the DSB referred this dispute to 
the original panel, if possible, in accordance with Article 21.5 of the DSU .10  
1.13.  The Panel 's terms of reference are the following:  
To examine, in the light of the relevant provisions of the covered agreements cited by 
the pa rties to the dispute, the matter referred to the DSB by the European Union in 
document WT/DS353/18 and to make such findings as will assist the DSB in making 
the recommendations or in giving the rulings provided for in those agreements . 
1.14.  In accordance with Article 21.5 of the DSU, the Panel was composed on 30 October 2012 as 
follows11: 
Chairperson:  Mr Crawford Falconer  
 
Members:   Mr Francisco Orrego Vicuña  
   Mr Virachai Plasai  
 
1.15.  Australia, Brazil, Canada, China, Japan, Korea,  and Russia  notified their interes t in 
participating in the Panel proceedings as third parties.  
1.3  Panel proceedings  
1.3.1   General  
1.16.  The Panel held an organizational meeting with the parties on 2 November 2012.  
1.17.  After consultation with the parties, the Panel adopted its Working Procedures12 on 
18 December 2012  and timetable on 14 January 2013 . The Panel re vised its timetable on 
12 April 2013 and 4 July 2013. The Panel made additional modifications to its timetable over the 
course of the proceeding.  
1.18.  At the request of the parties and after consulting th em, the Panel adopted Additional 
Procedures to Protect Business Confidential Information and Highly Sensitive Business Information 
(BCI/HSBI Procedures) on 18 December 2012.13 
1.19.  The European Union and the United States filed their first written submissions on  
28 March  2013 and 27 June 2013, respectively and their second  written submissions on 
25 July 2013 and 22 August 2013, respectively. Brazil, Canada, Japan, and  Korea  as third parties 
filed written submissions on 23 July 2013.14 
1.20.  On 25 September 2013, the Pan el sent the parties a list of issues which the parties were 
requested to address in their oral statements at the meeting with the parties. The Panel held one 
substantive meeting with the parties on 29 -31 October 2013. A session with the third parties took 
place on 30 October 2013. At the request of the parties, the Panel 's meeting with the parties was 
                                               
9 US – Large Civil Aircraft (2nd complaint) , European Union's request for the establishment of a panel, 
recourse to Article 21.5 of the DSU, WT/DS353/18 (dated 11 October 2012, circulat ed 12 October 2012) 
(European Union's request for the establishment of a panel), para. 34.  
10 Dispute Settlement Body, Minutes of the Meeting held on 23 October 2012, WT/DSB/M/323 
(circulated 13 December 2012), para. 81. At this meeting, the United States stated its view that the panel was 
being established only under Article 21.5 of the DSU. (Dispute Settlement Body, Minutes of Meeting held on 
23 October 2012, WT/DSB/M/323 (circulated 13 December 2012), paras. 78 and 79).  
11 US – Large Civil Aircraft (2nd complaint) , Recourse to Article 21.5 of the DSU by the European Union, 
Constitution of the Panel, Note by the Secretariat, WT/DS353/21 (dated 23 October 2012, circulated 
5 November 2012), para. 3.  
12 See the Panel's Working Procedures in Annex A -1. 
13 The BCI /HSBI Procedures were subsequently revised several times. The final version is attached in 
Annex A -2. 
14 Australia, China, and Russia did not make written submissions or oral statements to the Panel.  WT/DS353/R W 
 
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  opened to the public by means of a delayed video showing.15 A portion of the Panel 's meeting with 
the third parties was also opened to the public by means of a  delayed video showing.16 
1.21.  In addition to the questions that the Panel had posed in December 2012 at the request of 
the parties that the Panel seek information under Article 13 of the DSU17, the Panel posed 
questions to the parties and third parties on 7 Nove mber 2013 and additional questions to the 
parties on 4 November 2014 and 17 September 2015.  
1.22.  On 11 August 2016 , the Panel issued the descriptive part of its Report to the parties. The 
Panel issued its Interim Report to the parties on 16 September 2016 . The Panel issued its Final 
Report to the parties on  20 December  2016.  
1.3.2   The Panel 's ruling and decision s regarding Annex V of the SCM Agreement and 
requests of the parties that the Panel seek information under Article 13 of the DSU  
1.23.  On 31 October 2012, eight days  after the DSB established the Panel, the European Union 
filed a preliminary ruling request18 asking the Panel to rule that the conditions for the automatic 
initiation of an information -gathering procedure under Annex V of the SCM Agreement had been 
met in this case and that, consequently, automatic initiation of an Annex V procedure had 
occurred, was deemed to have occurred or should have occurred. The European Union also 
requested the Panel to exercise its right under  Article 13 of the DSU to seek certain information by 
posing to the United States questions that the European Union had prepared for submission under 
Annex V of the SCM Agreement that it considered necessary for the Panel to carry out its mandate . 
1.24.  In a submission filed on 8 November 201219, the United States disputed the 
European  Union 's interpretation of the provisions of the SCM Agreement relating to the initiation of 
procedures under Annex V and requested the Panel to reject the European Union 's request 
regarding the initiation of procedures u nder Annex V. While the United States agreed with the 
European Union that there were unique reasons that would justify the Panel seeking information 
from the parties at an early point in the proceeding, the United States expressed its disagreement 
with the  European Union regarding the timing, manner and extent to which the Panel should 
exercise its authority to seek information pursuant to Article 13 of the DSU .  
1.25.  On 15 November 2012, the Panel advised the parties that it would exercise its authority 
under A rticle 13 of the DSU to seek information from the United States, and that it would 
communicate the rationale for that decision and the modalities that the Panel intended to apply, in 
the near future.20 The Panel also invited the United States to submit any specific comments on the 
questions proposed by the European Union. On 19 November 2012, in partial response to the 
Panel 's invitation, the United States requested the Panel to see k information from the 
European  Union pursuant to Article 13 of the DSU in order to assist the Panel with its examination 
of the matter before it .21  
1.26.  Regarding the European Union 's request of 31 October 2012, and after hearing the views of 
both parties22, the Panel issued a communication to the parties a nd third parties on 
26 Novembe r 2012,  finding  that Annex V procedures were available in compliance proceedings, 
the conditions for initiating an Annex V procedure had been met, and automatic initiation of an 
                                               
15 See Additional Working Procedures for the partial openi ng to the public of the meeting of the Panel in 
Annex A -3. 
16 Brazil, Canada, and Japan consented to having their statements videotaped for delayed showing. 
Korea did not consent.  
17 See para. 1.27 below.  
18 European Union's reque st for a preliminary ruling  and request for the Panel to exercise its authority 
pursuant to Article 13 of the DSU, dated 31 October 2012.  
19 United States' response to European Union's request for a preliminary ruling  and request for the Panel 
to request information pursuant to Article 13 of the DSU, dated 8 November 2012.  
20 The Panel did so in its communications of 5 and 18 December 2012. (See Annexes E -2 and E -3). 
21 United States' request for the Panel to exercise its authority pursuant to Article 13 of t he DSU, dated 
19 November 2012.  
22 The United States submitted its comments on 8 November 2012, and the European Union submitted 
further views on 5 and 9 November 2012. The European Union opposed the United States' request that the 
Panel seek information f rom the European Union pursuant to Article 13 of the DSU in a letter dated 
23 November 2012.  WT/DS353/R W 
 
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  Annex V procedure had occurred.23 The Panel also noted that, while the European  Union 
considered it was entitled to proceed with an Annex V procedure, the European Union had 
requested the Panel to seek information through an early exercise of its authority under Article 13 
of the DSU. The Panel recalled that it had requested the Unit ed States to comment on the 
questions suggested by the European Union and indicated that it would make an information 
request to the United States under Article 13 of the DSU "as soon as possible taking into account 
the requests and comments made and respo nses received ".24 Regarding the United States ' request 
that the Panel seek information from the European Union pursuant to Article 13 of the DSU,  the 
Panel  further indicated that it would  make an information request to the European Union under 
Article 13 of  the DSU , "as soon as possible taking into account the request and any comments 
received ".25 
1.27.  After receiving the comments of the parties on the questions that each party proposed the 
Panel ask the other party in exercise of the Panel 's authority to seek inf ormation under Article 13 
of the DSU, the Panel posed questions to the United States on 5 December and 
18 December  2012, and to the European Union on 18 December 2012.26 Following requests for 
extensions of time to respond to certain of the Panel's requests  for information, t he United States 
provided its responses to the questions posed by the Panel pursuant  to Article 13 of the DSU on 
25 January 2013, 1, 14, and 28 February, 22 March , and 2 May 2013.27 The European Union 
provided its responses to the questio ns posed by the Panel pursuant to Arti cle 13 of the DSU on 
28 February 2013.  
1.28.  By letters dated 19, 20 , and 21 December 2012, Brazil, Australia,  and Canada respectively, 
as third parties to this dispute, noted that they were initially not made aware of a req uest by the 
European Union for a preliminary ruling  regarding the interpretation of provisions relating to the 
initiation of procedures under Annex V of the SCM Agreement, and of requests by both the 
European  Union and the United  States for the Panel to ex ercise its right to seek information under 
Article 13 of the DSU. On 25 January 2013, the Panel issued a communication to the parties and 
third parties request ing the parties to serve upon the third parties their relevant submissions 
concerning the  Europea n Union's request for a preliminary ruling in regard to Annex V , to the 
extent that they had not already done so , on the grounds that these submissions could properly be 
considered to be "submissions" , within the meaning of Article 10.3 of the DSU .28 The Pa nel further 
considered that, in the circumstances of the present requests for information pursuant to Article 13 
of the DSU, the communications concerning these requests and the parties ' responses to the 
requests, were not "submissions " which the third par ties were entitled to receive pursuant to 
Article 10.3 of the DSU. However, given the close link between the particular Article 13 requests 
and issues concerning the interpretation and application of Annex V of the SCM Agreement, the 
Panel considered it ap propriate in this situation that the communications concerning the Article 13 
requests (but not the parties ' responses to those requests) be provided to the third parties. 
Accordingly, the Panel served upon the third parties the information requests that i t had made to 
the United States and the European Union pursuant to Article 13 of the DSU.  
1.3.3   Requests for preliminary rulin gs on the Panel 's terms of reference and other 
procedural rulings  
1.3.3.1   The United States ' request for preliminary rulings  
1.29.  On 13 November 201 2, the United States submitted a request  for preliminary rulings , 
objecting to the inclusion of certain claims and challenged measures as outside the Panel 's terms 
                                               
23 Preliminary ruling and decision regarding information -gathering under Article 13 of the DSU, dated 
26 November 2012, para. 33, reproduced in Annex E -1. 
24 Prelim inary ruling and decision regarding information -gathering und er Article 13 of the DSU, dated 
26 November 2012, para. 52, reproduced in Annex E -1. 
25 Preliminary ruling and decision regarding information -gathering under Article 13 of the DSU, dated 
26 Novemb er 2012, para. 52, reproduced in Annex E -1. 
26 Communications  of the Panel dated 5 December 2012 and 18 December 2012, reproduced in 
Annexes  E-2 and E -3, respectively.  In addition, the Panel in its communication of 18 December 2012 invited 
the parties to ma ke further submissions regarding the measures that properly fall within the scope of this 
proceeding in their first written submissions.  
27 Such requests for extensions of time were made by letters from the United States dated 
23 January  2013 and 14 Februar y 2013, and by email dated 12 February 2013.  
28 Communication regarding third -party rights, dated 25 January 2013, reproduced in Annex E -4. WT/DS353/R W 
 
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  of reference . The parties exchan ged views on the merits of this request  in a number of 
submi ssions, including their first and second written submissions.29 The Panel addresses the issues 
raised by this request of the United States in Section 7 of this Report.   
1.3.3.2   The European Union 's request for leave to file an additiona l submission 
pertaining to Washington State Legislature Substitute Bill 5952  
1.30.  On 4 March 2014, the European Union requested leave from the Panel to file an additional 
submission detailing "the legal ramifications of the 2013 amendments to the Washington St ate 
measure ".30 The European Union asserted that these 2013 amendments (Washington State Senate 
Bill 5952 (SSB 5952)) constitute "additional measures taken to comply by the United States "31 that 
are properly within the scope of this proceeding. In a letter dated 21 March 2014, the 
United  States requested the Panel to deny the European Union 's request to file an additional 
submission, as inconsistent with the requirements of Article 6.2 of the DSU and the Panel 's 
Working Procedures . The European Union responde d on 31 March 2014, requesting that the Panel 
proceed t o consider the substance of its arguments. On 9 April 2014, the United States reiterated 
its request that the Panel disregard the European Union 's request.32 
1.31.  In a communication to the parties dated 27 M ay 2014, the Panel advised that it had decided  
to decline  the European Union 's request and  indicated that it  would issue the reasons underlying 
its decision in due course. On 18 September 2014, the Panel issued to the parties its Reasons for 
Declining the European Union 's Request for Leave to File an Addi tional Submission Regarding 
SSB 5952. These reasons as issued on 18 September 2014  are reproduced in Section 7.7 of this 
Report .  
1.3.3.3   Other procedural rulings  
1.32.  On 23 October 2013, th e Panel issued an additional ruling regarding renewed requests from 
the European Union for additional information in connection with certain NASA and DOD contracts , 
NASA, DOD , and FAA technical reports , NASA new technology reports , and documents  related to  
certain sales campaign s.33 
2  PARTIES ' REQUESTS FOR FINDING S AND RECOMMENDATION S 
2.1.   The European Union requests that the Panel find that the United States has failed to 
implement the DSB recommendations in US – Large Civil Aircraft (2nd complaint) to withdraw t he 
subsidies or take appropriate steps to remove the adverse effects, pursuant to Article 7.8 of the 
SCM Agreement.  
2.2.  In particular, the European Union requests that the Panel find that:  
a. subsequent to the end of the implementation period, the United States g rants or 
maintains the subsidies to the U.S. LCA industry  through the following programmes and 
measures : 
i. NASA aeronautics R&D measures;  
                                               
29 United States' request for preliminary rulings, dated 13 November 2012; European Union's letter to 
the Panel, dated  13 November 2012; European Union's response to the United States' request for preliminary 
rulings, dated 23 November 2012; and United States' reply to the European Union's response to the 
United  States' request for preliminary rulings, dated 3 December 20 12. In response to a communication of the 
Panel dated 6 May 2013 addressing an issue outlined in paragraph 55 of the European Union's first written 
submission, the European Union filed a "supplemental submission" on the United States' request for 
prelimina ry rulings on 13 May 2013 prior to the United States filing its first written submission.  
30 European Union's letter to the Panel, dated 4 March 2014, para. 2.  
31 European Union's letter to the Panel, dated 4 March 2014, para. 1.  
32 United States' letter to t he Panel, dated 9 April 2014.  
33 Decision regarding requests for certain information, dated 23 October 2013, reproduced in Annex F -2. 
As noted in para. 2.5 of that ruling, certain of the categories of information identified by the European Union in 
its requ ests for additional information were within the scope of the Panel's Article 13 request to the 
United  States in December 2012.  WT/DS353/R W 
 
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  ii. the Federal Aviation Administration 's Continuous Lower Energy Emissions, and Noise 
Program  (FAA CLEEN);  
iii. the DOD RDT&E Program ;  
iv. income tax exemptions/exclusions pursuant to FSC/ETI legislation and successor 
acts; 
v. property and sales tax concessions for LCA component production facilities 
associated with IRBs issued by the City of Wichita;  
vi. certain tax and other measures ap plied by the State of Washington  and 
municipalities therein ; and  
vii. measures applied by the State of South Carolina and municipalities therein in the 
context of "Project Gemini " and "Project Emerald " as well as "Phase II "; 
b. each of these subsidies is also inc onsistent with Articles 3.1(a), 3.1(b), and 3.2 of the 
SCM Agreement  and Article III of the GATT 199434; and  
c. the subsidies collectively cause present adverse effects to LCA -related interests of the 
European Union, in violation of Article 5 of the SCM Agree ment.  In particular, the 
subsidies are a genuine and substantial cause of:  
i. displacement and impedance, or threat thereof, in the LCA product markets of the 
United States, within the meaning of Article 6.3(a) and footnote 13 of the SCM 
Agreement;  
ii. displaceme nt and impedance, or threat thereof, in the LCA product markets of 
several third countries, within the meaning of Article 6.3(b) and footnote 13 of the 
SCM Agreement;  
iii. significant price suppression, or threat thereof, in the LCA product markets, within 
the meaning of Article 6.3(c) and footnote 13 of the SCM Agreement; and  
iv. significant lost sales, or threat thereof, in the LCA product markets, within the 
meaning of Article 6.3(c) and footnote 13 of the SCM Agreement.  
2.3.  The European Union requests that the Panel  make "appropriate consequential 
recommendations ".35 
2.4.  The United States requests the Panel to reject all claims of  the European Union. The 
United  States  also requests that the Panel rule that certain claims are outside the Panel 's terms of 
reference or other wise outside the scope of this proceeding.36 
3  ARGUMENTS OF THE PAR TIES  
3.1.  The arguments of the parties are reflected in their executive summaries, provided to the 
Panel in accordance with paragraph 12 of the Working Procedures adopted by the Panel (see 
Annexes B-1 to B -4 and C-1 to C -3). 
                                               
34 The European Union in its subsequent submissions confines its claim under Article III of the 
GATT  1994 to paragraph  4 of that p rovision , see fn 606.  
35 European Union's first written submission, paras. 1933 and 1934.  
36 See Section 1.3.3  above. The Panel addresses the issues raised by this request of the Uni ted States in 
Section 7 of this Report.  WT/DS353/R W 
 
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  4  ARGUMENTS OF THE THI RD PARTIES  
4.1.  The arguments of  Brazil, Canada, Japan, and  Korea  are reflected in their executive 
summaries, provided in accordance with paragraph 12 of the Working Procedures adopted by the 
Panel (see Annexes D -1 to D -8).  
5  INTERIM REVIEW  
5.1  Introduction  
5.1.  The Panel issued its Interim Report to the parties on 16 September 2016. Both parties 
submitted written requests for review of precise aspects of the Interim Report on 14 October 2016, 
and written comments on each ot her's written requests on 28 October 2016. The parties also 
provided written comments on the treatment of certain information as BCI or HSBI in their 
respective requests. Neither party requested the Panel to hold an interim review meeting.  
5.2.  The Panel expla ins below its responses to issues of a substantive nature raised by the parties 
in their requests for review of precise aspects of the Interim Report. The Panel has also corrected a 
number of typographical and other non -substantive errors throughout the In terim Report, 
including those identified by the parties, which are not specifically referred to below.  More 
specifically, the Panel has corrected stylistic and grammatical errors and errors in references to 
submissions and exhibits. The Panel has also corr ected inconsistencies in terminology and has 
made changes to improve the clarity and accuracy of the Report. In addition, the Panel has added 
references to dispute settlement reports that were circulated subsequent to the date of issuance of 
the Interim Re port to the parties.  
5.3.  Due to changes as a result of our review, the numbering of the footnotes  and certain of the 
paragraphs  in the Final Report has changed from the Interim Report. The text below refers to the 
footnote and paragraph numbers in the Interim Report, with the corresponding footnote numbers , 
and where applicable, paragraph numbers,  in the Final Report provided in parentheses for ease of 
reference.  
5.2  Specific requests for review submitted by the parties  
5.2.1   Explicit attributions of arguments to the pa rties 
5.4.  The Panel has, in various places throughout the Interim Report, omitted explicit attribution of 
an argument to the United States or the European Union, as the case may be, where it considered 
the context made the attribution clear, albeit implicitly.  
5.5.  The European Union has requested a number of modifications to descriptions of the 
parties'  arguments to explicitly attribute the argument to a party and thereby remove the 
possibility that the particular argument could be misunderstood as a finding of the  Panel. The 
United States does not object to the omission of attributions to the parties where the argument in 
question occurs in a section labelled "main arguments of the parties" or "main arguments of the 
parties and third parties", as the context makes clear that the text summarizes arguments by one 
of the parties and the omission of attributions improves the readability of the Interim Report.37 
With respect to the requested specific attribution to the United States of an argument described in 
the sixth s entence of paragraph 8.1002 of the Interim Report  (now paragraph 8.1006 ), which 
appears in an "Evaluati on" section , the United States considers that the context of the sentence 
and the existence of a footnote citing a U.S. submission as the source of the s tatements in the 
sentence would lead an alert reader to understand that the statement was not a finding of the 
Panel. However, the United States does not oppose the insertion of a textual attribution of that 
sentence to the United States, for the avoidance  of doubt.  
                                               
37 Indeed, the United States sees no grounds for the European Union's concerns, both in light of the 
drafting of the relevant paragraphs and the headings of the sections. Additionally, it considers that adding the 
attributions requested by the European Union could suggest an a contrario  reading that unattributed sentences 
in the summaries of arguments were in fact findings of the Panel. The United States requests the Panel to take 
these concerns into account in evaluating the European Union's comments.  WT/DS353/R W 
 
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  5.6.  The Panel has decided to grant the European Union's requests to explicitly attribute 
arguments to the parties, even where those arguments appear in a section labelled as "main 
arguments of the parties" or "main arguments of the parties and third  parties". While specific 
attributions make the text longer, the Panel has concluded that it is  important to ensure that the 
reader clearly understands when an argument or assertion is that of a party, and when it is a legal 
or factual finding of the Panel . The Panel adds that in acceding to the European Union's requests 
for specific attributions of arguments to parties, even within sections clearly labelled as "main 
arguments of the parties" or "main arguments of the parties and third parties", it does not  thereby 
suggest that arguments within those sections that are not specifically attributed to a party are 
findings of the Panel.   
5.2.2   Introduction to Panel findings  
Paragraph 6.21  
5.7.  The European Union requests that the Panel replace the word "subsidies" with "t he subsidy" 
in the second sentence of paragraph 6.21, and that the words "from any subsidies that are not 
withdrawn" be added to the end of the same sentence, for the sake of clarity. The United States 
did not respond specifically to this aspect of the Eur opean Union's comment.  
5.8.  The Panel has modified the second sentence of paragraph 6. 21 as requested by the 
European  Union.  
5.9.  The European Union further requests that its position as to ways in which an implementing 
Member may achieve withdrawal of a subsidy be  more compreh ensively reflected in 
paragraph  6.21, specifically by adding the following sentence between the second and third 
sentences of that paragraph: "The European Union argues that the withdrawal of a subsidy can be 
achieved through the repayment of the financial contribution or the removal of the benefit." In 
support of this request, the European Union asserts that its position in the present dispute, 
consistent with its position in EC and certain member States – Large Civil Aircraft , has been that 
the withdrawal of a subsidy can be achieved through the removal of one or two constituent 
elements of the subsidy; i.e. the financial contribution or the benefi t. In this regard, the 
European  Union explains that repayment of the financial contribution, unli ke refraining from 
providing an additional  financial contribution, would achieve withdrawal of the subsidy. The 
European Union asserts that its position is that there is no "obligation" on an implementing 
Member to seek or secure repayment of a financial c ontribution; it is but one option available to a 
Member choosing to achieve compliance by withdrawing the subsidy, rather than by removing the 
adverse effects. The European Union asserts that "consistent with this position", it has argued in 
its submission s that, for each instance of a subsidy that had not been withdrawn, there continued 
to be both a (non -repaid) financial contribution and a benefit.38 
5.10.  The United States requests the Panel to reject this aspect of the European Union's comment 
regarding paragr aph 6.21 as the Panel's summary as currently drafted reflects the actual 
arguments and positions taken by the European Union and the interim review stage is not the 
appropriate stage for the European Union to recast its arguments. The United States argues that 
the European Union fails to provide a citation to support its assertion that its position in the 
present dispute has been that the withdrawal of a subsidy can be achieved through the removal of 
the financial contribution or benefit. The United States notes that the European Union points 
instead to paragraphs in its first written submission arguing for the existence of a financial 
contribution and benefit for a variety of measures. The United States considers that the existence 
of such arguments in no w ay communicates the overarching position that the European Union now 
seeks to assert. Moreover, the United States asserts that it is not aware of anywhere else in the 
European Union's submissions where the European Union summarizes its argument in the way in 
which it now requests the argument to be reflected.  
5.11.  While the Panel has carefully reviewed the relevant passages of the European Union's first 
written submission cited by the European Union in support of its request, it appears that they do 
not contain the specific statement that the European Union pr oposes to be added to 
paragraph  6.21 of the Interim Report. Significantly, the European Union itself does not provide a 
                                               
38 The European Union refers to the following examples from its first written submission: 
paras.  169-198, 363 -389, 401 -404, 417 -422, and 434 -441. WT/DS353/R W 
 
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  specific citation to particular paragraphs of its submissions that explicitly set out t he idea that "the 
withdrawal of a subsidy can be achieved through the repayment of the financial contribution or the 
removal of the benefit". The Panel is therefore not persuaded that the addition proposed by the 
European Union is warranted to provide a mo re "comprehensive" description of the position of the 
European Union in this proceeding with regard to the interpretation of the term "withdraw the 
subsidy". The Panel thus declines the European Union's request.  
Paragraph 6.37  
5.12.  The European Union requests the Panel to remove footnote 80, as the associated sentence 
in paragraph 6.37 (i.e. the fourth sentence of paragraph 6.37), in stating that the European Union 
does not argue that the United States was obligated under Article 7.8 of the SCM Agreement to 
seek repayment from Boeing of subsidies granted in the past, already fully and accurately reflects 
the views of the European Union on whether the payment of royalties should occur on a retroactive 
basis. The United States responds that it has no objection to the European Union's request.  
5.13.  The Panel has removed the footnote in question  as requested by the European Union.  
5.2.3   Whether certain measures and claims are outside the Panel's terms of reference 
or are otherwise outside the scope of this proceeding  
Paragraph  7.44 
5.14.  The European Union requests the Panel to add a footnote defining the terms "tied subsidy" 
and "untied subsidy" in paragraph 7.44. The European Union suggests that the Panel either 
reproduce the explanation of "tied subsidy" in paragraph 9.71 as a foo tnote to paragraph 7.44 or 
add a cross -reference, in paragraph 7.44, to paragraph 9.71. The United States has no objection 
to either of the alternative proposals advanced by the European Union.  
5.15.  The Panel has added a footnote to paragraph 7.44 (footnote 146 ) to explain the concepts 
"untied" subsidy and "tied" subsidy as used in this proceeding.   
Paragraph 7.127  
5.16.   The European Union requests that the Panel replace the words "{a}fter some reflection" at 
the beginning of the second sentence of paragraph 7.127 wi th the words "{a}fter considering the 
circumstances described above" to clarify the basis for the Panel's conclusion.  
5.17.  The United States objects to the European Union's proposal, because it sees no reason to 
limit the basis for the Panel's conclusion to "ci rcumstances" described in the preceding paragraphs 
when, according to the United States, much of that discussion consists of a legal analysis of the 
Appellate Body's findings and citations to past reports.  
5.18.  Given the circumstances described in paragraph 7.1 28 of the Interim Report, the Panel 
considers it most appropriate to retain the current language of t he second sentence of 
paragraph  7.127. The Panel thus declines the European Union's request.  
Paragraph 7.198  
5.19.  The United States suggests that the Panel coul d consider referring in paragraph 7.198 to the 
nature of R&D under systems acquisition/military aircraft program elements in Sections 8.2.3.2.4 
and 8.2.3.3.3 of the Interim Report. The European Uni on has no comment on the 
United  States'  request.  
5.20.  The Panel has added additional references in a footnote to the first sentence of 
paragraph  7.198 which it considers reflect the United States' suggestion.  WT/DS353/R W 
 
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  Paragraph 7.244  
5.21.  The European Union requests that the Panel delete the first sentence of paragraph 7.244 on 
the basis that this sentence does not appear to add anything new to the paragraph and the Panel's 
analysis would be clearer without it.  
5.22.  The United States objects to the European Union's sugg estion. According to the 
United  States, the first sentence of paragrap h 7.244 indicates that the Panel does not consider it 
necessary to conduct the analysis described in paragraph 7.243 (namely, to identify and properly 
delineate the DOD aeronautics R&D measures that are within the Panel's terms of reference 
according to th e Panel's evaluation of the potential for the R&D to lead to civil applications). The 
United States considers that the statement in the first sentence of paragraph 7.244 makes explicit 
the Panel's conclusion on the terms of reference issue that it raised, and as such, adds clarity to 
the discussion in paragraph 7.244.  
5.23.  The Panel has removed the first sentence of paragraph 7.244, as requested by the 
European Union, in order to improve the clarity of this paragraph.  
Paragraphs 7.251, 7.283, 7.284 (and 8.505)  
5.24.  The United States requests the Panel to delete references in paragraphs 7.251, 7.283, 
7.284, 7.289 (and 8.505) suggesting that Boeing has responsibility for managing the entire FAA 
CLEEN Program, rather than simply its activities under the Boeing CLEEN Agr eement.  The 
United  States considers that the suggestion that Boeing has responsibility for managing the FAA 
CLEEN Program is incorrect. The United States asserts that Boeing does not manage the FAA 
CLEEN Program. Rather, as explained by the United States i n its submissions, the FAA CLEEN 
Program is managed by the FAA on the basis of Other Transaction Agreements entered into with 
industry partners. The United States explains that the statement in the Boeing CLEEN Agreement 
referring to integrated programme m anagement pertains to Boeing's management of its own 
performance under the Boeing CLEEN Agreement.  
5.25.  The European Union objects to the United States' request and asks that the Panel leave 
undisturbed the existing language related to Boeing's integrated manag ement of the FAA CLEEN 
Program in paragraphs 7.251, 7.283, 7.284 (and 8.505). The European Union argues that the text 
of the Boeing CLEEN Agreement plainly provides that the Boeing team will manage the overall FAA 
CLEEN Program to ensure completion of all required elements in the program statement of work, 
and repeatedly references "Boeing's Integrated Program Management" as a work element in 
addition to, and distinct from, identified R&D activities. The European Union notes that these are 
the portions of t he Boeing CLEEN Agreement upon which the Panel relies when it states, in 
paragraph 7.251, that Boeing is responsible for integrated management of the FAA CLEEN 
Program as well as two categories of R&D activities. The European Union considers that the Panel 's 
characterization of Boeing's integrated management of the FAA CLEEN Program, including in the 
paragraphs identified by the United States in its request, is no different from the characterization 
in the Boeing CLEEN Agreement, and is simply a restatement  of the language used in the Boeing 
CLEEN Agreement itself. Finally, the European Union argues that the United States' argument that 
the statement referencing integrated program management in the Boeing CLEEN Agreement 
pertains to Boeing's management of it s own performance under the Boeing CLEEN Agreement 
finds no support in the text of the Agreement, which unambiguously refers to Boeing's 
management of the "overall CLEEN program", nor does the United States cite to any portion of the 
Boeing CLEEN Agreement  or to any other evidence before the Panel, to support its conclusion.  
5.26.  In addressing the United States' request, the Panel has again reviewed the evidence before 
it regarding the FAA CLEEN Program and the Boeing CLEEN Agreement. Section C.3 of the Boeing 
CLEEN Agreement sets forth the work to be performed by Boeing. The "Overview" subsection to 
section C.3 explains that Boeing will increase the technology readiness level of three technologies 
as part of the FAA CLEEN Program. These are: (a) CMC/Oxide -Oxide Nozzle Technology; (b) 
Adaptive Trailing Edges (excluding Flaplets); and (c) Alternative Fuels – Aromatics and Seal Swell. 
The Overview also refers to "overall Integrated Program Management and Flight 
demonstration(s)".  WT/DS353/R W 
 
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  5.27.  The next subsection to section C.3 of the Boeing CLEEN Agreement is entitled "Integrated 
Program Management and Technology Demonstrations". A further subheading to this subsection, 
entitled "Integrated Program Management", states that the "Boeing team will manage the overall 
CLEEN program t o ensure completion of all required elements in the program SOW". A second 
subheading to this subsection is entitled "Technology Demonstration Tests". This subheading 
describes flight test demonstrations that Boeing will conduct "as part of the technology maturation 
program" in 2012 and 2013, respectively. In each case, "Boeing will conduct integrated program 
management, design, and safety reviews to ensure the technologies integrate onto the selected 
demonstration airplane, and to ensure compliance with re quired procedures and safety of flight."  
5.28.  There are three further subsections to section C.3 of the Boeing CLEEN Agreement. These 
deal with: (a) CMC/Oxide -Oxide Acoustic Nozzle Technology; (b) Adaptable Trailing Edge 
Technology; and (c) Alternative Fuels – Aromatics, Seals Technology. For each of these technology 
areas, there are separate subheadings that discuss "project management", "technology 
maturation", "systems engineering and integration", "technology demonstration tests", and 
"technology assessment s". The Boeing CLEEN Agreement plainly states that "Boeing will manage 
the overall CLEEN program  to ensure completion of all required elements in the program  SOW".39 
This statement is made in a distinct subsection of section C.3 that refers to "integrated p rogram 
management". Moreover, the concept of integrated  program management appears to be distinct 
from the "program management" envisaged for each of the three technology areas and discussed 
elsewhere in section C.3.  
5.29.  The United States considers that the r eferences to integrated program management pertain 
to Boeing's management of its own performance under the Boeing CLEEN Agreement. We do not 
discount the possibility that the "Integrated Program Management and Technology 
Demonstrations" work that is descri bed in section C.3 of the Boeing CLEEN Agreement, understood 
in its proper context, in fact concerns the management of those aspects of the FAA CLEEN Program 
for which Boeing is the main contractor, and does not extend to management of the activities of 
the other FAA CLEEN main contractors under the FAA CLEEN Program (i.e.  General Electric, 
Honeywell, Pratt & Whitney, and Rolls -Royce North America). However, the United States did not 
attempt such an explanation in its submissions and does not fully explain the basis for this position 
in its comments on precise aspects of the Interim Report. Indeed, the European Union, in its first 
written submission, asserted that "Boeing (the only aircraft producer in the CLEEN consortium) is 
responsible for integrated mana gement of the entire CLEEN Program, allowing Boeing to benefit 
from FAA funding of other participants, all of whom are Boeing suppliers."40 The European Union 
cited to section C.3 of the Boeing CLEEN Agreement in support of this assertion. The United States  
did not refute this assertion in its submissions.41  
5.30.  We consider that the Panel's interpretation of the Boeing CLEEN Agreement is reasonable on 
its face, and is not contradicted by other evidence before it, or by the United States in its 
submissions, despi te the fact that the European Union, in its first written submission, made the 
very assertion to which the United States now objects. In light of these factors, we have decided 
to leave undisturbed the existing language related to Boeing's integrated manag ement of the FAA 
CLEEN Program in paragraphs 7.251, 7.283, 7.284, 7.289, (and 8.505).  
Paragraph 7.409  
5.31.  The United States requests the Panel to modify the first sentence of paragraph 7.409 
referring to the European Union's argument that the Panel describes in paragraph 7.409 as  
relating to a "change in WTO law resulting from an intervening Appellate Body report" to clarify 
that the European Union's argument concerns a purported "clarification of relevant WTO  law" and 
thus a "subsequent interpretation" of the WTO agreement s, as opposed to a change in WTO law 
itself. The United States notes that the DSU provides that the findings and recommendations of 
panels and the Appellate Body cannot add to or diminish the rights and obligations provided in the 
covered agr eements. Moreover, the United States does not understand the European Union to 
                                               
39 Emphasis added.  
40 European Union's first written submission, para. 202. (fn omitted)  
41 While the United States provided information concerning the FAA CLEEN Program and the Boeing 
CLEEN Agreement in response to the Panel's Article 13 request, it did not specifically address the issu e of 
whether Boeing had any responsibility for the management of the FAA CLEEN Program overall.  WT/DS353/R W 
 
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  argue, in paragraph 7.390 (d) of the Interim Report, that WTO law has actually changed, but 
rather that the interpretation of WTO law has changed.  
5.32.  The European Union objects to the United States' request and requests that the Panel retain 
the current wording of paragraph 7.409. While the European Union does not disagree with the 
assertion that a report of the Appellate Body does not add to or diminish the rights and obligations 
provided in the covered agreements, it does not share the United States' concern that the current 
language in paragraph 7.409 would imply otherwise. The European Union considers that the Panel 
uses the phrase "a change in WTO law as a result of an interveni ng Appellate Body report" as a 
convenient way of referring to a scenario in which an Appellate Body report identifies, from the 
terms of a provision in the covered agreements, a meaning that is different from the one that was 
previously understood. In fact , the European Union regards the Panel's current formulation as the 
most appropriate one to describe the situation referenced, so as to achieve precision and clarity, 
and considers that the United States' proposed alternative formulation falls short in thi s regard. 
More specifically, the European Union argues that the United States'  suggested formulation of 
"subsequent interpretation" conveys only a temporal relationship between two interpretations, 
while in the current circumstances, the relevant issue is that the subsequent interpretation is 
different from the earlier interpretation, not that it is "subsequent".  
5.33.  The Panel has modified the first sentence of paragraph 7.409 to more closely reflect the 
terms used by the European Union in making the argument i n question in paragraphs 68 -74 of its 
second written submission, which refers to a "clarification of relevant WTO law to be applied by the 
compliance panel", rather than a "change in WTO law resulting from an intervening Appellate Body 
report".   
5.2.4    Whether t he United States has failed to withdraw the subsidy within the meaning 
of Article 7.8 of the SCM Agreement  
Subsection 8.1.2  
5.34.  The European Union requests the Panel, in its summary of the European Union's arguments, 
to set forth the European Union's position on patent ownership in situations where inventions are 
jointly made by NASA or DOD employees on the one hand, and Boeing employees on the other, in 
the same manner as the Panel summarized the United States' posi tion on this issue in 
paragraph  8.20. The Eur opean Union considers that in its submissions it explains why, even in a 
situation where inventions arrived at by NASA or DOD employees jointly with a private contractor's 
employees, the private contractor may ultimately be provided with something more tha n an 
undivided share in rights under the patent. The European Union refers in this regard to its 
comments on the United States' response to Panel question No. 85, at paragraphs 217 -221 and 
the European Union's opening statement, at paragraph 31. The Europe an Union additionally 
requests that the Panel consider whether the European Union's position on patent ownership in the 
joint inventorship situation requires any modifications to paragraph 8.34(c) of the Interim Report.  
5.35.  The United States objects to the Eur opean Union's requests. The United States considers 
that granting the European Union's request to modify the summary of the European Union's 
arguments would deprive the United States of an opportunity to comment on the accuracy of the 
summary, or suggest r elevant additions to the summary of the U.S. argument. Moreover, the 
United States considers that at this stage, the European Union (rather than the Panel) bears the 
responsibility for suggesting how the Panel should modify summaries of the European Union' s own 
arguments. The United States also objects to the European Union's request to consider whether 
the referenced arguments of the European Union require a modification to the Panel's finding in 
paragraph 8.34(c) of the Interim Report. The United States n otes that paragraph 8.34(c) is part of 
subsection 8.1.3.1 which covers "The allocation of intellectual property rights and data rights 
under NASA procurement contracts and under DOD assistance instruments and procurement 
contracts". The United States argue s that the arguments referenced by the European Union, 
however, deal with the possibility that the United States might licence its joint rights to the 
contractor subsequent to the contract. Thus, according to the United States, such assertions have 
nothing  to do with the allocation of rights under R&D contracts. Moreover, the United States adds 
that the European Union has not pointed to any procurement contract or assistance instrument 
that licences the government ownership of joint inventions to the contra ctor. WT/DS353/R W 
 
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  5.36.   The Panel considers that it has, in the summary of the European Union's arguments, set 
forth the European Union's position on patent ownership in situations where inventions are jointly 
made by NASA or DOD employees on the one hand, and Boeing emplo yees on the other, in the 
same manner as the Panel has set forth in paragraph 8.20 the United States' position on this issue 
in its summary of the United States' arguments . Specifically, in paragraph 8.12 of the Interim 
Report, the Panel recounts the Europ ean Union's argument, from paragraph 309 of its second 
written submission, that under the NASA procurement contracts and agreements and the DOD 
assistance instruments, inventions made jointly between NASA and Boeing or DOD and Boeing are 
owned solely by Bo eing as the commission ed party. The European Union requests that the Panel 
reflect paragraphs from the European Union's submissions explaining why, even where inventions 
are jointly made by NASA or DOD employees, and by Boeing employees, during the course of work 
under an R&D contract, the private contractor may ultimately be provided with something more 
than an undivided share in the rights under the patent.  
5.37.  The Panel considers that the arguments made by the European Union in the paragraphs of 
its submiss ions to which it refers address, not the issue of how patent ownership is allocated in 
cases of such joint inventorship by NASA/DOD and Boeing employees under R&D contracts as a 
matter of U.S. law, but a different issue; namely that, notwithstanding the fo rmal ownership rights 
that the U.S. Government receives in such situations, the situation is similar to cases of sole 
inventorship by Boeing employees as a practical matter.42 
5.38.  Paragraph 8.34 of the Interim Report sets forth the Panel's conclusions regarding  the 
allocation of patent rights, by operation of U.S. law, under NASA procurement contracts and 
cooperative agreements and under DOD assistance instruments and procurement contracts, 
including in subparagraph (c), in the situation where a NASA or DOD empl oyee and a Boeing 
employee jointly make an invention in the course of work under a NASA procurement contract or 
cooperative agreement, or under a DOD assistance instrument or procurement contract, as th e 
case may be. The Panel has reflected the arguments o f the parties on this particular issue in 
paragraphs 8.12 and 8.20 of the Interim Report, and has reached its own conclusion in 
paragraph  8.34(c), which it sees no need to modify.   
5.39.  In light of the foregoing, the Panel declines to make the modification requ ested by the 
European Union.  
Footnote 943  (now footnote 959 ) to paragraph 8.20  
5.40.  The European Union requests the Panel to remove the reference to United States Code of 
Federal Regulations , chapter 37, section 501.6 , (Exhibit USA -310) in footnote 943 to 
paragraph  8.20 (now footnote 959 ). The European Union notes that the cited U.S. federal 
regulation relates to inventions made solely by government employees, and not to inventions 
made jointly by government employees and contractors like Boeing. The European U nion 
additionally requests the Panel to clarify that the proposition that, under U.S. law, the U.S. 
Government takes title and interest in inventions jointly made by DOD employees and by private 
contractors reflects an argument of the United States, and is  not a finding by the Panel.  
                                               
42 The European Union argues in this regard that, even though NASA/DOD, by operation of U.S. law 
acquires joint ownership over an invention jointly invented by a  NASA/DOD employee jointly with Boeing 
employees as a result of work under a NASA or DOD contract or agreement, the European Union considers that 
contractors like Boeing nevertheless expect that NASA and DOD will not attempt to exploit additional rights 
they obtain from joint ownership, above and beyond those they would receive through the government use 
licence that they would obtain in the different situation in which Boeing as contractor owns the patent 
developed through government -funded R&D. (European Union's comments on the United States' response to 
Panel question No. 85, para. 217).  The European Union similarly argues in its oral statement, that joint 
inventorship by U.S. Government and Boeing employees "effectively" leads to the same situation as 
inventorship by a Boeing employee alone, as the U.S. Government agrees to waive any additional rights 
acquired through joint inventorship to Boeing, if it finds that it would expedite the development of the 
invention.  (European Union's opening statement at t he meeting with the Panel, para. 31).  The European Union 
refers in this regard to Patent Rights in Inventions Made with Federal Assistance,  United States Code , 
chapter  35, sections 200 -212, (Exhibit EU -220), section 202(e).  The United States responds in it s submissions 
that the European Union profoundly misstates the U.S. law.  (United States' response to Panel question No. 85, 
para. 139 and fn 205).  WT/DS353/R W 
 
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  5.41.  The United States disputes the European Union's understanding of United States Code of 
Federal Regulations , chapter 37, section 501.6 as being limited to situations in which the 
government employee is the sole inventor of an in vention. The United States refers to its 
submissions, wherein it explains that in situations  where inventions are jointly made by NASA or 
DOD employees on the one hand, and by Boeing employees on the other, the respective laws and 
regulations governing inv ention by a government employee and by a contractor employee operate 
in parallel. Thus, according to the United States, the citation to United States Code of Federal 
Regulations , chapter 37, section 501.6 is correct, as that regulation gives the U.S. Gover nment 
ownership of a patent issued for an invention made by a government employee as part of the 
employee's work, even where another person is a co -inventor. The United States suggests, for the 
sake of completeness and to address the European Union's conce rn, that the Panel could consider 
citing Inventions Patentable, United States Code , chapter 35 section 101 , (Exhibit USA -466) and 
the Bayh -Dole Act and various related measures, as support for its findings regarding the situation 
where inventions are joint ly made by NASA or DOD employees on the one hand, and Boeing 
employees on the other.   
5.42.  The Panel has revised footnote 943 (now footnote 959 ) to paragraph 8.20 to clarify that the 
assertions that, under U.S. law, NASA and DOD obtain ownership over inventions  made solely by 
their employees during work under a procurement contract or assistance instrument, and joint 
ownership over inventions made jointly with Boeing employees, is part of a U.S. argument.  
Footnote 964  (now footnote 980 ) to paragraph 8.33  
5.43.  The Un ited States requests the Panel to add a sentence to footnote 964  (now footnote 980 ) 
to clarify, as the original panel had at footnote 2913 of its report, that the Bayh -Dole Act 
supersedes the National Aeronautics and Space Act  of 1958, as amended (Space Ac t) with respect 
to title to inventions made pursuant to NASA procurement contracts with non -profit organizations 
and small businesses, which are governed by separate regulations and contract clauses. The 
European Union does not make any comment regarding t he United States' request.  
5.44.  The Panel has made the modification to footnote 964  (now footnote 980 ) requested by the 
United States.  
Paragraph 8.120  
5.45.  The European Union requests the Panel to add a reference to the block quote at the end of 
the paragraph, which  it suggests is NASA, Research Opportunities in Aeronautics – 2008 
(ROA-2008) , NASA Research Announcement NNH08ZEA001N, (7 March 2008) , as amended 
(Exhibit USA -61), Appendix A, pp. A1  and A2. The United States has no objection to the proposed 
citation for this block quotation.  
5.46.  The Panel has amended paragraph 8.120 to add a reference to the block quotation at the 
end of the paragraph on the basis requested by the European Union.  
Paragraph 8.189  
5.47.  The United States requests the Panel to modify the secon d-to-last sentence in 
paragraph  8.189 to remove the suggestion that Boeing receives intellectual property rights and 
data rights from NASA under Space Act Agreements, in the sense that Space Act Agreements 
involve the transfer  of patent rights from NASA to the oth er party. The United States notes that 
the Panel does not undertake an analysis of whether Space Act Agreements involve a transfer of 
intellectual property rights from NASA to the other party. It therefore suggests that the relevant 
sentence of paragraph 8 .189 be modified to state that Boeing may nevertheless advance its R&D 
activities and commercial objectives by developing patentable inventions or data subject to 
copyright, in addition to contributing to NASA's particular mission or programme objectives.  
5.48.  The European Union objects to the United States' request and requests that the Panel retain  
the current wording of paragraph 8.189. The European Union argues that the statement in 
paragraph 8.189 that Boeing receives valuable intellectual property rights o r data rights is not a 
finding that those rights are transferred by NASA, within the meaning of Article 1.1(a)(1) of the 
SCM Agreement. The European Union notes that in paragraph 8.158 of the Interim Report, the WT/DS353/R W 
 
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  Panel found it unnecessary to address the Eu ropean Union's alternative argument that what it 
refers to as the "transfers" to Boeing of patent and other intellectual property rights could 
separately be considered a financial contribution. The European Union also notes that in the 
DOD-related analysis , at paragraphs 8.388 and 8.389, the Panel considered whether DOD 
"provides" or "transfers" patents to Boeing pursuant to R&D contracts. The European Union argues 
that, by contrast, the Panel's reference in paragraph 8.189 to Boeing's receipt of valuable 
intellectual property rights is not a finding that those rights are transferred  to Boeing by NASA, 
within the meaning of Article 1.1(a)(1). According to the European Union, it is merely an 
acknowledgement that Boeing receives ownership rights over intellect ual property created in the 
course of working under the Space Act Agreements. The European Union asserts, referring to 
Articles 27, 29, 32, and 62 of the TRIPS Agreement, that patent rights, in particular, are rights 
that are granted and revoked under a le gal regime put in place by governments.  
5.49.  The Panel considers that the European Union's interpretation of the second -to-last sentence 
of paragraph 8.189 is correct. In other words, in stating that Boeing receives valuable intellectual 
property rights or data  rights, the Panel does not mean to suggest that those rights are 
"transferred" by NASA in the sense of Article 1.1(a)(1). The Panel considers this is clear from the 
context of paragraphs 8.158, and 8.388 -8.389, as well as paragraph 8.192.   
5.50.  However, the Pa nel has modified the second -to-last sent ence of paragraph 8.189 to remove  
the possibility that the discussi on therein  could be misinterpreted as suggesting that Boeing 
receives intellectual property rights and data rights from NASA under Space Act Agreemen ts, in 
the sense that Space Act Agreements involve the transfer  of patent rights from NASA to the other 
party.   
Footnote 1209  (now footnote 1225 ) to paragraph 8.189  
5.51.  The United States requests the Panel to modify the first sentence of footnote 1209  (now 
footnote 1225 ) to clarify that NASA has determined that Space Act Agreements are not 
procurement contracts, agreements, understandings, or other arrangements, within the meaning 
of section 305(j) of the Space Act. As currently drafted, the United States consi ders that the first 
sentence of footnote 1209  (now footnote 1225)  could be read to suggest, erroneously, that a 
Space Act Agreement is not a contract. The European Union does not make any comment on the 
United States request.  
5.52.  The Panel has made the modific ation requested by the United States.  
Paragraph 8.228  
5.53.  The United States requests the Panel to modify the last sentence of paragraph 8.228 to 
clarify that this statement pertains also to other instruments, such as Executive Order 12591 and 
the NASA waiver regulations, which are not within the scope of the Bayh -Dole Act, its associated 
legislative instruments and implementing regulations. The European Union does not make any 
comment on the United States request.  
5.54.  The Panel has made the modification requested by the United States.  
Paragraph 8.504  
5.55.  The United States requests the Panel to delete the reference to NASA in the first sentence of 
paragraph 8.504. The United States disputes that NASA was involved in the inauguration of the 
FAA CLEEN Program and argues that the statement that the FAA and NASA inaugurated the FAA 
CLEEN Program, as currently reflected in paragraph 8.504, is unsupported by the evidence. The 
United States argues that it has explained in its submissions, and the Panel has recognized in 
paragr aph 7.249 of the Interim Report, that the FAA, not NASA, established the FAA CLEEN 
Program to accelerate aircraft technology development to reduce fuel burn, emissions and noise of 
civil subsonic jet aircraft, in partnership with industry through Other Tra nsaction Agreements.  
5.56.  The European Union objects to the United States' request and suggests an alternative 
formulation of the first sentence of paragraph 8.504, along with a conforming modification to 
paragraph 7.249. More specifically, the European Union r efers to a statement at paragraph 7.280 WT/DS353/R W 
 
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  of the Interim Report, on which the United States has not commented, that the FAA CLEEN 
Program was created in conjunction with the ERA Project of NASA's Integrated Systems Research 
Program. The European Union refers  to confirmation for this statement in statements made by 
NASA and its representatives, noting in particular the statement of NASA's Associated 
Administrator to the U.S. Congress that, "{t}o facilitate the transition of advanced ideas and 
technologies into  the aircraft fleet, NASA is partnering with the Federal Aviation Administration's 
(FAA) Continuous Low Emissions, Energy and Noise (CLEEN) Program to guide efforts to mature 
technologies that have already shown promise to the point where they can be adopt ed by the 
current and future aircraft fleet".43 The European Union argues that, based on the foregoing, the 
Panel should leave unchanged its existing characterization of the inauguration of the FAA CLEEN 
Program by the FAA and NASA in paragraph 8.504. Howev er, if th e Panel disagrees, the 
European  Union suggests that it could alternatively change the statement that the FAA and NASA 
inaugurated the FAA CLEEN Program to a statement that the FAA, in conjunction with NASA, 
inaugurated the FAA CLEEN Program, which  it considers to be more closely in line with the Panel's 
discussion at paragraph 7.280. The European Union further suggests, in order to remove the 
existing inconsistency identified by the United States betwee n paragraph 8.504 and 
paragraph  7.249, that th e Panel modify paragraph 7.249 to refer to NASA's role in launching the 
FAA CLEEN Program.  
5.57.  The Panel does not consider that there is sufficient support on the record for the 
modification suggested by the European Union that the FAA in conjunction with  NASA , inaugurated 
the FAA CLEEN Program. The Panel notes that the se cond sentence of paragraph 7.280 refers to a  
relationship between the FAA CLE EN Program and NASA's  ERA Project , but not necessarily a direct 
involvement by NASA in inaugurating  the FAA CLEEN P rogram.  The Panel has decided to modify 
paragraph 8.504 by removing the reference to NASA in the first sentence and by adding a 
cross-reference to paragraph 7.280 in footnote 1664  (which was footnote 1649 in the Interim 
Report)  to paragraph 8.504 .  
Paragra ph 8.511  
5.58.  The United States requests the Panel to correct the second sentence of paragraph 8.511 to 
reflect the United States' argument, which is that the FAA (as opposed to NASA as currently 
appears in the second sentence of paragraph 8.511) does not trans fer any patent to Boeing.  The 
European Union  does not make any comment on the United States' request.  
5.59.  The Panel has made the correction requested by the United States.  
Paragraph 8.514  
5.60.  The United States requests the Panel to delete the second sentence of pa ragraph 8.514, in 
which the Panel states that the United States does not dispute that Boeing receives rights to 
patents and other data rights. The United States argues that this sentence is incorrect, because 
the United States explicitly disputed the Europ ean Union's assertion that the FAA transferred 
patent and intellectual property rights to Boeing under the FAA CLEEN Program.  The 
European  Union  does not make any comment on the United States' request.  
5.61.  The Panel has made the correction requested by the Uni ted States.  
Paragraph 8.552  
5.62.  The European Union requests the Panel to correct what it considers appear to be 
typographical errors in the third and fourth sentences of paragraph 8.552; namely, references to 
the Boeing CLEEN Agreement as opposed to the FAA CL EEN Program.  
5.63.  The United States objects to the European Union's request. The United States does not 
consider that the references to the Boeing CLEEN Agreement in paragraph 8.552 are typographical 
errors. The United States argues that the Panel frames the qu estion in paragraph 8.546 as being 
                                               
43 Interim Report, para. 7.280 (quoting the statement of J. Shin, NASA Associate Administrator for 
Aeronautics  Research Mission Directorate, Hearing before the U.S. House of Representatives Committee on 
Science, Subcommittee on Space and Aeronautics, 1 May 2008, (Exhibit EU -21)). WT/DS353/R W 
 
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  "whether the subsidies provided to Boeing under the Boeing CLEEN Agreement are specific within 
the meaning of Article 2.1(a) of the SCM Agreement". The United States considers that, as a 
substantive matter, the specificit y analysis of the FAA CLEEN Program should be based on the 
programme itself, rather than the contractual instrument through which the FAA made payments 
to Boeing. However, the United States does not consider the Panel's framing of the question or its 
references to the Boeing CLEEN Agreement at paragraph 8.552 to be inconsistent with this view.  
5.64.  The Panel declines the European Union's request because the references in paragra ph 8.552 
of the Interim Report are not typographical errors. Rather, they reflect tha t the subsidies at issue 
which are the subject of the specificity analysis are subsidies resulting from financial contributions 
provided under the Boeing CLEEN Agreement. Accordingly, the question before us in this Section 
of the Report is whether "the sub sidies provided to Boeing under the Boeing CLEEN Agreement are 
specific within the meaning of Article 2.1(a) of the SCM Agreement".44 As explained  in 
Section  8.2.8.6.3.3  of this Report , the Panel agrees that the analysis of whet her a subsidy 
provided to an individual recipient is specific must take into account the broader programme in 
which context the subsidy is provided. However, that does not mean that we should treat that 
programme itself as the subsidy that is the object of  the specificity analysis. In sum, we consider 
that the references to the Boeing CLEEN Agreement correctly refl ect the measure that we fi nd to 
be a subsidy and in no way prevent us from adequately taking into account, for purposes of the 
specificity analys is, the context within this measure is applied pursuant to the FAA CLEEN Program.  
Paragraphs 8.614, 8.628  (now 8.627) , 8.633  (now 8.632) , and 8.634  (now 8.633)  
5.65.  The European Union requests that the Panel change the references to "IRB" in singular form 
in a number of places in paragraphs 8.614, 8.628  (now 8.627) , 8.633  (now 8.632) , and 8.634  
(now 8.633)  to reflect, consistent with the original panel report and Exhibit EU -419, that multiple 
IRBs were issued in any given year.  
5.66.  The United States agrees that Wic hita typically issued more than one IRB per year. 
However, it considers the Panel's use of the singular to be typically consistent with this 
understanding and thus sees no need to pluralize "IRB" in the insta nces identified by the 
European  Union in paragra phs 8.614, 8.628  (now 8.627) , and the second through fourth 
sentences of paragraph 8.633  (now 8.632) . In the first and last sentences of paragraph 8.633  
(now 8.632) , the United States suggests alternative formulations to address the  concern raised by 
the E uropean  Union. The United States has no objection to the European Union's proposal 
regarding paragraph 8.634  (now 8.633) . 
5.67.  The Panel has modified paragraphs 8.614, 8.628  (now 8.627) , 8.633  (now 8.632) , and 
8.634  (now 8.633)  of the Interim Report as requeste d by the European Union, consistent with the 
terminology used in the original panel report.  
Paragraph 8.787  (now paragraph 8.786)  
5.68.  The United States requests the Panel to modify its summary of the United States' argument 
in the last sentence of paragraph 8. 787 (now paragraph 8.786) , to reflect the terms on which the 
argument was made in the United States' submission.  The European Union does not  make any 
comment on the United  States request.  
5.69.  The Panel has made the modification requested by the United States.  
Paragraph 8.947  (now paragraph 8.950) 
5.70.  The United States requests the Panel to modify the fifth sentence of paragraph 8.947  (now 
paragraph 8.950 ), for the sake of clarity and to mirror the text of Article 2.1(c) and the arguments 
contained in the United Sta tes' submissions. The European Union does not make any comment on 
the United States' request.  
5.71.  The Panel has made the modification requested by the United States.  
                                               
44 See para. 8.546 below.  WT/DS353/R W 
 
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  Footnote 2603 to paragraph 8.1050  (now footnote 2614 to paragraph 8.1054 ) 
5.72.  The European Union requests the Panel to modify the description of its argument in its first 
written submission, at footnote 2603 to paragraph 8.1050  (now footnote 2614  to 
paragraph  8.1054 ), to clarify that its discussion of the three sales and use tax exemptions in its 
first written submission relates to the post -2011 period.   
5.73.  The United States considers such modification unnecessary because it is clear that the 
statement regarding the "three sales and use tax exemptions" refers to the post -2011 period.  
5.74.  The Panel has made th e modification of footnote 2603 to paragraph 8.1050  (now 
footnote  2614 to paragraph 8.1054 ) as requested by the European Union, for the sake of greater 
clarity.  
5.2.5   Whether the United States has failed to take appropriate steps to remove the 
adverse effects wi thin the meaning of Article 7.8 of the SCM Agreement  
Footnote 2646 (now footnote 2657 ) to paragraph 9.4(a)(iii)  
5.75.  The European Union requests the Panel to modify footnote 2646  (now footnote 2657 ) to 
clarify that the European Union's arguments and evidence re garding impedance of exports of the 
A350XWB (and threat thereof) in third -country markets were not limited to Boeing delivery market 
shares significantly exceeding 50%. The European Union asserts that its arguments and evidence 
also covered impedance (and threat thereof) based on sales lost in the relevant country markets, 
and more generally based on the causal mechanisms that the European Union asserted and that it 
argued indicated higher counterfactual sales volumes and market shares for Airbus, absent th e 
U.S. subsidies. The European Union also requests the Panel to add the word "significantly" before 
"50%" in footnote 2646  (now footnote 2657)  to reflect that the European Union's market share -
based argument regarding impedance applied where Boeing's marke t share significantly  exceeds 
50%.  
5.76.  The United States does not make any comment with respect to the first aspect of the 
European Union's request. As to the requested modification concerning the insertion of the word 
"significantly" before 50%, the United St ates requests that if the Panel were to make the 
modification, it do so in a manner that clarifies that the European Union asserts that Boeing is 
projected to make significantly more than 50% of deliveries of the relevant aircraft, so as to avoid 
giving th e impression that a characterization of the market share evidence by the European Union 
is a fact.  
5.77.  The Panel has modified footnote 2646  (now footnote 26 57) in the manner requested by the 
European Union, and consistent with the United States' qualification.   
Paragraph 9.11  
5.78.  The European Union requests the Panel to modify the second sentence of paragraph 9.11 to 
more accurately reflect the European Union's arguments that the pre -2007 and certain post -2006 
aeronautics R&D subsides affect Boeing's technology dev elopment, while the remaining  post-2006 
subsides affect Boeing's LCA pricing behaviour.  
5.79.  The United States does not consider the European Union's requested revision to be 
inaccurate. However, it notes that the Panel was laying out the g eneral contours of th e 
European  Union's causation allegations, which are based on the alleged effects of subsidies on a 
horizontal basis rather than on the basis of a particular Boeing aircraft alleged to be subsidized. In 
this context, 2006/2007 serves as the general line of division between the subsidies alleged to 
cause technology effects and the subsidies alleged to cause price effects. The United States 
considers that this latter feature could be lost if the European Union's proposed phrasing of 
"certain post -2006" subsidi es were adopted. The United States therefore proposes a modification 
to the second sentence of paragraph 9.11 which notes that "generally" the post -2006 subsides 
affect Boeing's pricing behaviour, with a footnote after the word "generally" to explain that the 
European Union argues that a relatively small number of post -2006 aeronautics R&D subsidies, 
like the pre -2007 aeronautics R&D subsidies, operate through a technology causal mechanism WT/DS353/R W 
 
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  rather than a price causal mechanism, with a citation to paragraphs 9.198 and 9.199 of the 
Interim Report.  
5.80.  The Panel has decided that, given that paragraph 9.11 is part of the "Introduction" and 
provides only a general explanation of the European Union's arguments, it is preferable at this 
point in the discussion to refer to the basic distinction that the European Union draws between the 
effects of the pre -2007 aeronautics R&D subsidies, on the one hand, and those of the post -2006 
subsidies (including the majority of the post -2006 aeronautics R&D subsidies), on the other.45 
However, it also considers that it is appropriate to add a footnote providing greater detail 
regarding the European Union's arguments concerning the causal pathway through which certain 
post-2006 aeronautics R&D subsidies are alleged to operate. T he Panel has modified 
paragraph  9.11 accordingly.  
Footnote 2679  (now footnote 2691 ) in Table 5 of paragraph 9.28  
5.81.  The United States requests the Panel to modify footnote 2679  (now footnote 2691 ) to 
indicate that it is the European Union's view that the 767, A340, a nd Original A350 are no longer 
in any LCA product market.  The European Union does not make any comment on the United States 
request.  
5.82.  The Panel has made the modification requested by the United States.  
Footnote 2710  (now footnote 2724 ) to paragraph 9.50  
5.83.  The United States requests the Panel to modify footnote 2710  (now footnote 2724 ) to clarify 
that the various top tier Boeing customers reportedly  obtain the benefits of Boeing's 
"most -favoured customer" clause, to avoid giving the impression that the Panel is  publicly 
revealing HSBI information as to the contractual terms extended to any specific Boeing customers.  
The European Union does not make any comment on the United States request.  
5.84.  The Panel has made the modification requested by the United States.  
Parag raph 9.51  
5.85.  The European Union requests the Panel to delete the last two sentences of paragraph 9.51 
because it considers that it is not factually correct that the Panel "does not have before it direct 
evidence of the airframe prices actually agreed between Boeing and the airline and leasing 
company customers in any sales campaigns". The European Union refers to the fact that the 
United States had provided pricing for a number of sales that Boeing had secured, which 
information the European Union had summariz ed in an exhibit.46 The European Union also points 
to the fact that it had provided pricing summaries, in the form of Airbus' business control sheets, 
associated with final offers Airbus made to potential customers. The European Union notes that the 
Panel i tself discusses pricing information for certain single -aisle sales campaigns, in 
non-confidential form in paragraphs 9.385 -9.388 and 9.398 -9.407 of the Interim Report  (now 
paragraphs 9.382 -9.385 and 9.395-9.404), and in confidential form in Appendix 2. Fin ally, the 
European Union notes that at paragraph 9.392  (now paragraph 9.38 9), in Table 13, the Panel 
includes (in the HSBI version of the Interim Report), average actual 2012 prices of certain Boeing 
aircraft, derived from information provided by the Unite d States in response to the Panel's request 
for information pursuant to Article 13 of the DSU.  
5.86.  The United States does not object to clarification or deletion of the penultimate sentence of 
paragraph 9.51, which it considers could be confusing in light of t he Panel's surrounding 
discussion. It also does not view the deletion of the last sentence identified by the European Union 
                                               
45 The Panel notes moreover, that although the European Union  argues that certain post -2006 
aeronautics R&D subsidies operate through a technology causal mechanism rather than a price causal 
mechanism, the European Union also makes an alternative argument that, should the Panel disagree that 
certain post -2006 aerona utics R&D subsidies operate at present through a technology causal mechanism, they 
would operate on a different basis through a price causal pathway. (European Union's response to Panel 
question No. 43, para. 279 and fn 352). Therefore, the overall descrip tion of the European Union's arguments 
in para. 9.11 is not inaccurate.  
46 Comparison of Net Aircraft Price and Appraised Value, (Exhibit EU -1183) (HSBI).  WT/DS353/R W 
 
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  as "particularly problematic" as the Report will read coherently without it. However, it considers 
that the last sentence of paragra ph 9.51 is clearly and unambiguously supported by the evidence 
cited by the Panel.  
5.87.  The Panel has modified paragraph 9.51 to delete the second -to-last sentence  of that 
paragraph , and replace d it with the text that previously appeared in footnote 2711.  
Paragraph 9.64  
5.88.  The European Union requests the Panel to revise the first sentence of paragraph 9.64 to 
accurately reflect the European Union's argument, which is that all of the post -2006 subsidies, 
except certain aeronautics R&D subsidies , enable Boeing to l ower the prices of its LCA in 
competitive sales campaigns. The United States has no objection to the European Union's request.  
5.89.  The Panel has modified the first sentence of paragraph 9. 64 as requested by the 
European  Union. The Panel has added additional re ferences to the European Union's arguments 
that certain post -2006 aeronautics R&D subsidies, identified in Exhibit EU -1265, presently operate 
through a technology causal mechanism, while the remainder of the post -2006 aeronautics R&D 
subsidies operate at p resent through a price causal mechanism.47 The Panel has also included 
cross-references to two conditional alternative arguments made by  the European Union in 
footnote  352 to its response to Panel question No. 43, that should the Panel disagree that certain  
post-2006 aeronautics R&D subsidies operate, at present, through a technology causal 
mechanism, alternatively, they operate through a price causal mechanism under so -called 
"Category 2", and should the Panel disagree with that argument, alternatively, the y operate "on a 
different basis", through a "price effects" causal pathway, as described for so -called "Category 3" 
subsidies.   
Footnote 2834 to paragraph 9.128  (now footnote 2849  to paragraph 9.127)  
5.90.  The European Union requests the Panel to delete footnote  2834 to paragraph 9.128  (now 
footnote 2849  to paragraph 9.127) . In footnote 2834  (now footnote 2849 ), the Panel contrasts the 
findings in the original proceeding regarding the nature and effects of the aeronautics R&D 
subsidies with those of the original panel in EC and certain member States – Large Civil Aircraft  
regarding the nature and effects of certain subsidies at issue in that dispute on Airbus' ability to 
launch and bring to market various Airbus LCA. The European Union appears to disagree with the  
Panel's description of the findings of the original panel in EC and certain member States – Large 
Civil Aircraft  and, in any case, argues that the Panel's description is incomplete and unnecessary to 
the resolution of issues in this proceeding, and theref ore should be deleted.  
5.91.  The United States objects to the European Union's request. The United States argues that 
footnote 2834  (now footnote 2849 ) contrasts the findings in the original dispute with those in EC 
and certain member States  – Large Civil Aircr aft in order to illumin ate the discussion in 
paragraph  9.128  (now paragraph 9.127) , which includes the statement that the aeronautics R&D 
subsidies were not found to have brought into existence any technology or product that would not 
otherwise exist. The United States considers that the comparison with EC and certain member 
States – Large Civil Aircraft  is apt, drawing the distinction between subsidies that accelerate a 
product's entry into a market and subsidies that enable the very existence of a product . The 
United States considers that the Panel's characterization of EC and certain member States – Large 
Civil Aircraft  is correct, referring to the statements of the panel in the paragraphs 7.1949 and 
7.1993 of the panel report, and of the Appellate Body a t paragraphs 1264, 1299 and 1300 of the 
Appellate Body Report. According to the United States, these statements leave no doubt that 
footnote 2834  (now footnote 2849)  accurately describes the relevant findings in EC and certain 
member States – Large Civil A ircraft  and there is no "nuance" that the Panel fails to capture and 
no unsettled "matter" from another dispute. Finally, the United States adds that it considers it 
entirely normal and appropriate for panels to illustrate a point by comparing or contrasti ng the 
dispute before it with a prior dispute.  
5.92.  The Panel does not consider that the discussion of certain of the causation findings made by 
the panel and accepted by the Appellate Body in EC and certain member States – Large Civil 
                                               
47 See European Union's response to Panel question No. 43, paras. 279 and 280.  WT/DS353/R W 
 
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  Aircraft , can be misconst rued as attempting to comprehensively capture all aspects of the adverse 
effects findings in that dispute. However, the Panel has modified footnote 2834  (now 
footnote  2849)  in order to clarify that this was not the Panel's intention. Rather, the Panel's 
intention is simply to highlight an important distinction between the "technology effects" findings 
of the panel in the original proceeding in this dispute, and the findings of the panel in EC and 
certain member States – Large Civil Aircraft  regarding the na ture, operation and effects of certain 
of the subsidies at issue in that dispute, because the difference, as explained in paragraph 9.129  
(now paragraph 9.128) , is highly relevant to the nature of the counterfactual question that the 
Panel should pose in d etermining whether the effects of the pre -2007 aeronautics R&D subsidies 
have been demonstrated to continue in the post -implementation period. The Panel therefore 
declines the European Union's request.  
Paragraph 9.157  (now paragraph 9.156)  
5.93.  The United Stat es requests the Panel to modify the second sentence of paragraph 9.157  
(now paragraph 9.156)  to better express the point that the Panel appears to be making, which is 
that, as the European Union itself observes, the European Union does not argue that, abse nt the 
subsidies, the technology in question would never have existed.  
5.94.  The European Union agrees with the United States that t he second sentence of 
paragraph  9.157  (now paragraph 9.156)  is somewhat difficult to follow and ambiguous. However, 
it also consid ers that the United States' proposed alternative formulation is equally difficult to 
follow. The European Union suggests alternative wording to avoid combining the phrase "as the 
European Union itself observes" with the phrase "the European Union does not argue that".  
5.95.  The Panel has made the requested modification in the terms suggested by the 
European  Union.  
Paragraph 9.181  (now paragraphs 9.180 and 9.181)  
5.96.  The European Union requests the Panel to clarify whether the discussion that follows the 
summary of th e United States' arguments in the first two sentences of paragraph 9.181  (now 
paragraph 9.180)  is also a summary of U.S. argument, or is intended to frame the Panel's own 
analysis of the issues raised by the arguments. In the case of the former, the Europe an Union 
requests the Panel to revise the discussion to clearly indicate that the discussion represents the 
United States' arguments. In case of the latter, the European Union suggests that the Panel begin 
a new paragraph that commences from the end of the  second sentence of paragraph 9.181  (now 
paragraph 9.181) . The United States has no comment on the European Union's request.  
5.97.  The Panel confirms that the  final three sentences of paragraph 9.181  of the Interim Report  
are intended to frame the Panel's analys is of the issues raised by the parties' arguments. We agree 
with the European Union's suggestion that, for the sake of clarity, it is preferable for the Panel to 
present those sentences in a new paragraph  (now paragraph 9.181) . We have revised the text 
accordingly.  
Paragraph 9.184  
5.98.  The European Union requests the Panel to modify the final sentence of paragraph 9.184 to 
refer only to the 787 -10, and not also to the 787 -9/10. The European Union explains that Boeing 
launched the 787 -9 as part of the original f amily of 787 LCA in 2004, with entry into service 
scheduled later than for the 787 -8. The United States agrees with the revision requested by the 
European Union.  
5.99.  The Panel has made the modification requested by the European Union.  
Footnote 3132 to paragrap h 9.302  (now footnote 3152  to paragraph 9.300)  
5.100.   The European Union requests the Panel to add a summary of the European Union's 
arguments regarding the legal basis for finding significant price suppression across two product 
markets. More specifically, the E uropean Union recalls that it argued that the omission from the 
second part of Article 6.3(c), of the requirement that the "subsidized product" and the "like WT/DS353/R W 
 
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  product" be in the same market, means that significant price suppression, price depression, and 
lost sales may be established where the effects of a subsidy arise in a product market separate 
from the product market in which the subsidized product competes. The United States has no 
comment on the European Union's request.  
5.101.   The Panel has made the additio n requested by the European Union.  
Footnote 3164 to paragraph 9.324  (now footnote 3185  to paragraph 9.322)  
5.102.   The European Union requests the Panel to add the relevant finding by the original panel 
referenced in paragraph 7.1793 of that report as a quotation to this footnote which it considers 
comprises the sixth through eighth sentences of that paragraph.  
5.103.   The United States notes that footnote 3164  (now footnote 3185 ) cites to paragraph 7.1793 
of the Panel Report in US – Large Civil Aircraft (2nd complaint ), which it argues includes relevant 
text that the European Union has not requested be included in the quotation from that paragraph. 
The United States considers that, rather than adding an inco mplete quotation from 
paragraph  7.1793, as proposed by the Europea n Union, or alternatively quoting virtually the 
entirety of the cited paragraph, the best course of action is to reject the European Union's request 
and leave footnote 3164  (now footnote 3185 ) unchanged.  
5.104.   The European Union has not adequately explained why  it considers it appropriate to quote 
only the sixth through eighth sentences of paragrap h 7.1793 of the panel report in US – Large Civil 
Aircraft (2nd complaint ) with the Panel's citation to that paragraph in footnote 3164  (now 
footnote  3185).  
5.105.   The Panel therefore declines to make the modification requested by the European Union.  
Footnote 3277 to paragraph 9.392  (now footnote 3288  to paragraph 9.389)  
5.106.   The European Union requests the Panel to clarify, in the second sentence of footnote 3277  
(now footnote 32 88), that the cited number of aircraft alleged to be lost sales between 2007 and 
2012 covers not only alleged lost sales of the A350XWB but also of the A320neo and A320ceo. The 
United States agrees with the requested correction.  
5.107.    The Panel has made the cor rection requested by the European Union.  
Paragraph 9.461  (now paragraph 9.458)  
5.108.   The European Union requests the Panel to correct the second sentence of paragraph 9.461  
(now paragraph 9.458)  by adding the word "and" before the phrase "there were no other 
non-price factors that explain Boeing's success in obtaining the sale …" .  
5.109.   The United States responds that the European Union's proposed revision would be 
confusing because the placement of the commas and the repeated use of the word "and" would 
leave uncerta inty as to which phrase or phrases explain what the Panel means by "price -sensitive" 
and which ph rase or phrases are criteria in addition to price sensitivity that together resulted in 
two of the examined sales campaigns. The United States proposes an alte rnative modification to 
the second sentence of paragraph 9.461 (now paragraph 9.458) in which the word "and" would be 
inserted as proposed by the European Union, but the comma that precedes that word would be 
deleted.  
5.110.   The Panel has modified the second sent ence of paragraph 9.461  (now paragraph 9.458)  
taking into account the comments of both parties.  
Paragraph 9.483  (now paragraph 9.480)  
5.111.   The European Union requests the panel to add the term "significant" in the last clause of 
paragraph 9.483  (now paragraph 9 .480)  to accurately reflect the European Union's arguments as 
presented in paragraphs 9.415 and 9.432  (now paragraphs 9.412 and 9.429) . The United States 
has no comment on the European Union's request.  WT/DS353/R W 
 
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  5.112.   The Panel has made the modification requested by the E uropean Union.  
5.2.6   Appendix 1  
Paragraph 49  
5.113.   The United States argues that the evidence before the Panel does not support the 
conclusion, expressed in the final sentence of paragraph 49  of Appendix 1 , that collaborative 
research and development agreements "typic ally" give [***]. The United States accordingly 
requests that the final sentence of paragraph 49 of Appendix 1 be modified to state only that 
[***]. 
5.114.   The United States argues that the analysis of the Panel in the preceding section of 
Appendix 1 does not con tain a comprehensive discussion of the amounts paid by the 
commissioning parties to use the intellectual property. Moreover, according to the United States, 
taking the 18 R&D agreements identified by Berneman and Razgaitis as the broadest example:  
a. 14 requi red the commissioning party to pay royalties to the commissioned party in the 
event it made commercial sales of a product using the results of the contracted 
research, without regard to whether the sale was subject to an exclusive or 
non-exclusive licence;   
b. a 15th contract called for the payment of royalties in some situations and profit -sharing 
in others;  
c. some of the agreements granted the commissioning party only an exclusive licence, 
either because that licence covered essentially all products or because  the exclusive 
licence applied only to products that the commissioning party chose to commercialize, 
while the commissioned party retained all of the rights with respect to other products;  
d. nine of the 18 agreements required the commissioning party to make milestone 
payments in addition to royalties, typically linked to the achievement of steps that lead 
to marketability of products resulting from the research.  
5.115.   On the basis of the foregoing, the United States argues that the evidence before the Panel 
does no t support a conclusion that collaborative research and development agreements [***]. 
5.116.   The European Union requests the Panel to leave unchanged the language of the text of the 
Interim Report in paragraph 49 of Appendix 1.  
5.117.   The European Union considers that t he United States' comment appears to be focused on 
the Panel's reference to the "cost" of non -exclusive licences for the commissioning party (in the 
sense of the amounts paid by the commissioning parties to use the intellectual property), and the 
reference  in the last sentence of paragraph 49 to [***]. It notes, however, that the United States  
requests the Panel to remove all reference to non -exclusive licences, and argues that such a 
request is inconsistent with the fact that the Panel correctly explains i n paragraph 49 that, under 
the sample collaborative R&D agreements, the commissioning party obtains [***].  
5.118.   The European Union further argues that the United States' references to the agreements 
identified by Berneman and Razgaitis do not substantiate its request, including with respect to the 
specific question of cost. Rather, the European Union considers that those agreements support the 
Panel's conclusion that [***]. The European Union argues, more specifically that some of the 18 
R&D agreements automati cally provide the commissioning party with royalty -free licences to 
commercially use foreground intellectual property, while under other agreements in this group, the 
commissioning party receives patent ownership rights to some of the newly developed techn ology, 
and therefore does not need to acquire or pay for a licence to commercially use their own 
intellectual property. Both of these situations, according to the European Union, are situations 
where the commissioning party can [***], in parallel with the commissioned party, fully 
consistent with the line in the last sentence of paragraph 49 of Appendix 1 that the United States 
requests be deleted.  WT/DS353/R W 
 
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  5.119.   The European Union further observes that the final sentence in paragraph 49 appears in 
the "Conclusions" secti on of Appendix 1, which considers evidence beyond the 18 agreements 
referred to by the United States in its comment above, and includes also the Panel's examination 
and findings under Contracts A through F, which fully support the conclusion in the final s entence 
of paragraph 49 that the United States requests be deleted. In this regard, the European Union 
notes that, under Contracts A through F, [***]. The European Union refers to the Panel's 
summary of Contracts A through F in paragraph 21 of Appendix 1, noting that the United States 
does not object to the Panel's conclusion that, with respect to Contracts A through F, [***]. The 
European Union accordingly argues that, in requesting deletion of an important aspect of the 
Panel's conclusion, the United Stat es has chosen to ignore an entire section of the Panel's analysis 
upon which that conclusion is partially based.  
5.120.   We consider that it is possible to address the United States' objection to the accuracy of 
the last sentence of paragraph 49 of Appendix 1 with out deleting the whole phrase that follows (b) 
in that sentence, which as the European Union suggests, is not warranted. The Panel has modified 
the last sentence of paragraph 49 of Appendix 1 accordingly.  
5.3   The BCI or HSBI designation of certain informatio n 
5.121.   The parties each made a number of requests regarding the bracketing and redaction of 
information in the Interim Report as BCI or HSBI. The United States agrees with the 
European  Union's requests and the European Union did not com ment with respect to the 
United  States'  requests.  
5.122.   The Panel has made the requested changes to the designations of certain information as 
BCI or HSBI.  
6  INTRODUCTION  TO PANEL FINDINGS  
6.1  Alleged non -compliance of the United States with Article 7.8 of the SCM Agreement 
as the main subje ct of this compliance proceeding  
6.1.  Our task in this proceeding under Article 21.5 of the DSU is to resolve a "disagreement as to 
the existence or consistency with a covered agreement of measures taken to comply with the 
recommendations and rulings " of the D SB.48 The central issue before us, in this regard, is whether 
the United States has complied with the recommendations and rulings adopted by the DSB in the 
original proceeding pursuant to Article 7.8 of the SCM Agreement.49  
6.2.  The European Union claims that "the United States has failed to implement the DSB 's 
recommendations in US – Large Civil Aircraft (2nd complaint)  i.e. that it withdraw the subsidies or 
take appropriate steps to remove the adverse effects, pursuant to Article 7.8 of the SCM 
Agreement ".50  
6.3.  The United States asserts that "the United States has either withdrawn the relevant subsidies 
or taken appropriate steps to remove their adverse effects. The United States has accordingly 
complied fully with the recommendations and rulings of the DSB ".51  
6.4.  While the European Union's request for the establishment  of a panel also refers to Article 4.7 
of the SCM Agreement52, the European Union has indicated that it does not request the Panel to 
make a finding that the United States has failed to comply with that provision.53  
                                               
48 We discuss relevant pa nel and Appellate Body decisions relating to the purpose and proper scope of 
proceedings under Article 21.5 of the DSU in Section 7 of this Report.  
49 See para. 6.7 below. 
50 European Union's first written submission, para. 1933.  
51 United States' first written submission, para. 1.  
52 Paragraph 6 of the European Union's request for the establishment of a panel reads:  
By communication dated 23 September 2012, the United St ates notified the 
European Union that the United States has taken a number of actions allegedly 
withdrawing the subsidies or removing their adverse effects (23 September 
notification). The actions and events listed by the United States in its WT/DS353/R W 
 
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  6.5.  We note that the European Union also claims that the measures at issue in this proceeding 
are inconsistent with Articles 3.1(a) and (b) and 3.2 of the SCM Agreement and Article III:4 of the 
GATT 1994. Insofar as these claims are within the sco pe of this proceeding, we address them in 
Section 10  of this Report.  
6.2  Article 7.8 of the SCM Agreement and Article 19 of the DSU  
6.6.  Article 7.8 of the SCM Agreement provides:  
Where a panel report or an Appellate Body report is adopted in which it is determin ed 
that any subsidy has resulted in adverse effects to the interests of another Member 
within the meaning of Article 5, the Member granting or maintaining such subsidy 
shall take appropriate steps to remove the adverse effects or shall withdraw the 
subsidy .  
6.7.  In the original proceeding in this dispute the Appellate Body recommended:  
{T}hat the DSB request the United States to bring its measures, found in this Report, 
and in the Panel Report as modified by this Report, to be inconsistent with the SCM 
Agreemen t, into conformity with its obligations under that Agreement. More 
specifically, having regard to the recommendation made by the Panel in paragraph 8.9 
of its Report and the provisions of Article 7.8 of the SCM Agreement, the Appellate 
Body recommends  that the United States take appropriate steps to remove the 
adverse effects found to have been caused by its use of subsidies, or to withdraw 
those subsidies.54  
6.8.  Article 19.1 of the DSU provides that where a panel or the Appellate Body concludes that a 
measure is inconsistent with a covered agreement, it shall recommend "that the Member 
concerned bring the measure into conformity with that agreement ". It would appear from the 
Appellate Body 's recommendation in the original proceeding that the Appellate Body rega rds the 
requirements of Article 7.8 of the SCM Agreement as a specific expression of this general 
compliance obligation.  
6.9.  We note, in this regard, that in disputes involving findings of actionable subsidies, the 
Appellate Body has consistently formulated i ts recommendations in the terms used in Article 19.1 
of the DSU.  
6.10.  Thus, in  US – Upland Cotton  and US – Upland Cotton (Article 21.5 – Brazil) , the Appellate 
Body upheld panel findings regarding actionable subsidies provided by the United States to U.S. 
cotton producers and recommended that "the Dispute Settlement Body request the United States 
to bring its measures, found in this report and in the panel report as modified by this report to be 
                                                                                                                                               
23 September 2012 notification do not withdraw the subsidies or remove their 
adverse effects, as required by Articles 4.7 and  7.8 of the SCM Agreement. 
Instead, after the end of the implementation period on 24 September 2012, the 
United States maintains specific subsid ies that cause present adverse effects to EU 
interests, that are prohibited subsidies contingent on export performance or on the 
use of domestic over imported goods, and that are inconsistent with the 
United  States' national treatment obligations, as detai led below in section II. 
Accordingly, in the view of the European Union, the United States has failed to 
achieve compliance with the recommendations and rulings of the DSB.  
(emphasis added)  
See also European Union's first written submission, para. 11.  
53 European Union's second written submission, para. 107. Therefore, we see no need to rule on the 
request of the United States for a finding that Article 4.7 is not within the Panel's terms of reference. 
(United  States' request for preliminary rulings, dated  13 November 2012, paras. 58 and 59). We agree with 
the European Union that the fact that it does not request the Panel to make findings under Article 4.7 in this 
proceeding does not mean that the Panel is precluded from addressing the European Union's cla ims under 
Article 3 of the SCM Agreement. (European Union's second written submission, para. 109).  
54 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1352. (emphasis original)  WT/DS353/R W 
 
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  inconsistent with the Agreement on Agriculture  and the SCM Agreeme nt, into conformity with its 
obligations under those Agreements ".55 
6.11.  Similarly , in EC and certain member States – Large Civil Aircraft , the Appellate Body 
observed that to the extent that it had upheld the Panel 's findings regarding actionable subsidies 
or those findings had not been appealed, "the Panel 's recommendation pursuant to Article 7.8 of 
the SCM Agreement,  in paragraph 8.7 of the Panel Report, that 'the Member granting each subsidy 
found to have resulted in such adverse effects, 'take appropriate st eps to remove the adverse 
effects or … withdraw the subsidy '', stands ". The Appellate Body then recommended "that the DSB 
request the European Union to bring its measures, found in this Report, and in the Panel Report as 
modified by this Report, to be inco nsistent with the SCM Agreement , into conformity with its 
obligations under that Agreement ".56 
6.12.  We also note the Appellate Body 's discussion in US – Upland Cotton (Article 21.5 – Brazil) of 
the relationship of Article 7.8  of the SCM Agreement  to the general DSU rules  and procedures :  
Article 7.8 is one of the "special or additional rules and procedures on dispute 
settlement contained in the covered agreements " that are identified in Article 1.2 and 
Appendix 2 of the DSU, which prevail over the general DSU rul es and procedures to 
the extent that there is a difference between them. As we see it, Article 7.8 specifies 
the actions that the respondent Member must take when a subsidy granted or 
maintained by that Member is found to have resulted in adverse effects t o the 
interests of another Member. This means that, in order to determine whether there is 
compliance with the DSB 's recommendations and rulings in a case involving such 
actionable subsidies, a panel would have to assess whether the Member concerned 
has ta ken one of the actions foreseen in Article 7.8 of the SCM Agreement .57  
6.13.  The fact that in the original proceeding in this dispute the Appellate Body formulated its 
recommendation under Article 7.8 of the SCM Agreement, as a specific instance of the general 
obligation in Article 19.1  of the DSU  that a Member bring its measure into conformity with its 
obligations under a covered agreement , suggests to us that the Appellate Body does not consider 
that the compliance obligations under Article 7.8 of the SCM Agree ment are of a fundamentally 
different nature than the compliance obligations under Article 19.1 of the DSU. That the Appellate 
Body interprets Article 7.8 in harmony with Article 19 of the DSU58 is also apparent from the fact 
that when the Appellate Body di scussed the scope of Article 7.8 in US – Upland Cot ton 
(Article  21.5 – Brazil) , it observed that "remedies in WTO law are generally understood to be 
prospective ".59  
6.14.  The Appellate Body has explained that Article 7.8 of the SCM Agreement will usually require  
a Member to take "affirmative action ":  
Pursuant to Article 7.8, the implementing Member has two options to come into 
compliance. The implementing Member: (i) shall take appropriate steps to remove the 
adverse effects; or (ii) shall withdraw the subsidy. The use of the terms "shall take " 
and "shall withdraw " indicate that compliance with Article 7.8 of the SCM Agreement 
                                               
55 Appellate Body Reports, US – Upland Cotton , para. 764; and US – Upland Cotton (Article 21.5 – 
Brazil) , para. 449. Although in the latter case the Appellate Body did not refer to Article 7.8 in its own 
recommendation, elsewhere in its report it upheld the panel's finding that the United States had failed to 
comply with Article 7.8. (Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 447).   
56 Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 1416 and 1418.  
57 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 235 (fns omitted). See also 
para. 240 ("Article 7.8 informs the meaning and scope of the DSB's recommendations and rulings arising from 
the original proceedings. In our view, Article 7.8 specifies the actions that the United States ha d to take in 
order to comply with the DSB's recommendations and rulings").  
58 On the notion of harmonious treaty interpretation in the context of the WTO Agreement, see  e.g. 
Appellate Body Report, US – Upland Cotton , para. 549.  
59 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , fn 494. Another illustration of  the 
Appellate Body's perspective on the close relationship between Article 7.8 of the SCM Agreement and Article 19 
of the DSU is its observation that "{a}lthough there is no specific  provision in the SCM Agreement requiring a 
panel to make a recommendation of withdrawal with respect to actionable subsidies, a panel may do so 
pursuant to the general rule in Article 19.1 of the DSU". (Appellate Body Report, EC and certain member States  
– Large Civil Aircraft , fn 1740).  WT/DS353/R W 
 
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  will usually involve some action by the respondent Member. This affirmative action 
would be directed at effecting the withdrawal of the su bsidy or the removal of its 
adverse effects. A Member would normally not be able to abstain from taking any 
action on the assumption that the subsidy will expire or that the adverse effects of the 
subsidy will dissipate on their own.60 
6.15.  The issues in dispute  in this proceeding pertain to a large extent to  the question of whether 
the United States has taken such "affirmative action " and, if so, whether that action has been 
adequate.61 The diverging positions of the parties with rega rd to whether  the United  States has 
taken such "affirmative action " reflect the very different narratives underlying the parties ' 
respective cases.  
6.16.  The United States ' basic narrative is that it has withdrawn most of the specific subsidies 
found to have caused adverse effects in the o riginal proceeding and that the subsidies that have 
not been withdrawn are too small to cause adverse effects. The United States argues that NASA 
and DOD have greatly reduced the amount of research they pay Boeing to conduct under the 
relevant contracts an d agreements and that NASA has also modified the way it conducts research 
so as to remove the aspects of its practices that led to the findings against the pre -2007 NASA 
procurement contracts. The U.S. Congress terminated the FSC/ETI measures in 2006 and B oeing 
has not received FSC/ET I deductions since then. The value of the tax abatements associated with 
the pre -2007 City of Wichita IRBs is tiny, the City of Wichita has not issued any new IRBs to 
Boeing, and the IRB programme is no longer specific. The Uni ted States considers that, by 
withdrawing the FSC/ETI measures, it has removed the adverse effects of the Washington State 
B&O tax rate reduction (the only remaining subsidy subject to the DSB recommendations and 
rulings which has not been withdrawn) becau se the amount of that tax rate reduction is too small 
by itself to cause adverse effects.62 The United States alleges that the European Union engages in 
a number of unsustainable efforts to inflate the value of, and expand the scope of, the measures it 
is challenging in order to mask the reality that the measures within the scope of this proceeding, 
which the United States has for the most part withdrawn and reduced in value, cannot be causing 
any adverse effects, let alone the magnified effects alleged by t he European Union.63  
6.17.  The European Union 's basic narrative is that, far from withdrawing the subsidies found to 
have caused adverse effects to the European Union 's LCA -related interests in the original 
proceeding, the U.S. federal, state , and local authorit ies have significantly increased those 
subsidies and worsened their adverse effects. The very same subsidies that were found in the 
original proceeding to have enabled the availability and advanced technology of the 787 and the 
lower prices of the 737NG, p lus additional, closely related subsidies, exist at present and cause 
present significant competitive harm to the European Union 's LCA -related interests. The 
European  Union argues that none of the U.S. subsidies at issue in the original proceeding has been  
withdrawn. The European Union rejects the United States ' arguments that adding allegedly lower 
annual amounts of post -2006 aeronautics R&D subsidies results in a reduction in subsidies. Rather, 
adding new subsidies to the earlier set of massive, non -withd rawn subsidies, even at a lower rate, 
increases the pool of subsidies and the adverse effects.64 The Eu ropean Union regards the 
United  State s' objections to the inclusion of certain measures within the scope of this proceeding 
as being without merit, and it s arguments concerning the magnitudes of the subsidies as 
                                               
60 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 236. (fn omitted)  
61 Brazil, a third party to this proceeding, argues that the obligation in Article 7.8 to take appropriate 
steps to remove the ad verse effects means that a Member is generally expected to take affirmative action and 
to actively intervene to remove the adverse effects. In circumstances where adverse effects have been found 
to be caused by a subsidy that no longer exists at the time o f implementation, the relevant question is whether 
the Member in question has taken steps that are appropriate to break the causal relationship between the 
subsidy and the adverse effects. Such steps will only be appropriate "if they impact on the specific  adverse 
effects found to exist and are likely to lead to the removal of the specific adverse competitive advantage that 
resulted from the use of the subsidy". Brazil also recalls its position in the dispute in US – Upland Cotton 
(Art. 21.5 – Brazil)  that a finding of adverse effects "applies beyond the historical period considered by the 
panel" and that Article 7.8 requires the Member whose subsidies have caused adverse effects "to take 
appropriate steps to fully withdraw the present, ongoing, and future e ffects of the subsidies". (Brazil's 
third-party submission, paras. 53 -57).  
62 United States' opening statement at the meeting with the Panel, para. 2.  The United States submitted 
an opening statement at the meeting with the Panel but did not submit a closi ng statement.  
63 United States' opening statement at the meeting with the Panel, para. 3.  
64 European Union's opening statement at the meeting with the Panel, para. 60.  WT/DS353/R W 
 
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  depending on "atomising " the subsidy – an analysis the Appellate Body rejected.65 The 
European  Union alleges that the United States has provided Boeing with USD 8.85 billion in 
subsidies over the 200 7-2014 period, with the annual amounts significantly increasing each year. 
Accordingly, the amount of subsidies available to Boeing for pricing down its LCA in strategic, price 
sensitive sales campaigns is substantial and not insignificantly small, as the United States 
suggests.66  
6.3  Structure of the European Union 's case that the United States has failed to withdraw 
the subsidy and take appropriate steps to remove the adverse effects , within the 
meaning of Article 7.8 of the SCM Agreement  
6.18.  It is well establis hed that the general rules on the allocation of the burden of proof in WTO 
dispute settlement also apply to Article 21.5 of the DSU67, including in cases involving an alleged 
failure of a Member to take the steps required by Article 7.8 of the SCM Agreement . As a 
consequence, the European Union as complaining party in this proceeding bears the burden of 
demonstrating both that the United States has failed to withdraw the subsidy and that the 
United  States has failed to take appropriate steps to remove the ad verse effects , within the 
meaning of Article 7.8. This aspect of the allocation of the burden of proof is not in dispute 
between the parties.68  
6.19.  In this regard, we also note, and agree with, the observation of the panel in US – Upland 
Cotton (Article 21.5 – Brazil)  that there is "no support in the text of Article 7.8 of the SCM 
Agreement and Article 21.5 of the DSU for the proposition that in a proceeding under Article 21.5 
involving an alleged failure to comply with Article 7.8 of the SCM Agreement, a Membe r which has 
not withdrawn the subsidy has the burden of showing that it has removed the adverse effects ".69 
6.20.  Given that the burden of proof is on the European Union  to demonstrate that the 
United  States has failed to comply with Article 7.8, our analysis in this Report proceeds on the 
basis of an examination of the arguments and evidence advanced by the European Union. We find 
it useful, in this respect, to set out in this Section  of our Report how the European Union has 
structured its case in accordance with  its interpretation of Article 7.8.  
6.21.  The European Union argues that a finding of non -compliance with Article 7.8 requires a 
determination that a Member grants or maintains subsidies after the end of the implementation 
period70 and that these subsidies cause  present adverse effects.71 Thus, the European Union 
interprets the obligation to "withdraw the subsidy " as an obligation not to grant or maintain  the 
subsid y after the end of the implementation period72 and it interprets the obligation to "take 
appropriate steps to remove the adverse effects " as an obligation to ensure that no present 
adverse effects arise after the end of that period  from any subsidies that are not withdrawn . In 
light of th is interpretation, the European  Union claims that the United States has failed to comply 
with its obligations under Article  7.8 on the basis that: ( a) the United States has failed to withdraw 
                                               
65 European Union's opening statement at the meeting with the Panel, para. 61.  
66 European  Union's opening statement at the meeting with the Panel, para. 86.  
67 Appellate Body Report, Chile – Price Band Systems (Article 21.5 – Argentina) , paras. 134 -136; and 
Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 9.4.  
68 European Union' s first written submission, paras. 32, 45, and 48; United States' first written 
submission, paras. 40 and 41.  
69 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , fn 89. The panel made this statement in 
response to an argument of New Zealand as thi rd party that "Article 7.8 of the SCM Agreement affects the 
distribution of burden of proof in this proceeding under Article 21.5 of the DSU", such that "a Member that fails 
to withdraw the measure in question then should have the burden of showing that it  has removed the adverse 
effects". (Panel Report, US Upland Cotton (Article 21.5 – Brazil) , fn 89).  
70 "Implementation period" as used by the European Union in this case means the period of six months 
referred to in Article 7.9 of the SCM Agreement, which  in this dispute ended on 23 September 2012.  
71 See e.g. European Union's first written submission, para. 816:  
In short, under Article 7.8 of the SCM Agreement, a compliance panel must find 
that the responding Member has failed to comply with the recommend ations and 
rulings of the DSB if two conditions are met: (i) it is demonstrated that the 
responding Member grants or maintains subsidies after the end of the 
implementation period, which it has failed to withdraw; and (ii) these 
non-withdrawn subsidies pre sently cause adverse effects presently arising.  
72 We consider that this interpretation of the phrase "withdraw the subsidy" is implicit in the 
European  Union's arguments. The European Union does not explicitly discuss the meaning of this phrase.  WT/DS353/R W 
 
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  the subsidy , within the meaning of Article 7.8 , because it grants or maintains subsidies to Boeing 
after the end of the implementati on period; and ( b) the United States has failed to take 
appropriate steps to remove the adverse effects , within the meaning of Article 7.8 , because these 
subsidies cause present adverse effects to the interests of the European Union,  within the meaning 
of Article 5 of the SCM Agreement.73 These present adverse effects to the interests of the 
European Union occur "in the form of tens of billions of U .S. dollars of lost revenue to Airbus 
through significant lost sales, significantly suppressed prices, and disp laced or impeded market 
shares in various LCA product markets ".74  
6.22.  With respect to the European Union 's interpretation of Article 7.8, the United States 
considers that "{i}n effect, the EU is asserting that a Member chall enging compliance under 
Article  7.8 must make its entire case again ". The United States notes that "the DSU and the SCM 
Agreement do not constrain a Member to adopt this approach " but that "as the EU does not 
advance any other arguments, the question of whether it is the only way to demonstr ate 
noncompliance under Article 7.8 is not before the panel ".75  
6.23.  Thus, in light of how the European Union has framed its case, our task in this proceeding is 
to determine whether the United States has failed to withdraw the subsidy within the meaning of 
Article 7.8 because it grants or maintains subsidies to Boeing after the end of the implementation 
period and, if so, whether the United States has failed to take appropriate steps to remove the 
adverse effects , within the meaning of Article 7.8 , because thes e subsidies cause present adverse 
effects. In proceeding on the basis, we do not mean to imp ly that we endorse the 
European  Union 's apparent view that a finding of non -compliance with Article 7.8 always requires 
this type of analysis.  
6.24.  While the central pro position advanced by the European Union in support of its claim that 
the United States has failed to comply with Article 7.8 is that the United States grants or maintains 
subsidies to Boeing after the end of the implementation period that cause present adv erse effects, 
we see an important conceptual distinction in the manner in which the European Union purports to 
substantiate this assertion between two groups of measures: seven types of "post-2006" subsidies 
allegedly provided by the United States to Boein g since the reference period considered in the 
original proceeding, on the one hand, and certain "pre-2007" NASA and DOD aeronautics R&D 
subsidies  at issue in the original proceeding, on the other.  
6.25.  The main argument of the European Union in support of its  position that the United States 
grants or maintains subsidies to Boeing after the end of the implementation period that cause 
present adverse effects is that , subsequent to the 2004-2006 reference period considered in the 
original proceeding, the United S tates has granted or maintained subsidies to Boeing that are of 
"the same nature " as the subsidies that were found to be actionable in the original proceeding. In 
this respect, the European Union asserts that the United States grants or maintains seven 
categories of "post-2006 subsidies to Boeing 's LCA Division ".76 These post -2006 subsidies include 
alleged subsidies provided pursuant to programmes that continue the programmes at issue in the 
original proceeding and additional subsidies allegedly introduced b y the United States that the 
European Union considers to be within the scope of this proceeding because of their relationship 
with the measures at issue in the original proceeding.77  
6.26.  The European Union submits that the post -2006 subsidies at issue are eith er "similar to, 
and essentially a continuation of " or "similar to " the subsidies the subject of the DSB 
recommendations and rulings in the original proceeding:  
                                               
73 See e. g. European Union's first written submission, paras. 5, 817, 818, and 1934.  
74 European Union's first written submission, para. 818.  
75 United States' first written submission, para. 41.  
76 European Union's first written submission, para. 56, figure 1. See para. 8.55 below.  
77 See e.g. European Union's request for the establishment of a panel, para. 7 ; and first written 
submission, section V. It would appear that by "additional subsidies" within the scope of this p roceeding the 
European Union means: (a) NASA aeronautics R&D subsidies provided pursuant to "successor and other closely 
related programmes"; (b) the FAA CLEEN Program; (c) DOD aeronautics R&D subsidies provided under DOD 
RDT&E program elements that either  did not exist at the time of the original panel or that previously existed 
but did not fund Boeing's dual -use LCA relevant research and development until 2007; (d) the Washington 
State Joint Center for Aerospace Technology Innovation; and (e) all of the S outh Carolina measures. 
(European  Union's first written submission, paras. 60 and 197; 229 and 232; 388 and 389; 541; and 734 and 
736).  WT/DS353/R W 
 
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  In the present dispute, the European Union challenges a number of post -2006 
subsidies maintained  by the United States.  With respect to these subsidies, the 
European Union demonstrated that NASA 's post -2006 aeronautics R&D subsidies are 
similar to, and essentially a continuation of, NASA 's pre -2007 aeronautics R&D 
subsidies.  The European Union has als o demonstrated that the FAA CLEEN Program is 
similar to, and essentially a continuation of, NASA 's aeronautics R&D subsidies.  
Similarly, the European Union established that the "new" DOD subsidies are similar to, 
and essentially a continuation of, the NASA  and DOD programmes at issue before the 
original panel. The European Union also demonstrated that the South Carolina 
subsidies are similar to the Washington, Kansas, and FSC/ETI subsidies at issue 
before the original panel.  In respect of all these measures , the European Union has 
demonstrated that they are specific subsidies, within the meaning of Articles 1 and 2 
of the SCM Agreement , that under current factual circumstances cause adverse 
effects, rendering them inconsistent with Articles 5 and 6.3 of the SCM Agreement.78  
6.27.  The European Union submits that the post -2006 subsidies cause adverse effects in the 
post-implementation period mainly through a "price causal mechanism ".  
6.28.  On the other hand, with respect to certain pre -2007 NASA and DOD aeronautics R&D 
subsidies that were found to be a cause of adverse effects by virtue of their technology effects in 
relation to the Boeing 78779, the European Union submits that the United States grants or 
maintains subsidies to Boeing after the end of the implementation per iod and has thereby failed to 
withdraw the subsidy , within the meaning of Article 7.8 , because the United States has failed to 
modify the terms of the measures found to be actionable subsidies in the original proceeding so as 
to remove the benefit conferre d by these measures. With respect to these pre -2007 NASA and 
DOD aeronautics R&D subsidies, as well as the pre -2007 DOD procurement contracts which it 
considers are within the scope of this proceeding, the European Union argues that the United 
States has f ailed to take appropriate steps to remove the adverse effects , within the meaning of 
Article 7.8 , because these subsidies continue to cause additional adverse effects in the post -
implementation period through a "technology causal mechanism ". Additionally, the 
European  Union argues that the particular adverse effects found in the original proceeding to have 
been caused by the pre -2007 NASA and DOD aeronautics R&D subsidies to the 787 have not 
ceased to exist and that these adverse effects themselves continue  into the post -implementation 
period.  
6.29.  Thus, it is possible to represent the main aspects of the European Union 's case as follows:  
a. The United States grants or maintains subsidies to Boeing after the end of the 
implementation period and has thus failed to withdraw  the subsidy , within the meaning 
of Article 7.8 of the SCM Agreement:  
 Post-2006 subsidies: The United States grants or maintains seven categories of 
subsidies to Boeing that are similar to (and a continuation of) the measures found to 
be actionable  subsidies in the original proceeding.  
 Pre-2007 NASA and DOD aeronautics R&D subsidies: The United States has failed to 
modify the terms of the particular NASA and DOD transactions at issue in the original 
proceeding in a manner that removes the benefit.80 
                                               
78 European Union's response to Panel question No. 151, para. 8 (fns omitted). See also 
European  Union's comments on Uni ted States' response to Panel question No. 151, para. 9 ("{i}n sum, the 
European  Union has demonstrated that several of the post -2006 subsidies are of the same nature as, in the 
sense that they are similar to and essentially a continuation of, the original  subsidies, and that such subsidies 
cause 'present' adverse effects (including a 'present' threat of various forms of serious prejudice). The 
compliance Panel should, therefore, find that the United States has failed to comply with Article 7.8 of the SCM 
Agreement." (fns omitted))  
79 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1773 and 7.1797.  
80 Thus, the European Union uses the term "subsidies granted or maintained after the end of the 
implementation period" not only where an alleged  financial contribution continues after the end of the 
implementation period but also where the financial contribution may have ended before the end of the 
implementation period but the benefit has not been removed. With regard to certain pre -2007 aeronaut ics R&D 
subsidies,  the European Union argues that the United States maintains, and has thus failed to withdraw, its WT/DS353/R W 
 
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  b. The subsidies granted or maintained by the United States cause present adverse effects 
and the United States has thus failed to take appropriate steps to remove the adverse 
effects , within the meaning of Article 7.8 of the SCM Agreement 81:  
 Post-2006 subs idies: the subsidies cause new adverse effects in the 
post-implementation period mainly through a price causal mechanism.  
 Pre-2007 NASA and DOD aeronautics R&D subsidies: (i) the subsidies continue to 
cause additional adverse effects in the post -implement ation period through a 
technology causal mechanism; and (ii) adverse effects found in the original 
proceeding to have been caused by these subsidies have not ceased to exist and 
continue into the post -implementation period.   
6.30.  The European Union 's approach t o attempt to demonstrate non -compliance with Article 7.8 
on the basis of certain pre -2007 subsidies  the subject of the DSB recommendations and rulings , 
and alleged post -2006 subsidies and their effects , rests on the premise that Article 7.8 applies not 
only to the particular subsidy measures granted in the past that were the subject of the relevant 
DSB recommendations and rulings in the original proceeding , but also to measures taken 
subsequent to the conclusion of the original proceeding. We consider that this premise is 
consistent with the Appellate Body 's interpretation of the concept of "withdrawal " of the subsidy 
and its analysis in US – Upland Cotton (Article 21.5 – Brazil)  of the scope of Article 7.8.   
6.31.  The meaning of the term "withdraw " the subsidy ha s been discussed mainly in disputes 
involving Article 4.7 of the SCM Agreement, which provides that in case of a finding of a prohibited 
subsidy "the panel shall recommend that the subsidizing Member withdraw the subsidy without 
delay ".  
6.32.  In Brazil – Aircra ft (Article 21.5 – Canada) , the Appellate Body observed that the word 
"withdraw " in Article 4.7 of the SCM Agreement "has been defined as 'remove ' or 'take away ' and 
as 'to take away what has been enjoyed; to take from '" and that "{t}his definition suggest s that 
'withdrawal ' of a subsidy, under Article 4.7 of the SCM Agreement, refers to the 'removal ' or 
'taking away ' of that subsidy ".82 The Appellate Body considered that "to continue to make 
payments under an export subsidy measure found to be prohibited is  not consistent with the 
obligation to 'withdraw ' prohibited export subsidies, in the sense of 'removing or 'taking away '" 
and thus found that "the recommendation of the DSB requires Brazil to stop issuing NTN -I bonds 
as from 18 November 1999 pursuant to l etters of commi tment issued before 
18 November  1999".83  
6.33.  In US – FSC (Article 21.5 – EC II) , the Appellate Body considered that:  
Where a Member withdraws a prohibited subsidy only in part, it has failed to comply 
fully with its WTO obligation and the Artic le 4.7 recommendation continues to be in 
effect with respect to the part of the subsidy that has not been withdrawn.  Similarly, 
full withdrawal  of a prohibited subsidy within the meaning of Article 4.7 of the SCM 
Agreement  cannot be achieved by a "measure taken to comply " that replaces the 
original subsidy with yet another subsidy found to be prohibited. In both instances, 
the Member cannot be said to have complied with the obligation to withdraw fully the 
prohibited subsidy.84  
6.34.  In US – Upland Cotton (Articl e 21.5 – Brazil) , the Appellate Body clarified that the obligation 
in Article 7.8 is not limited to the particular "subsidies granted in the past and which may have 
                                                                                                                                               
subsidies, even where payments have ceased to be made pursuant to those measures, because the 
United  States has failed to take action to rem ove the benefit within the meaning of Article 1.1(b) in respect of 
these measures. (European Union's second written submission, paras. 429 and 431; response to Panel 
question No. 58, para. 15).  
81 For a more detailed discussion of the different aspects of the European Union's adverse effects case 
see, Section 9 of this Report.  
82 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada) , para. 45. (fn omitted)  
83 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada) , para. 45. See also Appel late Body 
Report US – FSC (Article 21.5 – EC), paras. 229 -231; and Panel Report, US – FSC (Article 21.5 – EC II) , 
para. 7.62.  
84 Appellate Body Report, US – FSC (Article 21.5 – EC II) , para. 83. (emphasis original)   WT/DS353/R W 
 
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  formed the basis of a panel 's determination of present serious prejudice and adverse effect s" but 
"is of a continuing nature, extending beyond subsidies granted in the past ": 
The question then becomes:  With respect to which subsidies must the implementing 
Member take such action?  Such action would certainly be expected with respect to 
subsidies granted in the past and which may have formed the basis of a panel 's 
determination of present serious prejudice and adverse effects.  However, we do not 
see the obligation in Article 7.8 as being limited to subsidies granted in the past.  
Article 7.8 express ly refers to a Member "granting or maintaining such subsidy ". The 
verb "maintain " suggests, to us, that the obligation set forth in Article 7.8 is of a 
continuous nature, extending beyond subsidies granted in the past.  This means that, 
in the case of recur ring annual payments, the obligation in Article  7.8 would extend to 
payments "maintained " by the respondent Member beyond the time period examined 
by the panel for purposes of determining the existence of serious prejudice, as long as 
those payments contin ue to have adverse effects.  Otherwise, the adverse effects of 
subsequent payments would simply replace the adverse effects that the implementing 
Member was under an obligation to remove.  Such a reading of Article 7.8 would not 
give meaning and effect to th e term "maintain ", which is distinct from the term 
"grant ", and has also been included in that Article.  Indeed, it would render the term 
"maintain " redundant.  In addition, it would fail to give meaning and effect to the 
obligation to "take appropriate step s to remove the adverse effects " in Article 7.8, and 
to the requirement under Article 21.5 to "comply " with the DSB 's recommendations 
and rulings, including the requirement to take the reme dial action foreseen in 
Article  7.8 as a consequence of a finding o f adverse effects.85  
6.35.  The Appellate Body found support for this view in the context provided by Article 4.7 of the 
SCM Agreement. Referring to the above -quoted passage from US – FSC (Article 21.5 – EC II)86, 
the Appellate Body  stated that  "{s}imilarly, a Mem ber would not comply with the obligation in 
Article 7.8 to withdraw the subsidy if it leaves an actionable subsidy in place, either entirely or 
partially, or replaces that subsidy with another actionable subsidy ".87  
6.36.  In light of the Appellate Body 's interpr etation of the term "withdraw " the subsidy and its 
analysis of the scope of Article 7.8, it is clear that the scope of our analysis under Article 7.8 is not 
inherently limited to the particular pre -2007 measures that were found to be inconsistent with the 
SCM Agreement in the original proceeding and that subsidies allegedly granted to Boeing 
subsequent to the reference period considered by the original panel can also be the basis for a 
finding of non -compliance under Article 7.8. Although the subsidies at i ssue considered in US – 
Upland Cotton (Article 21.5 – Brazil)  were so -called recurrent subsidies, the reasoning of the 
Appellate Body in our view is not limited to such subsidies and applies more generally to situations 
in which a Member "leaves an actiona ble subsidy in place, either entirely or partially, or replaces 
that subsidy with another actionable subsidy ".88 We note that the United States does not argue in 
this proceeding that Article 7.8 does not apply to any measure taken subsequent to the conclusi on 
of the original proceeding and that the Panel should therefore limit its analysis to the particular 
pre-2007 measures the subject of the DSB recommendations and rulings. The United States 
argues that many post -2006 measures raised by the European Union are not properly within the 
scope of this proceeding on the basis that those measures do not have a sufficiently close nexus 
with the measures the subject of the DSB recommendations and rulings to be considered 
"measures taken to comply ".89 However, the Uni ted States does not object to the inclusion of any 
measure simply because it is a post -2006 measure. Our view that Article 7.8 can in principle apply 
to measures introduced subsequent to the reference period considered in the original proceeding is 
without  prejudice to whether the particular post -2006 measures challenged by the European Union 
are properly within the scope of this proceeding. We consider that matter below in Section  7 of this 
Report.  
6.37.  In addition to the notion that Article 7.8 applies to both  the subsidies found to be actionable 
in the original proceeding and subsidies allegedly provided subsequent to the original proceeding, 
                                               
85 Appellate Body Report , US – Upland Cott on (Article 21.5 – Brazil) , para. 237. (fns omitted)  
86 See para. 6.33 above . 
87 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 238.  
88 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 238.  
89 See Section 7 below . WT/DS353/R W 
 
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  another important aspect of the European Union 's analytical approach in this proceeding is that it 
would appear to rest  on a "prospective " interpretation of Article 7.8, both in respect of the 
obligation to "withdraw the subsidy " and the obligation to "take appropriate steps to remove 
adverse effects ". The European Union expresses the failure of the United States to "withd raw the 
subsidy " as resulting from the fact that after the end of the im plementation period the 
United  States grants or maintains subsidies to Boeing that cause present adverse effects. The 
European Union does not argue that the United States has failed to  comply with Article 7.8 by not 
taking retroactive action with respect to the particular subsidies found to be actionable subsidies in 
the original proceeding or to their effects. It has not argued that the United States was obligated 
under Article 7.8 to seek repayment from Boeing of subsidies granted in the past. With regard to 
the failure of the United States to take appropriate steps to remove the adverse effects , within the 
meaning of Article 7.8, the European Union states explicitly that the obligatio n in Article 7.8 to 
take appropriate steps to remove the adverse effects "does not refer to the removal of adverse 
effects in the past " but "to the withdrawal of adverse effects in the sense of ensuring that there 
are no adverse effects arising in the new reference period ".90 
6.38.  As noted above, the Appellate Body observed in US – Upland Cotton (Article 21.5 – Brazil)  
that "remedies in WTO law are generally understood to be prospective in nature ".91 Thus, the 
Appellate Body does not consider that the fact that Ar ticle 7.8 uses a formulation that is different 
from the language of Article 19 of the DSU supports a retrospective reading of that provision. The 
Appellate Body 's approach in this respect appears to be different from the reasoning of the 
compliance panel i n Australia – Automotive Leather II (Article 21.5 – US). The panel in that 
proceeding  concluded from an analysis of the ordinary meaning of the term "withdraw the subsidy " 
in Article 4.7 of the SCM Agreement, "read in context, and in light of its object an d purpose, and in 
order to give it effective meaning, that this term is not limited to prospective action only but may 
encompass repayment of the prohibited subsidy ". The panel also found that "repayment in full of 
the prohibited subsidy is necessary in or der to 'withdraw the subsidy ' in this case ".92 The 
European  Union does not rely on the reasoning contained in this panel report in this proceeding.93 
6.39.  Aside from the Appellate Body Report in US – Upland Cotton (Article 21.5 – Brazil) , we 
consider that the con text provided by Articles 7.9 and 7.10 of the SCM Agreement provides further 
support for a prospective interpretation of Article 7.8.   
6.40.  Article 7.9 provides  that: 
In the event the Member has not taken appropriate steps to remove the adverse 
effects of the s ubsidy or withdraw the subsidy within six months from the date when 
the DSB adopts the panel report or the Appellate Body report, and in the absence of 
agreement on compensation, the DSB shall grant authorization to the complaining 
Member to take counterme asures, commensurate with the degree and nature of the 
adverse effects determined to exist, unless the DSB decides by consensus to reject 
the request.  
6.41.  Article 7.10 provides that:  
In the event that a party to the dispute requests arbitration under paragrap h 6 of 
Article 22 of the DSU, the arbitrator shall determine whether the countermeasures are 
commensurate with the degree and nature of the adverse effects determined to exist.  
                                               
90 European Union's first written submission, para. 49.  
91 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , fn 494.  
92 Panel Report, Australia – Automotive Leather II (Article 21.5 – US), paras. 6.39 and 6.48.  
93 Korea, a third party to this proceeding, argues that "the 'withdrawal' of subsidies described in 
Article  7.8 of the SCM Agreement occurs when the government in question ceases to give any ad ditional 
subsidies" and that, notwithstanding the panel report in Australia – Automotive Leather II (Article 21.5 – US), 
the concept of "withdrawal" does not impose "an obligation to have the recipient repay the amount of subsidies 
received in the past". ( Korea's third -party submission, fn 18). Brazil, a third party to this proceeding, argues 
that "where the finding of adverse effects was based on the use of a subsidy from the past which no longer 
existed at the time of the reference period for adverse effe cts, the 'withdrawal' of the subsidy will require more 
than the simple reiteration of the fact that the subsidy no longer exists" and that the additional action required 
must entail the "taking away" of the subsidy. (Brazil's third -party submission, para. 58).  WT/DS353/R W 
 
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  6.42.  The decision of the arbitrator in US – Upland Cotton (Article 22.6 – US II)  suggests that a 
determination under Article 7.10 of the SCM Agreement whether proposed countermeasures are 
"commensurate with the degree and nature of the adverse effects determined to exist " should be 
made on the basis of the effects found to exist as at th e end of the implementation period without 
consideration of past adverse effects that have occurred prior to that date.94 We consider that this 
is relevant to the interpretation of the temporal scope of the obligation in Article 7.8 to take 
appropriate step s to remove the adverse effects because i n our view, "the a dverse effects 
determined to exist " in Articles 7.9 and 7.10 are "the adverse effects " in Article 7.8.  
6.43.  Finally, with regard to the requirement of Article 7.8 to "take appropriate steps to remove 
the adverse effects ", it is important to note that the European Union does not argue that present 
adverse effects may be presumed to exist on account of the similarity of the post -2006 subsidies 
with the measures found to confer subsidies in the original pro ceeding. The European Union 
specifically states in this respect that it "disagrees that a finding of inconsistency with Article 7.8 of 
the SCM Agreement  can be based on presumed , rather than established , similar effects from the 
new subsidies ".95  
6.4  Organizat ion of Panel 's analysis  
6.44.  In Section 7 of the Report , we examine whether certain measures and claims of the 
European Union are outside the Panel's terms of reference  or are otherwise outside the scope of 
this proceeding .  
6.45.  Having identified the measures and claims within our terms of reference and within the 
scope of this proceeding, we examine in Section 8  of the Report whether the United States has 
failed to withdraw the subsidy , within the meaning of Article 7.8 of the SCM Agreement. Our 
analysis in that S ection is structured around the distinction discussed above between the 
arguments of the European Union regarding the pre -2007 NASA and DOD aeronautics R&D 
subsidies and its arguments with respect to the broader group of the post -2006 subsidies :  
a. Regarding  the particular pre -2007 NASA and DOD aeronautics R&D subsidies the subject 
of the DSB recommendations and rulings, we examine, in Section 8.1 of the Report, 
whether the United States has failed to withdraw the subsidy on the b asis that the 
modifications made by the NASA -Boeing Patent Licence Agreement and DOD -Boeing 
Patent Licence Agreement to the terms of the NASA procurement contracts and DOD 
assistance instruments identified in annexes A and B of the United States' Complianc e 
Communication have not removed the benefit , within the meaning of Article 1.1(b) of 
the SCM Agreement.   
b. In Section  8.2 of this Report, we examine whether the United States has failed to 
withdraw the subsidy by  granting or maintaining certain post -2006 subsidies to 
Boeing:  NASA aeronautics R&D measures; DOD aeronautics R&D measures96; FAA 
aeronautics R&D measure; tax exemptions and exclusions under FSC/ETI legislation and 
successor legislation; tax abatements pro vided through IRBs issued by the City of 
Wichita; Washington state and local measures ; and South Carolina measures . 
6.46.  In Section 9 of the Report, we examine whether subsidies that the United States grants or 
maintains after the end of the implementation peri od and which we will have found to be specific , 
within the meaning of Article 2 , cause present adverse effects  in the form of certain kinds of 
serious prejudice to the interests of the European Union, within the meaning of Articles 5(c) and 
6.3 of the SCM Agreement,  and wh ether the United States has thus failed to take appropriate 
steps to remove the adverse effects.  The Panel addresses the European Union's arguments 
concerning the effects of the various subsidies on Boeing's product development and pricing  
behaviour in the context of the particular LCA product markets and the particular Boeing LCA that 
are said to benefit from the subsidies. The Panel therefore examines:  (a) whether subsidies 
                                               
94 Decision by the Arbitrator, US – Upland Cotton (Article 22.6 – US II) , para. 4.118.  
95 European Union's comments on United States' response to Panel question No. 151, fn 4. (emphasis 
original)  
96 As explained below in para. 8.289 , this Section of the Report also includes an analysis of whether 
pre-2007 DOD procurement contracts are specific subsidies within the meaning  of Articles 1 and 2 of the 
SCM Agreement.  WT/DS353/R W 
 
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  benefiting the 787 and 777X cause serious prejudice in respect of  the A350XWB and A330; and 
(b) whether subsidies benefiting the 737 MAX and 737NG cause serious prejudice in respect of the 
A320neo and A320ceo, respectively, in each case, through the various causal mechanisms alleged 
by the European Union.  
6.47.  In Section 10 of the Report, we examine the European Unions' claims that the subsidies 
granted or maintained by the United States are inconsistent with Articles 3.1(a) and (b) and 3.2 of 
the SCM Agreement and Article III:4 of the GATT 1994 , insofar as we will have found  those claims 
to be within our terms of reference and  within the scope of this proceeding.  
7  WHETHER CERTAIN  MEASURES AND  CLAIMS ARE OUTSIDE T HE PANEL 'S TERMS OF 
REFERENCE  OR ARE OTHERWISE OUTSIDE  THE SCOPE OF THIS PR OCEEDING  
7.1  Introduction  
7.1.  In this Section of the Report, we address whether certain measures, and claims with respect 
to certain measures, are outside the Panel's terms of reference  or are otherwise outside the scope 
of this proceeding. In Section 1.3.3, we indicate that on 13 November 2012, the United States 
submitted a request for preliminary rulings, objecting to the inclusion of certain claims and 
challenged measures as outside the Panel's terms of reference. Although the United States raises 
many specific objections, which we address in this Section, they are generally of one of the 
following three types:  
a. objections based on a failure to comply with the requirements of Article 6.2 of the DSU 
to identify the specific measures at issue and to provide a brief summary of t he legal 
basis of the complaint sufficient to present the problem clearly ; 
b. objections to the inclusion of certain measures within the scope of the compliance 
proceeding on the basis that the challenged measures are neither measures subject to 
the DSB recom mendations and rulings, nor measures taken to comply , within the 
meaning of Article 21.5 of the DSU; and  
c. objections that the European Union is precluded from bringing certain claims in respect 
of certain measures on the basis that these claims : (i) were un successfully brought 
against certain measures in the original proceeding and therefore cannot be 
"re-litigated" in relation to those same measures in the compliance proceeding; or (ii) 
were not brought against certain measures in the original proceeding wh en they could 
have been and therefore cannot be brought against those same measures for the first 
time in the compliance proceeding.  
7.2.  For purposes of our discussion below, we refer to the objections involving conformity with the 
requirements of Article 6.2  of the DSU as "terms of reference" objections, while the other types of 
objections we refer to more generally as "scope" objections. Although these latter types of 
objections also pertain to the Panel's terms of reference, the issues raised by these objec tions 
relate to the permissible scope of compliance proceedings under Article 21.5 of the DSU.  
7.3.  In Section 7.2 below, we address the various objections made by the United States to the 
inclusion of certain Washington state and l ocal measures within the scope of this proceeding. The 
scope objections regarding the DOD aeronautics R&D measures, the FAA aeronautics R&D  measure 
and the South Carolina measures are addressed in Sections 7.3, 7.4 and 7.5, respectively. In 
Section  7.6 we address a number of objections pertaining to the European Union's claims under 
Articles 3.1(a), 3.1(b), and 3.2  of the SCM Agreement and Art icle III of the GATT 1994.  
7.4.  As explained in Section 1.3.3.2  of this Report, on 4 March 2014, the Panel received a request 
from the European Union for leave to file an additional submission dealing with the "legal 
ramifications"  of SSB 5952, enacted in 2013 to amend the Washington State tax measures in 
certain respects, which it argued constituted "additional measure s taken to comply by the 
United  States" that are within the scope of this proceeding.97 The Panel declined the 
Europ ean Union's request on 27 May 2014. The Panel issued its reasons for that decision to the 
                                               
97 European Union's letter to the Panel, dated 4 March 2014, para. 1.  WT/DS353/R W 
 
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  parties on 18 September 2014, explaining that the Washington State tax measures, as amended 
by SSB 5952, are outside the Panel's terms of reference. The text of this ruling appears in 
Section  7.7 of this Report.  
7.2  Washington state and local measures  
7.5.  The European Union's claims  in this proceeding  cover, among other measures,  five tax 
measures enacted by the State of Washington or its municipal ities, each of which was challenged  
and found to be a specific subsidy in the original proceeding:  
a. Washington State B&O tax rate reduction for the aerospace industry;  
b. Washington State B&O tax credits for preproduction/aerospace product development;  
c. Washing ton State B&O tax credit for property taxes;  
d. Washington State sales and use tax exemptions for computer software, hardware, and 
peripherals ; and  
e. City of Everett B&O tax rate reduction.  
7.6.  The European Union also identifies two additional measures enacted by the State of 
Washington that have come into existence since the end of the reference period in the original 
proceeding (i.e. the end of 2006) . These two measures are:  
a. Washington State B&O tax credit for leasehold exc ise taxes granted pursuant to House 
Bill 2466 (HB 2466)98; and 
b. the establishment and operation of the Washington State Joint Center for Aerospace 
Technology Innovation (JCATI).99  
7.7.  The United States requests rulings that the Washington measures  that were challenged by 
the European Communities in th e original proceeding , other than the Washington State B&O tax 
rate reduction in subparagraph (a) of paragraph 7.5 above,  are outside the scope of this 
compliance proceeding on the basis that those measures, while found to cons titute specific 
subsidies, were not found to have caused adverse effects  and therefore were not subject to the 
DSB recommendations and rulings .  
7.8.  The United States also objects to the inclusion of the Washington State B&O tax credit for 
leasehold excise tax es and the JCATI measure within the scope of this proceeding  on the basis that 
those measures are neither declared measures taken to comply, nor have they been demonstrated 
to constitute "undeclared " measures taken to comply on the basis of their close nex us in terms of 
nature, effects , and timing, with any declared measures taken to comply , or with the DSB 
recommendations and rulings.   
7.9.  Although t he European Union's submissions present the Washington State B&O tax credit for 
leasehold excise taxes  as a sepa rate measure from the Washington State B&O tax credit for 
property taxes, HB 2466 in fact modifies the scope of application of the B&O tax credit previously 
available with respect to property taxes, to additionally be available with respect to leasehold 
excise taxes.100 Another Washington measure that was challenged in the original proceeding; 
                                               
98 European Union's first written submission, para. 491. This measure, while presented in the 
European  Union's first written submission as a measure distinct from the B&O tax credit for property taxes, 
was enacted under House Bill 246 6 (HB 2466) as an expansion of the B&O tax credit on property taxes. The 
European Union alleges that the United  States maintains the Washington State B&O tax credit for leasehold 
excise taxes and that this subsidy contributes to present adverse effects whe n it is "aggregated" with other 
subsidies that operate through a price causal mechanism, and when the effects of those subsidies are 
"cumulated".  
99 European Union's first written submission, para. 541.  
100 HB 2466 section 10 provides as follows:  
Sec. 10. RCW  82.04.4463 and 2005 c 514 s 501 are each amended to read as 
follows:  WT/DS353/R W 
 
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  namely, the Washington State B&O tax credits for preproduction/aerospace product development , 
was similarly modified by section 7 of Washington State Substit ute Senate Bill 6828  (SSB 6828)  to 
expand: (a)  the application of the tax credits to all aerospace product development, rather than 
just preproduction development ; and (b) the eligible entities/persons that may claim the credit (so 
as to permit non -manufacturing enti ties to claim the credit for expenditures after 30  June 
2008).101 The modifications to the  Washington State B&O tax credit measures expand  the 
availability of those tax credits  and thus the existing original measures. In the circumstances, it 
seems somewhat artificial to analyse these modifications on the basis that they are "new" 
measures, separate from the original measures that they modify.102  
7.10.  Therefore, in our analysis of the United States' objections to the inclusion of the Washington 
state and local meas ures within the scope of this proceeding, we treat the original B&O tax credit 
measure and the modification thereto as the same measure; i.e. the Washington  State B&O tax 
credit for property taxes is as modified by HB 2466 to apply to leasehold excise taxe s, and the 
Washington State B&O tax credits for preproduction/aerospace product development  are as 
modified by section  7 of SSB 6828.103  
7.2.1   Whether the four original Washington tax measures are  outside  the scope of th is 
proceeding  
7.11.  The United States ' makes prel iminary  rulings request s concern ing three tax measures 
maintained by the State of Washington and one tax measure maintained by the City of Everett  
(the four original Washington tax measures):   
a. Washington State B&O tax credits for preproduction/aerospace pr oduct development;  
b. Washington State B&O tax credit for property taxes;  
c. Washington State sales and use tax exemptions for computer software, hardware, and 
peripherals ; and  
d. City of Everett B&O tax rate reduction.  
                                                                                                                                               
(1) In computing the tax imposed under this chapter, a credit is allowed for 
property taxes and leasehold excise taxes  paid during the calendar year.  
(2) The credit is equal to:  
(a)(i) (A) Property taxes paid on new buildings, and land upon which this property 
is located, built after December 1, 2003, and used exclusively in manufacturing 
commercial airplanes or components of such airplanes; and 
(B) Leasehold excise taxes paid with respec t to a building built after 
January  1, 2006, the land upon which the building is located, or both, if the 
building is used exclusively in manufacturing commercial airplanes or components 
of such airplanes  … .  
(House Bill 2466, sections 10(1) and (2)(a)(i) (B) (2006), (Exhibit EU -439), section 10 (underlining 
original))  
 
The Final Bill Report for HB 2466 also characterized the B&O tax credit for leasehold excise taxes as 
being an expansion of the original tax credit  for property taxes:  
The B&O tax credit for  property taxes paid on property used in the manufacture of 
commercial airplanes and airplane components is expanded to include leasehold 
excise taxes. The credit starts January 1, 2007.  
(Summary of the Final Bill Report for House Bill 2466 (C 177 L 06), 1 January 2007, (Exhibit EU -436))  
101 Substitute Senate Bill 6828, "Aerospace Tax Incentives", Washington Session Laws 365 (2008),  
(Exhibit EU -434). See European  Union's first written submission, para. 450.  
102 For example, the European Union has argued that t he Washington State B&O tax credit for leasehold 
excise taxes is within the scope of this proceeding as a measure taken to comply on the basis of its close nexus 
to the measure prior to its amendment, or to the DSB recommendations and rulings.  
103 We theref ore do not regard as being on point the United States' objection that the Washington State 
B&O tax credit for leasehold excise taxes is not within the scope of this proceeding because the 
European  Union has failed to demonstrate that this "measure" meets t he requirements of the close nexus test. 
(See United States' second written submission, paras. 80 -84). Given the Panel's view that this so -called 
measure is in fact a modification to extend the scope of the original Washington State B&O tax credit for 
property taxes, we do not consider that the European Union was required to demonstrate that the modification 
as a standalone new measure satisfies the requirements of the close nexus test.  WT/DS353/R W 
 
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  7.12.  All four original Washington tax measures we re previously challenged as actionable 
subsidies in the original pro ceeding, however, none was found to cause serious prejudice , within 
the meaning of Articles 5(c) and 6.3 of the SCM Agreement. Consequently, none of these 
measures was subject to the DSB recommendations and rulings.  
7.13.  In this proceeding, the European Union alleges that each of these measures is a specific 
subsidy, that the United States continues to maintain these subsidy programmes, and that they 
cause adverse effects to the European Union's  interests.104 The United States requests preliminary 
rulings that the four original Washington tax measures are outside the scope of the compliance 
proceeding because the original panel had found that these measures did not cause serious 
prejudice, and that  finding was not disturbed by the Appellate Body.105  
7.2.1.1   Main arguments of the parties and third parties  
7.14.  The United States  argues that the four original Washington tax measures are outside the 
scope of this compliance proceeding because they existed and were c hallenged on the merits in 
the original proceeding. They are  accordingly  not measures taken to comply with the DSB 
recommendations and rulings. The United States notes that Article 21.5 of the DSU provides for 
panel proceedings "{w}here there is disagreeme nt as to the … consistency with a covered 
agreement of measures taken to comply with the recommendations and rulings " of the DSB. The 
United  States submits that the "negative implication of  this charging" is that Article  21.5 does not 
provide relief for di sagreements about other types of measures, referring to the Appellate Body in 
Canada – Aircraft (Article 21.5 – Brazil ): 
Proceedings under Article 21.5 do not concern just any measure of a Member of the 
WTO; rather, Article 21.5 proceedings are limited to those "measures taken to comply  
with the recommendations and rulings " of the DSB. In our view, the phrase "measures 
taken to comply " refers to measures which have been, or which should be, adopted by 
a Member to bring about compliance with the recommendati ons and rulings of the 
DSB.106 
7.15.  The United States argues that the Appellate Body has "defined " the term "measure taken to 
comply " to refer, inter alia , to "measures which have been, or which should be, adopted by a 
Member to bring about compliance with the re commendations and rulings of the DSB ".107 
According to the United States, a measure that existed and was in fact unsuccessfully challenged 
on the merits in the original proceedings cannot be a measure adopted by a Member to bring 
about compliance with the DSB recommendations and rulings.108 Accordingly, claims that those 
measures are inconsistent with the covered agreements are not properly within the terms of 
reference of a compliance panel.  
7.16.  Moreover, the United States submits that expanding the terms of refer ence of a compliance 
proceeding to include claims against measures on which the complaining party did not prevail on 
the merits in the original proceeding would seriously prejudice the responding party 's interests. 
After the DSB adopts its recommendations and rulings in the original proceeding, the responding 
party has no reason to consider that it should modify or withdraw measures considered on the 
                                               
104 European Union's first written submission, para. 429. The European U nion also claims that each of 
these measures is a prohibited subsidy within the meaning of Article 3 of the SCM Agreement and is 
inconsistent with Article III:4 of the GATT 1994. The United States has also raised preliminary objections 
pertaining to the Eu ropean Union's claims under Article 3 of the SCM Agreement and Article III:4 of the 
GATT  1994, including with respect to the Washington state and local measures. We discuss the United  States'  
objections to the inclusion of those claims within the scope of this proceeding in Section 7.6 of this Report.  
105 United States' first written submission, paras. 77, 494, and 499.  
106 United States' second written submission, para. 14 (referring to Appellate Body Report, Canada  – 
Aircraft (Article 21.5 – Brazil ), para. 36 ; quoted also in Appellate Body Report US – Zeroing (EC) (Article 21.5 – 
EC), para. 199). (emphasis original)  
107 United States' first written submission, fn 796; response to Panel question No. 3, para. 12 (referr ing 
to Appellate Body Reports, Canada – Aircraft (Article 21.5 – Brazil ), para. 36; and US – Softwood Lumber IV 
(Article 21.5 – Canada ), para. 77).  
108 See United States' response to Panel question No. 3, para. 13: "by definition a measure that existed 
at the time when  the original panel was established and was not subject to any DSB recommendation is not a 
measure 'taken to comply' with any DSB recommendations" (emphasis original). See also United  States'  
second written submission, para. 15; response to Pane l question No. 3, para.  12; and comments on the 
European  Union's response to Panel question No. 3, para. 23.  WT/DS353/R W 
 
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  merits and not found to be WTO -inconsistent. An overly expansive reading of Article 21.5 would 
require respo nding parties to either assume that a compliance panel would reverse the DSB 
findings with respect to a measure, or risk potential countermeasures with no opportunity for a 
reasonable period of time in which to come into compliance.109 
7.17.  The United States reje cts the European Union 's attempt to distinguish between the 
"instances of application " of the relevant subsidy programmes that were challenged in the original 
proceeding and the "instance s of application " of those programmes presently being challenged in 
order to argue that the measures are within the scope of this proceeding.110 The United States 
regards the four original Washington tax "measures " that were before the original panel and the 
"measures " that the European Union is seeking to challenge now as be ing one and the same – 
there is no basis for treating "subsequent instances of application " of a measure as a separate 
measure.111  
7.18.  The United States further rejects the European Union 's assertion that the four original 
Washington tax measures are within the  Panel 's terms of reference on the basis of their close 
nexus to the Washington State B&O tax rate reduction.112 According to the United States, the basis 
of the European Union 's assertion is flawed because the four original Washington tax measures 
cannot be  measures taken to comply: These measures existed at the time when the original panel 
was established and were not subject to any DSB recommendation or ruling. A panel cannot find 
that a measure unsuccessfully challenged on the merits in the original proce eding constitutes a 
measure taken to comply on the basis of the close nexus test.113  
7.19.  The European Union  rejects the United States ' objection that the four original Washington 
tax measures are outside the Panel 's terms of reference. The fact that the origina l panel did not 
ultimately find that these measures caused adverse effects during the particular reference period 
at issue does not now create an issue of jurisdiction or terms of reference.  
7.20.  The European Union submits that a panel 's terms of reference are  fixed by the complaining 
Member in the panel request. It is when a matter is not set out in the panel request in accordance 
with the requirements of Article 6.2 of the DSU that it is outside the panel 's terms of reference and 
the panel does not have the a uthority to rule on it.114 When a matter is properly within the 
jurisdiction and terms of reference of a WTO adjudicator, that adjudicator is required  to assess and 
rule upon it (subject to the proper exercise of judicial economy which is not relevant for pr esent 
purposes).115  
7.21.  The European Union argues that Article 21.5 of the DSU captures two types of disputes over 
the existence of measures taken to comply: disputes about whether  a particular measure (whether 
an act or omission) exists, an d disputes about whe ther a particular measure should  exist.116 
According to the European Union, the United States has failed to ensure that the measures in 
question, as they are maintained and currently applied, are in conformity with WTO law. There is 
                                               
109 United States' response to Panel question No. 3, para. 14.  
110 United States' comments on the European Union's response to Panel question No. 4, pa ra. 25 
(referring to the European Union's response to Panel question No. 4, para. 35).  
111 United States' comments on the European Union's response to Panel question No. 4, para. 25; 
second written submission, para. 38.  
112 Although the parties in their submis sions address certain of their arguments concerning the 
measures and claims that are within the scope of this compliance proceeding as "terms of reference" issues, as 
we explain in paragraph 7.2 we refer to the objections invol ving conformity with the requirements of Article  6.2 
of the DSU as "terms of reference" objections, while the other types of objections we refer to more generally as 
"scope" objections.  
113 United States' response to Panel question No. 3, para. 13. According  to the United States, to do so 
would conflict with the basic definition of a "measure taken to comply" which is "in principle … a new and 
different measure" (quoting from Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil ), para. 41) . 
Second written submission, paras. 74 -76. 
114 European Union's second written submission, para. 17.  
115 European Union's second written submission, para. 26.  
116 European Union's opening statement at the meeting of the Panel, para. 11;  second written 
submission, paras.  31 and 32; and European Union's comments on the United States' response to Panel 
question No. 1, para. 8.  WT/DS353/R W 
 
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  thus a "disagreement " between the parties as to whether  the United States is under an obligation 
to do so: This matter clearly fa lls within the scope of Article  21.5 of the DSU.117 
7.22.  The European Union argues that in the original proceeding, each of the four original 
Washington measur es "and their relevant instances of application " was found to be a specific 
subsidy, and these findings were not appealed by the United States. The European Union considers 
that the question of whether these specific subsidy programmes "and their present i nstances of 
application cause adverse effects in a new reference period " requires consideration of changing 
facts in the evolving market, as well as consideration of the Appellate Body 's clarification of the 
law on aggregation and cumulation of subsidies. Thus, the measures and the facts and evidence 
with regard to the "instances of application of these programmes that post -date the original 
proceedings " have changed. Given that these instances of application are not separable from the 
programmes themselves , all of the relevant measures are therefore within the scope of the 
compliance proceeding.118  
7.23.  In addition, the European Union argues that the four original Washington tax measures are 
within the scope of this proceeding based on their particularly close re lationship to declared 
measures  taken  to comply and to the DSB recommendations and rulings (i.e. on the basis that 
they can be considered "undeclared " measures taken to comply due to their close nexus with 
declared measures taken to comply and the DSB recommendations and rulings in the original 
proceeding). The first three of the original Washington tax measures were all part of the same 
"overarching measure " as the Washington State B&O tax rate reduction (which was subject to the 
DSB recommendations and ru lings) ; namely , House Bill 2294 ( HB 2294 ) and the Project Olympus 
Master Site Agreement. The European Union argues that there is a sufficiently close nexus, in 
terms of nature, effects , and timing, between the first three original Washington tax measures a nd 
the Washington State B&O tax rate reduction to satisfy the close nexus test and bring the first 
three original Washington tax measures within the scope of the compliance proceeding as 
"undeclared " measures taken to comply.119  
7.24.  As to the fourth original Wa shington tax measure, the City of Everett B&O tax rate 
reduction, the European Union argues that the nature of this measure is identical to the 
Washington State B&O tax rate reduction, being the same type of tax reduction enacted at the 
municipal rather th an state level. Like the other original Washington tax measures, this measure is 
a tax reduction to lower Boeing 's overall tax liability, it worsens the United States ' existing 
situation of non -compliance by increasing the amount of revenue due that is for egone, and the 
value of the tax measure has increased subsequent to the adoption of the DSB recommendations 
and rulings (a factor that the European Union argues is relevant to the "timing " element of the 
close nexus test).120  
7.25.  Brazil  argues that, while it su pports a "broad approach" to d etermining the scope of 
Article  21.5 proceedings, any such approach must ensure that compliance panels not be used as a 
forum for a complaining Member to re -litigate issues relating to measures that were not found to 
be incons istent with a covered agreement in the original proceedings or as a forum for the remand 
of matters that could have been (but were not) taken up by the Appellate Body in response to a 
request to complete the analysis.121 Compliance proceedings should not unf airly give complainants 
a "second bite of the apple" .122 However, Brazil considers that, with respect to claims that were 
not definitively resolved in the original proceeding, a distinction may need to be made between 
matters for which the Appellate Body was  asked to fully consider the issues but was unable to 
complete its analysis, and matters for which the complaining party did not seek full 
consideration.123 
7.26.  Canada  considers that, as a general proposition, a complainant is prohibited from 
re-litigating matte rs that were decided and lost on the merits in the original proceedings.124 
                                               
117 European Union's second written submission, paras. 32 and 48.  
118 European Union's response to Panel question No. 4, paras. 34 and 35; second written  submission, 
paras. 55 and 78.  
119 European Union's second written submission, paras. 126,127, 130, and 133.  
120 European Union's second written submission, paras. 126, 129, 132, and 133.  
121 Brazil's third -party submission, para. 35; third -party response to Pan el question No. 1, para. 5.  
122 Brazil's third -party response to Panel question No. 1, para. 5.  
123 Brazil's third -party response to Panel question No. 1, para. 6.  
124 Canada's third -party response to Panel question No. 1, paras. 4 and 6.  WT/DS353/R W 
 
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  Specifically, claims in which the complainant did not establish a prima facie  case, or w here there 
was a finding of WTO -consistency  are outside the scope of compliance proceedings.125 However, 
Canada also considers that claims should not be excluded where the original panel or Appellate 
Body exercised judicial economy, or was unable to complete the analysis.126 In either situation, the 
merits of the claim have not been decided and the res pondent should thus not have an expectation 
of finality of the decision.127 
7.27.  Japan , while noting that the scope of Article 21.5 proceedings is not limited to a measure 
declared by the implementing Member to be a measure taken to comply, submits that the scope  of 
claims that may be raised is not "unbounded ". Japan takes the general position that allowing 
re-litigation of issues that were the subject of the original proceedings, or otherwise providing the 
complainant with an "unfair second chance ", should be avo ided.128 Like Canada, Japan points to 
the specific situation of a complainant failing to establish a prima facie  case, or a finding of WTO 
consistency, as examples of situations in which claims are outside the scope of compliance 
proceedings.129  
7.28.  Korea  points out that Article 21.5 of the DSU operates to provide a prompt and efficient 
forum for addressing any claims that were not, for whatever reason, finally resolved in the original 
proceedings.130 Korea emphasi zes in particular that the requirement of "unconditi onal acceptance " 
of a panel or Appellate Body report only precludes a party from re -litigating those issues that were 
"actually addressed " and "finally decided by the panel or Appellate Body ".131  
7.2.1.2   Evaluation by  the Panel  
7.29.  The United States ' requests r aise the question of whether each of the four original 
Washington tax measures is within the scope of this compliance proceeding, notwithstanding that 
there were no DSB -adopted recommendations and rulings in relation to these measures in the 
original proceeding.  
7.30.  It is well settled that Appellate Body findings and unappealed panel findings that are 
adopted by the DSB must be regarded  as a final resolution to a dispute between the parties in 
respect of the particular claim and the specific component of the measure t hat is the subject of 
that claim.132 The Appellate Body based this conclusion on its analysis of the relevant provisions of 
the DSU:  
Thus, a reading of Articles 16.4 and 19.1, paragraphs 1 and 3 of Article 21, and 
Article  22.1, taken together, makes it abun dantly clear that a panel finding which is 
not appealed, and which is included in a panel report adopted  by the DSB, must be 
accepted by the parties as a final resolution  to the dispute between them, in the same 
way and with the same finality as a finding included in an Appellate Body Report 
adopted by the DSB – with respect to the particular claim and the specific component 
of the measure that is the subject of the claim. 133 
With respect to Article 21.5 of the DSU, the Appellate Body stated:  
Article 21.5 ad vances the purpose of achieving a prompt settlement of disputes by 
providing an expeditious procedure to establish whether a Member has fully complied 
with the recommendations and rulings of the DSB. … It would be incompatible with 
the function and purpose  of the WTO dispute settlement system if a claim could be 
reasserted in Article 21.5 proceedings after the original panel or the Appellate Body 
has made a finding that the challenged aspect of the original measure is not 
inconsistent with WTO obligations , and that report has been adopted by the DSB. At 
                                               
125 Canada's third -party statement, para. 4; third -party response to Panel question No. 1, para. 5.  
126 Canada's third -party response to Panel question No. 1, para. 8.  
127 Canada's third -party response to Panel question No. 1, para . 8. 
128 Japan's third -party response to Panel question  No. 1, para. 4.  
129 Japan's third -party response to Panel question No. 1, para. 1.  
130 Korea's third -party submission, para. 13.  
131 Korea's third -party submission, para. 12; third -party statement, paras. 6 -8. 
132 Appellate Body Report, EC – Bed Linen (Article 2 1.5 – India), para. 93.  
133 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93. (emphasis original)  WT/DS353/R W 
 
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  some point, disputes must be viewed as definitely settled by the WTO dispute 
settlement system.134  
7.31.  In EC – Bed Linen (Article 21.5 – India), the original panel found that the complaining party 
had failed to ma ke a prima facie case with respect to its challenge to an element of a measure that 
remained unchanged in the compliance proceeding. The complaining party had not appealed the 
panel 's finding that it had failed to make a prima facie case, and that finding formed part of the 
panel report adopted by the DSB. In those circumstances, the complaining party could not raise 
the same claim against the same aspect of the implementation measure in the compliance 
proceeding.135  
7.32.  The Appellate Body has also referred to t he "due process concerns " if a complaining party 
were provided, through an Article 21.5 proceeding, an unfair "second chance " to make a case it 
had failed to make in the original proceedings, in a manner that would compromise the finality of 
the DSB recomm endations and rulings.136  
7.33.  However, the Appellate Body has permitted complaining parties in compliance proceedings 
to reassert claims against aspects of measures where such claims were  unsuccessfully asserted in 
the original proceeding . It appears to us that  the Appellate Body has done so  in situations where 
the finality of the DSB recommendations and rulings would not thereby be compromised. Thus, a 
complaining party in a compliance proceeding was able to reassert claims against aspects of 
measures that were  unchanged from those unsuccessfully challenged in the original proceedings, 
where the original panel had exercised judicial economy with respect to one challenged aspect of 
an original measure, that aspect had become an integral part of the measure taken to comply, and 
the challenge was to that same aspect of the measure taken to comply.137 The Appellate Body 
distinguished this situation from one in which the complaining party had been unsuccessful in the 
original proceedings, either because that aspect of t he measure had been found WTO -consistent , 
or the complaining party had failed to make out a prima facie  case.  
7.34.  Similarly, a complaining party in a compliance proceeding was permitted to challenge the 
same aspect of a measure taken to comply that it had uns uccessfully challenged on appeal in the 
original proceeding owing to a reversal of the panel 's finding by the Appellate Body in favour of the 
complaining party, but an inability of the Appellate Body to complete the analysis due to 
insufficient factual fin dings or undisputed facts on record.138  
7.35.  Our review of the case law suggests that, while panels and the Appellate Body have been 
careful not to permit complaining parties to use Article 21.5 proceedings as an opportunity to 
re-litigate issues that were resol ved adversely to them in the original proceeding, this does not 
apply where the failure to achieve a definitive resolution of a claim cannot reasonably, in the 
circumstances, be laid at the feet of the complaining party. The Appellate Body has no power to 
remand a decision back to a panel to apply a corrected interpretation of the law to the facts. 
Moreover, in certain situations, the Appellate Body may simply be unable to complete the analysis 
by applying that corrected interpretation to the panel 's factua l findings or undisputed factual 
material on the record. In these circumstances, while a complaining party may in some senses 
have been "unsuccessful " in establishing its claims at the end of the compliance proceeding, it is 
more accurate to consider the c laims unresolved. To permit a complaining party to seek resolution 
of those unresolved claims as part of a compliance proceeding does not necessarily afford it an 
unfair second chance.  
                                               
134 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 98. (italics original, underlining 
added , fn omitted ) 
135 Appellate Bo dy Report, EC – Bed Linen (Article 21.5 – India), para. 96.  
136 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 210:  
Because adopted panel and Appellate Body reports must be accepted by the 
parties to a dispute, allowing a party in a n Article 21.5 proceeding to re -argue a 
claim that has been decided in adopted reports would indeed provide an unfair 
"second chance" to that party.  
(fn omitted)  
See also Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 428.  
137 Appellate  Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina ), 
para. 150.  
138 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil ), para. 210.  WT/DS353/R W 
 
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  7.36.  We also recall that Article 3.3 of the DSU sets forth the principle tha t the prompt settlement 
of disputes is essential to the effective functioning of the WTO. The Appellate Body has stated 
that: "the aim of Article  21.5 of the DSU is to promote the prompt compliance with DSB 
recommendations and rulings and the consistency o f 'measures taken to comply ' with the covered 
agreements by making it unnecessary for a complainant to begin new proceedings and by making 
efficient use of the original panellists and their relevant experience. "139  
7.37.  The United States argues that the only mea sures susceptible to review in compliance 
proceedings are original measures in respect of which there are DSB -adopted recommendations 
and rulings, and measures properly characterized as being measures taken to comply with the 
DSB recommendations and ruling s (whether declared by the responding party or "undeclared "). 
The United States says that in Canada – Aircraft (Article 21.5 – Brazil ), the Appellate Body defined 
the phrase "measures taken to comply " in Article 21.5 of the DSU in a manner which logically 
prevents original measures from falling within the scope of a compliance proceeding under Article 
21.5 of the DSU.  
7.38.  In Canada – Aircraft (Article 21.5 – Brazil) , the Appellate Body said:  
Proceedings under Article 21.5 do not concern just any measure of a Me mber of the 
WTO; rather, Article 21.5 proceedings are limited to those "measures taken to comply  
with the recommendations and rulings " of the DSB. In our view, the phrase "measures 
taken to comply " refers to measures which have been, or which should be, ad opted by 
a Member to bring about compliance with the recommendations and rulings of the 
DSB. In principle, a measure which has been "taken to comply with the 
recommendations and rulings " of the DSB will not be the same measure as the 
measure which was the subject of the original dispute, so that, in principle, there 
would be two distinct and separate measures: the original measure which gave rise  to 
the recommendations and rulings of the DSB, and the "measures taken to comply " 
which are – or should be – adopted to implement  those recommendations and 
rulings.140 
7.39.  In explaining the meaning of the phrase "measures taken to comply", in the 
above -referenced passage from its report in  Canada – Aircraft (Article  21.5 – Brazil ), the Appellate 
Body did not set forth a d efinitive list of measures that may properly be considered to be within 
the scope of proceedings  brought under Article 21.5 of the DSU . Rather, the Appellate Body 's 
statement  that in principle , a measure taken to comply will not be the same as the measure 
challenged in the original proceedin g, explain ed why the panel, in reviewing the consistency of the 
implementation measure in that compliance proceeding, was not confined to examining its 
consistency with the relevant provisions of the WTO agreements from the perspective of the 
reasoning adopted by the original panel when it had reviewed the original measure and found it to 
be WTO -inconsistent. The Appellate Body found that the proceedings in question in that case 
involved the consistency of the revised pro gramme (i.e. a new measure) with Article 3.1(a) of the 
SCM Agreement.141 The Appellate Body sought to explain why, in compliance proceedings where 
the measure at issue is a new measure, the compliance panel should not confine its analysis of the 
consistency with the covered agreements of the measures taken to comply to the perspective of 
the claims, arguments and facts that related to the original measure.142  
7.40.  As the European Union observes, the Appellate Body has also indicated that the scope of 
Article  21.5 p roceedings includes disagreements as to the existence of measures taken to comply, 
                                               
139 See Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (A rticle 21.5 – 
Argentina ), para. 151. We further note that in two cases in which a complaining party in a compliance 
proceeding was permitted to reassert claims against unchanged aspects of original measures incorporated into 
a measure taken to comply, and which had not been definitively resolved on the merits in the original 
proceeding, one of the justifications advanced by the Appellate Body was that it would not be efficient for a 
new panel to examine those claims, while other aspects of the same measure were being considered by the 
compliance panel. (See Appellate Body Reports, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 
– Argentina ), para. 151; and US – Upland Cotton (Article 21.5 – Brazil ), para. 212).  
140 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil ), para. 36. (emphasis original, fns 
omitted)  
141 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil ), para. 37.  
142 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil ), para. 41.  WT/DS353/R W 
 
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  including situations where the responding party has failed to adopt implementing measures.143 In 
other words, Article 21.5 proceedings clearly encompass situations in which th e responding party 
arguably should have  revised an original measure, even if it did not. That being so, it is difficult to 
sustain the United States'  argument that an original measure is, logically and by definition, outside 
the scope of a compliance proce eding.  
7.41.  In our view, the relevant issue is not whether original measures are per se  outside the 
scope of a compliance proceeding because original measures not the subject of DSB  
recommendations and rulings can never logically be measures taken to comply. Ra ther, the issue 
is in which circumstances a complaining party may, in a compliance proceeding, pursue claims 
against original measures that it had pursued in the original proceedings. The answer depends on 
the way in which the claim against the particular original measure was resolved in the original 
proceeding. More specifically, a s we have explained in paragraph 7.35 above, a  panel should 
consider whether the original measure was "unsuccessfully " challenged on the merits in th e 
original proceeding, such that it cannot be raised again without compromising the finality of the 
DSB recommendations and rulings.144  
7.42.  Accordingly , in determining whether the European Union may reassert claims against any of 
the four original Washington ta x measures  in this proceeding , we will examine the status of the 
claims in respect of those measures at the conclusion of the original proceedings. If there was a 
positive finding that the particular measure was "not inconsistent " with the challenged provi sion of 
the covered agreements, then on the basis of EC – Bed Linen (Article 21.5 – India), the 
European  Union would be precluded from reasserting the same claims against the such measures 
in this proceeding. This is because to allow it to do so would comp romise the finality of the DSB 
recommendations and rulings.  
7.43.  We begin by recalling that all four original Washington tax measures were found by the 
panel in the original proceeding to be specific subsidies.145 None of these findings was disturbed on 
appeal. A lthough the original panel found that none of the four original Washington tax  measures  
caused serious prejudice, these findings were reversed on appeal owing to faults that the Appellate 
Body found with aspects of the panel 's assessment of serious prejudi ce. We set forth in some 
detail below how the Appellate Body 's modification of the panel 's reasoning , in the context of the 
three  LCA product markets at issue , ultimately affected whether any of the four original 
Washington tax measures could be definitive ly considered not to have caused serious prejudice in 
any of the LCA product markets . Based on those conclusions, we then determine whether a 
consideration of the same measures in this proceeding would compromise the finality of the DSB 
recommendations and  rulings.  
7.44.  The European Communities  argued in the original proceeding that the Washington State 
B&O tax credits for preproduction/aerospace product development, the Washington State B&O tax 
credit for property taxes and the Washington State sales and use t ax exemptions for computer 
software, hardware, and peripherals , as "untied " subsidies, operated to increase Boeing 's 
non-operating cash flow.146 The panel found that these subsidies, when aggregated with the other 
subsidies that operated to increase Boeing 's non-operating cash flow, were of an insufficient 
magnitude to have had any appreciable impact on Boeing 's LCA prices, and thus on sales or prices 
                                               
143 Appellate Body Report,  Canada – Aircraft (Article 21.5 – Brazil ), para. 36:  
In our view, the phrase "measures taken to comply" refers to measures which have 
been, or which should be , adopted by a Member to bring about compliance with 
the recommendations and rulings of the DSB.  
(emphasis added)  
144 We note that the United States' argument is that "a measure that was in existence at the time of the 
establishment of the original panel, and that was unsuccessfully challenged on the merits in the original 
proceeding , cannot constitute  a measure taken to comply." (See United States' response to Panel question 
No. 3, para.  12 (emphasis added)). See also United States' second written submission, para. 15; and 
comments on the European Union's response to Panel question No. 4, para. 23.  
145 The panel findings in relation to the existence of a subsidy and specificity are in Panel Report, US – 
Large Civil Aircraft (2nd complaint ), paras. 7.179, 7.212, 7.302, 7.333, and 7.346.  
146 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.160 9. By "untied" subsidies, the Panel 
refers to subsidies the receipt of which is not contingent on the production or sale of a particular product on a 
per-unit basis. Such subsidies may be contrasted with "tied" subsidies, which in the context of this dispu te, 
refer to subsidies the receipt of which is contingent on the production or sale of a particular product on a 
per-unit basis. (See paras. 9.68-9.71 below). See also Appellate Body Report, US – Large Civil Aircraft (2nd 
complaint ), para. 1339.  WT/DS353/R W 
 
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  of Airbus LCA.147 Therefore,  at the panel stage, none of those three Washington tax measures was 
found to cause  serious prejudice  in any LCA product market.   
7.45.  The European Communities  further argued that the City of Everett B&O tax rate reduction, 
as a subsidy that was tied  on a per -unit basis  to the production or sale of LCA manufactured in 
Everett (and therefore a pplied to the 777 and 787 families of LCA), operated to reduce Boeing 's 
marginal unit costs of production and sale of LCA.148 The panel found that the effect of the City of 
Everett B&O tax rate reduction (when aggregated with the other tied tax subsidies tha t operated 
to reduce Boeing 's marginal unit costs, i.e. the FSC/ETI subsidies and the Washington State B&O 
tax rate reduction) was  significant  price suppression, significant lost sales , and displacement and 
impedance of exports in the 300 -400 seat LCA prod uct market. The panel declined to aggregate 
the effects of the tied tax subsidies (i.e. the Washington State and City of Everett B&O tax rate 
reductions, since FSC/ETI did not apply to 787 sales) with those of the aeronautics R&D subsidies 
in the 200 -300 s eat LCA product market on the basis that the tied tax subsidies and the 
aeronautics R&D subsidies operated through distinct causal mechanisms.149 Considered separately 
from the effects of the aeronautics R&D subsidies in the 200 -300 seat LCA product market, the 
effects of the City of Everett B&O tax rate reduction (and the Washington State B&O tax rate 
reduction) would not have had such an effect on Boeing 's 787 pricing as to cause serious prejudice 
to Airbus in the 200 -300 seat LCA product market. Thus at th e panel stage, the City of Everett 
B&O tax rate reduction was found to have caused serious prejudice  in the 300 -400 seat LCA 
product market, but not in the 200 -300 seat LCA product market.  
7.46.  On appeal, the Appellate Body first dealt with the United States ' appeals of the panel 's 
findings that : (a) the FSC/ETI subsidies and Washington State B&O tax rate reduction caused 
serious prejudice in the 100 -200 seat LCA product market ; and (b) the FSC/ETI, Washington State 
B&O tax rate reduction and City of Everett B&O tax rate reduction caused serious prejudice in the 
300-400 seat LCA product market. The Appellate Body reversed the  panel's  findings  on the ground 
that the panel had not provided a proper legal basis for them.150 It then attempted to complete the 
analysis w ith the following results:  
a. the FSC/ETI subsidies and Washington State B&O tax rate reduction, in two LCA sales 
campaigns, caused serious prejudice in the 100 -200 seat LCA product market151;  
b. it was not possible to complete the analysis of the effects of the FSC/ETI  subsidies , 
Washington State B&O tax rate reduction and City of Everett B&O tax rate reduction  in 
the 300 -400 seat LCA product market because the panel had not engaged with the 
evidence concerning the "other factors " that the United States alleged h ad attenuated 
the causal link between the subsidies and the adverse effects.152  
7.47.  The Appellate Body then dealt with the European Union 's appeals.153 In short, it reached the 
following outcomes:  
a. As to the European Union 's appeal that the panel failed to assess  collectively the effects 
of the Washington State and City of Everett B&O tax rate reductions with the effects of 
the aeronautics R&D subsidies:  
i. The panel erred in failing to consider whether the price effects of the Washington 
State and City of Everett B& O tax rate reductions could be cumulated with (i.e. 
complemented and supplemented) the technology effects of the aeronautics R&D 
subsidies in causing serious prejudice in the 200 -300 seat LCA product market. The 
European Union did not request completion of  the analysis on this issue.154  
                                               
147 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1834.  
148 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1608.  
149 Panel Report, US – Large Civil Aircraft (2nd complaint ), par a. 7.1824.  
150 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1249.  
151 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1274.  
152 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1268.  
153 The two specific alleged errors of law are described in Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint ), para. 1275.  
154 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1321.  WT/DS353/R W 
 
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  b. As to the European Union 's appeal that the Panel failed to assess collectively the effects 
of the tied tax subsidies and the effects of the untied subsidies (including the first three 
original Washington tax measures  listed i n paragraph 7.11 above ): 
i. The panel erred in failing to consider whether the effects of the "untied " subsidies 
(including the first three original Washington tax measures  listed in paragraph  7.11 
above) could be cumulated with (i.e. complemented and supplemented) the price 
effects of the tied tax subsidies in the 100 -200 seat LCA product market.155 On 
completing the analysis for the 100 -200 seat LCA product market (which was the 
only LCA product market in which the Appellate Body had found the tied tax 
subsidies caused adverse effects, because it had been unable to complete the 
analysis in the 300 -400 seat LCA product market), the Appellate Body found:  
ii. neither the Washington State B&O tax credits for pre production/aerospace product 
development, nor the Washington State sales and use tax exemptions for computer 
software, hardware, and peripherals  appeared to be received in connection with 
expenditures related to the 737NG and thus did not have effects in t he 100 -200 seat 
LCA product market156; 
iii. as the European Union 's submissions revealed that the Washington State B&O tax 
credit for property taxes benefit s only the 787, the Appellate Body did not attempt to 
cumulate the effects of this subsidy with the effects  of the tied tax subsidies in the 
100-200 seat LCA product market.157 
7.48.  In sum, at the conclusion of the original proceeding, as a result of the Appellate Body 's 
reversal of various panel findings, its completion of the analysis in some instances and its inabi lity 
to complete the analysis in others (or the failure of the European Union to request completion of 
the analysis), none of the four original Washington tax measures was found to cause serious 
prejudice to the European Union 's interests , within the meani ng of Article s 5(c), 6.3(b) , and 6.3(c) 
of the SCM Agreement.  
7.49.  Although none of the four original Washington tax measures was found to cause serious 
prejudice at the conclusion of the original proceedings, in many cases, this was because the 
Appellate Body  did not complete the analysis fully for all relevant LCA product markets, either 
because it was unable to, or because it was not requested to  do so . It was not because the four 
original Washington tax measures were adjudged on the merits, for all of the r elevant LCA product 
markets, not to have caused serious prejudice .  
7.50.  In fact, had the Appellate Body been able to complete the analyses, it was potentially open 
for it to have found that the City of Everett B&O tax rate reduction, the Washington State B&O t ax 
credits for preproduction/aerospace product development and the Washington State sales and use 
tax exemptions for computer software, hardware, and peripherals , caused serious prejudice .158 
The only original Washington tax measure that arguably may not hav e been found to have caused 
                                               
155 The 100 -200 seat LCA product market was the  only product market in which the Appellate Body had 
found the tied tax subsidies caused adverse effects, because it had been unable to complete the analysis in the 
300-400 seat LCA product market.  
156 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 1344 -1346.  
157 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1341.  
158 The City of Everett B&O tax rate reduction could have been found to have caused serious prejudice in 
the 300 -400 seat LCA product market except th at the Appellate Body had been unable to complete the analysis 
of whether the effects of the tied tax subsidies (including the City of Everett B&O tax rate reduction) had 
caused serious prejudice, owing to the existence of disputed facts in the LCA sales c ampaigns in the 300 -400 
seat LCA market. The Washington State B&O tax credits for preproduction/aerospace product development, as 
well as the Washington State sales and use tax exemptions for computer software, hardware, and peripherals 
could have been fou nd to have caused serious prejudice in the 300 -400 seat LCA product market if the 
Appellate Body had been able to complete the analysis with respect to the effects of the tied tax subsidies in 
the 300 -400 seat market (and had found that the tied tax subsid ies did cause serious prejudice) and then that 
the effects of these two original Washington measures "complemented and supplemented" the effects of the 
tied tax subsidies in that product market. In addition, the price effects of the City of Everett B&O tax  rate 
reduction could have been found to have "complemented and supplemented" the technology effects of the 
aeronautics R&D subsidies in the 200 -300 seat LCA product market, and thus caused serious prejudice in that 
product market, except that the European  Union did not request the Appellate Body to complete the analysis 
on this issue.  WT/DS353/R W 
 
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  serious prejudice  on the basis of the Appellate Body 's ruling is the Washington State B&O tax 
credit for property taxes. Th is B&O tax credit (which w as part of the group of "untied " or 
"remaining " subsidies) benefited only the 7 87 and thus , applying the Appellate Body's reasoning,  
would only potentially have had effects in the 200 -300 seat LCA product market.159 The 
European  Union did not allege that the panel erred in not collectively assessing (whether by 
"aggregation " or "cumula tion") the effects of the "untied " subsidies with the aeronautics R&D 
subsidies.160 
7.51.  As explained above, the Appellate Body overruled the panel 's approach to assessing 
whether the four original Washington tax measures  listed in paragraph 7.11 above  caused serious 
prejudice, but could not complete the analys es. Therefore, the Appellate Body did not find that, for 
every possible LCA product market, the European Union had failed to demonstrate that the 
measures caused serious prejudic e. Thus, at the conclusion of the appeal process, there cannot be 
said to be findings that any of the four original Washington tax measures was "not inconsistent " 
with Articles 5(c) and 6.3 of the SCM Agreement for all LCA product markets.  
7.52.  In the particul ar circumstances of t he outcome of the European Communities'  original 
serious prejudice claims against these measures, and particularly the fact that the European Union 
successfully appealed the panel 's failure to collectively assess the effects of the tie d tax subsidies 
with the aeronautics R&D subsidies, and the effects of the untied subsidies with the tied tax 
subsidies, we consider that the reassertion of  claims in respect of the original Washington tax 
measures would not compromise the finality of the DSB recommendations and rulings, or amount 
to an unfair second chance.161 
7.53.  On the basis of the foregoing, we consider that the European Union is not precluded from 
reasserting claims in respect of the four original Washington tax measures in this compliance 
proceeding. The Panel therefore rejects the United States ' requests for rulings that the 
four original Washington tax measures  are outside the scope of this compliance 
proceeding.  
7.2.2   Whether  the Washington State Joint Center for Aerospace Technology Innovation  
measure is outside  the scope of this proceeding  
7.54.  In its panel request, the European Union makes claims in respect of the establishment by 
the State of Washington and its political subdivisions of a Joint Center for Aerospace Technology 
Innovation (JCATI) w hich it alleges is a specific subsidy to Boeing. The United States argues that 
the JCATI is not a declared measure taken to comply, nor does it share a close nexus to a declared 
measure taken to comply or to the DSB recommendations and rulings.162 Accordingl y, the 
United  States  considers that this measure is outside  the scope of this proceeding and requests a 
preliminary ruling to that effect.163  
                                               
159 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1341.  
160 However, the European Union did successfully appeal: (a) the panel's failure to assess c ollectively 
the effects of the tied tax subsidies (i.e. the Washington State and City of Everett B&O tax rate reductions) 
with the technology effects of the aeronautics R&D subsidies; and (b) the panel's failure to assess collectively 
the effects of the "u ntied" subsidies with the effects of the tied tax subsidies (including the Washington State 
and City of Everett B&O tax rate reductions). If the European Union had requested completion of the analysis 
on (a), then the Appellate Body potentially could have found that the effects of the City of Everett B&O tax rate 
reduction complemented and supplemented the effects of the aeronautics R&D subsidies in the 200 -300 seat 
LCA product market. Since the Appellate Body also thought that the panel should have collect ively assessed 
the effects of the tied tax and "untied" subsidies, it was theoretically possible that the effects of the 
Washington State B&O tax credit for property taxes (as well as the two other "untied" original Washington tax 
subsidies) could have bee n found to have complemented and supplemented the effects of the tied tax subsidies 
in the 200 -300 seat LCA product market.  
161 In the circumstances of the multiple appeals concerning the panel's collective assessment of the 
subsidies in its serious prejudic e analysis, we also do not consider it would be reasonable to conclude that the 
Washington State B&O tax credit for property taxes are outside the scope of the proceeding owing to the 
European Union's failure to request completion of the analysis of the co llective assessment of the tied tax and 
aeronautics R&D subsidies.  
162 United States' first written submission, para. 513; second written submission, para. 77.  
163 United States' first written submission, para. 76.  WT/DS353/R W 
 
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  7.2.2.1   Main arguments of the parties and third parties  
7.55.  The United States  disputes the contention that the JCATI shares a c lose nexus with the 
Washington State B&O tax rate reduction: First, the European Union 's unsupported assertion that 
the purpose of both measures is to convince Boeing to expand production in Washington says 
nothing about the nature of these two very differ ent types of measures.164 It is difficult to conceive 
how a program me developed to foster the education of engineering students is akin to the 
reduction of a B&O tax rate.165 Second, in relation to the European Union 's argument that both the 
JCATI and Washingt on State B&O tax rate reduction have the effect  of reducing Boeing 's costs of 
doing business in Washington State, the European Union fails to articulate a coherent theory as to 
how such effects would occur.166 Moreover, the JCATI activities do not operate to  negate the 
removal of any adverse effects relating to the Washington State B&O tax rate reduction.167 
7.56.  As to the European Union 's arguments concerning the alleged nexus with the NASA and 
DOD aeronautics R&D  measures subject to the DSB recommen dations and rul ings, the 
United  States argues that the JCATI does not function like, and its activities are not similar in any 
meaningful way to, the measures administered by NASA and DOD.168 Unlike the NASA and DOD 
aeronautics R&D measures, the JCATI coordinates the devel opment of higher education aerospace 
program mes at the University of Washington and Washington State University. Its activities with 
industry are structured differently from those under the NASA and DOD aeronautics R&D 
measures; for example, JCATI funding is allocated to projects by educational institutions, not 
participating parties.169 As to the alleged links in terms of effects , NASA awards contracts to 
outside entities in order to obtain research into new scientific principles while the European Union 
asserts that Boeing will be able to use technology developed through the JCATI to further its own 
LCA-related research.170  
7.57.  The European Union  argues that the JCATI measure constitutes a measure taken to comply , 
within the scope of this proceeding, based on its  close nexus with "the other Washington State 
subsidies subject to the DSB 's recommendations and rulings ", as well as with the "NASA and DOD 
aeronautics R&D subsidies subject to those recommendations and rulings ".171 As to the links in 
terms of nature , the E uropean Union makes the following arguments:  
a. the JCATI shares the same purpose as the Washington State B&O tax rate reduction; 
namely, to convince Boeing to retain and expand its production in Washington State by 
lowering Boeing 's cost of doing business in  the State. Just like the Washington State 
B&O tax rate reduction, the JCATI 's subsidies are limited to enterprises in the aerospace 
industry172; and  
b. the JCATI has the same nature as the NASA and DOD aeronautics R&D subsidies subject 
to the DSB recommendatio ns and rulings because it supports Boeing 's LCA -related R&D 
efforts and contributes to Boeing 's development of, and access to, LCA -related 
technology.173 Even where funding goes directly to the educational institutions involved, 
participating enterprises suc h as Boeing nevertheless receive direct support from the 
funded projects, and technologies owned by the universities are advanced in part 
through R&D funding provided through NASA 's aeronautics R&D program mes and DOD 's 
RDT&E Program.174 
                                               
164 United States' second written submission, para. 78.  
165 United States' first written submission, para. 515; second written submission, para. 78.  
166 United States' second written submission, para. 78.  
167 United States' first written submission, para. 515.  
168 United States' first written submission, para s. 514 and 515.  
169 United States' first written submission, para. 515; second written submission, para. 79.  
170 United States' second written submission, para. 79.  
171 European Union's first written submission, para. 541.  
172 European Union's second written submi ssion, para. 137. The European Union refers to a press article 
in which the Director of the Governor's Office of Aerospace says in relation to the JCATI that the focus is now 
on the next aircraft Boeing will design and build after the 737 MAX. (See S. Wilh elm, "State Fires Up New 
Efforts to Boost Aerospace Education", Puget Sound Business Journal , 29 June 2012, (Exhibit EU -456)).  
173 European Union's second written submission, para. 138.  
174 European Union's first written submission, para. 527; second written s ubmission, para. 139.  WT/DS353/R W 
 
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  7.58.  The European Union ar gues that the effects  of the JCATI measure are to worsen the existing 
situation of non -compliance regarding the Washington State B&O tax rate reduction and the NASA 
and DOD aeronautics R&D subsidies by expanding the adverse effects caused by such subsidies  
during the new reference period.175 The JCATI measure undermines compliance with the DSB 
recommendations and rulings by enabling Boeing to use the technologies and research developed 
through JCATI to further its own LCA -related research without paying anyth ing in return for such 
goods, services and grants and by lowering Boeing 's costs of doing business in Washington State.  
7.59.  As to timing , the European Union notes that the JCATI issued its first round of grant awards 
in February 2013, which is after the date o f the DSB recommendations and rulings 
(23 March  2012).  
7.60.  Brazil  considers that an Article 21.5 panel is not confined solely to examining declared 
measures taken to comply.176 Where an "undeclared " measure has a sufficiently close relationship 
to a declared mea sure taken to comply , and to the DSB recommendations and rulings, it may be 
within the scope of Article 21.5 compliance proceedings.177 This requires a panel to "scrutinize the 
links, in terms of nature , effects , and timing " between the respective measures.178 Brazil considers 
that while an "undeclared " measure must share more than "some features " with the original 
measure to be considered within the scope of Article 21.5, an overl y narrow approach to an 
Article  21.5 panel 's terms of reference could undermine t he effectiveness of the dispute settlement 
process.179  
7.61.  Canada  considers that it is essential to the prompt settlement of disputes to include in the 
scope of Article 21.5 compliance proceedings those measures that have a "sufficiently close 
relationship " in "timing, nature and effects " with the declared measures taken to comply, and the 
DSB recommendations and rulings.180 To do otherwise would allow a respondent to evade 
compliance with rulings and recommendations of the DSB.181 
7.62.  Japan  considers that in order to e nsure full compliance and prevent circumvention, certain 
"undeclared " measures taken to comply may also be included in the scope of compliance 
proceedings. These are those "undeclared " measures that virtually replace the declared measure 
taken to comply or  that have "close links particularly in terms of their 'timing, nature and effects '" 
with the declared measures.182  
7.2.2.2   Evaluation by  the Panel  
7.63.  The Joint Center for Aerospace Technology is an aerospace office created and funded by the 
State of Washington since July 2012. Its statutory purposes are to:  
a. pursue joint industry -university research in computing, manufacturing, efficiency, 
materials/structures innovation , and other new technologies that can be used in 
aerospace firms;  
b. enhance the education of students in the engineering departments of the University of 
Washington, Washington State University, and other participating institutions through 
industry -focused research; and  
c. work directly with existing small, medium -sized and large aerospace firms and aerospace  
industry associations to identify research needs and opportunities to transfer 
off-the-shelf technologies that would benefit such firms.183 
                                               
175 European Union's second written submission, para. 140.  
176 Brazil's third -party response to Panel question No. 2, para. 3.  
177 Brazil's third -party response to Panel question No. 2, para. 3.  
178 Brazil's third -party response to Panel qu estion No. 2, para. 3. (emphasis original)  
179 Brazil's third -party response to Panel question No. 2, para. 4.  
180 Canada's third -party response to Panel question No. 2, para. 10.  
181 Canada's third -party response to Panel question No. 2, para. 11.  
182 Japan's t hird-party response to Panel question No. 2, para. 12. (emphasis original)  
183 Substitute Senate Bill 5982, Washington Session Laws 1920 (2012), (Exhibit EU -459).  WT/DS353/R W 
 
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  7.64.  The JCATI is operated and administered as a multi -institutional education and research 
center, conducting research an d development program mes in various locations within Washington 
under the joint authority of the University of Washington and Washington State University. The 
JCATI is administered by a Board of Directors appointed by the Governor with voting members as 
follows: one voting member each representing small aerospace firms, medium -sized firms, large 
aerospace firms, and labor ; and two voting members each, representing aerospace industry 
associations and higher education. The Board is directed to work with aeros pace industry 
associations and aerospace firms of all sizes to identify the research areas that will benefit the 
intermediate and long -term economic viability of the Washington aerospace industry.184 In 
February 2013, the JCATI announced that it had awarded 16 projects a total of USD 1.24 million to 
solve technological questions important to the aerospace industry in its first round of grant 
awards.185 Six of those projects involved Boeing (partnering with Washington University with 
respect to three and Washing ton State University with respect to three).186 
7.65.  The parties appear to agree that whether the JCATI measure is within the scope of this 
compliance proceeding depends upon whether it meets the requirements of the close nexus test 
and thus constitutes an "undec lared" measure taken to comply.  
7.66.  We recall that the close nexus test represents an attempt by panels and the Appellate Body 
to balance the competing interests of (a) providing a responding party with a reasonable period of 
time to bring its measures into c onformity prior to authorization for retaliation , with (b) the 
efficient working of the dispute settlement system, and the importance of meaningful compliance . 
In striking this balance, the close nexus test looks to see whether "undeclared " measures have a  
"particularly close relationship " to the declared measure taken to comply, and to the DSB 
recommendations and rulings, such that they are susceptible to review by a compliance panel.187 
Compliance panels "scrutinize these relationships ", which may, dependin g on the particular facts, 
call for an examination of the timing, nature , and effects of the various measures, as well as an 
examination of the "factual and legal background " against which a declared measure taken to 
comply is adopted. The task of a compli ance panel is to determine whether there are "sufficiently 
close links " to be able to characterize the "undeclared " measure as being one "taken to comply " 
and consequently, for the panel to assess its consistency with the covered agreements in an 
Article  21.5 proceeding.188 The focus or purpose of the exercise is to ascertain whether measures 
other than original measures, or the responding party 's declared compliance actions, would in 
practical terms undermine or nullify the purported compliance actions with the result that a panel 
could not meaningfully undertake an assessment of whether there has been compliance without 
also considering those "undeclared " measures.  
7.67.  This being so, the close nexus test is not satisfied by merely identifying any links at all 
between the "undeclared " measure and the declared measures taken to comply or the DSB 
recommendations and rulings. For example, in the subsidies context, the close nexus test should 
not be applied in a manner that means that, once a Member is found to have g ranted a subsidy to 
a recipient that causes adverse effects, a complaining party can challenge in a compliance 
proceeding any subsequent financial contribution to that same recipient on the theory that it is a 
subsidy and will cause adverse effects.  
7.68.  Application of the close nexus test by previous panels and the Appellate Body provides some 
guidance as to the sufficiency of the links necessary in order to satisfy the close nexus test and 
conclude that the measure is within the scope of a compliance proceedi ng. We briefly discuss 
below the previous cases in which an "undeclared " measure was considered sufficiently closely 
linked to either the DSB recommendations and rulings, or to declared implementation actions 
taken by the responding party, that it was cons idered within the scope of the compliance 
proceeding.  
                                               
184 Substitute Senate Bill 5982, Washington Session Laws 1920 (2012), (Exhibit EU -459).  
185 JCATI P ress Release, "Research Center Promotes Washington Aerospace Industry Innovation", 
5 February 2012 (formerly Exhibit US -13-150), (Exhibit EU -457).  
186 JCATI Recommendations (formerly Exhibit US -13-147), (Exhibit EU -462).  
187 Appellate Body Reports, US – Softwo od Lumber IV (Article 21.5 – Canada ), para. 77; and US – 
Zeroing (EC) (Article 21.5 – EC), para. 204.  
188 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada ), para. 77.  WT/DS353/R W 
 
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  7.69.  The close nexus test was first articulated by the Appellate Body in  US – Softwood Lumber IV 
(Article 21.5 – Canada ) in referring with approval to the approach taken by compliance panels in 
two earlier cases.189 In the first of those, Australia – Salmon (Article 21.5 – Canada ), the 
compliance panel was required to determine whether Australia had complied with the DSB 
recommendations and rulings adopted in November 1999 regarding import restrictions on 
salmonid products that had been maintained through a federal quarantine proclamation. Australia 
announced changes to its quarantine policy in July 1999, these being measures that Australia 
considered brought it into full compliance with the DSB recommendations  and rulings. However, in 
October 1999, the State of Tasmania adopted an import ban applying to the product at issue.190 
The compliance panel considered that, in the context of this dispute, at least any quarantine 
measure introduced by Australia subsequent to the adoption of the DS B recommendations and 
rulings, and within a more or  less limited time thereafter, that applied to imports of fresh chilled or 
frozen salmon from Canada, was a measure taken to comply within the mandate of the compliance 
panel.191  
7.70.  The second, Australia – Automotive Leather II (Article 21.5 – US), concerned compliance 
with a DSB recommendation pursuant to Article 4.7 of the SCM Agreement, adopted in June 1999, 
that Australia withdraw subsidies found to be contingent on export performan ce, within the 
meaning of Article 3.1(a) of the SCM Agreement. The subsidies in question were payments under a 
grant contract between the Government of Australia, a recipient company and its parent company. 
Australia notified the DSB that it had complied w ith the DSB recommendation s and rulings  in 
September 1999, by requiring the recipient company to repay to the Australian Government an 
amount that covered any remaining WTO-inconsistent portion of the grants made under the grant 
contract and terminating al l subsisting obligations under the grant contract. On the day after the 
company had repaid the prospective portion of the grant, Australia announced that it was 
providing a loan to the recipient 's parent company, which was conditioned on the repayment of t he 
original subsidy. The United States challenged the new loan in the compliance proceeding on the 
basis that it was simply a reimbursement of the non -commercial terms of the purported 
withdrawal of the prospective portion of the grant that was repaid by t he company. The panel 
considered that the loan was "inextricably linked " to the steps taken by Australia to comply with 
the DSB recommendation, in view of both its timing and nature. The panel further reasoned that it 
could not exclude the loan from its co nsideration without severely limiting its ability to judge, on 
the basis of the U.S. panel request, whether Australia had taken measures to comply with the DSB 
recommendations and ruling s.192 
7.71.  The compliance proceeding in US – Softwood Lumber IV (Article 21.5  – Canada ), involved a 
pass-through analysis used by USDOC in a First Assessment Review of a Final Countervailing Duty 
Determination calculating the rate of subsidization of softwood lumber from Canada (the 
"undeclared " measure). The declared measure taken  to comply was a Section 129 Determination 
which replaced the Final Countervailing Duty Determination, and thereby became the basis for the 
continued imposition of countervailing duties. The USDOC adopted the same pass -through analysis 
in the First Assessm ent Review and in the Section 129 Determination. The panel found that the 
pass-through analysis in the First Assessment Review was so "inextricably linked " and "clearly 
connected " to both the Section 129 Determination and the Final Countervailing Duty Dete rmination 
as to fall within the scope of the compliance proceeding. The United States objected, noting that 
the Section 129 Determination (and the Final Countervailing Duty Determination that it revised) 
considered the existence and amount of subsidization  in the original period of investigation, while 
the First Assessment Review was concerned with the amount of subsidization in a different peri od 
of review. Moreover, Section  129 proceedings and assessment reviews had different legal 
consequences, and the F irst Assessment Review was requested eight months before the adoption 
of the panel and Appellate Body reports in the original proceeding. The Appellate Body rejected the 
U.S. arguments. Rather, the Appellate Body considered the links between the "undeclare d" 
measure, the declared measure taken to comply, and the DSB recommendations and rulings in 
terms of "subject matter ", "timing ", and "effects " and upheld the panel 's finding that the First 
                                               
189 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canad a), para. 74.  
190 Panel Report, Australia – Salmon (Article 21.5 – Canada ), fn 141 of the preliminary ruling set forth at 
paras. 7.10 and 7.15.  
191 Panel Report, Australia – Salmon (Article 21.5 – Canada ), para. 22 of the preliminary ruling set forth 
at para. 7.10.  
192 Panel Report, Australia – Automotive Leather II (Article 21.5 – US), para. 6.5.  WT/DS353/R W 
 
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  Assessment Review, insofar as the pass -through analysis was concer ned, fell within the scope of 
the compliance proceeding.193 
7.72.  The Appellate Body next applied the close nexus test in the context of determining whether 
the United States had complied with the DSB recommendations and rulings regarding the 
methodology of zeroin g. In US – Zeroing (EC) (Article 21.5 – EC), the Appellate Body considered 
the extent to which subsequent reviews that followed 15 original anti -dumping investigations and 
16 administrative reviews in the original proceeding fell within the scope of the co mpliance 
proceeding. The panel had ruled that only the subsequent reviews that came into effect after the 
adoption of the DSB recommendations and rulings had a sufficiently close nexus with the original 
measures at issue and the DSB recommendations and rul ings so as to come within the scope of 
the compliance proceeding.194 The European Communities appealed the panel 's conclusion 
regarding the timing factor and exclusion of the other subsequent reviews. The Appellate Body 
stated that the timing of a measure is  not determinative of whether it bears a sufficiently close 
nexus with a Member 's implementation of DSB recommendations and rulings so as to fall within 
the scope of a compliance proceeding. As compliance can be achieved before the adoption of DSB 
recommen dations and rulings, a compliance panel may have to review events pre -dating the 
adoption of those recommendations and rulings.195 While the timing of a measure was a relevant 
factor to consider in determining whether it is sufficiently closely connected to a Member 's 
implementation of the DSB recommendations and rulings, the panel 's formalistic reliance on the 
date of issuance of subsequent reviews in determining whether they had the requisite close nexus 
with the DSB recommendations was found to be in error .196 
7.73.  The Appellate Body then examined whether any of the excluded subsequent reviews fell 
within the scope of the compliance proceeding based on a consideration of the links, in terms of 
nature and effects, between those measures, the declared measures taken  to comply and the DSB 
recommendations and rulings.197 It concluded that, with respect to the administrative reviews that  
had replaced assessment rates and cash deposit rates found to be WTO -inconsistent in the original 
proceeding with assessment rates and c ash deposit rates that continued to reflect the zeroing 
methodology , there was a sufficient link, in terms of effects, with the  DSB recommendations and 
rulings.198 Similarly, the su nset review determinations that  led to the continuation of the relevant 
anti-dumping duty orders (which in turn provided the legal basis for the continued imposition of 
assessment rates and cash deposit rates calculated with zeroing in subsequent administrative 
reviews) and which had continued effects after the end of the reasonabl e period of time, had a 
sufficiently close link in terms of effects with the DSB recommendations and rulings.199 
7.74.  Stepping back from the specific facts of these cases, the close nexus test appears to be 
fundamentally directed to the question of whether, in th e specific factual and legal context of the 
case, it would be feasible  for a panel to  undertake to  determine whether the responding party has 
complied with the DSB recommendations and rulings without  taking into account these 
"undeclared " measures. Thus, i n Australia – Salmon , it made no sense to examine whether 
Australia had complied with the DSB recommendations and rulings by amending its  federal  
quarantine regulations if the compliance panel had not taken into account the fact that the state of 
Tasmania had imposed its own import ban very shortly thereafter. Similarly, the compliance panel 
in Australia – Automotive  Leather  II (Article 21.5 – US) could not sensibly have determined 
whether Australia had complied with the DSB recommendations and rulings by r equiring the 
recipient to repay the grant if it had ignored the fact that the next day, a loan in a similar amount 
that expressly made reference to repayment of the grant had been granted to the recipient 's 
parent company.  
7.75.  Although the cases involving com pliance in the context of the United States ' retrospective 
system for assessing anti -dumping and countervailing duties are complex technically, the key 
issue in those cases seems to be that, whatever the technical legal distinctions between original 
                                               
193 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada ), paras. 83 -85 and 92.  
194 Panel Report, US – Zeroing (EC) (Article 21.5 – EC), paras. 8.115 and 8 .121.  
195 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 224.  
196 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 226.  
197 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 229.  
198 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 231. By contrast, there was not 
a sufficient link, in terms of effects, with respect to excluded subsequent reviews the effects of which had been 
replaced by Section 129 Determinations in which zeroing was not a pplied. (Ibid. para. 232).  
199 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 233.  WT/DS353/R W 
 
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  determ inations and assessment reviews, if at the end of the day there would be duties imposed 
that reflected the WTO -inconsistency (e.g. zeroing or an impermissible pass -through 
methodology), the measures in question should be considered by the compliance panels , because 
to ignore this factor would mean that the complaining party may not truly receive the relief that it 
could be expected to receive in bringing its complaint and succeeding on that complaint in the 
original proceeding. Indeed, in these cases, a fai lure to take into account subsequent reviews 
would mean that, by the time the compliance proceeding was completed, the WTO -inconsistent 
reviews of a given anti -dumping or countervailing duty order would have been superseded by new 
reviews using the same WT O-inconsistent methodologies with respect to the same order.   
7.76.  We are not persuaded that the European Union has demonstrated that the JCATI measure 
shares sufficiently close links in terms of nature or effects, with the Washington State B&O tax rate 
reducti on, or with the NASA and DOD aeronautics R&D subsidies subject to the DSB 
recommendations and rulings, to warrant its inclusion within the scope of this proceeding as an 
"undeclared " measure taken to comply.  
7.77.  The Washington State B&O tax rate reduction , enacted under HB 2294 , is a reduction in the 
B&O tax rate for manufacturers of commercial airplanes or components of such airplanes, which 
was to occur in two stages from October 2005 to July 2007, or at the commencement of final 
assembly of a super -efficien t airplane, whichever was later.200 The B&O tax rate reduction was 
considered in the original proceeding to be a "tied" subsidy as it applies to the production and sale 
of each LCA manufactured in Washington State  on a per -unit basis , increasing Boeing's  after-tax 
revenue and profitability.201 The JCATI measure, by contrast, is a joint industry -university research 
program me that seeks to pursue focused research of relevance to the aerospace industry and 
enhance the education of students in engineering departmen ts of educational institutions in the 
State of Washington. The fact that both measures concern enterprises in the aerospace industry in 
the State of Washington is insufficient, in our view, to demonstrate a close nexus in terms of 
nature.  
7.78.  We also regard t he JCATI measure as being insufficiently closely linked to the NASA 
procurement contracts and Space Act Agreements and DOD assistance instruments the subject of 
the DSB recommendations and rulings. These measures are multi -year R&D instruments that 
operate d as collaborative research projects between NASA and DOD, respectively, funded through 
specific NASA and DOD aeronautics R&D program mes.202 The JCATI measure will coordinate the 
development of higher -education aerospace program mes at certain universities in  the State of 
Washington. As such, it appears to be significantly qualitatively different from the NASA and DOD 
aeronautics R&D measures the subject of the DSB recommendations and rulings. There is nothing 
before us to suggest that the JCATI will continue or develop R&D conducted under the NASA and 
DOD aeronautics R&D program mes, or that the JCATI replaces or replicates the NASA and DOD 
aeronautics R&D measures the subject of the DSB recommendations and rulings in a way that 
requires that the  measure  be inc luded within the scope of this proceeding in order to enable the 
Panel to make a meaningful determination as to whether the United States has complied with the 
DSB recommendations and rulings.   
7.79.  The JCATI measure is not a declared measure taken to comply, n or has it been 
demonstrated to have a sufficiently close connection to a declared measure taken to comply, or to 
the DSB recommendations and rulings, to fall within the scope of this proceeding as an 
"undeclared " measure taken to comply. The Panel therefor e grants the United States' request and 
rules that the JCATI measure is outside the scope of this proceeding.   
7.80.  In this Section of the Report, the Panel therefore finds  that the following 
Washington tax measures, which were the subject of a request for prel iminary rulings 
by the United States, are within  the scope of this proceeding:  
a. Washington State B&O tax credits for preproduction/aerospace product 
development, as amended by section 7 of SSB 6828;  
                                               
200 Assembly of the 787 commenced in Washington in the first half of 2007 and the reduced taxation 
rate was set to continue until 2024.  
201 Appellate Body Rep ort, US – Large Civil Aircraft (2nd complaint ), paras. 1170 and 1252.  
202 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1709 and 7.1746.  WT/DS353/R W 
 
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  b. Washington State B&O tax credit for property taxes, as ame nded by HB  2466 to 
include leasehold excise taxes;  
c. Washington State sales and use tax exemptions for computer software, 
hardware, and peripherals ; and  
d. City of Everett B&O tax rate reduction.  
7.81.  The Panel grant s the United States' request for a preliminary ru ling that the JCATI 
measure is outside  the scope of this proceeding.203 
7.3  DOD aeronautics R&D measures  
7.3.1   Background  
7.82.  In this Section, we address the United States' scope obje ctions relating to the 
European  Union's challenge to the U.S. DOD's Research, Development , Test & Evaluation (RDT&E) 
Program as involving specific subsidies to Boeing. By way of background, we recall that DOD's 
budget has historically been divided into five broad budget categories: Military Personnel ; 
Operations & Maintenance; Procurement; Res earch, Development, Test & Evaluation, and Military 
Construction .204 The RDT&E budget category funds research, development, test, and evaluation 
spending by DOD, including the three military departments of DOD (United States Army, Navy, 
and Air Force) and ot her DOD agencies, towards designing and developing military systems or 
technology.205 The RDT&E budget category is a distinct category from "Procurement" which funds 
the actual acquisition costs of military systems that are in production.206  
7.83.  RDT&E budget acti vities are subdivided into a number of program elements. DOD Financial 
Management Regulation explain s that the "program element" is the major aggregation at which 
RDT&E efforts are organized, budgeted , and reviewed.207 Each program element is divided into on e 
or more named and numbered projects, which may be further subdivided into activities.208 Each 
RDT&E program element has specific program objectives expressed in the "Mission Description" 
statement contained in the program budgets.209 Program elements are als o identified by a 
particular "PE number" in the Future Years Defense Program ( FYDP) budget estimates.210  
7.84.  In its panel request in this proceeding, the European Union alleges that U .S. DOD maintains 
subsidies benefiting U.S. LCA producers through : (a) the RDT &E Program ; as well as (b) through 
contracts, assistance instruments , and other agreements (as modified) entered into under the 
                                               
203 We recall that, in addition to the Washington tax measures listed in subparagraphs a through d 
above, which we have ruled to be within the scope of this proceeding, the European Union also brings claims in 
respect of the Washington State B&O tax rate reduction for the aerospace industry, which was a measure that 
was successfully challenged by the Europe an Communities in the original proceeding, and is the subject of DSB 
recommendations and rulings.  
204 Panel Report, US – Large Civil Aircraft (2nd complaint ), fn 2786; and CRA International, U.S 
Department of Defense (DOD) Research, Development, Test and Ev aluation (RDT&E) Funding Support to the 
Boeing company for Dual -Use Aircraft R&D , (November 2006) (CRA Report), (Exhibit EU -29), p. 4.  
205 All non -classified DOD funding activities can be identified and tracked to some degree through the 
Future Years Defense  Program (FYDP), which is the official DOD expression of historical and projected funding, 
by program, and by fiscal year. The FYDP contains data on all spending by DOD including personnel, 
acquisitions, operations and maintenance, and R&D activities. The FYDP information is contained in Budget 
Estimates that are published annually and contain actual prior year expenditures, estimated current year 
expenditures, and several projected budgeted years of program funding. (CRA Report, (Exhibit EU -29), pp. 4 
and 5). 
206 Panel Report, US – Large Civil Aircraft (2nd complaint ), fn 2786; and CRA Report, (Exhibit EU -29), 
p. 4. 
207 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1195 (referring at fn 2785 to DOD 
Financial Management Regulation, Vol . 2B, Ch apter 5, June 2006, submitted in the original dispute as Exhibit 
EC-1324, p. 5). The original panel referred to the 23 RDT&E program elements as "programmes", although 
also explained that the 23 individual RDT&E programmes could be termed "programme elemen ts", "project 
elements", or "PEs". (Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1195 ). For purposes of 
clarity, we refer to the individual RDT&E programmes under the RDT&E Program as "program elements".  
208 CRA Report, (Exhibit EU -29), p . 5. 
209 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1147.  
210 CRA Report, (Exhibit EU -29), p. 5.  WT/DS353/R W 
 
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  RDT&E Program ; in addition to (c) specified U.S. Air Force, Navy, Army , and Defense -wide 
program elements of the RDT&E Program ; as well as (d) contracts, assistance instruments , and 
other agreements (as modified) entered into under these RDT&E program elements ; and (e) 
contracts and other agreements (as modified) with Boeing listed in annex B of the 
United  States ' 23 September 2012  notification.211 The forms of the subsidies are described as : (a) 
the provision to Boeing of funding and access to government facilities, equipment, and employees  
for R&D applicable to the development, design , and production of LCA on terms more favourable 
than would be available on the commercial market ; as well as (b) the provision to Boeing of 
royalty -free use of the technologies developed with such funding and support or use of such 
technologies on preferential terms.212 
7.85.  The European Union 's first written submission divides its discussion of the particular DOD 
RDT&E program elements through which DOD is alleged to provide actionable subsidies to Boeing 
into "original " RDT&E program elements (i.e. those that were also at issue in the original  
proceeding), an d "additional " RDT&E program elements (i.e. those which allegedly have begun to 
fund what the European Union identifies as "dual-use LCA -relevant research " since 2007).213  
7.86.  The European Union explains that its identification and discussion of the RDT&E progr am 
elements that it considers "contribute to Boeing 's LCA division " was assisted by experts, 
Mr Richard Rumpf and Charles River Associates (CRA).214 CRA had been engaged by the European 
Communities in the original proceeding to estimate the amounts of RDT&E funding received by 
Boeing that could be considered "dual-use" RDT&E, in the sense of R&D that was  "relevant " to 
both military and commercial aircraft.215 Mr Rumpf was similarly engaged by the European Union 
in this compliance proceeding to estimate the amou nts of fun ding provided by the DOD RDT&E 
Program to Boeing f or fiscal year s (FY) 2007 through FY  2012 "which support the development of 
technologies or methods that could benefit Boeing 's commercial airplane division ".216  
7.87.  Using a similar methodology to that  employed by CRA in its 2006 Report, Mr Rumpf 
reviewed DOD 's FYDP budget estimate statements for FY 2007 through FY 2013 to determine 
which RDT&E program elements, and which projects and activities within those program elements, 
funded "general aircraft " or "science and technology " R&D "that appeared to be dual -use to 
LCA".217 On the basis of this analysis, Mr Rumpf identified 15 "general aircraft " RDT&E program 
elements, under 16 di fferent program element  numbers.218 Eight of those "general aircraft " 
program e lements had been identified by CRA in its 2006 Report and were challenged by the 
European Communities in the original proceeding.219 The Rumpf Report does not identify six 
program elements that were identified by CRA in 2006 and which were the subject of the  
European  Communities ' claims in the original proceeding and are also being challenged by the 
European Union in this proceeding.220 
                                               
211 European Union's request for the establishment of a panel, paras. 11 -13. The panel request indicates 
that "Annex B of the 23 September 2012  notification is attached to this request, and the contracts listed 
therein are incorporated into this request". (Ibid. para. 13, p. 5 , and annex B).  
212 European Union's request for the establishment of a panel, paras. 11 and 12.  
213 European Union's first wr itten submission, sections V.D.2.a and V.D.2.b., respectively.  
214 European Union's first written submission, para. 245 (referring to CRA Report, (Exhibit EU -29); and 
R. L. Rumpf and R. J. Levinson, United States Department of Defense Research, Development, Test & 
Evaluation (RDT&E) Funding for the Boeing Company Applicable to Large Civil Aircraft: 2007 -2012 Estimates , 
(12 March 2013) (Rumpf Report), (Exhibit EU -23)). 
215 CRA Report, (Exhibit EU -29), para. 1.1.  
216 Rumpf Report, (Exhibit EU -23), para. 1.1.  
217 Rump f Report, (Exhibit EU -23), para. 2.1.  
218 Rumpf Report, (Exhibit EU -23), para. 3.2. 
219 Defense Research Sciences (PE 0601102F), Materials (PE 0602102F), Aerospace Vehicle 
Technologies (PE 0602201F), Aerospace Sensors (PE 0602204F), Advanced Materials for Weap on Systems (PE 
0603112F), Aerospace Technology Dev/Demo (PE 0603211F), Aerospace Propulsion and Power Technology (PE 
0603216F), and RDT&E for Aging Aircraft (PE 0605011F). (See Rumpf Report, (Exhibit EU -23), para. 3.2).  
220 These are: Aerospace Propulsion (P E 0602203F), Dual -Use Science & Technology (PE 0602805F), 
Flight Vehicle Technology (PE 0603205F), Flight Vehicle Technology Integration (PE 0603245F), and two 
Manufacturing Technology/Industrial Preparedness program elements, Navy (PE 0708011N) and Air Fo rce (PE  
6603771F/ 0708011F). (See Rumpf Report, (Exhibit EU -23), para . 3.2, p. 8). In response to questioning by the 
Panel, the European Union explains that the fact that DOD has not continued, after 2006, to provide additional 
appropriated funding under a particular RDT&E program element does not mean that the subsidy associated 
with that program element has been withdrawn. In the absence of meaningful action by the United States, the 
benefit that Boeing receives from the intellectual property developed wit h DOD funding continues for a WT/DS353/R W 
 
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  7.88.  In the original proceeding, the European Communities also challenged payments and access 
to DOD facilities provided by DOD to Boeing through procurement contracts and assistance 
instruments funded under 15 "military aircraft " or "systems acquisition " program elements in 
relation to 10 military aircraft. CRA had included "military aircraft " program elements related to 
four militar y aircraft in its estimate of the amount of RDT&E funding received by Boeing from DOD 
that could be considered "relevant " to both military and commercial aircraft (so -called "dual-use" 
RDT&E).221 For this compliance proceeding, Mr Rumpf undertook a similar e xercise to that 
conducted by CRA with respect to the "military aircraft " or "systems acquisition " program elements 
in the original proceeding. He first identified the military aircraft program  elements  in which Boeing 
is known or believed to have been invo lved during the 2007 -2012 period, to determine the RDT&E 
program elements that, in his professional opinion, funded the development of technologies, 
processes, and other knowledge that were applicable to the design, development, production, and 
maintenance  of LCA.222 He identified five military aircraft program elements , only one of which 
(the C -17) had been the subject of claims by the European Communities in the original 
proceeding. The other four military aircraft program elements  are: the Airborne Warning  and 
Control System (AWACS), the KC -46, Next Genera tion Aerial Refueling  Aircraft, the Multi-Mission 
Maritime Aircraft (P -8A), and the Long Range Strike Bomber.223 
7.89.  Based on the foregoing, the European Union identifies the following "original " RDT&E 
program e lements in its first written submission:  
a. Defense Research Sciences (PE 0601102F).  
b. Materials (PE 0602102F).  
c. Aerospace Flight Dynamics/Aerospace Vehicle Technologies (PE 0602201F).  
d. Aerospace Propulsion (PE 0602203F).  
e. Aerospace Avionics/Aerospace Sensors (PE 0602204F).  
f. Dual-Use Science & Technology (PE 0602805F).  
g. Advanced Materials for Weapons Systems (PE 0603112F).  
h. Flight Vehicle Technology (PE 0603025F).  
i. Aerospace Structures/Aerospace Technology Dev/Demo (PE 0603211F).  
j. Aerospace Propulsion and Power Technolo gy (PE 0603216F).  
k. Flight Vehicle Technology Integration (PE 0603245F).  
l. RDT&E for Aging Aircraft (PE 0605011F).  
m. Manufacturing Technology /Industrial Preparedness.  
i. Air Force (PE 0603771F/ 0603680F/0708011F).224 
                                                                                                                                               
significant period beyond the end point of the funding. (European Union's response to Panel question s No. 58, 
para. 15 , and 60, para. 20). See also European Union's second written submission, paras. 429 -430. 
221 CRA Report, (Exh ibit EU -29), para. 1.1, p. 1. CRA considered RDT&E program elements funding the 
V-22/CV -22, the F/A -18, the Joint Strike Fighter and the C -17. (See CRA Report, (Exhibit EU -29), p. 13).  
222 Rumpf Report, (Exhibit EU -23), para. 2.2. 
223 Rumpf Report, (Exhibit EU -23), para. 2.2. 
224 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased 
funding this program element. (See United States' Compliance Communication, para. 6).  The European Union 
in its first written submission explai ns that the Air Force Manufacturing Technology/Industrial Preparedness 
program element was PE 0708011F in DOD budgets for FY 1993 and FY 1997 through FY 2008, and PE 
0603771F in FY 1996. In FY 2009, the Airforce Manufacturing Technology (ManTech) program e lement 
transferred to PE 0603680F from PE 0708011F. (European Union's first written submission, para. 275 and WT/DS353/R W 
 
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  ii. Navy (PE 0708011N).225 
iii. Defense Logistics Agency (PE 0708011S).226 
iv. Defense Wide Manufacturing Science and Technology (PE 0603860D8Z).227 
n. V-22/CV -22 (PE 0604262N/0401318F).228 
o. F/A-18 Squadrons (PE 0204136N).  
p. Joint Strike Fighter (PE 0603800F/0603800N/0603800E229/0604800F/0604800N).  
q. C-17 (PE 0401130F/0604231F).  
r. F-22 (PE 0604239F).  
s. B-2 Advanced Technology Bomber (PE 0604240F).230 
t. Comanche (PE 0604223A).231 
u. A-6 Squadrons (PE 0204134N).232 
v. AV-8B Aircraft (PE 0604214N).  
7.90.  The European Union identifies a further eight program elements that had not been 
challenged in the original pr oceeding233:  
a. Materials and Biological Technology (PE 0602715E).  
b. Sustainment Science & Technology (PE 0603199F).  
c. Technology Transfer (PE 0604317F).  
d. Aviation Safety Technologies (PE 0606301D8Z).  
                                                                                                                                               
fn 643). See also Air Force Industrial Preparedness/Manufacturing Technologies Budgets for FY 1993, 
FY1996 -2013, (Exhibit EU -65), Manufacturing Te chnologies (PE 0603680F) FY 2011 Budget, p. 1.  
225 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased 
funding this program element. (See United States' Compliance Communication, para. 6). See also 
United  States' re sponse to the Panel's request for information pursuant to Article  13 of the DSU, dated 
28 February 2013, response to question No.24, para. 49 (correcting the program element number for this 
program element).  
226 The European Communities only challenged the A ir Force and Navy ManTech program elements in 
the original proceeding. It did not challenge the Defense Logistic Agency's Industrial Preparedness 
Manufacturing Technology program element.  
227 The European Communities only challenged the Air Force and Navy Ma nTech program elements in 
the original proceeding. It did not challenge the Defense Wide Manufacturing Science and Technology program 
element.  
228 Although presented together in its submissions in this proceeding, the European Communities in the 
original pro ceeding had presented these as two distinct program element challenges. (See Panel Report, US – 
Large Civil Aircraft (2nd complaint ), para. 7.1113).  
229 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased 
funding thi s program element. (See United States' Compliance Communication, para. 6).  
230 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased 
funding this program element. (See United States' Compliance Communication, para. 6).  
231 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased 
funding this program element. (See United States' Compliance Communication, para. 6).  
232 The United States indicated at paragraph 6 of its Compliance Communicat ion that it had ceased 
funding this program element. (See United States' Compliance Communication, para. 6).  
233 European Union's first written submission, paras. 291 and 301. The list of program elements in the 
European Union's first written submission incl udes all of the program elem ents identified in the 
European  Union's request for the establishment of a panel, except for the following three program elements: 
Aviation Survivability (PE 0603216N), KC -105 (PE 0401219F), and Technology Transition (PE 0604858 F).  WT/DS353/R W 
 
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  e. Airborne Warning and Control System (AWACS) (PE 0207417F).  
f. KC-46, Next Generation Aerial Refueling  Aircraft (PE 0605221F).  
g. Multi-Mission Maritime Aircraft (P -8A) (PE 0605500N).  
h. Long Range Strike Bomber (PE 060415F).  
7.91.  According to the European Union, these further eight  RDT&E program elements had begun 
to fund Boeing 's "dual-use LCA -relevant research since 2007 ".234 
7.92.  We also recall that the  "funding " and "support " provided to Boeing for its R&D activities on 
behalf of DOD under the RDT&E program elements occurs through two different  types of legal 
instruments. The first are  procurement contracts, which DOD is required to use when contracting 
for the performance of R&D services the principal purpose of which is for the direct benefit or use 
of the U.S. Government .235 The second are assistance instruments, which include cooperat ive 
agreements, technology investment agreements , and certain other transactions. Assistance 
instruments are used when the purpose of the R&D activity is to transfer a thing or value to the 
recipient instead of acquiring property or services for the direct  benefit or use of the U.S. 
Government .236 
7.93.  The United States objects to the inclusion of some of the original DOD aeronautics R&D 
measures within the scope of this compliance proceeding on the basis that those measures were 
not subject to the DSB recommendat ions and rulings in the original proceeding. It also objects to 
the inclusion of some other "additional"  DOD aeronautics R&D measures on the basis that they 
could have been challenged in the original proceeding and were not, and thus are not properly 
within the scope of the compliance proceeding. Specifically, the United States requests the Panel 
to make the following rulings:  
a. The DOD procurement contracts funded under the original 23 RDT&E program elements  
that were at issue in the original proceeding, are outside the scope of this proceeding, 
because they were unsuccessfully challenged by the European Communities in the 
original proceeding.237  
b. The DOD procurement contracts and assistance instruments funded under certain 
"additional " RDT&E program elements  are outside the scope of this proceeding because 
they were either in existence at the time of the European Communities ' panel request in 
the original proceeding, or continued work previously conducted under program 
elements then in existence, but were not c hallenged  by the European Communities  in 
the original proceeding.238  
c. The provision of DOD "equipment and employees " is not within the scope of this 
proceeding because this measure was found to be outside the original panel's terms of 
reference and thus it i s also outside the scope of this proceeding .239  
7.94.  We consider each of the above requests in this Section  of the Report. We also address, of 
our own accord , whether it is necessary for the Panel to determine whether each of the RDT&E 
program elements identifie d by the European Union in its panel request in fact funds "dual-use" 
                                               
234 European Union's first written submission, paras. 291 and 301.  
235 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1115 and 7.1140 -7.1142.  
236 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1115 and 7.1140 -7.1142.  
237 United States' request for preliminary rulings, dated 13 November 2012, paras. 5 , 8, and 9; reply to 
the European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
paras. 26 and 34; and first written submission,  paras. 61 and 64 -66. 
238 United States' request for preliminary rulings, dated 13 November 2012, paras. 10 , 13, and 14; reply 
to the European Union's response to the United States' request for preliminary rulings, dated 
3 December  2012, para. 42; and first written submission, paras. 62 and 63.  
239 United States' request for preliminary rulings, dated 13 November 2012, paras. 10 -12; reply to the 
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
para. 41; and  first written submission, paras. 61 , 67, and 68.  WT/DS353/R W 
 
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  RDT&E (however defined), in order to determine which of the DOD aeronautics R&D measures 
identified by the European Union in its panel request are properly within our terms of reference.  
7.3.2   Whether the pre-2007 DOD procurement contracts funded under the original 23 
RDT&E program elements are outside the scope of this compliance proceeding  
7.95.  The United States requests a ruling that the DOD procurement contracts funded under the 
original 23 RDT& E program elements are outside the scope of this compliance proceeding because 
the DOD procurement contracts were challenged in the original proceeding, were not found to be 
WTO-inconsistent in that proceeding, and the European Union declined to pursue the  issue on 
appeal.240 
7.3.2.1   Main arguments of the parties and third parties  
7.96.  The United States  argues that Article 21.5 of the DSU does not allow re -litigation of claims 
on which the complaining party did not prevail. It considers that the European Union did not 
prevail on its claims in respect of the DOD procurement contracts in the original proceeding 
because there was no finding of WTO -inconsistency against these measures at the conclusion of 
the original proceeding.241  
7.97.  The United States asserts that, a lthough the European Union appealed the legal 
interpretation on which the panel had based its finding that the DOD procurement contracts were 
not financial contributions , within the meaning of Article 1.1(a)(1), that appeal did not result in a 
finding against the DOD procurement contracts (and thus create a compliance obligation for the 
United States).242 According to the United States, this is because the European Union specifically 
asked that, in the event that the Appellate Body rejected the panel 's legal test, it not complete the 
analysis with respect to the DOD procurement contracts.243  
7.98.  The United States acknowledges the existence of an "exception " to the principle that a party 
may not re -litigate issues in compliance proceedings in which it did not prevail in the ori ginal 
dispute. This is where the approach of the panel only partially resolved the matter at issue.244 
However, the difference in the present case is that the European Union bears responsibility for the 
partial resolution of its claims concerning the DOD pro curement contracts because it declined to 
seek completion of the analysis.  
7.99.  The United States distinguishes the case of US – Upland Cotton (Article  21.5 – Brazil ), in 
which Brazil was permitted to pursue claims against measures that it had pursued in the o riginal 
proceeding but which had not resulted in a finding of WTO -inconsistency, owing to insufficient 
factual findings and undisputed evidence to enable the Appellate Body to complete the analysis. 
According to the United States, the present situation is different because "the EU took the issue of 
DOD procurement contracts out of contention, and the Appellate Body never had the opportunity 
to evaluate whether it was possible to complete the analysis. "245 Indeed, the Appellate Body 's 
findings underscore that the European Union did not appeal the panel 's findings that the DOD 
procurement contracts were not inconsistent with the SCM Agreement.246 According to the 
United  States, the fact that the Appellate Body declined to address the European Union 's appeal 
becaus e it was "unnecessary for purposes of resolving this dispute " indicates that the Appellate 
Body viewed the panel 's finding that the DOD procurement contracts were not financial 
                                               
240 United States' request for preliminary rulings, dated 13 November 2012, paras. 8, 9, and 60.  
241 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 27; request for preliminary rulings, dated 13 November 2012, para. 9; 
and first written submission, para. 306.  
242 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated  3 December 2012, para. 28; response to Panel question No. 10, paras. 22 and 23.  
243 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 28; request for preliminary rulings , dated 13 November 2012, para. 8; 
and first written submission, para. 309.  
244 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 28 (referring to Appellate Body Reports,  EC – Bed Linen (Article 21.5 – 
India), fn 115 ; and US – Oil Tubular Goods Sunset Reviews (Article  21.5 – Argentina ), para. 148 and fn 322).  
245 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, date d 3 December 2012, para. 33; opening statement at the meeting of the Panel, para. 62.  
246 United States' opening statement at the meeting of the Panel, para. 62.  WT/DS353/R W 
 
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  contributions to be a finding that the European Union did not appeal, and th erefore, addressing 
that issue on appeal was unnecessary for purposes of resolving the dispute.247 
7.100.   Finally, the United States submits that the systemic implica tion of permitting the 
European  Union to reassert its claims against the DOD procurement contracts in the circumstances 
would be to enable complaining parties that are displeased with the outcome of a panel finding in 
an original proceeding to make limited appeals of legal issues and decline to request completion of 
the analysis, in order to prevent the Ap pellate Body from evaluating whether the party had made 
out its case. If the appeal on the limited issue is successful, it then has a "second chance " to make 
out its case in a compliance proceeding. This outcome is contrary to the limited scope of 
Article  21.5 of the DSU, and imposes an unfair burden on the responding party , which would be 
deprived a reasonable period of time in which to comply with any findings of breach.248  
7.101.   The European Union  argues that it has the right to pursue claims in this compliance  
proceeding against any funding or support provided to Boeing through the RDT&E program 
elements at issue, regardless of the type of contracts or agreements pursuant to which that 
funding and support is provided.249  
7.102.   The European Union notes that it appealed  the legal finding upon which the panel had 
based its decision that the DOD procurement contracts were not subsidies. However, given the 
lack of factual findings and uncontested facts related to benefit and adverse effects, it would have 
been impossible fo r the Appellate Body to complete the analysis of whether the DOD procurement 
contracts constitute specific subsidies that cause adverse effects. Consequently, the 
European  Union did not request completion of the analysis that it knew the Appellate Body cou ld 
not grant.250  
7.103.   The European Union notes that the Appellate Body declared "moot and without legal effect " 
the panel 's interpretation that transactions properly characterized as purchases of services are 
excluded from Article 1.1(a)(1) and likewise declared  "moot" the panel 's finding that DOD 
procurement contracts were properly characterized as purchases of services and thus were not 
financial contributions.251 The European Union argues that, because it had already succeeded in 
the original proceeding in demon strating that the NASA  aeronautics R&D  measures and DOD 
assistance instruments were specific subsidies, the only practical reason it had to appeal the 
panel 's finding that purchases of services are excluded from Article 1.1(a)(1) of the SCM 
Agreement was t o "bring the DOD procurement contracts back into the scope of this dispute ".252 
The European  Union considers that it pursued the matter before the Appellate Body to the greatest 
extent possible, and the panel 's findings were declared moot.253 
7.104.   The European Unio n argues that the United States ' position regarding the 
European  Union 's failure to request completion of the analysis amounts to saying that if the 
Appellate Body is requested to complete the analysis but cannot, the claim and measure may be 
within the sc ope of the compliance proceeding, while failure to request completion of the analysis 
is "similar to a party not appealing " and triggers the obligation to accept unconditionally the 
finding left unappealed.254 This amounts to a false distinction between the Appellate Body 's 
inability to complete the analysis, on the one hand, and a party 's recognition that there are 
insufficient factual findings or undisputed facts on the record to allow the Appellate Body to 
                                               
247 United States' opening statement at the meeting of the Panel, para. 63.  
248 United States' rep ly to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 30; first written submission, para. 66.  
249 European Union's response to the United States' request for preliminary rulings, dated 
23 November 2012, para. 16.  
250 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 17; second written submission, para.  46. 
251 Indeed, the European Union submits that the United States' preliminary objectio n depends entirely 
on a distinction between DOD procurement contracts and assistance instruments that the Appellate Body had 
declared to be moot. To allow the United States to prevail would mean that such an erroneous distinction 
would be anything but moot . (See European Union's supplemental submission on the United States' request for 
preliminary rulings, para. 10; and opening statement at the meeting of the Panel, para. 15).  
252 European Union's response to the United States' request for preliminary rulings , dated 
23 November  2012, para. 20. (emphasis original)  
253 European Union's opening statement at the meeting with the Panel, para. 15.  
254 European Union's second written submission, para. 41.  WT/DS353/R W 
 
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  complete the analysis.255 In the present case, the o riginal panel had not even begun an analysis of 
the highly fact -intensive issues of benefit or adverse effects regarding the DOD procurement 
contracts, limiting that analysis exclusively to DOD assistance instruments. The European Union 
submits that, if th e United States is correct that the European Union is at fault for failing to 
request completion of the analysis, the result will be that appellants will have to ask for completion 
of the analysis on every issue under appeal, in order to preserve their opt ions before any 
compliance panel. This would lead to huge inefficiencies, creating new burdens on and delays in 
Appellate Body proceedings.256 
7.105.   Finally, the European Union asks the Panel to consider the practical result of excluding the 
DOD procurement contra cts funded under the 23 original RDT&E program elements from this 
compliance proceeding: A new original panel would need to be constituted to consider claims 
against procurement contracts funded under the 23 original RDT&E program elements while the 
Panel in this compliance proceeding would be considering "identical " claims against procurement 
contracts funded under the other "additional " RDT&E program elements, as well as assistance 
instruments funded under all DOD RDT&E program elements. This would be "incredibly 
inefficient ".257  
7.106.   Brazil  argues that the DOD procurement contracts funded under the original 23 RDT&E 
program elements challenged in the original proceedings are outside the scope of this compliance 
proceeding, on the basis that the European Union c ould have chosen to pursue the DOD 
procurement contracts before the Appellate Body, but chose not to.258 Brazil considers that it may 
be necessary to draw a distinction between claims for which the Appellate Body was asked to fully 
consider the issues but wa s unable to complete its analysis, and matters for which the complaining 
Member did not seek full consideration.259 Without a substantial change in the facts, the latter 
measures cannot constitute a measure taken to comply, and are therefore outside the scop e of 
compliance proceedings.260 Brazil also emphasi zes that compliance proceedings should not be used 
to give complainants a "second bite of the apple " and that to do so would compromise the dispute 
settlement system 's "functioning and predictability ".261  
7.107.   Certain of the third parties (Brazil, Canada, Japan,  and Korea) make general arguments as 
to the situations in which a complaining party may be precluded from challenging a measure in a 
compliance proceeding that it had not successfully challenged in the orig inal proceeding . These 
arguments are summarized at Section 7.2.1.1  of this Report.  
7.3.2.2   Evaluation by  the Panel  
7.108.   The question before us is whether the European Union can assert claims concerning DOD 
procurement contracts funded unde r the 23 original RDT&E program elements in this compliance 
proceeding, notwithstanding that there were no DSB recommendations and rulings with respect to 
the DOD procurement contracts in the original proceeding, and moreover, that the original panel 's 
finding that the DOD procurement contracts did not involve financial contributions , within the 
meaning of Article 1.1(a)(1) , was declared moot.  
7.109.    In Section 7.2.1.2  of this Report, we discuss the situations in which complaining par ties 
have been permitted to reassert claims in compliance proceedings that they had unsuccessfully 
raised in the original proceeding. In that discussion, we conclude that the prior cases addressing 
                                               
255 European Union's supplemental submission on the United States' r equest for preliminary rulings, 
para. 13; second written submission, paras. 44 and 46.  
256 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 14.  
257 European Union's response to the United States' request for  preliminary rulings, dated 
23 November  2012, paras. 22 -25. 
258 Brazil's third -party submission, paras. 37 and 38; third -party statement, paras. 5 and 6; and 
third-party response to Panel question No.  4, paras. 1 and 2.  
259 Brazil's third -party response to Pan el question No. 1, para. 6.  
260 Brazil's third -party submission, paras. 37 and 38.  
261 Brazil's third -party submission, para. 36; third -party response to Pan el question No. 1, paras. 4 
and 5. WT/DS353/R W 
 
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  this issue suggest that the key issue is whether the reass ertion of claims in the particular 
circumstances would compromise the finality of the DSB recommendations and rulings.262  
7.110.   We will therefore determine  the status of the European Union 's claims in respect of the 
DOD procurement contracts at the conclusion of the original proceeding. This includes a close 
examination of the European Union 's appeal as it pertained to the DOD procurement contracts, as 
well as the way in which the Appellate Body dealt with that as pect of the European  Union 's appeal.  
7.3.2.2.1   The European Union 's appeal regarding the pre -2007 DOD procurement 
contracts  
7.111.   In the original proceeding, the panel found, at paragraph 7.970 of the panel report, that 
transactions properly characterized as purchases of services are excluded from the scope of 
Article  1.1(a)(1)(i) of the SCM Agreement. In a separate section of the panel report entitled 
"Department of Defense (DOD) aeronautics R&D ", the panel concluded, at paragraph 7.1171, that 
the work that Boeing performed for DOD under the procurement contracts was pro perly 
characterized as a "purchase of services " and therefore found that the payments and access to 
facilities provided to Boeing under the DOD procurement contracts were not financial contributions , 
within the meaning of Article 1.1(a)(1).  
7.112.   In its notice o f appeal, the European Union requested the Appellate Body to "reverse, 
modify or declare moot and of no legal effect the findings, conclusions and recommendations of 
the Panel " with respect to various enumerated errors of law and legal interpretations cont ained in 
the panel report.263 The third such alleged error enumerated by the European Union was that the 
panel erred in its interpretation of Article 1.1(a)(1) of the SCM Agreement when it found that 
transactions properly characterized as purchases of servic es are excluded from the scope of 
Article  1.1(a)(1) of the SCM Agreement.264 The footnote to this ground of appeal refers to the 
"Panel Report, paras. 7.953 -7.970 and para . 7.1136, particularly para. 7.970, final sentence ".265 
There is no reference to paragrap h 7.1171, which contained the panel 's finding that the DOD 
procurement contracts were not financial contributions.266 In other words, the European Union in 
its third appeal point appealed only the panel 's interpretation  of Article 1.1(a)(1), not the 
applicat ion of that interpretation to any specific measures.  
7.113.   The European Union states in the portion of its appellant submission concerning the panel 's 
allegedly erroneous interpretation of Article 1.1(a)(1) of the SCM Agreement:  
As a direct consequence of this error of law, the Panel came to the erroneous 
conclusion that much of the provision of funding and other support to Boeing pursuant 
to the DOD RDT&E Program is excluded from the scope of the SCM Agreement.267 
It concludes this portion of its appellant submis sion as follows:  
In conclusion, the Appellate Body should reverse or modify the Panel 's finding that 
transactions properly characterised as purchases of services are excluded from the 
scope of Article 1.1(a)(1) of the SCM Agreement. Because there are a num ber of 
contested facts related to the DOD RDT&E Program measures that were found to 
constitute purchases of services, the European Union does not request that the 
Appellate Body complete the analysis.268 
7.114.   This suggests that, although the European Union 's appe al of the panel 's interpretation of 
Article 1.1(a)(1) did not explicitly refer to the panel 's findings concerning the DOD procurement 
                                               
262 See para. 7.42 above.  
263 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, second introductory para.  
264 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, para. 3.  
265 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, fn 4.  
266 The formulation of the third appeal point concerning the interpretation of Article 1.1(a)(1) can be 
contrasted with the other grounds of appeal, in which the European Union alleged that the panel erred in its 
interpretation and application  of various provisions  of the SCM Agreement (such as Article 7.4 and Annex V, 
Article 2.1, Article 3.1(a) and fn 4, and Articles 5 and 6.3).  
267 European Union's appellant submission, (Exhibit EU -1280), para. 93. 
268 European Union's appellant submission, (Exhibit EU -1280), para. 127.  WT/DS353/R W 
 
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  contracts as purchases of services that are not covered by Article 1.1(a)(1)(i), the European Union 
considered that the Ap pellate Body 's reversal of the panel 's legal interpretation would have 
implications for the panel 's finding regarding the DOD procurement contracts. The European Union 
also appears to have considered that it was entitled, on the basis of its appeal, to req uest the 
Appellate Body to complete the analysis concerning the DOD procurement contracts, even though 
the European Union ultimately elected not to do so on the grounds that there were insufficient 
factual findings by the panel or undisputed facts to make this feasible.  
7.115.   The United States appealed the panel 's findings that the NASA procurement contracts and 
DOD assistance instruments were not properly characterized as purchases of services, and 
constituted financial contributions , within the meaning of Arti cle 1.1(a)(1).269 The United States 
also appealed the panel 's findings that the NASA procurement contracts and DOD assistance 
instruments conferred a benefit , within the meaning of Article 1.1(b).270 The European Union 
correctly observed in its appellee submis sion that, if the Appellate Body were to uphold the 
European Union 's appeal regarding the interpretation of Article 1.1(a)(1), this would render moot 
the United States ' appeal concerning the application of that interpretation to the NASA 
procurement contra cts and DOD assistance instruments.271 
7.3.2.2.2   The Appellate Body 's approach to the European Union 's appeal of the panel 's 
interpretation of Article 1.1(a)(1)  
7.116.   There are several aspects of the Appellate Body Report that suggest that the Appellate 
Body did not conside r that the DOD procurement contracts were on appeal before it. The Appellate 
Body acknowledged that the European Union 's appeal raised the issue of "{w}hether the Panel 
erred in finding that transactions that are properly characterized as 'purchases of ser vices' are 
excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement ".272 However, the section of 
the Appellate Body Report in which this issue is discussed is entitled "NASA Procurement Contracts 
and USDOD Assistance Instruments ". Indeed, after s ummarizing the panel 's findings and general 
approach (at paragraphs 550 -591 of the Appellate Body Report), the Appellate Body stated:  
We turn to the measures before us on appeal , namely the NASA procurement 
contracts and USDOD assistance instruments.273 
7.117.   The Appellate Body faulted the panel for not first characterizing the various aeronautics 
R&D measures based on an analysis of their "relevant characteristics " and then determining 
whether those measures, properly characterized, fell within any of the categori es of "financial 
contribution " in Article 1.1(a)(1).274 The Appellate Body said that it would proceed by first 
undertaking an examination of the relevant characteristics of the "measures before us on appeal – 
that is, the NASA procurement and USDOD assistanc e instruments ".275 It would then "consider the 
terms and scope of Article 1.1(a)(1) " before determining whether, in light of their relevant 
characteristics, the NASA procurement contracts and DOD assistance instruments fell within any of 
the four categories of financial contribution covered by Article 1.1(a)(1).  
7.118.   At paragraph 590 of its Report, the Appellate Body set forth the implications of this 
approach for the appeal points of both the European Union and the United States, foreshadowing 
that, if it were to  find that the measures that the United States had appealed (NASA procurement 
contracts and DOD assistance instruments) were of a type that fall within Article 1 of the SCM 
Agreement, the European Union 's appeal of the  panel's  interpretation of Article 1.1 (a)(1) would be 
rendered moot:  
                                               
269 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 553.  
270 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 626. The United States did not 
appeal the panel's findings that the NASA Space Act Agreements were  financial contributions. The Appellate 
Body stated at footnote 1300 of its Report that its discussion of benefit concerning the NASA measures was 
thus limited to NASA procurement contracts.  
271 European Union's appellee submission, para. 112.  
272 Appellate Bo dy Report, US – Large Civil Aircraft (2nd complaint ), para. 425(b).  
273 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 592. (emphasis added)  
274 The Appellate Body found it odd that the panel had instead considered that transactions pr operly 
characterized as "purchases of services" are excluded from the scope of Article 1.1(a)(1), then sought to 
determine whether the DOD procurement contracts were properly characterized as "purchases of services". 
(See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 585).  
275 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 589.  WT/DS353/R W 
 
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  We note that the conclusion as to the proper characterization of the measures may 
have consequences for the scope of our inquiry. For instance, if we were to find that 
the measures are of a type that fall within the scope of  Article 1.1, there would be no 
reason for us to examine whether purchases of services fall within the scope of 
Article  1.1(a)(1) of the SCM Agreement. Whether or not purchases of services are 
covered by Article 1.1(a)(1) would be irrelevant to the questio n of whether the 
measures before us – the NASA procurement contracts and USDOD assistance 
instruments – constitute financial contributions. This  would render moot the 
European  Union 's appeal of the Panel 's interpretation that purchases of services are 
excluded from the scope of Article 1.1(a)(1)(i). It would also render moot the 
United  States ' appeal of the Panel 's application of the test it developed for determining 
whether the measures could properly be characterized as purchases of services.276 
7.119.   We read thi s statement to say that, if the Appellate Body were to find that the NASA 
procurement contracts and DOD assistance instruments, properly characterized, fall within 
Article  1.1(a)(1) of the SCM Agreement (which it found), there would be no reason to examine  
whether transactions properly characterized as purchases of services are excluded from the scope 
of Article 1.1(a)(1)(i) because the answer to that interpretive question would be irrelevant to the 
disposition of the matter before it.  
7.120.   Moreover, at paragra ph 620 of its Report, the Appellate Body reiterated its position that, 
given the approach it had taken to the characterization of the NASA procurement contracts and 
DOD assistance instruments, the interpretive question as to whether Article 1.1(a)(1)(i) ex cludes 
transactions properly characterized as purchases of services is "not relevant " to resolving the 
dispute before it. The Appellate Body stated:  
This interpretive issue does not need to be resolved by us because it is not relevant 
for purposes of resol ving the dispute before us, that is, whether the NASA 
procurement contracts and USDOD assistance instruments, which we have found to 
resemble joint ventures, constitute financial contributions within the meaning of 
Article 1.1(a)(1) of the SCM Agreement. {*} We therefore declare  the Panel 's 
interpretation that "transactions properly characterized as purchases of services are 
excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement "{*} to be moot 
and of no legal effect.277 
 
{*fn original}1297 The Ap pellate Body proceeded in a similar manner in US – Upland Cotton  with 
respect to the interpretation of Article 6.3(d) of the SCM Agreement.  
{*fn original}1298 Panel Report, para. 9.970. (emphasis omitted) Our findings of financial 
contributions regarding t he payments and other support provided under the NASA procurement 
contracts and USDOD assistance instruments are based on the particular characteristics of those 
measures. We also declare moot the Panel's finding, in paragraph 7.1171 of its Report, that th e 
USDOD procurement contracts are properly characterized as "purchases of services" and thus are 
not financial contributions under Article 1.1(a)(1) . However, as neither participant has requested 
us to do so, we do not complete the analysis  regarding the U SDOD procurement contracts at 
issue in this dispute.  
 
7.121.   The first sentence of the quotation from paragraph 620 of the Appellate Body Report  
extracted above  suggests that the Appellate Body regarded the "dispute " before it as being limited 
to the United State s' appeal; namely, whether the NASA procurement contracts and DOD 
assistance instruments constitute financial contributions. The implications of the first sentence of 
the quotation from paragraph 620  extracted above  are that the Appellate Body 's approach t o that 
issue had rendered the European Union 's appeal of the panel 's interpretation of Article 1.1(a)(1) 
(as well as the United States ' appeal of the panel 's application  of that interpretation to the NASA 
procurement contracts and DOD assistance instrument s), moot. This result was foreshadowed by 
the Appellate Body in paragraph 590 of its Report, as discussed above.  
7.122.   In footnote 1297, immediately following the first sentence of the quotation from 
paragraph  620 extracted above , the Appellate Body asserts tha t it "proceeded in a similar manner " 
in US – Upland Cotton . In the relevant part of the Appellate Body Report in US – Upland Cotton , 
                                               
276 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 590.  
277 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 620. (italics original, 
underlining added)  WT/DS353/R W 
 
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  Brazil had : (a) appealed the panel 's legal interpretation of the phrase "world market share " in 
Article 6.3(d) of the SCM A greement ; and (b) requested the Appellate Body to complete the 
analysis of its serious prejudice claim under Article  6.3(d) and find that the effect of certain United 
States subsidies is an increase in the world market share of the United States in upland cotton. 
This second element of Brazil 's appeal was expressed as being conditional on the Appellate Body 
reversing the panel 's findings that the United  States ' price-contingent subsidies caused significant 
price suppression , within the meaning of Article 6. 3(c) of the SCM Agreement.278 The Appellate 
Body had upheld the panel 's finding regarding price suppression under Article 6.3(c), so the 
condition upon which Brazil 's request for completion of the analysis was not fulfilled. However, the 
Appellate Body also said that it was "not necessary " to make a finding on the first element of 
Brazil 's appeal – the interpretation of the phrase "world market share " in Article 6.3(d) – although 
Brazil had stressed that this first element of its appeal was not conditional. T he Appellate Body 
said that, although an interpretation in the abstract of the phrase "world market share " in Article 
6.3(d) of the SCM Agreement might offer at best some degree of guidance on that issue, it would 
not affect the resolution of this particul ar dispute (presumably because the Appellate Body would 
not complete the analysis under Article  6.3(d) since the condition specified by Brazil for doing so 
had not been fulfilled). Thus, even if the Appellate Body were to reverse the panel 's finding on the  
interpretation of Article 6.3(d), upon adoption of the recommendations and rulings by the DSB, the 
United States would have been under no additional obligation regarding implementation. The 
Appellate Body concluded by reiterating that an interpretation of  the phrase "world market share " 
in Article 6.3(d) was unnecessary for the purpose of resolving the dispute before it. It clarified "we 
neither uphold nor reverse the Panel 's findings on the interpretation of the phrase 'world market 
share ' in Article  6.3(d) of the SCM Agreement. "279 
7.123.   In saying in footnote 1297  to the first sentence of the quotation from paragraph 620 of the 
Appellate Body Report  extracted in paragraph 7.120.   above  that it proceeded in a "similar 
manner " in US – Upland Cotton  with respect to the interpretation of Article 6.3(d) of the SCM 
Agreement as it was proceeding with the European  Union 's appeal regarding the interpretation of 
Article 1.1(a)(1), the Appellate Body suggests that it did not address the European  Union 's appeal 
for the same reason that it declined to address Brazil 's appeal; namely, that a reversal of the 
interpretation would not affect the resolution of the dispute. This also seems to suggest that the 
Appellate Body considered that the DOD procur ement contracts were not before it on appeal.  
7.124.   In the second sentence of the quotation from paragraph 620  of the Appellate Body Report, 
extracted in paragraph 7.120.   above , the Appellate Body states that it "therefore " declares  the 
panel 's interpretation of Article 1.1(a)(1)(i) to be "moot and of no legal effect ". In our view, the 
panel 's interpretation of Article 1.1(a)(1)(i) could only be considered moot if : (a) the Appellate 
Body had likewise characterized the DOD procurement  contracts as falling within Article  1.1(a)(1) 
independently of whether they involved purchases of services (which it did not do ); or (b) the 
Appellate Body did not regard the DOD procurement contracts as being before it.  
7.125.   However, in footnote 1298 to the second sentence of the quotation from paragraph 620  of 
the Appellate Body Report  extracted in paragraph 7.120.   above , the Appellate Body "also" 
declared moot the panel 's finding, at paragraph 7.1171 of the panel report, that t he DOD 
procurement contracts were properly characterized as "purchases of services " and thus were not 
financial contributions. Footnote 1298 concludes with a statement that the Appellate Body did not 
complete the analysis as to whether the DOD procurement contracts were financial contributions 
because neither participant requested it to do so. Neither party could be expected to request 
completion of the analysis with respect to a claim that was not the subject of appeal. This 
declaration that the panel 's finding at paragraph 7.1171 of the panel report is moot suggests that 
the DOD procurement contracts were regarded by the Appellate Body as being before it on appeal.  
7.126.   If we were to consider that the Appellate Body did not regard the DOD procurement 
contracts to be before it  on appeal , this would imply that the Appellate Body considered that the 
European Union had not pursued its claims concerning the DOD procurement contracts on appeal. 
In these circumstances, we would be minded to conclude that the European U nion is not able to 
reassert claims concerning the DOD procurement contracts at the compliance stage, when it had 
inadequately pursued them on appeal. To conclude otherwise would, in our view, compromise the 
                                               
278 Appellate Body Report, US – Upland Cotton , paras. 501 and 506.  
279 Appellate Body Report, US – Upland Cotton , para. 511.  WT/DS353/R W 
 
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  finality of the DSB recommendations and rulings and provide the European Union an "unfair 
second chance ".  
7.127.   However, we note that, although the European Union did not appeal the application of the 
panel 's allegedly erroneous interpretation of Article 1.1(a)(1) to the DOD procurement contracts, 
the Appell ate Bo dy nevertheless declared moot the panel 's finding that the DOD procurement 
contracts are not financial contributions. After some reflection, we have concluded that t his could 
only be because the Appellate Body did in fact regard the DOD procurement c ontracts  to be before 
it on appeal. Thus, we have ultimately arrived at the conclusion that the application of the pa nel's 
interpretation of Article  1.1(a)(1) to the DOD procurement measures was before the Appellate 
Body.  
7.128.   We are also mindful of the fact t hat the panel 's analysis of the DOD procurement contracts 
had stopped at the stage of financial contribution. The panel did not analyse whether the DOD 
procurement contracts conferred a benefit or caused adverse effects. We therefore agree with the 
Europea n Union that it would have been impossible for the Appellate Body to complete the analysis 
regarding the DOD procurement contracts . Under these circumstances, we do not consider  that the 
European Union 's failure to request completion of the analysis should  preclude our consideration of 
these measures in this compliance proceeding.   
7.129.   Additionally, given the time and resources that have been expended in this dispute in 
order to arrive at a resolution of the fundamental disagreement between the European Union a nd 
United  States as to whether the U.S. Government  subsidizes Boeing through the procurement of 
military research, and given that the aim of the dispute settlement system, as expressed in 
Article  3.7 of the DSU, is to secure a positive resolution to a disp ute, we have concluded that it 
would simply not be a reasonable outcome for u s to rule that the European  Union is precluded 
from pursuing in this compliance proceeding claims regarding the DOD procurement contracts at 
issue in the original proceeding.  
7.130.   In light of the foregoing, we conclude that the European Union would not be "unfairly " 
getting a second chance to make a case that it failed to make out in the original proceeding if it 
were to reassert claims in this proceeding in respect of DOD procurement c ontracts funded under 
the original 23 RDT&E program elements.  In Section 7.2.1.2  we explain that we are unable to 
agree with the argument that an original measure is, by definition, outside the scope of a 
compliance proceeding.280 We conclude that the DOD procurement contracts funded through the 
original 23 RDT&E program elements are within the scope of this compliance proceeding.  
7.131.   We reject the United States' request for a ruling that the DOD procurement 
contracts funded through t he original 23 RDT&E program elements are outside the scope 
of this compliance proceeding and conclude that these measures are within the scope of 
this proceeding . 
7.3.3   Whether the seven "additional " RDT&E program elements are outside the scope of 
this proceedi ng  
7.132.   The United States requests a ruling that the seven "additional " RDT&E program elements 
are outside the scope of this proceeding on the basis that those program elements either were in 
existence at the time of the European Communities ' panel request in the original proceeding, or 
continue work that was previously conducted under a program element that was in existence at 
that time. According to the United States, because the European Communities could have brought 
challenges regarding those program eleme nts in the original proce eding and did not, the 
European  Union is precluded from challenging them now in this compliance proceeding.281  
                                               
280 See paras. 7.38-7.40 above . 
281 United States' request for preliminary rulings, dated 13 November 2012, paras. 10 , 13, and 14. 
Although the United States sometimes describes its request for a preliminary ruling on this issue as being 
limited to the European Union's claims concerning DOD assistance instruments or "agreements" funded under 
the additional program elements, it is clear in other contexts that the United States' objections cover both 
assistance instruments and procurement contr acts funded under those additional program elements, or the 
program elements as measures themselves. (See United States' request for preliminary rulings, dated WT/DS353/R W 
 
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  7.3.3.1   Background  
7.133.   We recall from paragraphs 7.89 and 7.90 above that the European Union's DOD -related 
claims cover a number of "original" RDT&E program elements (i.e. those that were also at issue in 
the original proceeding), and "additional" RDT&E program elements (i.e. those which allegedly 
have begun to fund what  the Eur opean Union identifies as "dual -use LCA -relevant research" since 
2007).  
7.134.   The United States ' formulation of its objection to the inclusion of certain of the "additional" 
RDT&E program elements within the scope of this proceeding could be read to suggest that  the 
United States considers the  DOD aeronautics R&D measures to be  the RDT&E program elements 
themselves, rather than the payments and access to facilities, equipment, and employees  provided 
to Boeing through procurement contracts and assistance instrumen ts funded under various RDT&E 
program elements .282 We understand that in making this request for preliminary rulings, the 
United States objects to the inclusion within the scope of this pr oceeding of payments and access 
to DOD facilities, equipment, and empl oyees , whether prior to or after the date of the original 
panel request, provided to Boeing through procurement contracts and assistance instruments 
funded under the seven "additional " RDT&E program elements.  
7.135.   The United States first raised this objection i n a request for pre liminary rulings on 
13 November  2012, some time prior to the European Union 's first written submission , which was 
filed on 28  March  2013. The United States ' request was at that time based on the 
European  Union 's panel request, dated 11 O ctober 2012.283 The European Union responded to the 
United States ' request for preliminary rulings on 23 November 2012, and the United States replied 
to that response on 3 December 2012. Pursuant to a communica tion from the Panel dated 
6 May 2013 and subsequ ent to the filing of its first written submissio n, the European Union on 
13 May 2013 provided a supplemental submission on the United States ' request for preliminary 
rulings, including the United States ' objection to the inclusion of  certain "additional " RDT&E 
program elements within the scope of this proceeding. The United  States filed its first written 
submission on 27  June 2013, reiterating its objections, but only as regards seven of the nine 
"additional " RDT&E program elements to which it had objected in its original request for 
preliminary rulings.284  
7.136.   The seven "additional " RDT&E program elements the subject of the United States ' request 
for preliminary ruling s are as follows:  
a. Materials and Biological Technology (PE 0602715E) . 
b. Technology Transfer (PE 06 04317F) .285 
c. Manufacturing Technology/Industrial Preparedness Program: Defense Logistics Agency 
(PE 0708011S) . 
d. Airborne Warning and Control System (AWACS) (PE 0207417F) . 
e. KC-46, Next Generation Aerial Refueling  Aircraft (PE 0605221F) .286 
                                                                                                                                               
13 November 2012, para. 14; reply to the European Union's response to the United States' request  for 
preliminary rulings, dated 3 December 2012, para. 42; and first written submission, para. 63).  
282 The relationship between the RDT&E program elements and the legal instruments through which the 
payments and access to facilities, equipment, and employee s are provided is discussed in Section 7.3.1  of this 
Report. The measures at issue are discussed in Section 8.2.3.2  of this Report.  
283 European Union's request for the  establishment of a panel. The Panel was established by the DSB on 
23 October 2012.  
284 The United States had also originally challenged the inclusion of  the Aviation Survivability 
(PE 0603216N) and KC -10S (PE 0401219F) program elements on the basis of the i nclusion of these program 
elements in the European Union's panel request, however, as the European Union did not pursue claims 
regarding those program elements in its first written submission, the United States' request in relation to these 
two program ele ments is rendered moot. (See European Union's supplemental submission on the 
United  States' request for preliminary rulings, para. 18).  
285 This program element continues work that was previously conducted under a program element 
entitled "Technology Link (P E 0603942D8Z)".  WT/DS353/R W 
 
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  f. Multi-Mission Maritime A ircraft (P -8A) (PE 0605500N) . 
g. Long Range Strike Bomber (PE 0604015F) . 
7.137.   We note that the United States does not object to the inclusion within the scope of this 
proceeding of the "Sustainment Science & Technology " or the "Aviation Safety Technologies " 
progra m elements, both of which were identified by the European Union in its first written 
submission as "additional " RDT&E program elements.  The United States does, however, object to  
the inclusion of the "Manufacturing Technology/Industrial Preparedness Progra m: Defense 
Logistics Agency (PE 0708011S) " program element as an "additional " program element. This 
program element was presented by the European Union as an "original " RDT&E program element 
in its first written submission.287  
7.3.3.2   Main arguments of the parties and third parties  
7.138.   The United States  argues that the European Union has failed to provide a valid reason that 
would permit it to raise claims relating to the seven "additional " RDT&E program elements for the 
first time in this compliance proceeding, when i t had omitted to make claims regarding those 
program elements in the original proceeding.288  
7.139.   Each of the seven "additional " RDT&E program elements, as measures that existed at the 
time of the original panel request, or measures that continue work that was p reviously conducted 
under a different program element number which was in existence at the time of the original panel 
request, but were not challenged in the original proceeding, cannot also be measures taken to 
comply with the DSB recommendations and ruli ngs. According to the United States, a measure 
that existed at the time of the panel request cannot logically also be a measure taken to comply 
with DSB recommendations and rulings subject to the proceeding. There is thus no basis for their 
inclusion in th e scope of this proceeding.289 Because the European Union could have challenged the 
seven RDT&E program elements at the time of its original panel request but did not, it cannot now 
raise claims related to these measures for the first time in a compliance pr oceeding.290  
7.140.   The United States argues that the fact that particular projects or activities under the 
RDT&E program elements may not have come into existence until after the date of the original 
panel request does not demonstrate that the European Union "could not have challenged the 
measures during the original proceeding, or that there is any legally relevant discontinuity 
between the program mes as they existed at the time of the original EU panel request and as they 
exist today ".291 Article 21.5 does not acc ord the complaining party the latitude to manipulate the 
compliance panel 's terms of reference by "sculpting the temporal scope of its claims ".292 
7.141.   The United States considers that the fact that a particular contract funded under any of the 
seven "additional " RDT&E  program elements may have been awarded after the date of the original 
panel request is irrelevant if the measures being challenged by the European Union are payments, 
facilities, equipment, and employees  under the program elements, without regard to  the contract 
that made them available. Rather, if the European Union acknowledges that DOD only makes 
payments or provides facilities, equipment, and employees  pursuant to contracts or agreements, 
and that those contracts and agreements are the relevant m easures, the analysis "might be 
                                                                                                                                               
286 This program element continues work that was previously conducted under a program element 
entitled "KC -135 Tanker Replacement (PE 0401221F)" which was not challenged in the original proceeding.  
287 Compare European Union's first written sub mission, para. 246, with European Union's supplemental 
submission on the United States' request for preliminary rulings, para. 20. On the other hand, the 
United  States does not object to the inclusion of the Defense Wide Manufactu ring Science and Technolog y 
(PE 0603860D8Z) program element in this proceeding although it was also listed by the European Union in its 
first written submission as an "original" RDT&E program element when it had not been challenged in the 
original proceeding.  
288 United States' repl y to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 42.  
289 United States' second written submission, paras . 59 and 60.  
290 United States' request for preliminary rulings, dated 13 November 201 2, para. 14; reply to the 
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
para. 45; and first written submission, para. 62, 429, and 435.  
291 United States' first written submission, para. 63.  
292 United States' second written submission, para. 61.  WT/DS353/R W 
 
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  different ". In any case, the United States notes that the largest contract funded through the 
"additional " RDT&E  program elements (the P -8A) was awarded in 2004.293 
7.142.   Furthermore, the United States rejects the suggestion that th e RDT&E  program elements 
changed after establishment of the original panel in ways that led the European Union to consider 
that they subsequently involved technology applicable to LCA. According to the United  States, it 
was obvious in the beginning of 2006  that the P -8A, the aerial refueling  tanker and the AWACS 
were or would be military aircraft produced by militarizing civilian airframes.294 
7.143.   Finally, the United States argues that the European Union has failed to substantiate any 
allegation that the United S tates is withdrawing the subsidies provided under the 23 RDT&E 
program elements and now channelling them through the seven "new" program elements.295 
7.144.   The European Union  rejects the United States ' contention that it is precluded from 
challenging the "addition al" RDT&E program elements in this proceeding because it could have 
challenged them in the original proceeding and did not. According to the European Union, while a 
particular RDT&E  program element may have existed at the time of the original panel request , it 
could not have brought successful challenges against those program elements at the time of its 
original panel request because, on the basis of the information then available, they did not appear 
to be supporting LCA -related R&D at that time.296 
7.145.   The Euro pean Union argues that there are new or changed aspects of the "additional " 
RDT&E  program elements such that the European Union now considers them to be providing 
subsidies to Boeing. The European Union notes that for six of the seven RDT&E  program element s 
at issue, its claims are limited to aspects of those program elements that began in FY 2007 or later 
and thus could not have been challenged in the original proceeding. For the other, the 
Multi-Mission Maritime Aircraft (P -8A), the design and testing con tinued well after the date of the 
original panel request and the R&D had not progressed sufficiently prior to that time to allow the 
European Union to conclude that it was "LCA-relevant ".297 
7.146.   The European Union states that it has never challenged "DOD PEs per se, but only to the 
extent that each PE provides subsidies that benefit U.S. LCA producers ."298 The inclusion of each of 
the seven "additional " RDT&E  program elements in the panel request in this compliance 
proceeding indicates that the European Union now h as reason to  believe that, since 
20 January  2006 (the date of the European Union 's panel request in the original proceeding) or 
sometime thereafter, those "additional " RDT&E program elements have been providing subsidies 
to benefit Boeing 's LCA division.299  
7.147.   Finally, the European Union argues that the exclusion of the seven RDT&E program 
elements  from the scope of this proceeding "could potentially ope n a huge loophole in the 
United  States ' compliance obligations ".300 This is because of the potential for the Un ited States to 
seek to show that it is "withdrawing " subsidies from the original 23 RDT&E program elements, 
while in reality it is shifting those subsidies to the seven RDT&E program elements.  
7.3.3.3   Evaluation by  the Panel  
7.148.   The issue before the Panel is whether t he payments and access to facilities, equipment, 
and employees  provided to Boeing through  procurement contracts and assistance instruments 
                                               
293 United States' second written submission, para. 63.  
294 United States' second written submission, para. 62.  
295 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 44.  
296 European Union's second written submission, para. 115; response to the United States' request for 
preliminary rulings, dated 23 November 2012, para. 37.  
297 European Union's second written submission, para. 114  and fn 120.  
298 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 19; response to the United States' request for preliminary rulings, dated 23 November 2012, para. 37.  
299 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 37; supplemental submission on the United States' request for preliminary rulings, 
para. 19. 
300 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 38.  WT/DS353/R W 
 
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  funded under seven "additional " RDT&E program elements, which were not program elements 
challenged in the original pr oceeding, are within the scope of this compliance proceeding.301  
7.149.   The Appellate Body has explained that the subject matter of compliance proceedings is 
determined not just by the Panel 's terms of reference, but also by Article 21.5 of the DSU.302 Thus, 
a measu re will not be within the scope of a compliance proceeding simply because it has been duly 
identified in a complaining party 's request for the establishment of a panel. It must additionally 
relate to the issue of compliance with the DSB recommendations and  rulings in the original 
proceeding, including the existence or non -existence of measures taken to comply with such 
recommendations and rulings.  
7.150.   In Section 7.3.2 of this Report, concerning the United States ' objections to the inclusion 
within the scope of this proceeding of the DOD procurement contracts that were before the original 
panel, we conclude that a compliance panel may properly consider measures that were challenged 
in the original proceeding  where the claims against those measures were not definitively resolved 
in the original proceeding, in situations where the assertion of claims against those measures at 
the compliance stage would not compromise the finality of the DSB recommendations and 
rulings.303 The DOD aeronaut ics R&D measures the focus of this particular ruling request do not, 
however, concern  such "original measures ". Rather, the measures the focus of this objection  
concern measures that were not part of the original proceeding.  
7.151.   The European Union asserts tha t the measures in question all came into existence after the 
original panel request; in other words, the measures are post-2006 procurement contracts and 
assistance instruments, albeit funded through RDT&E program elements other than  the 23 RDT&E 
program e lements at issue in the original proceeding.  
7.152.   For purposes of evaluating the United States' request for preliminary rulings regarding the 
DOD aeronautics R&D measures, it is helpful to categorize these measures in the following 
manner : 
a. pre-2007 procurement contracts  or assistance instruments funded under the original 23 
RDT&E program elements  (i.e. the procurement contracts and assistance instruments 
that were before the panel in the original proceeding);  
b. post-2006 procurement contracts or assistance instrum ents funded under the original 23 
RDT&E program elements  (i.e. procurement contracts and assistance instruments that 
were entered into after the date of the original panel request in January 2006 but funded 
through the same program elements that were the f ocus of the European 
Communities ' claims in that proceeding); and  
c. post-2006 procurement contracts or assistance instruments funded under other 
"additional " RDT&E program elements that are different from the original 23  RDT&E 
program elements, or their succ essor programmes  (i.e. procurement contracts and 
assistance instruments entered into after the date of the original panel request in 
January 2006 but funded through different program elements from those that were the 
focus of the European Communities ' claims in that proceeding) . 
7.153.   The United States ' request currently before us concerns certain measures in category (c) 
above.304 The United States objects  to our consideration of these measures because  the 
"additional " RDT&E program elements that funded the releva nt instruments (procurement 
contracts and assistance instruments) existed at the time of the panel request in the original 
                                               
301 We address the overlapping challenge to the provision of access to DOD "equipment and employees" 
provided to Boeing through procurement contracts and assistance instruments funded under all of the 
challenged RDT&E program element s in Section 7.3.4 . 
302 "{p}roceedings under Article 21.5 do not concern just any measure of a Member of the WTO". (See 
Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil ), para. 36). See also Appella te Body Report, EC 
– Bed Linen (Article 21.5 – India), para. 78.  
303 See paras. 7.108  to 7.110  above . 
304 The United States does not allege that the post -2006 procurement  contracts funded under the 
original 23 RDT&E program elements (i.e. the measures in category (b) above ), are outside the scope of this 
proceeding.  WT/DS353/R W 
 
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  proceeding, and therefore, could have been challenged by the European Communities at that time. 
According to the United States, t he European Union cannot retroactively attempt to enlarge the 
scope of its original case by seeking to bring these measures within the scope of the compliance 
proceeding.305  
7.154.   The European Union justifies  the inclusion of these measures within the scope of this 
compliance proceeding by arguing that the particular RDT&E program elements were not a defining 
aspect of the European Communities ' claims in the original proceeding. Rather, the original 
challenge involved any DOD RDT&E program element that subsidized Boei ng LCA at that time.  
7.155.   The European Union's characterization of the DOD -related measures in the original 
proceeding does not accord with our understanding of those measures, as expressed by the 
original panel. We note that t he panel in the original proceedi ng considered the nature of the 
European Communities ' challenges to the DOD -related measures to be narrowly defined:  
The scope of the European Communities ' claim relating to DOD R&D measures is 
clear: it challenges the payments (and access to facilities) p rovided to Boeing through 
R&D contracts and agreements entered into under the 23 programmes identified in 
the European Communities ' panel request . The scope of the European Communities ' 
claim is relatively narrow in several respects.  
First, the European Co mmunities does not challenge the RDT&E Program as a whole. 
Rather, it challenges only certain funding provided to Boeing under the 23 RDT&E 
programmes at issue . In addition, the European Communities does not challenge all of 
the funding that Boeing receive d under these 23 programmes. Rather, it challenges 
only the subset of funding that is, in the European Communities ' view, related to "dual 
use" technologies .306  
7.156.   The original panel 's formulation makes clear that the DOD -related measures before it were 
partic ular forms of funding and support provided to Boeing under specific RDT&E program 
elements . It was within  those program elements that the European Communities challenged a 
narrower subset of "funding " and "support " that it considered to relate to "dual-use" technologies.  
7.157.   Therefore, we do not agree that, regardless of the RDT&E program element, any payments 
or provision of access to DOD facilities, equipment or employees provided by DOD to Boeing for 
any activities that the European Union may now consider to  relate to "dual-use" technologies, 
regardless of the program element under which it is budgeted and funded, is within the scope of 
this compliance proceeding. This would be contrary to our understanding of the scope of the 
European Communities ' DOD-relate d claims in the original proceeding and an impermissible 
enlargement of the scope of th is compliance proceeding.  
7.158.   The United States argues that the European Union is precluded from raising claims 
concerning the "additional " RDT&E program elements in this p roceeding because those program 
elements  existed at the time of its original panel request and could have been challenged in the 
original proceeding. We are also unable to endorse this argument , insofar as it concerns 
procurement contracts and assistance i nstruments entered into after the date of the European 
Communities ' original panel request (i.e. post -2006 procurement contracts and assistance 
instruments), albeit funded through program elements that already existed at that time. In this 
situation, the i ssue of "preclusion " does not arise because, even if the RDT&E program elements 
(or their antecedent program elements) were in existence at the time of the European 
Communities ' original panel request, the legal instruments were not. It would not have been  
possible for the European Communities to have challenged the program elements independently of 
the legal instruments because  the only way that Boeing receives payments or access to DOD 
facilities, equipment, and employees  under the RDT&E program elements is through specific legal 
instruments, whether procurement contracts or assistance instruments.  
                                               
305 We recall that for the reasons explained in Section 7.3.2  of this Report, we have ruled that the 
procurement contracts in categories (a) and (b) above are within the scope of this proceeding.  
306 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1116 and 7.1117. (italics and 
underlining added)  WT/DS353/R W 
 
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  7.159.   We will therefore examine the United States ' objections to  the inclusion within the scope of 
this proceeding of  procurement contracts and assistance instrument s funded under "additional " 
RDT&E program elements by determining whether the procurement contract or assistance 
instrument existed at the time of the European Communities ' original panel request. If it did, and 
we consider that the European Union could ha ve challenged that measure in the original 
proceeding, we will find that the European Union is precluded from bringing claims against that 
measure in this proceeding.  
7.160.   If the procurement contract or assistance instrument came into existence after the date of 
the panel request in the original proceeding, or we otherwise conclude that the European 
Communities could not have challenged the measure in the original proceeding, we will examine 
whether there are sufficiently close links, in terms of nature, effect s, and timing, between that 
measure and the aeronautics R&D measures the subject of the DSB recommendations and rulings, 
and any declared compliance actions by the United States, as to warrant inclusion of the measure 
within the scope of this proceeding.  
7.161.   In the Sections that follow, we evaluate the United States ' objections according to each of 
the challenged "additional " RDT&E program elements.  
Materials and Biological Technology (PE 0602715E)  
7.162.   The Materials and Biological Technology (PE 0602715E) program  element is administered 
by the Defense Advanced Research Project Agency (DARPA) and develops novel metallic and 
non-metallic materials, material processing techniques, mathematical models , and fabrication 
strategies for advanced structural materials, func tional materials , and components.307  
7.163.   The United States notes that this program element  existed at the time of the European 
Communities ' panel request in the original proceeding.308 The European Union does not dispute 
that the program element itself existed at  the time of the original panel request. Rather, it 
responds that its claims with respect to this program element are limited to the specific 
LCA-relevant R&D activities identified by Mr Rumpf, and that these activities  did not exist, or at 
least were not publicly disclosed, prior to 2007.309 The Rumpf Report refers to six general activities 
undertaken pursuant to a Materials Processing Technology Project between FY 2007 and 
FY 2012.310 The United States acknowledges that during the 2007 -2012 period, DARPA fund ed 
three procurement contracts and four assistance instruments under the "Materials Processing 
Technology " Project of this program element for a total of s omewhat less than USD 24  million.311  
7.164.   Of the procurement contracts and assistance instruments identifie d by the United States, 
one procurement contact (HR0011 -05-C-0068) and one cooperative agreement 
(MDA972 -03-2-0003) , are dated prior to the date of the European Communities ' panel request in 
the original proceeding.312 As these two instruments existed at the  time of the European 
                                               
307 Mater ials and Biological Technology Budgets for FY 2007 -FY 2013 (PE 0602715E),  (Exhibit EU -73), 
p. 1. 
308 United States' request for preliminary rulings, dated 13 November 2012, para. 13. See also U.S. 
DOD Budget, Fiscal Year 2006, RDT&E Programs (R -1), February 2005, (Exhibit USA -2), at p. D -4 which shows 
budget allocations for this program element for FY 2005 and FY 2006.  
309 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 20.  
310 Rumpf Report, (Exhibit EU -23), a nnex A, pp. 11 -15. Although the Rumpf Report itself lists the 
Project number MBT -01 as the "Structures" project, the European Union subsequently explained that this was a 
clerical error in Annex A of the Rumpf Report, and that the correct title of Project number MBT -01 is "Materials 
Processing Technology" (European Union's comments on the United States' response to Panel question 
Nos. 72-74, para. 85). See also European Union's first written submission, para. 292, which refers to the 
"Materials Processing T echnology" Project.  
311 United States' first written submission, para. 438; response to Panel question No. 72, para. 48. The 
procurement contracts are: DARPA Contract HR001 -05-C-0068, (Exhibit USA -160) (HSBI); DOD Contract List, 
(Exhibit USA -161), p. 16: Con tract HR0011 -06-C-0073, dated 28 September 2006, (Exhibit USA -415) (HSBI); 
and DARPA Contract HR0011 -08-C-0044, (Exhibit USA -162) (HSBI). The assistance instruments are: DARPA 
Agreement MDA972 -03-2-0003, (Exhibit USA -163) (HSBI); DARPA Agreement HR0011 -06-2-0008, (Exhibit 
USA-164) (HSBI); DOD Contract FA8650 -07-2-7716, (Exhibit USA -165) (HSBI); and DARPA Cooperative 
Agreement HR0011 -10-2-0001, (Exhibit USA -166) (HSBI).  
312 The effective date of DARPA Contract HR0011 -05-C-0068 is 1 May 2005. The effective date  of DARPA 
Agreement MDA972 -03-2-0003 is 29 September 2003.  WT/DS353/R W 
 
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  Communities ' original panel request and were not challenged in the original proceeding, the 
European Union cannot challenge these measures in this compliance proceeding.  
7.165.   The remaining procurement contracts and assistance instr uments i dentified by the 
United  States bear effective dates subsequent to the date of the European Communities' panel 
request in the original proceeding. These post -2006 procurement contracts and assistance 
instruments were funded under RDT&E  program elements that  were in existence at the time of the 
original panel request, but not challenged by the European Communities in the original proceeding . 
As we explain in paragraph 7.160 , in order to find these instruments within the scope of t his 
proceeding, the Panel must be satisfied that there are sufficiently close links in terms of nature, 
effects , and timing between those measures and the aeronautics R&D  measures the subject of the 
DSB recommendations and rulings . 
7.166.   In undertaking this clos e nexus analysis, we recall that in the original proceeding, the 
panel found that the R&D performed under the NASA and certain of the DOD measures at issue 
focused on the development of particular technologies that were considered to be the most crucial 
to the LCA industry, in that they carried the greatest prospect of creating significant competitive 
advantage by promising airline customers lower direct operating costs and reducing the time to 
market.313 The key technology areas involved composites technolog ies, open systems architecture, 
enhanced aerodynamics and structural design, noise reduction technologies , and health 
management systems.314 In concluding that the aeronautics R&D subsidies were designed to 
develop and validate new technologies for Boeing to  commercialize, and that they contributed in a 
genuine and substantial way to Boeing 's development of technologies for the 787, thereby 
conferring a competitive advantage on Boeing, the panel characterized the aeronautics R&D 
subsidies in the following man ner:  
{W}e would characterize the NASA R&D subsidies as strategically -focused R&D 
programmes with a significant and pervasive commercial dimension, undertaken in 
collaboration with U.S. industry to provide competitive advantages to U.S. industry by 
funding  research into high risk, high pay -off research of the sort that individual 
companies are unlikely to fund on their own. The DOD R&D subsidies funded through 
the ManTech and DUS&T programmes under DOD 's RDT&E Program are focused on 
pursuing "dual use " technologies through collaborative efforts with U.S. industry.315 
7.167.   We have reviewed these procurement contracts and assistance instruments, all of which 
are HSBI, and certain of which contain International Traffic in Arms Regulations ( ITAR) controls 
regarding the  objectives of the efforts316, as well as the parties ' submissions regarding them, 
which are also HSBI. While we note that, unlike the aeronautics R&D subsidies before the original 
panel, the measures before us clearly have solely military objectives, it nev ertheless appears to us 
that the nature of the technologies is closely related to certain of the key technologies that were 
the focus of the research efforts under the original aeronautics R&D subsidies, particularly as 
regards  non-autoclave manufacturing technologies and  [[HSBI]] . On the basis of this 
technological link, we consider that in order for the Panel to undertake a meaningful review of 
whether the United States has complied with the DSB recommendations and rulings, it is 
appropriate to include th e European Union 's claims regarding payments and access to DOD 
facilities, equipment, and employees  provided through the procurement contracts HR0011 -06-C-
0073 and HR -0011-08-C-0044 statement of work ( SOW) and assistance instruments HR0011 -06-
2-0008, FA865 0-07-2-7716, and HR0011 -10-2-0001 funded through the Materials Processing 
Technology Project of the Materials and Biological Technology program element as within the 
scope of this proceeding.317  
                                               
313 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1742 and 7.1745.  
314 These technologies and the parties' arguments as to the relationship between the R&D measures and 
Boeing's dev elopment of 787 technologies in specific technology areas is discussed in appendix VII.F.1 of the 
Panel Report, US – Large Civil Aircraft (2nd complaint ). 
315 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1764.  
316 The instruments subject to  ITAR restrictions are those submitted as: DARPA Contract HR001 -05-C-
0068, (Exhibit USA -160) (HSBI); DARPA Contract HR0011 -08-C-0044, (Exhibit USA -162) (HSBI); and DARPA 
Cooperative Agreement HR0011 -10-2-0001, (Exhibit USA -166) (HSBI).  
317 For the sake of co mpleteness, we note that while the European Union at paragraph 292 of its first 
written submission refers also to a "Disruptive Manufacturing Technology Initiative" in relation to the Materials 
and Biological Technology program element, the United States h as indicated that none of the procurement WT/DS353/R W 
 
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  7.168.   The Panel finds that procurement contracts HR0011 -06-C-0073 an d HR-0011-08-C-0044 
SOW and assistance instruments HR0011 -06-2-0008, FA8650 -07-2-7716, and HR0011 -10-2-0001 
funded through the Materials Processing Technology Project of the Materials and Biological 
Technology program element are within the scope of this p roceeding.  
Technology Transfer (PE 0604317F)  
7.169.   The Technology Transfer (PE 0604317F)  program element is an Air Force program 
element, the objectives of which are three -fold: (a) integrating advanced commercial -sector 
technologies into DOD systems, particular ly from non -traditional defense contractors ; (b) spinning 
off DOD -developed technologies to industry to make these technologies available for military 
acquisition ; and (c) establishing collaborative R&D projects with the private sector for cost -sharing 
of new dual -use technology development.318  
7.170.   The European Union asserts in its first written submission that this RDT&E  program 
element was initiated in FY 2012319, however, it responds in its supplemental submission320 (filed 
after its first written submission but before its second written submission) that its claims with 
respect to this program element are limited to the Partnership Intermediary Agreement(s) Project , 
which began in 2012.321 The Partnership Intermediary Agreement (s) Project is described in the FY 
2012 budget estimates as an effort to enhance and expand transfer of technologies between DOD 
and the commercial sector. The 2012 base plans indicate that this would be done by promoting 
and brokering cooperative research and development agreements between DOD  laboratories and 
industry for development of technology with both commercial and military applications with the 
intention that this activity will help lower the expense of new defense -related technology 
development through cost -sharing with industry and t o help DOD benefit from private -sector 
technology investments and innovations.322  
7.171.   The United States notes that the Technology Transfer  (PE 0604317F)  program element 
continues work that was previously undertaken under the Technology Link (PE 0603942D8Z) 
program element.323 Moreover, it indicates in response to questioning by the Panel that there were 
no assistance instruments or procurement contracts with Boeing funded through the Technology 
Transfer program element.324 
7.172.   The situation before us therefore appears t o be that : (a) the European Union makes claims 
in respect of certain measures under the Technology  Transfer program element ; (b) the 
United  States requests preliminary rulings that such claims are outside the scope of this 
proceeding because the program el ement in question existed at the time of the original panel 
request and was not challenged in the original proceeding ; (c) the European Union clarifies that its 
                                                                                                                                               
contracts or assistance instruments it has identified as being funded under the Materials and Biological 
Technology program element were part of the Disruptive Manufacturing Technology Initiative. (United  States'  
response to Panel question No. 72, para. 48).  
318 Technology Transfer Budgets for FY 2012 -FY 2013 (PE 0604317F), (Exhibit EU -75), FY 2012, pp. 1 
and 2, and FY 2013, p. 1.  
319 European Union's first written submission, para. 298.  
320 See para. 7.135  above . 
321 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 20. The Rumpf Report refers to a project entitled "Partnership Intermediary Agreement(s)" (646003) 
from FY 2012. ( See Rumpf Report, (Exhibit EU -23), annex A, p. 25).  
322 Technology Transfer Budgets for FY 2012 -FY 2013 (PE 0604317F), (Exhibit EU -75), FY 2012, p. 2.  
323 United States' request for preliminary rulings, dated 13 November 2012, para. 14. See also U.S. 
DOD Fisca l Year (FY) 2012 Budget Estimates: Research, Development, Test & Evaluation, Air Force, Vol. 2, 
February 2011, (Exhibit USA -4), p. 255 (which indicates that the Technology Transfer program element was 
called Defense Technology Transfer in previous Office o f Secretary of Defense budgets and prior to that, 
Defense Technology Link (TechLink)); U.S. DOD Budget, Fiscal Year 2011 RDT&E Programs (R -1), 
February  2010, (Exhibit USA -5), p. D -7; and U.S. DOD Budget, Fiscal Year 2006, RDT&E Programs (R -1), 
February 200 5, (Exhibit USA -2), p. D -6 (which shows the funding allocated to the Technology Link program 
element for FY 2004, FY 2005, and FY 2006).  
324 United States' response to Panel question No. 75, para. 51. The United States explains that its 
previous assertion, a t paragraph 440 of its first written submission, that the Technology Transfer program 
element funded one procurement contract during the 2007 -2012 period (a contract to develop, test, and 
demonstrate a multi -shot and multi -target aerial high power microwav e demonstrator that is capable of 
degrading, damaging or destroying electronic systems) was mistaken. This procurement contract was in fact 
funded through the Technology Tra nsition (PE 0604858F) program element which has not been challenged by 
the European  Union in this proceeding. The European Union makes no comment on this response.  WT/DS353/R W 
 
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  claims in respect of this program element in fact concern a project under that program element 
that began in 2012 and therefore could not have been challenged in the original proceeding ; and  
(d) it emerges from the European Union 's clarification and the evidence provided by the 
United States that Boeing is not a party to any instruments (procurement  contracts or assistance 
instruments) funded through either the 2012 pro ject identified by the European  Union or the 
Technology Transfer program element.  
7.173.   The end result, at least from a practical perspective, is that the European Union has not 
demonstrated  that the requisite measures exist in relation to its claims concerning this program 
element.  
7.174.   Given that there are no procurement contracts or assistance instruments with Boeing 
funded through the relevant project under the Technology Transfer program elem ent, the Panel is 
not satisfied that there is a measure in existence involving this RDT&E program element.  
Manufacturing Technology/Industrial Prepar edness (IP ManTech) (PE  0708011S)  
7.175.   The Manufacturing Technology/Industrial Preparedness (IP ManTech) (PE 07 08011S)  
program element is the Defense Logistics Agency ManTech Program. The European Union presents 
this program element as being part of a collection of Manufacturing Technology/Industrial 
Preparedness program elements administered individually by the De fense Logistics Agency, Air 
Force, Navy , and Office of Secretary of Defense, respectively.325 The European 
Communities ' claims in the original proceeding covered only the Air Force and Navy ManTech 
program elements.326 In other words, the European Communities did not challenge the Defense 
Logistics Agency 's IP ManTech (PE 0708011S)  program element in the original proceeding.  
7.176.   The DOD Budget for RDT&E programmes  for FY 2006, however, show s allocations for this 
program element for FY 2004, FY 2005 , and FY 2006. T his supports the United States ' position 
that the Defense Logistics Agency 's IP ManTech program element was in existence prior to 
2006.327 
7.177.   The European Union argues that its claims with respect to this RDT&E  program element 
are limited to the Procurement Rea diness Optimization -Advanced Casting Technology (PRO-ACT) 
Project, which began in 2011.328 According to the European Union, this project aims to develop 
digital radiography for non -destructive evaluation of castings, and builds on a related Air Force 
ManTech  Project .329 As the PRO-ACT P roject (which is the subject of the European Union 's claims 
in respect of the Defense Logistics Agency 's IP ManTech program element ) commenced in 2011, 
we do not consider that the European Union can be faulted for not challenging  this program 
element in the original proceeding.  
7.178.   The United States argues, however, that the PRO -ACT Project was a USD 350,000 effort 
involving six other "participants " and that DOD did not make any payments to Boeing.330 In 
response to further questioning  by the Panel, the United States explains that Boeing was not given 
a contract or a subcontract on any Defense Logistics Agency casting research and development 
project.331 Rather, the relevant contracts were awarded to an entity now called "Advanced 
Technol ogy International ", doing business as "SCRA Applied R&D ".332 While Boeing is listed as one 
                                               
325 European Union's first written submission, paras. 270, 275, 277, 280, and 281.  
326 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1114 (listing the challenge d program 
elements as "Manufacturing Technology/Industrial Preparedness (PE 0603771F/0708011F/0708011N)").  
327 U.S. DOD Budget, Fiscal Year 2006, RDT&E Programs (R -1), February 2005, (Exhibit USA -2), 
pp. D-14 and D -39. 
328 European Union's supplemental submiss ion on the United States' request for preliminary rulings, 
para. 20; Rumpf Report, (Exhibit EU -23), annex A, p.  27. 
329 European Union's first written submission, para. 280 (referring to Use of Digital Radiography for Final 
Part Acceptance of Aerospace Casti ngs project). See also U.S. DOD, Manufacturing Technology Program, "Use 
of Digital Radiography for Final Part Acceptance of Aerospace Castings", available at 
<https://www.dodmantech.com/ManTechPrograms/Files/AirForce/AF_Digital%20Radiography_Sept11_Final.p d
f>, accessed 29 August 2016, (Exhibit EU -297).  
330 United States' first written submission, para. 443.  
331 United States' response to Panel question No. 77, para. 60.  
332 "SCRA" is an abbreviation for South Carolina Research Authority. United States' response t o Panel 
question No. 77, para. 60.  WT/DS353/R W 
 
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  of the "participants " in the project, the United States speculates that this could reflect some 
involvement by Boeing with a subcommittee of the American Society for T esting and Materials, 
which is a broad -based association dedicated to the generation of standards for industrial use.333 
In any case, the fact that the Defense Logistics Agency cannot find any information recording the 
nature of Boeing 's involvement in the p roject indicates that any role it had as a "participant " was 
insignificant.334  
7.179.   The European Union responds by alleging that Boeing does not receive any contracts or 
subcontracts directly from DOD because DOD "funnels its funds " through the American 
Metalcas ting Consortium (AMC), which is managed and operated by the South Carolina Research 
Authority.335 The European Union notes that the S outh Carolina Research Authority  is a "quasi -
public economic development agency ", which is located adjacent to Boeing 's South  Carolina 
facilities. The Chairman of the Board of Trustees of the S outh Carolina Research Authority  is a 
Boeing executive.336  
7.180.   We see nothing in the evidence before us to suggest that the AMC and S outh Carolina 
Research Authority  operate as organizations th at act as conduits for providing payments and 
access to DOD facilities, equipment, and employees  to Boeing that would otherwise be provided by 
DOD directly through procurement contracts and assistance instruments. We have no re ason to 
suspect that the Unit ed States ' assertions that, whatever the nature of Boeing 's apparent 
"participation " in the USD 350,000 PRO -ACT Project , it did not involve the receipt of payments or 
access to DOD facilities, equipment , or employees though procurement contracts or assista nce 
instruments, have not been made in good faith. The Panel therefore is not satisfied that there are 
any procurement contracts or assistance instruments with Boeing funded through the PRO -ACT 
Project within the Defense Logistics Agency 's IP ManTech progr am element.  
7.181.   The Panel considers this situation to be  similar  to that of the Technology Transfer program 
element, described above. As a result of the European Union 's clarification of the limited nature of 
its challenge to this program element, and the abse nce of evidence demonstrating that Boeing was 
in fact party to any procurement contracts or assistance instruments funded under  the identified 
project, we conclude that the European Union has not demonstrated that the requisite measures 
exist in relation t o this program element.  
7.182.   Given that there are no procurement contracts or assistance instruments with Boeing that 
are funded through the PRO -ACT Project (which is  the subject of the European Union 's claims 
concerning the IP ManTech program element ), the Pan el is not satisfied that there is a measure in 
existence involving this RDT&E program element.  
Airborne Warning and Control System (AWACS) (PE 0207417F)  
7.183.   The Airborne Warning and Control System (AWACS) (PE 0207417F) program element is an 
early warning and c ontrol system based on a variant of the Boeing 707 (the E -3 Sentry), which 
first entered service in 1977.337 The United States points to DOD budget documentation showing 
allocations for this program element in FY 2004, FY 2005 , and FY 2006, indicating that t his project 
element was in existence (and could have been challenged by the European Communities) at the 
time of the original panel request.338 The European Union responds that its claims with respect to 
this RDT&E  program element are limited to the Diminish ing Manufacturing Sources Replacement of 
                                               
333 The United States refers more specifically to the ASTM Committee E07.02 on Reference Radiological 
Images, under the ASTM Committee E07 on Non -destructive Testing.  
334 United States' response to Panel question No. 77, para . 61. 
335 European Union's comments on the United States' response to Panel question No. 77, para. 92.  
336 European Union's comments on the United States' response to Panel question No. 77, para. 92. The 
material to which the European Union refers indicates th at this Boeing executive "has become a high profile 
member of the Charleston community" who has also served on the Medical University of South Carolina Board 
of Visitors and as 2nd Vice Chairman of the South Carolina Manufacturers Alliance. (B. Kearney, "B oeing S.C. 
executive to oversee supply chain in Italy", The Post and Courier , 6 September 2012, (Exhibit EU -1408)).  
337 Boeing Backgrounder, E-3 Airborne Warning and Control System (AWACS) , (June 2012), (Exhibit 
EU-338), p. 1.  
338 U.S. DOD Budget, Fiscal Year 2006, RDT&E Programs (R -1), February 2005, (Exhibit USA -2), p. F -9. WT/DS353/R W 
 
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  Avionics for Global Operations and Navigation (DRAGON) Project , in which Boeing has been 
involved since 2010.339  
7.184.   Throughout its history, AWACS has undergone extensive enhancements, with fleets from 
the United States,  North Atlantic Treaty Organization ( NATO ), United Kingdom,  and France 
upgrading their communications, computers , and navigation.340 The DRAGON Project aims to equip 
the E -3 fleet with flight deck and other avionics capabilities that will allow AWACS to comp ly with 
mandated global Required Navigation Performance, surveillance , and communication standards.341 
DRAGON seeks to achieve these upgrades using commercial off -the-shelf components supplied by 
companies such as Rockwell Collins, Telephonics, Raytheon, Tha les, and EMS.342 
7.185.   The United States explains that the DRAGON Project is a joint effort between the 
United  States and NATO, with NATO contributing 34 % of the total cost.343 Under Air Force Contract 
F10628 -01-D-0016 between the U.S. Air Force and Boeing, Boeing w as awarded Delivery Order  
(D.O)  73 to perform Engineering, Manufacturing and Development (EMD) – Phase I of the 
DRAGON Project.344 In this initial phase, which commenced on 18 July 2011, Boeing conducted a 
Subcontractor System Readiness Review and began work ing with subcontractors Rockwell Collins 
and Telephonics on their subsystem requirements effort.345 The United States asserts that Boeing 's 
work under Phase I consisted in essence of evaluating the capabilities of certain subcontractors to 
provide the requir ed flight deck and avionics subsystems intended for installation in AWACS 
aircraft, as well as beginning the subcontracting process.346 Phase I ended upon the award of 
Phase II on 14 November 2011 under modification 2 to D .O. 73.347 Under DRAGON EMD Phase II, 
Boeing is to : (a) incorporate the new commercial off -the-shelf avionics and communications 
systems from other suppliers into the existing systems ; (b) develop a design to install the new 
equipment ; (c) upgrade one aircraft for each AWACS fleet ; (d) flight test the new systems ; (e) 
develop logistics support data ; and (f) train flight crews and maintenance personnel.348 
7.186.   The United States argues that it was "obvious " at the beginning of 2006 that the AWACS 
involved  military aircraft produced by "militarizing " civilian airframes. As this fact lies at the heart 
of all of the European Union 's arguments regarding this program element, the United States 
considers it difficult to see how the European Union discovered something about the dual -use 
potential of this progr am element  in 2007 that changed its views.349 
7.187.   We note that the AWACS budget estimates for FY 2007 refer to the Avionics Modernization 
Program which would complete the FAA/ICAO/EUROCONTROL mandated air traffic control system 
                                               
339 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 20; and Rumpf Report, (Exhibit EU -23), para. 4.2. Mr Rumpf expresses the opinion, at  paragraph 4.3.1 
of the Rumpf Report, that the DRAGON Avionics Project is the only effort under the AWACS program element 
to involve "dual -use" R&D.  
340 Boeing Backgrounder, E-3 Airborne Warning and Control System (AWACS) , (June 2012), (Exhibit 
EU-338), p. 1 . 
341 Rumpf Report, (Exhibit EU -23), para. 4.2. See also Airborne Warning and Control System (AWACS) 
Budgets for FY 2007 -FY 2013 (PE 0207417F), (Exhibit EU -76), exhibit R -2, item 148, p. 1, frame 86/98.  
342 "Enter the DRAGON – NATO & USSA Upgrading E -3 AWACS C ockpits", Defense Industry Daily , 
14 June 1012, (Exhibit USA -506).  
343 United States' second written submission, para. 405, fn 550. This means that the amount obligated 
under Air Force Contract F19628 -01-D-0016, D.O. 73 are 66% funded by DOD and 34% funded b y NATO.  
344 United States' first written submission, para. 450; response to Panel question No. 78, para. 66; and 
Air Force Contract F19628 -01-D-0016, D.O. 73, (Exhibit USA -170) (HSBI).  
345 United States' response to Panel question No. 78, para. 66;  and Air For ce Contract 
F19628 -01-D-0016, D.O. 73, (Exhibit USA -170) (HSBI), p. 2.  
346 United States' response to Panel question No. 78, para. 66.  
347 United States' response to Panel question No. 82, para. 79.  
348 United States' response to Panel question No. 82, para. 80;  and Boeing Press Release, "Boeing to 
Modernize Flight Deck and Avionics for US and NATO AWACS Fleets", 23 May 2013, (Exhibit EU -1334).  
349 United States' second written submission, para. 62. United States notes that the statement of work 
for Delivery Order 73 is subject to Distribution F limitations, which restrict distribution of the contents to DOD 
and NAPMO/NATO. According to the United States, this restriction clearly indicates that any technology and 
related technological data/computer software develope d under this Delivery Order has little application in the 
civilian sphere. (See United States' first written submission, para. 450). The European Union requested the 
Panel to require the United States to remove the Distribution F limitations on the stateme nt of work for 
Delivery Order 73 under DOD contract F10628 -01-D-0016 in a communication to the Panel date 
9 September  2013. In a communication dated 23 October 2013, the Panel said that it had decided not to grant 
the request at that time. See Section 1.3.3.3  of this Report and Annex F -1. WT/DS353/R W 
 
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  upgrades and equip the E -3 fleet w ith flight deck and other avionics capabilities that will allow 
AWACS to comply with mandated global Required Navigation Performance, surveillance , and 
communication standards.350 While the project cost analysis in the budget estimates indicate s that 
Boeing would be involved in the Avionics Modernization Program, the schedule profile envisages 
that the core work under the Avionics Modernization Program would not commence until 
FY 2008.351 In these circumstances, it is difficult to imagine how the European Commu nities could 
feasibly have challenged any activities related to the DRAGON Project of the AWACS RDT&E 
program element in its original panel request in 2006. The work had clearly not commenced until 
much later in the process.352 We therefore do not agree with  the United States that the 
European  Union is precluded from bringing claims in relation to the DRAGON Project under the 
AWACS program element in this compliance proceeding.  
7.188.   The further question, however, is whether the Air Force Contract  F19628 -01-D-0016, D.O. 
73 awarded to Boeing under the DRAGON Project is sufficiently closely connected, in terms of its 
nature, effects , and timing, to the aeronautics R&D subsidies  the subject of the DSB 
recommendations and rulings  so as to be within the scope of this pr oceeding as an "undeclared" 
measure taken to comply . 
7.189.   Mr Rumpf considers that DRAGON upgrades the E -3 flight deck in ways that give rise to 
the development of an improved system engineering and open systems architecture that can be 
applied by Boeing to LCA.353 The United States responds that : (a) the DRAGON Project is remedial 
in nature, aiming to update systems to enable the E -3 to transit civil airspace in the same way that 
commercial aircraft already do ; (b) elements of the DRAGON system upgrades are strict ly military 
in nature, therefore it is incorrect to consider that the project 's avionics have "100%" relevance to 
LCA development ; and  (c) the project addresses problems with the E -3 that are not shared by 
Boeing 's LCA. Indeed, the DRAGON Project 's use of commercial off -the-shelf avionics from other 
suppliers underscores that the project is focused on leveraging existing civil technology to improve 
outdated military equipment.354  
7.190.   We refer to our discussion in Section  8.2.3.2.3  of this Report of the nature of R&D 
conducted under systems acquisition/military aircraft program elements such as the AWACS 
program element. RDT&E activities conducted under these program elements are specifically 
directed to the development of a new weapon  system or upgrading or enhancing of an existing 
weapon system, and more particularly, addressing particular problems with respect to a particular 
product. In this context, we are not satisfied that a gen eral allegation by the European  Union that 
upgrading  the flight deck and avionics subsystems for a particular military aircraft could give rise 
to improved systems engineering and open systems architecture of more general applicability is 
sufficient, without more, to demonstrate the required close nexus bet ween the Air Force Contract 
F19628 -01-D-0016, D.O. 73,  and the NASA and DOD aeronautics R&D subsidies  subject to the 
DSB recommendations and rulings . In particular, there is nothing before us to suggest that our 
failure to consider the European Union 's claims concerning the relevant instrument funded under 
the AWACS DRAGON Project as part of this compliance proceeding would undermine our ability to 
undertake a meaningful assessment of whether the United States has complied with the DSB 
recommendations and r ulings  in the original  proceeding . We are therefore not satisfied that the 
European Union has demonstrated that this measure is within the scope of this proceeding as an 
"undeclared" measure taken to comply.  
                                               
350 Airborne Warning and Control System (AWACS) Budgets for FY 2007 -FY 2013 (PE 0207417F), 
(Exhibit EU -76), exhibit R -2, p. 1428.  
351 Airborne Warning and Control System (AWACS) Bud gets for FY 2007 -FY 2013 (PE 0207417F), 
(Exhibit EU -76), exhibits R -3, p. 1433 and R -4, p. 1434.  
352 The United States explains that the AWACS DRAGON cockpit upgrade was defined in EMD Project 
Arrangement 3 pursuant to the six -party memorandum of understandi ng concerning project for the E -3 fleets. 
(United States' response to Panel question No. 82, para. 78; and Memorandum of Agreement Between the 
United States of America and the NATO AEW&C Programme Management Organization signed at Washington 
and Brunssum, 10 and 30 August 1999, (Exhibit USA -459)). However, while the United States refers to the 
DRAGON EMD Project Arrangement 3 (which would have listed the scope of the work envisaged for the 
DRAGON cockpit upgrade and potentially therefore, have provided a ba sis for the European Communities to 
have challenged the work in the original proceeding as potentially involving "dual -use" R&D), it does not 
provide this instrument or indicate when it was signed.  
353 Rumpf Report, (Exhibit EU -23), para. 4.2; and European U nion's first written submission, para. 302.  
354 United States' response to Panel question No. 78, para. 72.  WT/DS353/R W 
 
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  7.191.   The Panel grants the United States ' request and finds that Air Force C ontract  
F19628 -01-D-0016 funded under the DRAGON Project of the AWACS (PE 0207417F) program 
element is outside the scope of this proceeding.  
KC-46, Next Generation Aerial Refueling Aircraft (PE 0605221F)  
7.192.   The KC -46, Next Generation Ae rial Refueling Aircraft (PE 0605221F) program element is 
the initial increment of the Air Force 's tanker modernization program me, involving conversion of a 
commercial derivative aircraft into an aerial refueling  tanker. The existing KC -135 Stratotanker 
fleet is over 50 years old on average and is increasingly costly to maintain and support. The U.S. 
Air Force plans to develop, test and field 18 KC -46 tankers by August 2017 and eventually have a 
total of 179 aircraft in operation by 2027.355  
7.193.   The United States  objects to the inclusion of this program  element within the scope of this 
proceeding on the basis that the KC -46, Next Generation Aerial Refueling Aircraft program element 
continues work that was previously conducted under the KC -135 Replacement  Tanker  (PE 
0401221F)  program element , which existed at the time of the original panel request and was not 
challenged in the original proceeding.356  
7.194.   The European Union responds that the  EMD Contract for the K C-46 aerial refueling  tanker 
was awarded to Boeing in Febru ary 2011, which is clearly after the date of the original panel 
request.357  
7.195.   The United States notes that the EMD Contract was awarded to Boeing in 2011 after a 
process which had involved cancellation in 2005 of an initial effort to acquire use of new tanker s, a 
second procurement effort commenced by the Air Force in 2006, in which Northrop Grumman was 
successful in 2008, but which decision was subsequently overturned by the U.S. Comptroller 
General in 2008 after a protest by Boeing, and a third procurement e ffort in which Boeing was 
successful in 2011.358 The United States argues that it was obvious in 2006 that the KC -46 aerial 
refueling  tanker would be  a military aircraft produced by militarizing civilian airframes. It is thus 
difficult to see how the Europea n Union discovered something about the dual -use potential of this 
program  element  in 2007 that changed its view.359 
7.196.   Although the KC -46, Next Generation Aerial Refueling Aircraft program element continues 
work previously conducted under the KC -135 Replacement  Tanker  program element, it seems 
clear to the Panel that, at the time of the European Communities ' panel request in the original 
proceeding (January 2006), the request for proposal for the KC -X tanker had not been issued by 
the Air Force, let alone had a successful proposal been selected. Indeed, Northrup Grumman was 
the successful tenderer in the previous procurement effort in 2008, with a derivative Airbus 
aircraft. In these circumstances, it is not unreasonable that the European Communities did not 
include claims regarding the KC -135 Replacement  Tanker  program element in the original 
proceeding.  
                                               
355 U.S. Government Accountability Office, KC-46 TANKER AIRCRAFT: Program Generally Stable but 
Improvements in Managing Schedule Are Needed , Report 13 -258, (February 2013),  (Exhibit USA -237), p. 1.  
356 United States' request for preliminary rulings, dated 13 November 2012, para. 14. See also KC -46, 
Next Generation Aerial Refueling Aircraft, Budgets for FY 2009 -FY 2013, (PE 0605221F), (Exhibit EU -1072), 
budget for FY 2009, p. 1, which indicate that RDT&E funds for FY 2009 and beyond were transferred from the 
KC-135 Replacement  Tanker   (PE 401221F)  program element; and U.S. DOD Budget, Fiscal Year 2006, RDT&E 
Programs (R -1), February 2005, (Exhibit USA -2), p. F-13, which shows a budget allocation for the KC -135 
Replacement  Tanker  (PE 0401221F)  program element for FY  2006.  
357 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 20; first written submission, para. 3 04; Rumpf Report, (Exhibit EU -23), para. 4.2,  p. 10; and Air Force 
Contract FA8625 -11-C-6600 (KC -46 Contract),  (Exhibit USA -365) (HSBI). In its Annual Report on Form 10 -K 
for the year ended 31 December 2014, Boeing disclosed that in the second quarter of 2 014 it declared a 
reach -forward loss of USD 425 million on the KC-46A tanker contract, which was a fixed -price development 
contract, owing to higher estimated costs. Boeing's Commercial Airplanes segment recorded USD 238 million of 
this loss. (Subsidies to  Boeing's LCA Division (2013 -2014 Update), (Exhibit EU -1451), annex A, "Annual Report 
on Form 10 -K for the year ended 31 December 2014", pp. 79 and 80).  
358 United States' first written submission, paras. 451 and 452; and C. Drew, "Boeing Wins Contract to 
Build Air Force Tankers", New York Times , 24 February 2011, (Exhibit USA -236).  
359 United States' second written submission, para. 62. WT/DS353/R W 
 
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  7.197.   We have reviewed Mr Rumpf 's assessment of the R&D involved in this program  element 
that is potentially dual -use to LCA.360 This assessment refers in a very genera lized way to 
technological areas such as the use of performance based logistics incorporating micro -sensors in 
the KC -46 airframe, avionics R&D related to communications, navigation and adverse weather 
capabilities, physics -based modelling and simulation a ctivities for improved design of the test and 
evaluation flight and ground tests, and multiple systems management technologies and processes.  
7.198.   We refer to our discussion in Section  8.2.3.2.3  of this Report of the nature of R&D 
conducted under systems acquisition/military aircraft program elements such as the KC -46, Next 
Generation Aerial Refueling Aircraft  program element. RDT&E activities conducted under these 
program elements are specifically directed to the development of a n ew weapon system or 
upgrading or enhancing of an existing weapon system, and more particularly, addressing particular 
problems with respect to a particular product.361 We are not satisfied that generalized allegations 
regarding the potential applicability  to LCA of certain broad technology areas, without an 
explanation of how those  technology areas overlap with the technology areas that were the focus 
of the NASA and DOD aeronautics R&D subsidies the subject of the DSB recommendations and 
rulings362, are suffic ient to demonstrate the required close nexus, in terms of nature or effect, 
between the measures identified with respect to the KC -46, Next Generation Aerial Refueling 
Aircraft program element and the NASA and DOD aeronautics R&D subsidies the subject of t he 
DSB recommendations and rulings .  
7.199.   The Panel grants the United States ' request and finds that Air Force C ontract 
FA8625 -11-C-6600 funded through the KC -46, Next Generation Aerial Refueling Aircraft  
(PE 0605221F) program element is outside the scope of th is proceeding.  
Multi -Mission Mari time Aircraft (P -8A) (PE 0605500N)  
7.200.   The Multi -Mission Mari time Aircraft (P -8A) (PE 0605500N) program element provides the 
replacement systems for the P -3 and EP -3 aircraft. In 2002, the U.S. Navy decided on an 
acquisition st rategy for the concept and design  phase of a multi -mission maritime aircraft to 
replace the ageing P -3 and EP -3 submarine -chasing aircraft. Boeing, as one of the two "concept 
and design"  contractors, subsequently competed in the engineering and manufacturi ng 
development phase, proposing a modified version of Boeing 737 aircraft.363 In June 2004, the 
Navy awarded Boeing contract N00019 -04-C-3146 to develop and demonstrate the system, with 
plans to enter production and deployment in 2010.364 Following a critical design review in 2007, 
Boeing received approval to fabricate the flight test aircraft in 2007. The program me then moved 
into low rate initial production (LRIP) as part of the production and deployment phase in 2010.365 
The Navy issued separate contracts N000 19-09-C-0022 and N00019 -12-C-0112 for the 
subsequent LRIP lots.366 
7.201.   The United States asserts that "by far " the largest contract funded through the "additional " 
RDT&E program elements is the System Development and Design  contract for the P -8A, which was 
award ed in 2004. The United States considers that, if the European Union is recognizing that DOD 
only makes payments or provides facilities, equipment, and employees  pursuant to a contract or 
agreement, and that those are the relevant measures, the P -8A Contrac t is clearly outside the 
scope of this proceeding.367 On the other hand, if the European Union is challenging design and 
testing without regard to the contract, those activities took place both before and after 2006, and 
the "measure " was in place at the tim e of the original panel request, and therefore cannot be 
                                               
360 Rumpf Report, (Exhibit EU -23), para. 4.3.3.  
361 See Sections 8.2.3.2.3  and 8.2.3.2.4  below.  
362 See para. 7.166  above . 
363 United States' first written submission, para. 458. The other contractor, Lockheed Martin, had 
proposed a P -3 derivative known as Orion 21.  
364 United States' f irst written submission, para. 458; and Navy Contract N00019 -04-C-3146 (submitted 
on 16 January 2014), (Exhibit USA -367) (BCI). The contract is described as a  system development and 
demonstration  contract. The primary objectives of system development and d emonstration are to perform the 
system detailed design, develop and produce Systems Integration Labs and develop and build ground and 
flight test articles and prepare for "Milestone C" which is production and deployment. See e.g. MMA 2006 
Budget, Exhibit R -2, February 2005, (Exhibit USA -172), p. 1  
365 United States' first written submission, para. 458.  
366 United States' first written submission, para. 458.  
367 United States' second written submission, para. 63.  WT/DS353/R W 
 
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  treated as a measure taken to comply in this proceeding.368 In any case, the United States 
considers it was obvious in the beginning of 2006 that the P -8A would be military aircraft produced 
by militar izing civilian airframes, so it is difficult to see how the European Union discovered 
something about the dual -use potential of this programme in 2007 that changed its view.369 
7.202.   The European Union acknowledges that the Multi -Mission Mari time Aircraft (P-8A) program 
element existed at the time of the original panel request. The European Union makes a number of 
arguments to justify why it was not possible to have identified activities conducted by Boeing that 
were funded under this program element as potentially  having "dual-use" application at the time of 
the original panel request in January 2006. First,  the project had not in early 2006 progressed to 
the point at which the European Communities and its experts believed it was funding R&D relevant 
to Boeing 's LCA division. According to the European  Union, significant steps in the system 
development and demonstration process occurred after the date of the European Communities ' 
original panel request.370 Second, the DOD budget estimates gave no indication that "dual-use" 
R&D was being carried out. Indeed, the European Union argues that in this proceeding, it relied 
not on the RDT&E budget estimates in describing the "LCA-relevance " of work under the P -8A 
Program, but on the expert opinion of Mr  Rumpf.371 In this regard,  the European Union submits a 
supplemental statement from Mr Rumpf, indicating that the conclusions he had reached in the 
Rumpf Report regarding the developments in the Multi-Mission Mari time Aircraft (P -8A) program 
element  since 2006 were based on his "knowledge of developments with the P -8A Program since 
2006, gained from press reports, defense -community and industry events, and conversations (to 
the extent permissible) with government and industry personnel (including former DOD 
colleagues) ", viewed in l ight of his background knowledge and experience.372 In short, the 
European Union argues that "almost all " of the information upon which it and its experts rely in 
concluding that the P -8A Program funds R&D that is "dual-use" to LCA, was first made public onl y 
after 20  January  2006 (this being the date of the European Communities ' original panel 
request).373 
7.203.   We are not persuaded by the European Union 's argument that it was unable to identify the 
relevant aspects of this RDT&E program element in January 2006 that  would have enabled it to  
include it within the scope of its  challenge in the original proceeding. Mr Rumpf states that the 
budget estimates for the P -8A program element since FY 2005 do not of themselves provide 
sufficient information to conclude that the  R&D carried out under the P -8A program element  is 
"dual-use" to LCA. We have no doubt that is correct, not only for  the budget estimates for the 
P-8A program element, but for the budget estimates for all of the RDT&E program elements. It is 
not the purpos e of the FYDP budget estimates to describe the particular research or to explain the 
specific technologies that are being developed under program elements at any time. For example, 
the budget estimates for the KC -46, Next Generation Aerial Refueling Aircra ft program element, 
which like the P -8A, involves a derivative Boeing commercial aircraft (the 767), similarly do not 
provide information that points to the specific technologies that are being developed for application 
to the KC -46. The information on the  "dual-use" potential of the KC -46 R&D work allegedly being 
conducted by Boeing, which is stated in the Rumpf Report is, as Mr Rumpf explains in his report, 
based on a combination of publicly available information such as the RDT&E budget estimates, 
along with his specific expertise in aerospace engineering, RDT&E budgeting and the markets for 
aerospace and defense products.374 We note that Mr Rumpf purports to provide an "expert 
opinion " on the "dual-use" proportion of funding in the budget categories of "airframe ", 
"propulsion ", "avionics ", "integration assembly & test ", "armament ", "test & evaluation ", "systems 
engineering ", and "data training and support equipment ", under the KC -46 program element when 
Boeing was not awarded the EMD Contract for the KC -46 until February  2011. We do not find it 
credible that the European Communities ' experts in the original proceeding, CRA , were unable in 
late 2005, based on what appears to be the same methodology later employed by Mr Rumpf, to 
                                               
368 United States' second written submission, para. 6 3. 
369 United States' second written submission, para. 62.  
370 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 20; response to Panel question No. 63, para. 28, fn 66. Moreover, while Boeing was awarded the 
contract in 2004, the European Union did not have access to that contract until this compliance proceeding was 
under way. (European Union's response to Panel question No. 63, para. 28, fn 65).  
371 European Union's response to Panel question No. 63, para. 29.  
372 European Union's response to Panel question No. 63, para. 30 (referring to Supplemental Statement 
of R. L. Rumpf, M.S.A.E., November 2014, (Exhibit EU -1348) (HSBI), paras. 11 and 12).  
373 European Union's response to Panel question No. 63, para. 37.  
374 Rumpf Report, (Exhibit EU -23), para. 2. WT/DS353/R W 
 
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  identify potential "dual-use" technologies likely to be involved in Boeing 's work under the 
Multi-Mission Maritime Aircraft (P-8A) program element, when Boeing had been awarded the EMD 
Contract for that project in June  2004.375  
7.204.   This is especially so, since it was widely known in 2004 th at the P -8A would be developed 
as a derivative of the existing Boeing 737. The 2006 CRA Report noted that similarities between 
the C -17 aircraft and large civil aircraft justified the allocation of a larger proportion of RDT&E for 
the C -17 as potentially "dual-use".376 It would seem logical for CRA to have considered the 
possibility at least, that Boeing 's development of the P -8A as a derivative 737 would involve 
technologies with a similar potential relevance to large civil aircraft as it surmised to be the case 
with respect to the RDT&E for the C -17. 
7.205.   We conclude that, given that the Multi -Mission Maritime Aircraft (P -8A) program element 
had been in existence at the time of the European Communities ' original panel request, and 
moreover, in light of the fact t hat the system development and demonstration  Contract under the 
Multi-Mission Mari time Aircraft (P -8A) program element had already been awarded to Boeing in 
June 2004, the European Communities could have challenged payments and the access to 
facilities, eq uipment, and employees  provided to Boeing through this instrument . We consider that 
it would be an inappropriate and unjustified enlargement of the scope of this proceeding to include 
measures in respect of the 2004 system development and demonstration  Contract, as well as the 
subsequent contracts for low -rate initial production arising out of the work conducted under the 
2004 system development and demonstration  Contract , within the scope of this proceeding.  
7.206.   The Panel grants the United States ' request and finds that the measures related to the 
Multi-Mission Mari time Aircraft (P -8A) RDT&E program element are outside the scope of this 
proceeding.  
Long Range Strike Bomber (PE 0604015F)  
7.207.   The Long Range Strike Bomber (PE 0604015F) program element is a highly clas sified 
program me to develop a new large stealth bomber. The Long Range Strike Bomber program 
element was initially funded in FY 2011 and followed an earlier effort, which ended in 2009, to 
develop a "Next Generation Bomber ".377  
7.208.   The United States argues that  the Long Range Strike Bomber program element is the 
continuation of the "Next Generation Bomber " program element, which was in existence at the 
time of the original panel request and also carried the same program element number 
(PE 0604015F) in DOD budget  documents.378 The United States submits that, "although the 
budget request for 2011 refers to the effort in that year as a 'new start effort ', there is a striking 
degree of overlap in the description s of the work conducted in 2008 and 2011. "379 The 
United  States also asserts that "industry observers " share the perception that the current work 
                                               
375 In this respect, we note the backgrounds of the CRA principals responsible for preparing the 2006 
CRA Report. One had previously worked as an industrial and financial analyst in the Office of the Secretary of 
Defense.  The other had a 14 year career in engineering, design, and management with Lockheed Martin 
Corporation (CRA Report, (Exhibit EU -29), appendix L: CRA Staff Qualifications, L.1 and L.2). Lockheed Martin, 
along with Boeing, was one of the contractors awarded  a CAD contract in 2002 prior to Boeing's selection as 
the contractor for the System Development and Design phase of the project in June 2004. In light of these 
connections, we find it difficult to believe that in 2005, the experts at CRA were unable to dr aw any c onclusions 
as to whether Boeing's work under the Multi -Mission Maritime Aircraft (P -8A) program element at least 
potentially involved "dual -use" R&D.  
376 "The C-17 aircraft much more closely resembles an LCA than the other military aircraft programme s 
examined above. For example, it is very similar to LCA in size, weight and operating envelope (cruise speed, 
altitude, etc). In addition, it shares many configuration similarities with LCA … Finally it shares many internal 
system similarities with LCA … Consequently, solutions to the design and engineering challenges of the C -17 
are logically more transferable to LCA." (CRA Report, (Exhibit EU -29), pp. 23 and 24).  
377 European Union's first written submission, para. 314; and Rumpf Report, (Exhibit EU -23), p ara. 4.2.  
378 United States' request for preliminary rulings, dated 13 November 2012, para. 13; response to Panel 
question No. 80, para. 74. See also U.S. DOD Budget, Fiscal Year 2006, RDT&E Programs (R -1), 
February  2005, (Exhibit USA -2), p. F -4; and Long Ra nge Strike Bomber Budgets for FY 2007 -FY 2013 
(PE 0604015F), (Exhibit EU -78), p. 693.  
379 United States' response to Panel question No. 80, para. 74.  WT/DS353/R W 
 
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  under the Long Range Strike Bomber program element is part of an ongoing effort.380 According to 
the United States, DOD "cancelled " the Next Generation Bomber program eleme nt in order to allow 
time to refine the program me objectives. The resulting Long Range Strike Bomber program 
element is thus a "successor " to, and the work under that program element continues the work 
that was undertaken under , the "Next Generation Bomber " program element of the same PE 
number.381  
7.209.   The European Union notes that it is challenging the RDT&E conducted under the Long 
Range Strike Bomber program element beginning in 2011 .382 It refers to a DOD description of the 
Long Range Strike Bomber program ele ment as a "new start " in 2011, thus implying that it is 
distinct from, and not a continuation of, the "Next Generation Bomber " program element.383 The 
European Union argues that the Next Generation Bomber and Long Range Strike Bomber program 
elements were bo th intended to develop new bomber capabilities for the U.S. Air Force, however, 
the fact that the two program elements may have similar "missions " does not make the latter a 
continuation of the former.384  
7.210.   The United States indicates that the PE 0604015F pro gram element provided funding in 
the 2007 -2012 period for one assistance instrument and four procurement contracts.385 The four 
procurement contracts identified by the United States all have effective dates prior to 2011.  
7.211.   The European Union indicates that i nstruments that pre -date the 2011 Long Range Strike 
Bomber (PE 0604015F)  program element do not fall within the scope of its claims.386 It explicitly 
concedes that delivery orders for contracts F33615 -00-D-3052, D.O. 90, FA8650 -08-D-3857, 
D.O. 1, and F33165 -03-D-2358, D.O. 7 are outside the scope of its claims. It would appear that 
for the same reasons, contract FA8650 -09-C-3902, which the United States indicates has an 
effective date of 2009, as evidenced by the "09" in the seventh and eighth digits of its c ontract 
number, is  also outside the scope of its claims.387  
7.212.   The assistance agreement identified by the United States (FA8650 -04-2-3449), is a 2004 
instrument that was also funded through the Advanced Materials for Weapons Systems 
(PE 0603211F) program eleme nt, an original RDT&E program element. This assistance instrument 
was therefore covered by the European Communities ' claims in the original proceeding and was 
modified by the Supplemental Subject Invention and Patent License Agreement concluded between 
DOD and Boeing on 21  September  2012 (DOD -Boeing Patent Licence Agreement) .388 It is clearly 
within the scope of this proceeding as an original measure.  
7.213.   Based on the above exchange between the parties, we conclude that there is no evidence 
before the Panel of a ny assistance instruments or procurement contracts with Boeing funded under 
the Long Range Strike Bomber program element that have effective dates from 2011 or later that 
would fall within the scope of the European Union 's claims concerning this RDT&E  program 
element, as delimited by the European Union.  
7.214.   The European Union notes that the Long Range Strike Bomber Program is highly classified. 
It refers to public reports that Boeing and Lockheed Martin will team to compete on the program 
element , which aims t o deliver 80 -100 long range stealth bombers to the Air Force, with an initial 
operational capability in 2024 to 2026389 as well as public reports of statements by Air Force 
                                               
380 United States' response to Panel question No. 80, para. 75 (referring to L. B. Thompson, "America 
Needs to  Develop a New Bomber Now", Lexington Institute , 2013,  (Exhibit USA -458), p. 9).  
381 United States' response to Panel question No. 80, para. 75.  
382 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 20; respo nse to Panel question No. 64, para. 38.  
383 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 20 (referring to Long Range Strike Bomber Budgets for FY 2007 -FY 2013 (PE 0604015F), (Exhibit 
EU-78), p. 1 which  contains a note saying "PE0604015F is a new start effort in FY11").  
384 European Union's comments on the United States' response to Panel question No. 80, para. 104.  
385 United States' first written submission, paras. 467 and 468.  
386 European Union's response to Panel question No. 64, para. 38.  
387 See European Union's response to Panel question No. 64, para. 38; and United States' comments on 
the European Union's response to Panel question No. 64, para. 58.  
388 United States' first written submission, para. 467.  
389 B. Sweetman, "Boeing, Lockheed Martin Team on New Bomber", Aviation Week , 25 October 2013, 
(Exhibit EU -1360).  WT/DS353/R W 
 
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  officials suggesting the Air Force may be planning to award a contract to build a lon g range strike 
bomber by as early as the spring or summer of 2015.390 The European Union also refers to a U.S. 
Congressional Research Bulletin which speculates that significant development work for a long 
range strike bomber may already have been completed, "presumably in classified budgets ".391 The 
European Union thus considers it to be "almost certain " that Boeing has received "significant 
amounts of classified R&D funding " under the post -2011 Long Range Strike Bomber program 
element that the United States ha s not acknowledged.392 
7.215.   The United States responds by noting that the Long Range Strike Bomber budget 
documents state that the program  element  is reported in accordance with a provision of U.S. law 
that restricts information to members of the defense committe es in Congress, and restricts even 
that information to high -level summaries of what the program me is studying. According to the 
United States, the only reasonable inference therefore is that any funding under this program 
element does not produce technolog y that Boeing 's military division would be able to share with its 
civil aircraft division.393 
7.216.   Given that there is no evidence before the Panel of any procurement contracts or 
assistance instruments with Boeing funded through the Long Range Strike Bomber prog ram 
element that have effective dates from 2011 or later that would fall within the scope of the 
European Union 's claims concerning this program element, as delimited by the European Union, 
the Panel is not satisfied that there is a measure in existence in volving this RDT&E program 
element.  
7.217.   As a result of the conclusions we have reached in this Section, we make the following 
rulings regarding the scope of th is proceeding as regards the seven  "additional"  RDT&E program 
elements the subject of the United Stat es' objections:  
a. Materials Processing Technology Project of the Materials and Biological 
Technology (PE 0602715E) program element : procurement contracts 
HR0011 -06-C-0073 and HR -0011 -08-C-0044 SOW and assistance instruments 
HR0011 -06-2-0008, FA8650 -07-2-7716 , and HR0011 -10-2-0001 funded 
through this program element are within  the scope of this proceeding ; 
b. DRAGON P roject of the Airborne Warning and Control System ( AWACS ) (PE 
0207417F) program element : Air Force C ontract  F19628 -01-D-0016 funded 
under this progr am element is outside  the scope of this proceeding ; 
c. KC-46, Next Generation Aerial Refueling Aircraft  (PE 0605221F) program 
element : Air Force C ontract FA8625 -11-C-6600 funded through this program 
element is outside the scope of this proceeding ; 
d. Multi -Missi on Mari time Aircraft (P -8A) (PE 0605500N) program element : 
measures funded through this program element are outside  the scope of this 
proceeding ; and  
e. the Panel is not satisfied of the existence of any procurement contracts or 
assistance instruments funded through the Technology Transfer (PE 0604317F) 
program element , the PRO -ACT Project of the IP ManTech (PE 0708011S) 
program element , or the Long Range Strike Bomber (PE 0604015F) program 
element . It will therefore not further consider these alleged measures  in its 
analysis of whether the DOD aeronautics R&D measures involve specific 
subsidies that cause adverse effects . 
                                               
390 K. Osborn, "Air Force Plans Major Step in Long Range Strike Bomber Program", Defense Tech , 
15 September 2014, (Exhibit EU -1361).  
391 J. Gertler, "Budget Highlight: Air Force Long Range Strike Bomber", Congressional Research Service, 
2 July 2014,  (Exhibit EU -1363).  
392 European Union's response to Panel question No. 64, para. 40.  
393 United States' comments on the European Unions' response to Panel ques tion No. 64, para. 59.  WT/DS353/R W 
 
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  7.3.4   Whether DOD "equipment and employees " provided through procurement 
contracts and assistance instruments funded under the challenged RDT&E pr ogram 
elements are  outside the scope of this compliance proceeding  
7.218.   We next consider the United States ' request for a ruling that DOD "equipment and 
employees " provided through procurement contracts and assistance instruments funded under the 
challenged RDT &E program elements are outside the scope of this proceeding because the DOD 
aeronautics R&D measures challenged  in the original proceeding were limited to payments and 
access to DOD facilities  provided through procurement contracts and assistance instrume nts 
funded under the relevant RDT&E program  elements .394  
7.3.4.1   Main arguments of the parties  
7.219.   The United States  notes that, unlike the corresponding challenges to NASA aeronautics 
R&D measures, which covered "payments " and "access to NASA facilities, equipment an d 
employees ", the European Communities ' challenges regarding the DOD aeronautics R&D measures 
in the original proceeding were confined to "payments " and "access to DOD facilities ".395 Although 
the European Communities  advanced arguments in the original proce eding regarding DOD 
"facilities, equipment and employees ", the panel found that the panel request only identified DOD 
"facilities " and not DOD "equipment " and/or "employees ".396 The panel found that, to the extent 
that a measure was not identified in the pan el request, it fell outside the scope of the panel 's 
terms of reference.397 The European Union did not appeal this finding of the  panel. According to 
the United  States , although the European Communities  could have made claims with respect to 
DOD equipment an d employees in the original proceeding, it did not. It cannot do so in the 
compliance proceeding .398 
7.220.   Further, the United States considers that the European Union 's argument that the 
provision of equipment and employees is merely one of the ways that the Euro pean Union alleges 
that the RDT&E program elements provide subsidies to Boeing , is essentially an argument that no 
distinction can be drawn between equipment and employees, and other ways subsidies could be 
provided. However, the panel in the original proc eeding already ruled that such a distinction was 
appropriate and required in light of the European Communities ' panel request.399 According to the 
United States, t hat finding cannot be reconciled with the European  Union 's position.  
7.221.   Moreover, the United State s says that the European Union effectively admits that it has no 
reason to believe that DOD has, with the compliance proceeding in mind, shifted the manner in 
which it provides support to Boeing from payments and access to facilities, to access to equipmen t 
and employees.400 Indeed, in light of the European Union 's failure in its supplemental submission 
to support prior suggestions that DOD may have shifted the manner of supporting Boeing under 
the RDT&E program elements, the European Union has abandoned its claim that the provision of 
DOD equipment and employees is within the scope of the compliance proceeding.401 
7.222.   The European Union  argues that the original proceeding, like the compliance proceeding, 
involved challenges to the particular RDT&E program elements  only to the extent they provide d 
subsidies that benefit U.S. LCA producers by providing Boeing with funding and other support 
applicable to the development, design , and production of LCA. What matters is whether DOD is 
                                               
394 United States' request for preliminary rulings, dated 13 November 2012, paras. 11 and 60; reply to 
the European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
para. 41.  
395 United State s' request for preliminary rulings, dated 13 November 2012, para. 11; reply to the 
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
para. 37; and Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1116 -7.1120.  
396 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1120.  
397 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1120 and 7.1121.  
398 United States' request for preliminary rulings, dated 13 November 2012, paras. 11 and 12.  
399 United States' response to European Union's request for a preliminary ruling and request for the 
Panel to request information pursuant to Article 13 of the DSU, dated 8 November 2012, paras. 36 -38. 
400 United States' reply to the European  Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 40.  
401 United States' first written submission, para. 67.  WT/DS353/R W 
 
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  providing its equipment and employees  to assist Boeing with R&D related to its LCA at the present 
time.402  
7.223.   The European Union refers to its panel request  in this proceeding , in which it challenges 
DOD's provision of access to government facilities, equipment, and employees  through the 
relevant  RDT&E program elements. According to the European Union, the provision of "equipment 
and employees " is simply one of the ways that the European Union alleges that the RDT&E 
program elements  provide subsidies to Boeing , along with payments and provision of  access to 
government facilities.403  
7.224.   The European Union argues that, in relation to measures taken to comply , within the 
meaning of Article 21.5 of the DSU, the European Union is not precluded from challenging 
unchanged aspects of such measures so long as s uch aspects are integral to the measure. The 
provision of equipment and employees is an "integral " part of the RDT&E measures.404 
7.225.   The European Union also suggests, in its initial response to the United States ' request for 
preliminary rulings, that DOD may po ssibly have shifted the manner in which it transfers resources 
to Boeing 's LCA division such that the payments and facility use ha ve decreased, while the 
provision of equipment and employees has increased. The European Union refers to the fact that 
DOD's operations and practices are not transparent from publicly available documents and recalls 
that in the original proceeding, it had been relying on the Annex V process to provide the 
necessary information.405 
7.226.   Finally, the European Union asserts that there is n o effic iency in requiring the 
European  Union to assert claims against the DOD RDT&E payments and the provision of access to 
DOD facilities, and then requiring it to launch a new dispute where a separate panel would 
consider the provision of equipment and e mployees under those same program elements.406 
7.3.4.2   Evaluation by  the Panel  
7.227.   The third issue raised by the United States ' objections is whether the "funding and 
support " provided to Boeing under the procurement contracts and assistance instruments funded 
through t he various RDT&E program elements, i.e. through the original 23 RDT&E program 
elements as well as through those aspects of the "additional " program elements that we have 
found to be within the scope of this proceeding, covers not just payments and access t o DOD 
facilities, but also access to DOD equipment and employees.  
7.228.   The United States ' position is that the measures properly before this Panel cannot include 
access to DOD equipment and employees because the provision of access to DOD equipment and 
employe es was not challenged in the  original proceeding. The European Union counters that the 
original proceeding involved challenges to particular RDT&E  program elements to the extent they 
provided subsidies to benefit United States LCA producers. If DOD is, at the present time, 
providing its equipment and employees to assist Boeing with R&D which benefits its LCA division, 
then the European Union may validly challenge such measures in this proceeding.  
7.229.   The pertinent items of the European Communities ' panel reque st in the original proceeding 
are as follows :  
a. allowing the US LCA industry to participate in DOD -funded research, making payments 
to the US LCA industry for such research, or enabling the US LCA industry to exploit the 
results of such research, by means i ncluding but not limited to the foregoing or waiving 
                                               
402 European Union's response to the United States' request for preliminary rulings, dated 
23 Novem ber 2012, para. 31.  
403 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 30.  
404 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 17.  
405 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, paras. 31 and 32.  
406 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 34.  WT/DS353/R W 
 
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  of valuable patent rights, and the granting of exclusive or early access to data, trade 
secrets and other knowledge resulting from government funded research ; and  
b. allowing the US LCA industry to use research, test, and evaluation  facilities owned by the 
U.S. Government, including the Major Range Test Facility Bases.407  
7.230.   In the original proceeding, the panel explained that the European 
Communities ' DOD-related claims were narrower in various respects than it s NASA -related claims. 
In particular, the panel noted:  
{W}hereas the scope of the European Communities ' claim relating to NASA R&D 
covers NASA "facilities, equipment and employees ", the scope of the European 
Communities ' claim relating to DOD only covers DOD "facilities ".408  
7.231.   The panel also recalled that Article 6.2 of the DSU  requires that a panel request identify 
the specific measures at issue, and provide a brief summary of the legal basis of the complaint 
sufficient to present the problem clearly. To the  extent that a measure is not identified in the 
complaining party 's panel request, that measure falls outside the panel 's terms of reference.409 
The panel thus proceeded to examine the European Communities ' claims regarding  the payments 
and provision of acce ss to DOD facilities (but not DOD equipment and employees) through the 
procurement contracts and assistance instruments funded under the original 23 RDT&E program 
elements.  
7.232.   Although the European Union's panel request in this proceeding refers more broadly to the 
provision of access to DOD facilities, equipment , and employees, the issue is whether the provision 
of access to DOD equipment and employees through the relevant procurement contracts and 
assistance instruments is within the scope of this proceeding  given that the European Communities 
had not challenged such measures in the original proceeding .  
7.233.   In paragraph 7.152  above, we explain that the  European Union 's asserted DOD -related 
claims in this proceeding cover measures  involving three categories of instruments : 
a. pre-2007 procurement contracts  or assistance instruments funded under the original 23 
RDT&E program elements  (i.e. the procurement contracts and assistance instruments 
that were before the panel in the original proce eding);  
b. post-2006 procurement contracts or assistance instruments funded under the original 23 
RDT&E program elements  (i.e. procurement contracts and assistance instruments that 
were entered into after the date of the original panel request in January 2006  but funded 
through the same program elements that were the focus of the European 
Communities ' claims in that proceeding); and  
c. post-2006 procurement contracts or assistance instruments funded under other 
"additional " RDT&E program elements that are differe nt from the original 23  RDT&E 
program elements, or their successor programmes  (i.e. procurement contracts and 
assistance instruments entered into after the date of the original panel request in 
January 2006 but funded through different  program elements to those that were the 
focus of the European Communities ' claims in that proceeding) . 
7.234.   We consider that the answer to the question whether the provision of access to DOD 
equipment and employees through the relevant procurement contracts and assistance instrume nts 
is within the scope of this proceeding will differ depending on the c ategory of the instrument 
above . 
7.235.   In relation to the pre -2007 procurement contracts and assistance instruments at issue in 
the original proceeding (i.e. those in category (a) above), w e see  no basis on which the 
European  Union could seek to enlarge the scope of its claims regarding the pre -2007 procurement 
                                               
407 European Union's reques t for the establishment of a panel, item 3(a) and 3(b), pp. 9 and 10.  
408 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras . 7.1118 and 7.1120. (emphasis added)  
409 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1121.  WT/DS353/R W 
 
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  contracts and assistance instruments at the compliance stage to also cover "access to DOD 
equipment and employees ". The European Com munities could have challenged DOD 's provision of 
access to DOD equipment and employees in connection with these procurement contracts and 
assistance instruments in the original proceeding but did not. We do not consider that the 
European Union can enlarge  the scope of its original claims in this manner at the compliance 
stage.  
7.236.   In relation to the claims concerning the post -2006 procurement contracts and assistance 
instruments, funded under both the original 23 RDT&E program elements and the "additional " 
RDT&E program elements (i.e. those in categories (b) and (c) above) we are of the view that it is 
not an impermissible enlargement of the scope of the dispute for the European Union to more 
broadly formulate its claims in respect of these "new" measures to e ncompass access to DOD 
equipment and employees, as well as facilities.  
7.237.   In reaching these conclusions, we are mindful of the United States ' assertion that access to 
DOD equipment and employees is not significant in relation to general aircraft /science and 
technology program elements and that DOD does not provide access to facilities or equipment, or 
reference pooling of employees in relation to systems acquisition/military aircraft program 
elements.410 We are mindful that our resolution of this issue may appe ar somewhat  technical, 
especially as there is nothing before us to suggest that the addition or exclusion of access to DOD 
equipment and employees is of any great significance to  the core issue of wh ether the 
United  States has complied with the DSB recomme ndations and rulings . However, the 
United  States ' objection involves important systemic considerations such as the fairness of 
permitting a complaining Member to retroactively enlarge the scope of the original dispute through 
a compliance proceeding, and t he overall role of panels in promoting the prompt settlement of 
disputes and assisting Members in achieving satisfactory resolution of their disputes. We have 
attempted to strike an appropriate balance regarding these two important underlying values.  
7.238.   We gr ant the United States' request in relation to access to DOD equipment and 
employees through pre -2007 procurement contracts and assistance instruments funded 
under the 23 original RDT&E program elements and rule that the provision of access to 
DOD equipment  and employees through these instruments is outside the scope of this 
proceeding .  
7.239.   We reject the United States' request in relation to access to DOD equipment and 
employees through (a) post -2006 procurement contracts and assistance instruments 
funded under  the 23 original RDT&E program elements; and (b) post -2006 procurement 
contracts and assistance instruments funded under  "additional" RDT&E program 
elements that we have found are within the scope of this proceeding and conclude that 
the provision of acces s to DOD equipment and employees through these instruments is 
within the scope of this proceeding . 
7.3.5   Summary of the Panel 's rulings as to whether various certain DOD aeronautics 
R&D measures are outside  the scope of this proceeding  
7.240.   In this Section  of the Rep ort, we ma ke a number  of rulings as to whether certain of the 
DOD aeronautics R&D measures identified by the European Union in its panel request are outside  
the scope of this proceeding. In sum, we rule as follows:  
a. We reject  the United States ' request for  a ruling that the DOD procurement contracts 
funded through the original 23 RDT&E program elements are outside the scope of this 
proceeding.  The Panel finds that these measures are within  the scope of this proceeding.   
b. We reject  the United States ' request in respect of the Materials and Biological 
Technology (PE 0602715E) program element and rule that procurement contracts 
HR0011 -06-C-0073 and HR -0011-08-C-0044 SOW and assistance instruments 
HR0011 -06-2-0008, FA8650 -07-2-7716, and HR0011 -10-2-0001, funded t hrough the 
Materials Processing Technology Project of the Materials and Biological Technology 
                                               
410 United St ates' first written submission, paras. 388, 418, and 473.  WT/DS353/R W 
 
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  program element are within  the scope of this proceeding.  The Panel finds that these 
measures are within  the scope of this proceeding.  
c. We grant  the United States ' request in respect of the Airborne Warning and Control 
System ( AWACS ) (PE 0207417F)  program element and rule , on the basis of the claims in 
respect of that program element as identified by the European Union, that Air Force 
Contract  F19628 -01-D-0016 funded  under the DRAGON Project  is outside  the scope of 
this proceeding.  
d. We grant  the United States ' request in respect of the KC -46, Next Generation Aerial 
Refueling Aircraft (PE 0605221F)  program element and rule , on the basis of the claims in 
respect of that program element as identified by the European Union, that Air Force 
Contract FA8625 -11-C-6600 is outside the scope of this proceeding.  
e. We grant  the United States ' request in respect of the Multi -Mission Mari time Aircraft 
(P-8A) (PE 0605500N) program elemen t and rule that measures funded under this 
program element, including those funded through Navy contracts N00019 -04-C-3146, 
N00019 -09-C-0022, and N00019 -12-C-0112 are outside  the scope of this proceeding.  
f. The Panel does not further consider measures funded  under the Technology Transfer 
(PE 0604317F) program element, the Defense Logistics Agency IP ManTech 
(PE 0708011S) program element or the Long Range Strike Bomber (PE 0604015F) 
program element, because the Panel is not satisfied of the existence of any pr ocurement 
contracts or assistance instruments with Boeing which the European Union identifies as 
relevant to its claims, and which are funded under these program elements.  
g. We grant  the United States ' request in relation to the provision of access to DOD 
equipment and employees through pre -2007 procurement contracts and assistance 
instruments funded under the original 23 RDT&E program elements  and rule that the 
provision of access to DOD equipment and employees to Boeing through these 
instruments is outside the scope of this proceeding.   
h. We reject  the United States ' request in relation to the provision of access to DOD 
equipment and employees through : (a) post -2006 procurement contracts and assistance 
instruments funded through the 23 original RDT&E program e lements ; and (b) 
post-2006 procurement contracts and assistance instruments funded through 
"additional " RDT&E program elements that we have found are within the scope of this 
proceeding ; we rule that the provision of access to DOD equipment and employees 
through these instruments is within the scope of this proceeding.  
7.3.6   Whether the alleged "dual-use" nature of research conducted under the 
procurement contracts challenged by the European Union is relevant to the Panel 's 
terms of reference  
7.241.   As explained in para graphs 7.86 through 7.87 above, t he European Union has identified 
the relevant RDT&E program elements the focus of its challenge according to whether, in its view, 
those program elements "support th e development of technologies or methods that could benefit 
Boeing 's commercial airplane division ".411 The Euro pean Union refers to R&D to develop 
technologies that it regards as having potential civil applications, as "dual-use" RDT&E. In response 
to a ques tion from the Panel asking how the alleged "dual-use" nature of research conducted 
under the DOD procurement contracts is relevant to whether the procurement contracts constitute 
specific subsidies, the European Union responded that "the dual -use nature of  such 
DOD-supported R&D is primarily relevant to the Panel 's terms of reference, as defined by the 
European Union 's panel request ".412 According to the European Union, once the Panel is satisfied 
that the RDT&E program elements in question do in fact fund R& D that "leads to technologies and 
knowledge with potential or actual civil, in addition to military applications ", the dual -use nature of 
                                               
411 Rumpf Report, (Exhibit EU -23), para. 1.1. See also 2006 CRA Report, (Exhibit EU -29), para. 1.1: 
"{o}n behalf of the European Communities, CRA International Inc. … has examined and estimated the a mount 
of {RDT&E} funding received by {Boeing} from {DOD} that can be considered relevant to both military and 
commercial aircraft (i.e. 'dual -use' RDT&E)".  
412 European Union's response to Panel question No. 30, para. 187.  WT/DS353/R W 
 
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  the R&D conducted under the DOD procurement contracts is of limited relevance to the questions 
of financial contributi on or benefit, other than with respect to valuation of the subsidy.413  
7.242.   The European Union 's response seems to imply  that the Panel should undertake a factual 
analysis of whether the R&D conducted by Boeing pursuant to the procurement contracts and 
assistanc e instruments funded under the RDT&E program elem ents identified by the 
European  Union gives rise to technologies with potential civil applications in order to identify the 
DOD aeronautics R&D measures that are properly within its terms of reference . In re sponding to 
the European Union 's statement that the "dual-use" nature of the R&D is primarily relevant to the 
Panel 's terms of reference, the United States asserts that the European Union has effectively 
"admitted " that any procurement contracts that invol ve research with military objectives (as 
opposed to dual -use objectives) fall outside the Panel 's terms of reference.414  
7.243.   The parties express significant disagreement as to whether the R&D conducted by Boeing 
pursuant to the procurement contracts and assista nce instruments funded under the specific 
RDT&E program elements identified by the European Union in fact results in technologies with civil 
applications that assist Boeing 's development of LCA.415 While they do not appear to disagree that 
at least some of t he R&D may have "potential " civil applications, they dispute the extent of that 
potential, and whether there is an "objective " way of assessing it. Although the United States has 
not requested the Panel to rule that any of the DOD -related measures are outs ide the Panel's 
terms of reference on the basis that they do not in fact fund so -called "dual -use" R&D, the  parties'  
exchange as recounted above suggests that the Panel should, of its own motion, identify and 
properly delineate the DOD aeronautics R&D meas ures that are within its terms of reference  
according to our own evaluation of the potential for the R&D to lead to civil applications .  
7.244.   Based on our understanding of the European Union 's panel request, the DOD aeronautics 
R&D measures within our terms of reference are not measures that involve Boeing conducting R&D 
that the Panel  considers have the "potential to ", or actually do, lead to civil applications. Therefore, 
it is not necessary for us, as a jurisdictional matter , to make factual determinations as  to whether 
any particular DOD aeronautics R&D measure potentially or actually leads to development of 
technologies applied to Boeing LCA.  
7.245.   We recall that in the original proceeding, the panel noted that the European Communities ' 
DOD-related claims were li mited in several respects.416 One limitation was that it challenged only 
that subset of funding received by Boeing under the original 23 RDT&E program elements that, in 
the European Communities ' view, related to "dual-use" technologies.417 Similarly in this 
proceeding, the European Union identifies a number of RDT&E program elements under which, in 
its view , "DOD provides Boeing with funding and support for aeronautics R&D, as well as access to 
technologies, applicable to Boeing LCA. "418 The United States argues that the European  Union 's 
identification of the relevant RDT&E program elements is subjective to the Eur opean  Union, noting 
that neither CRA nor Mr Rumpf provide a definition of what, in their view, makes research 
"dual-use", beyond their subjective opinio n.419  
7.246.   The European Union describe s the DOD aeronautics R&D measures it challenges in this 
proceeding by reference to certain RDT&E program elements set forth in its panel request. Those 
RDT&E program elements have been identified based on the European Union 's view  that the 
                                               
413 European Union's response to Pane l question No. 30, para. 188.  
414 United States' comments on the European Union's response to Panel question No. 30, para. 171.  
415 United States' first written submission, paras. 297, 448, and 461 -465; response to Panel question 
No. 30, paras. 132 and 133; and comments on the European Union's response to Panel question No.  29, 
paras.  157, 162, and 163. European Union's second written submission, paras. 389 -392; response to Panel 
question No. 29, paras. 171 -174; and comments on the United States' response to Pa nel question No.  30, 
paras. 190 and 191. They also employ the term "dual -use" in different senses, as we explain in 
paragraphs  8.339  to 8.347  of this Report.  
416 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1116 -7.1120.  
417 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1117.  
418 European Union's first written submission, para. 243. See also European Union's request for the 
establishmen t of a panel, para. 12.  
419 United States' first written submission, para. 297. Moreover, the United States largely disputes that 
work conducted by Boeing under the RDT&E program elements identified by the European Union would 
realistically have civil applic ations, and argues that any realistic civil use is implausible. See  e.g. 
United  States'  first written submission, paras. 334, 337, 355, 370, 374, and 375.  WT/DS353/R W 
 
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  program elements fund Boeing 's development of technologies applicable to LCA. In its first written 
submission and in expert evaluations submitted with its first w ritten submission, the 
European  Union explains why and how it identified the DOD aeronautics R&D measures that it has 
chosen to challenge in this proceeding.420 Contrary to the suggestion in the European Union 's 
response to Panel question No. 30, the Panel need not agree with the European Union that the 
identified DOD aeronautics R&D  measures potentially or actually give rise to technologies applied 
to Boeing LCA in order to delimit the measures within our terms of reference. Nor does our 
consideration of the DOD aeronautics R&D measures identified by the European Union in its panel 
request imply that we consider such measures to potentially or actually give rise to "dual-use" 
technologies applicable to Boeing LCA. Rather, the question of whether the identified measures in 
fact support Boeing 's development of LCA goes to the merits of the European Union 's serious 
prejudice claims.  
7.4  FAA aeronautics R&D  measure  
7.247.   In its panel request, the European Union alleges that the Federal Aviation Administration 
(FAA), working in collaboration with NASA under the FAA CLEEN Program, maintains subsidies that 
presently benefit U.S. LCA producers by: (a) "provid {ing} Boeing with funding and access to 
government facilities, equipment, and employees for R&D applicable to the development, design, 
and production of LCA "; or (b) "providing Boeing with royalty -free use of the technologies 
developed with such funding and support, or use of such technologies on preferential terms ".421 
The European Union 's panel request states that : "{s}uch R&D support is authorized by 49 U.S.C. 
§§ 44501 -44517, 48102, and periodic reau thorization legislation ".422  
7.248.   The United States requests a ruling that the "FAA CLEEN measure " is outside the scope of 
this proceeding because this measure was not challenged in the original proceeding, there were no 
DSB recommendations and rulings adopted i n relation to it, it is not a declared measure taken to 
comply, and the European Union has not demonstrated that it can be characterized as an 
"undeclared " measure taken to comply on the basis of any close nexus to the DSB 
recommendations and rulings or to  any declared measures taken to comply.423 
7.249.   FAA's R&D activities are focused on "civil aviation research and development ".424 The FAA 
inaugurated the FAA CLEEN Program in early 2008 in furtherance of the National Aeronautics 
Research and Development Plan, with the objective to develop aeronautics R&D program mes 
focused on inter -agency environmental and performance goals for the "N+1 generation " of LCA 
designed to enter service in the 2015 to 2018 time -frame .425 The FAA created the FAA CLEEN 
Program, while NASA cre ated the Environmentally Responsible Aviation (ERA) Project under its 
Integrated Systems Research Program, to "guid{e} coordinated efforts to bring to maturity new 
technologies to reduce fuel burn, emissions, and noise ".426 In 2009 the  FAA solicited research  
proposals for the FAA CLEEN Program from industry.427 In June 2010, it entered into five -year R&D 
agreements with , respectively,  Boeing and four propulsion -focused companies428, in each case  on 
                                               
420 See paras. 7.85 to 7.91 above . 
421 European Union's request for the establishment of a panel, para. 15.  
422 European Union's request for the establishment of a panel, para. 15.  
423 United States' request for preliminary rulings, dated 13 November 2012, paras. 19 -22, 36 -44, and 
60; first written submission, para. 480.  
424 Airport and Airway Trust Fund Authorizations, United States Code , Title 49, chapter 481, 
sections  48102 and 48103, (Exhibit EU -266), section 48102(a).  
425 The FAA CLEEN Program focuses on the most well -develo ped, near -term commerciali zable 
technologies. (R. Jefferies, FAA, "CLEEN (Continuous Lower Energy, Emissions and Noise) Program 
Technologies Development" Presentation at the NASA ERA Bidder's Conference, 19 February 2010, (Exhibit 
EU-253), pp. 5, 6 and 8; Executive Office of the President, National Science and Technology Council, National 
Aeronautics Research and Development Plan , (December 2011),  (Exhibit EU -254), pp. 27 -30 and 50 -53; and J.  
Wolfe, NASA, "Aeronautics Research Mission Directorate Update wit h Emphasis on Integrated Systems 
Research", Presentation at the 48th AIAA Aerospace Sciences Meeting, 4 January 2010, (Exhibit EU -255), 
p. 10). 
426 Executive Office of the President, National Science and Technology Council, National Aeronautics 
Research and Development Plan , (2 February 2010),  (Exhibit EU -16), p. 11.  
427 FAA CLEEN Request for Offer – Amended SIR, DTFAWA -09-R-03293, (12 May 2009) (CLEEN 
Solicitation), (Exhibit EU -20); and R. Jefferies, FAA, "Continuous Lower Energy, Emissions, and Noise (CLEEN) 
Program Technologies Development", Presentation, 27 October 2010, (Exhibit EU -256), p. 6.  
428 General Electric, Honeywell, Pratt & Whitney, and Rolls -Royce North America.  WT/DS353/R W 
 
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  a 50% cost-sharing basis . The total FAA contribution under all of  the agreements was set at 
USD 125 million.429  
7.250.   Boeing 's work under the FAA CLEEN Program is governed by the CLEEN Other Transaction 
Agreement DTFAWA -10-C-0030 (the Boeing CLEEN Agreement), which entered into effect on 
22 June 2010.430 Under this agreement, th e FAA maintains the authority to determine the work 
that will be undertaken431, while Boeing manages the project, conducts the work and prepares 
reports on that work for the FAA.432  
7.251.   Under the Boeing CLEEN Agreement, Boeing is responsible for integrated manage ment of 
the FAA CLEEN Program as well as two categories of R&D activities433: 
a. technology maturation  (i.e. research to mature specified technologies through to the 
prototype development stage ) on three research projects: wing adaptive trailing edges ; 
ceramic matrix composite acoustic exhaust nozzles ; and the use of alternative fuels; and  
b. flight testing and assessment, including flight testing of a broad suite of technologies 
through Boeing 's ecoDemonstrator program me. 
7.252.   Both parties agree that the issue of whet her the FAA aeronautics R&D  measure is within 
the scope of this compliance proceeding depends upon whether the Boeing CLEEN Agreement 
meets the requirements of the close nexus test; i.e. whether, despite not having been part of the 
original proceeding, or a declared implementation measure by the United States, the Boeing 
CLEEN Agreement can nevertheless be characterized by the Panel as a so -called "undeclared " 
measure taken to comply, if there is a sufficiently close connection between the Boeing CLEEN 
Agreement, the DSB recommendations and rulings and any declared measures taken to comply.434 
7.4.1   Main a rguments of the parties and third parties  
7.253.   The United States  argues that the European Union has failed to meet its burden of 
demonstrating the existence of a close nexus between the Boeing CLEEN Agreement, the DSB 
recommendations and rulings and the U.S. declared measures taken to comply, such that the 
Boeing CLEEN Agreement should be characterized as a measure taken to comply within the scope 
of this proceeding.435  
                                               
429 FAA Fact Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program", 24 June 2010, 
(Exhibit EU -257). Below, paras. 8.64 and 8.69. 
430 Contract between Boeing and FAA, "Other Transaction Agreement", DTFAWA -10-C-00030 
(21 June 2012) (Boeing CLEEN Agreement),  (Exhibit EU -17), p. 1. Note that the period of performance 
commenced to run on 21 June 2010.  
431 Boeing CLEEN Agreement, (Exhibit EU -17), parts B.3 and F.2.  
432 Boeing CLEEN Agreement, (Exhibit EU -17), parts C and E.3. In its first written submission, the 
European Union's financial contribution arguments refer to the proper characterization of the Boeing CLEEN 
Agreement, an Other Transaction Agreement which governs Boeing's work under the FAA CLEEN Program. 
(European Union's first written submission, para. 218 ; and Boeing CLEEN Agreement, (Exhibit EU -17)). In 
response to a question from the Panel, the European Union explained that its challenge is directed at the 
Boeing CLEEN Agreement, as this "is the only contract or agreement with Boeing under the FAA CLEEN 
Program". (European Union's response to Panel question No. 11, para. 77).  
433 Boeing CLEEN Agreement, (Exhibit EU -17), part I, sections C.1.2 and C.3.  
434 European Union's response to Panel question No. 66, paras. 58 -68; second written submission, 
para. 119; U nited States' request for preliminary rulings, dated 13 November 2012, para. 19; and first written 
submission, paras. 72, 73, and 474 -480.  
435 United States' request for preliminary rulings, dated 13 November 2012, paras. 20, 21, 36, 37, and 
44; reply to th e European Union's response to the United States' request for preliminary rulings, dated 
3 December 2012, para. 65; first written submission, paras. 202, 475, 476, and 480; and second written 
submission, para. 69. The United States notes that while the Eur opean Union refers, in its response to the 
United States' request for preliminary rulings, to a close nexus to NASA and DOD measures that were subject 
to the DSB recommendations and rulings, the European Union's subsequent submissions narrow the close  
nexus assertion to the NASA  aeronautics R&D  measures subject to the DSB recommendations and rulings. 
(United States'  first written submission, fns 766 and 767). The European Union does not argue that a close 
nexus exists between the FAA CLEEN Program and any W ashington, Wichi ta, or FSC/ETI measure. 
(United  States'  reply to the European Union's response to the United States' request for preliminary rulings, 
dated 3 December 2012, para. 65).  WT/DS353/R W 
 
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  7.254.   The United States argues that the European Union has failed to demonstrate that the FAA 
CLEEN Program bears a close nexus in terms of nature  with any of the measures that were subject 
to the DSB recommendations and rulings, or to the United States ' declared  measures taken to 
comply.436 The United States disputes the European Union 's contention that there is technological 
continuity  between the FAA CLEEN Program and NASA aeronautics R&D program mes.437 While the 
FAA CLEEN Program and the original NASA aeronautics  R&D program mes might share common 
environmental or technological goals of "making LCA more efficient, quieter, and less polluting "438, 
it is not sufficient to establish that the program mes share common goals, particularly as 
environmental goals are common to  most governmental agencies and are government -wide 
objectives for most WTO Members.439 Rather, the European Union must show that the measure at 
issue shares enough features with a particular measure covered by the DSB recommendations and 
rulings, such that a close nexus in terms of nature exists between the two measures.440 The 
United  States argues that the two NASA aeronautics  R&D programmes that the European Union 
identified as having been covered by the DSB recommendations and rulings (i.e. the Advanced 
Subsonic Technology and Quiet Aircraft Technology program mes) only dealt with noise reduction; 
while the subject matter of the FAA CLEEN Program is broader than noise reduction; including also 
aircraft emissions and energy use.441 The United States  acknowledges  that the NASA ERA  Project 
under the Integrated Systems Research Program deals with aircraft emissions and energy use. 
However, this is not relevant as the Environmentally Responsible Aviation Project was not 
challenged in the original proceeding and is no t challenged in the compliance proceeding.442 
7.255.   In response to the European Union 's claim that there is organizational continuity between 
the FAA CLEEN Program  and the NASA aeronautics R&D measures, the United States argues that 
establishing a link between the  FAA CLEEN Program and NASA is not sufficient to meet the close 
nexus test.443 In any case, to the extent that there is such a link, it has been misstated by the 
European Union.444 According to the United States, there is no substantial NASA involvement in 
the FAA's administration of the FAA CLEEN Program.445 The FAA CLEEN Program is solely 
administered by the FAA on the basis of agreements entered into with companies. NASA is not a 
party to, nor does it have a role under, the Boeing CLEEN Agreement entered into between the 
FAA and Boeing.446 The United States confirms that the FAA consulted NASA experts as it 
developed the CLEEN solicitation, but adds that the FAA also consulted various other experts inside 
and outside of government.447 The NASA support alleged "is simply the unremarkable and routine 
consultations by government agencies that are conducted as part of responsible government ".448 
The United States also disputes the contention that, under the FAA CLEEN Program, Boeing 's 
                                               
436 United States' first written submission, paras. 477 and 478; second wr itten submission, para. 70; 
and reply to the European Union's response to the United States' request for preliminary rulings, dated 
3 December 2012, paras. 66, 68, and 71.  
437 United States' second written submission, para. 70.  
438 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 67; first written submission, fn 766, paras. 470 and 477; and second 
written submission, para. 120.  
439 United States' reply to the European Union's  response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 67; first written submission, para. 477; second written submission, 
para. 70; and response to Panel question No. 12, para. 27.  
440 United States' reply to the Europ ean Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, paras. 67 and 68.  
441 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para.  67. 
442 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 67; first written submission, para. 477.  
443 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 67; response to Panel question No. 12, para. 28.  
444 United States' second written submission, para. 71 (referring to European Union's second written 
submission, para. 120).  
445 United State s' response to Panel question No. 12, para. 28.  
446 United States' response to Panel question No. 12, paras. 25 and 27.  
447 United States' first written submission, para. 477; second written submission, para. 71; opening 
statement to the meeting of the Panel, para. 87; and response to Panel question No. 12, para. 26.  
448 United States' response to Panel question No. 12, para. 26.  WT/DS353/R W 
 
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  research involves NASA facilities449 and denies that the FAA provides Boeing with access to 
employees.450 
7.256.   The United States submits that the structure of the measure in question is an important 
consideration when determining whether it shares a close nexus in terms of nature with a measure 
that w as subject to the DSB recommendations and rulings.451 The FAA CLEEN Program has a 
different structure and operation to the NASA aeronautics R&D program mes that were subject to 
the DSB recommendations and rulings in two important respects.452 First, the agreeme nts entered 
into under the FAA CLEEN Program are cost -sharing arrangements only.453 The United States notes 
that the DOD assistance instruments considered by the Appellate Body in the original proceeding 
involved 50:50 cost -sharing arrangements, and argues t hat the European Union cannot point to 
any NASA contracts that share this characteristic.454 Furthermore, the European Union must show 
that the measure at issue shares enough features with a particular original measure such that a 
close nexus in terms of nat ure exists between the two measures; the European Union cannot 
establish a close nexus by demonstrating that the FAA CLEEN Program shares one feature with one 
original measure and another feature with a different original measure.455 Second, foreign 
companie s were equally welcome to submit proposals to participate in the FAA CLEEN Program, as 
evidenced by the fact that Rolls -Royce is one of the five participating companies.456 The 
United  States argues that these two structural differences between the FAA CLEEN Program and 
the NASA aeronautics R&D program mes distinguish this situation from previous disputes where 
measures were considered to share a close nexus with respect to the nature of the measures.457  
7.257.   The United States also argues that the European Union has failed to establish a close 
nexus in terms of the effects of the measure.458 The United States notes the legal standard for 
"effects " set out by the European Union in its submissions: "a compliance panel may consider 
whether the alleged undeclared measure ta ken to comply has the effect of undermining 
compliance (if any) that is achieved through the declared measures taken to comply. As the 
                                               
449 United States' first written submission, para. 482; second written submission, para. 71 (referring to 
European Union's second written  submission, para. 120).  
450 United States' first written submission, para. 483.  
451 The United States notes, for example, that in Australia – Salmon (Article  21.5 – Canada) , both 
measures were quarantine measures applicable to imports of Canadian salmon, and in US – Zeroing (EC) 
(Article  21.5 – EC), both measures consisted of the United States' Department of Commerce's use of its 
zeroing methodology in anti -dumping proceedings.  
452 United States' request for preliminary rulings, dated 13 November 2012, para. 40;  first written 
submission, para. 478.  
453 United States' request for preliminary rulings, dated 13 November 2012, para. 40; first written 
submission, para. 478; and second written submission, para. 72.  
454 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 67 (referring to Appellate Body Report, US – Large Civil Aircraft (2nd 
complaint) , para. 597); first written submission, para. 478; and second written submission, para. 72.  The 
United States notes that the European Union has not argued that there is a close nexus in terms of nature 
between the FAA CLEEN Program and the DOD measures subject to the DSB recommendations and rulings. 
The United States notes that while the Europea n Union refers, in its response to the United States' request for 
preliminary rulings, to a close nexus to NASA and DOD measures that were subject to the DSB 
recommendations and rulings, the European Union's subsequent submissions narrow the close -nexus as sertion 
to the NASA measures subject to the DSB recommendations and rulings. (United States' first written 
submission, fns 766 and 767; reply to the European Union's response to the United States' request for 
preliminary rulings, dated 3 December 2012, par a. 67).  
455 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 68.  
456 United States' request for preliminary rulings, dated 13 November 2012, para. 40. The United States 
asserts that the European engine maker Rolls -Royce is participating in the programme in order to demonstrate 
increased engine efficiency and reduced engine weight, as well as to test advanced sustainable alternative jet 
fuels that could be approved for comme rcial use. (Rolls -Royce, "FAA Continuous Lower Energy, Emissions & 
Noise (CLEEN) Technologies: Rolls -Royce Program Overview", 2 November 2011,  (Exhibit USA -8), p. 9). The 
United States asserts that Rolls -Royce is using this participation to deliver on 2020  ACARE goals, the purpose 
of the European Union's equivalent Clean Sky Program  through which it budgeted 800 million euros for 50/50 
cost-sharing arrangements with industry (including Airbus). (Clean Sky, "Innovating together, flying greener: 
About us", av ailable at <http://www.cleansky.eu/content/homepage/about -us>, accessed 29 August 2016, 
(Exhibit USA -7); and United States' response to the Panel question No. 12, para. 27).  
457 United States' request for preliminary rulings, dated 13 November 2012, para. 39 . 
458 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 69; opening statement at the meeting of the Panel, para. 88; and 
response to Panel question No. 12, para. 28.  WT/DS353/R W 
 
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  Appellate Body emphasized in US – Zeroing (21.5 – EC), the test requires a showing of potential 
rather than actual effect s".459 The United States argues that the European Union makes no 
allegations about how the potential effects of the FAA CLEEN Program would undermine 
compliance achieved through the United States ' declared measures taken to comply and thus  has 
failed to esta blish any close nexus in terms of effect concerning the FAA CLEEN Program.460 The 
United  States argues that the European Union fails to meet that standard with its "single, 
conclusory statement{s} " that the FAA CLEEN Program has the same effect as the NASA a nd DOD 
aeronautics R&D program mes, which is to contribute to the development of Boeing LCA technology 
(and lower prices) to the detriment of Airbus461, and that if the declared measures did, in fact, 
bring the measures into compliance, the European Union wou ld nevertheless consider the FAA 
CLEEN Program  to undermine such compliance.462 
7.258.   The United States asserts that it complied with the DSB recommendations and rulings 
when, during the six -month compliance period in 2012, NASA modified the rights accorded to the  
parties under the contracts and agreements covered by the DSB recommendations and rulings to 
make them consistent with commercial practice, while at the same time also making modifications 
to contracts and agreements entered into subsequent to the DSB rul ing.463 The United States 
contends that the FAA did not begin an environmental program me, available to foreign as well as 
domestic companies, to undermine or counteract the reallocation of patent rights taken in 
response to the DSB recommendations and ruling s.464 Moreover, the existence of the FAA CLEEN 
Program  does not undermine the existence of the reallocation of patent rights.465  
7.259.   Finally, the United States argues that the timing element of the close nexus test has been 
singled out by the Appellate Body as a non-dispositive factor.466 Nonetheless, the timing of the 
FAA CLEEN Program is not analogous to disputes where timing was relevant to a finding of close 
nexus.467 
7.260.   The European Union  argues that there is a sufficiently close nexus, in terms of nature, 
effects , and timing, between the Boeing CLEEN Agreement, the DSB recommendations and rulings 
and the United States ' declared measures taken to comply, such that the Boeing CLEEN 
Agreement should be characterized as a measure taken to comply within the scope of this  
proceeding.468 
7.261.   With regard to the connections in terms of nature between the Boeing CLEEN Agreement 
on the one hand, and the NASA aeronautics R&D measures that were subject to the DSB 
recommendations and rulings, on the other hand, the European Union argues  that the FAA CLEEN 
Program represents a continuation of the NASA aeronautics R&D subsidies that are the subject of 
the DSB recommendations and rulings, merely under a new name and shifted to a different 
agency.469 The European Union considers this is eviden t from the technological and organizational 
continuities between the Boeing CLEEN Agreement and the NASA aeronautics R&D subsidies  and 
the structural similarities between the measures.  
7.262.   As to technological continuity, the European Union argues that the Boe ing CLEEN 
Agreement , under the FAA CLEEN Program , and the NASA aeronautics R&D subsidies , under the 
NASA aeronautics R&D programmes , are part of a coordinated U.S. Government  aeronautics R&D 
                                               
459 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 70 (citing European Union's response to the United States' request for 
preliminary rulings, dated 23 November 2012, para . 67). (emphasis original)  
460 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 70; first written submission, para. 479; and second written submission, 
para. 73.  
461 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 69.  
462 United States' second written submission, para. 73.  
463 United States' request for preliminary rulings, dated 13 Novemb er 2012, para. 43.  
464 United States' request for preliminary rulings, dated 13 November 2012, para. 43; first written 
submission, para. 479.  
465 United States' request for preliminary rulings, dated 13 November 2012, para. 43.  
466 United States' request for pre liminary rulings, dated 13 November 2012, para. 41.  
467 United States' request for preliminary rulings, dated 13 November 2012, para. 41.  
468 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 82.  
469 European Union's first written submission, para. 230; response to Panel question No. 12, para. 85.  WT/DS353/R W 
 
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  strategy "to guide efforts to mature technologies that have alrea dy shown promise to the point 
where they can be adopted by the current and future aircraft fleet ".470 The FAA CLEEN Program  
complements NASA (and DOD) aeronautics R&D program mes by focusing on the most 
well-developed, near -term commerciali zable technologies.471  
7.263.   According to the European Union, the subject matter of the FAA CLEEN Program research  –
aircraft emissions, energy use, and noise – is identical to the subject matter of research conducted 
under certain of the NASA aeronautics R&D program mes; notably, NA SA Advanced Subsonic 
Technology and Quiet Aircraft Technology program mes (which were noise reduction program mes 
that were considered by the panel in the original proceeding)472; and the E RA Project under the 
Integrated Systems Research Program  (which is focu sed on technologies to reduce fuel burn, 
emissions , and noise).473 Moreover, under the FAA CLEEN Program, Boeing is continuing research 
that has been transitioned from NASA aeronautics R&D program mes.474 The European Union 
argues that Boeing 's R&D on the adapt ive trailing edge and ceramic matrix composite acoustic 
exhaust nozzle, undertaken pursuant to the Boeing CLEEN  Agreement , builds on technologies that 
were previously developed under the NASA aeronautics R&D program mes and that the Boeing 
ecoDemonstrator  programme  builds on NASA 's earlier Quiet Technology Demonstrator 
program mes.475 In addition, the European Union notes that the companies participating in the FAA 
CLEEN Program also conduct R&D under the NASA aeronautics R&D program mes.476 The European 
Union arg ues, therefore, that the technologies being developed under the NASA and FAA CLEEN 
program mes should be "appropriately regarded as being part of a single process of iterative 
learning and advancement in pursuit of a common technological goal ".477 
7.264.   The Europea n Union also argues that the respective measures are closely connected in 
terms of their nature on the basis of alleged organizational continuity between the FAA CLEEN 
Program and NASA, because NASA helped to establish the FAA CLEEN Program  and collaborate s on 
the program me's operation.478 The European Union notes that NASA officials have described the 
relationship between NASA and the FAA CLEEN Program as a partnership.479 The FAA CLEEN 
Program  solicitation discussed how research results would be built upon an d used by both the FAA 
and NASA, and required that reports and other documentation be submitted to both the FAA and 
to the head of NASA 's ERA  Project .480 NASA has assisted the FAA in setting the technical direction 
of the program me: creating the solicitation s; reviewing proposals; and monitoring technical 
progress.481 The European Union further asserts that under the FAA CLEEN Program, Boeing 's 
research makes use of NASA facilities482, and NASA personnel.483  
7.265.   The European Union points to the United States ' admissio n, in its first written submission, 
that the Boeing CLEEN Agreement is the same sort of "collaborative relationship 'akin to a species 
of joint venture '" as the NASA procurement contracts and DOD assistance instruments which were 
                                               
470 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 86; first written submission, para. 201 (both  quoting Statement of J. Shin, NASA 
Associate Administrator for Aeronautics Research Mission Directorate, Hearing before the U.S House of 
Representatives Committee on Science, Subcommittee on Space and Aeronautics, 1 May 2008, (Exhibit 
EU-21)). 
471 European Union's first written submission, para. 201. 
472 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 83. 
473 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 83 and fn 88.  
474 European Union's first written submission, paras. 201 and 203; second written submission, 
para. 120; and response to the Panel question No. 12, para. 81.  
475 European Union's response to Panel question No. 12, para. 81.  
476 European Union's response to Panel question No. 12, para. 84 . 
477 European Union's first written submission, para. 230 (quoting Panel Report, US – Large Civil Aircraft 
(2nd complaint) , para. 7.1750).  
478 European Union's response to the United States' request f or preliminary rulings, dated 
23 November  2012, para. 86; second written submission, para. 120.  
479 European Union's first written submission, para. 201; second written submission, para. 120.  
480 European Union's response to Panel question No. 12, para. 80.  
481 European Union's first written submission, para. 231.  
482 European Union's second written submission, para. 120; response to Panel question No. 12, 
para. 82. 
483 European Union's first written submission, para. 231; second written submission, para. 120; and 
response to Panel question No. 12, para. 82 (referring to second written submission, para. 338).  WT/DS353/R W 
 
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  subject to the DSB recomme ndations and rulings.484 In this regard, the European Union notes that 
the Appellate Body recognized that a principal characteristic of the NASA procurement contracts 
and DOD assistance instruments was the contribution of financial and non -financial resource s by 
both parties.485 The Boeing CLEEN Agreement similarly involves both monetary and non -monetary 
contributions from the parties.486  
7.266.   As to the connections in terms of effects, the European Union argues that the FAA CLEEN 
Program  has the same effects as the N ASA and DOD aeronautics R&D program mes: it contributes 
to the development of Boeing LCA technology (and lower prices), to the detriment of Airbus.487 The 
European Union considers its argument that the FAA CLEEN Program  is a continuation of the NASA 
aeronauti cs R&D program mes also demonstrates a close nexus between the FAA and NASA 
measures in terms of effects.488 Finally, although the European Union does not consider that the 
United States ' declared measures taken to comply have brought the United States ' aeron autics 
R&D subsidies into compliance, the Boeing  CLEEN Agreement would have the effect of 
undermining any such compliance.489 
7.267.   With respect to the timing of the Boeing CLEEN Agreement, the European Union submits 
that the Boeing CLEEN Agreement was awarded in June 2010490, and funding for Boeing under the 
FAA CLEEN Program is ongoing.491 
7.268.   Certain of the third parties (Brazil, Canada,  and Japan) make general arguments as to the 
proper application of the close nexus test to determine when so called "new measures" may be 
considered within the scope of a compliance proceeding as "undeclared" measures taken to 
comply . These arguments are summarized at Section 7.2.2.1  of this Report.  
7.4.2   Evaluation by the Panel  
7.269.   The issue before us is whether the E uropean Union has demonstrated that there is a 
sufficiently close connection, in terms of nature, effects , and timing, between the Boeing CLEEN 
Agreement, on the one hand, and the aeronautics R&D measures that were subject to the DSB 
recommendations and ru lings, on the other, such that the  payments and access to facilities, 
equipment , and employees provided through the Boeing CLEEN Agreement  can be considered to 
be within the scope of this compliance proceeding as an "undeclared " measure taken to comply.  
7.270.   We explain in paragraphs 7.66 through 7.75 of Section 7.2.2.2  of this Report our 
understanding of the close nexus text applied by panels  and the Appellate Body  in order t o 
determine whether "undeclared" measures with a particularly close relationship to declared 
measures taken to comply, and to the DSB recommendations and rulings, are susceptible to 
review by a compliance panel.  
7.271.   There is no dispute that there are some conn ections between the Boeing CLEEN Agreement 
and at least some of the NASA aeronautics R&D measures at issue in the original proceeding. The 
European Union 's position is that these connections satisfy the clo se nexus test, while the 
United  States ' is that th e connections are superficial and inadequate to justify bringing the Boeing 
CLEEN Agreement within the scope of this proceeding.   
7.272.   The parties ' arguments concerning the application of the separate elements of the close 
nexus test to the Boeing CLEEN Agreeme nt and the particular NASA aeronautics R&D measures set 
forth the general range of possibilities in determining whether there are sufficiently close 
connections between these two sets of measures in terms of nature, effects , and timing.  
                                               
484 European Union's second written submission, para. 121.  
485 European Union's response to Panel question No. 13, para. 87.  
486 European Union's first written submis sion, para. 218.  
487 European Union's response to the United States' request for preliminary rulings, dated 3 December 
2012para. 87.  
488 European Union's response to Panel question No. 12, para. 85.  
489 European Union's second written submission, para. 121.  
490 European Union's response to Panel question No. 12, para. 89.  
491 European Union's first written submission, para. 219.  WT/DS353/R W 
 
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  7.273.   On nature , the Euro pean Union says that the Boeing CLEEN Agreement continues the 
subject areas of research that the United States had originally subsidized under various NASA 
aeronautics R&D program mes and in a sense, represents the "next stage " of that subsidized 
research, i.e. subsidizing research related to commercialization and testing of the technologies 
developed from that earlier research. Although the government agency is no longer NASA but FAA, 
the involvement of NASA in the FAA CLEEN Program is further evidence of t his continuity. The 
measures themselves have the same "joint venture " structure as the aeronautics R&D measures 
found to have caused adverse effects in the original proceeding. The United States says that the 
European Union 's allegations are not sufficient ly specific. Similarities in the goals of program mes 
or overlapping areas of research pursued by particular program mes are insufficient to satisfy the 
close nexus test. The measures themselves must be shown to be closely connected. According to 
the United States, this requires the European Union to demonstrate the links between the Boeing 
CLEEN Agreement and particular NASA procurement contracts and Space Act Agreements (and 
DOD assistance instruments), which it has not done. Moreover, NASA is not significa ntly involved 
in the FAA CLEEN Program and has no involvement in the Boeing CLEEN Agreement. Even if NASA 
were involved in the FAA CLEEN Program, this would not be sufficient to satisfy the close nexus 
test on nature. Finally, the cost sharing feature of t he Boeing CLEEN Agreement is only relevant if 
it is possible to point to a specific aeronautics R&D measure from the original proceeding that 
covers the same research and technologies and employs cost sharing. It is insufficient to argue 
that the close nex us is established merely because some instruments such as DOD assistance 
instruments used cost sharing, in the absence of any other link.  
7.274.   On effects, the European Union argues that the FAA CLEEN Program  has the same effects 
as the NASA and DOD aeronautics  R&D program mes: contributing to Boeing developing 
technologies, being able to lower its prices and adverse effects on Airbus. The United States says 
that this is insufficient to demonstrate close nexus in terms of effects. The European Union should 
show h ow the Boeing CLEEN Agreement could potentially undermine any purported compliance by 
the United States, which the United States reminds the Panel, involves a reallocation of the 
intellectual property rights between NASA, DOD , and Boeing under the NASA pro curement 
contracts and DOD assistance instruments.  
7.275.   The timing aspect does not appear to give rise to an issue.492  
7.276.   We begin our evaluation by recalling that, in the original proceeding, the panel found, inter 
alia, that the "payments " and "access to faciliti es, equipment and employees " provided by NASA to 
Boeing through the NASA procurement contracts and Space Act Agreements constituted specific 
subsidies to Boeing, that the effect of these subsidies was various forms of serious prejudice , 
within the meaning of Article 6.3 of the SCM Agreement , in the 200 -300 seat LCA product market 
and thus, that these subsidies caused adverse effects to the European Union 's interests , within the 
meaning of Article 5(c) of the SCM Agreement.493 This finding was upheld (albeit o n the basis of a 
smaller selection of LCA sales campaigns in the 200 -300 seat LCA  product  market).494  
7.277.   As we explain in Section 8.2.2.2.1 , the European Union has directed its challenge to NASA 
procurement contracts, cooperative a greements, and Space Act Agreements  funded through eight 
NASA aeronautics R&D programmes that were identified in the original proceeding, as well as 
NASA procurement contracts, cooperative agreements, and Space Act Agreements  funded under 
additional NASA a eronautics R&D programmes that arose from a reorganization of NASA 
Aeronautics Research Mission Directorate ( ARMD ). 
7.278.   Of particular relevance to the Boeing CLEEN Agreement 's links with the NASA aeronautics 
R&D measures at issue are NASA 's Fundamental  Aeronau tics and Integrated Systems Research 
program mes. Fundamental Aeronautics is carried out through four projects, the largest of which is 
the Subsonic Fixed Wing Project .495 The S ubsonic Fixed Wing  Project develops tools, technologies, 
and concepts to enable tr ansport aircraft to achieve significant improvements in emissions, noise, 
                                               
492 Ordinarily, timing would be expected to become an issue if the "undeclared" measure precedes the 
adoption of DSB recommendations and ruli ngs (or even the panel request in the original proceeding), raising 
the potential that the complaining party is in reality using compliance proceedings to retroactively enlarge the 
scope of its original panel request.  
493 Panel Report, US – Large Civil Aircr aft (2nd complaint) , paras. 7.1797 and 8.3.  
494 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para s. 1350(d) (i) (4), (5), and (6).  
495 NASA Fundamental Aeronautics Budget Estimates for FY 2007 -FY 2013, (Exhibit EU -40), FY 2013, 
p. AERO -20. WT/DS353/R W 
 
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  and performance, including fuel efficiency.496 The focus of the S ubsonic Fixed Wing  Project is 
currently the development and assessment of concepts and technologies that enable the "N+3 
generation " of civil transport aircraft.497 Boeing 's role in the Subsonic Fixed Wing  Project  has 
included three significant research efforts: Pultruded Rod Stitched Efficient Unitized Structure 
(PRSEUS ) composite materials research; research related to a B lended Wing Body and Subsonic 
Ultra Green Aircraft Research and related advanced concepts research. The PRSEUS and B lended 
Wing Body  research efforts were taken up by the ERA Project  of the NASA Integrated Systems 
Research Program in FY 2010.  
7.279.   The NASA Inte grated Systems Research Program was established in 2010 to take an 
integrated system -level approach to mature and integrate technologies in major vehicle systems 
and subsystems for accelerated transition to practical application.498 The goal of the Integrate d 
Systems Research Program is to serve as a "technology transition bridge " between the more basic 
research conducted in NASA 's other aeronautics R&D program mes and the higher levels of 
technological development needed by potential commercial users.499 Within  the Integrated 
Systems Research Program, the ERA Project targets research into technologies and integrated 
aircraft systems for subsonic transport aircraft entering into service in 2025 or beyond  (i.e. "N+2") 
to achieve the goals of reduced noise, emissio ns and fuel burn simultaneously.500 The ERA Project 
complements the N+3 generation subsonic research being undertaken  in the Subsonic Fixed Wing  
Project  under the Fundamental Aeronautics Program, focusing on more developed technologies for 
commercial applica tion within a shorter period of time.501 Phase I of the ERA Project ran from 
FY 2010 through to the end of FY 2012. Many of the Phase I projects were transitioned from the 
Fundamental Aeronautics Subsonic Fixed Wing  Project , as technologies that are consider ed ready 
to advance to  technology readiness level ( TRL) 6 (the stage before a technology is turned over to 
industry for prototyping, commercialization , and certification).502 In particular, Boeing 's research 
work under the B lended Wing Body  and PRSEUS projec ts was shifted to the ERA Project .503 As part 
of the ERA Project, NASA and Boeing also conduct research into noise, emissions, and 
efficiency -related technological challenges and develop specific technologies necessary to enable 
development of a full -sized, high-performance B lended Wing Body  transport aircraft.504 
7.280.   We recall that the FAA CLEEN Program was created in conjunction with the ERA Project of 
NASA 's Integrated Systems Research Program to "guid{e} coordinated efforts to bring to maturity 
new technologies  to reduce fuel burn, emissions, and noise ".505 In a statement to U.S. Congress, 
NASA Associate Administrator said:  
To facilitate the transition of advanced ideas and technologies into the aircraft fleet, 
NASA is partnering with the Federal Aviation Administ ration 's (FAA) Continuous Low 
Emissions, Energy and Noise (CLEEN) Program  to guide efforts to mature technologies 
                                               
496 R. del Rosario, R. Wahls, G. Foll en, and N. Madavan, NASA, "Subsonic Fixed Wing Project", 
Presentation at the Technical Conference of the NASA fundamental Aeronautics Program, 15 -17 March 2011, 
(Exhibit EU -92), pp. 4, 7, and 8.  
497 NASA Fundamental Aerona utics Budget Estimates for FY 2007 -FY 2013, (Exhibit EU -40), FY 2013, 
p. AERO -21. 
498 NASA Integrated Systems Research Budget Estimates for FY 2010 -FY 2013, (Exhibit EU -41), 
FY 2010, p. AERO -39. 
499 NASA, Research Opportunities in Aeronautics – 2010 (ROA -2010) , NASA Research Announcement 
NNH10ZEA001N, (2 June 2010), (Exhibit EU -133), appendix D.2, p. D -1. 
500 NASA Integrated Systems Research Budget Estimates for FY 2010 -FY 2013, (Exhibit EU -41), 
FY 2010, p. AERO -39. 
501 ASA Integrated Systems Research Budget Estima tes for FY 2010 -FY 2013, (Exhibit 41), FY 2010, 
p. AERO -40. 
502 F. Collier, NASA, "Overview of NASA's Environmentally Responsible Aviation (ERA) Project" 
Presentation at the 48th AIAA Aerospace Sciences Meeting, 4 January 2010, (Exhibit EU -154), p. 4.  
503 R. Coppinger, "Blended wing body is NASA's green focus", Flight International , 16 March 2010,  
(Exhibit EU -155).  
504 R. Coppinger, "Blended wing body is NASA's green focus", Flight International , 16 March 2010,  
(Exhibit EU -155).  
505 Executive Office of the Presiden t, National Science and Technology Council, National Aeronautics 
Research and Development Plan , (2 February 2010), (Exhibit EU -16), p. 11.  WT/DS353/R W 
 
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  that have already shown promise to the point where they can be adopted by the 
current and future aircraft fleet.506  
7.281.   There appears to be a clear  connection between the FAA CLEEN Program  and the noise 
reduction and emissions reduction research carried out under the former NASA A dvanced Subsonic 
Technology (AST)  and V ehicle Systems  program mes (which were carried over into specific projects 
under NAS A's Fundamental Aeronautics Program and Integrated Systems Research Program). 
Those NASA program mes focus on research for application to the N+3 and N+2 generation of LCA, 
while the FAA CLEEN Program  is focused closer to the commercialisation end of the R& D process, 
targeting technologies for application to the N+1 generation of LCA. We can see that in many 
senses, the FAA CLEEN Program  represents a continuation of earlier stage R&D conducted under 
NASA aeronautics R&D program mes, as is further borne out by  NASA 's involvement in the FAA 
CLEEN Program.  
7.282.   However, the United States argues that the close nexus test focuses on the measures , 
which in this case comprise the Boeing CLEEN Agreement (not the FAA CLEEN Program  more 
generally) and the NASA procurement co ntracts and Space Act Agreements as well as and DOD 
assistance instruments507 funded under the various NASA and DOD program mes, rather than the 
aeronautics R&D program mes under which they are funded.  
7.283.   The question whether a measure falls within the scope of a compliance proceeding on the 
basis of its close nexus to the measures the subject of DSB recommendations and rulings, or 
declared compliance measures, can only be answered against a careful consideration of the facts 
and legal context, which in the parti cular circumstances of this case, includes the aeronautics R&D 
program mes that fund the particular R&D instruments. While the challenged measure is the Boeing 
CLEEN Agreement, and not the FAA CLEEN Program in general, the Boeing CLEEN Agreement is 
funded u nder the FAA CLEEN Program. More generally, as is apparent from the approach taken by 
the panel in the original proceeding, the NASA and DOD aeronautics R&D program mes themselves 
play an important role in understanding the nature and operation of the procu rement contracts, 
cooperative agreements, Space Act Agreements , and assistance instruments  funded under those 
program mes. This is also the case with the FAA CLEEN Program in relation to the Boeing CLEEN 
Agreement. In addition, under the Boeing CLEEN Agreem ent, Boeing is responsible for the 
integrated management of the FAA CLEEN Program itself. Thus, we regard it as appropriate in this 
specific factual and legal context, to treat the links between the FAA CLEEN Program and the 
particular projects of NASA 's Fundamental Aeronautics and Integrated Systems Research 
program mes as being highly relevant to our assessment of the links, in terms of nature and 
effects, between the Boeing CLEEN Agreement and the NASA procurement contracts and Space 
Act Agreements the su bject of the DSB recommendations and rulings.  
7.284.   Under the Boeing CLEEN Agreement, Boeing is responsible for two categories of R&D 
activities as well as for the integrated management of the program me as a whole: (a) technology 
maturation through to the protot ype development stage of : (i) wing adaptive trailing edges, (ii) 
ceramic matrix composite acoustic exhaust nozzles, and (iii) the use of alternative fuels; and (b) 
flight testing and assessment. In relation to its technology maturation R&D activities under  the 
Boeing CLEEN Agreement, Boeing has acknowledged that the multiple adaptive trailing edge 
concepts it is studying, as well as technologies relating to the ceramic matrix composite acoustic 
exhaust nozzle , could be transitioned for use on new and deriva tive LCA models.508 Boeing was 
working on these technologies prior to the FAA CLEEN Program.509 Moreover, the wing adaptive 
trailing edges and ceramic matrix composite acoustic exhaust nozzle are technologies that were 
previously developed by NASA510, while Boei ng had also previously worked with Rolls -Royce and 
ATK on the ceramic matrix composite acoustic exhaust nozzle.511 
                                               
506 Statement of J. Shin, NASA Associate Administrator for Aeronautics Research Mission Directorate, 
Hearing before the  U.S House of Representatives Committee on Science, Subcommittee on Space and 
Aeronautics, 1 May 2008, (Exhibit EU -21), p. 7. (emphasis added)  
507 Including those measures as amended by the respective Patent Licence Agreements.  
508 Boeing, "Continuous Lower En ergy, Emissions and Noise (CLEEN) Program Technologies 
Development – Boeing Program Update", Presentation at the CLEEN Consortium Public Session, 
2 November  2011 (Boeing CLEEN Program Update), (Exhibit EU -258), p. 8.  
509 N. A. Hullings, "A CLEEN Future", Boeing Frontiers , May 2013, (Exhibit EU -1021), p. 27.  
510 C. Wilsey and R. Stoker, "CLEEN Technologies Development, Boeing Program Overview", CLEEN 
Consortium Public Session, 27 October 2010 (formerly Exhibit US -13-154), (Exhibit EU -1019), p. 15 (indicating WT/DS353/R W 
 
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  7.285.   The flight testing under the Boeing CLEEN Agreement is to be conducted by Boeing using 
its ecoDemonstrator program me.512 Boeing 's ecoDemonstrator  program me is a multi -year program 
of flight testing suites of environmental technologies which Boeing uses to test technologies 
additional to those it is required to test under the Boeing CLEEN Agreement.513 Boeing describes 
the FAA CLEEN Program as the "foundational element & enabler of Boeing 's ecoDemonstrator 
strategy " which leverages synergies with government program mes, industry partners, suppliers , 
and internally -funded development.514 Adaptive trailing edge concepts were among the 
technologies included in the initial set of fligh t tests in August and September  2012.515 The ceramic 
matrix composite acoustic exhaust nozzle was scheduled for testing in the 2013 ecoDemonstrator 
flight test, which will use a 787 -800 from Boeing 's test fleet.516 
7.286.   Like the NASA proc urement contracts and Space Act Agreements funded under the NASA 
aeronautics R&D program mes that were at issue in the original proceeding, the Boeing CLEEN 
Agreement involves funding by FAA of research activities undertaken by Boeing on a contract basis 
for activities directly relevant to LCA. There are some differences in the structure of the Boeing 
CLEEN Agreement on the one hand, and the NASA procurement contracts and Space Act 
Agreements: while both parties commit resources, the nature of those respecti ve contributions 
differs somewhat from those under the NASA aeronautics R&D measures. Moreover, the parties 
dispute whether, in addition to providing funding, FAA also provides Boeing with access to FAA 
equipment, employees , and facilities.517  
7.287.   In any case, the differences in the structure of the various measures do not detract from 
the closeness of the links that they share in other respects. Nor do we consider fatal to the 
existence of sufficiently close links between the measures the differences in the gov ernmental 
agencies funding the respective measures. While FAA and NASA are different government 
agencies, they share overlapping objectives with respect to civil aviation. These commonalities are 
expressly recognized with respect to environmental and energ y efficiency goals.518 In any case, we 
note that a close nexus has been found in instances where the respective measures have involved 
different levels of government519, so we see no reason why the fact that FAA funds the Boeing 
CLEEN Agreement and NASA funds the NASA aeronautics R&D measures should be fatal to the 
existence of a sufficiently close link in terms of nature between those two sets of measures.   
7.288.   While the FAA CLEEN Program was established in 2009 and the Boeing CLEEN Agreement 
was awarded in 2010, the fact that the Boeing CLEEN Agreement precedes the adoption of the 
DSB recommendation s and rulings does not mean that the Boeing CLEEN Agreement cannot be 
considered relevant to the  question of the  United States ' compliance. The original proceeding w as 
under way at the time that the FAA CLEEN Program  was established and Boeing began its work. 
The FAA CLEEN Program  complements certain of the NASA aeronautics R&D measures the subject 
                                                                                                                                               
NASA research in 2008 and 2010); M. C. Halbig, M. H. Jaskowiak, J. D. Kiser, and D. Zhu, "Evaluation of 
Ceramic Matrix Composite Technology for Aircraft Turbine Engine Applications", NASA Glenn Research Center, 
41st AIAA Aerospace Sciences Meeting, 7 January 2013, (Exhibit EU -1020), p. 10; and NASA Dryden Fact Sheet 
"F/A-18 Active Aeroelastic Wing", 9 December 2009, (Exhibit EU -1281).  
511 M. C. Halbig, M. H. Jaskowiak, J. D. Kiser, and D. Zhu, "Evaluation of Ceramic Matrix Composite 
Technology for Aircraft Turbi ne Engine Applications", NASA Glenn Research Center, 41st AIAA Aerospace 
Sciences Meeting, 7 January 2013, (Exhibit EU -1020), p. 10.  
512 Boeing CLEEN Program Update, (Exhibit EU -258), p. 22; and Boeing CLEEN Agreement, (Exhibit 
EU-17), section C.2, p. 10.  
513 Boeing, Backgrounder, 2012 ecoDemonstrator Program Shows Boeing's Long Commitment to 
Environmentally Progressive Technology , (June 2012), (Exhibit EU -261), pp. 1 and 2.  
514 Boeing CLEEN Program Update, (Exhibit EU -258), p. 22.  
515 FAA Fact Sheet, "Continuous L ower Energy, Emissions, and Noise (CLEEN) Program", 
18 September  2012,  (Exhibit EU -18). 
516 FAA Fact Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program", 
18 September  2012, (Exhibit EU -18); and Boeing CLEEN Program Update, (Exhibit EU -258), p. 26.  
517 Our conclusion regarding this issue is set forth in paras. 8.516  to 8.522  below.  
518 R. Jefferies, FAA, "CLEEN (Continuous Lower Energy, Emissions and Noise) Program Technol ogies 
Development" Presentation at the NASA ERA Bidder's Conference, 19 February 2010, (Exhibit EU -253), pp. 4 
and 8; Executive Office of the President, National Science and Technology Council, National Aeronautics 
Research and Development Plan , (December 2011), (Exhibit EU -254), pp. 27 -30 and 50 -53; and J. Wolfe, 
NASA, "Aeronautics Research Mission Directorate Update with Emphasis on Integrated Systems Research", 
Presentation at the 48th AIAA Aerospace Sciences Meeting, 4 January 2010, (Exhibit EU -255), p.  10. 
519 For example, in Australia – Salmon (Article 21.5 – Canada ), the "undeclared" compliance measure 
was an import ban adopted by the Australian State of Tasmania while the measure subject to the DSB 
recommendations and rulings had been a national quaran tine regulation.  WT/DS353/R W 
 
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  of the DSB recommendations and rulings in the original proceeding and the re is a close degree of 
technological continuity between research commissioned under the Boeing CLEEN Agreement and 
under certain of the NASA procurement contracts and Space Act Agreements.  
7.289.   Indeed, the technological continuities between the research carri ed out under the FAA 
CLEEN Program  (including by Boeing in its management role under the FAA CLEEN Program) and 
the research performed by Boeing under certain of the NASA aeronautics R&D measures at issue in 
the original proceeding mean that, potentially a t least, it would be possible for the United States to 
have purported to comply with the DSB recommendations and rulings as regards the NASA 
procurement contracts and Space Act Agreements, while continuing to assist Boeing in the 
commercialization of the m ore mature technologies arising from those efforts through the Boeing 
CLEEN Agreement. We therefore consider the links in terms of the effects of the measures to be 
such that it would be difficult for this Panel to meaningfully assess whether there has bee n 
compliance in respect of the NASA procurement contracts and Space Act Agreements without also 
considering the Boeing CLEEN Agreement.520  
7.290.   The Panel is therefore satisfied that there are sufficiently close links in terms of nature, 
effects , and timing, betw een the Boeing CLEEN Agreement and the NASA procurement contracts 
and Space Act Agreements the subject of the DSB recommendations and rulings in the original 
proceeding to warrant the conclusion that the  payments and access to facilities, equipment, and 
employees  provided to Boeing through the  Boeing CLEEN Agreement are within the scope of this 
compliance proceeding.  
7.291.   We therefore dismiss the United States' request for a ruling that the FAA 
aeronautics R&D  measure is outside the scope of this compliance pro ceeding and 
conclude that the Boeing CLEEN Agreement is within the scope of this proceeding . 
7.5  South Carolina measures  
7.292.   In its panel request, the European Union claims that the State of South Carolina and its 
political subdivisions maintain various specific subsidies for Boeing, related to the production of 
LCA and LCA components at facilities in North Charleston, South Carolina, through two packages of 
investment incentives, namely : (a) "Project Gemini " measures ; and (b) "Project Emerald " 
measures.521  
7.293.   The Unit ed States objects to the inclusion o f the South Carolina measures within the scope 
of this proceeding. It first  raised this object ion regarding the Project Gemini and Project Emerald 
measures in its request for preliminary rulings made prior to the Europea n Union 's first written 
submission, and has maintained that request in subsequent submissions.522 It responded to the 
European Union 's inclusion of claims concerning the Phase II measures in the European Union 's 
second written submission, requesting the Pane l to reject the European Union 's claims concerning 
the Phase II measures on the basis that the European Union has failed to demonstrate that such 
claims are "properly within this compliance Panel 's terms of reference ".523  
7.294.   The Project Gemini  measures are the  package of financial incentives offered by the State 
of South Carolina in 2009, allegedly in order to induce Boeing to locate its second 787 final 
assembly and delivery facility adjacent to the Vought -Global Aeronautica 787 fuselage fabrication 
and integr ation complex at Charleston International Airport.  The European Union 's panel request 
describes the following eight measures that it challenges as part of the Project Gemini package524:  
                                               
520 We note that our analysis of the links between the measures in terms of their effects is based on an 
examination of how the FAA aeronautics R&D  measure operates and its potential effects in terms of advancing 
commercial application of t echnologies to LCA rather than its potential to cause adverse effects, within the 
meaning of Articles 5(c) and 6.3 of the SCM Agreement. To focus on the latter at this preliminary stage would 
be to confuse a preliminary scope issue with the substantive que stion of whether the measures are inconsistent 
with Articles 5(c) and 6.3 of the SCM Agreement.  
521 European Union's request for the establishment of a panel, para. 23.  
522 United States' request for preliminary rulings, dated 13 November 2012, paras. 23 -35; reply to the 
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
paras. 65 -71; first written submission, paras. 69 -71; and second written submission, paras. 85 -92. 
523 United States' second written submissi on, paras. 619 and 620.  
524 European Union's request for the establishment of a panel, para. 24.  WT/DS353/R W 
 
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  a. Provision of a long -term lease of government -owned land at preferential  rates, pursuant 
to a Ground Lease Agreement between the Charleston County Aviation Authority  and 
South Carolina Public Railways, as amended, and a Ground Sublease between S outh 
Carolina Public Railways  and Boeing, as amended.  
b. Provision of facilities and infrastructure at the Charleston International Airport site, as 
provided for in the Project Gemini Agreement between Boeing and the State of South 
Carolina, dated 1 January 2010, funded through state general obligation bonds issued 
pursuant to Title 11, chapter 41 of the South Carolina Code , as amended by section 5 of 
H3130, Act No. 124, 2009 S.C. Acts 1092 (H3130), and South Carolina Code  
§ 55-11-520, at no cost to Boeing.  
c. Property tax reductions under a fee -in-lieu-of taxes agreement between Charleston 
County and Boeing dated 1 December 2009, as authorized by Title 12, chapter 44 of the 
South Carolina Code , including the provision of special source credits as provided for in 
such agreement, and authorized by South Carolina Code  § 4-1-175.525 
d. Property tax ex emption for Boeing 's Large Cargo Freighters (LCFs) pursuant to South 
Carolina Code  §12-37-220(B)(33), as amended by section 1 of H3482, Act No. 45, 2009 
S.C. Acts 763.  
e. Reductions of state corporate income taxes through an income allocation and 
apportionmen t agreement, entered into pursuant to South Carolina Code  
§ 12-6-2320(b), as amended by section 1 of H3130.  
f. Provision of corporate income tax credits, as provided for in South Carolina Code  
§ 12-6-3360(E)(1), by virtue of designating the Boeing site in No rth Charleston as part 
of a business/industrial park jointly established and developed by Charleston County and 
Colleton County, South Carolina.  
g. Exemption from state sales and use taxes for aircraft fuel, computer equipment, and 
construction materials, est ablished by sections 2, 3, and 4 of H3130, respectively, and 
codified at South Carolina Code  § 12-36-2120(9)(e) and (f), (65)(b), and (67).  
h. Establishment of workforce recruitment, training , and development program mes for 
Boeing.  
7.295.    The Project Emerald  measu res comprise the package of financial incentives offered by 
the State of South Carolina to Vought in 2006 in connection with the 787 fuselage fabrication and 
integration complex at a site at Charleston International Airport. The European Union 's panel 
request identifies the following four measures as part of the Project Emerald package526:  
a. Provision of a long -term lease of government -owned land at below -market rates, 
pursuant to a Ground Lease Agreement between C harleston County Aviation Authority  
and S outh Carolina Public Railways , as amended, and a ground sublease between S outh 
Carolina Public Railways  and Boeing, as amended.  
b. Provision of facilities and infrastructure at the Charleston International Airport site, as 
provided for in the Project Emerald Conf idential Site Development Agreement, funded 
through state general obligation bonds issued pursuant to Title 11, chapter  41 of the 
South Carolina Code , at no cost to Boeing.  
c. Property tax reductions under a fee-in-lieu-of taxes Agreement between Charleston 
County and Vought Aircraft Industries, Global Ae ronautica, and Boeing, dated 
19 December 2006, and assigned to Boeing on or about 10 February 2010, as authorized 
                                               
525 The European Union has subsequently advised that the above -referenced FILOT Agreement was a 
draft, which had been provided by Charleston County. The final FIL OT Agreement is dated 1 December 2010. It 
is this final agreement to which the European Union refers in its arguments. (European Union's first written 
submission, para. 550  and fn 1309).  We refer to this instrument as the Boeing FILOT Agreement, see 
para. 8.857  below.  
526 European Union's request for the establishment of panel, para. 25.  WT/DS353/R W 
 
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  by Title 12, chapter  44 of the South Carolina Code , and provided for in the Project 
Emerald Co nfidential Site Development Agreement, including the provision of 
infrastructure credits as provided for in such agreement, and authorized by South 
Carolina Code  § 12-44-70. 
d. Provision of corporate income tax credits, as provided for in South Carolina Code  
§ 12-6-3360(E)(1), by virtue of designating the Project Emerald site at Charleston 
International Airport as part of a business/industrial park jointly established and 
developed by Charleston County and Colleton County, South Carolina.527  
7.296.   In its second writt en submission, the European Union additionally challenges so -called 
Phase II measures which it alleges are further incentives intended to support Boeing 's ongoing 
and planned expansions of its LCA manufacturing operations in South Carolina.528 These Phase  II 
measures are identified in the European Union 's second written submission as529: 
a. Sale of at least 320 acres of government property adjacent to Boeing 's Project Site at 
less than market value.  
b. Funding the acquisition and preparation of land for Boeing with t he proceeds of 
USD 120 million in state general obligation economic development bonds.  
c. Amendment of the Boeing FILOT  Agreement to provide for the reduction or elimination 
of Boeing 's property taxes related to its Phase II expansion.530 
7.297.   We first consider the United States ' objections to the inclusion of claims regarding the 
Project Gemini and Project Emerald measures within the scope of this proceeding, before 
considering whether the Phase II measures are properly before this Panel.  
7.5.1   Whether  the Project Gemini  and Project Emerald measures are outside the scope 
of this proceeding.  
7.5.1.1   Main arguments of the parties and third parties  
7.298.   The United States  argues that the Project Gemini and Project Emerald measures are 
outside the scope of this compliance proceeding becaus e those measures were not challenged in 
the original proceeding, and are not the subject of the DSB recommendations and rulings. They 
are not declared measures taken to comply, nor can they be considered "undeclared " measures 
taken to comply, because the E uropean Union has not demonstrated that they meet the 
requirements of the close nexus test.531  
7.299.   The United States argues that the application of the close nexus test for determining 
whether a measure can be considered an "undeclared " measure taken to comply,  and thus within 
the scope of a compliance proceeding, requires careful consideration of the measures in terms of 
                                               
527 The Project Emerald and Project Gemini measures are described in greater detail in Section 8.2.8 of 
this Report.  
528 European Union's second written submission, para. 742. Boeing has announced the following plans 
for expansion of its South Carolina operations: (a) establishing a "Dreamlifter Operations Center" at its 
Charleston International Airport facility; (b) locati on of the design and manufacturing of the composite inlets 
and nacelle linings for the 737 MAX; and (c) creating a new IT center in North Charleston as part of its plans to 
consolidated its IT operations. The European Union says that industry analysts expe ct this planned expansion 
will pave the way for South Carolina to compete with Washington and other states for the 777X final assembly 
line, as well as for production of the 777X composite wings. (European Union's second written submission, 
para. 745).  
529 European Union's second written submission, para. 742. The European Union indicated at the 
meeting with the Panel in October 2013 that it had obtained directly from the local government a copy of the 
precise agreement evidencing the existence of the Phase I I measures. (European Union's opening statement at 
the meeting of the Panel, para. 43 (referring to First Amendment to Fee Agreement by and between Charleston 
county, South Carolina and the Boeing Company (1 May 2013), (Exhibit EU -1264))).  
530 The Boeing FIL OT Agreement is the instrument referred to in para. 7.294(c ) above.  
531 United States' request for preliminary rulings, dated 13 November 2012, paras. 23 -35; first written 
submission, para. 71; and second written submission, para. 620 (with a respect to the Phase II measures).  WT/DS353/R W 
 
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  their nature, effects , and timing, with the measures subject to the DSB recommendations and 
rulings.  
7.300.   According to the United States, t he nature of the eight Project Gemini measures does not 
resemble the nature of the measures covered by the DSB recommendations and rulings.532 While 
the Washington State B&O tax rate reduction (the only Washington State tax measure that was 
subject to the  DSB recom mendations and rulings) was part of the "Project Olympus " incentive 
package offered by the State of Washington, the United States argues that Project Olympus was 
not itself found to be WTO -inconsistent. The United States considers that i t is insufficient 
therefore, for the European Union to allege  a close nexus between the Project Gemini and Project 
Emerald measures, and the Washington State B&O tax rate reduction, simply on the basis that the 
measures in question were part of incentive packages.533 The Unite d States argues that, to the 
extent that the European Union invokes the "Washington subsidies " in its close nexus analysis, the 
European Union must show a close nexus to the Washington State B&O tax rate reduction in 
particular, not some broader package of  subsidies for which there were no DSB recommendations 
and rulings.534  
7.301.   The United States points to the following specific differences between certain individual 
components of the Project Gemini incentive package and the Washington State B&O tax rate 
reducti on in terms of their structure, design , and operation:  
a. an alleged exemption  from property tax administered by South Carolina on property in 
that state shares almost no features with a reduction  in a B&O tax ;  
b. the Income Allocation and Apportionment Agreem ent concerns the sourcing and 
apportionment of corporate income taxes, while the B&O tax in the State of Washington 
is not a corporate income tax ; and   
c. the value of the corporate income tax credits for job creation (job tax credits) available 
by virtue of designating the Boeing site in North Charleston as part of a multi -county 
industrial park (MCIP) increases with the number of jobs created, while the B&O tax rate 
reduction does not have this feature.535  
7.302.   In addition to the above differences in the nature of  the Project Gemini measures that are 
tax measures, as compared with the Washington State B&O  tax rate reduction, the United  States 
argues that the European Union does not even attempt to argue a close nexus in terms of nature 
regarding the Project Gemini (or Project Emerald) measures that are non -tax related.536 The 
United States points to the fact that five of the 12 Project Gemini and Project Emerald measures 
have nothing to do with taxes: two measures concern a long -term land lease, two measures 
concern p rovisions of facilities and infrastructure, and one concerns the establishment of 
workforce, recruitment, training , and development program mes.  
7.303.   The United States disputes also the European Union 's argument that the Project Gemini 
Income Allocation and Apportionment Agreement  has a close nexus with the FSC/ETI subsidies the 
subject of the DSB recommendations and rulings. For the Panel to accept the European Union 's 
argument that the Income Allocation and Apportionment Agreement  "substantially replicates the  
prohibited FSC/ETI subsidy on a state level ", it would have to resolve the European Union 's claims 
on the merits as to how the Income Allocation and Apportionment Agreement  operates. The 
determination of whether a measure is within the scope of the procee ding cannot depend  on the 
                                               
532 United States' first written submission, para. 577.  
533 United States' opening statement at the meeting of the Panel, para. 73.  
534 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 50.  
535 United States' first written submission, para. 577.  
536 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 De cember 2012, para. 51. The United States also argues that a sufficiently close connection 
between the South Carolina measures and the Washington State B&O tax rate reduction cannot be established 
simply by describing the South Carolina measures as involvin g "tax incentives". The generic label of "tax 
breaks" merely distinguishes one particular method of transmitting funds from others, such as a provision of 
grants or loans, rather than the conditions under which the alleged subsidy is paid out and the incen tives it 
generates for the recipient. (United States' reply to the European Union's response to the United States'  
request for preliminary rulings, dated 3 December 2012, para. 52).  WT/DS353/R W 
 
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  outcome of the substantive analysis of that measure, rather it should be a consequence of the 
design and nature of the measures at issue. The European Union has not provided any analysis in 
this regard.537  
7.304.   Furthermore, the granting  authority for the Project Gemini (and Project Emerald) 
measures is different from, and independent of, any of the granting authorities responsible for the 
measures at issue in the original proceeding. Indeed, the United States asserts that every past 
application of the close nexus test has involved measures with overlapping geographical scope, 
which is another aspect of the nature and effects of a measure. By contrast, neither the Project 
Gemini nor Project Emerald measures geographically overlap in any wa y with the Washington 
State measures.538  
7.305.   As to the alleged similarities in effects  of the Project Gemini measures and the Washington 
State tax measures, the United States considers purely speculativ e and hypothetical the 
European  Union 's arguments that if S outh Carolina had not incentivized Boeing to locate its second 
787 production line there, production of the 787 would have been located in Washington and 
would have resulted in increased Washington State subsidies.539 Many factors influenced Boeing 's 
decisio n to establish a second 787 assembly line in South Carolina, including the fact that it 
enabled Boeing to capture logistical efficiencies as a result of its proximity to the Global 
Aeronautica fuselage fabrication and integration site and added geographica l diversity to Boeing 's 
operations , as well as political support from a key state.540 According to the United States, the 
European Union 's legal position boils down to arguing that any subsidy to Boeing, regardless of its 
form or nature, would be a "measure taken to comply " for purposes of this proceeding.541 
7.306.   As regards timing , the United States argues that there similarly is no nexus between the 
Project Gemini measures and the measures the subject of the DSB recommendations and rulings . 
According to the Unite d States, Project Gemini began after the original proceedings were initiated, 
but before the DSB recommendations and rulings were adopted. The Project Gemini measures 
cannot therefore be considered a "measure taken to comply ".542 
7.307.   With respect to Project Emer ald, the United States rejects the European Union 's argument 
that the Project Emerald measures are "closely connected " in terms of nature  to the tax subsidies 
associated with the  tax abatements related to the City of  Wichita IRBs, as both are subsidies for  
Boeing 's LCA -component manufacturing facilities and consist primarily of property tax concessions  
related to such facilities.543 First, the largest component of Project Emerald (as alleged by the 
European Union) is the provision of facilities and infrastruc ture, which is clearly not a "tax break " 
related to LCA component manufacturing facilities.544 In addition, the European Union fails to 
explain how the Project Emerald FILOT  agreement , the Project Site Lease, the provision of facilities 
and infrastructure or  the provision of income tax credits for job creation bear a close nexus in 
terms of nature to property and sales tax abatement s provided through the issuance of IRBs. 
These are different types of policy tools used by different granting authorities at diff erent times in 
non-overlapping geographical areas.545 
7.308.   Moreover, there is no nexus in terms of timing  between the Project Emerald measures and 
the DSB recommendations and rulings in the original proceeding, as the Project Emerald measures 
                                               
537 United States' opening statement at the meeting of the Panel, para. 80 ( quoting European Union's 
first written submission, para. 735).  
538 United States' opening statement at the meeting of the Panel, para. 74.  
539 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 54; first written submission, para. 542.  
540 United States' second written submission, para. 91 (referring to Boeing Board of Directors, "Gemini 
Update", Presentation, 19 October 2009, (Exhibit USA -323), p. 6). The United States also ass erts that 
confidential information confirms that the Project Gemini incentives did not drive the Boeing Board's decision to 
locate its second 787 assembly line in South Carolina . (United States' opening statement at the meeting of the 
Panel, para. 76).  
541 United States' first written submission, para. 580; second written submission, para. 89; and opening 
statement at the meeting of the Panel, para. 76.  
542 United States' first written submission, para. 579.  
543 See European Union's first written submission, para . 735.  
544 United States' first written submission, para. 543.  
545 United States' first written submission, para. 544.  WT/DS353/R W 
 
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  date from 2004, when  South Carolina designed the Project Emerald incentive package for Vought 
and Alenia, well before the European Communities ' panel request in the original proceeding.546  
7.309.   More generally, the United States argues that to find that the Project Gemini and Projec t 
Emerald measures satisfy the close nexus test in this proceeding would run counter to the 
application of the close nexus test in prior jurisprudence in the following respects:  
a. Prior cases have required similarities between the design and architecture of the 
measure at issue and the measure in the original dispute. The European Union has not 
attempted to show such similarity on a measure -by-measure basis. Rather, the 
European Union 's arguments rely on assertions that the South Carolina measures are 
part of  incentive packages (Project Gemini and Project Emerald), and that the 
Washington State B&O tax rate reduction was part of the Project Olympus package, as 
evidence of a close nexus. However, "Project Olympus " was not found to be  a 
WTO-inconsistent  measure  in the original proceeding and  in any case,  "coming in 
packages " is not enough of a resemblance to warrant a finding of close nexus .547 
b. Second, prior applications of the close nexus test have involved measures with 
overlapping geographical scope (another asp ect of the nature and effects of a measure). 
Here, the measures have completely non -overlapping geographical scope.548 
c. Third, prior applications of the close nexus test have required commonality in terms of 
effects. Here, the European Union 's effects argumen t is based on alleged competition 
between the states and a supposition that, if South Carolina had not provided the Project 
Gemini package to Boeing in 2009, Boeing would have located the second 787 assembly 
line in Washington State, leading to a higher va lue of Washington State subsidies. The 
South Carolina measures did not drive the location decision.549 
7.310.   The European Union  argues that its claims concerning the Project Gemini and Project 
Emerald measures are within the scope of this proceeding on the basis o f the "close connection " 
between these measures and the Washington, Kansas , and FSC/ETI subsidies at issue before the 
original panel.550  
7.311.   The European Union argues that the Project Gemini and Project Emerald measures are 
essentially two integrated packages o f incentives for Boeing 's 787 production -related facilities and 
as such, should be considered together for the purposes of the scope analysis.551 In this regard, 
the European Union explains:  
a. the Project Site Lease is a component of both the Project Gemini an d Project Emerald 
incentive packages;  
b. the bond -funded facilities and infrastructure for both Project Gemini and Project Emerald  
support both facilities;  
c. the sales and use tax exemptions benefit operations at both facilities;  
d. the Charleston -Colleton MCIP in cludes both facilities;  and 
                                               
546 The United States notes that the European Commission was notified of the acquisition of the 
interests of Vought and Alenia in 2009 through a merger notification and approved the transaction. (See 
United  States'  first written submission, para. 537 (referring to Commission of the European Communities, 
Merger Procedure, Case No. COMP/M.5151 -Boeing/Alenia NA/JV (3 June 2008), (Exhibit USA -203))).  
547 United States' opening statement at the meeting of the Panel, para. 73.  
548 United States' opening statement at the meeting of the Panel, paras. 74 and 75.  
549 United States' second written submission, paras. 91 and 92. The United States argues that, in any  
case, the European Union's argument does not justify the inclusion of the Project Emerald measures or the 
Phase II measures within the scope of this proceeding. (United States' opening statement at the meeting of the 
Panel, para. 76).  
550 European Union's f irst written submission, para. 734; response to the United States' request for 
preliminary rulings, dated 23 November 2012, paras. 69 -73; and supplemental submission on the 
United  States' request for preliminary rulings, para. 27.  
551 European Union's second  written submission, para. 151.  WT/DS353/R W 
 
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  e. the Boeing F ILOT Agreement552 and Emerald F ILOT Agreement553 cover property at the 
same site, permitting Boeing to shift property between the two fee -in-lieu-of taxes 
arrangements.554 
7.312.   The European Union considers that the Project Gemi ni measures, like Washington State 's 
"Project Olympus " measures in the original proceeding, represent the outcome of a competition 
between states as to the location of Boeing 's 787 final assembly line. These measures are 
"effectively substitutes " for the W ashington State subsidies in the sense that, if not for the South 
Carolina measures , Boeing 's second final assembly line for the 787 would have  been located in 
Washington State  and Boeing would currently be receiving greater subsidies in  the State of 
Washi ngton. For example, the Washington State B&O tax rate reduction reduces taxes that apply 
to every aircraft produced in Washington State. Each 787 produced in South Carolina rather than 
Washington State thus reduces the amount of the B&O tax rate subsidy th at Boeing would 
otherwise receive.555 Moreover, as the Project Emerald measures were integral to attracting the 
second 787 final assembly line to South Carolina, these too are effectively substitutes for 
Washington State subsidies.556 The European Union theref ore argues that the Project Gemini and 
Project Emerald measures undermine the United States ' compliance with the DSB 
recommendations and rulings.557  
7.313.   As to the similarities in nature  between the Project Gemini and Project Emerald measures 
and the DSB recomme ndations and rulings, the European Union argues:  
a. The Project Gemini and Project Emerald measures are similar in nature to the 
"Washington State subsidies ", described by the original panel and Appellate Body as a 
"package of tax incentives " relating to "retaining and attracting the aerospace industry 
to Washington State " and "designed to lure Boeing to establish its new production 
facilities for the 787 in the State of Washington ".558 
b. The Project Gemini and Project Emerald measures , and the "Washington State s ubsidies " 
are packages that include : (i) tax breaks ; (ii) provided to Boeing ; (iii) for the 787 ; (iv) 
related to the location of production facilities.559 
c. The reduction of income taxes through the Project Gemini Income Allocation and 
Apportionment Agreement  is similar in nature to the tax exemptions under FSC/ETI 
subsidies as both are methods of excluding export sales from Boeing 's taxable income, 
with the South Carolina measure reducing Boeing 's state income taxes in proportion to 
Boeing 's South Carolina  foreign sales, just as the FSC/ETI subsidies reduced Boeing 's 
federal income taxes based on export sales.560  
d. The Project Emerald measures are closely connected to the Wichita Kansas IRBs that 
were found to be subsidies that caused adverse effects in the origin al proceeding as both 
are subsidies for Boeing 's LCA -component manufacturing facilities and consist primarily 
of property tax breaks related to such facilities.561 
7.314.   On the similarities in effects  between the Project Gemini and Project Emerald measures 
and the  DSB recommendations and rulings, the European Union argues that the Project Gemini 
and Project Emerald measures, as "substitutes and supplements " for subsidies subject to the DSB 
                                               
552 The Boeing FILOT Agreement is the instrument referred to in para. 7.294(c ) above.  
553 The Project Emerald FILOT Agreement is the instrument referred to in para. 7.295(c ) above.  
554 European Union's second written submission, para. 152.  
555 European Union's supplemental submission on the United States' request for preliminary rulings, 
paras. 30 -32; first written submission, para. 735 and fn 1 607; and second written submission, para. 148.  
556 European Union's second written submission, para. 152.  
557 European Union's first written submission, para. 735.  
558 European Union's response to the United States' request for preliminary rulings, dated 
23 November 2012, para. 70 (quoting Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.41 and 
7.45).  
559 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 71.  
560 European Union's response to  the United States' request for preliminary rulings, dated 
23 November  2012, para. 73.  
561 European Union's first written submission, para. 735.  WT/DS353/R W 
 
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  recommendations and rulings, effectively negate or undermine purported U.S. compliance.562 If 
the United States were allowed to shift subsidies for Boeing from one state to the next and evade 
review by a compliance panel, the disciplines of the SCM Agreement would be rendered almost 
meaningless as applied to WTO Members with an inte rnal federal structure.563 
7.315.   As to the timing  element of the close nexus test, the European Union notes that the Project 
Gemini and Project Emerald measures were not provided to Boeing until after the establishment of 
the original panel on 17 February 2006, an d all of the European Union 's claims relate to subsidies 
for Boeing that began at the earliest in the latter half of 2009.564 
7.316.   Certain of the third parties (Brazil, Canada,  and Japan) make general arguments as to the 
proper application of the close nexus test  to determine when so called "new measures" may be 
considered within the scope of a compliance proceeding as "undeclared" measures taken to 
comply. These arguments are summarized in Section 7.2.2.1  of this Report.  
7.5.1.2   Evaluation by  the Panel  
7.317.   The question before us is whether the Project Gemini and Project Emerald measures are 
within the scope of this compliance proceeding, despite the fact that these measures were not 
challenged in the original proceeding (and therefore were not sub ject to the DSB recommendations 
and rulings) and are not declared measures taken to comply by the United States. The parties 
generally agree that, in order to be within the scope of this proceeding, the Project Gemini and 
Project Emerald measures must be d emonstrated to be "undeclared " measures taken to comply, 
on the basis of their "particularly close relationship " to measures that were the subject of the DSB 
recommendations and rulings, or to the United States ' declared compliance actions.  
7.318.   We explain in p aragraphs 7.66 through 7.75 of Section 7.2.2.2  of this Report our 
understanding of the close nexus test applied by panels  and the Appellate Body  in order to 
determine wh ether "undeclared" measures with a particularly close relationship to declared 
measures taken to comply, and to DSB recommendations and rulings, are susceptible to review by 
a compliance panel.  The parties disagree in several respects as to how the Panel s hould determine 
whether such a particularly close relationship exists i n the particular context of the South Carolina 
measures . One difference concerns the origina l measures against which the South Carolina  
measures are to be compared in conducting the clo se nexus analysis. More specifically, the parties 
dispute whether the "baseline " measures are necessarily always confined to the measures subject 
to the DSB recommendations and rulings and measures that have been declared by the 
responding party as being m easures taken to comply, or can also cover other original measures 
that were unsuccessfully challenged in the original proceeding.  
7.319.   The European Union in many places throughout its submissions argues that the Project 
Gemini and Project Emerald measures hav e a close nexus to the "Washington State subsid ies at 
issue before the original panel ", when the only subsidy provided by the State of Washington that 
was found to have caused adverse effects by the conclusion of the appeal process was the 
Washington State  B&O tax rate reduction. The United States thus considers that the "baseline " 
measures for purposes of the close nexus inquiry are those that were subject to the DSB 
recommendations and rulings in the original proceeding, or the measures that the respondin g 
party declares are the measures it has taken to comply; which in this case is the Washington State 
B&O tax rate reduction (rather than all of the Washington State measures that were challenged in 
the original proceeding as part of the Project Olympus  package), along with the FSC/ETI subsidies 
and the tax abatements  in connection with the City of Wichita IRBs.  
7.320.   The basic function of a panel in a compliance proceeding is to determine whether a 
responding party has complied with the DSB recommendations and r ulings in the original 
proceeding. The close nexus test developed as a means for panels to assess which measures, 
                                               
562 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 77. 
563 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 78; supplemental submission on the United States' request for preliminary rulings, 
para. 32.  
564 European Union's response to the United Stat es' request for preliminary rulings, dated 
23 November  2012, para. 80.  WT/DS353/R W 
 
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  beyond those the subject of the DSB recommendations and rulings, and any measures explicitly 
adopted by the responding party in purported comp liance with those recommendations and 
rulings, a compliance panel should consider in making its determination under Article 21.5 of the 
DSU. As we have explained in the context of our ruling that the JCATI  measure is  outside  the 
scope of this proceeding, t he fundamental issue for a panel in applying the close nexus test is 
whether it is possible to meaningfully assess whether a responding party has complied with the  
DSB recommendations and rulings without also considering the "undeclared " measures as part o f 
that determination.565  
7.321.   In contrast to previous cases involving the application of the close nexus test, there 
remained, at the conclusion of the original proceedings in this case, a number of measures in 
respect of which there were no findings of WTO -inconsistency or WTO -consistency , including with 
respect to the Washington State measures that were part of the Project Olympus package (other 
than the Washington State B&O tax  rate reduction). In Section 7.2 of this Report, we rul e that 
those three other Washington State tax measures enacted under HB 2294, as original Washington 
tax measures566, are within the scope of this proceeding .567 Given that there were no definitive 
findings of the WTO -consistency of these measures at the concl usion of the original proceeding, 
and bearing in mind that the Washington tax measures are within the scope of this compliance 
proceeding, we have concluded that it is appropriate to undertake the close nexus  analysis  on the 
basis of a consideration of the  links between the Project Gemini and Project Emerald measures and 
the Washington State tax measures enacted under HB 2294, that  were challenged in the original 
proceeding, including those for which there was no definitive resolution of their WTO -consisten cy 
at the conclusion of that process. In other words, we will consider whether the Project Gemini and 
Project Emerald measures bear a sufficiently close nexus, in terms of their nature, effects , and 
timing, not just to the Washington State B&O tax rate red uction , which was subject to the DSB 
recommendations and rulings, but also to the three other Washington State tax measures enacted 
under HB 2294 that were at issue in the original proceeding and that we have elsewhere found to 
be within the scope of this compliance proceeding.  
7.322.   The other difference of view concerns the types of commonalities or links that demonstrate 
a close nexus in terms of nature. The parties disagree as to the significance of the legal form of 
the various measures and the relevance of their connection to other measures (e.g. as part of an 
incentive package). It is difficult to say in the abstract which aspects of a measure may be 
relevant to demonstrating a sufficiently close link in terms of "nature " to the measures subject to 
the DSB recommendations and rulings, or to other original measures , for purposes of  conducting  a 
close nexus analysis . The relevance or otherwise of certain aspects of the measures depend s very 
much on the circumstances of the case. For example, in a dispute invol ving a quarantine measure 
found to be WTO -inconsistent, the fact that an "undeclared " measure is also a quarantine measure 
covering the same products (or subset of products), or otherwise operat ing in the same manner as 
the quarantine measure the subject o f the DSB recommendations and rulings, will clearly be an 
important and relevant element of a panel's assessment of the closeness of the links , in terms of 
nature , between the "undeclared " measure and the original measure.  
7.323.   On the other hand, it is not obv ious that, in a dispute involving subsidies to a particular 
recipient in respect of a number of that recipient 's products, the "type" of subsidy should be 
determinative in demonstrating whether any "undeclared " measures are within the scope of the 
complian ce proceeding. When determining whether a compliance panel could meaningfully assess 
whether the responding party has complied with the DSB recommendations and rulings under 
Article 7.8 of the SCM Agreement , without also considering the "undeclared " measur e as part of 
that determination, the fact that the "undeclared " measure is a similar type of subsidy (e.g. a tax 
concession ) may not be especially informative. That said, we acknowledge that the close nexus 
test in most cases would require more than that a n "undeclared " measure is alleged to subsidize 
the same recipient. As we explain in our discussion of the jurisprudence concerning the 
development and application of the close nexus test in Section  7.4.2 of this Report, the foc us of 
the close nexus test (and accordingly the relevance of certain aspects of the measures) 
fundamentally concerns the links that indicate the potential for the "undeclared " measures to 
undermine, impair or nullify any purported compliance by the respond ing party.  
                                               
565 See paras. 7.66 through 7.75 of Section 7.2.2.2  above . 
566 See para. 7.11 above . 
567 See Sections 7.2.1 and 7.3.2  above . WT/DS353/R W 
 
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  7.5.1.2.1   The relevant original measures  
7.324.   With the foregoing considerations in mind, we first recall the original Washington State tax 
measures enacted under HB 2294 as p art of Project Olympus, including the Washington  State B&O 
tax rate reduction, as wel l as the  FSC/ETI subsidies and tax abatements related to the City of 
Wichita IRBs which, along with the Washington State B&O tax rate reduction, are the measures 
the subject of the DSB recommendations and rulings that the European Union argues are relevant  
to the analysis of whether the Project Gemini and Project Emerald measures satisfy the 
requirements of the close nexus test . 
7.325.   The Washington State tax measures enacted under HB 2294 , which  we have 
concluded are within the scope of this proceeding , were cha llenged by the European Communities 
in the original proceeding. As the original panel explained, HB 2294 was entitled "An Act Related to 
Retaining and Attracting the Aerospace Industry to Washington State ", and was expressed to 
include "comprehensive tax i ncentives " directed at achieving this aim.568 HB 2294 took effect in 
December 2003 when Boeing entered into a "Memorandum of Agreement for Project Olympus " 
with the State of Washington.569 The Memorandum of Agreement confirmed that the Project 
Olympus Master S ite Agreement between Boeing and the State of Washington constituted an 
agreement to site a significant commercial air plane  final assembly facility in Washington, 
specifically in the City of Everett, for purposes of HB 2294.570 In the original proceeding, th e 
European Communities alleged that HB 2294, the Project Olympus Master Site Agreement and an 
Ordinance enacted within the City of Everett constituted a "Boeing Incentive Package " designed to 
lure Boeing to establish its 787 production facilities in the St ate of Washington.571  
7.326.   The Washington State tax measures enacted under HB 2294 that were challenged by the 
European Communities in the original proceeding consist of : (a) the B&O tax rate reduction for 
manufacturers of commercial airplanes or components of s uch airplanes572; (b) B&O tax credits for 
preproduction development and for computer software and hardware; (c) B&O tax credits for 
property taxes;  and (d) sales and use tax exemptions for computer software, hardware, and 
peripherals  to manufacturers of comm ercial airplanes.573 
7.327.   The B&O tax rate reduction was a "tied" subsidy , in that  it applie d to the production and 
sale of each LCA manufactured in Washington State on a per -unit basis , increasing Boeing's  
after-tax revenue and profitability .574 The B&O tax rate r eduction applied in respect of Boeing 
aircraft produced in Washington State, and not just the 787.575  
                                               
568 Panel Report, US – Large Civil Aircraft (2nd compl aint), para. 7.41.  
569 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.43. Section 17(1)(a) of HB 2294 
provided that the legislation takes "effect on the first day of the month in which the governor and a 
manufacturer of commercial airplanes  sign a memorandum of agreement regarding an affirmative final decision 
to site a significant commercial airplane final assembly facility in Washington state." Section 17(1)(b) also 
provided that HB 2294 is "contingent upon the siting of a significant comm ercial airplane final assembly facility 
in the state of Washington". A "significant commercial airplane final assembly facility" was defined as a 
"location with the capacity to produce at least thirty -six superefficient airplanes a year", while a "supereff icient 
airplane" was defined as "a twin aisle airplane that carries between two hundred and three hundred fifty 
passengers, with a range of more than seven thousand two hundred nautical miles, a cruising speed of 
approximately mach .85, and that uses fifte en to twenty  % less fuel than other similar airplanes on the 
market" . (See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.44).  
570 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.45.  
571 Panel Report, US – Large Civil Aircraf t (2nd complaint ), para. 7.45.  
572 The business and occupancy (B&O) tax is Washington State's primary business tax. It is a tax on the 
gross receipts (i.e. gross proceeds of sales, gross income, or value of products, as applicable) of all businesses 
operatin g in Washington State. Taxpayers are taxed based on the activities in which they engage in the State 
of Washington, such as manufacturing, wholesaling, retailing , or the provision of services. (See Appellate Body 
Report, US – Large Civil Aircraft (2nd comp laint), para. 458).  
573 HB 2294 also consisted of sales and use tax exemptions for construction services and equipment, a 
leasehold excise tax exemption and a property tax exemption . The panel , however,  found insufficient evidence 
that Boeing had ever claime d these and thus insufficient evidence of the existence of a financial contribution. 
(See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.151). This finding was not appealed.  
574 Appellate Body Report, US – Large Civil Aircraft (2nd complain t), paras. 1170 and 1252.  
575 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.43 and 7.1803  and fn 1057. In its 
Compliance Communication on 23 September 2012, the United States advised that the State of Washington is 
applying the rate of B& O tax for aerospace manufacturing and retailing consistent with Article 5(c) of the SCM 
Agreement. The European Union argues that this subsidy has been maintained and has not been withdrawn WT/DS353/R W 
 
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  7.328.   The other HB 2294 tax measures at issue in the original proceeding (i.e. the B&O tax 
credits for preproduction development and computer software and hardwa re, the B&O tax credits 
for property taxes and the sales and use tax exemptions for computer software, hardware, and 
peripherals ) were considered to be "untied " subsidies in that they were not directly tied to sales of 
individual LCA. In the original proce eding, the European Communities identified these other HB 
2294 tax measures as subsidies that benefited multiple aircraft families and not solely the 787.576 
The B&O tax credits for preproduction development and computer software and hardware applied 
against  Boeing 's liability for B&O taxes which accrued in connection with the manufacture and sale 
of all Boeing LCA produced in the State of Washington.577 The B&O tax credits for property taxes 
related to new construction and in reality  would have benefited only the 787 at the time of the 
original proceeding.578 The sales and use tax exemptions were in principle available in respect of 
all Boeing aircraft manufactured in Washington State, and not only in respect of the 787.579  
7.329.   The original panel found that the purpos e or intent behind the HB 2294 package was to 
reduce Boeing 's cost structure and thereby significantly improve its competitiveness.580 
7.330.   The FSC/ETI subsidies  are tax exemptions and exclusions in relation to foreign source 
income provided under the FSC and suc cessor legislation (namely, the FSC Repeal and 
Extraterritorial Income Exclusion Act  of 2000, the American Jobs Creation Act  of 2004 , and the Tax 
Increase Prevention and Reconciliation Act  of 2005). For present purposes, the key aspects of the 
FSC/ETI subs idies are that they involved a tax exemption on a portion of "foreign trade income " 
for corporations organized as "foreign sales corporations " (FSCs) pursuant to the particular 
requirements of the U.S. Internal Revenue Code. The FSC measure s also permitted  U.S. parent 
companies of FSCs to defer paying taxes on certain "foreign trade income " and to avoid paying 
taxes on dividends received from their FSCs related to "foreign trade income ". FSC/ETI exemptions 
and exclusions were realized on the delivery of eve ry LCA that Boeing export ed, as well as on LCA 
that Boeing produce d and s old to domestic carriers and leasing companies for use predominantly 
on foreign routes.  
7.331.   The FSC/ETI subsidies were considered in the original proceeding to be "tied" subsidies, in 
that they relate d directly to revenue realized from export LCA sales and operate d to reduce the 
revenues that were subject to taxation, thereby lowering Boeing 's taxes and increasing its 
after-tax profits.581 There was no evidence that the FSC/ETI subsidies ap plied to sales of the 787, 
and the Panel and Appellate Body analysis focused on the effects of these subsidies on the 737 
and 777 only .  
7.332.   The tax abatements related to the City of W ichita IRBs  were available in respect of 
industrial revenue bonds  (IRBs)  purchased not by the public or bondholders, as is typically the 
case, but by the companies for which they were issued. As Boeing (or Spirit) owned the IRBs, any 
principal or interest payments on the bonds were ultimately transferred to themselves. Boeing and 
Spirit did not use the IRBs to finance the development of property, but rather, to take advantage 
of certain property and sales tax exemptions available to private entities for which IRBs are issued, 
namely: (a) property tax abatements for up to ten years on Project Property ; and (b) sales tax 
exemptions on project property and services acquired with the proceeds of IRBs.582  
7.333.   The panel found the tax benefits to Boeing arising from the property and sales tax 
abatements related to the IRBs issued by the City of  Wichita to be a specific subsidy . The Appellate 
Body considered that the subsidies provided through the property and sales tax exemptions 
related to the IRBs issued by the City of Wichita were specifically aimed  at, and were used for the 
purpose of, enhan cing, Boeing 's manufacturing facilities in Wichita , Kansas . It therefore found that 
                                                                                                                                               
and that the subsidy values are actually increasing each year. (Se e European Union's first written submission, 
para. 447).  
576 International Trade Resources LLC, Calculating on a Per -Aircraft Basis the Magnitude of the Subsidies 
Provided to US Large Civil Aircraft , (20 February 2007), (Original Exhibit EC -13). 
577 In the ori ginal proceeding, the evidence upon which the panel relied in calculating the amount of 
these tax credit s suggested that the tax credits were applied in relation to expenses incurred in the production 
of the 787. (See Appellate Body Report, US – Large Civi l Aircraft (2nd complaint ), para. 1344, fn 2704).  
578 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1341.  
579 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1345, fn 2707.  
580 See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1803.  
581 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 1170 and 1252.  
582 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 472 -474. WT/DS353/R W 
 
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  the effects of these subsidies complemented and supplemented the price effects of the FSC/ETI 
subsidies and the Washington  State B&O tax rate reduction, causing serious pre judice in the form 
of significant lost sales in the 100 -200 seat LCA product market.583  
7.5.1.2.2   The Project Gemini measures and Project Emerald measures  
7.334.   We now describe in greater detail the links between the Project Gemini and Project 
Emerald measures.  
7.335.   As previou sly explained, the Project Gemini  measures date from 2009 and concern 
various incentives allegedly provided to Boeing by the State of South Carolina and Charleston 
County in order to induce Boeing to locate its second 787 final assembly and delivery facili ty in 
North Charleston, South Carolina. They involve the alleged provision of land, infrastructure , and 
facilities, as well as a number of tax incentives implemented at both the state and municipal level.  
7.336.   The Project Emerald  measures were initially approv ed in 2004 and involve various 
incentives which were provided  originally  to Vought and Global Aeronautica, in connection with the 
location of their respective 787 fuselage fabrication and integration operations in South 
Carolina.584 The Project Emerald measu res involve the alleged provision of land on which Vought 
and Global Aeronautica constructed their facilities (the same tract of land on which Boeing 
subsequently located its 787 final assembly and delivery facility as part of Project Gemini), 
financial as sistance in connection with the preparation of the land and the construction of the 
infrastructure and facilities, and tax incentives that are similar to some of those subsequently 
provided by South Carolina in connection with Project Gemini.  
7.337.   There are a n umber of links between the Project Gemini and Project Emerald measures. 
The first is that both are location incentives offered by South Carolina in connection with the 
manufacture of the 787. The Project Gemini measures relate to the 787 's final assembly a nd 
delivery facility, while the Project Emerald measures, originally provided to Vought and Global 
Aeronautica , concern the manufacture of sections 47 and 48 of the 787 rear fuselage barrels (by 
Vought) and the structural integration of the 787 fuselage (b y Global Aeronautica).585  
7.338.   Moreover, the facilities for both Project Gemini and Project Emerald are located on the 
same 240 acre tract of land adjacent to Charleston International Airport in North Charleston (the 
Project Site). As we explain further in Section 8.2.8.5.1 , the right  to occupy and use the land in 
relation to both Project Gemini and Project Emerald is granted under the same ground sublease 
instrument. The Project Gemini facilities and infrastructure  and Project Emerald facilities and 
infrastructure  are both part of the same Charleston -Colleton MCIP.  
                                               
583 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras.  1348 and 1350(d)(iv)(C). The 
panel had noted that Boeing had sold its Wichita facilities to Spirit Aerosystems (Spirit), on 16 June 2005. 
However, for IRBs issued to Boeing prior to the sale of its Wichita facilities to Spi rit, where the ten -year tax 
exemptions period continued beyond 2005, Boeing continued directly to receive the tax benefits deriving from 
the IRBs because Boeing maintained its leasehold interest in the Project Property and subleased the Project 
Property to  Spirit. The City of Wichita continued to issue IRBs to Boeing following the sale of the Wichita 
facilities to Spirit in 2005. (See Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.649 and 
7.662). In January 2012, Boeing announced that it would close all of its Wichita operations by the end of 2013. 
(A.G. Sulzberger, "Boeing Departure Shakes Wichita's Identity as Airplane Capital", New York Times , 
18 January 2012 (Exhibit USA -338)).  
584 Confidential Initial Site Development and Incentive Agr eement between Vought Aircraft Industries, 
Inc. (on behalf of itself and the two entities that comprise Project Emerald), the South Carolina Department of 
Commerce, South Carolina Public Railways, Charleston County, and the Charleston County Airport Distri ct (29 
November 2004) (Initial Project Emerald Incentive Agreement), (Exhibit EU -560). The Vought and Global 
Aeronautica facilities opened in 2006. (R. Bundrett, "Anatomy of an Incentives Deal", The Nerve , 
25 January  2010, (Exhibit EU -547)). The 2004 Initi al Emerald Incentive Agreement was replaced by a 2006 
agreement: Project Emerald Confidential Site Development and Incentive Agreement, between Vought Aircraft 
Industries, Inc. (on behalf of itself and the two entities that comprise Project Emerald), the S outh Carolina 
Department of Commerce, South Carolina Public Railways, and Charleston County (2006) (Final Project 
Emerald Incentive Agreement), (Exhibit EU -550).  
585 M. Mecham, "A visit to Vought and Global Aeronautica", Aviation Week , Blog Things With Wings , 
11 June 2008, (Exhibit EU -549). Boeing acquired Vought's 787 business in South Carolina in July 2009, as 
explained in further detail in para. 8.706  of this Report.  WT/DS353/R W 
 
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  7.339.   There is also evidence indicating that the fact that Vought and Global Aeronautica had 
established the Project Emerald facilities and infrastructure  on the  Project Site in 2006 contributed 
to the formation of an "aviation infrastructure " in South Carolina, and thereby enhanced the 
attractiveness to Boeing of locating its second 787 final assembly and delivery line (i.e. the Project 
Gemini facilities and infr astructure ) at that same Project Site in 2009, adjacent to the Project 
Emerald facilities and infrastructure  operated by Vought and Global Aeronautica.586 The Project 
Gemini measures were, it seems, provided against the particular historical background of th e 
Project Emerald measures, as well as the initial competition in 2003 between Washington State, 
South Carolina , and certain other U.S. states for the location of Boeing 's first 787 assembly facility.  
7.340.   Given this relationship between the Project Gemini and  Project Emerald measures, we 
consider them together for purposes of evaluating the sufficiency of the links in terms of nature 
and effects between those measures, on the one hand, and the relevant original measures that we 
have discussed in Section  7.5.1.2.1  above.  
7.5.1.2.3   Whether there is a sufficiently close nexus between the Project Gemini and 
Project Emerald measures, and the relevant original measures  
7.341.   As we explain in paragraph 7.323 , where a close nexus analysis involves measures that 
are components of location incentive packages provided to the same recipient in respect of the 
same product, we see no need for a complaining Member to additionally demonstrate that the 
incentive packages comprise identical or similar measures.587 Indeed, one might reasonably expect 
that states that compete for private investment would do so by offering somewhat different 
incentive packages, playing to their perceived comparative advantages i n terms of availability and 
location of land and infrastructure, the skill s of the workforce, and the taxation regimes in place in 
the particular state. We therefore consider that, in such circumstances, the closeness of links in 
terms of nature and effect s between the original measures and the measures at issue should be 
undertaken on a more holistic basis. In other words, differences in the measure -by-measure 
composition of the Project Olympus and Project Gemini (or Project Emerald) incentive packages  do 
not preclude  the possibility that, considered as a whole, the incentive packages (and their 
constituent measures) are sufficiently closely connected in terms of their nature and effects.588  
7.342.   In our view, the key commonality in terms of nature  between the Was hington State tax 
measures enacted under HB 2294 , and the Project Gemini and Project Emerald measures , is that 
they are packages of incentives which, despite the differences in the individual measures 
comprising each package, have been granted by a state o f the United States conditional upon the 
location in that state of manufacturing facilities related to the same Boeing product , namely the 
787.589 We reach this conclusion despite the fact that we do not agree with the European Union 
that the Project Gemini measures are "replacement " measures for the Washington State tax 
measures enacted under HB 2294. We do not consider there is sufficient evidence  before us to 
                                               
586 A. Shain, "S.C. travelled a long road to la nd Boeing", Charlotte Observer , 1 November 2009,  (Exhibit 
EU-9). 
587 Moreover, a similarity in the design and architecture of the measure at issue and the original 
measure is not indispensable to concluding that the measures are closely connected. For exampl e, in Australia 
– Leather II (Article 21.5 – US) the measure at issue that was found to be closely connected to the original 
measure was a loan while the original measure was a grant.  
588 To be clear, this does not mean that simply because the measures "com e in packages" they are 
closely connected in terms of nature. Rather, it is the similarity in the overall nature of the incentive packages 
(e.g. their objectives to induce a recipient to locate its facilities in a particular place, the focus on one or more  
intended recipients and products of the recipients) that in our view is more relevant to assessing whether the 
constituent measures are sufficiently closely linked to warrant the inclusion of so -called new measures within 
the scope of a compliance proceed ing, than whether the measures themselves are of the same type as the 
original measures.  
589 This being so, it logically follows that we do not regard the fact that there is no geographical overlap 
between the Washington State tax measures enacted under HB 2 294 and the measures enacted by South 
Carolina as part of Project Gemini and Project Emerald as being fatal to finding that the measures are 
nonetheless closely connected in terms of nature or effects. In our view, the relevance to the close nexus 
analysis  of any overlapping geographical scope of the measures depends very much on the context. For 
example, when the measures involve import bans, their respective geographical scope of application may be 
highly relevant to an assessment of whether they are suff iciently closely connected. However, where the 
measures under consideration are location incentive packages offered by different states in competition with 
one another, it is much less relevant to whether they are sufficiently closely connected that they a pply in 
different geographical areas.  WT/DS353/R W 
 
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  show that Boeing would necessarily have located its second 787 assembly facility in Washington 
"but for" the Project Gemini incentives. We therefore do not accept the European Union 's 
arguments that, but for the Project Gemini incentives : (a) Boeing would have decided to locate its 
second 787 assembly facility in Washington State ; (b) the subsidies pro vided under HB 2294 
would have been larger ; and (c) this therefore demonstrates a close nexus in terms of nature 
between the Washington State tax measures and the Project Gemini measures.  
7.343.   We also find a sufficiently close connection in terms of effects  of the Project Gemini and 
Project Emerald measures, on the one hand, and the Washington State tax measures enacted 
under HB 2294, on the other. The Project Gemini and Project Emerald measures, like the 
Washington State tax measures enacted under HB 2294, in very general terms  induce Boeing to 
locate manufacturing operations in a particular place by offering tax and other concessions that 
represent the functional equivalent of additional cash to Boeing .  
7.344.   In relation to timing , we note that the Project Gemini m easures took effect on or after 
2009, which is subsequent to the European Communities'  panel request in the original proceeding. 
The United States argues that this timing indicates that there is no close nexus because the DSB 
recommendations and rulings we re not adopted until 23 March 2012, meaning that the Project 
Gemini measures cannot be considered to be "undeclared " measures taken to comply. However, 
the Appellate Body has considered that the fact that measures  are adopted after the original panel 
reque st but prior to the DSB recommendations and rulings in the original proceeding do es not 
necessarily sever the close links in terms of nature and effects, and has accordingly found a 
measure to satisfy  the requirements of the close nexus test notwithstandin g that it preceded the 
adoption of DSB recommendations and rulings.590 We do not see that there is anything about the 
timing of the Project Gemini measures that weakens the close nexus in terms of nature and effects 
that we consider exists between the Projec t Gemini measures and the Washington State tax 
measures enacted under HB 2294.  
7.345.   We have had greater difficulty in determining whether the timing of the Project Emerald 
measures severs the close connection we have found to exist between those measures and t he 
Washington State tax measures enacted under HB 2294. The United States argues that elements 
of Project Emerald commenced in 2004, and to the extent that the European Union challenges 
those elements as they related to Boeing in 2004, the European Union c ould have challenged them 
in the original dispute, but elected not to.591 The United States disputes that South Carolina 
provided any financial contributions to Boeing through the Project Emerald measures, which if 
anything, were financial contributions prov ided to Vought, not Boeing.592 The European Union, on 
the other hand, asserts that all of its claims relate to subsidies to Boeing  (as opposed to Vought 
and Global Aeronautic a) that began, at the earliest, in the latter half of 2009; i.e. following 
Boeing 's assumption of the 787 fuselage fabrication and integration operations from Vought in 
2009.593  
7.346.   We recall that the Project Emerald measures comprise the package of financial incentives 
related to the 787 fuselage fabrication and integration complex. The Proje ct Emerald measures 
were originally provided to Vought and Global Aeronautica  in connection with their 787 fuselage 
fabrication and integration operations . As we explain in Section 8.2.8.5.1 , owing to unforeseen  
production difficulties with these suppliers, Boeing subsequently took a series of steps to acquire 
ownership and control of the production and assembly of the 787 fuselage components (and thus 
the Project Emerald facilities and infrastructure ) in 2008 an d 2009. As a result, the Project 
Emerald facilities and infrastructure  have been owned and operated by Boeing South Carolina 
since late 2009.  
                                               
590 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), paras. 224 -226.  
591 United States' first written submission, para. 539.  
592 The United States argues, moreover, that in order for financial contributions pr ovided to Vought to 
involve subsidies to Boeing (from 2009 onwards), the European Union would need to demonstrate that the 
benefit conferred by those financial contributions to Vought had "passed through" to Boeing. A ccording to the 
United States, a s the E uropean  Union has not attempted to demonstrate that such benefits passed through to 
Boeing, it has failed to demonstrate the existence of any subsidies to Boeing arising out of the Project Emerald 
measures.  
593 European Union's response to the United States'  request for preliminary rulings, dated 
23 November  2012, para. 80.  WT/DS353/R W 
 
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  7.347.   Given the European Union 's assertion as to the nature of its claims regarding the Project 
Emerald measures, i.e. a s covering only the period after Boeing 's assumption of Vought 's interests 
in the Project Emerald measures in 2009, and not the prior period, we do not regard the timing 
element, of itself, to sufficiently weaken the close nexus in terms of nature and effe cts that we f ind 
to exist between the Project Emerald measures and the Washington State tax measures enacted 
under HB 2294. The United States ' arguments concerning a lack of close nexus in terms of timing 
in reality go to the question of whether the Projec t Emerald measures involve subsidies to Boeing . 
This issue is therefore better dealt with in the context of our consideration of whether the 
European Union has demonstrated that any of the Project Emerald measures are specific subsidies 
to Boeing, which we  address in Section 8.2.8 of this Report.  
7.348.   In sum, we are satisfied that there are sufficiently close connections, in terms of their 
nature  and effects , between the Project Gemini and Project Emerald measures, on the one hand, 
and the Washington State tax measures enacted under HB 2294, on the other, to conclude that 
the Project Gemini and Project Emerald measures are within the scope of this proceeding. We do 
not regard any aspects of the timing of the Project Gemini or Project Emerald measures as 
sufficiently negating those close connections in terms of nature or effects, as to warrant a 
conclusion that the measures in question are outside the scope of this proceeding.  
7.349.   It remains to note that we are not persuaded of the existen ce of sufficiently close links, in 
terms of nature or effects, between the Project Gemini and Project Emerald measures , and the tax 
abatements related to the City of Wichita IRBs, or between the Project Gemini and Project Emerald 
measures and the FSC/ETI s ubsidies. The Project Gemini and Project Emerald measures concern 
the production of the 787. It may be possible to point to superficial similarities between : (a) the 
property tax abatements related to  the City of Wichita IRBs and the property tax reduction s 
provided through the Boeing  and Project Emerald FILOT  Agreement s; and (b) FSC/ETI 's exclusion 
of certain sales from Boeing 's corporate income tax liability and the income sourcing rules for 
apportioning Boeing 's LCA sales under the Income Allocation and Apportionment Agreement  that is 
part of the Project Gemini incentive package. However, the Wichita IRBs were found by the 
Appellate Body to be linked  to the production of the 737594 and not the 787. Similarly, the 
European Communities in the original proceed ing did not allege that the FSC/ETI subsidies 
benefited the 787.595 We therefore consider there is an insufficient basis for finding a close 
connection in terms of nature or effects between either of those measures and the Project Gemini 
or Project Emerald m easures, which relate to the manufacture of the 787. Put another way, we are 
not persuaded that, in assessing whether the United States has complied with the DSB 
recommendations and rulings in respect to the tax abatements related to  the City of  Wichita IR Bs 
or the FSC/ETI subsidies , it is relevant or necessary for the Panel to consider the Project Gemini 
measures or Project Emerald measures.  
7.350.   We therefore dismiss the United States' request for a ruling that the Project 
Gemini and Project Emerald  measures a re outside the scope of this proceeding and rule 
that these measures are within the scope of this proceeding .  
7.5.2   Whether the Phase II measures are outside  the Panel 's terms of reference  
7.5.2.1   Main arguments of the parties  
7.351.   The United States  argues that the Europea n Union has failed to articulate any valid basis 
for concluding that the Phase II measures are within the Panel 's terms of reference . It further 
argues that the European Union has failed to establish that the Phase II measures even exist, or to 
advance suf ficient evidence to establish a prima facie  case for any of its Phase II -related claims.596  
7.352.   The United States considers that the European Union 's justification for the inclusion of the 
Phase II measures within the scope of this proceeding is confined to a f ootnote in the 
European  Union's  second written submission , to the effect that the Phase II measures a re a 
"further expansion and supplement of the previous subsidy packages " to Vought and Boeing.597 
                                               
594 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1347.  
595 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1802.  
596 United States' second written sub mission, para. 613.  
597 United States' second written submission, para. 619 (referring to European Union's second written 
submission, para. 151 and fn 190).  WT/DS353/R W 
 
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  For the United States, such a "simplistic explanation " presumes that any future action taken by 
South Carolina with regard to Boeing automatically affects the United States ' obligations in this 
dispute. However, a compliance panel 's terms of reference extend only to  measures that are  
measures taken to comply , with in the meaning of Article 21.5 of the DSU . There are no declared 
measures taken to comply related to Phase II and the European Union has not argued that there 
are any "undeclared " measures taken to comply.598  
7.353.   The European Union  argues that the Phase II meas ures are properly within the Panel 's 
terms of reference because they constitute amendments  or supplements  to or extensions of , the 
South Carolina measures addressed in the European Union 's panel request , and first written 
submission.599 The European Union no tes that in its panel request, in addition to the measures 
specifically identified therein, it stated that it considered that "any amendments, supplements, 
extensions, replacement measures, renewal measures, related measures, or implementing 
measures ", in addition to those specifically listed in section I of the panel request, constitute 
specific subsidies.600 
7.354.   The European Union argues that the Phase II measures are generally "extensions " of the 
subsidies provided for Project Gemini and Project Emerald. Thus,  the Phase II fee-in-lieu-of taxes 
agreement  is "literally an extension of the FILOT for Project Gemini ", provided by means of an 
amendment to the Boeing F ILOT Agreement.601 Similarly, the Phase II economic development 
bond issuance "replicates " the earlier bond issuances for Project Gemini and Project Emerald, with 
the proceeds being used to fund the acquisition and preparation of real property for Boeing 's use 
(including the purchase of land which South Carolina plans to provide to Boeing by means of a 
long-term ground lease for nominal rent).602  
7.355.   The European Union asserts that the Phase II measures are part of South Carolina 's 
incentive offer to Boeing arising from the "competition " between states to locate production of 
Boeing 's recently launched 777X.603 According to the European Union, Boeing 's decision to locate 
the 777X in South Carolina and to benefit from the Phase II measures, rather than to locate the 
777X in Washington State, would decrease the value of future subsidies in Washington State, while 
increasing those subsidies in South Carolina. In assessing the close nexus between the various 
South Carolina measures and the Washington state and local subsidies, the Panel should consider 
the fact that they are all provided in the context of a competition b etween various U.S. states, or 
parts thereof, to secure the location of various Boeing facilities.604 
7.5.2.2   Evaluation by  the Panel  
7.356.   As we stated in paragraph 7.296  above, the European Union challenges , as "Phase II " 
measures , an alleged sale of government land adjacent to Boeing 's existing Project Site, the 
funding , acquisition and preparation of that land through the proceeds of USD 120 million in state 
general obligation economic  development  bonds and the amendment of the Boeing F ILOT 
Agreement to provide for the reduction or elimination of Boeing 's property taxes related to the 
Phase II expansion.605 
7.357.   As explained in paragraphs  7.294 -7.295  above, item I.G of the European Union 's panel 
request identifie s a number of measures as "Project Gemini -Related Subsidies " and "Project 
Emerald -Related Subsidies ". The European Union did not identify the "Phase II " measures in its 
panel request , as these measures had not come into existence at the time of the European Union 's 
panel request in October 2012. The European Union first sought to make claims in respect of the 
"Phase II measures " in its second written submission, dated 25 July 2013, some n ine months after 
its panel request, based on public reports appearing in the first quarter of 2013 that Boeing 
                                               
598 United States' second written submission, para. 619.  
599 European Union's second written submission, para. 743.  
600 European Union's second written submission, para. 743 (referring to para. 27 of the 
European  Union's request for the establishment of a panel).  
601 European Union's response to Panel question No. 8, para. 61.  The Boeing FILOT Agreement is the 
instrument referred to in para. 7.294(c ) above.   
602 European Union's response to Panel question No. 8, para. 61.  
603 European Union's response to Panel question No. 8, para. 59.  
604 European Union's response to Panel q uestion No. 8, para. 59.  
605 The Boeing FILOT Agreement is the instrument referred to in para. 7.294(c ) above.  WT/DS353/R W 
 
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  planned to make further investments in South Carolina and that the South Carolina legislature had 
approved a Bill to issue USD 120 million in bon ds for site development by Boeing.606  
7.358.   In our view, these circumstances raise  a jurisdictional issue ; namely, whether the Phase II 
measures, not having been explicitly identified in the European Union 's panel request, and indeed 
which did not exist  at the ti me of that request , are nonetheless properly within the Panel's  terms 
of reference. As this issue goes to the root of our jurisdiction, we must deal with it, if necessary, 
on our own motion, in order to satisfy ourselves that we have authority to proceed.607 This issue 
raises similar issues to those the Panel considered in a ruling w hich was issued on 
18 September  2014 (the SSB 5952 ruling).608 In that ruling, we addressed whether the 
Washington State tax measures, as amended by SSB 5952, were within this Panel 's terms of 
reference although SSB 5952 was not explicitly identified in the European Union 's panel request 
and was neither enacted nor came into effect until over a year after the panel request.  
7.359.   Article 6.2 of the DSU provides, in relevant part:  
The requ est for the establishment of a panel shall be made in writing. It shall indicate 
whether consultations were held, identify the specific measures at issue and provide a 
brief summary of the legal basis of the complaint sufficient to present the problem 
clearly. 
7.360.   In evaluating whether the European Union 's panel request meets the requirements of 
Article 6.2 of the DSU as regards the identification of the Phase II measures, we must also take 
into account that this is a compliance proceeding brought pursuant to A rticle 21.5 of the DSU.  The 
Appellate Body has stated that, although Article  6.2 is generally applicable to panel requests under 
Article 21.5 : "the requirements of Article  6.2, as they apply to an original panel request, need to 
be adapted to a panel reque st under Article  21.5."609 As the Appellate Body stated in US – FSC 
(Article 21.5 – EC II), in Article 21.5 proceedings, the "specific measures at issue " are measures 
"that have a bearing on compliance with the recommendations and rulings of the DSB ".610 This 
indicates that the "requirements of Article 6.2 of the DSU, as they apply to an Article 21.5 panel 
request, must be assessed in light of the recommendations and rulings of the DSB in the original … 
proceedings that dealt with the same dispute. "611 
7.361.   In our SSB  5952 ruling, we examined a number of cases in which panels and the Appellate 
Body considered that measures not explicitly identified in a panel request, which came into 
existence in whole or in part after the date of the panel request, were nevertheless w ithin a panel's  
terms of reference.612 We concluded on the basis of that examination that : (a) the requirements of 
Article 6.2 of the DSU are such that the measures included in a panel 's terms of reference will 
ordinarily be in existence at the time of the e stablishment of the panel ; and (b) there are 
particular, limited circumstances in which measures coming into existence subsequent to the panel 
request are within a panel 's terms of reference. These circumstances, in one way or another, 
involve new measures  that amend, modify, supplement, extend, replace, renew, relate to , or 
implement the measures that were explicitly identified in the panel request without changing their 
essence, in light of the claims made by the complaining party . The Appellate Body has thus 
                                               
606 European Union's second written submission, paras. 744  and 745 (referring to M. Tomsic, "State 
leade rs praise Boeing Co. expansion, incentives bill", Charleston Regional Business Journal , 9 April 2013, 
(Exhibit EU -1128); and J. McDermott, "Boeing S.C. confirms North Charleston expansion", The Post and 
Courier , 9 April 2013, (Exhibit EU -1129)).  
607 We note that the Appellate Body has previously referred to the widely accepted rule that an 
international tribunal is entitled to consider the issue of its own jurisdiction on its own initiative, and to satisfy 
itself that it has jurisdiction in any case that come s before it. (See Appellate Body Reports, US – 1916 Act , 
para. 54 and fn 30; Mexico – Corn Syrup (Article 21.5 – US), para. 36; and EC and certain member States – 
Large Civil Aircraft , para. 791). See also Panel Reports, US – Anti-Dumping Measures on Oil C ountry Tubular 
Goods , para. 7.20; EC – IT Products , para. 7.196; and China – Broiler Products , para. 7.515.  
608 See Reasons for Declining the European Union's Request for Leave to File an Additional Submission 
Regarding SSB 5952 at Section 7.7. 
609 Appellate Body Reports, US – FSC (Article 21.5 – EC II), para. 59; and US – Zeroing (Japan) 
(Article  21.5 – Japan ), para. 109.  
610 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61.  
611 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61. See also Appellate Body Report, US 
– Zeroing (Japan) (Article 21.5 – Japan ), para. 109.  
612 See Reasons for Declining the European Union's Request for Leave to File an Additional Submission 
Regarding SSB 5952 at Secti on 7.7, paras. 7.506 -7.526.  WT/DS353/R W 
 
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  interpreted the requirements of Article 6.2 of the DSU in a manner that prevents a measure 
evading review merely because of amendments or modifications to the legal form of the measure 
during the course of dispute settlement proceedings that do not ch ange its essence in light of the 
nature of the claims at issue, while still fully respecting the due process rights of responding 
parties and potential third parties to be informed of the specific measures at issue and the nature 
of the claims raised by th e complaining party.  
7.362.   The European Union argues that its panel request, through its references to "any 
amendments, supplements, extensions, replacement measures, renewal measures, related 
measures, or implementing measures ", in addition to those specificall y listed in section I of the 
panel request encompasses the Phase II measures, which are amendments or supplements to, or 
extensions of, the South Carolina measures identified in the panel request.  
7.363.   However, as we have previously explained in the context of our SSB 5952 ruling, the 
limited circumstances in which  measures coming into existence subsequent to the panel request 
may be considered to be within a panel 's terms of reference in conformity with the requirements of 
Article 6.2 of the DSU cannot be artif icially enlarged through the inclusion of very general and 
extensive "catch -all" phrases in a panel request. Otherwise, a specific and quite limited set of 
circumstances in which measures coming into existence after the request for the establishment of 
a panel may be found to be within a panel 's terms of reference would be transformed into a 
situation in which, provided a panel request includes a sufficiently broad catch -all description, any 
subsequent measures that come into existence during the course of a panel proceeding will be 
within a panel 's terms of reference.  
7.364.   To the extent that the Phase II measures can be considered to "amend ", "supplement ", or 
"extend " the Project Gemini or Project Emerald measures identified in the European Union 's panel 
reques t, such amendments, supplements , or extensions would change the essence of the Project 
Gemini measures and Project Emerald measures, and thus fall outside the limited circumstances in 
which measures coming into existence after the date of a panel request c an nevertheless fall 
within the terms of reference of a panel consistently with the requirements of Article 6.2 of the 
DSU. The Phase II measures are alleged to involve a new sale of land to Boeing, a new bond 
issuance, and an amendment to the Boeing F ILOT Agreement to cover the new property in relation 
to corporate activities and objectives extending beyond the manufacture of the 787.613 We do not 
regard the Phase II measures as being formal, non -substantive clarifications or amendments that 
do not change th e essence of the Project Gemini and Project Emerald measures.614 Rather, they 
appear to be a distinct, additional set of measures, provided in consideration for a further 
expansion of Boeing 's operations in South Carolina. As the European Union recogni zes, that 
expansion appears to cover the creation of a new IT centre in North Charleston, as part of 
Boeing -wide plans to consolidate its IT operations, the establishment of a Dreamlifter Operations 
Center and the location of the design and manufacture of compos ite inlets and nacelle linings for 
the 737 MAX.615 
7.365.   We therefore consider that paragraph 27 of the European Union 's panel request does not 
provide a basis for including the Phase II measures within the panel 's terms of reference, 
consistently with the require ments of Article 6.2 of the DSU to "identify the specific measures at 
issue". 
7.366.   We conclude that the European Union's panel request does not meet the 
requirements of Article 6.2 of the DSU, read in the light of Article 21.5 of the DSU, to 
                                               
613 As previously noted, the Boeing FILOT Agreement is the instrument referred to in para. 7.294(c ) 
above.  
614 The Phase II measures can be contrasted in this  regard with the new measures in cases such as 
Chile – Price Band System , Argentina – Footwear (EC ), US – Zeroing (Japan) (Article 21.5 – Japan ), EC – IT 
Products , and EC – Fasteners (China ), where the new measures either "clarified" the measure or essenti ally 
replicated the explicitly identified measures through new legislative action, and thus concerned the same 
measure (in a substantive sense) that was either the subject of the panel request or that had been found 
WTO-inconsistent in the original proceed ing. 
615 See European Union's second written submission, para. 745. The European Union also asserts, in 
response to a question from the Panel, that the Phase II measures are "simply (part) of South Carolina's 
incentive offer to Boeing as part of the competit ion to locate production of Boeing's recently launched 777X". 
(European Union's response to Panel question No. 8, para. 59).  WT/DS353/R W 
 
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  specifically identi fy the measures at issue, as regards the Phase II measures. We thus 
find that the Phase II measures are outside the Panel's terms of reference . 
7.6  Claims under Article s 3.1(a) and (b) of the SCM Agreement and Article III of the 
GATT 1994  
7.6.1   Conformity of the pan el request with Article 6.2 of the DSU  
7.367.   As previously noted, the European Union argues that the measures at issue in this 
proceeding (identified in items I.A to I.G of its  panel request) demonstrat e that the United States 
has failed to withdraw the subsidy  or take appropriate steps to remove the adverse effects, within 
the meaning of Article 7.8 of the SCM Agreement . 
7.368.   The European Union additionally makes claims in respect of all of the subsidy measures 
identified therein (in items I.A to I.G) under Articles  3.1(a), 3.1(b), and 3.2 of the SCM Agreement 
and under Article III of the GATT 1994.616  
7.369.   The United States requests a preliminary ruling that the European Union 's panel request 
fails to satisfy the requirements of Article 6.2 of the DSU in respe ct of the cl aims under 
Articles  3.1(a), 3.1(b) , and 3.2 of the SCM Agreement and Article III of the GATT 1994.617  
7.6.1.1   Main arguments of the parties  
7.370.   The United States  argues that the panel request fails to connect the challenged measures 
with the provisions of the covered a greements claimed to have been breached , in a manner that 
presents the problem clearly.618 According to the United States, it is not clear which "problem " is 
caused by which measure. Rather, the European Union 's panel request, in a section entitled 
"Measures ", lists a large number of measures in items I.A through I.G, then in a section entitled 
"Legal Basis ", describes the violation of four groups of treaty provisions, stating that all measures 
listed in items I.A through I.G are inconsistent with the relevan t provisions.619 The United States 
says it is not plausible that the European Union is making the dozens of claims implied by the 
language in the panel request that all measures in items I.A through I.G violate all of the treaty 
provisions discussed in parag raphs 30 -32.620  
7.371.   The United States likens the deficiencies in the European Union 's panel reques t to those in 
the panel requests in China – Raw Materials . In that case, one section of the panel requests 
(section III) first briefly described , in narrative para graphs , a number of different allegations of 
violation relating to different types of restraints, then provided a bullet point list of the legal 
instruments alleged to reflect the Chinese measures, and concluded with the statement that "these 
measures " were inconsistent with 13 listed treaty provisions.621 The Appellate Body  concluded that 
because the complainants had not, in either the narrative paragraphs or in the final listing of the 
provisions of the covered agreements alleged to have been violated, prov ided the basis on which 
the panel and China could determine with sufficient clarity wh ich "problem " or "problems " were 
alleged to have been caused by which measures, they failed to present the legal basis for their 
                                               
616 European Union's request for the establishment of a panel, paras. 30 -32. While paragraph 32 of the 
European Union's panel request  alleges that the measures  in items I.A through I.G  are inconsistent with 
Articles III:1, III:4 , and III:5 of the GATT 1994, in its first and second wr itten submissions, the 
European  Union's claims in relation to Article III of the GATT 1994 are limited to  alleged inconsistency with 
Article III:4 of the GATT 1994. (See European Union's first written submission, paras. 777 -788; and second 
written submission, paras. 851 -864). The European Union therefore appears not to pursue its other claims 
under Article II I of the GATT 1994.  
617 United States' request for preliminary rulings, dated 13 November 2012, paras. 45 and 54; first 
written submission, para. 90; and second written submission, para. 55.  
618 United States' request for preliminary rulings, dated 13 Novemb er 2012, para. 45; first written 
submission, para. 89.  
619 United States' request for preliminary rulings, dated 13 November 2012, para. 47 (referring to 
European Union's request for the establishment of a panel, paras. 29 -32).  
620 United States' request for  preliminary rulings, dated 13 November 2012, para. 54; reply to the 
European Union's response to the United States' request for preliminary rulings, dated 23 November 2012, 
para. 74.  
621 United States' request for preliminary rulings, dated 13 November 2012 , para. 55 (referring to 
Appellate Body Report s, China – Raw Materials , paras. 222 -225).  WT/DS353/R W 
 
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  complaints with sufficient clarity to com ply with Article 6.2 of the DSU.622 The United States argues 
that the Panel should reach the same conclusion with respect to the European Union 's panel 
request in this proceeding , as the European Union 's panel request fails to connect the various 
treaty prov isions in paragraphs 30 -32 with the long list of measures included in paragraphs 8 -26 
(items I.A through I.G).623 
7.372.   The European Union  argues that the specific basis for the United States ' request is the 
assertion that it is evident that the European Union is not making each claim for each measure, 
while also acknowledging that the panel request expressly states that the claims are made with 
respect to all of the measures identified in the panel request.624 The European Union argues that it 
is clea r from the pane l request that the European Union  makes the claims with respect to all of the 
measures , and that the United States has understood this to be the case.625 That being so, there is 
no basis for the United States ' preliminary ruling request.  
7.373.   In its response to the United States ' request for preliminary rulings, the European Union 
also "confirms " the express wording of its panel request; i.e. that the claims are made with respect 
to all of the measures.626 In a supplemental submission made by the European Union aft er filing its 
first written submission627, the European Union notes that it did, indeed, make the relevant claims 
in its first written submission with respect to all of the identified measures.628 According to the 
European Union, "by its own terms " there is no  longer any basis for the United States ' challenge 
with respect to this matter.629 The United States ' arguments concerning the "implausibility " of the 
claims  in reality  go to the merits of those claims.630  
7.6.1.2   Evaluation  by the Panel  
7.374.   Article 6.2 of the DSU requi res that a panel request clearly identify "the specific measures 
at issue " and provide a "brief summary of the legal basis of the complaint sufficient to present the 
problem clearly ".631 A panel request forms the basis for the terms of reference of a panel, in 
accordance with Article 7.1 of the DSU.632 It also serves the due process objective of notifying the 
respondent and third parties of the nature of the complainant 's case.633 The identification of the 
specific measures at issue and the provision of a "brief summary of the legal basis of the complaint 
sufficient to present the problem clearly " are therefore central to defining the scope of the dispute 
to be addressed by the panel.634  
7.375.   A panel must carefully scrutinize the language used in a panel request in orde r to 
determine whether the panel request is sufficiently precise to comply with Article 6.2 of the DSU. 
Submissions may be referenced in order to confirm the meaning of words used in a panel request , 
but the content of those submissions cannot have the eff ect of curing the failings of a deficient 
                                               
622 United States' request for preliminary rulings, dated 13 November 2012, para. 55 (referring to 
Appellate Body Report s, China – Raw Materials , para. 231).  
623 United S tates' request for preliminary rulings, dated 13 November 2012, para. 57.  
624 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, paras. 92 and 93.  
625 European Union's response to the United States' request  for preliminary rulings, dated 
23 November  2012, para. 96.  
626 European Union's response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 96.  
627 See para. 7.135 . 
628 European Unio n's supplemental submission on the United States' request for preliminary rulings, 
para. 34.  
629 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 34; second written submission, para. 104.  
630 European Union' s response to the United States' request for preliminary rulings, dated 
23 November  2012, para. 99; supplemental submission on the United States' request for preliminary rulings, 
para. 34.  
631 Together, these two elements constitute the "matter referred to t he DSB" so that if either of them is 
not properly identified, the matter would not be within the Panel's terms of reference. (See Appellate Body 
Reports, China – Raw Materials , para. 219; and US – Carbon Steel , para. 125).  
632 Appellate Body Reports, China – Raw Materials , para. 219; Guatemala – Cement I , paras. 72 and 73; 
US – Carbon Steel , para. 125; US – Continued Zeroing , para. 160; and US – Zeroing (Japan) (Article 21.5 – 
Japan ), para. 107.  
633 Appellate Body Reports, China – Raw Materials , para. 219; and  EC and certain member States – 
Large Civil Aircraft , para. 786.  
634 Appellate Body Report s, China – Raw Materials , para. 219.  WT/DS353/R W 
 
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  panel request.635 In particular, the Appellate Body has explained that whether a panel request 
challenging a number of measures on the basis of multiple WTO provisions sets out a "brief 
summary of the legal basis of the complaint sufficient to present the problem clearly " may depend 
on whether it is sufficiently clear which "problem " is caused by which measure or group of 
measures.636 
7.376.   The European Union 's panel request in this proceeding cites all of the measures listed  in 
items I.A through I.G in relation to each of Article 3.1(a) of the SCM Agreement, Article 3.1(b) of 
the SCM Agreement , and Article III of the GATT 1994. Thus , the European Union requests, in 
paragraphs 3 0 through 3 2 of its panel request, that the panel  find that:  
a. the measures listed in items 1.A through 1.G of the panel request are inconsistent with 
Article s 3.1(a) and 3.2 of the SCM Agreement;  
b. the measures listed in items 1.A through 1.G of the panel request are inconsistent with 
Article s 3.1(b) and 3. 2 of the SCM Agreement;  and 
c. the measures listed in items 1.A through 1.G of the panel request are inconsistent with 
Articles III:4 and III:5 of the GATT 1994.637 
7.377.   We see pertinent differences between the European Union 's panel request in this 
proceeding and t he complainants ' panel requests in China – Raw Materials . In China – Raw 
Materials , section III of the complainants ' panel requests contained a series of paragraphs setting 
out in narrative fashion different allegations of violation relating to varied situ ations in which 
obligations under the WTO Agreements might not be satisfied, followed by a bullet point list of 37 
legal instruments introduced by the phrase: "{the complainant} understands that these Chinese 
measures are reflected in, among others … " with the listed legal instruments ranging from entire 
codes or charters to specific administrative measures, without identifying any of the specific 
sections or provisions of the listed instruments. The final paragraph of section III consisted of a list 
of 13 treaty provisions with which the measures were alleged to be inconsistent.638 The Appellate 
Body concluded that the panel requests did not make clear which allegations of error pertained to 
which particular measures or sets of measures identified in the pane l requests.639 Moreover, it was 
unclear whether each of the listed measures related to one specific allegation described in the 
narrative paragraphs or to several or even all of those allegations, and whether each of the listed 
measures allegedly violated on e specific provision of the covered agreements, or several of 
them.640 As a result, the complainants had failed to provide the basis on which the panel and China 
could determine with sufficient clarity what "problem " or "problems " were alleged to have been 
caused by which measures, thus failing to present the legal basis for their complaints with 
sufficient clarity to comply with Article 6.2 of the DSU.641  
7.378.   Items I.A through I.G of the European Union 's panel request identify the following 
measures that are alle ged to c onstitute specific subsidies: (A ) "NASA R&D Subsidies "; (B) 
"Department of Defense R&D Subsidies "; (C) "Federal Aviation Administration R&D Subsidies "; (D) 
"Washington State and Local Subsidies "; (E) "FSC/ETI Legislation and Successor Acts" ; (F) "State 
of Kan sas and City of Wichita Subsidies "; and (G) "South Carolina State and Local Subsidies" . On 
its face, the European Union 's pane l request alleges in paragraphs  30 through 32 that "the 
measures listed in items I.A to I.G" are inconsiste nt with, res pectively, Articles  3.1(a) (including 
footnote 4), 3.1(b) , and 3.2  of the SCM Agreement , and Article s III:4, III:5 and III:1  of the 
GATT  1994.  
7.379.   The United States argues that it is implausible that the European Union would in reality 
seek to pursue all of t he "hundreds of possible measure -provision combinations " apparent from a 
                                               
635 Appellate Body Reports, China – Raw Materials , para. 220; and  EC – Fasteners (China) , para. 562  
(referring to Appellate Body Repor ts EC and certain member States – Large Civil Aircraft , para. 642; EC – 
Bananas III , para. 143; and US – Carbon Steel , para. 127).  
636 Appellate Body Report s, China – Raw Materials , para. 220.  
637 European Union's request for the establishment of a panel, para s. 30-32. 
638 See Appellate Body Report s, China – Raw Materials , paras. 221 -225.  
639 Appellate Body Report s, China – Raw Materials , para. 226.  
640 Appellate Body Report s, China – Raw Materials , para. 226.  
641 Appellate Body Report s, China – Raw Materials , para. 2 31. WT/DS353/R W 
 
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  reading of the panel request at face value.642 According to the United States, as it is simply 
implausible that the European Union would actually advance all of the claims in relation t o all of 
the measures, the European Union 's panel request therefore fails to "present the problem 
clearly ".643  
7.380.   It appears to us that the United States ' argument that the European Union 's panel request 
is insufficiently clear is based on a belief that the Eu ropean Union could not credibly consider that 
each of the listed measures is inconsistent with each of the listed WTO provisions.644 This, 
however, reflects the United States ' assessmen t of the merits of the European  Union's claims, 
rather than the  clarity  of their expression  for purposes of Article 6.2 of the DSU.  
7.381.    We recall that the requirement in Article 6.2 of the DSU to provide a "brief summary of 
the legal basis of the complaint sufficient to present the problem clearly " refers to the description 
in the  panel request of a party 's claims, rather than its arguments.645 A "claim" is an allegation 
that the respondent party has violated, or nullified or impa ired the benefits arising from, an 
identified provision of a particular covered agreement.646 An "argument " comprises the statements 
made in support of a claim to demonstrate that a responding party 's measure infringes an 
identified treaty provision. These are "set out and progressively clarified in the first written 
submissions, the rebuttal submissions, and t he first and second panel meetings with the 
parties ".647 
7.382.   In section VI of its first written submission, the European Union sets forth its claims under 
Articles 3.1(a) and 3.1(b) of the SCM Agreement and under Article III:4 of the GATT 1994.648 The 
United State s characterizes the European Union 's first written submission as presenting measures 
comprising a "system of subsidies " which collectively are inconsistent with Articles 3.1(a) and 
3.1(b) of the SCM Agreement and Article III of the GATT 1994. For the Unite d States, this 
"clarification " only confirms that the European Union 's panel request fails to "present the problem 
clearly ", as required by Article 6.2 of the DSU, as the phrase "system of subsidies " does not 
appear in the panel request, nor is it apparent  from the panel request how the measures could 
possibly operate collectively so as to induce export performance, import substitution, or 
preferential treatment of domestic products.649 The European Union denies that its claims seek to 
identify a "system of s ubsidies " as a measure at issue.650 It would seem that these arguments go 
to the merits of the European Union 's claims under Articles 3.1(a) and 3.1(b) of the SCM 
Agreement and Article III of the GATT 1994, rather than to the question of whether those claims  
are presented sufficiently clearly in the panel request to satisfy the requirements of Article 6.2 of 
the DSU.  
7.383.   In conclusion, we consider that the European Union 's panel request, in alleging that the 
measures listed in items I.A through I.G are inconsist ent with, r espectively, Articles 3.1(a),  3.1(b) , 
and 3.2  of the SCM Agreement , and various paragraphs of Article III of the GATT 1994, meets the 
requirements of Article 6.2 of the DSU in presenting the problem clearly. The Panel therefore 
dismisses  the Uni ted States ' request for preliminary rulings that the European Union 's 
panel request fails to satisfy the requirements of Article 6.2 of the DSU with respect to 
the c laims under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM Agreement , and Article III 
                                               
642 United States' reply to the European Union's response to the United States' request for preliminary 
rulings, dated 3 December 2012, para. 73.  
643 United States' reply to the European Union's response to the United States' request for preliminary 
ruling s, dated 3 December 2012, paras. 72 and 74.  
644 See e.g. United States' request for preliminary rulings, dated 13 November 2012, paras. 49 and 54; 
and reply to the European Union's response to the United States' request for preliminary rulings, dated 
3 Decem ber 2012, para. 74. We are mindful that Article 3.7 of the DSU requires Members to exercise judgment 
in deciding whether action under the DSU would be fruitful.  
645 Appellate Body Reports, Guatemala – Cement I , para. 72; and EC – Bananas III , paras. 141-143. 
646 Appellate Body Report, Korea – Dairy , para. 139.  
647 Appellate Body Report, Korea – Dairy , para. 139.  
648 While paragraph 32 of the European Union's panel request alleges that the me asures in items I.A 
through I.G  are inconsistent with Articles III:1, III:4 , and III:5 of the GATT 1994, in its first and second written 
submissions, the European Union's claims in relation to Article III of the GATT 1994 are limited to alleged 
inconsistency with Article III:4 of the GATT 1994. (See European Union's first written  submission, 
paras.  777-788; and second written submission, paras. 851 -864). The European Union therefore appears not 
to pursue its other claims under Article III of the GATT 1994.  
649 United States' first written submission, para. 89.  
650 European Union's sec ond written submission, para. 105.  WT/DS353/R W 
 
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  of the G ATT 1994.  The Panel rules that the Europea n Union's claims under 
Articles  3.1(a), 3.1(b), and 3.2 of the SCM Agreement, an d under Article III of the 
GATT  1994, are within the Panel's terms of reference.651 
7.6.2   Whether claims under Articles 3.1(a), 3.1(b) , and 3. 2 of the SCM Agreement and 
under Article III of the GATT 1994, in respect of certain measures, are outside the scope 
of this proceeding  
7.384.   The United States additionally requests preliminary rulings that the European Union is 
precluded  from bringing claims un der Articles 3.1(a), 3.1(b) , and 3.2 of the SCM Agreement and 
under Article III of the GATT 1994 in respect of various original measures .652 The United States 
advances different bases for these requests depending on the identity of the original measures and 
the claims to which they were subject in the original proceeding. In summary, the United States 
makes the following objections:  
a. To the inclusion of claims under Article s 3.1(a) and 3.2 of the SCM Agreement against 
the original Washington  State  tax measure s enacted under HB 2294 on the basis that 
they were the subject of claims under Article s 3.1(a) and 3.2 of the SCM Agreement in 
the original proceeding and those claims were rejected .653  
b. To the inclusion of claims under Articles 3.1(a) and 3.2 of the SCM Ag reement against all 
other original measures (aside from the original Washington State tax measures enacted 
under HB 2294 which are the subject of the above objection , and the FSC/ETI measures ) 
on the basis that the European Communities  did not make such cl aims in the original 
proceeding and thus is precluded from bringing those claims against those same 
measures at the compliance stage.654  
c. To the inclusion of claims under Articles 3.1(b) and 3.2 of the SCM Agreement and 
Article III:4 of the GATT 1994 in rela tion to all original measures on the basis that the 
European Communities  did not make such claims in the original proceeding and thus is 
precluded from bringing those claims against those same measures at the compliance 
stage.655  
7.385.   We consider the objection i n (a) above first in Section 7.6.2.1  before considering those in 
(b) and (c), which raise common legal issues, together in Section 7.6.2.2 .  
7.6.2.1   Claims under Articles 3.1(a) and 3.2 of the SCM Agreement  with respect to 
original  Washington  State  tax measures enacted under HB 2294  
7.386.   We first consider the United States'  request that the Panel rule that the European Union 's 
claims under Articles 3.1(a) and 3.2 of the SCM Agreement against the following measure s are 
precluded:  
                                               
651 The Panel's ruling that the European Union's claims under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM 
Agreement, and under Article III of the GATT 1994, are within its terms of reference is without prejudice to its 
further rulings, in Section 7.6.2 , as to whether these claims in respect of certain measures are nevertheless 
outside the scope of this compliance proceeding.  
652 United States' request for preliminary rulings, dated 13 November 2012, paras. 16 and 17. While 
paragraph 32 of the European Union's panel request alleges that the me asures in items I.A through I.G  are 
inconsistent with Articles III:1, III:4 , and III:5 of the GATT 1994, in its first and second written submiss ions, 
the European Union's claims in relation to Article III of the GATT 1994 are limited to alleged inconsistency with 
Article III:4 of the GATT 1994. (See European Union's first written submission, paras. 777 -788; and second 
written submission, paras. 85 1-864). The European Union therefore appears not to pursue its other claims 
under Article III of the GATT 1994. Accordingly, the Panel refers hereafter to the European Union's claims 
under Article III:4 of the GATT 1994.  
653 United States' request for prelim inary rulings, dated 13 November 2012, paras. 5 -7 and 60; reply to 
the European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
para. 25; first written submission, para. 80; and second written submission, para s. 16 and 35.  
654 United States' request for preliminary rulings, dated 13 November 2012, para. 17; reply to the 
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
para. 25; first written submission, para.  84; and second written submission, para. 44.  
655 United States' request for preliminary rulings, dated 13 November 2012, para. 16; reply to the 
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012, 
para. 16; first written submission, para. 84; and second written submission, paras. 46 and 48.  WT/DS353/R W 
 
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  a. Washington State B&O tax rate reduction;  
b. Washington State B&O tax credits for preproduction/aerospace product development;  
c. Washington State B&O tax credit for property taxes; and  
d. Washington State sales and use tax exemptions for computer hardware, peripherals , and 
software.  
7.6.2.1.1   Main arguments of the parties and third parties  
7.387.   The United States  argues that the European Union "did not appeal " the finding of the 
original panel that the taxation measures enacted under HB 2294 had not been demonstra ted to 
be inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement, and the European Union should 
not now be given an "unfair second chance " to make its case.656 The United States refers to the 
Appellate Body Reports in US – Upland Cotton (Article 21.5  – Brazil ) and EC – Bed Linen 
(Article  21.5 – India) as standing for the proposition that a compliance proceeding is not the 
proper forum for a complaining party to re -litigate the original dispute by repeating unsuccessful 
claims.657 
7.388.   The United States says that, given that the European Union has not argued that the 
Washington State B&O tax rate  reduction  itself is new, or has changed, it is the same measure 
considered by the original panel . The European Union 's Article 3.1(a) and 3.2 claims are  therefore 
not within the compliance panel 's terms of reference.658 Additionally , althoug h the European Union 
has argued (for the first time in its second written submission) that the Washington State B&O tax 
credits for preproduction /aerospace product development  have be en modified, it has failed to 
demonstrate that these tax credits are  a "new measure " or a "measure taken to comply ".659 The 
United States faults the European Union for attempting to conflate the separate measures and the 
legislation under which they were ena cted (HB 2294) to argue that , because the preproduction tax 
credit s are a "new measure ", the Panel must now assess HB 2294 and the associated tax 
provisions, as revised, in their totality and in an integrated manner. The United States says that 
the origina l panel was clear that the measures were the exemptions themselves, not HB 2294. 
Modification of an individual measure does not authorize a complaining party to re -litigate any 
claim it wants with respect to distinct measures that may have been enacted und er the same 
legislation.660 
7.389.   The United States argues that the European Union cannot attempt to circumvent this 
restriction on the scope of Article 21.5 proceedings by asserting "artificial distinctions between a 
measure and the 'subsequent incidences ' of app lying that measure ".661 There is no basis for 
treating "subsequent incidences of application " of a measure as a separate measure. The 
United  States says that the European Union 's argument is similar to an argument made by the 
United States in US – Upland Cot ton (Article 21.5 – Brazil ) – that payments under a subsidy 
program me could, in a compliance proceeding, be analysed separately from the program me at 
issue in the original proceeding – an argument rejected by the Appellate Body.662 
7.390.   The European Union  observe s that the issue raised by the United States is not in truth 
whether these claims are within the Panel 's terms of reference, but rather, whether the 
European  Union is seeking an adjudication of the same matter that was adjudicated by the original 
panel.663 As such, this is not an issue for a preliminary ruling but relates to the substantive merits 
of the European Union 's claim. In any case, the European Union submits that  it is not seeking an 
adjudication of the same matter. It argues that claims of de facto  export contingency must be 
considered on the basis of all of the facts. It makes the following arguments:  
                                               
656 United States' second written submission, para. 36.  
657 United States' second written submission, para. 36.  
658 United States' second written submission, para. 39.  
659 United States' second written submission, para. 42.  
660 United States' second written submission, para. 43.  
661 United States' second written submission, para. 37.  
662 United States' second written submission, para. 38.  
663 European Union's response to the United State s' request for preliminary rulings, dated 
23 November  2012, para. 8.  WT/DS353/R W 
 
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  a. The European Union 's claim in the original proceeding was that HB 2294 was 
inconsistent with Articles 3.1(a) and 3.2 owing to five categories of fisca l subsidies. The 
panel found that four of these (i.e. the four original Washington State tax measures  
listed in paragraph 7.386  above , which were treated as three by the panel) were 
subsidies , and assessed the European Union 's claim of de facto  export contingency with 
respect to those four (three) Washington State tax measures enacted under HB 2294. 
Some of these measures have since been modified. The Panel should now assess HB 
2294 and the associated tax measures, as revised, i n their totality and in an integrated 
manner.664 
b. The measures before this Panel are not the same as the measures at issue in the original 
proceeding. Also at issue in this proceeding are the "subsequent incidences  of 
application " of the measures which were n ot before the original panel.665 These 
subsequent incidences of application are actually new measures that have a close nexus 
to the "overarching measure " of which they are discrete applications.666  
c. The de facto  export contingency challenge brought in this pr oceeding does not relate to 
the same aspect of the measures challenged in the original proceeding (i.e. that they are 
contingent upon sales) but rather to the fact that the measures are subsidies, and "in 
the nature of encouragement or direction and/or rew ard".667 
d. The "clarification of relevant WTO law " to be applied by the Panel is different from that 
followed by the original panel, especially following the "confirmations and clarifications " 
provided by the Appellate Body Report in EC and certain member Stat es – Large Civil 
Aircraft .668 These clarifications form part of the WTO acquis  and subsequent panels, 
including this compliance Panel , are expected to follow the same interpretations.  
e. The evidence and facts on which the European Union relies are different.669 
7.391.   In its second written submission, the European Union sets forth  its understanding of 
concepts such as jurisdiction and terms of reference, and submits that there is no rule of res 
judicata  in WTO dispute settlement proceedings or any possibility of non liq uet. It also discuss es 
what it considers are the limited circumstances in which the Appellate Body Report in EC – Bed 
Linen (Article 21.5 – India) would apply.670 At several places throughout this discussion, the 
European Union makes the following argument:  
{O}nce particular measures are properly within the scope of compliance proceedings, 
because they are declared or undeclared measures taken to comply, any claim may be 
made against them, whether or not made in the original proceedings, and the 
compliance pa nel must assess and rule on such claim , such ruling being subject to 
scrutiny on appeal.671 
7.392.   Certain of the third parties (Brazil, Canada, Japan,  and Korea) make general arguments as 
to the situations in which a complaining party may be precluded from challen ging a measure in a 
compliance proceeding that it had not successfully challenged in the original proceeding. These 
arguments are summarized in Section 7.2.1.1  of this Report.  
7.6.2.1.2   Evaluation  by the Panel  
7.393.   The question before us is w hether the European Un ion can bring prohibited subsidy claims 
under Article s 3.1(a) and 3.2  of the SCM Agreement  in respect of  the four Washington Stat e tax 
measures enacted under HB  2294 which were the subject of un successful claims under 
Article  3.1(a) o f the SCM Agreement in the original proceeding.  
                                               
664 European Union's second written submission, para. 85.  
665 European Union's second written submission, para. 58.  
666 European Union's second written submission, para. 61.  
667 European Union's second written submission, para. 76.  
668 European Union's second written submission, paras. 68 -74. 
669 European Union's second written submission, para. 77.  
670 European Union's second written submission, paras. 9 -40. 
671 European Union's second written submission , paras. 22, 24, and 26 . (emphasis original)  WT/DS353/R W 
 
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  7.394.   To recall, in  the original proceedi ng, the European Communities  challenged  the subsidies 
granted under HB  2294 (including the above -referenced measures) as being de facto  
export -contingent subsidies inconsist ent with Article s 3.1(a)  and 3.2  of the SCM Agreement.672 The 
panel found that the European Communities  had not demonstrated the existence of a "tie" 
between the grant of the subsidies and anticipated exportation or export earnings. Nor had it 
established th at the subsidies were tied to actual exportation. Consequently, the pan el found that 
the European Communities  had not demonstrated that the Washington State tax measures 
enacted under HB 2294 were inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreem ent.673  
7.395.   In its notice of appeal, the European Union appealed the panel 's interpretation of 
Article  3.1(a) and footnote 4 of the SCM Agreement, and also argued that the panel failed to make 
an objective assessment as required by Article 11 of the DSU, in fin ding that "the European Union 
had not demonstrated that HB 2294 and the B&O tax rate reductions a nd instances of application 
are subsidies contingent/conditional in fact upon export. "674 The European Union requested the 
Appellate Body to complete the analysi s.675 However, on 19 May 2011, pursuant to Rule 30(1) of 
the Appellate Body 's Working Procedures, the European Union notified the Appellate Body , as well 
as the United States and third participants , that it was withdrawing its appeal insofar as it related 
to subsidies contingent upon export, with immediate effect.676 Consequently, the panel 's findings 
concerning the Article 3.1(a) and 3.2 claims were not disturbed by the Appellate Body and were 
adopted as part of the DSB recommendations and rulings.  Thus, the D SB recommendations and 
rulings in the original proceeding include d a finding that the European Communities  had failed to 
demonstrate that the challenged Washington State tax measures enacted under HB 2294 were 
inconsistent with Articles 3.1(a) and 3.2 of t he SCM Agreement.  
7.396.   In Section 7.2 of this Report, we dismiss the United States ' request for preliminary rulings 
that the four original Washington tax measures (three of which are the subject of this preliminary 
ruling s request regarding the permissibility of allowing the European Union to reassert claims 
under Article 3.1(a)) are outside the scope of this proceeding on the grounds that they were 
original measures not subject to the DSB recommendations and rulings.677 That issue de alt with 
the question of whether original measures that did not conclusively result in findings of 
WTO-inconsistency in the original proceeding may be subsequently challenged in a compliance 
proceeding.  
7.397.   The question before us in this Section is whether a complaining party may re -litigate the 
same claims of WTO -inconsistency in relation to unchanged aspects of original measures in 
circumstances where those claims were found not to have been established in the original 
proceeding. In our view, the key consid eration  is that the panel reject ed the European 
Communities' Article  3.1(a) claims in respect of  the original Washington Stat e tax measures , and 
the European  Union did not ultimately appeal that finding. This situation appears to be similar to 
the situatio n addressed in EC – Bed Linen (Article 21.5 – India), where India did not appeal a 
finding of the panel and then sought to raise the same claim in relation to an unchanged aspect of 
the implementation measure. The Appellate Body said that an unappealed fin ding in a panel report 
that is adopted by the DSB must be regarded as a final resolution to a dispute between the parties 
in respect of that particular claim and the specific component of the measure that is the subject of 
that claim.678  
7.398.   The European Union seeks to narrow the application of the reasoning in EC – Bed Linen 
(Article 21.5 – India) to the particular facts of that case. Thus, it argues that the principle 
expressed in EC – Bed Linen (Article 21.5 – India)  is confined to scenarios where one or more  of 
following is present:  
                                               
672 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1465 and 7.1472.  
673 Panel  Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1590.  
674 European Union's notice of appeal, dated 4 April 20 11, WT/DS353/8, para. 4.  
675 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, para. 4.  
676 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 28.  
677 We take this opportunity to explain that the "original Washington tax me asures" the focus of our 
ruling in Section 7.2.1 overlap with the Washington State tax measures enacted under HB 2294 which are the 
focus of this ruling, with the exception of the City of Everett B&O tax rate re duction, which is a municipal tax, 
and therefore is an original Washington tax measure, but not a Washington State  tax measure enacted under 
HB 2294.  
678 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93.  WT/DS353/R W 
 
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  a. the measures or aspects of measures challenged have not changed and the aspect of the 
measure challenged was "separable " from other aspects of the measure;  
b. the facts and evidence are exactly the same as the facts and evidence in t he original 
proceeding;  and 
c. the law does not change between the original proceeding and the compliance 
proceeding.679 
7.399.   Moreover, it notes that every subsequent case has distinguished EC – Bed Linen 
(Article  21.5 – India).680 In short, the European Union 's case is that these claims are not the same 
claims it made in the original proceeding; the measures are different, the applicable law is 
different, and the facts are different.   
7.400.   The European Union argues that the Washington State tax measures before this Panel a re 
not the same as those at issue in the original proceeding ; rather they are "subsequent incidences 
of application" of an overarching measure to which both are closely connected. We are not 
persuaded by the European Union 's portrayal of the "subsequent in stances of application " of a 
measure as being a new measure, distinct from the original measure, and for this to affect the 
question of whether the Article 3.1(a) claims against the original measure can be re -litigated. The 
Appellate Body was critical of t he United  States ' attempts to distinguish the payments made under 
a subsidy program me from the subsidy program me itself in the Upland Cotton  compliance 
proceeding.681 The Appellate Body said:  
We have some difficulty accepting the notion that a subsidy progra mme and the 
payments provided under that programme can be assessed separately. While the 
payments may cause adverse effects, the amount of the payments, beneficiaries, and 
the terms and conditions of eligibility will be provided in the subsidy programme or  
legislation authorizing those payments.682 
7.401.   The European Union also argues that measures and instances of their application are 
"inseparable ", as are cases involving subsidies that are prohibited and/or actionable, or where 
subsidies may be cumulated or aggr egated for purposes of the serious prejudice analysis.683 
However, the European Union appears to take out of context a reference to "separability " between 
aspects of a measure that the Appellate Body made in a case subsequent to EC – Bed Linen 
(Article 21.5 – India) to the effect that a complaining party can challenge an aspect of a measure 
that it did not challenge in the original proceeding in situations where that aspect is an 
"inseparable " part of the "measure taken to comply ".684 The notion of "inseparabil ity" of aspects of 
a measure referred to in that case is not relevant to the present discussion.  
7.402.   We also do not consider the reasoning in EC – Bed Linen (Article 21.5 – India) to be 
confined to cases where there is absolutely no change in the facts or evi dence. EC – Bed Linen 
(Article 21.5 – India) concerned a challenge by India to an aspect of a European Commission 
anti-dumping determination. None of the facts or evidence regarding the investigation changed; it 
was simply a question of challenging one asp ect of the Commission 's determination that had not 
been challenged in the original proceeding because the panel had found that India had not made a 
prima facie  case. Nevertheless, we do not see a basis for limiting the reasoning of the Appellate 
Body in th at case to situations in which the claim does not involve any changed facts or evidence. 
A claim of WTO -inconsistency raised for a second time in a compliance proceeding could be 
expected to involve different facts, at least in the subsidies context, which  presumably would deal 
with events at a different point in time. It is almost always possible for a complaining party  in a 
compliance proceeding  to present new facts and evidence on the record to support a claim. To 
                                               
679 European Union's second writte n submission, paras. 12 and 33 -38. 
680 European Union's second written submission, para. 39.  
681 The United States in that case had argued that the DSB recommendations and rulings covered only 
payments  made under marketing loan and counter -cyclical programmes in marking years 1999 -2002 and did 
not extend to payments under those same programmes made in subsequent years. Thus it argued that 
subsequent payments under those programmes were outside the scope of the compliance proceeding. (See 
Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , paras. 22 -27). 
682 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil ), para. 234.  
683 European Union's second written submission, paras. 12 and 78 -80. 
684 Appellate Body Report, US – Zeroing (EC) (Articl e 21.5 – EC), paras. 432 and 433.  WT/DS353/R W 
 
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  limit the application of the notion of f inality of DSB recommendations and rulings expressed in EC 
– Bed Linen (Article  21.5 – India) to situations in which there are no new facts or evidence on the 
record presented in support of the claim in the compliance proceeding would be to implicitly 
overrule EC – Bed Linen (Article 21.5 – India). 
7.403.   We are mindful that there is a legitimate question as to whether de facto  claims relate so 
inherently to the particular facts on which the claims are argued that whenever the constellation of 
facts supporting the  claim changes, the "claim " of de facto  export contingency made in a 
compliance proceeding should be considered to be a new and different claim to th at made in the 
original proceeding. Thus we do not exclude the possibility that, owing to fundamental chang es in 
the factual situation between the original proceeding and compliance proceeding, a measure that 
was originally found not to be de facto  export contingent could subsequently become so. In this 
situation, it may be that the complaining party would not be precluded from demonstrating de 
facto export contingency in a compliance proceeding. However, this is not the present situation. 
For reasons that we explain below, we regard t he individual claim s of inconsistency with 
Article s 3.1(a) and 3.2 that the Eu ropean Union makes in relation to the Washington State tax 
measures enacted under HB 2294 in this proceeding a s the same claims of de facto  export 
contingency that it made in the original proceeding with respect to those measures.   
7.404.   Comparing the claims of de facto  export contingency made in the original and compliance 
proceedings, we see that in the original proceedin g, the European Communities' Article  3.1(a) 
claim concerned "the grant of subsidies under HB 2294 " as being contingent in fact upon export 
performance because the grant is tied to actual or anticipated exportation or export earnings.685 
The contention was that the entering into effect of HB 2294 was explicitly contingent on the siting 
of a "significant commercial airplane final assembly facility i n Washington State " that could 
produce "at least thirty -six superefficient airplanes {i.e. 787s} per year ". The European 
Communities  presented evidence to seek to demonstrate that it was highly unlikely that Boeing 
could sustain a production rate of 36 787  aircraft per year for the U .S. market alone. The panel 
described the issue before it as "whether the tax measures under HB  2294 constitute subsidies 
contingent upon export performance under Article 3.1(a) of the SCM Agreement ".686 It also said 
that the "European Communities ' claim is that HB 2294 is de facto  contingent upon export 
performance " before referring to a series of arguments advanced by the European Communities 
regarding HB 2294 (as opposed to each of the individual taxation measures enacted under it).687 
The panel concluded that the European Communities "has not demonstrated that HB 2294 is 
contingent upon export performance "688 and on that basis found that the European  Communities 
had not demonstrated that the tax ation measures enacted under HB  2294 are inconsistent with 
Articles  3.1(a) and 3.2 of the SCM Agreement.689 
7.405.   In the present proceeding, the European Union claims that the subsidies (i.e. all measures 
at issue in this proceeding, including the four Washington State  tax measures  enacted under 
HB 2294) are "contingent/conditional, in fact, whether solely or as one of several other conditions, 
upon export performance, and are prohibited by Articles 3.1(a) and 3.2 and footnote 4 of the SCM 
Agreement ".690 The European Union argues that Boeing 's actual and  anticipated sales are 
"skewed " toward exports, that through its repeated actions over time, the United States has 
"conditioned Boeing 's behaviour so as to induce or incentivise such skewing " and that, "taken as a 
whole, or in any permutation " the facts an d evidence demonstrate that the granting or maintaining 
of the subsidies, without having been made legally contingent/conditional upon export 
performance, is nevertheless in fact tied to actual or anticipated exportation or export earnings.691 
The European U nion clarified any apparent confusion over the nature of these claims in its second 
written submission:  
Thus, contrary to the manner in which the United States seeks to reformulate the EU 
claims, the European Union does not argue that the measures only bec ome 
                                               
685 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1465 and 7.1472. See also 
para. 4.254: "the European Communities argues that the State of Washington's HB 2294 tax incentives are 
contingent in fact on e xport performance, within the meaning of Article 3.1(a) of the SCM Agreement".  
686 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1513.  
687 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1514.  
688 Panel Report, US – Large Civi l Aircraft (2nd complaint ), paras. 7.1543 and 7.1589.  
689 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1590.  
690 European Union's first written submission, para. 763.  
691 European Union's first written submission, para. 763.  WT/DS353/R W 
 
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  inconsistent when considered collectively and does not make a claim that seeks to 
identify a "system of subsidies " as a measure at issue. Rather, we argue that each of 
the measures is inconsistent ; and we specify, as recalled above, the facts and 
evide nce on which we rely for that purpose. Thus, each subsidy is viewed individually , 
but not in clinical isolation from the totality of the facts and evidence (including the 
other subsidies) supporting the claim.692 
7.406.   The European Union  does not seek to justify r aising its Article 3.1(a) and 3.2 claims 
against the Washington  State  tax measures enacted under HB 2294 in the compliance proceeding 
on the basis of funda mental factual changes that have taken place between the original and 
compliance proceedings. Rather,  the European Union adopts a different underlying theory as to 
how the measures in question are de facto  export contingent, and seeks to adduce different facts 
in support of that different theory. In other words, the arguments the European Union now relies  
upon to show de facto  export contingency are different from those that the European Communities  
made in the original proceeding. They no longer concern the condition upon which the HB 2294 tax 
incentives were to become effective, but rather an allegation that the United States has created a 
state of interdependence and mutual expectation regarding exportation and the receipt of further 
subsidies.693  
7.407.   Despite the different argumentation, the claims under Article s 3.1(a) and 3.2 of the SCM 
Agreement in respect  of the Washington State tax measures enacted  under HB 2294 remain the 
same. Those Article 3.1(a) and 3.2 claims were resolved in a panel report  that was adopted by the 
DSB and must be regarded as a final resolution of the dispute between the parties in re spect of 
those claims and the measures the subject of those claims. The European Union is not permitted 
to reassert those claims against those measures in a compliance proceeding based on a new 
theory of how the measures are de facto  export contingent.  
7.408.   We are aware that two of the taxation measures enacted und er HB 2294 have been 
modified: (a) t he B&O tax credits for preproduction/aerospace development were amended by 
SSB 6828 to expand their application beyond preproduction development to include all aero space 
product development, as well as to permit non -manufacturing entities to claim the credit for 
expenditures after 30 June 2014 ; and (b) the B&O tax credits for property taxes were amended by 
HB 2466 to extend the availability of the tax credits to leas ehold excise taxes and not just property 
taxes. However, it is not apparent that the nature of these modifications is relevant to the 
European Union 's arguments as to why the measures are now contingent in fact upon export 
performance when they were not pr eviously so. Accordingly, we do not consider that this factor 
changes our analysis.694 
7.409.   Finally, it remains to consider the European Union's argument regarding the clarification of 
relevant WTO law to be applied by the compliance Panel, which will be differen t from that followed 
by the original panel, owing to the confirmations and clarifications of the Appellate Body in EC and 
certain member States – Large Civil Aircraft . Specifically, the Appellate Body in EC and certain 
member States – Large Civil Aircraft  clarified  the interpretation of Article 3.1(a) of the SCM 
Agreement in a number of respects which differ from the original panel's interpretation of that 
provision.695  
7.410.   The difficulty we see with the  argument that the principle expressed in EC – Bed Linen 
(Article 21.5 – India) does not apply in respect of claims decided on the basis of "outdated " 
interpretations of the covered agreements is that, in contrast to bringing a new proceeding in 
which the claim is made against that measure, a reconsideration of th e unsuccessful claim at the 
                                               
692 European Union' s second written submission, para. 53. (emphasis added, fns omitted)  
693 See European Union's first written submission, para. 758:  
The United States has thus come to associate subsidies with exports, and Boeing 
has come to associate exports with subsidies, e ach becoming a reflex to the other, 
so deeply ingrained that it can no longer be disguised … Boeing has thus been 
transformed into precisely what US industrial policy was designed to create: a US 
national champion in a global market, skewed towards exports . 
694 For the reasons explained in our ruling "Reasons for Declining the European Union's Request for 
Leave to File and Additional Submission Regarding SSB 5952", the text of which may be found in Section 7.7 of 
this Report, we do not consider in this Report the amendments effected by SSB 5952 to the provisions of the 
Revised Code of Washington that reflect the Washington State tax measures enacted under HB 2294.  
695 See European Union's second written submission, pa ras. 68 -74. WT/DS353/R W 
 
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  compliance stage amounts to re -litigating an issue that was conclusively decided on the merits in 
the original proceeding in a manner that compromises the finality of DSB recommendations and 
rulings.696 As the Appellate Body said:   
{A}n unappealed  finding included in a panel report that is adopted  by the DSB must 
be treated as a final resolution  to a dispute between the parties in respect of the 
particular  claim and the specific  component of a measure that is the subject of that 
claim.697  
7.411.   Clarifications of interpretations of the covered agreements can be expected to  emerge over 
time. This should not affect the finality of DSB recommendations and rulings. As the Appellate 
Body in EC – Bed Linen (Article 21.5 – India) observed: "{a}t some point, disputes must be 
viewed as definitely settled  by the WTO dispute settlement system ".698 Moreover, in the present 
proceeding, the European Union does not seek to make the same case of export contingency that 
it tried to make in the original proceed ing, but on the basis of a clarified understanding of the 
interpretation of Article 3.1(a). Rather, the arguments the European Union makes in support of its 
export contingency claims in this proceeding and the evidence it provides in support of those 
argum ents are altogether different from those in the original proceeding, no longer focusing on the 
condition on which HB 2294 was enacted, but on the "Pavlovian effect " of the United States ' 
continued subsidization of Boeing in return for increased exports.699  
7.412.   On the basis of the foregoing considerations, the Panel grants the United States'  
request and rules that the European Union is precluded from bringing claims under 
Articles 3.1(a) and 3.2 of the SCM Agreement against the following four original 
Washington State tax measures enacted under HB 2294:  
a. Washington State B&O tax rate reduction;  
b. Washington State B&O tax credits for preproduction/aerospace product 
development700; 
c. Washington State B&O tax credit for property taxes701; and  
d. Washington State sales and use ta x exemptions for computer hardware, 
peripherals , and software.  
7.6.2.2   Claims  under Article s 3.1(a) and 3.2 of the SCM Agreement against certain 
original measures; and claims under Articles 3.1(b) and 3.2 of the SCM Agreement and 
Article III:4 of the GATT 1994 aga inst all original measures  
7.413.   We now consider the United States ' request that the Panel rule that the  European Union is 
precluded from making the  following claims in respect of the following measures :  
a. Claims that all original measures , other than the Washing ton State tax measures 
enacted under HB 2294  and the FSC/ETI measures , are inconsistent with Articles 3.1(a) 
and 3.2 of the SCM Agreement.702 
                                               
696 The European Union was free to bring a new proceeding alleging violations of Articles 3.1(a) and 3.2 
of the SCM Agreement in relation to these measures, and to support the claims based on the interpretation of 
Article 3.1(a) as clarified by t he Appellate Body in  EC and certain member States – Large Civil Aircraft.  
697 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93. (emphasis original)  
698 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 98. (emphasis orig inal) 
699 As noted above, the European Union initially appealed the panel's findings regarding the export 
contingency of the Washington State tax measures enacted under HB 2294 in the original proceeding but then 
withdrew its appeal on 19 May 2011, the day after the Appellate Body Report in EC and certain member States 
– Large Civil Aircraft  was circulated. It seems to us that if the European Union had wanted to pursue its export 
contingency claims in relation to the HB 2294 taxation measures on the basis of the newly clarified 
interpretation of Article 3.1(a) of the SCM Agreement, it could have done so by continuing with its appeal of 
the panel's findings regarding its 3.1(a) claim in the original proceeding.  
700 Including amendments thereto pursuant to SSB 682 8. 
701 Including amendments thereto pursuant to HB 2466.  
702 United States' request for preliminary rulings, dated 13 November 2012, paras. 18 and 60.  WT/DS353/R W 
 
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  b. Claims that all original measures are inconsistent with Articles 3.1(b) and 3.2 of the SCM 
Agreement.  
c. Claims that al l original measures are inconsistent with Article III of the GATT 1994.703 
7.414.   The United States objects to the inclusion of these claims  in respect of the above 
categories of original measures on the basis that these claims were not made in the original 
proceed ing with respect to these measures and could have been, such that the European Union is 
precluded from bringing them in the compliance proceeding.704 
7.6.2.2.1   Main arguments of the parties and third parties  
7.415.   The United States  argues that the European Union did not mak e Articles 3.1(a), 3.1(b), 
and 3.2  claims against the above -referenced measures in  the original proceeding and is precluded 
from making those claims now.705 Similarly, the European Union could have pursued Article III:4 
GATT claims in the original proceeding  but it chose not to. Indeed, in its panel request  in the 
original proceeding, the European Communities  did make claims under Article III:4 of the 
GATT  1994 with respect to all of the measures listed in its panel request, but it later abandoned 
those claim s. A party may not invoke Article 21.5 of the DSU to pursue a claim that it could have, 
but did not, pursue in the original proceeding.706 
7.416.   The United States disputes the European Union 's contention that the measures before this 
Panel are not the measures tha t were before the original panel, asserting that most of the NASA, 
DOD, Washington State and Kansas measures covered by the European Union 's Article III claim 
were in fact before the original panel.707 Although the European Union contends that the facts and 
evidence have changed significantly, it does not point to any specific facts or evidence that might 
warrant allowing the European Union to make claims that it cou ld have raised in the original  
proceeding, but opted not to. The European Union 's assertion th at the facts and evidence on which 
the claims are based only came into existence after 17 February 2006 is "demonstrably false " 
because its Article III claims rest at base on a series of quotations reproduced in Exhibit EU -583, 
many of which predate 17 Feb ruary 2006.708 
7.417.   The European Union  argues that the claims in question are based on facts and evidence 
that only came into existence after the date on which the ori ginal panel was established 
(17 February 2006) and that these are not therefor e claims that the European Communities  could 
have raised in the original proceeding.709 The premise on which the United States ' objection is 
based is therefore groundless.  
7.418.   In addition, the European Union argues, as it did in relation to the United States' 
objections to the E uropean Union's Article 3.1(a) claims in respect of the Washington State tax 
measures enacted under  HB 2294, (see Section  7.6.2.1.1  above) that the measures before this 
Panel at the compliance stage are not the same measures th at were before the original panel. 
Rather,  these measures are "instances of application " that are different from the original 
measures. In addition, the law has changed, the measures have been altered, the facts and 
                                               
703 While paragraph 32 of the European Union's panel request alleges that the measures in items I.A 
through I .G are inconsistent with Articles III:1, III:4 , and III:5 of the GATT 1994, in its first and second written 
submissions, the European Union's claims in relation to Article III of the GATT 1994 are limited to alleged 
inconsistency with Article III:4 of the GATT 1994. (See European Union's f irst written submission, 
paras.  777-788; and second written submission, paras. 851 -864). The European Union therefore appears not 
to pursue its other claims under Article III of the GATT 1994.  
704 United States' request for preliminary rulings, dated 13 November 2012, paras . 15-17 and 60; reply 
to the European Union's response to the United States' request for preliminary rulings, dated 
3 December  2012, paras. 14 and 25; and first written submission, paras. 81 and 84.  
705 United States' first written submission, paras. 82, 84, and 89; request for preliminary rulings, dated 
13 November 2012, paras. 16 and 17.  
706 United States' first written submission, paras. 85, 670, and 671; second written submission, 
para. 48. 
707 United States'  second written submission, para. 50.  
708 United States' first written submission, para. 83; second written submission, para. 50.  
709 European Union's second written submission, paras. 95 and 100.  WT/DS353/R W 
 
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  evidence relied upon have changed and th e measures are not separable from other measures that 
are within the scope of this compliance proceeding.710 
7.419.   As regards the claim under Article 3.1(a) of the SCM Agreement, the European Union 
clarifies also that it is not arguing that each of the identified measures , viewed in isolation from all 
of the other measures , is prohibited. Rather, taking into account all of the facts, each of the 
identified measures is prohibited.711 This is not a claim that could have been made in the original 
proceedings because a s ubstantial part of the facts relied upon only materialized in the intervening 
period.712  
7.420.   Brazil  argues that a Member cannot invoke Article 21.5 of the DSU to pursue a claim that it 
could have pursued in the original proceeding, but chose not to raise or oth erwise abandoned at 
some stage in the dispute settlement process. An implementing Member should be entitled to 
presume that it need not address those unchallenged aspects in attempting to comply with the 
DSB recommendations and rulings.713 Brazil therefore c onsiders that the claims made by the 
European Union under Article III:4 of the GATT 1994 are outside the scope of this proceeding, 
since allowing a party to invoke Article 21.5 of the DSU to pursue claims that it could have pursued 
in the original proceedi ng, but instead chose to abandon, would undermine the dispute settlement 
system's functioning and predictability.714 Where the situation involves new claims relating to a 
measure for which the original panel rejected th e complaining Member's claims of incons istency 
with a covered agreement, Brazil argues that the measures should be presumed to be consistent 
with WTO obligations. To include such a measure within the scope of a compliance proceeding 
would require the complaining Member to demonstrate that the m easure has undergone such 
significant changes that it is a "measure taken to comply" with the adverse WTO decision.715 
7.421.   Canada  considers that a complaining party should generally be precluded from raising 
claims in compliance proceedings that it could have br ought in the original proceeding but did not. 
To allow a complaining party to make a claim that it could have, but did not, raise in the original 
proceeding would jeopardize fundamental fairness and due process rights since, in the absence of 
a finding of a violation of its obligations, a respondent should be allowed to assume that its 
measure is WTO -consistent.716 Canada considers that this principle applies to the claim s advanced 
under Articles 3.1(a) and 3.1(b) with respect to the Washington State B&O tax rate reduction.717  
7.422.   Japan  considers that respect for the due process rights of the responding party requires 
that a complaining party generally should not be permitted to bring a claim in a compliance 
proceeding that could have been brought in the original p roceeding. If an unchanged measure (or 
unchanged elements of that measure) were subject to review by a compliance panel pursuant to a 
claim that could have been, but was not, raised in the original proceeding, this would effectively 
give the complaining pa rty an unfair "second chance". However , the question of whether  a claim 
could or could not have been brought in the original proceeding is fact -specific and should be 
addressed on a case -by-case basis.718 
                                               
710 European Union response to the United States' request for pre liminary rulings, dated 
23 November  2012, paras. 9, 43, and 44; supplemental submission on the United States' request for 
preliminary rulings, paras. 21 -23; and second written submission, paras. 97 and 102.  
711 European Union's supplemental submission on the  United States' request for preliminary rulings, 
para. 23.  
712 European Union's supplemental submission on the United States' request for preliminary rulings, 
para. 23; second written submission, paras. 89, 95, and 100.  
713 Brazil's third -party response to Pan el question No. 1, paras. 3 and 4. Brazil argues that a 
complaining Member cannot "present a long list of alleged violations in its panel request, drop some of them 
during the proceedings, and then decide to reintroduce them in the compliance panel, as the  system's 
functioning and predictability would be undermined." See also Brazil's third -party submission, paras. 39 and 
40. 
714 Brazil's third -party submission, paras. 39 and 40.  
715 Brazil's third -party submission, para. 41.  
716 Canada's third -party response to  Panel question No. 1, paras. 2 and 3.  
717 Canada's third -party statement, paras. 5 -7. 
718 Japan's third -party response to Panel question No. 1, para. 5.  WT/DS353/R W 
 
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  7.423.   Korea  considers that the United States' objections ar e based on an expansive concept of 
"claim preclusion" that applies under U.S. domestic law.719 However, the WTO's dispute settlement 
procedures (which do not allow "amendments" to the Panel's terms of reference to incorporate 
issues that were not addressed i n the complaining party's consultation and panel requests) do not 
appear to permit the flexibility that justifies the broad rule of claim preclusion applied in U.S. law. 
Moreover, the relevant provisions of the DSU do not support the conclusion that broad rules of 
claim preclusion should be applied in a compliance proceeding.720 Korea considers that, as a 
practical matter, the only claims barred in a compliance proceeding are those that were already 
decided in the original proceeding.721  
7.6.2.2.2   Evaluation by  the Pane l 
7.424.   The European Union 's panel request includes claims that all of the measures identified in 
items I.A to I.G thereof  (i.e. DOD aeronautics R&D measures, NASA aeronautics R&D measures, 
FAA aeronautics R&D measure, Washington measures, FSC/ETI measures, Stat e of Kansas and 
City of Wichita measures, and South Carolina measures) are inconsistent with Articles 3.1(a), 
3.1(b), and 3.2  of the SCM Agreement and Article III of the GATT 1994.722 For purposes of our 
evaluation of whether the European Union is precluded from bringing certain claims in respect of 
certain measures, based on the claims  that the  European Communities allegedly either made or 
failed to make in respect of those measures in the original proceeding, it is helpful to identify four 
different categor ies of measures:  
a. Original measures that remain unchanged since the original proceeding : Certain of the 
measures cited in items I.A to I.G of the  European Union's  panel request are measures 
that were challenged by the European Communities in the original pr oceeding  which 
remain unchanged since the original proceeding , such as the Washington State B&O tax 
rate reduction723, the Washington State sales and use tax exemptions for computer 
software, hardware, and peripherals , the City of Everett B&O tax rate reduct ion, the 
FSC/ETI measures724, the tax abatements related to the City of Wichita IRBs, and the 
pre-2007 NASA Space Act Agreements and pre-2007 DOD procurement contracts . 
b. Original measures that have otherwise been amended since the original proceeding : 
Certain  other  measures cited in items  I.A to I.G of the European Union's panel request 
are measures that  have been amended, but not in purported compliance with the DSB 
recommendations and rulings: i.e. the Washington State B&O tax credits for aerospace 
preproduc tion/aerospace product development and the Washington State B&O tax credit 
for property taxes , both of which have been amended to expand their scope of 
application.  
c. Original measures that have been amended since the original proceeding  in purported 
complia nce with the DSB recommendations and rulings : Certain other  measures cited in 
items  I.A to I.G of the panel request are measures that were before the original panel 
that have been amend ed in order to comply with the DSB recommendations and rulings 
in the o riginal proceeding (i.e. the pre-2007 NASA procurement contracts and DOD 
assistance instruments at issue in the original proceeding, which were amended by the 
respective Boeing Patent Licen ce Agreements) .  
                                               
719 Korea's third -party submission, para. 6 (referring to Commissioner v. Sunnen , 333, U.S. 591, 68 
S.Ct. 71 5, 719, (1947), and Sea-Land Servs., Inc. v. Gaudet , 414 U.S. 573, 578 -79, 94, S.Ct. 806, 812, reh'g 
denied, 415 U.S. 986, 94 S.Ct. 1582 (1974)).  
720 Korea's third -party submission, para. 7.  
721 Korea's third -party submission, para. 11.  
722 European Union's requ est for the establishment of a panel, paras. 30 -32; and United States first 
written submission, para. 85. The United States also requests a preliminary ruling that the European Union's 
panel request does not satisfy the requirements of Article 6.2 of the D SU in relation to these claims. (See 
United States' request for preliminary rulings, dated 13 November 2012, para. 45; and Section 7.6.1  of this 
Report).  
723 Excluding amendments effected by SSB 5952, which are outside the terms of reference of this Panel. 
See Reasons for Declining the European Union's Request for Leave to File an Additional Submission Regarding 
SSB 5952 in Section 7.7 below . 
724 We note that the European Communities had brought claims under Article 3.1(a) against the FSC/ETI 
measures in the original proceeding and the United States does not object to the European Union bringing 
Article 3.1(a) claims against these  measure s in this compliance proceeding.  WT/DS353/R W 
 
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  d. New measures that are within the scope of the comp liance proceeding . In addition, there 
are measures that have come into existence since the original proceeding, which the 
European Union alleges the United States grants or maintains, and which the European 
Union therefore challenges as evidencing a failur e of the United States to withdraw the 
subsidy, or take appropriate steps to remove the adverse effects, within the meaning of 
Article 7.8 of the SCM Agreement. These measures are the South Carolina measures, the 
FAA aeronautics R&D measure, the JCATI meas ure, and the post -2006 NASA and DOD 
aeronautics R&D measures.725  
7.425.   The United States' objections in this part of our findings concern measures in categories 
(a), (b) , and (c) above.726 There is no dispute between the parties that none of the measures 
listed  in paragraphs (a) or (b) of paragraph 7.424  above  was challenged in the original proceeding 
as being inconsistent with Articles 3.1(b) and 3.2 of th e SCM Agreement or with Article  III:4 of the 
GATT 1994. With the exception of the Washington State tax measures enacted under HB 2294 
(discussed in Section  7.2 of this Report)  and the FSC/ETI measures, none of those measures was 
challenged in the original proceeding as being inconsistent with Article 3.1(a) of the SCM 
Agreement.  
7.426.   The Appellate Body stated in US – Upland Cotton (Article 21.5 – Brazil ) that a complaining 
party "ordinarily would not be allowed to raise claims in an Article 21.5 proceeding that it could 
have pursued in the original proceedings, b ut did not ".727 At the meeting  with the Panel, the 
European Union sought to emphasize the use of the word "ordinarily " in that statement, and 
suggested that a reasonable balance needs to be struck. We note that in a subsequent case , the 
Appellate Body said t hat the use of "ordinarily " in the Upland Cotton  compliance case did not mean 
that such claims could never be brought.728 In US – Zeroing (EC) (Article 21.5 – EC), the Appellate 
Body, overruling the panel, permitted the European Union to raise in a complianc e proceeding a 
challenge to an "arithmetical error " allegedly committed by the USDOC in a Section 129 
Determination that had been carried over from an anti -dumping determination that the 
European  Union had successfully challenged on other grounds in the or iginal proceeding. The 
Appellate Body considered that the arithmetical error was an "integral " part of the Section 129 
Determination because it affected the duty that was to be levied on the imports of that product 
and allowed the challenge on that basis. It distinguished "inseparable " elements of compliance 
measures from "separable " aspects which, ordinarily, could not be challenged at the compliance 
stage if they were not challenged at the original stage.729 For example, the aspect of the measure 
that India  sought to challenge at the compliance stage in the Bed Linen  case was considered a 
"separable " aspect of the compliance measure (a non -attribution analysis that was a distinct and 
"separable " part of the causation analysis that carried over from the origi nal dumping 
determination to the compliance measure because India had not successfully challenged it in the 
original proceeding).730 
7.427.   There are some important differences between original and compliance proceedings. These 
differences were explained by the App ellate Body in US – Softwood Lumber IV (Article 21.5 – 
Canada ):  
                                               
725 In Section 7.2.2 , we rule that the JCATI measure is outside the scope of this proceeding.  
726 The United States does not object to the European Union bringing claims under Articles 3.1(a), 
3.1(b), 3.2 of the SCM Agreement or Artic le III:4 of the GATT 1994 in relation to measures in category (d) 
above on the basis that it should properly have brought these claims against these measures in the original 
proceeding. However, it does allege that certain of these measures are not within the Panel's terms of 
reference or are otherwise outside the scope of this proceeding. The Panel has ruled that the Phase II South 
Carolina measures are outside the Panel's terms of reference (see Section 7.5.2) and that the JCATI measure 
is outside the scope of this proceeding (see Section 7.2.2 ). 
727 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil ), para. 211.  
728 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 431.  
729 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), paras. 432 -435. 
730 See Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 86:  
Moreover, we do not see why that part of the redetermination that  merely 
incorporates elements of the original determination on "other factors" would 
constitute an inseparable  element of a measure taken to comply with the DSB 
rulings in the original dispute. Indeed, the investigating authorities of the European 
Communit ies were able to treat this element separately. Therefore, we do not 
agree with India that the redetermination can only be considered "as a whole new 
measure".  
(emphasis added)  WT/DS353/R W 
 
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  First, the composition of an Article 21.5 panel is, in principle, already determined – 
wherever possible it is the original panel.  These individuals will be familiar with the 
contours of the dispute, and the experience gained from the original proceedings 
should enable them to deal more efficiently with matters arising in an Article 21.5 
proceeding "against the background of the original proceedings ". Secondly, the 
time-frames are shorter – an Article 21.5 panel has, in principle, 90 days in which to 
issue its report, as compared to the six to nine months afforded original panels. 
Thirdly, there are some limits on the claims that can be raised in Article 21.5 
proceedings.731 
7.428.   The Appellate Body co ntinued:  
Taken together, these observations underscore the balance that Article 21.5 strikes 
between competing considerations. On the one hand, it seeks to promote the prompt 
resolution of disputes, to avoid a complaining member having to initiate dispute  
settlement proceedings afresh when an original measure found to be inconsistent has 
not been brought into conformity with the recommendations and rulings of the DSB, 
and to make efficient use of the original panel and its relevant experience. On the 
other  hand, the applicable time -limits are shorter than those in original proceedings, 
and there are limitations on the types of claims that may be raised in Article 21.5 
proceedings. This balance should be borne in mind in interpreting Article 21.5 and, in 
particular, in determining the measures that may be evaluated in proceedings 
pursuant to that provision.732 
7.429.   As to the limitations on claims that can be raised in a compliance proceeding, we begin 
from the proposition that "ordinarily " a complaining party is not  allowed "to raise claims in an 
Article 21.5 proceeding that it could have pursued in the original proceedings, but did not".733 We 
acknowledge, on the other hand, that a complaining party may bring a new claim challenging a 
new measure , which is different f rom the measure at issue in the original proceeding, or a new 
component of a measure taken to comply that was not part of the original measure.734  
7.430.   In resolving whether the European Union can bring claims under Articles  3.1(a), 3.1(b) , 
and 3.2 of the SCM Agr eement, and under Article III:4 of the GATT 1994, in respect of measures 
against which it had not made such claims in the original proceeding, we bear in mind the need to 
strike a balance between prompt resolution of the dispute from the perspective of the  complaining 
party and the due process concerns that would arise in relation to the responding party if a 
complaining party were permitted to raise in compliance proceedings claims which, as a legal and 
practical matter, could have been raised and pursued in the original dispute.735  
7.431.   As is evident from our consideration of other preliminar y objections made by the 
United  States, we think it is reasonable that the European Union in this compliance proceeding 
should be permitted to pursue its claims against orig inal measures that were not definitively 
resolved on the merits in the original proceeding in the interests of fairly, promptly , and efficiently 
resolving the dispute between the parties.736 These considerations have also affected the way in 
which we have ap plied the close nexus test for purposes of determining the measures that are 
within the scope of this compliance proceeding.737 However, we are equally cognizant of the fact 
that there are limits to the scope of compliance p roceedings. The European Communiti es' panel 
request in the original proceeding did not include claims under Article s 3.1(a) and 3.2 of the SCM 
Agreement (other than with respect to the Washington State tax measures enacted under HB 2294  
and the  FSC/ETI measures), or under Article 3.1(b) an d 3.2 of the SCM Agreement, and the 
                                               
731 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada ), para . 71. (fns omitted)  
732 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada ), para. 72.  
733 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil ), para. 211.  
734 Appellate Body Reports, Canada – Aircraft (Article 21.5 – Brazil ), par a. 41; EC – Bed Linen 
(Article  21.5 – India), paras. 88 and 89; and US – Softwood Lumber IV (Article 21.5 – Canada ), para. 71 and 
fn 110. 
735 See Panel Report, EC – Bed Linen (Article 21.5 – India), para. 6.43 and the reference therein to 
Appellate Body Repo rt, US – FSC, para. 166: "{t}he procedural rules of WTO dispute settlement are designed 
to promote, not the development of litigation techniques, but simply the fair, prompt and effective resolution of 
trade disputes."  
736 See Sections 7.2.1 and 7.3.2 .  
737 See Sections 7.2.2, 7.4, and 7.5.1 . WT/DS353/R W 
 
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  European Communities  in its submissions to the original panel elected not to pursue the 
Article  III:4 GATT claims it had raised. In this li ght, we do not consider that the  Panel should 
consider those claims against those  original measures for the first time in this compliance 
proceeding. To do so would, in our view, amount to an impermissible expansion of the scope of the 
dispute beyond that defined by the original panel request, and the original proceeding as actually 
pursued by the complaining party.  
7.432.   We therefore grant the United States ' request in relati on to the claims under 
Articles  3.1(a), 3.1(b) , and 3.2 of the SCM Agreement and Article III:4 of the GATT 1994 in 
respect of original measures  that have remained uncha nged since the original proceeding, i.e. 
those in category (a) of paragraph 7.424  above (other than the claims under Article 3.1(a) of the 
SCM Agreement concerning the Washington State B&O tax rate reduction and the Washington 
State sales and use tax exemptions for computer software, hardware, and peripherals , which are 
the subject of a separate objection that we have addressed in Section 7.6.2.1.2  of this Report, and 
the FSC/ETI measures).  
7.433.   The quest ion that next arises is whether we should also grant t he United States' request in 
respect of original measures that have been amended since the original proceeding, i.e. those in 
categories (b) and (c) of paragraph 7.424  above .  
7.434.   As regards the original measures that have otherwise been amended since the original 
proceeding , it appears to us, based on the nature of those a mendments, that if the 
European  Union were permitted to bring claims under Articles 3.1(a), 3.1(b), and 3.2  of the SCM 
Agreement, and under Article III:4 of the GATT 1994 at the compliance stage, when it had failed 
to challenge those measures under the relevant provisions of the WTO Agreements in the original 
proceeding, it would be impermissibly expanding the s cope of the dispute beyond that defined by 
its panel request in the original proceeding. We therefore grant the United States' request in 
relation to these measures (other  than the claims under Article 3.1(a) of the SCM Agreement 
concerning the Washington State B&O tax credits for aerospace preproduction/aerospace product 
development, and the Washington State B&O tax credit for property taxes, which are the subject 
of a separate objection that we have addressed in Section 7.6.2.1 .2 of this Report).  
7.435.   As regards those original measures that were amended in order to comply with the DSB 
recommendations and ruling s, namely, the pre -2007 NASA procurement contracts and DOD 
assistance instruments, which were amended by the respective Boei ng Patent Licence Agreements, 
we see no thing in the European Union 's claims under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM 
Agreement, or under Article III:4 of the G ATT 1994, to indicate that the  claims concern new 
components of these declared measures taken to comply which were not part of the original 
measures. In other words, the European Union's claims  under Articles 3.1(a), 3.1(b) , and 3.2 of 
the SCM Agreement and under Article III:4 of the GATT 1994 in respect of the pre-2007 NASA 
procurement contr acts and DOD assistance instruments , as amended by  the respective Boeing 
Patent Licence  Agreements, are claims that it could have raised in relation to those measures in 
the original proceeding. We therefore see the situation before us as different from th at in Canada – 
Aircraft (Article 21.5 – Brazil ), where Canada had implemented the recommendation of the DSB by 
adopting a "new and different " measure.738 We therefore grant the United States' request in 
relation to this category of original measure.  
7.436.   We there fore conclude that the European Union is precluded from making claims 
under 3.1(b) and 3.2 of the SCM Agreement, and under Article III:4 of the GATT in 
respect of the following measures :  
a. the Washington State B&O tax rate reduction;  
b. the Washington State sa les and use tax exemptions for computer software, 
hardware, and peripherals ; 
                                               
738 Appellate Body Reports, Canada – Aircraft (Article 21.5 – Brazil ), para. 36; and EC – Bed Linen 
(Article 21.5 – India) para. 88.  WT/DS353/R W 
 
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  c.  the Washington State B&O tax credits for aerospace preproduction/aerospace 
product development739; 
d. the Washington State B&O tax credit for property taxes740; and 
e. the FSC/ETI measures . 
7.437.   We further conclude that the European Union is precluded from making claims 
under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM Agreement, and under Article III:4 of 
the GATT 1994 in respect of the following measures : 
a. the City of Everett B&O tax rate reduc tion, the tax abatements related to the 
City of Wichita IRBs, and the pre -2007 NASA Space Act Agreements and DOD 
procurement contracts; and  
b. the pre -2007 NASA procurement contracts and DOD assistance instruments at 
issue in the original proceeding, which we re amended by the respective Boeing 
Patent Licence Agreements.  
7.438.   For the sake of completeness, we note that this ruling means that in this compliance 
proceeding, the European Union may validly make claims under Articles 3.1(a), 3.1(b), and 3.2  of 
the SCM Agr eement, and under Article III:4 of the GATT 1994 in respect of the South Carolina 
measures that are otherwise within the Panel's terms of reference  or otherwise within the scope of 
this proceeding , the FAA aeronautics R&D  measure, and the post -2006 NASA an d DOD aeronautics 
R&D measures, none of which were measures challenged in the original proceeding.  The 
European  Union may also validly make claims under Articles 3.1(a) and 3.2 of the SCM Agreement 
against the FSC/ETI measure s. 
7.7  Reasons for Declining the Eu ropean Union's Request for Leave to  File an Additional 
Submission Regarding SSB 5952  
7.439.   This Section  contains the ruling " Reasons for Declining the European Union's Request for 
Leave to File an Additional Submission Regarding SSB 5952 ", which was issued to th e parties on 
18 September 2014. The Panel has made changes to the formatting to accommodate its  inclusion 
in this  Report. The substance of the ruling is identical to that issued to the parties.  
7.7.1   Introduction  
7.440.   As foreshadowed in our communication of 27 May 20 14, we hereby issue the reasons 
underlying our decision to decline the European Union 's request for leave to file an additional 
submission detailing the legal ramifications of Washington State Legislature Substitute Senate 
Bill 5952 (SSB 5952).741  
7.441.   Our decis ion whether to grant leave turns, in the first instance, on whether the measures 
in question are within this Panel 's terms of reference. If they are not, there is no basis for us to 
consider further submissions from the parties on the implications of SSB 5 952 and it is proper to 
decline the European Union 's request. We have concluded that the Washington State tax 
measures, as amended by SSB 5952, are not within the Panel 's terms of reference.  
7.442.   As we explain in greater detail in these reasons, we understand t he requirements of 
Article  6.2 of the DSU to be such that the measures included in a panel 's terms of reference will 
ordinarily be measures that are in existence at the time of the establishment of the panel. There 
are, however, particular, limited circums tances in which measures coming into existence 
subsequent to a panel request are within a panel 's terms of reference. Where a panel request is 
sufficiently broad to cover amendments and modifications to explicitly identified measures, new 
measures coming i nto existence after the date of the panel request will be within the panel 's terms 
                                               
739 As amended by HB 2466 and by SSB 6828, respectively.  
740 As amended by HB 2466 and by SSB 6828, respectively.  
741 Engrossed Substitute Senate Bill 5952, chapter 2, Laws of 2013, 63rd Leg., 3rd Spec. Sess. 
(Wash.  2013), appendix to the European Union's letter to the Panel, dated 4 March 2014 (hereafter SSB 5952).  WT/DS353/R W 
 
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  of reference only to the extent that they amend or modify explicitly identified measures without 
changing their essence, in light of the claims made by the complaining party . We consider that the 
amendments effected by SSB 5952 change the nature of the Washington State measures that will 
operate from 1 July 2024 in a significant respect in light of th e claims made by the 
European  Union. We therefore do not consider that, in t he context of the specific claims made in 
this dispute, the Washington State tax measures can be said to remain essentially unchanged 
following the enactment of SSB 5952. Moreover, we do not regard the inclusion of the Washington 
State tax measures as amen ded by SSB 5952 within the Panel 's terms of reference as necessary 
for the Panel to assess whether there has been compliance, or otherwise consider that the 
exclusion of the amendments to the Washington State tax measures effected by SSB 5952 from 
this pro ceeding will frustrate the function of this compliance Panel.  
7.443.   In the following sections of these reasons, we first summarize the background to the 
European Union 's request for leave to file a further submission and the basis on which the Panel 
has reviewed  and considered the arguments and factual material submitted by the European Union 
in support of its request. We then provide an overview of the Washington State tax measures 
already at issue in this proceeding, as well as an explanation of SSB 5952 and of  how, according to 
the European Union, SSB 5952 affects the nature of the claims made by the European Union in 
respect of those measures in this proceeding. We then summarize the arguments presented by the 
parties as to whether the Washington State tax mea sures, as amended by SSB 5952, are within 
our terms of reference before setting forth our evaluation of this issue.   
7.7.2   Background to the European Union 's request  
7.444.   By letter dated 4 March 2014, the European Union informed the Panel that the Washington 
State Le gislature had recently passed legislation amending "the 2003 legislation subject to findings 
and recommendations in the original proceedings ".742 The European Union asserted that these 
"additional measures taken to comply by the United States " have "dramatic ally increased the level 
of US non -compliance with its WTO obligations, including with the recommendations and rulings of 
the DSB ".743 
7.445.   The European Union submitted that:  
{A}s part of its effort to induce Boeing to manufacture components locally and use 
those components in assembly of the 777X in Washington State, the State legislature 
recently amended the 2003 legislation subject to findings and recommendations in the 
original proceedings, and significantly extended, in time and value, a string of 
powerful t ax incentives for Boeing.744  
7.446.   Moreover, according to the European Union:  
{T}he extension of these subsidies was conditioned, by law, on a decision by Boeing 
to manufacture components for the 777X in Washington State, and to use those 
components in the assemb ly of the aircraft in Washington State. Following adoption by 
the State Legislature of the amendments to the 2003 subsidy package in 
November  2013, Boeing took the decision to meet these conditions in January 2014, 
and finally announced, on 18 February 201 4, that it would locate its new 777X 
composite wing centre in Everett, Washington.745  
7.447.   The European Union alleges that, as a result of conditions established by these 
amendments, the Washington State tax measures : (a) constitute prohibited subsidies continge nt 
upon the use of domestic over imported goods, in violation of Article 3.1(b) of the SCM 
Agreement ; and (b) are inconsistent with the national treatment obligation in Article III:4 of the 
GATT 1994 "in a manner that reiterates and significantly develops the violations of these same 
provisions " that the European Union has previously raised. The European Union additionally alleges 
                                               
742 European Union's letter to the Panel, dated 4 March 2014, para. 1. 
743 European Union's letter to the Panel, dated 4 March 2014, para. 1.  
744 European Union's letter to the Panel, dated 4 March 2014, para. 1.  
745 European Union's letter to the Panel, dated 4 March 2014, para. 2. (fn omitted)  WT/DS353/R W 
 
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  that the extension of the Washington State tax measures strengthens the causal link between the 
U.S. subsidies and the 777X -, 787- and 737 MAX -related adverse effects.746  
7.448.   The European Union therefore requested leave from the Panel to file an additional 
submission detailing "the legal ramifications of the 2013 amendments to the Washington State 
measure ".747  
7.449.   In support of its request f or leave to file a further submission, the European Union  argues 
that its claims against the Washington State tax measures, as amended by SSB 5952, properly fall 
within the terms of reference and jurisdiction of this compliance proceeding.748 According to th e 
European Union, each of the Washington State tax measures, as amended by SSB 5952, is the 
very same measure and thus remains within the scope of the proceeding.749 The remainder of the 
European Union 's letter of 4 March 2014 contains a "description of the Washington State 
measures " and an "overview " of the arguments the European Union would offer in support of its 
legal claims should the Panel grant its request.  
7.450.   By a communication dated 11 March 2014, the Panel requested the United States to 
respond to the European Union 's request, addressing the question of whether, and the basis on 
which, the Panel should proceed to examine in this compliance proceeding the "additional 
measures taken to comply by the United States " using the phrase that had been used by th e 
European Union to describe SSB 5952 in the first sentence of its request.750  
7.451.   Following an exchange of views on this issue by the United States in a letter dated 
21 March  2014, a response by the European Union in a letter dated 31 March 2014, and comments 
on that response by the United States in a letter dated 9 April 2014, the Panel on 27 May 2014 
indicated to the parties that it had decided to decline the European Union 's request and would 
issue the reasons underlying this decision in due course.751  
7.7.3   The Pa nel's consideration of the argument and factual material provided in the 
European Union 's request of 4 March 2014  
7.452.   At the outset, we wish to clarify the basis on which we have considered the argumentation 
and factual material submitted by the European Union  in support of its request for leave, in light of 
an objection made by the United States.  
7.453.   As part of its response to the European Union 's request for leave, the United States objects 
to what it considers to be the European Union 's "unsolicited submission of new factual evidence 
and supplemental argumentation " in the European Union 's letter of 4 March 2014, which the 
United States submits is contrary to paragraph 15 of the Panel 's Working Procedures.752  
7.454.   According to the United States, the European Union 's letter of 4 March 2014 purports to 
submit a "new exhibit " in the annex to its letter (this being the SSB 5952 legislation) and other 
allegedly relevant facts cited in its letter of 4 March 2014, well after its first written submission or 
the time for rebutta ls or answers to questions.753 The United States considers that the 
European  Union has failed to show good cause for the Panel to allow the submission of such 
facts.754 The United States argues that, to the extent that any factual information related to the 
SSB 5952 legislation is relevant to the European Union 's existing claims, and relevant to the 
Panel 's questions, it could have submitted the legislation when submitting its responses to the 
                                               
746 European Union's letter to the Panel, dated 4 March 2014, para. 1.  
747 European Union's letter to the Panel, dated 4 March 2014, para. 2.  
748 European Union's letter to the Panel, dated 4 March 2014, para. 18.  
749 European Union's letter to the Panel, dated 4 March 2014, para. 18. See also Eu ropean Union's letter 
to the Panel, dated 31  March 2014, para. 7.  
750 Communication from the Panel, dated 11 March 2014.  
751 Communication from the Panel, dated 27 May 2014.  By letter dated 25 July 2014, the 
European  Union referred to the 27 May 2014 Communic ation from the Panel and requested the Panel to issue 
the reasons underlying its decision to decline the European Union's request for leave to file the additional 
submission concerning the matters raised in the European Union's request of 4 March 2014 as s oon as 
possible.  (European Union's letter to the Panel, dated 25 July 2014).  
752 United States' letters to the Panel, dated 21 March 2014, para. 8, and dated 9 April 2014, para. 16.  
753 United States' letter to the Panel, dated 21 March 2 014, para. 8.  
754 United  States' letter to the Panel, dated 21 March 2014, para. 8.  WT/DS353/R W 
 
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  Panel 's first set of questions on 5 December 2013, o r when commentin g on the 
United  States ' responses, to the extent relevant, on 19 December 2013.755  
7.455.   While the United States acknowledges that requesting leave to file a new submission is 
not, in and of itself, inconsistent with the Panel 's Working Procedures, it objects to the "pages and 
pages of new argumentation and new evidence that the EU grafted onto its request ", which it 
considers are not permitted by the Working Procedures.756 According to the United States, the 
"right accorded under those procedures to ask for leave t o provide additional information does not 
imply a right to provide information and arguments in the effective form of an additional 
submission and then ask for leave ".757 The United States alleges that European Union 's request is 
a "thinly veiled attempt to supplement legal claims that it has thus far failed to articulate 
coherently " in its submissions.758 The United States thus requests t he Panel to reject the 
European  Union 's "unsolicited submission of new factual evidence and supplemental argument ", to 
disregard the European Union 's "submission " and to "clarify that the exhibit to that submission will 
not be considered as part of this proceeding ".759 
7.456.   The European Union disagrees that the submission of additional evidence and arguments 
with its request of 4 Marc h 2014 contravenes the Panel 's Working Procedures, and that the 
European  Union could have (and should have) submitted any additional evidence and arguments 
earlier in this proceeding.760 The European Union considers that, in seeking leave from the Panel to 
file an additional submission, including factual evidence, and explaining the reasons for seeking 
leave, it has demonstrated "good cause " and has fully complied with the Panel 's Working 
Procedures.761 
7.457.   Moreover, the European Union rejects the suggestion that i t could have raised the issue of 
the impact of SSB 5952 on its claims regarding the Washington State tax measures in its 
responses to the Panel 's questions or comments on the United States ' responses to the Panel 's 
questions in December 2013. While the Eur opean Union did refer to SSB 5952 in one of its 
answers to the Panel 's questions, the legislation did not take effect until February 2014, and until 
then, it was not clear that the Washington State tax measures would actually be amended and 
extended.762 
7.458.   Paragraph 15 of the Panel 's Working Procedures provides:  
Parties shall submit all factual evidence to the Panel no later than their first written 
submissions, other than evidence necessary for purposes of rebuttals and answers to 
questions. Exceptions to this procedure may be granted upon a showing of good 
cause. In such a case, the other party shall be accorded a period of time for comment 
on the newly submitted evidence, as the Panel deems appropriate.  
7.459.   As noted earlier, in support of its request for leave, th e European Union submitted as an 
annex to its letter of 4 March 2014 the text of SSB 5952, as signed into law on 
11 November  2013. It also included a number of footnote references to materials not previously 
submitted as exhibits in this proceeding in supp ort of various assertions it makes in its request for 
leave.763  
                                               
755 United States' letter to the Panel, dated 21 March 2014, para. 9. The United States notes that the 
European Union did refer to the SSB 5952 legislation in response to Panel question No. 8 but fa iled to present 
the Panel with any of the additional information set forth in the European Union's letter to the Panel, dated 
4 March 2014.  
756 United States' letter to the Panel, dated 9 April 2014, para. 16.  
757 United States' letter to the Panel, dated 9 A pril 2014, para. 16.  
758 United States' letters to the Panel, dated 21 March 2014, paras. 10 and 11, and dated 9 April 2014, 
para. 17.  
759 United States' letters to the Panel, dated 21 March 2014, paras. 8 and 11, and dated 9 April 2014, 
para. 17.  
760 European U nion's letter to the Panel, dated 31 March 2014, para. 25.  
761 European Union's letter to the Panel, dated 31 March 2014, para. 26.  
762 European Union's letter to the Panel, dated 31 March 2014, para. 27.  
763 These footnote references include matters such as the  date on which SSB 5952 was signed into law 
and entered into effect, Boeing's announcement to locate its 777X composite wing centre in Everett, 
Washington, its estimates of the value of the extension of the Washington State tax incentives, alternative WT/DS353/R W 
 
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  7.460.   This material was submitted by the European Union in support of its request for leave to 
file a further submission concerning developments subsequent to the normal deadline for 
submitting factu al information provided in the Working Procedures. To the extent that factual 
information submitted for this limited and specific purpose constitutes "factual evidence " in this 
proceeding , within the meaning of paragraph 15 of the Working Procedures, we co nsider there 
would nevertheless be "good cause " for us to consider it for such a purpose in the particular 
situation before us. Similarly, we do not consider that the argumentat ion made in the 
European  Union 's letter of 4 March 2014 goes to the merits of t he claims before us. Rather, it 
relates to matters the European Union considers relevant to our consideration of its request for 
leave; namely, the arguments it would make in relation to claims concerning the Washington State 
tax measures as amended by SSB  5952 if leave were granted. In short, the purpose of the 
European Union 's request, and the material submitted in support of that request, is to obtain the 
Panel 's leave, in accordance with paragraph 15 of the Working Procedures, to submit additional 
argum ents and evidence at some point in the future.764  
7.461.   We have reviewed the European Union 's request for leave to file an additional submission 
on the basis of the factual information it has provided in support of that request, including its 
explanations of the arguments it would seek to make in any subsequent submission were the Panel 
to grant leave. We do not see how we could adequately consider the European Union 's request if 
we did not take this material into account. The United States has not specifically ch allenged the 
accuracy or authenticity of the factual information provided by the European Union, or taken issue 
with the European Union 's explanations of the operation of SSB 5952.765 While we have ultimately 
decided to decline the European Union 's request f or leave, owing to our conclusion that the 
Washington State tax measures as amended by SSB 5952 are outside the Panel 's terms of 
reference, we have done so after fully considering the factual material submitted by the 
European  Union in its letter of 4 Marc h 2014, as well as the arguments of the parties in 
subsequent exchanges in March and April of 2014. We consider this to be entirely proper and 
consistent with our Working Procedures.  
7.7.4   The Washington State tax measures challenged by the European Union in th is 
proceeding  
7.462.   The European Union 's claims in this proceeding include claims under Articles 3.1(a), 
3.1(b), and 3.2  of the SCM Agreement, Article III:4 of the GATT 1994 and Articles 5(c) and 6.3 of 
the SCM Agreement, against certain tax measures in the Revi sed Code of Washington that were 
originally enacted by the State of Washington in 2003 pursuant to HB  2294. These Washington 
State tax measures are as follows:  
a. Washington State B&O tax rate reduction  for manufacturers of commercial aircraft766;  
b. Washington S tate B&O tax credits for preproduction/aerospace product development767; 
                                                                                                                                               
locations that Boeing was considering for the manufacture of the composite wings for the 777X, a recent 
significant order for the Boeing 777 -9X, estimates of development costs for the 777X and an argument made 
by the United States in another dispute concerning  large civil aircraft. ( See European Union's letter to the 
Panel, dated 4  March  2014, fns 2, 5, 8, 13, 19, 20, 29, 30, 42, 46, and 58).  
764 We do not consider that the European Union can be faulted for failing to submit factual information 
concerning SSB 595 2 in its responses to the Panel's questions, or in its comments on the 
United  States'  responses, as the contingency on which the legislation was expressed to enter into effect had 
not then occurred.  
765 We note that the United States has indicated that, shou ld the Panel "accept the EU's submission 
March 4 and/or grant the EU's request to file a second additional submission", the United States requests 
sufficient opportunities to respond to the "numerous procedural, terms of reference, factual and substantive 
legal issues raised by the EU's submission(s)" . (United States' letter to the Panel, dated 21 March 2014, 
para. 11). However, had there been any material factual inaccuracies in the material submitted by the 
European Union in relation to the enactment and effectiveness or operation of SSB 5952, the United States 
should properly have alerted the Panel to such inaccuracies in its letters of 21 March 2014 and 9 April 2014.  
766 Codified at Revised Code of Washington (RCW) 82.04.260(1). See European Union's reques t for the 
establishment of a panel, para. 17; and first written submission, para. 447.  
767 Codified at RCW 82.04.4461. See European Union's request for the establishment of a panel, 
para. 17; and first written submission, para. 461. This B&O tax credit for p reproduction development was 
amended through Section 7 of State Substitute Bill 6828 (SSB 6828) to expand its application to all "aerospace 
product development", effective 30 June 2008, rather than just "preproduction development". SSB 6828 also WT/DS353/R W 
 
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  c. Washington State B&O tax credit for property taxes and  for leasehold excise taxes 
granted pursuant to HB  2466768; and 
d. Washington State sales and use tax exemptions for computer software, hardware, and 
peripherals .769  
7.463.   The European Communities had previously challenged the Washington State tax measures 
enacted through HB 2294 in the original proceeding, other than the B&O tax credit for leasehold 
excise taxes, which arose pursuant to a subseq uent amendment to that legislation.770 The 
United  States has requested a number of preliminary rulings concerning, inter alia , the Washington 
State tax measures and the European Union 's claims regarding those measures. It is not 
necessary to explain the prec ise nature of the United States ' request for preliminary rulings in 
these reasons, other than to note that the parties dispute whether any of the Washington State 
tax measures other than the B&O tax rate reduction are within the scope of this compliance 
proceeding, and whether the European Union 's claims under Article 3.1(b) and 3.2 of the SCM 
Agreement as well as under Article III:4 of the GATT 1994 concerning all measures, including the 
Washington State tax measures, are properly before this compliance Pa nel. 
7.464.   As the original panel explained, the Washington State Legislature passed HB 2294 in 2003. 
The legislation, which implemented a number of amendments to the Revised Code of Washington, 
was expressed to relate to "retaining and attracting the aerospace i ndustry to Washington State " 
and to include "comprehensive tax incentives " directed at achieving this aim.771 HB 2294 entered 
into effect:  
{O}n the first day of the month in which the governor and a manufacturer of 
commercial airplanes sign a memorandum of a greement regarding an affirmative final 
decision to site a significant commercial airplane final assembly facility in Washington 
state.772 
7.465.   A "significant commercial airplane final assembly facility " was defined in HB 2294 as "a 
location with the capacity to produce at least thirty -six super -efficient airplanes a year ". A 
"super -efficient airplane " was defined as a "twin aisle airplane that carries between two hundred 
and three hundred fifty passengers, with a range of more than seven thousand two hundred 
nautical miles, a cruising speed of approximately mach .85, and that uses fifteen to twenty per 
cent less fuel than other similar airplanes on the market. "773 Provided that assembly of a 
super -efficient airplane had begun by 31 December 2007, the Washington Stat e tax measures 
were to remain in place until 1  July 2024.774 
7.7.5   SSB 5952 and its implications for the European Union 's claims regarding the 
Washington State tax measures  
7.7.5.1   SSB 5952  
7.466.   SSB 5952 was passed by the Washington State Legislature on 9 November 2013 and 
signed into law by the Governor on 11 November 2013. The preamble to the Bill describes it as:  
                                                                                                                                               
expanded t he eligible entities and persons that may claim the credit for expenditures after 30 June 2008 to 
include non -manufacturing entities. (Substitute Senate Bill 6828, "Aerospace Tax Incentives", Washington 
Session Laws 365 (2008), (Exhibit EU -434)).  
768 Codifie d at RCW 82.04.4463. See European Union's request for the establishment of a panel, 
para. 17; and first written submission, para. 474. The B&O tax credit for leasehold excise taxes measure, while 
presented in the European Union's first written submission a s a measure distinct from the B&O tax credit for 
property taxes, was enacted under Section 10 of House Bill 2466, 2006 Wash. Sess. Laws 787 (HB  2466) as an 
amendment to the B&O tax credit on property taxes codified in RCW 82.04.4463. (See European  Union's 
request for the establishment of a panel, para. 17).  
769 Codified at RCW 82.08.975 and 82.12.975. See European Union's request for the establishment of a 
panel, para. 17; and first written submission, para. 503. 
770 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.42.  
771 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.41.  
772 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.43.  
773 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.44.  
774 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.49 and 7.215.  WT/DS353/R W 
 
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  AN ACT Relating to incentivizing a long -term commitment to maintain and grow jobs 
in the aerospace industry in Washington state by extending the expiration date of  
aerospace tax preferences and expanding the sales and use tax exemption for the 
construction of new facilities used to manufacture superefficient airplanes to include 
the construction of new facilities used to manufacture commercial airplanes or the 
wings  or fuselage of commercial airplanes; amending RCW … 82.04.260 …  
82.04.4461, 82.04.4463, 82.08.975, 82.12.975 …  . 
7.467.   SSB 5952, inter alia , amends the sections of the Revised Code of Washington that reflect 
the Washington State tax incentives implemented throu gh HB 2294 which are challenged by the 
European Union in this proceeding. Pursuant to SSB 5952:  
a. the expiration date for the Washington State B&O tax rate reduction  for manufacturers 
of commercial aircraft is extended from 1 July 2024 to 1 July 2040775;  
b. the expiration date for the Washington State B&O tax credits for 
preproduction/aerospace product development is extended from 1 July 2024 to 
1 July 2040776; 
c. the expiration date for the Washington State B&O tax credit for property taxes and  for 
leasehold excise t axes granted pursuant to HB  2466 is extended from 1 July 2024 to 
1 July 2040777; and 
d. the expiration date for the Washington State sales and use tax exemptions for computer 
software, hardware, and peripherals  is exte nded from 1 July 2024 to 1  July 2040.778  
7.468.   Section 2 of SSB 5952 provides that the entire Act takes effect "contingent upon the siting 
of a significant commercial airplane manufacturing program in the state of Washington " by 
30 June 2017.779 "Siting " means a final decision, made on or after 1 November 2 013, by a 
manufacturer to locate a significant commercial airplane manufacturing program in Washington 
State.780 A "significant commercial airplane manufacturing program " is defined as:  
{A}n airplane program in which the following products, including final a ssembly, will 
commence manufacture at a new or existing location within Washington state on or 
after the effective date of this section:  
(i) The new model, or any version or variant of an existing model of a commercial 
airplane; and  
(ii) Fuselages and wing s of a new model, or any version or variant of an existing 
model, of a commercial airplane.781 
7.469.   A "new model, or any version or variant of an existing model, of a commercial airplane " 
means a commercial airplane manufactured with a carbon fiber composite fuse lage or carbon fiber 
composite wings or both.782 
7.470.   The European Union refers to the above condition for the effectiveness of SSB 5952 as the 
"programme -siting condition " in which the extensions of the tax incentives were made contingent 
upon Boeing 's decision : (a) to locate production of the wings and fuselage for the 777X in 
Washington State ; and (b) to use those wings and fuselages in final assembly of the 777X, also in 
Washington State. In other words, in order for the Washington State tax incentives to exte nd 
                                               
775 SSB 5952, sections 5(11) and 6(11).  
776 SSB 5952, section 9(8) . 
777 SSB 5952, section 10(6) . 
778 SSB 5952, sections 11(4) and 12(3) . 
779 SSB 5952, section 2(1).  
780 SSB 5952, section 2(2)(d).  
781 SSB 59 52, section 2(2)(c).  
782 SSB 5952, section 2(2)(b).  WT/DS353/R W 
 
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  beyond 2024, Boeing was required to commit to use wings and fuselages produced or assembled 
in Washington State in the final assembly of the 777X in Washington State.783 
7.471.   In addition, sections 5 and 6 of SSB 5952, which concern the B&O tax rate reduction, add 
the following condition through a new subsection (e)(ii) added to RCW 82.04.260(11):  
With respect to the manufacturing of commercial airplanes or making sales, at retail 
or wholesale, of commercial airplanes, this subsection (11) does not apply on or after 
July 1st of the year in which the department 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 program in  the 
state under section 2 of this act has been sited outside the state of Washington. This 
subsection (11)(e)(ii) only applies to the manufacturing or sale of commercial 
airplanes that are the basis of a siting of a significant commercial airplane 
manufac turing program in the state under section 2 of this act.  
7.472.   The European Union refers to this condition as the "exclusive -production condition " which 
applies solely to the availability of the B&O tax rate reduction for revenues in respect of the 777X. 
Under this condition, the B&O tax rate reduction would not apply to 777X revenues if and when 
Boeing were to conduct any final assembly or any wing assembly for the 777X outside of 
Washington State.784 
7.473.   As noted earlier, the European Union claims that each of the m easures identified in its 
panel request, including the Washington State tax measures, is inconsistent with Articles 3.1(b) 
and 3.2 of the SCM Agreement, Article III:4 of the GATT 1994 , and Articles 5(c) and 6.3 of the 
SCM Agreement. In Sections 7.7.5.2  to 7.7.5.4  below, we summarize the arguments that the 
European  Union makes in support of those claims as they concern the Washington State tax 
measures, as well as the arguments that the European Union  has foreshadowed it would make in 
relation to the Washington State tax measures as amended by SSB 5952, if leave were granted to 
file a submission regarding the implications of SSB 5952.  
7.7.5.2   The European Union 's claims under Articles 3.1(b) and 3.2 of the SCM  
Agreement with respect to the Washington State tax measures in its written 
submissions and as foreshadowed in its 4 March 2014 letter, as a result of SSB 5952  
7.474.   With respect to its claims under Article 3.1(b) and 3.2 of the SCM Agreement, the 
European  Union alleges in its submissions, based on a series of extracts from documents relating 
to the various measures:  
a. that Boeing is to produce certain goods in the United States, which are thus goods of US 
origin, which are destined to be used in the manufacture o f Boeing LCA to the exclusion 
of imported goods;  
b. that Boeing is to maintain certain employment levels in the United States which far 
exceed anything that would be necessary to produce LCA without any material local 
value added, and therefore necessarily im ply the use of some U .S. domestic goods;  
c. that Boeing is to locate substantial development or production activities in the 
United  States that it would be implausible to carry on solely on the basis that all 
materials would be imported, and thus which necess arily imply the use of some U .S. 
domestic goods;  
                                               
783 European Union's letter to the Panel, dated 4 March 2014, para. 12. The European Union asserts that 
Boeing announced its decision to manufacture the fuselage and large composite wing for the 777X in 
Washi ngton State on 4 January 2014, and because this occurrence satisfied the programme -siting condition, 
SSB 5952 became effective as of 8 February 2014. (European Union's letter to the Panel, dated 4 March 2014, 
para. 13 and fns 19 and 20).  
784 European Union's  letter to the Panel, dated 4 March 2014, paras. 14 -17. According to the 
European  Union, in contrast to the "programme -siting condition" which affects the availability of the 
Washington State tax measures only after 2024, the "exclusive -production conditio n" affects the availability of 
the B&O tax rate reduction for 777X -related revenue realized both before and after 2024.  WT/DS353/R W 
 
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  d. that statements attributable to the United States or Boeing refer expressly to the use of 
U.S. domestic goods or labour, or a proxy thereof, and are in nature both of 
encouragement or direction going forward , and at the same time, reward for past 
performance. Taken as a whole, these frequently reiterated statements have telegraphed 
a clear signal to Boeing that, should it favour the use of U .S. domestic goods and labour, 
it will be rewarded through the furthe r granting or maintaining of subsidies, and at the 
same time, a clear signal back to the United States government that Boeing will continue 
to favour local goods and labour so long as the United States keeps granting or 
maintaining subsidies.785 
7.475.    According t o the European Union, "through this system of subsidies, the United States has 
conditioned Boeing 's behaviour so as to induce or incentivise the use of domestic over imported 
goods. "786 These arguments and evidence are applicable to all of the measures chall enged in the 
proceeding, including the Washington State tax measures.  
7.476.   In its letter of 4 March 2014, the European Union foreshadows that it would, if granted 
leave to file a further submission, argue that as a result of the "programme -siting condition " and 
the "exclusive -production condition " contained in SSB 5952, the Washington State tax measures 
as amended by SSB 5952, constitute prohibited subsidies contingent on the use of domestic over 
imported goods , within the meaning of Article 3.1(b) of the SCM Ag reement.787 
7.477.   More specifically, the European Union would argue that, pursuant to the "programme -siting 
condition " in Section 2 of SSB 5952, the Washington State tax incentives received by Boeing after 
2024 are conditional on the establishment of a new commerc ial aircraft manufacturing programme 
that assembles an aircraft using goods (i.e. fuselages and wings) produced in the United States 
(i.e. Washington State). The Washington State tax incentives would not have been extended in 
duration to 2040 had Boeing de cided to "use", in the assembly of the 777X, wings and fuselages 
that were imported.788 In addition, the European Union would argue that, pursuant to the 
"exclusive -production condition ", the B&O tax rate reduction for the 777X is conditional upon 
Boeing 's use of wings exclusively produced in the United States (i.e. Washington State). Under this 
condition, Boeing will benefit from the B&O tax rate reduction for the 777X only if it "uses" wings 
assembled exclusively in Washington State for the 777X or any vari ant thereof.789 
7.7.5.3   The European Union 's claims under Article III:4 of the GATT 1994 with respect 
to the Washington State tax measures in its written submissions and as foreshadowed 
in its 4 March 2014 letter, as a result of SSB 5952  
7.478.   With respect to its claims under Article III:4 of the GATT 1994, the European Union alleges 
in its submissions that:  
a. the laws, regulations and requirements at issue are the "measures and subsidies ", 
including the Washington State tax measures;  
b. the "like products " of U.S. origin are  parts and materials capable of being used in the 
production of Boeing LCA;  
c. the measures at issue affect the internal sale, offering for sale, purchase, 
transportation, distribution or use of the imported product and the like U .S. product, 
effectively favo uring the like U .S. product.790 
7.479.   The European Union argues that the United States is granting or maintaining subsidies to 
Boeing, and that Boeing is to: produce goods of U .S. domestic origin destined to be used in the 
manufacture of Boeing LCA to the exclusio n of imported goods; maintain employment levels in the 
                                               
785 European Union's first written submission, paras. 769 -773; second written submission, 
paras.  840-850; and Illustrative statements rela ting to de facto  contingency on the use of domestic over 
imported goods, (Exhibit EU -583).  
786 European Union's first written submission, para. 774.  
787 European Union's letter to the Panel, dated 4 March 2014, para. 19.  
788 European Union's letter to the Panel,  dated 4 March 2014, para. 22.  
789 European Union's letter to the Panel, dated 4 March 2014, para. 23.  
790 European Union's first written submission, paras. 784 -787. WT/DS353/R W 
 
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  United States that cannot be sustained without the use of U .S. domestic products or materials; 
and locate substantial development and production activities in the United States (which 
necessarily impli es the use of U .S. domestic products or materials). The United States favours the 
use of U .S. domestic products or materials and labour, and conditions Boeing 's behaviour by 
encouraging and directing Boeing to favour U .S. domestic goods and labour, rewardi ng Boeing 
when it complies. The European Union concludes by arguing that, in light of all of the surrounding 
facts and circumstances, the measures at issue are applied so as to afford protection to domestic 
production of the U .S. like product and are thus inconsistent with Article III:4 of the GATT 1994.791 
7.480.   In its letter of 4 March 2014, the European Union foreshadows that it would, if granted 
leave to file a further submission, argue that the imported and domestic "like products " for 
purposes of the Article III:4 analysis are wings and fuselages in the case of the "programme -siting 
condition ", and wings with respect to the "exclusive -production condition ". Each of the two 
conditions in SSB 5952 affects the sale, purchase or use of the imported and domestic LC A 
components, as each condition, in differing circumstances, is capable of strongly influencing 
Boeing 's choice between imported components and U .S.-produced components for the 777X, 
insofar as the choice to utilize components produced outside of Washingto n State "would result in 
the loss of billions of US dollars in tax incentives to Boeing ".792 Moreover, each of the conditions 
that SSB  5952 attaches to the Washington State tax measures "radically changes the conditions of 
competition between domestic and im ported components for the 777X (i.e. wings and fuselages) 
to the detriment of imported components ".793 The European Union concludes by arguing that the 
availability of the Washington State tax incentives, conditioned on Boeing 's use of domestic inputs, 
provides an advantage to the use of such domestic input products and introduces non -commercial 
considerations (i.e. the loss of the tax incentives) into Boeing 's choice to use domestic or imported 
wings and fuselages. Therefore, the "conditional tax incentives " accord less favourable treatment 
to the imported products.794 
7.7.5.4   The European Union 's adverse effects claims with respect to the Washington 
State tax measures in its written submissions and as foreshadowed in its 4 March 2014 
letter, as a result of SSB 5952  
7.481.   With respect to its adverse effects claims, the European Union argues that the Washington 
State B&O tax credits for pre -production development are most closely linked to the 737 MAX  and 
787-10 as well as the 787 -8/-9 in earlier years, the Washington State p roperty tax credits for new 
investment are most closely linked to the 737NG, 737 MAX , and 787 (production sites for which 
Boeing has recently made the largest investments in land and facilities), the Washington State 
B&O tax credit for leasehold excise tax es applies with respect to the Dreamlifter Operations 
Center, used in Boeing 's production of the 787 as well as other Boeing facilities, while the 
Washington State sales and use tax exemptions for computer software, hardware, and peripherals  
are most close ly linked to the 737NG, 737 MAX , and 787.795 The European Union considers that 
the relationship between each of these subsidies and the development and production of the 
737NG, 737 MAX , and/or 787 family LCA, particularly in light of the competitive conditio ns in the 
relevant LCA markets, is evidence of a "genuine " causal link between these subsidies and the 
pricing of the relevant Boeing LCA.796 The Washington State B&O tax rate reduction, as a subsidy 
tied to sales of LCA, has a close link to the production a nd sale of every Boeing LCA manufactured 
in Washington State, which includes the 737NG, 787 , and soon, the 737 MAX  family of LCA.797 The 
Washington State B&O tax rate reduction is said to impact Boeing 's LCA pricing in a manner that 
constitutes a genuine and  substantial cause of adverse effects.798 
7.482.   In addition, the European Union in its submissions argues that the imminent launch of the 
777X, which benefits from the advanced technologies enabled by the aeronautics R&D subsidies 
and which is very likely to be of fered at aggressive prices in competitive campaigns against the 
                                               
791 European Union's first written submission, paras. 787 and 788; second written submission, 
paras. 859-864. 
792 European Union's letter to the Panel, dated 4 March 2014, para. 31.  
793 European Union's letter to the Panel, dated 4 March 2014, para. 33.  
794 European Union's letter to the Panel, dated 4 March 2014, para. 33.  
795 European Union's first written  submission, para. 1160.  
796 European Union's first written submission, para. 1162.  
797 European Union's first written submission, para. 1135.  
798 European Union's first written submission, paras. 1153 and 1154.  WT/DS353/R W 
 
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  A350XWB, causes a threat of significant price suppression799, as well as a threat of significant lost 
sales.800  
7.483.   In its letter of 4 March 2014, the European Union foreshadows that it would, if gra nted 
leave to file a further submission, argue that the extension of the Washington State tax measures 
also further strengthens the causal link between the alleged subsidies to Boeing and adverse 
effects to EU LCA -related interests, including in particular  the causal link to 777X -related adverse 
effects but also for the 787 - and 737 MAX -related adverse effects.801 More specifically, the 
European  Union would argue that its estimates of the amounts of Washington State tax measures 
to be received by Boeing from 2025 to 2040 is of a sufficiently large magnitude as to provide 
Boeing with significant pricing flexibility for sales of its 777X, 787 , and 737 MAX  aircraft.802  
7.484.   In sum, the Washington State tax measures as amended by SSB 5952 would further 
strengthen the ge nuine and substantial link that the European Union alleges to exist between the 
U.S. subsidies to Boeing and present adverse effects.803 Finally, the European Union expresses the 
view that the extension of the Washington State tax measures made Boeing 's deci sion to launch 
the 777X on 17 November 2013 significantly "more likely ", as that launch decision and the 
decision to locate its wing and fuselage production and assembly, as well as its final assembly, in 
Washington State "unlocked $8.7 billion in subsidie s, of which the vast majority is anticipated to 
go to Boeing ".804 
7.7.5.5   Conclusion  
7.485.   In sum, we understand that if granted leave to file an additional submission regarding the 
implications of SSB 5952:  
a. The European Union 's arguments in support of the claims under Ar ticle 3.1(b) of the 
SCM Agreement in respect of the Washington State tax measures will change from 
being arguments that certain evidence gives rise to a clear inference that the receipt of 
the Washington State tax measures, in conjunction with all of the o ther measures 
alleged to be subsidies, conditions Boeing 's behaviour to use domestic over imported 
goods; to arguments that the "programme -siting condition " expressly conditions 
receipt of post -2024 Washington State tax incentives on the use of 
domesticall y-produced wings and fuselages in the assembly of the 777X, and the 
"exclusive -production condition " expressly conditions receipt of the B&O tax rate 
reduction in respect of 777X revenues on the use of domestically -produced wings 
assembled exclusively in W ashington State.  
b. The European Union 's arguments in support of the claims under Article III:4 of the 
GATT  1994 in respect of the Washington State tax measures will change from being 
arguments that certain evidence gives rise to a clear inference that all of  the measures 
at issue, including the Washington State tax measures, are being applied so as to 
afford protection to domestic production of the U .S. like products and materials; to 
arguments that the "programme -siting condition " changes the conditions of 
competition between domestic and imported wings and fuselages for the 777X in 
favour of the domestic products, and the "exclusive -production condition " changes the 
conditions of competition between domestic and imported wings for the 777X in favour 
of the d omestic product. The Washington State tax mea sures, as amended by 
SSB 5952, thus provide an advantage to domestic input products by influencing 
Boeing 's choice of domestic compared to imported wings and fuselages in favour of the 
former, thereby according less favourable treatment to the imported products.  
                                               
799 European Union's first written submission, para.  1321.  
800 European Union's first written submission, paras. 1555 and 1566. The European Union also argues in 
its response to Panel question No. 42 that the launch orders and commitments for the 777X demonstrate that 
the threat of significant lost sales has now materialized into present significant lost sales. (European Union's 
response to Panel question No. 42, para. 273).  
801 European Union's letter to the Panel, dated 4 March 2014, paras. 34 and 37.  
802 European Union's letter to the Panel, dated 4 March 2014,  paras. 38 -42. 
803 European Union's letter to the Panel, dated 4 March 2014, para. 43.  
804 European Union's letter to the Panel, dated 4 March 2014, para. 44.  WT/DS353/R W 
 
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  c. With respect to its arguments pertaining to the effects under Articles 5(c) and 6.3 of 
the SCM Agreement of the Washington State tax measures, the differences in 
arguments will relate to the impact of the  increased amounts of the subsidies involved 
(owing to the extension of the Washington State tax measures to 2040) on the causal 
analysis as well as a new argument that SSB 5952 made Boeing 's decision to launch 
the 777X in November 2013 significantly more likely.  
7.486.   Based on this understanding, the impact of SSB 5952 on the Washington State tax 
measures in the context of the European Union 's existing arguments concerning the relevant 
claims appears to us to be significant, particularly in relation to the claim s under Article 3.1(b) of 
the SCM Agreement and Article III:4 of the GATT 1994, but also in relation to the adverse effects 
claims under Articles 5(c) and 6.3 of the SCM Agreement.  
7.487.   We next turn to the parties ' arguments as to whether the Washington State t ax measures, 
as amended by SSB 5952, are within the Panel 's terms of reference and our evaluation of that 
issue.  
7.7.6   Whether the Washington State tax measures as amended by SSB 5952 are within 
the Panel 's terms of reference  
7.7.6.1   Main arguments of the parties  
7.7.6.1.1   United  States  
7.488.   The United States argues that, whether characterized as "additional measures taken to 
comply " or as "Washington State tax incentives as amended by SSB 5952 ", the claims in respect 
of SSB 5952 are not within the Panel 's terms of reference.  
7.489.   First, a s "additional measures ", the SSB 5952 measures are not within the Panel 's terms of 
reference because SSB 5952 was not identified in the European Union 's panel request.805 The 
inclusion of the terms "amendments " and "extensions " in the European Union 's panel request, 
coupled with the assertion that SSB 5952 "amends " or "extends " measures that were themselves 
already identified in the panel request, does not provide a basis for including SSB 5952 with the 
Panel 's terms of reference. To conclude that a new measu re is necessarily within a panel 's terms of 
reference provided it can be characterized as an amendment to a measure that is within the terms 
of reference through the inclusion of the word "amendment " in the panel request, regardless of the 
timing or nature  of the amendment, would enable complaining parties to circumvent the 
requirements of Article 6.2 of the DSU by including broad "placeholders " in their panel request. 
This would deny responding parties a full briefing on the issues before the panel and und ermine 
the notice element of a panel request, including as regards potential third parties, who would be 
prevented from knowing whether the dispute would affect their interests.806 
7.490.   The United States argues that the Appellate Body has cautioned that a measure  enacted 
subsequent to the establishment of a panel only falls within the panel 's terms of reference in 
certain limited circumstances; namely, where the new measure merely amends an original 
measure and the amendment does not in any way "change the essence " of the original 
measure.807 Here, the European Union makes contradictory assertions. On the one hand it argues 
that the passage of SSB 5952 raises important new matters for the Panel 's consideration, 
particularly through the establishment of the new "progr am-siting condition " and 
"exclusive -production condition " which the European Union considers to be inconsistent with 
Article  3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994. On the other hand, it 
argues at the same time that SSB 5952 is with in the Panel 's terms of reference because it merely 
                                               
805 United States' letter to the Panel , dated 21 March 2014, para. 2.  
806 United States' letter to the Pa nel, dated 9 April 2014, para. 7. The United States submits that no 
panel or Appellate Body reports endorse the expansive doctrine advocated by the European Union, according to 
which a mere reference to "amendments" in the panel request "somehow sweeps all  subsequent amendments 
into a panel's terms of reference, even if they change the essence of the original measure". 
(United  States'  letter to the Panel , dated 9  April 2014, para. 10).  
807 United States' letter to the Panel , dated 21 March 2014, para. 4 (refe rring to Appellate Body Reports 
Chile – Price Band System , para. 137; and EC – Chicken Cuts , para. 157). See also United States' letter to the 
Panel , dated 9 April 2014, para.  7. WT/DS353/R W 
 
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  amends the Washington State tax measures, without changing their essential character.808 
According to the United States, if the conditions have the implications that the European Union 
alleges, they cannot leave the Washington State tax measures "essentially unchanged " such that 
they should be considered within the Panel 's terms of reference.809 Rather, the European Union 's 
arguments raise different claims regarding the tax treatment accorded pursuant to HB 22 94 as 
opposed to the new claims regarding tax treatment allegedly accorded pursuant to SSB 5952.810 
The United States considers that the European Union is in reality seeking to raise new prohibited 
subsidy and other claims that it did not articulate until Ma rch 2014, almost 17 months after its 
request for the establishment  of a panel.811  
7.491.   The United States says that this inherent contradiction in the European Union 's position is 
not addressed by characterizing the European Union 's claims as concerning "the cont inuing flow of 
Washington State tax incentives ".812 The "continuing flow " of tax incentives cannot be considered 
in the abstract, divorced from HB 2294, which enacted the tax measures identified in the 
European  Union 's panel request and the amendments allege dly embodied in SSB 5952. In any 
case, it does not obscure the fact that the European Union 's own arguments raise different claims 
regarding the tax treatment accorded under the Washington State tax measures enacted under 
HB 2294 and tax treatment allegedl y accorded under SSB 5952.813 
7.492.   The United States submits that a compliance panel 's terms of reference are not 
open-ended "evolving to capture anything the responding Member does at any point during the 
panel process ".814 According to the United States, the B&O tax rate reduction enacted under 
HB 2294 and payments made pursuant to that aspect of HB 2294 are within the Panel 's terms of 
reference, while any modifications to the conditions for receiving subsidies in the future are not.815 
This is an even -handed princi ple that applies whether the subsequent amendments "increase " or 
"decrease " the WTO -consistency of a challenged measure. In either case, the subsequent 
amendment does not change the "matter " before the panel, as set out in the panel request.  The 
United Sta tes considers that the systemic and procedural fairness concerns that would arise if the 
DSU were read to permit compliance panels to examine new measures or modifications during the 
course of proceedings, which were identified by the United States and the  Appellate Body in US – 
Zeroing (Japan) (Article 21.5 – Japan ), cannot be brushed aside in this case. The United 
States ' interests in knowing the case alleged against it and presenting a full defence would be 
prejudiced if the Panel were to allow the Europ ean Union to raise claims against the United States 
under Articles 3.1 and 3.2 of the SCM Agreement and Article III:4 of the GATT 1994, or if the 
Panel allows the European  Union to introduce new claims and measures at this late stage of the 
dispute, after the European Union has already made its case in chief and the United States has 
already presented its defences, and after the Panel has already met with the parties.816  
7.493.   Finally, the United States refers to its request for preliminary rulings that the 
Europe an Union 's panel request fails to meet the requirements of Article 6.2 of the DSU with 
respect to claims under Articles 3.1(a), 3.1(b), and 3.2  of the SCM Agreement and under 
Articles  III:1, III:4 , and III:5 of the GATT 1994 because it fails to provide a b rief summary of the 
                                               
808 United States' letters to the Panel , dated 21 March 2014, para. 5 , and dated 9 April 2014, paras. 4 
and 5.  
809 United States' letters  to the Panel , dated 21 March 2014, para. 5, and dated 9 April 2014, paras. 4 
and 11. The United States considers that the European Union's assertion that the "tax incentives that are the 
subject of i ts additional claims are the very same tax incentives" listed in the European Union's panel request 
suffers from the same contradiction: the European Union cannot make this assertion consistently with an 
argument that the Washington State tax measures, as amended by SSB 5952, give rise to new legal claims, 
because in that case, the measures cannot be the same measures as were identified in the European Union's 
panel request. (United States' letter to the Panel, dated 9 April 2014, para. 5).  
810 United States'  letter to the Panel , dated 9 April 2014, para. 6.  Moreover, the United States argues 
that the European Union cannot characterize the new claims as concerning the "continuing flow" of Washington 
State tax incentives, divorced from HB 2294, which enacted th e Washington State tax measures, and 
amendments to those measures allegedly embodied in SSB 5952.  
811 United States' letter to the Panel , dated 9 April 2014, para. 9.  
812 United States' letter to the Panel , dated 9 April 2014, para. 6 (referring to European Un ion's letter to 
the Panel , dated 31  March  2014, paras. 6 -8). 
813 United States' letter to the Panel , dated 9 April 2014, para. 6.  
814 United States' letter to the Panel , dated 9 April 2014, para. 9.  
815 United States' letter to the Panel , dated 9 April 2014, par a. 9. 
816 United States' letter to the Panel , dated 9 April 2014, para. 15.  WT/DS353/R W 
 
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  complaint sufficient to present the problem clearly.817 In this regard, it submits that the section of 
the European Union 's panel request discussing the challenged Washington State tax measures 
does not mention Article 3.1(b) of the SCM A greement or Article III:4 of the GATT 1994, and 
accordingly, the European Union 's claims under those provisions are not within the panel 's terms 
of reference.818  
7.7.6.1.2   European Union  
7.494.   The European Union considers the United States ' arguments incorrectly reduce the  subject 
of the European Union 's claims to SSB 5952 as a single measure, whereas it is evident from the 
European Union 's request for leave that the measures at issue are the "Washington State tax 
incentives, as amended by SSB 5952 " and not simply SSB 5952.819  
7.495.   Furthermore, the European Union asserts that the measures at issue include "all instances 
of application of the Washington State tax incentives ", irrespective of any amendments to the 
subsidy programme itself.820 The European Union 's claims demonstrate th at it is the "continuing 
flow of these tax incentives , and the attendant conditions established by SSB 5952 " which are 
subject to the claims under Article 3 of the SCM Agreement, Article III:4 of the GATT 1994 and 
which contribute to adverse effects.821 According to the European Union, the United States does 
not, and cannot, contest that the "continuing flow of Washington State tax incentives " is clearly 
identified in the European Union 's panel request.822 This being so, there is no basis for the 
United  States to argue that those Washington State tax measures are outside the Panel 's terms of 
reference.823 As the United States ' objection relates only to the amendments to the Washington 
State law made by SSB 5952 and not the continuing flow of the tax incentives pur suant to that 
law, the United States has only purported to address one of two alternative reasons why the 
measures are within the scope of this proceeding.824  
7.496.   In any event, the European Union notes that its panel request explicitly identified the 
measures a t issue as encompassing "any amendments " and "extensions " of the challenged 
measures it had specifically identified. SSB 5952 merely "amends " or "extends " the Washington 
State tax measures already at issue in this proceeding.825 The United States does not ex plain why 
listing "amendments " and "extensions " in the European Union 's panel request is insufficient to 
"identify the specific measures " and consequently bring those measures within the Panel 's terms of 
reference.826 The European Union refers in this regard  to statements by the Appellate Body that 
the text of Article 6.2 of the DSU does not require that a measure be referred to individually in 
order to be properly identified for purposes of Article 6.2; rather, there may be circumstances in 
which a party des cribes a measure in a more generic way, which nonetheless allows the measure 
to be discerned.827 According to the European Union, a panel request can identify measures or a 
category of measures with some breadth while still meeting the requirement of Article  6.2 of the 
DSU to identify the specific measures at issue. In the present case, the references to 
"amendments " and "extensions " in the European Union 's panel request are broad enough to make 
it possible to discern that the challenged measures included SSB  5952 and put the United States 
on notice that the amendments to the Washington State tax measures embodied in SSB 5952 
were covered by the European Union 's panel request.828  
                                               
817 United States' letters to the Panel , dated 21 March 2014, para. 6, and dated 9 April 2014, para.  14 
(referring to United States' request for preliminary rulings, dated 13 November 2012, paras. 45 -57). 
818 United States' letters to the Panel , dated 21 March 2014, para. 6, and dated 9 April 2014, para. 14.  
819 European Union's letter to the Panel , dated 31 March 2014, para. 6 (referring to European Union's 
letter to the Panel , dated 4  March 2014, para. 18).  
820 European Union's letter to the Panel , dated 31 March 2014, para. 6.  
821 European Union's letter to the Panel , dated 31 March 2014, para. 6. (emphasis original)  
822 European Union's letter to the Panel , dated 31 March 2014, para. 7 (referr ing to European Union's 
request for the establishment of a panel, para. 17; and United States' second written submission, para. 457).  
823 European Union's letter to the Panel , dated 31 March 2014, para. 7.  
824 European Union's letter to the Panel , dated 31 Ma rch 2014, para. 8.  
825 European Union's letter to the Panel , dated 4 March 2014, para. 18.  
826 European Union's letter  to the Panel , dated 31 March 2014, para. 9.  
827 European Union's letter to the Panel , dated 31 March 2014, para. 9 (referring to Appellate Bod y 
Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 116).  
828 European Union's letter to the Panel , dated 31 March 2014, para. 10.  WT/DS353/R W 
 
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  7.497.   The European Union also disagrees with the United States that a measure which is 
amended subsequent to the establishment of a panel cannot fall within the panel 's terms of 
reference unless it remains "essentially unchanged ".829 Article 6.2 of the DSU does not 
categorically prohibit the inclusion within a panel 's terms of reference of meas ures that come into 
existence or are completed after the panel request is submitted.830 The United States has sought 
to rely on brief quotations from the Appellate Body Reports in Chile – Price Band System  and EC – 
Chicken Cuts  in support of its position. Ho wever, these reports to not provide support for such a 
rule and in fact support the contrary conclusion.831 
7.498.   The European Union argues that, even if there were a rule that a measure which is 
amended subsequent to the establishment of a panel is outside the pa nel's terms of reference 
unless the amendments leave the measure "essentially unchanged ", SSB 5952 did not "change the 
essence " of the Washington State tax measures and thereby "shield " the amended measures from 
scrutiny by this Panel. In this regard, the European Union disputes that the two new conditions for 
the extension of the tax measures are the "essence " of the amended measures. Rather, the 
"essence " of the amended measures continues to be the nature of those measures as tax 
incentives, the condition s attendant to an outcome being merely ancillary to that outcome.832  
7.499.   Moreover, the United States ' position ignores the Appellate Body 's clarification that the 
requirements of Article 6.2 must be adapted to a panel request under Article 21.5, and its caution  
that the a priori  exclusion from a compliance panel 's terms of reference of measures that were not 
fully in place at the time of the panel request would frustrate the compliance panel 's function 
because the disagreement as to the existence or consistency with a covered agreement of 
measures taken to comply could not be fully resolved by the panel.833 Failure to do so, the 
European Union argues, would frustrate the compliance panel 's function and would hinder the 
ability to achieve prompt settlement and to se cure a positive solution to the dispute as reflected in 
Articles 3.3 and 3.7 of the DSU.834 
7.500.   As to the United States ' argument that the European Union 's panel request does not 
sufficiently connect the challenged measures with the European Union 's claims under  
Articles  3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994, the European Union 
notes that paragraphs 30 and 32 of the European Union 's panel request specifically relate those 
claims to the subsidy measures listed in section I.D of the panel r equest, which lists all of the 
Washington State tax measures, as amended and extended by SSB 5952, including their instances 
of application.835 The European Union considers that the United States ' complaint is not so much 
that the claims were not precisely l inked with the measures, but that the arguments supporting 
those claims had not been summarized in the panel request. However, Article 6.2 of the DSU does 
not require a party to set out arguments or evidence in support of its claims in its panel request. 
Moreover, the United States has not shown that it suffered any prejudice from the alleged 
shortcomings in the panel request, based on the objective of Article 6.2 of the DSU of providing 
notice to the responding party regarding the nature of the dispute, in  order to satisfy due process 
concerns.836 
7.7.6.2   Evaluation  
7.501.   In this compliance proceeding, the European Union claims that the Washington State tax 
measures constitute prohibited export subsidies inconsistent with Articles 3.1(a), 3.1(b), and 3.2  
of the SCM Agreem ent, and specific subsidies that cause adverse effects , within the meaning of 
Article  5(c) and 6.3 of the SCM Agreement, as well as measures that are inconsistent with 
Article  III:4 of the GATT 1994. As originally enacted pursuant to  HB 2294, and as identi fied in the 
European  Union 's panel request, the Washington State tax measures continue in effect until 
1 July 2024.  
                                               
829 European Union's letter to the Panel , dated 31 March 2014, para. 11.  
830 European Union's letter to the Panel , dated 3 1 March 2014, p ara. 16.  
831 European Union's letter to the Panel , dated 31 March 2014, paras. 11 -16. 
832 European Union's letter to the Panel , dated 31 March 2014, para. 11 , fn 26.  
833 European Union's letter to the Panel , dated 31 March 2014, para. 17 (referrin g to Appellate Body 
Reports, US – FSC (Article 21.5 – EC II), para. 59; and US – Zeroing (Japan) (Article 21.5 – Japan ), 
paras.  109, 122, and 124).  
834 European Union's letter to the Panel , dated 31 March 2014, para. 17.  
835 European Union's letter to the Pane l, dated 31 March 2014, para. 19.  
836 European Union's letter to the Panel , dated 31 March 2014, paras. 21 -23. WT/DS353/R W 
 
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  7.502.   As explained in Section  7.7.5.1 , SSB 5952 alters the future availability of the Washington 
State tax measures by extending their expiration date from 1 July 2024 to 1 July 2040, subject to 
a new condition, and imposes a new condition on eligibility for the B&O tax rate reduction in 
respect of certain revenues that Boeing will recognize in the future. SSB 5952 was enacted on 
11 November  2013, more than a year after the European Union 's panel request, and several 
months after the meeting of the Panel.837 Consequently, SSB 5952 was not explicitly identified by 
the European Union in its panel request.  
7.503.   The question before  us is whether the Washington State tax measures, as amended by 
SSB 5952, are within our terms of reference, although SSB 5952 was not explicitly identified in the 
European Union 's panel request, and was neither enacted nor came into effect until over a ye ar 
after the panel request. In answering this question, we must determine whether the references in 
the European Union 's panel request to "amendments " and "extensions " of the explicitly identified 
measures sufficiently identify the specific Washington Stat e tax measures, as amended by 
SSB 5952, for purposes of Article 6.2 of the DSU.  
7.504.   Article 6.2 of the DSU provides, in relevant part:  
The request for the establishment of a panel shall be made in writing. It shall indicate 
whether consultations were held, id entify the specific measures at issue and provide a 
brief summary of the legal basis of the complaint sufficient to present the problem 
clearly.  
7.505.   A panel request must therefore : (a) identify the specific measures at issue ; and (b) 
provide a brief summary of  the legal basis of the complaint sufficient to present the problem 
clearly. Together, these two elements constitute the "matter referred to the DSB ", which forms the 
basis of a panel 's terms of reference under Article 7.1 of the DSU.838 The panel request th us 
defines the jurisdiction of the panel, since only the matter(s) raised in the panel request fall within 
the panel 's terms of reference. In addition, the panel request serves the due process objective of 
notifying the parties and potential third parties of the nature of the dispute and the parameters of 
the case to which they must begin preparing a response.839 
7.506.   In evaluating whether the European Union 's panel request meets the requirements of 
Article  6.2 of the DSU in relation to the identification of the W ashington State tax measures as 
amended by SSB 5952, we must also take into account that this is a compliance proceeding 
brought pursuant to Article 21.5 of the DSU. The Appellate Body has stated that, although 
Article  6.2 is generally applicable to panel requests under Article 21.5 "the requirements of 
Article  6.2, as they apply to an original panel request, need to be adapted to a panel request under 
Article  21.5."840 As the Appellate Body stated in US – FSC (Article 21.5 – EC II ), in Article 21.5 
proceedin gs, the "specific measures at issue " are measures "that have a bearing on compliance 
with the recommendations and rulings of the DSB ".841 This indicates that the "requirements of 
Article 6.2 of the DSU, as they apply to an Article 21.5 panel request, must be  assessed in the 
light of the recommendations and rulings of the DSB in the original … proceedings that dealt with 
the same dispute. "842 
7.507.   The parties have directed the Panel to several cases in which panels and the Appellate 
Body have considered that measures  not explicitly identified in a panel request, which came into 
                                               
837 The European Union's panel request is dated 12 October 2012. The parties filed their first and second 
written submissions by August 2013 and the Panel held its meeting with the parties and third parties in 
October 2013. The parties additionally responded to a first set of Panel questions and commented on each 
other's responses to those questions by December 2013. According to the European Union, SS B 5952 did not 
enter into effect until February 2014, owing to the fact that Boeing did not announce its decision to locate the 
777X facilities in Washington State until January 2014.  
838 Appellate Body Reports, Guatemala – Cement I , para. 72; US – Carbon St eel, para. 125; and US – 
Continued Zeroing , para. 160.  
839 Appellate Body Reports, US – Carbon Steel , para. 126; Brazil – Desiccated Coconut , para. 186; EC – 
Bananas III , para. 142; and US – Continued Zeroing , para. 161.  
840 Appellate Body Reports, US – FSC (A rticle 21.5 – EC II), para. 59; and US – Zeroing (Japan) 
(Article  21.5 – Japan ), para. 109.  
841 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61.  
842 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61. See also Appellate Body Repo rt, US 
– Zeroing (Japan) (Article 21.5 – Japan ), para. 109.  WT/DS353/R W 
 
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  existence in whole or in part after the date of the panel request, were nevertheless within the 
panel 's terms of reference. We have reviewed these cases and set forth below our understanding 
of those issues and the manner in which they were resolved.  
7.508.   We begin with Chile – Price Band System , in which Chile, by enacting Law 19.772, 
amended the law setting out the methodology for calculating the upper and lower thresholds of the 
price band system t hat had been challenged by Argentina.843 Chile informed the panel of this 
amendment at the second substantive meeting with the parties. The facts regarding this 
amendment to Chile 's price band system are worth recounting in some detail.  Law 19.772 
amended th e law setting forth the methodology for calculating the upper and lower thresholds for 
the price band system by adding a paragraph to make explicit that there was a cap on the amount 
of the total tariff that could be applied under the system at the tariff rate at which Chile was bound 
in its Schedule. Chile explained to the Appellate Body that Law 19.772 was "merely declaratory in 
nature " because the total amount of duties that could be applied on products subject to the price 
band system had been subject t o a tariff binding since the Tokyo Round.844 According to Chile, 
Law 19.772 did not change this tariff binding, but merely "reinforced " Chile's existing obligations, 
serving to "reassure " Chile's trading partners that there would be no recurrence of previous  
breaches of its tariff binding.845 
7.509.   The Appellate Body considered that it was first necessary to identify whether the measure 
before it on appeal was Chile 's price band system as amended by Law 19.722, or Chile 's price 
band system as it existed before the en try into force of Law 19.722.846 The Appellate Body recalled 
that Argentina 's panel request referred to the measure at issue as the price band system under 
the relevant laws, "as well as the regulations and complementary provisions and/or amendments ". 
The Ap pellate Body considered that such amendments included Law 19.722 and that "the broad 
scope of the Panel request suggests that Argentina intended the request to cover the measure 
even as amended ". The Appellate Body thus concluded that Law 19.772 fell withi n the panel 's 
terms of reference.847  
7.510.   The Appellate Body then went on to address the issue of the "identity of the measure " in 
situations where there are subsequent regulatory changes relevant to a measure. In this context, 
the Appellate Body explained that Law 19.772 "clarified " the legislation that established Chile 's 
price band system, but did not change the price band system into a measure that was different 
from the price band system that was in force before the amendment.848 In short, Chile 's price 
band s ystem remained essentially the same after the enactment of Law 19.772, and the measure 
was not "in its essence " any different because of that amendment. The Appellate Body therefore 
concluded that the measure before it included Law 19.772 "because that law  amends Chile 's price 
band system without changing its essence ".849 Moreover, it noted that the participants did not 
object to the Appellate Body ruling on the price band system as currently in force in Chile; namely, 
as amended by Law 19.772.850 
7.511.   The Appellate  Body referred with approval to the approach taken by the panel in Argentina 
– Footwear (EC ) in examining modifications to a safeguard measure during the course of panel 
                                               
843 Chile had explained to the Appellate Body that, recognizing that Chile had breached its WTO 
commitments, it passed Law 19.772 to avoid the possibility of a recurrence of a breach of the tariff b inding. 
(Appellate Body Report, Chile – Price Band System , para. 126).  
844 Appellate Body Report, Chile – Price Band System , para. 131.  
845 Appellate Body Report, Chile – Price Band System , para. 131. Chile had argued before the panel that 
the amendment "elim inated the measures" that Argentina had challenged because, even if Argentina were 
correct in respect of its claims that Chile's price band system violated Article II of the GATT 1994, there was a 
"positive solution" to the dispute through the enactment of  legislation assuring that the tariff binding would not 
be breached in future. (See Appellate Body Report, Chile – Price Band System , para. 128 and fn 108 (quoting 
from Chile's oral statement at the Panel's second meeting with the parties, para. 6)).  
846 Appellate Body Report, Chile – Price Band System , para. 127. This issue did not arise because of a 
challenge by either party to the consideration of the price band system as amended by Law 19.772 as within 
the panel's terms of reference, but rather, was the r esult of a question raised by the Appellate Body, of its own 
motion, as to the identity of the measure on appeal given the lack of clarity in the parties' submissions on that 
issue and the fact that the panel appeared to have ruled on the price band system  as it stood both before and 
after the amendment by Law 19.772. (See Appellate Body Report, Chile – Price Band System , paras. 131 -133).  
847 Appellate Body Report, Chile – Price Band System , para. 135.  
848 Appellate Body Report, Chile – Price Band System , para.  137. 
849 Appellate Body Report, Chile – Price Band System , para. 139. (emphasis original)  
850 Appellate Body Report, Chile – Price Band System , para. 143.  WT/DS353/R W 
 
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  proceedings on the ground that the modifications simply altered the legal form of the original 
definitive measure which remained in force in substance and which was the subject of the 
complaint.851 It then stated:  
We emphasize that we do not mean to condone a practice of amending measures 
during dispute settlement proceedings if such changes are made with a view to 
shielding a measure from scrutiny by a panel or by us. We do not suggest that this 
occurred in this case. However, generally speaking, the demands of due process are 
such that a complaining party should not have to adjust its pleadi ngs throughout 
dispute settlement proceedings in order to deal with a disputed measure as a "moving 
target ". If the terms of reference in a dispute are broad enough to include 
amendments to a measure – as they are in this case – and if it is necessary to 
consider an amendment in order to secure a positive solution to a dispute – as it is 
here – then it is appropriate to consider the measure as amended  in coming to a 
decision in a dispute.852  
7.512.   It is not entirely clear whether the Appellate Body considered Law 19.772 to be properly 
before it on appeal because of the "broad scope " of Argentina 's panel request in referring also to 
"amendments " to the price band system853, or because Law 19.772 amended the price band 
system without "changing its essence "854, and indeed  whether these grounds were cumulative or 
each independent and sufficient bases for the Appellate Body 's decision the consider the measure, 
as amended, to be the measure before it on appeal. The European Union relies on the last 
sentence of the above quota tion from the Appellate Body Report in Chile – Price Band System , 
arguing that similar reasoning applies in this case.855  
7.513.   However, the Appellate Body 's subsequent discussions of Chile – Price Band System  in 
cases such as EC – Chicken Cuts  and US – Zeroing ( Japan) (Article 21.5 – Japan ) indicate that the 
Appellate Body was not suggesting that, simply because a new measure could be said to "amend " 
or "extend " the operation or application of a measure that is identified in a complainant 's panel 
request, and the  panel request specifies that the challenged measures include any "amendments " 
to or "extensions " of identified measures, the new measure will thereby necessarily fall within a 
panel 's terms of reference. Rather, as the Appellate Body has made clear in sub sequent cases, 
where the measure at issue comes into existence after the date of the panel request, the primary 
consideration, assuming that the wording of the panel request is "sufficiently broad " so as not to 
preclude the identification of the new measur e, is whether the explicitly identified measure could 
be said to remain "essentially unchanged " following the enactment of the subsequent measure. 
Thus, the focus is on the relationship between the original, explicitly identified measure, and the 
subsequen t measure.  
7.514.   In EC – Chicken Cuts , the panel and Appellate Body both concluded that two new 
measures could not be considered to be identified in the complaining parties ' panel requests 
consistently with Article 6.2 of the DSU.856 It was undisputed that the tw o "original " measures,  EC 
Regulation  1223/2002 and EC Decision 2003/97/EC, were within the panel 's terms of reference as 
                                               
851 Appellate Body Report, Chile – Price Band System , para. 138 (referring to Panel Report, Argentina – 
Footwear (EC ), para. 8.45).  In Argentina – Footwear (EC ), the panel interpreted the European 
Communities'  panel request as clearly identifying the provisional and definitive safeguard measures (rather 
than simply the cited resolutions and promulgations in Ar gentina's Official Journal that imposed the provisional 
and definitive measures). Because it was the provisional and definitive safeguard measures in their substance, 
rather than the legal acts in their original or modified legal forms, that were relevant to the panel's terms of 
reference, the panel concluded that its terms of reference included subsequent resolutions that modified the 
definitive safeguard and were not explicitly mentioned in the European Communities' panel request.  (Panel 
Report, Argentina  – Footwear (EC ), paras. 8.40 -8.46).  
852 Appellate Body Report, Chile – Price Band System , para. 144. (emphasis original)  
853 Appellate Body Report, Chile – Price Band System , para. 135.  
854 Appellate Body Report, Chile – Price Band System , paras. 137 -139. 
855 European Union's letter to the Panel, dated 31 March 2014, para. 13.  
856 One of the new measures was published and entered into force after both Brazil and Thailand's 
respective requests for establishment of a panel. The other new measure (1871/2003) was publis hed on 
23 October 2003 and entered into force on the twentieth day following its publication. Brazil's panel request 
was dated 22 September 2003 and Thailand's 28 October 2003. (Appellate Body Report, EC – Chicken Cuts , 
para. 151 and fn 304).  WT/DS353/R W 
 
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  having been explicitly identified in the complaining parties ' panel requests.857 The question was 
whether two "subsequent " measures; EC R egulations 1871/2003 and 2344/2003, which had not 
been explicitly identified, were also within the panel 's terms of reference. The panel had concluded 
that the two subsequent measures did not purport to be "amendments " to the two original 
measures and that , in contrast to other cases, the panel requests in this proceeding were not 
sufficiently broad to include the two subsequent measures.858 The Appellate Body took a different 
approach to the issue. It began by observing:  
The term "specific measures at issue " in Article 6.2 suggests that, as a general rule , 
the measures included in a panel 's terms of reference must be measures that are in 
existence at the time of the establishment of the panel. However, measures enacted 
subsequent to the establishment of the p anel may, in certain limited circumstances , 
fall within a panel 's terms of reference.859  
7.515.   The Appellate Body recalled that it had addressed such a situation in Chile – Price Band 
System , in which it had examined the relationship between the original measure and the 
subsequent amendment to that measure, finding that the original measure (Chile 's price band 
system) remained "essentially unchanged " following the enactment of the subsequent measure 
(Law 19.772). The Appellate Body described its decision in Chile – Price Band System  in the 
following way:  
Thus, the Appellate Body found that, where an original measure had merely been 
amended  by a subsequent measure and the amendment did not, in any way, change 
the essence  of the original measure, the measure in its a mended form could 
constitute the "specific measure {} at issue " identified in the panel request.860  
7.516.   Turning to consider the relationship between the two original measures and the two 
subsequent measures before it, the Appellate Body noted that : (a) the two s ubsequent measures 
made no explicit reference to the two original measures, which remained in force ; and (b) the two 
subsequent measures had "legal implications " different from those of the two original measures.861  
7.517.   The Appellate Body was not persuaded that  the two subsequent measures could be 
considered "amendments " to the two original measures in the way that Law 19.772 was 
considered an "amendment " to Chile 's price band system, or that the two sets of measures were 
"in essence, the same ".862 Moreover, it di d not consider that an argument that the two subsequent 
measures nevertheless had the same effect as the two original measures (i.e. the reclassification 
of the products at issue) was a sufficient basis for finding the two subsequent measures fell within 
the panel 's terms of reference, when it would undermine the requirement of specificity and the due 
process objective enshrined in Article 6.2 of the DSU.863 
                                               
857 The first o f these measures, EC Regulation 1223/2003, specified a certain classification for frozen 
boneless chicken cuts with a salt content of 1.2 to 1.9%. The second, EC Decision 2003/97/EC, required the 
withdrawal of binding tariff information (BTIs) providing fo r a different classification of a product considered to 
be a similar product, namely, frozen boneless chicken cuts with a salt content of 1.9 to 3%.  
858 Panel Report, EC – Chicken Cuts , para. 7.27 (comparing at fn 61, the panel requests in Chile – Price 
Band System , EC – Bananas III , Argentina – Textiles and Apparel , and Australia – Salmon ). 
859 Appellate Body Report, EC – Chicken Cuts , para. 156. (emphasis added , fn omitted)  
860 Appellate Body Report, EC – Chicken Cuts , para. 157. (emphasis added)  
861 More specifi cally, one of the original measures specified a certain classification for a particular 
product (i.e. frozen boneless chicken cuts with a salt content of 1.2 to 1.9%), while the other required the 
withdrawal of BTIs providing for a different classification  of a product considered to be a similar product (i.e. 
frozen boneless chicken cuts with a salt content of 1.9 to 3%). By contrast, the two subsequent measures 
amended the European Communities' Combined Nomenclature and covered all types of salted meat fal ling 
under a particular heading of the Combined Nomenclature. ( Appellate Body Report, EC – Chicken Cuts , 
para. 158).  
862 Appellate Body Report, EC – Chicken Cuts , para. 159.  
863 The Appellate Body similarly considered that the objective of securing a positive resolution to the 
dispute reflected in Articles 3.3 and 3.7 of the DSU could not be pursued at the expense of complying with the 
specific requirements and obligations of Article 6.2. ( Appellate Body Report, EC – Chicken Cuts , paras. 160 and 
161).  Subsequen tly, in EC – Selected Customs Matters , the Appellate Body explained the principles it had 
articulated in Chile – Price Band System  and EC – Chicken Cuts  in the following manner. First, it began by 
recalling from EC – Chicken Cuts  that the term "specific me asures at issue" in Article 6.2 suggests that as a WT/DS353/R W 
 
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  7.518.   In US – Zeroing (Japan) (Article 21.5 – Japan ), the issue before the panel and the 
Appellate Body was whether a periodic review of an anti -dumping duty order on imports of ball 
bearings from Japan that had been initiated prior to commencement of the compliance proceeding, 
but not completed until the compliance proceeding was underway (Review 9), was within  the 
compliance panel 's terms of reference. Japan 's panel request had not  specifically identified 
Review  9, although it had identified prior completed periodic reviews of the same anti -dumping 
duty order (all of which were alleged to have involved the use of zeroing, contrary to the DSB 
recommendations and rulings in the original proceeding). Japan 's panel request also purported to 
cover any amendments to the identified periodic reviews, and closely connected instructions and 
notices, as well as "any subseq uent closely connected measures ".864 Japan had not referred to or 
made any claims with respect to Review 9 in its first or second written submissions to the Panel, 
which had been filed prior to the USDOC 's publication of the final results of Review 9.865  
7.519.   Shortly after the USDOC 's publication of the final results of Review 9, Japan requested and 
obtained leave from the panel to file a supplemental submission in which it argued that Review 9 
was inconsistent with Articles 2.4 and 9.3 of the Anti -Dumping Agreemen t and Article VI:2 of the 
GATT 1994 by virtue of the application of zeroing in that review. The United States objected : (a) 
that the phrase "subsequent closely connected measures " in Japan 's panel request did not cover 
Review 9 ; and (b) that in any event, Review 9 was a "future measure " not in existence at the time 
of the panel request and therefore could not fall within the panel 's jurisdiction.866 
7.520.   The Appellate Body rejected the United States ' first objection, concluding that in the 
particular circumstances  before it , the phrase "subsequent closely connected measures " was not 
too broad or vague for purposes of Article 6.2 of the DSU. Analysing the text of Japan 's panel 
request, the Appellate Body noted that the term "subsequent closely connected measures " 
appeared in paragraph 12 of Japan 's panel request, which was the sub -section entitled "Periodic 
Reviews ". Paragraph 12 identified five of the 11 periodic reviews that were challenged in the 
original proceeding plus three periodic reviews that the United Stat es had argued superseded the 
original reviews. The periodic reviews themselves were listed in an annex to the panel request.  The 
panel request alleged that the United States had used zeroing in each of these periodic reviews, 
and had omitted to eliminate z eroing with respect to any of them. It also stated that these periodic 
reviews stemmed from three separate anti -dumping duty orders. In the last line of paragraph 12, 
Japan stated that the request concerned "any amendments to the eight periodic reviews and  the 
closely connected instructions and notices, as well as any subsequent closely connected 
measures ".867 The Appellate Body considered that the plain meaning of the phrase "subsequent 
closely connected measures " as it appeared in paragraph 12 of Japan 's panel request indicated 
that the measures being referred to would have to be enacted after the eight periodic reviews 
identified by Japan and would have to relate to those eight periodic reviews. The eight periodic 
reviews related to three anti -dumping duty orders that had been identified in Japan 's panel 
request, however two of those anti -dumping duty orders had been revoked by the USDOC at the 
time of Japan 's panel request. Therefore, "any subsequent periodic review could only relate to the 
anti-dumping dut y order  on ball bearings ".868 For this reason, the Appellate Body disagreed with 
the United States that the phrase "subsequent closely connected measures " was too broad and 
vague for purposes of identifying the measure at issue under Article 6.2 of the DSU.  
                                                                                                                                               
general rule , the measures included in a panel's terms of reference must be measures that are in existence at 
the time of the establishment of the panel. It then said:  
This general rule, however, is qualif ied by at least two exceptions. First, in Chile – Price Band 
System, the Appellate Body held that a panel has the authority to examine a legal instrument 
enacted after the establishment of the panel that amends a measure identified in the panel 
request, pr ovided that the amendment does not change the essence of the identified measure. 
Secondly, in US – Upland Cotton, the Appellate Body held that panels are allowed to examine a 
measure "whose legislative basis has expired, but whose effects are alleged to be  impairing the 
benefits accruing to the requesting Member under a covered agreement" at the time of the 
establishment of the panel.  
(Appellate Body Report, EC – Selected Customs Matters , para. 184 (emphasis added , fn omitted))  
864 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 97.  
865 Japan filed its first and second written submission to the panel on 30 June and 27 August 2008, 
respectively. The USDOC published the final results of Review 9 on 11 September 2008.  
866 Appellate Body Rep ort, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 99.  
867 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 111. (emphasis added)  
868 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 112. (emphasis added)  WT/DS353/R W 
 
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  7.521.   The Appellate Body recalled that in the original proceeding, the United States was found to 
have acted inconsistently with Articles 2.4 and 9.3 of the Anti -Dumping Agreement and 
Article  VI:2 of the GATT 1994 by : (a) maintaining zeroing procedures in period ic reviews ; and 
(b) applying zeroing procedures in the 11 periodic reviews at issue. The Appellate Body stated that 
if zeroing were used in Review 9, it would mean that the United States had not ceased the practice 
of using zeroing procedures in periodic r eviews , contrary to the DSB recommendations and 
rulings.869 Thus, the Appellate Body considered that Review 9 was a measure that had a bearing 
on compliance, which also should be taken into account in assessing whether Japan 's panel 
request met the requireme nts of Article 6.2, read in the light of Article 21.5.870 The Appellate Body 
considered that, in this case, the phrase "closely connected measures " was sufficiently precise to 
identify Review 9, given that it was a periodic review of the same anti -dumping du ty order on 
imports of ball bearings from Japan and immediately followed Reviews 1 through 6.871 This 
analysis was sufficient to establish that Japan 's panel request met the requirement of Article 6.2 to 
"identify the specific measures at issue ".872 
7.522.   The Appell ate Body also rejected the United States ' second objection that Review 9 was a 
"future measure " that did not exist at the time of Japan 's panel request and therefore could not be 
within the panel 's terms of reference. It noted that aside from the reference  in the present tense 
to the fact that the complainant must identify the measures "at issue ", Article 6.2 does not set out 
an express temporal condition or limitation on the measures that can be identified in a panel 
request.873 Moreover, it recalled its sta tement in EC – Chicken Cuts  that measures enacted 
subsequent to the establishment of a panel may, in certain limited circumstances , fall within a 
panel 's terms of reference.874 The Appellate Body considered that the proceeding before it 
presented circumstanc es in which the inclusion of Review 9 was necessary  for the panel to assess 
whether there had been compliance.875 In this regard, the Appellate Body noted the following 
factors:  
a. Review 9 was initiated before recourse to the compliance proceeding , and was 
completed during the course of that compliance proceeding876; 
b. Review 9 was identical in nature and effect  to Reviews 4, 5 , and 6 (which had been 
specifically identified in Japan 's panel request) and superseded those measures, and 
related to the same anti -dumpin g duty order as Reviews 1, 2 , and 3, which were found 
to be WTO -inconsistent in the original proceeding. Thus, Review 9 was the latest link in 
a chain of assessment incorporating those measures.877 
c. Review 9 was alleged to incorporate the use of zeroing, i.e.  the same conduct  that was 
found WTO -inconsistent in the original proceeding.878 
7.523.   The Appellate Body did not consider that the systemic concerns identified by the 
United  States879 arose in the particular situation as the United States and third parties were giv en 
adequate notice and opportunities to respond to Japan 's allegations concerning Review 9. Nor did 
it agree with the United States that inclusion of Review 9 would lead to "asymmetry " in the 
                                               
869 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 114.  
870 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 114.  
871 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 116.  
872 Appellate B ody Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 117.  
873 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 121.  
874 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), paras. 121 and 125 (referring to 
Appellate Body Report, EC – Chicken Cuts , para. 156).  
875 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 125.  
876 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), paras. 122, 124, and 127.  
877 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), paras. 123, 124, and 127.  
878 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), paras. 122, 124, and 127.  
879 The United States had identified the following concerns: (a) that Members would be obliged to make 
legal claims and undertake an analysis of new or modified measures on short notice, without a meaningful 
opportunity to review the measures; and (b) that compliance panels would have to react to such changes after 
some or all of the written submiss ions had been filed and the meetings with the parties had been completed, 
placing panels in the position of having to decide whether to restart the proceedings, or make findings without 
the full benefit of the views of the parties and third parties. (Appel late Body Report, US – Zeroing (Japan) 
(Article 21.5 – Japan ), para. 128 and fn 346).  WT/DS353/R W 
 
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  treatment of complainants and respondents as regards the inclusi on of subsequent measures that 
exacerbate or mitigate non -compliance.880 
7.524.   We read the Appellate Body Reports in Chile – Price Band System , EC – Chicken Cuts , and 
US – Zeroing (Japan) (Article 21.5 – Japan ) as clarifying : (a) that the requirements of Article 6 .2 
of the DSU are such that the measures included in a panel 's terms of reference will ordinarily be in 
existence at the time of the establishment of the panel ; and (b) that there are particular, limited 
circumstances in which measures coming into existenc e subsequent to the panel request are 
within a panel 's terms of reference. These circumstances, in one way or another, involve new 
measures that amend, modify, supplement, extend, replace, renew, relate to , or implement the 
measures that were explicitly id entified in the panel request without changing th eir essence , in 
light of the claims made by the complaining party . The Appellate Body has thus interpreted the 
requirements of Article 6.2 of the DSU in a manner that prevents a measure evading review 
merely  because of amendments or modifications to the legal form of the measure during the 
course of dispute settlement proceedings that do not change its essence in light of the nature of 
the claims at issue, while still fully respecting the due process rights o f responding parties and 
potential third parties to be informed of the specific measures at issue and the nature of the claims 
raised by the complaining party.  
7.525.   This is also borne out by the approach taken by a number of panels. For example, in EC – 
IT Prod ucts, the complaining parties had identified a number of measures imposing duties on flat 
panel displays, including Council Regulation No. 2658/87, as amended. Footnote 4 of the panel 
request noted that the Council Regulation included amendments adopted pu rsuant to Commission 
Regulation No. 1214/2007, which contained the CN2008. In addition, the panel request identified 
as part of the measures at issue "any amendments or extensions and any related or implementing 
measures ".881 The panel explained that the Com mission adopted a complete updated version of 
the CN each year, as an amendment to annex I of Council Regulation No. 2658/87. The CN had 
been updated twice, by CN2009 and CN2010, since the complaining parties had filed their panel 
request.882 The panel noted  that the subsequent amendments to the Council Regulation 
No. 2658/87 strictly prolonged its period of application without modifying any of the terms or 
headings at issue in the dispute. Thus, the subsequent amendments, including the 2008 -2010 
versions, di d not change the essence of the CN2007 version set forth in Council Regulation 
No. 2658/87 that was identified in the panel request.883 The panel said:  
While we do not consider that the mere incantation of the phrase "any amendments or 
extensions and any rel ated or implementing measures " in a panel request will permit 
Members to bring in measures that were clearly not contemplated in the Panel 
request, it may be used to refer to measures not yet in force or concluded on the date 
of the panel request, or measu res that the complainants were not yet aware of, such 
as government procedures not yet published that have the same essential effect as 
the measures that were specifically identified. This is to prevent the possibility that 
the procedural requirements of W TO dispute settlement result in a situation where 
measures could completely evade review. This is especially true with the type of 
measures we have before us, which are amended annually.884  
7.526.   The panel concluded that Council Regulation No. 2658/87, as amended , which included in 
annex I the currently applicable CN, was the specific measure at issue and was properly identified 
in the panel request.885  
                                               
880 The United States had argued that accepting the panel's approach would mean that complaining 
parties would be allowed to challenge subsequent measures while similar req uests by respondents have been 
rejected by panels. (Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), para. 129).  
881 Panel Report, EC – IT Products , para. 7.130.  
882 Panel Report, EC – IT Products , para. 7.128.  
883 Panel Report, EC – IT Produc ts, para. 7.142.  
884 Panel Report, EC – IT Products , para. 7.140. (fns omitted)  
885 Panel Report, EC – IT Products , para. 7.146. The panel took a similar approach with respect to 
Council Regulation No. 301/2007, which simply prolonged the period of application  a tariff duty suspension 
initially provided in an explicitly identified measure (Council Regulation No. 493/2005) without modifying the 
scope of applicability of the duty suspension. (See ibid. para. 7.182). It also reached a similar conclusion in 
respect  of a subsequent measure (Council Regulation No. 179/2009) that not only prolonged the duration of 
the initial duty suspension under Council Regulation No. 493/2005, but also expanded the terms of the WT/DS353/R W 
 
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  7.527.   A similar approach was adopted in EC – Fasteners  (China ), where the panel was required 
to determine whether a sub sequent Council Regulation, which repealed and replaced the Council 
Regulation that had been explicitly identified in China 's panel request,  was within the panel 's terms 
of reference, in circumstances where the repeal of the original measure and entry into  effect of the 
new measure occurred after the establishment of the panel.886 The panel noted that it was 
undisputed that the new measure was almost identical to the explicitly identified measure it had 
repealed and replaced.887 Thus, while the Council Regulati on that China had explicitly identified in 
its panel request was subsequently repealed, it was immediately replaced by a new Council 
Regulation that contained, in almost identical terms and substance, the same provision that China 
had identified in its pan el request.888 The panel concluded that the new measure was within the 
panel 's terms of reference, and that to sustain the European Union 's objection to the inclusion of 
the new measure (which the panel considered to be formalistic rather than substantive) w ould "not 
be consistent with the effective functioning of the WTO dispute settlement system, as it might lead 
to inappropriate legal manoeuvres to avoid dispute settlement, inconsistent with the obligation of 
Members to engage in dispute settlement 'in goo d faith in an effort to resolve the dispute '".889 
7.528.   The European Union has argued that, in assessing whether to include measures that have 
come into existence during panel proceedings as falling within the panel 's terms of reference, 
panels and the Appellate B ody have assessed whether the panel request was "broad enough " to 
include such a measure, noting that a panel request may identify measures or a category of 
measures with some breadth while still meeting the requirement of Article 6.2 of the DSU to 
"identi fy the specific measures at issue ". In the present case, according to the European Union, the 
panel request, through its references to "amendments " and "extensions " as challenged measures 
in paragraph  27, is broad enough to encompass the amendments to the Washington State tax 
measures effected by SSB 5952. Moreover, the "essence " of the Washington State measures as 
amended by SSB 5952, i.e. as tax incentives, remains essentially the same.  
7.529.   We note that the European Union 's panel request in this proceeding c onsists of two 
sections. Section I, entitled "Measures ", contains a listing of all of  the measures that the 
European  Union considers to be specific subsidies that cause present adverse effects in the form of 
serious prejudice, and a threat thereof, are pro hibited subsidies, and are measures inconsistent 
with national treatment obligations, as detailed in section II, entitled "Legal Basis ", which purports 
to detail the specific claims made against the measures identified in section I. Section I consists of 
Parts A through G, which identify distinct categories of measures and list the individual measures 
within each such category. Section I.D, entitled "Washington State and Local Subsidies ", lists at 
paragraph 17 the Washington State tax incentives enacted pur suant to HB 2294, described in 
paragraph 7.462  of these reasons, along with a tax measure maintained by the City of Everett. 
Paragraph 17 concludes with the following statement:  
Through these measures, the State of Washington a nd its political subdivisions 
provide financial contributions within the meaning of Article 1.1(a)(1)(i) -(ii) of the 
SCM Agreement , that confer a benefit to Boeing within the meaning of Article 1.1(b) 
of the SCM Agreement . These subsidies are specific with in the meaning of Articles 1.2, 
2.1, and 2.3 of the SCM Agreement . 
7.530.   Paragraph 27 appears as the last paragraph of Section I.G entitled "South Carolina State 
and Local Subsidies ". It states:  
                                                                                                                                               
suspension to include a broader category of products on  the basis that, despite the enlarged coverage, the 
suspension operated in a near identical manner and with similar legal implications to the explicitly identified 
measure, and did not change the essence of its predecessor measures in prolonging the duty s uspension. (See 
ibid. para. 7.186).  
886 Panel Report, EC – Fasteners (China) , paras. 7.32 and 7.33.  
887 Panel Report, EC – Fasteners (China) , para. 7.32.  
888 Panel Report, EC – Fasteners (China) , para. 7.34.  
889 Panel Report, EC – Fasteners (China) , para. 7.34 (fn  omitted). See also the Panel Reports, US – 
Customs Bond Directive , para. 7.22 , and US – Shrimp (Thailand ), para. 7.48, where the panels emphasized 
that the new measure sought to "clarify" the legislation that established the measure at issue and did not 
"change the essence" of the original measure into something different from what was in force before its 
issuance. Similarly, in the Panel Report in Dominican Republic – Import and Sale of Cigarettes , where the 
explicitly identified measure had been replaced  by a subsequent measure that did not "change the essence" of 
the original measure, the panel determined that it would examine the new legal instrument for purposes of 
resolving Honduras' complaint. (See ibid. paras. 7.19 -7.21).  WT/DS353/R W 
 
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  In addition to the measures specifically listed above in Section I of this request, the 
European Union also considers that any amendments, supplements, extensions, 
replacement measures, renewal measures, related measures, or implementing 
measures constitute specific subsidies.890 
7.531.   At first sight, paragraph 27 of the European  Union 's panel request appears as part of the 
section of the panel request identifying the South Carolina State and Local measures that are 
alleged to constitute specific subsidies. However, paragraph 27 refers to "the measures specifically 
listed above in  Section I of this request " suggesting that it is intended to mean that any 
amendments, supplements, extensions, replacement measures, renewal measures, related 
measures or implementing measures in relation to any of the measures specifically identified in  
sections I.A through I.G of the panel request are also included in the European Union 's panel 
request.  
7.532.   Paragraph 27 thus purports to identify practically every conceivable change to any of the 
measures under any of the fourteen listed NASA aeronautics R& D programmes in section I.A, the 
DOD RDT&E program elements listed in 34 dot points in section I.B, the FAA CLEEN Program 
identified in section I.C, Washington state and local measures listed in seven dot points in section 
I.D, FSC/ETI legislation and succ essor acts identified in section I.E, state and local property and 
sales tax abatements maintained by the State of Kansas and the City of Wichita identified in I.F. 
and the South Carolina state and local measures listed in 12 dot points in section I.G, reg ardless of 
the nature of such change or how it relates to the explicitly identified measure.  
7.533.   The European Union 's panel request is undoubtedly "broad enough " to include 
amendments to measures of the nature of the amendments to the Washington State tax mea sures 
effected by SSB 5952.891 However, the relevant question is whether paragraph 27 is not too 
broadly drafted  to satisfy the requirement of Article 6.2 to identify the specific measures at issue 
in the context of the SSB 5952 amendments to the Washington State tax measures identified in 
paragraph 17 of the panel request.  
7.534.   As we have explained, panels and the Appellate Body have sought to address  a concern  
that the requirement of Article 6.2 of the DSU to "identify the specific measures at issue " not lead 
to measures evading review through subsequent amendments or modificati ons which do not 
change the essence of the measure, merely because those subseq uent measures  were not 
explicitly identified in the complaining party 's panel request. However, in addressin g this particular 
concern, panels and the Appellate Body should not be considered to have invited complaining 
parties to include very general and extensive "catch -all" phrases in their panel request as a 
protection against the requirement of Article 6.2 of  the DSU to identify the specific measures at 
issue. Otherwise, a specific and quite limited set of circumstances in which measures coming into 
existence after the request for the establishment  of a panel may be found to be within a panel 's 
terms of refere nce would be transformed into a situation in which, provided a panel request 
includes a sufficiently broad catch -all description, any subsequent measures that come into 
existence during the course of a panel proceeding will be within a panel 's terms of ref erence. We 
do not consider that such a permissive approach to the requirements of Article 6.2 of the DSU 
finds support in the panel and Appellate Body reports we have examined, or as a matter of 
principle, given the plain meaning and objectives of Article 6.2 of the DSU.892 
                                               
890 European Union's request for the establishment of a panel, para. 27.  
891 See Appellate Body Report, Chile – Price Band System , para. 144. While the panel in EC – Chicken 
Cuts attached some importance to the fact that the panel request was not as broadly drafted as the panel 
request in Chile – Price Band System , this did not appear to form a central part of the Appellate Body's 
reasoning in concluding that the two subsequent measures in that case were outside the panel's terms of 
reference. We note that the panel in EC – Fasteners (Ch ina) found the subsequent measure to be within its 
terms of reference despite the absence of any reference to "amendments" in the panel request. (See Panel 
Report, EC – Fasteners (China ), para. 7.38).  
892 The only case in which a panel has clearly adopted a  less restrictive approach to the requirement of 
Article 6.2 of the DSU to identify the specific measures at issue when a new measure has arisen subsequent to 
the panel request is Australia – Salmon (Article 21.5 – Canada ). In that case, the panel found th at Canada's 
panel request covered a Tasmanian import ban on salmonid products introduced subsequent to the 
establishment of the panel even though the panel request only referred explicitly to a decision of the Australian 
Quarantine and Inspection Service ( AQPM 1999/51) regarding policies for non -viable salmonid products. (See 
Panel Report, Australia – Salmon (Article 21.5 – Canada ), para. 7.10, at paras. 24 -29 therein).  It is difficult to WT/DS353/R W 
 
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  7.535.   This is clear from the approach taken by the panel and Appellate Body in US – Zeroing 
(Japan) (Article 21.5 – Japan ) to construing the phrase "subsequent closely connected measures " 
in Japan 's panel request.  The panel and Appellate Body ea ch undertook a detailed analysis of the 
text of Japan 's panel request before concluding that, in the particular context , including the 
location of the phrase in the sub -section of the panel request entitled "periodic reviews ", any 
"subsequent closely conne cted measures " could only refer to periodic reviews of the anti -dumping 
duty on ball bearings, and Review 9 was a periodic review of the same anti -dumping duty on ball 
bearings from Japan which immediately followed Reviews 1 through 6 and which was already  
on-going and therefore clearly identifiable at the time of Japan 's panel request. If a basic reference 
to generic terms such as "subsequent closely connected measures " in a panel request were 
sufficient to satisfy the requirements of Article 6.2 of the DS U, such an analysis would not have 
been necessary.  
7.536.   When we examine the relationship between the Washington State tax measures explicitly 
identified in the European Union 's panel request, and those measures as amended by SSB 5952, 
we are unable to conclude that, in the context of the specific claims made in this dispute, the 
Washington State tax measures remain "essentially unchanged " following the enactment of 
SSB 5952.  
7.537.   In the original proceeding, the Washington State tax measures enacted under HB 2294 
were part of a package of measures designed to retain and attract the aerospace industry to 
Washington State, specifically by providing tax incentives conditioned on Boeing assembling the 
787 in Washington State. SSB 5952 extends the availability of those tax incentives later in time, 
conditioned, however, on Boeing producing wings and fuselages for a different aircraft, the  777X, 
in Washington State and using them in the final assembly of the 777X in Washington State. In 
addition, Boeing will only be entitled to claim the B&O tax rate reduction in respect of future 
revenues related to the 777X for so long as it conducts wing assembly and final assembly of the 
777X exclusively in Washington State.893 As we explain in Section 7.7.5.5 , the amendments 
effected by SSB 5952 change the nature of the Washington State tax measures that will operate 
from 1  July 2024 in a significant respect, in that their availability post 1 July 2024 is subject to a 
contingency that does not condition their ava ilability prior to 1 July 2024. Moreover, the availability 
of the B&O tax rate reduction in respect of future 777X revenues is now subject to a condition that 
did not previously apply.894 This is in marked contrast to the new measures in cases such as Chile 
– Price Band System , Argentina – Footwear (EC ), US – Zeroing (Japan) (Article 21.5 – Japan ), EC 
– IT Products , and EC – Fasteners  (China ), where the new measures either "clarified " the measure 
or essentially replicated the explicitly identified measures th rough new legislative action, and thus 
                                                                                                                                               
reconcile the panel's approach to the requirements of Article 6.2 of the DSU in that case with the approach of 
panels and the Appellate Body in the other cases we have discussed. Indeed, the Appellate Body in Chile – 
Price Band System  referred with approval to the reasoning adopted by the panel in the earlier case of 
Argent ina – Footwear (EC ) but did not mention the panel report in Australia – Salmon (Article 21.5 – Canada ). 
Significantly, the Appellate Body in US – Zeroing (Japan) (Article 21.5 – Japan ) also did not refer to the panel 
report in Australia – Salmon (Article 2 1.5 – Canada ) notwithstanding its discussion of the requirements of 
Article 6.2 in the light of compliance proceedings under Article 21.5 of the DSU and the fact that Japan and one 
of the third parties had referred to this panel report in support of their respective arguments. (See Appellate 
Body Report, US – Zeroing (Japan) (Article 21.5 – Japan ), paras. 47, 49, 91, and 104). From this we conclude 
that the approach taken by the panel in Australia – Salmon (Article 21.5 – Canada ) to the requirement of 
Article 6.2 of the DSU to identify the specific measures in the context of new measures coming into existence 
in the course of a proceeding is something of an outlier.  
893 See Section 7.7.5.1 . The 777X was launched in November 2013, and although Boeing has already 
received orders and commitments for the aircraft, production is not scheduled to begin until 2017 and first 
deliveries are targeted only for 2020, meaning that it is likely to be some time in the future before  Boeing is in 
a position to claim B&O tax rate reductions related to 777X revenues. (See Boeing Press Release, "Boeing 
Launches 777X with Record -Breaking Orders and Commitments", 17 November 2013, (Exhibit EU -1299)).  
894 Indeed, it is because of the ways in which SSB 5952 conditions the availability of the Washington 
State tax measures after 1 July 2024, and the availability of the B&O tax rate reduction in respect of future 
revenues related to the 777X, that the European Union considers the Washington State tax measures, as 
amended or extended by SSB 5952, are prohibited subsidies contingent on the use of domestic over imported 
goods, and accord less favourable treatment to imported wings and fuselages over domestically produced 
wings and fuselages in a diffe rent manner  to the way in which those claims against the Washington State tax 
measures were presented in its submissions and at the meeting with the Panel. In addition, the overall amount 
of the tax incentives is said to be significantly larger, thus furth er strengthening the causal link between the 
Washington State tax measures and the alleged serious prejudice, as well as making Boeing's 777X launch 
decision in November 2013 significantly more likely.  WT/DS353/R W 
 
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  concerned the same measure (in a substantive sense) that was either the subject of panel request 
or that had been found WTO -inconsistent in the original proceeding.895  
7.538.   We therefore consider that, in the circumstances, paragraph 27 of the European Union 's 
panel request does not provide a basis for including the Washington State tax measures, as 
amended by SSB 5952, within the panel 's terms of reference, consistently with the requirements 
of Article 6.2 of the DSU to "identify the specific measures at issue ". 
7.539.   As already explained in paragraph 7.506  we are mindful of the importance, in the context 
of a compliance proceeding, of interpreting the requirements of Article 6.2 in light of Article 21. 5 of 
the DSU. In that regard, we note that in the original proceeding, the Washington State B&O tax 
rate reduction was found to be a specific subsidy that caused adverse effects.896 There were no 
adverse effects findings in relation to the other Washington S tate tax measures.897 The panel 
found that the European Communities had not demonstrated that the Washington State tax 
measures enacted under HB 2294 were inconsistent with Articles 3.1(a) and 3.2 of the SCM 
Agreement898 and the European Union did not pursue t his finding on appeal.899 Finally, the 
European Communities did not pursue any claims under Article 3.1(b) of the SCM Agreement or 
Article III:4 of the GATT in the original proceeding.900 This situation is therefore starkly different 
from the situation before the Appellate Body in US – Zeroing (Japan) (Article 21.5 – Japan ). In 
that case, the United States was found to have acted inconsistently with Articles 2.4 and 9.3 of the 
Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by maintaining zeroing proce dures in 
periodic reviews and by applying zeroing procedures in specifically identified periodic reviews.901 
The new measure, Review 9, was a subsequent periodic review of the same anti -dumping duty 
order on which the periodic reviews in the original proceed ing had been based and allegedly 
employed the same zeroing procedure that was found to be WTO -inconsistent in the original 
proceeding. Review  9 was thus considered to have a direct bearing on compliance, because if 
zeroing were used in Review 9, it would m ean that the United States,  by maintaining zeroing 
procedures in periodic reviews, had not complied with the DSB recommendations and rulings.  
7.540.   In the case before us, by contrast, there were no findings (or claims) of WTO -inconsistency 
in the original proce eding in relation to Articles 3.1(b) of the SCM Agreement or Article III:4 of the 
GATT 1994. In relation to the adverse effects claims, the Washington State tax measures as 
presently enacted under HB 2294 will continue for almost another ten years in any e vent, and 
(subject to our resolution of the preliminary objections to the various claims concerning the 
Washington State tax measures and to the inclusion of the Washington State tax measures, other 
than the B&O tax rate reduction, within the scope of this  proceeding) can be adjudicated upon in 
this compliance proceeding.902 In other words, the inclusion of the Washington State tax measures 
as amended by SSB 5952 in the Panel 's terms of reference is not necessary  to enable the Panel to 
assess whether there ha s been compliance with the DSB recommendations and rulings as regards 
                                               
895 The European Union is correct that, both before and after the entry into effect of SSB 5952, the 
Washington State tax measures remain tax incentives. However, in the context of the claims made in this 
proceeding, the conditions to which the Washington State tax measures as amended by SSB 5952 are subject 
are of central importance to the nature of the measures. These conditions are significantly different from the 
conditions on which the Washington State tax measures were made available under HB 2294. Indeed, it is 
these different conditions the European Unio n has indicated are key to its theory as to why these modified 
measures are inconsistent with Article 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994. As a 
result, the "legal implications" of the Washington State tax measures as amended by S SB 5952 are different 
from the legal implications of those measures prior to their amendment. ( See Appellate Body Report, EC – 
Chicken Cuts , para. 158).  
896 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1274.  
897 Appellate Body Report , US – Large Civil Aircraft (2nd complaint ), paras. 1341 and 1344 -1346.  
898 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1590.  
899 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 28.  
900 The United States has objected to inclusion within the scope of the compliance proceeding of the 
European Union's claims under Article 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994 with 
respect to all original measures, on the basis that the European Union did not bring  such claims in the original 
proceeding. (United States' request for preliminary rulings, dated 13 November 2012, paras. 15 -17 and 60; 
reply to the European Union's response to the United States' request for preliminary rulings, dated 
3 December  2012, para . 25; first written submission, para. 84; and second written submission, para. 46).  
901 Appellate Body Report, US – Zeroing (Japan ), para. 190.  
902 We recall that the United States has requested preliminary rulings that the Washington State tax 
measures other  than the B&O tax rate reduction are outside the scope of this proceeding. The Panel has not 
yet ruled whether the challenged measures are within the scope of this proceeding and does not make any 
ruling in that regard in these reasons.  WT/DS353/R W 
 
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  the Washington State tax measures in the way that the inclusion of Review 9 was necessary for 
the panel to assess whether there had been compliance in US – Zeroing (Japan) (Article 21.5 – 
Japan ).903 We do not consider that our function under Article 21.5 of the DSU would be frustrated 
if the Washington State tax measures as amended by SSB 5952 were excluded from our terms of 
reference.  
7.541.   The European Union has also argued that it challenges "all instances of application of the 
Washington State tax incentives ", regardless of any amendments to the subsidy programme itself. 
Even assuming this were the case, we do not see that this changes our conclusion. The fact 
remains that the "instances of ap plication " of the Washington State tax measures explicitly 
identified in the European Union 's panel request cease to operate as of 1 July 2024. To the extent 
that such tax measures are applied after that date, it is by virtue of SSB 5952, which is not 
explicitly identified in the panel request as it only became effective in February 2014.904 The 
European Union suggests that failure to treat the instances of application of the Washington State 
tax measures, as amended by SSB 5952 would "make it impossible to s ustain a claim against a 
subsidy programme and its instances of application, since by simply amending the programme the 
defending Member could remove the continuing flow of subsidies from the scope of the 
proceedings ".905 We find this reasoning difficult to understand, as the issue is not whether 
SSB 5952 removes  the continuing flow of subsidies from the scope of the proceeding, but rather, 
whether the continuing flow of the Washington State tax measures includes  the flow that will 
continue beyond 1 July 2024  by virtue of the SSB 5952 amendments, given that SSB 5952 was 
not explicitly identified in the panel request and only came into effect at a late stage of the 
proceeding.  
7.542.   We are mindful that our conclusion that SSB 5952 is outside this Panel 's terms of re ference 
means that the European Union would need to commence another proceeding in order to pursue 
its claims regarding the Washington State tax measures as amended by SSB 5952. We have 
considered carefully whether it would be more expedient to resolve the  claims regarding those 
measures in this proceeding, especially in light of the principles of satisfactory settlement of a 
matter and securing a positive solution to the dispute, reflected in Articles 3.4 and 3.7 of the DSU, 
respectively. However, while a positive and effective resolution of a dispute is one of the key 
objectives of the WTO dispute settlement system, this objective cannot be pursued at the expense 
of complying with the specific requirements and obligations of Article 6.2906, which are not 
discretionary in nature but rather go to the issue of a panel 's jurisdiction, and additionally reflect 
the important due process objective of notifying the parties and potential third parties of the 
nature of the dispute.  
7.543.   Given that we have concluded that th e Washington State tax measures, as amended by 
SSB 5952, are not within our terms of reference, we do not have to address the issue of whether, 
in any case, we would have granted leave to present arguments on the amended measures, given 
the very late stage  of the proceeding at which this request for leave arose and the significant 
delays that would undoubtedly arise in an already extremely complex and protracted proceeding if 
the Panel were to grant leave and open the issue to full briefing by the parties a nd third parties.907 
Nor is it necessary to address in these reasons the United States ' argument, first raised in its 
request fo r preliminary rulings, that  the European Union 's claims regarding Articles 3.1(a), 3.1(b), 
and 3.2  of the SCM Agreement and Articl es III:1, III:4 , and III:5 of the GATT 1994 fail to meet 
the threshold set by Article 6.2 of the DSU and are therefore outside the Panel 's terms of 
reference, in order to resolve the question of whether the Washington State tax measures, as 
                                               
903 This is the case irrespective of whether the Panel allows or declines the United States' request for 
various preliminary rulings concerning the inclusion of the Washington State tax measures other than 
SSB 5952, and claims under Articles 3.1(b) of the SCM Agreement and Art icle III:4 of the GATT 1994 within 
the scope of the compliance proceeding.  
904 To the extent that SSB 5952 changes the conditions according to which Boeing would expect to be 
eligible for the B&O tax rate reduction in respect of revenues from the 777X, we n ote that first deliveries for 
this aircraft are targeted only for 2020, meaning that it is likely to be some time in the future before Boeing is 
in a position to claim B&O tax rate reductions related to 777X revenues. (See Boeing Press Release, "Boeing 
Launches 777X with Record -Breaking Orders and Commitments", 17 November 2013, (Exhibit EU -1299)).  
905 European Union's letter to the Panel, dated 31 March 2014, para. 7.  
906 See Appellate Body Report, EC – Chicken Cuts , paras. 155 and 161.  
907 We note that the Unit ed States reserved its right to present its case orally to the "new affirmative 
case that the EU has attempted to raise at this late stage of the proceeding" . (United States' letters to the 
Panel, dated 21  March 2014, para. 11, and dated 9 April 2014, para . 18).  WT/DS353/R W 
 
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  amended by SSB 5952, are within our terms of reference, and whether the European Union should 
be granted leave to file an additional submission regarding SSB 5952. We recognize, however, that 
these and other preliminary objections remain before us.  
7.7.6.3   Conclusion  
7.544.   We have con cluded for the above reasons that the European Union 's panel request does 
not meet the requirements of Article 6.2 of the DSU, read in the light of Article 21.5 of the DSU, to 
specifically identify the measures at issue, as regards the Washington State tax  measures, as 
amended by SSB 5952. We thus find that the Washington State tax measures, as amended by 
SSB 5952, are outside the Panel 's terms of reference. As explained earlier, for this reason, we 
decided to decline the European Union 's request for leave to file an additional submission 
regarding SSB 5952.  
7.8  Summary of the Panel's conclusions as to whether certain  measures and  claims are 
outside the Panel 's terms of reference  or are otherwise outside the scope of this 
proceeding  
7.545.   In respect of the Panel's rul ings as to whether certain measures, or claims with respect to 
certain measures, are within our terms of reference for purposes of Article 6.2 of the DSU, we 
make the following rulings:  
a. The European Union's claims under Articles 3.1(a), 3.1(b), and 3.2 of  the SCM 
Agreement, and under Article III :4 of the GATT 1994, are within the Panel's terms of 
reference.908  
b. The South Carolina Phase II measures  are outside the Panel's terms of reference, owing 
to the failure of the European Union's panel request to m eet t he requirements of 
Article  6.2 of the DSU in respect of such measures.  
c. The Washington State tax measures, as amended by SSB 5952,  are outside the Panel's 
terms of reference, owing to the failure of the European Union's panel request to meet 
the requirement s of Article 6.2 of the DSU in respect of such measures.  
7.546.   The United States disputes that it has a compliance obligation with respect to certain 
measures  that the European Communities unsuccessfully challenged in the original proceeding, 
and considers that other measures are not sufficiently closely connected to measures for which it 
has a compliance obligation as to warrant their inclusion within the scope of this compliance 
proceeding. As regards the particular categories of measures challenged by the Eu ropean Union in 
this proceeding  for which the United States has sought  rulings that these measures are outside the 
scope of this proceeding  because they are not original measures in respect of which the United 
States has a compliance obligation, nor are they  measures taken to comply, within the meaning of 
Article 21.5 DSU , we have made the following rulings:  
7.547.   As to the Washington state and local measures : 
a. The following measures are within  the scope of this proceeding:  
i. Washington State B&O tax credits for prepr oduction/aerospace product 
development;  
ii. Washington State B&O tax credit for property taxes and leasehold excise taxes;  
iii. Washington State sales and use tax exemptions for computer software, hardware, 
and peripherals ; and  
                                               
908 The Panel's ruling that the European Union's claims under Articles 3.1(a), 3.1(b) , and 3.2 of the 
SCM Agreement, and under Article III of the GATT 1994, are within its terms of reference is without prejudice 
to its further rulings, in Sections 7.6 .2, as to whether these claims in respect of certain measures are 
nevertheless outside the scope of this compliance proceeding.  WT/DS353/R W 
 
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  iv. City of Everett B&O tax rate reductio n. 
b. The JCATI measure is  outside  the scope of this proceeding.  
7.548.   As to the DOD aeronautics R&D measures:  
a. The following measures are within  the scope of this proceeding:  
i. DOD procurement contracts funded through the 23 original RDT&E program 
elements; and  
ii. Procu rement contracts HR0011 -06-C-0073 and HR -0011-08-C-0044 SOW and 
assistance instruments HR0011 -06-2-0008, FA8650 -07-2-7716, and 
HR0011 -10-2-0001 funded through the Materials Processing Technology Project of 
the Materials and Biological Technology  program el ement.  
b. The following measures the subject of the European Union's claims in respect of certain 
"additional" RDT&E program elements are outside the scope of this proceeding:  
i. Air Force Contract F19628 -01-D-0016 funded under the DRAGON Project of the 
Airborne  Warning and Control System (AWACS) (PE 0207417F) program element;  
ii. Air Force Contract FA8625 -11-C-6600 funded under the KC -46, Next Generation 
Aerial Refueling  Aircraft (PE 0605221F) program element; and  
iii. Measures funded under the Multi -Mission Mari time Aircraft (P -8A) (PE 0605500N) 
program element, including Navy contracts N00019 -04-C-3146, N00019 -09-C-0022, 
and N00019 -12-C-0112.  
c. In addition, measures funded under the Technology Transfer (PE 0604317F) program 
element, the Defense Logistics Agency IP ManTech  (PE 0708011S) program element and 
the Long Range Strike Bomber (PE 0604015F) program element are not further 
considered in this proceeding because the Panel is not satisfied of the existence of any 
procurement contracts or assistance instruments with Boei ng which the European Union 
identifies as relevant to its claims, and which are funded under these program elements.  
d. The provision of access to DOD equipment and employees is within the scope of this 
proceeding with respect to the post -2006 procurement con tracts and assistance 
instruments funded under the 23 original RDT&E program elements and the "additional" 
program elements that we have found to be within the scope of this proceeding.  The 
provision of access to DOD equipment and employees is outside the scope of this 
proceeding with respect to the pre -2007 procurement contracts and assistance 
instruments funded under the 23 original RDT&E program elements.  
7.549.   The FAA aeronautics R&D  measure  is within  the scope of this proceeding.  
7.550.   As to the South Carolina state and local measures , the Project Gemini measures and the 
Project Emerald measures are within  the scope of this proceeding . 
7.551.   The aforementioned findings as to the measures that are within the scope of this 
proceeding are without prejudice to the independen t issue of whether certain claims relating to 
certain measures  are nevertheless outside the scope of this proceeding.  
7.552.   In addition, the United States has requested rulings that certain claims relating to certain 
measures  are nevertheless outside the scope o f this proceeding. On this separate question of the 
claims that may be made against certain measures in this proceeding , we have additionally ruled 
that:  
a. The European Union is precluded from bringing claims under Articles 3.1(a) and 3.2 of 
the SCM Agreeme nt against the following four original Washington State tax measures 
enacted under HB 2294 : the Washington State B&O tax rate reduction; the Washington WT/DS353/R W 
 
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  State B&O tax credits for preproduction/aerospace product development909, the 
Washington State B&O tax cre dit for property taxes910, and the Washington State sales 
and use tax exemptions for computer hardware, peripherals , and software.  
b. The European Union is precluded from bringing claims under Article 3.1(b) and 3.2 of the 
SCM Agreement, and under Article III:4  of the GATT 1994, in respect of the following 
four original Washington State tax measures enacted under HB 2294 : the Washington 
State B&O tax rate reduction; the Washington State B&O tax credits for 
preproduction/aerospace product development911, the Washin gton State B&O tax credit 
for property taxes912, and the Washington State sales and use tax exemptions for 
computer hardware, peripherals , and software ; as well as the FSC/ETI measures.  
c. The European Union is precluded from bringing claims under Articles 3.1( a), 3.1(b), and 
3.2 of the SCM Agreement and Article III:4 of the GATT 1994 in respect of :  
i. the City of Everett B&O tax rate reduction, the tax abatements related to the City of 
Wichita IRBs, and the pre -2007 NASA Space Act Agreements and DOD procurement 
contracts  as original measures ; and   
ii. the pre -2007 NASA procurement contracts and DOD assistance instruments at issue 
in the original proceeding, as amended by the respective Boeing Patent Licence 
Agreements.  
7.553.   In Section 8 of thi s Report, we consider whether the European Union has demonstrated 
that the United States has failed to withdraw the subsidy, within the meaning of Article 7.8 of the 
SCM Agreement.   
8  WHETHER THE UNITED S TATES HAS FAILED TO WITHDRAW THE SUBSIDY , WITHIN 
THE M EANING OF ARTICLE 7. 8 OF THE SCM AGREEME NT  
8.1.  As explained above913, in this Section  of the Report we exa mine, first, whether the 
United  States has failed to withdraw the subsidy through the modifications it made to the 
particular pre-2007 NASA and DOD aeronau tics R&D subsidies  the subject of the DSB 
recommendations and rulings (Section  8.1) and, second, whether the United States has failed to 
withdraw the subsidy by granting or maintaining seven types of post-2006 measures alleged to 
constitute specific subsidies , within the meaning of Articles 1 and 2 of the SCM Agreement  
(Section  8.2).  
8.1  Whether the United States has failed to withdraw the subsidy by modifying the 
terms of the NASA and DO D aeronautics R &D subsidies  the subject of the DSB 
recommendations and rulings   
8.1.1   Introduction  
8.2.  In this Section of the Report, we evaluate  whether the United States has failed to withdraw 
the subsidy , within the meaning of Article 7.8 , by amending the pre -2007 NASA procure ment 
contracts and DOD assistance instruments the subject of the DSB recommendations and rulings to 
grant a commercial use licence to NASA and DOD in respect of Boeing -owned patents developed 
under those instruments.  
8.3.  In the original proceeding, three cate gories of NASA and DOD aeronautics R&D measures 
were found to be specific subsidies , within the meaning of Articles 1 and 2 of the SCM Agreement:  
                                               
909 Including amendments thereto pursuant to SSB 6828.  
910 Including amendments thereto pursuant to HB 2466.  
911 Including amendments  thereto pursuant to SSB 6828.  
912 Including amendments thereto pursuant to HB 2466.  
913 See Section 6.4 above . WT/DS353/R W 
 
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  a. payments and access to NASA facilities, equipment, and employees provided to Boeing 
pursuant to NASA procurem ent contracts914 funded under eight NASA aeronautics R&D 
programmes915 related to R&D applicable to the development, design, and production of 
large civil aircraft;  
b. access to facilities, equipment, and employees provided to Boeing under Space Act 
Agreements916 entered into under these programmes; and  
c. payments and access to DOD facilities provided to Boeing under assistance 
instruments917 entered into between DOD and Boeing under 23 RDT&E programmes.918  
8.4.  The Appellate Body  based its finding that the financial contrib utions provided through the 
NASA procurement contracts and DOD assistance instruments before it conferred a benefit , on a 
comparison of the allocation of intellectual property rights, and more specifically, rights in respect 
of patents, under the NASA proc urement contracts and DOD assistance instruments , with 
corresponding allocations in transactions between two market actors.919 
8.5.  In its Compliance Communication, the United States advises that:  
The National Aeronautics and Space Administration ( "NASA ") has mod ified the rights 
accorded to the parties under the contracts listed in Annex A so as to make them 
consistent with commercial practice. These modifications apply to all of the NASA 
contracts covered by the recommendations and rulings of the DSB. NASA has ma de 
identical modifications, as necessary, with regard to contracts subsequent to those 
covered by the recommendations and rulings of the DSB, without prejudice to the U.S. 
view that those contracts were not subsidies causing adverse effects to EU interests . 
These contracts are also listed in Annex A.920  
The U.S. Department of Defense ( "DoD") has modified the rights accorded to the 
parties under the cooperative agreements, technology investment agreements, and 
other Transactions listed in Annex B so as to mak e them consistent with commercial 
practice. The modifications apply to all of the DoD assistance instruments covered by 
the recommendations and rulings of the DSB. DoD made identical modifications with 
regard to contracts subsequent to those covered by the  recommendations and rulings 
of the DSB, without prejudice to the U.S. view that those contracts were not subsidies 
causing adverse effects to EU interests. These contracts are also listed in Annex B.921 
8.6.  The modifications referred to in the Compliance Commun ication were effected through a 
Subject Invention and Patent License Agreement concluded between NASA and Boeing on 
                                               
914 See para. 8.74 below. The panel in the original proceed ing observed that there were only three 
cooperative agreements between Boeing and NASA, totalling less than USD 5 million, and appears not to have 
specifically addressed them in its evaluation of whether the NASA procurement contracts and Space Act 
Agreeme nts were specific subsidies. (See Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.945 
and fn 2408). The Appellate Body similarly did not refer to any cooperative agreements in its assessment of 
the aeronautics R&D measures. We note, howev er, that the United States included three cooperative 
agreements (designated by the identifiers NNC10AA02A, NNC10AA03A, and NNL07AA03A) in Annex A to its 
Compliance Communication. We address in Section 8.2.2  below the European Union's argument that post -2006 
NASA cooperative agreements confer specific subsidies.  
915 The eight NASA aeronautics R&D programmes at issue in the original proceeding were the Advanced 
Composites Technology, High Speed Research, Advanced Su bsonic Technology, High Performance Computing 
and Communications, Aviation Safety, Quiet Aircraft Technology, Vehicle Systems, and Research and 
Technology Base programmes. For a description of these programmes, see Panel Report, US – Large Civil 
Aircraft ( 2nd complaint) , paras. 7.1709 -7.1739.  
916 See para. 8.78 below . 
917 See para. 8.298  below . 
918 By contrast, the original panel and Appellate Body rejected the European Comm unities' claim that 
the allocation of patent rights or data rights under NASA /DOD  contracts and agreements constituted  a specific 
subsid y independently from the payments and access to facilities, equipment, and employees provided under 
those  contracts and agreements. (Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1294 and 
7.1311 , Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 789 ). 
919 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 650-666. 
920 United States' Compliance Communication, para. 3.  
921 United States' Compliance Communication, para. 5.  WT/DS353/R W 
 
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  23 September 2012 (NASA -Boeing Patent Licence Agreement)922 and a Supplemental Subject 
Invention and Patent License Agreement concluded betwee n DOD and Boeing on 
21 September  2012 (DOD -Boeing Patent Licence Agreement).923  
8.7.  In its request for the establishment  of a panel in this proceeding , the European Union asserts 
that NASA maintains its subsidies inter alia  "by entering into and following the t erms of the 
contracts and other agreements (as modified) with Boeing listed in annex A of the 
United  States ' 23 September 2012 notification. Annex A of the 23 September 2012 notification is 
attached to this request, and the contracts listed therein are inc orporated into this request ".924 
Similarly, the European Union 's panel request states that "DoD also maintains its subsidies to US 
LCA producers by entering into and following the terms of the contracts and other agreements (as 
modified) with Boeing listed i n annex B of the United States ' 23 September  2012 notification. 
Annex B of the 23 September 2012 notification is attached to this request, and the contracts listed 
therein are incorporated into this request ".925  
8.1.2   Main arguments of the parties and third parti es 
8.8.  The European Union  argues that the NASA -Boeing Patent Licence Agreement  and the 
DOD-Boeing Patent Licence Agreement, (the Boeing Patent Licence Agreements) , which grant 
NASA and DOD a commercial use licence in respect of Boeing patents arising under the pre-2007 
NASA procurement contracts  and the pre -2007 DOD assistance instruments, are of no value and 
do not constitute a meaningful withdrawal of the subsidies.926 The European Union submits that 
the U .S. Government cannot make practical use of th e commerci al use licence s because the U .S. 
Government "is not in the business of making or selling aircraft -related products for commercial 
sale"927, and cannot produce or sell commercial aircraft, or otherwise use the licence s for 
commercial purposes, without express  statutory authorization from the U .S. Congress, which is not 
part of the United States ' compliance measure. Moreover, t he restrictions set forth in the two 
Agreements on NASA 's or DOD's ability to sublicense to, or otherwise exercise the commercial use 
rights in connection with, third parties demonstrate that in reality, Boeing has given up nothing of 
value for itself through the se Agreement s, and NASA/ DOD has obtained nothing of value for itself. 
The Boeing Patent Licence Agreement s are effectively "sham " transaction s that ha ve no effect on 
the benefit analysis.928 The European Union contends that the Boeing Patent Licence Agreement s 
have not changed what Boeing and NASA /DOD  receive in real terms under the procurement 
contracts and assistance instruments and thus, there is no need for the Panel to question the 
benefit analysis that was previously undertaken.929  
8.9.  The European Union recalls the original proceeding, in which the Appellate Body found that 
the terms of each of Contracts A through F (four of which h ad been submitted by the 
United  States), confirmed that the NASA procurement contracts and DOD assistance instruments 
provided a benefit to Boeing due to the fact that, in relevant transactions in the market in which 
one entity pays another entity to conduc t R&D, the party commissioning research obtains the full 
rights to the resulting technology.930 The European Union submits that the United States cannot 
rely on a comparison of the modified terms of these NASA procurement contracts and DOD 
assistance instrum ents with only C ontract D  in order to rebut the European Union 's demonstration 
                                               
922 NASA -Boeing Subject Invention and Patent License Agreement (September 2012) (formerly Exhibit 
US-13-9) (NASA -Boeing Patent Licence Agreement), (Ex hibit EU -251) (BCI).  
923 DOD-Boeing Supplemental Subject Invention and Patent License Agreement (21 September 2012) 
(formerly Exhibit US -13-10) (DOD -Boeing Patent Licence Agreement), (Exhibit EU -401) (BCI).  
924 European Union's request for the establishment of  a panel, para. 9.  
925 European Union's request for the establishment of a panel, para. 13.  
926 European Union's first written submission, paras. 186 -190 and 380 -384. 
927 European Union's first written submission, paras. 187 and 381; second written submission, 
paras. 279 and 485.  
928 European Union's first written submission, paras. 189, 190, and 383 -384. In addition, the 
European  Union argues that the United States' admission that the U.S. Government does not plan to engage in 
purely commercial businesses confirms  that the Boeing Licence Agreements have no value, as they cannot 
currently be used, and the U.S. Government does not plan to use them, as they provide only for the use of the 
patents for a "commercial purpose". (European Union's comments on the United Sta tes' response to Panel 
question No.  67, para. 12).  
929 European Union's second written submission, paras. 293 and 496.  
930 European Union's first written submission, paras. 180 -185; second written submission, paras. 271, 
275, 290 -298, and 307 -309. WT/DS353/R W 
 
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  in this proceeding that the NASA procurement contracts and agreements and DOD assistance 
instruments confer a benefit.  
8.10.  First, the European Union considers that Contract  D is an  "outlier " when compared to the 
other five contracts before the Appellate Body and different from what the European Union would 
consider a market transaction. In the absence of any further contextual information concerning the 
negotiation of Contract D, it  should not be considered a legitimate market transaction.931 Second, 
even if Contract D were considered as a benchmark for the benefit analysis, the European Union 
disputes that the Boeing Patent Licence Agreement s amend the allocation of patent rights  and 
related licence rights  under the subject NASA procurement contracts and DOD assistance 
instruments to bring it into line with the allocation of patent rights and related licence rights  under 
Contract D. This is because, while the Boeing Patent Licence Agre ement s provide for NASA or DOD 
to receive a non -exclusive, royalty -free licence to the specified patent rights for commercial 
purposes, neither NASA nor DOD can make  practical use of that commercial licence because they 
do not make or sell aircraft -related  products for commercial sale. Moreover , [***].932 
8.11.  The European Union notes that in concluding that the NASA procurement contracts and DOD 
assistance instruments conferred a benefit in the original proceeding, the Appellate Body found 
that [***].933 This concl usion is not affected by the Boeing Patent Licence Agreement s, even if 
they have the effect claimed by the United States because the Boeing Patent Licence Agreement s 
do not affect such [***].934 A similar analysis applies in respect of the Appellate Body 's finding 
concerning Contract E.935 Finally, the European Union notes that the Appellate Body found that 
under Contract F [***].936 In short, the United  States ' focus on only Contract D should be taken 
as a concession that a comparison of the terms of the procure ment contracts  and assistance 
instruments with Contracts A -C, E, and F that were before the Appellate Body demonstrates the 
existence of benefit.937 
8.12.  The European Union refers also to a 2002 contract concluded between Boeing as 
commissioning party and the Nat ional Institute for Aviation Research (NIAR) at Wichita State 
University that was submitted to the original panel as evidence of a market benchmark.938 The 
European Union rejects the assertion by the United States that this contract represents a deviation 
from NIAR policy.939 With reference to the 2002 NIAR Contract and the 2013 NIAR standard 
contract terms submitted by the United States as evidence of NIAR 's current contractual practice, 
the European Union argues  that in both instances, when inventions are mad e jointly or in 
collaboration by the commissioning and commissioned parties, the inventions are jointly owned. 
By contrast, under the NASA procurement contracts and agreements  and the DOD assistance 
instruments , inventions made jointly between NASA and Boe ing or DOD and Boeing  are owned 
solely by Boeing as commissioned party.940 In other words, [***].941  
8.13.  The European Union also refers to a recent declaration by the Head of Intellectual Property 
for Airbus SAS942 with respect to the distribution of intellectual p roperty  rights, articles on 
intellectual property rights and stem cell research, an article on collaborative research and 
                                               
931 European U nion's second written submission, paras. 297 and 504. The European Union submits that 
[***] (European Union's second written submission, paras. 298 and 505).  
932 European Union's second written submission, paras. 304 -306 and 511 -513. 
933 European Union's secon d written submission, paras. 293 and 500 (referring to Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint ), para. 655).  
934 European Union's second written submission, paras. 293 and 500.  
935 European Union's second written submission, paras. 294 and 501 (referring to Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint ), para. 658).  
936 European Union's second written submission, paras. 295 and 502 (referring to Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint ), para. 659).  
937 European Union's second written submission, paras. 290 and 497.  
938 European Union's first written submission, para. 184; second written submission, paras. 274 and 
307-309. See Contract between Boeing Commercial Airplane Group Wichita Division and Wichita  State 
University, Contract No. 000051728 (4 November 2002) (Original Exhibit EC -1231), (Exhibit EU -243).  
939 European Union's second written submission, para. 308 (referring to United States' first written 
submission, para. 240).  
940 European Union's second w ritten submission, para. 309.  
941 European Union's second written submission, para. 309.  
942 Airbus SAS is a société par actions simplifiée  (a joint stock or limited liability company) incorporated 
under French law. (See Panel Report, EC and certain member Sta tes – Large Civil Aircraft , fn 2060).  WT/DS353/R W 
 
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  exclusivity of ownership over inventions and WIPO training materials advising companies to 
acquire intellectual property rights when o utsourcing R&D.943 
8.14.  In response to the expert opinion of the United States ' technology licensing expert, Louis 
Berneman, the European Union submits the expert opinion of its technology licensing expert, 
Richard Razgaitis, as to contracting practices between a n R&D commissioning party and a 
commissioned party with respect to ownership of intellectual property and commercial use 
rights.944 Mr Razgaitis concludes, contrary to the view expressed by Mr Berneman, that the rights 
granted to the commissioned party under  the NASA procurement contracts and  DOD assistance 
instruments (as well as the other aeronautics R&D agreements at issue in this proceeding) are 
materially greater than those granted to the commissioned parties in the non -U.S. Government 
R&D contracts disc ussed in Mr Razgaitis ' declaration , in which the commissioning party is a 
company . 
8.15.  Finally, with regard to non -reimbursable and partially -reimbursable pre -2007 Space Act 
Agreements, t he European Union contends that the original Panel found that the pre -2007 Space 
Act Agreements provided financial contributions that conferred a benefit, and this finding was not 
reversed by the Appellate Body. Thus, it argues that the United States "appears to be challenging 
the DSB rulings and recommendations for the same S pace Act Agreements  already covered by 
those rulings and recommendations, without any allegation that those S pace Act Agreements  have 
been modified in any way", which it considers is "impermissible".945 In any event, the 
European  Union argues that Space Act A greements confer  a benefit for the same reasons as NASA 
procurement contracts.946  
8.16.  The United States  argues that the commercial use licence granted to NASA and DOD under 
the Boeing Patent Licence Agreements was a compliance step "tailored to close the narrow  gap 
between commercial practice and government contracts identified by the Appellate Body in this 
dispute ".947 Accordingly, the amended allocation of intellectual property rights effected by the 
Boeing Patent Licence Agreement s withdrew the subsidy previous ly conferred by the pre -2007 
NASA procurement contracts and DOD assistance instrument , respectively .948 The United States 
considers that the European Union bears the burden to establish that the U .S. measures taken to 
comply are insufficient. The European Un ion must therefore show that the pre -2007 NASA 
procurement contracts and DOD assistance instruments, as amended by the Boeing Patent Licence 
Agreement s, are more favourable to Boeing than comparable commercial joint venture 
agreements are to the party bein g commissioned to perform the research . According to the 
United  States, the European Union "must take account of all of the potential benchmarks, 
identifying which are relevant, and demonstrat e that the pre -2007 NASA procurement contracts 
and DOD assistanc e instruments, as amended, are more favorable to the non -government party 
than all of the valid benchmarks ".949 
8.17.  The United States argues that the European Union misreads the Appellate Body's findings 
on benefit as a mandate for a particular approach to the b enefit determination, when in fact the 
Appellate Body was completing the analysis "based on a set of findings and evidence with which it 
expressed no small discomfort" .950 While the benchmarks in original proceeding "contained valid 
observations as to the in tellectual property term of certain transactions "951, the United States 
contends that the benchmarks proposed by the European Union in this proceeding are not valid 
comparators because they involve a commitment of resources by only one party in exchange for 
which the other party receives access to all of the fruits of the research.952 Even if the Panel were 
to consider these benchmarks, the United States submits that the NASA procurement contracts 
                                               
943 European Union's first written submission, paras. 182 -184; second written submission, 
paras.  272-274. 
944 Declaration of R. A. Razgaitis, Sr., Ph.D., CLP, 23  October  2013 (Razgaitis Declaration), (Exhibit 
EU-1262) (BCI ). 
945 European Union's second written submission, para. 314.  
946 European Union's second written submission, para. 314.  
947 United States' second written submission, paras. 177, 179, and 194.  
948 United States' second written submission, para. 177.  
949 United State s' second written submission, para. 178.  
950 United States' first written submission, para. 236.  
951 United States' first written submission, para. 238.  
952 United States' second written submission, para. 180. See also United States' first written submission, 
paras. 95, 96, and 236.  WT/DS353/R W 
 
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  and agreements and DOD assistance instruments subject to the Boe ing Patent Licence Agreement s 
have eliminated the gap with the benchmark contracts evaluated by the Appellate Body in the 
original proceeding, and thus, the modified NASA procurement contracts and agreements and DOD 
assistance instruments are no more favou rable to Boeing as commissioned party  than commercial 
transactions.  
8.18.  The United States argues that the analysis of benefit should start with benchmarks 
reflecting the types of collaborative relationships that characterize the pre-2007 NASA 
procurement cont racts and DOD assistance instruments, with particular emphasis on joint 
ventures.953 One such joint venture created to conduct research with results of interest to both 
parties is the arrangement in Contract D examined by the Appellate Body in the original 
proceeding.954 The United States rejects the suggestion by the European Union that Contract D is 
an "outlier " and unrepresentative of prevailing market practices regarding arm 's-length 
collaborative R&D arrangements.  
8.19.  The United States argues that the amendme nts to the pre-2007 NASA procurement 
contracts and DOD assistance instruments effected by NASA - and DOD-Boeing Patent Licence 
Agreement s bring the allocation of intellectual property rights under those contracts and 
instruments into line with the correspo nding terms in Contract D. [***].955 The only salient 
difference between the NASA procurement contracts and DOD assistance instruments (as amended 
by the  applicable Boeing Patent Licence Agreement) and Contract D is that [***].956  
8.20.  The United States argues in addition that the allocation of intellectual property rights under 
the pre-2007 NASA procurement contracts and DOD assistance instruments, as amended by the 
Boeing Patent Licence Agreement s, is consistent also with Contracts A, B , and C considered by the 
Appellate Body, as well as with the intellectual property allocation terms in the 2013 NIAR 
standard contract terms.957 [***].958 The United States contends that the European Union 
incorrectly states that NASA and DOD do not obtain ownership rights over inventi ons developed 
under NASA procurement contracts or DOD assistance instruments . According to the United 
States,  under U .S. law, NASA and DOD obtain ownership over inventions made solely by their 
employees during work under a  procurement contract or  assistanc e instrument and joint 
ownership over inventions jointly made with Boeing employees .959 [***].  
8.21.  The United States submits that statements regarding the allocation of intellectual property 
rights under Airbus contracts are irrelevant to transactions that enta il a joint venture arrangement, 
and instead reflect transaction s where one party walks away with all of the fruits of the 
research.960 Moreover, a 2002 contract between Boeing and NIAR, submitted as evidence in the 
original proceeding, is irrelevant as a ben chmark, as it represents "a deviation from NIAR policy ", 
whereas NIAR 's current standard contract terms confirm that Contract D is an example of a 
                                               
953 United States' first written submission, paras. 242 and 280.  
954 United States' first written submission, paras. 244 and 282.  
955 United States' first written submission, paras. 249 and 287. The "field of use" refers to the range of 
activities within which the commissioning party can practice its non -exclusive, royalty -free licence to use the 
research results. The United States argues that [***] (United States' second written submission, paras.  189 
and 190).  
956 United States' first writte n submission, paras. 251 and 289.  
957 United States' second written submission, paras. 195 -202 (referring to Statement of J. Tomblin, 
Executive Director of the National Institute for Aviation Research, (Exhibit USA -263)). Mr Tomblin explains at 
paragraph 1 o f this statement that NIAR is the largest university aviation R&D institution in the United States, 
which provides research, design, testing and certification services to the aviation manufacturing agencies, 
government agencies, educational entities, and o ther entities. The United States submits that NIAR's 
intellectual property allocation terms reflect the prevailing intellectual property allocation terms of collaborative 
R&D contracts with the largest aviation R&D institution in the United States. (United  States' second written 
submission, para. 200).  
958 See also United States' response to Panel question No. 67, paras. 20 -22, where the United States 
takes note of Mr Razgaitis' view that the most prevalent allocation of intellectual property rights is for ea ch 
party to own any patents for inventions developed solely by its employees, and to own jointly patents for 
inventions developed jointly by the commissioning party and commissioned party. The United States says that 
by this standard, Boeing's ownership of  patents for inventions invented by its employees while working under 
DOD and NASA procurement contracts is consistent with commercial practice in the United States.  
959 United States' second written submission, para. 195 (referring to European Union's secon d written 
submission, paras. 293 and 500) ; response to Panel question No. 85, paras. 117 -124 and 138 -143.  
960 United States' first written submission, para. 239.  WT/DS353/R W 
 
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  market -based transaction.961 In addition, the United States argues that articles cited by the 
European Union on  intellectual property rights and stem cell research , and on collaborative 
research and the importance of exclusivity of ownership over inventions, as well as a WIPO 
training course advising companies to acquire rights over intellectual property when they 
outsource R&D , are not proper benchmarks for the type of joint ventures described by the 
Appellate Body in its assessment  of the NASA procurement contracts and DOD assistance 
instruments  in the original proceeding.962 
8.22.  The United States supports these argumen ts with the opinion of its technology licensing 
expert, Louis Berneman, who opines that the pre -2007 NASA procurement contracts and DOD 
assistance instruments, as amended by the  applicable Boeing Patent Licence Agreement, are 
consistent with prevailing mar ket practices for collaborative R&D arrangements, such as the 
arrangement in Contract D considered by the Appellate Body in the original proceeding.963 The 
United States submits that evidence of "prevailing market practices " submitted by Mr Berneman, 
such as  sample contracts drawn from the pharmaceutical and biomedical research sectors, 
confirms that Contract D exemplifies but one type of private, market -based transaction for 
collaborative research effort s, and that there are otherwise a "range of commercial market 
outcomes " that can be "fair and reasonable ", including those that are different from the amended 
NASA and DOD contracts and agreements.964 Mr Berneman additionally emphasizes that the 
pre-2007 NASA procurement contracts and DOD assistance instruments  were open to bidding by 
multiple contractors, and as a result are priced consistently with commercial practices. Mr 
Berneman also explains that the absence of compensation for commercialization of technologies 
under NASA procurement contracts and DOD assis tance instruments is consistent with market 
practice, considering the difficulties faced in estimating potential returns from early -stage 
technologies.965  
8.23.  Finally , in respect of Space Act Agreements, the United States argues that the 
European  Union fails to  identify any relevant benchmark to explain how Space Act Agreements 
achieve an equilibrium that is more favourable to Boeing than comparable commercial 
transactions. The United States argues that the European Union fails to take into account that 
Space Ac t Agreements do not involve any payments by the U.S. Government and sometimes 
involve payments by Boeing to NASA, as well as the fact that the intellectual property terms of 
Space Act Agreements are not the same as  those  under the NASA procurement contract s. 
Accordingly, there is no basis for the European Union's argument that Space Act Agreements 
provide a benefit for the same reason as NASA  procurement  contracts and cooperative 
agreements.  As Boeing contributes its own resources under Space Act Agreements , without 
receiving any funding from NASA,  the United States contends that there is a relationship between 
the level of patent rights and the level of contribution to the research effort. Accordingly, a 
separate comparison with the relevant benchmark is ne cessary in order to determine whether 
Space Act Agreements confer a benefit.966 
8.24.  Brazil  does not consider that the SCM Agreement imposes any particular method for 
determining whether a benefit has been conferred, but provides general  guidance in Article 14 
precisely to enable the inevitable case -by-case approach.967 
8.25.  Japan  submits that the panel in Japan – DRAMs identified two potential approaches to 
assessing the existence of benefit. Under one approach, a panel may seek to determine the 
                                               
961 United States' first written submission, paras. 240 and 241; second written submission, paras . 183 
and 197 -202. 
962 United States' second written submission, para. 184.  
963 Declaration of L. P. Berneman, Ed D, CLP, RTTP, 22 August 2013 (Berneman Declaration), (Exhibit 
USA-322) (BCI); and United States' second written submission, paras. 179 and 204 -208. 
964 United States' second written submission, paras. 179 and 204 -208. The United States considers that 
the evidence of commercial collaborative R&D arrangements before the Panel shows that, except of the issue 
of ownership of patent rights "where NASA and DOD contracts mirror the most prevalent commercial practice", 
there is no "standard" division of intellectual property rights. Rather, parties to commercial research contracts 
delineate patent rights in a variety of ways to suit their interests and objecti ves. The only "normal market 
practice" is for the parties to pay for the intellectual property rights that they require, and not to pay for the 
rights they do not require. (United States' response to Panel question No. 67, para. 28).  
965 United States' secon d written submission, para. 207.  
966 United States' first written submission, para. 257; second written submission, paras. 239 -244. 
967 Brazil's third -party response to Panel question No. 7.  WT/DS353/R W 
 
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  existence of a benefit b ased on available evidence demonstrating the terms that the market would 
have offered, and compar e those terms with the terms of the financial contribution in question. As 
a seco nd approach, a panel may examine whether the financial contribution was provid ed on the 
basis of commercial considerations. Under this approach, evidence of reliance on non -commercial 
considerations would indicate terms more favourable than those available on the market.968 Japan 
considers that price -discovery mechanisms, such as the use of competitive bidding or negotiated 
prices, may not always prove helpful in determining the terms that would be available to the 
recipient in the market, such as in situations in which government procurement involves monopoly 
suppliers or suppliers ex ercising significant market power.969 
8.26.  Korea  argues  that ordinarily the identification of a benefit under Articles 1.1(b) and 14 of 
the SCM Agreement is measured by comparing : (a) the cost incurred by the recipient to obtain the 
financing with the government support ; and (b) the cost the recipient would have incurred to 
obtain equivalent financing from the market, if there had been no government support. Because 
the subsidy consists of a financial contribution, the benefit of a subsidy is necessarily equal to a 
reduction of the financing costs caused by the government action.970 While Korea considers that it 
might be theoretically possible to define benefit in a different manner, based on the returns to the 
recipient from the use of the financial contribution, su ch an approach does not appear to have any 
textual support in the SCM Agreement or in past decisions by panels and the Appellate Body. The 
European Union 's "multiple benefit " theory appears to be based on this faulty approach to benefit 
by looking at what the recipient would have done with the governmental financial contribution. 
This approach appears to require that financial contributions that are "wasted " confer no benefit, 
while financial contributions that happen to generate outsized returns confer a b enefit that is 
multiple times the amount of the actual financial contribution.971 Korea suggests that, before 
accepting such a theory, the Panel should at a minimum require that its proponents demonstrate 
how it would be consistent with the relevant provisio ns of the SCM Agreement.  
8.1.3   Evaluation by the Panel  
8.27.  The issue before the Panel is whether the modifications to the pre-2007 NASA procurement 
contracts972 and DOD assistance instruments the subject of the DSB recommendations and rulings, 
effected by the Boeing Patent Licence Agreement s, have failed to remove the benefit conferred by 
the financial contributions provided through these contracts and instruments, and whether the 
United States has th us failed to withdraw the subsidy , within the meaning of Article 7.8  of the SCM 
Agreement.  
8.28.  In the original proceeding, in the context of completing the analysis of whether the  
provision of funding and other support to Boeing under  NASA procurement contracts and DOD 
assistance instruments at issue conferred a benefit, the Appellate Body treated six contracts in 
which Boeing had commissioned universities or educational research institutes to conduct R&D , as 
though they were market benchmarks.973 Those contracts had been submitted by the 
United  States a s BCI and  were designated  as Contracts A through F.974 Based on a comparison of 
the allocation of the ownership of inventions (and thus rights to obtain patents) and related licence 
rights  to NASA or DOD as commissioning party , and to Boeing as commissioned party , in the NASA 
procur ement contracts and DOD assistance instruments, with the corresponding allocations to 
commissioning and commissioned parties under Contracts A through F, the Appellate Body 
                                               
968 Japan's third -party response to Panel question No. 6, paras. 17 -22. 
969 Japan's third -party response to Panel question No. 7, para. 23  
970 Korea's third -party submission, para. 22.  
971 Korea's third -party submission, paras. 23 and 24.  
972 The United States has included three cooperative agreements (designated by the identifiers 
NNC10AA02A, NNC10AA03A, and NNL07AA03A) in annex A to its Compliance Communication, in addition to 
identifying NASA procurement contracts. These cooperative agreements are also identified in the NASA -Boeing 
Patent Licence Agreement. Although the panel and A ppellate Body both acknowledged that certain of the 
transactions under the challenged programmes took the form of cooperative agreements, neither refer to 
cooperative agreements in their specific findings regarding whether the NASA aeronautics R&D measures  are 
subsidies.  
973 In the original proceeding, the parties had agreed before the panel that, with respect to the financial 
contribution that Boeing had received through the NASA procurement contracts and DOD assistance 
instruments, the "relevant market benc hmark would be the terms of a commercial transaction in which one 
entity pays another entity to conduct R&D ". (Panel Report, US – Large Civil Aircraft (2nd complaint ), 
paras.  7.1039 and 7.1184).  
974 Appellate Body Report, US – Large Civil Aircraft (2nd compl aint), fns 1364 -1367 and 1374.  WT/DS353/R W 
 
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  concluded that the NASA procurement contracts and DOD assistance instruments confer red a 
benefit.975 
8.29.  The United States argues that the grant of a commercial use licence to NASA and DOD 
under the Boeing Patent Licence Agreements concluded in September 2012 modifies the allocation 
of rights granted to NASA and DOD under the pre -2007 NASA pro curement contracts and DOD 
assistance instruments, respectively, in such a way that they are now consistent with prevailing 
market practices for collaborative R&D arrangements and no longer confer a benefit.  
8.30.  Given that this is a compliance proceeding, and that the United States ' compliance actions 
are based on  the Appellate Body 's benefit determinations in the original proceeding in respect of 
those pre-2007 NASA procurement contracts and DOD assistance instruments, we will evaluate 
whether the commercial u se licence in respect of Boeing -owned patents granted to NASA pursuant 
to the NASA -Boeing Patent Licence Agreement , and to DOD pursuant to the DOD -Boeing Patent 
Licence Agreement , results in an allocation of patent rights and related licence rights  under t he 
procurement contracts and assistance instruments to which the se Agreement s apply that is  
consistent with corresponding allocations in market -based R&D collaborative agreements.  
8.31.  First, we recall how rights in respect of patents (in terms of ownership of  inventions and 
licences to practice any resulting patents), as well as data rights, are generally allocated under 
NASA procurement contracts and DOD assistance instruments. Given that the legal allocation of 
rights in respect of patents arising from work performed under DOD procurement contracts is the 
same as for DOD assistance instruments, we include the DOD procurement contracts in the 
general summary below for the sake of completeness, although we do not evaluate whether these 
measures involve specific  subsidies until Section  8.2.3.5  of this Report.  
8.1.3.1   The allocation of intellectual property rights and data rights under NASA 
procurement contracts  and under DOD assistance instruments and procurement 
contracts  
8.32.  In the original pr oceeding the panel observed that the allocation of patents is uniform 
across all U .S. Government R&D contracts and agreements.976 Prior to 1980, the United States had 
a general policy of taking all rights to patents over inventions produced by contractors un der 
federally -funded R&D contracts and granting nonexclusive licenses to any applicant, including the 
contractor, that wished to use the subject invention.977 In 1980, the U .S. Government changed 
this policy and began granting certain categories of governmen t contractors ownership of any 
inventions made by the contractor under federally -funded R&D contracts. The U .S. Government 
would receive a "government use " license which enabled it to use the subject invention without 
having to pay the contractor any royal ties.978 This revised policy, implemented through the 
Bayh-Dole Act, originally applied only to non -profit organizations and small business firms. It was 
subsequently extended to accord the same treatment to all government contractors that, 
regardless of siz e and profit/non -profit status, engaged in work under federally -funded R&D 
contracts.979  
                                               
975 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 654 -662. 
976 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1149.  
977 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1 277 et seq.  
978 The Bayh-Dole Act  implemented this policy in 1980. It is codified in Patent Rights in Inventio ns Made 
with Federal Assistance.  (United States Code , chapter 35, sections 200 -212, (Exhibit EU -220)). Under the 
Bayh-Dole Act , a university, other non-profit organization or small business is entitled to retain title to any 
invention of the contractor conceived or first actually reduced to practice in the performance of work under a 
funding agreement. ( Patent Rights in Inventions Made with Federal As sistance , United States Code , chapter 35, 
sections 200 -212, (Exhibit EU -220), sections 201(c), (e) , and (i) , and 202(a)). A "funding agreement" includes 
any contract, grant or cooperative agreement entered into between any federal agency, other than the 
Tennessee Valley Authority, and any contractor for the performance of experimental, developmental or 
research work funded in whole or in part by the U.S. federal government. ( Patent Rights in Inventions Made 
with Federal Assistance , United States Code , chapt er 35, sections 200 -212, (Exhibit EU -220), section  201(b)).  
979 A 1983 Presidential Memorandum instructed all executive branch agencies to extend Bayh -Dole 
treatment to all contractors to the extent permitted by law. (U.S. White House, Memorandum to the Head s of 
Executive Departments and Agencies on Government Patent Policy, 18 February 1983 (Memorandum on 
Government Patent Policy), (Exhibit EU -1062)). A 1987 Executive Order subsequently incorporated the 1983 
policy. (Executive Order 12591, "Facilitating acce ss to science and technology", 10 April 1987,  (Exhibit 
EU-238)). The Bayh -Dole Act and associated legislative instruments and implementing regulations also require WT/DS353/R W 
 
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  8.33.  As the original panel explained, pursuant to the National Aeronautics and Space Act  of 1958 
(Space Act) , any invention that is patentable made pursuant to a contract wi th NASA shall be 
issued to the U .S. Government, unless  this right is  waived by NASA. To comply with the Bayh-Dole 
Act and subsequent related policies, NASA established regulations under which it generally waives 
its rights  to inventions  that are developed pursuant to NASA -funded research to large 
companies.980 As in the case of patents retained  by contractors pursuant to U .S. patent law, patent 
rights waived by NASA pursuant to NASA -specific regulations are not unlimited, as NASA retains 
the right to use the patented technology for government purposes.981 The United States has 
indicated that NASA has granted such waiver s "essentially every time a contractor requested to 
retain title to an invention " by its employees working under a NASA contact.982  
8.34.  As a result of  the foregoing, where NASA or DOD employees and Boeing employees work 
together und er a NASA procurement contract983 or under a DOD assistance instrument or 
procurement contract on a research effort that results in an invention , the allocation of ownership 
of patent rights is as follows:  
a. Where a NASA  (or DOD)  employee makes an invention in the course of work under a 
NASA procurement contract (or under a DOD assistance instrument or procurement 
contract), the U .S. Government will have sole ownership of the pate nt. This is because 
the U .S. Government employee who made the invention would be recognized as the 
inventor, and his or her interest in the patent that would issue in that employee 's name 
would pass to the U .S. Government.984 
                                                                                                                                               
that federal agencies include certain standard clauses in all such funding agreements. These  clauses require: 
(a) the contractor to notify the U.S. Government of each invention to which it intends to retain title, and to file 
a patent application within the time provided by statute, as well as an authorization for the government to 
receive title if the contractor fails to follow those procedures; (b) the provision to the U.S. Government of a 
"nonexclusive, non -transferable, irrevocable, paid -up license to practice or have practiced for or on behalf of 
the United States any subject invention throug hout the world"; and (c) an authorization for the U.S. 
Government to file a patent application on behalf of the inventor anywhere in the world that the contractor fails 
to do so.  
980 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1287 -7.1290 (referring to 
United  States Code , chapter 42, section 2457(a); and United States Code of Federal Regulations , chapter 14, 
section 1245.100 et seq.). NASA regulations require that procurement contracts contain a standardized clause 
regarding retention of  patent rights upon grant of a waiver request in contracts with medium and large 
contractors. (National Aeronautics and Space Administration, United States Code of Federal Regulations , 
chapter 48, sections 1852.227 -70, (Exhibit USA -468), and 1852.227 -71, (Exhibit USA -472)).  The regulations 
do not apply to small business firms or non -profit organizations, which are governed by the U.S. patent law 
provisions on government transfer of patents. (See  Patent Rights in Inventions Made with Federal Assistance , 
United States Code , chapter 35, sections 200 -212, (Exhibit EU -220)).  
981 Panel Report, US – Large Civil Aircraft (2nd complaint ), fn 2914. See National and Commercial Space 
Programs, United States Code , Title 51, chapter 201, section 20135, (Exhibit EU -1038), se ction 20135(f). This 
section provides in relevant part that NASA "may waive all or any part of the rights of the United States … with 
respect to any invention or class of inventions made or which may be made by an person or class of persons in 
the performa nce of any work required by any contract … if {NASA} determines that the interests of the 
United  States will be served thereby". This section explains that "{e}ach waiver made with respect to any 
invention shall be subject to the reservation … of an irrevo cable, nonexclusive, non -transferable, royalty -free 
license for the practice of such invention throughout the world by or on behalf of the United States or any 
foreign government pursuant to any treaty or agreement with the United States". See also United States Code 
of Federal Regulations , chapter 14, sections 1245.103, (Exhibit USA -470), and 1245.107, (Exhibit USA -471).  
982 United States' response to Panel question No. 85, para. 126. The United States notes several 
occasions on which NASA denied or partiall y denied a small number of waiver ap plications. (See United States' 
response to Panel question No. 85, fn 178).  
983 The allocation of patent rights under NASA cooperative agreements is the same as the allocation of 
patent rights under NASA procurement contra cts.  
984 United States Code of Federal Regulations , chapter 37, section 501.6, (Exhibit USA -310) provides 
that:  
(1) The Government shall obtain, except as herein otherwise provided, the entire 
right, title and interest in and to any invention made by any G overnment 
employee:  
(i) During working hours, or  
(ii) With a contribution by the Government of facilities, equipment, materials, funds 
or information, or of time or services of other Government employees on official 
duty, or  
(iii) Which bears a direct rel ation to or is made in consequence of the official duties 
of the inventor.  WT/DS353/R W 
 
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  b. Where a Boeing employee makes an  invention in the course of work under a NASA 
procurement contract  (or under a DOD assistance  instrument or pro curement  contract ), 
Boeing has title to the invention and thus the right to ownership of the patent.985 This 
results from the application of the U .S. federal laws and regulations and NASA -specific 
waiver provisions discussed above. The U .S. Government receives a government use 
license in Boeing inventions made in the performance of a NASA procurement contract or 
a DOD assistance instrument and procur ement contract .986 
c. Where a NASA employee  (or DOD employee)  and a Boeing employee jointly make an 
invention in the course of work under a NASA procurement contract  (or under a DOD 
assistance instrument or  procurement contract ), the resulting patent would issu e jointly 
in the names of the NASA  (or DOD)  and Boeing employees, and by operation of the U .S. 
federal laws and regulations and NASA -specific waiver provisions discussed above, NASA  
(or DOD)  and Boeing would each own an undivided share in rights under the patent.987  
8.35.  As explained by the original panel and highlighted above, under the Bayh -Dole Act, its 
related legislative instruments and NASA -specific regulations, the U .S. Government 's rights to 
patents in respect of inventions developed by Boeing employees i n the course of work under a U.S. 
Government R&D contract  or agreement  consist of a "nonexclusive, non -transferable, irrevocable 
paid-up licence to practice or have practiced for or on behalf of the United States any subject 
invention throughout the world ".988 This government  use licence in practice provides the U .S. 
Government with the following rights:  
a. to use the invention without payment of royalties or other fees, in all future contracts 
between Boeing and any agency of the U .S. Government anywhere in the  world; and  
                                               
985 United States Code of Federal Regulations , chapter 14, section 1245.107,  (Exhibit USA -471). As 
Razgaitis explains, in the United States, patent ownership generally vests with the party whose employees are 
its inventors. (Razgaitis Declaration, (Exhibit EU -1262) (BCI), para. 24).  
986 See National and Commercial Space Programs, United States Code , Title 51, chapter 201, 
section  20135, (Exhibit EU -1038), section 20135(f); and United Sta tes Code of Federal Regulations , 
chapter  14, section 1245.107, (Exhibit USA -471). The original panel explained that U.S. Government possesses 
certain "march -in" rights, which enable the relevant federal agency to compel the contractor in certain 
circumstan ces to grant a license to applicants on terms that are reasonable under the circumstances, or to 
grant the license itself. The panel explained that no federal entity has ever exercised these march -in rights. 
(Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1286). See also United States Code of Federal 
Regulations , chapter 14, section 1245.107, (Exhibit USA -471), section 1245.107(b); and United States'  
response to Panel question No. 85, para. 127.  
987 In the case of an invention jointly made b y a NASA employee and a Boeing employee in the course 
of work under a NASA procurement contract, the resulting patent would issue in the name of the NASA 
employee, and by operation of 37 CFR § 501.6, the U.S. Government would have title to the patent. The 
patent would also list the Boeing employee as one of the inventors and the U.S. Government would take title to 
the patent under section 305(a) of the Space Act. However, Boeing would, pursuant to section 305(g) of the 
Space Act, request the NASA Administra tor to waive title acquired by the Administrator under section 305(g) of 
the Space Act. Accordingly, where a waiver is granted pursuant to the NASA waiver provisions, the U.S. 
Government (by virtue of the operation of the United States Code of Federal Regu lations, chapter 37, 
section  501.6), and Boeing (by virtue of the operation of the NASA waiver provisions), jointly take title to the 
invention. (See  United St ates Code of Federal Regulations , chapter 37, section 501.6, (Exhibit USA -310); 
Inventions Patent able, United States Code , chapter 35, section 101, (Exhibit USA -466); Inventors, 
United  States Code , chapter 35, section 116, (Exhibit USA -467);  Space Act section 305; and National and 
Commercial Space Programs, United States Code , Title 51, chapter 201, s ection  20135, (Exhibit EU -1038) ). In 
the case of an invention jointly made by a DOD employee and a Boeing employee in the course of work under 
a DOD assistance instrument or procurement contract, the resulting patent would issue in the name of the 
DOD emplo yee, and by operation of the United States Code of Federal Regulations, chapter 37, section 501.6, 
the U.S. Government would have title to the patent. The patent would also list the Boeing employee as one of 
the inventors and by virtue of the Bayh-Dole Act  and associated legislative instruments and implementing 
regulations , ownership of the patent would also vest in Boeing. ( See  United States Code of Federal 
Regulations , chapter 37, section 501.6, (Exhibit USA -310); Inventions Patentable, United States Cod e, 
chapter  35, section 101, (Exhibit USA -466); Inventors, United States Code , chapter 35, section 116, (Exhibit 
USA-467);  Patent Rights in Inventions Made with Federal Assistance, United States Code , chapter 35, 
sections  200-212, (Exhibit EU -220); Memoran dum on Government Patent Policy, (Exhibit EU -1062); and 
Executive Order 12591, "Facilitating access to science and technology", 10 April 1987,  (Exhibit EU -238)) .  
988 See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1286 and fn 2914. See a lso 
United States Code of Federal Regulations , chapter 14, section 1245.103, (Exhibit USA -470), 
section  1245.103(a).  WT/DS353/R W 
 
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  b. to authorize other contractors to use the invention, without an obligation to pay royalties 
or additional fees, in all future contracts between that contractor and any agency of the 
U.S. Government anywhere in the world.989 
8.36.  As the panel explained  in the original proceeding, contractors own all technical data 
produced with U .S. Government funding, as a general rule, and may use data for their own 
commercial purposes. In exchange , the U .S. Government receives a royalty -free license to use 
data produ ced in the performance of research.990 In cases of R&D contracts funded solely by the 
U.S. Government (e.g. NASA procurement contracts and DOD procurement contracts) the 
U.S. Government receives "unlimited rights data ", which enables it to use data for its o wn 
purposes, both inside and outside government. Where a contractor also contributes funding toward 
research  (e.g. DOD assistance instruments) , the U .S. Government may agree to forego certain 
rights to data, i.e. the U .S. Government obtains only "limited r ights" in data. These limited rights 
may apply  to data that embody trade secrets or are commercial or financial and confidential or 
privileged, to the extent such data pertains to items, components or processes developed at 
private expense. Where the U.S. Government acquires "limited rights " data, it may use data for its 
own internal purposes, but may not disseminate data outside of government without express 
consent.991  
8.1.3.2   The commercial use licence granted under the Boeing Patent Licence 
Agreements  
8.37.  The NASA -Boeing Patent Licence Agreement is dated effective as of 23 September 2012. It 
is expressed to apply to "large civil aircraft -related aeronautics research and development 
contracts and agreements " previously entered into between NASA and Boeing, as listed i n 
Attachment A to the NASA -Boeing Patent Licence Agreement.992 Attachment A also sets forth the 
U.S. patents covering inventions made under the listed NASA "contracts and agreements " in which 
Boeing has title and NASA has a non -exclusive government use licen ce. Under the NASA -Boeing 
Patent Licence Agreement, Boeing as licensor grants to NASA as licensee:  
{A}n irrevocable, non -exclusive, non -transferable, royalty -free license under the 
Patent Rights to use, make, offer for sale, sell, and import each Subject Invention for 
commercial purposes, without the right to : (A) sublicense this right; (B) exercise this 
right in a commercial venture of any type with a third party; or (C) have the Subject 
Invention made or sold by a third party for a commercial purpose.993  
8.38.  The "Subject Invention " covered by the above -referenced grant of additional licence rights 
is expressed as:  
{A}ny Invention, present or future, conceived or first actually reduced to practice by 
Boeing in the performance of work under one of the Agreements , and for which a 
waiver of the rights of the Government of the United States was, or will be, granted in 
accordance with 14 CFR Section 1245, Subpart 1.994 
8.39.  The DOD -Boeing Patent Licence Agreement is dated 21 September 2012. It is expressed to 
apply to assis tance instruments previously entered into between DOD and Boeing, as listed in 
Attachment A to the DOD -Boeing Patent Licence Agreement.995 Attachment A also sets forth the 
                                               
989 Third-party contractors are thereby provided with a licence defence against an infringement 
proceeding covering the contractor's use of t he patented invention in the performance of a contract for the 
U.S. Government.  
990 This includes data of a scientific or technical nature. See Panel Report, US – Large Civil Aircraft (2nd 
complaint ), paras. 7.1296 -7.1299. See also fn 1173 below . 
991 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1300 and 7.1301.  
992 NASA -Boeing Patent Licence Agreement, (Exhibit EU -251) (BCI), section 1.a. Section 7.i. of the 
NASA -Boeing Patent Licence Agreement pe rmits NASA and Boeing by mutual agreement to modify Attachment 
A to include other agreements entered into by the parties prior to 23 September 2012 that had been 
inadvertently omitted from Attachment A.  
993 NASA -Boeing Patent Licence Agreement, (Exhibit EU -251) (BCI), section 2.a.  
994 NASA -Boeing Patent Licence Agreement, (Exhibit EU -251) (BCI), section 1.d.  
995 In response to a question from the Panel, the United States confirms that the DOD -Boeing Patent 
Licence Agreement applies only to the agreements listed i n Attachment A thereto and does not affect the 
allocation of intellectual property rights in respect of any other DOD assistance instruments. WT/DS353/R W 
 
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  U.S. patents covering inventions made under the listed DOD assistance instruments in w hich 
Boeing has title, and DOD has a non -exclusive government use licence. Under the DOD -Boeing 
Patent Licence Agreement, Boeing as licensor grants to DOD as licensee:  
{A}n irrevocable, non -exclusive, non -transferable, paid -up licence under the Licensed 
Intellectual Property to use, make, offer for sale, sell, and import each Subject 
Invention  Made  under the Agreements for commercial purposes, without the right to : 
(i) sublicense  this right; (ii) exercise this right in a commercial venture of any type 
with a third party; or (iii) have the Subject Invention  made or sold by a third party for 
a commercial purpose.996  
8.40.  The "Licensed Intellectual Property " covered by the above -referenced grant of additional 
licence rights is expressed as:  
All Subject Inventions  and all U.S. patents and/or patent applications that cover or 
may cover the Subject Inventions , past and future, Made  under an Agreement listed 
in Attachment A, including the U.S. patents or patent applications listed in Attachment 
A to this License, and any  re-examined or reissued version of same, and including any 
patent issuing from any continuation, continuation -in-part or divisional application 
claiming priority from the application that issued as such U.S. patent or patent 
application, and any foreign c ounterpart … .997 
8.41.  Thus, the Boeing Patent Licence Agreement s grant to NASA and DOD additional rights 
beyond the government use licence in respect of Boeing inventions made under the NASA 
procurement contracts and DOD assistance instruments listed in the annexes to the Agreements. 
The non -exclusive , commercial use licence granted to  each of  NASA and DOD does not permit 
NASA or DOD to sublicense this right, exercise this right in a commercial venture with a third 
party, or have the subject invention made or sol d by a third party for a commercial purpose.  
8.42.  As a result of the commercial use licence granted to  each of  NASA and DOD in respect of 
Boeing -owned patents, Boeing 's rights to exploit patents developed by its employees in the course 
of work under a relevant  NASA procurement contract or DOD assistance instrument are subject 
not just to NASA/ DOD's government use rights998, but also to NASA/ DOD's commercial use rights. 
NASA/ DOD's rights under both the government use licence and the commercial use licence are 
non-exclusive, and NASA/ DOD as licensee is relieved of the obligation to pay royalties to the 
patent owner in relation to the government uses and commercial uses, respectively. However, 
Boeing retains the right to grant licences to third parties to practice it s patents and to receive 
royalties therefrom.  
8.43.  The parties have each submitted to the Panel a number of R&D contracts which they 
consider serve as relevant market benchmarks for the allocation of rights to own and use patents 
in collaborative R&D arrangeme nts. These private R&D agreements include Contracts A through F , 
which were also submitted in the original proceeding. We review and explain the rights granted to 
the commissioning and commissioned parties in respect of "project " intellectual property unde r 
those agreements, in light of their evaluations by the parties ' respective technology licensing 
experts, in a BCI Appendix  to this Report.999  
                                                                                                                                               
(United  States'  response to Panel question No. 87, para. 158). Section 4.e. of the DOD -Boeing Patent Licence 
Agree ment permits DOD and Boeing by mutual agreement to modify Attachment A to include other funding 
instruments or other transaction agreements entered into by the parties prior to 23 September 2012 that had 
been inadvertently omitted from Attachment A.  
996 DOD-Boeing Patent Licence Agreement, (Exhibit EU -401) (BCI), article 1.a. (emphasis original)  
997 DOD-Boeing Patent Licence Agreement, (Exhibit EU -401) (BCI), article 2.a. (emphasis original)  
998 See para. 8.35 above . 
999 See Appendix 1. Our evaluation in the BCI Appendix  covers: (a) the six BCI contracts between 
Boeing as commissioning party and research institutes and for -profit entities as commissioned parties that 
were submitted in the original proceeding (designated b y the Appellate Body as Contracts A through F); (b) 18 
private commercial collaborative R&D agreements; (c) two private collaborative agreements in which the 
commissioning party is not a commercial actor but a for -profit foundation; (d) the standard terms and 
conditions of the Wichita State University National Institute for Aviation Research (NIAR); and (e) a research 
and technology framework agreement between Airbus SAS and an unnamed university in which Airbus is the 
commissioning party.  WT/DS353/R W 
 
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  8.44.  As we explain  in the BCI Appendix1000, [***1001]. 
8.45.  Although the Boeing Patent Licence Agreement s grant  NASA and DOD limi ted commercial 
use licence s in respect of Boeing -owned patents obtained in the course of work under a relevant 
NASA procurement contract or DOD assistance instrument (which is in addition to the government 
use licence NASA and DOD already possess by virtue  of the Bayh -Dole Act and associated 
legislative instruments and implementing regulations  and NASA -specific waiver provisions 
discussed above) , the fundamental balance remains one in which NASA and DOD lack the right to 
obtain an exclusive  licence to pract ice Boeing -owned patents. Boeing 's ability to commercially 
exploit its patents is not contingent on NASA 's or DOD's election not to exercise exclusive rights to 
licence those patents for itself. In this respect, the allocation of patent rights and related licence 
rights  under the amended procurement contracts and assistance instruments remains more 
favourable to Boeing as commissioned party than the corresponding allocations to commissioned 
parties under the private collaborative R&D agreements before the P anel. 
8.46.  Even if we were to compare the rights granted to NASA and DOD in respect of inventions 
resulting from work performed under the NASA procurement contracts and DOD assistance 
instruments , as modified by the applicable Boeing Patent Licence Agreement s, with the rights 
granted to commissioning parties with respect to inventions as the res ult of work under 
Contract  D, we would conclude that the allocation under the former  grouping  is more favourable to 
Boeing as commissioned party than the allocation to th e commissioned party under Contract D, 
based on the differences in the scope of the commercial use licences granted to the commissioning 
parties under the respective instruments.  
8.47.  The commercial use licence granted to NASA and DOD by the Boeing Patent Lice nce 
Agreement s [***]. It appears to us that the commissioning party under Contract D is granted 
more extensive rights to use the commissioned party 's patents than NASA  and DOD  are granted 
under the modified NASA procurement contracts and DOD assistance ins truments, notwithstanding 
the grant of the limited commercial use licence to NASA  and DOD  by virtue of the Boeing Patent 
Licence Agreement s. As a corollary, the rights in respect of patent s retained by the commissioned 
party under Contract  D are less exten sive in a commercial sense than those retained by Boeing 
under the modified NASA procurement contracts and the DOD assistance instruments .  
8.48.  The United States argues that, in granting the commercial use licence to NASA  and DOD, 
Boeing has effectively assume d the risk that U .S. Government policy may change in such a way as 
would permit DOD and NASA to produce commercial aircraft in competition with Boeing.1002 We do 
not discount the possibility that, in particular contexts, the assumption of the risk of a future  
occurrence could have a meaningful impact on the balance of rights between parties. However, in 
the present context, we consider the possibility that NASA or DOD would at some time in the near 
future decide to embark on the production of large civil aircr aft in competition with Boeing to be 
quite remote, and we therefore do not consider that Boeing 's assumption of this theoretical risk 
has any meaningful practical impact on its rights under the NASA procurement contracts  and DOD 
assistance instruments More over, the United States acknowledges that it does not engage in 
"purely commercial businesses " and does not plan to do so.1003 
8.49.  In conclusion, we do not consider that the grant to NASA and DOD of commercial use rights 
in respect of Boeing -owned patents under t he pre -2007 NASA procurement contracts and DOD 
assistance instruments , effected by the Boeing Patent Licence Agreement s, brings those contracts 
and instruments into line with prevailing market practices for collaborative R&D arrangements in 
such a way as t o remove the benefit that the Appellate Body had found was conferred through the 
pre-2007 contracts and instruments in the original proceeding.  
8.50.  We therefore find that the European Union has established that the amendments 
made by the United States through  the Boeing Patent Licence Agreements to the terms 
of the pre -2007 NASA procurement contracts and DOD assistance instruments that were 
                                               
1000 Appendix 1 , para. 49 . 
1001 See Razgaitis Declaration, (Exhibit EU -1262) (BCI), paras. 81 and 117; and Supplemental 
Declaration of R. A. Razgaitis, Sr., Ph.D., CLP, 18 December 2013 (First Supplemental Razgaitis Declaration), 
(Exhibit EU -1327) (BCI), para. 17.  
1002 United Stat es' first written submission, para. 281.  
1003 United States' response to Panel question No. 87, para. 15 and fn 8.  WT/DS353/R W 
 
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  the subject of the DSB recommendations and rulings in the original proceeding do not 
constitute a withdrawal of the subsi dy, within the meaning of Article 7.8 of the SCM 
Agreement.  
8.1.3.3   NASA Space Act Agreements at issue in the original proceedin g 
8.51.  It is not in dispute that t he terms of pre-2007 Space Act Agreement s have not been 
modified through  the NASA -Boeing Patent Licence Agr eement , nor has the United States argued 
that it has taken action with respect to the pre-2007 Space Act Agreements that were before the 
original panel . The main issue before the Panel in this compliance proceeding is whether this is 
therefore sufficient t o conclude that the United States has failed to withdraw  the subsidy with 
respect to the pre -2007 Space Act Agreements.  
8.52.  Notwithstanding the European Union 's view that the original p anel finding of benefit should 
be sustained  in respect of pre-2007 Space Ac t Agreement s, we do not consider it appropriate to 
treat the fact that the United States has not taken any action with respect to the pre -2007 Space 
Act Agreements as sufficient to conclude that the United States has failed to withdraw the subsi dy 
with res pect to the pre -2007 Space Act Agreements . We recall, i n the original proceeding , the 
United States appealed the finding of the panel that payments and access to NASA facilities, 
equipment, and employees provided to Boeing through "research contracts and a greements at 
issue" constitute d financial contributions that confer red a benefit.1004 When addressing th e issue of 
benefit in relation to Space Act Agreements  on appeal, the Appellate Body expressed the view  that 
the United States ' appeal of the panel 's benef it finding was "merely consequential "1005 to its appeal 
of the panel 's finding of financial contribution . For this reason, the Appellate Body limited its 
review of the panel's finding of benefit relating to the NASA  aeronautics R&D  measures to the 
NASA procur ement contracts at issue and did not review the panel's finding of benefit related to 
NASA Space Act Agreements. The Appellate Body expressed various reservations concerning  the 
panel's assessment of benefit related to  the NASA procurement contracts and DO D assistance 
instruments, including with respect to  the panel's consideration of the evidence on record.1006 In 
circumstances  in which the Appellate Body has overturned the benefit determination with respect 
to NASA procurement contracts which is the same ben efit analysis that the panel had also applied 
with respect to Space Act Agreements,  we do not consider it appropriate to simply rely on the 
panel's finding of benefit as applied to Space Act Agreements as a basis to conclude that the 
United States has fail ed to withdraw the subsidies. Therefore, i n order to determine whether the 
United States has complied with its obligations under Article 7.8, we must first determine whether 
Space Act Agreements confer a benefit. In this regard, the principal  question rais ed by the parties 
is whether the benefit analysis in respect of NASA procurement contract s and DOD assistance 
instruments is relevant, or whether Space Act Agreements are sufficiently distinct  from those 
measures  such that a different  analysis would be req uired. If a different  analysis is required, the 
                                               
1004 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), annex II, Notification of an Other 
Appeal by the United States, paras. 2 and  3. In its assessment of benefit in relation to the NASA measures, the 
original panel assessed pre -2007 NASA procurement contracts and Space Act Agreements together and 
concluded that the financial contributions provided to Boeing under its aeronautics R&D  contracts and 
agreements with NASA confer a benefit , within the meaning of Article 1.1(b) of the SCM Agreement. The basis 
for the panel's reasoning was that "no commercial entity … acting pursuant to commercial considerations, 
would provide payments (and access to its facilities and personnel) to another commercial entity on the 
condition that the other entity perform R&D activities principally for the benefit and use of that other entity". 
(Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7 .1039 and 7.1040).  
1005 The Appellate Body expressed the view that the United States "does not appeal the Panel's finding 
of financial contribution concerning the Space Act Agreements challenged by the European Communities", 
based on the fact that "the Panel noted that during the Panel proceedings the United States had 'accept{ed} 
that the provision of (access to) facilities, equipment, and employees provided to Boeing through the Space Act 
Agreements at issue constitutes a provision of goods or services , within the meaning of Article 1.1(a)(1)(iii) of 
the SCM Agreement'". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), fn 1300 (referring to 
Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.976)).  
1006 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 644 -647. The Appellate Body 
also expressed reservations at the panel's use of a test for benefit that, like its test for whether the financial 
contributions at issue were purchases of services, revolved around t he question of which party to the 
transaction derives the "principal benefit and use" from the research ( Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint) , para. 641), and what it regarded as its reasoning regarding the behaviour that would 
be expected of a commercial actor, for which the panel had failed to provide  an underlying economic rationale . 
(Appellate Body  Report, US – Large Civil Aircraft (2nd complaint) , paras. 642 and 643).  WT/DS353/R W 
 
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  European Union has not provided evidence of relevant  commercial benchmarks, and we would 
have no basis to conclude that Space Act Agreements confer a benefit.  
8.53.  The European Union's  and United States' arguments  as to whether the pre -2007 Space Act 
Agreements  confer  a benefit under Article 1.1(b) are the same as their respective arguments in 
relation to post -2006 Space Act Agreements. Accordingly, we will c onduct an evaluation in 
Section  8.2.2.4.2.3  below of whether any financial contributions that have been provided to Boeing 
pursuant to the Space Act Agreements before us confer a benefi t within the meaning of 
Article  1.1(b).  
8.2  Whether the United States has failed to withdraw the subsid y, within the meaning 
of Article 7.8 of the SCM Agreement , by granting or maintaining certain post -2006 
subsidies  
8.2.1   Introduction  
8.54.  In this Section of the Report, we evaluate whether certain post -2006 subsidies allegedly 
granted or maintained by the United Sta tes demonstrate that the United States has failed to 
withdraw the subsidy , within the meaning of Article 7.8 of the SCM Agreement.1007  
8.55.  The European Union identifies seven categories of "post-2006 subsidies to Boeing 's LCA 
Division ", which it alleges the Unit ed States grants or maintains after the end of the 
implementation period as set forth below.1008  
Table 1: Post-2006 Subsidies to Boeing's LCA Division  
Category of 
Subsidy  Name of Subsidy Programme  Description  
NASA 
Aeronautics 
R&D Fundamental Aeronautics  NASA programme with subsonic and supersonic 
fixed-wing R&D projects  
Integrated Systems Research  NASA programme with Environmentally 
Responsible Aviation Project  
Aviation Safety  NASA programme with air vehicle -level, 
system -level, a nd environmental safety R&D 
projects  
Aeronautics Strategy & 
Management  NASA programme containing aeronautics R&D 
cross-programme support and Innovative 
Concepts for Aviation Project  
Aeronautics Test Program  NASA programme funding aeronautics ground and  
flight test infrastructure  
Strategic Capabilities  
Assets Program  NASA programme managing test, flight 
simulation, and computing infrastructure  
High-End Computing Program  NASA programme funding supercomputing 
resources used for aeronautics R&D  
Federal  
Aviation 
Administration 
R&D Continuous Lower Energy, 
Emissions, and Noise  
(CLEEN) Program  FAA programme funding research into near -term 
LCA energy -, emissions -, and noise -reducing 
technologies, as well as with demonstrator flights  
Department of 
Defense 
Aeronautics 
R&D Research, Development, Test & 
Evaluation (RDT&E) Program  DOD programme funding R&D into dual -use 
aircraft technologies  
                                               
1007 See Section 6.3 above for a discussion of the distinction between the European Union's arguments 
regarding the alleged failure of the United States to withdraw the subsidy in respect of certain pre -2007 NASA 
and DOD aeronautics R&D subsidies, on the one hand, and al leged post -2006 subsidies, on the other. Our 
evaluation of the post -2006 DOD aeronautics R&D measures in Section 8.2.3 also covers the pre -2007 DOD 
procurement contracts funded under the original 23 RDT&E progra m elements, which we have found to be 
within the scope of this proceeding in Section 7.3.2, given the common legal issues that arise for our 
evaluation of both the pre -2007 procurement contracts and the post -2006 procurement contracts.  
1008 European Union's first written submission, para. 56, figure 1.  WT/DS353/R W 
 
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  Category of 
Subsidy  Name of Subsidy Programme  Description  
FSC/ETI  FSC/ETI Legislation  
and Successor Acts  Federal income tax exemptions/exclusions on 
certain LCA produced and sold for use outside the 
United States  
State of Kansas  Tax abatements provided 
through Wichita IRBs  Property and sales tax breaks for LCA component 
production facilities associated with industrial 
revenue bonds issued by the City of Wichita  
State of 
Washingto n State B&O Tax Rate Reduction  Washington State business & occupation (B&O) 
tax rate reduction for production and sales of LCA  
State B&O Tax Credit for  
Preproduction/Aerospace  
Product Development  Tax credit for LCA -related R&D  
State B&O Tax Credit for  
Property Taxes  Tax credit for property taxes on LCA production 
facilities  
State B&O Tax Credit for  
Leasehold Excise Taxes  Tax credit for leasehold excise taxes on LCA 
production facilities  
Sales and Use Tax Exemptions  Exemption from sales and use taxes  on computer 
hardware, software, and peripherals used in 
developing LCA  
City of Everett B&O Tax Rate 
Reduction  City of Everett B&O tax rate reduction for Boeing 
LCA 
Joint Center for Aerospace 
Technology Innovation  State office advancing public universi ty research 
for Boeing LCA  
State of South 
Carolina  Project 
Gemini -
Related 
Subsidies  Project Site Lease  Lease to the site of Boeing 's 
South Carolina 787  production facilities at 
USD 1 per year  
Project Gemini 
Facilities & 
Infrastructure  Provision of faci lities and infrastructure for 
Boeing 's 787 final assembly  
facility at no cost  
Sales and Use Tax 
Exemptions  Exemptions for Boeing from sales and use taxes 
on aircraft fuel, construction materials, and 
computer equipment  
Income Allocation 
and Apportion ment 
Agreement  Method of calculating Boeing 's state income taxes 
that excludes revenue from the sales of LCA for 
export  
Project Gemini MCIP 
Job Tax Credits  Tax credits for hiring due to location in a 
multi-county industrial park  
Large Cargo 
Freighter  Property 
Tax Exemption  Property tax exemption for Boeing 's "Dreamlifter " 
Large Cargo Freighters  
Workforce 
Programme  State -run workforce hiring, training, and 
development programme for Boeing 's 787 final 
assembly facility  
Boeing F ILOT 
Agreement  Reduc tion of property taxes on Boeing 's 787 final 
assembly facility under a Fee -in-Lieu-of Taxes 
(FILOT) Agreement  
Project 
Emerald -
Related 
Subsidies  Project Emerald 
Facilities & 
Infrastructure  Provision of facilities and infrastructure for 
Boeing 's fuselage f abrication and integration 
complex at no cost  
Project Emerald 
MCIP Job Tax Credits  Tax credits for hiring due to location in a 
multi-county industrial park  
Project Emerald 
FILOT Agreement  Reduction of property taxes on Boeing 's 787 
fuselage fabricati on and integration complex 
under a FILOT Agreement  
 
8.56.  In our analysis of the European Union's allegations that the United States grants or 
maintains specific subsidies after the end of the implementation period, we address the various 
measures at issue in t he following order :  
a. NASA aeronautics R&D measures involving payments and access to government 
facilities, equipment, and employees provided to Boeing pursuant to procurement WT/DS353/R W 
 
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  contracts, cooperative agreements, and access to government facilities, equipment , and 
employees provided to Boeing pursuant to Space Act Agreements (Section 8.2.2); 
b. DOD aeronautics R&D measures involving payments and access to government facilities 
provided to Boeing pursuant to pre -2007 DO D procurement contracts, and payments 
and access to government facilities, equipment, and employees provided to Boeing 
pursuant to post -2006 DOD procurement contracts and assistance instruments  
(Section  8.2.3); 
c. FAA aeronautics R&D measure involving payments and allegedly involving access to 
government facilities, equipment, and employees to Boeing pursuant to the Boeing 
CLEEN Agreement  (Section  8.2.4); 
d. tax exemptions and exclusions un der FSC/ETI legislation and successor legislation  
(Section 8.2.5  ); 
e. tax abatements provided through IRBs issued by the City of Wichita (Section 8.2.6  ); 
f. Washington state and local subsidies, including Washington State and City of Everett 
B&O tax rate reduc tions, Washington State  B&O tax credits for preproduction/aerospace 
product development, property taxes and leasehold excise taxes, and Washington  State 
sales and use tax exemptions for computer software, hardware, and peripherals  
(Section  8.2.7); and  
g. South Carolina measures , comprising the packages of financial incentives under Project 
Gemini and Project Emerald ( Section 8.2.8). 
8.2.2   Post-2006 NASA aeronautics R&D measures  
8.2.2.1   Introduction  
8.57.  In this Section of the Report, we evaluate the European Union 's allegations that certain 
post-2006 NASA aeronautics  R&D measures are specific subsidies , within the meaning of Articles 1 
and 2 of the SCM Agreement and that, by granting or maintaining these subsidies after the end of 
the implementation period, the United States has failed to withdraw the subsidy within the 
meaning of Article 7.8 of the SCM Agreement.1009  
8.58.  The European Union asserts in this proceeding that the a ctions identified by the 
United  States in its Compliance Communication have not withdrawn the subsidy.1010 NASA has 
continued to provide the same type of funding and support to Boeing as was provided to Boeing 
under the NASA aeronautics R&D programmes challenged in the original proceeding and has 
introduced additional subsidies pursuant to "successor and closely related programmes ". The 
United States argues that it has withdrawn the subsidy through the actions identified in its 
Compliance Communication, including by terminating most of the aero nautics R&D programmes at 
issue in the original proceeding and making certain general changes in NASA 's research 
contracting practices.  
8.59.  Our analysis proceeds as follows:  
a. In Section 8.2.2.2  we clarify aspects of  the NASA aeronautics R&D measures identified 
by the European Union as specific subsidies which it alleges the United States grants or 
maintains after the end of the implementation period and provide relevant background 
information.  
b. We evaluate in Section  8.2.2.3  whether the post -2006 NASA aeronautics R&D measures 
challenged by the European Union involve financial contributions , within the meaning of 
                                               
1009 We recall that with regard to the pre -2007 NASA procurement contracts at issue in the original 
proceeding we f ind that the NASA -Boeing Patent Licence Agreement doe s not constitute a withdrawal of the 
subsidy , within the meaning of Article 7.8 of the SCM Agreement. See Section  8.1.3.2  above.  
1010 See United States' Compliance Communication, paras. 3 and 4.  WT/DS353/R W 
 
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  Article 1.1(a)(1) of the SCM Agreement and evaluate in  Section  8.2.2.4  whether any 
such financial contributions confer a benefit , within the meaning of Article 1.1(b) .  
c. To the extent that we find that the measures in question are financial contributions and 
confer a benefi t, we evaluate in Section 8.2.2.5  whether any such subsidies are specific , 
within the meaning of Article 2 of the SCM Agreement.  
d. We address the question of the amount of the subsidy and the amount of the financ ial 
contribution in relation to any unwithdrawn post -2006 NASA aeronautics R&D subsidies 
in Section 8.2.2.6 . 
8.2.2.2   The measures at issue  
8.2.2.2.1   The European Union 's panel request  
8.60.  In its panel request in this proceeding, the European Union  alleges that NASA maintains 
subsidies benefiting U.S. LCA producers through: (a) 14 programmes (as reflected in NASA 's 
annual Budget Estimates for Fiscal Years 1989 through 2013); (b) contracts, assistance 
instruments, and other agreements (as modified) e ntered into under these programmes; or (c) the 
terms of the contracts and other agreements (as modified) with Boeing listed in annex A of the 
United  States ' 23 September 2012 Compliance Communication.1011  
8.61.  The forms of the subsidies are described as: (a) the provision to Boeing of funding and 
access to government facilities, equipment, and employees for R&D applicable to the development, 
design, and production of LCA, on terms more favourable than would be available on the 
commercial market; as well as (b) the  provision to Boeing of royalty -free use of the technologies 
developed with such funding and support or use of such technologies on preferential terms.1012  
8.62.  Although the European Union 's panel request suggests that the European Union seeks to 
challenge both t he NASA aeronautics R&D programmes as a whole1013 and "funding and access to 
government facilities, equipment, and employees " provided directly to Boeing, it is clear from the 
European Union 's submissions that its challenge is confined to particular "funding " and "access to 
government facilities, equipment and employees " provided to Boeing under specified NASA 
aeronautics R&D programmes , rather than the NASA aeronautics R&D programme budgets more 
generally.1014 Hence, the "funding " and "access to government facil ities, equipment, and 
employees " under the challenged aeronautics R&D programmes refer to payments made, and 
access to NASA facilities, equipment, and employees  provided, to Boeing, and not to payments or 
access allocated to other recipients or NASA 's own research efforts under the challenged NASA 
aeronautics R&D programmes. Moreover, the payments and access to government facilities, 
equipment, and employees occur through particular legal instruments entered into between NASA 
and Boeing, namely NASA procure ment contracts, cooperative agreements, and Space Act 
Agreements , which are funded under the challenged NASA aeronautics R&D programmes.1015  
8.63.  The European Union 's panel request identifies 14 "programs (as reflected in NASA 's annual 
Budget Estimates for Fiscal  Years 1989 through 2013) ", including the eight NASA aeronautics R&D 
                                               
1011 European Union's request for the establishment of a panel, paras. 8 and 9. The panel request 
indicates that "Annex A of the 23 September 2012 notification is attached to this request, and the contracts 
listed therein are incorporated into this request". (European Union's request for the e stablishment of a panel, 
para. 9, p. 3, and annex A).  
1012 European Union's request for the establishment of a panel, paras. 8 and 10.  
1013 In this regard, the European Union has at times in its submissions argued that the value of Boeing's 
access to NASA facili ties, equipment, and employees under NASA contracts and agreements is affected by the 
amount of funds and resources that NASA invests in and uses in its own research . (See e.g. European Union's 
second written submission, para. 264 and fn 413). The Panel ad dresses the issue of the amount of the subsidy 
and the amount of the financial contribution in respect of any subsidies provided through the NASA aeronautics 
R&D measures in Section 8.2.2.6 . 
1014 In addition, the E uropean Union's panel request states that the European Union's challenge concerns 
only such "funding" and "access to government facilities, equipment, and employees" provided to Boeing for 
"R&D applicable to the development, design, and production of LCA".  
1015 See paras. 8.74, 8.77, 8.78, and 8.79 below.  Panel Report, US – Large Civ il Aircraft (2nd complaint) , 
paras. 7.944  and 7.945. See also our analysis below in Section 8.2.2.6  of the amount of the relevant financial 
contributions.  WT/DS353/R W 
 
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  programmes that were the subject of the European Communities ' challenge in the original 
proceeding. We note that in the post -2006 period, NASA has consolidated and restructured its 
resear ch efforts, terminating some of the original aeronautics R&D programmes and continuing 
work previously conducted under others , under consolidated or new programmes.1016  
8.64.  We note, in this regard, that in the request it made in October 2012 to the Panel to seek  
information pursuant to  Article 13 of the DSU , the European Union identified seven of the 14 
programmes listed in its panel request as involving "post -2006 NASA aeronautics R&D subsidies :  
a. Fundamental Aeronautics Program1017;  
b. Integrated Systems Research Pro gram1018;  
c. Aviation Safety Program1019;  
d. Aeronautics Test Program1020;  
e. Strategic Capabilities Assets Program1021; 
f. Aeronautics Strategy and Management Program1022; and  
                                               
1016 The United States indicates in its Compliance Communi cation that "NASA has terminated the 
Advanced Composites technology, High Speed Research, Advanced Subsonic Technology, High Performance 
Computing and Communications, Quiet Aircraft Technology, Vehicle Systems, and Research and Technology 
Base programs". ( United States' Compliance Communication, para. 4). The United States explains that it 
"describes a NASA program as 'terminated' when NASA ends the program as a separate organizational activity 
and ceases to use funds budgeted for that program to pay employ ees, pay contractors, or conduct other NASA 
activities". (United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 2, para. 7).  
1017 Beginning in 2006, NASA established Fundamental Aeronautics as the successor to Vehicle Systems, 
creating NASA's largest program me, (NASA Fundamental Aeronautics Budget Estimates for FY  2007-FY 2013, 
(Exhibit EU -40), FY 2013, p. AERO -1) with the aim to "develop technology to enable revolutio nary capabilities 
for the future of aviation" ; (ibid. p. SAD ARMD 2 -14; and NASA Fundamental Aeronautics Budget Estimates,  
FY 2007,  (Exhibit USA -13)). See para. 7.279  above.  
1018 NASA established the Integrated Systems Research Pr ogram in 2010 with the objective of "maturing 
and integrating technologies in major vehicle systems and subsystems for accelerated transition to practical 
application". ( NASA Integrated Systems Research Budget Estimates for FY 2010 -FY 2013, (Exhibit EU -41), 
FY 2010, AERO -39). 
1019 NASA transitioned research conducted under Aviation Safety and Security to the renamed Aviation 
Safety Program with the goal to "conduct research to improve the intrinsic safety attributes of future aircraft 
and to eliminate safety r elated technology barriers".  (NASA Aviation Safety Budget Estimates for 
FY 2007-FY 2013, (Exhibit EU -42), FY 2007, SAE ARMD 2 -7). 
1020 NASA established the Aeronautics Test Program as a separate programme in 2007 in conjunction 
with the Strategic Capabilities  Assets Program, with the objective "to ensure the continuous availability of a 
portfolio of NASA owned wind tunnels/ground test facilities and flight operations/test infrastructure which are 
strategically important to meeting national aerospace program go als and requirements".  (NASA Aeronautics 
Test Program Budget Estimates for FY 2007 -FY 2013, (Exhibit EU -44), FY 2008, p. ARMD 36). An identified 
major benefit of this program is to maintain stable user pricing at its facilities, which includes NASA's 
progr ammes across the Agency as well as other government agencies and U.S. Industry. (NASA Aeronautics 
Test Program Budget Estimates for FY 2007 -FY 2013, (Exhibit EU -44), FY 2008, p. ARMD 37). See also NASA 
Aeronautics Test Program Budget Estimates for FY 2007 -FY 2013,  (Exhibit EU -44), FY 2007, SAE ARMD 2 -18. 
1021 NASA established the Strategic Capabilities Assets Program in 2006, followed by the launch of the 
Aeronautics Test Program and High -End Computing Capability, to manage and maintain core operational 
aerona utics test facilities and infrastructure in support of NASA current and future program mes. (NASA 
Strategic Capabilities Assets Program Budget Estimates for FY 2007 -FY 2013, (Exhibit EU -45), FY 2008, SAE 
CASP 5 -2, CASP -47 to 48, and CASP -52 to 54; NASA Aero nautics Test Program Bu dget Estimates for 
FY 2007-FY 2013,  (Exhibit EU -44), FY 2007, SAE ARMD 2 -18). See also NASA Aeronautics Test Program 
Budget Estimates for FY  2007-FY 2013, (Exhibit EU -44), FY 2008, p. ARMD 36; NASA Fact Sheet, "Aeronautics 
Test Progr am", 2009, (Exhibit EU -195); NASA High End Computing Program Budget Estimates for FY 2009 -
FY 2013, (Exhibit EU -46), FY  2013, ES -6; NASA Fundamental Aeronautics Budget Estimates, FY 2007, (Exhibit 
USA-13), p. SAE CASP 5 -1. See also NASA Ames Research Center , NAS Division 2008: 25 Years of Innovation , 
2008, (Exhibit EU -208), p. 3; NASA, High -End Computing at NASA 2007 -2008, 1 June 2009, (Exhibit EU -212), 
FY 2007, p.  CASP 5 -2; NASA, High -End Computing at NASA 2007 -2008, 1 June 2009, (Exhibit EU -212), 
FY 2007, p. CASP 5 -3 to 4; NASA High End Computing Program Budget Estimates for FY 2009 -FY 2013, 
(Exhibit EU -46), FY  2009, p. Sci -21; NASA, "High -End Computing Capability, Pleiades Supercomputer", 
available at: <http://www.nas.nasa.gov/hecc/resources/pleiades.html> , accessed 29 August 2016, (Exhibit 
EU-206).  WT/DS353/R W 
 
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  g. High End Computing Program.1023 
8.65.  In its first written submission, the European Union argues that NASA "continues to provide 
funding and support to Boeing through certain of the Original NASA Programmes in the same or 
substantively similar manner as before the original panel " and that NASA  "also currently maintains 
additional subsidies for Boeing in the form of funding and access to government facilities, 
equipment and employees provided under successor and other closely related programmes ".1024  
8.66.  The European Union states that the seven programmes that it identifies as involving 
post-2006 NASA aeronautics  R&D subsid ies "include both Original NASA Programmes and 
successor and other closely related programmes ".1025 Thus, it would appear that, as far as the 
alleged post-2006 NASA aeronautics R&D subsidies are concerned, the original NASA aeronautics 
R&D programmes are at i ssue only insofar as they may have been "included " in the seven 
programmes identified by the European Union.1026  
8.2.2.2.2   The existence of the measures  
8.67.  In its first written submission, the United States indicate s that neither the Aeronautics 
Strategy and Management P rogram nor the High -End Computing Program had funded any 
payments, or provided any facilities, equipment or employees, to Boeing for non -engine 
aeronautics research in the post -2006 period.1027 The United States ' assertions suggest that in fact 
there are no r elevant NASA aeronautics R&D measures in existence as regards these two 
aeronautics R&D programmes. The European Union responds that the United States mistakenly 
defines the measure solely by identifiable contracts and agreements.1028 The European Union then 
refers to arguments it makes in the context of estimating the amount of the financial contributions 
represented by the alleged NASA aeronautics R&D subsidies, that the value of the subsidy extends 
beyond the "four corners " of the specific legal instruments  that are the "mechanisms by which 
NASA provides subsidies for Boeing LCA ".1029  
8.68.  In our view, the European Union 's arguments erroneously conflate the issue raised by the 
United States, which goes to the existence of the measure, with the question of how to va lue the 
amount of a subsidy, assuming that the measure said to constitute the subsidy in fact exists. We 
recall in paragraph 8.62 above that the payments and access to government facilities, equipment, 
and emplo yees occur through particular legal instruments entered into between NASA and Boeing, 
namely NASA procurement contracts, cooperative agreements , or Space Act Agreements which are 
funded under the challenged NASA aeronautics R&D programmes.1030 In the absence of any 
evidence that the Aeronautics Strategy and Management Program or the High -End Computing 
Program funded any procurement contracts, cooperative agreements , or Space Act Agreements 
                                                                                                                                               
1022 NASA formed Aeronautics Strategy and Management in 2012 to "conduct{} research and provide{} 
programmatic support that does not fit well into the current five programs", including information technology 
expens es, studies, and administrative functions for other NASA aeronautics R&D programmes. ( NASA 
Aeronautics Strategy and Management Budget Estimates for FY 2012 -FY 2013, (Exhibit EU -43), FY 2012, 
pp. AERO -44 and AERO -45). See also Memorandum of Understanding Am ong the Department of 
Transportation, Department of Commerce, Department of Defense, Department of Homeland Security, and 
National Aeronautics and Space Administration for the Next Generation Air Transportation System Joint 
Planning And Development, 9 June  2008, (Exhibit EU -192).  
1023 With funding from the Strategic Capabilities Assets Program, the High End Computing Program 
supports the operation, maintenance, and upgrade to NASA supercomputing facilities at the Ame s Research 
Center, including NASA's "Pleiade s" supercomputer, which supports NASA's aeronautics, exploration, space 
operation and science missions. (NASA High End Computing Program FY 2009 -FY 2013, (Exhibit EU -46), 
FY 2010 Budget, SCI -18). 
1024 European Union's first written submission, para. 60.  
1025 European Union's first written submission, para. 72.  
1026 As explained in Section 8.1, the European Union additionally argues that the pre -2007 NASA 
aeronautics R&D subsidies at issue in the original proceeding, which  include "NASA R&D support to Boeing" 
provided through the original NASA aeronautics R&D programmes have not been withdrawn and continue to 
benefit Boeing at present. (European Union's first written submission, para. 1181) . 
1027 United States' first written s ubmission, paras. 192 and 194.  
1028 European Union's second written submission, para. 211.  
1029 European Union's second written submission, para. 262.  
1030 See paras. 8.74, 8.77, 8.78, and 8.79 below.  Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.944 and 7.945. See also our analysis of the amount of the subsidy and the amount of the relevant 
financial contribution  in Section 8.2.2.6  below .  WT/DS353/R W 
 
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  with Boeing in the post -2006 period, we consider there to be insufficie nt evidence that the relevant 
measures under these aeronautics R&D programmes exist.  
8.69.  In addition, with respect to the Strategic Capabilities Assets Program, the United States 
asserts that the only contract that Boeing received under this programme that wa s related to 
aeronautics research was a n open-market, commercial purchase of a licence for NASA to use 
Boeing 's proprietary flight training simulator (Contract NNL12AA55P).1031 The United States argues  
that this contract did not involve any research on Boeing 's part or the provision of facilities, 
equipment or employees to Boeing and that it is therefore not within the Panel 's terms of 
reference, which cover only NASA "funding and access to government facilities, equipment, and 
employees for R&D applicable to the development, design and production of LCA ".1032 The 
European Union responds that the United States erroneously considers that "only contracts or 
agreements funded by the programme can constitute a subsidy ".1033 The European Union states 
that its claims with respect to the Strategic Capabilities Assets Program address the aeronautics 
test and simulation capabilities funded by this programme.1034 However, to the extent that the 
United States has fully and accurately described this particular contract,  the European  Union 
submits that such a purchase of goods would not appear to be among the aspects of the NASA 
aeronautics R&D programmes that it is challenging.1035  
8.70.  We observe that Contract NNL12AA55P relates to the purchase of a simulator licence for use 
of Boeing 's proprietary 737NG -800W/winglets flight simulator data1036, and consistent with the 
views of the parties, this should not be examined among the NASA aeronautics R&D measures 
before us. Accordingly, as there is no evidence that any procurement contracts, cooperat ive 
agreements , or Space Act Agreements with Boeing were funded  by the Strategic Capabilities 
Assets Program,  we do not consider the Strategic Capabilities Assets Program as part of our 
assessment.  
8.71.  Finally, with respect to the Integrated Systems Research P rogram, the United States argues 
that certain funds were used by NASA to make purchases of items from Boeing, which it describes 
as "commercial, open -market items " that did not involve any research on Boeing 's part or the 
provision of facilities, equipment  or employees to Boeing.1037 It submits that these transactions are 
not within the Panel 's terms of reference. The European Union does not appear to dispute this. 
Accordingly, we find that these transactions should also not be examined as part of the measures  
at issue under the NASA aeronautics R&D programmes before us. As the United States has 
identified obligations with Boeing pursuant to other procurement contracts funded under the 
Integrated Systems Research Program, our assessment of the measures will add ress those 
contracts.  
8.72.  Accordingly, in light of the explanations  in paragraphs  8.68-8.71 above , the NASA  
aeronautics R&D measures that we examine in this Section are payments and acce ss to facilities, 
equipment, and employees  provided to Boeing under post -2006 procurement contracts, 
cooperative agreements, and Space Act Agreements  between NASA and Boeing funded under the 
four NASA aeronautics R&D programmes identified in (a) through (d ) of paragraph  8.64 above , i.e. 
the Fundamental Aeronautics Research Program, the Integrated Systems Research Program, the 
Aviation Safety Program and the Aeronautics Test Program .  
                                               
1031 United States' first written submission, para. 193. Contract NNL12AA55P was initially identified as 
Exhibit USA -103 and was subsequent ly submitted as Exhibit USA -576. (See United States' comments to 
European Union's response to Panel question No. 89).  
1032 United States' first written submission, para. 193.  
1033 European Union's second written submission, para. 217.  
1034 European Union's second wri tten submission, para. 217 (referring to the amount of the annual 
budgeted NASA aeronautics R&D programme funding that it allocates to Boeing as its "top -down" estimate of 
the value of the financial contribution provided to Boeing). See NASA Subsidies to B oeing's LCA Division 
(Exhibit EU -36), p. 8.  
1035 European Union's response to Panel question No. 89, para. 99.  
1036 See NASA Purchase Order NNL12AA55P, (Exhibit USA -576) (BCI), pp. 1 and 15.  
1037 United States' first written submission, para. 187. The United States  refers to: (a) a ceramic matrix 
composite sandwich structure test coupon for [[HSBI]] (NASA Purchase Order NNC11QA17P, (Exhibit 
USA-98) (HSBI), pp. 1 and 18); (b) a ceramic matrix composite sandwich structures for exhaust systems for 
[[HSBI]]  (allegedly p urchase pursuant to Purchase Order NNC11VA84P, which was not submitted as an 
exhibit);  and (c)  an additional order of ceramic matrix composite sandwich structures for [[HSBI]]  (NASA 
Purchase Order NNC11VA99P, (Exhibit USA -99) (HSBI), p. 2).  WT/DS353/R W 
 
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  8.2.2.2.3   The instruments and processes  through which R&D is commissioned  under 
NASA 's aeronautics R&D programmes  
8.73.  The Space Act  authorizes NASA to enter into certain types of instruments to fund R&D with 
contractors and academic institutions, including awards made in the form of grants, coopera tive 
agreements, or contracts depending on the nature of the submitting organization or other specific 
requirements .1038  
8.74.  NASA procurement contracts  are the appropriate instrument in cases where the principal 
purpose is to acquire goods and services for the d irect bene fit or use of the United  States 
Government.1039 Procurement c ontracts are subject to the U.S. Federal Acquisition Regulation 
(FAR).1040 
8.75.  Indefinite Delivery/Indefinite Quantity ( IDIQ) procurement contracts are  "umbrella " 
contracts that provide for the p rocurement of an indefinite quantity of supplies and/or services 
when the exact time or quantity of futu re deliveries are not know n at the time of the award  of the  
contract. These arrangements contain statements of work that describe the general scope, nat ure, 
complexity and purpose of the contract. Work is awarded under IDIQ contracts pursuant to 
particular "task orders " (or "delivery orders "), which typically contain more detailed statements of 
work.1041 Task orders and delivery orders are not themselves ind ependent contracts , as they rely 
on the body of the IDIQ contract for many of their provisions.1042 Single or multiple task orders 
may be awarded under IDIQ  contracts.  
8.76.  NASA also awards contracts through Basic Ordering Agreements (BOAs) , which are 
framework a greements setting certain terms of an acquisition in advance of the issuance of the 
requirements applicable to the acquisition.1043 Such terms may cover a description of supplies and 
services to be procured and the method for pricing, issuing, and delivering contracts/orders under 
the agreement.  This mechanism enables NASA to focus on the critical contract terms for each work 
package and implement them through a task order, rather than go through the expense of 
negotiating a new contract each time NASA contrac ts for research.1044 As a legal matter, however, 
BOAs are not contracts by themselves because there is no consideration until the first task is 
awarded.1045 
8.77.  NASA cooperative agreements  are used where the "principal purpose is the transfer of 
anything of value to  the recipient to accomplish a public purpose of support or stimulation " and 
where "substantial involvement is anticipated between NASA and the recipient ".1046 "Substantial 
involvement " may include an "active NASA role in collaborative relations, access to a NASA site or 
equipment, or sharing NASA facilities and personnel ".1047 Cooperative agreements also provide for 
the possibility of "joint funding " by NASA and participating private entities as well as non -cash 
contributions.1048 
                                               
1038 NASA Policy D irective on Authority to Enter into Space Act Agreements, NPD 1050.1I 
(23 December  2008), (Exhibit USA -303).  
1039 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 593 and accompanying 
fns; and Panel Report, US – Large Civil Aircraft  (2nd complaint) , para. 7.945 and accompanying fns.  
1040 See e.g. NASA, Grant and Cooperative Agreement Handbook , Part 1260, (November 2014), (Exhibit 
EU-1369), p. A -10. 
1041 United States' first written submission, para. 108.  
1042 United States' response to Panel question No. 95, para. 166.  
1043 United States' first written submission, para. 122; response to Panel question No. 95, para. 166.  
1044 United States' first written submission, para. 122.  
1045 United States' response to Panel question No. 95, para. 166.  
1046 NASA, Grant and Cooperative Agreement Handbook , Part 1260, (November 2014), (Exhibit 
EU-1369), p. A -11 (referring to United States Code of Federal Regulations , Title 14, section 12.60.12(d)). In 
identifying the contracts and agreements at issue between NASA and Boe ing in the original proceeding, the 
panel noted that "in a few cases", transactions between NASA and Boeing under the original NASA aeronautics 
R&D programmes were undertaken pursuant to cooperative agreements. (Panel Report, US – Large Civil 
Aircraft (2nd complaint) , fn 2408, para. 7.945).  
1047 NASA, Grant and Cooperative Agreement Handbook , Part 1260, (November 2014), (Exhibit 
EU-1369), p. A -11 (referring to United States Code of Federal Regulations , Title 14, section 12.60.12(d)(1)).  
1048 United States' second  written submission, fn 220 , para. 158 ("cooperative agreements are the only 
instruments used by NASA that provide for 'joint funding,' and they did not represent a significant share of 
NASA's payments to Boeing at any point from 1989 to the present"). See  also NASA, Grant and Cooperative WT/DS353/R W 
 
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  8.78.  NASA may enter into Space Act Agre ements  pursuant to its "other transactions " authority 
under the Space Act, in order to "utilize the broad authority granted to the Agency in the Space 
Act to further the Agency 's missions ".1049 Policy Directive 1050.1H describes these arrangements 
as follows:  
Space Act Agreements … Establish a set of legally enforceable promises between 
NASA and the other party to the Agreement (herein "Agreement Partner "). Such 
Agreements constitute Agency commitments of resources (including personnel, 
funding, services, equi pment, expertise, information, or facilities) to accomplish stated 
objectives of a joint undertaking with an Agreement Partner. The Agreement Partner 
can be a U .S. or foreign person or entity, an educational institution, a Federal, state , 
or local governme ntal unit, a foreign government, or an international organization.1050 
8.79.  As the panel explained in the original proceeding, NASA may enter into reimbursable, 
non-reimbursable and partially -reimbursable  Space Act Agreements. Under fully reimbursable 
Space Act Ag reements, full reimbursement is required for goods , services or facilities provided, 
while alternatively, NASA has authority to accept partial reimbursement, or no reimbursement 
where activities undertaken pursuant to the agreement offer corresponding "benefits to NASA ", or 
NASA and an agreement partner undertake mutually beneficial activity that furthers the Agency 's 
missions.1051  
8.80.  NASA solicits proposals for research from contractors and universities through various 
mechanisms depending on the objectives of research, including through the issuance of NASA 
Research Announcements (NRAs) . NRAs may be used to solicit proposals for foundational research 
in areas relevant to enhancing NASA 's core competencies, including through the award of 
contracts, grants or coo perative agreements. NRA solicitations are released by NASA Headquarters 
through the Web -based NASA Solicitation and Proposal Integrated Review and Evaluation System. 
All NRA technical work is defined and managed at NASA centr es by project teams within NAS A 
program me areas (e.g. Aviation Safety, Fundamental Aeronautics , and Aeronautics Test Program). 
NRA awards originate from the centr es. Competition for NRAs awards is described as "full and 
open" to educational institutions, industry and non -profit organiz ations.1052 Under this process , 
NASA issues requests for information (RFIs) relating to research goals identified in connection with 
technological roadmaps. NASA develops feedback based on RFIs it receives to develop NASA 
centre technical proposals. Thereafte r, an NRA is issued to solicit proposals from the external 
community to undertake research identified in NASA centr e proposals , after which NASA selects 
proposals for funding.1053 The United States has identified discrete NRAs that NASA has issued in 
relation  to the challenged aeronautics R&D programmes since 2006.1054 The United States has 
explained that NRAs are only one of the vehicles that NASA uses to solicit offers from contractors 
and universities (for instance, the United States explains that procurement contracts such as IDIQ 
contracts are used to acquire services or goods for the U.S. Government). The United States notes 
that a number of solicitations by NASA outside the NRA process resulted in the award of contracts 
with Boeing during the 2007 -2012 peri od.1055 
                                                                                                                                               
Agreement Handbook , Part 1260, (November 2014), (Exhibit EU -1369), p. A -14 (referring to United States 
Code of Federal Regulations , title 14, section 12.60.14) ( "non-monetary (zero dollar) grants or cooperative 
agreements shall not be used, except for no -cost extensions").  
1049 NASA Policy Directive on Authority to Enter into Space Act Agreements, NPD 1050.1I 
(23 December  2008), (Exhibit USA -303); and Panel Report, US – Large Civil Aircraft (2nd complaint) , 
para. 7.945 and acc ompanying fns. See also NASA, Space Act Agreements Guide , Advisory Implementing 
Instruction NAII 1050 -1C, (25 February 2013), section 2.2.10, (Exhibit EU -1037), pp. 5 and 6.  
1050 NASA Policy Directive on Authority to Enter into Space Act Agreements, NPD 1050. 1I 
(23 December  2008), (Exhibit USA -303).  
1051 See Panel Report, US – Large Civil Aircraft (2nd complaint) , fn 2410, para. 7.945. See also NASA, 
Space Act Agreements Guide , Advisory Implementing Instruction NAII 1050 -1C, (25 February 2013), 
section  2.2.10, (E xhibit EU -1037), pp. 13 -16; NASA Policy Directive on Authority to Enter into Space Act 
Agreements, NPD 1050.1I (23 December 2008), (Exhibit USA -303).  
1052 See NASA website, available at <http://www.aeronautics.nasa.gov/nra.htm>, accessed 
29 August  2016.  
1053 United States' first written submission, para. 105.  
1054 United States' first written submission, paras. 105 -107. 
1055 United States response to Panel question No. 95, paras. 167 and 168.  WT/DS353/R W 
 
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  8.2.2.3   Whether there is a financial contribution  
8.2.2.3.1   Main arguments of the parties and third parties  
8.81.  The European Union  argues that NASA has made "no significant changes since 2006 "1056 to 
the nature of procurements contracts and agreements  that it enters into with  Boeing under the 
challenged aeronautics R&D programmes, and thus, the Panel should conclude that the payments 
and access to government facilities, equipment, and employees provided to Boeing under the 
post-2006 NASA aeronautics R&D measures at issue are s imilarly financial contributions under 
Article 1.1(a)(1) of the SCM Agreement.1057 
8.82.  The European Union argues that the NASA aeronautics R&D measures share many of the 
same characteristics that led the Appellate Body to conclude that the NASA procurement contra cts 
and DOD assistance instruments before the original panel constitute d transactions that were "akin 
to a species of joint venture ", which were analogous to a type of equity infusion, and therefore 
constitute d financial contribution s within the meaning of  Article  1.1(a)(1) of the SCM Agreement. 
Specifically, the European Union considers that payments under the challenged NASA aeronautics 
R&D measures qualify as a direct transfer of funds within the meaning of Article 1.1(a)(1)(i) , while 
the provision of ac cess to facilities, equipment, and employees  qualifies as a government provision 
of goods and services other than general infrastructure under Article 1.1(a)(1)(iii) of the SCM 
Agreement.1058 
8.83.  The European Union contends that, l ike the NASA procurement contrac ts and DOD 
assistance instruments before the original panel,  the transactions under the current NASA 
aeronautics R&D measures involve payments by NASA , in the case of procurement contracts, as 
well as the commitment of non -monetary resources by both NASA a nd Boeing under procurement 
contracts, cooperative agreements, and Space Act Agreements . In addition, the subjects to be 
researched are often determined collaboratively between NASA and Boeing, and the fruits of the 
research are shared between the parties.  Thus, the European Union considers  that the transactions 
under the post -2006 NASA aeronautics R&D measures are akin to a species of joint venture. The 
European Union disputes the United States ' contention that an alleged overhaul1059 of NASA 
aeronautics R&D practices should have any impact on the Panel 's assessment of whether the 
post-2006 NASA aeronautics R&D measures involve financial contributions. Contrary to the 
United  States ' assertions, the European Union argues that NASA continues to support the needs  of 
the U.S. aviation industry with the goal of accelerating the development of advanced technologies 
for practical application.1060 The E uropean Union rejects the suggestion  that there is no longer 
collaboration in determining research to be undertaken.1061 The European Union additionally 
disputes that the United States has made any changes to its dissemination policies and asserts 
that NASA continues to restrict the disclosure of data .1062 The European Union also contests that 
there have not been any meaningful ch anges to NASA policies to enable foreign companies access 
to NASA facilities.1063 Finally, it submits that the value of payments and support to Boeing has 
increased since the end of the implementation period and any suggestion otherwise is based on a 
flawed and overly -narrow conception  that is inconsistent with  the approach followed by the panel 
and the Appellate Body.1064 
8.84.  In addition, the European Union contends that the transactions in question possess the 
same features that led the Appellate Body to conclude t hat the NASA procurement contracts and 
DOD assistance instruments before the original panel were analogous to equity infusions. In this 
                                               
1056 European Union's second written submission, para. 242.  
1057 European Union's f irst written submission, para. 60.  
1058 European Union's first written submission, paras. 169 -177; second written submission, 
paras.  231-238 and 242 -249. See also European Union's response to Panel question No. 14, paras. 98 and 99.  
1059 The European Union submi ts that the various changes the United States has identified as 
compliance measures were part of a process that culminated in January 2006, "in the middle of the original 
reference period – and yet had no effect on the findings of the original panel or App ellate Body". 
(European  Union's second written submission, paras. 177 and 178).  
1060 European Union's second written submission, paras. 177 -187. 
1061 European Union's second written submission, para. 185; comments on United States' response to 
Panel question No.  94, paras. 243 -250. 
1062 European Union's second written submission, paras. 190 -193. 
1063 European Union's second written submission, para. 198.  
1064 European Union's second written submission, paras. 258 -269. WT/DS353/R W 
 
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  regard, under the post -2006 NASA aeronautics R&D measures, funding is provided in expectation 
of some kind of return in the form of scientific and technical information, discoveries, and data 
expected to result from the research performed; there is no certainty that research will be 
successful; the funder 's risks are limited to the amount of money it commit s and the opportu nity 
cost of other support it provide s; and NASA as the funder contributes to the project by providing 
access to facilities, equipment, and employees , as some equity investors would also do.1065  
8.85.  In light of its position that the NASA aeronautics R&D measures  at issue are akin to a 
species of joint venture and analogous to a type of equity infusion and that therefore the 
payments and access to facilities, equipment , and employees provided under these measures are 
financial contributions within the meaning of A rticle 1.1(a), the European Union submits that the 
Panel need not consider the United States ' arguments that the transactions may be characterized 
as purchases of services, or that transactions properly characterized as "purchases of services " are 
excluded  from the scope of the SCM Agreement.  
8.86.  Moreover, the European Union argues that the United States has failed to demonstrate on 
the basis of a proper Vienna Convention analysis of Article 1.1(a)(1) that transactions properly 
characterized as purchases of se rvices are excluded from the scope of that provision. In light of 
the Appellate Body 's decision to declare the original panel 's interpretation of Article 1.1(a)(1) 
"moot and of no legal effect ", there is no basis for the United States to argue that the App ellate 
Body would have agreed with the panel 's reasoning  as to why purchases of services are excluded 
from the scope of Article 1.1(a)(1) .1066 
8.87.  The European Union also argues, in the alternative , that "the transfer to Boeing of patent 
and other intellectual pr operty rights in the technologies and data developed under the NASA 
aeronautics R&D programmes additionally  constitutes a provision of 'goods … other than general 
infrastructure ' within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement ".1067 The 
European Union requests the Panel not to consider this "alternative " conception of the financial 
contribution "unless it rejects the European Union 's primary contentions, with respect to the 
characterisation of the challenged aeronautics R&D measures ".1068 
8.88.  The United States  argues that the post-2006 cooperative agreements and Space Act 
Agreements should be treated as joint ventures for purposes of the financial contribution analysis , 
while the transactions between NASA and Boeing under post -2006 procurement contra cts are 
properly characterized as purchases of services, which are not financial contributions and therefore 
are outside the scope of the SCM Agreement.  
8.89.  The United States argues that the Appellate Body in the original proceeding identified six 
features of  the pre -2007 NASA procurement contracts that warranted their characterization as 
"joint ventures " and submits that post -2006 Space Act Agreements and cooperative agreements 
share many of the se same attributes.1069 This includes the pooling of non -monetary resources, 
with Boeing sometimes making payments to NASA, while NASA provides Boeing with access to 
NASA facilities and equipment. In addition, although NASA no longer uses "limited exclusive rights 
data" ( LERD ) clauses, Boeing has an opportunity to exploit technology  resulting from work 
performed under agreements .1070 Accordingly , the post -2006 Space Act Agreements  are best 
characterized as transactions that are "akin to a species of joint venture ". The United  States 
confirms that NASA cooperative agreements  are the only NASA arrangements that provide for 
"joint funding " by NASA and participating private entities as well as non -cash contributions1071 and 
                                               
1065 European Union's first written submission, para. 174 ; second written submission, paras. 165 -186, 
234, and 244 -246. 
1066 See European Union's second written submission, paras. 250 -252; response to Panel question 
No. 14, para. 101; and comments on United States' response to Panel question No. 14, paras. 60 -62. 
1067 European Union's first written submission, para. 177 (emphasis added). The European Union has 
indicated that it is not challenging the provision of patent rights as a separate subsidy distinct from the NASA 
aeronautics R&D contracts from which they arise,  as it did before the original panel. (European Union's second 
written submission, para. 257).  
1068 European Union's response to Panel question No. 32, para. 197. The European Union explains that 
this is an alternative manner of bringing the R&D contracts wit hin the scope of Article 1.1(a)(1) of the SCM 
Agreement.  
1069 United States' first written submission, paras. 214 -221. 
1070 United States' first written submission, paras. 214 -219. 
1071 United States' second written submission, fn 220 and para. 158.  WT/DS353/R W 
 
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  as such, payments under these arrangements constitute a direct transfer of funds within the 
meaning of Article 1 .1(a)(1)(i) of the SCM Agreement, while any provision s of goods and services 
constitute financial contributions under Article 1.1(a)(1)(iii). The United States notes that NASA 
makes only in -kind contri butions under Space Act Agreements , and thus, these arr angements 
constitute financial contributions in the form of  provision s of goods and  services under 
Article  1.1(a)(1)(iii), but there is no direct transfer of funds under Article  1.1(a)(1).1072 
8.90.  As to the post -2006 NASA procurement contracts , the United States argues that the 
characteristics of these measure s differ in a number of significant respects from the pre -2007 
NASA procurement contracts , and that a thorough analysis of all of the evidence demonstrates 
that the post -2006 NASA procurement contracts are pu rchases of services.1073 The United States 
argues, to begin, that most of the features of the pre -2007 NASA procurement contracts that led 
the Appellate Body to characterize them as "akin to a species of joint venture " do not apply to the 
post-2006 NASA procu rement contracts.1074 The United States argues in this regard that: (a) the 
subjects to be researched are no longer determined collaboratively between NASA and industry, 
rather, the reformulation of  ARMD  research programme through the NRA process means that 
NASA decides research topics on its own; (b) the value of any access to NASA equipment, 
facilities, and employees  is far lower under the post -2006 NASA procurement contracts than the 
panel found under the pre -2007 procurement contracts , and the European Uni on has provided no 
evidence that research teams engaged under post -2006 NASA procurement contracts mixed 
industry and NASA employees; (c) there is no evidence of any post -2006 procurement contract in 
which the value of any access to NASA facilities, equipm ent or employees is significantly higher 
than the value of the payments; (d) while the pre -2007 procurement contracts were found to 
involve NASA and Boeing pooling non -monetary resources and employees, most of the post -2006 
procurement contracts do not pro vide for facilities or equipment, and none of them refer to a 
"pooling " of employees; (e) while Boeing still does not pay any royalties to NASA for commercial 
rewards arising from the scientific and technical output of the research where the Boeing 
employe e, working alone or jointly with a NASA employee, performs the work that results in the 
invention, this is not the case where a NASA employee invents the invention. In that case, NASA 
owns the invention and Boeing would have to pay a royalty; and (f) NASA has discontinued the 
use of LERD clauses . In the original proceeding such clauses were found to give Boeing the 
exclusive right s to exploit technology resulting from pre -2007 NASA procurement contracts in 
which Boeing was  contributing a significant amount of its own resources to the research efforts.1075 
8.91.  The United States argues, based on the above differences between the characteristics of the 
pre-2007 NASA procurement contracts that led to the Appellate Body 's characterization of them as 
"akin to a species o f joint venture ", and the characteristics of the post -2006 NASA procurement 
contracts, that the European Union has failed to meet its burden of proof to establish that the 
post-2006 NASA procurement contracts are financial contributions. Moreover, the abov e 
considerations, along with other evidence, as described in greater detail below, support a 
conclusion that the transactions are most appropriately characteri zed as purchases of services.  
8.92.  In this regard, the United States argues  that, following an "overh aul" of NASA research 
practices in 2006, NASA changed i ts approach to research contracting, both in terms of the nature 
of the research commissioned and the way it is conducted. According to the United States, NASA 's 
research contracting is no longer the c ollaborative, industry -centric model that led to the Appellate 
Body's findings in the original proceeding.1076 NASA has shifted its research focus away from 
                                               
1072 United States ' first written submission, para. 221.  
1073 United States' first written submission, para. 223.  
1074 United States' first written submission, para. 224. The six features are: (a) the subjects to be 
researched are determined collaboratively between NASA and the U .S. aeronautics industry; (b) some of the 
transactions involved NASA providing Boeing with access to its equipment, facilities and employees, and some 
contracts awarded to Boeing provided for research teams that included NASA employees; (c) the value of th e 
access to NASA facilities, equipment, and employees was significantly higher than the value of payments under 
the procurement contracts; (d) the transactions involve NASA and Boeing pooling non -monetary resources and 
employees; (e) scientific and technic al information, discoveries and data are among the expected outcomes of 
the research jointly undertaken by Boeing and NASA and Boeing is not required to pay any royalties to NASA 
for any resulting commercial rewards; and (f) LERD clauses give Boeing an exc lusive right to exploit technology 
resulting from contracts in which they were contributing a significant amount of their own resources to contract 
research efforts. (United States' first written submission, paras. 103 and 213)  
1075 United States' first writt en submission, para. 224.  
1076 United States' second written submission, paras. 104, 124, and 220.  WT/DS353/R W 
 
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  technology demonstration toward longer -term fundamental research. NASA has also removed 
references to increasing industry competitiveness as an evaluation criterion and has reformulated 
the NASA aeronautics research objectives as aiming at "producing broad public goods of the kind 
that governments routinely seek, with a substantial focus on building and im proving 
infrastructure ".1077 NASA has reduced the role of contractors in setting research priorities under 
the NRA process.1078 In addition, NASA has changed its dissemination policies to remove 
restrictions that had in the past limited dissemination of NASA -funded research; for example, by 
eliminating the use of LERD clauses under post -2006 procurement contracts. NASA has also 
changed its facilities policies to permit access by foreign entities on the same basis as U.S. 
companies.1079 The United States also asserts  that NASA has "more than halved " funding for 
aeronautics research in the FY  2007-FY 2012 period compared to FY  1989-FY 2006. Moreover, 
NASA has reduced the value of access to equipment, facilities, and employees  in post -2006 
procurement contracts such tha t the "primary contribution " from NASA involves payments, while 
on the contractor side, Boeing 's contribution now "consists of services, as witnessed by the 
description of the work in the contracts ".1080 As a result of these changes, the United States 
maintai ns that the transactions under the challenged post -2006 procurement contracts differ in 
critical respects from the characteristics the Appellate Body identified with respect to the pre -2007 
NASA procurement contracts.  
8.93.  The United States argues that, in ligh t of the above factors, the European Union has failed 
to establish that the payments and provision of facilities, equipment, and employees  to Boeing 
through any of the post-2006 procurement contracts constitute financial  contributions within the 
meaning of  Article 1.1(a)(1) of the SCM Agreement. The United States argues that the 
European  Union 's analysis addresses only whether the NASA procurement contracts can possibly  
be characterized as joint ventures, without also examining whether they would more appro priately  
be characterized as purchases of services. The United States considers that, following the guidance 
from the Appellate Body, a panel should take account of all of the relevant characteristics of the 
measure, and the features which are most central  to the measure itself. As the Appellate Body 
acknowledged in Canada – Renewable Energy  / Canada – Feed-in Tariff Program , one transaction 
may have multiple aspects and a panel 's analysis must take those complexities into account.1081 
Thus, even if the Europe an Union were correct that the NASA  procurement contracts had 
characteristics that were akin to a joint venture, the Panel would still need to weigh the relative 
merits of each possible characterization, which the European Union 's arguments fail to do.1082 
8.94.  The United States argues that the post -2006 NASA procurement contracts are most 
appropriately characterized as purchases of services. This is because, on the NASA side of the 
transaction, the primary contribution consists of payments to Boeing, with provisio ns of facilities 
and equipment being minimal, and with no provision for input from NASA personnel other than as 
reviewers of results produced by the contractors. On the Boeing side of the transaction, the 
primary contribution consists of services, as witne ssed by the descriptions of the work in the 
contracts.1083 The United States refers to the acceptance by the panel and Appellate Body in 
Canada – Renewable Energy / Canada – Feed-in Tariff Program  that a purchase of goods occurs 
when a government or public bo dy obtains possession (including in the form of an entitlement) 
over a good by making a payment of some kind (monetary or otherwise).1084 Under the same 
logic, when a government obtains an entitlement  to the supply of a service, by making a payment 
of some ki nd, there is a purchase of a service. This is what happens under the post -2006 NASA 
procurement contracts: NASA pays money and obtains entitlement to the performance of services. 
                                               
1077 United States' first written submission, para. 104; second written submission, paras. 124 -126.  
1078 United States' response to Panel question No. 15, para. 41.  
1079 This change was effected by NASA Policy Directive 1370.1, issued on 26 October 2007, under which, 
according to the United States, Airbus has entered into reimbursable S pace Act Agreements  for the use of wind 
tunnels. (United  States' first written submiss ion, paras. 1 and 110; second written submission, paras. 124 and 
224; and NASA Policy Directive 1370.1 (26 October 2007), (Exhibit USA -256)).  
1080 United States' first written submission, paras. 224 and 225; second written submission, paras. 218 
and 224.  
1081 United States' second written submission, para. 216 (referring to Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint ), para. 586).  
1082 United States' second written submission, para. 216.  
1083 United States' first written submission, para. 225; secon d written submission, paras. 214 and 225.  
1084 United States' first written submission, para. 226 (referring to Appellate Body Report s, Canada – 
Renewable Energy / Canada – Feed-in Tariff Program , para. 5.123).  WT/DS353/R W 
 
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  The post -2006 NASA procurement contracts are therefore purchases of services.1085 The 
United  States considers that the original panel 's analysis of the scope of Article 1.1(a)(1) of the 
SCM Agreement, as excluding transactions properly characterized as purchases of services, 
provides compelling reasons to conclude that the post -2006 N ASA procurement contracts are not 
financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement.1086  
8.95.  Finally, the United States argues that the European Union has failed to establish that 
intellectual property rights accruing to Boeing  pursuant to activities conducted under NASA 
contracts and agreements are financial contributions. First, as a factual matter, the United States 
argues that there is no transfer of intellectual property rights to Boeing under U.S. law, as the 
patent is the  property of the person who makes the invention, and NASA does not transfer any 
patent to Boeing. Second, intellectual property is not a "good" and therefore cannot be the subject 
of a financial contribution in the form of a government provision of goods w ithin the meaning of 
Article 1.1(a)(1)(iii) of the SCM Agreement. Third, any intellectual property rights developed as a 
result of work under a NASA procurement contract are an effect of the contract, not an 
independent financial contribution.1087 
8.96.  Brazil  considers that an interpretation of Article 1.1(a)(1) of the SCM Agreement that 
excludes a priori  government R&D measures that involve purchases of services from the scope of 
the SCM Agreement would potentially undermine the effectiveness of the SCM Agreement.1088 
Brazil argues that "monetary contributions " clearly fall within the meaning of a direct transfer of 
funds under Article 1.1(a)(1)(i). A monetary contribution does not become something else simply 
because the funds may be repaid at a later date (such as f or a loan) or because other 
consideration may be provided in return (such as equity or intellectual property). The significance 
and potentially distortive nature of a monetary contribution does not change by virtue of the fact 
that the contribution is  made  in exchange for a service, as opposed to something else of value. In 
this case, the Panel may, depending on the facts and circumstances surrounding the relevant 
transactions, find that some or all of the monetary payment s by the U.S. Government to Boeing 
under a particular R&D contract constitute a de facto  grant or other type of direct transfer of 
funds, and therefore a financial contribution under Article 1.1(a)(1)(i) of the SCM Agreement.1089  
8.97.  Canada  argues that, where a measure can be properly characteriz ed as the purchase of a 
service, it should be excluded from the scope of fi nancial contribution in Article  1.1(a)(1).1090 There 
may be instances, however, where a measure that can properl y be characterized as a purchase of 
a service has more than that one asp ect, and where the other aspect or aspects may fall within 
Article 1.1(a)(1). To determine whether a measure includes additional aspects or elements, apart 
from the purchase of a service, a panel should consider the rights and obligations of the 
government  and the private entity, the financial conditions of the transactions under the measure 
and the balance of advantages between the parties.1091 
8.98.  Japan  argues that government measures involving payments in exchange for a provision of 
services are not a priori  excluded from the scope of Article 1.1(a)(1) of the SCM Agreement, as 
such an interpretation could create an "enormous loophole " in coverage and thereby undermine 
the effectiveness of the SCM Agreement.1092 Japan argues that the drafters of the SCM Agreement, 
                                               
1085 United States first written submission, para. 226. The United States argues that the changes in the 
relevant characteristics of the post -2006 procurement contracts compared to their pre -2007 counterparts 
"shifted the balance of the transactions to the point where for most contracts, NASA's contributio n consisted 
almost exclusively of funds, and Boeing's contribution almost exclusively of services. This balance is 
characteristic of a purchase of services". (United States' second written submission, para. 214).  
1086 United States' first written submission, paras. 93 -97, 102, 104 -111, 211, and 222 -230; second 
written submission, paras. 226 -231. While recognizing that the Appellate Body declared the original panel's 
interpretation of Article 1.1(a)(1) "moot", owing to the Appellate Body's characterization of p re-2007 NASA 
procurements and DOD assistance instruments as similar to joint ventures, the United States argues that the 
panel's interpretation of Article 1.1(a)(1) as regards purchases of services may nevertheless be considered in 
this proceeding for the persuasiveness of the reasoning. (United States' first written submission, para. 230; 
second written submission, paras. 210 and 231).  
1087 United States' first written submission, paras. 231 -235; second written submission, paras. 443 -447. 
1088 Brazil's third -party submission, para. 88; third -party statement, para. 7; third -party response to 
Panel question No. 2.1, para. 4.  
1089 Brazil's third -party submission, para. 92; third -party statement, paras. 9 -13. 
1090 Canada' third -party response to Panel question No. 2.1, par a. 18.  
1091 Canada' third -party response to Panel question No. 2.1, para. 19.  
1092 Japan's third -party statement, paras. 6 -9; third -party response to Panel question No. 5, para. 15.  WT/DS353/R W 
 
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  either in the travaux préparatoires  or elsewhere, did not indicate any intention to exclude 
purchases of services from the scope of Article 1.1(a)(1).1093 Japan considers that a composite 
transaction that could potentially be a direct transfer of funds , in add ition to a purchase of services 
would involve financing beyond  the remuneration or the cost paid in exchange for the provision of 
a service.1094 
8.99.  Korea  argues that aspects of a transaction may be considered a financial contribution within 
the meaning of Articl e 1.1(a)(1) of the SCM Agreement to the extent that those aspects are 
substantively comparable to at least one of the categories of government actions that are 
identified within the meaning of Article 1.1(a)(1). In assessing the existence of a financial 
contribution, Korea submits that a panel should look beyond the formal financial structure of a 
government measure and assess the underlying characteristics and design of the measure.1095 
8.2.2.3.2   Evaluation by the Panel  
8.100.   The question before us is whether payments and ac cess to facilities, equipment, and 
employees  provided by NASA to Boeing pursuant to  post-2006 NASA procurement contracts,  
cooperative agreements and (non -reimbursable and partially -reimbursable) Space Act Agreements 
funded through four NASA aeronautics R&D  programmes (the Fundamental Aeronautics Program; 
the Integrated Systems Research Program; the Aviation Safety Program; and the Aeronautics Test 
Program) constitute financial contributions within the meaning of Article 1 of the SCM Agreement.  
8.101.   The United S tates has not included these measures in its request for preliminary rulings of 
13 November 2012 and t here is no disagreement between the parties that the post -2006 NASA 
aeronautics R&D measures are within the scope of this proceeding. Moreover, the United  States 
refers to actions taken by NASA with respect  to the post -2006 measures in its substantive 
argumentation as to how it has withdrawn the subsidies at issue. In its Compliance 
Communication, the United States indicates that NASA has modified the right s accorded to the 
parties under all of the NASA contracts covered by the DSB recommendations and rulings and that 
"NASA has made identical modifications, as necessary, with regard to contracts subsequent to 
those covered by the recommendations and rulings of the DSB, without prejudice to the U.S. view 
that those contracts were not subsidies causing adverse effects to EU interests".1096 The 
United  States considers that "NASA has withdrawn the subsidies determined to exist, both with 
regard to the pre -2007 contr acts covered by the recommendations and rulings of the DSB and 
with regard to subsequent contracts and agreements."1097 Although the United States regards only 
the pre -2007 NASA procurement contracts as being covered by the DSB recommendations and 
rulings, it  is clear that it views the steps it has taken with respect to the post -2006 contracts as a 
withdrawal of the subsidies determined to exist. In any event, we consider that, in light of the 
similarity and continuity that exist between the pre -2007 and post -2006 NASA aeronautics R&D 
measures, in terms of legal instruments and legal basis, the objectives pursued and the 
programmes under which they are funded, a review of whether the United States has complied 
with Article 7.8 that excluded the post -2006 NASA a eronautics R&D measures would not be 
meaningful.  
8.2.2.3.2.1   Post-2006 NASA cooperative agreements and Space Act Agreements  
8.102.   It is not in dispute between the parties that the post -2006 cooperative agreements  and 
Space Act Agreements  at issue in this proceeding are prop erly characterized as joint ventures, and 
that transactions pursuant to these agreements constitute financial contributions within the 
meaning of Article 1.1(a)(1) of the SCM Agreement.1098 The United  States does not argue that it 
has withdrawn the subsidy by  taking actions that would affect the legal characterization of these 
transactions as financial contributions. Rather, the United States argues that these transactions do 
                                               
1093 Japan further notes that Article XV:1 of the GATS mandates negotiations on mul tilateral disciplines 
"to avoid distortive effects of subsidies on trade in services", and given this obligation, Japan considers that 
purchases of services "may have been omitted from Article 1.1(a)(1) of the SCM Agreement out of precaution 
so as not to p rejudge the outcomes of prospective negotiations on subsidies disciplines pursuant to Article XV 
of the GATS". (Japan's third -party statement, para. 8).  
1094 Japan's third -party response to Panel question No. 5, para. 16.  
1095 Korea's third -party submission, par as. 16 and 17; third -party statement, paras. 10 and 11.  
1096 United States' Compliance Communication, para. 3.  
1097 United States' second written submission, para. 108.  
1098 See, para. 8.88 above . WT/DS353/R W 
 
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  not confer a benefit within the meaning of Article 1.1(b). More specifically, we cons ider that : 
(a) payments made to Boeing under the post -2006 cooperative agreements at issue are direct 
transfers of funds within the meaning of Article  1.1(a)(1)(i); and (b) the provision of access to 
NASA facilities, equipment, and employees  to Boeing purs uant to the post -2006 cooperative 
agreements and Space Act Agreements at issue constitutes the provision of goods or services 
other than general infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement.  
8.103.   We therefore find that the pa yments provided by NASA to Boeing under 
post-2006 cooperative agreements , and the access to facilities, equipment, and 
employees  provided by NASA to Boeing under the post-2006 cooperative agreements  
and Space Act Agreements , funded under four NASA aeronaut ics R&D programmes  
(Fundamental Aeronautics Program; Integrated Systems Research Program; Aviation 
Safety Program; and Aeronautics Test Program) , are financial contributions within the 
meaning of Article 1.1(a)(1) of the SCM Agreement. Specifically, the pa yments provided 
by NASA constitute financial contributions as direct transfer s of funds , within the 
meaning of Article 1.1(a)(1)(i)  of the SCM Agreement , and the provision of access to 
facilities, equipment, and employees  qualifies as a government provisio n of goods or 
services other than general infrastructure , within the meaning of  Article 1.1(a)(1)(iii) of 
the SCM Agreement.  
8.2.2.3.2.2   Post-2006 NASA procurement contracts  
8.104.   The parties disagree as to whether transactions under the post-2006 NASA procurement 
contracts between NASA and Boeing constitute financial contributions.  
8.105.   We will examine the post -2006 NASA procurement contracts to determine their relevant 
characteristics, based on an evaluation of the competing arg uments advanced by the 
European  Union and the Uni ted States. More specifically, we will examine the respects in which the 
post-2006 NASA procurement contracts are said to differ from their pre -2007 counterparts and 
determine  whether, as argued by the United States, the differences are such that the trans actions 
are now most appropriately characterized as purchases of services even if, based on certain 
characteristics, they could also possibly be characterized as joint ventures.1099 We will then 
determine whether, based on the outcome of this exercise, we con sider that these measures fall 
within the scope of Article 1.1(a)(1).  
8.106.   Before undertaking this exercise, we recall the salient aspects of the Appellate Body 's 
characterization of the pre -2007 NASA procurement contracts and DOD assistance instruments as 
transactions that were "akin to a species of joint venture ", which were "analogous to equity 
infusions ", such that the payments and access to facilities, equipment, and employees  provided to 
Boeing under the pre -2007 procurement contracts constituted financia l contributions within the 
meaning of Article 1.1(a)(1) of the SCM Agreement.  
8.107.   The Appellate Body first examined the pre -2007 NASA procurement contracts to identify 
their relevant characteristics, and thereafter considered whether the measures properly 
characterized fell within the scope of Article 1.1(a)(1).1100 In assessing the pre -2007 NASA 
procurement contracts, the Appellate Body made a number of observations regarding their 
relevant features. It noted that on the "input" side of the transactions, NASA pr ovided Boeing with 
funding to conduct research, while NASA and Boeing both contributed the use of facilities, 
equipment, and employees for purposes of conducting research.1101 In other words, the 
transactions involved not just funding by NASA, but also NASA a nd Boeing pooling non -monetary 
resources and employees.1102 The Appellate Body also emphasized that the subjects to be 
researched were often determined collaboratively.1103  
8.108.   On the "output " side of the transactions, which involved scientific and technical 
inform ation, discoveries and data, the Appellate Body noted that Boeing could take title to 
                                               
1099 United States' first  written submission, para. 216.  
1100 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 585 -589. 
1101 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 595 and 606.  
1102 Appellate Body Report, US – Large Civil Aircraft ( 2nd complaint) , para. 595.  
1103 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 595.  WT/DS353/R W 
 
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  inventions discovered, as well as rights over certain types of data derived from research, while the 
U.S. Government retained a royalty -free license to use the subject in vention or data for 
government purposes.1104 Moreover, pursuant to LERD clauses in certain NASA procurement 
contracts, the U.S. Government 's rights in data developed in the course of the contracted research 
were limited.1105 In other words, on the "output " side, there was not a "straightforward exchange 
of monetary resources for some kind of non -monetary consideration ".1106 Rather, the "fruits of the 
research are shared between Boeing and NASA ".1107  
8.109.   Based on the foregoing considerations, the Appellate Body considered:  
The transactions are collaborative arrangements that are composite in nature in that 
they involve various elements that are interlinked. The arrangements are akin to a 
species of joint venture.1108 
8.110.   The Appellate Body then referred to statements by NASA offic ials that emphasized the 
"partnership " between NASA and the U.S. LCA industry , which further supported the conclusion 
that the transactions between Boeing and NASA were comprised of a number of elements and 
were collaborative in nature1109 and to the panel 's description of the transactions in its analysis of 
serious prejudice which highlighted the composite nature of the pre -2007 NASA procurement 
contracts and the collaborative relationship between NASA and Boeing.1110  
8.111.   In determining whether the pre -2007 NASA pr ocurement contracts, properly characterized 
as composite arrangements that are "akin to a species of joint venture ", fell under any of the 
subparagraphs of Article 1.1(a)(1), the Appellate Body began by noting several similarities 
between the "collaborativ e undertakings " that were the pre -2007 NASA procurement contracts and 
equity infusions, which are one of the examples of transactions covered by the more general 
reference to direct transfer of funds u nder Article  1.1(a)(1)(i).1111 First, NASA provides fundin g to 
Boeing in the expectation of some kind of return. The return in question is not financial, but 
rather, takes the form of scientific and technical information, discoveries, and data expected to 
result from the research performed.1112 NASA, like an equity investor, has no certainty at the time 
it commits the funding that the research will be successful. NASA 's risks are limited to the amount 
of money it contributes and the opportunity cost of other support it provides to the project, much 
like an equity inv estor.1113 Finally, like some equity investors, NASA contributes to the project by 
providing access to equipment, facilities, and employees . On the basis of these characteristics, the 
Appellate Body concluded that the "joint venture arrangements " between NASA  and Boeing had 
characteristics "analogous to equity infusions ".1114 The commonality between the NASA joint 
venture arrangements and equity infusions was sufficient to enable the Appellate Body to conclude 
that the measures in question fell within the concept  of "direct transfer of funds " in 
Article  1.1(a)(1)(i)1115, such that the payments under the pre -2007 NASA procurement contracts 
were a direct transfer of funds within the meaning of Article 1.1(a)(1)(i) and the provision of 
access to NASA facilities, equipme nt, and employees  constituted a provision of goods or services 
other than general infrastructure within the meaning of Article 1.1(a)(1)(iii).1116  
Whether the post -2006 NASA procurement contracts are appropriately 
characterized as collaborative R&D arrangeme nts or as purchases of services  
8.112.   The United States refers to a number of principal features of the post -2006 NASA 
procurement contracts which it considers support a different characterization of those instruments 
to the Appellate Body 's assessment of the p re-2007 NASA procurement contracts. We address 
                                               
1104 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 596 and 606.  
1105 Appellate Body Report, US – Large Civil Aircraft (2nd compla int), para. 596.  
1106 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 596.  
1107 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 596.  
1108 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 597.  
1109 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 598.  
1110 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 610.  
1111 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 621 and 622.  
1112 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 623.  
1113 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 623.  
1114 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 624.  
1115 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 624.  
1116 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 624.  WT/DS353/R W 
 
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  each of these features, along with the European Union 's responses, before engaging with the 
question of whether overall, it is most appropriate to characterize the post -2006 NASA 
procurement contracts not as c ollaborative joint ventures, but as purchases of services.  
8.113.   First, the United States argues that the nature of aeronautics research commissioned by 
NASA has changed, with a shift in focus from technology demonstration to longer -term 
fundamental research. T he United States submits that, following an overhaul of its research 
practices in 2006, NASA shifted the focus of its research toward "foundational research ", 
developing "core competencies " and "producing broad public goods of the kind that governments 
routinely seek ".1117 The United States considers that evidence submitted by the European Union 
equally supports the conclusion that basic research is targeted toward serving the needs of the 
broader community, including in areas of national security, transportat ion safety and efficiency 
improvements.1118 Regardless of any references to achieving "specific technology demonstration 
goals" or "system -level objectives ", the United States contends that it is up to industry to leverage 
research for commercial applications . The European Union responds  that the alleged overhaul was 
undertaken to improve NASA 's effectiveness in supporting the needs of Boeing and the U.S. 
aviation industry so as to improve their competiveness, including maturing technologies for 
transition to practical application.1119 
8.114.   We first explain the context in which the alleged overhaul of NASA 's research contracting 
practices occurred in 2006. In 2001, the U.S. Congress established a Commission on the Future of 
the United States Aerospace Industry to study  issues associated with the future of this industry 
and to recommend potential actions by the U.S. Government to support the maintenance of a 
robust industry. The Commission made a number of recommendations in 2002, many of which 
required federal agencies such as NASA to take actions.1120 Of particular relevance in the field of 
U.S. aerospace R&D, the Commission had identified as a challenge the lack of sufficient and 
sustained public funding for research and associated infrastructure for research, development , 
testing , and evaluation , which it considered to limit the United States ' ability to address critical 
national challenges and to enable breakthrough aerospace capabilities.1121 The Commission had 
therefore recommended that the U.S. Government "significantly increase its investment in basic 
aerospace research, which enhances national security; enables breakthrough capabilities; and 
fosters an efficient, secure and safe aerospace transportation system ".1122  
8.115.   NASA addressed the Commission 's recommendations to focus  on basic research by 
restructuring NASA's ARMD to give greater priority to fundamental research.1123 Accordingly, 
ARMD 's three aeronautics R&D programmes became Fundamental Aeronautics, Aviation Safety and 
Airspace Systems , to replace previous aeronautics R& D programmes in Vehicle Systems, Aviation 
Safety and Security, and Airspace Systems, respectively.1124 Within those programmes, the most 
significant change occurred with respect to the Fundamental Aeronautics Program, which focuses 
                                               
1117 United States' first written submission, para. 104.  
1118 United States' first written submission, paras. 128 -130. See also Commiss ion on the Future of the 
United States Aerospace Industry, Final Report , (November 2002),  (Exhibit EU -1029); National Research 
Council of the National Academies, Decadal Survey of Civil Aeronautics: Foundation for the Future , (2006),  
(Exhibit EU -1030) ; and U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing 
Aerospace Commission Recommendations, and Remaining Challenges , Report No. GAO -06-920, 
(September  2006), (Exhibit EU -1031), pp. 10 and 24.  
1119 European Union's second writte n submission, paras. 177 -187. 
1120 Commission on the Future of the United States Aerospace Industry, Final Report , (November 2002),  
(Exhibit EU -1029).  
1121 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace 
Commission R ecommendations, and Remaining Challenges , Report No. GAO -06-920, (September 2006), 
(Exhibit EU -1031), p. 10.  
1122 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace 
Commission Recommendations, and Remaining Challenge s, Report No. GAO -06-920, (September 2006), 
(Exhibit EU -1031), p. 10.  
1123 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace 
Commission Recommendations, and Remaining Challenges , Report No. GAO -06-920, (September 20 06), 
(Exhibit EU -1031), p. 22. NASA uses the term "fundamental research" to refer to research that includes 
continued long -term, scientific study in core areas such as physics, chemistry, materials, experimental 
techniques, and computational techniques to enable new capabilities and technologies for individual and 
multiple disciplines.  
1124 The European Union does not challenge the Airspace Systems Program as involving any subsidies to 
Boeing in this proceeding.  WT/DS353/R W 
 
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  on fundamental aeronautics research rather than on development projects. NASA has indicated 
that these programmes give priority to fundamental research that is applicable to a broad range of 
air vehicles, whereas previously, NASA had emphasized "bringing specific projects to higher 
technological maturity, often focusing on these narrowly defined demonstration projects and not 
on developing technology that would be transferable to other types of systems or projects ".1125 
8.116.   The United States indicates that the majority of the work that Boei ng performed under the 
Fundamental Aeronautics Program in the post -2006 period was organized under two BOAs. One 
was a 2004 BOA that had previously been part of the Vehicle Systems Effort to research structure 
and materials for aerospace vehicles and aerod ynamic, aerothermodynamic and acoustics 
technology for aerospace vehicles and passed to the Fundamental Aeronautics Program in 
2006.1126 We have reviewed the task orders issued under the 20 04 BOA identified by the 
United  States, along with the United States ' descriptions of the work that Boeing performed under 
these instruments, which it argues produce a "variety of public goods ".1127 It is not evident to us 
that this work was focused solely on fundamental research. Indeed, some of the tasks were part of 
an effor t to develop prototypes, and others involved the design, analysis and fabrication of tooling 
for a large test article made primarily of PRSEUS materials. Even the United States ' description of 
the ways in which Boeing 's work under these instruments produce d public goods does not preclude 
them also being of value and interest to Boeing. Indeed, the United States admits that the PRSEUS 
studies, while providing knowledge useful to safety regulators, also provided information useful to 
"any entity planning to b uild a composite aircraft ".1128 We reach a similar conclusion regarding our 
review of the tasks Boeing carried out under the 2008 BOA between NASA and Boeing that was 
funded by the Fundamental Aeronautics Program. The United States acknowledges that one task 
was aimed at development of N+3 and N+4 technologies for entry into service in the 2030 -2035 
and 2040 -2050 periods, respectively, while another called for a "generalized prediction of the 
challenges faced by commercial aircraft operators and the types of v ehicle capabilities needed to 
meet those needs ".1129 Another task called for a study of the technologies necessary to produce a 
supersonic aircraft capable of carrying 35 -70 passengers for entry into service in the 2018 -2020 
period.1130 Indeed, the statements of  work under certain contracts are classified, which also 
suggests that the work in question involves far more than a focus on purely fundamental research. 
In short, while we do not disagree that NASA refocused the research efforts under certain of its 
aeronautics R&D programmes t o place greater emphasis on  fundamental research rather than 
technology demonstration, we are not persuaded that the work that Boeing performed under 
procurement contracts funded through the Fundamental Aeronautics Program in the po st-2006 
period involved only fundamental research.  
8.117.   We reach a similar conclusion with respect to the procurement contracts funded under the 
Aviation Safety Program. Our review of the tasks Boeing performed under the 2006 and 2007 
BOAs funded under the Avia tion Safety Program indicates that, while the work had use "far beyond 
Boeing and far beyond the development and production of large civil aircraft "1131, it was also 
clearly not confined to fundamental research.  
8.118.   The Integrated Systems Research Program did no t result from NASA 's 2006 
reorganization. Rather, it was created in 2010 with an initial focus on developing new vehicle 
concepts and enabling technologies that will simultaneously reduce fuel burn, noise , and 
emissions.1132 The United States in its first wri tten submission identified the relevant BOAs, task 
orders, and contracts between NASA and Boeing that were funded under this programme. It is not 
evident to us that the work that Boeing performed under these instruments was confined to 
fundamental research  and the United States does not suggest otherwise.1133  
                                               
1125 U.S. Government Accountability Office, Aerospa ce Industry, Progress in Implementing Aerospace 
Commission Recommendations, and Remaining Challenges , Report No. GAO -06-920, (September 2006), 
(Exhibit EU -1031), p. 23.  
1126 United States' first written submission, para. 123. 2004 BOA , (Exhibit USA -24) (HSBI) . 
1127 United States' first written submission, para. 132.  
1128 United States' first written submission, para. 132.  
1129 United States' first written submission, para. 134.  
1130 United States' first written submission, para. 135.  
1131 United States' first written submiss ion, para. 159.  
1132 NASA Budget Estimates for FY 2010, (Exhibit USA -92), p. AERO -2. 
1133 See United States' first written submission, paras. 181 -191. The Aeronautics Test Program is an 
infrastructure maintenance and development programme for NASA's large aerona utics ground test facilities, WT/DS353/R W 
 
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  8.119.   In summary, our review of the procurement contracts funded by the relevant NASA 
aeronautics R&D programmes suggests that, notwithstanding NASA 's 2006 shift in focus to 
longer -term fundamental research in a general sense , at least under the Fundamental Aeronautics 
Program, the work performed by Boeing under the procurement contracts at issue is not confined 
to fundamental research in the sense of "long term, scientific study in core areas such as physics, 
chemistry, materials, experimental techniques, and computational techniques to enable new 
capabilities and technologies for individual and multiple disciplines ".1134 Rather, even if these 
procurement contracts did not always involve Boeing in specific develop ment projects, it appears 
that much of the work could be generally described as applied research.1135  
8.120.   Moreover, we note that the realignment of NASA 's research activities was, according to the 
U.S. Government Accountability Office (GAO), nevertheless underta ken to implement the 
recommendations of the Commission on the Future of the United States Aerospace Industry, which 
were aimed at supporting the maintenance of a robust U.S. aerospace industry in the 21st century. 
In this respect, NASA 's aeronautics R&D ac tivities, even where focused on basic and applied 
research rather than advanced stages of development, appear ultimately to be designed, through 
collaborative efforts with industry, to advance the interests of the U.S. aerospace industry. For 
example, a 20 08 NRA under the Fundamental Aeronautics Program explains that NASA 's focus on 
foundational research through partnerships with universities and industry and the development of 
system -level solutions will "support U.S. leadership in aerospace ": 
NASA has def ined four distinct levels to describe its approach to Fundamental 
Aeronautics technology development: (1) conduct foundational research to further our 
fundamental understanding of the underlying physics and our ability to model that 
physics, (2) leverage t he foundational research to develop technologies and analytical 
tools focused on discipline -based solutions, (3) integrate methods and technologies to 
develop multi -disciplinary solutions, and (4) solve the aeronautics challenges for a 
broad range of air v ehicles with system -level optimization, assessment and technology 
integration.  
Interaction with the aeronautics community aligns with the four levels: (1) NASA will 
advance the state of knowledge of the underlying physics and its modelling by 
partnering wi th universities and companies engaged in foundational research, (2) 
NASA will investigate discipline -related challenges and will interact with the 
aeronautics community through published reports and direct technology transfer, (3) 
NASA will develop multidi sciplinary methods and technologies, and disseminate them 
in published reports and direct technology transfer, and (4) NASA will collaborate with 
industry by means of non -reimbursable cooperative agreements to address system -
level challenges at the precomp etitive level.1136 
8.121.   NASA elsewhere explains the objective of "partnering with universities and companies 
engaged in foundational research " as a way "to provide value to industry of a more enduring 
nature "1137: 
                                                                                                                                               
primarily wind tunnels. The European Union's challenges involving this programme relate only to Space Act 
Agreements and therefore we do not further consider it here. (See European Union's first written submission, 
paras. 133 and 134).  
1134 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace 
Commission Recommendations, and Remaining Challenges , Report No. GAO -06-920, (September 2006), 
(Exhibit EU -1031), p. 22 and fn 33.  
1135 While "basic rese arch" works to expand fundamental knowledge in areas such as physics, chemistry 
and mathematics without specific applications in mind , "applied research" aims to gain knowledge applicable to 
solving specific and identified needs, building on the general wo rk of the basic sciences, e.g. activities to 
develop better propulsion and power technology and crew and personnel protection technology. Applied 
research can be distinguished from development projects, which use the knowledge and understanding to build 
new, or improve existing, systems. (U.S. Government Accountability Office, Aerospace Industry, Progress in 
Implementing Aerospace Commission Recommendations, and Remaining Challenges , Report No. GAO -06-920, 
(September 2006), (Exhibit EU -1031), p. 39).  
1136 NASA , Research Opportunities in Aeronautics – 2008 (ROA -2008), NASA Research Announcement 
NNH08ZEA001N, (7 March 2008) , (Exhibit USA -61), appendix A, pp. A1 and A2.  
1137 NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit 
USA-14), pp. 6 and 7.  WT/DS353/R W 
 
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  The interaction with the aeronautics community at the  systems level is unique 
because NASA typically does not design and build air vehicles for operational use. We 
look toward collaboration with industry to provide insight into issues associated with 
flight, manufacturing and design. NASA 's role at this leve l is to develop 
multidisciplinary design, analysis, and optimization tools based on the underlying 
physics. NASA intends to collaborate with industry consortia to provide value to 
industry of a more enduring nature, rather than immediate design and manufac turing 
problem -solving.1138 
8.122.   In other words, even where  NASA undertook  efforts to shift  the focus of its aeronautics 
research activities to  fundamental research, this is still consistent with supporting collaborative 
efforts with industry, in order to advance the interests of the U.S. aerospace industry.  
8.123.   Second, the United States argues that NASA has removed references to increasing industry 
competitiveness as an evaluation criterion and has reformulated the NASA aeronautics research 
objectives as aiming at pro ducing broad public goods designed to build and improve infrastructure.  
We note, however, that NASA retains the statutory objective of "preserv{ing} the role of the 
United States as a leader in aeronautical and space science and technology ".1139 Moreover, our  
review of NASA 's 2014 Budget Estimates indicates that NASA still acknowledges the continued role 
of the NASA aeronautics R&D programmes in promoting the competitiveness of the U.S. 
aeronautics industry:  
NASA 's investment in aeronautics research is critica lly important to advance the 
Nation 's global leadership in aviation, to grow the economy and increase jobs, and to 
continue to provide safe and efficient air travel to the flying public.  
ARMD brings innovation to aeronautics through the seedling fund; expa nds 
knowledge, and develops concepts, tools, and methods in the fundamental research 
programs; and assesses and matures the integrated benefits of the most promising 
technologies in the Integrated Systems Research Program. ARMD conducts this 
cutting -edge r esearch through partnerships with academia, industry, and other 
government agencies. The partnerships foster a collaborative research environment 
across which multiple communities can exchange ideas and knowledge. These 
collaborations help ensure the futur e competitiveness of the Nation 's aviation industry 
and strong future workforce.1140 
8.124.   The objective of promoting competitiveness is also recognized in the context of particular 
programme budgets such as the Fundamental Aeronautics Program:  
NASA research is inh erent in every major modern U.S. aircraft, and the type of 
research performed by the FA program will prime the technology pipeline, enabling 
continued US leadership, competitiveness, and jobs in the future.1141 
8.125.   NASA budget materials provide that "many of the tools and technologies that are 
developed have an immediate impact to industry "1142 and identify specific technologies and 
projects that maintain the competitiveness of the U.S. LCA industry, such as work conducted 
under the Advanced Composites Project "to focus on reducing the timeline for development and 
certification of innovative composite materials and structures … will boost American industry and 
help maintain a U.S. global leadership in the field of composite materials which is a major element 
of all ne w aircraft development ".1143  
                                               
1138 NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit 
USA-14), p. 7.  
1139 Section 102(d) of the National Aeronautics and Space Act of 1958, as codified and restated by Public 
Law No. 111 –314, Stat. 3 (18 D ecember 2010), United States Code , Title 51, section 20102(d) (current 
through 7 December 2012), (Exhibit EU -252), sections 20102(d)(5) and (9).  
1140 NASA Programme Budgets for FY 2014, (Exhibit EU -1015), p p. AERO -2 and AERO -3. 
1141 NASA Programme Budgets for FY  2014, (Exhibit EU -1015), p. AERO -20. 
1142 NASA Programme Budgets for FY 2014, (Exhibit EU -1015), p. AERO -20. 
1143 NASA Programme Budgets for FY 2014, (Exhibit EU -1015), p. AERO -3. WT/DS353/R W 
 
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  8.126.   Moreover, specific projects under the Fundamental Aeronautics and Integrated Systems 
Research programmes still retain the explicit objective of promoting the competitiveness of U.S. 
industry. In this regard, the subsonic fixed wi ng research conducted under the Fundamental 
Aeronautics Program has the explicit goal of "enabl{ing} future generations of transport aircraft " 
through fundamental research that "will prime the technology pipeline enabling continued U.S. 
leadership, competi tiveness, and jobs in the long term ", noting that "much of the scientific 
knowledge, technologies and concepts necessary to enable these longer -term vehicles may have 
benefit to aviation much sooner ".1144  
8.127.   NASA describes opportunities for commercialization of  technology, including for the U.S. 
LCA industry, from work conducted under the Active Aeroelastic Wing Project under the 
Fundamental Aeronautics Program as follows:  
With the successful demonstration of actively controlled "wing warping " techniques for 
aircraft roll control at transonic speeds in the Active Aeroelastic Wing project, 
engineers will now have more freedom in designing more efficient, thinner, higher 
aspect -ratio wings for future high -performance aircraft while reducing the structural 
weight of  the wings by 10 to 20  per cent. This will allow increased fuel efficiency or 
payload capability, along with potentially reduced radar signature. The technology also 
has application to a variety of other future aircraft, such as high -altitude, long -
enduran ce unmanned aircraft, transports, and airliners.1145 
8.128.   NASA explains that the work under this project, "helps ensure that new aerospace 
concepts are transferred quickly to the U.S. aerospace industry so they can be applied to 
technologies for commercial and mil itary aircraft and space vehicles ".1146 This includes "advanced 
power -by-wire concepts and fly -by-light (fiber optic cable) systems, as well as electric -powered 
actuators and advanced flight -control computer software ".1147  
8.129.   Similarly, RFIs and NRAs issued in con nection with particular aeronautics R&D projects 
under the Fundamental Aeronautics Program specifically acknowledge the ongoing benefit of the 
commissioned R&D to industry and the collaborative relationship between NASA and industry. A 
2006 solicitation un der the Fundamental Aeronautics Program states:  
Under this RFI, NASA solicits interest primarily from industry to collaborate at the 
systems level in Fundamental Aeronautics. NASA seeks to enter into research 
collaborations that benefit both industry and N ASA …  
… 
NASA intends to focus its resources on fundamental technology and build upon that 
investment to develop system -level, multidisciplinary capabilities that enable both 
civilian and military platforms of the future. As NASA does not typically build or  
operate military or commercial aircraft, we seek partnerships with industry at the 
systems level.1148 
8.130.   The Integrated Systems Research Program also recognizes the goal to ensure that 
promising technologies are made available to the U.S. industry:  
The Integrat ed Systems Research Program 's goal is to demonstrate integrated 
concepts and technologies to a maturity level sufficient to reduce risk of 
                                               
1144 NASA Fundamental Aeronautics Budget Estimates for FY 2007 -FY 2013, (Exhibit EU -40), FY 2013, 
AERO -21. 
1145 NASA Armstrong Fact Sheet, "F/A -18 Active Aeroelastic Wing", 28 February 2014, (Exhibit 
EU-1374), pp. 2 and 3. NASA explains that work on the F/A -18 Active Aeroelastic wing research was 
undertaken at NASA's Dryden Flight Research C enter in Edwards, CA, "in cooperation with the US Air Force 
Research Laboratory (AFRL) and Boeing Phantom Works". (Ibid. p. 1).  
1146 NASA Armstrong Fact Sheet, "F/A -18 Systems Research Aircraft", 28 February 2014, (Exhibit 
EU-1375), p. 1.  
1147 NASA Armstrong Fac t Sheet, "F/A -18 Systems Research Aircraft", 28 February 2014, (Exhibit 
EU-1375), p. 1.  
1148 NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit 
USA-14), p. 2.  WT/DS353/R W 
 
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  implementation for stakeholders in the aviation community  … The program conducts 
integrated system -level research on those promising concepts and technologies to 
explore, assess, and demonstrate the benefits in an operationally relevant 
environment. The program matures and integrates technologies for accelerated 
transition to practical application.1149 
8.131.   Therefore, despite th e United States ' assertions to the contrary, advancing the 
competitiveness of the U.S. aviation industry remains an important objective for NASA 's 
aeronautics R&D activities.  
8.132.   Third, the United States argues that, through the NRA process introduced in 2006,  NASA 
has reduced the role of contractors in setting research priorities and thus the scope for 
collaboration in determining the technologies to be researched. According to the United States, in 
early 2006, NASA undertook a process to reformulate its aeron autics research objectives to aim at 
producing broad public goods with a substantial focus on building and improving infrastructure. 
This process included the issuance of RFIs by each of NASA 's ARMDs relating to fundamental 
aeronautics, aviation safety and  airspace objectives consistent with previously -identified 
milestones in NASA 's ten-year technological roadmap. According to the United States, the 
responses to RFIs helped to identify "areas of research that stakeholders considered to be of 
primary intere st".1150 NASA researchers then created teams to develop refined technical proposals 
to achieve the objectives of each programme, incorporating the feedback from the RFI process. 
These NASA centre proposals were then submitted "to a rigorous review process to ensure 
technically credible and relevant research objectives ".1151 Finally, in May 2006, NASA issued an 
NRA for Research Opportunities in Aeronautics to solicit proposals from the "external community " 
for foundational research in the areas outlined in the NAS A centre proposals.1152 NASA issued a 
second NRA in 2008, followed by further NRAs in 2009, 2010 , and 2011, respectively.1153  
8.133.   The United States argues that NASA 's reliance on NRAs to award some of the grants, 
cooperative agreements and research contracts during  the FY  2007-FY 2012 period represents "a 
new approach to identifying research topics and choosing suppliers of research services "1154, and 
constitutes a "significant " change from the way in which "NASA 's big aeronautics projects were 
typically supported ".1155 The United  States characterizes this as an "open process ", wherein any 
participation by industry in helping to identify areas of research is "completely voluntary ", has 
resulted in "many bids from individual organizations as well as teams ", and has reduced the role 
that the LCA industry plays in setting research priorities and designing research program mes.1156 
The United States considers that the significance of the changes effected through the introduction 
of the NRA process is evident from a comparison of th e 1989 -2006 period, in which NASA 's large 
aeronautics projects were typically awarded through IDIQ contracts , which had general statements 
of work covering one or more aeronautics -related technical disciplines, with the more detailed 
statements of work bei ng contained in the task order requests for proposals ( RFPs). In contrast, 
the NRAs contain more general statements of task and are broadly open to the "community ", 
resulting in many bids from individual organizations as well as teams.1157  
                                               
1149 NASA Programme Budgets for FY 2014, (Exhibit EU -1015), p. AER O-32. 
1150 United States' first written submission, para. 105.  
1151 United States' first written submission, para. 105.  
1152 United States' first written submission, para. 105.  
1153 United States' first written submission, para. 105. The 2009 and 2010 NRAs included fu nding for 
projects derived from the American Recovery and Reinvestment Act, which the United States says included 
heightened requirements on transparency regarding the spending of government funds. The 2010 NRA 
additionally solicited proposals for research  under the new Integrated Systems Research Program.  
1154 United States' first written submission, para. 102.  
1155 United States' first written submission, para. 108. The United States indicates that IDIQ contracts, 
which were awarded during the 1989 -2006 period,  "typically had general statements of work covering one or 
more aeronautics -related technical disciplines, with much more detailed statements of work being provided in 
task order requests for proposals".  
1156 The United States contends that "seeking and accep ting input from interested persons is a standard 
way for governments to ensure good decision making". (United States' second written submission, para. 131). 
See also United States' first written submission, paras. 93, 105, and 108; response to panel questi on Nos. 93, 
fn 229 and para. 164, 94, para. 165, and 95, paras. 166 -168; and comments on European Union's response to 
Panel question No.15, para. 88.  
1157 United States' first written submission, para. 108.  WT/DS353/R W 
 
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  8.134.   The European Union  disputes "the extent and effect " of NASA 's use of NRA procedures for 
selecting research. In particular, it argues that the notion that there is no longer collaboration in 
determining technologies to be researched is contradicted by the United States ' own factual 
descriptions of how the process works, including the fact that NASA issues RFIs to identify areas of 
research of primary interest to external stakeholders such as the U.S. aviation industry, and then 
uses their responses to set the content of resea rch solicited through NRAs. Additionally,  the fact 
that NRAs allow  participants to make requests that are not "as precise " as requests for proposals 
required under IDIQ contracts suggests that NRAs provide more room for input from 
contractors.1158 The Europea n Union further argues  that the RFIs themselves expressly confirm the 
collaborative nature of the process.1159 The European Union concludes that in any case , the 
United  States has confirmed that only some of the post -2006 R&D was procured pursuant to the 
NRA process (leaving the remainder to be procured outside the NRA framework) , thereby 
undermining the significance  of any alleged changes to NASA 's practices.1160 
8.135.   We do not consider  that the mere fact that NASA solicits work pursuant to the NRA process 
on certain  occasions1161 necessarily supports the conclusion that the setting of research priorities 
for the NASA  aeronautics R&D  programmes can no longer be considered a collaborative effort 
between NASA and industry. On the contrary, evidence before us suggests that collaboration with 
industry, even if occurring through a different set of procedural mechanisms, is still an integral 
part of NASA 's aeronautics R&D agenda.  
8.136.   We note that, notwithstanding the introduction of the NRA process in 2006, a significant 
number of procurement contracts, task orders and cooperative agreements were in fact awarded 
by NASA since FY  2006 outside  the NRA process.1162 Second, we are not persuaded that the 
issuance of NRAs containing more general statements of tasks necessarily reduces the op portunity 
for contractors to provide input into the research solicited.1163 Finally, it remains the case that both 
NASA and the U.S. LCA industry retain a mutual interest in the research commissioned by NASA, 
as acknowledged by the United States:  
Both parties  expect{} to use the result s of this work, and if any intellectual property 
rights result{}, to split them in a way that each party could use them in its sphere of 
activity. They also recognize that, whatever the results, the knowledge gained would 
be usef ul in their further activities.1164 
                                               
1158 European Union's second written submission, para. 185. 
1159 See European Union's comments on United States' response to Panel question No. 94, para. 246 
(referring to NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit 
USA-14), p. 2: "{u}nder this RFI, NASA solicits intere st primarily from industry to collaborate at the systems 
level in Fundamental Aeronautics. NASA seeks to enter into research collaborations that benefit both industry 
and NASA …"). The European Union additionally notes the description by the U.S. GAO that RFIs were used in 
2006 "to solicit information on key areas of interest for private industry and determine opportunities for 
collaboration with NASA's planning and research efforts". (European Union's comments on 
United  States'  response to Panel question N o. 94, para. 243 (referring to U.S. Government Accountability 
Office, Aerospace Industry, Progress in Implementing Aerospace Commission Recommendations, and 
Remaining Challenges , Report No. GAO -06-920, (September 2006), (Exhibit EU -1031), p. 69)).  
1160 Europe an Union's comments on United States' response to Panel question No. 94, paras. 248 -250. 
1161 United States' response to Panel question No. 95, para. 168. The United States refers to five 
occasions between 2006 and 2011 where NASA issued NRA solicitations. (S ee United States' first written 
submission, paras. 105 -107 (referring to NASA, Research Opportunities in Aeronautics – 2006 (ROA -2006) , 
NASA Research Announcement NNH06ZNH001, (23 May 2006),  (Exhibit USA -17); NASA, Research 
Opportunities in Aeronautics – 2008 (ROA -2008) , NASA Research Announcement NNH08ZEA001N, 
(7 March  2008),  (Exhibit EU -91); NASA, Research Opportunities in Aeronautics – 2009 (ROA -2009) , NASA 
Research Announcement NNH10ZEA001N, (13 April 2009), (Exhibit EU -184); NASA, Research Opportunitie s in 
Aeronautics – 2010 (ROA -2010) , NASA Research Announcement NNH10ZEA001N, (2 June 2010), (Exhibit 
EU-133); and NASA, Research Opportunities in Aeronautics – 2011 (ROA -2011) , NASA Research 
Announcement NNH11ZEA001N, (2011),  (Exhibit USA -255) (HSBI)) ). 
1162 In response to a question from the Panel, the United States indicated that since FY 2006, NASA has 
awarded Boeing 51 contracts, task orders and cooperative agreements outside the NRA process, compared 
with only 29 through the NRA process. (United States' r esponse to Panel question No. 95, para. 168).  
1163 We agree with the European Union that the more generally defined NRA solicitations arguably leave 
more scope for input from contractors than the more precisely defined RFPs under IDIQ contracts. 
(European  Union's second written submission, para. 185).  
1164 United States' second written submission, para. 225 (arguing that these characteristics support the 
conclusion that the transactions are purchases of services).  WT/DS353/R W 
 
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  8.137.   This is similarly reflected in the language of a 2006 RFI issued in connection with the 
Fundamental Aeronautics Program:  
Interaction with the aeronautics community aligns with the {four -level approach to 
technology developm ent}. The first three levels reflect relationships with the 
aeronautics community in which NASA seeks to ensure the national aeronautical 
technical expertise: (1) NASA will advance the state of knowledge of the underlying 
physics and its modeling by partne ring with universities and companies engaged in 
foundational research where that partnership supplements NASA capabilities, (2) 
NASA will investigate discipline -related challenges and will interact with the 
aeronautics community through published reports a nd direct technology transfer, and 
(3) NASA will develop multi -disciplinary methods and technologies, and disseminate 
them in published reports and direct technology transfer . 
The interaction with the aeronautics community at the systems level is unique 
because NASA typically does not design and build air vehicles for operational use. We 
look toward collaboration with industry to provide insight into issues associated with 
flight, manufacturing and design.  NASA 's role at this level is to develop 
multidiscip linary design, analysis, and optimization tools based on the underlying 
physics. NASA intends to collaborate with industry consortia to provide value to  
industry of a more enduring nature, rather than immediate design and manufacturing 
problem -solving .1165 
8.138.   In our view, it is not credible that in issuing RFIs to external stakeholders, including the 
U.S. LCA industry, as a pre -cursor to NASA 's development of NASA centre proposals and eventual 
issuance of NRAs, NASA is simply soliciting the views of industry (or academia) as  to how best to 
meet NASA 's needs as a purchaser of research services. Rather, as previously noted, NASA retains 
the statutory objective of preserving the U.S. LCA industry 's role as a leader in aeronautical and 
space science and technology, an d in doing so, seeks input from those who stand to benefit from 
the output of collaborative work  as to how best to achieve this. This conclusion is supported by the  
U.S. GAO's 2006 review of NASA 's efforts to implement selected Aerospace Commission 
recomme ndations (discussed above). The GAO noted that, prior to issuing a 2006 research 
announcement, NASA had issued three RFIs "to solicit information on key areas of interest for 
private industry and determine opportunities for collaboration with NASA 's planni ng and research 
efforts ".1166 The GAO explained that the NRAs that were subsequently issued "were influenced by 
the response to the requests for information ".1167 Similarly, a 2010 NRA indicates that "external 
input" was provided at the "formulation " phase of co nceiving the Environmentally Responsible 
Aviation Project under the Integrated Systems Research Program.1168 The Environmentally 
Responsible Aviation Project has the identified objective to "serve as a technology transition bridge 
between the lower technology  readiness level (TRL) efforts on -going in the fundamental ARMD 
Programs and higher TRL needs of potential users ".1169  
8.139.   Fourth, the United States argues that NASA has changed its dissemination policies to 
remove restrictions that had previously limited the di ssemination of NASA -funded research, 
including through the elimination of LERD clauses in the post -2006 procurement contracts. The 
European Union disputes that the United States has made any changes to its dissemination policies 
since 2001 (i.e. before the  conclu sion of the original proceeding) and argues that NASA continues 
                                               
1165 NASA, "Fundamental Aeronautics", Solicitation N o. NNH060000L (3 January 2006), (Exhibit 
USA-14), pp. 6 and 7. (emphasis added)  
1166 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace 
Commission Recommendations, and Remaining Challenges , Report No. GAO -06-920, (Se ptember 2006), 
(Exhibit EU -1031), p. 69.  
1167 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace 
Commission Recommendations, and Remaining Challenges , Report No. GAO -06-920, (September 2006), 
(Exhibit EU -1031), p. 69 . The GAO referred to NASA's research "strategy" as "a new approach for establishing 
partnerships with universities and the private sector".  
1168 NASA, Research Opportunities in Aeronautics – 2010 (ROA -2010) , NASA Research Announcement 
NNH10ZEA001N, (2 June 2 010), (Exhibit EU -133), appendix D.2 Environmentally Responsible Aviation -1, 
p. D-4, embedded chart.  
1169 NASA, Research Opportunities in Aeronautics – 2010 (ROA -2010) , NASA Research Announcement 
NNH10ZEA001N, (2 June 2010), (Exhibit EU -133), appendix D.2 Env ironmentally Responsible Aviation -1, 
p. D-2. WT/DS353/R W 
 
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  to include provisions in contracts restricting the disclosure of "limited rights data ", and other data 
labelled as sensitive information and technical data determined to be trade secret s.1170 
8.140.   In characterizing the pre -2007 NASA procurement contracts in the original proceeding, the 
Appellate Body observed that "some " of the procurement contracts contained LERD clauses.1171 
Moreover, the Appellate Body 's discussion of the limitations on the U.S.  Government 's rights in 
data owing to the presence of LERD clauses in certain of the pre -2007 NASA procurement 
contracts occurred in the context of noting that  on the "output " side of the transactions there was 
a sharing of the fruits of the research betwe en NASA and Boeing.1172 Despite changes to NASA 's 
dissemination policies that pre -date the findings in the original proceeding, in certain instances, it 
appears that Boeing retains rights to the data derived from performing research under certain 
contracts1173, as well as rights to inventions discovered as part of the research .1174 In sum , NASA 's 
decision to no longer use LERD clauses in its procurement contracts does not change the fact that 
Boeing retains rights to the data and inventions derived from performing r esearch under those 
contracts, which led the Appellate Body to conclude that on the "output " side of the transactions, 
there was not merely a "straightforward exchange of monetary resources for some kind of 
non-monetary consideration ".  
8.141.   Fifth, the United S tates argues that NASA has changed its facilities policies to permit 
access by foreign entities on the same basis as U.S. companies. The European Union disputes this, 
asserting that the policy document that the United States cites to support this position,  NASA 
                                               
1170 European Union's second written submission, paras. 190 -193. 
1171 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 596.  
1172 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 596.  
1173 As explained in the original proceeding, under U.S. law, the U.S. Government generally obtains 
"unlimited rights" in any data first produced in the performance of a contract between the U.S. Government 
and a contractor, for government purpos e uses, while a contractor obtains the right to "use, release to others, 
reproduce, distribute, or publish any data first produced or specifically used by the Contractor in the 
performance of this contract". A contractor may also restrict from disclosure a nd use any "data, other than 
computer software, that embody trade secrets or are commercial or financial and confidential or privileged, to 
the extent that such data pertain to items, components, or processes developed at private expense". (See 
Panel Repor t, US – Large Civil Aircraft (2nd complaint) , paras. 7.1297 -7.1301; and United States Code of 
Federal Regulations , Title 48, section 52.227 -14, (Exhibit EU -1034), sections 52.227 -14(a)(2)(iv), (b)(1)(i), 
and (2)(ii)). The European Union has submitted evide nce of at least one procurement contract that restricts 
from disclosure any data produced under the contract "that will contain or reveal data which was developed 
exclusively at Private Expense". (NASA Task Order NNL11AA00T, (Exhibit EU -126), attachment J -2, p. 11), and 
a procurement contract designating "special license rights data", which is required to be withheld from public 
disclosure for a period between five and 15 years. (Contract between Boeing and NASA, NND11AG03C 
(9 December 2010), (Exhibit EU -176), pp. 12 and 16, and exhibit 1 (3 -1 and 3 -2)). The United States contends 
that the use of "special license rights data" is an "exceptional" case that occurred "several years ago near the 
outset of the new program formulation" and "is not representative o f standard practice". (United States' first 
written submission, fn 358 and para. 186; see also second written submission, para. 136). Finally, we note 
that the United States has also acknowledged that data may, in certain cases, be subject to limited distr ibution 
to NASA or other government agencies or government contractors only, or publication may be delayed. The 
List of NASA Technical Reports submitted by the United States indicates that, in certain cases, no report was 
provided or "required" "due to the  nature and requirements of the contract{}". Other reports are identified as 
"classified" or subject to International Traffic in Arms Regulations (ITAR). Finally, other reports are labelled as 
"Releasable, not published", which the United States explains, means the report is "in the process of 
pre‐publication internal review". (See List of NASA Technical Reports, (revised) (formerly Exhibit US -13-312), 
(Exhibit EU -214)).  
1174 We note that, pursuant to the NASA -Boeing Patent License Agreement, Boeing grants to the U.S. 
Government "an irrevocable, non -exclusive, non -transferable, royalty -free license under the Patent Rights to 
use, make, offer for sale, sell, and import each Subject Invention for commercial purposes, without the right 
to: (A) sublicense this right; (B) exercise this right in a commercial  venture of any type with a third party; or 
(C) have the Subject Invention made or sold by a third party for a commercial purpose".  (NASA -Boeing Patent 
Licence Agreement , (Exhibit EU -251) (BCI), para. 2). While the U.S. Government receives such a license i n 
cases where Boeing patents a technology, Boeing as patent owner nevertheless retains the right to use the 
patented technology for commercial purposes and license that technology to other entities for commercial 
endeavours, without paying the U.S. Governm ent anything in return. As the parties have discussed, in cases 
where Boeing obtains title to an invention conceived in the course of work under an R&D contract, the U.S. 
Government retains "march -in" rights, under which the U.S. Government may compel a co ntractor to grant a 
commercial license to applicants on terms that are reasonable, or otherwise grant the licence itself. In this 
dispute, neither party has argued that the U.S. Government has exercised "march -in" rights. In any case, the 
fact remains that  Boeing gains access and particular rights over the results of the research.  WT/DS353/R W 
 
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  Policy Directive 1370.1  (NPD 1370.1) , applies only to the reimbursable  use of NASA facilities by 
foreign companies, which is not at issue in this proceeding.1175  
8.142.   NASA Policy Directive 1370.1 is entitled "Reimbursable Utilization of NASA Facilities by 
Foreign Entities and Foreign -Sponsored Research ". It was originally effective 26 October  2007 and 
expires on 26 October 2017. NPD 1370.1 provides a general policy direction and identifies 
principles to be considered by NASA officials in connection with "reimbursable  use of NASA 
facilities by, or for the benefit of foreign entities, or conducting of research on a reimbursable  basis 
in collaboration with, or for the benefit of, foreign entities ".1176 We therefore agree with the 
European Union that it is not obvio us from NPD 1370.1 that NASA has in fact changed its facilities 
usage policies regarding non -reimbursable or partially -reimbursable use of NASA facilities by 
foreign companies. Moreover, NPD 1370.1 sets forth specific guidelines for the use of NASA 
facilit ies by foreign entities bearing in mind that NASA 's cooperation and collaboration with foreign 
entities are subject to "important standards and safeguards, reflecting the significant investment 
made by the Congress and the people of the United States in NA SA's world -class facilities and 
expertise ".1177 We are not persuaded, on the basis of the evidence submitted by the United States, 
that foreign entities are entitled to use NASA facilities "on the same basis as U.S. companies ".1178 
8.143.   Sixth, the United States asser ts that NASA has more than halved funding for aeronautics 
research in the FY  2007-FY 2012 period compared to FY  1989-FY 2006, as illustrated in  Chart 1 
below1179:  
Chart 1: NASA Aeronautics Research Spending, 1990 -2012  
 
Source:  NASA Subsidies to Boeing's LCA Division, (Exhibit EU -36); NASA/DOD/DOC Aeronautics R&D 
Subsidies to Boeing's LCA Division, (Exhibit USA-19); and NASA, Fiscal Year 2004 Budget Estimates, 
pp. S&AP 2 -1 to 2 -6, (Exhibit USA-20). 
8.144.   The United States argues that while the European Union  asserts that NASA paid Boeing 
USD 1.8 billion  for non -engine aeronautics research under the challenged aeronautics R&D 
programmes from FY  2007 through FY  2012, the real value of payments is vastly lower at 
approx imately USD 118 million, while  the value of the  provision of NASA equipment under the 
post-2006 procurement contracts was approximately USD 6 million. Space Act Agreements 
                                               
1175 European Union's second written submission, para. 198.  
1176 NASA Policy Directive 1370.1 (26 October 2007 ), (Exhibit USA -256), section 1(a). (emphasis added)  
1177 NASA Policy Directiv e 1370.1 (26 October 2007 ), (Exhibit USA -256), section 1(c).  
1178 United States' first written submission, para. 110.  
1179 United States' first written submission, para. 94. The United States explains that the broken and 
unbroken lines in Chart 1 reflect that NASA moved to full cost accounting in 2004. At that time, NASA 
published 2003 data under the previous programme cost methodology and the full -cost methodology, which 
allows construction of a 1990 -2003 index series fo r program cost and a 2003 -2012 index series for full cost. 
The United States indicates that these data reflect the European Union's adjustments to remove certain 
expenditures that it has not challenged. According to the United States, the real change in re source 
commitment is even more stark, as these figures do not account for inflation.  WT/DS353/R W 
 
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  provided access to facilities, equipment, and employees  of approximately USD 12 mill ion.1180 The 
European Union considers the United  States ' estimate is based on a flawed and overly narrow  
conceptual notion of what should be counted and valued, and is inconsistent with the approach 
followed by the panel and the Appellate Body  in the original  proceeding .1181 
8.145.   In Section 8.2.2.6.2.2  of this Report, we conduct a detailed evaluation of the amount of 
the financial contribution s provided to Boeing through the post -2006 NASA aeronautics R&D 
subsidies. We conclude that the mo re credible estimate of the amount of the financial contributions 
provided to Boeing through the post -2006 NASA procurement contracts, cooperative agreements, 
and Space Act Agreements  between 2007 and 2012 is approximately [***].  
8.146.   Although it does appear t hat NASA 's aeronautics R&D funding has declined, and that the 
amounts of payments and the value of the access to facilities, equipment, and employees  to 
Boeing over the 2007 -2012 period appear to be significantly less than over 1989 -2006, in our view 
this is not relevant to the characterization of the measures as financial contributions. Finally, the 
United  States argues that NASA has reduced the value of access to equipment, facilities, and 
employees  in post -2006 procurement contracts such that the primary  contribution from NASA 
involves payments, while on the contractor side, Boeing 's contribution consists of services. The 
European Union considers the United States ' estimate is based on flawed , narrow categories of 
information defined by U.S.  Government co ntracting regulations, and that the United States has 
failed to provide a source of the listed data to confirm the accuracy of amounts.1182 
8.147.   In Section 8.2.2.6.2.2  of this  Report, we estimate the value of the provision of access to  
NASA facilities, equipment, and employees  under the post -2006 NASA procurement contracts. As 
we explain in that Section , of all the NASA procurement contracts under the challenged 
aeronautics R&D programmes through which Boeing received funding since 2006 , less than half 
provided for access to facilities, equipment or employees. We have estimated that the value of the 
provision of access to such facilities  (including the value of Boeing's use of NASA's computers) and  
equipment  is approximately [***].1183 Additionally, the value of Boeing's access to NASA 
employees under the NASA procurement contracts is [***], for a total value of access to facilities, 
equipment , and employees  under these instruments of  [***] between 2007 and 2012 . The 
original panel found tha t the value of Boeing 's access to NASA facilities, equipment and employees 
under contracts and agreements was USD 1.55 billion between 1989 and 2006.1184 This equates to 
approximately USD 91 million per year. The United States is therefore correct that the va lue of 
facilities, equipment, and employees  provided to Boeing has decreased during the 2007-2012 
period  as compared with the 1989 -2006 period . However, the value of facilities, equipment, and 
employees  must be considered  with the other aspects discussed a bove to determine whether, 
overall, the relevant characteristics of the post -2006 NASA procurement contracts differ in such 
significant respects from the characteristics that led the Appellate Body to characterize the pre -
2007 procurement contracts as comp osite transactions that were collaborative joint ventures.  
8.148.   Summarizing our evaluation of the ways in which the relevant characteristics of the 
post-2006 NASA procurement contracts are said to differ from those of the pre -2007 procurement 
contracts which l ed to the  Appellate Body 's characterization of them as "collaborative 
arrangements " that were "composite in nature " and were "akin to a species of joint venture "1185, 
we have concluded as follows:  
a. While there may have been a shift in focus in very general ter ms to fundamental 
research and away from technology development under at least some of the NASA 
aeronautics R&D programmes (e.g. the Fundamental Aeronautics Program), we are not 
persuaded that this shift is necessarily reflected in the nature of the work t hat Boeing 
performed under the post -2006 procurement contracts between NASA and Boeing that 
were funded under the relevant aeronautics R&D programmes. Our review of the nature 
                                               
1180 United States' first written submission, para. 113.  
1181 European Union's second written submission, paras. 258 -269. 
1182 European Union's second written submission, paras. 26 2-269. 
1183 See paras. 8.263 , 8.264  and 8.266 -8.268  for explanations of the Panel's estimate of the value of 
access to NASA facilities (includi ng the value of Boeing's use of NASA's computers) and equipment under the 
NASA procurement contracts and cooperative agreements, and paras. 8.246  and 8.270 -8.274  regardi ng the 
estimate of the value of access to NASA employees under the NASA procurement contracts.  
1184 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.11 09. 
1185 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 597.  WT/DS353/R W 
 
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  of the work performed by Boeing under these contracts suggests that, notwithstan ding 
how the research is characterized, it is clearly of independent commercial interest to 
Boeing, i.e. over and above that as a provider to research services to NASA as a client. 
In any case, it appears from a number of programme and project materials th at NASA 's 
realigned research focus  in 2006 was undertaken with the ultimate goal of supporting 
U.S. leadership in aerospace.  
b. While NASA may have removed references to increasing the competitiveness of U.S. 
industry as an evaluation criterion and reformulat ed the NASA aeronautics research 
objectives as aiming at producing broad public goods in certain respects, NASA retains 
the statutory objective of preserving the role of the United States as a leader in 
aeronautical and space science and technology. It als o continues to acknowledge the role 
of the NASA aeronautics R&D programmes in promoting the competitiveness of the U.S. 
aeronautics industry in a number of budget materials, as well as project descriptions, 
RFIs and NRAs under particular programmes.  
c. We are  not persuaded that NASA 's issuance of NRAs rather than RFPs as a means to set 
research priorities and solicit research proposals from industry and academia necessarily 
reduces the role of contractors in setting research priorities and thus the scope for 
collaboration in determining the technologies to be researched. In any case, it would 
appear that, notwithstanding the NRA process introduced in 2006, a significant number 
of procurement contracts, task orders and cooperative agreements awarded by NASA to 
Boeing since FY 2006 in fact occurred outside the NRA process.  
d. While certain post -2006 procurement contracts do not include LERD clauses or restrict 
the dissemination of data , this does not mean that there is no longer the sort of sharing 
of the research ou tcomes that led the Appellate Body to conclude that there is not a 
simple exchange of the outputs of the research (e.g. scientific and technical information, 
discoveries , and data) for monetary consideration.  
e. The United States has not adequately substantia ted its assertion that NASA has changed 
its facilities usage policies to permit access by foreign entities on the same basis as U.S. 
companies.  
f. The amounts of funding and value of provision of access to facilities,  equipment , and 
employees  to Boeing throug h the relevant procurement contracts have declined over the 
2007-2012 period compared with 1989 -2006, and it appears more generally that NASA 
has significantly reduced its aeronautics research spending in  FY 2007-FY 2012 
compared to FY  1989-FY 2006. Howeve r, we do not consider this factor to be relevant to 
the appropriate characterization of the post -2006 NASA procurement contracts that is 
undertaken as part of the financial contribution analysis.  
g. It appears that the value of the provision of access to NASA  facilities, equipment, and 
employees  under the post -2006 NASA procurement contracts is significantly lower than 
the amount of payments. However, it is not apparent to us why this should determine 
our characterization of the post -2006 NASA procurement cont racts for purposes of the 
financial contribution analysis in light of the other factors we have discussed above.  
8.149.   We therefore are not persuaded of the United States' position that almost all of the facts 
that led to the Appellate Body's conclusion that th e pre -2007 NASA procurement contracts were 
"akin to a species of joint venture" are no longer applicable with respect to the post -2006 NASA 
procurement contracts.1186 Rather, the differences between the two sets of instruments (which the 
Panel considers are l ess significant than the United States contends), taken together, are not such 
that it would no longer be accurate to characterize the post -2006 NASA procurement contracts in a 
similar manner to the manner in which the Appellate Body characterized the pre -2007 NASA 
procurement contracts. The United States argues additionally that the above changes to the 
post-2006 NASA procurement contracts mean that the transactions under these instruments are in 
fact most appropriately considered to be purchases of servic es.1187 While it may be possible to 
                                               
1186 See United States' first written submission, para. 224.  
1187 United States' first written submission, para. 225. To recall, the United States refers to the following 
features of the post -2006 NASA procurement contracts which it argues point both to the inaccurac y of WT/DS353/R W 
 
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  describe the primary formal legal transaction between NASA and Boeing under the post -2006 
NASA procurement contracts as involving a purchase of research services, an important aspect of 
the characterization exercise is to e xamine the overall context in which NASA and Boeing interact. 
The United States does not address this factor adequately in our view. Indeed, both parties 
attempt  to extract from the Appellate Body 's discussion of the characteristics of the pre -2007 
NASA pr ocurement contracts that led to their characterization as being "akin to a species of joint 
venture " a "checklist " of featur es that are said to point to the post -2006 NASA procurement 
contracts being either joint ventures or purchases of services , without adequately engaging with 
the issue of the relationship between NASA and Boeing in the specific context of when NASA 
contracts Boeing to perform R&D work under the relevant aeronautics R&D programmes .1188  
8.150.   While the Appellate Body discussed the various technic al elements of the transactions 
under the pre -2007 NASA procurement contracts, its overall conclusion was that the  nature of the 
relationship between NASA and Boeing in the particular context  was essentially one of 
"partnership ".1189 Accordingly, it considere d that NASA did more than  pay Boeing to conduct 
R&D1190; the research was jointly undertaken by NASA and Boeing1191; the direct partnership  
between NASA and Boeing was supported by the NASA procurement contracts and cooperative 
agreements1192; and NASA considered t he partnership  with Boeing to be more significant than the 
funding provided as such.1193  
8.151.   We are not persuaded that the nature of research that NASA commissions Boeing to 
undertake under the post -2006 procurement contracts has changed significantly compared t o the 
research that NASA commissioned under the pre -2007 procurement contracts. Significantly, 
NASA 's aeronautics R&D programmes retain the promotion of the competitiveness of the U.S. 
aeronautics industry as a fundamental objective, whether in the program me budgets, the RFIs, or 
specific project descriptions. In other words, NASA 's objectives remain closely aligned with those 
of Boeing and the U.S. aeronautics industry in that NASA essentially commissions Boeing to 
perform research that NASA hopes will, am ong other things, support and advance the competitive 
interests of the U.S. aeronautics industry. We therefore consider that, notwithstanding that the 
technical elements of the transactions may consist of payments in exchange for the performance 
                                                                                                                                               
characterizing the transactions under these instruments as "akin to a species of joint venture" and to the 
conclusion that the transactions are most appropriately characterized as purchases of services: (a) that the 
subjects to be researched are no lo nger determined collaboratively between NASA and industry, rather, the 
reformulation of ARMD's research programme through the NRA process means that NASA decides research 
topics on its own; (b) the value of any access to NASA equipment, facilities, and emp loyees is far lower under 
the post -2006 NASA procurement contracts than the panel found under the pre -2007 procurement contracts 
and the European Union has provided no evidence that research teams engaged under post -2006 NASA 
procurement contracts mixed in dustry and NASA employees; (c) there is no evidence of any post -2006 
procurement contract in which the value of any access to NASA facilities, equipment , or employees was 
significantly higher than the value of the payments; (d) while the pre -2007 procureme nt contracts were found 
to involve NASA and Boeing pooling non -monetary resources and employees, most of the post -2006 
procurement contracts do not provide for facilities or equipment, and none of them refer s to a "pooling" of 
employees; (e) while Boeing s till does not pay any royalties to NASA for commercial rewards arising from the 
scientific and technical output of the research where the Boeing employee, working alone or jointly with a 
NASA employee, performs the work that results in the invention, this is not the case where a NASA employee 
invents the invention. In that case, NASA owns the invention and Boeing would have to pay a royalty; and (f) 
NASA has discontinued the use of LERD clauses which were said to give Boeing the exclusive right to exploit 
technology resulting from pre -2007 NASA procurement contracts in which they were contributing a significant 
amount of their own resources to the research efforts.  
1188 While the United States identifies six factors, as recounted in fns 1074 and 1187 above , the 
European Union considers that the Appellate Body relied on only three characteristics to find that the pre -2007 
NASA procurement contracts were joint ventures: (a)  both parties committed resources; (b) the parties share 
the fruits of the research; and (c) the subjects to be researched are often determined collaboratively. 
(European  Union's second written submission, para. 244).  
1189 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 598 -600.  
1190 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 594.  
1191 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 595.  
1192 Appellate Body Report, US – Large Civil Ai rcraft (2nd complaint ), para. 599.  
1193 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 600. The Appellate Body took 
a similar approach when discussing the relevant characteristics of the DOD assistance instruments. In addition 
to ref erring to the composite nature of the transactions (as involving a combination of funding and access to 
facilities), the collaborative nature of the transactions (as involving a pooling of monetary and non -monetary 
resources on the input side and a sharing  of the fruits of the research on the output side) it said that the 
activities were undertaken in pursuit of a common goal for the benefit of both DOD and Boeing . (Appellate 
Body Report, US – Large Civil Aircraft (2nd complaint ), para. 609).  WT/DS353/R W 
 
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  of researc h services, NASA and Boeing nonetheless remain engaged in a collaborative enterprise, 
in pursuit of a common goal, in which they both have a stake in the risks and returns. In other 
words, considered in their proper context, the post -2006 NASA procurement contracts are most 
appropriately characterized as collaborative R&D arrangements between NASA and Boeing, in the 
same way that the Appellate Body characterized the pre -2007 NASA procurement contracts . While 
there may well be a purchase of services componen t to these transactions, the characterization of 
the post -2006 NASA procurement contracts as purchases of services is incomplete and inaccurate 
when the instruments are considered in their proper context, especially in light of the nature of the 
relationsh ip between NASA and Boeing in performing the contracted research.1194 
Whether the post -2006 NASA procurement contracts , as collaborative R&D 
arrangements, involve  financial contribution s within the meaning of 
Article  1.1(a)(1) of the SCM Agreement  
8.152.   The United States advances three additional arguments in support of its position that, even 
if the Panel were to conclude that the post -2006 NASA procurement contracts, in terms of their 
relevant characteristics, are "akin to a species of joint venture ", the particul ar characteristics of 
the transactions do not support the conclusion that the measures are analogous to equity 
infusions.  
8.153.   First, the United States argues that the fact that funding is provided in expectation of some 
kind of return cannot be a defining cha racteristic of post -2006 NASA procurement contracts 
because all transactions that provide funding involve the expectation of some kind of return. In 
addition, the United States submits that the "return " on NASA research, unlike the return on an 
equity inve stment, is always a "sure thing ", which it argues, is reflected in the Appellate Body 's 
finding that NASA and Boeing learned valuable lessons from research that failed. Finally, the 
United States contends that the fact that funders ' risks are limited to th e amount of money they 
commit and the opportunity cost of other support they provide cannot be a defining characteristic 
of a joint venture, because this is true equally in the case of a purchase of goods or of services.1195  
8.154.   The European Union considers that  the post -2006 NASA procurement contracts satisfy the 
Appellate Body 's criteria for demonstrating that they are "akin to equity infusions in joint 
ventures "1196, and that the United States does not in fact dispute that the key criteria are met with 
respect to  post-2006 NASA contracts. Notably, it argues that the United States acknowledges that 
funding of post -2006 NASA procurement contracts is provided in expectation of some kind of 
return, that funders ' risks are limited to the amount of money they commit and  the opportunity 
cost of other support they provide, that NASA research is sometimes unsuccessful, and that 
sometimes NASA provides access to facilities , equipment and employ ees under the 
arrangements.1197 
8.155.   As we see it, t he United States ' arguments as to why the post -2006 NASA procurement 
contracts, even if characterized as being like joint ventures, should not be considered analogous to 
equity infusions , would apply equally to the pre -2007 NASA procurement contracts analysed by the 
Appellate Body. As such, it  seems to us that the United States ' disagreement is with the analysis of 
the Appellate Body regarding the aspects of the pre -2007 NASA procurement contracts that the 
Appellate Body considered to render them analogous to equity infusions and thus, to invol ve a 
direct t ransfer of funds under Article  1.1(a)(1)(i). We do not consider it appropriate in this 
compliance proceeding to depart from the legal reasoning of the Appellate Body in the original 
proceeding. Having concluded that, despite some differences b etween the relevant characteristics 
of the post -2006 NASA procurement contracts and their pre -2007 counterparts, it is nevertheless 
appropriate to characteri ze the post -2006 NASA procurement contracts before us in this 
proceeding in the same manner as the Appellate Body characterized the pre -2007 NASA 
procurement contracts in the original proceeding, we do not consider it appropriate to depart from 
                                               
1194 The Panel t herefore rejects the United States' argument that the transactions are more properly 
characterized as purchases of services and consequently, considers it unnecessary to address the 
United  States' arguments that transactions appropriately characterized as purchases of services are excluded 
from the scope of Article 1.1(a)(1) of the SCM Agreement.  
1195 See United States' second written submission, paras. 221 -223. 
1196 European Union's second written submission, para. 246.  
1197 European Union's second written submissi on, para. 246.  WT/DS353/R W 
 
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  the reasoning of the Appellate Body as to why such measures are analogous to equity infusions 
and thus involve  a direct transfer of funds within the meaning of 1.1(a)(1)(i).  
8.156.   Accordingly, consistent with the Appellate Body 's findings in respect of the pre -2007 NASA 
procurement contracts in the original proceeding, we conclude that the post -2006 NASA 
procurement co ntracts have characteristics analogous to equity infusions , wherein payments under 
post-2006 NASA procurement contracts  involve direct transfers of funds within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement, and any provision of access to NASA facilities, 
equipment, and employees  provided to Boeing under those instruments constitutes the provision 
of goods or services other than general infrastructure within the meaning of Article 1.1(a)(1)(iii) of 
the SCM Agreement.  
8.157.   For these reasons, we find t hat the payments and provision of access to NASA 
facilities, equipment, and employees  to Boeing through the post -2006 NASA 
procurement contracts funded under four NASA aeronautics R&D programmes (the 
Fundamental Aeronautics Program; the Integrated Systems Research Program; the 
Aviation Safety Program; and the Aeronautics Test Program)  constitute financial 
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement.1198 
Specifically, the payments provided by NASA constitute financial contribution s as a 
direct transfer of fund s within the meaning of Article  1.1(a)(1)(i), and the provision of 
access to facilities, equipment, and employees  qualifies as a government provision of 
goods or services other than general infrastructure under Article 1.1(a)( 1)(iii) of the 
SCM Agreement . 
8.158.   In light of our conclusions in paragraphs 8.103  and 8.157 , it is unnecessary for us to 
address the European Union 's alternative argument  that what it refers to as the transfer to Boeing 
of patent and other intellectual property  rights  could separately be considered a financial 
contribution within the meaning of Article  1.1(a)(1)(iii) of the SCM Agreement.1199 
8.159.   Having found that the post -2006 N ASA aeronautics R&D measures at issue in this 
proceeding are financial contributions, we next consider whether these financial contributions 
confer a benefit.  
8.2.2.4   Whether there is a benefit  
8.2.2.4.1   Main arguments of the parties and third parties  
8.160.   The European Union  argues that the financial contributions provided through the post -2006 
NASA procurement contracts, cooperative agreements, and Space Act Agreements  under the 
challenged NASA aeronautics R&D programmes confer a benefit within the meaning of 
Article  1.1(b) of the SCM Agreement.  
8.161.   With regard to the post -2006 NASA procurement contracts, the terms of which were 
modified by the NASA -Boeing Patent Licence Agreement of 23 September 2012, the 
European  Union 's arguments as to why the financial contributions provided thr ough those 
contracts confer a benefit are the same as those it makes as to why the modifications to the 
pre-2007 NASA procurement contracts , also effected by the NASA -Boeing Patent Licence 
Agreement fail to remove the benefit.1200  
8.162.   The European Union argues t hat the reasoning of the Appellate Body in the original 
proceeding that the pre -2007 NASA procurement contracts and DOD assistance instruments 
conferred a benefit , applies equally to the post -2006 NASA procurement contracts and cooperative 
agreements, the terms of which have not been modified by the NASA -Boeing Patent Licence 
Agreement, as these arrangements "have precisely the same factual and legal characteristics as 
the pre -2007 NASA R&D contracts and agreements " that were subject to the Appellate Body 's 
findings on benefit in the original proceeding , and are not provided on the basis of commercial 
considerations.  
                                               
1198 We recall our explanation in fn 1133 above that the Aeronautics Test Program funded only Space 
Act Agreements (rather than procurement contracts or cooperative agreements) with Boeing.  
1199 See para. 8.87 above . 
1200 See paras. 8.8 to 8.15 above . WT/DS353/R W 
 
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  8.163.   The European Union submits that the fact that post -2006 NASA procurement contracts are 
subject to competitive bidding should have no effect on  the benefit analysis because, pursuant to 
the Bayh -Dole regime and NASA -specific regulations for allocating intellectual property rights 
under U.S. Government R&D contracts (which the European Union considers have the explicit, 
non-commercial purpose of a ssisting U.S. industry), the allocation of patent rights is uniform and 
ownership of any intellectual property is not open to bidding, and thus would not be a 
determinative element in bidding. It argues that the United States has provided no evidence to 
support its assertions that the intellectual property rights allocated to Boeing through any of the 
aeronautics R&D contracts and agreements were provided in exchange for Boeing accepting a 
lower profit margin, lower levels of cost reimbursement, or a lower fixed-price contract.1201 In 
addition, the European Union submits that the Appellate Body rejected a similar argument made 
by the United States in the context of the original DOD assistance instruments.1202 Thus, the 
benefit resulting from the post -2006 NASA pro curement contracts arises from the "systematically 
skewed (in comparison to the market) allocation of patent rights " in U.S. Government R&D 
contracts.1203 
8.164.   Finally, with respect to non-reimbursable and partially -reimbursable post-2006 
Space  Act Agreements, the  European Union contends that the United States has made no 
allegation that they are any different in nature than the pre -2007 Space Act Agreements, and 
therefore  that the original panel finding of benefit should be sustained.1204 In the event that the 
Panel does not base its finding on the original panel finding of benefit, the European Union argues 
that the post -2006 Space Act Agreements provide a benefit for the same reason as the NASA 
procurement contracts, because the transactions in the market result in an equilibrium that is 
more favourable to the commissioning party than the transactions pursuant to post -2006 
Space  Act Agreements. The European Union submits that the United States has not demonstrated 
that NASA receives something of genuine value in exch ange for providing Boeing with the use of 
NASA facilities and equipment through non -reimbursable and partially -reimbursable Space Act 
Agreements.1205 Moreover, the European Union argues that the allocation of intellectual property 
rights under  Space Act Agree ments does not preclude the Panel from finding that Space Act 
Agreements provide a benefit for the same reasons as the NASA procurement contracts. The 
European Union refers to the intellectual property provisions of one "representative example SAA" 
referre d to by the United States, submitting that this Space Act Agreement "appears to have the 
same limitations as the NASA R&D contracts and agreements at issue" .1206  
8.165.   The United States  argues that the European Union has failed to meet its burden to 
establish that  the post -2006 NASA procurement contracts, cooperative agreements, and Space Act 
Agreements  at issue in this proceeding confer a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement.  
                                               
1201 European Union's comments on the United States' response to Panel question No. 67, para s. 25 and 
65. Mr Razgaitis opines that the lack of bargaining power over intellectual property ownership under U.S. 
Government R&D contracts discredits the United States' arguments regarding the impact of competitive 
bidding on the exchange of value in DOD  and NASA procurement contracts. According to Mr Razgaitis, because 
of the provisions of U.S. law that "preclude" DOD and NASA from bargaining over ownership of intellectual 
property rights, Boeing does not need to "underbid" to fully account for the net p resent value of the foreground 
intellectual property. Mr Razgaitis considers that there is no evidence that Boeing, or any other commissioned 
party, in practice reduces its RDT&E costs because of the Bayh -Dole provisions. (Second Supplemental 
Declaration o f R. A. Razgaitis, Sr., Ph.D., CLP, 17 December 2014 (Second Supplemental Razgaitis 
Declaration), (Exhibit EU -1398), para. 49).  
1202 European Union's second written submission, para. 311 (referring to Appellate Body Report, US – 
Large Civil Aircraft (2nd comp laint), paras. 665 and 666).  
1203 European Union's response to Panel question No. 25, para. 138 ("{t}he benefit resulting from the 
R&D contracts and agreements at issue is evidenced, in part, by the systematically skewed (in comparison to 
the market) allocati on of patent rights in the U.S. government R&D contracts"). See also European Union's 
response to Panel question No. 26, para. 162 ("{r}ather, once, as here, it is clear that there is a benefit 
associated with systematically gifting the relevant IP rights in advance, that should be sufficient for the 
purposes of the {benefit} analysis").  
1204 European Union's second written submission, para. 314.  
1205 European Union's first written submission, para. 181; European Union's second written submission, 
para. 315.  
1206 European Union's second written submission, para. 317.  WT/DS353/R W 
 
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  8.166.   With respect to the post -2006 NASA procurement contracts th e terms of which have not 
been modified by the NASA -Boeing Patent Licence Agreement1207, the United States argues that 
the European Union has failed to establish that such measures are more favourable to Boeing than 
comparable commercial arrangements and the Panel should  therefore  find that these 
arrangements do not confer a benefi t within the meaning of Article  1.1(b) of the SCM Agreement.  
8.167.   The United States criticizes the European Union 's approach to determining the commercial 
consistency of the post -2006 R& D procurement contracts based on only one term of the contract 
(i.e. the allocation of patent rights). According to the United States, a thorough and systematic 
review of the evidence indicates that the terms under which the U.S. Government commissions 
research work are no more advantageous to the recipient than comparable commercial 
transactions.1208 This analysis should extend beyond patent rights to consider how other terms of 
the contract affect the balance of value between the parties, in particular the p rice that commercial 
commissioning parties pay for the rights they acquire.1209 
8.168.   The United States argues that an appropriate benchmark for assessing whether the 
post-2006 NASA procurement contracts confer a benefit should properly reflect the type of 
financia l contribution. Although the post -2006 NASA procurement contracts are properly 
characterized as purchases of services, the United States submits that, even if the Panel were to 
conclude that the post -2006 NASA procurement contracts are financial contributi ons, it would still 
need to take into account that the transactions are "in substance, purchases of services " and that 
NASA was "purchasing something ".1210 The context provided by Article  14(d) of the SCM 
Agreement indicates that the proper standard for asses sing whether government purchases confer 
a benefit is the adequate remuneration standard. Under this standard, a benefit would exist only if 
the U.S. Government paid too much for the rights it obtained. The adequate remuneration 
standard therefore focuses on what the government purchased, and not what a private entity 
would have purchased in similar circumstances, and asks whether the government paid too much 
(i.e. more than adequate remuneration) for what it sought to buy ; in this case, the purchase of 
own-use rights in patents that result from research. The United States argues that the 
European  Union fails to address this standard.1211 
8.169.   The United States disagrees with the Eu ropean Union that whether  the post -2006 NASA 
procurement contracts involved competiti ve bidding is irrelevant to whether they confer a benefit , 
based on the Appellate Body 's rejection of a similar argument regarding the pre -2007 DOD 
assistance instruments in the original proceeding.1212 The United States argues that the Appellate 
Body's state ment regarding competitive bidding in the original proceeding addressed only DOD 
assistance instruments, which the Appellate Body had differentiated from DOD procurement 
contracts. The United States argues that the Appellate Body 's statements in Canada – Renewable 
Energy / Canada – Feed-in Tariff Program indicate that the relevance of competitive bidding to the 
analysis of benefit depends on the facts.1213 Moreover, economically rational bidders will factor the 
                                               
1207 The United States does not set out specific arguments as to whether post -2006 NASA cooperative 
agreements are more favourable to Boeing than comparable commercial arrangements, as it submits that 
"their value is so small in relation to contracts that these differences do not affect the overall outcome". 
(United States second written submission, fn 111; response to Panel question No. 156, fn 36).  
1208 United States' response to Panel question No. 67, para. 11. 
1209 The United States argues that a "narrow" approach to benefit, focused on isolated terms of a 
transaction, is contrary to the SCM Agreement. It notes that in EC and certain member States – Large Civil 
Aircraft , the panel and Appellate Body considered all aspects of the transaction, including the interest rate, 
term of loan, royalties, fees , and expected delivery schedules as part of the evaluation as to whether, as a 
whole, the terms the EU member States offered to Airbus were more favourable than thos e available in the 
market. (United States' response to Panel question No. 67, para. 13). See also United States'  first written 
submission, para. 238.  
1210 United States' first written submission, para. 237; second written submission, para. 232.  
1211 United State s' first written submission, paras. 253 and 254; second written submission, paras. 232 
and 233.  
1212 United States' second written submission, para. 235. See Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint) , para. 665: "intellectual property i s not open to bidding: it is determined by US law. 
Because each bidder knows in advance that this particular aspect of the transaction will not be altered with 
respect to its competitors, ownership of any resulting intellectual property will not be a deter minative element 
in how each bidder structures its proposals."  
1213 Appellate Body Report s, Canada – Renewable Energy / Canada – Feed-in Tariff Program , 
para. 5.228: "{a}lternatively, such benchmark may also be found in price -discovery mechanisms such as WT/DS353/R W 
 
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  cost or value of a fixed term of a bid (such as t he allocation of intellectual property rights) into the 
economic value of the overall package, and adjust the bid accordingly.1214 Thus, there is no basis 
to treat the Appellate Body 's statement regarding competitive bidding in respect of the pre -2007 
DOD ass istance instruments as applicable to the benefit analysis for the post -2006 NASA 
procurement contracts. The United States asserts that "all of the NASA aeronautics research 
contracts " are subject to competitive bidding, and the process of competitive biddi ng confirms that 
NASA did not pay more than adequate remuneration for its post -2006 procurement contracts. 
Rather, NASA 's monetary contribution under the post -2006 NASA procurement contracts is 
consideration for the enhanced data rights it obtains, and thu s confirms that the post -2006 NASA 
procurement contracts reflect a negotiated bargain .1215 
8.170.   With respect to the post -2006 NASA procurement contracts the terms of which were 
modified by the NASA -Boeing Patent Licence Agreement, t he United States argues that t hese 
procurement contracts reflect the  same allocation of intellec tual property rights as the amended 
pre-2007 NASA procurement contracts .  
8.171.   Finally, as with the pre -2007 Space Act Agreements at issue, the United States argues that 
the European Union fails to  identify any relevant benchmark to explain how post -2006 Space Act 
Agreements achieve an equilibrium that is more favourable to Boeing than comparable commercial 
transactions. The European Union fails to take into account that Space Act Agreements do not 
involve any funding by the U.S. Government1216, sometimes involve payments by Boeing to NASA, 
and include intellectual property terms that are not the same as those under the post -2006 NASA 
procurement contracts. Accordingly, there is no basis for the Europea n Union's argument that 
Space Act Agreements confer a benefit for the same reasons as the NASA contracts and 
agreements.  As Boeing contributes its own resources under Space Act Agreements, without 
receiving any funding from NASA,  the United States contends  that there is a relationship between 
the level of patent rights and the level of contribution to the research effort, and therefore, that 
the post -2006 Space Act Agreements do not confer a benefit within the meaning of Articles 1.1(b) 
of the SCM Agreement .1217 
8.172.   Certain of the third parties (Brazil, Japan,  and Korea) make arguments regarding the 
existence of a benefit within the meaning of Article 1.1(b) of the SCM Agreement. These 
arguments are summarized in Section 8.1.2 above.  
8.2.2.4.2   Evaluation by the Panel  
8.173.   In this Section of the Report, we evaluate whether the following categories of post -2006 
NASA aeronautics R&D measures, which we f ind to involve financial contributions within the 
meaning of Article 1.1(a)(1) of the SCM Agreement, con fer a benefi t within the meaning of 
Article  1.1(b):  
a. post-2006 NASA procurement contracts and cooperative agreements included in annex A 
of the United States ' Compliance Communication (these having been modified by the 
NASA -Boeing Patent Licence Agreement t o grant a commercial use licence to NASA on 
the terms explained in Section 8.1.3.2  above);  
b. post-2006 NASA procurement contracts and cooperative agreements that have not been 
modified by the NASA -Boeing Patent Licence Agreement;  and 
c. post-2006 Space Act Agreements.  
8.174.   In undertaking these evaluations, we first address the relevant approach  that we should 
take in determining whether the post -2006 NASA procurement contracts and cooperative 
                                                                                                                                               
comp etitive bidding or negotiated prices, which ensure that the price paid by the government is the lowest 
possible price offered by a willing supply contractor."  
1214 United States' second written submission, para. 237.  
1215 United States' first written submission,  para. 255; second written submission, paras. 234 -237. 
1216 The United States points out that there are "a very limited number of funded SAAs, used by NASA's 
space program to foster the development of commercial space transportation vehicles". (United States'  second 
written submission, fn 361).  
1217 United States' first written submission, para. 257; second written submission, paras. 239 -244. WT/DS353/R W 
 
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  agreements, both those that were modified by t he NASA -Boeing Patent Licence Agreement and 
those that were not, confer a benefit.  
8.175.   The European Union argues that we should adopt the same benefit analysis that the 
Appellate Body adopted in concluding that the original (pre -2007) NASA procurement contrac ts 
and DOD assistance instruments conferred a benefit. The United States argues that the proper 
standard for assessing whether a financial contribution confers a benefit depends on the nature of 
the financial contribution, and in the case of the post -2006 NASA procurement contracts, the fact 
that NASA was purchasing something in the transactions must play a role in the assessment of 
benefit. The United States acknowledges that cooperative agreements are the only NASA 
instruments that provide for the possibi lity of "joint funding " by NASA and participating private 
entities, as well as non -cash in kind contributions.1218  
8.176.   We recall our previous conclusion that, for the reasons set forth in Section 8.2.2.3  of this 
Report, the post -2006 NASA procurement contracts are properly characterized as collaborative 
R&D arrangements on the basis of their relevant characteristics.1219 Accordingly, we f ind in 
Section  8.2.2.3.2  that the payments provided to Boeing through po st-2006 NASA procurement 
contracts and cooperative agreements funded under the relevant NASA aeronautics R&D 
programmes are financial contributions in the form of direct transfers of fund s within the meaning 
of Article  1.1(a)(1)(i) of the SCM Agreement , while the provision of access NASA to facilities, 
equipment, and employees  through such instruments is a financial contribution in the form of a 
provision of goods or services  other than general infrastructure  within the mea ning of 
Article  1.1(a)(1)(iii) of the SCM Agreement.1220 
8.177.   In the original proceeding, the Appellate Body characterized the pre -2007 NASA 
procurement contracts as collaborative R&D arrangements which involved financial contributions 
within the meaning of Article 1.1(a)(1) of the SCM Agreement a nd then determined whether they 
conferred a benefit by comparing the allocation of intellectual property rights under those 
contracts with the allocations of intellectual property rights in private collaborative R&D 
agreements which it treated as evidence of market practice in this regard. We recall that this is a 
compliance proceeding. In these circumstances, we consider it incumbent upon this compliance 
Panel to adopt the same approach to determining whether the post -2006 NASA procurement 
contracts and co operative agreements confer a benefit as the Appellate Body took to determining 
whether the similarly characterized pre -2007 NASA procurement contracts at issue in the original 
proceeding conferred a benefit.  
8.178.   We will therefore evaluate whether the financi al contributions provided through the post-
2006 NASA procurement contracts confer a benefit by comparing  the allocation of rights to own 
and use patents between NASA and Boeing under post -2006 NASA procurement contracts with the 
evidence before us concerni ng the allocation of such rights in collaborative R&D arrangements 
between market actors . We will evaluate  whether the financial contributions provided through the  
cooperative agreements confer a benefit in the same  way, considering that transactions under  
these arrangements are also most appropriately characterized as collaborative R&D arrangements, 
and given that NASA provides payments to Boeing under these arrangements as it does under 
procurement contracts. We will also evaluate whether the financial co ntributions provided through 
the post-2006 Space Act Agreements confer a benefit . 
8.179.   Unlike the characterization of the post -2006 NASA procurement contracts that we 
conducted in connection with our evaluation of whether those measures involved financial 
contributions, our consideration of whether the financial contributions provided  through the NASA 
procurement contracts confer a benefit requires us to distinguish  between  two sub -groups of 
post-2006 NASA procurement contracts, owing to the fact that there are different intellectual 
                                               
1218 United States' second written submission, fn 220 ("cooperative agreements are the only instruments 
used by NASA that pro vide for 'joint funding,' and they did not represent a significant share of NASA's 
payments to Boeing at any point from 1989 to the present"). NASA will provide funding under these 
arrangements, except in the case of "no -cost extensions". See also NASA, Gr ant and Cooperative Agreement 
Handbook, Part 1260, (November 2014), (Exhibit EU -1369); and United States Code of Federal Regulations , 
Title 14, section 12.60.12(b).  
1219 We rejected the United States' argument that post -2006 NASA procurement contracts are mor e 
appropriately characterized as purchases of services.  
1220 See paras. 8.103  and 8.157  above . WT/DS353/R W 
 
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  property allocations for certain post -2006 instruments that were modified by the NASA -Boeing 
Patent Licence Agreement, and those that were not.1221  
8.180.   We begin by considering whether the post -2006 NASA procurement contracts that have 
been modified by the NASA -Boeing Patent Licence Agreement (these instruments are  listed in 
annex A of the United States ' Compliance Communication and are listed in the appendix to the 
NASA -Boeing Patent Licence Agreement ), confer a benefit within the meaning o f Article 1.1(b). We 
then conduct a benefit determination with respect to the post -2006 NASA procurement contracts 
and cooperative agreements  that have not been modified by the NASA -Boeing Patent Licence 
Agreement , followed by the post -2006 Space Act Agree ments, which also have not been modified 
by the NASA -Boeing Patent Licence Agreement.  
8.2.2.4.2.1   Post-2006 NASA procurement contracts and cooperative agreements that 
have been modified by the NASA -Boeing Patent Licence Agreement  
8.181.   We find in Section 8.1.3 of this Report that the grant to NASA of commercial use rights in 
respect of Boeing -owned patents under the pre -2007 NASA procurement contracts1222 effected by 
the NASA -Boeing Patent Licence Agreement has not brought those instruments into li ne with 
prevailing market practices for collaborative R&D arrangements in such a way as to remove the 
benefit that the Appellate Body had found was conferred through the pre -2007 NASA procurement 
contracts in the original proceeding.1223 The analysis in Secti on 8.1.3 underlying t his finding  with 
respect to the pre -2007 NASA procurement contracts and cooperative agreements modified by the 
NASA -Boeing Patent Licence Agreement  applies equally to the post -2006 NASA procurement 
contract s that have been modified by the NASA -Boeing Patent Licence Agreement.  
8.182.   We therefore find that the financial contributions in the form of payments and 
access to NASA facilities, equipment, and employees, provided through certain 
post-2006 NASA procurement contracts  and cooperative agreements  that have been 
modified by the NASA -Boeing Patent Licence Agreement, confer a benefit , within the 
meaning of Article  1.1(b) of the SCM Agreement.  
8.2.2.4.2.2   Post-2006 NASA procurement contracts and cooperative agreements that 
have not been  modified by the NASA -Boeing Patent Licence Agreement  
8.183.   We next evaluate whether other p ost-2006 NASA procurement contracts and cooperative 
agreements  that have not been modified by the NASA -Boeing Patent Licence Agreement (and 
therefore , were not included in annex A of the United States ' Compliance Communication ), confer 
a benefit within the meaning of Article 1.1(b).   
8.184.   As explained above, the NASA -Boeing Patent Licence Agreement granted NASA, as 
commissioning party, a limited commercial use licence  in respect of Boeing -owned patents arising 
from work performed by Boeing under the NASA procurement contracts and cooperative 
agreements to which it applies. In Section 8.1.3.2  above, we conclude, based on our assessment 
of the evidence of comparable private collaborative R&D agreements, and of the opinions of the 
parties' respective technology licensing experts, that Boeing as commissioned party under the 
modified NASA procurement contracts , remains in a more favourable positi on as regards its ability 
to commercially exploit Boeing -owned patents than the commissioned parties under the private 
collaborative R&D agreements.  
8.185.   The "unmodified" post-2006 NASA procurement contracts and cooperative agreements do 
not grant NASA a comme rcial use licence in respect of Boeing -owned patents. Boeing therefore 
has a more extensive ability to commercially exploit its patents under these arrangements than it 
has under the pre -2007 NASA procurement contracts and cooperative agreements and those 
                                               
1221 At para. 3 of its Compliance Communication, the United States advises that, in addition to modifying 
the rights accorded to the parties under the contracts covered by the DSB recommendations and rulings to 
make them consistent with commercial practice, "NASA has made identical modifications, as necessary, with 
regard to contracts subsequent to those covered by the recommendations and rulings of the DSB, without 
prejudice to the U.S. view that those contracts were not subsidies causing adverse effects to the 
European  Union's interests. These contracts are also listed in Annex A."  
1222 See fn 972 above .  
1223 See para. 8.49 above . WT/DS353/R W 
 
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  post-2006 NASA procurement contracts that have been modified by the NASA -Boeing Patent 
Licence Agreement. Given that we conclude that the pre -2007 NASA procurement contracts and 
those post -2006 NASA procurement contracts that have been modified by the NASA -Boeing Patent 
Licence Agreement, confer a benefit on Boeing, logically we must also conclude that the post -2006 
NASA procurement contracts and cooperative agreements that have not been modified to grant 
NASA a commercial use licence, confer a benefit.  
8.186.   This conclusion is also consistent with the Appellate Body's finding that the pre -2007 NASA 
procurement  contracts in the original proceeding, which contain the same allocation of rights in 
respect of patents as the "unmodified", post -2006 NASA procurement co ntracts and cooperative 
agreements now before us, involved a more favourable allocation of intellectual property rights to 
Boeing as commissioned party than the allocations to commissioned parties under [***] and 
therefore conferred a benefit on Boeing.  
8.187.   We therefore find that the financial contributions in the form of payments and the 
access to NASA facilities, equipment, and employees  provided to Boeing  through the 
post-2006 NASA procurement contracts and cooperative agreements that have not been 
modified  by the NASA -Boeing Patent Licence Agreement  confer a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement.  
8.2.2.4.2.3   Space Act Agreements  
8.188.   We next consider whether the financial contributions provided through non -reimbursable 
and partially -reimbursable  Space Act Agreements entered into between NASA and Boeing confer a 
benefit within the meaning of Article 1.1(b) of the SCM Agreement .1224 Based on the 
parties'  arguments, the principal issue before us is whether the benefit analysis in respect of NASA 
procur ement contracts and DOD assistance instruments is also applicable to Space Act 
Agreements, or whether Space Act Agreements are sufficiently distinct as to warrant a different 
analysis of whether the transactions under those instruments confer a benefit. If  a different 
analysis is required, the European Union has not provided evidence of relevant commercial 
benchmarks, and we would have no basis to conclude that Space Act Agreements confer a benefit.  
8.189.   Unlike NASA procurement contracts and cooperative agreemen ts, and as set forth in 
Section  8.2.2.2.3 , NASA does not make  payments to Boeing under  Space Act Agreements.1225 
However, transactions under Space Act Agreements share a number of features with transactions 
under NASA procurement contracts. Under both NASA procurement contracts and Space Act 
Agreements, Boeing is provided with access to NASA facilities, equipment, and employees , and 
Boeing also participates by providing in -kind contributions. In addition, the allocation of intellec tual 
property rights and data rights is an important aspect of the terms of both NASA procurement 
contracts and Space Act Agreements. We f ind that the transactions under NASA procurement 
contracts and under Space Act Agreements are both properly characteri zed as collaborative R&D 
arrangements, wherein the access to NASA facilities, equipment, and employees  that is provided 
to Boeing constitutes a financial contribution as a provision of goods or services  other than general 
infrastructure , within the meaning  of Article  1.1(a)(1)(iii) of the SCM Agreement .1226 In the case of 
Space Act Agreements, although Boeing does not receive payments in exchange for its 
contribution, Boeing is not required to fully reimburse NASA for any such access to facilities, 
equipment a nd personnel provided by NASA under non -reimbursable and partially -reimbursable 
Space Act Agreements. Taking into account these similarities , we do not consider that the fact that 
NASA does not make payments to Boeing under Space Act Agreements of itself w arrants a 
different approach to determining benefit from that adopted with respect to the NASA procurement 
contracts . The fact remains that Boeing may nevertheless advance its R&D activities and 
commercial objectives through the commercial use rights that it retains (e.g. title to inventions 
where these are made by Boeing employees or jointly by NASA employees and Boeing employees, 
as well as rights to data) , in addition to contributing to NASA's particular mission or programme 
                                               
1224 As explained in Section 8.1.3.3  above,  our assessment here o f whether the financial contributions 
confe r a benefit covers both pre -2007 and post -2006 Space Act Agreements.  
1225 NASA has determined that Space Act Agreements are not " procurement contracts" , agreements, 
understandings or other arrangements,  within the meaning of Section  305(j) of the Space Act (N ASA, Space 
Act Agreements Guide , NAII 105 -1A, (15 August 2008), (Exhibit USA -469), p. 50  and fn 42). See also 
United  States Code , chapter 35, section 201(b), and chapter 42, section  2457(j).  
1226 See Section 8.2.2.3 .2.1 above.  WT/DS353/R W 
 
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  objectives.  We therefore cons ider that our approach to determining whether the NASA 
procurement con tracts and cooperative agreements confer a benefit is also applicable to our 
assessment of benefit with respect to the non -reimbursable and partially -reimbursable Space Act 
Agreements be fore us.  
8.190.   As explained in Sections 8.1.3, 8.2.2.4.2.1 , and 8.2.2.4.2.2  above, based on our review of 
commercial R&D arrangements,  which the parties have submitted as evid ence of  relevant "market 
benchmarks "1227, we conclude that [***]. Based on a comparison of the allocation between NASA 
and Boeing of the rights to own and use patents arising from work performed under NASA 
procurement contracts and cooperative agreements, wit h the allocations of such rights under a 
number of private collaborative R&D arrangements, we conclude that the allocation of patent 
rights under the NASA procurement contracts remains more favourable to Boeing as commissioned 
party than the corresponding allocations to commissioned parties under the private collaborative 
R&D agreements before the Panel, and accordingly, that the financial contributions provided 
through NASA procurement contracts and cooperative agreements confer a benefi t within the 
meanin g of Article  1.1(b).1228 
8.191.   We recognize that the distribution of intellectual property and related licence rights under 
the Space Act Agreements before us is not necessarily identical to that under NASA procurement 
contracts and cooperative agreements. Accordin g to the Space Act Agreements Guide , published 
by NASA and submitted as evidence in this proceeding, NASA elects to determine how rights to 
patents for inventions are allocated on a case -by-case basis, depending on whether work is likely 
to lead to inventi ons, and whether work is being performed  "for NASA ", or is not being performed 
for NASA.1229  
8.192.   If a nongovernmental contracting party performs work that is determined to be of an 
inventive type for NASA, the contracting party may obtain title to inventions it makes through an 
advance or an individual waiver, and NASA retains a government purpose licence in the 
invention.1230 NASA indicates that "NASA liberally grants such waivers for the purpose of 
commercializing the waived invention"1231, including for work that in volves design, engineering, 
development, research or experimental work.1232 If a nongovernmental contracting party is 
determined not to perform work of an inventive type for NASA, NASA  obtains no rights in 
inventions made solely by the contracting party. NASA  indicates that, "most {Space Act 
Agreements} do not involve work of an inventive nature being performed by the partner for 
NASA".1233 
8.193.   We observe  that, in either of these circumstances, the fundamental balance of  rights to 
own and use  intellectual property re mains more favourable to Boeing than the corresponding 
allocations to commissioned parties under the private collaborative R&D agreements before the 
Panel. In the case of work that is deemed to be of an inventive type  and is conducted for NASA , 
through the  grant of an advance or individual waiver, the allocation of intellectual property rights 
between Boeing and NASA is similar to the allocation of intellectual property rights under NASA 
procurement contracts and other R&D contracts  to which the Bayh -Dole r egime applies. In the 
case of work that is determined not to be performed for NASA, NASA  obtains no rights in 
inventions made solely by the contracting party . Other evidence before us indicates that each 
party retains  the rights to its own intellectual pro perty that is  conceived in the course of work, and 
in the case of joint inventions, allocations of rights jointly belong to NASA and the contracting 
                                               
1227 These private R&D agreements include Contracts A through F which were also submitted in the 
original proceeding and a number of other private, commercial collaborative R&D agreements. Our evaluation 
of the allocation of intellectual property  rights and rights resulting therefrom (i.e. licence rights) under these 
collaborative R&D arrangements is set out in a BCI Appendix  (Appendix 1 ). 
1228 See paras. 8.181  and 8.185 -8.187  above .  
1229 NASA, Space Act Agreements Guide , NAII 105 -1A, (15 August 2008), (Exhibit USA -469), pp. 50 and 
51 (emphasis original).  
1230 NASA, Space Act Agreements Guide , NAII 105 -1A, (15 August 2008),  (Exhibit USA -469), pp. 50 and 
51. 
1231 NASA, Space Act Agreements Guide , NAII 105 -1A, (15 August 2008), (Exhibit USA -469), p. 50  and 
fn 43 (referring to Executive Order 12591, section 1, para. (b)(4)).  
1232 NASA, Space Act Agreements Guide , NAII 105 -1A, (15 Aug ust 2008), (Exhibit USA -469), fn 42.  
1233 NASA, Space Act Agreements Guide , NAII 105 -1A, (15 August 2008), (Exhibit USA -469), p. 51. 
NASA explains that, while it generally acquires no rights to any invention made solely by the partner, it may 
negotiate a lice nce to use a partner invention for research, experimental and evaluation purposes. (NASA, 
Space Act Agreements Guide , NAII 105 -1A, (15 August 2008), (Exhibit USA -469), p. 52).  WT/DS353/R W 
 
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  party, wherein NASA may retain a royalty -free, government purpose licence in respect of 
jointly -owned inven tions.1234 Although the balance of intellectual property rights in these 
circumstances is not identical to that which applies under the Bayh -Dole regime, the fundamental 
balance of intellectual property rights nevertheless remains one in which the U.S. Govern ment 
lacks the right to obtain an exclusive  licence in respect of Boeing -owned patents and thus, 
Boeing's ability to commercially exploit its patents is not contingent on the U.S. Government's 
election not to exercise exclusive rights to licence those pate nts for itself. The resulting allocation 
is therefore still more favourable to Boeing than the allocation of intellectual property  rights under 
the private collaborative R&D agreements before the Panel.  
8.194.   We note finally, i n addition  to a more favourable allocation of intellectual property  rights 
than is evidence d under private collaborative R&D agreements before the Panel, in terms of data 
rights, c ontract ing parties under non -reimbursable and partially -reimbursable Space Act 
Agreements  gain access to data t hat allows use for commercial purposes, and can prevent the 
release of data for a periods of between one and five years.1235 This differs from the rights in data 
under NASA  aeronautics  R&D procurement  contracts , where the U.S. G overnment receives 
"unlimited r ights data ", which enables it to use data for its own purposes, bot h inside and outside 
government.1236  
8.195.   Given that the  allocation of patent rights and related licence rights is more favourable to 
Boeing than the allocation of patent rights and related licenc e rights under the private 
collaborative R&D agreements before the Pane l, and that Boeing may additionally  request that 
NASA  restrict access to data that allows use for commercial purposes, we conclude that the 
financial contributions under NASA Space Act Agreements confer a benefit . 
8.196.   Based on the foregoing, we therefore find  that, notwithstanding the  fact that NASA does 
not make payments to Boeing under the challenged Space Act Agreements, and that Boeing may 
contribute funds in addition to in -kind contribu tions under partially -reimbursable Space Act 
Agreements, the Space Act Agreements achieve an equilibrium that is more favourable to Boeing 
than com parable commercial transactions, specifically the private collaborative R&D agreements 
before the Panel.   
8.197.   Accordingly, we find that the financial contributions in the form of the access to 
NASA facilities, equipment, and employees  provided to Boeing through the pre -2007 and 
post-2006 NASA Space Act Agreements before us confer a benefit , within the meaning of 
Article 1.1(b) of the SCM Agreement. Therefore, we also find that by not amending the 
terms of the pre -2007 Space Act Agreements that were found to constitute actionable 
subsidies in the original proceeding the United States has failed to withdraw the 
subsidy , within the meaning of Article 7.8.   
                                               
1234 A contracting party may also obtain a royalty -bearing, commercial use license to NASA employee 
inventions or NASA's interest in any invention made jointly. See e.g. Space Act Agreement SAA1 -1126 
(formerly Exhibit US -13-273), (Exhibit EU -203) (BCI), p. 7; Agreement between NASA and Boeing for 
Aerospace Structures and Materials Resear ch and Development, SAA1 -757 (December 2005), (Exhibit 
USA-82), pp. 3 -6; and Agreement between NASA and Boeing for Continued Software development of P -Beat 
(processes -Based Economic Analysis Tool), SAA3 -1026 (June 2009), (Exhibit USA -50) (BCI), pp. 4 -8.  
1235 See United States' first written submission, para. 214 ("{e}ach party typically takes the data rights 
its needs, with NASA maintaining the right to publish any data and use data in its other research, while Boeing 
has the right to preclude release of prop rietary information for a fixed period of time"). The United States 
refers to several examples: Space Act Agreement SAA1 -1126 (formerly Exhibit US -13-273), (Exhibit EU -203) 
(BCI), p. 7; Agreement between NASA and Boeing for Aerospace Structures and Materia ls Research and 
Development, SAA1 -757 (December 2005), (Exhibit USA -82), pp. 3 -6; and Agreement between NASA and 
Boeing for Continued Software development of P -Beat (processes -Based Economic Analysis Tool), SAA3 -1026 
(June 2009), (Exhibit USA -50) (BCI), pp . 4-8. See e.g. Space Act A greement SAA1 -1145, annex 1 
(30 September 2011) (formerly Exhibit US -13-256), (Exhibit -EU-202) (BCI); Space Act Agreement SAA1 -588, 
annex 25 (19 January 2007) (formerly Exhibit US -13-436), (Exhibit EU -200) (BCI); Space Act Agreem ent 
SAA3 -1255, annex 1 (16 July 2012) (formerly Exhibit US -13-0163), (Exhibit EU -1036) (BCI); and Space Act 
Agreement SAA1 -1155, annex 2 (January 2012) (formerly Exhibit US -13-0156), (Exhibit EU -191) (BCI).  
1236 The Appellate Body considered whether monetary contributions by Boeing to a joint research project 
under DOD assistance instruments affect ed the net value obtained by the firm from the project, and thus 
distorted the assessment of benefit. The Appellate Body nevertheless noted that findings by the pane l did not 
support the proposition that Boeing's contribution to the project meant that no benefit was conferred. 
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 664).  WT/DS353/R W 
 
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  8.2.2.5   Whether the subsidy is specific  
8.2.2.5.1   Main arguments of  the parties  
8.198.   The European Union  argues that the subsidies provided through the post -2006 NASA 
procurement contracts , cooperative agreements , and Space Act Agreements  are specific within the 
meaning of Article 2.1(a) or, alternatively, Article 2.1(c) of the SCM Agreement.1237  
8.199.   With regard to Article 2.1(a), the European Union relies on the original panel 's finding, 
which was not appealed by the United States, that the NASA aer onautics R&D subsidies were 
specific within the meaning of Article 2.1(a) by virtue of the explicit limitation of the scope of NASA 
R&D activities to aeronautics and space and the fact that the primary users of NASA facilities were 
aerospace -related. This finding continues to hold true for the original challenged measures and is 
equally applicable to successor and other closely linked programmes at issue in this proceeding. 
This is because all NASA programmes are carried out under the authority of the Space  Act, which 
continues to restrict the scope of the NASA R&D activities to aeronautics and these activities 
pursue the same objectives that the original panel considered in making its finding of specificity 
under Article 2.1(a).1238  
8.200.   In support of its argument  under Article 2.1(c), the European Union asserts that Boeing 's 
share of NASA aeronautics R&D funding and support is disproportionate to its share of the U.S. 
economy and that NASA exercises discretion in granting these subsidies to Boeing.1239  
8.201.    The European  Union rejects the argument of the United States that for purposes of the 
specificity analysis under Article 2.1(a), "the subsidy " at issue is the allocation of rights in patents 
on terms more favourable than in the market.1240 The European Union submits that  the subsidies 
consist of payments and access to the government facilities, equipment, and employees  provided 
to Boeing by NASA , as well as the rights to technology (and the associated intellectual property) 
developed with such funding and support provided  to Boeing and the non -market benefit that 
accrues from such financial contributions. The European Union explains, in this respect, that while 
it considers the intellectual property rights distribution when evaluating the benefit conferred, the 
"benefit " is not only the provision of intellectual property, but also the provision of payments, and 
access to government facilities, equipment, and employees , "for less than what a market -based 
actor would demand ". The consideration of intellectual property rights distribution, and comparison 
to intellectual property rights distribution in market benchmarks is "just a means to the end of 
determining the existence of benefit  from these financial contributions – it is not the 'benefit ' of 
the 'subsidy ', in and of itse lf".1241  
8.202.   Thus, the European Union considers that the reasoning of the Appellate Body in the 
original proceeding regarding the non -specificity of the allocation of patent rights as a 
self-standing subsidy is not applicable to the assessment of specificity of the NASA procurement 
contracts, cooperative agreements, and Space Act Agreements  before this Panel. In this respect, 
the European Union recalls the Appellate Body 's statement that its findings in connection with the 
specificity of the allocation of patent rights, if considered to be a self -standing subsidy , "do not 
traverse " the panel's findings related to the payments and access to NASA facilities, equipment, 
and employees . The European Union alleges that the United States is now attempting to use the 
Appellate Body 's findings to traverse the original panel 's findings, in exactly the way that the 
Appellate Body cautioned that they could not be used.1242 The E uropean Union denies the 
United  States ' allegation that it has alleged a different subsidy  with respect  to NASA and DOD 
aeronautics R&D funding and other support for aeronautics R&D from that  in the original 
proceeding and asserts that its claims address the exact same subsidies as were found to exist in 
                                               
1237 European Union's first written submission, paras. 192 -195.  
1238 European Union's first written submission, paras. 192 -194; second written submission, 
paras. 319-321. 
1239 European Union's first written submission, para. 195; second written submission, para. 322.  
1240 European Union's second written submission, para. 324.  
1241 European Union's second written submission, para. 328.  
1242 European Union's second written submission, paras. 329 -331. WT/DS353/R W 
 
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  the original proceedings, and the continuation of tho se subsidies through successor and closely 
related  aeronautics  R&D programmes.1243  
8.203.   The United States  argues that "the patent rights subsidy alleged by the European Union " is 
not specific within the meaning of Article 2.1(a) of the SCM Agreement because it is  available 
under any government contract.1244 The United States argues that the standard for determining 
specificity under Article  2.1(a) of the SCM Agreement is whether access to the subsidy  is 
limited .1245 With respect to payments and the provision of access t o facilities, equipment, and 
employees , the only benefit alleged by the European Union is that Boeing receives more 
favourable rights in patents than would be the case if a commercial actor had funded the research.  
8.204.   In this regard, the United States argues  that the European Union incorrectly characterizes 
its claims as to the existence of a benefit with regard to NASA and DOD contracts and agreements. 
The European Union has not argued "that NASA paid Boeing too much for the work Boeing 
conducted and the int ellectual property rights that resulted ", or "that no market -based actor would 
make payments, or provide facilities, equipment, and employees to obtain research results that 
the market -based actor sought ".1246 Rather, the European Union 's allegation of the ex istence of a 
benefit is limited to the fact that Boeing receives more favourable rights in respect of patents than 
would be the case if a commercial actor had funded the research. Thus, the specificity analysis 
must be limited to Boeing 's allocation of rig hts in patents that is more favourable than under a 
commercial transaction.1247 The United States recalls that the Appellate Body indicated that a 
subsidy provided through a particular program, considered separately, will not be considered 
specific where mult iple authorities implement the same measure.1248  
8.205.   The United States recalls that the Appellate Body in the original proceeding found that the 
attribution of patent rights, if considered as a free -standing subsidy, is not specific because it is 
available under  any U.S. Government R&D contract by any agency, in any sector.1249 The 
United  States considers that the Appellate Body 's statement that its findings with respect to 
whether the allocation of patent rights , if considered as a subsidy by itself, was specific "do not 
traverse the panel 's findings of specificity relating to the payments and other support provided 
under the NASA USDOD contracts and agreements " is not germane to this proceeding because the 
European Union is alleging a different financial contributi on and benefit which  requires a different 
analysis of specificity.1250  
8.206.   The United States considers that the European Union 's contention that specificity exists 
under Article 2.1(a) because access to the NASA aeronautics R&D programmes is limited to 
entities that conduct aeronautics research does not address the standard established by the SCM 
Agreement (whether access to the subsidy is limited) because the European Union has never 
established or even claimed that NASA aeronautics R&D programmes taken as a who le are a 
subsidy to Boeing.1251  
8.207.   The United States argues that the European Union 's specificity claim under Article 2.1(c) of 
the SCM Agreement fails for the same reasons. The European Union 's argument addresses NASA 
research programmes and fails to provide e vidence as to access to the subsidy at issue i.e. the 
allocation of patent rights common to all U.S. Government contracts.1252 
                                               
1243 European Union's comments on United States' response to Panel question No. 28, para. 181.  
1244 United States' first written submission, se ction 3.3.3.6.6.  
1245 United States' first written submission, para. 260.  
1246 United States' second written submission, para. 252. See also United States' first written 
submission, paras. 259 and 260; and second written submission, paras. 248 and 255.  
1247 United States' first written submission, para. 259; second written submission, paras. 248, 252, and 
255. 
1248 United States' second written submission, para. 269.  
1249 United States' first written submission, para. 259. See also United States' second written 
submission , paras. 245, 246, and 255.  
1250 United States' first written submission, paras. 254 and 255.  
1251 United States' first written submission, para. 260; second written submission, para. 248.  
1252 United States' first written submission, paras. 259 -261 (referring to Appellate Body Report, US – 
Large Civil Aircraft (2nd complaint) , para. 799). See also United States second written submission, paras. 245, 
246, and 255; response to Panel question No. 28, paras. 124 -126; and comments on European Union's 
response to Panel question No. 28, paras. 153 -155. WT/DS353/R W 
 
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  8.2.2.5.2   Evaluation by the Panel  
8.208.   Article 2.1 of the SCM Agreement provides:  
Article 2  
Specificity  
2.1 In order to determine whether a subsidy , as defined in paragraph  1 of Article  1, 
is specific to an enterprise or industry or group of enterprises or industries (referred to 
in this Agreement as "certain enterprises ") within the jurisdiction of the granting 
authority, the following principles sh all apply:  
(a) Where the granting authority, or the legislation pursuant to which the granting 
authority operates, explicitly limits access to a subsidy to certain enterprises, such 
subsidy shall be specific.  
(b) Where the granting authority, or the legisl ation pursuant to which the granting 
authority operates, establishes objective criteria or conditions {*} governing the 
eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that 
the eligibility is automatic and that such crit eria and conditions are strictly adhered to. 
The criteria or conditions must be clearly spelled out in law, regulation, or other 
official document, so as to be capable of verification.  
(c) If, notwithstanding any appearance of non -specificity resulting fro m the 
application of the principles laid down in subparagraphs (a) and (b), there are reasons 
to believe that the subsidy may in fact be specific, other factors may be considered. 
Such factors are: use of a subsidy programme by a limited number of certain 
enterprises, predominant use by certain enterprises, the granting of disproportionately 
large amounts of subsidy to certain enterprises, and the manner in which discretion 
has been exercised by the granting authority in the decision to grant a subsidy. {*} In 
applying this subparagraph, account shall be taken of the extent of diversification of 
economic activities within the jurisdiction of the granting authority, as well as of the 
length of time during which the subsidy programme has been in operation.  
 
{fn original}2 Objective criteria or conditions, as used herein, mean criteria or conditions which 
are neutral, which do not favour certain enterprises over others, and which are economic in 
nature and horizontal in application, such as number of employees or  size of enterprise.  
{fn original}3 In this regard, in particular, information on the frequency with which applications 
for a subsidy are refused or approved and the reasons for such decisions shall be considered.  
 
8.209.   The first question raised by the parties ' arguments is whether the subsidies provided to 
Boeing through : (a) the payments and access to NASA facilities, equipment, and employees  under 
the post -2006 NASA procurement contracts and cooperative agreements at issue ; and (b) access 
to NASA facilities, equipment, and employees  under the post -2006 Space Act Agreements , are 
specific within the meaning of Article 2.1(a), i.e. whether "the granting authority, or the legislation 
pursuant to which the granting authority operates, explicitly limits access to th e subsidy to certain 
enterprises ".  
8.210.   As to the meaning of "explicitly limits " in Article 2.1(a), the Appellate Body has explained 
that "a subsidy is specific under Article 2.1(a) if the limitation on access to the subsidy to certain 
enterprises is express, unambiguous, or clear from the content of the relevant instrument, and not 
merely 'implied ' or 'suggested "'.1253 It has also indicated that a "limitation on the access to the 
subsidy (or the absence of one) may result from the legislation pursuant to which th e granting 
authority operates or from pronouncements or other actions of the granting authority ".1254 An 
analysis of whether "access to the subsidy " is explicitly limited must focus on whether the granting 
                                               
1253 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 372. See also 
Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.190 and 7.192.  
1254 Appellate Body Report, US – Large Civil Ai rcraft (2nd complaint) , para. 757. See also para. 750 
(explaining that the inquiry under Article 2.1(a) must examine "the legislation pursuant to which the granting 
authority operates, or the express acts of the granting authority").  WT/DS353/R W 
 
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  authority, or the legislation pursuant to which the g ranting authority operates, limits the eligibility  
to receive the subsidy to certain enterprises.1255 With regard to the term "certain enterprises ", the 
Appellate Body has observed that "the relevant enterprises must be 'known and particularized ', but 
not nec essarily 'explicitly identified ', and that they may have 'some mutual or common relation or 
purpose ', or 'degree of similarity '".1256 
8.211.   As explained by the Appellate Body, the starting point of an analysis of specificity is the 
measure that has been determined to constitute a subsidy under Article 1.1 of the SCM 
Agreement ; namely, the financial contribution that confers a benefit.1257 In this regard, the 
parties ' arguments on whether access to the subsidy is explicitly limited reflect differing positions 
as to the nature of the subsidy at issue and the corresponding identification of the "legislation " 
pursuant to which the "granting authority " operates1258, which frames the assessment of whether 
access to the subsidy is explicitly limited to certain enterprises for pur poses of Article 2.1(a).  
8.212.   The European Union argues that, for purposes of determining of whether access to the 
subsidy is explicitly limited,  the subsidy should be defined, in this case, as payments and the 
provision of access to facilities, equipment, and  employees  on terms more favourable than 
available in the market and that, as such,  the subsidy is exactly the same subsidy , access to which 
the original panel found to be explicitly limited.1259 The United States argues that the subsidy 
should be defined in terms of the allocation of rights in patents on terms more favourable than 
available in the market and that, as such, the subsidy is the same subsidy , access to which the 
Appellate Body found not to be explicitly limited in the original proceeding.1260  
8.213.   Befor e addressing this question of how the relevant subsidy should be defined in this case 
in order to ensure a proper analysis of whether access to the subsidy is explicitly limited, we 
briefly recall the relevant findings made in the original proceeding by th e panel and the Appellate 
Body that are relied upon by the parties in support of their opposing views.  
8.214.   First, the original panel found that subsidies in the form of payments and access to NASA 
facilities, equipment, and employees  that NASA provided to Boe ing pursuant to the NASA 
procurement contracts and agreements at issue were specifi c within the meaning of 
Article  2.1(a).1261 In its assessment, the panel observed that:  
In this case, the United States does not dispute that each of the eight aeronautics 
R&D programmes at issue would, if found to provide subsidies within the meaning of 
Article 1, be specific under Article 2.1(a) of the SCM Agreement. It is not in dispute 
that the Space Act explicitly limits the scope of NASA 's R&D activities (i.e. to 
aeronauti cs and space). It is also not in dispute that each of the eight programmes at 
                                               
1255 See e.g. Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 368 
("Article 2.1(a) thus focuses not on whether a subsidy has been granted to certain enterprises, but on whether 
access to that subsidy has been explicitly limited. This suggests tha t the focus of the inquiry is on whether 
certain enterprises are eligible for the subsidy, not on whether they in fact receive it") ; and US – Large Civil 
Aircraft (2nd complaint) , para. 753 ("{t}his inquiry focuses not only on whether the subsidy was provi ded to the 
particular recipient identified in the complaint, but focuses also on all enterprises or industries eligible to 
receive that same subsidy").  
1256 Appellate Body Report, US – Carbon Steel (India) , para. 4.365. The Appellate Body has also stated 
that "{a}ny determination of whether a number of enterprises or industries constitute 'certain enterprises' can 
only be made on a case -by-case basis". (Appellate Body Report, US – Anti-Dumping and Countervailing Duties 
(China) , para. 373 (quoting Panel Report,  US – Upland Cotton , para. 7.1142)).  See also Appellate Body Report, 
US – Washing Machines , paras. 5.220 and 5.221 (explaining that the notion of " certain enterprises" in 
Article  2.2 of the SCM Agreement does not depend on the legal personality of the subs idy recipients).  
1257 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 747.  
1258 While an explicit limitation on access to the subsidy may also result from "pronouncements or other 
actions of the granting authority". (Appellate Body Report , US – Large Civil Aircraft (2nd complaint) , para. 757),  
our understanding is that the European Union bases its allegation that "access to the subsidy" is subject to an 
explicit limitation on what it considers to be relevant legislative and regulatory prov isions pursuant to which the 
subsidy is  granted.  
1259 In this view, the relevant "legislation pursuant to which the granting authority operates" consists of 
the relevant legislative and regulatory provisions that authorize, and define the objectives of, NASA 's 
aeronautics and space R&D programmes.  
1260 In this view, the relevant "legislation pursuant to which the granting authority operates" consists of 
the legislative framework and implementing regulations governing the distribution of intellectual property 
rights in U.S. Government R&D contracts.  
1261 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1049.  WT/DS353/R W 
 
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  issue involves R&D aimed at the "improvement of the usefulness, performance, speed, 
safety, and efficiency of aeronautical and space vehicles" .1262 
8.215.   Thus, the apparent basis for the panel 's finding that access to the subsidy was explicitly 
limited to certain enterprises was the existence of explicit limitations on the scope of NASA 's R&D 
activities to aeronautics and space and the objectives pursued by NASA with these activities.1263 
The panel also rejected the United States ' argument that NASA 's wind tunnel services were "used 
by a wide range of industries across the U.S. economic spectrum ".1264 Having concluded that the 
subsidies were specific under Article 2.1(a), the original panel d eclined to address the 
European  Union 's alternative argument under Article 2.1(c) of the SCM Agreement.1265  
8.216.   Neither party appealed the original panel 's findings on specificity in respect of payments 
and access to NASA facilities, equipment, and employees . The pa rties appealed different aspects of 
the panel 's findings on financial contribution and benefit. The Appellate Body upheld the panel 's 
findings on financial contribution and benefit in relation to the challenged NASA aeronautics R&D 
measures, albeit based o n different reasoning.1266  
8.217.   Second, the question of specificity of the original NASA aeronautics R&D measures was 
also considered in the original proceeding in respect of the European Communities'  separate claim , 
regarding the allocation of NASA and DOD paten t rights, when viewed independently from the 
provision of payments and access to facilities, equipment, and employees , as a self -standing 
subsidy.1267 In addressing this claim, the original panel concluded that the allocation of patent 
rights, if assumed arguendo to be a self -standing subsidy, would not in any event be specific, 
given that "the allocation of patent rights is uniform under all U.S. Government R&D contracts, 
agreements, and grants, in respect of all U.S. Government departments and agencies, for all 
enterprises in all sectors ".1268 The European Union appealed this finding, as well as the panel 's 
interpretation of Article 2.1 of the SCM Agreement.1269  
                                               
1262 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1045.  
1263 We also note in this respect the panel's statement that the European  Communities was correct in 
observing that the United States had not responded to the European Communities argument that the NASA 
aeronautics R&D measures at issue were specific under Article 2.1(a) "because they are explicitly limited to 
certain enterpris es that participate in aeronautics -related R&D". (Panel Report, US – Large Civil Aircraft (2nd 
complaint ), para. 7.1048).  
1264 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1046 and 7.1047.  
1265 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1049.  
1266 As we have already described in Section 8.1.3 , the Appellate Body found that the panel had not 
made a proper comparison of the terms of the NASA procurement contracts (and DOD assistan ce instruments) 
with the terms of a market transaction as required under Article 1.1(b), and that the panel's reasoning as to 
whether the payments and access to facilities provided under the NASA procurement contracts conferred a 
benefit could not be susta ined. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 647). 
The Appellate Body completed the analysis by determining whether the "disposition of intellectual property 
rights under the NASA/USDOD measures at issue is consistent with  what occurs in transactions between two 
market actors". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 653). In the course of 
undertaking this analysis, the Appellate Body expressed the view that "the allocation of intellectual p roperty 
rights is pre -determined under the US legal framework". (Appellate Body Report, US – Large Civil Aircraft (2nd 
complaint ), para. 661). It concluded, based on a comparison of the intellectual property rights terms of certain 
contracts, which it had decided to treat as market benchmarks for purposes of completing the analysis, that 
"transactions in the market result in an equilibrium that is more favourable to the commissioning party than in 
the measures before us". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 662). 
Consequently, it found that the funding and support provided under the NASA procurement contracts conferred 
a benefit on Boeing , within the meaning of Article 1.1(b) of the SCM Agreement. (Appellate Body Report, US – 
Large Civil Aircraft (2nd complaint ), para. 666).  
1267 See Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1276 -7.1294, for a description 
of the Bayh -Dole Act, its associated legislative instruments and implementing regulations, and ac companying 
NASA -specific implementing regulations.  
1268 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1276 -7.1294. The panel found that 
the U.S. Government has a general policy in place granting government contractors the option to retain title to 
inventions that arise from a funding agreement with the U.S. Government, pursuant to the Bayh -Dole Act, 
1983 Presidential Memorandum, the 1987 Executive Order, and the general and NASA -specific regulations. 
(See Panel Report, US – Large Civil Airc raft (2nd complaint) , paras. 7.1276 -7.1294).  
1269 On 1 December 2009, the Treaty of Lisbon amending the  Treaty on European Union and the Treaty 
establishi ng the European Community  (done at Lisbon, 13 December 2007) entered into force. On 29 
November 2009, the  WTO received a Verbal Note (WT/L/779) from the Council of the European Union and the WT/DS353/R W 
 
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  8.218.   The Appellate Body observed that there may have been "some overlap " in the relationship 
between the European Communities'  claim that payments and access to facilities, equipment, and 
employees  were subsidies, on the one hand, and its claim that the allocation of patent rights was a 
self-standing subsidy, on the other.1270 The Appellate Body proceeded to addres s the 
parties ' appeal of the panel 's finding on the basis that neither party had appealed the panel 's 
approach to the potential overlap between the European Communities'  claims; however, the 
Appellate Body emphasized that "any findings {it} make{s} in conn ection to the specificity of the 
allocation of patent rights do not traverse the Panel 's findings of specificity relating to the 
payments and other support provided under the NASA/USDOD contracts and agreements ".1271 
8.219.   While the Appellate Body expressed reserva tions regarding the panel 's use of  arguendo  
reasoning1272, it ultimately upheld the panel 's finding that the allocation of patent rights under the 
challenged NASA contracts and agreements, if conceived as a separate subsidy, was not specific 
within the meanin g of Article 2.1(a). In particular, the Appellate Body:  
a. Affirmed the panel 's assessment of whether the "patent rights " subsidies in question 
were specific by reference to the legal framework that exists in the United States for the 
allocation of patent ri ghts under U.S. Government R&D contracts and agreements and 
pursuant to which NASA and DOD as granting authorities operate.1273 
b. Focused on the legislative and regulatory framework regulating the allocation of patent 
rights arising from R&D funded by the U .S. Government , which revealed that the 
eligibility to receive the alleged "subsidy " is not limited to the class of enterprises that 
conducts aerospace R&D, and thus concluded that there was no basis on which to find 
that such a subsidy is explicitly limited t o certain enterprises and therefore specific 
within the meaning of Article 2.1(a) of the SCM Agreement.1274 
8.220.   The Appellate Body reversed the panel for failing to address the European Union 's claim of 
de facto  specificity under Articles 2.1(c).1275 
8.221.   As noted above,  the parties disagree on whether the subsidies at issue in this proceeding 
are the same subsidies as those that were found to exist by the original panel and should be found 
to be specific under Article 2.1(a) , based on the same analysis that led the origi nal panel to find 
the original measures to be specific ; or whether the subsidies at issue here are different, such that 
the subsidies should be found to be non -specific, in accordance with the Appellate Body 's analysis 
of the European Union 's separate clai m with respect to the allocation of NASA and DOD patent 
rights as a self -standing subsidy . 
8.222.   While we disagree with the European Union 's assertion that its claim in this proceeding 
regarding the alleged post -2006 NASA aeronautics  R&D subsidies concern s the e xact same 
subsidies as were found to exist in the original proceedings and were found to be specific by the 
original panel, we also do not accept the United States ' argument that the subsidies at issue are 
the same subsidies found to be non -specific by the  Appellate Body in the context of its analysis of 
the European Communities ' challenge to the allocation of patent rights under all NASA and DOD 
procurement and assistance instruments as a self -standing subsidy.  
                                                                                                                                               
Commission of the European Communities stating that, by virtue of the Treaty of Lisbon, as of 
1 December  2009, the European Union replaces and succeeds the European Commu nity. 
1270 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 726 -728 and 740.  
1271 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 730.  
1272 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 7 41. The Appellate Body 
expressed the view that the panel should have first determined whether a subsidy exists, stating that "the 
assessment of specificity under Article 2.1 depends on how the subsidy was defined under Article 1.1, leaving 
little, if any, room for the adoption of an arguendo  approach". (Appellate Body Report, US – Large Civil Aircraft 
(2nd complaint) , para. 739).  
1273 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 760.  
1274 Appellate Body Report, US – Large Civil Aircraft  (2nd complaint ), paras. 782, 788, and 789.  
1275 The Appellate Body found that the panel's overall analysis was "incomplete and cannot be 
sustained" because the panel chose not to address the European Union's claim of de facto  specificity under 
Articles 2.1(c ) of the SCM Agreement. (Appellate Body Report US – Large Civil Aircraft (2nd complaint) , 
para. 793). Having reversed the panel, the Appellate Body stated that it was not persuaded that NASA or DOD 
exercised discretionary authority with respect to the allo cation of patent rights, or that the share of NASA 
contracts and USDOD funding received by Boeing was disproportionate, to support a finding of specificity under 
Article  2.1(c). (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 799 and 800).  WT/DS353/R W 
 
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  8.223.   The measures challenged by the European Unio n in this proceeding are factually the same 
type of measures as those challenged in the original proceeding i.e. payments and the provision of 
access to facilities, equipment, and employees  under NASA aeronautics R&D contracts and 
agreements. However, we h ave found these measures to constitu te subsidies on a legal basis that 
differs from the basis upon which the panel in the original proceeding found the measures to be 
subsidies. In our view, this different legal characterization of the measures as subsidie s means 
that in determining whether access to the subsidy is explicitly limited we cannot presume that the 
finding of the original panel , that the original NASA aeronautics R&D subsidies were specific under 
Article 2.1(a) , is still applicable.  
8.224.   Particularl y with regard to our finding on how the financial contributions at issue confer a 
benefit on Boeing, we note that in the original proceeding the panel found a benefit on the basis 
that "no private entity acting pursuant to commercial considerations, would provide payments (and 
access to its facilities and personnel) to another commercial entity on the condition that the entity 
perform R&D activities principally for the benefit and use of that other entity. At a minimum, it 
would be expected that some form o f royalties or repayment would be required in the event that  
the financial contributions were provided on such terms. "1276 In this proceeding, we have found  
that the financial contributions provided under the NASA aeronautics R&D measures confer a 
benefit on the basis that the allocation of rights to own and use patents  under those measures is 
more favourable to Boeing as commissioned part y than the allocation of rights to own and use 
patents  to commissioned parties under collaborative R&D agreements between p rivate parties. In 
our view, the different basis on which we have determined in this proceeding that the payments 
and access to NASA facilities, equipment, and employees  provided through the NASA aeronautics 
R&D measures constitute financial contribution s which confer a benefit means that we cannot 
adopt the original panel 's finding of specificity regarding the original measures without first 
examining whether such an approach remains appropriate.1277  
8.225.   However, we do not consider that, as argued by the United States, the fact that the focus 
of our benefit analysis is the allocation of intellectual property rights logically leads to the 
conclusion that the subsidy at issue should be defined as the allocation of intellectual property 
rights on terms more favourab le than available in the market , and that for purposes of 
determining whether access to the subsidy is limited , we must treat the Bayh -Dole Act, its 
associated legislative instruments and implementing regulations as the relevant subsidy scheme. 
Since a sub sidy within the meaning of Article 1 is defined in terms of financial contribution and 
benefit, it stands to reason that both financial contribution and benefit must be taken into 
consideration in an analysis of whether access to the subsidy is explicitly limited. Therefore, while 
we agree that the nature of the benefit found to exist obviously is a key consideration in the 
specificity analysis under Article 2.1(a), the question of whether access to the subsidy is explicitly 
limited cannot always be answere d by focusing solely on the benefit.1278 In our view, the 
United  States ' argument fails to properly consider the benefit in relation to the financial 
contribution and the particular context in which that financial contribution occurs.  
8.226.   We have characterized t he post -2006 NASA aeronautics R&D measures  as collaborative 
R&D arrangements between NASA and Boeing that have characteristics analogous to equity 
infusions. In that context, we observed that the Appellate Body 's overall conclusion of the various 
technical  elements of the transactions at issue was that the nature of the relationship between 
NASA and Boeing in the particular context was essentially one of partnership. We also noted that 
the nature of the research commissioned by NASA to Boeing and the object ives pursued by NASA 
indicate that NASA and Boeing are engaged in a collaborative enterprise, in pursuit of a common 
goal.1279  
8.227.   In light of this particular characterization of the NASA aeronautics  R&D measures, we 
consider  it appropriate to assess whether the  financial contributions provide a benefit on the basis 
of an examination of the allocation of intellectual property rights. As illustrated by our analysis of 
                                               
1276 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1039.  
1277 In this respect, we interpret the Appellate Body's statement, at paragraph 730 of its report, that any 
findings it makes in connection with the specificity of the allocat ion of patent rights "do not traverse the Panel's 
findings of specificity relating to the payments and other support provided under the NASA USDOD contracts 
and agreements" particularly in light of footnote 1534, as a statement regarding the scope of the a ppeal.  
1278 See also Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , paras.  377 
and 378.  
1279 See paras. 8.150  and 8.151  above . WT/DS353/R W 
 
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  benefit in relation to DOD procurement contracts , where we characterize the financial contributio ns 
differently from our characterization of the NASA aeronautics R&D measures , we find that a focus 
on the allocation of intellectual property rights as a basis to determine the existence of a benefit is 
not appropriate. Thus, in the context of our charact erization of the DOD procurement contracts as 
purchases of R&D services, the same allocation of patent rights that applies by virtue of the Bayh -
Dole Act and related legislative instruments and implementing regulations , would not result in the 
measures in question being subsidies.1280  
8.228.   Because the role of the allocation of intellectual property rights in our analysis of whether a 
measure constitutes a subsidy depends upon the particular context, we consider that , in 
ascertaining whether access to the subsidy i s subject to explicit limitations, we cannot treat the 
allocation of intellectual property rights on terms more favourable than available in the market as 
being the relevant subsidy in and of itself. Therefore we disagree with the United States that the 
measure can be characterized as a "patent rights subsidy ", which is the same subsidy that the 
Appellate Body considered in its analysis of the European Union 's alternative claim regarding the 
allocation of intellectual property rights as a self -standing subs idy. As a consequence, we also 
disagree that the Bayh -Dole Act, its associated legislative instruments and  other instruments and  
implementing regulations , constitute the appropriate legislative and regulatory framework that we 
must consider for purposes of  determining whether the legislation pursuant to which the granting 
authority operates explicitly limits access to the subsidy to certain enterprises.1281  
8.229.   We recall that the basis for the original panel 's finding of an explicit limitation of access to 
the su bsidy was the existence of restrictions on the scope of NASA 's R&D activities to aeronautics 
and space and the particular objectives pursued by NASA with these activities. Thus, the original 
panel found that the access to the subsidy was explicitly limited  to "certain enterprises " because 
the very nature of the research inherently limited access to the subsidy to "certain enterprises that 
participate in aeronautics -related R&D ".1282 In our view, access to the subsidy that we f ind to exist 
in this proceeding in  respect of the post -2006 NASA aeronautics R&D measures is subject to the 
same explicit limitation. As the original panel found with respect to the pre -2007 measures, the 
R&D activities performed under the relevant post -2006 NASA aeronautics R&D programmes  are 
focused on aeronautics and space. There is no argumentation or evidence before us to 
demonstrate that NASA contracts with any enterprises, industry or group of enterprises or 
industries to conduct  R&D work outside the spectrum of aeronautical and spac e activities. 
Moreover, the Space Act maintains the same objectives that the panel identified in the original 
proceeding. The specific objectives under the Space Act include "{t}he improvement of the 
usefulness, performance, speed, safety, and efficiency o f aeronautical and space vehicles ", "{t}he 
preservation of the role of the United States as a leader in aeronautical and space science and 
technology and in the application thereof to the conduct of peaceful activities within and outside 
the atmosphere ", and "{t}he preservation of the United States preeminent position in aeronautics 
and space through research and technology development related to associated manufacturing 
processes ".1283  
8.230.   We conclude that the subsidies provided to Boeing through the post -2006 N ASA 
procurement contracts, cooperative agreements, and Space Act Agreements  are specific within the 
meaning of Article 2.1(a) of the SCM Agreement. In light of this conclusion, we do not consider it 
necessary to address the European Union 's alternative arg ument under Article  2.1(c).  
8.231.   Therefore, the Panel finds that the subsidies provided to Boeing through the 
post-2006 NASA procurement contracts, cooperative agreements, and Space Act 
Agreements  are specific within the meaning of Article 2.1(a) of the SCM Ag reement.  
8.232.   Finally, we note that the European Union also argues that the subsidies provided to Boeing 
through the post -2006 NASA procurement contracts, cooperative agreements and Space Act 
Agreements are specific pursuant to Article 2.3 of the SCM Agreement.  Article 2.3 provides that 
                                               
1280 See paras. 8.420  to 8.426  below . 
1281 Because of the need to consider financial contribution and benefit together in determining whether 
"access to the subsidy" is explicitly limited , we consider that this is not a situation in which "multiple authorities 
are implementing the same measure". (United States' second written submission, para. 246).  
1282 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1048.  
1283 Section 102(d) o f the National Aeronautics and Space Act of 1958, as codified and restated by Public 
Law No. 111 –314, Stat. 3 (18 December 2010), United States Code , Title 51, section 20102(d) (current 
through 7 December 2012), (Exhibit EU -252).  WT/DS353/R W 
 
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  "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to be specific". We reject 
this argument because, in Section 10 of this Report, we find that the European Union has failed to 
establish that any subsidy at issue in this proceeding is prohibited by Articles 3.1 and 3.2 of the 
SCM Agreement.  
8.2.2.6   Amount of the subsidy  and amount of the  financial contribution  
8.2.2.6.1   The a mount of the  post-2006 NASA aeronautics R&D  subsid ies to Boeing  
8.233.   In the previous Section , we f ind that t he post -2006 NASA aeronautics R&D measures are 
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement. As regards our 
subsidy findings under Article 1 of the SCM Agreement, we f ind that:  
a. the payments provided by NASA to Boeing unde r post -2006 procurement contracts and  
cooperative agreements and the access to facilities, equipment, and employees provided 
by NASA to Boeing under the post-2006 procurement contracts, cooperative 
agreements , and Space Act Agreements , funded  under four NA SA aeronautics R&D 
programmes (the Fundamental Aeronautics Program; the Integrated Systems Research 
Program; the Aviation Safety Program; and the Aeronautics Test Program) , are financial 
contributions within the meaning of Article 1.1(a)(1) of the SCM Agre ement;  and 
b. the foregoing financial contributions provided through the post -2006 procurement 
contracts, cooperative agreements , and Space Act Agreements confer a benefit, within 
the meaning of Article 1.1( b) of the SCM Agreement, because the allocation of 
intellectual property rights and related licence rights under those instruments is more 
favourable to Boeing  as commissioned party  than the allocations to commissioned 
parties under the collaborative R&D arrangements that have been submitted to the Panel 
as evidence of market benchmarks . 
8.234.   In this Section , we address the parties ' arguments regarding the amount of the post-2006 
NASA aeronautics  R&D subsid ies provided to Boeing. The amount of the subsidy , in our view, 
refers to the amount or magnitude of the ben efit conferred by the financial contribution; i.e. the 
quantification of the advantage conferred on Boeing by the respective financial contributions, 
compared to what Boeing would have obtained in a market transaction.1284  
8.235.   We also address the parties ' argume nts concerning the amount of the financial 
contribution , represented by the amount  of payments and value of the provision of access to NASA 
facilities, equipment, and employees  under the relevant NASA aeronautics R&D subsidies. We 
recall that in the origin al proceeding, the panel treated the full amount of the financial 
contributions provided to Boeing as the amount of the  "subsidy " to Boeing. It justified this on the 
basis that it was not under an obligation to quantify precisely the amount of the subsidy,  and 
because the United States had advanced no argument or evidence to support an alternative 
approach to calculating the amount of the subsidy to Boeing.1285 We do not consider that the same 
justification applies in this proceeding. Notably, as explained in paragraph 8.237  below, the United 
States in this proceeding does propose  an approach to calculating the amount of the subsidy other 
than treating the full amount of the financial contributions provided to Boeing as the amount o f the 
subsidy.   
8.2.2.6.1.1   Main arguments of the parties  
8.236.   The European Union  does not propose a specific estimate of the amount of the benefit 
conferred by the payments and provision of access to NASA facilities, equipment, and employees  
to Boeing under the NASA procu rement contracts, cooperative agreements, and Space Act 
Agreements  funded through the challenged aeronautics R&D programmes. Rather, it argues that 
the amount of the benefit is a "multiple " of the amount of the financial contribution. According to 
                                               
1284 See Appellate Body Repor t, US – Large Civil Aircraft (2nd complaint ), paras. 690 and 691 (explaining 
that the original panel, in seeking to estimate the amount of funds transferred to Boeing under the relevant 
NASA procurement contracts, as well as the value of Boeing's access to  NASA facilities, equipment, and 
employees under the NASA instruments, had been estimating the amount of the "financial contribution", rather 
than the amount of the "benefit").  
1285 See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1101.  WT/DS353/R W 
 
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  the Euro pean Union, NASA has no interest in using the intellectual property generated through its 
relationship with Boeing.1286 A commissioning party operating in the marketplace would, in that 
position, require some financial return other than intellectual property rights from its investment, 
for example , royalties or licence fees.1287 The quantification of the benefit should therefore be 
based on the value of the technology that Boeing, because of the subsidies, is able to access for 
free, without paying  royalties or  licence fees.1288 This can be assessed ex ante , in view of 
expectations of the potential value of the technologies to be develop ed, and in light of past 
experience.1289 The European Union considers that its reasoning is supported by the original 
panel 's statement  that the aeronautics R&D subsidies "multiply the benefit from a given 
expenditure ".1290  
8.237.   The United States  argues that the European Union improperly takes an ex post  approach 
to the valuation of the amount of the subsidy , by looking at what actually resulted  from the 
subsidy, rather than what Boeing initially received.1291 Further, the United States argues that the 
European Union confuses the issues of benefit and adverse effects; the original panel and 
Appellate Body made clear that the effect  of research spend ing pertains to the assessment of 
adverse effects, and does not go to the valuation of benefit.1292 Finally, the United States notes 
that, given that the European Union argues that the NASA aeronautics R&D measures confer a 
subsidy because the allocation of i ntellectual property rights under the instruments in question is 
more favourable to Boeing as commissioned party than the corresponding allocations to 
commissioned parties under market -based collaborative R&D arrangements, the amount of the 
subsidy should,  therefore, correspond to the value of that difference.1293 This understanding of 
what constitutes the benefit of the subsidy is inconsistent with the position that the value of the 
benefit amounts to an unspecified multiple of the full amount  of the financia l contribution.1294 
8.2.2.6.1.2   Evaluation by the Panel  
8.238.   As noted above,  the amount of the subsidy corresponds to the amount or magnitude  of the 
benefit  conferred by the financial contribution ; i.e. the difference between the terms on which the 
financial contribution was provided to Boeing, and the terms on which the financial contribution 
would have been provided to Boeing in a market -based transaction.1295 The Panel f inds that the 
payments and provision of access to NASA facilities, equipment, and employees to Boeing throug h 
the procurement contracts and cooperative agreements funded under the relevant aeronautics 
R&D programmes, confer a benefit on Boeing because the allocation of intellectual property rights 
and related licence rights under those instruments is more favour able to Boeing as commissioned 
party than the corresponding allocations to commissioned parties under the private collaborative 
R&D agreements before the Panel which evidence prevailing market practices for collaborative 
R&D arrangements. Similarly, the pr ovision of access to NASA facilities, equipment, and employees 
to Boeing through the Space Act Agreements funded under the relevant aeronautics R&D 
programmes confers a benefit because the allocation of intellectual property rights and related 
licence righ ts under those instruments is more favourable to Boeing as commissioned party than 
the corresponding allocations to commissioned parties under the private collaborative R&D 
agreements before the Panel which evidence prevailing market practices for collabor ative R&D 
arrangements . Accordingly, the amount of the benefit (and thus, the subsidy) must logically 
correspond to the value of the difference between the terms regarding the allocation of intellectual 
property rights and related licence rights on which t he financial contributions were provided to 
Boeing under the NASA procurement contracts , cooperative agreements , and Space Act 
                                               
1286 European Union's response to Panel question No. 26, para. 160.  
1287 European Union's response to Panel question No. 26, paras. 160 and 161 (citing Razgaitis 
Declaration, (Exhibit EU -1262) (BCI), paras. 56 and 104  and attachment B).  
1288 European Union's respon se to Panel question No. 26, paras. 160 and 161 (citing Razgaitis 
Declaration, (Exhibit EU -1262) (BCI), paras. 56 and 104, attachment B).  
1289 European Union's response to Panel question No. 26, para. 162.  
1290 European Union's response to Panel question No. 26,  para. 163 (citing Panel Report, US – Large 
Civil Aircraft (2nd complaint) , para. 7.1760).  
1291 United States' first written submission, para. 59.  
1292 United States' comments on the European Union's response to Panel question No. 26, paras. 146 
and 147 (citing Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1760); response to Panel 
question No. 32, para. 142 (citing Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 641).  
1293 United States' comments on the European Union's res ponse to Panel question No. 26, para. 147.  
1294 United States' comments on the European Union's response to Panel question No. 26, para. 147.  
1295 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 691.  WT/DS353/R W 
 
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  Agreements,  and the terms regarding the allocation of intellectual property rights and related 
licence rights under which the fin ancial contributions would have been provided in a market -based 
collaborative R&D arrangement.   
8.239.   The European Union 's argument as to how the benefit should be quantified  is not based on 
these notions of benefit and thus cannot yield a meaningful estimate of  the amount of the NASA 
aeronautics R&D "subsidy ". It conflates  the concept of benefit with the concept of  effects of the 
subsidy. The Eur opean  Union uses certain statements from the original proceeding that "by their 
nature, the aeronautics R&D subsidies 'multiply the benefit from a given expenditure '" in support 
of its argument that the value of the benefit is a multiple of the value of the financial 
contribution.1296 This and other statements of the Appellate Body to which the European Union 
refers , however , were made in the context of the Appellate Body 's adverse effects findings, not its 
benefit findings. There is nothing in the panel report or Appellate Body report in the original 
proceeding, or in any other case of which we are aware, to support the noti on that the amount of 
a subsidy (as opposed to its effects)  is a multiple of the financial contribution.  
8.240.   There is insufficient evidence on the record as to the amount of the subsidy in the sense of 
the advantage conferred on Boeing resulting from the diffe rence between the terms regarding the 
allocation of intellectual property rights and related licence rights on which financial contributions 
were provided to Boeing under the post -2006 NASA procurement contracts, cooperative 
agreements , and Space Act Agree ments at issue and the terms regarding the allocation of 
intellectual property rights and related licence rights on which financial contributions would have 
been provided to Boeing in a market -based collaborative R&D arrangement .  
8.241.   In light of the foregoing , we are unable to accept the European Union 's arguments 
regarding the amount of the benefit provided to Boeing through the post-2006 NASA procurement 
contracts, cooperative agreements, and Space Act Agreements  under the relevant aeronautics 
R&D programmes . We therefore  find that there is insufficient evidence on the record as to 
the amount of the subsidy .  
8.2.2.6.2   The amount of the financial contribution provided to Boeing through the NASA 
aeronautics R&D subsidies  
8.242.    As previously noted, the European Union also pur ports to estimate the amount of the 
financial contribution , in the sense of the value of the payments and access to facilities, 
equipment, and employees  provided to Boeing under the post -2006 NASA procurement contracts, 
cooperative agreements, and Space Ac t Agreements .  
8.2.2.6.2.1   Main arguments of the parties  
8.243.   The European Union  estimates  the amount of the payments and value of access to 
facilities, equipment, and employees  to Boeing under the post -2006 NASA procurement contracts, 
cooperative agreements, and Space Act  Agreements  as USD 1.818 billion between 2007 -2012.1297 
The United States estimates the amount of the financial contribution as [***] between 
2007-2012.1298  
8.244.   In arriving at its estimate, the  European Union  takes the full amount of each of the 
challenged NASA aeronautic s R&D programme budgets that is dedicated to non -engine, 
LCA-related R&D.1299 From this total, made up of each challenged programme 's non -engine, 
                                               
1296 European Union's first written submi ssion, para. 191 (citing Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint) , para. 945).  
1297 The European Union provided an updated estimate of USD 2.554 billion between 2007 and 2014. 
(NASA Subsidies to Boeing's LCA Division, (Exhibit EU -36), p. 1; and Subsidies to Boeing's LCA Division 
(2013 -2014 Update), (Exhibit EU -1451), p. 2). The European Union estimates that for the 2012 -2014 period, 
the amount of the financial contribution was approximately USD 1.12 billio n (USD 384.5 million, 
USD 348.5  million, and USD 387.2 million in 2012, 2013, and 2014, respectively).  
1298 This figure covers not only those payments, access to facilities, equipment, and employees provided 
pursuant to post -2006 contracts and Space Act Agreements, but also those provided after 2006, but pursuant 
to pre -2007 contracts and Space Act Agreements. (See United States' second written submission, paras. 104 
and 641 and fn 111).  
1299 European Union's first written submission, para. 178; and NASA Subsidies to Boeing's LCA Division, 
(Exhibit EU -36). WT/DS353/R W 
 
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  LCA-related budget, plus a share of NASA 's Cross Agency Support  Program  (CASP) budget1300, the 
European Union  then allocates a portion to Boeing using a ratio determined by dividing the number 
of Boeing commercial aircraft  sales by the total number of civil aircraft sales in the United States in 
the relevant period.1301 
8.245.   The European Union considers that this estimat e is the "best available evidence " of the 
value of the payments and provision of access to NASA facilities, equipment, and employees, 
because the United States failed to cooperate in providing information that would have been 
necessary to replicate the val uation method used by the original panel.  The Euro pean Union 
argues  that a contract -by-contract analysis is not possible because the United States has failed to 
provide  a "full set of un -redacted NASA contracts and agreements funded through the NASA R&D 
programmes at issue".1302 The European Union explains that it is not possible or appropriate to 
determine the existence or value of the NASA aeronautics R&D subsidies on a 
"contract -by-contract " basis in any case because, aside from the flaws in the United Stat es' 
compilation and provision of NASA contract data, the "extent of the subsidisation is not captured 
by the NASA contracts and agreements, which massively under -identify the value of the access to 
NASA facilities, equipment, and employees provided to Boei ng for LCA -related R&D ".1303 While 
contracts and Space Act Agreements establish the particular mechanisms by which NASA provides 
subsidies, the amount of the subsidy cannot only be found "within the four corners of these 
instruments ".1304 This is because, throug hout the course of their collaborative relationship, Boeing 
benefits from the investments NASA makes in its own physical and human capital, which do not 
appear on the face of a particular contract or Space Act Agreement and cannot be quantified from 
a sing le payments or use of property.1305 The United States ' estimate ignores this, and therefore 
"massively undercounts " the real value of the financial contribution by not recogni zing the 
collaborative, iterative nature of NASA and Boeing 's R&D efforts.1306  
8.246.   The United States  arrives at its estimate of the amount of the financial contribution s 
involved in the NASA aeronautics R&D subsidies by combining the estimated value of the 
categories of "funding " and "support " that the European Union alleges constitute fin ancial 
contributions: payments and the provision of access to  equipment , facilities  (including computer 
usage) and NASA employees.1307 The United States estimates  that the amount of  payments to 
Boeing under procurement contracts between 2007 and 2012 for non -engin e aeronautics R&D is 
[***]1308 and that, based upon the amounts waived in reimbursement, the value of access to 
facilities, equipment , and employ ees provided to Boeing under Space Act Agreements  over the 
                                               
1300 The European Union determines this share by allocating to Boeing a percentage of the CASP budget 
that is equivalent to the percentage of each's programme's non -engine, LCA related funding. (See European 
Union's second written submission, pa ra. 178; comments on the United States' response to Panel question 
No. 99, paras. 262 -270; and NASA subsidies to Boeing's LCA Division, (Exhibit EU -36)). 
1301 The European Union argues that NASA's CASP programme constitutes "institutional support" to 
Boeing. (European Union's first written submission, para. 178; and NASA Subsidies to Boeing's LCA Division, 
(Exhibit EU -36), pp 3 -9). The number of U.S. civil aircraft sales is provided in Aerospace Industries Association, 
"2012 Year -End Review and Forecast, Aeros pace Industry Sales by Product Group (Current Dollars), Calendar 
Years 2002 -2013", available at: 
<http://www.aia -aerospace.org/assets/YE_2012_Table_1_Industry_Sales_by_Product_Group_(1).pdf>, 
accessed 29  August  2016, (Exhibit EU -526). The number of Boeing sales is provided in Boeing, Annual Form 
10-K Report to the U.S. Securities and Exchange Commission for the Fiscal Year Ending 31 December 2011, 
(Exhibit EU -488).  
1302 European Union's response to Panel question Nos. 88, para. 81, and 89, para. 97. By contras t, in its 
first written submission, the European Union said that the required information was the amounts paid to all 
contractors under the challenged NASA aeronautics R&D programmes, which the original panel had subtracted 
from the total NASA programme bu dgets in order to determine the total value of facilities, equipment, and 
employees provided under the programmes. (European Union's first written submission, para. 179 and fn 423).  
1303 European Union's response to Panel question No. 89, para. 97.  
1304 European  Union's second written submission, para. 262.  
1305 European Union's second written submission, paras. 260 -265; response to Panel question No. 89, 
para. 100; and comments on the United States' response to Panel question No. 100, paras. 272 -275. See also 
Europ ean Union's comments on the United States' response to Panel question Nos. 97, paras. 252 and 253 (in 
relation to t he value of Boeing's use of High -End Computing Capability Project  supercomputer), and 100, para. 
285 (in relation to Space Act Agreement and the value of Boeing's access to NASA employees).  
1306 European Union's second written submission, paras. 263 -265; response to Panel question No. 89, 
para. 97; and comments on the United States' response to Panel question No. 100, para. 285.  
1307 United States' s econd written submission, paras. 111 -123. 
1308 United States' second written submission, para. 111; Obligations under NASA contracts with Boeing 
for FY 2007 -FY 2012 (formerly Exhibit US -13-1), (Exhibit USA -37) (BCI).  WT/DS353/R W 
 
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  same period is  [***].1309 The United States estimates that the value of  access to  equipment and 
computers provided to Boeing under NASA procurement contracts is [***]1310 and [***]1311 
respectively. Finally, the United States estimates that the value of  access to  NASA employees 
provided to Boeing  under NASA procurement  contracts  is [***].1312 The total value of these 
financial contributions is [***]. 
8.247.   The United States argues that its evidence, which was submitted in response to the Panel 's 
request for information pursuant to  Article 13 of the DSU , is the only reliable evid ence as to the 
amount of the financial contribution.1313 It consider s that the European Union has not 
demonstrated a failure on the part of the United States  to cooperate , or to respond to 
questions.1314 The United States also emphasi zes that the original panel and the Appellate Body 
ultimately endorsed the United States'  methodology  for calculating the amounts of the aeronautics 
R&D subsidies .1315 The United States argues that the European Union 's "top-down " valuation 
methodology "grossly overstates " the value of t he financial contribution, and was rejected in the 
original proceeding.1316 In response to the European Union 's argument that Boeing receives 
"significant value " beyond the face -value of individual contracts , agreements , or Space Act 
Agreements, the United St ates argues that the value of access to a facility or piece of equipment 
to Boeing consists solely of the value of the use of that facility or equipment.1317 With respect to 
employees, the United States argues that Boeing has access to NASA employees for a li mited 
period of time only, and the value of this  access  is reflected in its reported figures.1318 The 
United  States emphasi zes that since the European Union frames the financial contribution as 
specific transactions  between NASA and Boeing, the amount of the financial contribution must be 
limited to those transactions; i.e. the value of specific payments, and access to facilities, 
equipment, and employees  as provided through  the relevant instruments, and funded under the 
relevant programmes.1319  
8.248.   The United State s also considers that the European Union improperly includes a portion of 
the CASP budget in its estimate of the financial contribution, since, not having challenged that  
NASA aeronautics R&D  programme, it is outside the Panel's terms of reference.1320 Furthe r, the  
United States notes that the  European Union does not actually include payments  made  to Boeing 
through CASP, but rather allocates a percentage of the CASP budget to Boeing, based on the 
percentage of other, challenged  NASA aeronautics R&D  programmes that the European Union 
allocates to Boeing. The United States does not consider that an allocation determined in this way 
constitutes a proper calculation of  the amount of  financial contribution under Article  1.1(a)(1).1321  
                                               
1309 United States' first written submission,  para. 113, 198; second written submission, para. 118; and 
NASA SAAs with Boeing (formerly Exhibit US -13-2), (Exhibit USA -60) (BCI).  
1310 United States' second written submission, para. 119; and Equipment provided under NASA contracts 
and agreements (revised 1 December 2014), (Exhibit USA -271) (BCI).  
1311 United States' first written submission, paras. 113 and 200; and Boeing use of NASA computers, 
2007-2012, (Exhibit USA -270) (BCI) (the United States incorrectly refers to his exhibit to as Exhibit USA -248 
at fn 167, para. 113 of its first written submission). The United States filtered data from monthly usage reports 
prepared by NASA's Advanced Supercomputing Division, to show the Standard Billing Units used by the 
projects associated with Boeing. The values assi gned to Standard Billing Units each year are those NASA uses 
for internal budgeting purposes. See United States' response to Panel question No. 100, para. 184; and 
Equipment provided under NASA contracts and agreements (revised 1 December 2014), (Exhibit U SA-271) 
(BCI).  
1312 United States' second written submission, para. 121; and Estimate of NASA's Employee Time in 
Support of Contracts with Boeing, (Exhibit USA -321) (BCI).  
1313 United States' second written submission, section II.A.1.a.  
1314 United States' first wr itten submission, paras. 45 -48. 
1315 United States' second written submission, paras. 112 and 114; comments on the European Union's 
response to Panel question No. 89, paras. 107 and 108.  
1316 United States' second written submission, para. 123 (citing Panel Repo rt, US – Large Civil Aircraft 
(2nd complaint) , para. 7.1104).  
1317 United States' second written submission, para. 115; comments on the European Union's response 
to Panel question No. 89, para. 110.  
1318 United States' second written submission, para. 122; comme nts on the European Union's response 
to Panel question No. 89, para. 110.  
1319 United States' response to Panel question No. 99, para. 180.  
1320 United States' response to Panel question No. 99, para. 178.  
1321 United States' response to Panel question No. 99, para . 180.  WT/DS353/R W 
 
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  8.2.2.6.2.2   Evaluation by the Panel  
8.249.   The parti es' estimates of the amount of the financial contribution  provided through the 
post-2006 NASA aeronautics R&D subsidies  differ significantly because they are based on 
fundamentally different methodologies. As in the original proceeding, the European Union takes a 
"top-down " approach, based on total budgeted costs of the NASA aeronautics R&D programmes 
through which the NASA procurement contracts, cooperative agreements, and Space Act 
Agreements  with Boeing are funded, and Boeing 's share of the U.S. civil ai rcraft industry 
(represented by Boeing commercial airplane sales as a percentage of sales of U.S. civil aircraft 
products and services). The United States takes a "bottom -up" approach, which values the 
aggregate payments made, and the provision of access t o facilities, equipment, and employees , to 
Boeing through the individual  procurement contracts, cooperative agreements, and Space Act 
Agreements  funded under the relevant NASA aeronautics R&D programmes . 
8.250.   In the original proceeding, the European Communities  estimated the amount of the 
financial contribution  provided through the NASA aeronautics R&D subsidies  to be USD 10.4 billion 
between 1989 and 2006, of which USD 3 billion was allocated to the 2004 -2006 period.1322 The 
United States, by contrast, estimated the amount in question as "less than " USD 855 million.1323 
The panel ultimately  concluded that the amount of payments and access to NASA facilities, 
equipment, and employees provided by NASA to Boeing through the NASA procurement contracts 
and Space Act Agreem ents between 1989 -2006 was approximately USD 2.6 billion.1324 The original 
panel based this estimate on the methodology employed by the United States.1325 This 
"bottom -up" methodology estimates the aggregate values of individual payments, and access to 
facilitie s, equipment, and employees provided to Boeing by NASA through the NASA procurement 
contracts and Space Act Agreements funde d under the challenged aeronautics R&D programmes.  
8.251.   As explained above, the United States' estimate of the amount of the financial c ontribution 
covers the transactions that correspond to those found to constitute financial contributions:  
payments under NASA procurement contracts  and cooperative agreements ; the provision of access 
to NASA  equipment and  facilities (including computer usa ge) and employees under NASA 
procurement contracts  and cooperative agreements ; and the provision of access to NASA facilities 
equipment and employees under Space Act Agreements . While the methodology that the 
United  States uses to determine the value of pa yments mirrors that adopted by the original panel, 
the methodology for estimating the other types of transactions differs somewhat. In the original 
proceeding, owing to the incompleteness of data concerning the value of access to NASA facilities, 
equipment , and employees, the panel (at the United States' suggestion) estimated the value of 
such access based on  Boeing 's share of overall payments made under the challenged NASA 
aeronautics R&D programmes.1326 By contrast, the United States ' evidence in this procee ding, 
submitted in response to the Panel 's request for information pursuant to  Article 13 of the DSU , is 
more extensive, and the United States argues that it can form the basis of the Panel 's estimate of 
not only payments, but also the value of Boeing 's access to NASA facilities, equipment, and 
employees. The European Union nonetheless maintai ns its position that the 
United  States ' evidence is unreliable and cannot form the basis of the Panel 's estimate of the value 
of any of the categories of financial con tribution that it identifies.  
8.252.   We therefore evaluate the European Union 's sp ecific criticisms of the 
United  States ' evidence in detail, to ascertain whether we agree that flaws in the United States'  
evidence are such that the United States' estimate cannot  form the basis for the Panel's estimate 
of the amount of the financial contribution.  
Evidence regarding the amount of payments under NASA procurement contracts and 
cooperative agreements  
8.253.   The evidence on which the United States relies for its estimate of t he value of payments 
under procurement contracts and cooperative agreements is contained in Exhibits US-13-1 and 
                                               
1322 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1050.  
1323 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1054.  
1324 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1110.  
1325 Panel Report, US – Large Civ il Aircraft (2nd complaint) , para. 7.1081.  
1326 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1094 and 7.1095.  WT/DS353/R W 
 
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  USA-37.1327 Exhibit US -13-1 contains a list of NASA Contracts and Cooperative Agreements which  
was compiled in response  to Questions 5 and 7 of th e Panel's request for information pursuant to 
Article 13 of the DSU, which sought : 
{A} list of all NASA contracts involving Boeing under the programs listed below that 
were entered into or that have provided funding and support from FY 2006 – present. 
… 
 Fundamental Aeronautics  
 Aviation Safety  
 Integrated System Research  
 Aeronautics Strategy and Management  
 Aeronautics Test Program  
 High End Computing  
 Strategic Capabilities Assets Program1328 
 
… 
 
{A} list of all grants or cooperative agreements involving Boeing un der the programs 
listed in question 5 or relating to NASA assets provided (i.e., managed) or funded 
under those programs, that were entered into or that have provided funding and 
support from FY  2006-present.1329 
 
8.254.   To generate  the list of procurement contracts  and coopera tive agreements that the 
United  States submits as evidence for its estimate, the United States identified the procurement 
contracts and cooperative agreements between NASA and Boeing that were funded through the 
challenged NASA aeronautics R&D programmes, based on a listing generated by the Federal 
Procurement Data Base -Next Generation  (FPDS -NG).1330 Unlike in the original proceeding, the 
United States did not subsequently eliminate from that listing instruments that were considered by 
NASA personn el to relate to non -aeronautics re search. According to the United  States, the 
methodology it adopted for this proceeding inquired only into the source of the funds for each 
instrument, rather than excluding payments based on an evaluation of the type of re search 
conducted under each instrument.1331 The United States submits evidence of every payment 
received by Boeing under the resulting list of procurement contracts and cooperative agreements. 
Excluding those payments received from an unchallenged programme, these add up to 
approximately [***].1332 
                                               
1327 List of NASA Contracts and Cooperative Agreements, (Exhibit US -13-1) (BCI); and Obligations under 
NASA contracts with Boeing f or FY 2007 -FY 2012 (formerly Exhibit US -13-1), (Exhibit USA -37) (BCI).  
1328 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,  
dated 28 February 2013,  response to question No. 5, para. 17. The United States provi ded a "List of NASA 
Contracts and Cooperative Agreements" as Exhibit US -13-1 (BCI) which subsequently became Exhibit USA -37 
(BCI).  
1329 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, r esponse to question No. 7, para. 17. The United States provided a "List of NASA 
Contracts and Cooperative Agreements" as Exhibit US -13-1 (BCI) which subsequently became Exhibit USA -37 
(BCI).  
1330 As in the original proceeding, the United States first generate d a list of all payments made by the 
four NASA aeronautics research centres as reported in the FPDS -NG and identified payments funded through 
the challenged NASA aeronautics R&D programmes. (See United States' second written submission, 
paras.  111-114). Th e four NASA research centres are Dryden, Langley, Ames, and Glenn. In the original 
proceeding, the panel found that these four centres accounted for more than 99% of NASA's aeronautics R&D, 
and confirmed, for the purposes of accepting the United States' me thodology of generating a list of contracts 
between Boeing and the United States, that " substantially all  NASA aeronautics expenditures were undertaken 
by these four centers ". (See Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1079 (emph asis 
original)).  
1331 United States' second written submission, paras. 112 and 113.  
1332 Obligations under NASA contracts with Boeing for FY 2007 -FY 2012 (formerly Exhibit US -13-1), 
(Exhibit USA -37) (BCI). A number of contracts and cooperative agreements at issu e received funding from 
multiple NASA programmes. The United States only includes in its estimate of payments those payments that 
were received from challenged programmes.  WT/DS353/R W 
 
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  8.255.   The European Union argues that the United States relies on the same flawed set of data as 
in the original proceeding which led the original panel to find that the amount of payments 
received by Boeing was significantly  higher than that submitted by the United States.1333 
8.256.   We note that i n the original proceeding, the panel found that the FPDS -NG was the best 
source of information for compiling a list of contracts between NASA and Boeing.1334 The panel did 
revise the United Stat es' estimate upwards, but this was because it disagreed with a final step in 
the United States ' methodology  in that proceeding, in  which  NASA personnel had  excluded certain 
payments from its estimate.1335 The United States did not take  this step  in arriving a t its estimate 
in the current proceeding.1336 Otherwise, the United States ' methodology for estimating payments 
remains the same as th e methodology that  was accepted by the panel in the original proceeding.  
8.257.   The European Union makes no other specific criticis ms of the United States ' methodology  
for estimating the amount of the payments under the NASA procurement contracts and 
cooperative agreements . We consider that the United States ' evidence is the best evidence 
available as to the amount of payments receive d by Boeing under NASA procurement contracts 
and cooperative agreements.  
Evidence regarding  the value of the provision of  access to equipment and facilities  under  
NASA  procurement contracts and cooperative agreements  
8.258.   In arriving at  its estimate of the valu e of the access to equipment provided to Boeing 
under the NASA procurement contracts and cooperative agreements, the United States takes the 
list of procurement contracts and cooperative agreements provided in response to the Panel's 
request for informatio n pursuant to Article 13 of the DSU1337, and submits a separate exhibit 
detailing the value of access to equipment provided by those instruments .1338 The United States 
notes that the values it provides in USA -Exhibit 271 for access to equipment provided to Boein g 
under the procurement contracts and cooperative agreements (and the values it provides in 
Exhibit  USA-270 for Boeing's access to facilities) indicate, for the most part, the value of NASA's 
acquisition cost, rather than the value of the temporary use of the equipment, which is what 
Boeing generally receives under these instruments. Since the value of the acquisition cost tends to 
be larger than the value of temporary use, the United States considers that, if anything, its figures 
overstate the value of Bo eing's access to equipment (and the value of Boeing's access to facilities) 
under procurement contracts and cooperative agreements .1339  
                                               
1333 European Union's second written submission, para. 261.  
1334 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1073.  
1335 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 695.  
1336 United States' second written submission, para. 113.  
1337 See  para. 8.254  above.  
1338 The United States appears to regard its estimates of the value of Boeing's use of NASA computers in 
Exhibit USA -270, and of equipment provided under NASA contracts and agreements in Exhibit USA -271 (BCI), 
as representing the value of access to NASA facilities  and equipment under the NASA procurement contracts 
and cooperative agreements. (See United States' second written submission, para. 115 and fn 128, referring to 
these exhibits ). In its first written submission, the United States asserts that access to NAS A facilities under 
procurement contracts, other than with respect to NASA computers, "was also quite limited, although the 
United States does not at this time have an estimate". (United States' first written submission, para. 113 ; see 
also United States' s econd written submission, para. 200: "NASA contracts with Boeing did not provide for 
extensive usage of facilities. Use of NASA computers by Boeing for work on NASA contracts had a value of 
approximately [***] in the 2007 -2012 period" ). We note that in res ponse to the Panel's request for 
information pursuant to Article 13 of the DSU, for the total value of the access to government facilities, 
equipment, personnel , and other institutional support provided to Boeing at the four NASA aeronautics 
research centr es, the United States explained that the relevant procurement contract, cooperative agreement , 
or Space Act Agreement is the only record maintained by NASA that describes the provision of government 
property, government data , and access to government facil ities, equipment, personnel , and other institutional 
support. (United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 14, paras. 31 and 32). In its first written su bmission, when 
discussing the payments provided to Boeing through the procurement contracts (including BOAs and tasks), 
cooperative agreements , and Space Act Agreements under the challenged NASA aeronautics R&D programmes, 
the United States refers to the i nstruments that provide for use of NASA facilities, and those where there was 
no government property or access to government facilities provided under the relevant instrument. (See 
United States' first written submission, paras. 126, 128, 130, 133 , 139, 14 2, 158 , 163, 165, 173, 182 , 183, 
185, and 186).  
1339 United States' second written submission, para. 119.  WT/DS353/R W 
 
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  8.259.   In response to the European Union 's argument that  it is not possible  to confirm the 
reported values listed in Exhibit USA-271, the United States notes that the value of access to  
equipment under procurement contracts and cooperative agreements is recorded in the instrument 
itself.1340 It notes that, according to NASA acquisition regulations, NASA cannot provide such 
access to co ntractors without recording in the instrument the item provided and its acquisition 
cost.1341 Where a contractor seeks to use property for non -governmental work, general Federal 
Acquisition Regulations require the payment of rent to be agreed with the contrac ting officer.1342 
8.260.   The European Union argues that the acquisition regulations  to which the United States 
refers  only apply to procurement contracts, and not to cooperative agreements, implying that it is 
technically possible for NASA to have provided Boeing wi th access to property, facilities or 
equipment through a cooperative agreement, without having recorded the fact in the instrument 
itself.1343 Further, the European Union argues that the se regulations were replaced in 2011 with 
regulations that do not require  an itemised list or indication of value for the furnishing of 
government property.1344 However, having reviewed the exhibit submitted by the European Union 
in support of this argument, we note that, where government property is supplied in the course of 
a procurement contract, NASA is still required to insert a clause into the contract stating "a 
description of the item(s), acquisition date, quantity, acquisition cost  and applicable equipment 
information ".1345  
8.261.   The European Union also argues that the United Stat es' list does not appear to include all 
of the NASA  procurement  contracts and cooperative agree ments with Boeing during the 
FY 2007-FY 2012 period; this is because not every instrument listed on Exhibit USA -37 (the list of 
all procurement contracts and coo perative agreements between NASA and Boeing that were 
funded by the challenged  NASA aeronautics R&D  programme s) appears on Exhibit USA -271. The 
Panel has cross -referenced Exhibit USA -271 against Exhibit USA -37. We note that, of the 101 
procurement contract s and cooperative agreements which are listed as having received payments 
from the challenged NASA aeronautics R&D programmes, 16 are not recorded on Exhibit USA -271. 
Of th ose 16, five are purchase orders, which the United States explains involve no resear ch on 
Boeing 's part, or the provision of facilities, property, or equipment to Boeing.1346 With respect to 
two further instruments, the United States has submitted the instruments themselves as exhibits, 
and we are able to confirm that they do not provide for access to facilities, equipment, or 
employees.1347  
8.262.   For the nine remaining instruments that appear on Exhibit USA -37 but are not listed on 
Exhibit USA -271, the Panel is unable to confirm , based on the evidence provided by the 
United  States, whether they prov ided Boeing with access to facilities or equipment. Not all of the 
instruments listed  on Exhibit USA -37 as having received payments under the challenged NASA 
aeronautics R&D programmes necessarily provided access to NASA facilities or equipment; in fact, 
the majority did not involve such access.1348 It is possible that the nine unaccounted -for 
instruments simply provided Boeing with payments, but no other access, which is why they are not 
recorded in Exhibit USA -271. However, Exhibit USA -271 does contain other  procurement contracts 
                                               
1340 The United States notes that Exhibit USA -271 records the value of access to equipment as it is 
recorded in the contract instrument itself except where  indicated. (See United States'  response to Panel 
question No. 100, para. 185). Exhibit USA -271 provides a more detailed methodology for assessing the value 
of equipment for five contracts.  
1341 United States' second written submission, para. 115; United Stat es Code of Federal Regulations , 
Title 14, section 1845, (Exhibit USA -300); and United States Code of Federal Regulations , Title 48, 
section  1852.245, (Exhibit USA -301).  
1342 United States' second written submission, para. 115.  
1343 European Union's comments on t he United States' response to Panel question No. 100, para. 280.  
1344 European Union's comments on the United States' response to Panel question No. 100, para. 280; 
United States Code of Federal Regulations , Title 14, section 1845, (Exhibit USA -300); United S tates Code of 
Federal Regulations , Title 48, section 1852.245, (Exhibit USA -301); and United States Code of Federal 
Regulations , Title 48, section 1852.245 -76 (2013), (Exhibit EU -1427).  
1345 United States Code of Federal Regulations , Title 48, section 1852.24 5-76 (2013), (Exhibit EU -1427). 
(emphasis added)  
1346 United States' first written submission, para. 187.  
1347 NASA Contract NNL08AA02B (3 April 2008), (Exhibit US -13-132); NASA Purchase Order 
NND08AA04P (formerly Exhibit US -13-84), (Exhibit USA -52) (HSBI).  
1348 Equipment provided under NASA contracts and agreements (revised 1 December 2014), (Exhibit 
USA-271) (BCI). Of the total number of instruments listed in Exhibit USA -271, less than half provided for 
access to government property, facilities or equipment.  WT/DS353/R W 
 
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  and cooperative agreements that provided no access to facilities or equipment, so this alone may 
not explain the absence of the nine instruments from Exhibit USA -271.1349 It is clear that there 
appear to be some errors in Exhibit USA -271, whether they involve the omission of instruments 
that did involve the provision of access to NASA facilities and equipment, or the addition of 
instruments that did not involve such provision.  However, we do not consider that the nature and 
significance of such errors warrants the Panel disregarding the United States' estimate altogether. 
We note that the vast majority of instruments listed in Exhibit USA -37 (92 out of 101) are 
accounted for in Exhibit USA -271. Rather, in order to ensure that the Panel's estimate of the 
amount of the financial contribution s is comprehensive, we propose to revise the United States'  
figure upwards to reflect the value of any access to NASA facilities  and equipment  that may have 
been provided by the nine unaccounted -for instr uments.  
8.263.   The nine instruments together received approximately USD 11 million in payments from 
the challenged  NASA aeronautics R&D  programmes  during the FY 2007 -FY 2012 period, which is 
approximately  10% of the total amount of payments received by Boeing under those  
programmes.1350 We consider that the amount of funding received by these instrument s provides a 
reasonable approximation of the scope of work performed under them , and can be used as a proxy 
to estimate the extent of access to any equipment provided by those instruments. We therefore 
add 10% to the United States ' estimated [***] as the value of access to equipment,  which brings 
the total estimate of the value of access to equipment under the NASA procurement contracts and 
cooperative agreements to [***]. 
8.264.   Lastly, the European Union considers that the United States ' figure ignores altogether the 
value of Boeing 's access to NASA facilities (as opposed to equipment or property).1351 The 
United  States ' list, however, contains a number of specific references to  facilities, so we see no 
grounds for the European Union 's general assertion that the United States' estimate ignores the 
value of access to NASA facilities .1352 While  the United States ' list in Exhibit USA -271 does not 
include a value for access to facilitie s provided for by NASA Contract NNL09AD50T , the 
United  States specifically refer s to facilities provided by this contract in its submissions, and values 
Boeing 's access at approximately [***].1353 We therefore also consider it appropriate to revise the 
United  States ' figure upwards, to [***], to take account of this omission.  
8.265.   We acknowledge that the United States ' failure to include NASA Contract NNL09AD50T in 
Exhibit USA -271, despite referencing this procurement contract in its submissions, suggests that 
there may have been errors in the process of compiling the evidence on which the United States 
bases its amount estimate. Like the original panel, however, we consider that the fact that NASA 
may have made mistakes in compiling the relevant information, and th at NASA 's records 
themselves are not perfect, does not indicate that the United States ' evidence is, as a whole, 
unreliable.1354 We are not obliged, in estimating the amount of the subsidy  let alone the amount of 
the financial contribution s, to arrive at  a precise quantification1355, and having reviewed the 
United  States ' evidence  in light of the European Union's criticisms , we conclude that it is  
sufficiently  reliable and  comprehensive to constitute the best available evidence for an estimate of  
the value of acc ess to facilities and equipment provided under the NASA procurement contracts 
and cooperative agreements funded under  the relevant  NASA aeronautics R&D  programmes.  
8.266.   The United States provides a separate estimate of [***] for the value of Boeing 's 
computer u se, as a component of the value of access to NASA facilities.1356 In response to the 
                                               
1349 United States' response to Panel question No. 100, para. 187.  
1350 Equipment provided under NASA contracts and agreements (revised 1 December 2014), (Exhibit 
USA-271) (BCI); and Obligations under NASA contracts with Boeing for FY 2007 -FY 2012 (formerly Exhibit 
US-13-1), (Exhibit USA -37) (BCI).  
1351 European Union's comments on the United States' response to Panel question No. 100, para. 283.  
1352 For example, Exhibit USA -271 includes values for facilities provided by NASA contracts NNC07CB38C 
and NNC12AA01A.  
1353 United S tates' first written submission, para. 126; and NASA Contract NNL04AA11B, task order 
NNL09AD50T, (Exhibit USA -26) (BCI).  
1354 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1081.  
1355 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1101 (citing Appellate Body Report, 
US – Upland Cotton , para. 467).  
1356 United States' first written submission, paras . 113 and 200; and Boeing use of NASA computers, 
2007-2012, (Exhibit USA -270) (BCI) (the U.S. incorrectly refers to his exhibit to as U SA-248 at fn 167, 
para. 113 of its first written submission). The United States notes that this figure, if anything, overstates the WT/DS353/R W 
 
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  European Union 's argument that the United States provides no explanation of its methodology for 
calculating this  figure , the United States explains that NASA compiled data fr om 2006 to 2013 
using monthly usage reports prepared by NASA 's Advanced Supercomputing Division, which show 
usage assigned to each project expressed in terms of Standard Billing Units (SBU).1357 These 
reports were then filtered to display the projects associa ted with Boeing. The value assigned to the 
resulting set of SBUs is the value that NASA uses for its internal budgeting period.1358 
8.267.   The European Union considers that the value of Boeing 's computer usage seems 
"extraordinarily low ", and argues that it likely a ccounts only for the cost of resources consumed  by 
the usage, rather than the market value of the resource.1359 It notes that, according to SBU 
values, one hour of computer usage costs 73 cents, and compares this to one hour of internet use 
in an internet caf e, where the same costs between USD 3.50 -4.1360 
8.268.   We do not consider that the European Union establishes that the United States ' evidence 
as to the value of Boeing 's computer use cannot be relied upon. The European Union only 
speculates that NASA 's SBU s take in to account only the cost of Boeing 's use of the supercomputer; 
there is no evidence that this is actually the case. Moreover , the European Union does not explain 
why a proper valuation of the financial contribution should take into account the market value  of 
the supercomputer itself, rather than the value of Boeing 's use of the supercomputer. Finally , we 
are not persuaded that  the European Union 's comparison between the computing costs incurred by 
a large -scale organization like NASA and the per -hour retai l costs charged in an internet cafe is 
probative as to the accuracy or otherwise of the United States ' figures.  
8.269.   We see no flaws in the United States ' methodology for estimating the value of computer 
usage that would warrant dismissing its estimate , and co nclude, therefore, that it remains the best 
available evidence as to the value of Boeing 's use of NASA 's computers.  
Evidence regarding the value of the provision of access to NASA employees under NASA 
procurement contracts and cooperative agreements  
8.270.   With respect to the United States ' estimate of the value of Boeing 's access to NASA 
employees under procurement contracts and cooperative agreements, the United States relies on 
evidence contained in Exhibit USA -321.1361 The United  States argues that Boeing had acc ess to 
NASA employees only for a limited period of time, and for a limited purpose. The work of NASA 
employees in relation to  procurement  contracts and cooperative agreements with Boeing was 
limited to financial administration and management, technical mon itoring to ensure that the 
contractor complied with the terms of the instrument, and managing logistics. NASA estimates 
that the value of these activities represented USD 17.4 million .1362 
8.271.   The European Union does not dispute the methodology or selection proce ss through which 
the United States generates its estimate of the value of Boeing 's access to NASA employees. The 
European Union argues that, even if NASA employees spend relatively little time working with 
Boeing directly under the particular procurement c ontract or cooperative agreement, the value of 
Boeing 's access to NASA employees is affected  by the amount that NASA invests in those aspects 
                                                                                                                                               
value of Boeing's computer use, since it includes Boeing's use of computers for hypersonic research, which has 
no applicatio n to LCA. (See United States' second written submission, para. 119).  
1357 A Standard Billing Unit is a common rate used for allocating and tracking computing time at NASA's 
Advanced Supercomputing facility. (See United States' response to Panel question No. 1 00, para. 184).  
1358 United States' response to Panel question No. 100, para. 184.  
1359 European Union's comments on the United States' response to Panel question No. 100, paras. 278 
and 279.  
1360 European Union's comments on the United States' response to Panel qu estion No. 100, para. 279; 
NASA, The HEC Environment, Allocations & Accounts, Common Standard Billing Unit (SBU) Rates , available at: 
<http://www.nas.nasa.gov/hecc/support/kb/Common -Standard -Billing -Unit-(SBU) -Rates_271.html>, accessed 
1 September 2016, (E xhibit EU -1424); J. Santo Domingo, "Comparing Dual -Core vs. Quad -Core CPUs", PC 
Magazine , 5 July 2012, (Exhibit EU -1425); and Examples of Internet Cafe Pricing, (Exhibit EU -1426).  
1361 Estimate of NASA's Employee Time in Support of Contracts with Boeing, (Exh ibit USA -321) (BCI).  
1362 United States' second written submission, para. 121.  The United States explains that, for budget 
purposes, NASA values its professional personnel time at USD 150,000 per full -time equivalent (which 
translates to the work performed by  one person over the course of a year). NASA estimates that the work of 
NASA personnel involved in the activities referred to above (i.e. financial administration and management, 
technical monitoring to ensure that the contractor complied with the terms of  the contract and satisfied all 
deliverables, and managing logistics), occupied 115.8 units of full -time equivalent.  WT/DS353/R W 
 
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  of its own physical and human capital relevant to Boeing 's research efforts.1363 This is a version of 
the European Un ion's argument that, regardless of  any flaws it has identified in the United States 
evidence, the United States ' overall methodology for estimating the financial contribution 
"massively undercounts " the real value of the financial contribution by not recog nizing the 
collaborative, iterative nature of NASA and Boeing 's R&D work. Along with the European Union 's 
concerns as to the United States ' evidence, it is this argument that underlies the European Union 's 
"top-down " approach for calculating the value of t he financial contribution.  
8.272.   Unlike the United States ' methodology for calculating the value of the financial contribution 
to Boeing under the procurement contracts, cooperative agreements, and Space Act Agreements , 
the European Union 's "top-down" methodolo gy for estimating the amount of the financial 
contribution provided through the NASA aeronautics R&D subsidies does not correspond to the 
nature of the financial contributions as argued by the parties and as found by the Panel  (i.e. as 
payments and the pro vision of access to NASA facilities, equipment, and employees  through 
certain legal instruments funded under identified NASA aeronautics R&D programmes) . Rather, the 
European  Union 's methodology is based on an allocation of the portion of the NASA programm e 
budgets to Boeing based on the value of Boeing 's commercial airplane sales as a proportion of 
total U.S. civil aircraft sales. It is not an estimate of the value of the "financial contributions " 
because the financial contributions  that the Panel has foun d to exist  are not all or a portion of the 
NASA aeronautics R&D programme budgets, but particular transactions between NASA and Boeing  
that occur through certain legal instruments which  are funded by those  aeronautics R&D  
programmes.  
8.273.   The European Union ar gues that the value  of the access to NASA facilities, equipment, and 
employees  extends beyond the "four corners " of the instruments because of the value of 
investments that NASA makes in itself , which cannot be quantified from payments and use of 
facilitie s, equipment, and employees . This argument is similar to an argument that the European 
Communities made in the original proceeding, which the panel rejected.1364 We are not persuaded 
by the European  Union 's argument that the amount of the financial contributi ons cannot be 
captured within the "four corners " of the transactions found to constitute the financial 
contributions for the same reasons that the original panel rejected the European 
Communities ' argument in the original proceeding. First, because it is a t odds with the nature of 
the financial contributions that we f ind to exist; namely, the payments and access to NASA 
property facilities, equipment, and employees  provided through procurement contracts, 
cooperative agreements, and Space Act Agreements  with Boeing which are funded through 
particular NASA aeronautics R&D programmes. Second, because the European Union does not 
identify the "investments " that NASA allegedly makes in its own physical and human capital, or the 
types of transactions through which these investments are made and are shared to transmit to 
Boeing. Finally, we have previously found that a number of the challenged NASA programmes did 
not actually fund any procurement contracts, cooperative agreements , or Space Act Agreements 
between NASA  and Boeing.1365 In other words, these programmes did not provide financial 
contributions to Boeing . Despite this, the European Union 's methodology impermissibly includes 
portions of the budgets of these programmes in its estimate of the financial contributio n made by 
NASA to Boeing.  
8.274.   Nor are we persuaded that  all, or a portion of,  the CASP Program should be included in an 
estimate of the amount of the financial contribution, as a way of capturing NASA funding and 
support that allegedly operates outside of the  "four corners " of the instruments that constitute the 
financial contributions to Boeing. First, the European Union did not include the CASP Program as 
one of the challenged NASA  aeronautics  R&D measures  in section I.A of its panel request, and in 
our view , funding and support provided through an unchallenged programme is outside our terms 
of reference. Second, the European Union 's justification for including funding under the CASP 
Program  in its estimate is that its panel request covers the entirety of any  "contracts, assistance 
instruments and other agreements " that are funded by the challenged NASA aeronautics R&D 
programmes, meaning that if a particular instrument is funded by a challenged programme, any 
                                               
1363 European Union's second written submission, fn 413  and para. 264. 
1364 The European Communities argued that the United States' "bottom -up" e stimates of the amounts in 
the original proceeding should be rejected because they failed to account for the fact that NASA allegedly 
provided Boeing with access to the results of the R&D performed by NASA in -house and by other contractors. 
(Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1102).  
1365 These programmes are: Aeronautics Strategy and Management Program, High End Computing 
Program, and Strategic Capabilities Assets Program. See paras. 8.67 to 8.72 above.  WT/DS353/R W 
 
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  other payments made by additional programmes, such  as CASP, to that same instrument are also 
covered by the European Union 's panel request.1366 The European Union 's methodology  for 
including CASP payments in its estimate of the financial contribution does not, however, 
correspond to this reasoning. The Europ ean Union does not identify specific instruments funded by 
both a challenged  aeronautics R&D  programme and the CASP  Program , which would allow it to 
account for what each instrument actually received from the CASP Program. Instead, it 
"apportions " percenta ges of the CASP Program budgets to each challenged aeronautics R&D 
programme based on each programme 's share of NASA 's total funding. This, as explained earlier, 
does not correspond to what, in the European Union 's own arguments, actually constitutes the 
financial contribution. We are therefore unable to accept both the European Union 's overall 
methodology for estimating the financial contribution, and its inclusion of a portion of the 
unchallenged CASP Program in that estimate.  
Evidence regarding the value  of access to facilities, equipment and employees provided 
under Space Act Agreements  
8.275.   Finally, the United States relies on evidence contained in Exhibit USA -60 and Exhibit 
US-13-2 for its estimate of the value of access to facilities, equipment , and employ ees provided 
under the Space Act Agreements. This list was compiled in response to Question 6 of the Panel's 
request for information pursuant to Article 13 of the DSU, which sought:  
{A} list of all non -reimbursable or partially reimbursable Space Act Agree ments 
("SAAs") that were entered into or that have provided funding and support from FY 
2006-present, involving Boeing under the programs listed in question 5 or relating to 
NASA assets provided (i.e., managed) or funded under those programs.1367 
8.276.   The United S tates generated the list of Space Act Agreements it provided in response to 
the Panel through a five -step process. First, NASA generated a list of all Space Act Agreements 
entered into between NASA's four aeronautics research centres and Boeing, using NASA 's Space 
Act Agreement Maker System, into which, as required by NASA Policy Directive 1050 1H, every 
Space Act Agreement must be entered.1368 Second, ARMD had the list reviewed by all Center 
Agreement Managers to validate data and add any missing information.  Third, these officials also 
provided copies of any instruments not already in the possession of ARMD and verified their values 
with the Chief Financial Officers of the four aeronautics research centres. Fourth, ARMD 
determined the programme responsible fo r the funding of each Space Act Agreement, and 
identified whether each Space Act Agreement was fully, partially, or non -reimbursable. Finally, in 
accordance with the parameters of the Panel's request for information pursuant to Article 13 of the 
DSU, fully -reimbursable Space Act Agreements, along with Space Act Agreements funded through 
programmes that the European Union had not challenged, were removed from the list.1369 In the 
original proceeding, the panel rejected the United States'  estimate of the value o f goods and 
services provided under Space Act Agreements, because it considered that there were limitations 
in the evidence that the United States relied on to support its estimate.1370 The European Union 
argues that, for the same reason, the Panel should rej ect the United States' figures for the 
transactions in this proceeding.1371  
8.277.   More specifically, the European Union points out that a number of the Space Act 
Agreements on the list provided by the United States contain no valuation information, and argues 
therefore that the list cannot be used as a basis for the Panel's estimate. The United States 
                                               
1366 European Union's comments on the United States' response to Panel question No. 99, para. 263.  
1367 United States' response to the Panel's request for information pursuant to Article 13 of the DS U, 
dated 28 February 2013, response to question No. 6, para. 18. The United States provided a "NASA SAA List" 
as Exhibit US -13-2 which subsequently became Exhibit USA -60 (BCI).  
1368 NASA Policy Directive on Authority to Enter into Space Act Agreements, NPD 10 50.1I 
(23 December  2008), (Exhibit USA -303). These research centres are: Dryden, Langley, Ames, and Glenn. In 
the original proceeding, the panel found that these four centres accounted for more than 99% of NASA's 
aeronautics R&D, and confirmed, for the pur poses of accepting the United States'  methodology of generating a 
list of contracts between Boeing and the United States, that " substantially all  NASA aeronautics expenditures 
were undertaken by these four centers ". (See Panel Report, US – Large Civil Airc raft (2nd complaint) , 
para. 7.1079 (emphasis original)).  
1369 United States' second written submission, para. 117.  
1370 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1094.  
1371 European Union's comments on the United States' response to Panel que stion No. 100, para. 286.  WT/DS353/R W 
 
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  responds, first, that certain of the Space Act Agreements on its list are "umbrella" instruments, 
which do not provide valuation information and merely set out the ov erarching terms for work that 
is the n memorialised in subsequent annexes, which provide valuation information.1372 Second, the 
United States explains that the list contains some Space Act Agreements that were signed, but for 
which costs were not ultimately in curred.1373 The United States acknowledges that, of the 
approximately 40 Space Act Agreements on its list, NASA is missing value information for two. 
These instruments are SAA2 -402214 and SAA3 -402268.  
8.278.   In the original proceeding, of the 38 Space Act Agreement s identified by the United States, 
17 were missing value information.1374 Unlike in the original proceedin g, the United  States' 
evidence concerning the value of access to facilities, equipment , and employees provided to 
Boeing under the Space Act Agreements w as supplied in response to a specific request from the 
Panel pursuant to Article 13 of the DSU. It is far more comprehensive than the information 
provided by the United States in the original proceeding. In our view, the factors which led the 
original pane l to reject the United States'  valuation of the access to facilities, equipment , and 
employees provided to Boeing under Space Act Agreements are not present in respect of the 
evidence submitted by the United States in relation to that issue in this proceed ing. 
8.279.   The European Union also argues that the United States does not indicate how NASA arrives 
at a valuation of the access to facilities, equipment , and employees  provided to Boeing. The 
United  States responds that each of NASA's four research centres is r equired to prepare a cost 
estimate in accordance with guidance from NPR 9090.1A, which requires a determination of the 
full cost of the Space Act Agreements, including direct and indirect costs. In accordance with this 
guidance, NASA values the costs waive d in a Space Act Agreement by taking into account direct 
costs, which include: salaries and other benefits for employees who work directly on the output; 
materials and supplies used in the work; various costs associated with office space, equipment, 
facilities, utilities that are used exclusively to produce the output; costs of goods or services 
received from other segments or entities that are used to produce the output; and other costs 
related to the production of the output. Indirect costs include "costs  of resources that are jointly or 
commonly used to produce two or more types of outputs, but are not specifically identifiable with 
any of the outputs ". This includes costs of general and administrative services, general research 
and technical support, sec urity, rent, employee health, and recreation facilities.1375  
8.280.   The European Union argues that the requirement in NPR 9090 -1A to value costs waived 
under a Space Act Agreement only applies to reimbursable Space Act Agreements, and not  to the 
non-reimbursable  or partially -reimbursable Space Act Agreements that are at issue here.1376 The 
United States'  submissions state, however, that while formally speaking, the above -referenced 
directive only applies to reimbursable Space Act Agreements, another directive, NPD 1050 .1I, also 
requires preparation of cost estimates for non - or partially -reimbursable Space Act 
Agreements.1377 Although this latter directive does not set forth its own, separate methodology for 
calculating these costs, we understand that the methodology in NP R 9090 -1A also applies here.  
8.281.   In light of the foregoing, we find that there is no basis not to accept the estimate provided 
by the United States as the best evidence available regarding the value of the access to facilities, 
                                               
1372 The United States resubmitted Exhibit USA -60 (BCI) to indicate which of the listed Space Act 
Agreements were "umbrella" instruments. These instruments are: Non -reimbursable Space Act Agreement 
between the Boeing company and Nati onal Aeronautics and Space Administration for environmentally 
responsible air vehicle concept research, SAA1 -1018 (May 2010), (Exhibit USA -100) (BCI); 
Partially -reimbursable Space Act Agreement between the Boeing company and National Aeronautics and Space 
Administration for Aerospace Research and Development, SAA1 -1145 (September 2011), (Exhibit 
USA-13-254); Non -reimbursable Space Act Agreement between the Boeing company and National Aeronautics 
and Space Administration for Aerospace Research and Developmen t, SAA1 -1155 (November 2011), (Exhibit 
USA-87); and Space Act Agreement SAA1 -640 between the National Aeronautics and Space Administration and 
the Boeing company for the cooperative investigation of a cruise -efficient hybrid wing -body concept at the 
Langle y Research Center National Transonic Facility, ("umbrella" agreement not submitted as a separate 
exhibit). (See NASA SAAs with Boeing (formerly Exhibit US -13-2), (Exhibit USA -60) (BCI)).  
1373 These instruments are: DRFC -276, SAA1 -757, annex 13, and SAA2 -40109 7, annex 15.  
1374 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1092.  
1375 United States' response to Panel question No. 100, para. 182; and NASA Procedural Requirements, 
Reimbursable Agreements , 9090.1A, (25 February 2013), (Exhibit USA -486).  
1376 European Union's comments on the United States' response to Panel question No. 100, para. 273.  
1377 United States' response to Panel question No. 100, fn 249 and para. 182; and NASA Policy Directive 
on Authority to Enter into Space Act Agreements, NPD 1050 .1I (23 December 2008), (Exhibit USA -303).  WT/DS353/R W 
 
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  equipment , and employees provide d to Boeing under the post -2006 Space Act Agreements at 
issue. 
8.282.   We have conducted an extensive review of the United States' evidence supporting its 
estimate of the amount of the financial contributions provided through the NASA aeronautics R&D 
subsidies, in  light of the numerous criticisms of the European Union regarding different aspects of 
the methodology and evidence. We consider the United States' methodology for arriving at its 
estimates, for each of the categories of transactions it identifies as compr ising the financial 
contribution, to be reasonable and appropriate. We identify where the United States has made 
errors, and have endeavoured to make adjustments to the United States' estimates to account for 
those errors. We conclude that none of the erro rs or omissions is so serious that it undermines the 
overall reliability of the United States' estimates.  
8.283.   We would add that we  do not accept the European Union 's allegation that the 
United  States has failed to cooperate in providing the information that is necessary to arrive at a 
reliable esti mate of the amount of the financial contributions.1378 We note that, in February 2013, 
in response to requests made by the Panel pursuant to Article 13 of the DSU, the United States 
provided the following lists of NASA instruments related to the European Union 's claims:  
a. A list of all NASA procurement contracts with Boeing funded under the challenged NASA 
aeronautics R&D programmes, that were entered into or that provided funding and 
support, from FY 2006 until 2012.1379  
b. A list of all grants or cooperative agreements involving Boeing under the challenged 
NASA aeronautics R&D programmes relating to NASA assets provided or funded under 
those programmes that were entered into or that have provided funding or support from 
FY 2006 to 2012.1380 
c. A list of all non -reimbursable or partially -reimbursable Space Act Agreement s that were 
entered into or that provided funding and support from FY 2006 to 2012, involving 
Boeing under the challenged NASA aeronautics R&D programmes.1381 
d. A list of a ll additional contracts, task orders, non -reimbursable or partially -reimbursable 
Space Act Agreement s, grants , or agreements involving Boeing that were related to 
aeronautics R&D and that were entered into or have provided funding and support from 
FY 2006 to 2012 that were not previously listed.1382 
8.284.   Moreover, the United States provided a list of every revenue -related action that occurred 
for the items listed in (a) through (d) above in the FY  2007-FY 2012 period , showing the obligation 
amount associated with e ach contract and the fiscal year of the obligation on a contract action 
inventory.1383 It also provided information as to the total amount of funds obligated or disburs ed to 
Boeing for each year since FY  2006 for each of the four NASA aeronautics research  centres, and 
information regarding the total value of access to government facilities, equipment, personnel , and 
other institutional support provided to Boeing for each year since FY  2006 at or by such 
                                               
1378 European Union's first written submission, para. 179.  
1379 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 5 para. 17. The United States provided a "List of NASA 
Contracts and Cooperative Agreements" as Exhibit US -13-1 (BCI) which subsequently became Exhibit USA -37 
(BCI).  
1380 United States' response to the Panel's request for information pursuant to Article 13 of the DSU , 
dated 28 February 2013, response to question No. 7, para. 19. The United States provided a "NASA List of 
NASA Contracts and Cooperative Agreements" as Exhibit US -13-1 (BCI) which subsequently became Exhibit 
USA-37 (BCI).  
1381 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 6, para. 18. The United States provided a "NASA SAA List" 
as Exhibit US -13-2 which subsequently became Exhibit USA -60 (BCI).  
1382 United States ' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 8, para. 20.  
1383 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 10, para. 23.  WT/DS353/R W 
 
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  centres.1384 In light of the above information provided by t he United  States, we are unable to see 
why the European Union considers it necessary to receive a full set of un -redacted NASA contracts 
and agreements in order to arrive at an estimate of the amount of the financial contribution.1385  
8.285.   In response to a Panel question  in its third set of questions in September 2015,  seeking 
information regarding the magnitude of difference in Airbus and Boeing pricing in sales campaigns, 
the European Union submitted an update for 2013 and 2014 of the amounts of the financial 
contribution from the U.S. subsidi es that are alleged to cause adverse effects through a price 
causal mechanism .1386 This information included updated estimates of the amounts of the financial 
contributions for the NASA aeronautics R&D subsidies for 2013 and 20 14, based on the 
European  Union 's "top-down " methodology.1387 Although there is no corresponding updated 
information regarding the amounts of the financial contributions for 2013 and 2014 based on  the 
United States ' methodology, this does not in our view, pro vide a reason to accept the 
European  Union 's estimates for the 2013 and 2014 amounts as the best available evidence of the 
amounts of the financial contributions for those years. This is because, as we have explained 
previously, the legal deficiencies in t he European Union 's methodology are too significant.1388 
8.286.   In light of our above findings regarding financial contribution, benefit, and specificity, we 
conclude that the European Union has established that certain transactions pursuant to post -2006 
NASA procur ement contracts, cooperative agreements, and Space Act Agreements involve specific 
subsidies, within the meaning of Articles 1 and 2 of the SCM Agreement. We are unable to 
estimate the amount of the subsidy on the basis of the evidence on the record. T o the extent that 
the amoun t of the financial contribution provided through these subsidies  is relevant to the Panel's 
assessment of whether the United States has withdrawn the subsidy, or taken appropriate steps to 
remove the adverse effects, within the meani ng of Article 7.8, the United States' methodology 
provides a reliable and appropriate basis for arriving at the relevant estimate. On the basis of this 
methodology, after making certain adjustments to the United States' estimates, the Panel 
estimates that the amount of the financial contribution provided to Boeing through the 
NASA procurement contracts, cooperative agreements, and Space Act Agreements  
funded under the relevant aeronautics R&D programmes between 2007 and 2012 is 
approximately [***]. 
8.2.2.7   Conclusi on 
8.287.   In light of our above findings regarding financial contribution, benefit, and specificity, we 
conclude that the European Union has established that certain transactions pursuant to post -2006 
NASA procurement contracts, cooperative agreements, and Space Act Agreements involve specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement. While we are unable to 
estimate the amount of the subsidy on the basis of the evidence on the record, to the extent it is 
relevant to the Panel's assessm ent of whether the United States has withdrawn  the subsidy or 
taken appropriate steps to remove the adverse effects within the meaning of Article 7.8 of the SCM 
Agreement, we find the United States' estimate  of the financ ial contributions at [***] between 
2007 and 2012 to be the most credible estimate.  
                                               
1384 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question Nos. 13 and 14, paras. 30 and 31 -33; and NASA Obligations  by 
Center, (Exhibit US -13-450) (BCI).  
1385 We recall that the European Union objected to redaction of portions of certain NASA procurement 
contracts referenced in the United States' first written submission in a communication to the Panel dated 
9 September 2 013 and requested the Panel to require the United States to produce un -redacted versions. That 
objection, however, related to assertions made by the United States that the fact that such instruments were 
export -controlled, classified or otherwise restricte d demonstrated that the work performed under them could 
not be applied to or used to produce large civil aircraft. The European Union did not allege that the un -redacted 
portions of the contracts in question were necessary in order to enable it to arrive a t the amounts of the 
financial contributions involved in those instruments. In any case, we declined the European Union's request in 
a ruling on that request dated 23 October 2013, attached at Annex F -2 to this Report.  
1386 European Union's response to Panel question No. 164, para. 114; and Subsidies to Boeing's LCA 
Division (2013 -2014 Update), (Exhibit EU -1451). The United States did not submit a corresponding update of 
its estimate of the amount of the financial contributions.  
1387 Subsidies to Boeing's LCA Div ision (2013 -2014 Update), (Exhibit EU -1451), pp . 2 and 5 -22. 
1388 The European Union's estimates also include allocations from NASA aeronautics R&D programmes 
for which the Panel has found there are no measures in existence. This is the case with respect to t he Strategic 
Capabilities Assets Program, the Aeronautics Strategy and Management Program and the High End Computing 
Program. See Section 8.2.2.2.2  above.  WT/DS353/R W 
 
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  8.2.3   Post-2006 DOD aeronautics R&D measures  
8.2.3.1   Introduction  
8.288.   In this Section of our Report , we evaluate the European Union 's allegations that the DOD 's 
Research, Development, Test & Evaluation  (RDT&E)  Program involves  specific subsidies within the 
meaning of Articles 1 and 2 of the SCM Agreement , and that by granting or maintaining these 
subsidies after the end of the implementation period , the United States has failed to withdraw the 
subsidy , within the meaning of Art icle 7.8 of the SCM Agreement.  
8.289.    This evaluation concerns post -2006 DOD aeronautics R&D measures that we have found 
to be within the scope of this proceeding in Section 7.3.1389 It also includes an evaluation  of 
whether the pre -2007 DOD procurement contracts involve specific subsidies within the meaning of 
Articles 1 and 2 of the SCM Agreement. This is because there were no subsidy findings, and 
therefore no adverse effects findings, regarding the pre -2007 DOD procurement contracts  at the 
conclusion of the original proceeding. Therefore, the United States did not have a compliance 
obligation in relation to these pre -2007 aeronautics R&D measures, unlike the pre -2007 NASA 
aeronautics R&D subsidies and the pre -2007 DOD assistance inst ruments discussed in Section  8.1 
above. However, for the reasons explained in Section  7.3, we have ruled that  the pre -2007 DOD 
procurement contracts are  within the scope of this proceeding. We there fore consider whether 
both the pre -2007 and post -2006 DOD procurement contracts are specific subsidies in this 
Section , as the legal issues raised are the same . 
8.290.   Before the original panel, the European Communities claimed that payments and access to 
DOD fac ilities provided to Boeing under 23 RDT&E program elements to conduct research into 
"dual-use" technologies1390, in the sense of technologies having potential application to LCA1391, 
were specific subsidies which ca used adverse effects to the interests of the Eu ropean 
Communities.1392 The original panel identified two types of legal instruments through which DOD 
provided payments and access to DOD facilities to Boeing under the various RDT&E program 
elements; namely procurement contracts and assistance instruments.1393  
8.291.   The panel and the Appellate Body found that the payments and access to DOD facilities 
provided to Boeing under the assistance instruments  at issue constituted specific subsidies within 
the meaning of Articles 1 and 2 of the SCM Agreement. There were ulti mately no findings as to 
whether the payments and access to DOD facilities provided to Boeing through the procurement 
contracts  entered into under the 23 RDT&E program elements constituted specific subsidies, or 
caused adverse effects. Rather, as explained  in greater detail in Section 7.3.2.2  of this Report, the 
Appellate Body declared moot the original panel 's finding that the DOD procurement contracts 
were properly characterized as "purchases of services " and thus were not fin ancial contributions 
within the meaning of Article  1.1(a)(1).1394 
8.292.   The European Union disputes that the actions taken by the United States, as set forth in its 
Compliance Communication, including those with respect to the relevant DOD aeronautics R&D 
measures,  bring the United States into compliance with the DSB recommendations and rulings.1395 
                                               
1389 We recall that with regard to pre -2007 DOD assistance instruments at issue in the original 
proceeding we f ind that the DOD -Boeing Patent Licence Agreement does not constitute a withdrawal of the 
subsidy , within the meaning of Article 7.8 of the SCM Agreement. See Section 8.1.3  above . 
1390 The European Communities based its assessment of whether  R&D conducted by Boeing under any of 
the RDT&E program elements was likely to give rise to technologies with civil applications on an expert 
evaluation of the RDT&E program budg ets. (CRA Report, (Exhibit EU -29), para. 1.1, p. 1). The European Union 
also relies on the 2006 CRA Report in this proceeding, along with an additional expert evaluation pertaining to 
post-2006 RDT&E budget activities. See also Rumpf Report, (Exhibit EU -23). 
1391 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1116 and 7.1117. We explain the 
different senses in which the concept of "dual -use" technologies is used in this proceeding in paras. 8.341  to 
8.344  below . 
1392 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1116. The specific RDT&E program 
elements identified in the European Communities' panel request in the original proceeding appea r at 
paragraph  7.1113 of that report.  
1393 See para. 8.298  below . 
1394 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), fn 1298.  
1395 European Union's request for the establishment of a panel, para. 6.  WT/DS353/R W 
 
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  8.293.   We evaluate i n Section 8.2.3.3  whether the post -2006 DOD aeronautics R&D measures 
that we have found to be within the scope of this compliance proceeding1396 involve  financial 
contributions  within the meaning of Article 1.1(a)(1) of the SCM Agreement and evaluate in 
Section 8.2.3.4  whether any such financial contributions confer a benefit within the meaning of 
Article 1. 1(b). Our evaluation of whether any measures that we f ind to be subsidies within the 
meaning of Article 1 are specific within the meaning of Article 2 of the SCM Agreement appears in  
Section  8.2.3.5  of this Report.  
8.294.   Before discu ssing the subsidy and specificity issues, we provide relevant background 
factual and legal information regarding the DOD aeronautics R&D measures at issue.  
8.2.3.2   The measures at issue  
8.2.3.2.1   The European Union 's panel request  
8.295.   In its panel request in this proceeding, the European Union alleges that U.S. DOD 
maintains subsidies benefiting U.S. LCA producers: (a) through the RDT&E Program ; as well as (b) 
through contracts, assistance instruments , and other agreements (as modified) entered into under 
the RDT&E Program ; in addition to (c) through specified U .S. Air Force, Navy, Army , and Defense -
Wide program elements of the RDT&E Program ; as well as (d) through contracts, assistance 
instruments , and other agreements (as modified) under these RDT&E program elements ; and to 
the extent not entered into pursuant to the foregoing programmes  (e) by entering into and 
following the terms of contracts and other agreements (as modified) with Boeing listed in annex B 
of the United  States ' Compliance Communication .1397  
8.296.   The forms of the su bsidies are described as: (a) the provision to Boeing of funding and 
access to government facilities, equipment, and employees  for R&D applicable to the development, 
design, and production of LCA on terms more favourable than would be available on the 
comm ercial market ; as well as (b) the provision to Boeing of royalty -free use of the technologies 
developed with such funding and support or use of such technologies on preferential terms.1398  
8.297.   Although the European Union 's panel request suggests that the Europea n Union challenges 
both DOD's RDT&E Program as a whole and certain individual RDT&E program elements funded 
under (and as part of) the RDT&E Program, it is clear from the European  Union 's first written 
submission that its challenge is confined to particula r "funding " and "access to government 
facilities, equipment and employees " provided to Boeing under specified RDT&E program elements , 
rather than DOD 's RDT&E Program more generally. Hence, the "funding " and "access to 
government facilities, equipment and e mployees " challenged under those RDT&E program 
elements refers to payments made, and access to DOD facilities, equipment, and employees  
provided, to Boeing  and not to other recipients. Such payments and access are provided through 
particular legal instrume nts entered into between DOD and Boeing (namely, procurement 
contracts, and assistance instruments) which are funded under the relevant RDT&E program 
elements.1399 In other words, the funding and access to government facilities, equipment, and 
employees  provided to Boeing under the relevant RDT&E program elements set forth in the 
European  Union 's panel request refer to the payments and access to facilities, equipment, and 
employees provided to Boeing through procurement contracts  and assistance instruments  entered 
into between DOD and Boeing and funded under the specifically identified RDT&E program 
                                               
1396 See para. 7.548  above . 
1397 European Union's request for the establishment of a panel, paras. 11 -13. The panel request 
indicates that "Annex B of the 23 September 2012 notification is attached to this request, and  the contracts 
listed therein are incorporated into this request". (Ibid. para. 13, p. 5 and annex B).  
1398 European Union's request for the establishment of a panel, paras. 11 and 12.  
1399 See para. 8.298  below . See Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1115 
(noting that it was not in dispute that DOD made payments to Boeing (and granted Boeing access to 
government facilities) to perform R&D pursuant to two different categories of R&D arran gements, namely, 
"procurement contracts" and "assistance instruments"), 7.1119 (noting that the scope of the European Union's 
DOD-related claim was limited to payments and access to facilities provided to Boeing, as distinguished from a 
broader challenged to the DOD RDT&E Program per se ), and 7.1122 (noting that the European Communities 
had clarified that it did not challenge DOD allowing Boeing to "participate" in RDT&E program elements as a 
distinct measure).  WT/DS353/R W 
 
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  elements.1400 We briefly summarize the principal features of DOD procurement contracts and 
assistance instruments below.  
8.2.3.2.2   DOD procurement contracts and assistance instr uments  
8.298.   Boeing is commissioned to perform R&D work funded through the RDT&E program 
elements by means of particular legal instruments. DOD procurement activities, including for 
RDT&E, are generally governed by three sets of U.S. Federal Government regulati ons: the Federal 
Acquisition Regulation (FAR) which applies to the entire U.S. federal government, including DOD 
(unless stated otherwise); the Defense Federal Acquisition Supplement; and the unique FAR 
supplements for each of the Army, Air Force, Navy and  Marine Corps, Defense Logistics Agency , 
and U .S. Special Operations Command.1401 The original panel discussed the legal framework 
governing the various legal instruments through which DOD commissions R&D under the RDT&E 
program elements.1402 We note several sal ient aspects of that discussion.  
a. First, DOD has authority to fund certain kinds of R&D by means of specific legal 
instruments; namely "contracts ", "cooperative agreements ", "grants " and "technology 
investment agreements ".1403 The latter three (cooperative ag reements, grants and 
technology investment agreements) are defined as "assistance and other 
nonprocurement instruments ".1404 In the original proceeding, these three legal 
instruments were referred to collectively as "assistance instruments ". We use the same 
term to describe these three types of instruments in this proceeding. Assistance 
instruments are distinct from "contracts ", which we refer to in this Report as 
"procurement contracts ".  
b. Second, U .S. procurement laws and regulations require that specific leg al instruments be 
used in particular defined situations, and not otherwise. Accordingly, assistance 
instruments are legal instruments used to provide "assistance " which is defined in the 
DOD Grant and Agreement Regulations as the "transfer of a thing of va lue to a recipient 
to carry out a public purpose of support or stimulation authorized by a law of the United 
States ".1405 Under assistance instruments, the recipient is required to contribute its own 
funds to the R&D on a cost -shared basis.1406 Moreover, at leas t as concerns cooperative 
agreements, the U.S. Government is required to have substantial involvement in the 
work performed, including collaboration, participation or intervention.1407 
c. A procurement contract, by contrast, is a legal instrument which "reflects  a relationship 
between the Federal Government and a State, a local government, or other recipient 
when the principal purpose of the instrument is to acquire property or services for the 
                                               
1400 In Section 7.3.1 , we explain the RDT&E Program, the particular RDT&E program elements and the 
relationship of the program elements challenged by the European Union to the DOD procurement contracts and 
assistance instruments. As explained in Section 7.3, the United States made a number of objections to the 
inclusion of various aspects of the DOD aeronautics R&D measures within the scope of this proceeding. Our 
rulings on those objections are summarized in Section  7.3.5 . 
1401 M. Schwartz, Congressional Research Service, Defense Acquisitions: How DOD Acquires Weapon 
Systems and Recent Efforts to Reform the Process , (2 January 2013) (Schwartz Report), (Exhibit USA -115), 
p. 2. 
1402 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1140 -7.1146.  
1403 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1140 and 7.1141 (referring to 
United States Code , Title 10, section  2358).  
1404 Panel Report, US – Large Civi l Aircraft (2nd complaint ), para. 7.1142 (referring to the DOD Grant and 
Agreement Regulations, United States Code of Federal Regulations , Title 32, sub -chapter c, part 21).  
1405 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1142 (referring  to the United States 
Code of Federal Regulations , Title 32, section 21.615). Consistent with the character of "assistance 
instruments" as legal vehicles through which a thing of value is transferred to a recipient for the purpose of 
"support or stimulatio n", the payment of a "fee" or "profit" is prohibited under assistance instruments. (Panel 
Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1152 (referring to sections 34.18 and 37.230)).  
1406 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1149. See also Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint ), para. 605 (explaining that the assistance instruments 
reviewed by the Appellate Body committed Boeing to contribute financial resources, although in all cases, DOD 
funded at least 50% of the costs).  
1407 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 606 (referring to 
United  States' response to Panel question No. 20(a), para. 45 in the original proceeding).  WT/DS353/R W 
 
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  direct benefit or use of the Federal Government ".1408 Consistent with th e character of 
procurement contracts as the legal vehicles through which the U.S. G overnment acquires 
property or services for its direct benefit or use, the DOD Grant and Agreement 
Regulations mandate that a procurement contract, rather than an assistance  instrument, 
be used in all cases where a fee or profit is to be paid or the instrument is to be used to 
carry out a program me where a fee or profit is necessary to achieving program me 
objectives.1409 
8.299.   Given that our evaluations of the subsidy issues presented  by the European  Union 's 
DOD-related subsidy claims involve a consideration of the RDT&E program elements through which 
the procurement contracts and assistance instruments are funded, we set forth in the following 
sections relevant information concerning the nature of R&D commissioned under the various 
RDT&E program elements, and the processes through which that R&D is commissioned from 
contractors like Boeing.1410  
8.2.3.2.3   R&D conducted under the RDT&E program elements  
8.300.   The R&D commissioned by DOD through the RDT&E P rogram falls into two general 
categories. The first consists of R&D commissioned under program elements that fund  basic 
research, applied research and advanced technology development to meet a variety of current and 
future military needs. The second compri ses R&D commissioned under program elements that 
fund development of technologies for specific new weapon systems or components.1411  
8.301.   Program elements in the former category are referred to as science and technology (S&T) 
program elements and correspond to th e program elements identified by the European Union and 
its experts as "general aircraft " program elements. The S&T/general aircraft  category consists of 
basic research to gain knowledge and understanding, applied research to identify technologies that 
the knowledge might enable, and advanced technology development to evaluate how the 
technologies work together and perform in a relevant environment.1412 As the United States 
explains, the key link among these program elements is that DOD is "seeking knowledge o r 
generalized technology options in support of current and future military missions – they do not 
have the objective of purchasing a particular {weapon } system ".1413 Fourteen of the 23 original 
RDT&E program elements challenged by the European Union are S&T/g eneral aircraft program 
                                               
1408 Panel Report, US – Large Civil Aircraft  (2nd complaint ), para. 7.1142 (referring to the United States 
Code of Federal Regulations , Title 32, section 21.670). See also United States' response to Panel question 
No. 69, para. 42; and  United States Code of Federal Regulations , Title 48, section 2.1 01, (Exhibit USA -452).  
1409 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1152 (referring to section 22.205 of 
the DOD Grant and Agreement Regulations).  
1410 The relationship between the RDT&E program elements and the legal instruments through  which 
funding under the program elements is provided to contractors such as Boeing is discussed further in 
paras.  8.335  and 8.336  below . 
1411 The parties recognize this  basic distinction in categories of RDT&E program elements in their 
submissions, although they use different terminology for each category. ( See United States' first written 
submission, para. 316; and CRA Report, (Exhibit EU -29), p. 5). See also Panel Repo rt, US – Large Civil Aircraft 
(2nd complaint ), para. 7.1114 (where the European Communities applied the same distinction between "general 
aircraft" and "military aircraft" RDT&E program elements) . 
1412 United States' first written submission, para. 316. Resea rch conducted under S&T program elements 
corresponds generally to technology readiness levels 1 through 6 on NASA's scale. As explained by the original 
panel, NASA categorizes technologies according to a system reflecting the level of maturity (or technolo gy 
readiness level), ranging from the highest risk, lowest maturity technology (TRL 1) to the lowest risk, highest 
maturity technology (TRL 9). NASA's research efforts focus on the development of higher risk technologies up 
to TRL 6, which is prototype dem onstration. (See Panel Report, US – Large Civil Aircraft (2nd complaint ), 
para. 7.1748).  
1413 United States' first written submission, para. 316. " Effort under S&T contracts typically revolves 
around researching a specific scientific or engineering question, developing technology on the basis of the 
resulting knowledge or understanding, or testing application of a particular principle in a particular 
environment. The deliverable will typically be a report or a briefing on the results of the work, or in some 
instances a test article or technology prototype for further evaluation by DOD. The objective is not to acquire a 
{weapon} system, but to study the problem presented so the knowledge gained in doing so can be used to 
solve broad problems or provide technolog y options for future systems acquisition." (United States' first written 
submission, para. 320).  WT/DS353/R W 
 
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  elements.1414 In addition, measures funded under a further  three "additional " program elements 
that are within the scope of this proceeding are S&T/general aircraft program elements.1415  
8.302.   S&T/general aircraft research activities  may be co ntrasted with  R&D funded under  program 
elements that develop specific new weapon systems or components.1416 R&D directed specifically 
to the development of particular weapon systems or components is funded through systems 
acquisition program elements, which c orrespond to the "military aircraft " category of program 
elements identified by the European Union and its experts. Nine of the 23 original RDT&E program 
elements are systems acquisition/military aircraft  program elements.1417  
8.2.3.2.4   How R&D is commissioned under t he RDT&E program elements  
8.303.   The processes by which DOD procures the RDT&E services (which are the necessary 
precursor to the larger -scale production and deployment of the weapons systems that DOD 
ultimately acquires) are complex. For present purposes, we pro vide an outline of what we regard 
as the basic but important aspects of that process in order to aid in our characterization of the 
DOD aeronautics R&D measures. The procurement process varies in general terms for 
S&T/ general aircraft program elements, as compared to systems acquisition/military aircraft 
program elements. We begin by outlining the basic features of the procurement process  for 
S&T/general aircraft program elements.  
8.304.   S&T/general aircraft procurement is managed by the research organizations wi thin DOD, 
such as the Air Force Research Laboratory (AFRL) for the U .S. Air Force and the  Office of Naval 
Research for the U .S. Navy. The United States describes the procurement process using the 
example of Air Force S&T procurement managed by AFRL and sta tes that a similar process occurs 
with respect to all DOD research organizations.1418 
8.305.   First, AFRL obtains information on "user needs " and "technology opportunities ". User needs 
are identified based on sources  such as "Defense Planning Guidance ", issued by the  U.S. Secretary 
of Defense, along with various other strategic documents identifying future missions and 
capabilities that war fighter s will need in order to accomplish those missions. In addition, AFRL 
managers are expected to be aware of the various role s the Air Force performs in support of 
national defense. AFRL obtains information on technology opportunities by instructing its officials 
to remain up -to-date on the state of the art in all of the fields relevant to the Air Force, such as 
                                               
1414 (a) Defense Research Sciences (PE 0601102F); (b) Materials (PE 0602102F); (c) Aerospace Flight 
Dynamics/Aerospace Vehicle Technologies (PE 0602201F); (d) Aer ospace Propulsion (PE 0602203F); (e) 
Aerospace Avionics/Aerospace Sensors (PE 0602204F); (f) Dual -Use Science & Technology (PE 0602805F); (g) 
Advanced Materials for Weapons Systems (PE 0603112F); (h) Flight Vehicle Technology (PE 0603025F); (i) 
Aerospace S tructures/Aerospace Technology Dev/Demo (PE 0603211F); (j) Aerospace Propulsion and Power 
Technology (PE 0603216F); (k) Flight Vehicle Technology Integration (PE 0603245F); (l) RDT&E for Aging 
Aircraft (PE 0605011F); (m) Manufacturing Technology Industri al Preparedness – Air Force 
(PE 0603680F/0708011F); and (n) Manufacturing Technology Industrial Preparedness – Navy (PE 0708011N).  
1415 The "additional" RDT&E program elements that are S&T/general aircraft program elements and fund 
measures that are within the scope of this proceeding are: (a) Material s and Biological Technology 
(PE 0602715E); (b) Sustainment Science & Technology (PE 0603199F); and (c) A viation Safety Technologies 
(PE 0606301D8Z ). 
1416 "Weapon systems" refer s to technically complex items such as ai rcraft, missiles, ships, and tanks 
that DOD purchases and includes the subsystems, logistical support and software needed to operate and 
support them.  
1417 The following original RDT&E program elements are systems acquisition/military aircraft program 
element s: (a) V-22/CV -22 (PE 0604262N/0401318F); (b) F/A -18 Squadrons (PE 0204136N); (c) Joint Strike 
Fighter (PE 0603800F/0603800N/0603800E/0604800F/0604800N); (d) C -17 (PE 0401130F/0604231F); ( e) 
F-22 (PE 0604239F); ( f) B-2 Advanced Technology Bomber (PE 060424 0F); (g) Comanche (PE 0604223A); 
(h) A-6 Squadrons (PE 0204134N); and ( i) AV-8B Aircraft (PE 0604214N). Although the European Union's 
panel request identified an additional four systems acquisition/military aircraft RDT&E program elements: 
AWACS (PE  020741 7F); KC -46, Next Generation Aerial Refueling Aircraft  (PE 0605221F); Multi -Mission 
Maritime Aircraft (P -8A) (PE 0605500N); and Long Range Strike Bomber (PE 060415F). The Panel rules in 
Section 7.3.3  that the mea sures in question are outside the scope of the proceeding, or that the Panel is not 
satisfied of the existence of measures falling in the scope of the European Union's claims as identified by the 
European Union.  
1418 United States' first written submission, p ara. 319.  WT/DS353/R W 
 
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  aerospace system s, air vehicles, space vehicles, directed energy devices, information systems, 
materials and manufacturing processes, munitions, and sensors.1419  
8.306.   Based on the inputs as to user needs and technology opportunities, AFRL issues a Program 
Objective Memorandum ea ch year, which forms the basis for an annual Corporate Investment 
Strategy, setting the balance between basic research, applied research and advanced technology 
development, and levels of S&T/general aircraft funding for different technology areas. Within this 
framework, AFRL decides for each S&T objective whether to conduct the research in -house or to 
commission it from external sources such as industry or academia. In the latter case, the 
acquisition strategy depends on whether the objective of the resear ch is within the scope of an 
existing effort, a follow -on effort, or requires a new effort. That decision guides the choice of an 
acquisition strategy.1420 
8.307.   ARFL may then commission research by issuing a Broad Agency Announcement which sets 
out a research obje ctive and invites white papers on how to achieve that goal. It may also issue a 
an RFP . AFRL evaluates all proposals based on, at minimum, technological merit, contribution to 
agency mission, cost and realism, and selects the offer that represents the best  combination of all 
of them. A similar process occurs for all DOD research organizations.1421 
8.308.   Systems acquisition/military aircraft program elements involve a different process for 
procuring the R&D required to develop a specific weapon system or component. F rom concept to 
deployment, a weapon system goes through a three -step process of: (a) identifying the required 
weapon system ; (b) establishing a budget ; and (c) acquiring the system.1422 These three 
processes , which are intended to work in concert, are as foll ows1423: 
a. the Joint Capabilities Integration and Development System (JCIDS), for identifying 
requirements . The process involves the identification, assessment and prioritization of 
capabilities the military requires to fulfil the military 's mission (sometimes referred to as 
a requirements generation process). The JCIDS process analyses the military 's capability 
needs and gaps, and recommends both materiel and non -materiel (e.g. a change in 
training or strategy) ways to address them1424; 
b. the Planning, Programming, Budgeting, and Execution System (PBBES), for allocating 
resources and budgeting . During the planning phase of PBBES, the needs of combatant 
commands are analysed and the findings are published in the Joint Programming 
Guidance document, which guides the DO D components ' efforts to propose acquisition 
program mes. The programming and budgeting phases occur concurrently1425; and  
                                               
1419 United States' first written submission, para. 318.  
1420 United States' first written submission, para. 319.  
1421 The United States asserts that a similar arrangement is in place for all other DOD research 
organizations beyond the AFRL. (United State s' first written submission, para. 319).  
1422 Schwartz Report,  (Exhibit USA -115), pp. 2 and 3.  
1423 A 2012 Instruction of the Chairman of the Joint Chiefs of Staff explains that together, the three 
processes provide a means to determine, validate and prioritize  capability requirements and associated 
capability gaps and risks, and then fund, develop and field non -materiel and materiel capability solutions for 
the warfighter in a timely manner. (Chairman of the Joint Chiefs of Staff Instruction, "Joint Capabilitie s 
Integration and Development System", 3170.01, 10 January 2012, (Exhibit USA -114), p. A -5). 
1424 The JCIDS is managed by the Joint Staff and military services. If a materiel solution such as a 
weapon system is considered, it must be justified on the basis of  an initial capabilities document which must be 
approved by the Joint Requi rements Oversight Council , the organization responsible for identifying and 
prioritizing warfighter requirements.  (Schwartz Report, (Exhibit USA -115), pp. 3 and 4).  
1425 During these p hases, Program Objective Memoranda (which outline the anticipated missions and 
objectives of the proposed weapon programmes and anticipated budget requirements) are submitted to 
propose these programmes. These memoranda are reviewed and, as deemed appropri ate, integrated into an 
overall Defense programme. Budgets are reviewed and program budget decisions are issued. Simultaneously 
with the programme and budget reviews, programmes are evaluated and measured against established 
performance metrics, including the rates of funding obligations and expenditures.  (Schwartz Report, (Exhibit 
USA-115), p. 5).  WT/DS353/R W 
 
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  c. the Defense Acquisition System (DAS), for developing and/or buying the item . The 
Defense Acquisition System is the management process by which DOD develops and 
buys weapon and other systems.1426 
8.309.   There are five major phases of the DAS process: (a) materiel solution analysis; (b) 
technology development; (c) engineering and manufacturing development; (d) production and 
deployment; and (e) operati ons and support.1427  
8.310.   The Materiel Solution Analysis phase involves assessment of potential materiel solutions 
for a military need, conduct of an "Analysis of Alternatives " to explore alternative methods of 
meeting the identified requirement and creation of a  "Technology Development Strategy ". The 
Material Solution Analysis phase ends when the Analysis of Alternatives is completed, the lead 
component recommends materiel solutions identified by the initial capabilities document , and the 
program me meets criteria  for the DAS milestones. "Milestones " are used by DAS as a way to 
oversee and manage acquisition program mes. There are three formal milestones for determining 
whether an acquisition is ready to move forward. At each milestone, a program me must meet 
specifi c statutory and regulatory requirements before it can proceed to the next phase of the 
acquisition process. The milestones are: A (technology development); B (engineering and 
manufacturing development); and C (production and deployment ): 
Milestone A Techno logy Development phase.  During this phase, technologies are 
developed, matured and tested. In order to be considered sufficiently mature for 
product development, technologies must be tested and demonstrated in either a 
"relevant " or "operational " environme nt. In this phase, a "Capability Development 
Document ", which details the operational performance parameters for the anticipated 
system is developed. In addition, a "Reliability, Availability and Maintainability " 
strategy is developed.1428 Competitive prototy ping occurs in this phase. The 
Technology Development phase is complete when, among other things, an affordable 
program me (or increment) is identified and the technology and manufacturing 
processes have been demonstrated in a relevant environment.  
Mileston e B Engineering and Manufacturing Development (EMD) phase:  To enter this 
phase, the acquisition program must have mature technology, approved requirements 
and full funding.1429 In addition, the "Milestone Decision Authority " must have 
approved the acquisition  strategy, the acquisition program me baseline (which details 
the performance, schedule and cost goals of the program me) and the type of contract 
that will be used to acquire the system.1430 It is at this stage that DOD conducts a 
process to choose a contracto r to integrate the technologies and capabilities into a 
single system in preparation for the manufacturing process.1431 A Program Office will 
be created to oversee the execution of the contract and with responsibility to ensure 
that the contractor completes t he work in the appropriate amount of time. EMD 
consists of two sub -stages: (a) system integration, and (b) system demonstration. 
During system integration, various sub -systems are integrated into one system and a 
development model or prototype is produced.  During system demonstration, the 
                                               
1426 DAS is managed by the Under Secretary for Acquisition, Technology, and Logistics. Each acquisition 
programme for a weapon system is managed by an Acquisition P rogram Office, which is headed by a Program 
Manager, and who is usually supported by a staff that can include engineers, logisticians, contracting officer 
and specialists, budget and financial managers , and test and evaluation personnel. The line of report ing is such 
that Program Managers usually report to Program Executive Officer s, who themselves report to a component 
acquisition executive, who generally reports to the Under Secretary of Defense for Acquisition, Technology, and 
Logistics (who also serves as the Defense Acquisition Executive). ( Schwartz Report, (Exhibit USA -115), p. 6).  
1427 Chairman of the Joint Chiefs of Staff Instruction, "Joint Capabilities Integration and Development 
System", 3170.01, 10 January 2012,  (Exhibit USA -114), p. A -6. 
1428 Schwartz  Report, (Exhibit USA -115), p. 8. "Reliability, Availability and Maintainability" is a term of 
art encompassing, respectively, the probability of a system performing a specific function under stated 
conditions for a specified time, the time a system is ope rable and able to be committed to a mission, and the 
extent to which a system can be kept in or restored to a specific operating condition.  
1429 Schwartz Report, (Exhibit USA -115), p. 9.  
1430 Schwartz Report, (Exhibit USA -115), p. 9.  
1431 United States' first writt en submission, para. 324. The United States explains that some of the effort 
in the EMD phase will involve development activities, particularly with regard to integrating multiple 
technologies into a functioning whole and devising a production process that  ensures the necessary quality at 
an affordable price.  WT/DS353/R W 
 
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  model or prototype enters into developmental testing to demonstrate its military 
usefulness, and that the system can be supported through manufacturing processes. 
Much of the testing and evaluation of the system occurs in this sub -stage.1432 The 
EMD phase is complete when, among other things, the system meets performance 
requirements as demonstrated by a model in an intended environment, and when 
manufacturing processes have been demonstrated.1433  
Milestone C Production and Depl oyment phase:  The Production and Deployment phase 
is the phase in which a weapon system is produced and deployed. To enter this phase, 
a program must  have: (a) passed developmental testing and operational assessment, 
(b) demonstrated that it is interoperab le with other relevant systems and can be 
supported operationally, (c) shown that it is affordable, (d) be fully funded, and (e) 
had the Milestone Decision Authority authorize the beginning of low -rate initial 
production.1434 Once operational test and evaluat ion is complete, and adequate control 
over manufacturing processes has been demonstrated, a program me can, with the 
approval of the Milestone Decision Authority, go into full -rate production.1435 
8.2.3.2.5   Legal restrictions on the dissemination of military technologie s and data  
8.311.   Information generated by work performed under DOD procurement contracts and 
assistance instruments is subject to a number of legal restrictions such as export -controls and 
classification.  
8.312.   The export control regime comprises the International Tra ffic in Arms Regulations (ITAR), 
which govern military items and technologies, and the Export Administration Regulations (EAR) 
which govern other items and technologies. The ITAR implement the Arms Export Control Act  
(AECA) .1436  
8.313.   Section 2778(a) of the AECA  authorizes the U.S. President to control the import and export 
of defense articles and defense services and to provide foreign policy guidance to U .S. persons 
involved in the import and export of such articles and services.1437 The AECA  authorizes the 
Presiden t to designate items as defense articles and defense services and to promulgate 
regulations for the import and export of such articles and services. The items so designated 
constitute the United States Munitions List. The AECA  defines "defense items " as "defense articles, 
defense services and related technical data ". The lengthy definitions of "defense articles " and 
"defense services " set forth in the AECA  in general terms cover weapons, munitions, or other 
implements of war and the services used in making sales of such articles.1438  
8.314.   In other words, information controlled under the ITAR generally covers technical data 
related to weapons, munitions, or other implements of war or the services used in making sales of 
such articles.1439 The EAR govern other items and  technologies.1440 The rationale for EAR is 
                                               
1432 Schwartz Report, (Exhibit USA -115), p. 10.  To move from system integration to system 
demonstration, the "Milestone Decision Authority" must complete a post -preliminary design review assessment 
(revie wing the extent to which the system meets requirements) and a post -critical design review assessment 
(reviewing whether the overall design is mature).  
1433 Schwartz Report, (Exhibit USA -115), p. 10.  
1434 Low-rate initial production is intended to both prepare ma nufacturing and quality control processes 
for a higher rate of production and provide test models for operational test and evaluation. (Schwartz Report, 
(Exhibit USA -115), p. 10).  
1435 Schwartz Report, (Exhibit USA -115), p. 10.  
1436 United States Code , Title 22,  sections 2751 -2799aa -2. 
1437 The rationale for export controls under the ITAR is expressed in section 2778(a)(2) of the AECA:  
Decisions on issuing export licences under this section shall take into account 
whether the export of an article would contribute to  an arms race, aid in the 
development of weapons of mass destructions {WMD}, support international 
terrorism, increase the possibility of outbreak or escalation of conflict, or prejudice 
the development of bilateral or multilateral arms control or non -proliferation 
agreements or other arrangements.  
1438 Arms Export Control Act, United States Code , Title 22, section 2794, (Exhibit USA -477), paras. 3 
and 4.  
1439 United States' response to Panel question No. 86, para. 146.  
1440 Specifically, EAR, part 730.3 provides th at the EAR control:  WT/DS353/R W 
 
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  generally to serve the national security, foreign policy, non -proliferation of weapons of mass 
destruction, and other interests of the United States.1441 In the original proceeding, the panel 
accepted that, although th e scope and coverage of the ITAR was not entirely clear, the ITAR 
restrict Boeing 's ability to use certain R&D performed for DOD towards its civil aircraft, that Boeing 
complies with the ITAR in general, and took steps to ensure that the 787 would be "ITAR-free".1442 
8.315.   Another less prevalent but more restrictive limitation is the classification of information 
under Executive Order 12958.1443 Certain types of information, including information concerning 
military plans, weapon systems or operations, and scientific, technological or economic matters 
related to the national security, can be subjected to three levels of classification ( "Top Secret ", 
"Secret " and "Confidential ") based on the harm that could reasonably be expected to result from 
unauthorized disclosure.1444 Classified information (as well as information derived from classified 
information) cannot be shared with persons lacking the requisite security clearance and a need to 
use that information for government purposes. Executive Order 12958 also provides for s pecial 
access program mes for specific classes of classified information that impose safeguarding and 
access requirements that exceed those normally required for information at the same classification 
level, in certain defined situations.1445 
8.316.   Pursuant to its a uthority to establish policies for R&D for all DOD  program  elements, DOD 
adopted Instruction 5230.24 to establish a standard framework and markings for managing, 
sharing, safeguarding, and disseminating technical documents.1446 These different "distribution 
statements " indicate the classes of persons permitted to access the information contained in a 
document.1447 
8.2.3.3   Whether there is a financial contribution  
8.2.3.3.1   Introduction  
8.317.   In Section 7.3 of this Report, we make rulings regarding certain DO D aeronautics R&D 
measures that were identified by the European Union in its panel request, which the United  States 
challenged as being outside the scope of this proceeding. In Section 7.8 above, we set forth the 
categories of DOD aeronautics R&D measures that are properly before the Panel based on the 
measures identified by the European Union in its panel request, and the outcomes of the Panel's 
rulings regarding the various scope -related  challenges brought by the United States .1448 These are 
                                                                                                                                               
{A}ny item warranting control that is not exclusively controlled for export, 
reexport, or transfer (in -country) by another agency of the U.S. Government or 
otherwise excluded from being subject to the EAR pursuant to § 734.3(b) of the 
EAR.  
Thus, items subject to the EAR include purely civilian items, items with both civil and military, terrorism or 
potential WMD -related applications, and items that are exclusively used for military applications but that do not 
warrant control under the ITAR.  
1441 Export Administration Regulations, part 730,  (Exhibit USA -482), para. 730.6.  
1442 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1160.  
1443 Executive Order 12958, "Classified National Security information", 17 April 1995, (Exhibit USA -483). 
1444 Executive Order 12958, section 1.3(a) provides for a "Top Secret" classification for exceptionally 
grave damage to the national security that the original classification authority is able to identify or describe, a 
"Secret" classification for seriou s damage to the national security that the original classification authority is 
able to identify or describe, and a "Confidential" classification for damage to the national security that the 
original classification authority is able to identify or describe . 
1445 Executive Order 12958, "Classified National Security information", 17 April 1995, (Exhibit USA -483), 
sections 4.1(h) and 4.4. A special access programme applied to the Long -Range Strike Bomber program 
elements after 2011. (See Long Range Strike Bomber Budgets for FY 2007 -FY 2013 (PE 0604015F), (Exhibit 
EU-78), frame 37/47, p. 1).  
1446 DOD Instruction, "Distribution Statements on Technical Documents", 5230.24, 23 August 2012, 
(Exhibit USA -485), p. 1.  
1447 "Distribution A" statements are for materials available  to the general public, "Distribution B" 
statements for information restricted to U.S. Government agencies, "Distribution C" for information restricted 
to U.S. Government agencies and contractors, "Distribution D" for information restricted to DOD and DOD 
contractors, and "Distribution E" for information restricted to DOD. "Distribution F" is a residual category 
covering non -standard access restrictions, allowing the DOD entity that sponsored the work that generated the 
information to specify permitted uses  of information. (DOD Instruction, "Distribution Statements on Technical 
Documents", 5230.24, 23 August 2012, (Exhibit USA -485), pp. 19 and 27).  
1448 See para. 7.548  above . WT/DS353/R W 
 
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  the "DOD aeronautics R&D measures " to which we refer in our subsidy analysis in this and 
subsequent sections of the Report.  
8.318.   We first consider whether: (a) the post-2006 assistance instruments ; and (b) both 
pre-2007 and post -2006 procurement c ontracts, involve financial contributions within the meaning 
of Article 1.1(a)(1) of the SCM Agreement.1449 We then consider whether the financial 
contributions so identified confer a benefit , within the meaning of Article 1.1(b) of the SCM 
Agreement.  
8.2.3.3.2   Main ar guments of the parties and third parties  
8.319.   The European Union  submits that the parties appear to be in agreement that the DOD 
assistance instruments  (both pre -2007 and post -2006) are financial contributions.1450 Moreover, it 
considers that the characterization of transactions between DOD and Boeing under U .S. law as 
either assistance instruments or procurement contracts does not change the fact that all of the 
transactions are "akin to a species of joint venture ". Both DOD assistance instruments and DOD 
procurem ent contracts involve more than simply payments in exchange for research.  
8.320.   The European Union argues that DOD procurement contracts  funded through "general 
research " program elements and DOD procurement contracts funded through "military aircraft " 
program e lements, like the DOD assistance instruments before the original panel, constitute 
transactions that are "akin to a species of joint venture ", which are "analogous to a type of equity 
infusion ", and therefore constitute financial contribution s under Articl e 1.1(a)(1)(i) of the SCM 
Agreement. In particular, the European Union considers that payments under the DOD 
procurement contracts are a direct transfer of funds under Article 1.1(a)(1)(i), while the provision 
of access to facilities, equipment, and employ ees constitute s a government provision of goods and 
services  other than general infrastructure  within the meaning of Article 1.1(a) (1)(iii) of the SCM 
Agreement.  
8.321.   Like the DOD assistance instruments and NASA procurement contracts before the original 
panel, under the DOD procurement contracts: (a) both parties commit resources; (b) the parties 
share the fruits of their research; and (c) the subjects to be researched are often determined 
collaboratively. The European Union submits that the Appellate Body relie d on these three primary 
characteristics to find that the measures were "akin to a species of joint venture ". Moreover, in 
finding that the funds were "analogous " to an equity infusion under  Article  1.1(a)(1)(i) of the SCM 
Agreement, the European Union sub mits that the Appellate Body underscored the following four 
characteristics: (a) funding is provided in expectation of some kind of return; (b) there is no 
certainty that research will be successful; (c) the funders ' risks are limited to the amount of mone y 
they commit and the opportunity cost of other support they provide; and (d) the funder s also 
contribute to the project by providing access to facilities, equipment, and employees , as some 
equity investors would also do.1451 The European Union considers that  all of the DOD procurement 
contracts feature all of these characteristics.  
8.322.   In respect of procurement contracts for systems acquisitions under the "military aircraft " 
program elements , the European Union rejects the United States ' argument that the procur ement 
contracts are in some cases a "purchase of goods ". The European Union argues that there is a 
distinction between "RDT&E " appropriation and "procurement " appropriation, where the latter is 
the category resulting in the purchase of goods. The European Union clarifies that it does not 
challenge procurement appropriations. It also notes that the United States itself disagreed with the 
argument that RDT&E appropriations could be purchases of goods in the original proceedings.1452 
8.323.   The European Union submits th at the United States has failed to demonstrate that, even if 
certain of the DOD procurement contracts were considered to be "purchases of services ", 
                                               
1449 See para. 8.289  for an explanation of why we include within our evaluation of the post-2006 DOD 
aeronautics R&D measures in this Section 8.2.3  an evaluation of whether the pre-2007 procurement contracts 
that are within the scope of this proceeding involve specific subsidies to Boeing.  
1450 European Union's second written submission, para. 441 (referring to United States' first written 
submission, paras. 280 and 383).  
1451 European Union's first written submissio n, paras. 363 -369; second written submission, 
paras.  442-445 and 452 -455; and response to Panel question No. 17, paras. 115 -119. 
1452 European Union's second written submission, paras. 459 -462. WT/DS353/R W 
 
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  purchases of services are excluded from the scope of Article 1.1(a)(1). The United States has 
failed to demonstrate on the basis of a proper Vienna Convention analysis of Article 1.1(a)(1) that 
purchases of services are excluded. In light of the Appellate Body 's decision to declare the panel 's 
interpretation of this issue "moot and of no legal effect ", the Unit ed States has no basis to argue 
that the Appellate Body would have agreed with the panel 's reasoning as to why purchases of 
services are excluded from the scope of A rticle 1.1(a)(1) .1453 
8.324.   The European Union also argues, in the alternative, that "the transfer t o Boeing of patent 
and other intellectual property rights in the technologies and data developed under the NASA and 
DOD aeronautics R&D programmes additionally  constitutes a provision of 'goods … other than 
general infrastructure ' within the meaning of Art icle 1.1(a)(1)(iii) of the SCM Agreement ". The 
European Union does not ask the Panel to consider this "alternative " conception of the financial 
contribution "unless it rejects the European Union 's primary contentions, with respect to the 
characterisation o f the challenged aeronautics R&D measures ".1454 
8.325.   The United States  does not dispute that, consistent with the findings of the Appellate Body 
with regard to the pre -2007 DOD assistance instruments, the DOD assistance instruments involve 
financial contributions in the form of a collaborative relationship "akin to a species of joint venture " 
having "characteristics analogous to equity infusions ".1455 It agrees that the DOD assistance 
instruments "operate basically the same today as they did in the period covered by t he original 
panel and Appellate Body findings ".1456 
8.326.   However, the United States also makes a number of factual assertions regarding the DOD 
assistance instruments. It asserts that, of the 50 assistance instruments between Boeing and DOD 
at issue in the origina l proceeding, DOD only made additional payments under six in the 
FY 2007-FY 2012 period, for a total of  USD [***].1457 Moreover, these assistance instruments did 
not provide for use of DOD facilities. It states that DOD has only entered into three post -2006 
assistance instruments with Boeing funded through the original 23 RDT&E program elements, and 
submits evidence that these provided a total of  USD [***].1458 The United States also submits 
evidence that Boeing entered into three post -2006 assistance instruments  which  received funding 
through the "additional " RDT&E program elements for a total value of USD [***] in FY 2007-FY 
2012.  
8.327.   As to DOD procurement contracts , the United States argues that the European Union has 
failed to establish that the payments and acces s to facilities that DOD provided to Boeing through 
any of the DOD procurement contracts identified in this proceeding constitute financial  
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement. The European Union 's 
analysis addresses only whether the DOD procurement contracts can possibly  be characterized as 
joint ventures, without also examining whether they would be more appropriately  characterized as 
purchases of services. The United States considers that, following the guidance fro m the Appellate 
Body, a panel should take account of all of the relevant characteristics of the measure, and the 
features which are most central to the measure itself. As the Appellate Body acknowledged in 
Canada – Renewable Energy  / Canada – Feed-in Tarif f Program , one transaction may have 
multiple aspects and a panel 's analysis must take those complexities into account.1459 Thus, even if 
the European Union were correct that the DOD procurement contracts had characteristics that 
                                               
1453 European Union's second written submission, paras. 450, 451, an d 463.  
1454 European Union's response to Panel question No. 32, para. 197. The European Union explains that 
this is an alternative manner of bringing the aeronautics R&D contracts within the scope of Article 1.1(a)(1) of 
the SCM Agreement.  
1455 United States' fi rst written submission, paras. 279 and 280; second written submission, para. 257.  
1456 United States' second written submission, para. 257.  
1457 United States' first written submission, para. 278. Funds Obligated to Air Force Agreements with 
Boeing for FY 2007 -FY 2012, by program element, (Exhibit USA -108) (BCI).  
1458 These assistance instruments are: N001 -08-2-C009, FA8650 -08-2-3834, and FA8650 -11-2-2138. 
The United States says that the only access to U.S. Government facilities involved was the use of NASA 
Langley' s 14x22 foot V/STOL wind tunnel in connection with FA8650 -08-2-3834. (See United States' first 
written submission, para. 274).  
1459 United States' second written submission, para. 371 (referring to Appellate Body Report, US – Large 
Civil Aircraft (2nd compla int), para. 586).  WT/DS353/R W 
 
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  were "akin to a joint venture ", the Panel would still need to weigh the relative merits of each 
possible characterization, which the European Union 's arguments fail to do.1460 
8.328.   The United States distinguishes between two types of DOD procurement contracts: those 
funded under S&T program el ements (which the European Union refers to as "general research " 
program elements); and those funded under "systems acquisition " program elements (which the 
European Union refers to as "military aircraft " program elements). In both cases, the United States  
submits that the R&D has a military objective and that any potential civil uses are not in 
themselves an objective of the procurement contracts.1461 The United States argues that the 
European Union fails to "thoroughly scrutinize the measure " in order to ide ntify all relevant 
characteristics of the DOD procurement contracts so as to establish the existence of a financial 
contribution. Thus, it submits that the European Union has failed to demonstrate that any of the 
DOD procurement contracts have the same cha racteristics as the NASA procurement contracts and 
DOD assistance instruments addressed by the original panel.1462  
8.329.   Taking into account the operation of the DOD procurement contracts under law, their 
particular purpose, and the fact that DOD's  primary contrib ution consists of payments (as 
provision of equipment and employees is either outside the Panel 's terms  of reference, or is 
otherwise "minimal or non -existent " and "rarely " made available), the United States argues that 
the DOD procurement contracts are no t "akin to a species of joint venture ", but rather, are either 
purchases of research services to assist DOD in developing technologies to be available for 
incorporation into products and processes to meet military needs, or in certain cases, purchase s of 
goods. Specifically, the United States  contends that the DOD procurement contracts funded under 
"general research " program elements and those "for improvements and upgrades under the 
military aircraft " program elements are purchases of services. Otherwise, DOD procurement 
contracts that are specifically for systems acquisitions under the "military aircraft " program 
elements are purchases of goods , under Article 1.1(a)(1)(iii) of the SCM Agreement.1463  
8.330.   Regarding the procurement contracts  that it considers are p roperly characterized as  
purchases of services, the United States argues that the  measures do not involve  financial 
contributions under any of the subparagraphs of Article 1.1(a)(1) of the SCM Agreement. While the 
Appellate Body declared "moot" the origina l panel 's interpretation of Article 1.1(a)(1)(i) of the SCM 
Agreement as excluding transactions properly characterized as "purchases of services ", such a 
declaration means only that the panel should not have reached the issue.1464 The original panel 's 
reasoni ng is nevertheless still compelling and persuasive.1465 Accordingly, the procurement 
contracts that are properly characterized as purchases of services do not fall within the definition 
of a financial contribution under Article 1.1(a)(1) of the SCM Agreement.1466 
                                               
1460 United States' second written submission, paras. 371 and 415.  
1461 United States' second written submission, para. 272. Moreover, the United States argues that 
procurement contracts or assistance instruments are the only mechanisms through  which DOD is legally 
authorized to provide payments, facilities, or equipment to private entities, and therefore, contracts pursuant 
to these are the only evidence to determine whether DOD provides any payments or support to Boeing. 
(United  States' second  written submission, para. 274).  
1462 United States' first written submission, paras. 312, 317, 379 -388, and 412 -414. In addition, the 
United  States argues that the European Union has failed to provide evidence on "military aircraft" program 
elements for the period after 2006, and that all evidence prior to that time "consists exclusively of 
cross-references to the 2006 CRA Report", which, according to the United States, "relies almost entirely on the 
subjective impressions of CRA staff at that time". For one,  the United States submits that the failure to include 
evidence cited in the CRA reports as exhibits to its submission in this dispute violates the Panel's Working 
Procedures. In addition, it submits that reliance on the CRA Report, amounts to "an entirely  ex post  and 
speculative approach to the facts" that runs afoul of the " ex ante , fact-based examination" that is required by 
the SCM Agreement. Thus, the United States argues "{t}here is nothing identifying the relevant transactions, 
explaining their terms  or putting them in the context of the time at which the parties entered into the 
agreement", thereby preventing the Panel from thoroughly scrutinizing the measures, and signifying that the 
European Union failed to make a prima facie  case in respect of the se transactions. (United States' first written 
submission, para. 399 and fns 664 and 665 (citing Appellate Body Report, US – Large Civil Aircraft (2nd 
complaint ), para. 706)). See also United States' response to Panel question No. 30, para. 133.  
1463 United S tates' first written submission, para. 309; second written submission, paras.  363, 388, and 
390. 
1464 United States' second written submission, para. 383.  
1465 United States' second written submission, paras. 383, 401, and 425. See also ibid. paras. 226 -231. 
1466 United States' first written submission, paras. 310, 389, and 419 -424. Moreover, the United States 
considers the logic of the Appellate Body in Canada – Renewable Energy / Canada – Feed-In Tariff Program , in WT/DS353/R W 
 
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  8.331.   Finally, the United States argues that the European Union has failed to establish that 
intellectual property rights accruing to Boeing pursuant to activities conducted under the 
aeronautics R&D measures  are financial contributions. First, as a factual ma tter, the United  States 
argues that there is no transfer of intellectual property rights to Boeing under U.S. law, as the 
patent is the property of the person who made the invention. Second, intellectual property is not a 
"good" and therefore cannot be the  subject of a financial contribution in the form of a government 
provision of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. Third, any 
intellectual property rights developed as a result of work under a DOD procurement contract ar e 
an effect of the contract, not an independent financial contribution.1467 
8.332.   Certain of the  third parties (Brazil , Canada , Japan,  and Korea) make arguments  as to the 
appropriate scope of Article 1.1(a)(1) of the SCM Agreement in relation to the aeronautics R&D  
measures and transactions that may be characterized as involving purchases of services. These 
arguments are summarized in our assessment of whether the post -2006 NASA  aeronautics R&D 
measures involve financial contributions, in Section 8.2.2.3.1  above.  
8.2.3.3.3   Evaluation by the Panel  
8.333.   The task before us is to determine whether the DOD aeronautics R&D measures involve 
financial contributions to Boeing within the meaning of Article 1.1(a)(1) of the SCM Agreement. 
This requires us to deter mine whether the DOD aeronautics R&D measures can properly be 
characterized as involving any of the particular forms of financial contribution identified in 
subparagraphs (i) through (iii) of Article 1.1(a)(1).  
8.334.   In order to undertake that evaluation, we mus t first examine the measures to determine 
their relevant characteristics, and then consider whether, in light of a proper interpretation of 
Article 1.1(a)(1), these measures, properly characterized, fall within the scope of that 
provision.1468 
8.335.   There are aspec ts of the DOD aeronautics R&D measures that it is important to bear in 
mind as part of this characterization exercise. First, the measures involve payments and the 
access to DOD facilities (and for some of the measures, equipment, and employees). Second, 
those payments and access to DOD facilities, equipment, and employees occur through particular 
categories of legal instruments, namely "assistance instruments " and "procurement contracts ". 
Finally, those legal instruments are funded through particular RDT&E  program elements with 
particular programmatic objectives that are reflected also in the objectives of the legal instruments 
funded under them.  
8.336.   In examining the relevant characteristics of the DOD aeronautics R&D measures, it is 
important to consider both  the program elements as well as the legal instruments which are the 
means through which the research goals of those program elements are implemented, and which 
set forth the terms and conditions on which particular aspects of the research work are to be 
conducted. The program elements and legal instruments are integrally connected with each other. 
While the characterization exercise ultimately focuses on the assistance instruments and 
procurement contracts as the direct legal means through which the paymen ts and access to 
facilities (and in some cases equipment and employees) are provided, which is consistent with the 
approaches taken by the panel and the Appellate Body in the original proceeding, these legal 
instruments cannot be characterized in the abstr act, but only in the context of the DOD RDT&E 
program elements  through which they are funded . 
8.337.   In Sections 8.2.3.2.3  and 8.2.3.2.4  of this Report, we describe the nature of R&D 
conducted under the tw o general categories of RDT&E program elements, namely, S&T/general 
aircraft and systems acquisition/military aircraft program elements, and the differing procedures 
by which that R&D is commissioned. It is clear to us from that discussion, as well as from  our 
                                                                                                                                               
concluding that a purchase of goods under Article  1.1(a)(1)(iii) occurs "when a 'government' … obtains 
possession … over a good by making a payment of some kind (monetary or otherwise)" means that where a 
government obtains entitlement to the supply of a service by making a payment of some kind, there wo uld 
likewise be a purchase of a service. (United States' first written submission, para. 390 (citing Appellate Body 
Report s, Canada – Renewable Energy / Canada – Feed-In Tariff Program , para. 5.123)).  
1467 United States' second written submission, paras. 443 -447. 
1468 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 589.  WT/DS353/R W 
 
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  review of the RDT&E program budgets, procurement contracts, assistance instruments, and other 
evidence concerning the RDT&E program elements, that the acquisition of a weapon system is a 
large and complex engineering development project that occurs ov er many years, covers a 
multitude of technical and bureaucratic processes and phases and involves a wide variety of 
participants.  
8.338.   Systems acquisition/military aircraft RDT&E procurement commences with the JCIDS 
process, which is a "requirements generation " process for analysing the military 's capability needs 
and gaps.1469 The materiel solutions are those that are determined to meet the military needs 
identified in the JCIDS process.1470 The technologies that are developed, matured, and tested are 
those that wil l be integrated into the weapon system.1471 The integration of the technologies into a 
single weapon system and the development of manufacturing processes that occurs during the 
EMD phase are all necessary prerequisites to production and deployment of the wea pon 
system.1472 In other words, these long -term, highly complex research and engineering projects are 
ultimately directed towards equipping the U .S. armed forces with highly specialized , technical 
items , for which DOD is the only buyer in the United States an d the predominant buyer in the 
world.  
8.339.   Similarly, S&T/general aircraft RDT&E procurement, while not directed toward s technology 
solutions for a specific weapon system, is directed towards the same objective of equipping the 
U.S. armed forces. With the exce ption of the explicitly "dual-use" RDT&E program elements , which  
we discuss in paragraph 8.346  below , there is no reference in the objectives of the S&T/general 
aircraft program elements to the goal of promoting the competitive ness of the U.S. aeronautics 
industry. This is an important and fundamental distinction between the NASA aeronautics R&D 
programmes and the DOD RDT&E program elements before us.  
8.340.   In addition, the DOD assistance instruments and procurement contracts should b e 
understood in the broader context of the function and activities of DOD. The mission of the DOD is 
to provide the military forces needed to deter war and protect the security of the United  States. 
Title 10 of the United States Code  governs the organizati on, structure and operation of the U .S. 
Armed Forces. Several sections within the title charge the secretaries of the military departments 
(Army, Navy, and Air Force) with responsibility to "equip " the armed forces.1473 DOD is the 
exclusive  buyer of air weapo nry and weapons technology in the United States.1474 The products 
that DOD ultimately procures are highly sophisticated and technically complex weapon systems 
designed to meet identified military needs of the United States Government. They require 
extensive t echnological development over a period of many years as a necessary precursor to their 
production and deployment.  
8.341.   As we have explained in Section 8.2.3.2.3  of this Report, DOD assistance instruments and 
procurement contracts fu nd R&D work to produce military technologies for military purposes, with 
the exception of DOD assistance instruments funded under RDT&E program elements that have 
the explicit objective of developing dual -use technologies. Th is concept of "dual-use", which  
describe s the explicit objectives of certain of the DOD RDT&E program elements , encompasses 
both the application to military needs of technology solutions developed by industry for civilian 
application (military in -bound) and the flow of technologies from military -developed contexts to 
commercially useful application in civilian contexts.1475  
8.342.   It is important to note that the European Union uses the term "dual-use" in a different  
sense from the sense outlined in the preceding paragraph . 
                                               
1469 Schwartz Report, (Exhibit USA -115), pp. 3 and 4.  
1470 Schwartz Report, (Exhibit USA -115), p. 7.  
1471 Schwartz Report, (Exhibit USA -115), p. 8.  
1472 Schwartz Report, (Exhibit USA -115), p. 10.  
1473 Schwartz Report, (Exhibit USA -115), p. 2.  
1474 The United States also has the largest defence budget of any country in the world. For example, the 
U.S. defence budget was estimated to be USD 600.4 billion in 2013, compared to the next largest de fence 
budgets of USD 112.2 billion for China and USD 68.2 billion for Russia. (IISS, Military Balance 2014 Press 
Statement, 5 February 2014, (Exhibit USA -487), p. 2). The U.S. defense budget is divided into five broad 
budget categories: military personnel,  operations & maintenance, procurement, RDT&E and military 
construction. (CRA Report, (Exhibit EU -29), p. 4).  
1475 Second Supplemental Razgaitis Declaration, (Exhibit EU -1398) (BCI), para. 14.  WT/DS353/R W 
 
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  8.343.    The European Union us es the term "dual -use" to refer to the military technologies 
developed by Boeing under the various RDT&E program elements that the European Union 
considers , based on the opinions of its experts, have potential  applicability to Boeing LCA.1476 As 
explained in paragraph 8.296  the European Union 's DOD -related subsidy challenge concerns the 
funding and access to facilities, equipment, and employees  provided to Boeing for "R&D applicable 
to the development, design and production of LCA ".1477 In paragraphs  7.86 to 7.88 of 
Section  7.3.1 of this Report, we explain the process by which the European Union identified the 
specific aspects of the various RDT&E pr ogram elements that it considers  could potentially  have 
application to Boeing 's LCA development.1478  
8.344.   Accordingly, the European Union 's conception of what it considers to be "dual-use" R&D 
should not be confused with the meaning of "dual -use" used to describe  the explicit objectives of 
certain of the DOD RDT&E program elements.  
8.345.   In the original proceeding, the panel identified the Dual -Use Applications and Dual -Use 
Science and Technology (PE 0602805F) program element, and the Manufacturing 
Technology/Industria l Preparedness program elements for both the Air Force (PE 0603771F and 
0708011F) and Navy (PE 0708011N) , as having the explicit objective of developing "dual-use" 
R&D.1479 As the budget estimates for the Air Force Dual Use Science & Technology (DUS&T) 
progra m element explain, the policy underlying the  DUS&T  program element was to enable the Air 
Force to leverage industry investments  in advanced technologies that are mutually advantageous 
to both the Air Force and Industry  (i.e. military in -bound dual -use).1480 A DOD Directive explains 
that the fundamental policy underlying the various ManTech program elements is to address the 
situations in which the private sector cannot or will not make the necessary investments in 
manufacturing technologies that are necessary to produce DOD materiel on a timely basis.1481 
8.346.   The European Union 's claims in this proceeding cover the DUS&T and Air Force and Navy 
ManTech program elements.1482 In addition, the European Union 's claims cover the Defense -Wide 
ManTech (PE 0603860Z) program eleme nt which funded two assistance instruments with Boeing in 
the 2007 -2012 period.1483 These RDT&E program elements have explicit dual -use objectives. 
Moreover, these program elements have funded only assistance instruments with Boeing, so are 
not relevant to ou r characterization of the DOD procurement contracts.1484 
8.347.   In identifying the relevant characteristics of the DOD assistance instruments and 
procurement contracts, below, we bear in mind the foregoing aspects which we consider relevant 
to their proper character ization.  
                                               
1476 See also Section 7.3.6 of this Report.  
1477 European Union's request for the establishment of a panel, paras. 11  and 12. 
1478 The European Union's expert, Mr Rumpf, describes his assignment as being to estimate the amounts 
of funding provided to Boeing by the RDT&E program element s that could  benefit Boeing's commercial airplane 
division . (Rumpf Report, (Exhibit EU -23), para. 1.1). Rumpf indicates that his identification of the relevant 
S&T/general aircraft RDT&E program elements is based on his opinion as to the program elements a nd 
activities that he considers involve "dual -use", non -engine aircraft R&D. (See Rumpf Report, (Exhibit EU -23), 
para. 2.1). Similarly, Mr Rumpf's discussion of the systems acquisition/military aircraft RDT&E program 
elements often refers to his opinion re garding the "potential" applicability to Boeing LCA, or "potential" to 
benefit Boeing's LCA development. (See e.g. Rumpf Report, (Exhibit EU -23), para. 4.2 in relation to the C -17 
and KC -46, and para. 4.3.4 in relation to the P -8A). 
1479 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1148. The original panel appears to 
have counted the Air Force and Navy ManTech program elements as a single program element.  
1480 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1147.  
1481 U.S. DOD Di rective, "Manufacturing Technology (ManTech) Program", No. 4200.15 
(19 September  2002), (Exhibit EU -295), p. 2.  
1482 We note that Boeing received no funding under the DUS&T or ManTech (Navy) program elements 
over the 2007 -2012 period. (United States' first wr itten submission, paras. 348 and 365).  
1483 The European Union also challenges particular projects under both the IP ManTech (PE 0708011S)  
program element and Technology Transfer (PE 0604317F)  program element , but as explained in Section 7.3.3 
of this Report, the Panel is not satisfied that any measures exist under these program elements and 
accordingly does not further consider these alleged measures in its analysis of whether the DOD aeronautics 
R&D measures invol ve specific subsidies that cause adverse effects.  
1484 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1149.  WT/DS353/R W 
 
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  8.2.3.3.3.1   DOD assistance instruments  
8.348.   The assistance instruments before us encompass those that were funded under the 23 
original RDT&E program elements since the original proceeding, and certain post -2006 assistance 
instruments funded under "additional " RDT&E program elements that we have found to be within 
the scope of this proceeding (collectively, post -2006 assistance instruments).1485 
8.349.   In the original proceeding, the Appellate Body found that the payments and access to DOD 
facilities provided to Boeing under  the DOD assistance instruments constituted financial 
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement.1486  
8.350.   As we explain in Section 8.1.3 of this Report, the United States has modified the pre -2007 
DOD assistance instruments, and certain post -2006 DOD assistance instruments, to grant a 
commercial use licence to DOD in respect of Boeing -owned patents.1487 We note that the 
United  States does not allege that it has modified the terms of any post -2006 assistanc e 
instruments in a way that results in those assistance instruments no longer constituting financial 
contributions.1488  
8.351.   Moreover, the United States concedes that those post -2006 assistance instruments that 
have not been modified by the DOD -Boeing Patent Lice nce Agreement operate in the same 
manner as the DOD assistance instruments that were before the panel and Appellate Body in the 
original proceeding, and that the Appellate Body 's characterization of those assistance instruments 
would apply to those post-2006 assistance instruments.  
8.352.   We agree that there is nothing in the nature or terms of the modified post -2006 DOD 
assistance instruments, or the unmodified post -2006 DOD assistance instruments, that would 
warrant characterizing them, under Article 1.1(a)(1),  any differently from the way that the 
Appellate Body had characterized the DOD assistance instruments before it in the original 
proceeding.  
8.353.   We therefore find that the payments and access to DOD facilities, equipment, and 
employees , provided to Boeing thr ough the post -2006 assistance instruments are 
financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement. 
Specifically, the payments provided by DOD constitute financial contributions as a direct 
transfer of funds within the meani ng of Article 1.1(a)(1)(i), and the provision of access 
to facilities, equipment, and employees  qualifies as a government provision of goods  or 
services other than general infrastructure  within the meaning of Article 1.1(a)(1)(iii) of 
the SCM Agreement . 
8.2.3.3.3.2   DOD procurement contracts  
8.354.   We now consider the proper characterization of the DOD procurement contracts for 
purposes of Article 1.1(a)(1). The procurement contracts before us encompass those that were at 
issue in the original proceeding which, for reasons we explain in Section 7.3.2 of this Report, we 
have found to be within the scope of this compliance proceeding, as well as post -2006 
procurement contracts funded under the 23 original RDT&E program elements and certain 
post-2006 p rocurement contracts funded under "additional " RDT&E program elements that we 
have found to be within the scope of this proceeding.  
8.355.   As there were no findings at the conclusion of the original proceedings as to whether the 
DOD procurement contracts constit uted financial contributions, the United States has not modified  
the terms of the pre -2007 procurement contracts, whether through the DOD -Boeing Patent 
Licence Agreement or otherwise . There is accordingly no basis for distinguishing between pre -2007 
                                               
1485 Para. 7.548  above provides a summary of the DOD aeronautics R&D measures that we have found 
are within the scope of this proceeding, including the DOD assistance instruments funded under the 
"additional" RDT&E program elements.  
1486 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 625.  
1487 DOD-Boeing Patent Licence Agreeme nt, (Exhibit EU -401) (BCI). See Section 8.1.3.2  for a summary 
of the relevant terms of the DOD -Boeing Patent Licence Agreement.  
1488 Rather, the modifications to those assistance instruments are said to go to the issue of whether the 
measures continue to conf er a benefit.  WT/DS353/R W 
 
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  and po st-2006 procurement contracts in our analysis of whether these instruments involve 
financial contributions. Our analysis of the relevant characteristics of the DOD procurement 
contracts therefore covers both the pre -2007 procurement contracts that were bef ore the original 
panel and the post -2006 procurement contracts challenged for the first time in this compliance 
proceeding.  
8.356.   The European Union argues that the DOD procurement contracts share all of the relevant 
characteristics of the pre -2007 NASA procure ment contracts and DOD assistance instruments that 
led the Appellate Body to conclude that those instruments were collaborative research 
arrangements "akin to a species of joint venture ", which involved financial contributions to Boeing. 
The United States responds that pointing to certain common characteristics is not sufficient, and 
that a proper consideration of all of the characteristics of the DOD procurement contracts in fact 
leads to the conclusion that some are properly characterized as purchases of services and outside 
the scope of Article 1.1(a)(1), or as purchases of goods under Article 1.1(a)(1)(iii).  
8.357.   In the original proceeding, the Appellate Body examined various aspects of the NASA 
procurement contracts and DOD assistance instruments, and ultima tely concluded that both sets 
of measures were most properly characterized as collaborative research undertakings. For 
example, with respect to the NASA procurement contracts, the Appellate Body said:  
The transactions are collaborative arrangements that a re composite in nature in that 
they involve various elements that are interlinked. The arrangements are akin to a 
species of joint venture.1489  
8.358.   Of particular significance, the Appellate Body referred to evidence suggesting that the 
relationship between NASA and Boeing in the particular context was one of "partnership ".1490 
Similarly, when discussing the DOD assistance instruments, the Appellate Body referred to the 
composite nature of the transactions (as involving a combination of funding and access to 
faciliti es), the collaborative nature of the transactions (as involving a pooling of monetary and non -
monetary resources on the input side and a sharing of the fruits of the research on the output 
side) and crucially, that th ese transactions were  undertaken in pur suit of a common goal for the 
benefit of both DOD and Boeing .1491 
8.359.   We will examine the relevant characteristics of the DOD procurement contracts with a view 
to determining whether, like the NASA procurement contracts and DOD assistance instruments 
before the A ppellate Body, the relationship between DOD and Boeing in the particular context is 
one of partnership, involving collaboration in pursuit of a common goal for the mutual benefit of 
DOD and Boeing.  
8.360.   To begin, we recall that under U.S. law, procurement contr acts are used where the U .S. 
Government is acquiring property or services for its direct benefit or use.1492 The original panel 
noted that all of the DOD procurement contracts that had been submitted in that proceeding 
provided for the payment of a fee.1493 The vast majority of the DOD procurement contracts before 
the Panel follow the same structure: Boeing as the contractor receives reimbursement of its costs 
actually incurred (primarily in the form of salaries, materials and overheads) and in most cases, a 
fixed fee (as opposed to an "incentive " fee). According to the United States, the fee typically 
represents between [[HSBI]] of the reimbursable costs.1494  
8.361.   Although the European Union 's claims cover the provision of DOD facilities, and in some 
cases, equipment an d employees to Boeing under the procurement contracts, there is nothing 
before us to suggest that the provision of facilities, equipment, and employees is  anything but 
marginal . We note that the European Union does not specifically identify any facilities,  equipment 
or employees that DOD allegedly provides to Boeing under any of the DOD procurement contracts. 
Indeed, in summarizing the reasons why the DOD procurement contracts "satisfy the Appellate 
Body's test " for demonstrating that they are "akin to join t ventures that provide equity infusions ", 
                                               
1489 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 597.  
1490 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 598 -600. 
1491 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 609.  
1492 See para. 8.298(c ) above . 
1493 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1151.  
1494 United States' response to Panel question No. 67, para. 33.  WT/DS353/R W 
 
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  the European  Union notes only that DOD commits to provide financial resources, and argues that 
the absence of any provision of non -monetary resources and employees by DOD is not fatal to the 
characterization of th e DOD procurement contracts as "akin to joint ventures that provide equity 
infusions ".1495  
8.362.   In short, under the DOD procurement contracts, DOD provides payments to Boeing, in 
return for which Boeing performs specific R&D work as set forth in the various deliv ery orders and 
as described in accordance with statements o f work or performance requirements. The payments 
for the most part represent Boeing 's costs of performing the R&D work, plus a negotiated fee, 
representing Boeing 's profit.  
8.363.   The European Union argue s that Boeing additionally contributes financial resources such as 
non-reimbursed Independent Research and Development ( IR&D) expenditures , which it uses to 
develop its background intellectual property to the "joint undertaking " between DOD and Boeing 
under the procurement contracts.1496 These expenditures are internal costs that contractors like 
Boeing incur in order to maintain the technological competence and expertise that enable them to 
provide the R&D services for which they are contracted. These expendi tures are not specified in 
the procurement contracts as contributions to be made by Boeing and we do not consider that 
Boeing 's privately funded IR&D expenditures can be considered a contribution of "financial 
resources " to a "joint undertaking " with DOD. Nor do we consider that, in making use of its own 
intellectual property and know -how in order to carry out the R&D work for DOD, Boeing can be 
said to be "contributing " its intellectual property to a joint venture with DOD.  
8.364.   While there are payments provide d by DOD in exchange for the performance of R&D by 
Boeing, it is important to understand that this exchange occurs in a particular commercial context. 
As is clear from our discussion in Section 8.2.3.2.4  of the way in which R&D  is commissioned 
under the RDT&E program elements, the research topics are set by DOD and are based primarily 
on "user needs "; i.e. military needs identified by DOD on the basis of strategic defense 
imperatives. In the systems acquisition/military aircraft  context, those user needs are further 
refined in that they are directed to the development of specific technologies necessary for the 
creation or upgrading of specific weapon systems. Given the scale and complexity of the R&D 
work, it is reasonable that c ontractors such as Boeing would have input into the process in order to 
ensure that they are able to perform the work, and that the R&D will meet DOD 's requirements 
and presumably, ultimately lead to full -rate production of weapon systems. However, unlike the 
situation where NASA commissions aeronautics research, the R&D commissioned under DOD 
procurement contracts is solely directed to meeting DOD 's military needs, independent of 
enhancing the competitive position of contractors such as Boeing. The interac tion between DOD 
and Boeing therefore takes place in this different commercial context, and while it necessarily 
involves DOD and Boeing working together, the nature and purpose of this interaction is not the 
same as when two partners work together to set research topics based on their aligned interests in 
the outcomes.  
8.365.   The European Union also points to the allocation of intellectual property rights between 
DOD and Boeing under the DOD procurement contracts as a "sharing of the fruits of the research " 
that is indicative of a joint undertaking or collaborative arrangement. As the original panel 
explained, the allocation of patents is uniform across all U.S. Government R&D contracts and 
agreements, including NASA procurement contracts, DOD assistance instrumen ts and DOD 
                                               
1495 European Union's second written submission, pa ras. 446 -448. The United States responds that any 
such access to facilities, equipment, and employees is "not significant" with respect to S&T/general aircraft 
procurement contracts and is "rare" as regards systems acquisition/military aircraft procurement  contracts. 
(United States' first written submission, paras. 388 and 418; second written submission, paras. 375 and 377). 
The United States asserts that in any case, the European Union has provided no evidence in support of its 
contention that DOD provides  Boeing with access to DOD facilities or employees, and any provision of 
equipment is highly limited. (United States' first written submission, para. 385; second written submission, 
para. 367).  
1496 European Union's second written submission para. 446, as cla rified in European Union's response to 
Panel question No. 16, paras. 112 and 113. Specifically, the European Union clarifies that it does not argue 
that Boeing's non -reimbursed, internal IR&D expenditures are a contribution of financial resources under the  
DOD procurement contracts in the same way as Boeing shares costs under DOD assistance instruments. 
Rather, with respect to the former, there is a time lag between the time that Boeing funds its own IR&D and 
then uses the background intellectual property c reated from that IR&D as its "contribution" to the "joint 
undertaking" pursuant to a particular procurement contract.  WT/DS353/R W 
 
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  procurement contracts.1497 For present purposes, we note that where DOD employees and Boeing 
employees work together under a DOD procurement contract on a research effort that results in an 
invention, the allocation of ownership of patent rights is  as follows:  
a. Where a DOD employee makes an invention in the course of work, the U.S. Government 
will have sole ownership of the invention, and thus the right to obtain a patent. This is 
because the U.S. Government employee who made the invention would be r ecognized as 
the inventor, and his or her interest in the patent that would issue in that employee 's 
name would pass to the U .S. Government .1498 
b. Where a Boeing employee makes an invention in the course of work, Boeing has title to 
the invention and thus the r ight to obtain a patent.1499 This results from the application 
of the Bayh -Dole Act and associated legislative instruments and implementing 
regulations. The U.S. Government receives a government use license in Boeing 
inventions made in the performance of a DO D procurement contract.1500  
c. Where DOD and Boeing employees jointly make an invention in the course of work, the 
resulting patent would issue jointly in the names of the DOD and Boeing employees, and 
by operation of the laws, regulations and contract clauses discussed in (a) and (b) 
above, DOD and Boeing would each own an undivided share in rights under the 
patent.1501  
8.366.   In respect of rights to technical data, such as research results developed or delivered 
under DOD procurement contracts, any data delivered under  an R&D contract funded solely by the 
U.S. Government (such as the DOD procurement contracts) is "unlimited rights data ", meaning 
that the U.S. Government obtains unlimited rights to use the technical data as it sees fit, both 
inside and outside the govern ment.1502 
8.367.   Therefore, under a DOD procurement contract, there is a "sharing " of intellectual property 
rights resulting from Boeing 's performance of the R&D work, which occurs by operation of U.S. law 
in relation to all U.S. Government R&D contracts, regardless  of the agency or the contractor. 
However, as we explain in Section  8.2.3.4 , contextual factors suggest that the "balance " of that 
sharing is substantially more in DOD 's favour and less in Boeing 's favour than under the DOD 
assistance instruments, or NASA procurement contracts. Most significantly, DOD is commissioning 
R&D services to support the development of military systems for DOD 's own distinct purposes. 
Unlike the DOD assistance instruments, or NASA procurement contracts, DOD's objectives do not 
include, or align with, advancing Boeing 's development of technologies applicable to LCA. With 
                                               
1497 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1149.  
1498 This is by virtue of a U.S. regulation which provides for the U .S. Government to obtain the title to 
any invention made by a U.S. Government employee. The United States Code of Federal Regulations , Title 37, 
section 501.6 provides that, with certain limited exceptions, the U.S. Government obtains title to any inventio n 
made by a U.S. Government employee during working hours, or with a contribution of government facilities, 
equipment, materials, funds or information, or of time or services of other government employees on official 
duty, or which bears a direct relation to or is made in consequence of the official duties of the inventor.  
1499 As Razgaitis explains, in the United States, patent ownership generally vests with the party whose 
employees are its inventors. (Razgaitis Declaration, (Exhibit EU -1262) (BCI), para. 24 ). 
1500 United States Code of Federal Regulations , Title 48, section 52.227 -12, (Exhibit USA -368). This 
government use license gives the U.S. Government the rights to: (a) use the invention without paying 
additional fees or royalties to Boeing in all future c ontracts between Boeing and any agency of the U.S. 
Government anywhere in the world; and (b) authorize other contractors to use the invention without any 
additional fees or royalties in all future contracts between that contractor and any agency of the U.S . 
Government anywhere in the world (thereby providing such other contractors with a license defence against an 
infringement proceeding covering the contractor's use of the patented invention in the performance of a 
contract for the U.S. Government).  
1501 United States Code of Federal Regulations , Chapter  37, section 501.6,  (Exhibit USA -310);  Patent 
Rights in Inventions Made with Federal Assistance,  United States Code , chapter 35, sections 200 -212, (Exhibit 
EU-220), sections 201 (c), (e) and (i), and 202(a); Me morandum on Government Patent Policy, (Exhibit 
EU-1062); Executive Order 12591, "Facilitating access to science and technology", 10 April 1987, (Exhibit 
EU-238); and United States Code of Federal Regulations , Title 48, sections  27.300 -306, (Exhibit EU -221), 
sections 27.303(a) and (b).  
1502 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1300. As the original panel explained, 
data rights apply to so -called "technical data", which means "recorded information (regardless of the form or 
method of the recording) of a scientific or technical nature (including computer databases and computer 
software documentation)". (Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1298).  WT/DS353/R W 
 
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  respect to Boeing -owned patents that may arise from performing the R&D work for DOD, DOD 
obtains a government use licence that enables it  to fully exploit Boeing 's patents for DOD 's 
purposes, as we explain more fully in paragraphs 8.422  and 8.423 . DOD also obtains unrestricted 
rights to the data. Boeing 's ownership of the patents to inventions made by its employees in the 
course of work under a DOD procurement contract does give Boeing the legal right to exploit the 
military technologies in question for commercial purposes. Howev er, as we explain in 
paragraphs  8.422  to 8.425  the particular commercial context means that this  legal right is in 
practice restricted.  
8.368.   This different "balance " of allocation of intellectual property rights that results from the 
performance of work unde r a DOD procurement contract also affects our assessment of whether 
DOD and Boeing can be said to share in the "risks and rewards " of the commissioned R&D. While 
the outcome of R&D performed under many of the DOD procurement contracts (especially under 
S&T/general aircraft program elements) is uncertain, the risks and rewards are borne principally 
by DOD. Under the vast majority of the DOD procurement contracts, Boeing is paid its costs for 
performing the R&D and earns a negotiated fee or profit, which is a  smaller proportion of the 
overall cost.1503 Boeing does not appear to risk very much at all, as it is paid its costs and will 
make a profit regardless of whether the research yields the desired outcomes for DOD. Aside from 
the fee or profit that Boeing earns  on completion of the contracted research tasks, the rewards of 
the successful outcome of the research are primarily and in practical terms captured by the 
government use licence, owing to the fact that the technologies in question are military and DOD 
is Boeing 's only customer for such technologies. Although some of the military technologies may 
also have potential civil applications, Boeing 's practical ability to exploit those technologies for civil 
applications is limited by legal restrictions on the use  of information and technologies developed 
under the DOD procurement contracts outside the military context.1504  
8.369.   We have considered the relevant characteristics of the DOD procurement contracts in their 
particular context , including : the objectives of the RD T&E program elements through which the 
procurement contracts are funded, which are purely military in nature and independent of 
objectives such as promoting the competitiveness of the U.S. aeronautics industry (an important 
difference we see between DOD an d NASA in commissioning aeronautics R&D) ; the nature of the 
research conducted under the RDT&E program elements ; the ways in which R&D is commissioned 
under the RDT&E program elements ; as well as the nature of the respective performance 
obligations of DOD and Boeing under the procurement contracts.1505 We have considerable 
difficulty in concluding that the DOD procurement contracts are functionally like or equivalent to 
joint venture arrangements or collaborative undertakings. We do not see enough in the 
relationship between DOD and Boeing under the DOD procurement contracts that points to it being 
one of "partnership ", "collaboration " or "joint-venture ", in which both parties act in pursuit of a 
common goal for their mutual benefit.  
8.370.   As we have explained, we d o not regard the allocation of intellectual property rights 
between DOD and Boeing under DOD procurement contracts as transforming the relationship 
between DOD and Boeing under DOD procurement contracts from purchaser and seller to joint 
venture partners.1506 We regard the risks and rewards of the R&D as being principally for DOD.  
8.371.   In sum, we are not persuaded, when we consider all of the relevant characteristics of the 
DOD procurement contracts in their totality and proper context, that DOD and Boeing can be 
                                               
1503 Mr Razgaitis explains that the essential feature of "cost plu s a fee" or "profit" R&D contracts from 
the perspective of the commissioned party is that it does not expect to lose money on the R&D. If the 
challenges of performing the R&D are greater than proposed, the commissioned party will either receive 
additional funding (at the commissioning party's option) or will reduce the scope of work. All that is at risk for 
the commissioned party is possibly the relatively small fee. (Second Supplemental Razgaitis Declaration, 
(Exhibit EU -1398), para. 40). We do not conside r that the same conclusion applies with respect to the NASA 
procurement contracts that involve payment of a fee to Boeing because, as we explain in para. 8.151 , the fact 
that one of the objectives of the NASA co mmissioned R&D is to promote the competitiveness of the U.S. 
aeronautics industry means that Boeing indirectly shares the risks of the R&D being unsuccessful.  
1504 The principal legal restrictions on the dissemination of military technologies and data are des cribed 
in Section 8.2.3.2.5  above . 
1505 These characteristics are discussed in detail in Sections 8.2.3.2.2  through 8.2.3.2.4  above . 
1506 If it were, it would effectively mean that every time the U.S. Government commissions R&D under a 
procurement contract, regardless of the identity of the agency or commissioned party, the objectives of the 
research, or the other terms of the con tract, the parties would be considered to be in a form of joint venture or 
collaborative undertaking. We do not think this would be a reasonable outcome.  WT/DS353/R W 
 
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  considered to be parties with broadly aligned interests engaging in a collaborative enterprise in 
which they both have a significant stake in the risks and returns.1507 Rather, their relationship is 
principally one in which DOD acquires R&D services from Boein g.  
8.372.   We acknowledge that there are special features of the DOD procurement contracts that in 
some respects obscure what we see as this basic relationship between DOD and Boeing of buyer 
and seller. DOD procurement contracts are the legal instruments through  which DOD commissions 
contractors such as Boeing to undertake complex process es of developing and maturing 
technologies for application to particular military systems in various stages and over long periods 
of time.1508 However, t he interaction that occurs b etween DOD and Boeing in connection with this 
engagement is qualitatively different from the collaboration that occurs between partners in a 
collaborative venture, in which both are mutually invested in the outcome. The interaction between 
DOD and Boeing u nder the DOD procurement contracts is fundamentally directed to DOD acquiring 
what DOD needs (independently of Boeing 's commercial interests), and to Boeing performing the 
work that meets DOD 's needs.  
8.373.   The United States argues that certain of the procuremen t contracts that are for systems 
acquisition (i.e. "military aircraft " program elements) are most appropriately characterized as 
involving purchases of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. 
According to the United States,  where the work performed by Boeing under a procurement 
contract involves modifying an existing aircraft, the proper characterization of that procurement 
contract is as a purchase of services because Boeing would not be producing a new good. 
However, if th e work requires Boeing to either bring a product into service (e.g. bringing a 
systems acquisition project to the point where full rate production could begin) or to produce a 
new component for integration into the aircraft, the transaction should be treat ed as a purchase of 
goods.1509  
8.374.   We note, first, that whether we characterize  the payments and access to DOD facilities, 
and where applicable, DOD equipment and employees, provided to Boeing through the 
procurement  contracts as purchases of services , or as purchases of goods , this characterization 
does not affect the outcome of our analysis of whether the measures are subsidies.1510 The key 
point emerging from our analysis above is that the DOD procurement contracts involve purchases  
by DOD as buyer, from Boeing a s seller, and that, as such, there is no basis to characterize these 
contracts in the same way that the Appellate Body characterized the NASA procurement contracts 
and DOD assistance instruments in the original proceeding. This conclusion does not depend u pon 
whether the objects of the purchases are  services or goods. Moreover, as discussed below, in view 
of our characterization of the transactions as purchases of services, our determination of whether 
these measures confer a benefit, assuming that they are  financial contributions, involves an 
examination of whether DOD paid more than adequate remuneration for these services. If we 
treated the transactions as purchases of goods, we obviously would apply the same approach, 
consistent with Article 14(d) of the  SCM Agreement, and arrive at the same conclusion.  
8.375.   In any event, we consider that while the work performed by Boeing under DOD 
procurement contracts funded under the military aircraft RDT&E program elements is directly 
related to the development of partic ular weapon systems , and may result in a new product or a 
new version of an existing system, this does not alter the fact that the immediate object s of these 
contracts are activities, including research, testing and evaluation, which are best characterized  as 
                                               
1507 The DOD procurement contracts differ from the NASA procurement contracts in this fundamental 
respect . 
1508 The processes through which DOD commissions R&D under the RDT&E program elements are 
described in general terms in Section 8.2.3.2.4  above . 
1509 United States' first written submission, paras. 309 and 419 -423; second written submission, 
paras.  390, 400, 405, and 413. Thus, the United States argues that the pre -2007 funding for the V -22/CV -22 
and Joint Strike Fighter projects is most appropriately characterized as a purchase of goods, as was certain of 
the F/A -18 project funding that involved bringing the new version into service, and the C -17 product 
development funding for bringing the C -17 into service. This work can be contrasted with procurement 
contracts involving upgrades to existing systems, which the Unit ed States considers are better characterized as 
purchases of services. (United States' second written submission, para.  388).  
1510 We also recall that, in respect of a number of the program elements that the United States considers 
to involve purchases of go ods, we have found in Section 7.3 that there is either no measure in existence 
involving the particular program element, or the measures involving such program elements are not within the 
scope of this proceedin g.  WT/DS353/R W 
 
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  services.1511 As we have previously explained, the weapon systems that DOD ultimately buys are 
complex. Their acquisition necessarily entails an extensive period of technological development, 
which is the work that Boeing performs under the DOD procuremen t contracts at issue in this 
proceeding. Boeing is paid for performing the R&D work, which may involve integrating various 
sub-systems and producing models or prototypes for developmental testing and evaluation. 
However, this aspect of producing a product for the purpose of development and testing is part of 
the overall R&D activity, and is distinct from the full -rate production of a weapon system, which is 
covered by distinct contractual arrangements between DOD and its contractors.1512  
8.376.   We therefore find our selves unable to characterize the DOD procurement contracts in a 
similar manner to the way in which the Appellate Body: (a) characterized the NASA procurement 
contracts and DOD assistance instruments ; and (b) through an interpretive process that involved 
analogizing them to equity infusions, concluded that the payments that were part of the joint 
venture arrangement constituted a direct transfer of fund s within the meaning of 
Article  1.1(a) (1)(i), and that the provision of facilities, equipment, and employe es constituted a 
provision of goods or services within the meaning of Article 1.1(a)(1)(iii).1513 Given the nature of 
the research that DOD commissions Boeing to undertake under the DOD procurement 
contracts, DOD 's objectives in commissioning that research an d the consequent nature 
of the relationship between DOD and Boeing in performing their respective obligations 
under the DOD procurement contracts, we regard  payments and access to DOD facilities, 
and where applicable, DOD equipment and employees, provided to Boeing through  the 
DOD procurement contracts , as most appropriately characterized as purchases of 
services . 
8.377.   The issue that next arises is whether the se transactions,  properly characterized as 
purchases of R&D services, fall within the scope of transacti ons that are financial contributions 
within the meaning of Article 1.1(a)(1) of the SCM Agreement.  
8.378.   We have concluded that it is not necessary for us to definitively address this interpretive 
issue because, even if we were to consider that the DOD procurem ent contracts, properly 
characterized as purchases of R&D services, constitut e financial contributions within the meaning 
of Article  1.1(a)(1), we would ultimately conclude, for the reasons we explain in Section  8.2.3.4  of 
this Report, that the European Union has failed to establish  that the DOD procurement contracts 
confer a benefit within the meaning of Article 1.1(b).  
8.379.   Since we do not make a finding on the primary argument of the European Union that the 
paymen ts and provision of access to facilities, equipment, and employees pursuant to DOD 
procurement contracts funded under the challenged RDT&E program elements constitute financial 
contributions , within the meaning of Article 1.1(a)(1) of the SCM Agreement, we  now proceed to 
consider an argument made by the European Union in the alternative with respect to how the DOD 
aeronautics R&D measures constitute financial contributions.  
8.380.   According to this alternative argument, "the transfer to Boeing of patent and other  
intellectual property rights in the technologies and data developed under the RDT &E Program 
additionally constitutes a provision of 'goods … other than general infrastructure' within the 
meaning of Article 1.1(a)(1)(iii) of the SCM Agreement".1514 The Europe an Union argues, first, that 
                                               
1511 See also Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1162.  
1512 The European Union also notes that DOD itself distinguishes RDT&E appropriations, which fund the 
development, test and evaluation of equipment, materiel or computer ap plication software from "procurement" 
appropriations, which fund the purchases of major end items and defense systems. The European Union 
submits therefore that the "procurement" appropriations category of DOD's budget funds purchases of goods, 
not the RDT &E appropriations category. (European Union's second written submission, para. 462; and Defense 
Acquisition University, "Lesson 10: Financial Management: Program/Budget Execution", available at: 
<https://learn.dau.mil/CourseWare/1_9/rem/summary_L10.html>, accessed 1 September 2016, (Exhibit 
EU-1101), pp. 2/9  and 3/9). 
1513 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 624.  
1514 European Union's first written submission, para. 370; second written submission, para. 464. The 
European Un ion has explained that while it agrees that "the intellectual property rights are an effect of the 
contract" it considers that "in the alternative, it is possible to conceptualise one of the financial contributions 
arising from that same contract as a prov ision of goods". The European Union indicates in this connection that, 
unlike the original proceeding, in this compliance proceeding it "is not challenging the provision of patent rights 
as a separate subsidy distinct from the DOD RDT&E contracts from whic h they arise, as it did before the 
original panel". (European Union's second written submission, para. 465).  WT/DS353/R W 
 
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  patents, rights to trade secrets, and rights to data are goods on the basis that the term "good" is 
generally defined as "property or possessions" and that therefore "the transfer of a patent, as well 
as of rights to trade secr ets and undisclosed data, constitutes the transfer of property – i.e. the 
transfer or provision of a good".1515 Second, the European Union submits that "the United States 
'provides' Boeing with these patents and other rights in association with the RDT&E fund ing 
agreements" because U .S. law and regulations generally provide contractors with the right to 
receive title to inventions that arise from a funding agreement with the U .S. Government.1516  
8.381.   The European Union's alternative argument as to how the DOD procure ment contracts give 
rise to financial contributions , within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement 
raises two questions: (a) whether patents and other intellectual property rights can be treated as 
"goods" within the specific sense of t he term as used in Article 1.1(a)(1)(iii) of the SCM 
Agreement ; and, if so, (b) how under the transactions at issue the government could be construed 
as "providing" such goods to Boeing.  
8.382.   While there is wide and uncertain use of the term "goods" in general parlance, the term is 
typically applied to tangible products, as distinguished from intangible services (a distinction made 
in the context of trade law and trade policy).1517 Specifically with respect to Article 1.1(a)(1)(iii), 
the Appellate Body has observed  that the ordinary meaning of the term "goods" "includes items 
that are tangible and capable of being possessed"  and that "'goods' are tangible items".1518 The 
European Union argues that intellectual property rights are "goods" within the meaning of 
Article  1.1(a)(1)(iii) because : (a) the term " good" is defined as "property or possessions" ; and (b) 
patents, rights to trade secrets and rights to data are considered intellectual property , as 
evidenced  by the fact that U.S. law explicitly states that "patents sha ll have the attributes of 
personal property".1519 However, in making these arguments the European Union fails to take into 
account the fact that the Appellate Body has only defined "goods" as used in Article 1.1(a)(1)(iii) 
in terms of tangible items. Given th e context of this term, and the use of  the term  "services" in the 
same sentence, the dictionary definition, as well as the Appellate Body's earlier finding, we see no 
basis to extend the sense of goods in this context to encompass all possible forms of pro perty.  
8.383.   We note, in this connection, that intellectual property rights are generally understood to be 
economic assets and, in the form of patents, are tradeable categories of property; they are usually 
treated by national jurisdictions and international or ganizations as immaterial property1520, or 
intangible assets.1521 
8.384.   Patent law distinguishes a product or process from the patent right which can prevent third 
parties from making, using, offering for sale, selling, or importing the product that is the subject 
matter of a patent, or in case of patent -protected process, from using the process, and from using, 
offering for sale, selling, or importing a product obtained directly by this process.1522 Similarly, the 
                                               
1515 European Union's first written submission, para. 370.  
1516 European Union's first written submission, para. 370.  
1517 This practice conforms with the  Oxford English Dictionary's most pertinent definition of "goods" as 
"{t}hings that are produced for sale; commodities and manufactured items to be bought and sold; 
merchandise, wares … Now also (Econ.): economic assets which have a tangible, physical form  (contrasted 
with services)." (Oxford English Dictionary online, definition of "good", available at: 
<http://www.oed.com/view/Entry/79925>, accessed 1 September 2016).  
1518 Appellate Body Report, US – Softwood Lumber IV , para. 59. ("{i}n particular, we agree with the 
Panel that the ordinary meaning of the term 'goods', as used in Article 1.1(a)(1)(iii), includes items that are 
tangible and capable of being possessed.") See also ibid. paras. 58 -60 and 64.  See also Appellate Body Report, 
US – Large Civil Aircraf t (2nd complaint) , para. 619  and fn 1295 ("'{g}oods' are tangible items. They are often 
contrasted against services, which are intangible").  
1519 European Union's first written submission, para. 370. We recall that, as in other contexts, the 
Appellate Body em phasized that "municipal law classifications are not determinative" in the context of 
characterizing "goods" for purposes of Article 1.1(a)(1) of the SCM Agreement. ( See Appellate Body Report, US 
– Softwood Lumber IV , para. 56).  
1520 See e.g. the reference t o "Immaterialgüterrechte " for industrial property in Germany.  
1521 WIPO defines intellectual property rights as intangible assets. (See  e.g. The Value of Intellectual 
Property Assets at <http://www.wipo.int/sme/en/ip_business/ip_asset/v alue_ip_assets.htm>, a ccessed 
1 September 2016). The Oxford Dictionary lists "intangible" as a synonym of "immaterial": "{n}ot tangible; 
incapable of being touched; not cognizable by the sense of touch; impalpable." (Oxford English Dictionary 
online, definition of "intangible",  available at: 
<http://www.oed.com/view/Entry/97332?redirectedFrom=intangible#eid>, accessed 1 September 2016).  
1522 See TRIPS Agreement, Article 28.1.  WT/DS353/R W 
 
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  data rights that have been discussed in this dispute refe r to the right to prevent a party from using 
data or disseminating data to third parties for their use for a period of time.  
8.385.   As property rights and assets, intellectual property rights are thus usually distinguished 
from goods as such: This is apparent in  the TRIPS Agreement itself, which distinguishes between 
goods, and intellectual property rights that are embedded in such goods. Consequently, the TRIPS 
Agreement refers, for example, to "goods or services protected by the trademark" and defines the 
function of trademarks as distinguishing goods or services of one enterprise from another, setting 
such an intellectual property right in a different category from goods as such . Similarly, a 
trademark is "applied" to a good and trademarks are registered "in respect of" goods.1523 The 
TRIPS Agreement's requirements relating to the enforcement of intellectual property rights, 
including border measures, systematically distinguish intellectual property rights from goods that 
involve such rights, involve the infringeme nt of intellectual property rights, or that are protected 
by them.1524  
8.386.   In sum, in light of the foregoing considerations , we find unpersuasive the European Union's 
argument that intellectual property rights are goods within the meaning of Article 1.1(a)(1)(ii i).  
8.387.   On the basis of this conclusion, we do not, strictly speaking, need to address the second, 
consequent question, that of whether "the United States 'provides' Boeing with these patents and 
other rights in association with the RDT&E funding agreements".1525 For the sake of completeness, 
however, we turn to that question, assuming  arguendo  that intellectual property rights may be 
considered as goods under Article 1.1(a)(1)(iii) . 
8.388.   The European Union argues that the United States "provides" Boeing with patents and 
other rights on the grounds that "US law and regulations generally provide contractors with the 
right to receive title to inventions that arise from a funding agreement with the US 
government".1526 Hence, this use by the European Union of the term "provid es" does not refer to 
the transfer or assignment to Boeing of existing intellectual property rights, and particularly of 
patents, actually held by the U .S. Government. The intellectual property rights that may be 
concerned are "foreground" intellectual pro perty, based on inventions developed in the course of 
the contracted research.  By definition, no such intellectual property rights could have existed at 
the time of the contract ; they  could only come into existence subsequently. None of the 
intellectual pr operty rights resulting from DOD procurement contracts were at any stage owned by 
the U .S. Government , and could therefore not have been transferred or assigned by the 
Government.  
8.389.   Accordingly, the use of the term "provide" in this context would need to enc ompass the 
enactment of legislation that allocated to Boeing the entitlement "to receive title to" inventions 
that result from research undertaken by Boeing pursuant to a U .S. Government R&D contract. This 
is the view that the European Union appears to tak e; i.e. that where a law lays down the 
conditions under which rights to title to inventions can be obtained, the government thereby 
"provides" these rights within the meaning of Article 1.1(a)(1)(iii). The Appellate Body has 
observed that the term "provide " has been defined as "supply or furnish for use; make available" 
and "to put at the disposal of".1527 The Appellate Body has also explained that there must be a 
"reasonably proximate relationship" between the governmental action of providing the good or 
service and the use or enjoyment of the good or service by the recipient.1528 It stated that "a 
government must have some control over the availability  of a specific thing being 'made 
available'".1529 The European Union does not explain how its interpretation of "pr ovide" can 
encompass situations where a law merely defines the conditions under which a "right to take title" 
can be acquired in the future, in the event that a patentable invention, yet to exist, is 
subsequently developed, and in particular does not expla in how its reading is consistent with these 
Appellate Body pronouncements.   
                                               
1523 See TRIPS Agreement, Articles 15, 16, 19, and 20.  
1524 See TRIPS Agreement, Articles 53, 51, and 44.  
1525 European Union's first written submission, para. 370.  
1526 European Union's first written submission, para. 370.  
1527 Appellate Body Report, US – Softwood Lumber IV , para. 69.  
1528 Appellate Body Report, US – Softwood Lumber IV , para. 71.  
1529 Appellate Body Report, US – Softwood Lumber IV , para. 71. (emphasis original)  WT/DS353/R W 
 
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  8.390.   For the foregoing reasons, we reject the European Union's alternative argument 
that the alleged "transfer to Boeing of patent and other intellectual property rights in 
the technolo gies and data developed under the challenged DOD RDT&E programmes" 
constitutes a financial contribution in the form of government provision of goods within 
the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement . 
8.391.   In light of our findings in this Section , we address in the next section: (a) whether the 
payments and access to DOD facilities, equipment, and employees  provided through  DOD 
assistance instruments, which we f ind to be financial contribution s within the meaning of 
Article  1.1(a)(1), confer a ben efit within the meaning of Article 1.1(b ); and (b) whether, assuming 
arguendo  that the  payments and provision of access to DOD facilities, and where applicable, DOD 
equipment and employees, provided through  DOD procurement contracts, properly characterized  
as purchases of R&D services, are financial contributions within the meaning of Article 1.1(a)(1), 
these measures  confer a benefit within the meaning of Article 1.1(b).  
8.2.3.4   Whether there is a benefit  
8.2.3.4.1   Main arguments of the parties and third parties  
8.392.   The Europ ean Union  argues that the financial contributions provided through the post -2006 
DOD assistance instruments , the terms of which were modified by the DOD -Boeing Patent Licence 
Agreement of 23 September 2012 , confer a benefit for the same reasons as in the c ase of the pre -
2007 DOD assistance instruments modified by the DOD -Boeing Patent Licence  Agreement.1530  
8.393.   In addition, with respect to the DOD procurement contracts, the European Union argues 
that the Appellate Body 's reasoning in the original proceeding ; i.e. that the NASA procurement 
contracts and DOD assistance instruments conferred a benefit based on the distribution of patent 
rights, applies equally to the DOD procurement contracts, given the finding that the distribution of 
patent rights between DOD and i ts contractors is uniform across all DOD procurement contracts 
and assistance instruments.1531 The European Union considers that the market -based comparisons 
performed by the Appellate Body to determine  whether the NASA procurement contracts and DOD 
assistanc e instruments conferred a benefit on Boeing are highly relevant to the benefit 
determination in respect of other aeronautics R&D measures, such as the DOD procurement 
contracts. However, the Panel may also consider additional evidence provided by the parti es in this 
proceeding to establish a market benchmark for those other aeronautics R&D measures.1532  
8.394.   The European Union refers to the examples of collaborative R&D agreements 
commissioned by non -U.S. Government entities discussed by  its technology licensing e xpert,  
Mr Razgaitis. The private collaborative R&D agreements surveyed and discussed by Mr Razgaitis 
demonstrate that the U.S. Government offers Boeing better terms with respect to the allocation of 
intellectual property rights than Boeing could receive in  the market.1533 Similarly, the Bayh -Dole 
regime for allocating intellectual property rights under U.S. Government R&D contracts, as well as 
DOD's elimination of its recoupment policy (both of which the European Union considers have the 
explicit, non -commerci al purpose of assisting U .S. industry), demonstrate that the financial 
contributions with respect to DOD procurement contracts are not provided on the basis of 
commercial considerations.1534 Indeed, the European Union considers that the benefit resulting 
                                               
1530 See paras. 8.8 to 8.15 above . 
1531 European Union's first written submission, para. 374. See also European Union's  opening statement 
at the meeting with the Panel, para. 28. The European Union argues that, based on precisely the same 
evidence considered by the Appellate Body in its own analysis of "benefit", it demonstrates that the "funding 
and support" provided to B oeing by DOD, whether through procurement contracts or assistance instruments, 
confers exactly the same benefit in the same manner. (European Union's second written submission, 
para. 482).  
1532 European Union's opening statement at the meeting with the Panel,  para. 28.  
1533 European Union's response to Panel question No. 24, para. 135.  
1534 European Union's second written submission, para. 520 (referring to U.S. DOD, Final Rule, 
"Recoupment of Nonrecurring Costs on Sales of U.S. Items", 58 FR 16497 (29 March 1993),  (Exhibit EU -279)); 
response to Panel question No. 24, para. 135.  WT/DS353/R W 
 
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  from the DOD procurement contracts is evidenced, in part, by the "systematically skewed (in 
comparison to the market) allocation of patent rights " in U.S. Government R&D contracts.1535 
8.395.   The European Union argues that the fact that the primary objective of the "LCA-relevant " 
R&D at issue in this dispute may be military does not affect the overall conclusion that the DOD 
procurement contracts (and assistance instruments) provide a benefit to Boeing. Under all such 
procurement contracts and assistance instruments, the  U.S. Government "systematically receives 
less than a commissioning party would  in a market -based transaction, and Boeing systematically 
receives more than a commissioned party would in a market -based transaction ".1536 In any case, 
one would also expect the U .S. Government, if it were acting according to market considerations, 
to "use its tremendous bargaining power to extract economic benefit from the dual use aspects of 
the resulting technologies " so that it could re -invest in further R&D with a military obj ective.1537  
8.396.   The European Union rejects the arguments of the United States that competitive bidding in 
the award of DOD procurement contracts ensures that DOD did not pay more than adequate 
remuneration in its DOD procurement contracts. It argues that the App ellate Body rejected a 
similar argument made by the United States in the context of the original DOD assistance 
instruments, and submits that these arguments can be rejected by the Panel on the same 
basis.1538  
8.397.   The European Union considers that both evidence of the terms that the market would have 
offered,  and evidence of whether a financial contribution was provided on the basis of commercial 
considerations , can be relevant to determining the existence of benefit.1539 In the present case, 
both types of evidence indicate that the DOD procurement contracts provide a benefit. In addition, 
the United States has provided no evidence to support its assertions that the intellectual property 
rights allocated to Boeing through any of the aeronautics R&D contracts and agre ements were 
provided in exchange for Boeing accepting a lower profit margin, lower levels of cost 
reimbursement, or a lower fixed -price contract.1540 
8.398.   The United States  argues, that , for the same reasons as in the case of the pre -2007 
assistance instruments1541, the financial contributions provided through the DOD post -2006 
assistance instruments modified by the DOD -Boeing Patent Licence Agreement , do not confer a 
benefit.  
                                               
1535 European Union's response to Panel question No. 25, para. 138. See also European Union's response 
to Panel question No. 26, para. 162: "{r}ather, once, as here, it is clear that there is a benefit associated with 
systematically gifting the relevant IP rights in advance, that should be sufficient for the purposes of the 
{benefit} analysis." European Union's comments on the United States' response to Panel question No. 67, 
paras. 13 and 65: "{ t}he distribution of IP {under DOD procurement contracts and assistance instruments} is 
always the same, and it is always more favourable to Boeing than it is to any commissioned party in the 
market, and less favourable to DOD than any commissioning party in the market. As the development of 
technology and IP is the whole purpose of the R&D contracts, this necessarily leads to a finding that benefit 
exists, as was well understood by the Appellate Body". Mr Razgaitis also opines that the lack of bargaining 
power over intellectual property ownership under U.S. Government R&D contracts discredits the 
United  States'  arguments regarding the impact of competitive bidding on the exchange of value in DOD and 
NASA procurement contracts. According to Mr Razgaitis, bec ause of the provisions of U.S. law that "preclude" 
DOD and NASA from bargaining over ownership of intellectual property rights, Boeing does not need to 
"underbid" to fully account for the net present value of the foreground intellectual property. Mr Razgai tis 
considers that there is no evidence that Boeing, or any other commissioned party, in practice reduces its 
RDT&E costs because of the Bayh -Dole provisions. (Second Supplemental Razgaitis Declaration, (Exhibit 
EU-1398), para.  49). 
1536 European Union's comm ents on the United States' response to Panel question No. 67, para. 13.  
1537 European Union's comments on the United States' response to Panel question No. 67, para. 13.  
1538 European Union's second written submission, para. 519; response to Panel question No. 25, 
para. 140. The European Union also argues that the discussion by the Appellate Body of the potential relevance 
of competitive bidding to the benefit determination in the Canada – Renewable Energy / Canada – Feed-in 
Tariff Program  case should be underst ood in the context of the market situation in that case: a standard 
contract established by a provincial power authority vis-à-vis a large number of suppliers for a fungible good 
(electricity) at a standard price. By contrast, the present situation involve s a small number of 
privately -informed, heterogeneous suppliers submitting bids to asymmetrically informed government agencies 
over a heterogeneous product (R&D) with an uncertain outcome. (European Union's response to Panel question 
No. 25, para. 137; com ments on the United  States' response to Panel question No. 83, para. 119 and fn 201).  
1539 European Union's response to Panel question No. 24, para. 134.  
1540 European Union's comments on the United States' response to Panel question No. 67, para. 25.  
1541 See paras. 8.16 to 8.22 above.  WT/DS353/R W 
 
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  8.399.   With respect to DOD procurement contracts, the United States argues that the fact DOD 
was "buying something " in the transactions must play a role in the benefit analysis, even if the 
Panel ultimately rejects the United States ' arguments that these measures are not financial 
contributions because they are purchases of services.1542  
8.400.   The context prov ided by Article 14(d) of the SCM Agreement indicates that the proper 
standard for assessing whether government purchases confer a benefit is the adequate 
remuneration standard. Under this standard, a benefit would exist only if the U.S. Government 
paid too  much for the rights it obtained. The European Union fails to address this standard.1543 The 
United States considers this a critical point because governments often seek to buy things that a 
commercial actor would not want or does not need. The adequate remun eration standard therefore 
focuses on what the government purchased, and not what a private entity would have purchased 
in similar circumstances, and asks whether the government paid too much (i.e. more than 
adequate remuneration) for what it sought to buy .1544  
8.401.   The United States disagrees with the European Union that the Appellate Body 's rejection of 
the relevance of competitive bidding to the question whether the pre -2007 DOD assistance 
instruments conferred a benefit , applies also to DOD procurement contrac ts.1545 The United States 
argues that the Appellate Body 's statement regarding competitive bidding in the original 
proceeding addressed only DOD assistance instruments, which the Appellate Body had 
differentiated from DOD procurement contracts. The Appellate Body's statements regarding 
competitive bidding in Canada – Renewable Energy / Canada – Feed-in-Tariff Program  indicate 
that the relevance of competitive bidding to the analysis of benefit depends on the facts.1546 
Moreover, economically a rational bidder wil l factor the cost or value of a fixed term of a bid into 
the economic value of the overall package, and adjust its bid accordingly.1547  
8.402.   The United States asserts that most DOD procurement contracts were subject to full and 
open competition, and those that we re not arose primarily because Boeing was doing follow -on 
work, or had been down -selected from contracts that had been subject to full and open 
competition. The Panel can therefore have a high degree of confidence that DOD did not pay more 
than adequate re muneration in its procurement contracts.1548 
8.403.   The United States criticises the European Union 's approach to determining the commercial 
consistency of the aeronautics R&D contracts and agreements as being based on only one term of 
the contract (i.e. the allocat ion of patent rights). According to the United  States, a thorough and 
systematic review of the evidence indicates that the terms under which the U.S. Government 
commissions research work are no more advantageous to the recipient than comparable 
                                               
1542 United States' first written submission, paras. 391 and 425.  
1543 United States' first written submission, paras. 392 and 426; second written su bmission, paras. 384 
and 426.  
1544 United States' second written submission, paras. 232 and 233. Although this argument appears in 
the section of the United States' submission concerning the NASA aeronautics R&D measures, the 
United  States explains that its o bservations as to why the post -2006 NASA procurement contracts do not 
confer a benefit apply also to the DOD procurement contracts. (United States' second written submission, 
para. 384).  
1545 United States' second written submission, para. 235. See Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint ), para. 665: "intellectual property is not open to bidding; it is determined by US law. 
Because each bidder knows in advance that this particular aspect of the transaction will not be altered with 
respe ct to the competitors, ownership of any resulting intellectual property will not be a determinative element 
in how each bidder structures its proposals."  
1546 Appellate Body Report s, Canada – Renewable Energy / Canada – Feed-in-Tariff Program , 
para. 5.228: "{ a}lternatively, such benchmark may also be found in price -discovery mechanisms such as 
competitive bidding or negotiated prices, which ensure that the price paid by the government is the lowest 
possible price offered by a willing supply contractor."  
1547 United States' second written submission, para. 237.  
1548 United States' first written submission, paras. 393 and 427. The United States asserts that 23 out of 
30 NASA procurement contracts and 41 out of 61 DOD procurement contracts were subject to "full and open  
competition", which involved a public solicitation of proposals and consideration of all offers. Where that was 
not the case, U.S. procurement regulations gave DOD and NASA "alternative strategies to inject competition 
into the process". The United States  asserts that o nly three of 29 NASA procurement contracts and 19 of 61 
DOD procurement contracts resulted from "sole source" solicitation. (United States' response to Panel question 
No. 83, para. 82; Competition in DOD contracts with Boeing for FY 2007 -FY 2012, (Exhibit USA -508); and 
Competition in NASA contracts with Boeing for FY 2007 -FY 2012, (Exhibit USA -509)).  WT/DS353/R W 
 
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  commercial transactions.1549 This analysis should extend beyond patent rights to consider how 
other aspects of the contract affect the balance of value between the parties, in particular the price 
that commercial commissioning parties pay for the rights they acquire.1550 
8.404.   Moreover, the United States considers that the evidence of commercial collaborative R&D 
arrangements before the Panel shows that, except for the issue of ownership of patent rights 
"where NASA and DOD contracts mirror the most prevalent commercial practice ", there is no 
standard division of intellectual property rights. Rather, parties to commercial research contracts 
delineate patent rights in a variety of ways to suit their interests and objectives. The only normal 
market practice is for the parties to pay  for the intellectual property rights that they require, and 
not to pay for the rights they do not require.1551  
8.405.   In this context, the United States notes that DOD is the exclusive buyer of modern air 
weaponry and weapons technology in the United States. Thus,  when it comes to military 
applications of an invention invented during work under a DOD or NASA procurement contract, the 
government use licence is de facto  exclusive, in the sense that the contractor "loses the economic 
leverage provided by ownership of the intellectual property rights with respect to future sales to its 
primary customer, DoD ".1552 For an invention with purely or predominantly military applications, 
the government use licence represents essentially all of the economic value of a patent. In t his 
respect, the United States argues that the area covered by the government use licence granted to 
DOD (and NASA) under the procurement contracts is broader than the comparable rights granted 
to commissioning parties in the non -government collaborative R &D arrangements in evidence 
before the Panel and discussed by Messrs Berneman and Razgaitis. [***].1553 
8.406.   Certain of the  third parties (Brazil , Japan,  and Korea) make arguments regarding the 
existence of a benefit within the meaning of Article 1.1(b) of the SCM  Agreement. These 
arguments are summarized in Section 8.1.2 above.  
8.2.3.4.2   Evaluation by the Panel  
8.407.   In this Section of the Report, we evaluate whether three categories of DOD aeronautics 
R&D measures confer a benefit on Boeing within the meaning of Article 1.1(b) o f the SCM 
Agreement:  
a. six post-2006 DOD assistance instruments included in annex B of the United 
States ' Compliance Communication (these having been amended by the DOD -Boeing 
Patent Licence Agreement)1554; 
b. post-2006 DOD assistance instruments that have not be en modified by the DOD -Boeing 
Patent Licence Agreement; and  
c. DOD procurement contracts (both pre -2007 and post -2006).  
                                               
1549 United States' response to Panel question No. 67, para. 11.  
1550 The United States argues that a narrow approach to benefit, focused on isolated terms of a 
transaction, is contrary to the SCM Agreement. It notes that in EC and certain member States – Large Civil 
Aircraft , the panel and Appellate Body considered all aspects of the transaction, including the interest rate, 
term of loan, royalties, fe es, and expected delivery schedules as part of the evaluation as to whether, as a 
whole, the terms the EU member States offered to Airbus were more favourable than those available in the 
market. (United States' response to Panel question No. 67, para. 13).  
1551 United States' response to Panel question No. 67, para. 28.  
1552 United States' response to Panel question No. 67, para. 15.  
1553 United States' response to Panel question No. 67, paras. 24 and 27.  
1554 Annex B to the United States' Compliance Communication list s the DOD assistance instruments that 
were subject to the  DSB recommendations and rulings in the original proceeding (the pre -2007 DOD assistance 
instruments), along with a further six DOD assistance instruments that came into existence after the panel 
request in the original proceeding. These "modified post -2006 DOD assistance instruments" are referred to in 
paragraph 5 of the United States' Compliance Communication and are explicitly identified in the United States' 
response to the Panel's request for inf ormation pursuant to Article 13 of the DSU, dated 28  February 2013, 
response to question No. 23(c), para. 48.  WT/DS353/R W 
 
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  8.2.3.4.2.1   Certain post -2006 DOD assistance instruments that have been modified by 
the DOD -Boeing Patent Licence Agreement  
8.408.   We find in Section 8.1.3 of this Report that the grant to DOD of commercial use rights in 
respect of Boeing -owned patents under the pre -2007 DOD assistance instruments effected by the 
DOD-Boeing Patent Licence Agreement has not brought those instrument s into line with prevailing 
market practices for collaborative R&D arrangements in such a way as to remove the benefit that 
the Appellate Body had found was conferred through the pre -2007 DOD assistance instruments in 
the original proceeding. This finding and the underlying analysis equally apply to the six post -2006 
assistance instruments that have been modified by the DOD -Boeing Patent Licence Agreement.1555  
8.409.   We therefore find that the financial contributions  in the form of payments and 
access to DOD facilit ies, equipment, and employees , provided through certain post -2006 
assistance instruments that have been modified by the DOD -Boeing Patent Licence 
Agreement , confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement .  
8.2.3.4.2.2   Post-2006 assistance i nstruments that have not been modified by the DOD -
Boeing Patent Licence Agreement  
8.410.   The United States confirms that the DOD -Boeing Patent Licence Agreement applies only to 
the agreements listed in Attachment A thereto, and does not affect patent rights in re spect of any 
other DOD assistance instruments, such as the post -2006 assistance instruments (other than the 
six post -2006 assistance instruments specifically identified as having been modified by the 
DOD-Boeing Patent Licence Agreement).1556  
8.411.   As explained abo ve, the DOD -Boeing Patent Licence Agreement granted DOD , as 
commissioning party , a limited commercial use licence in respect of Boeing -owned patents arising 
from work performed by Boeing under the DOD assistance instruments to which it applies. In 
Section 8.2.3.4.2.1  above, we conclude, based on our assessment of the evidence of comparable 
private collaborative R&D agreements , and of the opinions of the parties ' respective technology 
licensing experts, that Boeing as commissione d party under the modified DOD assistance 
instruments remains in a more favourable position as regards its ability to commercially exploit 
Boeing -owned patents than the commissioned parties under the private collaborative R&D 
agreements.  
8.412.   The "unmodified " DOD assistance instruments do not grant DOD a commercial use licence 
in respect of Boeing -owned patents. Boeing therefore has a more extensive ability to commercially 
exploit its patents under these  DOD assistance instruments than  it has  under the pre -2007 DOD 
assistance instruments  and those post -2006 DOD assistance instruments that have been modified 
by the DOD -Boeing Patent Licence Agreement. Given that we conclude that the pre -2007 DOD 
assistance  and those post -2006 DOD assistance instruments that have been modified by the 
DOD-Boeing Patent Licence Agreement , confer a benefit on Boeing, logically we must also 
conclude that the  post-2006 DOD assistance instruments that have not been modified to grant 
DOD a commercial use licence, confer a benefit.  
8.413.   This conclusion is  also consistent with the Appellate Body 's finding that the pre -2007 DOD 
assistance instruments in the original proceeding, which contain the same allocation of rights in 
respect of patents  as the "unmodified ", post -2006 DOD assistance instrume nts now before us, 
involved a more favourable allocation of intellectual property rights to Boeing as commissioned 
party than the allocations to commissioned parties under [***] and therefore conferred a benefit 
on Boeing.  
8.414.   We therefore find that the finan cial contributions  in the form of payments and 
access to DOD facilities, equipment, and employees , provided to Boeing through the 
post-2006 DOD assistance instruments that have  not been modified by the DOD -Boeing 
Patent Licence Agreement , confer a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement .  
                                               
1555 See para. 8.49 above . 
1556 United States' response to Panel question No. 87, para. 158.  WT/DS353/R W 
 
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  8.2.3.4.2.3   DOD procurement contracts  
8.415.   In Section 8.2.3.3.3 , we characterize the payments and access to DOD facilities, and 
where applicable, DOD equipment and employees, provided to Boeing through the DOD 
procurement contracts as principally and predominantly being purchases of R&D services by DOD 
from Boeing. In this Section of the Report, we evaluate whether, assuming arguendo  that the se 
transactions  constitute financial contribu tions within the meaning of Article 1.1(a)(1), they confer a 
benefit within the meaning of Article 1.1(b).  
8.416.   We recall that the original panel made no benefit findings as regards the DOD procurement 
contracts, owing to its view that the DOD procurement contr acts were properly characterized as 
"purchases of services " and thus were outside the scope of Article 1.1(a)(1). The issue of whether 
the payments and access to DOD facilities provided to Boeing through the DOD procurement 
contracts constitute financial c ontributions that confer a benefit , was not addressed on appeal.1557 
8.417.   In evaluating whether the payments and access to DOD facilities, and where applicable, 
DOD equipment and employees, provided to Boeing through the DOD procurement contracts 
properly before u s in this proceeding confer a benefit, we must first address the relevant standard 
that we should apply. The European Union argues that we should apply the same benefit analysis 
as that applied by the Appellate Body in concluding that the original NASA pro curement contracts 
and DOD assistance instruments conferred a benefit. The United States argues that the proper 
standard for assessing whether a financial contribution confers a benefit depends on the nature of 
the financial contribution, and in the case o f the DOD procurement contracts, the fact that DOD 
was "buying something " in the transactions must play a role.  
8.418.   Given our characterization of the DOD procurement contracts as principally and 
predominantly involving purchases of R&D services by DOD from Bo eing, we consider that, 
consistent with Article 14(d) of the SCM Agreement, the  determination of whether  the payments 
and access to DOD facilities, and where applicable, DOD equipment and employees, provided to 
Boeing through the DOD procurement contracts confer a benefit on Boeing , involve s an 
assessment of whether Boeing was paid adequate remuneration for performing the  R&D work .  
8.419.   The European Union 's benefit arguments in respect of the DOD procurement contracts are 
premised on the assumption that the DOD  procurement contracts, like the NASA procurement 
contracts and DOD assistance instruments, are properly characteri zed as composite transactions 
that are "akin to a species of joint venture ", which are "analogous to " equity infusions, and 
therefore  involve  financial contributions within the meaning of Article 1.1(a)(1)(i) and (iii) of the 
SCM Agreement. The European Union has presented evidence of private actor collaborative R&D 
arrangements , which it regards as demonstrating that DOD essentially "paid too much " because 
Boeing , as the commissioned party , obtained ownership of the inventions resulting from the R&D 
work that it performed (and thus the rights to obtain patents in respect of those inventions), while 
DOD obtained a government use licence in respe ct of those patents. According to the European 
Union, such an allocation of ownership of inventions is inconsistent with what market actors 
commissioning and performing R&D would negotiate, as evidenced by the various private actor 
collaborative R&D arrang ements submitted into evidence and discussed in the BCI Appendix .1558 
8.420.   As we explain in Section 8.2.3.3.3 , we do not characterize the DOD procurement contracts 
as collaborative R&D arrangements. We therefore do not consider that a focus on the allocation of 
intellectual property rights as the "output " of a joint venture undertaking is an appropriate means 
of determining whether DOD as the purchaser of R&D services from Boeing, paid too much for 
what it acquired. Th e question of whet her Boeing was paid adequate remuneration for performing 
the R&D work for DOD  requires a consideration of all of the terms of the transaction, including how 
much DOD paid in relation to the work that Boeing performed.  
                                               
1557 The Appellat e Body declared moot the panel's finding that DOD procurement contracts are properly 
characterized as "purchases of services", and thus not financial contributions under Article 1.1(a)(1). It then 
indicated that it did not "complete the analysis regarding the USDOD procurement contracts at issue in this 
dispute" as neither party had requested it to do so. (Appellate Body Report, US – Large Civil Aircraft (2nd 
complaint ), para. 620, fn 1298).  
1558 See Appendix 1.  WT/DS353/R W 
 
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  8.421.   Even if we were to assess whether the  financial contributions assumed to be provided 
through the  DOD procurement contracts confer a benefit on Boeing by focusing  solely  on the 
allocation of the intellectual property rights arising from the performance of the R&D, in isolation 
from the other t erms of the transaction, we would not regard the private collaborative R&D 
agreements as appropriate benchmarks. As we note in paragraph 8.337 , the DOD procurement 
contracts involve complex, long-term purchases of R&D services by DOD from Boeing for the 
development of weapon systems. While the examples of private collaborative R&D agreements 
submitted in evidence (and discussed in greater detail in the BCI Appendix1559) sufficiently 
resemble the relevant characteristics of the NASA  procurement contracts and DOD assistance 
instruments, in terms of the mutuality of interests that is an inherent feature of collaborative R&D 
arrangements or R&D alliances, there is no such similarity between the private collaborative R&D 
agreements and t he DOD procurement contracts.1560 Unlike DOD assistance instruments, there is 
no cost -sharing between DOD and Boeing, and no relationship of collaboration between DOD and 
Boeing wherein they can be said to undertake a project of mutual interest. Unlike the NA SA 
procurement contracts, the objectives of the commissioned R&D do not include enhancing the 
competitiveness of the U .S. aerospace industry. Rather, as we have said, the fundamental nature 
of the DOD -Boeing relationship under the DOD procurement contracts  is one of purchaser of R&D 
services for DOD and supplier of those services for Boeing .  
8.422.   In the context of the DOD procurement contracts, it appears to us that the government 
use licence granted to DOD in respect of Boeing -owned patents that may result fro m the 
performance of the R&D work captures the economic value of the R&D for DOD. The 
European  Union 's technology licensing expert, Mr Razgaitis, says that the value of intellectual 
property rights depends upon what such rights permit the recipient to do "in real commercial 
terms ".1561 Under the DOD procurement contracts, the government use licence enables DOD to 
use Boeing -owned patents without paying royalties. Third-party contractors to the 
U.S. Government (including Boeing 's competitors) also have the righ t to practice those patents 
royalty -free in any work they conduct for the U .S. Government . As DOD is the sole purchaser of 
modern air weaponry in the United States, Boeing 's ability to commercially exploit the R&D is, in a 
practical sense, limited. Moreove r, Boeing 's practical ability to exploit any military technologies for 
commercial purposes outside the military context is circumscribed by U .S. legal restrictions on the 
use of military technologies and data, such as classification of in formation under Ex ecutive 
Order  12958 and export -controls under the ITAR and EAR.1562  
8.423.   Boeing 's practical ability to commercially exploit patents that it owns as a result of 
performing R&D work for DOD, and the practical consequences of the government use licence 
granted to DO D, differ in the context of DOD assistance instruments and DOD procurement 
contracts. Although the formal allocation of patent ownership and use rights is the same under 
both types of instrument, DOD assistance instruments by definition involve "assistance " in the 
sense of a transfer of a thing of value to a recipient.1563  
8.424.   It is reasonable to assume that the nature of R&D undertaken in such a collaborative 
context would be expected by the parties to yield outcomes that Boeing would have the practical 
ability to commercially exploit, otherwise a commercial actor like Boeing would be unlikely to 
contribute to the costs of performing the R&D and there would be no legal basis for the DOD to 
have selected an assistance instrument as the appropriate instrument for t he transaction with 
Boeing. Indeed, the fact that many of the assistance instruments were funded through program 
elements with explicitly dual -use objectives would tend to support this conclusion.  
                                               
1559 See Appendix 1.  
1560 We discuss the relevant char acteristics of the DOD procurement contracts in Section 8.2.3.3.3  of 
this Report. Our discussion of the private collaborative R&D agreements submitted in evidence is set forth in 
the BCI Appendix  (Appendix  1). 
1561 Razgaitis Declaration, (Exhibit EU -1262) (BCI), para. 43. We note also that the European Union 
suggests that the "formal ownership over patents" is not nearly as relevant as a focus on the "actual effective 
distribution  of the rights, taking into account the value of various non -exclusive and exclusive licences", noting 
that the value of patent ownership can be, and often is, redistributed through licensing, including through 
exclusive licences. (European Union's comments on the United States' response to Panel question No. 67, 
para. 46). (emphasis original)  
1562 See Section 8.2.3.2.5  for a description of the main legal restrictions on the dissemination of military 
technologies and data.  
1563 See Section 8.2.3.2.2  for a discussion of the legal framework governing the use of DOD 
procurement contracts and assistance instruments.  WT/DS353/R W 
 
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  8.425.   On the other hand, DOD and Boeing engage with each other o n a different footing in the 
context of the DOD procurement contracts. As we have explained above, in this context, the 
government use licence would, as a practical matter, occupy the field of possibilities for 
commercial exploitation of the military techn ologies, and Boeing 's practical ability to commercially 
exploit its patented technologies, whether in a military or non -military context, is consequently 
more limited. We therefore disagree with the assertions made by the European Union that, 
whether the R &D in question is funded through procurement contracts or assistance instruments, 
"the US Government systematically receives less than a commissioning party would in a 
market -based transaction, and Boeing systematically receives more than a commissioned pa rty 
would in a market -based transaction. "1564 
8.426.   For the foregoing reasons, we do not regard the evidence of allocation of intellectual 
property rights under the private actor collaborative R&D agreements discussed in the BCI 
Appendix1565 as being probative of whet her the  payments and access to DOD facilities, and where 
applicable, DOD equipment and employees, provided to Boeing through the  DOD procurement 
contracts , confer a benefit on Boeing.  
8.427.   We also wish to address a line of argumentation advanced by the Europea n Union 
concerning the relevance of DOD 's termination of its recoupment policy in 1992 to the question of 
whether the payments and access to DOD facilities, and where applicable, DOD equipment and 
employees, provided to Boeing through the DOD procurement c ontracts , confer a benefit.  
8.428.   Between 1967 and 1992, the U.S. Government required contractors to reimburse DOD for 
nonrecurring costs when contractors made or intended to make commercial sales using dual -use 
technologies that had been funded with DOD invest ment.1566 DOD's stated purpose of this policy 
was as follows:  
It is the policy of the Department of Defense to recover a fair share  of its investment 
in nonrecurring costs related to products, and/or a fair price  for its contribution to the 
development of rel ated technology, when the products are sold, and/or when 
technology is transferred … .1567 
8.429.   The U .S. Government terminated the DOD recoupment policy in June 1992.1568 In doing 
so, it noted that the change in policy "will assist the U.S. defense industry to be mor e competitive 
on a global basis by reducing contracting costs through economies of scale, pricing incentives, and 
reduced administrative burdens ".1569  
8.430.   The European Union argues that the recoupment policy that was in place from 1967 until 
1992 had been implem ented by the U.S. Government to ensure that DOD did not subsidize 
industry. It refers in this regard to a U.S. Government response to a report on U.S. Government 
support to the U .S. commercial aircraft industry that had been commissioned by the European 
Communities:  
These policies also recognize the potential for crossover into development and 
production of civilian aircraft of benefits that may result from government support of 
research and development (R&D) on military items. … One of the objectives in 
                                               
1564 See e.g. European Union's opening statement at the meeting with the Panel, para. 30; response to 
Panel question No. 67, paras. 69 and 74; and comments on the United States' response to Panel question 
No. 67, paras. 13, 17 -22, and 63 -67. 
1565 See Appendix 1.  
1566 Letter from GAO to D. B. Fascell, Chairman, Committee on Foreign Affairs, House of 
Representative s, B-214394, 6 September 1984, (Exhibit EU -274), p. 2.  
1567 United States Code of Federal Regulations , Title 48, section 271.002 (1989), (Exhibit EU -275), 
section 271.002(a). (emphasis added)  
1568 Statement of M. Fitzwater, White House Press Secretary, "New Poli cy on Federal Defense 
Procurement", Dispatch, Vol. 3, No. 26, 29 June 1992,  (Exhibit EU -277); U.S. DOD Directive, No. 2140.2 
(13 January 1993), (Exhibit EU -278), reference (a). The 1992 Agreement between the European Communities 
and the Government of the U nited States of America concerning the application of the GATT Agreement on 
Trade in Civil Aircraft on trade in large civil aircraft , which was the subject of a serious prejudice claim by the 
European Communities in the original proceeding entered into for ce on 17 July 1992.  
1569 U.S. DOD, Final Rule, "Recoupment of Nonrecurring Costs on Sales of U.S. Items", 58 FR 16497 
(29 March 1993), (Exhibit EU -279), p. 1.  WT/DS353/R W 
 
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  implementing this policy is to ensure that civil aircraft companies remain commercially 
competitive based on their own investment and technology .1570 
8.431.   The European Union considers that the recoupment policy "is evidence that DOD research 
in-fact has dual -use be nefits for civil aircraft " and demonstrates the United States ' knowledge of 
the technological and pricing advantages for LCA that contractors receive from participating in 
DOD research.1571 Furthermore, by "maintaining its policy of not recouping a fair share  of DOD 's 
contribution to commercial sales " since 1992, it can be inferred that the United  States intends that 
Boeing receive such advantages.1572  
8.432.   The United States argues that the change in recoupment policy in 1992 is irrelevant to this 
proceeding and does  not support the European Union 's contentions.1573 This is because the 
recoupment regulations, when they were in effect, would not have applied to the research 
challenged in this proceeding, or to the Boeing aircraft that allegedly applied those 
technologies.1574 Moreover, the United States argues that DOD did not terminate the recoupment 
policy to give industry free access to commercially applicable technology. Rather, as DOD 
explained in 1992 when implementing the final rule terminating the recoupment policy, "this final 
rule will assist the U.S. defense industry to be more competitive on a global basis by reducing 
contracting costs through economies of scale, pricing incentives, and reduced administrative 
burdens ".1575 The United  States asserts that the recoupment  policy was terminated because it 
imposed unnecessary burdens on both the U.S. G overnment and on contractors.1576 In addition, as 
many of DOD 's procurement contracts are cost -based, the anticipated cost reductions would 
translate directly to lower acquisition  costs for DOD. Consequently, the United States argues, the 
recoupment regulations and their subsequent cancellation do not indicate that the challenged 
RDT&E  program elements have the objective of conferring commercial advantages on commercial 
products.1577  
8.433.   We are satisfied that the termination of the 1992 recoupment policy suggests that the U.S. 
Government recognizes "the potential for crossover into development and production of civilian 
aircraft of benefits that may result from government support of resea rch and development (R&D) 
on military items ".1578 However, this recognition is expressed in very general terms and is not 
                                               
1570 European Union's first written submission, para. 240(emphasis original); second written submission , 
para. 396; response to Panel question No. 29, para. 176 (referring to U.S. Government, Response to the EC -
Commissioned Report "U.S. Government Support of the U.S. Commercial Aircraft Industry" , (March 1992), 
(Exhibit EU -276), p. 13).  
1571 European Union's s econd written submission, para. 397; response to Panel question No. 29, 
para. 176. 
1572 European Union's second written submission, para. 397 (emphasis original); response to Panel 
question No. 29, para.  176. 
1573 United States' second written submission, para. 325; comments on the European Union's response 
to Panel question No. 29, para. 164.  
1574 United States' second written submission, para. 325; comments on the European Union's response 
to Panel question No. 29, para. 164. The United States notes that this issu e was raised by the European 
Communities in the original proceeding and that the United States had explained the application of the former 
recoupment rules in comments on a question posed by the original panel:  
Under those rules, DoD required recoupment fe es only for commercial sales of a "DoD developed 
item or a derivative of a DoD developed item." A "DoD developed item" would be a weapons 
system itself or other product whose development costs DoD paid, while a "derivative" of a DoD 
developed item was defi ned as one that "consists of common parts equal to, or more than 
10 percent of the Defense item." DoD does not develop large civil aircraft, and Boeing's large 
civil aircraft do not have a commonality of more than ten percent with any DoD -developed 
article . Therefore, the old recoupment rules would not have applied to sales of large civil aircraft.  
(United States' comments on the European Communities' response to Panel question No. 196(ii), para.  340 
(fns omitted) )  
The United States emphasizes that curren t Boeing LCA do not meet the definition of a derivative defense 
product for purposes of the former recoupment policy because they do not use parts that represent 10 percent 
of the value of a defense item. (United States' comments on the European Union's re sponse to Panel question 
No. 29, para. 164 and fn 236).  
1575 U.S. DOD, "Recoupment of Nonrecurring Costs on Sales of U.S. Items", United States Code of 
Federal Regulations , Title 58, No. 16497 (29 March 1993), (Exhibit USA -400), p. 1.  
1576 United States' commen ts on the European Union's response to Panel question No. 29, para. 164.  
1577 United States' second written submission, para. 325; comments on the European Union's response 
to Panel question No. 29, para. 164.  
1578 U.S. Government, Response to the EC -Commissione d Report "U.S. Government Support of the U.S. 
Commercial Aircraft Industry" , (March 1992), (Exhibit EU -276), p. 13.  WT/DS353/R W 
 
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  sufficiently linked to the DOD -sponsored R&D at issue in this proceeding. Indeed, we are not 
persuaded, based on the evidence before us, that DOD 's previous recoupment policy would have 
applied to the DOD -sponsored R&D at issue in this proceeding. This is because  there is insufficient 
evidence before us that would enable us to conclude that Boeing LCA would have fallen within the 
definition  of a "derivative " of a DOD developed item under the previous recoupment rules. In sum, 
we do not regard DOD 's termination of the recoupment policy in 1992 as providing probative 
evidence in support of an inference that the DOD procurement contracts (or as sistance 
instruments) before us in this proceeding confer a benefit on Boeing.  
8.434.   In sum, the European Union has not discharged its burden of demonstrating that the 
payments and access to DOD facilities, and where applicable, DOD equipment and employees, 
provided to Boeing through the DOD procurement contracts , assuming these transactions involved 
financial contributions,  confer a benefit on Boeing.  
8.435.   The United States has presented evidence that in its view demonstrates that DOD 
employed competitive practices  in awarding the DOD procurement contracts to ensure that DOD 
did not pay too much for the services that it contracted Boeing to perform. In light of our 
conclusion that the European Union has failed to discharge its burden to demonstrate that the 
payments  and access to DOD facilities, and where applicable, DOD equipment and employees, 
provided to Boeing through the DOD procurement contracts , confer a benefit on Boeing, we do not 
consider it necessary  to further address this evidence, or the United States ' arguments that the 
DOD procurement contracts were awarded on a competitive basis and that this demonstrates that 
DOD did not pay more for the R&D than it should have.  
8.436.   Therefore, the Panel finds that,  assuming arguendo  that the payments and access to DOD 
facilities,  and where applicable,  equipment and employees , provided to Boeing through DOD 
procurement contracts funded under the relevant RDT&E program elements, which we have 
characterized as principally purchases of R&D services by DOD from Boeing, were t o involve 
financial contribution s within the meaning of Article 1.1(a)(1), the  European Union has not 
established that the y confer a benefit within the meaning of Article 1.1(b). As a consequence, 
there is no basis to find that the United States has failed  to withdraw the subsidy within the 
meaning of Article 7.8 of the SCM Agreement through these measures.  
8.437.   In this Section 8.2.3.3  of the Report, we f ind that : 
a. Transactions between DOD and Boeing under post -2006 DOD assistance 
instruments , whether or not modified by the DOD -Boeing Patent Licence 
Agreement,  involve financial contributions that confer a benefit.  
b. Assuming arguendo  that the payments and access to any DOD facilities,  and 
where applicable,  equipment or employees provide d to Boeing through DOD 
procurement contracts funded under the relevant RDT&E program elements, 
which we have characterized as principally purchases of R&D services by DOD 
from Boeing, were to involve financial contribution s within the meaning of 
Article 1 .1(a)(1), the  European Union has not established that they  confer a 
benefit within the meaning of Article 1.1(b).  
8.438.   In light of this finding,  we next evaluate whether the  subsidies provided through the 
post-2006 DOD assistance instruments are specific withi n the meaning of Article 2 of the SCM 
Agreement.  WT/DS353/R W 
 
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  8.2.3.5   Whether the subsidy is specific  
8.2.3.5.1   Main arguments of the parties  
8.439.   The European Union  argues that the subsidies provided through the post-2006 DOD 
assistance instruments are specific within the meaning of Articl es 2.1(a) and 2.1(c) of the SCM 
Agreement.1579  
8.440.   With regard to Article 2.1(a), the European Union relies on the original panel 's finding that 
the DOD aeronautics R&D subsidies were specific to a "group of enterprises or industries " within 
the meaning of Artic le 2.1(a) "given the fairly narrow focus of R&D performed " under the 
challenged RDT&E program elements.1580 With regard to Article 2.1(c) , the European Union recalls 
that the original panel found that the DOD aeronautics R&D subsidies were specific because , 
whether viewed at the level of the individual RDT&E program elements, or the RDT&E Program as 
a whole, DOD RDT&E went predominantly to firms in the defence industry.1581 The European Union 
notes that the United States did not appeal these findings, and argues that they should continue to 
hold true for the original RDT&E program elements and are fully applicable to any additional 
RDT&E program elements , given that these additional program elements have the same relevant 
characteristics and are funded pursuant to  the same overarching DOD RDT&E Program.1582 
8.441.   The European Union rejects the argument of the United States that , for purposes of the 
analysis under Article 2.1(a), the subsidy at issue is the allocation of rights in patents on terms 
more favourable than availa ble in the market. The European Union submits that the subsidies 
consist not just of patent rights but also the provision of funding and support to Boeing for 
LCA-relevant R&D through certain of the original program elements , royalty -free beneficial use of  
LCA technologies developed with the subsidies provided under the original RDT&E program 
elements  and additional subsidies to Boeing in the form of funding and access to government 
facilities, equipment, and employees  provided under additional program elem ents. The 
European  Union explains, in this respect, that while it considers the intellectual property rights 
distribution when evaluating the benefit conferred, the "benefit " comprises  not only the provision 
of intellectual property, but also the provision  of payments, and access to government facilities, 
equipment, and employees , "for less than what a market -based actor would demand ". The 
consideration of intellectual property rights distribution, and comparison to intellectual property 
rights distribution  in market benchmarks is "just a means to the end of determining the existence 
of benefit  from these financial contributions – it is not the 'benefit ' of the 'subsidy ', in and of 
itself".1583 
8.442.   Thus, the European Union considers that the reasoning of the Appell ate Body in the 
original proceeding , regarding the non -specificity of the allocation of patent rights as a 
self-standing subsidy , is not applicable to the assessment of specificity of the DOD aeronautics 
R&D subsidies before this Panel. The European Union recalls the Appellate Body 's statement that 
its findings in connection with the specificity of the allocation of patent rights, if considered to be a 
self-standing subsidy , "do not traverse " the original panel's findings related to the payments and 
access to NASA facilities, equipment, and employees . The Europea n Union alleges that the 
United  States is now attempting to use the Appellate Body 's findings to traverse the original 
panel 's findings, in exactly the way that the Appellate Body cautioned that they  could not be 
used.1584 The European Union denies the United States ' allegation that it has alleged a different 
subsidy  with respect to DOD aeronautics R&D funding and other support for aeronautics R&D from 
that in the original proceeding , and asserts that it s claims address the exact same subsidies as 
were found to exist in the original proceedings, and the continuation of those subsidies through 
successor and closely -related aeronautics R&D programmes.1585  
                                               
1579 European Union's first written submission, paras. 386 and 387. We note that the European Union 
does not appear to make its argument under Article 2.1(c) in the alternative.  
1580 European Union's first written submission, para. 386; second written submission, para. 523.  
1581 European Union's first written submission, para. 386; second written submission, para. 523.  
1582 European Union's second writt en submission, para. 524.  
1583 European Union's second written submission, paras. 526 -530. (emphasis original)  
1584 European Union's second written submission, paras. 531 -533. 
1585 European Union's comments on United States' response to Panel question No. 28, para.  181. WT/DS353/R W 
 
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  8.443.   The United States  argues that "the patent rights subsi dy alleged by the European Union " is 
not specific , within the meaning of Article 2.1 (a) of the SCM Agreement , because it is available 
under any U.S. G overnment contract.1586 The standard addressed by Article 2.1(a) of the SCM 
Agreement is whether access to th e subsidy  is limited. With respect to DOD assistance 
instruments, which the European Union alleges involve financial contributions in the form of 
payments and provision of goods and services, the only benefit alleged is that Boeing receives 
more favourable  rights in patents than would be the case if a commercial actor had funded the 
research. The specificity analysis should therefore be based on that subsidy.1587  
8.444.   The United States argues that the European Union incorrectly characterizes its claims as to 
the e xistence of a benefit with regard to NASA and DOD contracts and agreements. According to 
the United States, the  European Union has not argued "that {DOD} paid Boeing too much for the 
work Boeing conducted and the intellectual property rights that resulted ", or "that no 
market -based actor would make payments, or provide facilities, equipment, and employees to 
obtain research results that the market -based actor sought ".1588 Rather, the European Union 's 
allegation of the existence of a benefit is limited to the f act that Boeing receives more favourable 
rights in respect of patents than would be the case if a commercial actor had funded the research. 
Thus, the specificity analysis must be limited to Boeing 's allocation of rights in patents that is more 
favourable t han under a commercial transaction.1589  
8.445.   The United States recalls, in this respect, that the Appellate Body in the original proceeding 
found that the attribution of patent rights, if considered as a "free-standing subsidy " is not specific , 
because it is avai lable under any U.S. G overnment R&D contract, by any agency, in any sector.1590 
The United States also recalls that the Appellate Body indicated that a subsidy provided through a 
particular program me, considered separately, will not be considered specific whe re multiple 
authorities implement the same measure.1591  
8.446.   The United States considers that the Appellate Body 's statement that its findings with 
respect to whether the allocation of patent rights , if considered as a subsidy by itself, was specific 
"do not trav erse the panel 's findings of specificity relating to the payments and other support 
provided under the NASA USDOD contracts and agreements ", is not germane to this proceeding 
because the European Union is alleging a different  financial  contribution and ben efit, which  
requires a different analysis of specificity.1592  
8.447.   The United States considers that the European Union 's contention that specificity exists 
under Article 2.1(a) because R&D performed is limited to defence topics , does not address the 
standard esta blished by the SCM Agreement (whether access to the subsidy is limited) because 
the European Union has never established or even claimed that DOD  aeronautics R&D  
program mes, taken as a whole, are a subsidy to Boeing.1593  
8.448.   The United States argues that the Eur opean Union 's specificity arguments concerning 
Article 2.1(c) are similarly flawed in that they address only the DOD aeronautics R&D programmes . 
The European Union has presented no evidence as to de facto  specificity because access to the 
treatment in ques tion (the allocation of patent rights) is available through U.S. Government 
contracting.1594 
8.2.3.5.2   Evaluation by the Panel  
8.449.   The issue before us is whether the subsidies provided through the post -2006 DOD 
assistance instruments are specific within the meaning of Art icle 2.1 (a) ; i.e. whether "the granting 
                                               
1586 United States' first written submission, section 3.3.4.4.4.  
1587 United States' first written submission, para. 292; second written submission, para. 269.  
1588 United States' second written submission, paras. 252, and 269. See also United States' first w ritten 
submission, paras. 259 and 260; second written submission paras. 248 and 255.  
1589 United States' first written submission, para. 259; second written submission, paras. 248, 252, 255, 
and 269.  
1590 United States' first written submission, para. 291.  
1591 United States' second written submission, para. 269.  
1592 United States' first written submission, paras. 254 and 255.  
1593 United States' first written submission, para. 292; second written submission, para. 249.  
1594 United States' first written submission, para. 2 93. WT/DS353/R W 
 
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  authority, or the legislation pursuant to which the granting authority operates, explicitly limits 
access to the subsidy to certain enterprises ".1595  
8.450.   The disagreement between the parties on whether access to the subsi dy is explicitly 
limited pertains to the same issue that we considered above in Section 8.2.2.5  in relation to the 
post-2006 NASA procurement contracts and Space Act Agreements ; namely , the appropriate 
characterization of the "subsidy " provided to Boeing through the DOD assistance instruments and 
the corresponding identification of the "legislation " pursuant to which the "granting authority " 
operates1596, which frames the assessment of whether access to the subsidy is explicitly li mited to 
certain enterprises for purposes of Article 2.1(a).  
8.451.   The European Union argues that, for purposes of determining of whether access to the 
subsidy is explicitly limited, the "subsidy " should be defined, in this case, as payments and the 
provision of  access to facilities, equipment, and employees  on terms more favourable than 
available in the market and that, as such, the subsidy is exactly the same "subsidy ", access to 
which the original panel found to be explicitly limited.1597 The United States argues  that the 
subsidy should be defined in terms of the allocation of rights in patents on terms more favourable 
than available in the market and that, as such, the subsidy is the same "subsidy ", access to which 
the Appellate Body found not to be explicitly li mited in the original proceeding.1598  
8.452.   Before addressing this question of how the relevant subsidy should be defined in this case 
in order to ensure a proper analysis of whether access to the subsidy is explicitly limited, we 
briefly recall the relevant findi ngs made in the original proceeding by the panel and the Appellate 
Body which are relied upon by the parties in support of their opposing views.  
8.453.   First, in the original proceeding, the panel found that the payments and access to DOD 
facilities provided to Boeing through DOD assistance instruments were financial contributions that 
conferred a benefit on Boeing , on the basis that no commercial entity would provide payments and 
access to its facilities and personnel to another commercial entity on the conditio n that the other 
entity perform R&D activities principally for the benefit and use of that other entity.1599 The panel 
then assessed whether these subsidies were specific within the meaning of Article 2 on the basis 
that the individual RDT&E program elements appeared to be the "relevant frame of reference ".1600 
Thus, the question the panel asked was whether the individual RDT&E program elements  were 
"specific " for purposes of Article 2 of the SCM Agreement. Answering that question in the 
affirmative, the panel fo und that the "fairly narrow focus of R&D " performed under the 23 
individual RDT&E program elements indicated that the subsidies provided through the assistance 
instruments under those program elements were specific within the meaning of Article 2.1(a) of 
the SCM Agreement.1601 
8.454.   Although the panel 's specificity findings were not appealed, its financial contribution and 
benefit findings were. The Appellate Body upheld the panel 's findings on financial contribution and 
                                               
1595 See paras. 8.208  through  8.210  above.  
1596 While an explicit limitation on access to the subsidy may also result from "pronouncements or other 
actions of the granting authority" ( Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 757),  
our understanding is that the European Union bases its allegation that "access to the subsidy" is subject to an 
explicit limitation on what it considers to be relevant legislativ e and regulatory provisions pursuant to which the 
subsidy is  granted.  
1597 In this view, the relevant "legislation pursuant to which the granting authority operates" consists of 
the relevant legislative and regulatory provisions that authorize, and define th e objectives of, DOD aeronautics 
and space R&D programmes.  
1598 In this view, the relevant "legislation pursuant to which the granting authority operates" consists of 
the legislative framework and implementing regulations governing the distribution of intelle ctual property 
rights in U.S. Government R&D contracts.  
1599 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1184.  
1600 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1195.  
1601 Panel Report, US – Large Civil Aircraft (2nd compla int), para. 7.1196. The panel also considered that, 
even if it were necessary to examine specificity at the level of the RDT&E Program as a whole, the European 
Communities had demonstrated de facto  specificity , within the meaning of Article 2.1(c) of the S CM 
Agreement , by showing that between 1991 and 2005, almost half of all RDT&E funding went to five 
enterprises, all of which form part of the same industry . (Panel Report, US – Large Civil Aircraft (2nd 
complaint ), para. 7.1197).  WT/DS353/R W 
 
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  benefit, but on the basis of significantly di fferent reasoning, particularly as regards the benefit 
determination.1602  
8.455.   Second, the question of specificity of the subsidies provided through the original DOD 
assistance instruments was also considered in the original proceeding in respect of the European 
Communities'  separate claim regarding the allocation of NASA and DOD patent rights, when 
viewed independently from the provision of payments and access to facilities, equipment, and 
employees , as a self -standing subsidy.1603 In addressing this claim , the orig inal panel concluded 
that the allocation of patent rights, if assumed arguendo  to be a self -standing subsidy, would not 
in any event be specific, given that "the allocation of patent rights is uniform under all 
U.S. Government R&D contracts, agreements, an d grants, in respect of all U.S. Government 
departments and agencies, for all enterprises in all sectors ".1604 The European Union appealed this 
finding, as well as the panel 's interpretation of Article 2.1 of the SCM Agreement.  
8.456.   The Appellate Body observed th at there may have been "some overlap " in the relationship 
between the European Communities'  claim that payments and access to facilities, equipment, and 
employees  were subsidies, on the one hand, and its claim that the allocation of patent rights was a 
self-standing subsidy, on the other.1605 The Appellate Body proceeded to address the 
parties ' appeal of the panel 's finding on the basis that neither party had appealed the panel 's 
approach to the potential overlap between the European Communities'  claims; howev er, the 
Appellate Body emphasized that "any findings {it} make{s} in connection to the specificity of the 
allocation of patent rights do not traverse the Panel 's findings of specificity relating to the 
payments and other support provided under the NASA/USD OD contracts and agreements ".1606 
8.457.   While the Appellate Body expressed reservations regarding the panel 's use of  arguendo  
reasoning1607, it ultimately upheld the panel 's finding that the allocation of patent rights under the 
challenged DOD assistance instruments, if conceived as a separate subsidy, was not specific within 
the meaning of Article 2.1(a). In particular, the Appellate Body:  
a. Affirmed the panel 's assessment of whether the "patent rights " subsidies in question 
were specific by reference to the legal fram ework that exists in the United States for the 
                                               
1602 The Appellate Body found  that the panel had not made a proper comparison of the terms of the 
DOD assistance instruments (and NASA procurement contracts) with the terms of a market transaction, as 
required under Article 1.1(b), and that the panel's reasoning as to whether the paym ents and access to 
facilities provided under the DOD assistance instruments conferred a benefit could not be sustained. (Appellate 
Body Report, US – Large Civil Aircraft (2nd complaint ), para. 647). The Appellate Body completed the analysis 
by determining whether the "disposition of intellectual property rights under the NASA/USDOD measures at 
issue is consistent with what occurs in transactions between two market actors". (Appellate Body Report, US – 
Large Civil Aircraft (2nd complaint ), para. 653). In the  course of undertaking this analysis, the Appellate Body 
expressed the view that "the allocation of intellectual property rights is pre -determined under the US legal 
framework". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 661).  It concluded, based 
on a comparison of the intellectual property rights terms of certain contracts, which it had decided to treat as 
market benchmarks for purposes of completing the analysis, that "transactions in the market result in an 
equilibrium that is more favourable to the commissioning party than in the measures before us". (Appellate 
Body Report, US – Large Civil Aircraft (2nd complaint ), para. 662). Consequently, it found that the funding and 
support provided under the DOD assistance instruments conferred a benefit on Boeing , within the meaning of 
Article 1.1(b) of the SCM Agreement. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), 
para. 666).  
1603 See Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1276 -7.1294, f or a description 
of Bayh -Dole Act, its associated legislative instruments and implementing regulations, and accompanying 
NASA -specific implementing regulations.  
1604 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1276 -7.1294. The panel foun d that 
the U.S. Government has a general policy in place granting government contractors the option to retain title to 
inventions that arise from a funding agreement with the U.S. Government, pursuant to the Bayh -Dole Act, 
1983 Presidential Memorandum, the  1987 Executive Order, and the general and NASA -specific regulations. 
(See Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1276 -7.1294).  
1605 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 726 -728 and 740.  
1606 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 730.  
1607 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 741. The Appellate Body 
expressed the view that the panel should have first determined whether a subsidy exi sts, stating that "the 
assessment of specificity under Article 2.1 depends on how the subsidy was defined under Article 1.1, leaving 
little, if any, room for the adoption of an arguendo  approach". (Appellate Body Report, US – Large Civil Aircraft 
(2nd comp laint), para. 739).  WT/DS353/R W 
 
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  allocation of patent rights under U.S. Government R&D contracts and agreements , and 
pursuant to which NASA and DOD as granting authorities operate.1608 
b. Focused on the legislative and regulatory framework regulati ng the allocation of patent 
rights arising from R&D funded by the U .S. Government , which revealed that the 
eligibility to receive the alleged "subsidy " is not limited to the class of enterprises that 
conducts aerospace R&D, and thus concluded that there wa s no a basis on which to find 
that such a subsidy is explicitly limited to certain enterprises , and therefore specific 
within the meaning of Article 2.1(a) of the SCM Agreement.1609 
8.458.   The Appellate Body reversed the panel for failing to address the European Com munities'  
claim of de facto  specificity under Articles 2.1(c).1610 
8.459.   As noted above, the parties disagree on whether the subsidies at issue in this proceeding 
are the same subsidies as those that were found to exist by the original panel , and should be 
found to  be specific under Article 2.1(a) based on the same analysis that led the original panel to 
find the original measures to be specific ; or whether the subsidies at issue here are different, such 
that the subsidies should be found to be non -specific, in acco rdance with the Appellate Body 's 
analysis of the European Union 's separate claim with respect to the allocation of NASA and DOD 
patent rights as a self -standing subsidy . 
8.460.   While we disagree with the European Union 's assertion that its claim in this proceedin g 
regarding the alleged post -2006 DOD assistance instruments concern s the exact same subsidies as 
were found to exist in the original proceeding and were found to be specific by the original panel, 
we also do not accept the United States ' argument that the  subsidies at issue are the same 
subsidies found to be non -specific by the Appellate Body in the context of its analysis of the 
European Communities ' challenge to the allocation of patent rights under all NASA and DOD 
procurement contracts and assistance i nstruments as a self -standing subsidy.  
8.461.   The measures challenged by the European Union in this proceeding are factually the same 
type of measures as those challenged in the original proceeding i.e. payments and the provision of 
access to facilities, (and in  some cases) equipment and employees , under  DOD assistance 
instruments . However, we have found these measures to constitute subsidies on a legal basis that 
differs from the basis upon which the panel in the original proceeding found the measures to be 
subsidies.  In our view, this different legal characterization of the measures as subsidies means 
that in determining whether "access to the subsidy " is explicitly limited , we cannot presume that 
the finding of the original panel , that the subsidies granted thr ough the original DOD assistance 
instruments were specific under Article 2.1(a) , is still applicable.  
8.462.   Particularly with regard to our finding on how the financial contributions at issue confer a 
benefit on Boeing, we note that in the original proceeding t he panel found a benefit on the basis 
that "no private entity acting pursuant to commercial considerations, would provide payments (and 
access to its facilities and personnel) to another commercial entity on the condition that the entity 
perform R&D activi ties principally for the benefit and use of that other entity. At a minimum, it 
would be expected that some form of royalties or repayment would be required in the event that 
financial contributions were provided on such terms. "1611 In this proceeding, we f ind that the 
financial contributions provided under the DOD assistance instruments confer a benefit on the 
basis that the allocation of rights to own and use patents under those measures is more favourable 
to Boeing as commissioned party than the allocation of rights to own and use patent is  to 
commissioned parties under collaborative R&D agreements between private parties. In our view, 
the different basis on which we determine in this proceeding that the payments and any access to 
DOD facilities, equipment, and employees  provided through the DOD assistance instruments 
                                               
1608 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 760.  
1609 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 782, 788, and 789.  
1610 The Appellate Body found that the panel's overall analysis wa s "incomplete and cannot be 
sustained" because the panel chose not to address the European Communities' claim of de facto  specificity 
under Article 2.1(c) of the SCM Agreement. (Appellate Body Report US – Large Civil Aircraft (2nd complaint) , 
para. 793). H aving reversed the panel, the Appellate Body stated that it was not persuaded that NASA or DOD 
exercised discretionary authority with respect to the allocation of patent rights, or that the share of NASA 
contracts and DOD funding received by Boeing was dis proportionate, so as to support a finding of specificity 
under Article  2.1(c). (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 799 and 800).  
1611 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1039.  WT/DS353/R W 
 
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  constitute a financial contribution that confers a benefit means that we cannot adopt the original 
panel 's finding of specificity regarding the pre-2007 DOD assistance instruments without first 
examining whether such an approach remains appropriate.1612  
8.463.   However, we do not consider that, as argued by the United States, the fact that the focus 
of our benefit analysis is the allocation of patent rights logically leads to the conclusion that the 
subsid y at issue should be defined as the allocation of patent rights on terms more favourable than 
available in the market and that , for purposes of determining whether access to the subsidy is 
limited we must treat the Bayh -Dole Act, its associated legislative  instruments and implementing 
regulations as the relevant subsidy scheme. Since a subsidy within the meaning of Article 1 is 
defined in terms of financial contribution and benefit, it stands to reason that both financial 
contribution and benefit must be ta ken into consideration in an analysis of whether access to the 
subsidy is explicitly limited. Therefore, while we agree that the nature of the benefit found to exist 
obviously is a key consideration in the specificity analysis under Article 2.1(a), the que stion of 
whether access to the subsidy is explicitly limited cannot always be answered by focusing solely on 
the benefit.1613 In our view, the United States ' argument fails to properly consider the benefit in 
relation to the financial contribution and the par ticular context in which that  financial  contribution 
occurs.  
8.464.   As is clear from Sections 8.1.3 and 8.2.3.5.2 , our benefit assessment has been conducted 
in the context of a characterization of the DOD  assistance instruments as collaborative R&D 
agreements between DOD and Boeing. In this context, we considered it appropriate to  assess 
whether the financial contributions provide a benefit on the basis of an examination of  how the 
R&D partners agree to al locate the ownership of inventions, the right to licence patents obtained 
from inventions discovered in the course of the collaboration, and the use of data generated from 
the collaboration. Whether this will be the case for other R&D contracts and agreeme nts concluded 
between NASA, DOD or indeed , any other U.S. Government agencies , will depend very much on 
the programmes in question, and a consideration of all of the terms of the transaction s, including 
those relevant to the characterization of the financi al contribution and benefit.  
8.465.   For example, our characterization of the payments (and any access to DOD facilities, 
equipment or employees) provided to Boeing through DOD procurement contracts, as principally 
involving purchases of R&D services, has led us t o conclude that, even assuming such transaction s 
involved  financial contribution s, it would not be appropriate to undertake the benefit determination 
by focusing exclusively on the allocation of patent rights, or intellectual property rights more 
generally , in isolation from the other terms of the purchase. Thus, in the context of our 
characterization of the DOD procurement contracts as purchases of R&D services, the same 
allocation of patent rights that applies by virtue of the Bayh -Dole Act and related le gislative 
instruments and implementing regulations would not result in the measures in question being 
subsidies.1614 
8.466.   Because the role of the allocation of intellectual property rights in our analysis of whether a 
measure constitutes a subsidy depends upon the  particular context, we consider that , in 
ascertaining whether  access to the subsidy , is explicitly limited, we cannot treat the allocation of 
intellectual property rights on terms more favourable than available in the market as being the 
relevant "subsidy " in and of itself. We therefore disagree with the premise on w hich the 
United  States ' argument is based, namely, that the "subsidy " at issue is the "same subsidy " that 
the Appellate Body addressed in the context of the European Communities ' challenge to t he 
allocation of patent rights under all NASA  procurement contracts  and DOD assistance instruments 
with Boeing as a "self-standing subsidy ". While our benefit determinations in respect of the DOD 
assistance instruments do turn in certain respects on the al location of patent rights set forth in the 
Bayh-Dole regime, this is not because of the Bayh -Dole regime itself, but because , in the context 
of the DOD assistance instruments , a focus on the allocation of patent rights is appropriate. This is 
not necessari ly the case for every U.S. Government R&D procurement contract, agreement or 
grant, as is demonstrated by our conclusion that a focus on the same allocation of patent rights in 
                                               
1612 In this respe ct, we interpret the Appellate Body's statement, at para. 730 of its report, that any 
findings it makes in connection with the specificity of the allocation of patent rights "do not traverse the Panel's 
findings of specificity relating to the payments and other support provided under the NASA USDOD contracts 
and agreements" particularly in light of footnote 1534, as a statement regarding the scope of the appeal.  
1613 See also Appellate Body Report, US – Anti-Dumping  and Countervailing Duties (China) , paras.  377 
and 378.  
1614 See paras. 8.420  through 8.426  above . WT/DS353/R W 
 
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  the context of the DOD procurement contracts is inadequate to demonstrate that those measures, 
assuming they are financial contributions, confer a benefit.  
8.467.   This being so, we consider that the appropriate legislative and regulatory framework for 
assessing whether the payments (and any access to DOD facilities, equipment or employees) 
provided to Boeing through DOD assistance instruments , are specifi c within the meaning of 
Article  2 of the SCM Agreement, involves DOD as the granting authority, and the RDT&E program 
elements which fund the DOD assistance instruments. Given that the focus  of R&D performed 
under the RDT&E program elements is narrowly directed toward research to meet current and 
future military needs in relation to the development of specific weapon systems, and that even 
those few RDT&E program elements that have explicitly  dual-use objectives concern development 
of technologies with military and civil applications that are narrowly -focused, we conclude that the 
subsidies provided to Boeing through the post-2006 DOD assistance instruments funded under the 
RDT&E program eleme nts are specific within the meaning of Article 2.1(a) of the SCM Agreement.  
8.468.   In light of this finding, we do not consider it necessary to address the European Union 's 
argument under Article 2.1(c).  
8.469.   Therefore, the Panel finds that subsidies provided to Boe ing through the 
post-2006 DOD assistance instruments are specific within the meaning of Artic le 2.1(a) 
of the SCM Agreement . 
8.470.   Finally, we note that the European Union also argues that the subsidies provided to Boeing 
through the post -2006 DOD assistance ins truments are specific pursuant to Article 2.3 of the SCM 
Agreement. Article 2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall 
be deemed to be specific". We reject this argument because, in Section 10 of this Report, we find 
that the European Union has failed to establish that any subsidy at issue in this proceeding is 
prohibited by Articles 3.1 and 3.2 of the SCM Agreement . 
8.2.3.6   Amount of the subsidy  and amount of the  financial contribution  
8.2.3.6.1   Amount of the subsidy  provided to Boeing through the DOD assistance 
instruments  
8.471.   In the previous Section , we f ind that payments and access to DOD facilities, equipment, 
and employees , provided to Boeing through the post -2006 DOD assistance instruments funded 
under the relevant RDT& E program elemen ts are specific subsidies within the meaning of Articles 1 
and 2 of the SCM Agreement.  
8.472.   In this Section , we address the parties ' arguments regarding the amount of the subsidy 
provided to Boeing by the post -2006 DOD assistance instruments. The amount of the  subsidy 
refers to the amount or magnitude of the benefit conferred by the financial contribution; i.e. the 
quantification of the advantage conferred on Boeing by the financial contribution, compared to 
what Boeing would have obtained in a market transacti on.1615 
8.473.   The European Union  does not propose a specific estimate of the amount of the benefit 
conferred by the payments and provision of access to DOD facilities, equipment, and employees  
under the DOD assistance instruments funded through the relevant RDT&E p rogram elements. 
Rather, as with the NASA procurement contracts, cooperative agreements, and Space Act 
Agreements , the European Union argues that the amount of the benefit is a multiple  of the 
financial contribution. Specifically, the European Union argues  that, given the Appellate Body 's 
"focus on the allocation of IP rights ", the value of the benefit conferred on Boeing by the DOD 
assistance instruments is based on the value of the technology developed from those aeronautics 
R&D instruments.1616  
                                               
1615 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 690 and 691 (explaining 
that the o riginal panel, in seeking to estimate the amount of funds transferred to Boeing under the relevant 
NASA procurement contracts, as well as the value of Boeing's access to NASA facilities, equipment, and 
employees under the NASA instruments, had been estimat ing the amount of the "financial contribution", rather 
than the amount of the "benefit").  
1616 European Union's first written submission, para. 385.  WT/DS353/R W 
 
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  8.474.   To recall, in Section 8.2.3.4.2 , the Panel f inds that the payments and provision of access to 
DOD facilit ies, equipment , and employees to Boeing through the post -2006 DOD assistance 
instruments (those that were modified by the DOD -Boeing Patent Licence Agreement, as well as 
those that were not so modified), funded under the relevant RDT&E program elements, confer a 
benefit on Boeing because the allocation of intellectual property rights and related licence rights 
under those instruments is  more favourable to Boeing as commissioned party than the 
corresponding allocations to commissioned parties under the private collaborative R&D agreements 
before the Panel which evidence prevailing market practices for collaborative R&D arrangements. 
Accor dingly, the amount of the benefit (and thus, th e subsidy) must logically correspond to the 
value of the difference between the terms regarding the allocation of intellectual property rights 
and related licence rights on which the financial contributions we re provided to Boeing under the 
DOD assistance instruments, and the terms regarding the allocation of intellectual property rights 
and related licence rights under which the financial contributions would have been provided in a 
market -based collaborative R &D arrangement.  
8.475.   We address  above  the European Union 's argument that the value of the benefit conferred 
on Boeing by the NASA aeronautics R&D subsidies is a multiple  of the financial contributions 
provided by those instruments.1617 In doing so, we conclude  that the European Union 's approach is 
not based on a correct legal understanding of what constitutes the benefit conferred by the 
aeronautics R&D subsidies, and conflates the concept of the "benefit " conferred by the financial 
contribution  with the "effects " of a subsidy.1618 Consistent with its arguments on this issue in the 
context of the NASA aeronautics R&D subsidies, the European Union cites as support for its 
approach statements by the Appellate Body in the original proceeding .1619 However, these 
statements were made in the context of the Appellate Body's  adverse effects findings, not its 
benefit findings. We  reject the European Union 's arguments that the value of the benefit conferred 
by the DOD assistance instruments is a multiple of the financial contributio n for the same reasons 
that we reject this argument in the context of the NASA aeronautics R&D subsidies.1620  
8.476.   There is insufficient evidence on the record as to the amount of the subsidy in the sense of 
the advantage conferred on Boeing resulting from the di fference between the terms regarding the 
allocation of intellectual property rights and related licence rights on which financial contributions 
were provided to Boeing under the post -2006 DOD assistance instruments at issue and the terms 
regarding the allo cation of intellectual property rights and related licence rights on which financial 
contributions would have been provided to Boeing in a market -based collaborative R&D 
arrangement.  
8.477.   In light of the foregoing, we are unable to accept the European Union's arguments 
regarding the amount of the benefit provided to Boeing through the post -2006 DOD assistance 
instruments under the relevant aeronautics R&D programmes. We therefore find that there is 
insufficient evidence on the record as to the amount of the sub sidy.  
8.2.3.6.2   Amount of the financial contribution provided to Boeing through the DOD 
assistance instruments  
8.478.   The European Union estimates that the total amount of the financial contribution, 
comprising all post -2006 payments as well as the value of access to DOD facilities, equipment, and 
employees , under both procurement contracts and assistance instruments, is USD 2. 895 billion 
between 2007 and 2012.1621 The United States submits evidence valuing the payments received by 
Boeing under the DOD assistance instruments at [***] between 2007 and 2012 .1622 With respect 
                                               
1617 See paras. 8.238  to 8.240  above.  
1618 See paras. 8.238  to 8.240  above . 
1619 See European Union's first written submission, para. 385 (citing Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint) , para. 945, quoting Panel Report, US – Large Civil Aircraft (2nd complaint), 
para. 7.1760: "by their nature, the aeronautics R&D subsidies 'multiply the benefit from a given expenditure'").  
1620 See paras. 8.238  to 8.240  above . 
1621 European Union's first written submission, para. 371. The European Union also provides an updated 
estimate of USD 4.513 billion between 2007 and 2014. (See Subsidies to Boeing's L CA Division (2013 -2014 
Update) (Exhibit EU -1451), p. 3).  
1622 Funds Obligated to Air Force Agreements with Boeing for FY 2007 -FY 2012, by program element , 
(Exhibit USA -108) (BCI); Funds obligated to other DOD entities' contracts and agreements with Boeing, 
FY 2007-FY 2012 (revised 1 December 2014), (Exhibit USA -157) (BCI);  and Funds obligated to Navy contracts 
and agreements with Boeing, FY  2007-FY 2012, (Exhibit USA -273) (BCI). This figure includes payments WT/DS353/R W 
 
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  to access to DOD facilities, equipment, and employees , the United States argues that only one 
agreement provided for access to facilities, the value of which is negligible.1623  
8.2.3.6.2.1   Main arguments of the parties  
8.479.   In arriving at its estimate of the amount of the financial contribution, the European Union 
takes as a starting point the full amount of the annual budget appropriation for each of the 
challenged DOD RDT&E program elements. To recall, these are the program elem ents identified by 
the European Union under which so -called "dual -use" research that  allegedly  contributed to 
Boeing's LCA division was conducted . These program elements can be divided into two categories; 
S&T/general aircraft program elements, and system s acquisition/military aircraft program 
elements.1624 The European Union's approach to the valuation of the amount of the financial 
contributions provided by the relevant RDT&E program elements varies depending on the category 
of program element.  
8.480.   For the S&T/general aircraft program elements, after having identified the total amounts of 
annual DOD funding for  the relevant  program element, the European Union allocates to Boeing a 
portion of that total based on the percentage of Boeing 's share of the market for U .S. military 
products.1625  
8.481.   For the systems acquisition/ military aircraft program elements, the European Union first 
determines the amount of total annual funding for each program element that was provided to 
Boeing, and then determines, based on the opinion of its expert Mr Rumpf, the percentage of 
funding received under each such program element that can be deemed to be associated  with so-
called  "dual-use" R&D.1626 
8.482.   This methodology results in a figure of USD 5.275 billion  between 2007 and 2012 .1627 The 
European Un ion notes, however, that this figure represents DOD spending on "dual-use" 
technology ; i.e. technology with both military and civil application s, and that it is appropriate to 
consider on ly the portion related to civil application as constituting the finan cial contribution  to 
Boeing . The European Union therefore allocates to Boeing a percentage of this total figure, based 
on the percentage of Boeing 's total revenue represented  by Boeing 's LCA division.1628 The resulting 
figure, which the European Union treats as its estimate of  the total annual amount of the financial 
contribution provided to Boeing by DOD, is USD 2.895 billion between 2007 and 2012 , and 
USD 4.513 billion between 2007 and 2014 . 
8.483.   The European Union acknowledges that this "top -down" methodology fo r calculating the  
amount of  DOD's financial contribution  to Boeing  does not distinguish between procurement 
contracts and assistance instruments, but argues that this is irrelevant because the original panel 's 
distinction between these types of instruments  was rendered moot by the Appellate Body.1629 The 
European Union considers that the United States ' evidence of the amounts paid to Boeing under 
specific assistance instruments and procurement contracts is unreliable, pointing to a U.S. 
Government Accountabili ty Office report criticising DOD 's financial management  systems .1630 
                                                                                                                                               
received under the Long Range Strike Bomber program element, for which we have previously found there is 
no measures in existence within the scope of the European Union's claims regarding that RDT&E program 
element. ( See  para. 7.216  above ). 
1623 This was assistance  instrument FA8650 -08-2-3834, which provided access to NASA Langley's 
V/STOL wind tunnel. The United States notes that the assistance instrument does not place a value on this 
access but asserts that Boeing had limited access, the value of which would be u nlikely to modify the total 
value of DOD contributions appreciably. (See United States' first written submission, para. 277; and Air Force 
Agreement FA8650 -08-2-3834, SOW, (Exhibit USA -110) (HSBI), p. 1).  
1624 See Section 8.2.3.2.3 . 
1625 Rumpf Report, (Exhibit EU -23). This is calculated using data from Boeing's annual financial reports, 
and industry -wide data compiled by the Aerospace Industries Association.  
1626 Rumpf Report, (Exhibit EU -23), pp 9 -16. 
1627 European Union's first written submission, para. 371.  
1628 European Union's first written submission, para. 371; and DOD Subsidies to Boeing's LCA Division 
(Exhibit EU -37). 
1629 European Union's second written submission, para. 469 (citing Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint) , fn 1298).  
1630 European Union's second written submission, para. 472 (citing U.S. Government Accountability 
Office, "DOD Financial Management: Improved Controls, Processes and Systems Are Needed for Accurate and 
Reliable Financial I nformation", No. GAO -11-933T, 23 September 2011, (Exhibit EU -1102)).  WT/DS353/R W 
 
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  Further, the European Union argues that the value of the financial contribution is not limited to the 
value of payments made to Boeing, and thus the United States ' estimate impermissibly exc ludes 
the value of other forms of support that DOD has provided.1631 
8.484.   The United States submits evidence of the payments made under the assistance 
instruments funded by the challenged RDT&E program elements  since 2006 .1632 The United States 
confirms that this evi dence is based on reporting by DOD agencies responsible for overseeing the 
expenditure of funds under the challenged program elements.1633 The United States also argues 
that, while the European Union criticises the United States' figures for being based on allegedly 
unreliable DOD financial management  systems , the European Union 's figures , which are based on  
DOD budget  data for each program element, are  also the product of DOD's financial management 
systems .1634 
8.485.   The United States considers that the European Union 's "top-down " methodology for 
calculating DOD's  financial contribution  to Boeing  is based on a number of impermissible 
assumptions . First,  the European Union's methodology assumes that the  amount of funding 
received by Boeing under a particular program ele ment is in proportion to Boeing 's share of the 
military aircraft market.1635 Further, there is no basis for the European Union 's assumption that the 
percentage of  so-called  "dual-use" funding received by Boeing that is "attributable " to LCA has any 
relationsh ip to the percentage of total Boeing revenue s that is represented  by Boeing's LCA 
sales.1636 Finally, the European Union 's methodology fails to distinguish between payments 
received by Boeing under DOD procurement contracts and those received under DOD assist ance 
instruments.1637 The United States concludes that its evidence is the more probative as to the 
value of the financial contributions.1638 
8.2.3.6.2.2   Evaluation by the Panel  
8.486.   The parties ' estimates of the amount of the financial contribution provided to Boeing by 
DOD thr ough the assistance instruments differ significantly because they are based on different 
calculation methodologies.  
8.487.   Like its estimate of the financial contribution provided by the NASA aeronautics R&D 
subsidies, the European Union adopts a "top-down " methodology , based on  estimating the 
proportion of the total annual budgets of the relevant DOD RDT&E program elements through 
which DOD's procurement contracts and assistance instruments with Boeing are funded  that can 
be allocated to Boeing . The United State s adopts a "bottom -up" methodology , which estimates the 
value of payments made to Boeing under the individual DOD assistance instruments which , since 
2006,  received funding under the challenged RDT&E program elements.  
8.488.   We recall that in the original proceed ing, the European Communities estimated the amount 
of the financial contribution  represented by the DOD aeronautics R&D measures  as USD 2.4 billion 
between 1991 and 2006, using broadly the same methodology  for estimating the amount of the 
financial contrib ution that  the European Union  uses in th is proceeding.1639 The original panel 
rejected the European Communities' estimate because it did not distinguish between payments 
received by Boeing under procurement contracts, and those received under assistance 
instruments.1640 This was significant because the panel had previously found that, while the DOD 
                                               
1631 European Union's second written submission, para. 471.  
1632 Funds obligated to Air Force Agreements with Boeing, FY 2007 -FY 2012, by program element, 
(Exhibit USA -108) (BCI); Funds obligat ed to other DOD entities' contracts and agreements with Boeing, 
FY 2007-FY 2012 (revised 1 December 2014),  (Exhibit USA -157) (BCI); and Funds obligated to Navy contracts 
and agreements with Boeing, FY  2007-FY 2012, (Exhibit USA -273) (BCI).  
1633 United States'  second written submission, para. 261.  
1634 United States' second written submission, para. 260.  
1635 United States' first written submission, para. 299; second written submission, para. 260.  
1636 United States' first written submission, para. 300.  
1637 United States'  first written submission, para. 301.  
1638 United States' second written submission, para. 260.  
1639 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1199 -7.1204.  
1640 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1206.  WT/DS353/R W 
 
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  assistance instruments constituted a specific subsidy to Boeing, the DOD procurement contracts 
did not.1641 
8.489.   We are similarly unable to accept the European Union 's estimat e of the amount  of the 
financial contribution  for the DOD aeronautics R&D subsidies in this proceeding . The 
European  Union 's estimate suffers from the same legal deficiencies as its "top-down " estimate of 
the financial contribution element of the NASA aero nautics R&D subsidies.1642 First, it  does not 
correspond to the nature of the financial contributions as found by the Panel; i.e. as payments and 
the provision of access to DOD facilities (and where applicable, DOD equipment and employees) 
provided to Boeing through assistance instruments funded under the relevant RDT&E program 
elements . Additionally,  there is no rational basis to justify the main assumptions underpinning the 
European Union 's methodology; namely, that the portion of the total annual budget for  each 
RDT&E program element received by Boeing corresponds to Boeing 's share of the U.S. military 
aviation market, or that the share of  DOD funding of "dual -use" R&D that is applicable to LCA 
corresponds to the percentage of Boeing 's total revenues represe nted by Boeing's LCA sales. 
These deficiencies are compounded by the fact that it is impossible under the European Union 's 
methodology to distinguish between payments and access provided under procurement contracts, 
and payments and access provided under a ssistance instruments. We have previously determined 
that only payments and access provided under assistance instruments  involve  specific subsid ies to 
Boeing. It would therefore be improper to  adopt  an estimate  of the payments and access to 
facilities (and  equipment and employees) provided to Boeing under DOD assistance instruments  
that includes the value of payments and access to facilities (and equipment and employees ) 
provided to Boeing under DOD procurement contracts. We do not consider, therefore, that  the 
European Union 's methodology for estimating the amount of the financial contributions provided to 
Boeing through the DOD aeronautics R&D subsidies is capable of yielding an estimate that  is 
probative of the value of those financial contribution s. 
8.490.   The United States ' estimate of the value of the financial contribution s provided to Boeing 
by the DOD aeronautics R&D subsidies  is based on evidence submitted originally in response to the 
Panel 's request under Article 13 DSU . Question 23 of the Panel's reques t to the United States 
sought : 
{A} list describing all technical data developed by Boeing, in whole or in part in the 
course of work performed, or with the use of government facilities, equipment, 
property, funds , or services of government employees, under  each of the program 
elements listed in question 26, and any additional program elements identified in 
response to question 25, from FY 2006 – present … .1643 
8.491.   In response, the United States submitted a list of all DOD assistance agreements under 
which Boeing received payments or access to facilities, equipment or employees under the 
challenged RDT&E program elements.1644 The United States later submitted, for those assistance 
instruments which received payments after 2006, a list of the specific payments received .1645 This 
list covers payments received by Boeing under the three categories of assistance instruments that 
we find involve specific subsidies to Boeing :  
a. pre-2007 DOD assistance instruments funded under the original challenged RDT&E 
program elements that re ceived payments from the relevant program elements in the 
post-2006 period1646; 
                                               
1641 Panel R eport, US – Large Civil Aircraft (2nd complaint) , para. 7.1206.  
1642 See paras. 8.272  and 8.273  above.  
1643 United States' response to the Panel's request for information p ursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 23, para. 76. The United States provided a "List of DOD 
Cooperative Agreements, TIAs and OTAs" as Exhibit US -13-6. 
1644 List of DOD Cooperative Agreements, TIAs and OTAs, (Exhi bit US -13-6). 
1645 Funds Obligated to Air Force Agreements with Boeing for FY 2007 -FY 2012, by program element , 
(Exhibit USA -108) (BCI); Funds obligated to other DOD entities' contracts and agreements with Boeing, 
FY 2007-FY 2012 (revised 1 December 2014),  (Exhibit USA -157) (BCI); and Funds obligated to Navy contracts 
and agreements with Boeing, FY  2007-FY 2012 (Exhibit USA -273) (BCI).  
1646 There is some discrepancy in the United States' submissions as to the number of DOD assistance 
instruments funded by the "ad ditional" challenged RDT&E program elements. A review of the United States' 
evidence indicates that only one such program element which has been found to be within the scope of the WT/DS353/R W 
 
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  b. post-2006 assistance instruments funded under the original RDT&E program elements 
that received payments from the relevant program elements in the post -2006 period1647; 
c. post-2006 ass istance instruments funded under the "additional" RDT&E program 
elements that the Panel has ruled are within the scope of this proceeding and which 
received payments from those program elements in the post -2006 period .1648 
8.492.   According to the United States ' evidence, the total amount of post -2006 payments 
received under the aforementioned three categories of assistance instruments is approximately 
[***].1649 
8.493.   As regards the value of access to DOD facilities,  and where applicable, DOD  equipment and 
employees , provided  to Boeing through the DOD assistance instruments, the United States argues 
that only one assistance instrument provided such access. This was Air Force Agreement 
FA8650 -08-2-3834, which provided Boeing with access to the NASA 's Langley 14x22 foot V/STOL 
wind tunnel for a "defined series of tests ".1650 The United States argues that, given the relatively 
limited nature of Boeing 's access to the wind tunnel facilities, it is "unlikely to modify the total 
value of DOD 's contributions appreciably ".1651 The European U nion did not specifically address this 
issue, and there is no indication in the United States ' evidence with respect to Air Force Agreement 
FA8650 -08-2-3834 as to the value of the temporary access provided to the NASA wind tunnel 
facility.1652 We note, howeve r, that the United States ' evidence with respect to the NASA 
aeronautics R&D subsidies estimates the value of access to a different wind tunnel model at 
approximately  [***].1653 We consider it reasonable for present purposes to treat this figure as the 
best a vailable evidence before us as to the value of access provided to the NASA wind tunnel 
facility under Air Force Agreement FA8650 -08-2-3834.  
8.494.   The European Union argues that the United States ' data as to the value of payments made 
under individual DOD instrum ents is unreliable because DOD 's financial management systems 
                                                                                                                                               
proceeding, the Materials and Biological Technology (PE 0602715E)  program e lement funded any assistance 
instruments. These were: HR011 -06-2-0008, FA8650 -07-2-7716 and HR0011 -10-2-0001. (See Funds 
obligated to Air Force Agreements with Boeing, FY 2007 -FY 2012, by program element, (Exhibit USA -108) 
(BCI); and Funds obligated to oth er DOD entities' contracts and agreements with Boeing, FY  2007-FY 2012 
(revised 1 December 2014),  (Exhibit USA -157) (BCI)). None of the remaining "additional" RDT&E program 
elements funded any assistance instruments.  
1647 These are the following assistance in struments: N00173 -08-2-C009 (this instrument was funded by 
an "unknown PE" but the United States nonetheless includes it in an "abundance of caution", (see 
United  States' first written submission, para. 274); FA8650 -08-2-3834; and FA8650 -11-2-2834. (See 
United States'  first written submission, para . 271; second written submission, para. 258; Funds obligated to Air 
Force Agreements with Boeing, FY 2007 -FY 2012, by program element, (Exhibit USA -108) (BCI); and Funds 
obligated to Navy contracts and Agreements with Boeing, FY 2007 -FY 2012, (Exhibit USA -273) (BCI) ). 
1648 These are the following assistance instruments: F49620 -00-2-0384, F33615 -03-2-2200, 
F3315 -03-2-5202, FA8650 -04-2-3449, FA8650 -04-2-5000, and FA8650 -2-3503. (See United States' first 
written submissi on, para. 278; and Funds obligated to Air Force Agreements with Boeing, FY 2007 -FY 2012, by 
program element, (Exhibit USA -108) (BCI)).  
1649 Funds obligated to Air Force Agreements with Boeing, FY 2007 -FY 2012, by program element, 
(Exhibit USA -108) (BCI); Fund s obligated to other DOD entities' contracts and agreements with Boeing, 
FY 2007-FY 2012 (revised 1 December 2014),  (Exhibit USA -157) (BCI); and Funds obligated to Navy contracts 
and agreements with Boeing, FY  2007-FY 2012 (Exhibit USA -273) (BCI). Unlike i n the original proceeding, the 
United States' evidence includes post -2006 payments made under both procurement contracts and assistance 
instruments funded by all of the challenged RDT&E program elements, including the systems 
acquisition/military aircraft program elements. This figure of USD 39.97 million represents USD 44.37 million 
less the USD 4.4 million in pre -2011 payments made under the Long Range Strike Bomber program element 
which we have previously ruled is outside the scope of the European Union' s claims regarding that program 
element. ( See para. 7.216  above ). 
1650 United States' first written submission, para. 277; Air Force Agreement FA8650 -08-2-3834, SOW, 
(Exhibit USA -110) (HSBI), p. 1.  
1651 United States'  first written submission, para. 277.  
1652 Air Force Agreement FA8650 -08-2-3834, SOW, (Exhibit USA -110) (HSBI), p. 1.  
1653 Equipment provided under NASA contracts and agreements (revised 1 December 2014),  
(Exhibit  USA-271) (BCI). This exhibit also values access to different wind tunnel facilities, provided under a 
different procurement contract, at USD 2,000, but this figure represents only the cost of sending the wind 
tunnel model to Boeing. (See Equipment provided under NASA contracts and agreements (revised 
1 December  2014),  (Exhibit USA -271) (BCI), fn 3).  WT/DS353/R W 
 
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  have been criticised by the U.S Government Accountability Office.1654 We do not consider that a 
review that is generally critical of DOD 's financial management systems necessarily impugns the 
specific reports that the United States received from the DOD agencies responsible for overseeing 
the expenditure of funds under the challenged program elements, wh ich is the basis for the 
United  States ' evidence.1655 To the extent that it does, the European Union 's methodology, which 
relies on DOD 's reported RDT&E program element budget data, would be  equally affected. In any 
case, we do not consider that the European Union 's generalized criticism of DOD's financial 
management systems justifies rejecting the evide nce on which the United States ' estimate is 
based.  
8.495.   Finally, we note that in response to a Panel question seeking information regarding the 
magnitude of difference in Airbus and Boeing pricing in sales campaigns, the European Union 
submitted an update for 2 013 and 2014 of the amounts of the financial contribution provided by 
the U.S. subsidies that are alleged to cause adverse effects through a price causal mechanism . 
This information include s estimates of the amounts of the financial contributions provided through 
the DOD aeronautics R&D measures for 2013 and 2014, based on the European Union 's 
"top-down " methodology.1656 There is no corresponding updated information regarding the 
amounts of the financial contributions  provided through the DOD assistance instru ments  for 2013 
and 2014 based on  the United States ' methodology . The absence of an estimate for 2013 and 
2014 based on the United States' methodology does not , however, mean that the Panel considers 
it appropriate to adopt  the European Union 's 2013 and 201 4 figures as the best available evidence 
of the amounts of the financial contributions provided to Boeing through the DOD assistance 
instruments for those years. This is because the legal deficiencies in the European Union 's 
methodology are too significant .1657  
8.496.   We find that, to the extent that the amount of the financial contribution  provided 
to Boeing through the DOD aeronautics R&D subsidies  is relevant to the Panel 's 
assessment of whether the United States ' has withdrawn the subsidy or taken 
appropriate st eps to remove the adverse effects , within the mea ning of Article 7.8, the 
United  States ' estimate of approximately [***] is a more credible estimate of the 
amount of the financial contribution provided to Boeing through the DOD assistance 
instruments funde d under the relevant RDT&E  program elements between 2007 and 
2012.  
8.2.3.7   Conclusion  
8.497.   In light of our findings above regarding financial contribution, benefit, and specificity, we 
conclude that:  
a. The European Union has established that certain transactions between DOD and Boeing 
pursuant to post -2006 DOD assistance instruments involve specific subsidies within the 
meaning of Articles 1 and 2 of the SCM Agreement. While we are unable to estimate the 
amount of the subsidy on the basis of the evidence on the record, to  the extent that it is 
relevant to the Panel's assessment of whether the United States has withdrawn the 
subsidy or taken appropriate steps to remove the adverse effect s within the meaning of 
Article  7.8 of the SCM Agreement, we find the United States' estimate of the  amount of 
                                               
1654 European Union's second written submission, para. 472 (citing U.S. Government Accountability 
Office, "DOD Financial Management: Improved Controls, Processes and Systems Are Needed for Accurate and 
Reliable Financial Information", No. GAO -11-933T, 23 September 2011, (Exhibit EU -1102)).  
1655 United States' second written submission para. 261.  
1656 European Union's response to Panel question No. 164, para. 114; and Subsidies to Boeing's LCA 
Division (2013 -2014 Update ), (Exhibit EU -1451), pp. 2 and 23 -26. The United States did not submit an update 
of its estimates of the amount of the financial contribution provided to Boeing through the DOD assistance 
instruments in its comments on the European Union's responses to th e third set of Panel questions.  
1657 The European Union's estimates also include allocations from RDT&E program elements for which 
the Panel has found there are no measures in existence, or the measures are outside the scope of this 
proceeding. This is the c ase with respect to the AWACS (PE 0207417F) program element, the KC -46, Next 
Generation Aerial Refueling Aircraft  (PE 0605221F) program element, the Multi -Mission Mari time Aircraft  (P-8A) 
(PE 0605500N) program element, the Technology Transfer (PE 0604317F)  program element, the IP ManTech 
(PE 0708011S) program element, and the Long Range Strike Bomber (PE 0604015F) program element. (See 
Section 7.3.3.3 ). WT/DS353/R W 
 
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  the financial contribution  provided through the DOD assistance instruments of  [***] 
between 2007 and 2012 to be the most credible estimate.  
b. The European Union has not established that certain transactions between DOD and 
Boeing purs uant to DOD procurement contracts involve specific subsidies within the 
meaning of Articles 1 and 2 of the SCM Agreement, on the grounds that, assuming 
arguendo  that these measures were to involve a financial contribution within the 
meaning of Article 1.1( a)(1)(i) of the SCM Agreement, they do not confer a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement.  
8.2.4   FAA aeronautics  R&D measure  
8.2.4.1   Introduction  
8.498.   In this Section of the Report, we evaluate the European Union 's claim  that the FAA 
aeronautics R &D measure is a specific subsid y within the meaning of Articles 1 and 2 of the SCM 
Agreement and that, by granting or maintaining th is subsid y after the end of the implementation 
period, the United States has failed to withdraw the subsidy within the meani ng of Article 7.8 of 
the SCM Agreement. The Panel concluded in Section 7.4 above that Boeing 's participation in the 
FAA CLEEN Program pursuant to the Boeing CLEEN Agreement constitutes a measure taken to 
comply within the scope  of this proceeding.  
8.499.   Our analysis proceeds as follows:  
a. In Section  8.2.4.2 , we clarify aspects of the Boeing CLEEN Agreement identified by the 
European Union as a specific subsid y which it alleges the United States grants or 
maintains after the end of the implementation period and provide relevant background 
information.  
b. We evaluate whether the Boeing CLEEN Agreement challenged by the European Union 
involves  a financial contribution ( Section  8.2.4.3 ) which  confer s a benefit 
(Section  8.2.4.4 ) within the meaning of Article 1 of the SCM Agreement.  
c. To the extent that we find that the Boeing CLEEN Agreement  involves  a financial 
contribution that confer s a benefit, we evaluate  in Section  8.2.4.5  whether any such 
subsid y is specific within the meaning of Article 2 of the SCM Agreement.  
d. We address the question of the amount of the subsidy  and the amount of the financial 
contribution  in Section  8.2.4.6.1 . 
8.2.4.2   The measure at issue  
8.2.4.2.1   The European Union 's panel request  
8.500.   In its panel request in this proceeding, the European Union alleges that the FAA, working 
in collaboration with NASA under the FAA Continuous Lower Energy , Emissions and Noise  (CLEEN ) 
Program , maintains subsidies that presently benefit U.S. LCA producers by: ( a) "provid {ing} 
Boeing with funding and access to government facilities, equipment, and employees for R&D 
applicable to the development, design, and production of  LCA"; or (b) "providing Boeing with 
royalty -free use of the technologies developed with such funding and support, or use of such 
technologies on preferential terms ".1658 The European Union 's panel request states that "{s}uch 
R&D support is authorized by 49 U .S.C. §§ 44501 -44517, 48102, and periodic reauthorization 
legislation ".1659  
                                               
1658 European Union's request for the establishment of a panel,  para. 15.  
1659 European Union's request for the establishment of a panel, para. 15.  WT/DS353/R W 
 
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  8.501.   In the European Union's  first written submission, its financial contribution arguments refer 
to the proper characterization of the Boeing CLEEN Agreement, an Other Transaction Agreem ent 
which governs Boeing 's work under the FAA CLEEN Program .1660 
8.502.   In response to a question from the Panel, the European Union explained that its challenge 
is directed at the Boeing CLEEN Agreement, as this "is the only contract or agreement with Boeing 
under the FAA CLEEN Program ".1661 The European Union indicates that its challenge includes 
"CLEEN Program funding for Boeing 's ecoDemonstrator " which, it submits, funded a series of test 
flights pursuant to the Boeing CLEEN Agreement.1662  
8.503.   Taking into account the Euro pean Union 's panel request and its subsequent clarification, 
we consider that the European Union 's challenge is directed at the Boeing CLEEN Agreement, in 
particular, the "funding and access to government facilities, equipment, and employees " provided 
directly to Boeing pursuant to the Boeing CLEEN Agreement. The funding and access is limited to 
those payments made, and facilities, equipment, and employees  provided, to Boeing and not 
funding or support allocated to other CLEEN participants.  
8.2.4.2.2   The FAA CLEEN Program and the Boeing CLEEN Agreement  
8.504.   The FAA inaugurated the FAA CLEEN Program  in early 2008 in furtherance of the National 
Aeronautics Research and Development Plan, with the objective to develop aeronautics R&D 
program mes focused on inter -agency environ mental and performance goals for the "N+1 
generation " of LCA designed to enter service in the 2015 to 2018 time -frame, focusing on the 
most well -developed, near -term commerciali zable technologies.1663 The FAA created the FAA 
CLEEN Program , while NASA created the Environmentally Responsible Aviation (ERA) Project under 
its Integrated Systems Research Program , to "guid{e} coordinated efforts to bring to maturity new 
technologies to reduce fuel burn, emissions, an d noise ".1664 In 2009 , the FAA, whose R&D activities 
are focused on "civil aviation research and development ", solicited research proposals for the FAA 
CLEEN Program  from industry.1665 In June 2010, the FAA entered into five -year R&D agreements 
with Boeing and four propulsion -focused companies on a 50 % cost-sharing basis: Boeing, General 
Electric, Honeywell, Pratt & Whitney, and Rolls -Royce North America. The total FAA contribution 
under all of the agreements was set at USD 125 million.1666 
8.505.   Boeing 's work under the FAA CLEEN Program  is governed by the CLEEN Other Tr ansaction 
Agreement DTFAWA -10-C-0030 (the Boeing CLEEN Agreement), which entered into effect on 
22 June 2010.1667 Under this agreement, the FAA maintains the authority to determine the work 
that will be undertaken1668, while Boeing manages the project, conducts the work and prepares 
reports on that work for the FAA.1669 Specifically , Boeing is responsible for the integrated 
management of the FAA CLEEN Program  as well as two categories of R&D activities1670: 
                                               
1660 European Union's first written submission, para. 218; and Boeing CLEEN Agreement, (Exhibit 
EU-17). 
1661 European Union's response to Panel question No. 11, para. 77.  
1662 Europea n Union's response to Panel question No. 11, para. 78.  
1663 R. Jefferies, FAA, "CLEEN (Continuous Lower Energy, Emissions and Noise) Program Technologies 
Development" Presentation at the NASA ERA Bidder's Conference, 19 February 2010, (Exhibit EU -253), pp. 5, 
6 and 8; Executive Office of the President, National Science and Technology Council, National Aeronautics 
Research and Development Plan , (December 2011), (Exhibit EU -254), pp. 27 -30 and 50 -53; and J. Wolfe, 
NASA, "Aeronautics Research Mission Directorate Update with Emphasis on Integrated Systems Research", 
Presentation at the 48th AIAA Aerospace Sciences Meeting, 4 January 2010, (Exhibit EU -255), p. 10.  
1664 See para. 7.280  above and Executive Office of the President, National Sc ience and Technology 
Council, National Aeronautics Research and Development Plan , (2 February 2010), (Exhibit EU -16), p. 11.  
1665 CLEEN Solicitation, (Exhibit EU -20); and R. Jefferies, FAA, "Continuous Lower Energy, Emissions, 
and Noise (CLEEN) Program Techno logies Development", Presentation, 27 October 2010, (Exhibit EU -256), 
p. 6.  
1666 FAA Fact Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program", 24 June 2010,  
(Exhibit EU -257).  
1667 Boeing CLEEN Agreement, (Exhibit EU -17), p. 1. Note that the period of performance commenced to 
run on 21 June 2010.  
1668 Boeing CLEEN Agreement, (Exhibit EU -17), parts B.3 and F.2.  
1669 Boeing CLEEN Agreement, (Exhibit EU -17), parts C and E.3.  
1670 Boeing CLEEN Agreement, (Exhibit EU -17), part I, sections C.1.2 and C.3.  WT/DS353/R W 
 
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  a. technology maturation – research to mature specified technolog ies through to the 
prototype development stage on three research projects: wing adaptive trailing edges, 
ceramic matrix composite acoustic exhaust nozzles, and the use of alternative fuels; and  
b. flight testing and assessment, including flight testing of a broad suite of technologies 
through Boeing 's ecoDemonstrator program me. 
8.2.4.3   Whether there is a financial contribution  
8.2.4.3.1   Main arguments of the parties and third parties  
8.506.   The European Union  argues that the Boeing CLEEN Agreement has the same 
characteristics as the  NASA procurement contracts and DOD assistance instruments before the 
original panel, and that the Panel should therefore conclude that the payments and access to 
government facilities, equipment, and employees provided to Boeing under the Boeing CLEEN 
Agreement are similarly financial contributions under  Article 1.1(a)(1) of the SCM Agreement . 
8.507.   The European Union argues that the Boeing CLEEN Agreement shares many of the same 
characteristics that led the Appellate Body to conclude that the NASA procurement c ontracts and 
DOD assistance instruments before the original panel constitute d transactions that were "akin to a 
species of joint venture ", which were analogous to a type of equity infusion, and therefore financial 
contributions within the meaning of Articl e 1.1(a)(1) of the SCM Agreement. Specifically, the 
European Union considers that payments under the Boeing CLEEN Agreement qualify as a direct 
transfer of funds within the meaning of Article 1.1(a)(1)(i) while the provision of access to 
facilities, equipm ent, and employees qualif ies as a government provision of goods  or services  other 
than general infrastructure  under Article 1.1(a)(1)(iii).1671 
8.508.   The European Union contends that, l ike the NASA procurement contracts and DOD 
assistance instruments before the ori ginal panel, the Boeing  CLEEN Agreement involve s payments  
by the FAA  as well as the commitment of non -monetary resources. In addition, the 
European  Union argues that there is an element of collaboration in determining what research is to 
be done, that Boeing develops valuable intellectual property rights, including patents, data rights , 
and Boeing -owned trade secrets , and that the FAA and Boeing share the fruits of their research on 
the basis of patent and data rights provided under the Agreement.1672 The Euro pean Union further 
contends that the transactions in question possess the same features that led the Appellate Body 
to conclude that the NASA procurement contracts and DOD assistance instruments before the 
original panel were analogous to equity infusions.  These include that funding is provided in 
expectation of some kind of return in the form of scientific and technical information, discoveries, 
and data expected to result from the research performed; there is no certainty that research will 
be successful;  the funders ' risks are limited to the amount of money they commit and the 
opportunity cost of other support they provide; and the FAA as the funder contributes to the 
project by providing access to facilities, equipment, and employees, as some equity inve stors 
would also do.1673 
8.509.   The European Union also argues , in the alternative , that "the transfer to Boeing of patent 
and other intellectual property rights in the technologies and data developed under the FAA CLEEN 
Program  additionally  constitutes a provision of 'goods … other than general infrastructure ' within 
the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement ".1674 As in the case of NASA 
aeronautics R&D measures, the European Union requests the Panel not to  consider this alternative  
conception of the fi nancial contribution "unless it  rejects the European Union 's primary  contentions 
with respect to the characterization of the challenged aeronautics R&D measures ".1675 
8.510.   The United States  does not dispute that the Boeing CLEEN Agreement provides Boeing with 
funding in the form of payments.1676 The United States di sagrees  that Boeing is provided with 
                                               
1671 European Union's first written submission, para. 218.  
1672 European Union's first written submission, para. 218.  
1673 European Union's first written submission, para. 218; second written submission, para. 338.  
1674 European Union's first written submission, para. 21 9. (emphasis added)  
1675 European Union's response to Panel question No. 32, para. 197.  
1676 United States' first written submission, para. 481 ("{t}he {European Union} asserts that the CLEEN 
Program provides a financial contribution to Boeing in the form of (i ) funding; (ii) access to government WT/DS353/R W 
 
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  access to government facilities, equipment or employees under the Boeing CLEEN Agreement.  The 
United States argues that  contractual language  in the Boeing CLEEN Agreemen t referring , for 
instance , to USD 1,610,150.00  as "Facilities and Equipment ", does not indicate that Boeing was 
provided facilities or equipment of this value by FAA , but instead, refers  to a "type of funding 
available in FAA 's system (i.e., Operations, R& D, F&E, etc.) ".1677 In addition, the United States 
argues  that the fact that Boeing may have been granted access to NASA  test facilities pursuant to 
work under the FAA CLEEN Program  is irrelevant to the question of whether the Boeing  CLEEN 
Agreement provided facilities to Boeing .1678 The United States considers  that Boeing 's participation 
in a "CLEEN kick off meeting " or Boeing 's participation in semi -annual government -led consortium 
meetings to discuss CLEEN research  does not constitute access to government empl oyees.1679 
8.511.   Finally, the United States argues that the European Union has failed to establish prima 
facie that intellectual property rights accruing to Boeing pursuant to activities conducted under the 
Boeing CLEEN Agreement constitute a financial contribution . As a factual matter, the United States 
argues that there is no transfer of intellectual property rights to Boeing under U.S. law, as the 
patent is the property of the person who made the invention, and FAA does not transfer any 
patent to Boeing. Moreover , intellectual property is not a "good" within the meaning of the covered 
agreements  and therefore cannot be a financial contribution  in the form of a government provision 
of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement .1680 
8.512.   Certain  of the third parties ( Brazil, Canada, Korea , and Japan)  make arguments as to the 
determination of the existence of a financial contribution within the meaning of Article 1.1(a)(1) of 
the SCM Agreement. These arguments are summarized in paragraph s 8.96-8.99 above.  
8.2.4.3.2   Evaluation by the Panel  
8.513.   The question before us is whether payments  to Boeing  and the alleged provision to Boeing  
of access to government facilities, equipment, and employees pursuant to the  Boeing CLEEN 
Agreement constitute s a financial contribution within the meaning of Article 1 of the SCM 
Agreement. We recall our discussion in paragraphs 8.106  to 8.111  above of the Appellate Body 's 
characterization of the NASA procurement contracts and DOD assistance instruments in the 
original proceeding as involving financial contributions.  
8.514.   The United States does not dispute that Boeing  receives payments under the Boeing  
CLEEN Agreement.  However,  the United States disagree s that under this Agreement the FAA 
provides Boeing  with access to government facilities, equipment or employees.  
8.515.   We note that, m uch like the transactions pursuant to the NASA procurement contracts and 
DOD assistance instruments in the original proceeding, both parties under the Boeing CLEEN 
Agreement contribute to the arrangement. Boeing may make either cash or non -cash 
contributions, including contributions of items such as equipment, facilities, labour, and office 
space.1681 In ad dition, both parties share the output of their research.  Boeing has title to 
inventions made by Boeing employees (and thus the right to ownership of the patents in respect of 
such inventions)  while the U.S. Government re ceives  a nonexclusive, royalty -free license to patent 
rights for inventions for government use.1682 Boeing may also restrict from disclosure de signated 
"limited rights data ".1683 
8.516.   Regarding whether Boeing receives access to government facilities and equipment , the 
European Union argues that the ref erence to "Facilities and Equipment " in the Boeing CLEEN 
                                                                                                                                               
facilities, equipment and employees; and (iii) the transfer of patent and intellectual property rights. However, 
the {European Union}'s assertions regarding categories (ii) and (iii) are wrong").  
1677 United States' first written submission, para. 482.  
1678 United States' second written submission, para. 434.  
1679 United States' second written submission, para. 432. See also United States' first written 
submission, para. 483; and second written submission, para. 435.  
1680 United Sta tes' first written submission, paras. 484 and 485; second written submission, para. 437.  
1681 Boeing CLEEN Agreement, (Exhibit EU -17), part I, section B.3.  
1682 Boeing CLEEN Agreement, (Exhibit EU -17), section I.1 (incorporating clause 3.5 -10); and FAA 
Acquisiti on Management System (AMS), Clause 3.5 -10, "Patent Rights – Ownership by Contractor" 
(January  2009), (Exhibit EU -1063), section (d).  
1683 Boeing CLEEN Agreement, (Exhibit EU -17), section I.3(a)(iii).  WT/DS353/R W 
 
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  Agreement makes clear that agency policy allows for the provision of facilities  and equipment.1684 
In addition, t he European Union submits that Boeing was provided access to NASA test facilities for 
its CLEEN Program research. The United States argues that the reference to "Facilities and 
Equipment " as a category of funding does not indicate that Boeing was actually provided facilities 
or equipment of this value by FAA . Instead, this is an account that i s used to "pay for research and 
development that improves air navigation facilities and equipment and aviation safety 
systems ".1685 The United States therefore objects to including any specific  amounts designated as 
"Facilities and Equipment " in our estimat e of the amount of payments made to Boeing.1686 The 
United States also objects that any access to  NASA  test facilities  provided to Boeing should be 
considered in relation to the Boeing CLEEN Agreement . 
8.517.   The Boeing CLEEN Agreement includes several references to t he phrase "Facilities and 
Equipment ", referring to specific funding amounts in the appended amendments , and modifications 
in specific years.1687 FAA Order 2500.8B , which the European Union has submitted, states  that 
"Facilities and Equipment " funding may be g enerally used for a number of purposes including, "the 
construction, capital lease, or lease to purchase of facilities, land, equipment development and 
acquisition, initial training, initial spares , and software required to establish an operational 
capabil ity in connection with an air navigation, or experimental facility ".1688  
8.518.   The Boeing CLEEN Agreement  does not designate specific  facilities or equipment items that 
are to  be provided to Boeing. The European Union has not provided  other  evidence that indicates  
that FAA provide s access to specific  facilities or equipment  to Boeing. The European Union  points 
to obligated amounts designated for " Facilities and Equipment " in the Boeing CLEEN Agreement, 
and argues that Boeing was provided access to NASA  test facilit ies pursuant to the Boeing CLEEN 
Agreement .1689 We do not consider that  the mere fact that Boeing used NASA test facilities or 
equipment necessarily indicates that such access  to NASA facilities  was provided pursuant to the 
Boeing CLEEN Agreement (as opposed to being provided pursuant to  a NASA procurement 
contract , cooperative agreement  or Space Act Agreement ).1690 While we consider that the 
reference to obligated amounts designated for "Facilities and Equipment" is not sufficient to 
substantiate the European Un ion's assertion that the Boeing CLEEN Agreement involves the 
provision of access to facilities and equipment to Boeing, we conclude that it is nevertheless 
relevant to our assessment of whether there is a financial contribution. The Boeing CLEEN 
Agreement indicates that specified amounts designated as "Facilities and Equipment" were 
allocated to Boeing in certain years. These  amounts were allocated  to Boeing  in the same way that 
other funding was allocated to Boeing under the Boeing CLEEN Agreement.1691 We the refore treat 
these obligated amounts designated for "Facilities and Equipment" as further payments to Boeing.  
8.519.   Regarding whether Boeing receives access to government employees , the European Union 
contends that it is clear that government employees assisted in defining and carrying out research 
under the program me. As an example of this, the European Union  submits that FAA, NASA , and 
AFRL employees provided "feedback " to Boeing that "helped the team focus on customer needs, 
interests, and concerns ", as part o f work done on an adaptive trailing edge.1692 It further submits 
that section C.4.1 of the Boeing CLEEN Agreement refers to Boeing 's participation in semi -annual 
                                               
1684 European Union's second written submission, fn 515.  
1685 United States' first written submission, para. 482.  
1686 United States' first written submission, para. 482; second written submission, para. 434 and fn 603.  
1687 See Boeing CLEEN Agreement, (Exhibit EU -17), amendment/modification Nos. 0002, 0003 and 0004  
1688 U.S. De partment of Transportation, Federal Aviation Administration, Funding Criteria For Operations, 
Facilities and Equipment, Research, Engineering and Development, and Grants -In-Aid For Airports Accounts , 
Order 2500.8B, (1 October 2006), (Exhibit EU -1059), p. 4 . 
1689 The United States has not provided lists of equipment and facilities provided to Boeing under the 
FAA CLEEN Agreement as it did in respect of particular NASA procurement contracts, cooperative agreements , 
and Space Act Agreements (See Equipment provide d under NASA contr acts and agreements, (revised 
1 December 2014) (Exhibit USA -271) (BCI); NASA SAAs with Boeing, (Exhibit USA -60) (BCI); and Boeing use 
of NASA computers, 2007 -2012, (Exhibit USA -270) (BCI)).  
1690 In paras. 8.263  and 8.264  above, we f ind that Boeing was provided access to NASA facilities and 
equipment totalling approximately USD 9.36 million between FY 2007 -FY 2012.  
1691 See Boeing CLEEN Agreement, (Exhibit E U-17), amendment/modification Nos. 0002, p. 2 (referring 
to "Additional Funding" of USD 1,610,150); 0003, p. 2 (referring to "Add Funding" USD 201,298); and 0004, 
p. 2 (referring to "F&E FUNDING" of USD 4,490,050).  
1692 European Union's second written submiss ion, para . 338 (referring to Boeing Engineering Operations 
and Technology, Monthly Technical progress report for June 2010, CLEEN Program, 15 July 2010  (formerly 
Exhibit US -13-672), (Exhibit EU -1061) (BCI), p. 2).  WT/DS353/R W 
 
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  consortium meetings to "present the progress and results of ongoing work to both Government 
and n on-Government attendees ".1693 The United States disagrees  that feedback provided to Boeing 
by FAA, NASA , and the AFRL staff during  a "CLEEN kick off meeting " is relevant  because this 
feedback does not constitute employees assisting Boeing in defining and carr ying out its research 
under the Boeing CLEEN Agreement in a way that "defrays any of Boei ng's research -related 
expenses ".1694 The feedback exercise is not tantamount to a "service " to the contractor or "an 
effort to help Boeing for its own sake ", but is to en sure that Boeing delivers what it was committed 
to deliver.1695 Similarly, the United States argues that Boeing 's participation in semi -annual 
government -led consortium meetings to discuss CLEEN research is "simply a mechanism for the 
government parties to ke ep apprised of Boeing 's research " and does not demonstrate that the 
Boeing CLEEN Agreement provides goods and service s to Boeing.1696 
8.520.   We are unconvinced  by the United States ' argument that Boeing employees ' interaction 
with FAA staff during CLEEN kick off mee tings and other meetings relating to Boeing 's participation 
in the FAA CLEEN Program does not involve the provision of access to FAA employees . We recall  
that, in its discussion of post -2006 NASA -Boeing transactions at issue, the United States refer s to 
three basic types of NASA staff activity when discussing employees provided through NASA 
procurement contracts and Space Act Agreements. These are: ( a) contract specialists who are 
responsible for "administration and management aspects " of specific contracts ; (b) technical 
monitors who are responsible for "evaluating whether the contractor is performing the specified 
work, determining whether a task is complete, and assessing whether the final report … is 
complete and meets the stated objectives "; and ( c) NRA  managers who "coordinate operational 
aspects " such as "organizing logistics for reviews {and} gathering input from technical leads " 
among other responsibilities.1697 The United States explain s that these employees "ensure that 
contractors are doing the work they are paid to do " and that this is the access  to employees  that 
NASA provides.1698 Given the United States ' view that these types of NASA staff participation 
constitute "access " to employees under NASA contracts and agreements, we fail to see how 
feedback provided  by FAA employees  to Boeing, ensuring that Boeing delivers what it is committed 
to deliver, or gathering information regarding Boeing 's research progress  under the FAA CLEEN 
Program  is not  the provision of  "access " to employees in relation to the B oeing CLEEN Agreement .  
8.521.   Based on the foregoing, we therefore conclude that the Boeing CLEEN Agreement is most 
appropriately characterized as a collaborative R&D arrangement under which FAA provides 
payments to Boeing and access to FAA employees.  We d o not identify on the evidence before us 
that Boeing is provided access to particular U.S. Government facilities and equipment, although we 
conclude that specific amounts designated as "Facilities and Equipment " should be considered 
payments to Boeing.  According ly, consistent with the approach of the Appellate Body  in respect of 
the NASA procurement contracts and DOD assistance instruments in the original proceeding, we 
conclude that the payments under the Boeing CLEEN Agreement involve direct transfer(s) of fund s 
within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement , while  the provision of access to 
FAA employees constitutes the provision of goods or services  other than general infrastructure , 
within the meaning of Article 1.1(a)(1)(iii) of the SCM Agre ement.  
8.522.   For these reasons, in light of the Appellate Body's reasoning in its 
characterization of the NASA procurement contracts and DOD assistance instruments in 
the original proceeding,  we therefore find that payments and access to government 
employees pro vided to Boeing under the Boeing CLEEN Agreement constitute s a 
financial contribution within the meaning of Article 1.1( a)(1) of the SCM Agreement.  
Specifically, the payments  constitute a direct transfer of funds within the meaning of 
Article 1.1(a)(1)(i),  and the provision of access to FAA employees constitutes  a 
                                               
1693 European Union's second written submissi on, paras. 337 and 338 (referring to Boeing CLEEN 
Agreement, (Exhibit EU -17), section C.4.1; and Boeing CLEEN Monthly Technical Progress Report for 
June 2010, (15 July 2010) (formerly Exhibit US -13-672), (Exhibit EU -1061) (BCI), p. 2).  
1694 United States' sec ond written submission, para. 432. See also United States' first written 
submission, para. 483; and second written submission, paras. 432 -436. 
1695 United States' second written submission, para. 435.  
1696 United States' second written submission, para. 436.  
1697 United States' first written submission, para. 201. The United States additionally provided estimates 
for the amounts of time each of these staff types contributed to procurement contracts and Space Act 
Agreements.  
1698 United States' second written submission , paras. 121 and 122.  WT/DS353/R W 
 
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  government provision of goods  or services other than general infrastructure  under 
Article 1.1(a)(1)(iii).  
8.523.   In light of our finding  above , we decline to address the European Union 's alternative 
argument that , what it refers to as  the transfer to Boeing of patent and other intellectual property 
rights , could separately be considered a financial contribution under Article 1.1(a)(1)(iii) of the 
SCM Agreement.  
8.524.   Having found that the payments to Boeing and the provision of access to FAA employees 
pursuant to the Boeing CLEEN Agreement involve a  financial contribution, we next consider 
whether th is financial contribution confer s a benefit.  
8.2.4.4   Whether there is a benefit  
8.2.4.4.1   Main arguments  of the parties and third p arties  
8.525.   The European Union  argues that the financial contribution arising from the Boeing  CLEEN 
Agreement  confer s a benefit within the meaning of Article 1.1(b) of the SCM Agreement for the 
same reasons that the financial contributions provided through the NASA  and DOD  aeronautics 
R&D programmes confer a benefit.1699 The relevant question to determine  the existence of a  
benefit is whether Boeing has received financial contribution s on terms more favourable than those 
available to the recipient in the market. Th e European Union argues that the FAA CLEEN Program 
in general, and the Boeing CLEEN Agreement in particular, results in the same distribution of 
intellectual property rights as the contracts and agreements funded by the NASA and DOD 
aeronautics  R&D program mes. The FAA provides funding for Boeing to perform R&D for the 
advancement of Boeing 's own LCA development, and then allows Boeing to take ownership over 
the fruits of the R&D.1700  
8.526.   The European Union rejects the United States ' view that the cost-sharing  between FAA and 
Boeing  that is a feature of  the Boeing CLEEN Agreement must impact the benefit analysis. The 
European Union submits that , under the benefit analysis in the original proceeding, the  fact that 
Boeing contributed its own funds and resources  under  DOD assistance instruments did not change 
the Appellate Body's  characterization of those instruments  as being akin to a species of joint 
venture  in which  a benefit was found to exist. Thus, it is clear that the Appellate Body found the 
existence of a bene fit regardless of the presence of cost -sharing.  In the same way as the DOD 
assistance instruments , the European Union argues that the Boeing CLEEN Agreement also seems 
to account for Boeing's cost -sharing by providing Boeing with additional rights to data developed 
with government funding.1701 
8.527.   The United States  argues that t he European Union fails to identify the appropriate 
benchmark with which to compare the terms of the Boeing CLEEN Agreement and has therefore  
failed to make a prima facie  case that the Boeing CLEEN Agreement  confers a benefit under 
Article  1.1(b) of the SCM Agreement.1702  
8.528.   The United States argues that the Appellate Body 's assessment of the existence of a 
benefit in the original proceeding applied only to contracts where Boeing 's contribution w as at 
most equal to that of the U .S. Government . Any monetary contribution made by the recipient to a 
joint research project affects the net value obtained by the firm from the project. If the 
contribution of the recipient is neglected there is a risk of o verestimating the value obtained by the 
firm from the project, and a finding of benefit could be made where a benefit d oes not exist.1703 
The United States argues that  the Appellate Body's findings on benefit in respect of the NASA 
                                               
1699 European Union's first written submission, para. 221.  
1700 European Union's first written submission, paras. 222 -224; second written submission, paras.  346, 
347, and 350 -353. The European  Union contends that it relies on the same bench marks, including R&D 
contracts provided by the United States, and the comparison that the Appellate Body relied upon when 
analysing the NASA aeronautics R&D contracts in the original dispute. (European Union's second written 
submission, para.  353).  
1701 Europ ean Union's second written submission, paras. 355 -357. 
1702 United States' first written submission, paras. 486 -488. 
1703 United States' second written submission, para. 439 (referring to Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint ) para. 663 ). WT/DS353/R W 
 
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  procurement contracts and D OD assistance instruments in the original proceeding do not apply  to 
the Boeing CLEEN Agreement because of  the existence of a minimum cost -sharing requirement, 
the fact that Boeing provides access to Boeing test aircraft , and the different way that intelle ctual 
property rights are distributed.1704 According to the United States, t he Boeing CLEEN Agreement 
involves a contribution by Boeing that is greater than the FAA 's contribution, and is greater  (on a 
proportional basis)  than any of the contracts or agreemen ts examined by the Appellate Body in the 
original proceeding . The  United States considers that the  European Union 's arguments do not 
indicate what a market -based actor would demand, nor do they compare that with the terms of 
the Boeing CLEEN Agreement, bey ond making a "superficial comparison to the IP allocation terms 
of NASA and D oD agreements ".1705 
8.529.   Certain of the third parties ( Brazil,  Korea,  and Japan ) make arguments as to the 
determination of the existence of benefit within the meaning of Article 1.1(b) of  the SCM 
Agreement. These arguments are summarized in Section 8.1.2 above.  
8.2.4.4.2   Evaluation by the Panel  
8.530.   In undertaking our evaluation, we first address  the relevant standard that we should apply 
in determining whether the financial contributions under the Boeing CLEEN Agreement confer a 
benefit.  
8.531.   The European Union argues that we should adopt the same benefit analysis that the 
Appellate Body adopted in concluding that the NASA procurement contracts and DOD assistance 
instruments at issue in the original proceeding conferred a benefit. The United States argues that 
the appropriate  standard for assessing whether a financial contribution confers a benefit depends 
on the nature of the financial contribution , and that the assessment here mu st take into account  
the degree of cost sharing involved in the Boeing CLEEN Agreement, the fact that Boeing 
contributes use of Boeing test aircraft, and the degree to which intellectual property rights are 
shared.  
8.532.   As we explain in Section  8.2.4.3.2  above, we have concluded that the Boeing CLEEN 
Agreement is properly characterized as a collaborative R&D arrangement on the basis of its 
relevant characteristics. Accordingly, we have found that the payments provided to Boeing under  
the Boeing CLEEN Agreement are financial contributions in the form of a direct transfer(s) of funds 
within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement , and that  any provision  to Boeing  
of access to FAA employees under the Boeing CLEEN Agreeme nt constitutes the provision of goods 
or services other than general infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement.1706 
8.533.   In the original proceeding, the Appellate Body characterized  the NASA procurement 
contracts and DOD assi stance instruments as collaborative R&D arrangements which involved 
financial contributions , and then determined whether these financial contributions conferred a 
benefit by comparing the allocation of intellectual property rights under those contracts and  
instruments with the allocations of intellectual property rights in collaborative R&D agreements , 
which it treated as evidence of market practice. Given our conclusion that the Boeing CLEEN 
Agreement is a collaborative R&D arrangement, we consider it appr opriate to adopt the same 
standard for determining whether the financial contribution provided under the Boeing CLEEN 
Agreement confer s a benefit.  We will therefore compar e the allocation of intellectual property and 
related licence  rights in respect of pa tents between FAA and Boeing under the Boeing CLEEN 
Agreement with the evidence before us concerning the allocation of such rights in collaborative 
R&D arrangements between market actors.  
8.534.   The cost -sharing features  of, and distribution of intellectual prope rty and related licence 
rights  under,  the Boeing CLEEN Agreement resemble those of the  pre-2007 DOD assistance 
instruments at issue in the original proceeding  (prior to their modification by the DOD -Boeing 
Patent Licence Agreement) , as well as those post -2006 assistance instruments that have not been 
modified by the DOD -Boeing Patent Licence Agreement.1707 As under those arrangements, Boeing 
                                               
1704 United States' first written submission, paras. 486 -488; second written submission, para. 438.  
1705 United States' second written submission, para. 439.  
1706 See para. 8.522  above.  
1707 See Section 8.2.3.2.2  above . WT/DS353/R W 
 
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  receives payments and is provided access to U.S. Government employees.  Boeing must also  make 
either cash or non -cash (in -kind) contributions, including items such as equipment, facilities, 
labour, and office space  equal to 50% or more of the total cost of work specified in the 
Agreement .1708 As we explain in our evaluation of financial contribution1709, pursuant to its 
participat ion in the Boeing CLEEN Agreement,  Boeing may retain rights to own and use  any 
inventions subject to gra nting the U.S. Government a nonexclusive, royalty -free license to patent 
for inventions for government use .1710 Boeing may also rest rict from disclosure de signated "limited 
rights data " that involves trade secrets or other data that is "commercial or financial and 
confidential or privileged " and "pertain to items, components, or processes developed at private 
expense, including minor modifications, or as oth erwise identified as Limited Rights Data ".1711 
8.535.   As we explain in Section  8.1.3 of this Report, based on our review of commercial R&D 
arrangements,  which the parties have submitted as evidence of relevant "market benchmarks "1712, 
[***]. 
8.536.   The fundamental balance  of intellectual property rights  under the Boeing CLEEN 
Agreement remains one in which the U.S. Government  lacks the right to obtain an exclusive  
licence to practice Boeing -owned patents. Boeing 's ability to commercially exploit it s patents is not 
contingent on any Government  election not to exercise exclusive rights to licence those patents for 
itself. In this respect, the allocation of intellectual property  rights under the Boeing CLEEN 
Agreement is more favourable to Boeing than the corresponding allocations to commissioned 
parties under the private collaborative R&D agreements before the Panel.  
8.537.   In conclusion, we consider that the Boeing CLEEN Agreement  confers a benefit based on 
the same comparison  to prevailing market practices for collaborative R&D arrangements that the 
Appellate Body relied upon  in the original  proceeding  to find that the NASA procurement contracts 
and DOD assistance instruments conferred a benefit .  
8.538.   The United States argues  that the value of Boeing 's contribut ion under the Boeing CLEEN 
Agreement is greater than the corresponding value of Boeing  contributions under the NASA 
procurement contracts and DOD assistance inst ruments in the original proceeding,  and that this 
has an impact on whether the Boeing CLEEN Agr eement  should be found to confer a benefit.  
8.539.   The Appellate Body considered a similar argument by the United States in the original 
proceeding ; namely, that funds provided by Boeing  to fund research projects under DOD 
assistance instruments must be taken int o account in comparing the terms of those instruments 
with market benchmarks for purposes of determining whether a benefit has been conferred. While 
noting that monetary contributions by a recipient to a joint research project affect the net value 
obtained  by the firm from the project, and thus could distort the assessment of benefit, the 
Appellate Body nevertheless noted that the findings by the original p anel did not support the 
proposition that Boeing 's contribution to the projects meant that no benefit was conferred. The 
Appellate Body explained:  
As part of its analysis of financial contribution, the Panel found that the scope of the 
government licence over data rights varied when both Boeing and the USDOD 
contributed funding to the project. More specifi cally, the Panel found that the 
government received only "limited rights " to the data under the assistance 
instruments (which were cost -sharing transactions), as opposed to the "unlimited 
rights " to the data that the government receives under USDOD procure ment contracts 
(where there was no cost -sharing). Thus, according to the Panel 's description, 
                                               
1708 Boeing CLEEN Agreement, (Exhibit EU -17), part I, section B.3.  
1709 See para. 8.515  above . 
1710 Boeing CLEEN Agreement, (Exhibit EU -17), section I.1 (incorporating clause 3.5 -10); and FAA  
Acquisition Management System (AMS), Clause 3.5 -10, "Patent Rights – Ownership by Contractor" 
(January  2009), (Exhibit EU -1063), section (d)(2).  
1711 Boeing CLEEN Agreement, (Exhibit EU -17), section I.3. Boeing may also designate "Boeing 
proprietary informat ion", which includes data and technical information that is owned by Boeing and was not 
first produced during the performance of the Boeing CLEEN Agreement.  
1712 These private R&D agreements include Contracts A through F which were also submitted in the 
original proceeding and a number of other private, commercial collaborative R&D agreements. Our evaluation 
of the allocation of intellectual property rights and rights resulting therefrom (i.e. licence rights) under these 
collaborative R&D arrangements is set o ut in a BCI Appendix  (Appendix 1 ). WT/DS353/R W 
 
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  Boeing 's monetary contribution to the research project is not tied to the ownership 
rights over any inventions and data, which results from the operation of US la w. 
Rather, Boeing 's monetary contribution is consideration for the enhanced data rights 
that it obtains under the assistance instruments, which grant more limited rights to 
the government over the data. In the light of the Panel 's finding, it is therefore clear 
that Boeing 's monetary contribution under the assistance instruments does not 
change the bargain over the ownership of the inventions and data, it only changes the 
bargain as to the government 's licence over the data rights.1713 
8.540.   In the case of the Boein g CLEEN Agreement, we do not see that Boeing 's rights over any 
inventions resulting from the work  performed thereunder  are tied to Boeing 's monetary 
contribution to the research project. Rather, as discussed by the Appellate Body  with respect to 
the DOD assistance instruments, Boeing 's monetary contribution functions as consideration for the 
enhanced data rights that it obtains ; namely designated "limited rights data ". We see no basis to 
depart  from the Appellate Body's assessment  of this argument  in the or iginal proceeding in respect 
of the DOD assistance instruments.  
8.541.   We therefore find that the financial contribution provided to Boeing through the 
Boeing CLEEN Agreement confer s a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement.  
8.2.4.5   Whether the  subsidy is specific  
8.2.4.5.1   Main a rguments of the parties  
8.542.   The European Union  argues that the subsid y provided through the  payments and access to 
facilities, equipment, and employees  provided to Boeing under the FAA CLEEN Program  (pursuant 
to the Boeing CLEEN Agr eement) is specific within the meaning of Article 2.1(a) of the SCM 
Agreement. T he European Union considers that the subsid y is explicitly limited to certain aviation -
related industries because t he FAA CLEEN Program  is expressly aimed at the development of  
"technologies for civil subsonic jet airplanes ", and the FAA 's R&D activities, generally, are 
restricted to "civil aviation research and development ".1714 The European Union argues that the 
subsid y is also specific within the meaning of Article 2.1(c) as the  FAA has awarded contracts 
under the FAA CLEEN Program to only five aviation companies. Accordingly, the subsidy 
programme is "used by a limited number of industries " which are  also the predominant 
beneficiaries of the subsidy.1715  
8.543.   As with its specificity ar guments regarding the NASA aeronautics R&D measures, the 
European Union argues that the assessment of specificity should not depend on the "benefit " 
determination , in the sense of the favourable distribution of intellectual property rights , but rather 
should focus on the challenge to a subsidy involving funding and other support for research and 
development of near -term commerciali zable LCA -related technologies arising from the Boeing 
CLEEN Agreement.1716 The European Union regards the comparison of the alloca tions of intellectual 
property rights to market benchmark instruments as "just a means to the end of determining the 
existence of benefit  from these financial contributions – it is not the 'benefit ' or 'subsidy ', in and of 
itself".1717 Thus, the European Unio n submits that  the findings of the panel and Appellate Body  in 
the original proceeding  with respect to the European Union 's separate challenge  to the  allocation of 
patent rights as a self -standing subsidy are not applicable to the question of whether the s ubsid y 
provided  to Boeing pursuant to the Boeing CLEEN Agreement is specific.1718  
                                               
1713 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 664. (fns omitted)  
1714 European Union's first written submission, paras. 225 and 226 (referring to CLEEN Solicitation, 
(Exhibit EU -20), p. 3; and Air port and Airway Trust Fund Authorizations, United States Code , Title 49, 
chapter  481, sections 48102 and 48103, (Exhibit EU -266), section 48102(a)); second written submission, 
paras. 359 and 361.  
1715 European Union's first written submission, para. 227; seco nd written submission, para. 360.  
1716 European Union's second written submission, paras. 363, 366, and 368.  
1717 European Union's second written submission, para. 366. (emphasis omitted)  
1718 European Union's second written submission, paras. 364 -365, and 367 -369. See also 
European  Union's response to Panel question No. 28, paras. 165 -168; and comments on United States' 
response to Panel question No. 28, para. 183. The European Union asserts that its claim before the original WT/DS353/R W 
 
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  8.544.   The United States  argues that  the Boeing CLEEN Agreement  is not  specific because it is not 
explicitly limited to certain enterprises within the meaning of Article 2.1(a), or ot herwise de facto  
specific within meaning of Article 2.1(c) of the SCM Agreement.  
8.545.   The United States submits that the European Union 's allegation of the existence of a 
benefit is limited to the fact that Boeing receives more favourable rights in patents tha n would be 
the case if a commercial actor had funded the research. Thus, the United States argues that the 
specificity analysis must focus on Boeing 's receipt of rights in patents more favourable than those 
available to commissioned party under a commercia l transaction. The United States recalls that in 
the original proceeding, the Appellate Body concluded that the a llocation  of patent rights, if taken 
as a self -standing subsidy, would not be specific because it is available "under any government 
contract, by any agency, in any sector ". The Boeing CLEEN Agreement is also not specific for the 
same reason. Thus, the United States submits that, e ven if the Boeing CLEEN Agreement involved 
an allocation  of patent rights more favourable to Boeing as commissioned p arty than 
corresponding allocations to commissioned parties under comparable commercial transactions 
(which, it contends, the European Union has not demonstrated), such a distribution would be 
consistent with the distribution of patents rights generally av ailable under all government R&D 
contracts.1719 The United States argues that the European Union 's specificity claim under 
Article  2.1(c) of the SCM Agreement fails for the same reasons.1720 
8.2.4.5.2   Evaluation by the Panel  
8.546.   The first question before us is whether the su bsidy provided to Boeing under the Boeing 
CLEEN Agreement is specific within the meaning of Article 2.1(a) of the SCM Agreement.  
8.547.   We recall our analysis and findings in Sections 8.2.2.5.2  and 8.2.3.5 .2 with regard to 
whether subsidies provided to Boeing through post -2006 NASA procurement contracts and Space 
Act Agreements , and subsidies provided to Boeing through post -2006 DOD assistance instruments , 
are specific within the meaning of Article 2.1(a) of the SCM Agreement. The fundamental question 
that arose in that regard was whether, for purposes of determining whether access to the subsidy 
is explicitly limited, the relevant subsidy should be understood to be the payments and the 
provision of access to facilities, equipment, and employees  on terms more favourable than 
available in the market, as argued by the European Union ; or whether the relevant subsidy should 
be understood to be the allocation of rights in patents on terms more favourable than ava ilable in 
the market, as argued by the United States.1721  
8.548.   In our view, the arguments of the parties with respect to whether the subsid y provided to 
Boeing through the Boeing CLEEN Agreement is specific  within the meaning of Article  2.1(a) raise 
exactly the s ame question.  
8.549.   We do not consider that, as argued by the United States, the fact that the focus of our 
analysis of whether the Boeing CLEEN Agreement confers a benefit is the allocation of intellectual 
property rights , logically leads to the conclusion tha t the subsidy at issue should be defined as the 
allocation of intellectual property rights on terms more favourable than available in the market , 
and that for purposes of determining whether access to the subsidy is limited , we must treat the 
Bayh-Dole Act , its associated legislative instruments and implementing regulations as the relevant 
subsidy scheme. Since a subsidy within the meaning of Article 1 is defined in terms of financial 
contribution and benefit, it stands to reason that both the financial con tribution and benefit must 
be taken into consideration in an analysis of whether access to the subsidy is explicitly limited. 
Therefore, while we agree that the nature of the benefit found to exist is a key consideration in the 
specificity analysis under A rticle 2.1(a), the question of whether access to the subsidy is explicitly 
limited cannot always be answered by focusing solely on the existence of benefit.1722 In our view, 
                                                                                                                                               
panel related to the allocation of int ellectual property rights was "separate and distinct" from its claims to the 
NASA and DOD aeronautics programmes. (European Union's second written submission, para. 364).  
1719 United States' first written submission, para. 489; second written submission, para . 440. See also 
United States' response to Panel question No. 28, paras. 124 -126; and comments on European Union's 
response to Panel question No. 28, paras. 153 -155. 
1720 United States' first written submission, para. 489.  
1721 Our analysis above in Sections 8.2.2.5.2  and 8.2.3.5.2  includes a summary of relevant findings 
regarding specificity made by the panel and the Appellate Body in the original proceeding.  
1722 See also Ap pellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , paras.  377 
and 378.  WT/DS353/R W 
 
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  the United States' argument fails to properly consider the benefit in relation to the  financial 
contribution and the particular context in which that contribution occurs.  
8.550.   We recall that in the case of the NASA aeronautics  R&D measures, we consider  it 
appropriate to assess whether the financial contributions provide a benefit on the basis of an 
examination of the allocation of intellectual property rights because of our particular 
characterization of the nature of those measures. In contrast, a s illustrated by our analysis of 
benefit in relation to DOD procurement contracts , where we charac terize the financial contributions 
differently , we consider  that a focus on the allocation of intellectual property rights as a basis to 
determine the existence of a benefit is not appropriate. Thus, in the context of our characterization 
of the DOD procur ement contracts as purchases of R&D services, we find that the same allocation 
of patent rights that applies by virtue of the Bayh -Dole Act and related legislative instruments and 
implementing regulations would not result in the measures in question being subsidies. 1723 
8.551.   Because the role of the allocation of intellectual property rights in our analysis of whether a 
measure constitutes a subsidy depends upon the particular context, we consider that in 
ascertaining whether "access to the subsidy" is subject to e xplicit limitations, we cannot treat the 
allocation of intellectual property rights on terms more favourable than available in the market as 
being the relevant subsidy in and of itself. Therefore , we disagree with the United States that the 
subsidy  provide d through the Boeing CLEEN Agreement can be characterized as a "patent rights 
subsidy", which is the same subsidy that the Appellate Body considered in its analysis of the 
European Union's alternative claim regarding the allocation of intellectual property  rights as a self -
standing subsidy. As a consequence, we also disagree that the Bayh -Dole Act, its associated 
legislative instruments and implementing regulations constitute the appropriate legislative and 
regulatory framework that we must consider , for pu rposes of determining whether the legislation 
pursuant to which the granting authority operates explicitly limits access to the subsidy to certain 
enterprises.1724  
8.552.   We recall that in the case of the NASA aeronautics R&D subsidies at issue in the original 
proceeding , the basis for the panel's finding of an explicit limitation of access to the subsidy was 
the existence of restrictions on the scope of NASA's R&D activities to aeronautics and space and 
the particular objectives pursued by NASA with these activitie s. Thus, the original panel found that 
the access to the subsidy was explicitly limited to certain enterprises because the very nature of 
the research inherently limited access to the subsidy to "certain enterprises that participate in 
aeronautics -related R&D".1725 In our view, access to the subsid y that we have found to exist in this 
proceeding in respect of the Boeing CLEEN Agreement is subject to a similar, explicit limitation. In 
particular, we find that access to the subsid y is explicitly limited because the focus of the R&D 
conducted under the Boeing CLEEN Agreement is aerospace -related.   
8.553.   Therefore, we find that the subsid y provided to Boeing through the Boeing CLEEN 
Agreement is specific within the meaning of Article 2.1(a) of the SCM Agreement.  In light  
of this conclusion, we do not consider it ne cessary to address the European  Union's alternative 
argument under Article  2.1(c).1726 Finally, we note that the European Union also argues that the 
subsid y provided to Boeing through the Boeing CLEEN Agreement is specific pursuant to Article 2.3 
of the SCM Agreement. Article 2.3 provides that "{a}ny subsidy falling under the provisions of 
Article 3 shall be deemed to be specific". We reject this argument because, in Section 10 of this 
Report, we find that the Europ ean Union has failed to establish that any subsidy at issue in this 
proceeding is prohibited by Articles 3.1 and 3.2 of the SCM Agreement.  
                                               
1723 See Section 8.2.3.4.2.3  above . 
1724 Because of the need to consider financial contribution and benefit together in det ermining whether 
"access to the subsidy" is explicitly limited, we consider that this is not a situation in which "multiple authorities 
are implementing the same measure". (United States' second written submission, para. 246).  
1725 Panel Report, US – Large Ci vil Aircraft (2nd complaint) , para. 7.1048.  
1726 We note that the FAA entered into R&D agreements  (in the form of other transaction agreements)  
only with Boeing and four propulsion -focused companies (General Electric, Honeywell, Pratt & Whitney, and 
Rolls-Royce North America) under the FAA CLEEN Program.  WT/DS353/R W 
 
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  8.2.4.6   Amount of the subsidy  and amount of the  financial contribution  
8.2.4.6.1   The amount of the subsidy provided to Boeing through t he FAA CLEEN 
Agreement  
8.554.   In the previous Section , we f ind that the transactions pursuant to the  post-2006 Boeing 
CLEEN Agreement constitute  a specific subsid y within the meaning of Articles 1 and 2 of the SCM 
Agreement. In this Section , we address the partie s' arguments regarding the amount of the  
subsidy  provided to Boeing by the Boeing CLEEN Agreement  as well as the amount of the financial 
contribution. The amount of the subsidy, in our view, refers to the amount or magnitude of the 
benefit conferred by the  financial contribution; i.e. the quantification of the advantage conferred 
on Boeing by the financial contribution, compared to what Boeing would have obtained in a market 
transaction.  
8.555.   The European Union argues that the value of the benefit from the Boein g CLEEN 
Agreement should be based on the value of the technology developed under the Boeing CLEEN 
Agreement, which can be valued as a "multiple of the financial contribution " and can "last for 
many years, given the long life of the technologies created ".1727 The United States does not 
address the European Union 's argument in the context of the Boeing CLEEN Agreement.  
8.556.   We address this argument by the European Union in Section  8.2.2.6  when addressing the 
NASA aeronautics R&D measures at issue , where w e find that the European Union 's assessment of 
the benefit is based on a conflation of the concept of benefit with  the effects of a subsidy. We 
therefore conclude that there is insufficient evidence on the record to enable us to estimate t he 
amount of the subsidy in the sense of the difference between the terms regarding the allocation of 
intellectual property rights and related licence rights on which the financial contributions were 
provided to Boeing under the NASA procurement contracts and cooperative agreements and the 
terms regarding the allocation of intellectual property rights and related licence rights under which 
the financial contributions would have been provided in a market -based collaborative R&D 
arrangement . In our view, t hat conclusion also applies to the European Union's argument as to 
how to determine the amount of the subsid y provided through the Boeing CLEEN Agreement.  
8.557.   In light of the foregoing, we are unable to accept the European Union 's argument 
regarding  the amount of  the benefit provided to Boeing through the Boeing CLEEN 
Agreement. We therefore find that  there is insufficient evidence on the record as to  the 
amount of the subsidy provided to Boeing through the Boeing CLEEN Agreement . 
8.2.4.6.2   The amount of the financial contr ibution provided  to Boeing through  the 
Boeing CLEEN Agreement  
8.2.4.6.2.1   Main arguments of the parties  
8.558.   The European Union argues that the amount  of the financial contribution under  the Boeing 
CLEEN Agreement is "at least " USD 27.99 million between 2010 and 2014, base d on the total 
value of the Boeing CLEEN Agreement. In particular, the European Union derives this amount from 
the original schedule of annual f unding levels provided in the Boeing CLEEN Agreement, which 
indicates FAA funding for Boeing of USD 6,736,692 in  2010, USD 3,969,082 in 2011, 
USD 8,103,935 in 2012, USD 6,494,751 in 2013, and USD 283,115 in 2014.  These amounts are 
then adjusted to account for the actual funding provided by the FAA to Boeing  based on 
modifications appended to the Boeing CLEEN Agreeme nt.1728  
8.559.   The United States argues that the European Union overstates any financial contribution 
provided by the FAA CLEEN Program, as the Boeing CLEEN Agreement does not provide Boeing 
with access to government facilities, equipment, and employees. The United  States argues that  
                                               
1727 European Union's first written submission, para. 225. The European Union submits that Boeing 
provides "integrated management" of the overall program, thus "allowing Boeing to benefit from FAA funding 
of the other participants, all of whom are Boeing suppliers". (European Union's first written submission, 
para. 202).  
1728 European Union's first written submission, para. 220 and fn 514. See Boeing CLEEN Agreement, 
(Exhibit EU -17), amendment/modification Nos. 0002,  p. 1 (providing USD 6,310,150 in 2011), 0003, p. 2 
(providing an additional USD 201,298 in 2011), and 0004, p. 1 (providing USD 7,960,050 in 2012).  WT/DS353/R W 
 
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  contractual language  in the Boeing CLEEN Agreement  referring to "Facilities and Equipment " does 
not indicate that Boeing was provided facilities or equipment of any value by FAA.  The 
United  States therefore objects to including any spec ific amounts designated as "Facilities and 
Equipment ". The United States also objects that any access to  NASA  test facilities  provided to 
Boeing should be considered in relation to the Boeing CLEEN Agreement .1729 The United States 
also argues that feedback provided to Boeing by FAA, NASA , and AFRL staff, and Boeing 's 
participation in semi -annual government -led consortium meetings , does not demonstrate that the 
Boeing CLEEN Agreement involves a provision of  goods and service s to Boeing.1730 In addition, the 
United  States notes that while the FAA CLEEN Program may contribute funding related to flight 
testing CLEEN technology under the Boeing CLEEN Agreement, CLEEN funding may not be used for 
flight testing other technologies. Thus, there is no basis to assume that a ll work performed by 
Boeing in connection with its ecoDemonstrator program me is a result of FAA funding under the 
Boeing CLEEN Agreement.1731 
8.2.4.6.2.2   Evaluation by the Panel  
8.560.   The European Union 's estimate of the amount of the financial contribution  provided 
through th e Boeing CLEEN Agreement  is based on actual figures listed in the Boeing CLEEN 
Agreement , adjusted to account for the actual funding provided by the FAA to Boeing based on 
modifications appended to the Boeing CLEEN Agreement. The original schedule of annua l funding 
levels , as modified , is as follows1732: 
Table 2: Annual funding levels under the Boeing CLEEN Agreement  
Year  Annual funding level in USD (as modified)  
2010 6,736,692  
2011 6,511,448 (as per modifications 2 and 3)  
2012 7,960 ,050 (as per modification 4)  
2013 6,494,751  
2014 283,115  
Total  27,986,056  
 
8.561.   Portions of this total include certain amounts designated as "Facilities and Equipment " 
funds  as opposed to "Research, Engineering, and Development (RED) " funds .1733 Amounts  
design ated as "Facilities and Equipment " total USD 6,301,498 over the 2011 -2012 period 
(including USD 1,811,448 in 20111734 and USD 4,490,050 in 20121735). The United States does not 
generally object to using adjusted annual funding amounts as a basis to estimate the total amount  
of the financial contribution. However, it argues that amounts designated as "Facilities and 
Equipment " should be excluded from the calculation.  
8.562.   We conclude  above in our evaluation of the whether a financial contribution exists  that 
amounts d esignated as "Facilities and Equipment" should be treated as further payments to 
Boeing.  Accordingly, we include amounts designated as "Facilities and Equipment" as well as the 
amounts designated as "Research, Engineering, and Development (RED)" in our est imate of the 
total amount of the financial contribution provided through the Boeing CLEEN Agreement.  
                                               
1729 United States' first written submission, para. 482; second written submission, para. 434 and fn 603.  
1730 United States' second written submission, paras. 432 -436. 
1731 United States' comments on European Union's response to Panel question No. 11, para. 55.  
1732 See Boeing CLEEN Agreement, (Exhibit EU -17), amendment/modification Nos. 0002, p. 1 (providing 
USD 6,310,15 0 in 2011), 0003, p. 2 (providing an additional USD 201,298 in 2011), and 0004, p. 1 (providing 
USD 7,960,050 in 2012).  
1733 See e.g. Boeing CLEEN Agreement, (Exhibit EU -17), amendment/modification Nos. 0002, p. 1, and 
0003, p. 1.  
1734 See e.g. Boeing CLEEN Agre ement, (Exhibit EU -17), amendment/modification No s. 0002, p. 2, and 
0003, p. 2.  
1735 Boeing CLEEN Agreement, (Exhibit EU -17), amendment/modification No. 0004, p. 2.  WT/DS353/R W 
 
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  8.563.   We note that the parties disagree as to whether Boeing is provided access to employees 
under the Boeing CLEEN Agreement. Based on the United States ' own d escription of Boeing 's 
interaction with U.S. Government staff pursuant to the Boeing CLEEN Agreement , we conclude  that 
the Boeing CLEEN Agreement provides  Boeing with access to FAA employees.1736 The 
European  Union has not provided any estimate of the value o f this access.  
8.564.   In light of the foregoing, we accept the European Union 's estimate of the amount of the 
financial contribution to Boeing through the Boeing CLEEN Agreement as the best available 
evidence. We find that, to the  extent that the amount of the fi nancial contribution  is 
relevant to the Panel 's assessment of whether the United States has withdrawn the 
subsidy or taken appropriate steps to remove the adverse effects , within the meaning of 
Article  7.8, the revised estimate of USD 27.99 million is a cr edible estimate of the 
amount of the financial contribution provided to Boeing through the Boeing CLEEN 
Agreement between 2010 and 2014 . 
8.2.4.7   Conclusion  
8.565.   In light of our above findings regarding financial contribution, benefit, and specificity, we 
conclude that the European Union has established that transactions pursuant to the Boeing CLEEN 
Agreement involve a specific subsid y within the meaning of Articles 1 and 2 of the SCM 
Agreement. While we are unable to estimate the amount of the subsidy on the basis of th e 
evidence on the record, to the extent that it is relevant to the Panel's assessment of whether the 
United States has withdrawn the subsidy or taken appropriate steps to remove the adverse effects 
within the meaning of Article 7.8 of the SCM Agreement, we  find the European Union's estimate  of 
the financial contribution at USD 27.99 million between 2010 and 2014 to be credible.  
8.2.5   Tax exemptions and exclusions under FSC/ETI legislation and successor 
legislation  
8.2.5.1   Introduction  
8.566.   In this Section of the Report, we d etermine whether the United States grants or maintains 
specific subsidies to Boeing, in the form of tax exemptions and tax exclusions pursuant to the 
FSC/ETI measures and successor legislation, after the expiry of the implementation period , and 
has thereby  failed to withdraw the subsidy within the meaning of Article 7.8 of the SCM 
Agreement .  
8.567.   In its request for the establishment  of a panel in this compliance proceeding, the 
European  Union challenges the same FSC/ETI measures that were at issue in the origin al 
proceeding. The measures constitute the original provisions of the U.S. Internal Revenue Code 
which (prior to repeal) established special tax treatment for "Foreign Sales Corporations " 
(FSCs)1737: the FSC Repeal and Extraterritorial Income Exclusion Act of  2000 (the ETI Act)1738, the 
American Jobs Creation Act of 2004  section  1011739, and the Tax Increase Prevention and 
Reconciliation Act of 2005 (the TIPRA).1740 The European Union alleges that, through these 
measures, the United States maintains tax exemptions and tax exclusions that constitute specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.1741 Moreover, the 
European Union alleges that these measures cause present adverse effects and are inconsistent 
with Articles 3.1(a) , 3.1(b)  and 3.2  of the SCM Agreement and Article III:4 of the GATT.1742 
8.568.   The original panel found that the tax exemptions and tax exclusions provided to Boeing 
under the FSC /ETI legislation, including the transitional and grandfather provisions of the ETI Act 
                                               
1736 See para. 8.520  above.  
1737 Internal Revenue Code, United States C ode, Title 26, sections 245, 921 -927, and 951 (2000), 
(Exhibit EU -402), sections 921 -927 and 951(d).  
1738 Repeal and Extraterritorial Income Exclusion Act of 2000, United States Code of Federal Regulations , 
Public Law No. 106 -519, (Exhibit EU -403).  
1739 American  Jobs Creation Act of 2004, Public Law No. 108 -357, section 101 (22 October 2004), 
(Exhibit EU -404).  
1740 Tax Increase Prevention and Reconciliation Act of 2005, Public Law No. 109 -222 (17 May 2006), 
(Exhibit EU -405), section 513. See European Union's first w ritten submission, para. 390.  
1741 European Union's request for the establishment of a panel, paras. 19 and 20.  
1742 European Union's request for the establishment of a panel, paras. 29 -32. WT/DS353/R W 
 
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  and the AJCA, c onstituted specific subsidies within the meaning of Articles 1 and 2 of the SCM 
Agreement.1743 The panel estimated that the amount of FSC/ETI subsidies provided to Boeing 's 
LCA division between 1989 and 2006 was USD 2.199 billion.1744 The Appellate Body upheld ( albeit 
with different reasoning) the original panel 's finding that the measures caused serious prejudice , 
within the meaning of Article 5(c) and 6.3(b) of the SCM Agreement,  with respect to the 100 -200 
seat LCA product market.1745 
8.569.   The United States notified t he DSB on 26 September 2012 that it has enacted legislation 
terminating the FSC/ETI benefits as of 2006, and that it confirms that Boeing did not "use" FSC or 
ETI tax benefits after 2006.1746 The European Union argues that certain grandfather ed provisions 
of the FSC/ETI legislation have not been repealed, and continue to grant Boeing tax benefits after 
2006.  
8.570.   The measures at issue are set out in detail in the original panel report.1747 By way of 
background, the original provision of the U.S. Internal Revenue Code granted to a "Foreign Sales 
Corporation "1748 a tax exemption on a portion of income generated by the sale or lease of "export 
property " – referred to as "exempt foreign income ". The FSC measure s also allowed U.S. parent 
companies of FSCs to defer paying taxe s on certain "foreign trade income " that would normally be 
subject to immediate taxation, and to avoid paying taxes on dividends received from their FSCs 
related to "foreign trade income ".1749  
8.571.   On 15 November 2000, in response to the findings made by the pane l and Appellate Body 
in US – FSC1750, the United States passed the ETI Act.1751 The ETI Act repealed the provisions in 
the U.S. Internal Revenue Code relating to taxation of FSCs (subject to section 5(c)(1), an 
indefinite grandfathering provision), but also intr oduced a further exclusion from income taxation 
for certain qualifying foreign income.1752 On 22 October 2004, in response to the panel and 
Appellate Body findings in US – FSC (Article 21.5 – EC)1753, the United States passed the AJCA.1754 
The AJCA repealed those p rovisions in the ETI Act that granted tax exemptions on certain 
qualifying income.  
8.572.   However, the AJCA contained two key grandfather provisions. First, the AJCA indefinitely 
grandfathered the ETI scheme in respect of transactions made in the ordinary course of business , 
occurr ing pursuant to a binding contract between the relevant taxpayer and an unrelated person  
that was in effect on 17 September 2003.1755 Second, the AJCA did not repeal section 5(c)(1) of 
                                               
1743 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1429 .  
1744 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1429.  
1745 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1350(d)(iii).  
1746 United States' Compliance Communication, paras. 7 and 8.  
1747 Panel Report, US – Large Civ il Aircraft (2nd complaint) , paras. 7.1378 -7.1385.  
1748 A "Foreign Sales Corporation" was a corporation created, organi zed and maintained in a qualified 
foreign country or U.S. possession outside the customs territory of the United States under the specific 
requirements of Sections 921 -927 of the U.S. Internal Revenue Code. (See Panel Report, US – Large Civil 
Aircraft (2nd complaint) , para. 7.1379 and fn 3033).  
1749 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1379; and U.S. Internal Revenue 
Code, U.S. Code, Title 26, sections 245, 921 -927, and 951 (2000), (Exhibit EU -402).  
1750 Panel Report, US – FSC, para . 8.1(a); and Appellate Body Report,  US – FSC, paras. 177(a) and 178.  
1751 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1380;  Repeal and Extraterritorial 
Income Exclusion Act of 2000, United States Code of Federal Regulations, Public Law No. 106 -519, (Exhibit 
EU-403).  
1752 As the original panel explained, "the ETI Act allowed for the exclusion from taxation of certain 
income of a U.S. 'taxpayer'. Such income – 'extraterritorial income' that was 'qualifying foreign trade income' – 
could be earned with respect to goods only in transactions involving qualifying foreign trade property. The ETI 
Act defined 'extraterritorial income' as t he gross income of a taxpayer attributable to 'foreign trading gross 
receipts', i.e. gross receipts generated by certain qualifying transactions involving the sale or lease of 
'qualifying foreign trade property' not for use in the United States." (See Pane l Report, US – Large Civil Aircraft 
(2nd complaint) , para. 7.1382; see more generally paras. 7.1380 -7.1383).  
1753 Panel Report, US – FSC (Article 21.5 – EC), paras. 9.1(a), 9.1(b), and 9.1(e) ; and Appellate Body 
Report, US – FSC (Article 21.5  – EC). paras. 25 6(b), 256(f), and 257.  
1754 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1384; and American Jobs Creation 
Act of 2004, Public Law No. 108 -357, section 101 (22 October 2004), (Exhibit EU -404).  
1755 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1384.  WT/DS353/R W 
 
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  the ETI  Act which indefinitely grandfathered the origin al FSC measures in respect of certain 
transactions entered into pursuant to binding contracts in effect on 30  September 2000.1756  
8.573.   On 17 May 2006, in response to the panel and Appellate Body findings in US – FSC 
(Article  21.5 – EC II)1757, the United States pass ed the TIPRA, which purported to repeal the two 
aforementioned grandfather provisions. Section 513(c) of the TIPRA provides that "{t}he 
amendments made by this section shall apply to taxable years beginning after the date of the 
enactment of this Act ".1758  
8.574.   It was not disputed in the original proceeding that, up until 2006, the FSC/ETI measures 
(including transitional and grandfathered measures enacted in the successor legislation) 
constituted specific subsid ies.1759 The parties disagreed, however, as to whether the TIPRA in fact 
fully repealed the grandfathered provisions; that is, whether Boeing continued to receive tax 
benefits with respect to certain foreign income after 2006. The European Communities argued, as 
the European Union  does now, that the prospectiv e application of the TIPRA meant that the 
grandfather ed provisions of the FSC/ETI  legislation  that remained in place following the passage of 
the AJCA were still viable after 2006 with respect to income generated from certain eligible back -
dated orders.1760 The United  States argued that Boeing had ceased to receive FSC/ETI benefits as 
of 31 December  2006.1761 
8.575.   Throughout this Section, the Panel refers to Boeing 's possible receipt of "FSC/ETI benefits ". 
By way of explanation, this refers to the tax  exemptions and e xclusions  that the European Union 
alleges continue to be available to Boeing, despite the purported repeal of the FSC/ETI and 
successor act subsidies by the TIPRA. More specifically, it refers to tax exemptions and exclusions  
on eligible foreign income gen erated after 2006 on those back -dated orders to which the two 
grandfathered provisions of the FSC /ETI measures  continue to apply.  
8.2.5.2   Main arguments of the parties  
8.576.   The European Union  argues that the same grandfathered provisions from the FSC/ETI 
subsidies tha t were at issue in the original proceeding have continued, since 2006, to provide 
Boeing 's LCA division with tax concessions .  
8.577.   The European Union emphasi zes that the original panel found that, between 1989 and 
2006, Boeing received USD 2.199 billion in spe cific subsidies through the FSC/ETI legislation and 
successor acts.1762 It considers, however, that the original panel report cannot be relied on in 
support of the United States ' argument that the FSC/ETI benefits terminated in 2006. The original 
panel found  that it was "not … necessary to reach a conclusion " as to whether there was sufficient 
evidence before it to establish that the subsidies continued after 2006.1763 In this proceeding, 
however, where  the European Union claims that the United States has not ach ieved compliance 
because the FSC/ETI subsidies have not been withdrawn, the question of whether FSC/ETI benefits 
have continued to accrue to Boeing after 2006 is highly relevant.1764 
8.578.   As in the original proceeding, the European Union relies on a December 2006 
memorandum from the Internal Revenue Service (2006 IRS memorandum), which states:  
The TIPRA repeal date repeals the {FSC and ETI} binding contract rules for taxable 
years that begin after May 17, 2006. Because the binding contract rules apply on a 
transact ion-by-transaction basis, we interpret the TIPRA repeal date as repealing the 
binding contract rules prospectively , on a transaction -by-transaction basis, for 
                                               
1756 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1384.  
1757 Panel Report, US – FSC (Article 21.5 – EC II) , para. 8.1; and Appellate Body Report, US – FSC 
(Article 21.5 . EC II) , para. 100(b).  
1758 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1385; and Tax Increase Prevention 
and Reconciliation Act of 2005, Public Law No. 109 -222 (17 May 2006), (Exhibit EU -405), section 513.  
1759 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1400.  
1760 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1407 -7.1411.  
1761 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1412 -7.1417.  
1762 European Union's first written submission, para. 390.  
1763 European Union's second written su bmission, para. 539 (citing Panel Report, US – Large Civil 
Aircraft (2nd complaint) , para. 7.1428).  
1764 European Union's second written submission, para. 539.  WT/DS353/R W 
 
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  transactions entered into during a taxable year that begins after May 17, 2006. In 
other words, the binding contract rules {continue to} apply to certain transactions, 
but only if such transactions are not entered into in a taxable year that begins after 
May 17 , 2006 .1765  
8.579.   The European Union argues that, based on this statement, the TIPRA continues to al low for 
Boeing to receive FSC/ETI benefits  with respect to two types of foreign income recogni zed after 
31 December 20061766: 
a. income from a sale or lease entered into before 1 January 2005;  
b. income from a sale or lease entered into before 1 January 2007, pursu ant to a binding 
contract that was in place with an unrelated person on 17 September 2003 and at all 
times thereafter.  
8.580.   The European Union submits that this means,  for example, that if Boeing entered into a 
binding contract with an unrelated customer before  18 September 2003 , wherein the customer 
had an option to buy a certain number of aircraft, the buyer exerci sed the option before 
1 January  2007, and the final aircraft were not delivered until 2012 or later, Boeing remains 
entitled to tax concessions on income from the sale recogni zed in 2007 and beyond.1767 The 2006 
IRS memorandum has not been superseded by any further guidance from the IRS.1768 Its 
interpretation of the TIPRA continues the flow of FSC/ETI benefits to Boeing which, as the original 
panel found w ith respect to the pre -2006 benefits, constitute a specific subsidy within the meaning 
of Articles 1 and 2 of the SCM Agreement.  The European Union submits a report prepared by its 
experts , International Trade Resources LLC (ITR) , which identifies at least  69 orders that allegedly 
qualify for the first aspect of the continued grandfathering above; namely, orders that will 
generate new income recognized after 2012 from a sale or lease in the ordinary course of trade or 
busines s entered into before 1  January  2005.1769 
8.581.   The European Union argues that, in light of the evidence it has submitted, the statement s 
by Boeing 's James H. Zrust, Boeing 's Vice President of Tax , that Boeing has not received any 
FSC/ETI benefits as of 2006, and does not intend to receive any in  the future, are 
unpersuasive.1770 First, the European Union emphasi zes that while the U.S. Government is in a 
unique position to definitively verify any statement s that Boeing makes about its corporate tax 
filings, it does not do so. Rather, the United State s simply acts as a messenger for Boeing 's own 
view that FSC/ETI benefits were not received after 2006.1771 The statement s are also ambiguous 
and imprecise, and never define the term "FSC benefits ".1772 Similarly, Boeing itself could, if it had 
wished to legally establish that it does not receive FSC/ETI benefits, provide a statement as such 
under "penalty of perjury", but has not done so.  
                                               
1765 European Union's first written submission, para. 394 (citing "Qualification for FSC benefits and  ETI 
Exclusions", Office of Chief Counsel, Internal Revenue Service Memorandum No. AM 2007 -001, 
22 December  2006 (2006 IRS memorandum), (Exhibit EU -406), p. 6 ). (underlining original, italics added by 
the European Union)  
1766 European Union's first written s ubmission, paras. 394 and 395 and fn 1030; and 2006 IRS 
memorandum,  (Exhibit EU -406), p. 6.   
1767 European Union's first written submission, para. 395.  
1768 European Union's first written submission, para. 399; comments on the United States' response to 
Panel qu estion No. 34, para. 211 (citing United States' response to the Panel's request for information 
pursuant to Article 13 of the DSU, dated 28 February 2013, response to question  No. 46, para. 116).  
1769 European Union's first written submission, para. 396. Int ernational Trade Resources Report, Boeing 
FSC/ETI Tax Exemptions Post -2011, (13 December 2012) (ITR FSC/ETI Report), (Exhibit EU -24), at 
attachment 1. The European Union explains that it does not have the data necessary to determine the number 
of orders el igible for FSC/ETI benefits based on orders for revenue which will be recognized after 
31 December  2006 from a sale or lease in the ordinary course of trade or business entered into before 
1 January 2007 pursuant to a binding contract that was in place wit h an unrelated person on 
17 September  2003 and at all times thereafter.  
1770 European Union's comments on the United States' response to Panel question Nos. 33, para. 208, 
and 34, para. 210.  
1771 European Union's comments on the United States' response to Panel question No. 33, paras. 202 
and 207.  
1772 European Union's second written submission, para. 541; comments on the United States' response 
to Panel question No. 33, para. 204.  WT/DS353/R W 
 
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  8.582.   Further, the European Union notes that Mr Zrust's statement s provide only that Boeing 
"does not intend " to receive FSC/ETI ben efits, not that Boeing "will not " receive the benefits. 
Nothing prevents Boeing from changing its view that it will not claim FSC/ETI benefits on eligible 
income. The subsidy therefore continues to exist after 2006, since government inaction is 
insufficien t to demonstrate the withdrawal of the subsidy.1773 
8.583.   The European Union also argues that the United States ' assertion that Boeing did not "use" 
the tax benefits confirms that the benefit within the meaning of Article 1 .1(b) of the SCM 
Agreement in fact has bee n conferred on Boeing. If not, the opportunity to "use" the benefit would 
never have arisen.1774 The European Union considers that this is sufficient to demonstrate the 
existence of the subsidy.1775 Whether a subsidy has been "used", according to the European  Union, 
does not go to the question of whether the subsidy exists, but whether the subsidy has caused 
adverse effects, as provided for in Article 5 of the SCM Agreement.1776 Since, however, the 
FSC/ETI subsidies are prohibited subsid ies contingent on export , they are assumed to have caused 
adverse effects. The European Union argues that whether Boeing in fact "used" the subsidy is 
therefore irrelevant.1777 
8.584.   The United States  argues that Boeing ceased to receive FSC/ETI tax benefits after 
2006.1778 It notes that the evid ence relied upon by the European Union to show otherwise 
(namely, the 2006 IRS memorandum) is the same evidence it relied upon in the original 
proceeding.1779 According to the United States, the original panel examined this evidence, and 
declined to find that  Boeing would continue to receive FSC/ETI benefits after 2006.1780 Rather, the 
panel found that the mere availability of the benefits did not indicate that Boeing had actually used 
them.1781 Moreover, before the original panel, the European Communities  itself su bmitted a 
document indicating that the amount of FSC/ETI subsidies after 2006 was zero.1782 
8.585.   The United States submits the July 2009 statement by James H. Zrust, Boeing's Vice 
President of Tax (the Zrust statement), which it also submitted in the original proc eeding, stating 
that Boeing did not receive any FSC /ETI benefits after 31 December 2006, that Boeing does not 
treat income received after 2006 as eligible for FSC /ETI benefits, that Boeing does not intend to 
claim FSC /ETI benefits in the future, and that B oeing's 2006 Annual Report states that 2006 will be 
the final year for recogni zing any export tax benefits.1783 The United States also submits an 
updated statement of Mr Zrust, dated 3 December 2013 (the Updated Zrust statement) in which 
Mr Zrust confirms tha t his statement of July 2009 remains accurate: Boeing did not receive any 
FSC/ETI benefits after 31 December 2006.1784 In this statement, Mr Zrust adds that it is Boeing's 
view that any income recognized after 31 December 2006 is not eligible for FSC /ETI benefits and 
that Boeing does not intend to claim any FSC /ETI benefits in the future.1785 The United States 
adds, in response to a question from the Panel, that from Boeing's point of view, there were no 
                                               
1773 European Union's comments on the United States' response to Panel question No. 33,  paras. 205 
and 207.  
1774 European Union's second written submission, para. 542.  
1775 European Union's second written submission, para. 542.  
1776 European Union's second written submission, para. 542.  
1777 European Union's second written submission, paras. 542 and 798.  
1778 United States' first written submission, para. 490; and Statement of J. H. Zrust, Vice President of 
Tax of the Boeing Company, 20 July 2009,  (Exhibit USA -232).  
1779 United States' first written submission, paras. 491 and 492 (citing Panel Report, US – Large Civil 
Aircraft (2nd complaint) , paras. 7.1421 -7.1428).  
1780 United States' first written submission, paras. 491 and 492 (citing Panel Report, US – Large Civil 
Aircraft (2nd complaint) , para. 7.1428).  
1781 United States' second written submission, para. 451 (citing Panel Report, US – Large Civil Aircraft 
(2nd complaint) , para. 7.1425).  
1782 United States' second written submission, para. 452 (citing Panel Report, US – Large Civil Aircraft 
(2nd complaint) , para. 7.1426).  
1783 Statement of J. H. Zrust, Vice Pres ident of Tax of the Boeing Company, 20 July 2009, (Exhibit 
USA-232).  
1784 Updated Statement of J. H. Zrust, Vice President of Tax of the Boeing Company, 3 December 2013, 
(Exhibit USA -382), para. 3.  
1785 Updated Statement of J. H. Zrust, Vice President of Tax of the Boeing Company, 3 December 2013, 
(Exhibit USA -382), para. 4. WT/DS353/R W 
 
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  income -recognition events (which would include the fulfilme nt of orders and the recognition of 
options) after 31 December 2006 that were eligible for FSC /ETI benefits.1786  
8.586.   The United States also states, in response to the Panel 's requests for information pursuant 
to Article 13 of the DSU, that it reviewed the annual  reports that Boeing submitted to the U.S. 
Securities and Exchange Commission (SEC). Those reports do not record Boeing as having 
recogni zed FSC/ETI benefits after 2006.1787 
8.587.   The United States does not consider that a statement "signed under penalty of perjury ", as 
requested by the European Union, is necessary to support its argument.1788 Documents in WTO 
proceeding s are not required to meet this standard in order to be persuasive.1789  
8.2.5.3   Evaluation by the Panel  
8.588.   The issue before the Panel is whether, after the expiry of the implementation period, the 
United States grants or maintains subsidies to Boeing in the form of tax exemptions and tax 
exclusions pursuant to the FSC/ETI measures and successor legislation. In this regard, the issue in 
dispute between the parties is  whether, as a factual matter, the United States has continued to 
provide such subsidies to Boeing after 2006 . We consider that there are three distinct, but related 
questions raised by the parties ' arguments on this issue. The first is whether the origina l panel 
already made a determination as to whether Boeing continues to receive FSC/ETI benefits after 
2006. The second is whether it is sufficient for the European  Union to establish that, after 2006, 
FSC/ETI benefits continued to be available, or whether it must establish that Boeing actually 
received  FSC/ETI benefits. The third is an evidentiary issue as to whether, based on the evidence 
submitted by the parties, Boeing did in fact continue to receive FSC/ETI benefits.  
8.589.   In the original proceeding, as now,  the United States did not contest that , between 1989 
and 2006 , the FSC/ETI measures constituted specific subsid ies, but argued that Boeing ceased to 
receive the subsid ies as of 2006.1790 The United States now argues that the original panel 
examined this ques tion and, on the evidence before it (which is the same evidence before the 
current Panel), declined to find that Boeing would continue to receive post -2006 FSC/ETI benefits.  
8.590.   The original panel confirmed that between 1989 and 2006 , the FSC/ETI measures did  
constitute specific subsid ies.1791 In addressing whether the subsid ies continued after 2006, the 
panel considered that this was a factual issue that went only to the question of the overall amount 
of the subsidy.1792 In the original proceeding, however, the Eur opean Communities ' estimate of the 
amount of the FSC/ETI subsidies did not include the alleged post -2006 benefits; the European 
Communities  calculated the amount only between 1989 and 2006.1793 The panel therefore found it 
was not necessary to reach a conclus ion as to whether Boeing did in fact continue to receive 
FSC/ETI benefits after 2006, since a finding either way would have no impact on the European 
Communities ' amount estimate.  
                                               
1786 United States' response to Panel question No. 3 4, para. 146; and Updated Statement of J. H. Zrust, 
Vice President of Tax of the Boeing Company, 3 December 2013, (Exhibit USA -382).  
1787 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 47, para. 117. The United States notes that Boeing's Chief 
Executive Officer and Chief Financial Officer certified t o the SEC that the reports did not contain an omission of 
a material fact that would make the reports misleading. The United States emphasi zes that "severe civil or 
criminal penalties may be imposed on any person who knowingly makes a false certification i n an annual report 
to the SEC". The European Union does not consider this persuasive since, compared to the revenues of 
USD 81.7 billion that  Boeing  reported for 2012, omitting the USD 12 million FSC/ETI tax break that Boeing 
received that same year (as es timated by the European Union) would not be significant enough to constitute 
an "omission of a material fact". (See European Union's first written submission, para. 399 (citing Boeing,  
Annual Form 10 -K Report to the U.S. Securities and Exchange Commission for the Fiscal Year Ending 
31 December  2011, (Exhibit EU -488), p. 19)).  
1788 United States' second written submission, para. 453.  
1789 United States' second written submission, para. 453.  
1790 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1377.   
1791 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1400.  
1792 Panel Report, US – Large Civil Aircraft  (2nd complaint) , para. 7.1420.  
1793 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1408 and 7.1427.  WT/DS353/R W 
 
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  8.591.   While the original panel decline d to find that Boeing would continue to rec eive post -2006 
FSC/ETI benefits, we do not consider that this amounts to a positive finding that Boeing would not 
continue to receive them. Rather, the panel made no definitive finding either way.  
8.592.   In this proceeding, however, whether the FSC/ETI subsidies  continue after 2006 
determines the European Union 's claim that the United States has not withdrawn the subsidy.1794 
Now, the question of whether the FSC/ETI benefits continued after 2006, rather than going 
exclusively to the amount of the subsidies , goes to the continued existence of the subsid ies. 
Further, again unlike the original proceeding, the European Union now does present an estimate of 
the amount of post -2006 FSC/ETI benefits allegedly received by Boeing. We therefore agree with 
the European Union th at there is no existing determination by the original panel on this issue, and 
that it is now necessary for this compliance Panel to determine whether the FSC/ETI subsidies 
have continued after 2006.  
8.593.   This in turn raises the second issue, which is what the European Union is required to 
establish in order to demonstrate the existence of the subsidies after 2006. More precisely, the 
issue is whether the European Union is required to establish that Boeing in fact "received " or 
"used" the FSC/ETI benefits after 2006, or  whether it  is sufficient for the European Union to 
establish that the FSC/ETI benefits were available to Boeing , or that Boeing was eligible  to use the 
FSC/ETI benefit  after 2006 . 
8.594.   In its second written submission, the European Union argues that on ce the opportunity to 
"use" a tax break has arisen, a benefit within the meaning of Article 1 .1(b) has already arisen, and 
this is sufficient to confirm the existence of a subsidy.1795 Just because a recipient does not elect to 
"use" that benefit does not, ac cording to the European Union, negate the existence of the 
subsidy.1796 The European Union also emphasi zes that, even if Boeing has not claimed tax benefits 
after 2006, nothing in U.S. law prevents it from claiming those benefits in the future. The 
European U nion seems to suggest that this alone means that the subsid ies continue, since 
government inaction alone is insufficient to terminate them. 
8.595.   We interpret this line of argumentation to imply  that the European Union need not show 
that Boeing in fact continues  to receive FSC/ETI benefits. Rather, the fact that the FSC/ETI 
benefits were available  to Boeing and, if it wished, Boeing could claim the benefits in the future, is 
sufficient to demonstrate that the subsidy has not been withdrawn.  
8.596.   We do not consider th at demonstrating that the FSC/ETI benefits were available to Boeing 
is equivalent to demonstrating that Boeing receives a subsidy within the meaning of 
Article  1.1(a)(1)(ii) of the SCM Agreement. Rather, the European Union must establish that Boeing 
actual ly received FSC/ETI benefits after 2006 in order to demonstrate that the subsidies continue 
to exist.  
8.597.   First, the European Union appears to argue that the opportunity to use a tax concession 
indicates that a benefit has been conferred under Article 1 .1(b) and therefore that eligibility for a 
tax concession of itself  indicates that a subsidy exists. This argument frames the issue as one 
relating to the conferral of a benefit  under Article 1.1(b) of the SCM Agreement . We consider, 
however, that the factual question of whether a recipient has "used" or taken advantage of a 
possible tax concession raises instead the threshold issue of whether there has been a financial 
contribution under Article 1 .1(a)(1)  of the SCM Agreement. Specifically, the issue is whether,  in 
the absence of the eligible recipient actually "using " a tax break, there is still a foregoing of 
revenue otherwise due within the meaning of Article  1.1(a) (1)(ii). Should the Panel find that, 
absent Boeing having actually received post -2006 FSC/ETI be nefits, there is no finan cial 
contribution, the European  Union 's benefit argument has no purchase.  
8.598.   Second, the original panel did examine the question of whether a financial contribution 
exists when the parties disagree as to whether a subsidy has been "used", albeit in the context of 
the Washington State tax measures. There, the panel found that, although a tax exemption was 
                                               
1794 European Union's re quest for the establishment of a panel, paras. 19 and 20; first written 
submission, para. 398.  
1795 European Union's second written submission, para. 542 and fn 887.  
1796 European Union's second written submission, para. 542 and fn 887.  WT/DS353/R W 
 
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  available to Boeing, Boeing had not "used" the exemption.1797 The panel noted that the 
European  Communities ' position was that the meas ure constituted, not a financial contribution in 
the abstract, but "a financial contribution to a specific entity, namely to Boeing ".1798 In light of this, 
in circumstances where the tax exemption was never claimed by Boeing, and where Boeing had 
taken steps to suggest  that it would not claim the exemption, the panel found there was no 
financial contribution to Boeing in relation to the measure.1799 The implication of this finding is 
that, with respect to that measure, the existence of the financial contribution turned on whether a 
tax concession was "used", not on whether the tax concession was "available ".  
8.599.   In our view, the same reasoning is applicable with respect to the present measures. The 
European Union 's claim is that the United States maintains tax exempt ions and tax exclusions 
under FSC/ETI and successor legislation that benefit Boeing specifically.1800 The European  Union 's 
evidence and arguments are directed at demonstrating that Boeing  has received eligible foreign 
income for which it continues to receive FSC/ETI tax benefits. Similarly, as the original panel found 
with respect to the Washington tax measure, the European Union 's case under Article 3 is that 
there are export -contingent subsid ies to Boeing .1801  
8.600.   We consider that the European Union must therefore  demonstrate that Boeing  used a tax 
concession in order for  a financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement  to 
be deemed to exist . If, however, Boeing does not continue to actually receive FSC/ETI benefits  on 
the eligible portions  of its foreign income, it receives no financial contribution within the meaning 
of Article 1.1(a)(1)(ii) of the SCM Agreement, which provides that:  
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:  
(a) (1) there is a financial contribution by a government or any public body within the 
territory of a Member (referred to in this Agreement as "government "), i.e. where:  
… 
(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal 
incentives such as tax c redits).  
8.601.   If a tax concession is made available, but the recipient identified in the complaining party's  
claim never uses or takes advantage of the concession , the recipient necessarily continues to pay 
the government revenue that is  otherwise  due. There is  no act of "foregoing " or "failure to collect " 
that revenue  on the part of the government. Nor is it possible for a potential  foregoing of revenue 
that is otherwise due to constitute a financial contribution. While Article 1.1(a)(1)(i) provides for a 
financial contribution to exist where there is a "potential direct transfer of funds ", there is no 
equivalent in subparagraph (ii).1802 
8.602.   This conclusion necessarily leads to the third question before the Panel, which is whether, 
weighing the evidence presented by t he European Union again st that presented by the 
United  States, Boeing actually has received tax exemptions  and exclusions  on the income 
generated from certain back -dated orders pursuant to the two grandfathered FSC/ETI provisions 
after 2006.  
8.603.   The European Union submits the  2006 IRS memorandum as evidence that Boeing remains 
eligible to receive FSC/ETI benefits through a prospective interpretation of the TIPRA repeal 
                                               
1797 See Panel Report, US – Large Civil Aircraft (2nd complaint) , paras . 7.140 -7.151. This finding was 
with respect to the Washington State sales and use tax exemption s for construction services and equipment. 
As the panel explained, "after reviewing all of the evidence, we accept the United States' position that Boeing 
has not claimed the sales and use tax exemption for construction services and equipment". (See Panel Report, 
US – Large Civil Aircraft (2nd complaint) , para. 7.144).  
1798 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras . 7.150 and 7.151. (emphasis original)  
1799 Panel Report, US – Large Civil Aircraft (2nd complaint) , para . 7.151.  
1800 European Union's request for the establishment of a panel, paras. 19 and 20.  
1801 European Union's first written submission, paras.  743-746. See Panel Report, US – Large Civil 
Aircraft (2nd complaint) , para. 7.150.  
1802 Whether taxpayers actually use various tax concessions for which they are legally eligible will 
depend on the particular situation of the taxpayer; including, among other  things, the existence of other tax 
concessions which they may also potentially use.  WT/DS353/R W 
 
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  provision.1803 In response to  the Panel's request for information pursuant to  Article 13  of the  DSU, 
the United States confirm s that the U.S. Internal Revenue Service has not issued any guidance 
superseding the guidance in that memorandum .1804 The European Union considers that, so long as 
the 2006 IRS memorandum has not been superseded or contradicted by any later regulations or 
guidelines, there is no basis on which to find that the United States has withdrawn the 
subsidies.1805 
8.604.   Further, the European Union submits the ITR FSC/ETI Report, which  identifies a list of 
orders  that the European Union and ITR  consider  to qualif y for continued FSC/ETI benefits.1806 The 
list was generated by identifying Boeing aircraft that were ordered before 1 January 2005, but not 
delivered until after 2011.1807 The European Union then identifies certain aircraft, the sales of 
which w ould generate foreign income eligible for the FSC/ETI ta x benefits .1808  
8.605.   The European Union also makes arguments addressing  the likelihood  of Boeing continuing 
to receive FSC/ETI benefits after 2006. The European Union points out that Boeing 's management 
has a fiduciary duty to its stockholders which compels it to take advantage of the tax concessions 
to which it is legally entitled, which include the FSC/ETI benefits.1809 The European  Union also 
points out that , while the U.S. G overnment is in a "unique position " to verify Boeing 's statements 
as to its corporate tax filings, it refuses to make a definitive verification, relying instead on 
Boeing 's statements as to its own practices and future intentions.1810 The European Union 
considers that the Panel should, having  reviewed the evidence it has presented, and in light of the 
above circumstances, draw an inference that Boeing takes advantage of the FSC/ETI tax benefits, 
and will continue to do so going forward.  
8.606.   The question before us is not whether FSC/ETI benefits ar e available to Boeing after 2006, 
but whether Boeing in fact received FSC/ETI benefits. We do not consider that the European Union 
establish es that Boeing does receive those benefits. The 2006 IRS memorandum is directed 
towards whether FSC/ETI benefits are  available to Boeing after 2006. The ITR FSC/ETI Report 
similarly  is directed towards demonstrating  only that Boeing received income after 2006 that was 
eligible  for FSC/ETI benefits. Both fall short of showing that Boeing in fact receives tax concessions 
which constitut e a foregoing by the U.S. Government of revenue that is otherwise due, within the 
meaning of Article 1.1(a)(1)(ii). Neither the 2006 IRS memorandum nor the ITR FSC/ETI Report is  
directed at this precise question.  
8.607.   The European Union's argumen ts concerning the likelihood that Boeing continued to 
receive FSC/ETI benefits after 2006, considered in conjunction with the European Union's 2006 
IRS memorandum and the ITR FSC/ETI Report, which go to the availability of the FSC/ETI benefit, 
are in our v iew insufficient to rebut the United States evidence, which does directly go to the 
question of whether Boeing continued to receive FSC/ETI benefits after 2006, and, in our opinion, 
constitutes a prima facie case that Boeing does not receive FSC/ETI benefi ts after 2006.   
8.608.   The United States ' evidence consists of statement s by James H. Zrust, Boeing 's Vice 
President of Tax , in July 2009 and December 2013, that Boeing did not receive any FSC benefits 
after 31 December 2006 and that Boeing does not intend to cla im any FSC benefits in the future, 
                                               
1803 2006 IRS memorandum, (Exhibit EU -406), p.  6.  
1804 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013,  response to question No. 46, para. 116.  
1805 European Union's second written submission, para. 534.  
1806 ITR FSC/ETI Report, (Exhibit EU -24). The list only includes orders that qualify for one aspect of the 
continued grandfather provisions. (See para. 8.580  above, and European Union's first written submission, 
para. 396).  
1807 The order and delivery information was obtained from Ascend Worldwide Limited, a "respected 
aggregator of public information on aircraft orders and deliveries". The Ascend data was tested against, and 
corresponded exactly with, aircraft data on actual deliveries that Boeing provides on its website. (See ITR 
FSC/ETI Report, (Exhibit EU -24), pp. 2 and 3).  
1808 The Boeing 777 and 787 are long -haul airc raft, which are used predominantly outside the United 
States so, according to the European Union, qualify as "export property", the sale or lease of which generates 
foreign income eligible for the FSC/ETI tax exemption s and exclusions . (See ITR FSC/ETI Rep ort, (Exhibit 
EU-24), attachment  1: Table of Pre -2005 Orders of Boeing LCA with Anticipated Delivery in 2012 and beyond, 
pp. 2 and 3).  
1809 European Union's first written submission, para. 400; second written submission, para. 543.  
1810 European Union's comment s on the United States' response to Panel question No. 33, para. 202.  WT/DS353/R W 
 
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  noting that Boeing's 2006 Annual Report states that 2006 will be the final year for recognizing any 
export tax benefits .1811  
8.609.   The United States also states that it reviewed the annual reports that Boeing submitted to 
the SEC  and that t hose reports do not record Boeing as having recogni zed FSC/ETI tax benefits 
after 2006.  
8.610.   The United States has consistently maintained that the Zrust statement s and Boeing 's 
reports to the SEC are accurate1812, and it is unclear what further steps it could take to verify its 
arguments .  
8.611.   In the absence of evidence submitted by the European Union that goes directly to 
the question before the Panel (whether FSC/ETI benefits were actually received by 
Boeing after 2006), and in light of the evidence prov ided by the United States that no 
such benefits were received, the Panel is not persuaded that the European Union has  
established that Boeing has continued to receive FSC/ETI subsidies in the post -2006 
period.  
8.2.5.4   Conclusion  
8.612.   The Panel concludes that the Europ ean Union has not established that, after the expiry of 
the implementation period, the United States grants or maintains subsidies to Boeing in the form 
of tax exemptions and tax exclusions pursuant to the FSC/ETI measures and successor legislation.  
8.2.6   Proper ty and sales t ax abatements provided through IRBs issued by the City of 
Wichita  
8.2.6.1   Introduction  
8.613.   In this Section  of the Report, we determine whether the United States grants or maintains 
specific subsidies to Boeing after the expiry of the implementation perio d through property and 
sales tax abatements provided through IRBs  issued on Boeing 's behalf by the City of Wichita , and 
has thereby failed to withdraw the subsidy within the meaning of Article 7.8 of the SCM 
Agreement .1813  
8.614.   In the original proceeding, these m easures were subject to DSB recommendations and 
rulings as specific subsidies that caused adverse effects.1814 In its Compliance Communication , the 
United States advise s that the "City of Wichita is applying its Industrial Revenue Bond ( "IRB") 
program in a ma nner consistent with Article 5(c) of the SCM Agreement. It has not provided any 
IRBs to Boeing since 2007. "1815 The last IRB issuance  to Boeing by the City of Wichita was in 2007.  
                                               
1811 Statement of J. H. Zrust, Vice President of Tax of the Boeing Company, 20 July 2009, (Exhibit 
USA-232); and Updated Statement of J. H. Zrust, Vice President of Tax of the Boeing Compa ny, 
3 December  2013,  (Exhibit USA -382).  
1812 United States' response to Panel question No. 33, paras . 144 and 145; response to the Panel's 
request for information pursuant to Article 13 of the DSU, dated 28 February 2013, response to question 
No. 47, para.  117.  
1813 For an explanation of the operation of IRB programmes and the IRBs issued on behalf of Boeing by 
the City of Wichita, see Section 7.5 above.  
1814 The original panel explained that IRBs are issued by cities an d counties in Kansas, on behalf of 
private entities, in order to assist private entities in raising revenue to fund the purchase, construction or 
improvement of various types of commercial and industrial property (referred to as "Project Property"). (Panel  
Report, US – Large Civil Aircraft (2nd complaint ), para. 7.651). As the original panel explained: "{i}n general, 
the relevant city, which in the case of Boeing and Spirit is the City of Wichita, acts as the 'issuer' of the IRBs. 
The IRBs are sold to the g eneral public for proceeds that the private entity, on whose behalf the IRBs are 
issued, uses to acquire or enhance Project Property. During the term of the IRB, legal title to the Project 
Property remains with the issuer (i.e. the City). The private entit y leases the property, making rent payments 
to the holders of the IRBs that are sufficient to pay the principal and interest on the IRBs. At the end of the 
term of the IRB, title to the Project Property transfers to the private entity involved." (See Panel  Report,  US – 
Large Civil Aircraft (2nd complaint ), para. 7.653 (fn omitted)).  
1815 United States' Compliance Communication, para. 10.  WT/DS353/R W 
 
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  8.615.   The European Union, in its panel request in this proceeding, challenges the tax  abatements 
provided to Boeing through these IRB issuances as one of the spe cific subsidies that the 
United  States maintains and which cause adverse effects:  
The State of Kansas and the City of Wichita maintain state and local property and 
sales tax abatem ents, pursuant to K.S.A. §§ 79 -201a, 79 -3606(d), and 79 -3640, that 
presently benefit Boeing in relation to the issuanc e of IRBs, pursuant to K.S.A. 
§ 12-1741, by the City of Wichita.1816 
8.616.   The primary point of difference between the parties is whether the IRB p rogramme 
continues to be de facto  specific within the meaning of Article 2.1(c) of the SCM Agreement. In 
particular, the parties disagree as to the period of time over which the Panel should determine 
whether the subsidy programme is specific. The European  Union considers that the Panel should 
determine whether the measure is specific over the entire period of time that the IRB programme 
has been available. The United States argues that, when assessed over a shorter, more recent 
period of time, the IRB prog ramme is no longer specific, and that the United States has therefore 
complied with Article 7.8 of the SCM Agreement because it no longer maintains a specific subsidy 
within the meaning of Articles 1 and 2.  
8.617.   The original panel found that the property tax ab atements for up to ten years on Project 
Property and sales tax exemptions on Project Property and services acquired with the proceeds of 
IRBs, constituted the foregoing of revenue otherwise due within the  meaning of 
Article  1.1(a)(1)(ii) of the SCM Agreeme nt.1817 The panel noted that Boeing had sold its Wichita 
facilities to Spirit Aerosystems (Spirit), on 16 June 2005.1818 However, for IRBs issued to Boeing 
prior to the sale of its Wichita facilities to Spirit, where the ten -year tax exemption period 
continued b eyond 2005, Boeing continued directly to receive the tax benefits deriving from the 
IRBs because Boeing maintained its leasehold interest in the Project Property and subleased the 
Project Property to Spirit.1819 The City of Wichita continued to issue IRBs to Boeing following the 
sale of the Wichita facilities to Spirit in 2005.1820 In January 2012, Boeing announced that it would 
close all of its Wichita operations by the end of 2013.1821 
8.618.   The original panel also found that the tax abatements granted pursuant to the I RB 
program me were de facto  specific within the meaning of Article 2.1(c) of the SCM Agreement.1822 
Specifically, the panel considered that evidence submitted by the European Communities showing 
that Boeing and Spirit had received approximately 69 % of all IRBs  granted by the City of Wichita 
between 1979 and 2005, while accounting for between 16 and 32 % of manufacturing employment 
in Wichita over that period, suggested that the IRB tax abatements granted to Boeing and Spirit 
were disproportionately large and the refore specific to certain enterprises within the meaning of 
Article 2.1(c) of the SCM Agreement.1823 The Appellate Body upheld the panel 's finding, but on the 
                                               
1816 European Union's request for the establishment of a panel, para. 21.  
1817 We recall the original panel's acknowledgement that  Kansas taxation legislation was amended such 
that, as of 1 July 2006, Kansas no longer assessed property tax on commercial and industrial machinery and 
equipment, where such machinery and equipment was purchased after 30 June 2006. Such machinery and 
equipment had not been subject to sales tax since 2000. Notwithstanding the foregoing, the panel found that 
the tax abatements in connection with the IRBs were still available in relation to a range of property: (a) 
commercial and industrial machinery and equi pment acquired before  30 June 2006; (b) property that was not 
commercial or industrial machinery or equipment; (c) improvements, repairs or remodelling of commercial and 
industrial machinery and equipment; (d) real property; and (e) a variety of machinery and equipment excluded 
from the sales tax exemption. Owing to this conclusion, the panel found that tax abatements granted in 
connection with the purchase of the foregoing categories of property with the proceeds of the IRBs involved the 
foregoing of reven ue otherwise due, and conferred a benefit on Boeing. (Panel Report, US – Large Civil Aircraft 
(2nd complaint) , paras. 7.707 -7.712). The categories of machinery and equipment excluded from the sales tax 
exemption are listed by the original panel at fn 2053 of its report.  
1818 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.649.  
1819 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.662. While the European 
Communities had also challenged the IRBs issued directly to Spirit as providin g a specific subsidy to Boeing, 
the panel found that the European Communities had failed to demonstrate that the benefit of such subsidies 
was passed -through to Boeing at the time of the sale of Boeing Wichita to Spirit. (See Panel Report, US – Large 
Civil Aircraft (2nd complaint) , paras. 7.818 and 7.889).  
1820 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.663.  
1821 A.G. Sulzberger, "Boeing Departure Shakes Wichita's Identity as Airplane Capital", New York Times , 
18 January 2012,  (Exhibit USA -338). 
1822 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.779.  
1823 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.769 and 7.770.  WT/DS353/R W 
 
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  basis of different reasoning as to the relevance of the share of employment of Boeing and Spirit 
within the Wichita economy from the question of whether the grant of subsidies to those entities 
was "disproportionately " large.1824  
8.2.6.2   Main arguments of the parties  
8.619.   The European Union  considers that the subsidy to Boeing continues to be specific within 
the meani ng of Article 2.1(c) of the SCM  Agreement . The European Union submits evidence 
showing that , during the 1979 to 2012 period , the City of Wich ita issued a total of 
USD 6.737  billion in tax -exempt IRBs, of which USD 3.576 billion (or 53%  of the total amount)  
was granted to Boeing, and approximately USD 3.963 billion (or approximately 59%  of the total 
amount) was granted to Boeing and Spirit combined.1825 
8.620.   The European Union notes that in evaluating whether the subsidy at issue was specific 
within the meaning of A rticle 2.1(c), the original panel took account of the distribution of the 
subsidy during the entire life of the IRB program me, and the Appellate Body performed its own 
review of specificity in view of the allocation of tax benefits over the 25 year period between 1979 
and 2005.1826 As there has been no significant change in the structure of the Wichita  economy and 
the importance of the subsidized activities in th at economy since 2007, there is nothing to justify a 
change of focus in assessing specificity to a period shorter than the entire life of the Wichita IRB 
program me.1827 
8.621.   The United States argues that it is applying the IRB programme in a manner consistent 
with the SCM Agreement because the subsidy is no longer specifi c within the meaning of 
Article  2.1(c) o f the SCM Agreement .1828 The United States considers that, because the IRB 
programme is no longer specific, it has withdrawn the subsidy within the meaning of Article 7.8 of 
the SCM Agreement.1829 
8.622.   The United States notes that, according to the European Union 's own evidence, of the total 
amount of IRBs issued since 2007 , Boeing has received 0% (since no new IRBs have been issued 
to Boeing since that year) and Spirit has only received 12.6%. There is no basis to consider such 
an amount to be disproportionately larg e.1830  
8.623.   The United States considers that, according to the original panel, where there has been a 
significant change in the structure of the economy, including the importance of the subsidi zed 
activities in the economy, it may not be appropriate to assess spe cificity over the entire period of 
time that the subsidy has been available. Instead, it would be more probative to assess specificity 
over a more limited period, corresponding to when such a change in the structure of the economy 
occurred.1831 The United Sta tes submits evidence that, due to changes in the structure of the 
Wichita economy, the importance of aircraft manufacturing has reduced considerably. Because of 
this, the Panel should assess specificity over a more recent period, rather than over the whole  
period that the subsidy has been available.  
                                               
1824 The Appellate Body examined the United States' arguments that the 69% figure was proportionate  
because of the lack of diversification in the Wichita economy, but concluded that the United  States had not 
provided sufficient reasons supported by evidence to undermine the assessment that the granting to Boeing 
and Spirit of 69% of the amounts of IRB s ubsidy represented "an allocation at variance from what would have 
been expected from the allocation of IRBs in accordance with their conditions for eligibility ". (Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint) , paras. 888 and 889).  
1825 European Union's first written submission, para. 424 (referring to Sorted List of Wichita IRBs, 
1979-2012, (Exhibit EU -426)); second written submission, para. 554. The European Union's submissions 
consistently refer to the period 1979 -2012, however the eviden ce it submits in fact only contains data up until 
2011.  
1826 European Union's second written submission, paras. 558 and 559.  
1827 European Union's second written submission, para. 559.  
1828 United States' first written submission, para. 525; second written submis sion, para. 483.  
1829 As the United States explains in its second written submission, it "does not assert that the measure 
has been withdrawn simply because Boeing has not been granted IRBs since 2007. The measure has been 
withdrawn because IRBs no longer con stitute a specific subsidy." (See United States' second written 
submission, para. 484. See also United States' opening statement at the meeting with the Panel, para. 97).  
1830 United States' first written submission, para. 525.  
1831 United States' second writte n submission, paras. 485 and 486 (citing Panel Report, US – Large Civil 
Aircraft (2nd complaint) , para. 7.757).  WT/DS353/R W 
 
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  8.2.6.3   Evaluation  by the Panel  
8.624.   We note that the parties do not dispute that the  property and sales  tax abatements 
provided to Boeing in connection with the City of Wichita IRBs  constitute  subsidies  within the 
meaning  of Article 1 of the SCM Agreement. The European Union has submitted evidence setting 
out the yearly amounts of such tax abatements, which is not contested by the United States.1832 
According to this evidence, Boeing has received USD 7,348,500 in property and  sales tax 
abatements between 2012 and 2014.1833 
8.625.   The contentious issue between the parties is whether the subsidy provided to Boeing is 
specific. The European Union, as in the original proceeding, does not attempt to argue that the 
subsidy is de jure  specific  under Article 2.1(a) of the SCM Agreement. As the original panel found, 
it is clear that the IRB programme is not expressly limited to certain enterprises.1834 Rather, the 
European Union argues that the subsidy is de facto  specific under Article 2.1(c), on t he basis that 
certain enterprises, in this case Boeing and Spirit , have received a disproportionately large amount 
of the subsidy.1835  
8.626.   Article 2.1(c) requires a panel to determine whether a subsidy which, although on the face 
of the measure appears to be wid ely available, is nonetheless allocated in a m anner that belies the 
apparent  neutrality of the measure.1836 Article 2.1(c) sets out a series of factors that indicate 
whether "there are reasons to believe that the subsidy may in fact be specific ". These includ e, 
inter alia , the granting of "disproportionately large amounts " of the subsidy to certain enterprises. 
Article 2.1(c) also provides that, in applying the provision, account shall be taken of the extent of 
diversification of the economic activities within  the jurisdiction of the granting authority, as well as 
the length of time during which the subsidy program me has been in operation.  
8.627.   The key point of disagreement between the parties is the period of time over which the 
Panel should assess specificity. Th e European Union argues that the Panel should assess specificity 
over the entire period the subsidy has been available, during which Boeing received 53 %, and 
Boeing and Spirit together 59 %, of the subsidy.1837 The United States argues that there has been a 
change in the structure of Wichita 's economy, and the Panel should only assess specificity in the 
period since that change. Because there have not been any IRBs issued to Boeing  since 2007, 
assessing specificity over a shorter, more recent period of time cau ses the percentage of the 
subsidy received by Boeing and Spirit to fall considerably.1838 
8.628.   Both parties ' approach es to specificity involve a determination of  whether Boeing and Spirit 
received a disproportionate percentage of the total amount of IRBs issued. W e recall, however, 
that the IRBs themselves do not constitute the subsidy; the tax abatements granted on property 
purchased using the IRBs constitute the subsidy. Therefore, strictly speaking, assessing whether 
Boeing and Spirit have received a disprop ortionate amount of the subsidy  should be based on  the 
amount of the tax abatements Boeing and Spirit have received, relative to the amount of tax 
abatements that all other IRB recipients have received.  
8.629.   The original panel reconciled using the IRB amounts to d etermine specificity on the basis 
that: 
To the extent that other IRB recipients received tax abatements of the same 
percentage value under the terms of their IRB issuances as Boeing and Spirit, namely 
100 per cent tax abatements, the value of the IRBs issu ed is a good proxy for the 
                                               
1832 Mayor Brewer's Statement on Boeing Announcement , City of Wichita Web Document, 
4 January  2012 (Brewer Statement), (Exhibit EU -418).  
1833 Brewer S tatement, (Exhibit EU -418).  
1834 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.743.  
1835 The Panel includes the amounts granted to Spirit in its assessment of specificity even though it has 
not found that subsidies provided to Spirit "passed t hrough" to Boeing. This is because a subsidy may be de 
facto specific under Article 2.1(c) by virtue of being granted in disproportionate amounts to "certain 
enterprises". The Panel has taken Boeing and Spirit together to constitute "certain enterprises". The 
United  States acknowledges that the amounts of the subsidy granted to Spirit are relevant to the Panel's 
specificity finding. (See United States' first written submission, para . 525).  
1836 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 877.  
1837 European Union's first written submission, para. 424; second written submission, para. 554.  
1838 List of All City of Wichita IRBs, 1994 -2012, provided by the City of Wichita, (Exhibit EU -420).  WT/DS353/R W 
 
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  amount  of the subsidy. This is because the value of the IRBs represents the value of 
the property that may be purchased and consequently subject to the tax abatement. 
To the extent that all tax abatements under the IRBs are of th e same percentage 
value, the value of the property purchased will be in proportion to the value of the tax 
abatement.1839 
8.630.    In other words, where Boeing uses the amount of an IRB to purchase Project Property it 
then receives a tax abatement, the value of which  is based on the value of the property. There is 
therefore a directly proportionate relationship between the value of the tax abatement  and the 
value of the IRB such that the IRB figures presented by the European Union can be used as a 
"proxy " to calculate  the percentage of the tax abatements (that is, the percentage of the subsidy) 
received by Boeing and Spirit, for the purposes of determining whether these enterprises have 
received a disproportionate amount of the subsidy.  
8.631.   We consider that this reasoning  is applicable in the current proceeding, and that it has 
necessary implications for the time -period over which the Panel assesses specificity.  
8.632.   Boeing has received IRB s every year from 1979 to 2007. Each year that Boeing received 
IRBs it purchased Project  Property, in respect of which it received a tax abatement for the 
following ten years. So, for Project Property purchased with IRB s granted in 2007, Boeing receives 
ten, annual  tax abatements, from 2008 until 2017. Up until 2008, therefore, Boeing receive d ten 
separate tax abatements each year, pursuant to the ten preceding years that it had purchased 
Project Property with IRB funds. Because 2007 was the last year in which Boeing received IRB s, 
however, each subsequent year Boeing receives one less tax aba tement. In 2017, Boeing is due to 
receive a single tax abatement on Project Property purchased with IRB issuance  in 2007.1840 
8.633.   To recall, the value of each yearly tax abatement bears a proportionate relationship to the 
amount of the IRB s used to purchase the P roject Property for which the tax abatement s are 
received. Therefore, the tax abatement that Boeing receives in 2017 bears a proportionate 
relationship to the IRB s it received in 2007. The sum of the two tax abatements Boeing receives in 
2016 bear s a propo rtionate relationship to the sum of the IRBs it received in 2007 and 2006, the 
three it receives i n 2015 to the IRBs received in 2005, 2006 , and 2007, and so on.  
8.634.   The original panel  justified using the actual IRB figures as a proxy for the amount of the 
tax abatements  when assessing the percentage of the subsidy received by Boeing and Spirit for 
the purposes of a specificity analysis , on the basis that the two sets of figures bore a directly 
proportionate relationship to each other. In the original proceedi ng, the European Communities  
challenged the entirety of the subsidy received by Boeing since the inception of the IRB 
program me in 1979, so it was consistent with the scope of that challenge for the panel  to use the 
entirety of the IRBs granted to Boeing b etween 1979 and 2005 as an approximation for the value 
of the subsidy in its specificity analysis. In this proceeding, however, the relevant financial 
contribution is that which was granted after the end of the implementation period. In other words, 
we are  concerned only with those tax abatements granted to Boeing from 2013 onwards.  
8.635.   Therefore, it is not consistent with the above reasoning to assess specificity using the IRB 
figures from the entire period that the IRB program me has been in existence, becaus e these 
figures do not bear a proportionate relationship to the amount of the tax abatements  provided to 
Boeing after the end of the implementation period. Rather, the amount  of the tax abatements 
Boeing receives after 2012 was determined by the value of t he IRBs that were granted from 2002 
onwards. We therefore will assess whether the subsidy is de facto  specific by determining what 
percentage of the total amount of IRBs provided from 2002 onwards was granted to Boeing and 
Spirit.  
8.636.   Based on the evidence su bmitted by the European Union, from 2002 onwards , Boeing and 
Spirit received 32 % of the total amount of IRBs issued.1841 We note that this is considerably 
                                               
1839 Panel Report, US – Large Civil Aircraft  (2nd compla int), para. 7.756.  
1840 This pattern of tax abatements is set out in table form in the Brewer Statement, (Exhibit EU -418).  
1841 The figure of 32% was obtained by comparing the total amount of IRBs issued from 2002 onwards 
to Boeing and Spirit (USD 681 million) w ith the total amount of IRBs issued from 2002 onwards 
(USD  2.15 billion). The figures of USD 681 million and USD 2.15 billion were obtained by adding the amounts WT/DS353/R W 
 
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  reduced from the original proceeding, where the panel found that Boeing and Spirit had received 
69% of the total amount.  
8.637.   The IRB program me remains open to any enterprises that seek to purchase, construct, or 
improve various types of commercial or industrial property.1842 The availability of the IRB 
program me is therefore somewhat restricted to entities with th e capacity and inclination to make 
such investments. With this in mind, we do not consider that Boeing and Spirit 's receipt of 32 % of 
the total amount of IRBs issued indicates a distribution of the subsidy that is at odds with what 
one would expect were th e IRB program me to be administered in accordance with the SCM 
Agreement.1843 
8.638.   In light of the foregoing considerations, we find that, after the expiry of the 
implementation period the subsidies provided  to Boeing in the form of property and sales tax 
abatement s related to IRBs issued by the City of Wichita  have not been specific within the 
meaning of Article 2.1(c) of the SCM Agreement.  
8.639.   A measure which satisfies the definition of a subsidy but is not specific is not inconsistent 
with the provisions of Part III  of the SCM Agreement. As discussed in Section 6 of this Report, we 
consider that "withdrawal" for the purposes of Article 7.8 should be interpreted in accordance with 
whether a Member State has brought a measure into conformity with the SCM Agreement. By 
reducing considerably the proportion of the subsidy programme received by Boeing after the end 
of the implementation period, the United States has brought the measure into conformity with the 
SCM Agreement because, as a non -specific -subsidy, the measure is  no longer subject to the 
provisions of Part III of the SCM Agreement.1844 
8.2.6.4   Conclusion  
8.640.   In light of our above findings with respect to IRBs issued by the City of Wichita, we 
conclude that the European Union has not established that, after the expiry of the impl ementation 
period, the property and sales tax abatements provided through these IRBs are subsidies that are 
specific within the meaning of Article 2 of the SCM Agreement . We therefore conclude  that these 
subsidies therefore are no longer subject to the pro visions of Part III of the SCM Agreement . 
8.2.7   Washington state and local measures  
8.2.7.1   Whether the Washington state and local measures constitute specific subsidies 
within the meaning of Articles 1 and 2 of the SCM Agreement  
8.2.7.1.1   Introduction  
8.641.   In this Section of the Repo rt, we evaluate whether the Washington state and local 
measures that are within the scope of this proceeding1845 (hereafter the Washington tax measures ) 
constitute specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement , and 
whether by granting or maintaining any such subsidies, the United States has failed to withdraw 
the subsidies within the meaning of Article 7.8 of the SCM Agreement. Specifically, we address  the 
following : 
a. Washington State B&O tax rate reduction for the aerospace ind ustry;  
                                                                                                                                               
appearing in the column "AMT ISSUED" for the years 2002 to 2012. (See List of all City of Wich ita IRBs, 
1994-2012, provided by the City of Wichita, (Exhibit EU -420)).  
1842 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.651 -7.656.  
1843 We note in this regard that the European Union bears the burden of demonstrating that the subsidy 
is specific , within the meaning of Article 2.1(c).  
1844 We note that the European Union also argues that the subsidies provided to Boeing through the tax 
abatements associated with the City of Wichita IRBs are specific pursuant to Article 2.3 of the SCM Agreeme nt. 
We recall that we have found in Section 7.6.2  of this Report that the European Union's claims under 
Articles  3.1 and 3.2 of the SCM Agreement are not within the scope of this proceeding with respect to the t ax 
abatements related to the City of Wichita IRBs. We therefore reject the European Union's argument that these 
subsidies are specific pursuant to Article 2.3 of the SCM Agreement.  
1845 See Section 7.2.1  above for our rulings regarding the Washington state and local measures that are 
within the scope of this proceeding.  WT/DS353/R W 
 
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  b. Washington State B&O tax credit s for preproduction/aerospace product development, as 
amended by section 7 of SSB 6828;  
c. Washington State B&O tax credit for property taxes, as amended by HB  2466 to include 
leasehold excise taxes;  
d. Washington State sale s and use tax exemptions for computer  hardware , software, and 
peripherals ; and  
e. City of Everett B&O tax rate reduction.  
8.642.   The four Washington State tax measures above were first enacted in Washington State 
under HB 2294 in 2003.1846 The City of Everett B&O tax r ate reduction  is a local measure that  was 
enacted in 2004 under Ordinance 2759.1847 All five measures were at issue in the original 
proceeding, and were found to constitute specific subsidies within the meaning of Article 1 and 2 of 
the SCM Agreement.1848 Of the se subsidies, however, only the Washington State B&O tax rate 
reduction was affirmatively found to cause ser ious prejudice at the end of  the original 
proceeding.1849 For the remaining subsidies, the Appellate Body overturned the panel 's finding that 
the subsi dies did not cause serious prejudice , but then was unable, or was not requested, to 
complete the analysis.1850  
8.643.   The European Union claim s that the United States has failed to withdraw the subsidy within 
the meaning of  Article 7.8 of the SCM Agreement because,  through the Washington state and local 
measures, the United States maintains specific subsidies within the meaning of Articles 1 and 2 of 
the SCM Agreement.1851 In its Compliance Communication , the United States asserts that the 
State of Washington is applyi ng B&O tax rates for aerospace manufacturing and retailing 
consistently with Article 5(c) of the SCM Agreement.1852  
8.2.7.1.2   Main arguments of the parties  
8.644.   The European Union  argues  that the Washington State B&O tax rate reduction , B&O tax 
credits for preproduction/ae rospace product development, B&O tax credits for property taxes and 
leasehold excise taxes, sales and use tax exemptions for computer  hardware , software, and 
peripherals , and the City of Everett B&O tax rate reduction , continue to provide specific subsidie s 
to Boeing within the meaning of Articles 1.1 and 2.1(a) of the SCM Agreement, consistent with the 
findings in the original proceeding and thus have not been withdrawn.1853  
8.645.   As to whether the Washington State B&O tax credit for leasehold excise taxes involve s a 
financial contribution to Boeing, the European Union argues that this measure is an "expansion " of, 
and operates in precisely the same manner as, the B&O tax credit for  property tax es, which the 
original panel  found was a specific subsidy.1854 In response  to the United States ' argument that 
Boeing has never claimed the B&O tax credit in respect of leasehold excise taxes , the 
Europe an Union argues that it has met its burden by : (a) identifying property being leased by 
Boeing that is subject to the Washingto n State leasehold excise tax es; and ( b) identifying the 
                                               
1846 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.41 -7.43.  
1847 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.30 6-7.308.  
1848 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.302 and 7.354. These findings were 
not disturbed on appeal. The B&O tax credit for property taxes was before the original panel prior to the 
amendment under HB 2466 to extend the availability of the credit to leasehold excise taxes.  
1849 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1801 -7.1824 (with respect to the 
Washington State B&O tax rate reduction and the City of Everett B&O tax rate reduction); and 7.1825 -7.1828 
(with respect to the preproduction tax credit, the property tax credit and the sales and use tax exemption).  
1850 Appellate Body Report, US – Large Civil Aircraft  (2nd complaint) , paras. 1245 -1273 (with respect to 
the Washington State B&O tax rate red uction and the City of Everett B&O tax rate reduction); and 1331 -1346 
(with respect to the preproduction tax credit, the property tax credit and the sales and use tax exemption). For 
a more detailed explanation of the Appellate Body's findings with respect  to the Washington tax measures, see 
paras. 7.46-7.51 above . 
1851 European Union's request for the establishment of a panel, para. 17.  
1852 United States' Compliance Commu nication, para. 9.  
1853 European Union's first written submission, paras. 430 -474. 
1854 European Union's first written submission, paras. 475 -491. WT/DS353/R W 
 
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  value  to Boeing  of the B&O tax credit for leasehold excise tax es.1855 Further, the European Union 
submits a Washington State document indicating the value of the se tax  credits.1856 The 
European  Union consid ers that the b urden has shifted to the United  States to demonstrate that 
Boeing is not receiving th is subsidy.  
8.646.   The United States  does not dispute that the Washington State B&O tax rate reduction , B&O 
tax credits for preproduction/aerospace product develop ment, B&O tax credits for property taxes, 
sales and use tax exemptions for computer  hardware , software, and peripherals , and the City of 
Everett B&O tax rate reduction  continue to provide specifi c subsidies. Rather, the United  States 
argues that they are b eing applied  consistently with Article 5(c) of the SCM Agreement because 
the subsidies are too small to cause adverse effects.1857 The United States also argues that the 
Washington State B&O tax credit for leasehold excise taxes does not constitute a financia l 
contribution within the meaning of 1.1(a)(1)(ii) of the SCM Agreement as Boeing does not claim 
the B&O tax credit for leasehold excise taxes.1858 According to the United  States, the 
European  Union cannot fulfil its burden of proof by establishing that Boein g is eligible  to claim the 
credit. The European Union must show that Boeing claimed  the credit, which it did not.1859  
8.2.7.1.3   Evaluation by  the Panel  
8.647.   In Section  7.2 of this Report, we explain that the Washington State B&O tax credit for 
property taxes, as modified by HB 2466 to additionally be available for leasehold excise taxes, is in 
our view a single measure, the availability of which has simply been modified by HB 2466.1860 This 
being so, we do not consider it necessary for the European  Union to demonstrate that the B&O tax 
credit for leasehold excise taxes exists as  a self-standing financial contribution, distinct from and 
additional to the financial contribution that the original panel found existed in respect of the 
original Washingto n State B&O tax credit  for property taxes  prior to its amendment by HB 246 6. 
This being so , the United States ' argument that Boeing has never claimed the B&O tax credit with 
respect to leasehold excise taxes does not go to the "existence " of the B&O tax cr edit for leasehold 
excise taxes as a financial contribution, distinct from the B&O tax credit for property taxes. Rat her, 
the issue of whether  Boeing has claimed the B&O tax credit in respect of leasehold excise taxes 
concerns the overall amount of revenue  otherwise due which has been foregone in relation to the 
B&O tax credit, available for both property taxes and leasehold excise taxes.   
8.648.   Each of the Washington state and local  measures that this Panel has found to be within the 
scope of this proceeding has  previously been found by the original panel to constitute a specific 
subsidy within the meaning of Articles 1 and 2 of the SCM Agreement; namely:  
a. Washingt on State B&O tax rate reduction  for the aerospace industry;  
b. Washington State B&O tax credits for pre production/aerospace product development, as 
amended by section 7 of SSB 6828;  
                                               
1855 European Union's second written submission, para. 582 (citing European Union's first written 
submission, paras. 4 85-487); and Snohomish County Council Lease Approval, Dreamlifter Land and Building 
Lease (25 July 2012), (Exhibit EU -447), exhibit C.  
1856 European Union's second written submission, para. 582; Washington State Department of Revenue, 
2012 Tax Exemption Study : A Study of Tax Exemptions, Exclusions, Deductions, Deferrals, Differential Rates 
and Credits for Major Washington State and Local Taxes , (January 2012), (Exhibit EU -435); and Washington 
State Subsidies to Boeing's LCA division, (Exhibit EU -38). The Europ ean Union notes that the United  States did 
not respond to the Panel's request for "information and documents demonstrating whether Boeing leases 
buildings or land meeting the criteria for this tax credit", nor did it assert that Boeing did not lease any 
buildings or land meeting the criteria for this tax credit. (See European Union's second written submission, 
para. 583 (citing United States' response to the Panel's request for information pursuant to Article 13 of the 
DSU, dated 28 February 2013, response to question No. 53, para. 123; and United States' communication in 
response to the Panel's request for information pursuant to Article 13 of the DSU, dated 22 March 2013 
(Exhibit USA -176) (responding to question No. 53)) ).  
1857 United States first written su bmission, paras. 494 -509; and second written submission, 
paras.  465-474.  
1858 United States' first written submission, para. 510 (citing United States' communication in response 
to the Panel's request for information pursuant to Article 13 of the DSU , 22 Mar ch 2013, (Exhibit USA -176), 
p. 2). 
1859 United States' second written submission, para. 477.  
1860 See para. 7.10 above . WT/DS353/R W 
 
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  c. Washington State B&O tax credit for property taxes, as amended by HB 2466 to include 
leasehold excise taxes;  
d. Washington State sales and use tax exemptions for computer  hardware,  software,  and 
peripherals ; and  
e. City of  Everett B&O tax rate reduction . 
8.649.   We see no basis for revisiting the origina l panel's conclusions that the  Washington state 
and local measures  identified in paragraph 8.641  above  are speci fic subsidies.1861 
8.2.7.2   Amount of the subsidy  
8.650.   The parties disagree in several respects as to the amounts of the various Washington state 
and local subsidies . Each party provides estimates of the alleged amounts in question from 2007 to 
2011-2012, as well as projec tions of the amounts of subsidies from 2012 -2013 through 2023 or 
2024, whenever the tax subsidy was originally set to expire.1862  
8.2.7.2.1   Main a rguments of the parties  
8.651.   The European Union  presents separate estimates for the amount s provided, or forecast to 
be provide d, by each of the five Washington tax subsidies, between 2007 and 2024. It relies on a 
number of different sources to support its estimates, depending not only on the particular subsidy, 
but also on the time -period over which it is estimating the amount.   
8.652.   For the Washington State B&O tax rate reduction , the European Union estimates the 
amounts as being approximately USD 350.1 million between 2007 and 2011, USD 94.4 million in 
2012 and a further USD 2. 53 billion  between  2013 to 20241863 (or USD 210.8 million an nually ).1864 
This amounts to an estimated tax reduction of USD 2.62 billion from 2012 to 2024 . For the figures 
from 2007 to 2011, the European Union relies on the same evidence that the original panel used 
to calculate the amount of th is subsidy , which is a s preadsheet provided by the Washington State 
Department of Revenue  dated from 2005  and a Washington St ate presentation from 
September  2003.1865 For the estimate s for the annual amounts for  2012 until 2024 , however,  the 
European Union relies on a report prepare d by International Trade Resources (ITR Report).1866  
                                               
1861 We note that the European Union also argues that these Washington state and local measures are 
specific pursuant to Article 2.3 of the SCM Agreement. We recall that we have found in Section 7 of the Report 
that the European Union's claims under Articl es 3.1 and 3.2 are not within the scope of this proceeding with 
respect to these Washington state an d local measures. We therefore do not further address  the 
European  Union's argument that these subsidies are specific pursuant to Article 2.3 of the SCM Agreement.  
1862 The City of Everett B&O tax rate reduction is available until 2023. All the remaining Wash ington 
state and local subsidies were originally available until 2024. We note that on 11 November 2013, the 
Washington State Legislature passed SSB 5952, which extends the tax measures in HB 2294 from 1 July 2024 
until 1 July 2040, contingent upon Boeing siting the production of the 777X in Washington State. In our 
preliminary ruling of 18  September 2014, we declined to include this extension within the scope of this 
proceeding. (See Reasons for Declining the European Union's Request for Leave to File an A dditional 
Submission Regarding SSB 5952 at Section 7.7). Our findings on amount therefore cover only the period over 
which the Washington state and local subsidies were originally planned to be available, and on ly address the 
Washington state and local subsidies granted with respect to aircraft for which Boeing currently receives 
revenue; i.e. that are currently being delivered. The 777X is yet to enter fully into production, and first 
deliveries of the 777X are not scheduled to begin until 2020 . (See Ascend data base, Deliveries made, data 
request as of 22 September 2015, (Exhibit EU -1660)).  
1863 European Union's first written submission, para. 430.  
1864 Washington State Subsidies to Boeing's LCA Division, (Exhibit EU -38). 
1865 European Union's first written submission, para s. 430 and 439  and fn 1094; Panel Report, US – 
Large Civil Aircraft (2nd complaint) , paras. 7.216 -7.220 and 7.252 -7.258; "Washington State and the Boeing 
Company: Working Together for the Boeing 7E7 Dr eamliner", Continuing Support and Collaborative Actions, 
Presentation at Greenville, SC, September 2003 (Washington State presentation), (Exhibit EU -427); 
Washington State Department of Revenue Final HB 2294 Fiscal Note – 20-Year Spreadsheet, Commercial 
Airplane/Component Industry Tax Incentives (Washington State spreadsheet), (Exhibit EU -428); and 
Washington State Subsidies to Boeing's LCA Division, (Exhibit EU -38). 
1866 European Union's first written submission, para. 4 40; International Trade Resources Repor t, 
Estimated Value of Washington State 's B&O Tax Rate Reduction for Boeing 's Civil Aircraft Division WT/DS353/R W 
 
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  8.653.   With respect to the Washington State B&O tax credits for both preproduction/aerospace 
product development and property taxes , the European Union originally submitted its own amount 
estima tes.1867 These estima tes were also based on both the evidence used by the original panel, 
and a 2012 study by Washington State Department of Rev enue which purports to estimate the 
taxpayer savings that would accrue from eliminating certain tax exemptions (the 2012 Study ).1868 
The European Union subsequently adopted the United States ' estimates of the amounts of these 
subsidies, noting that the United States ' estimates were in fact higher than its own .1869 The 
European Union also uses the 2012 Study as evidence for its estimate of the  amount , between 
2012 and 201 5, of the portion of the Washington State B&O tax credits in respect of leaseho ld 
excise taxes  (which only became available in 2012).1870 From 2016 until 2024, the European Union 
notes that Boeing leases the Dreamlifter Operations  Center in Washington State. It estimates what 
Boeing is eligible to receive from the subsidy by calculating Boeing 's yearly rent for those facilities, 
and then calculating what Boeing should receive based on the rate reduction provi ded by the B&O 
tax credit.1871 
8.654.   For the Washington State sales and use tax exemption s, the European Union relies on the 
same evidence used by the panel for the amount findings in  the original proceeding, but for the 
periods 2007 to 2011 and 2016 to 2024.1872 For the intervening years ; i.e. 2012 -2015 inclusive, 
the European Union relies on the 2012 Study.1873 The European Union justifies this departure from 
the estimates on which the original panel relied for the 2012 -2015 period on the basis that the 
2012 Study shows that the other materia l available to the European Union significantly 
undervalues the benefit to Boeing from these tax exemptions. The European Union accordingly 
estimates on the basis of the 2012 Study (based on the assumption that Boeing receives 80% of 
the total value of the se tax exemptions to the aerospace industry) that the amount  of this subsidy 
to Boeing was USD 9.83 million, 11.52 million, 13.02 million and 13.69 million in 2012, 2013, 
2014, and 2015, respectively.1874  
8.655.   Finally, with respect to the City of Everett B&O tax rate reduction , the European Union also 
uses the evidence relied on by the original panel for its estimate of the amount  of the subsidy from 
2007 to 2011.1875 For the period from 2012 to 2023, the European Union bases its estimate on 
figures received from the  City of Everett representing the total amount of tax revenue received 
(and forecast to be received) by the City of Everett from Boeing.1876 The European Union works 
backwards from this figure to calculate  the value of this tax rate  reduction to Boeing.1877 The 
                                                                                                                                               
(2012 -2024) , (1 March 2013) (ITR Report), (Exhibit EU -25); and Washington State Subsidies to Boeing's LCA 
Division, (Exhibit EU -38). 
1867 European Union's fir st written submission, para. 453 and fns 1139 -1144.  
1868 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.217, 7.257 and fn 1416; 
Washington State presentation, (Exhibit EU -427); Washington State spreadsheet, (Exhibit EU -428); 
Washington Stat e Department of Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions, Exclusions, 
Deductions, Deferrals, Differential Rates and Credits for Major Washington State and Local Taxes , 
(January  2012), (Exhibit EU -435); and Washington State Subsidies to Boeing's LCA Division, (Exhibit EU -38). 
1869 European Union's second written submission, paras. 575 -577. 
1870 European Union's first written submission, para. 487; Washington State Department of Revenue, 
2012 Tax Exemption Study: A Study of Tax Exemptions, Exclu sions, Deductions, Deferrals, Differential Rates 
and Credits for Major Washington State and Local Taxes , (January 2012), (Exhibit EU -435).  
1871 European Union's first written submission, para. 485; Snohomish County Council Lease Approval, 
Dreamlifter Land and  Building Lease (25 July 2012), (Exhibit EU -447), exhibit C.  
1872 European Union's first written submission, paras. 496 and 497; Panel Report, US – Large Civil 
Aircraft (2nd complaint) , para. 7.258; Washington State presentation, (Exhibit EU -427); Washington State 
Subsidies to Boeing's LCA Division, (Exhibit EU -38); and Washington State Department of Revenue, 2012 Tax 
Exemption Study: A Study of Tax Exemptions, Exclusions, Deductions, Deferrals, Differential Rates and Credits 
for Major Washington State and Loc al Taxes  (January 2012), (Exhibit EU -435).  
1873 European Union's first written submission, para. 497; and Washington State Department of 
Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions, Exclusions, Deductions, Deferrals, 
Differential Rates and Cr edits for Major Washington State and Local Taxes , (January 2012), (Exhibit EU -435).  
1874 European Union's first written submission, para. 497.  
1875 European Union's first written submission, paras. 512 and 513 (referring to Panel Report, US – 
Large Civil Aircraf t (2nd complaint) , para. 7.353; and State and Local Subsidies to Boeing LCA Division (Original 
Exhibit EC -27), (Exhibit EU -451), "City of Everett Local B&O Tax Rate Reduction" row and fn 14 (explaining 
methodology)) . 
1876 European Union's first written submis sion, paras. 514 -516; Forecast of Boeing's Gross Revenue and 
Taxation in the City of Everett, and accompanying note from City of Everett August 2012 FOIA Response, 
(Exhibit EU -450).  
1877 City of Everett's B&O Tax Rate Reduction Estimates for 2012 -2023, (Exhib it EU-452).  WT/DS353/R W 
 
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  European Union notes that the United States only provides figures for the total amount of tax 
revenue to be paid by Boeing, and does not actually present a calculation, based on these figures, 
of the amount  of the subsidy  to Boeing.1878 The European Union  also considers that the 
United  States ' estimates cannot be authenticated and should not be relied upon.1879 
8.656.   The United States  bases its estimates of  the amount of the Washington State B&O tax rate 
reduction, B&O tax credits for preproduction/aerospace product de velopment, B&O tax credits for 
property taxes and leasehold excise taxes, and sales and use tax exemptions for computer  
hardware , software, and peripherals  on figures  contained in Exhibit USA -264 (BCI), which it states 
are the calculations and estimates of  the Washington State Department of Revenue of the value to 
Boeing of these subsidies.1880 The United States explains that the Washington State D epartment of 
Revenue 's calculations indicate the value of each tax measure for the years 2006 to 2012 based on 
actual amounts, and forecast the value for years 2013 through 2024.1881 The United States argues 
that Boeing  does not claim the B&O tax credit for leasehold excise tax es, and that it is insufficient 
for the European Union to establish that Boeing is eligible to claim the tax credit; it must show that 
Boeing actually received it.1882 
8.657.   With respect to the evidence provided by the European Union in support of its estimates , 
the United States considers that the evidence used by the original panel ( on which the 
European  Union partly relies to estimate the amount s of the Washington State subsidies  other than 
the B&O tax credit for  leasehold excise tax es) is now outdated and should not be relied upon.1883 
The United States also considers that the ITR Report, which estimates the  total amount of the B&O 
tax rate reduction from 2012 to 2024 , then divides th at total evenly over each year  of that period , 
over-allocates revenue to the earlier years of that period.1884  
8.658.   For the City of Everett B&O tax rate reduction , the United States sub mits evidence only as 
to Boeing 's actual and forecast tax revenue to the City of Everett.1885 It does not submit a n 
estimate  of the  resulting amount of the City of Everett B&O tax rate reduction.  
8.2.7.2.2   Evaluation by  the Panel  
8.2.7.2.2.1   The Washington State B&O tax rate reduc tion 
8.659.   The parties ' estimates of the annual amounts of this subsidy (both historic from 2007 to 
2012 and projected from 2013 to 2024) diverge significantly. The United States ' estimate of the 
amount  of this subsidy between 2007 -2012 (approximately USD [***]) is based on actual 
amounts reported by the Washington State D epartment of Revenue .1886 The United States 
submitted the Washington State D epartment of Revenue  information originally in response to 
certain requests of the Panel for information pursuant to Arti cle 13 of the DSU.1887 The 
European  Union bases its estimate for the 2007 -2011 period on the same evidence used by the 
                                               
1878 European Union's second written submission, para. 593.  
1879 European Union's second written submission, para. 592.  
1880 United States' first written submission, para. 496; second written submission, paras. 457 and 458. 
Washington State Tax Informat ion 2006 -2024, Boeing Only (formerly Exhibit US -13-656), (Exhibit USA -264) 
(BCI).  
1881 United States' second written submission, para. 457. This information was originally provided by the 
United States in response to the Panel's request for information pursua nt to Article 13 of the DSU, dated 
28 February 2013, response to questions 48, 49, 51, 52, and 54. (See United States' communication in 
response to the Panel's request for information pursuant to Article 13 of the DSU , dated 22 March 2013 , 
(Exhibit USA -176); and Washington State Tax Information 2006 -2024, Boeing Only (formerly Exhibit 
US-13-656), (Exhibit USA -264) (BCI)).  
1882 United States' second written submission, para. 477.  
1883 United States' first written submission, para. 496.  
1884 United States' second wri tten submission, para. 463.  
1885 United States' first written submission, para. 507; second written submission, para. 473; and City of 
Everett B&O Tax Revenue, Boeing (formerly Exhibit US -13-327), (Exhibit USA -175) (BCI).  
1886 The Washington State D epartment of  Revenue  exhibit states that the figures for 2006 through 2012 
are "actual amounts based on activity reported on the combined excise tax return". (Washington State Tax 
Information 2006 -2024, Boeing Only (formerly Exhibit US -13-656), (Exhibit USA -264) (BCI) , note 1).  
1887 See United States' communication in response to the Panel's request for information pursuant to 
Article 13 of the DSU , 22 March 2013, (Exhibit USA -176) (providing additional information with respect to 
questions 48, 49, 51, 52 , and 54 of the P anel's Article 13 request); and Washington State Tax Information 
2006-2024, Boeing Only (formerly Exhibit US -13-656), (Exhibit USA -264) (BCI).  WT/DS353/R W 
 
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  original panel to estimate the amounts of this subsidy for 2004 -2006; namely, a Washington State 
presentation from September 20031888 and a spr eadsheet prepared by the Washington State 
Department of Revenue  at the time that HB 2294 was being finalized, showing the projected value 
of the B&O tax rate reduction to the commercial airplane/component industry as a whole (of which 
Boeing 's share is 65% ).1889 The European Union argues that the United States ' 2006-2012 figures 
appear to indicate [***] revenue for Boeing Commercial Airplanes than is reported in Boeing 's 
annual financial statements.1890 The United States says that estimates based on actual tax da ta 
are inherently more reliable than calculations that rely on estimates of that same data.  
8.660.   We consider the United States ' estimates of the amount  of the Washington State B&O tax 
rate reduction to Boeing for the 2007 -2012 period, based as they are on the actual receipts of the 
revenue authority from the taxpayer, to be the best evidence of the amount  of the subsidy to 
Boeing for the 2007 -2012 period. This information was provided by the United States in response 
to a request for information by the Panel un der Article 13 of the DSU. The United States has 
confirmed, in response to concerns raised by the European Union regarding the authenticity of 
Exhibit USA -264 (BCI), that the figures in question were provided to the United States by the 
Washington State D epartment of Revenue .1891 We have no reason to suspect that this information 
was not provided in good faith.  
8.661.   As to the estimates of the annual amount  of the Washington State B&O tax rate reduction 
for the years 2013 through 2024, the United States relies on th e Washington State D epartment of 
Revenue  projections contained in the same Exhibit USA -264 (BCI), while the European Union relies 
on estimates prepared by ITR for 2012 -2024. The Washington State D epartment of Revenue  
2013-2024 forecasts are described in Ex hibit USA -264 (BCI) as being [***].1892 The European 
Union notes that the United States has not provided or otherwise made available a copy of this 
forecast, and submits that the European Union 's estimate, prepared by ITR, is based on projected 
LCA deliveries  in Boeing 's own Current Market Outlook , and therefore is likely to be a more 
accurate estimate of Boeing 's future deliveries (and thus revenues).1893 The United States argues 
that the Washington  State  Department of Revenue 's forecasts are more reliable than ITR's as the 
Washington State D epartment of Revenue  is well positioned to provide a reliable estimate of the 
State of Washington 's own tax revenue, and the estimate is based on the most recent revenue 
forecast for the state, combined with the most up -to-date information about the industry as a 
whole, and Boeing in particular.1894 The United States offers that the [***].1895 According to the 
United  States, the Washington State D epartment of Revenue 's projections are based on a more 
sophisticated analysis than the simplistic and flawed assumptions underlying the European Union 's 
estimates.1896 
8.662.   As already mentioned, the European Union 's estimates of the annual amount  of the 
Washington State B&O tax rate reduction from 2012 -2024 are based on the ITR Report.  ITR's 
estimat es are derived by estimating Boeing 's total LCA revenue s in Washington State from 2012 
until 2024 (the year until which the subsidy is available)  based on an assumption in Boeing 's 2012 
Current Market Outlook  that global demand for LCA in 2021 -2031 will be  31,980 aircraft with a 
market value of USD 4,390 billion . ITR assumes that Boeing will supply half of this demand, and 
subtracts Boeing Commercial Airplanes ' 2012 reported revenues (USD 49.1 billion) from half of 
USD 4,390 billion (USD 2,1 95 billion) to a rrive at Boeing 's estim ated total LCA revenue for 
2013-2031 (USD 2,145.9 billion) . In order to arrive at an estimat ed total LCA revenue for the 
12 years 2013 -2024 from the 19 -year 2013 -2031 estimate, it multiplies USD 2,145.9 billion by 
12/19.  It makes adj ustments to reflect that Boeing 's commercial airplane revenues also include 
revenues attributable to 787s produced in South Carolina (which are not revenues subject to 
Washington State B&O tax ). After arriving at a total revenue figure for 2013 -2024 that d oes not 
include South Carolina revenues, ITR multiplies this number (USD 1,306.6 billion) by the B&O tax 
                                               
1888 Washington State presentation, (Exhibit EU -427).  
1889 Washington State spreadsheet, (Exhibit EU -428). See also Pan el Report, US – Large Civil Aircraft 
(2nd complaint ), para. 7.254.  
1890 European Union's second written submission, para. 571.  
1891 United States' second written submission, para. 458.  
1892 Washington State Tax Information 2006 -2024, Boeing Only (formerly Exhibit U S-13-656), (Exhibit 
USA-264) (BCI), note 3.  
1893 European Union's second written submission, para. 572.  
1894 United States' second written submission, para. 460.  
1895 United States' second written submission, para. 460 and fn 652.  
1896 United States' second written s ubmission, para. 460, fn 652 . WT/DS353/R W 
 
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  rate reduction of 0.1936%, to arrive at an estimated tax reduction of USD 2,529.7 million for the 
period 2013 -2024.1897 When divide d equally over  the year s 2013 -2024, this amounts  to a subsidy 
to Boeing of USD 210.81 million per year for every year from 2013 -2024.1898 The European Union 
considers that this evidence is the best available evidence as to the amount of the B&O tax rate 
reduction, because the Unite d States ' figures cannot be relied on.1899 
8.663.   The United States takes issue with the European Union 's suggestion that the ITR estimates 
are based on Boeing 's own commercial projections. It also questions the credibility of the ITR 
estimates because of an absence  of continuity between the pre -2012 and post -2012 estimates, 
noting that the 2012 estimate is USD 94.4 million, which then jumps to more than twice that at 
USD 210.8 million in 2013 and every year thereafter until 2024. The United States alleges that the 
"fundamental problem " with the ITR methodology is that it is based on an estimate of Boeing 's 
total revenue for 2012 -2031 that assumes the world market for aircraft will double in 20 years.1900 
It then allocates that total revenue evenly over each year of that  20-year period, ignoring that 
Boeing 's revenue would be expected to increase gradually each year. This leads to an 
over-allocation of revenue to Boeing in the early years of the 20 -year period that in reality would 
not be realized until over a decade late r in the latter years of the 20 -year period, thereby inflating 
the amount  of the B&O tax rate reduction over the early years .1901  
8.664.   The accuracy of estimates of the post-2012 amount  of the Washington State B&O tax rate 
reduction to Boeing depends to a large ex tent on the accuracy of the estimates of Boeing 's 
expected revenues from future deliveries of LCA manufactured in the State of Washington. The 
United  States refers to [***] as the basis for the Washington State D epartment of Revenue 's 
projections of the va lue of the Washington State B&O tax rate reduction to Boeing in the 
post-2012 period. The ITR Report, by contrast, bases its estimates on Boeing 's 2012 Current 
Market Outlook  and in particular, Boeing 's prediction that global demand for LCA in 2012 -2031 wi ll 
be 31,980 aircraft with a market value of USD 4,390 billion, of which Boeing could expect to 
supply approximately 50%.1902 The United  States  does not provide any further detail regarding the 
Global Insight forecast and in the absence of any further informa tion, we cannot evaluate the 
assumptions underlying [***] against the 2012 Current Market Outlook  LCA demand and revenue 
forecasts. However, the United States does not specifically criticize the demand and revenue 
forecasts in the 2012 Current Market Outlo ok. Rather, it criticizes what ITR does with the notional 
revenues represented by Boeing 's assumed share of those LCA sales between 2013 -2031, which is 
to apportion the amount equally over every year to arrive at a uniform annual value of the B&O 
tax rate reduction for the years 2013 to 2024, without accounting for the fact that in reality, 
Boeing 's revenues (and the corresponding value to Boeing of the B&O tax rate reduction) would be 
expected to increase gradually over the period.  
8.665.   We consider this latter  criticism is valid  because the effect of ITR's apportionment 
methodology is to enlarge Boeing 's estimated LCA revenues for the period immediately after 2012, 
which is the period relevant to the Panel 's estimate of the amount  of the Washington State B&O 
tax rate reduction.1903 It is this methodological flaw that explains why the ITR estimate for 2012  is 
USD 94.4 million , based on Boeing commercial airplanes ' actua l reported revenues of 
USD 49.1 billion, and a B&O tax rate reduction  of 0.1936% , while for  2013, the estimated amount 
is dramatically higher at USD 210.8 million,  based on an apportionment of Boeing 's assumed LCA 
revenues from 2013 -2031.   
                                               
1897 ITR Report, (Exhibit EU -25), paras. 5-15. 
1898 Washington State Subsidies to Boeing's LCA Division, (Exhibit EU -38). 
1899 Specifically, the European Union notes that the United States' estimates are provided on "a single 
piece of paper", with no signs of authenticity. (See European Union's second written submission, para. 569). 
However, in its second written submission, the United States confirms that the figures were provided by the 
Washington State D epartment of Revenue  and expla ins that they are not provided on D epartment of Revenue  
letterhead because the Washington State D epartment of Revenue  does not print internal documents on its own 
letterhead. (See United States' second written submission, para. 458 and fn 647).  
1900 United St ates' second written submission, para. 463.  
1901 United States' second written submission, para. 463. 
1902 ITR Report, (Exhibit EU -25), paras. 5 and 6.  
1903 By way of comparison, the estimates on which the original panel relied contemplated that the 
projected amoun t of these subsidies in 2023 would be almost double the amount  of the subsidies in 2012. See 
Washington State spreadsheet, (Exhibit EU -428).  WT/DS353/R W 
 
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  8.666.   For purposes of evaluating the credibility of both the United States ' and the 
European  Union 's estimates, we have made our own calculations of the estimated amount  of the 
B&O tax rate reduction to Boeing for 2013 and 2014, based on the Boeing commercial airplanes 
segment 's reported LCA revenues for those years, and adjusting for revenues associated with 787 
production  in South Carolina in the same manner as in the ITR Report. We present those estimates 
below, along with the corresponding United States and European Union estimates, as well as the 
Washington State D epartment of Revenue  estimates from the 2005 worksheet t hat formed the 
basis for the original  panel 's amount  estimates for 2004 -2006.  
Table 3: Estimates of amount of Washington State B&O Tax Rate Reduction 2012 -2015  
 United States 
(Washington 
State D epartment 
of Revenue )1904 European Union  
(ITR)1905 Washington State 
Department of 
Revenue  2005 
worksheet1906 Panel1907 
2012 [***] 94.4 92.6 94.4 
2013 [***] 210.8  98.8 97.2 
2014 [***] 210.8  105.2  108.1 
2015 [***] 210.8  111.9  No reported Boeing 
commercial 
airplanes revenue 
figure for 2015  
All figures  above in USD (million)  
8.667.   Although the Panel 's calculations are very approximate , they are generally [***] than the 
United States ' estimates, and lower than the European Union 's. They are interestingly quite close 
to the projections based on the Washington S tate D epartment of Revenue  2005 spreadsheet an d 
September  2003 Presentation which formed the basis for the original panel 's estimates of the 
amount  of these subsidies for 2004 -2006, even though those estimates were based on Boeing 
delivering the 787 beginn ing in 2008 rather than late 2011 , as occurred in reality. We elsewhere 
explain the methodological flaw in the European Union 's estimates that renders them, in our view, 
not credible as estimates of the amount  of the B&O tax rate  reduction  received  by Boeing in the 
years from 2012 -2015. We f ind it more difficult to understand why the United States ' estimates 
also vary from our calculations. The United States has not provided any explanation of how the 
Washington State D epartment of Revenue  projections for 2 013 and subsequently were arrived at, 
other than to suggest that the 2013 -2024 forecasts are "based on " [***].1908 Given that B&O tax 
is levied on revenues, it is reasonable to expect that the higher Boeing 's reported revenues from 
sales of airplanes, the gre ater the  reduction in B&O tax.1909 It appears to us from the table above 
                                               
1904 Washington State Tax Information 2006 -2024, Boeing Only (formerly Exhibit US -13-656), (Exhibit 
USA-264) (BCI). Th e 2012 figure is based on actual reported revenue data for the relevant fiscal year  (i.e. 
1 July-30 June) while the other numbers are based on projected revenues.  
1905 ITR Report, (Exhibit EU -25); and Washington State Subsidies to Boeing's LCA Division, (Exhi bit 
EU-38). 
1906 Washington State spreadsheet, (Exhibit EU -428), based on the assumption from the 
September  2003 Presentation that 65% of the totals reported in the spreadsheet will accrue to Boeing. (See 
Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.254; and Washington State presentation, 
(Exhibit EU -427)).  
1907 The Panel has taken the reported revenues for Boeing's commercial airplanes segment for 2012, 
2013 and 2014 (USD 49.1 billion, 53 billion, and 60 billion, respectively), as reported in  Subsidies to Boeing's 
LCA Division (2013 -2014 Update), (Exhibit EU -1451), annex A: Boeing's Annual Report on Form 10 -K for the 
fiscal year ended 31 December, 2014, p. 20. To adjust for 787 revenues from Boeing's South Carolina 
operations in the same manne r as ITR, it has subtracted from these revenue figures USD 347.4 million for 
2012, USD 2.78 billion for 2013 and USD 4.17 billion for 2014. (see ITR Report, (Exhibit EU -25), paras. 12 and 
13). It then multiplies the remaining Washington LCA revenue numbers  by the value of the B&O tax rate 
(0.1936%).  
1908 United States' second written submission, fn 652.  
1909 Both the 2005 estimates and the new estimates provided by the Washington State D epartment of 
Revenue  for the years 2012 compared to 2013 -2015 are generally consistent in terms of the pattern of WT/DS353/R W 
 
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  that the re is a correlation between the  United States ' estimates for 2014 and 2015 and the Panel 's 
estimates for 2013 and 2014 . In particular,  the United States ' estimates appear to lag those of the 
Panel. This may re flect the fact that the Washington State D epartment of Revenue  figures appear 
to be based on the fiscal year in Washington State, while the revenue figures on which the Panel 
based its estimates are as reported by Boeing in i ts annual reports, which uses a 31 December 
year-end.  
8.668.   Although the European Union 's estimates are problematic, we are also uncertain how the 
Washington State D epartment of Revenue  estimates, based as they appear to be on a fiscal year 
ending on 30 June, t ranslate to the calendar year. Boeing 's reported revenues from LCA have 
increased since 2012 and our concern is that the United States ' figures may  not actually represent  
the value of the B&O tax rate reduction for the 2013 -2015 calendar years because they  appear to 
cover a different annual reporting period.  
8.669.   The Panel does not have before it Boeing 's revenue figures for the year end ing 31 
December 2015. We therefore cannot estimate the amount  of the B&O tax rate reduction received 
by Boeing for 2015 in the  same way that we have estimated the 2013 and 2014 amounts. We are 
confident , however,  that the amount  of the Washington State B&O tax rate reduction for 2015 
would be higher than the United States ' fiscal year 2015 estimate. We consider that  the 2015 
figure is more likely closer to , but also higher than,  the estimate that the Washington State 
Department of Revenue  provides for fiscal year 2016,  owing to the discrepancies arising from 
different reporting periods described above, and based on other evidence before the Panel that 
would seem to indicate that Boeing 's commercial airplanes revenues for 2015 would be higher 
than for 2014 owing to record deliveries in that year.1910 We have decided that it is reasonable to 
estimate the 2015 figure to be USD 120 millio n.  
8.670.   Accordingly, the Panel estimates that the amount  of the Washington State B&O 
tax rate reduction for 2013, 2014 and 2015 is approximately USD 97 million , 108 million 
and 1 20 million, respectively, for a total of USD 32 5 million over those three years.   
8.2.7.2.2.2   The amount s of the Washington State B&O tax credits for 
preproduction/aerospace product development and for property taxes and the 
Washington State sales and use  tax exemption s for computer  hardware , software, and 
peripherals   
8.671.   The European Union accepts th e United States ' estimates of the amounts  of the 
Washington State B&O tax credits for preproduction/aerospace product development and for 
property taxes .1911 It does so despite its complaints generally that the information contained in 
Exhibit USA -264 (BCI) i s not adequately authenticated and does not explain how the projections 
were derived, and by whom.1912 It notes, however, that the United States ' estimates of the 
amounts  of the B&O tax credits for preproduction/aerospace product development and for property 
taxes are in fact significantly higher than the European Union 's estimates based on the original 
panel 's methodology.1913 It then advances other reasons why the European Union could  accept the 
United States ' estimates, if the Panel were prepared to accept the m despite their lack of 
"authentication ".1914 We consider that the United States has adequately addressed the origin of the 
Washington State D epartment of Revenue  estimates. Given that there is no other disagreement 
between the parties regarding the amounts, we accept the United States ' estimate s of the 
amounts of  these subsidies.1915 
                                                                                                                                               
gradually increasing annual values of the B&O tax rate reductions to Boeing, with the 2003 annual projections 
being somewhat higher than the more recent annual projections.  
1910 Earnings Call Transcript of D.A. Muilenburg  on Boeing (BA) Q3 2015 Results, 21 October 2015, 
(Exhibit EU -1706), p. 4/20.  
1911 European Union's second written submission, paras. 575 -577 and 579.  
1912 European Union's second written submission, para. 569.  
1913 European Union's second written submission, paras . 576 and 579.  
1914 European Union's second written submission, paras. 576 and 579. In the case of the B&O tax credits 
for preproduction/aerospace product development, the European Union explains that the United  States' figures 
do [***]. In the case of the B& O tax credits for property taxes, it is because the European Union is prepared 
to give greater weight to the United States' [***]. 
1915 Accordingly, the value of the B&O tax credits for preproduction/aerospace product development for 
2007-2012 is USD [***], and for the 2013 -2015 period, the amount is USD [***]. The value of the B&O tax WT/DS353/R W 
 
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  8.672.   With respect to the sales and use tax exemption s, however, the European Union rejects 
the United States ' estimates, which in this case are [***] the corresponding European  Union 
estimates . The European Union  relies instead on the evidence used by the original panel for the 
periods 2007 -2011 and 2016-2024. F or the period  2012-2015, the European  Union relies on the 
2012 Study.  The European Union argues that the United States ' estimates  do not comport with 
publicly available information , such as information derived from the 2012 Study.1916 The United 
States argues that in truth the European Union 's objection to these estimates appears to be that 
they are lower than the European Union 's esti mates.1917 
8.673.   The 2012 Study is a 250 page document that purports to list 640 different exemptions 
found principally in Titles 82 and 84 of the Revised Code of Washington. It says that in some 
cases, similar statutes are considered together as a single estimate,  e.g. retail sales and use tax 
exemptions for the same product or activity.1918 The 2012 Study contains a half -page listing of 
taxpayer savings for state and local sales and use tax exemptions for air plane  computer 
expenditures for the years FY 2012 -FY 2015. The European Union adds the state and local savings 
estimates together and multiplies that sum by 80% , which was estimated to be Boeing 's share of 
this tax measure in the September 2003 Presentation.1919 The European  Union does not explain 
how the figures in the 2012 Study were calculated, or why these figures are more r eliable than the 
United States ' estimates provided by the Washington State D epartment of Revenue , and whether 
it is still appropriate to assume that Boeing benefits from approximately 80% of th is tax exemption 
to the aerospace industry. The 2012 Study contains a caution in the introduction that the revenue 
impacts presented in the study reflect estimated savings to taxpayers and do not necessarily 
indicate the potential revenue which might accru e to governmental jurisdictions in the absence of 
the exemptions.1920 Given the more generalized nature of the information provided in the 2012 
Study, we are not persuaded that it is a more reliable estimate of the amount  of the sales and use 
tax exemptions t han the Washington State D epartment of Revenue  information provided by the 
United States. We therefore accept the United States ' estimates of the amount  of the 
sales and use tax exemption s.1921 
8.674.   With respect to the portion of the B&O tax credits in respect of  leasehold excise tax es, the 
United States argues that, although the European Union has presented evidence that Boeing is 
eligible to receive the subsidy, Boeing does not actually claim, or receive, credits for the leasehold 
excise tax es.1922 The European Unio n argues that it has met its burden by identifying property 
leased by Boeing that is subject to leasehold excise tax and identifying the value of the leasehold 
excise tax credit accruing from the lease.1923 In particular, it notes that the 2012 Study indicate s 
the value of the B&O tax credits for property and leasehold excise taxes  on aeroplane facilities.1924 
The 2012 Study, however, provides a single figure of USD 4 million per year from 2012 to 2015 for 
both property and leasehold excise tax credits, which the  European Union halves to generate an 
estimate of the amount  of the leasehold excise tax  credit .1925 We do not consider that this 
constitutes evidence that Boeing actually received the leasehold excise tax credit; the full USD 4 
million per year could have be en attributable to tax credit s in respect of property taxes  alone. 
                                                                                                                                               
credits for property taxes for 2007 -2012 is USD [***], and for the 2013 -2015, the amount is USD [***]. 
(See Washington State Tax Information 2006 -2024, Boeing Only (formerly Exh ibit US -13-656) (BCI), (Exhibit 
USA-264 (BCI)).  
1916 European Union's second written submission, para. 588.  
1917 United States' second written submission, para. 471.  
1918 Washington State Department of Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions, 
Exclusions, Deductions, Deferrals, Differential Rates and Credits for Major Washington State and Local Taxes , 
(January 2012), (Exhibit EU -435), p. 1.  
1919 European Union's first written submission, paras. 496 and 497.  
1920 Washington State Department of Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions, 
Exclusions, Deductions, Deferrals, Differential Rates and Credits for Major Washington State and Local Taxes , 
(January 2012), (Exhibit EU -435), p. 1.  
1921 Accordingly, the amount  of the sales and use tax ex emption s for 2007 -2012 is USD [***], and for 
the 2013 -2015 period, the amount is USD [***]. (See Washington State Tax Information 2006 -2024, Boeing 
Only (formerly Exhibit US -13-656), (Exhibit USA -264) (BCI)).  
1922 United States' first written submission, para . 510; second written submission, para. 477.  
1923 European Union's first written submission, paras. 485 -487. 
1924 European Union's first written submission, para. 487; and Washington State Department of 
Revenue, 2012 Tax Exemption Study: A Study of Tax Exemption s, Exclusions, Deductions, Deferrals, 
Differential Rates and Credits for Major Washington State and Local Taxes , (January 2012), (Exhibit EU -435), 
p. 118.  
1925 See European Union's first written submission, para. 487 . WT/DS353/R W 
 
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  Moreover, the United States ' estimate of the B&O tax credit for property taxes for  2012 and 2015, 
which the European Union accepts, exceeds  the 2012 Study 's reported estimate  for the tax cr edit 
applied to both the property tax es and leasehold excise tax es. The European Union 's remaining 
evidence only demonstrates Boeing 's eligibility for the B&O tax credit in respect of leasehold excise 
taxes , not Boeing 's actual receipt of the subsidy.1926  
8.2.7.2.2.3   The amount of the City of Everett B&O tax rate reduction  
8.675.   The European Union calculates the amount  of the City of Everett B&O tax r ate reduction 
between 2007 and 2011 based on evidence relied upon by the original panel, and  between 2012 
and 2023 , based  on revenue forecasts  received from the City of Everett.1927 The United  States  
provid es evidence of the actual  tax revenue s received  by the City of Everett  between 2007 and 
2012, and forecasts of tax revenue s between 2013 and 2023 [***].1928 The United  States does 
not, however,  submit its own estimates of the City of Everett B&O tax rate reduction . The 
European Union submits that the United States ' figures lack signs of authenticity, and should be 
rejected because they fail to value the precise tax benefit, and otherwis e do not correspond to the 
information the European Union received  directly  from the City of Everett.1929 The United States 
notes that certain of the European Union 's figures for total reported revenue are greater than 
those submitted by the United States, an d considers that, as a result, the European  Union 
overvalues the amount  of the tax rate reduction.1930  
8.676.   Given that the United States submits actual  receipts of the revenue from the taxpayer  
during the 2007 -2012 period, we  consider it appropriate to base our a ssessment of the amount of 
the City of Everett B&O tax rate reduction on these figures  as the best evidence of the amount  of 
the subsidy to Boeing .1931 This information was provided by the United States in response to a 
request for information by the Panel pursuant to  Article 13 of the DSU. Based on the  information 
concerning  actual revenue provided in Exhibit USA -175, t he Panel calculate s that the amount of  
the City of Everett B&O tax r ate reduction  between 2007 and 2012 is approximately [***].1932 For 
the 2013 -2015 period, the United States has submitted  forecasted tax revenue  accruing to the 
City of Everett  purportedly based on [***], but has not otherwise explained  its methodology for 
determining the projected revenue figures . Absent any explanation from the U nited States, 
consistent with  our approach in respect of the  other  Washington tax measures1933, we consider it 
appropriate to base the calculation of the amount of the subsidy on projections from the relevant 
tax authority, in this case, figures from the City  of Everett.  Based on projected gross revenues and 
the B&O tax basis provided by the City of Everett, the amount of the City of Everett B&O tax r ate 
reduction  totals approximately USD 16.41 million, 17.47 million and 20.22 million in 2013, 2014 , 
and 2015, respectively, as confirmed by the European Union 's own calculations .1934 
                                               
1926 See Snohomish County Council Lease Appr oval, Dreamlifter Land and Building Lease (25 July 2012), 
(Exhibit EU -447), exhibit C.  
1927 State and Local Subsidies to Boeing's LCA Division (Original Exhibit EC -27), (Exhibit EU -451); 
Forecast of Boeing's Gross Revenue and Taxation in the City of Everett, and accompanying note from City of 
Everett August 2012 FOIA Response, (Exhibit EU -450); and City of Everett's B&O Tax Rate Reduction 
Estimates for 2012 -2023, (Exhibit EU -452).  
1928 City of Everett B&O Tax Revenue, Boeing (formerly Exhibit US -13-327), (Exhibit  USA-175) (BCI).  
1929 See European Union's first written submission, para. 514; European Union's second written 
submission, paras. 591 -593; State and Local Subsidies to Boeing LCA Division (Original Exhibit EC -27), (Exhibit 
EU-451); Forecast of Boeing's Gross  Revenue and Taxation in the City of Everett, and accompanying note from 
City of Everett August 2012 FOIA Response, (Exhibit EU -450); and City of Everett's B&O Tax Rate Reduction 
Estimates for 2012 -2023, (Exhibit EU -452).  
1930 United States' first written su bmission, para. 508; and City of Everett B&O Tax Revenue, Boeing 
(formerly Exhibit US -13-327), (Exhibit USA -175) (BCI).   
1931 City of Everett B&O Tax Revenue, Boeing (formerly Exhibit US -13-327), (Exhibit USA -175) (BCI).  
1932 See City of Everett B&O Tax Revenue,  Boeing (formerly Exhibit US -13-327), (Exhibit USA -175) 
(BCI). Knowing that taxes on revenue of up to USD 7 billion are assessed on the basis of a rate of 0.1% 
between 2007 -2012 and therefore amount to USD 7 million, the Panel calculates the value of the C ity of 
Everett B&O tax rate reduction by determining Boeing's gross revenues per annum in the City of Everett, the 
tax on the portion of gross revenues taxed at the regular rate of 0.1%, the tax on the portion of gross 
revenues taxed at the special rate of  0.025%, and thereafter determining Boeing's resulting tax savings.  
1933 See Sections 8.2.7.2.2.1  and 8.2.7.2.2.2 . 
1934 See Forecast of Boeing's Gross Revenue and Taxation in the City of Everett, and accompanying note 
from City of Everett August 2012 FOIA Response, (Exhibit EU -450); and City of Everett's B&O Tax Rate 
Reduction Estimates for 2012 -2023, (Exhibit EU -452).  WT/DS353/R W 
 
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  8.677.   We therefore find that the amount  of the City of Everett B&O tax rate reduction 
was approximately USD 54.1 million  during the 2013 -2015  period .1935 
8.2.7.3   Conclusion  
8.678.   In light of our findings above  with respect to the Washington state and local subsidies, we 
conclude that the European Union has established that the following measures involve specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement:  
a. Washington State B&O tax rate  reduction for the aerospace industry, in the amount of 
USD 32 5 million between 2013 and 2015;  
b. Washington State B&O tax credits for preproduction/aerospace product development, as 
amended by section 7 of SSB 6828, in the amount of [***] between 2013 and 20 15; 
c. Washington State B&O tax credit for property taxes, as amended by HB 2466 to include 
leasehold excise taxes, in the amount of [***] between 2013 and 2015;  
d. Washington State sales and use tax exemptions for computer hardware, software, and 
peripherals , in the amount of [***] between 2013 and 2015; and  
e. City of Everett B&O tax rate reduction, in the amount of USD 54.1 million between 2013 
and 2015.  
8.2.8   The South Carolina measures  
8.2.8.1   Introduction  
8.679.   In this Section of the Report, we evaluate whether the state and loca l measures provided 
by the State of South Carolina in connection with the production and assembly of the 787 in North 
Charleston1936 are specific subsidies to Boeing, and whether, by granting or maintaining any such 
subsidies, the United States has failed to withdraw the subsidy within the meaning of Article 7.8 of 
the SCM Agreement.  
8.680.   The South Carolina measures properly before us concern different aspects of Boeing 's 
operations in North Charleston and are alleged to involve two incentive packages provided at 
different times1937:  
a. Project Gemini: A 2009 incentive package concerning Boeing 's second 787 final 
assembly and delivery facility in North Charleston, South Carolina (the first 787 final 
assembly and delivery facility located outside the State of Washington) . 
b. Project Emerald: A 2006 package concerning the 787 fuselage fabrication and 
integration operations originally operated by Vought Aircraft Industries, Inc. (Vought) 
and a joint venture between Vought and Alenia Aeronautica (Global Aeronautica). These 
operations were acquired by Boeing in 2009.  
8.2.8.2   The measures at issue  
8.681.   The European Union claims that the State of South Carolina and its political subdivisions 
maintain various subsidies for Boeing, related to the production of LCA and LCA components at 
                                               
1935 See City of Everett's B&O Tax Rate Reduction Estimates  for 2012 -2023, (Exhibit EU -452).  
1936 See Section 7.5.1  above  for our rulings that these measures are within the scope of this compliance 
proceeding as "undeclared" measures taken to comply on account of their suf ficiently close nexus with the 
measures the subject of the DSB recommendations and rulings in the original proceeding.  
1937 We recall that the European Union, in its second written submission, also challenged a third package 
of South Carolina measures, the " Phase II measures", which were announced in 2013 and thus, came into 
existence only after the European Union's first written submission. In Section 7.5.2  above , we rule that the 
Phase II measures are outside the  Panel's terms of reference.  WT/DS353/R W 
 
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  facilities  in North Charleston, South Carolina, through two packages of investment incentives: (a) 
Project Gemini measures ; and (b) Project Emerald measures.1938  
8.682.   The Project Gemini  measures are the package of financial incentives offered by the State 
of South Carolina  in 2009, allegedly in order to induce Boeing to locate its second 787 final 
assembly and delivery facility adjacent to the Vought -Global Aeronautica 787 fuselage fabrication 
and integration complex at Charleston International Airport. The European Union 's panel request 
describes the following eight measures that it challenges as part of the Project Gemini package1939:  
a. Provision of a long -term lease of government -owned land at preferential rates, pursuant 
to a Ground Lease Agreement between the Charleston Cou nty Aviation Authority and 
South Carolina Public Railways, as amended, and a Ground Sublease between S outh 
Carolina Public Railways  and Boeing, as amended.  
b. Provision of facilities and infrastructure at the Charleston International Airport site, as 
provide d for in the Project Gemini Agreement between Boeing and the State of South 
Carolina, dated 1 January 2010, funded through state general obligation bonds issued 
pursuant to Title 11, chapter  41 of the South Carolina Code, as amended by section 5 of 
H3130, Act No. 124, 2009 S.C. Acts 1092 (H3130), and S.C. Code section 55 -11-520, at 
no cost to Boeing.  
c. Property tax reductions under a fee-in-lieu-of taxes Agreement  between Charleston 
County and Boeing dated 1 December 2009, as authorized by Title 12, chapter  44 of the 
South Carolina Code , including the provision of special source credits as provided for in 
such agreement, and authorized by S.C. Code section 4 -1-175.1940 
d. Property tax exemptions for Boeing 's Large Cargo Freighters (LCFs) pursuant to South 
Carolina Code section  12-37-220(B)(33), as amended by section 1 of H3482, Act No. 45, 
2009 S.C. Acts 763.  
e. Reductions of state corporate income taxes through an income allocation and 
apportionment agreement, entered into pursuant to S.C. Code section 12 -6-2320(b), a s 
amended by section 1 of H3130.  
f. Provision of corporate income tax credits, as provided for in South Carolina Code  
section  12-6-3360(E)(1), by virtue of designating the Boeing site in North Charleston as 
part of a business/industrial park jointly establis hed and developed by Charleston County 
and Colleton County, South Carolina.  
g. Exemption from state sales and use taxes for aircraft fuel, computer equipment, and 
construction materials, established by sections 2, 3 , and 4 of H3130, respectively, and 
codified  at S.C. Code section 12 -36-2120(9)(e) and (f), (65)(b), and (67).  
h. Establishment of workforce recruitment, training and development program mes for 
Boeing.  
8.683.   The Project Emerald  measures comprise the package of financial incentives offered by 
the State of So uth Carolina to Vought in 2006 in connection with the 787 fuselage fabrication and 
integration complex at a site at Charleston International Airport. The European Union 's panel 
request identifies the following four measures as part of the Project Emerald p ackage1941:  
a. Provision of a long -term lease of government -owned land at below -market rates, 
pursuant to a Ground Lease Agreement between C harleston County Aviation Authority  
                                               
1938 European Union's request for the establishment of a panel, para. 23.  
1939 European Union's request for the establishment of a panel, para. 24.  
1940 The European Union has subsequently advised that the above -referenced fee-in-lieu-of taxes 
agreement was a draft, which had been provided by Charleston County. The final  agreement (the Boeing 
FILOT Agreement) is dated 1 December 2010. It is this final agreement to which the European Union refers in 
its arguments. (European Union's first  written submission, fn 1309).  
1941 European Union's request for the establishment of a panel, para. 25.  WT/DS353/R W 
 
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  and South Carolina Public Railways , as amended, and a Ground Sublease between S outh 
Carolina Public Railways  and Boeing, as amended.  
b. Provision of facilities and infrastructure at the Charleston International Airport site, as 
provided for in the Project Emerald Confidential Site Development Agreement, funded 
through state general obligatio n bonds issued pursuant to Title 11, chapter 41 of the 
S.C. Code, at no cost to Boeing.  
c. Property tax reductions under a fee-in-lieu-of taxes agreement  between Charleston 
County and Vought, Global Aeronautica, and Boeing, dated 19 December 2006, and 
assign ed to Boeing on or about 10 February 2010, as authorized by Title 12, chapter 44 
of the S.C. Code, and provided for in the Project Emerald Confidential Site Development 
Agreement, including the provision of infrastructure credits as provided for in such 
agreement, and authorized by S.C. Code section 12 -44-70. 
d. Provision of corporate income tax credits, as provided for in S.C. Code 
section  12-6-3360(E)(1), by virtue of designating the Project Emerald site at Charleston 
International Airport as part of a busin ess/industrial park jointly established and 
developed by Charleston County and Colleton County, South Carolina.  
8.2.8.3   Relevant factual background regarding the Project Gemini and Project Emerald 
incentive packages  
8.2.8.3.1   Project Gemini incentive package  
8.684.   The Project Ge mini measures challenged by the European Union consist of the eight 
measures related to Boeing 's South Carolina 787 final assembly and delivery facility (the Project 
Gemini facilities  and infrastructure ) listed in Section 8.2.8. 2 above.1942 The obligations of the South 
Carolina state and local authorities and Boeing as regards Project Gemini, including the challenged 
Project Gemini measures listed above, are implemented through three main instruments which we 
describe briefly below .  
8.685.   The first is H3130 , an Act of the South Carolina General Assembly that was signed into law 
on 30 October 2009. H3130 amends several S outh Carolina  laws in order to provide for the 
following:  
a. Authorization to issue additional general obligation economic development bonds1943 in 
an aggregate principal amount that does not exceed USD 170 million.1944 The section of 
H3130 authorizing the additional issuance sets forth legislative findings that the 
construction of infrastructure as defined under the relevant legisl ation enhances the 
recruitment of businesses to the State of South Carolina, facilitates the operation and 
growth of businesses in the State, and thereby provides significant and substantial direct 
and indirect benefits to the State and its residents, incl uding employment and other 
opportunities; that such benefits outweigh the costs of such infrastructure; that for such 
reasons it is in the best interest of the State to authorize the issuance of economic 
development bonds subject to the terms and condition s of the relevant legislation ; and 
that such economic development bonds, issued for such purpose, serve a public purpose 
in fostering economic development and increasing employment in the State. The General 
                                               
1942 The first 787 final assembly and delivery facility was established in the State of Washington in 2004.  
1943 S.C. Code  section 11 -41-40 provides that econom ic development bonds can be used to fund 
"financing for infrastructure", which includes the following: land acquisition, site preparation, road and highway 
improvements, water service, wastewater treatment, employee training, environmental mitigation, trai ning and 
research facilities, and building associated with an air hub facility or located on government land. In order for 
economic development bonds to be issued, the South Carolina Department of Commerce must first notify the 
Joint Bond Review Committee and the State Budget and Control Board that the related infrastructure project 
meets certain requirements, including a minimum investment and contribution to employment. After approval 
by the Joint Bond Review Committee, the State Budget and Control Board adopts a resolution issuing the 
bonds. Economic development bonds are backed by the full faith, credit, and taxing power of the  State of  
South Carolina. The monetary value of economic development bonds that the State may issue depends on the 
provision unde r which the State issues the bonds.  
1944 South Carolina Act No. 124, S.C. Code , Acts 1092, H3130 (30 October 2009),  (Exhibit EU -466), 
section 5.  WT/DS353/R W 
 
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  Assembly makes a further finding that the primary  beneficiaries of the issuance of such 
economic development bonds and the construction of such infrastructure are the State of 
South Carolina and its residents.1945 
b. South Carolina 's entering into an agreement establishing the allocation and 
apportionment of t he taxpayer 's income, provided certain conditions are met, including 
that the taxpayer is planning a new facility in the State, or expan ding an existing facility, 
the new facility or expansion is certified by the Advisory Coordinating Council for 
Economic Development in South Carolina as having a significant beneficial economic 
effect on the region for which it is planned and that it s benefits to the public exceed its 
costs to the public , and the taxpayer requests, prior to 31 October 2015, that South 
Carolina enter into such an income allocation and apportionment agreement .1946 The 
maximum duration of such agreements may be increased from five years to ten years 
where a number of other conditions are met, one of which is that the taxpayer is 
planning a new fac ility in the State and invests at least USD 750 million in real or 
personal property or both in a single county in the State and creates at least 3,800 
full-time new jobs within the county.1947  
c. Exemptions from sales and use tax es for aircraft fuel, computer equipment , and 
construction materials.1948 More specifically, section 2 of H3130 creates an exemption 
for, respectively, the sales of fuel for the generation of motive power for test flights of 
aircraft by the manufacturer of the aircraft, and the transportat ion of an aircraft prior to 
its completion from one facility of the manufacturer of the aircraft to another facility of 
the manufacturer of the aircraft. Section 3 of H3130 creates an exemption for sales of 
computer equipment used in connection with a manu facturing facility. Finally, section 4 
of H3130 creates an exemption for sales of construction materials used in the 
construction of a new or expanded single manufacturing  facility . In each case, eligibility 
for the exemptions is expressly restricted to ta xpayers investing at least USD 750 million 
in real or personal property in a single manufacturing facility over a seven -year period 
and creating 3,800 full -time new jobs at the manufacturing facility over that period.1949 
8.686.   The second principal Project Gemini -related instrument is the Project Gemini Agreement , 
dated 1 January 2010, between Boeing and the South Carolina Department of Commerce (on 
behalf of the State of South Carolina).1950 The Project Gemini Agreement records generally the 
state-level commitments ma de by South Carolina to Boeing, and the commitments made by 
Boeing to South Carolina, in connection with Boeing 's establishment of the second 787 final 
assembly and delivery line.  
8.687.   In return for Boeing meeting certain minimum employment and investment requ irements, 
South Carolina agrees to seek approval for: (a) the issuance of economic development bonds in 
the amount of USD 220 million to offset the costs of certain infrastructure associated with Project 
Gemini ; and (b) the issuance of air hub bonds1951 in the amount of USD 50 million to offset the 
                                               
1945 South Carolina Act No. 124, S.C. Code , Acts 1092, H3130 (30 October 2009),  (Exhibit EU -466), 
section 5.A.  
1946 South Carolina Act No. 124, S.C. Code , Acts 1092, H3130 (30 October 2009),  (Exhibit EU -466), 
section 1.  
1947 South Carolina Act No. 124, S.C. Code , Acts 1092, H3130 (30 October 2009),  (Exhibit EU -466), 
section 1. The taxpayer has seven years from the date on whi ch it requests South Carolina to enter into an 
income allocation and apportionment agreement  to make the required investment and create the required 
number of jobs.  
1948 South Carolina Act No. 124, S.C. Code , Acts 1092, H3130 (30 October 2009), (Exhibit EU -466), 
sections 2 -4. 
1949 South Carolina Act No. 124, S.C. Code , Acts 1092, H3130 (30 October 2009), (Exhibit EU -466), 
section 2 (amending S.C. Code , section 12 -36-2120(9)(e) and (f), section 12 -36-2120(65)(b), and section 12 -
-36-2120(67)). In addition, the taxp ayer is required to notify the South Carolina Department of Revenue, prior 
to 15 October 2015, of its intention to use any of the exemptions. (South Carolina Act No. 124, S.C. Code , 
Acts 1092, H3130 (30 October 2009),  (Exhibit EU -466), sections 2(B), 3(B),  and 4(B)).  
1950 Project Gemini Agreement between The Boeing company and South Carolina Department of 
Commerce, on behalf of the State of South Carolina (1 January 2010), (Project Gemini Agreement), (Exhibit 
EU-467).  
1951 S.C. Code , section 55 -11-520 provides th at air hub bonds can be used to acquire land, construct, 
enlarge, improve, extend, renovate, and equip suitable air carrier hub terminal facilities, and purchase 
equipment, ground support equipment, machinery, special tools, maintenance, boarding facilitie s, and any real WT/DS353/R W 
 
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  costs associated with air carrier hub terminal facilities which Boeing agrees to operate in support of 
Project Gemini.1952 In addition, South Carolina agrees to recommend that Project Gemini be 
certified in such a way as to make it eligible for negotiated apportionment of state corporate 
income taxes as set forth in S.C. Code section 12 -6-2320.1953  
8.688.   Boeing, for its part agrees to make new investment s in real and personal property of 
USD 750 million (the Minimum Investment Requirement) and to employ 6,000 employees in the 
State (Minimum Job Requirement) within a specified period.1954 Should Boeing fail to comply with 
the foregoing investment and employment commitments, it will be required to reimburse the State 
in accordance wi th a formula and procedure set forth in an annex to the Project Gemini Agreement 
(the Performance Provision).1955 
8.689.   The preamble to the Project Gemini Agreement expressly refers to the findings of 
legislative fact made by the South Carolina General Assembly as part of H3130.1956  
8.690.   Finally, the Fee Agreement , dated 1 December 2010, between Charleston County and 
Boeing (the Boeing FILOT Agreement) provides for certain property tax and corporate income tax 
concessions to Boeing. Section 5.4 of the Boeing F ILOT Agreemen t states that its intent in part is 
to afford Boeing the benefits of payment of a fee -in-lieu-of property taxes as well as 
reimbursement of a portion of those payments in respect of Boeing 's investment in Special Source 
Improvements in consideration of Boe ing's decision to locate Project Gemini within the County. 
Under the Boeing F ILOT Agreement, Boeing is authorized to pay a negotiated fee -in-lieu-of 
property taxes in respect of Project Gemini, including large cargo freighters owned, operated or 
leased by Boeing and used primarily for the transport of items to and from the Project Gemini site. 
Boeing is also authorized to claim reimburse ment of  an agreed portion of such payments in lieu of 
property taxes in return for its investment in certain infrastructur e and facilities serving the 
economic development of the County (Special Source Improvements).1957  
8.691.   Project Gemini is designated as part of a "multi-county park" pursuant to the Multi -County 
Act in order to provide additional jobs tax credits afforded by the laws of South Carolina for 
projects located within multi -county industrial or business parks for all jobs created by Boeing.1958  
                                                                                                                                               
or personal property for operation of air carrier hub terminal facilities. In order for air hub bonds to be issued, 
there must first be a binding contract with an air carrier or the principal user of the facility committing the 
entity to us e the facility for the lesser of five years or the time needed to retire the indebtedness. The 
Executive Director of the Aeronautics Commission then must certify, among other information, the amount to 
be authorized, a description of the infrastructure for  which the bonds are to be issued, and that the facility is 
an air carrier hub terminal facility. After approval by the Joint Bond Review Committee, the State Budget and 
Control Board then adopts a resolution issuing the bonds. Air hub bonds are backed by the full faith, credit, 
and taxing power of the South Carolina. The amount of air hub bonds that the state may issue is limited to 
USD 50 million outstanding at any time.  
1952 Project Gemini Agreement, (Exhibit EU -467), section II. The parties agree to the de scription of the 
eligible items of infrastructure for which the economic development bonds may be allocated and the eligible 
costs associated with air carrier hub facilities to be offset by the air hub bonds in exhibit B.  
1953 Project Gemini Agreement, (Exhib it EU-467), section III.  
1954 Project Gemini Agreement, (Exhibit EU -467), section IV.A. The period for performance of the 
Minimum Investment Requirement and Minimum Job Requirement is the earlier of 31 December 2016 or the 
date that Boeing certifies that the two targets have been met.  
1955 The Performance Provision is expressed to supersede the "Emerald Additional Rent Provisions" 
attached as exhibit B to the Amended and Restated Ground Sublease between S outh Carolina Public Railways , 
and B oeing Commercial Airpla nes Charleston South Carolina, Inc. , and attached as exhibit E to the Project 
Emerald Confidential Site Development and Incentive Agreement between the South Carolina Department of 
Commerce and certain additional parties, and Boeing Commercial Airplanes Ch arleston South Carolina, Inc. , as 
successor in interest to Vought. See para. 8.711  below.  
1956 Project Gemini Agreement, (Exhibit EU -467), recitals 3 and 4.  
1957 Fee Agreement by and between Charleston County, South Carolina and the Boeing Company 
(1 December 2010) (Boeing F ILOT Agreement), (Exhibit EU -470), sections 1.3, 5.1, and 5.2.  
1958 Boeing F ILOT Agreement, (Exhibit EU -470), section 5.3. South Carolina Income Tax Act, S.C. Code , 
Title 12, chapter 6, (Exhibit EU -509), section 3360 (C)(1), provides for a state corporate income tax credit for 
certain qualifying businesses that create a specified number of jobs at the time a new facility or expansion is 
initially staffed. In addition, under paragraph (E)(1) of § 12 -6-3360, taxpayers that are located in a "Multi -
County Industrial Park" and qualify for the tax credit under (C)(1) are allowed an addition al USD 1,000 credit 
for each new full -time job created for five years beginning in the taxable year following the creatio n of the job.  WT/DS353/R W 
 
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  8.692.   As explained further in Section 8.2.8.5.1  below, the Project Gemini facilities  and 
infrastructure  are located on the same Project Site as the 787 fuselage fabrication and integration 
operations, which had originally been operated by Vought and Global Aeronautica, and were 
acquired by Boeing in 2009 (the Project Emerald facilities  and infrastructure ). In this respect, the 
legal instruments embodying the Ground Sublease of the Project Site on which both the Project 
Gemini and Project Emerald facilities  and infrastructure  are located are common to both Project 
Gemini and Project Emerald.  
8.2.8.3.2   Project Emerald ince ntive package  
8.693.   The Project Emerald measures consist of the four measures identified in Section  8.2.8.2  
above that were provided to Vought in 2006 in connection with its 787 fuselage fabrication and 
integration complex at a site at Charleston International Airport. As will be explained further 
below, Boeing acquired Vought 's South Carolina operations in July 2009.  
8.694.   The obligations of the South Carolina state and local authorities as regards Project Emerald 
were initially set forth in a 2004 Confidential Initial Site Development and Incentive Agreement 
between certain South Carolina public agencies and Vought on behalf of itself and two other 
entities that comprise Project Emerald.1959 Under this Initial Site Development and Incentive 
Agreement, the relevant South Carolina public agencies set forth their commitments to provide 
funds and incentives as an inducement for Vought to locate Project Emerald at the Project Site, 
and to induce Vought to commence work on the Project Site pending f inal negotiation of a Site 
Development and Incentive Agreement.1960 Such funds and incentives included the issuance of tax 
exempt and/or taxable bonds, the proceeds of which may be allocated to "infrastructure " as 
defined in section 11 -41-30 of the South Caro lina Code , or to "air carrier hub facilities ", as defined 
in section 55 -11-500 of the South Carolina Code , a fee -in-lieu-of taxes agreement setting forth a 
particular property tax treatment as well as special source credits to reduce property taxes or 
fee-in-lieu-of property taxes for Project Emerald, and the incorporation of the Project Site into a 
multi-county industrial park to enable Project Emerald to receive additional job tax credits.1961 
Under the Initial Site Development and Incentive Agreement, the C harleston County Airport 
District also agreed to enter into a ground lease of the Project Site with South Carolina Public 
Railways , which in turn would enter into a Ground Sublease of the Project Site with Vought.1962 
8.695.   Subsequently, in 2006, the same parties e ntered into the Project Emerald Confidential Site 
Development and Incentive Agreement (the Project Emerald Agreement ) to finalize the incentives 
and commitments of the South Carolina public agencies and of Project Emerald to induce Vought 
to initiate and/o r continue work on the Project Site.1963 Accordingly, Project Emerald was required 
to hire 745 employees and invest USD 450 million, in return for which South Carolina undertook to 
authorize the issuance of economic development bonds, and to make available to  Project Emerald 
USD 123 million from the bond proceeds.1964 The commitments regarding the fee -in-lieu-of taxes 
agreement and special source credits in respect of property taxes or fee -in-lieu-of property taxes 
for Project Emerald, and the incorporation of th e Project Site into a multi -county industrial park, 
remained the same as those previously made as part of the 2004 Initial Site Development and 
Incentive Agreement.1965 The commitment regarding the grant of a ground lease of the Project 
Site by the Charleston  Airport District to South Carolina Public Railways , and of a Ground Sublease 
of the Project Site by S outh Carolina Public Railways  to Vought , also remained consistent with that 
undertaken in the 2004 Initial Site Development and Incentive Agreement, excep t that Vought was 
further authorized to enter into building pad leases with the Project Emerald entities or other 
                                               
1959 Initial Project Emerald Site Development and Incentive Agreement, (Exhibit EU -560).  
1960 Initial Project Emerald Site Development and Incentive Agreement, (Exhibit EU -560), recitals 9 and 
10, part VII, sections 7.1 and 7.2.  
1961 See Initial Proje ct Emerald Site Development and Incentive Agreement, (Exhibit EU -560), parts II 
(regarding the tax exempt and/or taxable bonds), and IV (regarding the FILOT, special source credits and 
additional job tax credits through designation of Project Emerald as pa rt of a multi -county industrial park).  
1962 Initial Project Emerald Site Development and Incentive Agreement, (Exhibit EU -560), part V, section 
5.3. 
1963 Final Project Emerald Incentive Agreement,  (Exhibit EU -550), recital 10. The version of this 
instrument prov ided to the Panel as Exhibit EU -550 is dated as  of a blank date in 2006 and is executed only by 
South Carolina Department of Commerce and S outh Carolina Public Railways .  
1964 Final Project Emerald Incentive Agreement, (Exhibit EU -550), section 2.3.  
1965 See Fin al Project Emerald Incentive Agreement,  (Exhibit EU -550), sections 4.1, 4.2, and 4.3.  WT/DS353/R W 
 
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  designated parties and to sublease parts of the Project Site not immediately used by Project 
Emerald.1966 
8.696.   Accordingly, on 25 August 2006, C harles ton County Aviation Authority , which is the owner 
and operator of Charleston International Airport, granted a ground lease of the Project Site to 
South Carolina Public Railways  on the understanding that South Carolina Public Railways  would 
immediately subl et the Project Site to Vought in order for Vought to construct and operate the 787 
fuselage fabrication and integration complex.1967 The initial term o f the Ground Lease was until 
31 December 2021 with provision for extensions for four additional five -year te rms.1968 The annual 
rent was USD 1.00.1969 The Project Site was delivered in "as is" condition, with South Carolina 
Public Railways  being responsible for the cost of any improvements made to or at the Project Site 
land.1970 Also on 25 August 2006, Vought and South Carolina Public Railways  entered into a 
Ground Sublease  (the Vought Sublease ) under which Vought subleased from South Carolina Public 
Railways  the Project Site (referred to in the Vought Sublease as the "Premises ").1971 The initial 
term of the Vought Sublease  was also until 31 December 2021 with provision for extensions for 
four additional five -year terms.1972 The annual rent was USD 1.00 with provision for Vought to 
make "Additional Rent " payments under circumstances generally involving failure to meet required 
investment and employment thresholds set forth in the Vought Sublease.1973 The Vought Sublease 
contemplated that Vought was subletting the Project Site for the purpose of constructing facilities 
related to the manufacture of products for the aeronautics indus try, defined therein as 
"Improvements ".1974 The "Improvements " in question refer to the construction by Vought of its 
787 fuselage fabrication and integration complex.1975 
8.2.8.4   The Panel 's order of analysis  
8.697.   The European Union has organized its submissions by first pr esenting arguments as to why 
each of the Project Gemini measures involves a subsidy to Boeing that is specific, followed by 
arguments as to why each of the Project Emerald measures involves a subsidy to Boeing that is 
specific. The United States responds i n its submissions by addressing the Project Emerald 
measures first (including the sublease of the Project Site), followed by the Project Gemini 
measures. We have decided to adopt a different order of analysis from that of either party.  
8.698.   We note that certai n of the challenged measures involve  the following :  
a. Project Site on which both the Project Gemini facilities and infrastructure and Project 
Emerald facilities  and infrastructure  are located;  
b. construction, and certain funding for the construction, of both the Project Gemini and 
Project Emerald facilities  and infrastructure ;  
c. agreements as to how property taxes would be assessed in relation to both the Project 
Gemini and Project Emerald facilities  and infrastructure ; and  
                                               
1966 Final Project Emerald Incentive Agreement, (Exhibit EU -550), section 5.3.  
1967 Ground Lease Agreement by and between Charleston County Aviation Authority and South Carolin a 
Public Railways (25 August 2006) (Ground Lease Agreement), (Exhibit EU -473), recitals and section 12.01.  
1968 Ground Lease Agreement, (Exhibit EU -473), sections 3 and 4.  
1969 Ground Lease Agreement, (Exhibit EU -473), section 7.01.  
1970 Ground Lease Agreement, (Ex hibit EU -473), sections 6.01 and 6.02.  
1971 Ground Sublease between Vought Aircraft Industries, Inc. and Sou th Carolina Public Railways 
(25 August 2006) (Vought Sublease Agreement), (Exhibit EU -474).  
1972 Vought Sublease Agreement, (Exhibit EU -474), sections 3 and 4.  
1973 Vought Sublease Agreement, (Exhibit EU -474), section 6.  
1974 Vought Sublease Agreement, (Exhibit EU -474), section 7.  
1975 The Project Emerald Confidential Site Development and Incentive Agreement, between Vought 
Aircraft Industries, Inc., on behalf of i tself and the two entities that comprise Project Emerald (collectively 
Project Emerald), and the South Carolina Department of Commerce, the South Carolina Public Railways, 
Charleston County and the Charleston County Airport District (collectively, the Publ ic Agencies), dated 2006 
(see fn 1963 above) (Final Project Emerald Incentive Agreement, (Exhibit EU -550)) more specifically explains 
that Project Emerald contemplated the establishment of industrial facilities  for the purpose of manufacturing, 
assembling, integrating and testing composite components and related shipping facilities for the 787 (the 
Project) and that the Public Agencies wish to have Project Emerald establish the Project on the property the 
subjec t of the Vought Sublease.  WT/DS353/R W 
 
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  d. corporate income tax credits in res pect of both the Project Gemini and Project Emerald 
facilities  and infrastructure  through their respective designation as part of the same 
multi-county industrial park.  
8.699.   In these circumstances, and given the similarity in the legal arguments made by the 
parties with respect to both the Project Gemini and Project Emerald measures in each of the above 
categories (a) through (d), we will address these particular Project Gemini and Project Emerald 
measures together.  Accordingly, in Section 8.2.8.5 , we first consider whether the sublease of the 
Project Site involves a specific subsidy to Boeing.1976 In Section 8.2.8.6 , we consider whether 
specific subsidies exist by virtue of South Carolina 's alleged provisio n of Gemini facilities and 
infrastructure and Emerald facilities and infrastructure to Boeing. In Section  8.2.8.6.5 , we evaluate 
whether the property tax reductions provided under fee -in-lieu-of taxes agreements concluded in 
connection with both Project Gemini and Project Emerald involve specific subsidies to Boeing. In 
Section 8.2.8.8 , we address whether corporate income tax credits in connection with the 
designation of both the Project Gemini facil ities and infrastructure  and the Project Emerald 
facilities  and infrastructure  as part of the same multi -county industrial park, involve specific 
subsidies to Boeing.  
8.700.   We then address the remaining Project Gemini measures challenged by the 
European  Union fo r which there is no challenged Project Emerald counterpart: (a) state corporate 
income tax reductions allegedly provided through an income allocation and apportionment 
agreement with Boeing ( Section  8.2.8.9 ); (b) state property  tax exemption for Boeing 's large 
cargo freighters ( Section 8.2.8.10 ); (c) state sales and use tax exemptions for aircraft fuel, 
computer equipment , and construction materials established by H3130 ( Section  8.2.8.11 ); and ( d) 
workforce recruitment, training and development program mes allegedly established for Boeing 
(Section 8.2.8.12 ). 
8.2.8.5   Whether the sublease of the Project Site is a specific subsidy to Boeing  
8.2.8.5.1   Introduction  
8.701.   In paragraph 24 of its panel request, the European Union identifies the following measure 
as a subsidy related to Project Gemini  presently benefiting Boeing:  
Provision of a long -term lease of government -owned land at preferential rates, 
pursuant to a ground  lease agreement between the Charleston County Aviation 
Authority and South Carolina Public Railways, as amended, and a ground sublease 
agreement between South Carolina Public Railways and Boeing, as amended, thereby 
providing a financial contribution with in the meaning of Article  1.1(a)(1)(ii) -(iii) of the 
SCM Agreement.1977  
8.702.   In paragraph 25 of its panel request, the European Union identifies the following measure 
as a subsidy related to Project Emerald  presently benefiting Boeing:  
Provision of a long -term l ease of government -owned land at below -market rates, 
pursuant to a ground lease agreement between the Charleston County Aviation 
Authority and South Carolina Public Railways, as amended, and a ground sublease 
agreement between South Carolina Public Railway s and Boeing, as amended, thereby 
providing a financial contribution within the meaning of Article  1.1(a)(1)(ii) -(iii) of the 
SCM Agreement.1978 
8.703.   The government -owned land referred to in paragraphs 24 and 25 of the European  Union 's 
panel request is the same 24 0 acre portion of land at Charleston International Airport, (the Project 
Site). The Project Site is currently subleased to Boeing by South Carolina Public Railways  pursuant 
                                               
1976 The Project Gemini facilities and infrastructure and Project Emerald facilities and infrastructure are 
both located on the same Project Site, a 240 acre portion of land at Charleston International Airport. As we 
explain further in Section 8.2.8.5.1  below, the rights to occupy the Project Site in relation to both the Project 
Gemini facilities and infrastructure and the Project Emerald facilities and infrastructure are granted under the 
same sublease instrument.  
1977 European Union's request for the establishment of a panel, para. 24, first dot point.  
1978 European Union's request for the establishment of a panel, para. 25, first dot point.  WT/DS353/R W 
 
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  to a ground sublease which we describe in greater detail in the remainder of this Section of the 
Report. South Carolina Public Railways  in turn holds the ground lease of the Project Site pursuant 
to a Ground Lease Agreement with C harleston County Aviation Authority . As explained in 
paragraphs 8.694 -8.696  above, the Ground Lease and Ground Sublease were initially entered into 
in 2006 in order to provide Vought a sublease of the Project Site for purposes of constructing the 
Project Emerald facilities  and infrastructure  thereon and op erating the 787 fuselage fabrication and 
integration operations that Boeing subsequently acquired from Vought and Global Aeronautica in 
2008 and 2009.  
8.704.   The European Union argues that the sublease of the Project Site to Boeing involves a 
financial contribut ion to Boeing in the form of a provision of goods or services other than general 
infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement, which 
furthermore confers a benefit and is specific. The United States does not dispute that there is a 
financial contribution, but argues that any financial contribution was made to Vought rather than 
Boeing and that the European  Union has failed to demonstrate that any benefit arising from that 
financial contribution passed through to Boeing whe n it purchased Vought 's South Carolina 
operations in an arm's-length  transaction for fair market value in July 2009.  
8.705.   The facts surrounding Boeing 's acquisition of Project Emerald facilities  and infrastructure  
from Vought and its assumption of the Ground S ublease originally held by Vought as sublessee  are 
important to the Panel 's evaluation of the parties ' arguments as to whether the sublease of the 
Project Site involves a subsidy to Boeing. We set forth below in greater detail the precise sequence 
of event s leading to Boeing, in 2009, being the sublessee  of the Project Site (then consisting of the 
Project Emerald facilities  and infrastructure ), and to South Carolina offering the Project Gemini 
package of incentives in connection with Boeing 's subsequent dec ision to locate the Project Gemini 
facilities and infrastructure on the same Project Site.   
8.706.   Owing to production delays and manufacturing difficulties with the 787 program me, Boeing 
announced on 7 July 2009 that it would purchase Vought 's 787 business in So uth Carolina.1979 
Boeing had previously, in June 2008, purchased Vought 's 50% interest in the Global Aeronautica 
joint venture.1980 On 30 July 2009, Boeing acquired the business, assets and operations of 
Vought 's 787 business in North Charleston ; namely, the Vou ght facility that produces the 787 aft 
fuselage sections, including fabrication, assembly and systems installation.1981 Boeing reported 
that, in connection with the Vought acquisition, it paid cash consideration of USD 590 million and 
released Vought from its  obligation to pay USD 416 million previously advanced by Boeing.1982 
8.707.   Also in connection with Vought 's sale of its 787 business in South Carolina, on 
30 July 2009, Vought assigned its interest in the Vought Sublease to Boeing.1983 Thus, as of 
30 July 2009, Boein g became sublessee  of the Project Site, as successor -in-interest to Vought. 
Also on 30 July 2009, Vought transferred to Boeing its interest in all buildings, structures and 
other improvements owned by Vought related to, located on or used in connection wit h the 
operation of the facilities on the Project Site.1984 
8.708.   Shortly after Boeing 's acquisition of Vought 's South Carolina operations, Boeing began to 
consider whether it would locate its second 787 final assembly and delivery line outside 
                                               
1979 J. Weber, "Boeing Buys a Vought Aircraft Plant", Bloomberg Newsweek , 7 July 2009, (Exhibit 
USA-195).  
1980 Boeing, Backgrounder,  Boeing South Carolina , (August 2011), (Exhibit EU -463).  In December 2009, 
Boeing purchased Alenia's portion of the Global Aeronautica joint venture, dissolving the joint venture and 
creating Boeing South Carolina.  (Boeing, Backgrounder,  Boeing South Carolina , (August 2011), (Exhibit EU -
463)). 
1981 Boeing, 2009 Annual Report , (Exhibit USA -265), p. 26.  
1982 Boeing, 2009 Annual Report , (Exhibit USA -265), p. 66.  
1983 Assignment and Assumption of V ought Sublease between Vought Aircraft Industries, Inc. and 
Boeing Commercial Airplanes South Carolina, Inc. (30 July 2009) (Assignment of Vought Sublease), (Exhibits 
EU-475/USA -449 (exhibited twice)).  
1984 Assignment and Bill of Sale from Vought Aircraft Ind ustries, Inc. to Boeing Commercial Airplanes 
Charleston South Carolina, Inc. (30 July 2009), (Exhibit EU -552). According to the United States, this 
instrument is the execution copy of the "Facilities Bill of Sale, Assignment and Assumption Agreement" refer red 
to in section 9.1(e)(ix) of the Asset Purchase Agreement by and between Vought Aircraft Industries, Inc. and 
BCACSC, Inc., dated 6 July 2009, (the Vought Asset Purchase Agreement), (Exhibit USA -325). See United 
States' response to Panel question No. 11 7, para. 243; and response to Panel question No. 120, para . 248. WT/DS353/R W 
 
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  Washington State.1985 According to press reports, Boeing executives met with South Carolina 
government officials in mid -August 2009 to discuss the possibility of Boeing locating its second 
787 final assembly and delivery line in South Carolina.1986 In response to South Carolina 's 
perceived "competitive disadvantage " to other States that Boeing was considering, South Carolina 
legislators proposed an incentive package that included USD 170 million in government bonds, 
elimination of Boeing 's state corporate income taxes and sales tax e xemptions for computers, fuel 
for test flights and construction materials and equipment.1987 On the weekend of 24 October 2009, 
Boeing requested South Carolina to add a further USD 37 million in government bonds to the 
offer.1988 On 26 October 2009, Boeing 's Boa rd of Directors met to decide on the location of the 
second 787 assembly facility.1989 On 28 October 2009, Boeing announced that it had decided to 
locate the second 787 assembly line (i.e. the Project Gemini facilities  and infrastructure ) at the 
same site as its recently acquired North Charleston 787 fuselage fabrication and integration 
complex (i.e. the Project Emerald facilities  and infrastructure ).  
8.709.   Also on 28 October 2009, the South Carolina General Assembly passed H3130 (described 
in section 8.2.8.3.1 ) which amended several S outh Carolina  laws in order to: (a) authorize the 
issuance of additional general economic development bonds up to USD 170 million aggregate 
principal amount ; (b) authorize an agreement to apportion the inco me of taxpayers either planning 
a new facility in the State, or expanding an existing facility, conditional on the taxpayer investing 
at least USD 750 million in a single county and creating at least 3,800 full -time new jobs in the 
county ; and (c) exempt f rom sales and use tax aircraft fuel, computer equipment , and 
construction materials where the taxpayer invests at least USD 750 million in a single county and 
creates  at least 3,800 full -time new jobs in the county. H3130 wa s signed into law on 
30 October  2009.1990  
8.710.   Boeing broke ground on its new 787 final assembly and delivery line in 
November  2009.1991 On 19 November 2009, C harleston County Aviation Authority  and South 
Carolina Public Railways  amended the Ground Lease for the Project Site, inter alia , to acknow ledge 
the changes in the structure of the subleases over the Project Site as a result of Vought 's 
assignment of the Vought Sublease to Boeing on 30  July 2009.1992 Also on 19 November 2009, 
Boeing and S outh Carolina Public Railways  entered into an "amended and  restated " sublease of the 
Project Site.1993 Under the Amended and Restated Sublease: (a) the parties acknowledge that the 
Vought Sublease was assigned to Boeing on 30 July 2009 ; (b) South Carolina Public Railways  as 
sublessor  expressly consents to that assig nment ; and (c) the parties agree that the Amended and 
Restated Sublease "amends, restates in its entirety, and takes the place of " the Vought 
Sublease.1994 The operative terms of the Amended and Restated Sublease as regards term, annual 
rent (including liabil ity for, and the calculation of, Additional Rent) and representations of 
sublessor  and sublessee  for all practical purposes remain the same as those of the Vought 
Sublease. The principal relevant difference between the two instruments is that section 7 of the 
Amended and Restated Sublease, unlike its counterpart in the Vought Sublease, provides that the 
                                               
1985 Press reports indicate that Boeing executives had been frustrated about interruptions to 787 
production due to strikes by Boeing workers in Washington State in 2008 and remained dissatisfie d over 
negotiations with the labour union representing Boeing machinists in Washington State. (Andy Shain, "S.C. 
travelled a long road to land Boeing", Charlotte Observer , 1 November 2009, (Exhibit EU -9)).  
1986 Andy Shain, "S.C. travelled a long road to land  Boeing", Charlotte Observer , 1 November 2009, 
(Exhibit EU -9). 
1987 Andy Shain, "S.C. travelled a long road to land Boeing", Charlotte Observer , 1 November 2009, 
(Exhibit EU -9). 
1988 Andy Shain, "S.C. travelled a long road to land Boeing", Charlotte Observer , 1 November 2009, 
(Exhibit EU -9). 
1989 Andy Shain, "S.C. travelled a long road to land Boeing", Charlotte Observer , 1 November 2009, 
(Exhibit EU -9). 
1990 South Carolina Act No. 124, S.C. Code , Acts 1092, H3130 (30 October 2009), (Exhibit EU -466) 
1991 Boeing, Backgroun der, Boeing South Carolina , (August 2011), (Exhibit EU -463).  
1992 First Amendment to Ground Lease Agreement by and between Charleston County Aviation Authority 
and South Carolina Public Railways (19 November 2009), (Exhibit EU -476), recitals 3 and 4.  
1993 Amende d and Restated Ground Sublease by and between Boeing Commercial Airplanes Charleston 
South Carolina, Inc. and South Carolina Public Railways (19 November 2009) (Amended and Restated 
Sublease), (Exhibit EU -471).  
1994 Section 1 of the Amended and Restated Suble ase relevantly provides: "{t}his Sublease amends, 
restates in its entirety, and takes the place of the Vought Sublease, such that the Sublessor shall hereafter 
sublease the Premises to Sublessee in accordance with the terms and conditions set forth herein. " (Amended 
and Restated Sublease, (Exhibit EU -471), clause 1).  WT/DS353/R W 
 
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  sublessee  (Boeing) is subleasing the Premises for the purpose of, not just constructing thereon 
facilities supporting the manufacture of products for the ae ronautics industry, but also using 
previously constructed facilities.  
8.711.   Subsequently, on 1 January 2010, Boeing and the South Carolina Department of 
Commerce entered into the Project Gemini Agreement.1995 Under the Project Gemini Agreement, 
the South Carolina D epartment of Commerce agreed to request the South Carolina Joint Bond 
Review Committee to approve, and the State Budget and Control Board to issue, economic 
development bonds in the amount of USD 220 million to offset the costs of infrastructure 
associated  with Project Gemini and air hub bonds in the amount of USD 50 million to offset the 
costs associated with air carrier hub terminal facilities.1996 For its part, Boeing agreed to make new 
investment s in real and personal property of USD 750 million in the Sta te of South Carolina and to 
employ 6,000 employees in the State of South Carolina by 31 December 2016 or earlier.1997 The 
parties further agreed to amend the Project Emerald Additional Rent provisions contained in the 
Amended and Restated Sublease and replace  those provisions with a Performance Provision set 
forth as an exhibit to the Project Gemini Agreement, in light of the significant employment and 
investment already made by Boeing and other entities at the Project Site and given that the 
Performance Provi sion includes existing employment along with anticipated new employment and 
investment associated with Project Gemini.1998 
8.2.8.5.2   Main arguments of the parties  
8.712.   The European Union  argues that the "lease of the project site to Boeing " is a financial 
contribution.1999 By allowing Boeing exclusive use of government -owned land at Charleston 
International Airport for its 787 manufacturing facilities in exchange for a nominal fee, South 
Carolina provides goods other than general infrastructure within the meaning of 
Article  1.1(a)(1)(iii) of the SCM Agreement.2000  
8.713.   The European Union acknowledges that the sublease of the Project Site covers both 
Boeing 's 787 final assembly and delivery facility (the Project Gemini facilities  and infrastructure ) as 
well as the 787 fuselage fabricati on and integration complex which Boeing took over from Vought 
and Global Aeronautica in 2009 (the Project Emerald facilities  and infrastructure ).2001 The 
European Union clarifies  that "while the lease also subsidises Boeing 's Project Emerald facilities  
and in frastructure , the European Union chooses not to treat this as a separate subsidy " from the 
subsidy it describes in connection with Project Gemini.2002  
8.714.   The European Union argues that the "Project Site lease " is the "instrument through which 
South Carolina pro vides Boeing with use of the project site ".2003 The European Union considers the 
financial contribution to have been first provided "directly " to Boeing on 30  July 2009, the date on 
                                               
1995 Project Gemini Agreement, (Exhibit EU -467).  
1996 Project Gemini Agreement, (Exhibit EU -467), part II.A and B Boeing agrees also to operate the air 
carrier hub facilities financed with the issuan ce of the air hub bonds to support Project Gemini.  
1997 Project Gemini Agreement, (Exhibit EU -467), part IV.A.  
1998 Project Gemini Agreement, (Exhibit EU -467), part IV.B. The Project Gemini Agreement provides 
that, promptly following execution of the Project Gem ini Agreement, the parties will cause the relevant parties 
to amend the Amended and Restated Sublease so that the provisions regarding the Performance Provision 
supersede the Emerald Additional Rent provisions as well as in certain other respects. No such amendment has 
been submitted into evidence by either of the parties.  
1999 European Union's first written submission, para. 557. In its panel request, the European Union 
identifies the measure at issue as the "long -term lease of government -owned land … pursua nt to a ground 
lease agreement between the Charleston County Aviation Authority and South Carolina Public Railways, as 
amended, and a ground sublease between South Carolina Public Railways and  Boeing, as amended." 
(European  Union's request for the establis hment of a panel, paras. 24 and 25). Although the European Union 
refers in its submissions to the measure at issue as the "Project Site Lease", as we explain in Section 8.2.8.5.1  
above, the instrument to which V ought and Boeing were parties is in fact a ground sublease , and not a lease. 
Thus, to the extent that the European Union in its submissions refers variously to the "lease of the project 
site", or the "Project Site Lease", we understand it to be referring t o the instrument pursuant to which South 
Carolina Public Railways , as lessee of the Project Site from C harleston County Aviation Authority  sublease s the 
Project Site to Vought (and Boeing).  
2000 European Union's first written submission, para. 557.  
2001 European  Union's first written submission, para. 696 and fn 1552.  
2002 European Union's first written submission, para. 696.  
2003 European Union's response to Panel question No. 107, para. 170.  WT/DS353/R W 
 
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  which Boeing assumed Vought 's rights as sublessee  under the Vought Sublease.2004 While the 
European Union considers that a financial contribution existed with respect to the sublease of the 
Project Site before 30 July 2009 (presumably to Vought and not to Boeing), it does not claim that 
there was a benefit or subsidy to Boeing prior t o that date.2005  
8.715.   The European Union argues that the sublease of the Project Site to Boeing confers a 
benefit on Boeing 's LCA division because it is provided on non -market terms.2006 The provision of 
the sublease is made for less than adequate remuneration in re lation to prevailing market 
conditions. Boeing pays USD 1 per year to sublease the Project Site, while a market participant 
would pay significantly more. The European Union acknowledges that one method of valuing the 
sublease of the Project Site would be t o consider comparable lease transactions. However, as 
neither party has provided the information that would be required to determine the benefit on this 
basis, the sublease of the Project Site itself provides the best information available as to the value 
of the sublease of the Project Site.2007 In this regard, the European Union notes that the "base 
lease value " of USD 4.7 million per annum from the first full year of the sublease (1  January  2010) 
through the end of the final five -year extension at the end of  2041 totals USD 150.03 million. The 
European Union argues that the "base lease value ", being the amount the sublessee  was liable to 
pay under the Vought Sublease if the sublessee  failed to meet the investment and employment 
thresholds, was likely negotiat ed between South Carolina and Vought to represent less than the 
actual fair market value of the sublease.2008 The amount of USD 150.03 million (less the USD 31 in 
rent payments due from Boeing) also likely underestimates the benefit to Boeing because it was 
negotiated prior to Boeing 's purchase of the Project Emerald facilities  and infrastructure  and its 
decision to establish the Project Gemini facilities  and infrastructure . Once account is taken of the 
particular value to Boeing  of having its second 787 final  assembly and delivery line located 
adjacent to the 787 fuselage fabrication and integration complex, and connected to an airport 
runway of sufficient length from which to operate 787s and 747 LCFs, the benefit conferred on 
Boeing would include an addition al market premium.2009 
8.716.   The European Union rejects the United States ' arguments that the Project Site had [***] 
value to Boeing because [***]. The Project Site 's value is a function of supply and demand in the 
market. Moreover, if the Project Site really [***] as the United States contends, it is 
inconceivable that Boeing or any other sublessee  would have agreed to the sublease.2010 The 
European Union also rejects the United States ' suggestion that the site improvements effected by 
Boeing that will revert to South  Carolina at the conclusion of the sublease entail "adequate 
remuneration " on a number of grounds, including the absence of evidence provided by the United 
States comparing the value of Boeing 's improvements to prevailing market lease rates, the fact 
that a significant portion of the site improvements were paid for by South Carolina rather than 
Boeing, the improvements will have limited or no value at the time of reversion, and in any case, a 
standard commercial ground lease would have required Boeing to pa y more than nominal rent for 
the term of the lease.2011 
8.717.   The European Union argues that the sublease of the Project Site is specific , within the 
meaning of Article 2.1(a) of the SCM Agreement , as a subsidy that is explicitly limited to certain 
enterprises.2012 The European Union bases this argument on a number of factors. First, it notes 
that South Carolina Public Railways  entered into the sublease with Boeing (or at different times, 
                                               
2004 European Union's response to Panel question No. 107, fn 303. It likewise regards the starting point 
for the "benefit" (and hence, the "subsidy" to Boeing) to be 30 July 2009.  
2005 European Union's response to Panel question No. 107, para. 169. In response to the United  States' 
argument that none of the Project Emerald measures pro vided to Vought (including the sublease of the Project 
Site) confer a benefit on Boeing because the European Union has failed to demonstrate that any benefits 
passed through to Boeing, the European Union argues that the question of how such benefits confer red 
originally on Vought or Global Aeronautica passed through to Boeing is "i rrelevant" because the 
European  Union does not claim that Boeing received any benefits prior to completing the acquisition of 
Vought's South Carolina operations, or that any benef its conferred originally on Vought or Global Aeronautica 
passed through to Boeing. (European Union's second written submission , para. 722). See also 
European  Union's response to Panel question No. 39, paras. 219 and 220 and fn 247.  
2006 European Union's first  written submission, para. 560.  
2007 European Union's second written submission, para. 616.  
2008 European Union's first written submission, paras. 558 and 559.  
2009 European Union's first written submission, paras. 561 and 562.  
2010 European Union's second written sub mission, paras. 619 and 620.  
2011 European Union's second written submission, paras. 621 -627. 
2012 European Union's first written submission, para. 563.  WT/DS353/R W 
 
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  Boeing and Vought) alone and that C harleston County Aviation Authority  similarly consented  to the 
sublease of the Project Site solely to Boeing (or at different times, to Boeing and Vought).2013 
Second, the sublease is an element of both the Project Gemini and Project Emerald incentive 
packages, intended to benefit Boeing and its supplier s.2014 Third, both the Ground Lease and 
Vought Sublease provide that their purposes concern the construction and use of manufacturing 
facilities for the aviation or aeronautics industries.2015 The European Union additionally argues that 
the sublease of the Proje ct Site is de facto  specific within the meaning of Article 2.1(c) because the 
subsidy is used by a limited number of entities and Boeing is the predominant user of the subsidy 
programme. Boeing and its suppliers have been the sole beneficiaries of the subl ease of the 
Project Site, and the United States has identified only one other multi -acre property that the State 
of South Carolina has leased or subleased to a private company for USD 1,000 per year or less 
since around the year 2000.2016 Thus, even if there were a larger subsidy programme, beyond the 
sublease of the Project Site (which the European Union says the United States has failed to 
demonstrate), such a programme would in any case only have been used by a limited number of 
certain enterprises.2017  
8.718.   The United States  denies that the Project Site sublease provides a financial contribution to 
Boeing.2018 It argues that South Carolina provided the land use rights to the Project Site to Vought , 
through the Project Emerald Agreement and the Vought Sublease. Vought  "autonomously 
assigned " those rights to Boeing in an arm's-length , fair market value purchase of Vought 's South 
Carolina operations in July 2009. Accordingly, Boeing obtained the right to use the Project Site, 
and the improvements on it, from Vought, not South Carolina. There was no financial contribution 
by a government to Boeing under the SCM Agreement.2019 The United States adds that, as the 
European Union does not attempt to argue or provide evidence to demonstrate that any benefit 
conferred by a financia l contribution made by South Carolina to Vought passed through from 
Vought to Boeing, the European Union has failed to demonstrate that any relevant financial 
contribution by a government occurred with respect to the Project Site sublease.2020 
8.719.   The United Stat es considers that the European Union, in acknowledging that there was a 
financial contribution with respect to the sublease of the Project Site prior to 30 July 2009, and 
then asserting that the "starting point " of the financial contribution "to Boeing dir ectly" was 
30 July 2009, incorrectly suggests that there was more than one financial contribution with respect 
to the Project Site land.2021 The European Union thus "seems to conceive of the sublease as a 
recurring subsidy, wherein each ye ar, South Carolina ( through the Charleston County Aviation 
Authority ) provides the sublessee  with land for less than adequate remuneration ".2022 The United 
States argues that such a conception is entirely at odds with the design, operation and principal 
characteristics of the su blease at issue. For the United States, the sublease for the Project Site is a 
"unified asset " provided at the time of execution of the Vought Sublease (in 2006) when the 
parties became contractually obligated by its terms.2023  
8.720.   The United States argues that there is nothing about Boeing 's purchase of Vought 's South 
Carolina assets, including its assumption of Vought 's subleasehold interest in the Project Site, that 
supports finding a "second financial contribution " in 2009, or any additional financial contrib utions 
after the initial one in 2006. Given that the only financial contribution in connection with the right 
                                               
2013 European Union's first written submission, para. 563. The European Union asserts that both the 
original dec ision to sublease the Project Site to Vought and the approval of Boeing's assumption of the Vought 
Sublease necessarily took the form o f resolutions passed by the Charleston County Aviation Authority . 
Therefore, C harleston County Aviation Authority  and S outh Carolina Public Railways  explicitly limited access to 
the subsidy to certain enterprises. (European Union's second written submission, para. 630).  
2014 European Union's first written submission, para. 563.  
2015 European Union's first written submission, para.  564. 
2016 European Union's first written submission, para. 565. The European Union also argues that the 
sublease of the Project Site is specific because it falls under the provisions of Article 3 of the SCM Agreement 
and is therefore "deemed" to be specific pursuant to Article 2.3 of the SCM Agreement. (European Union's first 
written submission, para. 566).  
2017 European Union's second written submission, paras. 631 and 632.  
2018 United States' first written submission, para. 581; second written submission, para. 4 87. 
2019 United States' second written submission, paras. 487 and 501.  
2020 United States' second written submission, fn 703 (referring to European Union's second written 
submission, para. 722) and para. 503.  
2021 United States' comments on the European Union's res ponse to Panel question No. 107, para. 172.  
2022 United States' comments on the European Union's response to Panel question No. 107, para. 173.  
2023 United States' comments on the European Union's response to Panel question No. 107, para. 174.  WT/DS353/R W 
 
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  to use the Project Site occurred when South Carolina executed the Vought Sublease in 2006, the 
European Union must demonstrate that any benefit co nferred by that 2006 financial contribution 
"passed through " to Boeing.2024 
8.721.   The United States argues that, even assuming arguendo  that the sublease of the Project 
Site constituted a financial contribution to Boeing, it did not confer a benefit because it had a 
[***] to Boeing if examined in isolation.2025 Boeing [***].2026 Boeing 's actual remuneration to 
South Carolina of USD 1 per year is therefore more than adequate.2027 The United States argues 
that, contrary to the European Union 's assertion that it is inconceivabl e that a commercial actor 
like Boeing would have agreed to a ground sublease of land that had a [***], it is quite 
conceivable that a party would take a loss on one aspect of an arrangement if overall, the 
arrangement was advantageous to it. It gives the e xample of private parties agreeing to lease or 
purchase so -called brownfield (i.e. environmental clean -up) sites due to government enticements 
to develop land and/or defray environmental costs and liabilities.2028 The United States regards as 
"fanciful " (and unsupported by the United States ' expert appraisals) the European Union 's 
valuation of the Project Site at USD 150.03 million.2029 According to the United States, the 
European Union 's valuation of the Project Site would make it the most expensive piece of the  land 
in North Charleston.2030 
8.722.   The United States rejects the European Union 's arguments that the sublease of the Project 
Site is specific within the meaning of Article 2.1(a) of the SCM Agreement. The United  States 
considers that the European Union confuses t he identification  of an alleged subsidy recipient, with 
a limitation on access  to that recipient, or the class of enterprises to which it belongs.2031 The fact 
that Boeing was the sole sublessee  of the Project Site, or that the Charleston County Aviation 
Authority consented to the s ublease, does not mean that the Charleston County Aviation Authority  
explicitly limited access to the subsidy to certain enterprises, nor does it demonstrate that the 
Charleston County Aviation Authority  or any other South Carolina entity restricted access to the 
sublease of the Project Site, or to other similar measures, from parties other than Boeing. The 
United States also rejects the European Union 's argument that the sublease of the Project Site is 
de facto  specific within the m eaning of Article 2.1(c). The United States argues that the sublease 
of the Project Site is part of a broader programme to provide site leases to industrial lessees in 
exchange for nominal lease payments, and asserts that political subdivisions of South Ca rolina, 
including Charleston County (through the Charleston County Aviation Authority ) routinely provide 
nominal leases of publicly -owned property.2032 
8.2.8.5.3   Evaluation by the Panel  
8.2.8.5.3.1   Whether the sublease of the Project Site involves a financial contribution to 
Boein g within the meaning of Article 1.1(a) (1)(iii) of the SCM Agreement  
8.723.   The first issue before us is whether the sublease of the Project Site, on which Boeing 's 787 
manufacturing facilities are located (both the Project Gemini facilities  and infrastructure  and the 
Project Emerald facilities  and infrastructure ), involves a financial contribution by South Carolina to 
Boeing within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.  
8.724.   The European Union and United States agree that there was a financial cont ribution in the 
form of a provision of goods or services other than general infrastructure from the time that South 
Carolina entered into the Vought Sublease with Vought on 25 August 2006.2033 However, the 
European Union considers that a "financial contributi on is provided throughout the period that the 
                                               
2024 United States' c omments on the European Union's response to Panel question No. 107, para. 182.  
2025 United States' first written submission, paras. 554 -557; second written submission, para. 504.  
2026 United States' second written submission, para. 504. The United States further  argues that the 
[***] of the Project Site "should offset any putative benefit conferred to Boeing by the provision of facilities 
and infrastructure ". (United States' second written submission, para. 507 and fn 752).  
2027 United States' second written submiss ion, para. 507.  
2028 United States' second written submission, para. 505.  
2029 United States' first written submission, para. 557; second written submission, para. 506.  
2030 United States' second written submission, para. 506.  
2031 United States' second written submis sion, para. 508.  
2032 United States' second written submission, para. 509.  
2033 European Union's response to Panel question No. 172, para. 575.  WT/DS353/R W 
 
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  government continues to provide such goods or services ".2034 As Boeing is "presently leasing the 
project site directly from a South Carolina government agency " this is conclusive evidence of a 
financial contributi on to Boeing.2035 
8.725.   The United States argues that the relevant financial contribution by South Carolina was to 
grant Vought a ground sublease of the Project Site when it executed the Vought Su blease on 
25 August 2006. Boeing obtained its interest as sublessee  under the Vought Sublease directly from 
Vought  on 30 July 2009, as part of what the United States asserts was an arm's-length  transaction 
for fair market value between Vought and Boeing. In these circumstances, the European Union 
bears the burden of demonst rating (and has failed to demonstrate) that the benefit conferred by 
any such financial contribution provided to Vought has "passed through " to Boeing.  
8.726.   In response, the European Union says that the United States has misunderstood its claims, 
that its actu al claims involve the provision of goods directly  to Boeing by South Carolina, and that 
such a financial contribution has been conferred on Boeing directly by South Carolina since 
2009.2036 The European Union maintains that it does not allege that the benefit  from any financial 
contribution provided directly to Vought "passed through " to Boeing.2037 Thus, the European Union 
argues that a subsidy to Boeing exists, not as a result of the pass -through to Boeing of a benefit 
conferred by a financial contribution prov ided to Vought, but as a result of a benefit from a 
financial contribution provided directly to Boeing .  
8.727.   The Panel asked the European Union to identify the temporal starting point for the alleged 
financial contribution  to Boeing, and to indicate whether th e alleged financial contribution is the 
Vought Sublease, the Amended and Restated Sublease or other instruments or events. The 
European Union responded as follows:  
a. A financial contribution existed with respect to the sublease of the Project Site well 
before 30 July 2009 (the date on which Boeing assumed the sublease from Vought). 
However , it "does not claim that there was a 'benefit ' or 'subsidy ' to Boeing prior to that 
date".2038 
b. The sublease of the Project Site is the instrument through which South Carolina provides 
Boeing with use of the Project Site, and consequently, the starting point for the benefit 
and hence subsidy to Boeing is 30 July 2009, the date on which Boeing assumed the 
sublease of the Project Site from Vought. In a footnote to this part of its  response the 
European Union then stated: "{a}ccordingly , the Europe an Union also considers 
30 July {2009} the starting point of the financial contribution to Boeing  directly ".2039 
8.728.   In the part of the European Union 's response recounted in (a) and the first se ntence of (b) 
above, the European Union acknowledges that South Carolina provided a financial contribution to 
Vought when it executed the Vought Sublease in 2006.  
8.729.   However, the European Union then states, in footnote 303 of its response to Panel 
question N o. 107, that "accordingly " it "also" considers the starting point of the direct  financial 
contribution to Boeing to be 30 July 2009. The European Union adds, in a final paragraph of its 
response to Panel question No. 107, that if the Panel considers the ex ecution of the Amended and 
Restated Sublease to be "relevant " to its determination of financial contribution or benefit, it could 
"alternatively " consider the date of that instrument (i.e. 19 November 2009) as the starting point 
of the "subsidy ".2040 Notably,  the European Union does not argue that it considers the Amended 
and Restated Sublease to be relevant to the financial contribution determination, nor does it offer 
any legal explanation as to why the Panel could potentially consider the Amended and Restat ed 
Sublease to be so relevant.  
                                               
2034 European Union's response to Panel question No. 172, para. 575.  
2035 European Union's response to Panel question No. 17 2, para. 577. (emphasis original)  
2036 European Union's response to Panel question No. 39, paras. 218 and 219.  
2037 See e.g. European Union's response to Panel question No. 39, para. 220.  
2038 European Union's response to Panel question No. 107, para. 169.  
2039 Europe an Union's response to Panel question No. 107, para. 170 and fn 303. The European Union 
appears to have inadvertently written 1999 when it meant 2009. (emphasis original)  
2040 European Union's response to Panel question No. 107, para. 171.  WT/DS353/R W 
 
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  8.730.   We recall that paragraphs 24 and 25 of the European Union 's panel request describe the 
alleged subsidy as the provision of a "long-term lease " pursuant to a Ground Lease Agreement 
between the Charleston County Aviation Author ity and South Carolina Public Railways  and "a 
ground sublease  agreement  between South Carolina Public Railways  and Boeing, as amended ". It 
would appear from the language used in the European Union 's panel request, and also in its first 
written submission, that it means to identify the Amended and Restated Sublease, dated 19 
November 2009, which on its face would appear to be the "ground sublease between South 
Carolina Public Railways  and Boeing, as amended ".2041 Yet the European Union 's response to Panel 
quest ion No. 107, that the temporal starting point of the "direct " financial contribution to Boeing is 
30 July 2009 suggests, to the contrary, that the European Union is in fact referring to the Vought 
Sublease as of the date on which Boeing became the assignee  of Vought 's subleasehold  rights 
thereunder (i.e. 30  July 2009) as the relevant direct financial contribution to Boeing.  
8.731.   The correct identification of the legal instrument that the European Union alleges is the 
direct financial contribution to Boeing is of  key importance to the Panel 's analysis. This is because 
the European Union challenges the legal instrument of the sublease itself  as the financial 
contribution that is said to constitute a provision of "goods … other than general infrastructure " 
within th e meaning of Article 1.1(a)(1)(iii).2042 When we compare our understanding of the legal 
instrument that is the measure described in the European Union 's panel request and first written 
submission in particular (the Amended and Restated Sublease executed on 19  November 2009), 
with the legal instrument that logically must be the challenge d measure based on the 
European  Union 's response to Panel question No. 107 (the Vought Sublease, as of the date on 
which Boeing became Vought 's assignee), we are left in no smal l measure of doubt as to whether 
the European Union has been sufficiently clear or consistent as to which legal instrument or event 
is the direct financial contribution to Boeing.2043  
8.732.   As we explain below, we have concluded in any case that neither the assump tion by 
Boeing of Vought 's interests under the Vought Sublease on 30 July 2009, nor the Amended and 
Restated Sublease entered into by S outh Carolina Public Railways  and Boeing on 
19 November  2009, can be considered to constitute a direct financial contribu tion to Boeing.  
8.2.8.5.3.2   Whether Boeing 's assumption of Vought 's interests under the Vought 
Sublease on 30 July 2009 is a direct financial contribution to Boeing  
8.733.   As previously noted, the European Union and United States agree that there was a 
financial contributio n to Vought, in the form of a provision of goods or services other than general 
infrastructure, at the time that South Carolina entered into the Vo ught Sublease with Vought on 
25 August 2006.  
                                               
2041 Additionally, aft er explaining that Boeing assumed the sublease of the Project Site from Vought on 
30 July 2009, the European Union argues that, on 19 November 2009, "Boeing and SC PR (with the consent of 
the Charleston County Aviation Authority ) entered into the Amended an d Restated Ground Sublease … 
providing Boeing with that direct sublease." (European Union's first written submission, para. 553). The 
references to the terms of the "Ground Sublease" in paragraphs 554 and 555 which the European Union then 
argues (in paragr aphs 556 and 557) is a specific subsidy to Boeing, are to Exhibit EU -471 which is the 
Amended and Restated Sublease between S outh Carolina Public Railways  and Boeing, dated 19 November 
2009, not the Vought Sublease.  
2042 This much is clear not only from para graphs 24 and 25 of the European Union's panel request, but 
also from its submissions: "{a}s demonstrated below, the provision of this lease constitutes a specific 
subsidy". (European Union's first written submission, para. 556). "{t}he lease of the projec t site to Boeing 
provides a financial contribution by a government under the SCM Agreement". (European Union's first written 
submission, para. 557). "{t}he European Union explained in its First Written Submission that South Carolina's 
lease of land at Char leston International Airport to Boeing (i.e., the 'project site lease') … provides to Boeing a 
financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement". (European Union's 
second written submission, para. 614). "{t}he United  States … misunderstands what is the subject of {the 
European Union's valuation of the financial contribution}. Contrary to the US' characteri zation, the 
European  Union here valued the project site lease, not the project site itself." (European Union's sec ond written 
submission, para. 615 (emphasis original)).  
2043 To the extent that the European Union intends to challenge a direct financial contribution allegedly 
provided to Boeing by South Carolina as of 30 July 2009, when Boeing became the assignee of Vough t's 
interests under the Vought Sublease, there is a real issue in our view, whether the Vought Sublease has been 
sufficiently clearly identified in the European Union's panel request.  WT/DS353/R W 
 
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  8.734.   To be clear, a government 's undertaking legal obligations embod ied in a legal instrument 
such as a ground sublease is not of itself a provision of "goods ". The characterization of a legal 
instrument such as a government ground sublease as a "provision " of "goods " for purposes of 
Article 1.1(a)(1)(iii) is based on the notion that the legal instrument creates a government 
obligation to provide the recipient with certain rights in respect of a "good". In the present case, 
the Vought Sublease provided the sublessee , Vought, with the rights of exclusive use and 
possession o f the Project Site for an agreed period of time. There is accordingly a reasonably 
proximate relationship between the action of the government in granting legal rights in the legal 
instrument (i.e. Vought Sublease) and the use and enjoyment of the "good" (i.e. the Project 
Site).2044  
8.735.   The United States considers that, while a ground sublease involves a government 
obligation to provide rights to land for the duration of the ground sublease, the financial 
contribution is the government 's legal commitment to provi de the land for a period into the future, 
which occurs when the commitment becomes legally effective. The United States thus regards the 
question of whether the Vought Sublease involves a subsidy to Boeing to concern the question of 
the transmission of sub sidy benefits  between unrelated parties.  
8.736.   We recall that the disputes in US – Lead and Bismuth II  and US – Countervailing Measures 
on Certain EC Products  addressed the question of whether the benefit conferred from past, 
non-recurring subsidies continued t o exist and had been fully transferred to the recipient 
firms' new owners in spite of the fact that the new owners had paid fair market value for the 
recipient firms. The United States ' arguments are similarly based on an analytical framework in 
which the financial contribution (South Carolina 's obligation to provide a Ground Sublease of the 
Project Site) was made directly to Vought in 2006 when it entered into the Vought Sublease, while 
any benefit conferred by that financial contribution (annual rental pa yments allegedly at below -fair 
market value) would necessarily be enjoyed by the recipient over the period of the ground 
sublease. Under this framework, when Boeing became the assignee of Vought 's interests under the 
Vought Sublease in July 2009, the relev ant question is whether the benefit conferred by  the 
allegedly below -market value rental payments, from the period of time from which Boeing had 
assumed Vought 's rights and obligations, can be said to have "passed through " to Boeing, or 
whether it was "extinguished " at that point because Boeing effectively paid for it when it acquired 
the Project Emerald facilities  and infrastructure  from Vought in an arm 's-length, fair market value 
transaction. For the United States, there is no question that the relevant financial contribution 
occurred only once in 2006 when the South Carolina authorities granted the Vought Sublease to 
Vought. The relevant issue is whether the benefit conferred by that f inancial contribution from 
July 2009 onwards is being enjoyed by Boein g. 
8.737.   The European Union 's analytical approach, on the other hand, obviates the need to 
determine whether the benefit conferred by a financial contribution to Party A in Year N has 
"passed through " to an assignee of that financial contribution so that it is s ubsequently being 
enjoyed by Party B in Year N + 1, by characterizing the assignment of the financial contribution by 
Party A to Party B as itself giving rise to a new, distinct and direct financial contribution by a 
government to the assignee. For the Eur opean Union, because Boeing enjoyed the right to use the 
Project Site as Vought 's assignee under the Vought Sublease as of 30 July 2009, South Carolina 
can be considered from that date to have made a new financial contribution of "goods … other than 
genera l infrastructure " directly to Boeing under the Vought Sublease.  
8.738.   The parties ' positions involve the question of how to characterize a financial contribution 
that involves a government -provided legal right which is to be enjoyed over a period of time (e.g. 
to occupy land, to obtain a particular tax treatment). More specifically, the question is whether the 
government -provided legal right should be characterized for purposes of Article  1.1(a)(1) of the 
SCM Agreement as a single financial contribution that occ urs at the time the government 
undertakes the legal commitment, notwithstanding that the benefit conferred by that one -time 
financial contribution may be analysed as being enjoyed over the period of the government 's 
actual performance of that obligation , or as a continuing or recurring series of financial 
contributions commensurate with the government 's performance of the obligation  over time.  
                                               
2044 Appellate Body Report, US – Softwood Lumber IV , para . 71. See also App ellate Body Report, US – 
Carbon Steel (India ), para. 4.69.  WT/DS353/R W 
 
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  8.739.   The United States regards the Vought Sublease over the Project Site as a "unified asset " 
provided by South Carolina  at the time of the execution of the Vought Sublease on 
30 July 2006.2045 The existence and magnitude of any subsidy arising from the Vought Sublease 
would be measured by reference to the market rates at the time the Vought Sublease was 
executed and its terms  (e.g. period and annual rental) were set. Whether the agreed annual rental 
was below the market rate is an ex ante  analysis that would be assessed at the time the South 
Carolina authorities and Vought executed the Vought Sublease, even if the benefit were  to be 
considered to be enjoyed over the period of the sublease.2046 When Boeing purchased Vought 's 
South Carolina interests and assets – including Vought 's interests under the Vought Sublease – for 
over USD 1 billion in a July 2009 transaction with Vought, S outh Carolina "provided " nothing. It 
was already contractually obligated to honour the annual rental and term of the Vought 
Sublease.2047 The only question is whether the European Union can demonstrate that any benefit 
conferred on Vought can be considered to  have "passed through " to Boeing as assignee of 
Vought 's interests under the Vought Sublease in 2009, which the European Union has failed to do.  
8.740.   The European Union regards the Ground Sublease of the Project Site as "ongoing ", rather 
than a "completed singl e act in 2006 ".2048 According to the European Union, there are a number of 
factors that support such a characterization, including: (a) the "nature of the land rights " provided 
under a ground sublease, being "possession and use, rather than ownership "; (b) th e conditioning 
of those rights on certain performance obligations by the sublessee  and the broader relationship of 
other aspects of the Project Gemini incentive package to Boeing 's location of its facility on public 
land; (c) South Carolina 's "ongoing supe rvisory relationship to Boeing as landlord "; and (d) the 
limited term of the sublease and the eventual "reversion " of the Project Site to South Carolina.2049 
Moreover, the "goods or services " provided to Boeing are "qualitatively different " from those 
previou sly provided to Vought, because the parts of the Project Site other than those already in 
use by the Project Emerald companies were only made useable for the Project Gemini facilities  and 
infrastructure  through approximately USD 50 million spent by South C arolina on land 
remediation.2050 In addition, "Boeing 's lease " is materially different from the Vought Sublease 
because the former eliminated the performance requirements that potentially could have triggered 
additional payment obligations on the part of Voug ht.2051 
8.741.   We do not consider it appropriate to characterize the financial contribution that arises from 
the Ground Sublease of the Project Site, involving as it does a government provision of land for 
the term of the sublease, as a financial contribution that i s ongoing, or continues, for the duration 
of the Ground Sublease.2052 Like the United States, we see the financial contribution as a one -time 
financial c ontribution made by South Carolina  at the time the government undert akes the legal 
obligation  under the su blease, notwithstand ing that its performance of the obligation  will 
necessarily occur over time. When the South Carolina authorities entered into the Vought Sublease 
with Vought in 2006, they became legally obligated to provide Vought or Vought 's assignees  with 
exclusive use and possession of the Project Site for the period of the Ground Sublease. This did 
not change when Boeing became assignee of Vought 's rights under the Vought Sublease.  
8.742.   We are not persuaded by the European Union 's arguments that the "nature" of the rights 
granted to the sublessee , or the rights and obligations of South Carolina as sublessor , under the 
Ground Sublease of the Project Site, warrant a characterization of the relevant financial 
contribution as one that is "ongoing ". We note th at ground leases (or land leases, as they are 
sometimes called) are a particular form of property interest that typically involve the long-term 
lease of land only.2053 A ground lease tenant will usually construct its own buildings on the land 
                                               
2045 United States' comments on the European Union's response to Panel question No. 107, para. 174.  
2046 United States' comments on the European Union's response to Panel question No. 107, para. 180.  
2047 United States' comments on the European Union's response to Panel question No. 107, para. 181.  
2048 European Union's response to Panel question No. 172, para. 578.  
2049 European Union's response to Panel question No. 172, para. 578.  
2050 European Union's response to  Panel question No. 172, para. 579.  
2051 European Union's response to Panel question No. 172, para. 580.  
2052 This is very different from the question of whether it is appropriate to analyse any benefit conferred 
by such a financial contribution as being amortiz ed over the period of the ground sublease, or over some other 
appropriate period.  
2053 Black's Law Dictionary describes a "ground lease" as follows:  
A long term (usu. 99 -year) lease of land only. Such a lease typically involves 
commercial property, and any im provements built by the lessee usu. revert to the 
lessor.  WT/DS353/R W 
 
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  and own those bu ildings for the duration of the ground lease term, after which the buildings will 
become the property of the lessor when the control of the land reverts to the lessor. The long -term 
nature of the lease means that the lessee will control the land for a suff icient length of time to 
make him or her willing to invest in site and building improvements.2054 Ground leases are in many 
respects regarded as an alternative to outright fee purchases, and may enable a lessee to obtain 
long-term control and use of land that  would not otherwise be available, or avoid the up -front 
capital cost of purchasing land.2055 
8.743.   These characteristics of ground leases (which apply equally to the Ground Sublease of the 
Project Site) suggest that they are comparable in many respects to outright  purchases of land. 
Under a ground lease, the lessee obtains exclusive use and control of the land for a long (but 
necessarily finite) duration, rather than indefinitely, as in the case of an outright purchase. Like an 
outright purchase, however, the lesso r grants the lessee the right to exclusive use and control of 
the land for the term of the ground lease once, on execution of the Ground Sublease. This is the 
case even though the period of time over which the ground lessee will necessarily enjoy the 
exclusive use and control of the land is confined to the term of the ground lease (rather than 
indefinitely, as in the case of an outright purchase).  
8.744.   The European Union argues that "subsidies involving leases of land are considered to 
involve recurring benefit s" in U.S. law and practice in countervailing duty investigations.2056 We 
find it instructive that the authorities the European Union refers to in fact address the 
characterization of the benefit rather than the financial contribution as being recurring in na ture. 
We note in this regard that it is important not to confuse the concepts of an ongoing financial 
contribution and a recurring benefit. We emphasize that in concluding that the financial 
contribution made by the South Carolina authorities in granting V ought a Ground Sublease of the 
Project Site in 2006 was made once on 25 August 2006 rather than continually or on a recurring 
basis for the duration of the Ground Sublease, we do not suggest that the benefit or indeed the 
subsidy in question existed only o nce in 2006. We mean only to say that the financial contribution 
provided directly to Vought under the Vought Sublease in 2006 was not "continuous " and did not 
become a financial contribution provided directly to Boeing on 30 July 2009 without any action o n 
the part of the South Carolina authorities at that time.  
8.745.   We are therefore unable to identify any basis on which to conclude that South Carolina can 
be said to have granted a new direct financial contribution to Boeing on 30 July 2009 when Boeing, 
in a p rivate transaction with Vought, assumed Vought 's rights as sublessee  under the Vought 
Sublease. The legal instrument through which Boeing, as of 30 July 2009, enjoyed the exclusive 
possession and use of the Project Site remained the Vought Sublease , and So uth Carolina 's 
obligations with respect to that legal instrument, and thus the financial contribution , were 
crystallized on 25 August 2006.  
8.746.   The European Union has argued that under "Boeing 's lease ", South Carolina eliminated the 
performance requirements th at previously would have triggered additional payment obligations on 
the part of Vought, and thus that Boeing was "provided the land on materially different (and more 
favourable ) terms than was Vought ".2057 However, the replacement of the "Additional Rent " 
provisions contained in identical terms in both the Vought Sublease and the Amended and 
Restated Sublease with a "Performance Provision " occurred only as a result of the Project Gemini 
Fee Agreement, which was entered into on 1 January 2010. The European Uni on has nowhere 
argued that the Project Gemini Agreement, by amending certain aspects of the Amended and 
Restated Sublease, so materially altered South Carolina 's obligation  with respect to the Ground 
                                                                                                                                               
(Black's Law Dictionary , 10th edn, B. A. Garner (ed.) ( Thomson Reuters, 2004), p. 1025) 
2054 C. Carneghi, "Determining Ground -Lease Rental Rates", The Appraisal Journal , April 2004, (Exhibit 
EU-1108), p. 257.  
2055 C. Carneghi, "Determining Ground -Lease Rental Rates", The Appraisal Journal , April 2004, (Exhibit 
EU-1108), p. 257.  
2056 European Union's response to Panel question No. 172, para. 586, and authorities cited at fn 1112 
thereto.  
2057 European Union's res ponse to Panel question No. 172, para. 580 (emphasis original); comments on 
the United States'  response to Panel question No. 121, para. 349.  WT/DS353/R W 
 
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  Sublease of the Project Site as to warrant the conclusio n that there was a new, direct financial 
contribution to Boeing as of 1 January 2010, nor do we think such a conclusion is warranted.2058 
8.747.   Although not specifically argued by the European Union, we have additionally considered 
the possibility that, if the lega l validity of Vought 's assignment to Boeing of its subleasehold 
interest in the Project Site were conditional upon first obtaining the consent of S outh Carolina 
Public Railways  as sublessor , or C harleston County Aviation Authority  as less or, there could 
arguably be sufficient government action in July 2009 to warrant treating such consent to the 
Vought assignment as "reasonably proximate " to Boeing 's use and enjoyment of the Project Site, 
and thus a "provision " of the property in question, for purposes of A rticle 1.1(a)(1)(iii). However, 
while some lease instruments may expressly prohibit assignments of leases without the prior 
consent of the lessor, the terms of the Vought Sublease do not appear to do so, meaning that the 
legal effectiveness of Vought 's ass ignment of its interests under the Vought Sublease to Boeing 
was not conditional upon any prior consent from S outh Carolina Public Railways  as the 
sublessor .2059  
8.748.   We similarly do not find any provision of the underlying Ground Lease to S outh Carolina 
Public R ailways  that could potentially operate to prevent the legal effectiveness of Vought 's 
assignment of its interest under the Vought Sublease to Boeing without the prior consent of S outh 
Carolina Public Railways  or Charleston County Aviation Authority . We not e that C harleston County 
Aviation Authority  (the lessor of the Project Site under the Ground Lease) did execute a consent to 
the Amended and Restated Sublease on 19 November 2009.2060 This consent is almost identical to 
the consent that C harleston County Avia tion Authority  previously gave to the Vought Sublease.2061 
However, it is not apparent that this consent was legally necessary, as section 12.01 of the Ground 
Lease appears to enable S outh Carolina Public Railways  to assign or sublease its interest in the 
Ground Lease to any party without the consent of C harleston County Aviation Authority .2062  
8.749.   We note that, when the Ground Lease was amended on 19 November 2009, the following 
sentence was added to section 12.01:  
Through assignment of the Vought Sublease, {C harleston County Aviation Authority } 
specifically authorizes the sublease by {S outh Carolina Public Railways } of its rights 
hereunder to Boeing under the {Amended and Restated} Sublease and further 
authorizes the lease by Boeing of certain Improvements within the Leased Premises to 
entities  engaged in manufacturing.2063 
8.750.   Once again, it is not clear that C harleston County Aviation Authority 's authorization of 
Vought 's assignment of its interest under the Vought Sublease to Boeing was legally necessary. It 
appears th at this amendment to section 12.01 of the Ground Lease was added through an 
abundance of caution to provide clarity that C harleston County Aviation Authority  was aware of 
Boeing 's assumption of the Vought Sublease and its plans to construct further facilit ies on the 
Project Site.  
                                               
2058 We are similarly not persuaded that the question of whether a lease or sublease of land should be 
analysed as a one-time or "ongoing" financial contribution is assisted by attempted analogies to the very 
different context of breaches of international obligations having a "continuing character" or involving 
"composite acts" in Articles 14 and 15 of the ILC's Articles  on State Responsibility. (See European Union's 
response to Panel question No. 172, fn 1091).  
2059 Section 16 of the Vought Sublease permits Vought to assign or sublet additional portions  of the 
Project Site to third parties involved in the manufacture of aer onautical composites products for projects which 
foster strategic development opportunities with appropriate investment and job creation without the prior 
consent of S outh Carolina Public Railways . After 31 December 2013, the mutual consent of the parties is 
required for any assignment or sublease of any " unused portion " of the Project Site. However, section 16 does 
not on its terms prevent Vought from assigning its leasehold interest in the whole of the Project Site without 
South Carolina Public Railway 's prior consent.  
2060 The consent appears as an attachment to the version of the Amended and Restated Sublease 
submitted as Exhibit EU -471. 
2061 The consent appears as an attachment to the version of the Vought Sublease submitted as Exhibit 
EU-474. 
2062 Ground Lease Agreement, (Exhibit EU -473).  
2063 See First Amendment to Ground Lease Agreement by and between Charleston County Aviation 
Authority and South Carolina Public Railways (19 November 2009), (Exhibit EU -476), section 11.  WT/DS353/R W 
 
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  8.751.   We therefore consider that there is insufficient support for the proposition that there was a 
direct financial contribution to Boeing when Vought assigned its rights under the Vought Sublease 
to Boeing on 30 July 2009, even leaving  aside the terms of reference difficulties to which we have 
previously referred .2064 
8.2.8.5.3.3   Whether S outh Carolina Public Railway's  entering into the Amended and 
Restated Sublease with Boeing on 19 November 2009 is a new direct financial 
contribution to Boeing  
8.752.   As we  have previously explained, the terms of the European Union 's panel request and 
arguments in its submissions, compared to its responses to the Panel 's questions and comments 
on the United States responses, have left the Panel somewhat uncertain as to which  legal 
instrument the European Union challenges as the "long-term lease of government -owned land ", or 
the "sublease of the project site ".  
8.753.   The European Union does not appear to have explicitly argued that S outh Carolina Public 
Railway's  entering into the A mended and Restated Sublease with Boeing on 19 November 2009 
terminated the Vought Sublease, thereby putting to an end that financial contribution, and 
bringing into existence a new direct financial contribution to Boeing.2065 We nevertheless consider 
whether  the facts in question may support such a conclusion. In our view, if the Amended and 
Restated Sublease could be considered to involve a new legal commitment on the part of South 
Carolina to provide a Ground Sublease of the Project Site directly to Boeing,  there would be a basis 
for concluding that South Carolina made a direct financial contri bution to Boeing on 
19 November  2009.  
8.754.   The United States argues that in executing the Amended and Restated Sublease with 
Boeing on 19 November 2009, S outh Carolina Pub lic Railways  did not enter into a new legal 
relationship with Boeing. Rather, the Amended and Restated Sublease simply "formalized " Boeing 's 
role as successor -in-interest to Vought under the Vought Sublease.2066 For the United States, 
Boeing 's interest as sublessee of the Project Site derives from the assignment by Vought of its 
interests under the Vought Sublease on 30 July 2009.2067  
8.755.   We recall that on 28 October 2009, some three months after acquiring Vought 's South 
Carolina operations (i.e. the Project Emerald  facilities  and infrastructure ), and taking over Vought 's 
interest as sublessee  under the Vought Sublease, Boeing decided to locate its second 787 final 
assembly and delivery facility (i.e. the Project Gemini facilities  and infrastructure ) on the same 
Project Site, allegedly as a result of the tax and other incentives offered by South Carolina.2068 As 
detailed in paragraph  8.710  above, on 19 November 2009, C harleston County Aviation Authority  
and S outh Carolina Public Railways  amen ded the underlying Ground Lease for the Project Site to 
acknowledge that the Vought Sublease had been assigned to Boeing on 30 July 2009, as well as to 
update certain factual information.2069 At the same time, S outh Carolina Public Railways  and 
Boeing execute d the Amended and Restated Sublease which was expressed as amending, 
restating, and entirely taking the place of the Vought Sublease.2070  
                                               
2064 See fn 2043 above.  
2065 We note that the European Union does not argue that the Amended and Restated Sublease involved 
a new legal commitment by South Carolina to provide a Ground Sublease of the Project Site directly to Boeing. 
Rather, the European Un ion argues that Boeing's interests as sublessee of the Project Site arose on 30 July 
2009 when it was assigned Vought's interests under the Vought Sublease. For example, the European Union 
explains in its first written submission that Boeing's purchases of  Vought and Global Aeronautica additionally 
led to it "taking over the $1 per year lease to the Project Emerald site at Charleston International Airport", 
which lease "also covers the location of Boeing's 787 Final Assembly and Delivery Facility ". (Europea n Union's 
first written submission, paras. 696, 552, and 553, and fn 1554).  
2066 United States' second written submission, para. 492 and fn 722; response to Panel question 
No. 101(b), para. 195; and response to Panel question No. 101(d), para. 199.  
2067 Thus, th e United States argues, to the extent the sublease of the Project Site involves a financial 
contribution by South Carolina in the form of a provision of land other than general infrastructure: (a) it was 
made to Vought (and not Boeing) on execution of the Vought Sublease on 25 August 2006; and (b) there was 
no financial contribution made by South Carolina to Boeing.  
2068 These incentives are the Project Gemini measures, set out in para. 8.682  above.  
2069 First Amendme nt to Ground Lease Agreement by and between Charleston County Aviation Authority 
and South Carolina Public Railways (19 November 2009), (Exhibit EU -476), recitals 3 and 4.  
2070 Amended and Restated Sublease, (Exhibit EU -471), section 1.  WT/DS353/R W 
 
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  8.756.   Our examination of the Vought Sublease and the Amended and Restated Sublease 
indicates that the Amended and Restated Sub lease is an instrument embodying the same Ground 
Sublease of the Project Site that was originally provided to Vought under the Vought Sublease 
(and of which Boeing became the assignee from Vought from 30 July 2009).2071 The Project Site 
the subject of the Ame nded and Restated Sublease is the same Project Site covered by the Vought 
Sublease, and is defined in the same way in both instruments. The Amended and Restated 
Sublease simply restates the terms of the sublease of the Project Site as originally provided i n the 
Vought Sublease, replacing Vought for Boeing as the sublessee.2072 Significantly, there is nothing 
to indicate that the subleasehold  interests granted to Vought under the Vought Sublease (and then 
assigned to Boeing) were ever terminated on or prior to 18 November 2009 such that S outh 
Carolina Public Railways  can be said to have granted Boeing a new subleasehold  interest in the 
Project Site when it executed the Amended and Restate d Sublease on 19 November 2009. We do 
not see any basis for finding that So uth Carolina  Public Railways  provided a direct financial 
contribution to Boeing on 19 November 2009 when it executed the Amended and Restated 
Sublease with Boeing. We therefore conclude that the Amended and Restated Sublease is not 
relevant to our determin ation of the financial contribution with respect to the sublease of the 
Project Site.2073 
8.757.   In sum, our review of the relevant instruments suggests that Vought was legally entitled to 
assign to Boeing its right to sublease the Project Site from S outh Carolina P ublic Railways  on 
30 July 2009, without first obtaining the consent of, or otherwise requiring any action on the part 
of, South Carolina. Consequently, by entering into the Assignment and Assumption of Vought 
Sublease with Boeing on 30 July 2009, Vought as signed its subleasehold  interests in the Project 
Site to Boeing, and Boeing thereby became the sublessee  under the Vought Sublease. The 
subsequent execution by S outh Carolina Public Railways  and Boeing of the Amended and Restated 
Sublease did not legally a lter this position, nor did any of the consents to the Vought assignment 
executed by S outh Carolina Public Railways  or Charleston County Aviation Authority . 
8.758.   As a result of the foregoing analysis, we conclude that the only relevant action that South 
Carolin a took in granting a Ground Sublease of the Project Site was when S outh Carolina Public 
Railways  entered into the Vought Sublease with Vought on 25 August 2006.2074 Thus, the relevant 
financial contribution is a financial contribution made directly to Vought in 2006.  
8.759.   As we have explained, we do not agree with the European Union 's characterization of the 
financial contribution as "ongoing ", and we do not consider that it has demonstrated the existence 
of a direct financial contribution to Boeing. We wish to emp hasize that in reaching this conclusion, 
we do not rule out the possibility that some or all of the benefit conferred by the financial 
contribution provided to Vought in 2006 could have "passed through " to Boeing when it became 
the assignee Vought 's intere st in the Vought Sublease on 30 July 2009, and thereby obtained the 
right to use and control of the Project Site from that point onwards.  
                                               
2071 This also appears to  be the understanding of South Carolina, as in the second recital of the Ground 
Lease, when referring to the assignment of the Vought Sublease to Boeing on 30 July 2009, C harleston County 
Aviation Authority  and S outh Carolina Public Railways  state that pur suant to the Assignment and Assumption of 
the Vought Sublease dated 30 July 2009, the Vought Sublease thereby became  the "Boeing" Sublease. (First 
Amendment to Ground Lease Agreement by and between Charleston County Aviation Authority and South 
Carolina Pu blic Railways (19 November 2009),  (Exhibit EU -476)).  
2072 As we note in para. 8.710 , the operative terms of the Amended and Restated Sublease a s regards 
term, annual rent and representations of the sublessor  and sublessee  for all practical purposes remain the 
same as those of the Vought Sublease. While the European Union argues that the "additional rent" provision in 
the Vought Sublease was eliminated by the Project Gemini Agreement, we note that the Project Gemini 
Agreement was executed by the State of South Carolina and Boeing on 1 January, 2010, which is subsequent 
to the date on which the Amended and Restated Sublease was executed. The Amended and Restated Sublease 
as originally executed contained the same "addit ional rent" provision as the Vought Sublease. (See 
European  Union's response to Panel question No. 39, para. 225).  
2073 See also para. 8.746 . 
2074 Indeed, the European Union's own approach to the calculation of the "b enefit" conferred by the 
financial contribution reflects the notion that the financial contribution was made in August 2006 rather than in 
2009. The European Union bases its estimate of the "benefit" on the annual value of the sublease of the Project 
Site from the first full year of the sublease to Boeing (i.e. from January 2010) through the end of the final five 
year extension on 31 December 2041. However, its estimate of the annual value is the "base lease value" of 
the Project Site established in the Vou ght Sublease and negotiated with Vought in 2006. (See 
European  Union's first written submission, paras. 558 and 561).  WT/DS353/R W 
 
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  8.760.   While it is well accepted that a financial contribution provided to one entity can be 
demonstrated to have conferred a benefit on (and thus constitute a subsidy to) another entity, the 
European Union bears the onus of demonstrating that the benefit conferred by the financial 
contribution to Vought passed through to Boeing as of 30 July 2009 or subsequently, particularly 
in light of the United States ' arguments that Boeing 's acquisition of Vought 's South Carolina 
operations, including the assignment of the sublease of the Project Site, was an arm's-length  
transaction for fair market value.2075 The European Union has not attem pted to do so, because its 
characterization of the relevant financial contribution renders such a demonstration irrelevant. 
However, we f ind its characterization of the relevant financial contribution, whether commencing 
on 30 July 2009 or 19 November 2009 , to be in err or. This being so, the European  Union has failed 
to establish  the existence of any benefit conferred on Boeing by whichever of the legal instruments 
the European Union challenges as the Ground Sublease of the Project Site.  
8.2.8.5.4   Conclusion  
8.761.   In light  of our findings above with respect to the sublease of the Project Site, we conclude 
that the European Union has failed to establish that the measure involves a subsidy to Boeing  
within the meaning of Article  1 of the SCM Agreement.  
8.2.8.6   Whether specific subsid ies exist by virtue of South Carolina 's provision of 
Gemini and Emerald facilities and infrastructure to Boeing  
8.2.8.6.1   Introduction  
8.762.   In paragraph 24 of its panel request, the European Union identifies the following measure 
as a subsidy related to Project Gemini  directly benefiting Boeing:  
Provision of facilities and infrastructure at the Charleston International Airport site, as 
provided for in the Project Gemini Agreement between Boeing and the State of South 
Carolina, dated 1 January 2010, funded through state ge neral obligation bonds issued 
pursuant to Title 11, Chapter 41 of the S.C. Code, as amended by Section 5 of H3130, 
Act No. 124, 2009 S.C. Acts 1092 (H3130), and S.C. Code § 55-11-520, at no cost to 
Boeing.  
8.763.   In paragraph 25 of its panel request, the European  Union identifies the following measure 
as a subsidy related to Project Emerald  directly benefiting Boeing:  
Provision of facilities and infrastructure at the Charleston International Airport site, as 
provided for in the Project Emerald Confidential Site De velopment Agreement, funded 
through state general obligation bonds issued pursuant to Title 11, Chapter  41 of the 
S.C. Code, at no cost to Boeing.  
8.764.   The European Union 's arguments concern, on the one hand, facilities and infrastructure 
relating to Boeing 's 787 final assembly and delivery facility (Gemini facilities and infrastructure) 
and, on the other, facilities and infrastructure relating to Boeing 's 787 fuselage fabrication and 
integration complex (Emerald facilities and infrastructure).2076 The United State s argues that the 
European Union has failed to demonstrate that the alleged financial contribution confers a benefit 
(with regard to the Gemini facilities and infrastructure) and that a financial contribution to Boeing 
exists (with regard to the Emerald fa cilities and infrastructure), and that the alleged financial 
contributions are specific within the meaning of Article 2 of the SCM Agreement.  
8.765.   With regard to the Project Gemini facilities and infrastructure , as explained in 
Section  8.2.8.3.1 , under the Project Gemini Agreement, dated 1 January 2010, which provides for 
various incentives in relation to Project Gemini, South Carolina co mmitted to issue a total of 
USD 220 million in state economic development bonds to offset the co sts of infrastructure 
associated with Project Gemini and to issue USD 50 million in air hub bonds to offset the costs 
associated with air carrier hub terminal facilities.2077 Boeing agreed that "the commitments made 
                                               
2075 United States' first written submission, para. 548.  
2076 European Union's first written submission, paras. 697 and 567.  
2077 Project Gemini A greement, (Exhibit EU -467), Articles II(A) and II(B), p. 3.  WT/DS353/R W 
 
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  by Commerce of general obligation bond fund ing set forth in this Section II were made based on 
the expectation that Boeing will attain the Minimum Job requirement and the Minimum Investment 
requirement as defined in Section IV herein, or, if those requirements are not met during the 
applicable time -period, will be obligated to reimburse the State in accordance with the 
Performance Provision attached hereto as Exhibit A ."2078  
8.766.   The Project Gemini Agreement provides a set of procedures to ensure the proper 
application of the bond proceeds, whereby Boeing enters into contracts to construct infrastructure 
and facilities, pays the invoices and subsequently submits the invoices to South Carolina for 
reimbursement. On 13 January 2010, the South Carolina State Budget and Control Board adopted 
three resolutions, providing for the issuance and sale of economic development bonds and air hub 
bonds, as contemplated by the Project Gemini Agreement.2079 The resolutions provided that the 
economic development bond proceeds were to be used as follows: USD 10 million for "{r}oad 
improvements necessary to provide Project Gemini full use of the project site "; USD 53.9 million 
for "{s}ite preparation, including clearing, grading, and filling the site, and construction of any 
required infrastructure "; USD 156.1 million for "{c}onst ruction of the new assembly facility which 
is functionally related to and is part of the air carrier hub terminal facility ".2080 The air hub bond 
proceeds, in the amount of USD 50 million, were to be used for "{c}onstruction of the new 
assembly facility which  is functionally related to and is part of the air carrier hub terminal 
facility ".2081 
8.767.   Beginning in November 2009, Boeing contracted and paid for the construction of facilities 
and infrastructure pertaining to Project Gemini on the Project Site. The construct ion costs were 
reimbursed, at least partially, in the amount of USD 270 million, by South Carolina through bond 
proceeds. [***].2082  
8.768.   With respect to the Project Emerald facilities and infrastructure , as explained in 
Section  8.2.8. 3.2, Project Emerald was the subject of an agreement concluded in 2004 and 2006 
between the relevant South Carolina authorities and Vought, on its own behalf and on behalf of 
the Project Emerald entities, which contemplated a number of incentives, includi ng the issuance of 
state bonds to fund certain facilities and infrastructure.2083 Specifically, South Carolina committed 
to providing economic development bond proceeds to the maximum amount of USD 120 million to 
Vought while Vought inter alia  committed itsel f to utilising these proceeds towards the construction 
of infrastructure, as broadly defined in section 11 -41-30 of the South Carolina Code , within broad 
categories of expenditure as laid out in the Project Emerald Agreement.2084 The South Carolina 
State Budg et and Control Board approved the issuance of the economic development bonds for 
                                               
2078 Project Gemini Agreement, (Exhibit EU -467), p. 3. (emphasis original)  
2079 South Carolina State Budget and Control Board, A Resolution to Provide for the Issuance and Sale of 
Not Exceeding in the Aggregate Fifty Million Dollars (USD 50,000,000) Principal Amount General Obligation 
State Economic Development Bonds of the State of South Carolina, to Prescribe the Purposes for Which the 
Proceeds Shall Be Expended, to Provide for the Payment Thereof, an d Other Matters Relating Thereto 
(13 January 2010), exhibit 3 (Gemini economic development bond resolution), (Exhibit EU -481); South 
Carolina State Budget and Control Board, A Resolution to Provide for the Issuance and Sale of Not Exceeding in 
the Aggregat e One Hundred Seventy Million Dollars (USD 170,000,000) Principal Amount General Obligation 
State Economic Development Bonds of the State of South Carolina, to Prescribe the Purposes for Which the 
Proceeds Shall Be Expended, to Provide for the Payment Ther eof, and Other Matters Relating Thereto 
(13 January 2010) (Gemini additional economic development bond resolution), (Exhibit EU -482); and South 
Carolina State Budget and Control Board, A Resolution to Provide for the Issuance and Sale of Not Exceeding in 
the Aggregate Fifty Million Dollars (USD 50,000,000) Principal Amount General Obligation State Air Carrier Hub 
Terminal Facilities Bonds of the State of South Carolina, to Prescribe the Purposes for Which the Proceeds Shall 
Be Expended, to Provide for the P ayment Thereof, and Other Matters Relating Thereto (13 January 2010), 
exhibit 2 (Gemini air hub bond resolution), (Exhibit EU -483).  
2080 Gemini economic development bond resolution, (Exhibit EU -481), pdf p. 44; Gemini additional 
economic development bond reso lution, (Exhibit EU -482), pdf p. 44.  
2081 Gemini air hub bond resolution, (Exhibit EU -483), pdf p. 45.  
2082 Project Gemini Reimbursement Documents (formerly Exhibit US -13-287), (Exhibit EU -1269) (BCI).  
2083 Initial Project Emerald Site Development and Incentive Agr eement, (Exhibit EU -560); and Final 
Project Emerald Incentive Agreement, (Exhibit EU -550).  
2084 Final Project Emerald Incentive Agreement, (Exhibit EU -550), sections 2.1 and 2.3. While the Initial 
Project Emerald Agreement originally contemplated the issuanc e of both economic development bonds and air 
hub bonds, it appears that Project Emerald was only eligible for economic development bonds, and only that 
type of bond was issued. Compare section 2.1 of the Initial Project Emerald Site Development and Incenti ve 
Agreement, (Exhibit EU -560) and section 2.1 of the Final Project Emerald Incentive Agreement, (Exhibit 
EU-550).  WT/DS353/R W 
 
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  this purpose in a resolution adopted on 14 December 2004. This resolution provided that the bond 
proceeds were to be utilized as follows: USD 7.5 million for "site prep "; USD 5 Million for 
"wetlands ", USD 2 million for "airport improvements "; USD 2 million for "road improvements "; 
USD 2 million for a "training/multi -use center "; and USD 97 million for "manufacturing facilities ". 
The remaining USD 4 million was allocated to the costs of issuing the bonds. This resolution also 
provided a tentative timetable for expenditure of the bond proceeds in support of Project Emerald 
from November 2004 to April 2006.2085  
8.769.   Vought was granted the right to sublease the Project Site in the Initial Project Emerald 
Agreement concluded on 29 November 2004, an arrangement subsequently formalised through 
the Ground Lease and the Vought Ground Sublease, both dated 25 August 2006.2086 The Vought 
Ground Sublease provides in Article 7 that "{s}ublessee is suble asing the Premises for the purpose 
of constructing thereon facilities related to the manufacture of products for the aeronautics 
industry (the 'Improvements ')". Prior to the beginning of production in 2006, Vought contracted 
and paid for the construction o f facilities and infrastructure on the Project Site. Vought 's 
construction costs were then partially reimbursed by the South Carolina Department of Commerce 
through economic development bond proceeds.2087  
8.770.   On 6 July 2009, Vought and Boeing entered into the Vo ught Asset Purchase Agreement, 
pursuant to which Vought sold its title and interest in the assets that it owned, leased, licensed, 
used or held for use in connection with the design, manufacture, and assembly of the aft fuselage 
sections of the 787. On 30 July 2009, Vought assigned to Boeing its rights to the Project Site 
under the Assignment and Assumption of Vought Sublease2088, and to the Emerald facilities and 
infrastructure constructed thereon, under two apparently [***] instruments.2089  
8.771.   On 19 November 2009 , Boeing entered into the Amended and Restated Ground Sublease 
with S outh Carolina Public Railways2090, Article 7 of which provides that "{s}ublessee is subleasing 
the Premises for the purpose of (a) constructing thereon or (b) using previously constructed 
thereon facilities related to or supporting the manufacture of products for the aeronautics industry 
(the 'Improvements ')".  
8.2.8.6.2   Main arguments of the parties  
8.772.   Regarding the Gemini facilities and infrastructure , the European Union  argues that South 
Carolina const ructed custom -built facilities and infrastructure for Boeing and is presently providing 
Boeing with the exclusive use of these facilities and infrastructure for the entirety of their useful 
life. Such a provision of goods and services other than general in frastructure constitutes a financial 
contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.2091 The 
European  Union asserts, in this regard, that the State of South Carolina maintains title to the 
facilities and infrastructure construc ted with the bond proceeds and that Boeing only has a 
leasehold interest in these facilities and infrastructure.2092 The European Union argues, in the 
alternative, that South Carolina has provided Boeing with funding for the construction of its 787 
                                               
2085 South Carolina State Budget and Control Board, Resolution providing for the issuance and sale of 
not exceeding in the aggregate one hundre d sixty million (USD 160,000,000) principal amount general 
obligation state economic development bonds of the State of South Carolina, to prescribe the purposes for 
which the proceeds shall be expended, to provide for the payment thereof, and other matters  relating thereto 
(14 December 2004), (Exhibit EU -551).  
2086 Ground Lease Agreement, (Exhibit EU -473). Exhibit E of the Ground Lease contains the Vought 
Ground Sublease.  
2087 South Carolina Office of the State Treasurer, Debt Management System, Project Emerald  
Reimbursement Documents, 6 January 2005 (formerly Exhibit US -13-288), (Exhibit USA -247) (BCI).  
2088 Assignment of Vought Sublease, (Exhibits EU -475/USA -449 (exhibited twice)).  
2089 Bill of Sale, Assignment and Assumption Agreement (30 July 2009), (Exhibit USA -515) (BCI); and 
Assignment and Bill of Sale from Vought Aircraft Industries, Inc. to Boeing Commercial Airplanes Charleston 
South Carolina, Inc. (30 July 2009),  (Exhibit EU -552). Also see United States' response to Panel question 
No. 120, para. 249.  
2090 Amend ed and Restated Sublease, (Exhibit EU -471).  
2091 European Union's first written submission, para. 573. We note that while Article 1.1(a)(1)(iii) of the 
SCM Agreement refers to "goods or services other than general infrastructure" (emphasis added), the 
Europea n Union mainly refers in its submissions to "goods and services".  
2092 European Union's first written submission, paras. 574 -576. WT/DS353/R W 
 
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  final asse mbly facility through the transfer of bond proceeds to Boeing, which constitutes a direct 
transfer of funds in the sense of Article 1.1(a)(1)(i) of the SCM Agreement.2093  
8.773.   The European Union considers that its explanation of why under the Vought Ground 
Sublea se Vought only has a leasehold interest in the Emerald facilities and infrastructure also 
applies to Boeing 's interest in the Gemini facilities and infrastructure. Thus, Boeing has a leasehold 
interest, or the functional equivalent thereof, in the Premises , including all improvements 
constructed thereupon at whatever point.2094  
8.774.   In response to a Panel question, the European Union explains that, if the Panel were to 
reach the factual conclusion that Boeing constructed the Gemini facilities and infrastructure an d 
that South Carolina partially reimbursed Boeing 's costs of constructing these facilities and 
infrastructure, the measures should nevertheless be characterized as a provision of goods and 
services other than general infrastructure within the meaning of Ar ticle 1.1(a)(1)(iii) of the SCM 
Agreement.2095 In this respect, the European Union notes that the Appellate Body has indicated 
that a panel 's characterization of a measure should identify the measure 's most significant 
features.2096 Thus, although as a formal ma tter funds were being transferred directly from South 
Carolina to Boeing, the essence of the transaction is one of South Carolina providing goods and 
services to Boeing. The transfer of funds from South Carolina to Boeing is merely a means to the 
end of en abling South Carolina to provide goods and services to Boeing. Indeed, even before the 
funds were raised through the sale of economic development bonds and air hub bonds it had 
already been determined that those funds must be expended on goods and services  to be provided 
to Boeing, including for the construction and assembly of a new assembly facility. Boeing pays for 
the construction of the facility and infrastructure, and is then promptly reimbursed by the 
government for this expenditure. Moreover, the Un ited States has acknowledged that "the State 
{of South Carolina} (or a political subdivision of the State) retains an ownership or reversionary 
interest in such property ".2097 According to the European Union, it should make no difference to 
the fundamental na ture of the transaction, for purposes of the analysis under Article 1.1(a)(1) 
whether Boeing paid for the goods and services and was reimbursed, or whether the government 
initially paid for the goods and services to be provided to Boeing.2098 The European Uni on also 
contends that the United States ' argument on how to determine whether a benefit exists implies 
that the United States agrees that the measure should be characterized as a provision of goods 
and services within the meaning of Article  1.1(a)(1)(iii) of the SCM Agreement.2099 
8.775.   The European Union further argues that the provision of the Gemini facilities  and 
infrastructure  confers a benefit within the meaning of Article 1.1(b).2100 The provision of facilities is 
made for less than adequate remuneration in rela tion to prevailing market conditions, as Boeing 
provides nothing in exchange. This is so regardless of whether the financial contribution is 
considered as a provision of goods and services other than gener al infrastructure under 
Article  1.1(a)(1)(iii), or as a direct transfer of funds under Article 1.1(a)(1)(i). Indeed, paying 
nothing constitutes less than adequate remuneration since Boeing would have two options to 
obtain access to the custom -made Gemini facilities  and infrastructure  in the market: either raise 
funds in the market to construct the facilities  and infrastructure  itself, or find another market 
participant to construct and then lease the facilities  and infrastructure . Each option carries with it a 
financing cost.2101  
                                               
2093 European Union's first written submission, para. 577.  
2094 European Union's response to Panel question No.  101(c), paras. 129 an d 130.  
2095 European Union's response to Panel question No. 106.  
2096 European Union's response to Panel question No. 106, para. 163.  
2097 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, re sponse to question No. 64, para. 144.  
2098 European Union's response to Panel question No. 106, para. 164. See also European Union's 
comments on United States' response to Panel question Nos. 101, para. 305; and 116, paras. 340 -342.  
2099 European Union's respon se to Panel question No. 106, para. 165; comments on United  States' 
response to Panel question No. 101, para. 306.  
2100 European Union's first written submission, paras. 578 -582; second written submission, 
paras.  635-638. 
2101 European Union's response to Panel  question No. 105, paras. 155 and 156; first written submission, 
para. 579. Also see European Union's second written submission, para. 637.  WT/DS353/R W 
 
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  8.776.   With respect to specificity, the European Union argues that the provision of the Gemini 
facilities and infrastructure is specific within the meaning of Articles 2.1(a) and 2.1(c).2102 First, the 
transfer of bond proceeds is specific to Boeing within the meaning of Article 2.1(a) since So uth 
Carolina committed to providing the Gemini facilities in the Project Gemini Agreement, the 
resolutions authorising the issuance of bonds explicitly restricted the use of the bond proceeds to 
the construction of the facilities for Boeing 's use, and the legislative provision pursuant to which 
the bonds were issued was enacted under H3130, the Boeing incentive legislation.2103 
Furthermore, access to the subsidy is limited to the aviation and aerospace industry, since air hub 
bond proceeds may only be issued f or air carrier hub terminal facilities, and economic development 
bond proceeds may only be used for buildings when used in connection with air hub carrier 
terminal facilities or located on government -owned land.2104 Second, the provision of the Gemini 
facilit ies and infrastructure  is specific within the meaning of Article 2.1(c) since this type of subsidy 
has only been used by a limited number of enterprises, and Boeing and its suppliers have been its 
predominant users.2105  
8.777.   Regarding the Emerald facilities  and infrastructure , the European Union argues that South 
Carolina constructed custom -built facilities and infrastructure for Project Emerald and is presently 
providing Boeing with the exclusive use of these facilities and infrastructure for the remainder of 
their useful life. Such a provision of goods and services other than general infrastructure 
constitutes a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement.2106 The European Union asserts, in this regard, that the State of South Ca rolina  
maintains title to the Emerald facilities and infrastructure constructed with the bond proceeds and 
that Boeing only has a leasehold interest in these facilities and infrastructure.2107  
8.778.   The European Union rejects the argument of the United Sta tes that South Carolina does 
not provide any Emerald facilities and infrastructure to Boeing since Boeing purchased the right to 
use the facilities and infrastructure from Vought and Global Aeronautica  at arm's-length and for 
fair market value. The Europea n Union contests the assertion that this purchase was made for fair 
market value and argues that the United States fails to explain how Boeing 's transactions with 
Vought could change the fact that South Carolina is currently providing the facilities and 
infrastructure to Boeing at below -market rates.2108  
8.779.   In response to a Panel question, the European Union argues that Vought never actually 
owned, and therefore could not sell, the bond -funded Emerald facilities and infrastructure to 
Boeing, as they were owned a t all times by South Carolina (or an agency thereof).2109 First, the 
European Union contends that as a matter of the property law s of U.S. states: ( a) the term 
"Premises " as used in the Vought Ground Sublease refers to buildings and land together; and ( b) 
ownership of buildings and other permanent improvements constructed upon leased premises 
passes to the lessor.2110 Second, the European Union argues that South Carolina built the Emerald 
facilities and infrastructure.2111 South Carolina law requires that bond issua nces be used to fund 
buildings located only on land owned by a state agency, or at an air carrier hub terminal facility, 
for a public purpose.2112 As such, improvements constructed with the proceeds of state bonds 
become part of the leased premises, pursuant to the underlying rules of U .S. state property 
                                               
2102 European Union's first written submission, paras. 583 -586; second written submission, 
paras.  639-642. 
2103 European U nion's first written submission, paras. 583 and 584.  
2104 European Union's first written submission, para. 584; second written submission, para. 639.  
2105 European Union's first written submission, para. 585; second written submission, para. 639.  
2106 European Unio n's first written submission, para. 701.  
2107 European Union's first written submission, para. 702. As support for its view that Boeing only has a 
leasehold interest in the Emerald facilities and infrastructure, the European Union invokes Article 6.06(A) of t he 
Ground Lease, as incorporated into the Boeing Ground Sublease, governing the ownership of improvements to 
the Project Site that are real property (Category I improvements). (European Union's first written submission, 
para. 702).  
2108 European Union's seco nd written submission, para. 727. The European Union further states that, to 
the extent that the United States argues that the expected future value of the subsidies passed through to 
Vought and G lobal Aeronautica  at the time of the sale to Boeing, a simil ar argument was rejected by the panel 
in the original proceedings. (European Union's second written submission, paras. 727 and 728 (referring to 
Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.881)).  
2109 European Union's response to Panel q uestion No. 101, para. 134.  
2110 European Union's response to Panel question No. 101(a), paras. 121, 122, and 125.  
2111 European Union's response to Panel question No. 101(a), para. 121.  
2112 European Union's response to Panel question No. 101(a), paras. 122 and  123. WT/DS353/R W 
 
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  law.2113 In this respect, the European Union contends that section 6.06(A) of the Ground Lease 
does not affect the respective property interests of S outh Carolina Public Railways  and Vought in 
Category I Improvem ents. In particular, given that S outh Carolina Public Railways  is part of the 
South Carolina Department of Commerce, section 6.06(A) does not provide a basis for transferring 
ownership of the improvements built by the South Carolina Department of Commerce to 
Vought.2114 Finally, the European Union argues that section 4.9 of the Vought Asset Purchase 
Agreement does not clarify the nature of Vought 's rights in the Emerald facilities and 
infrastructure.2115 
8.780.   The European Union considers that the fact that the Emerald  facilities and infrastructure 
are owned by South Carolina, and that the facilities and infrastructure became part of the Premises 
subject to the Ground Sublease, confirms that South Carolina, through C harleston County Aviation 
Authority  and S outh Carolina  Public Railways  as lessors, is "providing " such facilities and 
infrastructure directly to Boeing as lessee.2116 
8.781.   Nonetheless, the European Union posits, with regard to each of the financial contributions 
associated with the provision of land and the provision  of the Emerald and Gemini facilities and 
infrastructure, that South Carolina or a state agency is providing Boeing with the right to possess 
and use tangible assets that would (or do) belong to the state. In this regard, it is irrelevant 
whether Boeing is  considered to have legal title  to, or simply a leasehold interest in , such assets as 
both arrangements would constitute "provision " of goods and services.2117 
8.782.   The European Union further argues that the provision of the Emerald facilities and 
infrastructure c onfers a benefit to Boeing within the meaning of Article 1.1(b), since it is made for 
less than adequate remuneration in relation to prevailing market conditions.2118 Finally, the 
European Union contends that the provision of the facilities  and infrastructure  is specific within the 
meaning of Articles 2.1(a) and 2.1(c). Indeed, the resolutions authorising the issuance of the 
bonds indicate that access to the subsidy is de jure limited to the Project Emerald companies, or at 
a minimum the aeronautics industry. The subsidy is also de facto specific since it has only been 
used by a limited number of enterprises, and Boeing and its suppliers have been the predominant 
users.2119  
8.783.   Regarding the Gemini facilities and infrastructure , the United States  argues that the 
European Union 's assertion regarding the existence of a financial contribution in the form of a 
provision of goods rests on factual misunderstandings.2120 First, the United States argues that 
Boeing, not South Carolina, constructed the facilities and infrastructu re, and that South Carolina 's 
only role was to reimburse a portion of Boeing 's costs.2121 In this respect, the United States points 
to the reimbursement forms and supporting documentation for Boeing 's expenditures in 
constructing the facilities and infrastruc ture.2122 Second, the United States contends that , contrary 
to the European Union 's assertion, Boeing, not South Carolina , maintains title to the facilities and 
infrastructure constructed with the bond proceeds. Boeing obtained this title at the latest upon 
Boeing 's construction of the facilities and infrastructure, and pursuant to the Ground Lease, such 
                                               
2113 European Union's response to Panel question No. 101(a), para. 125.  
2114 European Union's response to Panel question No. 101(a), para. 124. The European Union argues 
that while it is possible that Vought retained ownership of improvements constructed s olely by Vought, subject 
to the reversionary interest of the South Carolina Civil Aviation authority upon expiry of the lease, such 
term-limited ownership does not appear to differ from a transferable leasehold interest for the same term. 
(European Union's  response to Panel question No. 101(a), para. 126).  
2115 European Union's response to Panel question No. 101(a), para. 128.  
2116 European Union's response to Panel question No. 101(d), para. 134.  
2117 European Union's response to Panel question No. 101, para. 132.  
2118 European Union's first written submission, para. 705.  
2119 European Union's first written submission, paras. 706 -708. 
2120 United States' second written submission, para. 512. The United States indicates with respect to the 
alleged financial contribution in the form of a provision of bond -funded facilities and infrastructure to Boeing in 
the context of Project Gemini that it "simply addresses the EU case as it has argued it, and has demonstrated 
why the EU's case is flawed. The United States has not taken a p osition on the correct characterization of this 
series of transactions outside the context of the EU's claims and arguments". (United States' comments on 
European Union's response to Panel question No. 101, fn 257). See also United States' comments on 
European Union's response to Panel question No. 101(d), fn 229.  
2121 United States' response to Panel question Nos. 101, para. 203, 116, paras. 240 -242; and comments 
on European Union's response to Panel question No. 106, para. 169.  
2122 United States' response to Panel question No. 116, para. 240.  WT/DS353/R W 
 
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  property remains Boeing 's until the expiration or termination of the Ground Lease.2123 With 
reference to a statement by the European Union that "in any circumsta nce involving a provision of 
goods, the goods will have been constructed or acquired before they are provided ", the 
United  States argues that the European Union 's own standard implies that South Carolina could 
not have provided the Emerald or Gemini facili ties and infrastructure to Boeing because it never 
constructed or acquired those facilities or infrastructure. Since the Gemini facilities and 
infrastructure were never owned by South Carolina , they could not have been provided by South 
Carolina to Boeing.  The United States considers that the Europ ean Union 's assertion that "it is 
irrelevant whether Boeing is considered to have legal title or simply a leasehold interest in such 
assets, as both arrangements would constitute 'provision '" is belied by the Euro pean Union 's 
arguments, which are based on South Carolina 's purported ownership of the facilities and 
infrastructure.2124 
8.784.   The United States considers that in contending that it makes no difference whether Boeing 
paid for the goods and services and was reimbur sed, or whether the government initially paid for 
the goods and services to be provided to Boeing , the European Union ignores the fact that only a 
portion of the costs were reimbursed.2125  
8.785.   With respect to the Emerald facilities and infrastructure , the United  States argues that 
there is no financial contribution by a government since Boeing 's right to use the facilities and 
infrastructure stems from Vought, not South Carolina. More specifically, Boeing obtained 
ownership of the Emerald facilities and infrastru cture through the Vought Asset Purchase 
Agreement and related legal instruments.2126 The United States argues that its position that 
Vought owned the Emerald facilities and infrastructure, prior to selling them to Boeing is supported 
by section 6.06(A) of the  Ground Lease. This provision indicates that when improvements are 
constructed by the sublessee  of Operator (e.g. Vought or Boeing), such improvements remain the 
property of sublessee  until expiration or termination of the Ground Lease. It is not until the  
expiration or termination of the Ground Lease that such improvements become the property of the 
Charleston County Aviation Authority  (the Lessor). Thus, while South Carolina (through C harleston 
County Aviation Authority ) does not have and has never had ti tle to the improvements, it does 
maintain a future interest in the improvements.2127 The United  States also considers that Vought 's 
ownership of the Emerald facilities and infrastructure is corroborated by the Vought Asset Purchase 
Agreement. Indeed, section 4.9(c)(i) states that Vought "owns the Facilities free and clear of any 
Encumbrances except for Permitted Encumbrances and Outstanding Encumbrances ".2128 
8.786.   Furthermore, the United States argues that the European Union is wrong to state that the 
Emerald faciliti es and infrastructure were built by South Carolina. The facilities and infrastructure 
were in fact built by Vought. Only after paying for the construction of the facilities and 
infrastructure did Vought apply for partial reimbursement from the South Caroli na Department of 
Commerce. The South Carolina Department of Commerce had no control over the construction 
process itself, nor did it select which of the expenditures it would reimburse. There is no basis for 
concluding that, by the South Carolina Departmen t of Commerce partially reimbursing Vought 's 
construction costs, S outh Carolina Public Railways  gained title to the Emerald facilities and 
infrastructure.2129 In any event, the European Union is wrong to presume that ownership of the 
Emerald facilities and in frastructure is determined by who built them. Instead, section 6.06(A) of 
the Ground Lease  provides a clear statement as to "Title to Improvements and Alterations" .2130 
8.787.   Finally, the United States rejects the European Union 's argument that it ultimately does 
not matter whether Vought had a leasehold interest in the facilities and infrastructure or a 
time-limited ownership. Where South Carolina never had more than a future interest in the 
                                               
2123 United States' response to Panel question No. 101, paras. 199 and 202.  
2124 United States' comments on European Union's response to Panel question No. 101, paras. 149 and 
150.  
2125 United States' comments on European Union' s response to Panel question No. 106, para. 169.  
2126 See e.g. United States' response to Panel question Nos. 101(b), para. 194, and 101(d), para. 199.  
2127 United States' response to Panel question No. 101, para. 190.  
2128 United States' response to Panel questio n No. 101(a), para. 191.  
2129 United States' comments on the European Union's response to Panel question No. 101(a), 
para. 140. 
2130 United States' comments on the European Union's response to Panel question No. 101(a), 
paras.  138 and 139.  WT/DS353/R W 
 
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  Emerald facilities and infrastructure, South Carolina could not have "provided" those facilities and 
infrastructure within the meaning of Article 1.1(a)(1).2131 
8.788.   The United States argues that the provision of the Gemini facilities and infrastructure 
confers no benefit within the meaning of Article 1.1(b).2132 First, the European Union 's benefit 
arguments are based on the factually inaccurate premise that Boeing received the bond funds for 
the Gemini facilities  and infrastructure  for free. Boeing has in fact compensated South Carolina 
through its investment in un improved  real property at  the Project Site, which will revert to South 
Carolina at the end of the Amended Ground Lease.2133 Second, the European Union has failed to 
provide an adequate benchmark for determining benefit since the relevant question for the 
European Union 's arguments is  how much more Boeing would pay to rent the facilities and 
infrastructure in question if South Carolina were a market actor.2134 Furthermore, the 
United  States is aware of no logic or principle endorsed by the Appellate Body supporting the 
European Union 's position that, even if the financial contribution is properly characteri zed as a 
direct transfer of funds, the benefit has the same value as the value of the goods and services that 
must, by law, be purchased with the funds transferred by the government.2135  
8.789.   With respect to specificity, the United States  argues that the provision of the bond -funded 
Gemini facilities  and infrastructure  is not specific within the meaning of Article 2.2136 The specificity 
analysis should be carried out at the level of the South Carol ina legislative system for issuing state 
bonds.2137 First, the provision of bond -funded facilities and infrastructure is not specific within the 
meaning of Article 2.1(a), since there is no provision in this legislative system limiting access for 
funds raised  through economic development bonds, air hub bonds, and industrial revenue bonds to 
certain enterprises.2138 Moreover, none of the individual pieces of legislation pursuant to which the 
bonds are issued limit access to certain enterprises.2139 The mere fact that  the Project Gemini 
Agreement and the South Carolina State Budget and Control Board resolutions authorising the 
issuance of bonds mention Boeing by name is not sufficient to sati sfy the requirements of 
Article  2.1(a), since the specificity analysis must be  carried out at a different level.2140 Second,  the 
provision of bond -funded facilities and infrastructure is not specifi c within the meaning of 
Article  2.1(c), since the South Carolina bond scheme has funded facilities and infrastructure that 
are used by a va riety of companies, only two of which are in the aerospace industry.2141 
8.2.8.6.3   Evaluation by the Panel  
8.2.8.6.3.1   Whether there is a financial  contribution  
8.790.   The issue before the Panel is whether South Carolina authorities provide the Gemini and 
Emerald facilities and infrastr ucture2142 to Boeing, such that a financial contribution exists within 
the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement ( "a government provides goods or 
services other than general infrastructure, or purchases goods "). In addition, with regard to th e 
Gemini facilities  and infrastructure , the European Union argues in the alternative that a financial 
contribution exists in the form of a direct transfer of funds in the sense of Article 1.1(a)(1)(i) of 
the SCM Agreement ( "a government practice involves a  direct transfer of funds (e.g. grants, loans, 
and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees) "). The 
                                               
2131 United States' comme nts on the European Union's response to Panel question No. 101(a), 
para. 145. 
2132 United States' first written submission, paras. 583 and 584; second written submission, para. 519.  
2133 United States' first written submission, para. 488; response to Panel quest ion Nos. 105, para. 224, 
128, para. 265, and 129, paras. 266 and 267; and comments on European Union's response to Panel question 
Nos. 105, paras. 162 -168, and 106, para. 169.  
2134 United States' first written submission, paras. 583 and 584; second written su bmission, para. 519.  
2135 United States' comments on European Union's response to Panel question Nos. 105, paras. 162 and 
164-168, and 106, para. 170. Also see United States' response to Panel question No. 105, para. 228.  
2136 United States' first written submis sion, paras. 619 -632; second written submission, paras. 523 -532. 
2137 United States' first written submission, para. 624.  
2138 United States' first written submission, paras. 625 -628; second written submission, paras. 524 -528. 
2139 United States' first written subm ission, para. 626.  
2140 United States' first written submission, para. 627.  
2141 United States' first written submission, paras. 629 -632; second written submission, paras. 529 -532. 
2142 As noted above, "Gemini facilities and infrastructure" refers to Boeing's 787 f inal assembly and 
delivery facility and "Emerald facilities and infrastructure" refers to Boeing's 787 fuselage fabrication and 
integration complex.  WT/DS353/R W 
 
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  European Union makes no such alternat ive argument under Article 1.1(a)(1)(i) with respect to the 
Emerald f acilities and infrastructure.2143 
8.791.   The principal argument of the European Union to support its view that South Carolina 
"provides " the Gemini and Emerald facilities and infrastructure to Boeing2144 is that South Carolina 
"constructed ", and "is presently providing  Boeing with exclusive use of ", the Gemini and Emerald 
facilities.2145 The European Union argues, in this respect, that South Carolina owns, and that 
Boeing has a leasehold interest in, the Gemini and Emerald facilities and infrastructure.2146.  
8.792.   We consider that  the evidence before us does not suppor t this argument of the 
European  Union regarding the construction of, and ownership interest in, the Gemini and Emerald 
facilities and infrastructure: (a) we see no factual basis for the contention that South Carolina 
"constructed " the Gemini and Emerald facilities; and (b) it follows from the Ground Lease (and, in 
the case of the Emerald facilities and infrastructure, from the Vought Asset Purchase Agreement) 
that Boeing actually owns, and does not sublease, the Gemini  or Emerald facilities and 
infrastructure.  
8.793.   First, as noted above, in January 2010, and pursuant to commitments made in the Project 
Gemini Agreement, South Carolina issued bonds to defray a portion of the costs incurred by 
Boeing in connection with the con struction of certain Project Gemini facilities and infrastructure. 
The Project Gemini Agreement provides a set of procedures to ensure the proper application of the 
bond proceeds, whereby Boeing enters into contracts to construct infrastructure and facilit ies, pays 
the invoices and subsequently submits the invoices to South Carolina for reimbursement.2147 In 
accordance with these procedures, [***]. We see nothing in the record to suggest that South 
Carolina 's role with respect to the construction of these faci lities and infrastructure went beyond 
the provision of funding to offset a portion of the costs incurred by Boeing.2148  
                                               
2143 European Union's first written submission, para. 701.  
2144 The European Union's argument concerns the allege d provision of the Gemini and Emerald facilities 
and infrastructure to Boeing. The European Union does not request the Panel to make a finding that prior to 
Boeing's assumption of the Vought Ground Sublease in July 2009 a financial contribution existed in relation to 
Vought by virtue of South Carolina's provision of the Emerald facilities and infrastructure to Vought. The aim of 
the European  Union's discussion of Vought's legal interest in the Emerald facilities is to bolster its arguments 
that Boeing only has a leasehold interest in these facilities. The European Union asserts that since Vought only 
held a leasehold interest in the Emerald facilities , Boeing could not have acquired ownership of the facilities 
when it acquired Vought's assets. See  e.g. Europ ean Union's comments on United States' response to panel 
question No. 101(a), para. 293 ("{g}iven that United States' central premise with respect to ownership of the 
project Emerald facilities is incorrect, it follows that all of its claims which depend o n that premise are, in turn, 
incorrect. Accordingly, because Vought did not own the Project Emerald facilities, it could not have sold them 
to Boeing; rather it must have simply assigned its leasehold interest. Nor does Boeing now hold title to the 
Project  Emerald facilities, as it could not have acquired from Vought greater rights to the property than Vought 
had, itself. It additionally follows that, if Vought held only a leasehold interest in the Project Emerald facilities, 
title to the facilities must be  held by the lessor (CCAA) or sub -lessor (SCPR/SCDOR)").  
2145 European Union's first written submission, paras. 701 and 573.  
2146 While the argumentation presented by the European Union as to why South Carolina should be 
considered to "provide" the Gemini and E merald facilities and infrastructure is mainly based on the assertion 
that Boeing has access to these facilities  and infrastructure  pursuant to a sublease arrangement with the South 
Carolina authorities, the European Union has also suggested, at a later st age of this proceeding, that even in 
the absence of such a sublease arrangement South Carolina should be considered to "provide" the Emerald and 
Gemini facilities  and infrastructure  to Boeing. ( See para. 8.805  below). 
2147 See para. 8.766  above .  
2148 With respect to the  reimbursement through state bonds being characteri zed as partial  in nature, we 
note that the European Union contests the extent of the land remediation  reimbursed by South Carolina, and 
argues that South Carolina paid for "all or nearly all" of the remediation necessary to make the Project Site 
usable. (European Union's comments on United States' response to Panel question No. 123, para. 352; 
Supplemental Exp ert Report of D. E. Fields, MAI, CRE, FRICS, 24 November 2014,  (Exhibit EU -1349) (BCI), 
p. 4; also see comments on United States' response to Panel question Nos. 125 -127, paras. 357 -360, and 128, 
para. 362). Nonetheless, the European Union does not appear to contest the characteri zation of the 
reimbursement for the building of facilities  as partial. (See European Union's response to Panel question 
No. 106, para. 167; also see European Union's comments on United States' response to Panel question 
No. 123, pa ra. 352: "despite its best efforts, Boeing has yet to find a state that would directly pay for all of its 
capital expenditures" (fn omitted, emphasis original)). The United States explains that Boeing spent a total of 
[***] in real property investment at t he Project Site. As this entire figure was eligible for reimbursement from 
state bonds, Boeing, at its discretion, selected USD 270 million worth of expenses for which to seek 
reimbursement. (United States' response to Panel question No. 123, paras. 254 -256; also see Boeing WT/DS353/R W 
 
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  8.794.   Similarly, the evidence before us shows that, prior to the beginning of production in 2006, 
Vought contracted and paid for the constructio n of the Emerald facilities and infrastructure. The 
construction costs were then partially reimbursed by the South Carolina Department of Commerce 
through economic development bond proceeds.2149 Indeed, in the Project Emerald Agreement, 
South Carolina committ ed itself to providing economic development bond proceeds to the 
maximum amount of USD 120 million to Vought, while Vought inter alia committed itself to 
utilising these proceeds towards the construction of "infrastructure ", as broadly defined in section 
11-41-30 of the South Carolina Code , within broad categories of expenditure as laid out in the 
Project Emerald Agreement.2150 As such, it seems to us that South Carolina merely provided bond 
funds to Vought, which were to be used for the construction of broadl y-defined categories of 
facilities and infrastructure.  
8.795.   In light of the above, we do not consider that the European Union has demonstrated that 
South Carolina constructed or built the Gemini or Emerald facilities and infrastructure. Instead, we 
find that S outh Carolina provided bond proceeds to Boeing, in the context of Project Gemini, and 
similarly to Vought, in the context of Project Emerald, which were to be used for the construction 
of broadly -defined categories of facilities and infrastructure.2151  
8.796.   Secon d, the Ground Lease, as incorporated into the Vought Ground Sublease and the 
Amended and Restated Ground Sublease, contains a provision that specifically addresses the issue 
of ownership of the facilities and infrastructure constructed on the Project Site.  This provision 
indicates that Vought and subsequently Boeing obtained ownership over such facilities and 
infrastructure. Section 6.06 of the Ground Lease, entitled "Title to Improvements and Alterations ", 
provides ownership rules for "Improvements " built on the Project Site. "Improvements " are 
defined as:  
{A}ny and all improvements, additions or alterations made to the Leased Premises by 
the Operator and its contractors, agents, employees, and sublessee s, including, but 
not limited to buildings, bridges, overpasses, retaining walls, ditches, culverts, lighting 
supports, earth fills, earth excavations, clearing, grubbing, grading, roads, utilities, 
paving, ground cover, fences, signs, railway spurs and tracks, and landscaping, 
constructed, installed or plac ed on, under or above the Leased Premises.2152  
Improvements are divided into two categories. "Category I Improvements " are defined in the 
Ground Lease as "Improvements encompassing building locations, heights, elevations, materials 
used in the exterior const ruction, landscaping and any other exteriors ".2153 Facilities and 
infrastructure thus appear to be covered by the scope of Category I Improvements.  
8.797.   Section 6.06(A) provides with respect to Category I Improvements that:  
All Category I Improvements made with the Leased Premises during the Term shall 
remain the property of Operator, or any assignee or sublessee  of Operator, as 
                                                                                                                                               
Investment in South Carolina (2010 -3Q2012), (Exhibit USA -324) (BCI), and explanations of this Exhibit in 
United States' response to Panel question Nos. 124, para. 261, and 128, para. 265). Boeing received 
compensation through state bonds  of [***] under the category  [***], and [***] under the category [***]. 
(SC Department of Commerce, Summary of Reimbursements to Boeing , (Exhibit USA -519) (BCI)). The amount 
of Boeing's unreimbursed real property investment at the Project Site, that is a t otal of [***], is split between 
[***] under the category [***], [***] under the category [***], and [***] under the category [***]. 
The United States explains that [***] includes expenditures to [***]. [***] refers to  [***]. (Comparison of 
Boeing Investmen t in South Carolina (2010 -3Q2012), (Exhibit USA -324) (BCI), and SC Department of 
Commerce, Summary of Reimbursements to Boeing , (Exhibit USA -519) (BCI); also see explanations in United 
States' response to Panel question Nos. 124, paras. 259 -261 and fn 327,  and 128, para.  265). In light of this 
evidence, we consider it appropriate to characteri ze the reimbursement of Boeing's real property investment at 
the Project Site, including land remediation as well as the building of facilities, as partial in nature.  
2149 Final Project Emerald Incentive Agreement, (Exhibit EU -550), sections 2.1 and 2.3.  
2150 See para. 8.768  above.  
2151 The European Union does not request the Panel to find that the payments made to Vought under 
these procedures constitute a financial contribution to Vought.  
2152 Ground Lease Agreement, (Exhibit EU -473), section 1.01(K).  
2153 Ground Lease Agreement, (Exhibit EU -473), section 1.01(F).  WT/DS353/R W 
 
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  applicable, until expiration or termination of this Agreement, at which time all 
Category I Improvements shall automatically become the property of Authority.2154 
"Operator " is defined in the Ground Lease as meaning "South Carolina Public Railways, its 
successors, sublessee s and assign{ee}s ".2155  
8.798.   It therefore appears to us that the clause "Operator, or any assignee or sublessee  of 
Operator, as applicable " indicates that if there is an assignee or sublessee  of South Carolina Public 
Railways , Category I Improvements shall remain the property of that assignee or sublessee . Thus, 
during the Vought Ground Sublease, any Category I Improvements built b y Vought remained the 
property of Vought as sublessee  of the Operator. Similarly, during the term of the Amended 
Boeing Ground Sublease, any Category I Improvements built by Boeing remain the property of 
Boeing as sublessee  of the Operator. It is only afte r the expiration or termination of the Ground 
Lease that these improvements become the property of the Authority.2156  
8.799.   We consider that the European Union 's argument that "Premises " generally encompass 
land as well as the buildings on it is irrelevant, since the term "Premises " is specifically defined in 
the Ground Lease for the purposes of that agreement. Indeed, "Premises ", as used in the Ground 
Lease, is defined as "that portion of the Airport more particularly described in Exhibit A attached 
hereto "2157, wher eby Exhibit A appears to represent the 240 -acre parcel of land that constitutes 
the Project Site.2158 Thus, it is clear that the definition of "Premises " is limited to land and does not 
include facilities and infrastructure constructed thereon.  
8.800.   It follows th at the subleasehold  interest in the Project Site provided for in the Vought 
Ground Sublease and the Amended and Restated Ground Sublease is confined to a particular tract 
of land and does not encompass any facilities and infrastructure.2159 We consider moot t he 
European Union 's argument that the ownership of the Emerald facilities and infrastructure is 
governed by general rules of U .S. state property law and South Carolina law on the expenditure of 
bonds. Instead, there is a specific provision of the Ground Le ase that was precisely intended to 
govern the ownership of Category I Improvements built on the Premises during the term of the 
lease and potential subleases, and this provision indicates that the improvements built by Vought 
remain the property of Vought for the duration of the Ground Lease.  
8.801.   Our conclusion regarding the ownership of the Gemini and Emerald facilities and 
infrastructure is based on an analysis of the text of the Ground Lease, as incorporated into the 
Vought Ground Sublease and the Amended a nd Restated Ground Sublease. While the 
United  States also relies on the Vought Asset Purchase Agreement as evidence that Vought owned 
the Emerald facilities, we agree with the European Union that the Vought Asset Purchase 
Agreement is not clear as to  the n ature of Vought 's right to the Emerald facilities and 
infrastructure.2160 Thus, we do not consider that the Vought Asset Purchase Agreement either 
                                               
2154 Ground Lease Agreement, (Exhibit EU -473), section 6.06(A).  
2155 Ground Le ase Agreement, (Exhibit EU -473), section 1.01(M).  
2156 "Authority" means "the Charleston County Aviation Authority, the governing body of the Airport 
District, which is granted the responsibilities of exercising and performing the corporate powers and duties of 
the Airport District, and when used herein refers to both." (Ground Lease Agreement, (Exhibit EU -473), 
section  1.01(E)).  
2157 Ground Lease Agreement, (Exhibit EU -473), section 1.01(L).  
2158 Ground Lease Agreement, (Exhibit EU -473), annex A.  
2159 The text of the  Vought Ground Sublease and the Amended and Restated Ground Sublease also 
indicates that the scope of the sub leasehold interest is limited to land. Article 7 of the Vought Ground Sublease 
states that "{s}ublessee is subleasing the Premises for the purpose of constructing thereon facilities related to 
the manufacture of products for the aeronautics industry". (Ground Lease Agreement, (Exhibit EU -473), pdf 
p. 63). Article 7 of the Amended and Restated Ground Sublease states that "{s}ublessee is subleasing the  
Premises for the purpose of (a) constructing thereon or (b) using previously constructed thereon facilities 
related to or supporting the manufacture of products for the aeronautics industry". (Amended and Restated 
Sublease, (Exhibit EU -471), pdf p. 4). In  both cases, if the scope of the subleasehold included facilities, the 
agreements would not state that the Premises were being subleased for the purpose of constructing facilities 
thereon or using facilities already constructed thereon. Also see para. 8.769  above.  
2160 The provisions of section 2 indicate that Vought sold, assigned, transferred, conveyed and delivered 
assets either owned, leased, licensed, used or held for use by Vought, including the North Charlest on Facility. 
Such a statement is inconclusive as to the nature of Vought's rights to these facilities. Indeed, the North 
Charleston Facility could have been either owned, leased, licensed or held for use by Vought. Section 4.9 in 
turn indicates that Vought  owns facilities, except to the extent leased pursuant to [***]. The United States WT/DS353/R W 
 
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  confirms or refutes our conclusion reached on the basis of the Ground Lease. At the same time, 
however, the Voug ht Asset Purchase Agreement and related instruments2161 are relevant as 
evidence that Vought transferred its ownership rights in the Emerald facilities and infrastructure to 
Boeing. Therefore, the assertion of the European Union that Boeing acquired its inter est in the 
Emerald facilities and infrastructure through the Assignment and Assumption of the Ground 
Sublease is erroneous.2162  
8.802.   In light of the above, we consider the factual premise of the European Union 's main 
argument under Article 1.1(a)(1)(iii), namely that South Carolina owns, and Boeing only has a 
leasehold interest in, the Gemini and Emerald facilities and infrastructure , to be erroneous. Rather 
we find that: (a) Vought owned the facilities and infrastructure constructed on the Project Site 
during the  term of the Vought Sublease as a consequence of the operation of specific provisions in 
the Ground Lease defining ownership rights in such facilities and infrastructure; therefore, there is 
no merit to the European Union 's argument that Vought could not h ave transferred ownership of 
the Emerald facilities and facilities to Boeing; (b) Boeing acquired the Emerald facilities and 
infrastructure as part of its purchase of Vought 's assets in July 2009; and (c) Boeing owns the 
facilities and infrastructure const ructed on the Project Site in the context of Project Gemini as a 
consequence of the operation of specific provisions in the Ground Lease defining ownership rights 
in such facilities and infrastructure.2163  
8.803.   Article 1.1(a)(1)(iii) of the SCM Agreement stipulat es that a financial contribution exists 
where a government provides goods or services other than general infrastructure. In US – 
Softwood Lumber  IV, the Appellate Body considered whether the grant of an "intangible right to 
harvest " equated to a provision of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement. The Appellate Body noted definitions of the term "provide " as "supply or furnish for 
use; make available " and "to put at the disposal of ".2164 The Appellate Body reasoned that there 
must be a "reasonably proximate relationship " between the governmental action of providing the 
good or service and the use or enjoyment of the good or service by the recipient.2165 It stated that 
"a government must have some control over the availability  of a specific thing being 'made 
available '".2166  
8.804.   In our view, since Boeing does not sublease but actually owns the Gemini and Emerald 
facilities and infrastructure, and it is clear that its ownership interest was not conveyed to Boeing 
by South Carolina, there is  no basis to conclude that a financial contribution to Boeing exists in the 
form of a provision of goods or services other than general infrastructure. South Carolina did not, 
and does not "have some control over the availability of " the facilities and inf rastructure that are 
actually owned by Boeing and where Boeing acquired its ownership not from South Carolina but by 
operation of the relevant provisions of the Ground Lease (in the case of the Gemini facilities and 
infrastructure) or from Vought (in the c ase of the Emerald facilities and infrastructure).  
                                                                                                                                               
has provided no further explanation of its assertion that the majority of facilities and infrastructure built on the 
Project Site during the term of Vought's sublease was no t subject to a lease by a Material Contract. (See 
United States' comments on European Union's response to Panel question No. 101(a), para. 143 and fn 219).  
2161 See Assignment and Bill of Sale from Vought Aircraft Industries, Inc. to Boeing Commercial 
Airplan es Charleston South Carolina, Inc. (30 July 2009), (Exhibit EU -552); Exhibit J of the Vought -Boeing 
Asset Purchase Agreement, (Exhibit USA -450) (BCI); and Bill of Sale, Assignment and Assumption Agreement 
(30 July 2009), (Exhibit USA -515) (BCI). Also see U nited States' response to Panel question Nos. 101(a), 
paras. 192 and 193, 101(b), para. 194 and fn 263, and 120, paras. 247 -249. 
2162 European Union's response to Panel question No. 101(b), para. 129 ("{t}he European Union is not 
aware of any mechanism by whi ch Boeing obtained its interest in the Premises and the various improvements 
already located thereupon, other than the assignment and assumption of the Ground Sublease  (including 
CCAA's consent thereto), and the subsequent Amended and Restated Ground Suble ase"); European Union's 
comments on United States' response to Panel question No. 101(b), para. 298 ("{a}s the United States has 
failed to show otherwise, the European Union continues to consider that the Assignment and Assumption of 
Vought Sublease was th e legal mechanism by which Boeing initially obtained its interest in the Premises and 
the improvements located thereupon, subject to the consent of the CCAA" (fn omitted)).  
2163 In any event, with regard to the Emerald facilities and infrastructure, even if the European Union 
were correct that Boeing only has a leasehold interest in these facilities and infrastructure, we would not 
necessarily find that there is a financial contribution provided by South Carolina to Boeing. This is because 
Boeing obtained its  interest in the Emerald facilities and infrastructure as part of its purchase of Vought's 
assets. See Section 8.2.8.5.3  above.  
2164 Appellate Body Report, US – Softwood Lumber IV , para. 69.  
2165 Appellate Body Report, US – Softwood  Lumber IV , para. 71.  
2166 Appellate Body Report, US – Softwood Lumber IV , para. 71. (emphasis original)  WT/DS353/R W 
 
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  8.805.   We note that, in its responses to Panel questions, the European Union makes several 
arguments suggesting that South Carolina should be considered to "provide " (within the meaning 
of Article 1.1(a)(1)(iii)  of the SCM Agreement), facilities and infrastructure to Boei ng regardless of 
whether Boeing owns or subleases the facilities and infrastructure. Aside from the fact that these 
arguments would seem to be inconsistent with the main line of reasoning advance d by the 
European Union on this matter in its two written submissions, we consider that these arguments 
are factually erroneous and legally unfounded as they stretch the meaning of the notion of a 
"provision " of goods or services other than general infrast ructure beyond what we consider to be 
the proper interpretation of that notion as reflected in Article  1.1(a)(1)(iii) of the SCM Agreement.   
8.806.   Thus, one argument made by the European Union in response to a Panel question is that a 
provision of goods or servi ces other than general infrastructure occurs, regardless of whether 
Boeing has a legal title or a leasehold interest in facilities and infrastructure, because "South 
Carolina (or a state agency) is providing Boeing with the right to possess and use tangibl e assets 
that otherwise would (or do) belong to the state ".2167 As discussed above, Boeing owns the Gemini 
and Emerald facilities and infrastructure at issue. The European Union does not explain the precise 
legal meaning of this alleged "right to possess and use", how the evidence before the Panel shows 
that South Carolina conveyed such a "right to possess and use " to Boeing, and on what factual 
basis it asserts that these facilities and infrastructure "would (or do) belong to the state ".  
8.807.   The European Union a lso argues, in respect of the Gemini facilities and infrastructure , that 
South Carolina provides goods and services to Boeing by providing funding specifically for the 
purpose of reimbursing costs incurred by Boeing in the construction of  the Project Gemin i facilities 
and infrastructure; although as a formal matter funds were being transferred directly from South 
Carolina to Boeing, the essence of the transaction is one of South Carolina providing goods and 
services to Boeing.2168 Related to this, the European  Union contends that insofar as Boeing 's 
ownership of the Gemini facilities and infrastructure is limited in time and subject to South 
Carolina 's reversionary interest, this should be considered to be the "functional equivalent " of a 
leasehold arrangement.2169 
8.808.   It is not in dispute that South Carolina made payments to Boeing to cover a portion of the 
costs incurred by Boeing for the construction of the Gemini facilities and infrastructure. In our 
view, the most natural characterization of these payments is "a direct transfer of funds " within the 
meaning of Article 1.1(a)(1)(i) of the SCM Agreement. We disagree with the European Union 's 
argument that "the fundamental nature " of the transaction is a provision of goods because the 
payments were made for the specifi c purpose of funding the construction of  certain facilities and 
infrastructure. There is nothing in the text of Article 1 to suggest that when it is clear that the 
nature of the measure is a direct transfer of funds, the purpose for which the funds are gra nted 
should be given a decisive weight in the characterization of that measure.  
8.809.   The logic underlying the European Union 's argument is that where a particular type of 
financial contribution is made for the purpose of supporting a firm 's financing of the co nstruction or  
purchase of a good, such a financial contribution must be treated as a provision of that good in the 
sense of Article 1.1(a)(1)(iii) because of its "fundamental nature ". Thus, if a government lends 
money, makes a payment or grants a tax credi t to a firm for purposes of reimbursing the firm 's 
acquisition costs, each of these measures would be a financial contribution in the form of a 
provision of a good or service other than general infrastructure. We consider that this logic is 
inconsistent wi th Article 1.1(a)(1), which clearly contemplates a characterization of a measure as a 
financial contribution on the basis of the manner in which that measure transfers value to a 
recipient.2170 Therefore, even where they are somehow related to the purchase of  goods or 
                                               
2167 European Union's response to Panel question No. 101(d), para. 132.  
2168 European Union's response to Panel question No. 106, para. 164.  
2169 See e.g. Europe an Union's response to Panel question No. 101(c), para. 130; and comments on 
United States' response to Panel question No. 101, para. 305.  
2170 It is also inconsistent with the approach taken to the same issue by other panels and the Appellate 
Body. For exam ple, in EC and certain member States – Large Civil Aircraft , the panel addressed whether 
certain infrastructure -related grants to Airbus (i.e. grants towards the costs of constructing the A380 assembly 
line in Hamburg, a grant for the expansion of Airbus' Nordenham facility, a grant for Airbus facilities in 
Broughton, Wales and grants for the expansion and modernization of Airbus and EADS plan ts in Puerto de 
Santa Maria, Illescas, Puerto Real , Sevilla and La Rinconada, Spain) were specific subsidies to Airb us. These 
infrastructure -related grants were analysed as financial contributions to Airbus in the form of direct transfers of WT/DS353/R W 
 
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  services by a recipient, grants, loans, and tax measures are distinctive types of financial 
contributions. The term "provide goods or services other than general infrastructure " cannot be 
interpreted so broadly as to include measures that fall na turally within the scope of the other types 
of financial contribution identified in Article 1.1(a)(1).  
8.810.   We consider that for a government to "provide ", i.e. "to supply or furnish for use " or "to 
make available " facilities and infrastructure, these facilitie s and infrastructure must have been 
created. Indeed, the Appellate Body has observed that while the circumstances of the creation of 
infrastructure may be relevant to a proper characteri zation of what is provided, the creation of 
infrastructure is a precon dition, and thus necessary, for the provision of that infrastructure.2171 We 
do not consider that a private entity can be "provided " with created facilities and infrastructure by 
a government within the meaning of Article 1.1(a)(1)(iii) where that private ent ity is itself 
responsible for the construction of those facilities and infrastructure.  
8.811.   The notion that the financing provided by South Carolina is somehow tantamount to the 
actual provision of those facilities and infrastructure is also contradicted by th e fact that South 
Carolina only covered a part of Boeing 's expenditures for the construction of these facilities and 
infrastructure. Moreover, the European Union 's position is based on the factual premise that the 
bond proceeds were pre -destined to be spen t on the construction of specific facilities and 
infrastructure. The extent to which proceeds were thus pre -destined is debatable. It in fact seems 
that the purpose of the bond proceeds was so broadly defined and Boeing had such a margin of 
discretion in s electing which of its expenses to have reimbursed2172 that the European Union is 
unable to precisely identify the Gemini facilities and infrastructure that were allegedly provided to 
Boeing beyond the evidence that is contained in the bond withdrawal requests . Similarly, in the 
context of specificity, the European Union 's arguments mostly relate to the issuance of the bonds 
themselves.2173 Indeed, the bond funds for Project Gemini were intended for use under 
broadly -defined categories of facilities and infrastruc ture. The European Union itself acknowledges 
that Boeing had complete and total control over how the proceeds were expended within the 
agreed -upon categories.2174 
8.812.   Finally, we find that South Carolina 's reversionary, future ownership in the Gemini facilities 
and infrastructure does not give it any control at present over the availability of the facilities and  
infrastructure and  therefore does not constitute a basis for finding that South Carolina "provides " 
the facilities and infrastructure to Boeing.  
8.813.   In light  of the foregoing considerations, we: (a) reject the European Union 's 
argument that a financial contribution exist s within the meaning of Article 1.1(a)(1)(iii) 
of the SCM Agreement because South Carolina provides Gemini and Emerald facilities 
and infrastr ucture to Boeing2175; (b) find that the payments made by South Carolina 
pursuant to commitments made in the Project Gemini Agreement to compensate Boeing 
for a portion of the costs in  constructing  the Gemini facilities and infrastructure are 
direct transfers of fund s within the meaning of Article  1.1(a)(1)(i) of the SCM 
Agreement; and (c) find that there is no financial contribution to Boeing with respect to 
the Emerald facilities and infrastructure.2176  
8.2.8.6.3.2   Whether the re is a benefit  
8.814.   The issue before the Panel is w hether the direct transfers of funds made by South Carolina 
to compensate Boeing for a portion of the costs in constructing  the Gemini facilities  and 
                                                                                                                                               
funds without objection by the European Communities as to the correct form of financial contribution. (See 
Panel Report, EC and ce rtain member States – Large Civil Aircraft , paras. 7.1010 and 7.1205 -7.1218).  
2171 Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 964 -966. 
2172 See United States' response to Panel question No. 123, para. 256.  
2173 European Unio n's response to Panel question No. 110, paras. 176 and 177.  
2174 European Union's first written submission, para. 570.  
2175 The parties disagree on whether the European Union has identified the facilities and infrastructure 
with sufficient precision and on whet her, as argued by the European Union, these facilities and infrastructure 
are "tailor -made". In light of our conclusion that the European Union has not established that South Carolina 
actually provide facilities and infrastructure to Boeing , we do not see the need to address these issues.  
2176 While payments were made in connection with the construction of the Emerald facilities and 
infrastructure, these payments were made to Vought. The European Union does not argue in this proceeding 
that any financial contr ibutions to Vought have given rise to subsidies to Boeing.  WT/DS353/R W 
 
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  infrastructure , which  the Panel has found to be financial contributions within the m eaning of 
Article  1.1(a)(1)(i), confer a benefit within the meaning of Article 1.1(b). The disagreement 
between the parties mainly focuses on the identification of the correct benchmark for determining 
benefit, as well as the question of whether Boeing provided remuneration to South Carolina in 
exchange for the direct transfers of funds that would offset any benefit conferred.  
8.815.   At the outset, we recall that the European Union considers the proper characteri zation of 
the financial contribution associated with the Gemini facilitie s to be the provision of goods or 
services within the meaning of Article 1.1(a)(1)(iii).2177 As such, the European Union 's submissions 
focus to a great extent on determining the benefit conferred  by South Carolina 's provision of a 
lease of the Gemini faciliti es. Consequently, while taking no position on the proper characteri zation 
of the alleged financial contribution, the United States mainly responds to the European Union 's 
arguments made in the context of the financial contribution characteri zed as a provis ion of goods. 
However, as explained above, we are of the view that the relevant financial contribution is properly 
characteri zed as direct transfers of funds.2178 The Panel requested the parties to explain their 
position on benefit if the financial contributi on were properly characteri zed as a direct transfer of 
funds, and the following sets out the parties ' positions relating to such a characteri zation of the 
financial contribution.   
8.816.   The European Union 's position is that a benefit was conferred to Boeing sinc e it received 
bond funds for the Gemini facilities in the amount of USD 270 million for free, while in the market 
it would have had to pay for them.2179 Indeed, irrespective of how the financial contribution is 
characteri zed, paying nothing constitutes less t han adequate remuneration since Boeing would 
have two options to obtain access to the custom -made Gemini facilities in the market, each 
carrying with it a financing cost. First, Boeing could have raised funds in the market sufficient to 
construct the custo m-made facilities itself, with a corresponding cost of funds for the investment 
(either as actual expenditure or as opportunity cost, in case Boeing had the funds available). 
Second, and alternatively, Boeing could have found another market participant to make the 
investment in the construction of the custom -made facilities, and leased these from the investor. 
In that case, the investor would agree to the construction and lease of custom -made facilities for 
Boeing only if the lease would result in the inves tor expecting an appropriate return on its 
investment.2180  
8.817.   The United States ' position is that the European Union has failed to provide an adequate 
benchmark, since the United States is aware of no logic or principle endorsed by the Appellate 
Body that suppo rts the European Union 's position that, even if the financial contribution is properly 
characteri zed as a direct transfer of funds, the benefit has the same value as the value of the 
goods and services that must, by law, be purchased with the funds transfe rred by the 
government.2181 Furthermore, the European Union 's reliance on a benchmark comprising of the 
cost of constructing the facilities plus a finance charge is precisely the methodology found to be 
inconsistent with Articles 1.1(b) and 14 by the Appellat e Body in EC and certain member States – 
Large Civil Aircraft .2182  
8.818.   For the reasons detailed below, we find that the direct transfers of funds made by South 
Carolina to compensate Boeing for a portion of the costs in constructing the Gemini facilities confer 
a benefit within the meaning of Article 1.1(b). It is well established in previous panel and Appellate 
Body reports that a financial contribution confers a benefit and thus constitutes a subsidy within 
the meaning of Article 1.1 where the financial contrib ution is provided to the recipient on terms 
that are more favourable than the terms available to the recipient on the market.2183 In other 
words, the "market benchmark " for determining the existence of a subsidy is the terms on which 
that financial contributi on would have been available to the recipient on the market.  
                                               
2177 European Union's response to Panel question No. 106, para. 162.  
2178 See para. 8.808  above.  
2179 European Union's response to Panel question No. 105, para.  153. 
2180 European Union's response to Panel question No. 105, paras. 155 and 156.  
2181 United States' comments on European Union's response to Panel question Nos. 105, paras. 162 and 
164-168, and 106, para. 170.  
2182 United States' comments on European Union's re sponse to Panel question No. 105, paras. 164 -166; 
response to Panel question No. 105, para. 228.  
2183 See e.g. Appellate Body Reports, Canada – Aircraft , paras. 154 and 157; Japan – DRAMs (Korea) , 
para. 225; and EC and certain member States – Large Civil Airc raft, para. 705.  WT/DS353/R W 
 
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  8.819.   The European Union considers an appropriate benchmark in the present instance to be 
either what Boeing would have had to pay in financing costs had it built the Gemini facilities itself, 
or what  Boeing would have had to pay in rent to an investor expecting an appropriate return on 
investment.2184 Indeed, the European Union argues that regardless of which characteri zation of the 
financial contribution is most appropriate, since the bond funds were us ed to construct facilities 
and infrastructure, the benefit of such a financial contribution is to be determined with respect to 
those facilities and infrastructure. We agree with the United States to the extent that the 
European  Union has failed to explain  how the benefit determination is the same whether the 
financial contribution is properly characteri zed as a direct transfer of funds, or a provision of goods 
or services.2185 The European Union 's approach to determining benefit confounds the distinction 
between the two different types of financial contribution embodied in Articles 1.1(a)(1)(i) and 
1.1(a)(1)(iii), and the different methodologies involved in determining benefit for different types of 
financial contributions. We note the Appellate Body 's observa tion that:  
{T}he characterization of a transaction under Article 1.1(a) of the SCM Agreement 
may have implications for the manner in which the assessment of whether a benefit is 
conferred is to be conducted. For instance, the context provided by Article 1 4 of the 
SCM Agreement presents different methods for calculating the amount of a subsidy in 
terms of benefit to the recipient depending on the type of financial contribution at 
issue.2186 
8.820.   We have previously explained that the financial contribution at issue consists of funds 
provided to Boeing to offset some of Boeing 's costs of constructing the Gemini facilities, and that 
this financial contribution is properly characteri zed as a direct transfer of funds within the meaning 
of Article 1.1(a)(1)(i) of the SCM Agreement. Whether that financial contribution confers a benefit 
is necessarily determined by comparing the terms on which Boeing received that financial 
contribution (i.e. the funds), compared to the terms on which that financial contribution would 
have b een provided to it on the market. In our view, like the infrastructure -related grants analysed 
by the panel in EC and certain member States – Large Civil Aircraft , the financial contribution 
clearly confers a benefit.2187  
8.821.   A further issue raised by the partie s' benefit arguments is what, if anything, Boeing can be 
considered to have given as remuneration to offset any benefit conferred by the financial 
contribution. The European Union claims that Boeing received the funds for the Gemini facilities for 
free. An y residual value from Boeing 's unreimbursed investment in real property at the Project Site 
that may revert to South Carolina at the end of the Amended Ground Lease in 2041 is nominal and 
fails to provide adequate remuneration, thus meaning that the direct  transfers of funds confer a 
benefit.2188 The United States argues that the European Union 's benefit arguments are based on 
the factually inaccurate premise that Boeing received the bond funds for the Gemini facilities and 
infrastructure for free. In fact, Bo eing has compensated South Carolina through its investment in 
unreimbursed real property at the Project Site in the amount of [***], the residual value of which 
will revert to South Carolina at the end of the Amended Ground Lease, thus obviating any 
benefi t.2189  
8.822.   We consider  both parties ' positions to be flawed, since an assessment of benefit should be 
carried out on an ex ante  basis, and there is no evidence before us that any remuneration for the 
direct transfers of funds was foreseen in the agreement betwee n South Carolina and Boeing that 
could be considered to offset any benefit conferred. Both parties ' arguments on benefit appear to 
stray from the text and interpretation of Article 1.1(b). The Appellate Body has indicated that the 
benefit determination is an ex ante  analysis, carried out at the time the financial contribution is 
                                               
2184 European Union's response to Panel question No. 105, para. 156.  
2185 See United States' comment on European Union's response to Panel question No. 106, para. 170.  
2186 Appellate Body Report s, Canada – Renewable Energy / Canada – Feed-In Tariff  Program , 
para. 5.130.  
2187 See Panel Report, EC and certain member States – Large Civil Aircraft , paras. 7.1010 and 
7.1205 -7.1218. See also Panel Report, US – Upland Cotton , para. 7.1116.  
2188 European Union's response to Panel question Nos. 106, para. 167, and  111, paras. 182 -195. Also 
see Expert Report of D. E. Fields, MAI, CRE, FRICS, 2 December 2013,  (Exhibit EU -1267) (BCI); and 
Supplemental Expert Report of D. E. Fields, MAI, CRE, FRICS, 24 November 2014, (Exhibit EU -1349) (BCI).  
2189 United States' response t o Panel question Nos. 105, para. 224, and 128, para. 265; comments on 
European Union's response to Panel question Nos. 105, paras. 162 -168, and 106, para. 169. Also see 
United  States' response to Panel question No. 129, paras. 266 and 267.  WT/DS353/R W 
 
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  made. To determine whether a benefit has been conferred, a comparison is made between the 
terms and conditions of the financial contribution when it is granted with the terms and co nditions 
that would have been offered on the market at that time.2190 In making such an ex ante  analysis, 
we see that the United States has failed to show that the Project Gemini Agreement between 
South Carolina and Boeing foresaw that Boeing would invest [***] in real property at the Project 
Site, the residual value of which would re vert to South Carolina, via the Charleston County 
Aviation Authority , in 2041 at the latest. While it may be that some residual value of Boeing 's 
investment of [***] in real prope rty at the Project Site will revert to South Carolina2191, the 
United  States has failed to show that this residual value was foreseen in the agreement between 
South Carolina and Boeing, and should therefore be reflected in the ex ante analysis of benefit 
consistent with Article 1.1(b), nor do we see any evidence on the record to this effect.2192 As such, 
we do not consider that Boeing can be considered to have compensated South Carolina for the 
direct transfers of funds, and instead find that these transfers are correctly described as a grant to 
Boeing.  
8.823.   In light of the above, we find that the direct transfers of funds made by South 
Carolina to compensate Boeing for a portion of the costs in constructing  the Gemini 
facilities confer a benefit within the meaning of Article 1.1(b).  
8.2.8.6.3.3   Whether the subsidy is specific within the meaning of Article 2.1 of the SCM 
Agreement  
8.824.   The first question raised by the parties ' arguments is whether the subsidy provided 
through the direct transfers of funds made by South Carolina to comp ensate Boeing for a portion 
of the costs in constructing  the Gemini facilities is specific within the meaning of Article 2.1(a) of 
the SCM Agreement, i.e. whether "the granting authority, or the legislation pursuant to which the 
granting authority operates , explicitly limits access to the subsidy to certain enterprises ".  
8.825.   It is clear from the text of Article 2.1(a) that the "the express limitation can be found 
either in the legislation by which the granting authority operates, or in other statements or mean s 
by which the granting authority expresses its will ".2193 The European Union does not argue that 
such an explicit limitation exists as a result of "other statements or means by which the granting 
authority expresses its will ". The question before us in this case is whether access to the subsidy is 
subject to an explicit limitation by virtue of "the legislation pursuant to which the granting 
authority operates ". 
8.826.   As to the meaning of "explicitly limits " in Article 2.1(a), the Appellate Body has explained 
that "a subsidy is specific under Article 2.1(a) if the limitation on access to the subsidy to certain 
enterprises is express, unambiguous, or clear from the content of the relevant instrument, and not 
merely 'implied ' or 'suggested "'.2194 Whether "access to the su bsidy" is explicitly limited must focus 
on whether the granting authority, or the legislation pursuant to which the granting authority 
operates, limits the eligibility  to receive the subsidy to certain enterprises.2195 With regard to the 
term "certain enterpr ises", the Appellate Body has observed that "the relevant enterprises must be 
                                               
2190 Appellate Body  Report, EC and certain member States – Large Civil Aircraft , para. 706.  
2191 The parties disagree on the calculation of such residual value. (Parties' response and comments on 
Panel question Nos. 123 -130).  
2192 The fact that Boeing's investment of [***] in real  property at the Project Site contributed to its 
overall investment requirement of USD 750 million, set out in the Project Gemini Agreement (as confirmed by 
the United States in response to a question from the Panel – United States' response to Panel quest ion No. 
129, paras. 266 and 267), is in our view insufficient to consider any residual value from Boeing's investment of 
[***] as remuneration in our benefit determination. Indeed, the general requirement to invest USD 750 
million as part of the Project Ge mini package of incentives says nothing about an obligation to invest precisely 
[***] in real property at the Project Site.  
2193 Panel Report, US – Large Civil Aircraft (2nd complaint)  para. 7.190.  
2194 Appellate Body Report, US – Anti-Dumping and Countervailin g Duties (China) , para. 372. See also 
Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.190 and 7.192.  
2195 See, in particular, Appellate Body Reports, US – Anti-Dumping and Countervailing Duties (China) , 
para. 368 ("Article 2.1(a) thus focuse s not on whether a subsidy has been granted to certain enterprises, but 
on whether access to that subsidy has been explicitly limited. This suggests that the focus of the inquiry is on 
whether certain enterprises are eligible for the subsidy, not on whethe r they in fact receive it") ; and US – 
Large Civil Aircraft (2nd complaint) , para. 753 ("{t}his inquiry focuses not only on whether the subsidy was 
provided to the particular recipients identified in the complaint, but focuses also on all enterprises or ind ustries 
eligible to receive that same subsidy").  WT/DS353/R W 
 
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  'known and particularized ', but not necessarily 'explicitly identified ', and that they may have 'some 
mutual or common relation or purpose ', or 'degree of similarity '".2196 
8.827.   Since "eligibility is key to a consideration of de jure  specificity under subparagraphs (a) 
and (b) of Article 2.1 of the SCM Agreement "2197, we consider that the term "legislation pursuant 
to which the granting authority operates " in Article 2.1(a) must be understoo d to mean the 
legislation that defines the criteria of eligibility for a subsidy.2198 South Carolina provided the direct 
transfers of funds to Boeing to compensate for a portion of the costs in constructing the Gemini 
facilities pursuant to provisions of South Carolina Code  sections 11 -41-40 and South Carolina Code  
section 55 -11-520 relating to the issuance of economic development bonds and air hub bonds, 
respectively. Accordingly, these provisions constitute "the legislation pursuant to which the 
granting aut hority operates " for purposes of the analysis under Article 2.1(a).2199 
8.828.   In this regard, we see no merit in the argument of the European Union that the individual 
resolutions adopted by South Carolina authorizing the issuance of the economic development 
bonds and air hub bonds establish an explicit limitation on access to the subsidy within the 
meaning of Article 2.1(a). The bond resolutions that the European Union relies on are clearly 
instances of application of a broader legislative framework in place for th e issuance of economic 
development bonds and air hub bonds. The fact that, as alleged by the European Union, "the 
resolutions authorising issuance of the bonds explicitly restricted the use of the proceeds to the 
construction of specified facilities and in frastructure for Boeing 's use "2200 simply reflects the 
application of the relevant statutory provisions to this individual case and does not demonstrate an 
"explicit limitation " of access to the subsidy to certain enterprises.2201  
8.829.   At the same time, however, we are also not persuaded that the inquiry into whether the 
measure is specific within the meaning of Article 2.1(a) should be conducted at the level of what 
the United States refers to as South Carolina 's "system for issuing state bonds to provide facilities  
and infrastructure ".2202 In our view, the United States has not defined that "system " with sufficient 
precision. In its first written submission, the United States asserts that the relevant legislative 
framework encompasses not only economic development bond s and air hub bonds but also 
industrial revenue bonds, since the common purpose of all of these bonds is to enable South 
Carolina to fund facilities and infrastructure for economic development projects to promote job 
creation and/or retention in South Caro lina.2203 In its second written submission, the United States 
also refers to "state highway bonds for road construction " and "state institution bonds to fund 
construction of facilities for state four -year colleges and universities ".2204 It is thus unclear whethe r 
the "system for issuing state bonds to provide facilities and infrastructure " should be understood to 
comprise only the three types bonds discussed in the United States ' first written submission i.e. 
economic development bonds, industrial revenue bonds a nd air hub bonds or whether the two type 
of bonds mentioned in the second written submission of the United States also form part of that 
system.  
                                               
2196 Appellate Body Report, US – Carbon Steel (India) , para. 4.365. The Appellate Body has also stated 
that "{a}ny determination of whether a number of enterprises or industries constitute 'certain enterprises'  can 
only be made on a case -by-case basis". (Appellate Body Report, US – Anti-Dumping and Countervailing Duties 
(China) , para. 373 (quoting Panel Report, US – Upland Cotton , para. 7.1142)).  See also Appellate Body Report, 
US – Washing Machines , paras. 5.22 0.5.221 (explaining that the notion of "certain enterprises" in Article 2.2 of 
the SCM Agreement does not depend on the legal personality of the subsidy recipients).  
2197 Appellate Body Report, US – Carbon Steel (India) , para. 4.384.  
2198 This interpretation is also supported by a reading of Article 2.1(a) in the context of Article 2.1(b). 
See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 750.  
2199 The Appellate Body Report in the original proceeding emphasizes the need for an inquiry conce rning 
specificity under Article 2.1(a) properly to take into account the broader legislative framework pursuant to 
which the subsidy has been provided. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  750, 753, and 841). Also see P anel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.565 .  
2200 European Union's first written submission, para. 583.  
2201 We also consider that the fact that "the provision of these bond -funded facilities and infrastructure 
was among the commitments  South Carolina made to Boeing as part of the Project Gemini Agreement" is an 
insufficient basis to find that ac cess to the subsidy is explicitly limited to certain enterprises. (European Union's 
first written submission, para. 583).  
2202 United States' first  written submission, paras. 625 -632. 
2203 United States' first written submission, para. 619.  
2204 United States' second written submission, para. 526.  WT/DS353/R W 
 
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  8.830.   In light of these considerations, and since the subsidy at issue here concerns proceeds 
from the issuance of e conomic development bond s and air hub bond s for Project Gemini, we 
consider that whether the subsidy is specific within the meaning of Article 2.1(a) should be 
determined on the basis of the text of the relevant legislative provisions relating to the issua nce of 
economic development bonds and air hub bonds.  
8.831.   In this context, the European Union argues that access to the subsidy is limited to the 
aviation and aerospace industry, since air hub bond proceeds may only be issued for air carrier 
hub terminal facili ties, and economic development bond proceeds may not be used for buildings 
except when used in connection with air carrier hub terminal facilities or located on 
government -owned land.2205 The United States counters that the provision of bond -funded facilities  
and infrastructure is not specific within the meaning of Article 2.1(a), since the system of 
legislation for issuing state bonds to provide facilities is not explicitly limited to certain 
enterprises.2206 There is no provision in South Carolina law limiting access for funds raised through 
economic development bonds and air hub bonds to certain enterprises. Moreover, none of the 
individual pieces of legislation pursuant to which the bonds are issued limit access to certain 
enterprises.2207  
8.832.   As noted above2208, secti on 11 -41-40 of the South Carolina Code  provides that economic 
development bonds can be used to fund financing for infrastructure. In this context, "economic 
development project " is defined as "a project in this State as defined in Section 12 -44-30(16) in 
which a total of at l east four hundred million dollars is invested in the project by the sponsor and 
at least four hundred new jobs are created at the project by the sponsor ".2209 With respect to 
economic development bonds, the European Union makes two argumen ts in support of its position 
that the relevant statutory provisions explicitly limit access to the subsidy to "certain enterprises: 
that is, Boeing, or, at a minimum, the aviation and aerospace industry ".2210  
8.833.   First, the European Union argues that an amendme nt made in 2009 to increase the total 
amount of general obligation bonds2211 "was enacted for Boeing as part of H3130 ".2212 While we 
agree that this amendment was made in relation to commitments made by South Carolina 
vis-à-vis Boeing in the context of Project G emini, we see nothing in the text of this amendment2213 
to suggest that this additional amount of economic development bonds may only be used in 
respect of economic development projects involving certain enterprises.  
8.834.   Second, the European Union asserts that "economic development bond proceeds may not 
be used for buildings (as they were in this case), except  in the context of projects associated with 
an air hub carrier terminal facility or located on government -owned land ".2214 The European Union 
does not explain how this warrants the conclusion that "the statutory provisions pursuant to which 
the economic development bonds … were issued contain explicit limitations to certain 
enterprises ".2215 Moreover, the European Union only considers the eligibility criteria for e conomic 
development bond proceeds used for buildings. This is unwarranted, inter alia  because the 
economic development bond proceeds transferred to Boeing were used [***2216].2217  
8.835.   In sum, we consider that, with respect to the issuance of economic development bo nds to 
finance infrastructure, the European Union has not offered sufficient reasoning to establish that the 
                                               
2205 European Union's first written submission, para. 584; second written submission, para. 639.  
2206 United States ' first written submission, paras. 625 -628; second written submission, paras.  524-528. 
2207 United States' first written submission, para. 626; also see second written submission, paras. 526 
and 527.  
2208 See fn 1943 above.  
2209 State General Obligation Economic development Bond Act, S.C. Code, Title 11, chapter  41, (Exhibit 
EU-477), section 11 -41-30. 
2210 European Union's first written submission, para. 584.  
2211 See para. 8.685  above.   
2212 European Union's first written submission, para. 584.  
2213 State General Obligation Economic development Bond Act, S.C. Code, Title 11, chapter  41, (Exhibit 
EU-477), section 11 -41-50(B).  
2214 European Union's first written submission, para. 584. (empha sis original)  
2215 European Union's second written submission, para. 639.  
2216 See para. 8.767  above.  
2217 European Union's first written submission, para. 584.  WT/DS353/R W 
 
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  measure at issue is explicitly limited to certain enterprises within the meaning of Article 2.1(a). 
Having made such a finding, we consider it unne cessary to pronounce on Article 2.1(b).2218 
8.836.   With respect to air hub bonds, section 55 -11-520 of the South Carolina Code  provides that 
this type of bond can be used to acquire land, construct, enlarge, improve, extend, renovate, and 
equip suitable air carrier hub terminal facilities, and purchase equipment, ground support 
equipment, machinery, special tools, maintenance, boarding facilities, and any real or personal 
property for operation of air carrier hub terminal facilities.2219 The parties disagree as to wheth er 
the fact that proceeds from air hub bonds may be issued only for "air carrier hub terminal 
facilities ", defined as airport terminal facilities from which certain categories of air carriers operate 
makes the measure specific within the meaning of Article  2.1(a). Since we find that the air hub 
bonds are specific within the meaning of Article 2.1(c), we do not consider it nece ssary to address 
that question.  
8.837.   A second issue raised by the parties ' arguments is whether the direct transfers of funds 
made by Sout h Carolina to compensate Boeing for a portion of the costs in constructing the Gemini 
facilities are specific within the meaning of Article 2.1(c). The European Union argues that the 
transfer of bond proceeds is specific within the meaning of Article 2.1(c ) on the grounds that this 
type of subsidy has only been used by a limited number of enterprises, and Boeing and its 
suppliers have been the predominant users.2220 The United States counters that the provision of 
bond-funded facilities and infrastructure i s not de facto specific, since the South Carolina bond 
scheme has funded facilities and infrastructure that are used by a variety of companies, only two 
of which are in the aerospace industry.2221 
8.838.   The evidence before the Panel indicates that since the adoption o f South Carolina 
legislation authorising the issuance of economic development bonds in 2002, South Carolina has 
issued economic development bonds for BMW (in 2003 in the amount of up to 
USD 105 million)2222, the Project Emerald companies (in 2004 in the amoun t of up to 
USD 160 million)2223, and Boeing. In addition, economic development bonds were issued for 
certain public entities in 2005, namely the City of Greenville, the City of Myrtle Beach, and the 
Trident Technical College, in the amount of up to USD 7 mill ion each.2224 Since the adoption of 
legislation authorising the issuance of air hub bonds in 19892225, air hub bonds have only been 
issued to Boeing, a fact which the United States does not contest.2226  
8.839.   We are of the view that the European Union has failed to esta blish that the transfer of 
funds to Boeing through economic development bond proceeds is specific within the meaning of 
Article 2.1(c) because it is used by a limited number of certain enterprises, or is predominantly 
used by Boeing and its suppliers. The European Union provides no reasoning as to why, in light of 
the level of diversification in the South Carolina economy and the duration of the economic 
development bond scheme, the grant of economic development bond proceeds to BMW, the 
Project Emerald com panies and Boeing amounts to use by a limited number of enterprises.  
                                               
2218 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 876 ("{h}aving found 
that the IRB subsidies are not specific within the meaning of Article 2.1(a), analysis by the Panel under 
Article  2.1(b) was not necessary").  
2219 See fn 1951 above.  
2220 European Union's first written submission, para. 585; second written submission, para. 639.  
2221 United States' first written submission, para. 631; see also second written submission, 
paras.  529-532. 
2222 United States' response to the Panel's request for informati on pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 67, para. 150. Also see South Carolina State Budget and 
Control Board, Freedom of Information Act Response Letter, 23 July 2012, (Exhibit EU -490), p. 1, and South 
Caroli na State Budget and Control Board, Freedom of Information Act Response Supplemental Letter, 
31 July 2012, (Exhibit EU -491).  
2223 See para. 8.768  above. Also see South Carolina State Budget and Control Board, Freedo m of 
Information Act Response Letter, 23 July 2012, (Exhibit EU -490), p. 1.  
2224 South Carolina State Budget and Control Board, Freedom of Information Act Response Letter, 
23 July 2012, (Exhibit EU -490), p. 1.  
2225 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 67, para. 150.  
2226 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to quest ion No. 67, para. 150.  WT/DS353/R W 
 
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  8.840.   With respect to predominant use, the Panel noted in the original proceeding that 
predominant use "requires consideration of whether the subsidy programme in issue is mainly or 
most frequ ently used by 'certain enterprises '", taking into account the extent of diversification of 
economic activities within the jurisdiction of the granting authority, as well as the length of time 
during which the subsidy programme has been in operation.2227 The E uropean Union argues that 
Boeing and its suppliers have been the predominant users of th e subsidy, benefitting from 
USD 390 million out of a total of USD 495 million in economic development bonds and air hub 
bonds, or 79% of the bonds by value.2228 We do not consider this information to show that the 
economic development bond scheme has mainly or most frequently been used by certain 
enterprises. While this information could be relevant to an argument that a disproportionately 
large amount of subsidy has been g ranted to certain enterprises, this is not an argument that the 
European Union makes.2229 To find otherwise would be to confound predominant use by certain 
enterprises (the second of the "other factors " listed in Article 2.1(c)), and the granting of 
dispropor tionately large amounts of subsidy to certain enterprises (the third of the "other factors " 
listed in Article  2.1(c)).2230 The European Union makes no other arguments why, in light of the 
diversification of the South Carolina economy and the duration of the e conomic development bond 
scheme, economic development bond proceeds have been mainly or most frequently used by 
certain enterprises.  
8.841.   Further to the above, with respect to economic development bond proceeds provided to 
public entities, the European Union st ates that "{b}ecause specificity is assessed with respect to 
enterprises and industries, the European Union does not include economic development bonds 
issued for public entities, such as cities or public colleges ".2231 Notwithstanding this, precisely the 
fact that economic development bonds can be and have been issued to public entities, namely two 
cities and a public college, in addition to private entities, suggests that the scheme is not limited to 
"certain enterprises " within the meaning of Article 2.1(c) . 
8.842.   However, we do consider that the European Union has established that the grant of air hub 
bond proceeds to Boeing is specific within the meaning of Article 2.1(c) , in the sense that the use 
of the subsidy programme is limited to certain enterprises.  In this regard, we note that i t is 
undisputed that air hub bonds have only been issued to Boeing during the almost three -decade 
long existence o f the scheme. The fact that air hub bonds have only been issued for Boeing is 
unsurprising since the evidence before  the Panel suggests that only Boeing meets the 
requirements to benefit from air hub bond proceeds, namely to be the operator of an "air carrier 
hub terminal facility " as defined in the South Carolina Code . While the Project Emerald Agreement 
originally con templated the issuance of both economic devel opment bonds and air hub bonds, it 
appears that Project Emerald was only eligible for economic development bonds, and only that 
type of bond was issued.2232 The definition of "air carrier hub terminal facility" was  amended in 
                                               
2227 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.746 and 7.747.  
2228 European Union's first written submission, para. 585 and fn 1377.  
2229 The European Union does not argue that a disproportionate amount of subsidy has been granted to 
certain enterprises, nor does it address the question of whether there is a "disparity between the expected 
distribution of that subsidy, as determined by the conditions of eligibility, and its actual distribution", necessary 
for the demons tration of disproportionality of grants. See Appellate Body Report, US – Large Civil Aircraft (2nd 
complaint) , para. 879; also see para.  8.900  below concerning the  FILOT  agreements.  
2230 We note that in the original proceeding, th e Panel conducted an analysis of the City of Wichita 
industrial revenue bonds under several of the factors listed in Article 2.1(c), but based its finding of specificity 
on the granting of disproportionately large amounts of subsidy to certain enterprises.  (See Panel Report, US – 
Large Civil Aircraft (2nd complaint) , paras. 7.743 -7.779). Also see Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint) , paras. 879 and 886 -889, upholding for different reasons the Panel's finding of 
specificity.  
2231 European Union's second written submission, fn 1064. Also see first written submission, fn 1377; 
and United States' second written submission, paras. 529 and 530.  
2232 Compare section 2.1 of the Initial Project Emerald Site Development and Incentive Agreement, 
(Exhibit EU -560), and section 2.1 of the Final Project Emerald Incentive Agreement, (Exhibit EU -550).  
Nonetheless, in the Project Emerald Agreement the "parties acknowledge that {South Carolina Department of 
Commerce} will request a modification to existing  legislation to facilitate Project Emerald's qualification for the 
issuance of Air Hub Bonds".  Initial Project Emerald Site Development and Incentive Agreement, (Exhibit 
EU-560), section 2.4.  A Bond Counsel Opinion in the Project Emerald Agreement also not ed the following: 
"{w}e have been informed that the Project Emerald Consortium will not independently satisfy the requirement 
that the Project account for at least 'twenty common carrier departing flights a week on an annual basis for the 
purposes of trans porting cargo and air freight'", within the meaning of section 55 -11-500(1) of the South 
Carolina Code.  (Initial Project Emerald Site Development and Incentive Agreement ), (Exhibit EU -560), 
exhibit D. WT/DS353/R W 
 
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  2005 to encompass section 55 -11-500(a)(3)2233 in addition to section 55 -11-500(a)(1), and air 
hub bonds were issued for the first time to Boeing, which fulfil led the requirements of 
section  55-11-500(a)(3).2234 
8.843.   As such, we find that the European Unio n has established that  subsidy provided 
by South Carolina through air hub bond proceeds to compensate Boeing for a portion of 
the costs in constructing  the Gemini facilities  and infrastructure  is specific within the 
meaning of Article 2.1(c). However, the European Union has failed to establish that the 
subsidy provided by South Carolina through economic development bond proceeds is 
specific within the meaning of Article 2.1 . 
8.844.   Finally, we note that the European Union also argues that the subsidies provided to  Boeing 
through air hub bond proceeds and economic development bond proceeds are specific pursuant to 
Article 2.3 of the SCM Agreement.  Article 2.3 provides that "{a}ny subsidy falling under the 
provisions of Article 3 shall be deemed to be specific". We r eject t his argument because in 
Section  10 of this Report we find that the European Union has failed to establish that any subsidy 
at issue in this proceeding is prohibited by Articles 3.1 and 3.2 of the SCM Agreement.  
8.2.8.6.4   The amount of the subsidy  
8.845.   The European  Union argues that, where the financial contribution in question is South 
Carolina 's provision of funding for the construction of Boeing 's 787 facilities  and infrastructure  
through the transfer of bond proceeds to Boeing, such that the subsidy is character ized as a direct 
transfer of funds, the amount  of the financial contribution  is the total value of the funds  (i.e. the 
proceeds of both the economic development bonds and the air hub bonds) , which it alleges is 
USD 270 million between 2010 and 2011.2235 Howev er, the European Union considers that the 
value of the benefit  is USD 400.64 million between 2011 and 2035, or USD 67.53  million between 
2013 and 2015.2236 The European Union 's estimate of the amount of the subsidy (i.e. 
USD 400.64  million between 2011 and 20 352237, or USD 67.53  million between 201 3 and 201 52238) 
is based on its estimate of the value of the facilities  and infrastructure  that the European Union 
alleges were provided to Boeing2239, plus the imputed financing costs for Boeing to either raise 
funds in the market to construct the facilities  and infrastructure  itself, or find another market 
participant to construct and then lease the facilities  and infrastructure .2240 The European Union 
argues that, a s Boeing paid nothing for the facilities and infrastructure, t he entire amount 
represents the benefit conferred to Boeing.2241  
8.846.   The United States does not provide a n estimate  of the amount of the subsidy, arguing 
instead that the financial contribution conferred no benefit to Boeing on account of adequate 
remuneration p rovided to South Carolina through real property investment at the Project Site, and 
                                               
2233 H3234, signed into law on 5 April 2005. S .C. Code, se ction 55 -11-500(a)(3)  provides : "{a}n 'air 
carrier hub terminal facility' is an airport terminal facility from which an air carrier … operates either: … (3) 
irrespective of the number of flights, two or more specially equipped planes that are : (i) used fo r the 
transportation of specialized cargo; and (ii) subject to ad valorem property taxation or a fee in lieu of taxes in 
this State".  
2234 Gemini air hub bond resolution, (Exhibit EU -483), p. 48, section 1.  
2235 European Union's first written submission, para. 577. 
2236 European Union's first written submission, para. 582; second written submission, paras.  636-638; 
response to Panel question Nos. 105, paras. 150 -161, and 106, paras. 162 -168; comment s on United States' 
response to Panel question No. 105, paras. 319 -329; and  South Carolina's Subsidies to Boeing's LCA Division, 
(Exhibit EU -39), p. 1.  
2237 European Union's first written submission, para. 581.  
2238 South Carolina Subsidies to Boeing's LCA Division, (Exhibit EU -39), p. 1.  
2239 The European Union estimates the valu e of the facilities and infrastructure at USD 270 million from 
2011 to 2035.  
2240 European Union's response to Panel question Nos. 106, para. 166, and 105, paras. 155 and 156. 
However, the European Union rejects as a mischaracteri zation the United States' ass ertion that its valuation 
addresses the cost to Boeing to raise an amount of money equal to what South Carolina raised through state 
bonds. (European Union's second written submission, para. 636).  
2241 European Union's first written submission, para. 581.  WT/DS353/R W 
 
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  because  the European Union has failed to provide an appropriate benchmark to determine and 
estimate any benefit conferred.2242  
8.847.   The European Union 's estimate of the amount of the subsidy, based on what it would cost 
Boeing to raise funds to construct the facilities, or find another market participant to construct and 
lease the facilities, suffers from a fundamental factual and legal flaw regarding the nature of the 
subsidy. In Section 8.2.8.6.3.1 , we reject as factually unsupported the European Union 's argument 
that South Carolina provides the Gemini facilities and infrastructure to Boeing. We also reject as a 
legal matter the European Union 's argume nt that, in relation to the Gemini facilities  and 
infrastructure , there was a financial contribution to Boeing in the form of a provision of goods or 
services other than general infrastructure , since we consider that Article 1.1(a)(1) contemplates a 
charac terization of a measure as a financial contribution on the basis of the manner in which that 
measure transfers value to a recipient . Rather, we find that the payments made by South Carolina 
pursuant to commitments in the Project Gemini Agreement to compens ate Boeing for a portion of 
the costs in  constructing  the Gemini facilities and infrastructure are direct transfers of funds within 
the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.  
8.848.   In Section 8.2.8.6.3.2 , we find that  these financial contributions, which are direct transfers 
of funds (and essentially infrastructure -related grants), confer a benefit. In so doing, we explain 
that our benefit determination is not affected by any alleged remuneration or "compensation " 
provided by Boeing in relation to the grants.  
8.849.   Moreover, in Section 8.2.8.6.3.3 , we find that only the direct transfers of funds made by 
South Carolina through air hub bonds are specific. The total amoun t of these bond proceeds is 
USD 50 million. This being so, and bearing in mind that there is no requirement in a dispute under 
Part III of the SCM Agreement for panels to quantify precisely the amount of a subsidy benefiting 
a product at issue in every case2243, it suffices for present purposes to consider the amount 
of the subsidy to be equal to the amount of the air h ub bond proceeds, namely 
USD 50 million.2244  
8.2.8.6.5   Conclusion  
8.850.   In light of our findings above with respect to the Gemini and Emerald facilities and 
infrastructure, we conclude that : 
a. The European Union has failed to  establish that financial contributions exist within the 
meaning of Article 1.1(a)(1)(iii) of the SCM Agreement because South Carolina provides 
Gemini and Emerald facilities and infrastructure  to Boeing, and thus has also not 
established that specific subsidies  exist within the meaning of Articles 1 and 2 of the 
SCM Agreement  in this regard . 
b. The European Union has established that the payments made by South Carolina 
pursuant to commitments in the Project Gemini Agreement to  compensate Boeing for a 
portion of the costs incurred by Boeing in respect of the construction of the Gemini 
facilities and infrastructure through air hub bond proceeds involve a specific subsidy 
within the meaning of Articles 1 and 2 of the SCM Agr eement , in the amount of 
USD 50 million.  
8.2.8.7   Whether property tax reductions through  the Boeing and Project Emerald  FILOT  
Agreements are specific subsidies to Boeing  
8.2.8.7.1   Introduction  
8.851.   In paragraph 24 of its panel request, the European Union identifies as one of the Project 
Gemini -related  subsidies presently benefiting Boeing:  
                                               
2242 United States' first written submission, paras. 583 and 584; second written submission, paras. 518 
and 519; response to Panel question No. 105, paras. 218 -229; and comments on European Union's response 
to Panel question Nos. 105, paras. 162 -168, and 106, p aras. 169 -171. 
2243 Appellate Body Report, US – Upland Cotton , paras. 462 -467; and Panel Report, Mexico – Olive Oil , 
para. 7.152.  
2244 Gemini Air Hub Bond Resolution, (Exhibit EU -483).  WT/DS353/R W 
 
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  Property tax reductions under a fee -in-lieu-of taxes agreement between Charleston 
County and Boeing, dated 1 December 2009, as authorized by Title 12, Chapter 44 of 
the S.C. code, including the provi sion of special source credits as provided for in such 
agreement, and authorized by S.C. Code § 4 -1-175. 
8.852.   In paragraph 25 of its panel request, the European Union identifies as one of the Project 
Emerald -related  subsidies presently benefiting Boeing:  
Proper ty tax reductions under a fee -in-lieu-of taxes agreement between Charleston 
County and Vought Aircraft industries, Global Ae ronautica, and Boeing, dated 
19 December 2006, and assigned to Boeing on or about 10 February 2010, as 
authorized by Title 12, Chapt er 44 of the S.C. Code, and provided for in the Project 
Emerald Confidential Site Development Agreement, including the provision of 
infrastructure credits as provided for in such agreement, and authorized by S.C. Code 
§ 12-44-70. 
8.853.   The European Union argues that the above -referenced FILOT  agreements in respect of 
Project Gemini and Project Emerald, through which Boeing pays negotiated fees in place of the ad 
valorem  property taxes that it would otherwise owe in respect of the 787 final assembly and 
delivery f acility, and the 787 fuselage fabrication and integration complex, respectively, are 
specific subsidies to Boeing.   
8.854.   Real property, personal property used in business, and certain other personal property 
(e.g. aeroplanes) are subject to property taxes in So uth Carolina. Such property taxes are 
calculated by multiplying the periodically appraised fair market value of property by an assessment 
ratio set forth in the South Carolina Constitution according to the type of property. The resulting 
assessed value is then multiplied by a millage rate, i.e. a varying tax rate applied by each local 
taxing jurisdiction (e.g. county)2245, to obtain the amount of tax due.2246  
8.855.   Assessment ratios are established in the South Carolina Constitution and differ according 
to property cl assification. All manufacturing property, whether real or personal, is assessed at the 
ratio of 10.5%2247, a higher rate than in neighbouring states.2248 The South Carolina legislature 
has, through legislation enacted between 1988 and 1997, granted counties the authority to 
exempt certain projects from property taxes in exchange for entering into agreements that provide 
for the annual payment of fees with respect to property which would otherwise be subject to 
property taxes.2249 These agreements are known as FILOT  agreements. In general terms, FILOT  
agreements꞉ (a) freeze the value of real property; and (b) provide for a reduced assessment ratio. 
They may also set a fixed millage rate.2250 FILOT agreements may be supplemented by Special 
Source Revenue Credits (revenue credits), which rebate a portion of the fee due under the 
                                               
2245 A "mill" is a unit of monetary value equal to one thousandth of a dollar, o r USD 0.001.  
2246 See South Carolina Department of Revenue, South Carolina Tax Incentives for Economic 
Development 20, 2013 edn, (South Carolina Department of Revenue, 2012) (South Carolina Tax 
Incentives),  (Exhibit EU -494), pp. 141 and 142.  
2247 County Equaliza tion and Reassessment, S.C. Code , Title 12, chapte r 43, (Exhibit EU -525), 
section  12-43-220(a)(1). By way of context, most commercial personal property is also assessed at 10.5%, 
whereas commercial real property is assessed at 6%. (See South Carolina Tax I ncentives, (Exhibit EU -494), 
pp. 142-148). 
2248 See Alliance for South Carolina's Future,  The Economic Impact of Boeing in South Carolina , 
(May 2010), (Exhibit EU -489), p. 3; and Lincoln Institute of Land Policy, 50-State Property Comparison Study , 
(April  2012), (Exhibit USA -331), p. 20.  
2249 The legislation in question is the "Big Fee" FILOT statute, enacted in 1988, followed by the "Little 
Fee" and "Simplified Fee" statutes. See Industrial Development Projects, S.C. Code, Title 4, chapter  29, 
(Exhibit USA -243),  section 4 -29-67; Fee in Lieu of Property Taxes, S.C. Code, Title 4, chapter 12, (Exhibit 
USA-330), section 4 -12-30; and Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, (Exhibit 
EU-539), section 12 -44-44. The legislative findings fo r the "Simplified Fee" statute, the full title of which is the 
"Fee in Lieu of Tax Simplification Act", enacted in 1997, explain that the legislation simplifies the method for 
obtaining the fee  in lieu of tax benefits and makes this incentive more attracti ve by eliminating the 
requirement in the existing FILOT  legislation for the issuance of industrial revenue bonds or the transfer of title 
to property to a county. See the Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, (Exhibit 
EU-539), section 12 -44-20. 
2250 Fee in Lieu of Tax Simplification Act, S.C. Code , Title 12, chapter 44 , (Exhibit EU -539), section 12 -
44-50(A)(1).  WT/DS353/R W 
 
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  agreement and thereby further reduce the assessment ratio. Counties evaluate projects, negotiate 
terms, approve agreements , and collect fee payments.2251  
8.856.   South Carolina law authorizing FILOT  agreement s provides for three main types of FILOT  
agreements which differ, inter alia , with respect to the minimum required investments and the title 
to project property.2252 Notwithstanding these differences, all three types of agreements provide 
for a reduced assess ment ratio of 6%. Furthermore, the South Carolina law regarding FILOT  
agreements also contains special provisions for very large investments, known as "Super Fee " 
agreements or "Enhanced Investment Fee " agreements, depending on the particular FILOT statute  
under which the FILOT  agreement is authorized. Under both super fee agreements and enhanced 
investment fee agreements, a company investing USD 150 million and creating 125 new jobs, or 
investing USD 400 million regardless of job creation, is subject to a reduced assessment ratio of 
4%.2253 Where a party to a FILOT agreement fails to meet the requirements to qualify for the 
lower assessment ratios, the higher constitutional assessment ratio will be applied retroactively to 
the property covered by the agreement .2254 
8.857.   On 1 December 2010, Charleston County entered into an Enhanced Investment Fee 
Agreement with Boeing (the Boeing F ILOT Agreement).2255 The property covered by the Boeing 
FILOT Agreement consists of Boeing 's 787 final assembly and delivery facility (i.e. the  Project 
Gemini property), as well as Boeing 's South Carolina Interior Responsibility Center.2256 The tax 
treatment applicable to this project property for a minimum of thirty years2257 is based on꞉ (a) an 
assessment ratio of 4 %; (b) a fixed millage rate of 269. 8; and (c) a fair market value estimate 
determined by the South Carolina  Department of Revenue according to state legislation.2258 In 
addition, the Boeing F ILOT Agreement grants a rebate equal to half of each of Boeing 's first 15 
annual payments in the form o f revenue credits.2259 The Boeing F ILOT Agreement contains a 
provision regarding the allocation of property between the Project Emerald F ILOT Agreement and 
the Boeing F ILOT Agreement.2260 The Boeing F ILOT Agreement also provides that the Project 
Emerald F ILOT Agreement "shall remain in full force and effect, and shall be controlling, with 
respect to the Vought Project ".2261 
8.858.   On 19 December 2006, Charleston County entered into an Enhanced Investment Fee 
Agreement with Vought, G lobal Aeronautica  and Boeing (the Project  Emerald F ILOT 
Agreement).2262 The property covered by the Project Emerald F ILOT Agreement consists of 
property used for the purpose of manufacturing and assembling aircraft components, including 
portions of the fuselage for the Boeing 787 aircraft (i.e. the Project Emerald property).2263 The tax 
                                               
2251 With respect to Big Fee agreements, see e.g. South Carolina Tax In centives, (Exhibit EU -494), 
pp. 184 and 185. See also United States' second written submission, para. 534.  
2252 By way of example, Little Fee and Simplified Fee agreements generally require a minimum 
investment of USD 2.5 million, whereas Big Fee agreements generally require a minimum investment of 
USD 45 million. Furthermore, under Little Fee and Big Fee agreements, title to the project property must be 
held by the county, whereas under Simplified Fee agreements, title is usually held by the project sponsor. (See 
South Carolina Tax Incentives, (Exhibit EU -494), p. 204, and generally pp. 175 -205).  
2253 South Carolina Tax Incentives, (Exhibit EU -494), p. 204, and generally pp. 175 -205. 
2254 Fee in Lieu of Tax Simplification Act, S.C. Code , Title 12, chapter 44, (Exhibit USA -245), section 12 -
44-140(B).  
2255 Boeing F ILOT Agreement, (Exhibit EU -470), recital 1 of which refers to the Simplified Fee statute, 
S.C. Code, Title 12 chapter 44. See also European Union's first written submission, fn 1309.  
2256 See United States' response to the Panel's request for information pursuan t to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 78, para. 170; and South Carolina Department of Revenue, 
Boeing PT -300S Forms, 2012,  (Exhibit US -13-318) (BCI). See also Boeing F ILOT Agreement, (Exhibit EU -470), 
section 1.3, p. 6 (definitions of "Project" and "Site"), and exhibit A.  
2257 Boeing F ILOT Agreement, (Exhibit EU -470), section 5.6.  
2258 Boeing F ILOT Agreement, (Exhibit EU -470), section 5.1(a).  
2259 Boeing F ILOT Agreement, (Exhibit EU -470), section 5.2(a).  
2260 Boeing F ILOT Agreemen t, (Exhibit EU -470), p. 10.  
2261 Boeing F ILOT Agreement, (Exhibit EU -470), section 11.11.  
2262 Fee Agreement between Charleston County, Vought Aircraft Industries, Inc., Global Aeronautica, 
LLC, and the Boeing Company (19 December 2006) (Project Emerald F ILOT Agreement), (Exhibit EU -556), 
recital  1 (referring to Simplified Fee statute, S.C. Code, Title 12, chapter 44).  
2263 See Project Emerald F ILOT Agreement, (Exhibit EU -556), recital 4, p. 1 (definition of the "Site"), 
section 1.01, p. 5 (definition of the "Projec t"), and section 2.2(b). See also United States' response to Panel 
question No. 143, para. 294; and State of South Carolina, Department of Revenue, Emerald Property Return 
PT-300, schedule S -1 (2013),  (Exhibit USA -529) (BCI).  WT/DS353/R W 
 
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  treatment applicable to this project property for a minimum of thirty years2264 is based on꞉ (a) the 
value of the real property established during the first year of the agreement; (b) an assessment 
ratio of 4%; and (c) a fi xed millage rate of 273.2265 In addition, the Project Emerald F ILOT 
Agreement grants a rebate equal to 25% of the fees paid for ten years in the form of revenue 
credits.2266 In 2010, following approval by Charleston County on 11 August 20092267, Vought 
assigned its rights under the Project Emerald F ILOT Agreement to Boeing.2268 
8.2.8.7.2   Main arguments of the parties  
8.859.   The European Union  argues that the reductions of Boeing 's property tax liability for 
property including the 787 final assembly and delivery facility, through the Bo eing F ILOT 
Agreement, and for the 787 fuselage fabrication and integration complex through the Project 
Emerald F ILOT Agreement, constitute specific subsidies within the meaning of Articles 1 and 2.  
8.860.   The European Union argues that both the Boeing F ILOT Agreement and the Project 
Emerald F ILOT Agreement involve the foregoing of revenue otherwise due and thus a financial 
contribution within the meaning of Article 1.1(a)(1)(ii), or alternatively a direct transfer of funds 
within the meaning of Article 1.1(a)(1)( i). The European Union is of the view that its position finds 
support in the three -step analysis set out by the Appellate Body in the original proceeding for 
determining the existence of revenue foregone, and structures its arguments according to that 
analysis. The European Union identifies the benchmark tax treatment of comparable taxable 
activity of comparable taxpayers as the standard property tax treatment of other manufacturers in 
Charleston County . The European Union considers a benchmark based on other manufacturers  to 
be appropriate, since property tax is contingent on the nature of the property, and manufacturing 
property is treated as a comprehensive category.2269 Furthermore, the European Union considers a 
benchmark based on other manufacturers in Ch arleston County  is appropriate, since Charleston 
County is the granting authority, and property taxes in South Carolina are imposed by local 
governments, not the state government. The property tax treatment of such taxpayers (i.e. other 
manufacturers in Ch arleston County) is based on꞉ (a) the valuation by appraisal of a 
manufacturer 's real property every five years or upon a triggering event; (b) the assessment ratio 
of 10.5%; and (c) fluctuating millage rates.2270 Based on a comparison with other manufacturer s, 
the Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement involve the foregoing of 
revenue otherwise due because, in the absence of the agreements, the manufacturing property 
covered by the agreements would be subject to higher taxation under t he general rule governing 
the taxation of manufacturing property.2271 In the alternative, the European Union argues that the 
revenue credits, involving the transfer of funds by check or wire to Boeing as reimbursements for 
expenditures on Special Source Impro vements, constitute a direct transfer of funds.2272 
8.861.   The European Union contends that both the Boeing F ILOT Agreement and the Project 
Emerald F ILOT Agreement confer benefits to Boeing within the meaning of Article 1.1(b). The 
foregoing of taxes that would othe rwise be due "clearly confers a benefit ".2273  
8.862.   The European Union argues that the Boeing F ILOT Agreement and the Project Emerald 
FILOT Agreement are specific within the meaning of Articles 2.1(a)  and 2.1(c). With respect to de 
                                               
2264 Project Emerald F ILOT Agreem ent, (Exhibit EU -556), section 1.01, p. 5 (definition of "Termination 
Date").  
2265 Project Emerald F ILOT Agreement, (Exhibit EU -556), section 4.1.  
2266 Project Emerald F ILOT Agreement, (Exhibit EU -556), section 4.2.  
2267 Assignment and Assumption of Fee Agreement b etween Vought Aircraft Industries, Inc. and Boeing 
Commercial Airplanes Charleston South Carolina, Inc. (10 February 2010), (Exhibit EU -557), second recital, 
referring to a Charleston County resolution adopted on 11 August 2009.  
2268 Assignment and Assumption  of Fee Agreement between Vought Aircraft Industries, Inc. and Boeing 
Commercial Airplanes Charleston South Carolina, Inc. (10 February 2010),  (Exhibit EU -557).  
2269 European Union's first written submission, para. 682.  
2270 European Union's first written submis sion, para. 682.  
2271 European Union's first written submission, paras. 683 and 726.  
2272 Nevertheless, the European Union has indicated that, if the Panel finds the Boeing F ILOT Agreement 
as a whole  to provide a financial contribution through the foregoing of g overnment revenue otherwise due, the 
Panel need not consider the European Union's alternative argument that the rebate provisions can also be 
characteri zed as a direct transfer of funds. (European Union's second written submission, para. 715; first 
written  submission, para. 684).  
2273 European Union's first written submission, paras. 687 and 730 (both citing Panel Report, US – FSC, 
para. 7.103).  WT/DS353/R W 
 
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  jure specificity within the mean ing of Article 2.1(a), the legislation pursuant to which Charleston 
County authorised and approved the Boeing F ILOT Agreement and the Project Emerald F ILOT 
Agreement explicitly limit the availability of these arrangements to Boeing and the Project Emerald 
companies, respectively.2274 With respect to de facto specificit y within the meaning of 
Article  2.1(c), the Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement are used by 
a limited number of enterprises, are predominantly used by certain enterpris es, and grant 
disproportionately large amounts of the subsidy to certain enterprises. In addition, the manner in 
which discretion has been exercised in granting the subsid y further indicates specificity.2275  
8.863.   The United States  rejects the European Union 's arg ument that the FILOT  agreements at 
issue provide  financial contributions through the foregoing of revenue otherwise due within the 
meaning of Article 1.1(a)(1)(ii). The United States additionally argues that the European Union has 
failed to demonstrate tha t the Project Emerald F ILOT Agreement provides  a subsidy to Boeing , 
given that Project Emerald was an investment package for Vought and Global Aeronautica  and the 
European  Union has failed to demonstrate that any alleged benefits conferred to Vought and/or  
Global Aeronautica  passed through to Boeing.2276  
8.864.   The United States argues that FILOT  agreements are the rule rather than the exception for 
the property taxation of similarly situated industrial taxpayers in South Carolina.2277 The 
United  States considers that the FILOT  agreements at issue in this dispute are an example of a 
situation in which a notional general tax rate (the rate of 10.5% mandated by the South Carolina 
Constitution) does not constitute the appropriate benchmark.2278 "Similarly situated " taxpayers are 
large industrial taxpayers  in South Carolina2279 (i.e. companies eligible for FILOT  agreements 
because they invest over USD 150 million and create 125 jobs, or invest USD  400 million in 
projects in South Carolina ).2280 Indeed, industrial taxpayers through out the State of South Carolina 
receive the same tax treatment as Boeing if they meet the statutory investment and employment 
thresholds2281 and are generally assessed pursuant to an assessment ratio of less than 4% through 
FILOT  agreements coupled with revenue credits. When compared to this benchmark, the 
applicable assessment ratio under the FILOT  agreements at issue is not out of the norm.2282  
8.865.   The United States also rejects the argument that the FILOT  agreements provide  financial 
contributions through a direct t ransfer of funds within the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement. The FILOT  agreements and revenue credits do not entail payments or any other 
funds flowing from South Carolina to Boeing, and instead merely provide for the adjustment of tax  
payments to reflect the correct tax rate.2283 Indeed, the amount to be rebated does not belong to 
South Carolina  in the first place.2284 Furthermore, the European Union fails to specify the amount 
of the supposed revenue credits, or to identify the alleged chec k or wire payments.2285  
8.866.   The United States argues that FILOT  agreements, such as the Boeing F ILOT Agreement 
and the Project Emerald F ILOT Agreement, are not specific. Rather, they are a general feature of 
South Carolina industrial property tax law and widely available throughout South Carolina due to 
the relatively high property tax rate fixed by the South Carolina Constitution.2286 The "legislation 
pursuant to which the granting authority operates ", namely the Simplified Fee statute, including 
the statutory prov ision for Enhanced Investment Fees, South Carolina Code  section 12 -44-30(7) 
                                               
2274 European Union's first written submission, para. 731 (referring to Charleston County Council, 
Minutes of 21 Decemb er 2004 Meeting where an Inducement Resolution is approved, (Exhibit EU -561)); 
Charleston County, Ordinance 1476 (19 December 2006),  (Exhibit EU -562), para. 688 (referring to Charleston 
County Council, Minutes of 17 November 2009 Meeting where an Inducemen t Resolution is approved, (Exhibit 
EU-540); and Charleston County Council, Minutes of 12 January 2010 Meeting where a County Ordinance is 
approved, (Exhibit EU -541)).  
2275 European Union's first written submission, paras. 689 -691 and 732; second written submi ssion, 
para. 717; and response to Panel question No. 112, paras. 197 -201. 
2276 United States' first written submission, paras. 546 -553. 
2277 United States' first written submission, para. 582; response to Panel question No. 104, para. 215.  
2278 United States' first  written submission, para. 565.  
2279 United States' second written submission, paras. 537 and 538.  
2280 United States' first written submission, para. 566.  
2281 United States' second written submission, para. 542.  
2282 United States' first written submission, para. 5 66. 
2283 United States' first written submission, para. 567.  
2284 United States' second written submission, para. 544.  
2285 United States' second written submission, para. 544.  
2286 United States' first written submission, para. 633.  WT/DS353/R W 
 
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  and chapter  44, Title 12, does not explicitly limit access to FILOT  agreements to certain 
enterprises within the meaning of Article 2.1(a). Furthermore, South Carolina 's FILOT prog ramme 
is non -specific under Article 2.1(b) since it establishes "objective criteria or conditions " that are 
"clearly spelled out in law, regulation or other official document{s} " that govern eligibility to FILOT 
agreements within the meaning of footnote 2 to the SCM Agreement. Finally, the European Union 
has failed to establish that the challenged agreements are de facto specific within the meaning of 
Article 2.1(c).2287 
8.2.8.7.3   Evaluation by the Panel  
8.2.8.7.3.1   Whether there is a financial contribution  
8.867.   The first question befo re the Panel is whether the tax treatment of property covered by the 
Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement involves a financial 
contribution in the form of the foregoing of revenue otherwise due, within the meaning of 
Article  1.1(a )(1)(ii) of the SCM Agreement. The European Union 's basic position is that, in the 
absence of the challenged FILOT  agreements, the property in question would be subject to the 
standard treatment of manufacturing property pursuant to the Constitution of the  State of South 
Carolina, which is significantly higher. The United States ' basic position is that the FILOT  
agreements do not involve the foregoing of revenue otherwise due because they provide for tax 
treatment that is identical to the treatment of manuf acturing property in projects with similar 
investment and employment levels.   
8.868.   Both parties structure their arguments according to the three-step analysis set out by the 
Appellate Body in the original proceeding for determining the existence of revenue fore gone.2288 In 
our view, it is essential to consider the broader legal rationale underlying this analysis before 
studying its specific stages.  
8.869.   The Appellate Body has observed that the foregoing of revenue otherwise due within the 
meaning of Article 1.1(a)(1)(i i) implies that less revenue has been raised by the government than 
would have been raised in a different situation, and crucially that "the word 'foregone ' suggests 
that the government has given up an entitlement to raise revenue that it could 'otherwise ' have 
raised ".2289 However, this cannot be an entitlement in the abstract, because governments could, in 
theory, tax all revenues. There must therefore be some defined, normative benchmark against 
which a comparison can be made between the revenue actually ra ised and the revenue that would 
have been raised "otherwise ".2290 The Appellate Body has also emphasized that this comparison 
must be made under the domestic taxation rules established by the Member in question.2291 
Because domestic taxation  rules can be varied and complex, identifying the appropriate 
benchmark for comparison under Article 1.1(a)(1)(ii) may be difficult.2292 The Appellate Body has 
observed, in this regard, that panels must ensure that in identifying the appropriate benchmark for 
comparison, "they id entify and examine fiscal situations which it is legitimate to compare "2293 and 
that the examination under Article 1.1(a)(1)(ii) "involve{s} a comparison of the fiscal treatment of 
the relevant income for taxpayers in comparable situations ".2294 In this connecti on, the Appellate 
Body has expressed reservations regarding the application of a "but for " test as a basis for 
                                               
2287 United States' first written sub mission, paras. 634 and 635; second written submission, 
paras.  547-554. See also United States' response to Panel question Nos. 132, paras. 271 -273, 133, 
paras.  274-282, 138, paras. 2 and 3, 140, para. 170, and 142, paras. 14 and 15; and comments on 
Europe an Union's response to Panel question Nos. 104, para. 158, and 112, paras. 200 and 201.  
2288 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -814 (reproduced below 
at para. 8.874 ). Europ ean Union's first written submission, paras. 594 and 681 -683; and United States' first 
written submission, para. 563.  
2289 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 806 (referring to Appellate 
Body Report, US – FSC, para. 90).  
2290 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 806 (referring to Appellate 
Body Report, US – FSC, para. 90).  
2291 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 806 (referring to Appellate 
Body Report, US – FSC, para. 90) , and para. 808 (referring to Appellate Body Report, US – FSC (Article 21.5 – 
EC), para. 89) . 
2292 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 809.  
2293 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 809 (referring to Appellate 
Body Report, US – FSC (Article 21.5 – EC), para. 90).  
2294 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 809 (referring to Appellate 
Body Report,  US – FSC (Article 21.5 – EC), para. 92).  WT/DS353/R W 
 
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  determining the fiscal treatment in the absence of the contested measure2295 and emphasized the 
need to take into account "the structure of the dome stic tax regime and its organizing 
principles ".2296  
8.870.   In light of the guidance provided by the Appellate Body, we consider that the tax 
treatment of property covered by the Boeing F ILOT Agreement and the Project Emerald F ILOT 
Agreement is a financial contribut ion within the meaning of Article 1.1(a)(1)(ii) because it is an 
instance of a government giving up an entitlement to raise revenue that it could otherwise have 
raised. We find support for this view in꞉ ( a) the characterization of the FILOT  agreements by the 
South Carolina tax authorities ; (b) the nature of the FILOT agreements as conditional tax 
incentives that provide benefits in consideration of commitments by co mpanies regarding levels of 
investment and employment ; and ( c) the application to the facts of this case of the three -step 
analysis set out by the Appellate Body in the original proceeding.2297 
8.871.   First, the South Carolina tax authorities themselves describe the  benefits of FILOT  
agreements by comparing them with the rule that applies generally to manufacturing property, 
and have explicitly characteri zed FILOT  agreements as involving savings on property taxes that 
would be otherwise due on a project:  
Industries investing at least $2.5 million in South Carolina may negotiate for a 
fee-in-lieu of property taxes, resulting in a savings of about 40% on the property 
taxes otherwise due for a project. Additionally, certain large investments may be able 
to further reduc e their liability. Under a fee in lieu of property tax agreement, the 
assessment ratio can be negotiated down from 10.5 % to 6%. For large investments, 
the assessment ratio can be reduced down to 4%. The county and the industry may 
agree to either set the m illage rate for the entire agreement period or have the 
millage change every five years in step with the average millage rate for the area 
where the industry 's project is located. Any personal property subject to the fee in lieu 
of property taxes depreciat es in accordance with South Carolina law while the real 
property is either set at cost for the life of the agreement or can be appraised every 
five years.2298 
8.872.   Second, as reflected in the text of the Boeing F ILOT Agreement and Project Emerald F ILOT 
Agreement, FILOT  agreements are conditional tax incentives available to all companies able and 
willing to make or expand manufacturing investments of a certain magnitude in South Carolina, 
and are aimed at inducing companies to locate within the state by counteractin g the relatively high 
property tax assessment ratio set in the South Carolina Constitution. For example, the first two 
recitals of the Boeing F ILOT Agreement state the following:  
Whereas, to induce companies to locate in the State and to encourage companie s now 
located in the State to expand their investments and thus to make use of and employ 
workers and other resources of the State, the County is authorized by Title  12, 
chapter 44 (the "Fee Act "), Code of Laws of South Carolina 1976, as amended, (the 
"Code") and specifically Section 12 -44-30(7) of the Fee Act, to enter into an enhanced 
investment fee agreement with companies meeting the requirements of such Fee Act 
which identifies certain property of such companies as economic development 
property …  
Where as, pursuant to the Act, and based on factual representations by the Company 
to the County, the County finds that: (a) it is anticipated that the Project (as defined 
herein) will benefit the general public welfare of the County by providing services, 
emplo yment and other public benefits not otherwise adequately provided locally; (b) 
neither the Project nor any documents or agreements entered into by the County in 
                                               
2295 Appellate B ody Report, US – Large Civil Aircraft (2nd complaint) , para. 810 (referring to Appellate 
Body Report, US – FSC, para. 91, and to Appellate Body Report, US – FSC (Article 21.5 – EC), fn 66). See also 
Appellate Body Report, US – FSC (Article 21.5 – EC), para s. 815, 818, and 823.  
2296 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 815.  
2297 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -814 (reproduced below 
at para. 8.874 ). 
2298 South Carolina Department of Revenue, "Fee in Lieu", available at: 
<http://www.sctax.org/tax/fee -in-lieu>,  accessed 1 September 2016, (Exhibit EU -1436).  WT/DS353/R W 
 
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  connection therewith will give rise to any pecuniary liability of the County or 
incorporated mu nicipality or to any charge against their general credit or taxing 
power; (c) the purposes to be accomplished by the Project are proper governmental 
and public purposes; and (d) the benefits of the Project to the public are greater than 
the costs to the pu blic … .2299 
The Boeing F ILOT Agreement states that "the County agreed to make available to Boeing the 
benefits of certain programs, including a payment -in-lieu of taxes arrangement, in consideration of 
Boeing 's agreement to invest in the County through the d evelopment, acquisition, and installation 
of certain facilities ".2300  
8.873.   Thus, statements of the South Carolina tax authorities and the text of the agreements at 
issue clearly indicate that the treatment of manufacturing property provided for in the Boeing 
FILOT Agreement and the Project Emerald F ILOT Agreement is understood as a "benefit " that 
companies receive in return for making certain commitments with respect to levels of investment 
and employment and which constitutes a departure from the otherwise applic able rule under which 
manufacturing property is subject to an assessment ratio of 10.5%. The measure can be properly 
characterized as conditional tax incentives that embody a quid pro quo arrangement where an 
entity is granted some form of tax advantage in  exchange for fulfilling set requirements, and 
conversely a taxing authority relinquishes an existing entitlement to raise revenue that it could 
otherwise raise where an entity fulfils the set requirements.  
8.874.   Our tentative conclusion that the challenged FILOT agreements involve a situation in which 
the government gives up an entitlement to raise revenue that it could have raised otherwise finds 
further support in the application to the facts of this case of the three -step analysis set out by the 
Appellate Bo dy in the original proceeding:  
The identification of circumstances in which government revenue that is otherwise due 
is foregone requires a comparison between the tax treatment that applies to the 
alleged subsidy recipients and the tax treatment of compara ble income of comparably 
situated taxpayers.  Accordingly, a panel examining a claim under Article  1.1(a)(1)(ii) 
of the SCM Agreement  should first identify the tax treatment that applies to the 
income of the alleged recipients. Identifying such tax treatmen t will entail 
consideration of the objective reasons behind that treatment and, where it involves a 
change in a Member 's tax rules, an assessment of the reasons underlying that change.   
As a second step, the panel should identify a benchmark for comparison –that is, the 
tax treatment of comparable income of comparably situated taxpayers.  We recognize 
that this is not always a straightforward exercise, and may in some circumstances be 
exceedingly difficult. Identifying a benchmark involves an examination of t he structure 
of the domestic tax regime and its organizing principles.  In some cases, the principles 
will be ones well recognized in the tax regimes of Members;  in other cases, they will 
be unique to the particular domestic regime.  It may be that disparate  tax measures, 
implemented over time, do not easily offer up coherent principles serving as a 
benchmark.  In any event, the task of the panel is to develop an understanding of the 
tax structure and principles that best explains that Member 's tax regime, and  to 
provide a reasoned basis for identifying what constitutes comparable income of 
comparably situated taxpayers.  Evidence relied upon in such an analysis must be 
located in the "rules of taxation that each Member, by its own choice, establishes for 
itself". In doing so, a Member will be held to account for the tax structure and 
principles that it itself employs.  This is akin to the approach undertaken in the field of 
public finance for purposes of estimating what are known as "tax expenditures ".  
Finally, as a third step, the panel should compare the reasons for the challenged tax 
treatment with the benchmark tax treatment it has identified after scrutinizing a 
Member 's tax regime.  Such a comparison will enable a panel to determine whether, in 
the light of the treatment of the comparable income of comparably situated taxpayers, 
                                               
2299 Boeing F ILOT Agreement, (Exhibit EU -470), p. 1. Similarly, see Project Emerald F ILOT Agreement, 
(Exhibit EU -556), recitals 4 and 5.  
2300 Boeing F ILOT Agreement, (Exhibit EU -470), recital 3. Similarly, see Project Emerald F ILOT 
Agreement, (Exhibit EU -556), recital 4.  WT/DS353/R W 
 
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  the government is foregoing revenue that is otherwise due in relation to the income of 
the alleged recipients.2301  
8.875.   As to the first step of this analysis, we have described the tax treat ment applicable to the 
property covered by the Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement above 
in paragraphs 8.857  and 8.858 . We consider that the "objective reasons behind that  treatment " 
can be discerned from the stated purpose of the agreements. As expressed in the Boeing F ILOT 
Agreement, the purpose is "to induce companies to locate in the State and to encourage 
companies now located in the State to expand their investments a nd thus to make use of and 
employ workers and other resources of the State ".2302  
8.876.   We observe that the disagreement between the parties primarily concerns the second step 
of the Appellate Body 's analysis, namely the identification of the benchmark tax treatmen t and 
more specifically how "comparably situated taxpayers " should be defined. The identification of 
comparable taxable, income, activity or property of "comparably situated taxpayers " and the tax 
treatment applicable to such taxpayers under the second ste p of the Appellate Body 's analysis has 
direct implications for the comparison carried out under the third step, and the determination of 
whether the Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement involve the 
foregoing of revenue that is oth erwise due. For the reasons detailed below, we are of the view that 
the group of comparably situated taxpayers in this instance should be considered to comprise 
manufacturers subject to the tax rules set out in the South Carolina Constitution with regard t o 
manufacturing property, rather than large industrial users eligible for enhanced investment fee 
agreements , as argued by the United States.  
8.877.   First, regarding the "structure and organising principles ", a central feature of South 
Carolina 's property tax reg ime is that it distinguishes between broad categories of property, with 
different rules applying to each of these categories.2303 This suggests to us that, in the case at 
hand the "comparable property of comparably situated taxpayers "2304 is manufacturing proper ty 
and therefore that the appropriate benchmark is the constitutional assessment ratio of 10.5% that 
applies generally to manufacturing property. Under the approach advanced by the United States, 
Boeing and other large industrial taxpayers are "comparably situated " because they satisfy the 
same eligibility requirements relating to investment and employment levels. This means that the 
group of comparably situated taxpayers is defined by the criteria attached to the very measure 
that is alleged to give rise t o the foregoing of revenue otherwise due. We find the circularity of this 
argument to be problematic. Since the granting of tax incentives is often conditioned on criteria 
similar to the criteria that determine the eligibility for the FILOT agreements at i ssue in this 
dispute, accepting the argument advanced by the United States would imply that an important 
category of measures could not be found to be financial contribution s within the meaning of 
Article  1 of the SCM Agreement. Indeed, if one follows the reasoning of the United States, the 
Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement could only be found to involve 
revenue foregone otherwise due if there were not a single taxpayer in South Carolina which met 
the same criteria for eligibili ty for the same type of FILOT  agreement and was thus comparably 
situated. However, the United States does not explain the legal and conceptual basis for such a 
narrow conception of the scope of Article 1.1(a)(1)(ii).  
8.878.   Further to the above, the comparison su ggested by the United States of the tax treatment 
of one individual taxpayer under a challenged measure with the treatment of other taxpayers who 
qualify for the same tax treatment is at odds with cases in which the Appellate Body has 
articulated the compa rability test, which examine measures applicable to a more abstractly 
identified group of taxpayers. The Appellate Body found in those cases that there was revenue 
foregone when the treatment of one category of taxpayers was more favourable than the 
treatm ent of another comparable category. It gave as examples of comparable situations the 
following: "{i}n general terms, in this comparison, like will be compared with like. For instance, if 
the measure at issue involves income earned in sales transactions, it  might not be appropriate to 
                                               
2301 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -814 (fns omitted). While 
the above analysis refers to comparable income, the Appellate Body has noted that it "understand{s} that the 
same approach would apply to identifying any comparable taxable activity, transaction, or property of 
comparably situated taxpayers".  (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , fn 1667).  
2302 See para. 8.872  above.  
2303 See para. 8.855  above.  
2304 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , fn 1667.  WT/DS353/R W 
 
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  compare the treatment of this income with employment income ".2305 Furthermore, "{f}or instance, 
if the measure at issue is concerned with the taxation of foreign -sourced income in the hands of a 
domestic corporation, it might not be appropriate to compare the measure with the fiscal 
treatment of such income in the hands of a foreign corporation ".2306 The very narrow benchmark 
suggested by the United States is at odds with these examples of comparable situations given by 
the Appellate Body.  
8.879.   Second, to find that there is revenue forgone based on a comparison with "comparably 
situated taxpayers " defined as comprising "manufacturers " is consistent with the analysis in the 
original proceeding of certain Washington State tax measures. The or iginal panel determined that 
a Washington State B&O tax rate reduction for manufacturing  of commercial aircraft and 
components of such aircraft  provided for under  HB 2294 constituted a financial contribution under 
Article  1.1(a)(1)(ii) of the SCM Agreement . In arriving at this conclusion, the panel made a 
comparison between a general tax rate applicable to manufacturing activities in the State of 
Washington and the tax rate applicable under H B 2294 with respect to the manufacturing of 
commercial aircraft an d components. The panel noted, in this regard, that it was possible to 
identify a general rule applicable to "every person … engaging in business as a manufacturer ".2307 
The panel found further support for its characterization of the B&O tax rate reduction as  a 
deviation from a standard rate on the basis that HB 2294 provided that where certain 
requirements were not met the reduced rate would cease to apply and the aircraft manufacturers 
would be subject to the general rate for manufacturing.2308 The Appellate Bo dy observed that this 
supported the panel 's view as to what were the benchmark tax rates because these rates 
"reflected what would currently apply to these activities if the conditions for the lower rates were 
not met ".2309  
8.880.   The implication of the approach in  the original proceeding is that , where tax treatment is 
accorded that is more favourable than the treatment resulting from a general rule, subject to 
certain conditions, the measure involves the foregoing of revenue otherwise due based on a 
comparison wit h the situation that would exist if the conditions for the more favourable treatment 
were not met. In the case of the Boeing F ILOT Agreement and the Project Emerald F ILOT 
Agreement, it is clear that South Carolina 's tax code sets forth general rules on the  taxation of 
different types of property, including an assessment ratio of 10.5% for manufacturing property , 
and that where a party to a FILOT agreement fails to meet the requirements to qualify for the 
lower assessment ratios, the higher assessment ratio under the general rule will be applied 
retroactively to the property covered by the agreements.2310  
8.881.   In light of our view that the group of "comparably situated taxpayers " in this instance 
should be considered to comprise manufacturers, subject to the constit utional property tax 
assessment ratio of 10.5% in respect of manufacturing property, rather than large industrial users 
eligible for Enhanced FILOT agreements, we find that a comparison of the challenged tax 
treatment with the properly identified benchmark  tax treatment, in light of the reasons for the 
challenged tax treatment2311, indicates the foregoing of government revenue otherwise due.   
8.882.   We therefore conclude that each of the Boeing F ILOT  Agreement and the Project 
Emerald F ILOT  Agreement involves a  financ ial contributio n within the meaning of 
Article  1.1(a)(1)(ii).  
                                               
2305 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 90.  
2306 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 92.  
2307 Panel Report,  US – Large Civil Aircraft (2nd complaint) , para. 7.123.  
2308 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.127.  
2309 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 823. See also para. 825:  
The Panel also determined that commercial aircraft and component manufacturers 
are subj ect to a lower tax rate, which would in certain circumstances revert to the 
higher, general tax rates. The Panel moreover considered that the scope of the 
general tax rates in relation to that of various lower tax rates did not alter its 
conclusion that th e general rates reflected what would have been applied to 
commercial aircraft and component manufacturers in the absence of the B&O tax 
reduction.  
2310 Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, (Exhibit USA -245), section 12 -
44-140(B); Boeing F ILOT Agreement, (Exhibit EU -470), sections 5.7(b) and 5.7(c); and Project Emerald F ILOT 
Agreement, (Exhibit EU -556), section 4.3(a).  
2311 See para. 8.872  above.  WT/DS353/R W 
 
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  8.883.   Further to the above, we note that the Boeing F ILOT Agreement and the Project Emerald 
FILOT Agreement include fee rebates. We recall the European Union 's position that if the Panel 
finds that th e Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement as a whole  
provide financial contributions through the foregoing of government revenue otherwise due, within 
the meaning of Article 1.1(a)(1)(ii), the Panel need not consider the European Uni on's alternative 
argument that the revenue credits can also be characteri zed as a direct transfer of funds within 
the meaning of Article 1.1(a)(1)(i).2312 In light of our finding that the Boeing F ILOT Agreement and 
the Project Emerald F ILOT Agreement each inv olve a financial contribution within the meaning of 
Article 1.1(a)(1)(ii), it is therefore unnecessary for us to pronounce on the European Union 's 
alternative argument.  
8.884.   Finally, we recall the United States ' argument that the Project Emerald F ILOT Agreemen t 
does not provide  a financial contribution to Boeing . While we f ind that the Project Emerald F ILOT 
Agreement involves  a financial contribution within the meaning of Article 1.1(a)(1)(ii), we consider 
it a separate question whether this financial contribut ion was provided  to Boeing. We note that the 
European Union has not argued that any benefit from the Project Emerald F ILOT Agreement 
passed through to Boeing. In light of our conclusion below that the challenged FILOT agreements 
are not specific within the  meaning of Article 2, we do not consider it necessary to answer the 
separate question of whether the Project Emerald F ILOT Agreement provided  a financial 
contribution to Boeing.2313 
8.2.8.7.3.2   Whether there is a benefit  
8.885.   The United  States makes  no substantive arguments to refute the European Union 's 
position that the foregoing of taxes that are otherwise due "clearly confers a benefit ".2314 We agree 
with the panel in US – FSC that the foregoing of certain taxes that would otherwise be due confers 
a benefit on the taxpayer c oncerned.2315 We therefore find that the reduction in property tax 
liability provided through the Boeing F ILOT  Agreement and the Project Emerald F ILOT  
Agreement  each confer s a benefit within the meaning of Article 1.1(b).  
8.2.8.7.3.3   Whether the subsid y is specific  
8.886.   The first question raised by the parties ' arguments  is whether the subsidy granted through 
the property tax reductions provided for in the Project Emerald F ILOT Agreement and the Boeing 
FILOT Agreement , respectively,  is specific within the meaning of Article 2. 1(a); i.e. whether "the 
granting authority, or the legislation pursuant to which the granting authority operates, explicitly 
limits access to a subsidy to certain enterprises ".2316  
8.887.   An analysis of whether a subsidy is specific within the meaning of Article 2. 1(a) must focus 
on whether the granting authority, or the legislation pursuant to which the granting authority 
operates, limits the eligibility  to receive the subsidy to certain enterprises.2317 The European Union 
                                               
2312 European Union's second written submi ssion, para. 715; first written submission, para. 684.  
2313 See Section 8.2.8.7.3.3  below.  
2314 European Union's first written submission, para. 687 (citing Panel Report, US – FSC, para. 7.103).  
2315 Panel Report, US – FSC, para. 7.103: "{i}n our view, the financial contribution clearly confers a 
benefit, in as much as both FSCs and their parents need not pay certain taxes that would otherwise be due."  
2316 The Appellate Body has explained that "a subsidy is specific under A rticle 2.1(a) if the limitation on 
access to the subsidy to certain enterprises is express, unambiguous, or clear from the content of the relevant 
instrument, and not merely 'implied' or 'suggested"'. (Appellate Body Report, US – Anti-Dumping and 
Counterva iling Duties (China) , para. 372). See also Panel Report, US – Large Civil Aircraft (2nd complaint) , 
para. 7.192. With regard to the term "certain enterprises", the Appellate Body has explained that "the relevant 
enterprises must be 'known and particularize d', but not necessarily 'explicitly identified', and that they may 
have 'some mutual or common relation or purpose', or 'degree of similarity'". (Appellate Body Report, US – 
Carbon Steel (India) , para. 4.365). " {A}ny determination of whether a number of en terprises or industries 
constitute 'certain enterprises' can only be made on a case -by-case basis". (Appellate Body Report, US – 
Anti-Dumping and Countervailing Duties (China) , para. 373 (quoting Panel Report, US – Upland Cotton , 
para. 7.1142)).  See also A ppellate Body Report, US – Washing Machines , paras. 5.220 and 5.221 (explaining 
that the notion of "certain enterprises" in Article 2.2 of the SCM Agreement does not depend on the legal 
personality of the subsidy recipients).   
2317 See, in particular, Appella te Body Report, US – Anti-Dumping and Countervailing Duties (China) , 
para. 368 ("Article 2.1(a) thus focuses not on whether a subsidy has been granted to certain enterprises, but 
on whether access to that subsidy has been explicitly limited. This suggests that the focus of the inquiry is on 
whether certain enterprises are eligible for the subsidy, not on whether they in fact receive it." (emphasis WT/DS353/R W 
 
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  does not argue that the eligibility for the s ubsidy at issue is explicitly limited by virtue of 
pronouncements of the granting authority; rather, the question before us is whether such an 
explicit limitation exists by virtue of the legislation pursuant to which the granting authority 
operates.  
8.888.    Since  "eligibility is key to a consideration of de jure  specificity under subparagraphs (a) 
and (b) of Article 2.1 of the SCM Agreement "2318, we consider that the term "legislation pursuant 
to which the granting authority operates " in Article 2.1(a) must be unders tood to mean the 
legislation that defines the criteria of eligibility for a subsidy.2319 Charleston County entered into 
the Project Emerald F ILOT Agreement and the Boeing F ILOT Agreement pursuant to the provisions 
of the Simplified FILOT Act that authorize th e conclusion of enhanced investment fee agreements 
with companies meeting the requirements set out in those provisions.2320 Accordingly, these 
provisions constitute "the legislation pursuant to which the granting authority operates " for 
purposes of the analys is under Article 2.1(a).2321 
8.889.   We note, in this respect, that the European Union does not advance any argument as to 
how the text of the relevant provisions of the Simplified FILOT Act relating to enhanced investment 
fee agreements limits the eligibility for th e subsidy to certain enterprises. While the Act provides 
that such agreements can be concluded only if certain conditions relating to levels of investment 
and/or employment are satisfied2322, we consider that these conditions do not expressly limit the 
eligib ility for enhanced investment fee agreements to certain enterprises.  
8.890.   Because the Simplified FILOT Act is "the legislation pursuant to which the granting 
authority operates ", we see no merit in the argument of the European Union that the subsidy 
should be f ound to be specific under Article 2.1(a) on the basis that certain resolutions and 
ordinances pursuant to which Charleston County authorized and approved the Project Emerald 
FILOT Agreement and Boeing F ILOT Agreement "explicitly limited the availability of  the FILOT 
arrangement " to the Project Emerald companies and to Boeing.2323 The fact that the County 
Resolution and Ordinance adopted by Charleston County in connection with the FILOT agreements 
at issue only identify the Project Emerald companies and Boeing as beneficiaries of an enhanced 
investment fee agreement simply reflects the application of the Simplified FILOT Act in individual 
cases and does not demonstrate an "explicit limitation " of access to the subsidy to certain 
enterprises.2324 
8.891.   In this respect, we  disagree with the European Union 's argument that "the actions of 
Charleston County are the proper focus for whether the granting authority explicitly limited access 
to the subsidy to certain enterprises ". Even assuming that in this case Charleston County could be 
                                                                                                                                               
original)), and US – Large Civil Aircraft (2nd complaint) , para. 753 ("{t}his inquiry focuses not only on wheth er 
the subsidy was provided to the particular recipients identified in the complaint, but focuses also on all 
enterprises or industries eligible to receive that same subsidy").  
2318 Appellate Body Report, US – Carbon Steel (India) , para. 4.384 . 
2319 This interpr etation is also supported by a reading of Article 2.1(a) in the context of Article 2.1(b). 
See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 750.  
2320 The agreements and associated county resolutions and ordinances explicitly refer t o the relevant 
provisions of section 12 -44-30 of the South Carolin a Code. (Project Emerald F ILOT Agreement, (Exhibit EU -
556), p. 2; Charleston County Council, Minutes of 21 December 2004 Meeting where an Inducement Resolution 
is approved, (Exhibit EU -561),  p. 52; Charleston County, Ordinance 1476 (19 December 2006 ), (Exhibit EU -
562), p. 1; Boeing F ILOT Agreement, (Exhibit EU -470), p. 1; Charlesto n County Council, Minutes of 
17 November 2009 Meeting where an Inducement Resolution is approved, (Exhibit EU -540), section 2; and 
Charleston County Council, Minutes of 12 January 2010 Meeting where a County Ordinance is approved, 
(Exhibit EU-541), p. 4).  
2321 The Appellate Body Report in the original proceeding emphasizes the need for an inquiry concerning 
specificity under Article 2.1(a) properly to take into account the broader legislative framework pursuant to 
which the subsidy has been provided. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  750, 753, and 841). Also see Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.565.   
2322 See para. 8.856  above. See Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, 
(Exhibit USA -245), section 12 -44-30(7), for the definition  of an "enhanced investment" project.  
2323 See para. 8.862  above.  
2324 The European Union argues that "each of these fee agreements is explicitly restricted to a specific 
company or group of companies".  (European Uni on's second written submission, fn 1206). In our view, this has 
no bearing on whether the eligibility for the subsidy is explicitly limited to certain enterprises. We also consider 
that the fact that the Project Emerald F ILOT Agreement was entered into pur suant to agreements concluded 
between Charleston County and the Project Emerald Companies does not demonstrate that access to the 
subsidy is explicitly limited to certain enterprises.  WT/DS353/R W 
 
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  considered a granting authority within the meaning of Article 2.1(a), a proper analysis of whether 
eligibility for the subsidy is limited to certain enterprises must take into account that Charleston 
County operates pursuant to legislation of Sout h Carolina. Charleston County does not 
autonomously define the conditions of eligibility for the subsidy; rather, when Charleston County 
(or any other county in South Carolina) enters into a FILOT agreement, it acts on the basis of 
conditions of eligibilit y provided for in legislation adopted by South Carolina. Thus, treating 
Charleston County as "granting authority " provides no justification to narrow the scope of the 
analysis under Article 2.1(a) to "the actions of Charleston County ".2325 We recall, in this respect, 
that in the original proceeding the Appellate Body rejected the view that the use of the term 
"granting authority " in Article 2.1(a) means that "the analysis of specificity must be limited to the 
authority actually granting the alleged subsidy ", "in isolation from the legislative and regulatory 
framework within which {the granting authority} operates ".2326  
8.892.   In light of the above, we find that the European Union has failed to establish  that access to 
the subsidy granted through the property tax reducti ons provided for in the FILOT Agreements  at 
issue is explicitly limited to certain enterprises within the meaning of Article 2.1(a).  
8.893.   Having made such a finding that the subsidy is not specific under Article 2.1(a), we find it 
unnecessary to pronounce on t he issues raised by the parties with regard to whether the 
conditions attached to the subsidy satisfy the requirements of Article 2.1(b).2327 We note that in 
the original proceeding the Appellate Body observed that "having found that the IRB subsidies are 
                                               
2325 We note, in this regard, that consistent with our approach to whether the FILOT Agreements at 
issue are specific , within the meaning of Article 2.1(a), the original panel concluded that subsidies provided 
through industrial revenue bonds issued by the City of Wichita were not specific in the sense of Article 2.1(a), 
based on  an examination of the relevant Kansas State statutory provisions. Thus, the panel did not consider 
that the fact that the Bonds were issued by the City of Wichita warranted a limitation of the scope of the 
analysis to "the actions of" the City of Wichita as granting authority. (Panel Report, US – Large Civil Aircraft 
(2nd complaint) , para. 7.743). See also Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , 
para. 875.  
2326 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 783. Also see paras. 756 -760. 
The Appellate Body considered the question of how the notion of "the granting authority" relates to the scope 
of the specificity analysis in the context of an appeal by the European Union of the panel's finding that, 
assuming arguendo  that the allocation of patent rights under NASA and DOD contracts and agreements with 
Boeing were a subsidy, that subsidy would not be specific under Article 2 of the SCM Agreement. The Appellate 
Body stated that it did "not consider that the use of the term 'granting authority' in the singular limits the 
inquiry. The use of the term 'granting authority', in our view, does not preclude there being multiple granting 
authorities. Rather, this is likely where a subsidy is part of a broader scheme." (A ppellate Body Report, US – 
Large Civil Aircraft (2nd complaint) , para. 749). The Appellate Body also noted that "{w}hile the scope and 
operation of the granting authority is relevant to the question of whether such an access limitation with respect 
to a pa rticular class of recipients exists, it is important to keep in mind that it is not the purpose of a specificity 
analysis to determine whether the authorities involved in granting the subsidies constitute a single subsidy 
grantor  or several grantors ". (App ellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 756 
(emphasis original)). In concluding this Section of the Report, the Appellate Body noted that "the granting 
authority (which may amount to a number of such authorities) and the legisl ation pursuant to which such 
granting authority(ies) operate(s) must be assessed within the legal framework of the WTO Member concerned 
at various levels of government, legislation, and regulation". (Appellate Body Report, US – Large Civil Aircraft 
(2nd complaint) , para. 760).  
2327 The United States argues that FILOT agreements are not specific , within the meaning of 
Article  2.1(b) of the SCM Agreement , because the eligibility criteria attached to these agreements regarding 
investment and employment levels are  "objective criteria or conditions" , within the meaning of Article 2.1(b) 
(and fn 2) of the SCM Agreement. (United States' first written submission, para. 635; second written 
submission, para. 550). While the European Union does not challenge the character ization of the investment 
and employment -related criteria as "objective", it points out that Article 2.1(b) requires that the objective 
criteria govern both eligibility and amount of the subsidy and that eligibility be automatic. According to the 
European  Union, the eligibility criteria for the FILOT agreements do not satisfy these conditions because "the 
amount of the subsidy depends on the specific terms negotiated between the county and the project sponsor, 
while the US' purportedly 'objective' criteria are merely minimum requirements for a county's discretionary 
decision to negotiate a FILOT agreement". (European Union's second written submission, para. 720). See also 
European Union's comments on United States' response to Panel question No. 139, fn 17 a nd para. 17 (citing 
explanation by the South Carolina Department of Revenue that "{a} fee in lieu of property taxes is granted by 
the county and it is in the sole discretion of the county as to whether to grant a fee in lieu of property taxes for 
a particu lar project"). The United States reject s this criticism as unfounded because the European Union "fails 
to explain whether or how these 'negotiations' affect the eligibility for, or the amount of, the alleged subsidy" 
and has not identified any instances in  which two taxpayers with projects with identical investment and 
employment profiles have been treated differently with respect to either eligibility for, or the amount of, the 
alleged subsidy. (United States' second written submission, para. 551).  WT/DS353/R W 
 
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  not specific within the meaning of Article 2.1(a), analysis by the Panel under Article 2.1(b) was not 
necessary ".2328  
8.894.   The second question relating to specificity raised by the parties ' claims and arguments is 
whether the  subsidy granted through the property tax  reductions provided for in the  Project 
Emerald F ILOT Agreement and the Boeing F ILOT Agreement is specific within the meaning of 
Article 2.1(c) of the SCM Agreement. The European Union argues that the subsidy is specific in 
terms of each of the four factor s listed in the second sentence of Article 2.1(c).2329 The first of 
these factors is the "use of a subsidy programme by a limited number of certain enterprises ".2330  
8.895.   According to data provided by the United States in response to a Panel question, 954 
FILOT agre ements were concluded in South Carolina between 2000 and 2012. Furthermore, of the 
total of 954 FILOT agreements concluded by South Carolina between 2000 and 2012, 929 
agreements provided for a 6% assessment ratio and 25 agreements provided for a 4% 
assess ment ratio. Of the agreements with a 4% assessment ratio, 20 were accompanied by special 
source revenue credits. The data provided by the United States also shows that with regard to 
Charleston County, 29 FILOT  agreements were concluded between 2000 -2012. Of that total, 26 
were agreements with a 6% assessment ratio and three were agreements with a 4% assessment 
ratio. Th e three agreements with a 4% assessment ratio were accompanied by special source 
revenue credits.2331 
8.896.   The parties disagree on whether the anal ysis of specificity under this and other factors 
enumerated in the second sentence of Article 2.1(c) should be conducted at the level of South 
Carolina or at the level of Charleston County. In our view, it is not necessary to decide this issue. 
Even assumi ng that, as argued by the European Union, the analysis should be confined to 
Charleston County as granting authority2332, we consider that the European Union has not provided 
sufficient reasoning and evidence to warrant a finding that the subsidy is specific in fact by reason 
of the use of the subsidy programme by a limited number of certain enterprises.  
8.897.   The European Union argues that the fact that Charleston County has entered into only two 
enhanced investment FILOT  agreements, three FILOT agreements of any kind providing for a 4% 
assessment ratio and only thirty -three negotiated FILOT agreements overall is indicative of "a 
                                               
2328 Appel late Body Report, US – Large Civil Aircraft (2nd complaint) , para. 876.  
2329 See para. 8.862  above.  
2330 The Appellate Body has explained that this factor is to be interpreted to mean that "a limited 
quantity of ente rprises or industries qualifying as 'certain enterprises' must be found to have used the subsidy 
programme, without requiring that the limited quantity represent a subset of some larger grouping of 'certain 
enterprises'". (Appellate Body Report, US – Carbo n Steel (India) , para. 4.378). Moreover, this first factor does 
not require a finding of discrimination between "certain enterprises" and other, similarly situated enterprises. 
(Appellate Body Report, US – Carbon Steel (India) , paras. 4.381 -4.390). Accordi ng to the Appellate Body, 
"{w}hat matters for the inquiry called for by subparagraph (a) and the first factor in subparagraph (c) is the 
existence of a limitation on access to, or use of, a subsidy". (Appellate Body Report, US – Carbon Steel (India) , 
para. 4.385; see also Panel Report, US – Carbon Steel (India) , para. 7.121). The Appellate Body has also 
indicated that a "subsidy programme" as used in this first factor in Article 2.1(c) means a "plan or scheme of 
some kind". (Appellate Body Report, US – Countervailing Measures (China) , para. 4.141).  
2331 United States' response to Panel question No. 142, paras. 14  and 15. In response to the same 
question the United States also provided a list of all (28) FILOT agreements with a 4% assessment ratio 
concluded in S outh Carolina between 2000 and 2014 (Exhibit USA -553).  
2332 While the panel in the original proceeding examined the existence of specificity under Article 2.1(a) 
in the case of the tax abatements granted by industrial revenue bonds issued by the City of Wich ita on the 
basis of the relevant Kansas State legislation, the panel limited the scope of its examination of specificity under 
Article 2.1(c) to the City of Wichita as granting authority. (Panel Report, US – Large Civil Aircraft (2nd 
complaint) , paras. 7.7 46-7.779). The panel explained that for purposes of the analysis required by the last 
sentence of Article 2.1(c) of the extent of diversification of economic activities within the jurisdiction of the 
granting authority, the City of Wichita was the relevant  granting authority:  
In the case of the IRBs provided to Boeing and Spirit, although the State of Kansas 
implemented the legislation authorizing the issuance of IRBs, individual cities and 
counties are responsible for actually granting the IRBs. Therefore , the City of 
Wichita is the relevant granting authority and the diversification of the Wichita 
economy must be considered.  
(Panel Report, US – Large Civil Aircraft (2nd complaint) , fn 2125)  
The panel's approach to the scope of the de facto  specificity a nalysis was not raised on appeal. (Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint) , paras. 859 -889).  WT/DS353/R W 
 
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  limited number of users ".2333 The European Union contends that the data on the number of FILOT 
agreements provided by the United States in r esponse to a Panel question shows that the number 
of FILOT agreements concluded by Charleston County is "quite small ", both in absolute and in 
relative terms, and thus supports its position that FILOT agreements have been used by "a limited 
number of certa in enterprises " within the meaning of Article 2.1(c).2334 
8.898.   We note, first, that in making these arguments purporting to demonstrate how the subsidy 
programme is used by a limited number of certain enterprises, the European Union does not 
address the two factor s that must be taken into account in any analysis of de facto  specificity 
under the last sentence of Article 2.1(c) , i.e. the extent of diversification of economic activities 
within the jurisdiction of the granting authority, and the length of time during which the subsidy 
programme has been in operation.2335 Second, if, "{i}t is the function of the inquiry under 
subparagraph (c) to determine whether, for example, only a limited number of certain enterprises, 
in fact, have access to the subsidy "2336, it is necess ary to provide some reasoning as to how a 
given number of enterprises using a subsidy programme reflects the existence of a limitation on 
access to the subsidy.2337 That Charleston County has entered into three enhanced investment 
FILOT  agreements,  and thirty -three negotiated FILOT agreements in total may simply be a logical 
consequence of the application of the conditions attached to the subsidy in the particular context 
of that County 's economy.2338 To qualify a given number of agreements as "quite small " is not 
sufficient, in our view, to conclude that there is de facto  specificity based on the use of the subsidy 
programme by a limited number of certain enterprises.  
8.899.   On the other hand, if we ascertain whether there is in this case use of a subsidy 
programme by a limited number of certain enterprises at the level of South Carolina, we note that 
the information before us indicates that 954 FILOT agreements of different types were concluded 
in South Carolina from 2000 to 2012 and that the European Union has not con tested that , as 
argued by the United States,  this involved a wide variety of industries and enterprises. The 
European Union argues that the number of FILOT agreements concluded in South Carolina is not 
relevant , but nevertheless notes that this number is "quite small " on the basis that the number of 
all active FILOT agreements in South Carolina in 2013 represented at most 25% of all 
manufacturing establishments in South Carolina.2339 This argument suffers from the same flaws 
                                               
2333 European Union's first written submission, para. 689; Charleston County, Chart of negotiated 
Fee-in-Lieu-of-Taxes (FILOT) Agreements, ( Exhibit EU -544); and Charleston County Negotiated FILOT 
Agreements, (Exhibit EU -545).  
2334 European Union's comments on United States response to Panel question No. 142, para. 22.  
2335 Article 2.1(c), last sentence. See Panel Reports, US – Countervailing Measu res (China) , 
paras.  7.250 -7.256; and US – Washing Machines , paras. 7.251 -7.255. While these reports addressed the 
requirements of the last sentence of Article 2.1(c) in the context of countervailing duty determinations, there is 
nothing in that sentence to  suggest that it does not also apply to determinations of de facto  specificity in 
proceedings under Part III of the SCM Agreement. We recall that the panel in the original proceeding rejected 
an argument of the European Communities that industrial revenue bonds granting property tax abatements 
were de facto  specific by virtue of the use of the subsidy programme by a limited number of certain enterprises 
because the European Communities failed to take into account the two factors identified in the last sente nce of 
Article 2.1(c). (Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.778).  
2336 Appellate Body Report, US – Carbon Steel (India) , para. 4.384.  
2337 We agree, in this regard, with the observations of the panel in US – Carbon Steel (India)  on the 
relationship between Articles 2.1(a) and 2.1(c):  
These two provisions complement one another. Article 2.1(a) concerns limitations 
on access to subsidies that exist in law. Article 2.1(c) concerns limitations on 
access that are not expressly provided for in legal instruments, but whose 
existence may nevertheless be determined by reference to facts. In both cases, 
what matters is the existence of a restriction o n access to the subsidy, in the sense 
that the subsidy is available to certain enterprises, i ndustries, or groups of 
enterprises or industries, but not to others.   
(Panel Report, US – Carbon Steel (India) , para. 7.121)  
2338 The European Union asserts that according to the data provided by the United States , Charleston 
County had 29 active FILOT agr eements in 2012, representing at most 10% of the total number of 
manufacturing establishments in Charleston County. (European Union's comments on United States' response 
to Panel question No. 142, para. 22). The European Union does not explain how this com parison of the number 
of FILOT agreements with the total number of manufacturing establishments in Charleston County indicates 
that the subsidy is specific in fact by virtue of the use of a subsidy programme by a limited number of certain 
enterprises. In p articular, the European Union's argument fails to address the possibility that the total number 
of FILOT agreements in Charleston County can be logically explained as resulting from the application of the 
conditions attached to the different types of FILOT  agreements in the context of that County's economy.  
2339 European Union's comments on United States' response to Panel question No. 142, para. 22.  WT/DS353/R W 
 
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  that we have discussed above in res pect of the European Union 's argument concerning the number 
of FILOT agreements concluded by Charleston County.  
8.900.   Third, the argument of the European Union to support its claim that the subsidy is de facto  
specific because of "the granting of disproportiona tely large amounts of subsidy to certain 
enterprises ", is inconsistent with the guidance provided by the Appellate Body as to how this 
"relational concept " should be applied.2340 The various arguments made by the European Union in 
this regard fail to address the question of whether there is a "disparity between the expected 
distribution of that subsidy, as determined by the conditions of eligibility, and its actual 
distribution " and, more specifically, "whether the actual allocation of the 'amounts of subsidy ' to 
certain enterprises is too large relative to what the allocation would have been if the subsidy were 
administered in accordance with the conditions for eligibility for that subsidy ".  
8.901.   The European Union argues that Boeing and its suppliers are "disprop ortionate users " 
based on the fact that both enhanced investment FILOT  agreements, and two of three FILOT 
agreements entered into by Charleston County were concluded with Boeing and its suppliers , and 
that the FILOT agreements concluded with Boeing and its  suppliers accounted for more than 55% 
of the total minimum amounts of investment covered by the FILOT agreements concluded by 
Charleston County.2341 This argument does not  demonstrate that there is disproportionality within 
the meaning of Article 2.1(c) beca use it does not involve any analysis of the actual allocation of 
the amounts of the subsidy at issue and of how that allocation is different from what would be 
expected in light of the eligibility conditions attached to the conclusion of enhanced investmen t 
FILOT agreements.  
8.902.   The European Union also argues that Boeing and Westvaco, "have received 100 per cent  of 
the 4 per cent FILOT granted by Charleston County since 1998 " but account for only 27% of total 
employment in manufacturing employment in the Charl eston MSA and 44% of the manufacturing 
employment in Charleston County.2342 The European Union does not explain, and we fail to see, 
how a comparison of the number of the agreements with the percentage of manufacturing 
employment provides any indication of a disparity between the actual distribution of the amounts 
of the subsidy and the distribution that would be expected on the basis of the eligibility criteria 
provided for in the Simplified FILOT Act. In particular, apart from the fact that it does not ident ify 
the amount of the subsidy and how that amount is distributed, the European Union does not 
                                               
2340 The Appellate Body has discussed this issue as follows:  
The language of Article  2.1(c) indicates that the f irst task is to identify the 
"amounts of subsidy" granted. Second, an assessment must be made as to 
whether the amounts of subsidy are "disproportionately large". This term suggests 
that disproportionality is a relational concept that requires an assessmen t as to 
whether the amounts of subsidy are out of proportion, or relatively too large. When 
viewed against the analytical framework set out above regarding Article  2.1(c), this 
factor requires a panel to determine whether the actual allocation of the "amou nts 
of subsidy" to certain enterprises is too large relative to what the allocation would 
have been if the subsidy were administered in accordance with the conditions for 
eligibility for that subsidy as assessed under Article  2.1(a) and (b). In our view, 
where the granting of the subsidy indicates a disparity between the expected 
distribution of that subsidy, as determined by the conditions of eligibility, and its 
actual distribution, a panel will be required to examine the reasons for that 
disparity so as ultimately to determine whether there has been a granting of 
disproportionately large amounts of subsidy to certain enterprises.  
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 879 (fn omitted)) . 
See also para. 883 ("{w}here the a ctual distribution of a subsidy deviates materially from the expected 
distribution of that subsidy, a panel would need to examine the reasons provided by the parties to explain that 
outcome"), and para. 886 ("a panel's inquiry under Article 2.1(c) should f ocus on the reasons that explain any 
disparity between the actual and expected distributions of a subsidy"). The Appellate Body reiterated its view 
that the third factor in Article 2.1(c) reflects a relational concept in its Report in US – Carbon Steel (In dia), 
paras. 4.388 and 4.389. See also Panel Report, US – Washing Machines , paras. 7.231 -7.244. The panel in US – 
Washing Machines  concluded from its review of Appellate Body case law on this issue that "the relational 
nature of the analysis {means} that a  finding of disproportionality must be based on an assessment of how the 
amount of subsidy actually received relates to an objective benchmark indicative of the amount of subsidy that 
the recipient would have been expected to receive if the subsidy were di stributed proportionately, in 
accordance with the conditions for eligibility". (Panel Report, US – Washing Machines , para. 7.236).  
2341 European Union's first written submission, para. 690; second written submission, para. 717.  
2342 European Union's response to Panel question No. 112, paras. 199 and 200. (underlining original , 
emboldening removed)  WT/DS353/R W 
 
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  provide any reasoning as to why, in light of those eligibility criteria, one would expect a 
distribution of the subsidy in proportion to the percentage of manufac turing employment 
accounted for by the companies in question.  
8.903.   Finally, we see no merit in the argument that "the United States cannot justify why the 
investments of Boeing, its suppliers (Vought/Global Aeronautica), and Westvaco were accorded a 
4% assessm ent rate, while all of the other 30 recipients were accorded a 6 % assessment rate ". 
Since this difference is a direct consequence of the application of the eligibility criteria, it cannot 
form the basis for a finding of disproportionality within the analyt ical framework set out by the 
Appellate Body.2343  
8.904.   Regarding the fourth factor listed in the second sentence of Article 2.1(c), we find that the 
European Union has failed to show that the FILOT  agreements at issue in this dispute are de facto  
specific within the meaning of Article 2.1(c) on account of "the manner in which discretion has 
been exercised by the granting authority in the decision to grant a subsidy ". The mere existence of 
discretion is not a sufficient basis to find that a subsidy is de facto  specific under Article  2.1(c). 
Rather there must be analysis of how discretion has been exercised by the granting authority in 
the grant of the subsidy.2344 In that regard, footnote 3 to Article 2.1(c) requires consideration of 
"information on the frequency with which applications for a subsidy are refused or approved and 
the reasons for such decisions ". The European Union does not submit any such information in 
support of its argument that the Boeing F ILOT Agreement is specific because of the discretionary 
nature  of the measure. The fact that FILOT agreements are individually negotiated with particular 
companies and must be approved as to the particular agreement by the county council2345 says 
nothing about how discretion "has been exercised in the grant of the subsi dy" and can therefore 
not justify a finding of specificity under Article  2.1(c).  
8.905.   Finally, we note that the European Union also argues that the subsid y provided through  
the property tax reductions under the  Project Emerald F ILOT Agreement and the Boeing F ILOT 
Agreement is specific pursuant to Article 2.3 of the SCM Agreement. Article 2.3 provides that 
"{a}ny subsidy falling under the provisions of Article 3 shall be deemed to be specific". We reject 
this argument  because in Section  10 of this Report we find  that the European Union has failed to 
establish that any subsidy at issue in this proceeding is prohibited by Articles 3.1 and 3.2 of the 
SCM Agreement.  
8.906.   In light of the above, we find that the European Union has failed to establish  that 
the subsidy provid ed through the property tax reduction s under the Project Emerald 
FILOT  Agreement and the Boeing F ILOT  Agreement is specific within the meaning of 
Articles 2.1(a) or (c) of the SCM Agreement .  
8.907.   We recall that while we f ind in Section 8.2.8.7.3.1  above that the property tax reduction s 
provided for through  the Project Emerald F ILOT Agreement constitute a financial contribution, we 
have left open the question of whether this is a direct financial contribution to Boeing. In light of 
our finding that the subsidy provided through  the Project Emerald FILOT  Agreement is not specific, 
we consider it unnecessary to decide that issue.  
8.2.8.7.4   Conclusion  
8.908.   In light of our findings above, we conclude that the European Union has failed to  establish  
that t he fee -in-lieu-of taxes arrangements set forth in the Boeing F ILOT Agreement and Project 
Emerald F ILOT Agreement are specific, and therefore involve specific subsidies within the meaning 
of Articles 1 and 2 of the SCM Agreement.   
                                               
2343 European Union's response to Panel question No. 112, para. 203.  
2344 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 798; and Panel Report, US – 
Large Civil Aircraft (2nd complaint) , para. 7.773.  
2345 European Union's first written submission, para. 691.  WT/DS353/R W 
 
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  8.2.8.8   Whether the corporate inco me tax credits in connection with the designation of 
the Project Gemini and Project Emerald  portions of the Project Site  as part of the 
Charleston -Colleton  multi -county industrial park involve specific subsidies to Boeing  
8.2.8.8.1   Introduction  
8.909.   In paragraph 24 of it s panel request, the European Union identifies as one of the Project 
Gemini -related subsidies presently benefiting Boeing:  
The provision of corporate income tax credits,  as provided for in S.C. Code 
§ 12-6-3360(E)(1), by virtue of designating the Boeing si te in North Charleston as 
part of a business/industrial park jointly established and developed by Charleston 
County and Colleton County, South Carolina.  
8.910.   In paragraph 25 of its panel request, the European Union identifies as one of the Project 
Emerald -related subsidies presently benefiting Boeing:  
The provision of corporate income tax credits,  as provided for in S.C. Code 
§ 12-6-3360(E)(1), by virtue of designating the Project Emerald site at Charleston 
International Airport as part of a business/industrial park jointly established and 
developed by Charleston County and Colleton County, South Carolina.  
8.911.   The European Union argues that these above -referenced tax credits reduce Boeing 's South 
Carolina income tax liability, and thereby constitute specific subsid ies to Boeing within the 
meaning of Articles 1 and 2 of the SCM Agreement.  
8.912.   The South Carolina Income Tax Act, contained in Title 12, chapter 6 of the South Carolina 
Code, provides for various types of corporate income tax credits, including a "job tax credi t" for 
new full -time jobs created in the state pursuant to section 12 -6-3360(C) of the South Carolina 
Code. In addition, the Act provides that "{t}axpayers which qualify for the job tax credit provided 
in subsection C and which are located in a business or  industrial park jointly established and 
developed by a group of counties pursuant to Section 13 of Article VIII of the Constitution of this 
State are allowed an additional one thousand dollar credit for each new full -time job created ".2346 
These  additional  tax credit s (the MCIP job tax credit s) are at issue in the present proceeding.  
8.913.   Section 13 of Article VIII of the South Carolina Constitution provides that "{c}ounties may 
jointly develop an industrial or business park with other counties within the geograp hical 
boundaries of one or more of the member counties ". Pursuant to this authority, Charleston County 
and Colleton County entered into an Agreement for Development for a Joint County Industrial Park 
in September 1995.2347 This original Agreement was amended from time to time to add  or remove 
property to or from the Charleston -Colleton Multi -County Industrial Park (Charleston -Colleton 
MCIP). In December  2006, Charleston County included inter alia the Project Emerald -portion of the 
Project Site within the limit s of the Charleston -Colleton MCIP2348, as Charleston County had 
undertaken to do in an Inducement and Millage Rate Agreement concluded on 21 December 2004 
as part of Project Emerald.2349 In February 2010, Charleston County included the Project Gemini -
                                               
2346 South Carolina Income Tax Act, S.C. Code , Title 12, chapter 6, (Exhibit EU -509), section  12-6-
3360(E)(1).  
2347 See United States' first written su bmission, para. 572.  
2348 Charleston County Council Ordinance 1475, 5 December 2006, An Ordinance to amend Ordinance 
No. 972, adopted September 19, amending the agreement for development of a joint county industrial park 
effective as of September 1, 1995, by and between Charleston County, South Carolina and Colleton County, 
South Carolina, providing for the development of a jointly owned and operated industrial/business park so as 
to (1) revise and clarify certain terms of the agreement, (2) include additional  property in Charleston County 
as part of the joint county industrial park, (3) remove certain property in Charleston County from the industrial 
park, (4) and other matters relating thereto (Charleston County Council Ordinance 1475 (5 December 2006), 
(Exhibit EU -555)).  
2349 Section 2.06 of that Agreement provides: "{t}he County council covenant to take all action 
necessary to expand the park pursuant to the terms of the Park Agreement in order that the Site will be 
located entirely within the Park. The County  will use its good faith best efforts to ensure that the Site remains a 
part of the Park as long as is necessary to enable the Company to claim the maximum jobs tax credits for each 
job created by the Company at the Project". (Inducement and Millage Rate A greement between Charleston 
County and Project Emerald (21 December 2004), (Exhibit EU -553), p. 4).  WT/DS353/R W 
 
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  portion of the Project Site within the limits of the Charleston -Colleton MCIP2350, as Charleston 
County had undertaken to do in the Boeing F ILOT Agreement concluded on 2 December 2010 as 
part of Project Gemini.2351  
8.2.8.8.2   Main arguments of the parties  
8.914.   The European Union  argues t hat the additional job tax credits2352, provided to Boeing by 
virtue of Charleston County 's designation of the Project Gemini and Project Emerald portions of the 
Project Site as part of the Charleston -Colleton MCIP, constitute specific subsidies to Boeing wit hin 
the meaning of Articles 1 and 2 of the SCM Agreement.2353 A comparison of the tax treatment of 
jobs created at Boeing 's facilities with the tax treatment of jobs created at facilities outside of an 
MCIP demonstrates that the tax treatment granted to Boein g by means of the challenged MCIP job 
tax credits represents the foregoing of government revenue otherwise due.2354 The reductions of 
Boeing 's state income tax liability through the MCIP job tax credits confer benefits within the 
meaning of Article 1.1(b)2355, and are specific within  the meaning of Articles 2.1(a) and  2.1(c). 
Indeed, the Charleston County Ordinances designating the Project Gemini and Project Emerald 
portions of the Project Site as part of the Charleston -Colleton MCIP explicitly limit access to th e 
challenged  MCIP job  tax credits to certain enterprises. In addition, Charleston County has 
designated the premises of only a limited number of enterprises as within a  multi-county industrial 
park, and the manner in which the county has exercised its disc retion further indicates specificity. 
Finally, the MCIP job tax  credits are regionally specific, since they are limited to certain enterprises 
located within a designated geographic region within the jurisdiction of the granting authority.2356 
8.915.   The United Stat es argues that the European Union has failed to establish a prima facie 
case that the MCIP job tax credits are financial contributions or  confer  benefits: since the European 
Union claims that Boeing will have no South Carolina taxable income as a result of  the Income 
Allocation and  Apportionment Agreement, the MCIP job tax credits will offset nothing.2357 
Notwithstanding the above, the MCIP job tax credits are not specifi c within the meaning of 
Article  2 since they are broadly available and widely used. Indeed , neither the State of South 
Carolina nor the South Carolina Income Tax Act explicitly limit s access to job tax credits to certain 
enterprises. Furthermore, MCIP designations are commonplace in the State of South Carolina, and 
                                               
2350 Charleston County Council Ordinance 1626 (2 February 2010), An Ordinance to further amend the 
agreement for development of a joint county industrial park,  by and between Charleston County, South 
Carolina and Colleton County, South Carolina, providing for the development of a jointly owned and operated 
industrial/business park, so as to include additional property in Charleston County as part of the joint co unty 
industrial park (Charleston County Ordinance 1626 (2 February 2010), (Exhibit EU -516), section 1). This 
Ordinance amended the Original Agreement so as to expand the Park premises located within Charleston 
County by including a parcel "owned by the Cha rleston County Aviation Authority and leased to The Boeing 
Company". This parcel, also referred to in the Ordinance as the "Boeing Tract", is describe d in detail in Exhibit 
A to the Ordinance. The Ordinance also provides for the distribution of revenues ge nerated by the Park through 
the payment of fees in lieu of ad valorem  property taxes. See Charleston County Ordinance 1626 
(2 February  2010), (Exhibit EU -516), section 2.  
2351 Section 5.3 of the Boeing F ILOT Agreement provides that "{t}he County will designat e the Project 
as part of a Multi -County Park pursuant to the Multi -County Park Act and will, to the extent permitted by law, 
use its best, reasonable efforts to maintain such designation on terms which provide any additional jobs tax 
credits afforded by th e laws of the State for projects located within multi -county industrial or business parks 
for all jobs created by the Company during the Investment Period and which facilitate the Special Source credit 
arrangements set forth herein". (Boeing F ILOT Agreemen t, (Exhibit EU -470), section 5.3).  
2352 The European Union does not challenge the standard job tax credit s provided under S .C. Code 
section 12 -6-3360(c). (See European Union's first written submission, para. 628).  
2353 With respect to Project Gemini -related job  tax credits, see European Union's first written 
submission, paras. 627 -641; and second written submission, paras. 675 -682. With respect to Project 
Emerald -related additional tax credits, see European Union's first written submission, paras. 709 -720; and 
second written submission, paras. 733 -736. 
2354 European Union's first written submission, paras. 631 -634 and 712 -714; second written submission, 
paras. 675 -677, 733, and 734.  
2355 European Union's first written submission, paras. 636, 637, 715, and 716 (referrin g to Panel Report, 
US – FSC, para. 7.103).  
2356 European Union's first written submission, paras. 638 -641 and 717 -720; second written submission, 
paras. 679 -682, 735, and 736.  
2357 United States' first written submission, paras. 571 -574 and 607; second written s ubmission, 
para. 606. WT/DS353/R W 
 
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  they are provided to a number  of enterprises located within any number of different MCIPs 
throughout the state.2358 
8.2.8.8.3   Evaluation by the Panel  
8.916.   In this Section of the Report, the Panel evaluates  the European Union 's claims that the 
MCIP job tax credits, granted to Boeing by virtue of the de signation of the Project Gemini and 
Project Emerald portions of the Project Site as part of the Charleston -Colleton MCIP, are specific 
subsidies to Boeing within the meaning of Articles 1 and 2 of the SCM Agreement.  
8.2.8.8.3.1   Whether there is a financial contributio n 
8.917.   The first question before the Panel is whether the MCIP job tax credits, granted to Boeing 
by virtue of the designation of the Project Gemini and Project Emerald portions of the Project Site 
as part of the Charleston -Colleton MCIP, constitute financial c ontributions through the foregoing of 
government revenue that is otherwise due, within the meaning of Article  1.1(a)(1)(ii).  
8.918.   The European Union argues that Ordinances 1626 and 1475, relating to Project Gemini and 
Project Emerald respectively, involve  financial contributions by a government within the meaning 
of Article 1.1(a)(1)(ii), namely the foregoing of government reve nue otherwise due. The 
European  Union refers to the three -step approach to analysing claims under Article  1.1(a)(1)(ii) 
set out by the A ppellate Body in  the original proceeding.2359 First, the tax treatment applicable to 
Boeing 's corporate income in South Carolina is Boeing 's eligibility for MCIP job tax credits for the 
jobs created through the establishment of the 787 final assembly and deli very facility, and  for the 
jobs related to the 787 fuselage fabrication and integration complex.2360 Second, the benchmark 
tax treatment of comparable taxable activity of comparable taxpayers is the treatment afforded to 
identical taxpayers carrying out ident ical activities outside of an MCIP.2361 Third, a comparison of 
this benchmark tax treatment with the treatment received by Boeing, in light of the reasons for 
the establishment of the MCIP job tax credits and the designation of the Project Site as part of an 
MCIP, clearly shows that the treatment accorded to Boeing amounts to the foregoing of 
government revenue otherwise due.2362 The European Union estimates the amount of  the financial 
contribution a s USD 19 million between 2011 and 2016, and at USD 3.8 million p er year from 
2012 to 2015.2363  
8.919.   The United States ' arguments focus on an alleged inc onsistency between the 
European  Union 's arguments on the challenged MCIP job tax credits and another South Carolina 
measure ; the Income Allocation and Apportionment Agreement for state corporate income tax. 
The United States notes that  the European Union asserts that , as a result of the special  
methodology  for apportioning Boeing's income  provided for in th e Income Allocation and 
Apportionment  Agreement, Boeing will have no Sou th Carolina taxable income, and thus no 
income tax liability in South Carolina. Since the MCIP job tax credits are non -refundable, may not 
be sold or transferred, and may only be used to offset South Carolina income ta x, the 
European  Union 's own arguments  that the Income Allocation  and Apportionment Agreement is a 
subsidy to Boeing  imply that the actual value of the MCIP job tax credits to Boeing is zero, and 
that there is no financial contribution or benefit to Boeing.2364  
8.920.   However, as  pointed out by the Euro pean Union, the United States has previously indicated  
that Boeing [***].2365 In its request for information  pursuant  to Article 13 of the DSU , the Panel  
asked the United States to "indicate the annual value to Boeing of the additional USD1000 -per-job 
portion  of a new job tax credit for locating within a multi -county industrial park ". The United  States 
responded that "the annual value of such tax credits for jobs generated by Boeing ( i.e. exclusive of 
                                               
2358 United States' first written submission, paras. 638 -643; second written submission, paras. 605 -612. 
2359 European Union's first written submission, para. 632 (referring to para. 594, in turn referring to 
Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 812 -814).  
2360 European Union's first written submission, paras. 632 and 713.  
2361 European Union's first written submission, paras. 633 and 713.  
2362 European Union's first written submission, para. 634.  
2363 European Union's  first written submission, para. 635.  
2364 United States' first written submission, paras. 574 and 607.  
2365 European Union's second written submission, paras. 676 and 677.  WT/DS353/R W 
 
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  subsidiaries) is as follows [***]".2366 The information  provid ed by the United States in response to 
the Panel's Article 13 request , indicating that [***], is at odds with the contention that the value 
to Boeing of the MCIP job tax credits is zero.  The United States does not advance any other 
argument to  refute  the E uropean Union 's contention  that the MCIP job tax credits  granted to 
Boeing by virtue of the designation of the Project Gemini and Project Emerald portions of the 
Project Site as part of the Charleston -Colleton MCIP  involve  financial contri bution s to Boeing . We 
therefore  find that the MCIP job tax credits involve  a financial contribution  in the form of 
the foregoing of revenue otherwise due  within the meaning of Article 1.1(a)(1)(ii) . 
8.2.8.8.3.2   Whether there is a benefit  
8.921.   The United States  does not advance arguments as  to whether the MCIP job tax credits 
confer a be nefit, other than  its argument  concerning the  alleged  inconsistency between the 
European Union' s position  that: (a) the Income Allocation and Apportionment Agreement is a 
subsidy because it reduces Boeing's i ncome tax liability in Sout h Carolina to zero ; and (b) the 
MCIP job tax credits  are a subsidy because the y reduce Boeing's South Carolina income tax.  We 
have already rejected th is argument  of the United States  in the context of our determination of 
whether  the MCIP job tax credits involve  a financial co ntribution , owing to the information 
provided by the United States' response to our request for information pursuant to Article 13 of 
the DSU [***]. Having found t hat the MCIP job tax credits involve a financ ial contribution  to 
Boeing  in the form of the  foregoing of revenue otherwise due , we conclude that the financial 
contribution  confer s a benefit, in as much as the MCIP job tax credits mean that Boeing pays less 
state income tax than would otherwise be due.  We therefore find that the MCIP job tax 
credits confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement.2367 
8.2.8.8.3.3   Whether the subsid y is specific  
8.922.   With respect to whether the  subsidy provided to Boeing as a result of the MCIP job tax 
credits is  specific, the issues raised by the disagreement between the parties relate to 
Articles  2.1(a), 2.1(c), and 2.2 of the SCM Agreement. The parties first disagree on whether the 
MCIP job tax credits  are specific within the meaning of Article 2.1(a). In partic ular, the parties 
disagree on the level at which the specificity analysis should be carried out.  
8.923.   The European Union argues that the analysis of specificity should be  carried out  at the 
level of Charleston County. While MCIP job tax credits are available t o enterprises satisfying the 
minimum requirements set out in the relevant provisions under South Carolina tax law, the State 
of South Carolina effectively delegates the role of the granting authority to the counties, since the 
statutory minimum requirement s are that the location of an enterprise 's facility be designated as 
being within an MCIP by two or more counties.2368 The European Union argues that the challenged 
MCIP job tax credits are de jure specific within the meaning of Article  2.1(a) since: ( a) the area 
designated as part of the Charleston -Colleton MCIP by Charleston County Ordinance 1626 was 
expressly identified as a parcel "leased by The Boeing Company "2369; and ( b) the area designated 
as part of the Charleston -Colleton MCIP by Charleston County Ordin ance 1475 was expressly 
identified by reference to Project Emerald, as well as three unrelated companies located 
elsewhere, thereby explicitly limiting access to each subsidy to certain enterprises.2370  
8.924.   The United States considers that specificity should be assessed at the level of the State of 
South Carolina, and that the European Union 's focus on county ordinances as a basis for its 
arguments under Article 2.1(a) is misplaced. According to the United States, t he European has 
failed to demonstrate how either  the proper granting authority (i.e. the State of South Carolina ) or 
the legislation pursuant to which the State acts in providing the additional jo bs tax credit (i.e. 
section  12-6-3360(E)(1) of the South Carolina Code ) explicitly limits access to MCIP job tax credits 
to certain enterprises within the meaning of Article 2.1(a).2371 The United States argues that the  
text of the relevant legislation makes it clear that the tax treatment available under that provision 
                                               
2366 United States' response to the Panel's request for information pursuant to Article 13 o f the DSU, 
dated 28 February 2013, (Exhibit USA -198) (BCI), para. 158.  
2367 Also see para. 8.885  above  on tax reductions conferring a benefit.  
2368 European Union's second written submission, para. 680.  
2369 European U nion's first written submission, para. 638; second written submission, para. 679.  
2370 European Union's first written submission, para. 717.  
2371 United States' first written submission, paras. 640 and 641.  WT/DS353/R W 
 
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  is available to all enterprises that satisfy the minimum requirements set out in that provision and 
that otherwise qualify for the standard job tax credit.2372 The role of the counties is a minor one 
given that MCIP designation is commonplace in South Carolina, and MCIP status is essentially 
available t o any substantial business that requests that its property be included in an MCIP.2373 
8.925.   For the reasons detailed below, we consider  that the European Union has failed to establish 
that the  subsidy provided through the  MCIP job tax credits is specifi c within th e meaning of 
Article  2.1(a). Although Boeing receives the additional MCIP job tax credits as a result of the 
inclusion of the Project Gemini and Project Emerald portions of the Project Site in the Charleston -
Colleton MCIP by virtue of Ordinances 1626 and 1 475 respectively, these ordinances do not 
provide the challenged MCIP job tax credits. Rather the MCIP job tax credits are provided by the 
State of South Carolina in application of section 12 -6-3360(E)(1) of the South Carolina Income Tax 
Act. An assessment  of whether the  subsidy provided through the  MCIP job tax credits is specific 
within the meaning of Article 2.1(a) therefore requires a state -level analysis of whether the 
relevant provision of the Act explicitly limits the availability of the MCIP job tax  credit s to certain 
enterprises. Pursuant to section 12 -6-3360 of the South Carolina Code , the additional MCIP job tax 
credits are available to taxpayers that: ( a) qualify for the standard job tax credits ; and ( b) are 
located in a business or industrial pa rk jointly established and developed by a group of Counties 
pursuant to section 13 of Article VIII of the South Carolina Constitution. There is nothing in this 
provision to suggest that any enterprise meeting these conditions could be denied access to the 
additional MCIP job tax credit s. In addition, the two conditions (satisfaction of requirements for the 
standard job tax credit and location in a multi -county industrial park) do not inherently limit the 
availability of the additional MCIP job tax credit s to certain enterprises. The eligibility for the 
standard job  tax credit depends on criteria relating to employment levels.2374 As to the 
requirement that the taxpayer be located in a multi -county industrial park, there is nothing in the 
evidence before the Pan el to suggest that South Carolina or the legislation of South Carolina limits 
the possibility to establish multi-country industrial parks  or to include business property in a multi-
county industrial park  to certain enterprises.2375 For these reasons we find t hat the European Union 
has failed to establish that the  subsidy provided through the  MCIP job tax credits is specific within 
the meaning of Article 2.1(a).  
8.926.   Second, the parties disagree on whether the MCIP job tax credits are specific within the 
meaning of Article 2.1(c). Consistent with its position that the analysis of specificity should be 
undertaken  at the county level, the  European Union argues that the MCIP job tax credits are de 
facto specific within the meaning of Article 2.1(c) since, to the best of  the European Union 's 
knowledge, Charleston County has only designated the premises of a limited number of 
enterprises as  being  within a multi-county industrial park .2376 In addition, "the manner in which 
Charleston County has exercised its discretion by amen ding the area for the purpose of providing 
Boeing with MCIP job tax credits indicates that the subsidy is specific to Boeing and a limited 
number of other beneficiaries ".2377  
8.927.   The United States argues that the European Union provides no support for its assert ion 
that Charleston County has only designated the premises of a limited number of enterprises  as 
being  within a  multi-county industrial park.  Moreover,  even if this assertion were true, the 
United  States argues that it  would say nothing about the number o f enterprises benefiting from 
MCIP job tax credits in other multi-county industrial parks  elsewhere in South Carolina, which is 
the correct level at which to  undertake the analysis of specificity. According to the United States, 
MCIP designations are in fa ct so commonplace in South Carolina that they are the rule, not the 
                                               
2372 United States' first written submission, para. 641; s econd written submission, para. 609.  
2373 United States' second written submission, para. 610.  
2374 See South Carolina Income Tax Act, S.C. Code , Title 12, chapter 6, (Exhibit EU -509), section 
12-6-3360(C)(1).  
2375 Whether the very fact that the MCIP job tax cred its are available only to taxpayers located in 
multi-county  industrial parks makes the measure de jure  specific is discussed below.  See paras.  8.929 -8.931  
below.   
2376 European Union's first written su bmission, para. 718.  
2377 European Union's first written submission, paras. 639 and 718 (fn omitted). The European Union 
considers that the United States' response to the Panel's request for a list of Charleston county ordinances 
amending MCIP designations fo r identified projects or companies amounts to a failure to cooperate. It request s 
the Panel to draw appropriate inferences and to find that Project Gemini and Project Emerald are "the only 
identified projects or companies for which Charleston County has am ended an MCIP designation". 
(European  Union's second written submission, fn 1142).  WT/DS353/R W 
 
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  exception.2378 The United  States also argues that the European Union fails to provide any analysis 
or explanation to support its assertion that the manner in which Charleston County has exerc ised 
discretion indicates that the subsidy is specific to Boeing, and  that in any event the 
European  Union wrongly considers Charleston County as the granting authority.2379 
8.928.   We conclude  that the European Union has failed to establish that the  subsidy provided  
through the  MCIP job tax credits is specific within the meaning of Article 2.1(c). First, as explained 
above, the European Union focuses on the actions of Charleston County when the proper granting 
authority is instead the State of South Carolina. Second,  the European Union 's argument regarding 
the exercise of discretion is inconsistent with the text of Article 2.1(c) insofar as it does not 
provide any evidence of instances in which applications for the receipt of the subsidy have been 
rejected.2380  
8.929.   The thir d specificity issue before the Panel is whether the MCIP job tax credits are "limited 
to certain enterprises located within a designated geographical region within the jurisdiction of the 
granting authority " and thereby specific within the meaning of Artic le 2.2. The European Union 
argues that the MCIP job tax credits provided to Boeing are specifi c within the meaning of 
Article  2.2 because they are "limited to certain enterprises located within a designated geographic 
region within the jurisdiction of the granting authority ". The European Union considers that the 
Charleston -Colleton MCIP, like other multi-county industrial parks  in South Carolina, is a particular 
geographic region designated by two counties, within the jurisdiction of the State of South 
Carolina, the granting authority .2381 The European Union argues that, c ontrary to the United 
States ' assertions, Article  2.2 does not require a contiguous  geographic region.2382 Furthermore, 
the number of enterprises located within a designated geographic region is  irrelevant to an 
analysis of specificity under Article 2.2.2383  
8.930.   The United States argues that the MCIP job tax credits are not specific within the meaning 
of Article 2.2 because they are not "limited to certain enterprises located within a designated 
geogra phic region ". Rather they are provided to a number of enterprises located within any 
number of different multi-county industrial parks  throughout the State of South Carolina. The 
United States asserts that multi -county industrial parks  are pervasive in Sou th Carolina, and are 
available to any business that requests the inclusion of its property within a  multi-county industrial 
park.2384 Since counties can freely add to or subtract property from multi-county industrial parks  at 
any time, a  multi-county industri al park  is not really a "designated " region.2385 
8.931.   We conclude  that the European Union has not established that the challenged MCIP job tax 
credits are specific within the meaning of Article 2.2. The panel in US – Anti-Dumping and 
Countervailing Duties (China)  considered the question of whether "a designated geographical 
region " in the sense of Article 2.2 must necessarily have some sort of formal administrative or 
economic identity, or whether any identified tract of land within the territory of a granting 
authority can be a "designated geographical region " for the purposes of Article 2.2. The panel 
concluded that a designated geographical region is any identified tract of land within the 
jurisdiction of the granting authority.2386 The findings of the panels in US – Anti-Dumping and 
Countervailing Duties (China)  and US – Countervailing Measures (China)  seem to imply that those 
panels considered that an industrial park or economic development zone can amount to "a 
designated geographical region ".2387 While it is true th at MCIP job tax credits are available only to 
                                               
2378 United States' first written submission, para. 643. 
2379 United States' first written submission, para. 642.  
2380 In light of this finding, we do not consider it necessary to address the European Union's request for 
the Panel to "draw appropriate inferences". (See European Union's second written submission, fn 1142). Also 
see United States' response to Panel question No. 149, paras. 17 -19; and Charleston County Ordinances, 
(Exhibit USA -555).  
2381 European Union's first written submission, paras. 640 and 719.  
2382 European Union's second written submission, para. 681.  
2383 European Union's second written submission, para. 682.  
2384 United States' first written submission, para. 643.  
2385 United States' second written submission, para. 612.  
2386 Panel Report, US – Anti-Dumping and Countervailing Duties (China) , paras. 9.143 and 9.144.  
2387 See Panel Reports, US – Anti-Dumping and Countervailing Duties (China) , paras. 9.159 and 9.162; 
and US – Countervailing Measures (China) , para. 7.352.  We note that the Appellate Body recently addressed 
several aspects of the interpretation of Article 2.2 in its Report in US – Washing Machines . Specifically, the 
Appellate Body agreed with the panel in that disput e that:  WT/DS353/R W 
 
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  taxpayers within a  multi-county industrial park , it does not follow that the measure is "limited " to 
certain enterprises located within a designated region. If a subsidy is provided only to enterprises 
located within a region that has a fixed geographic identity, such a subsidy is "limited " to certain 
enterprises within that region because it is not possible for enterprises not located within that 
"designated region " to have access to the measure. In such a situ ation, the location of an 
enterprise is the determining eligibility factor for the subsidy. In the case at hand, however, this 
reasoning does not apply. The location of an enterprise  at any particular place  in South Carolina 
does not prevent it from receiv ing MCIP job tax credits, because the MCIP designation  itself is 
readily available upon request to any company. The availability of the MCIP designation  upon 
request means that, while the MCIP job tax credits are available to enterprises located within a  
multi-county  industrial park and not available to enterprises not located within such an industrial 
park, this cannot be meaningfully considered to amount to a limitation under Article 2.2. We 
therefore find that the European  Union has failed to establish t hat the subsidy provided 
through the MCIP job tax credit s is specific within the meaning of Article  2.2 of the SCM 
Agreement . 
8.932.   Finally, we note that the European Union also argues that the subsid y provided to Boeing 
through the MCIP job tax credits is specific pursuant to Article 2.3 of the SCM Agreement. 
Article  2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to 
be specific". We reject this argument because in Section 10 of this Report we find that the 
European Uni on has failed to establish that any subsidy at issue in this proce eding is prohibited by 
Articles  3.1 and 3.2 of the SCM Agreement.  
8.2.8.8.4   Conclusion  
8.933.   In light of our findings  above  with respect to the corporate income tax credits arising from  
the designation of t he Project Gemini and Project Emerald portions of the Project Site  as part of 
the same multi -county industrial park, we conclude that the European Union has failed to  establish 
that the subsidy is  specific within the meaning of Articles  1 and 2 of the SCM Agreement.  
8.2.8.9   Whether reductions of state corporate income taxes through an income 
allocation and apportionment agreement are a specific subsid y to Boeing  
8.2.8.9.1   Introduction  
8.934.   In paragraph 24 of its panel request, the European Union identifies as one of the Project 
Gemini -related  subsidies presently benefiting Boeing:  
Reductions of state corporate income taxes through an income allocation and 
apportionment agreement, entered into pursuant to S.C. Code § 12 -6-2320(B), as 
amended by Section 1 of H3130, thereby providing  a financial contribution within the 
meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.  
8.935.   The European Union claims that the State of South Carolina reduces Boeing 's state 
corporate income taxes by making Boeing eligible for, and providing Boeing with, a n income 
allocation and apportionment agreement that excludes significant portions of Boeing 's South 
Carolina income from the calculation of its tax liability.2388 According to the European Union, the 
effect of the income allocation and apportionment agreemen t is to exclude from Boeing 's South 
                                                                                                                                               
(i) the term "certain enterprises" in Article  2.2 of the SCM Agreement is not limited 
to entities with legal personality, but also encompasses sub -units or constituent 
parts of a company – including, but not limited to, its branch offices and the 
facilities in which it conducts manufacturing operations – that may or may not have 
distinct legal personality; (ii) the "designation" of a region for purposes of 
Article  2.2 need not be affirmative or explicit, but may also be carried out by 
exclusion or i mplication, provided that the region in question is clearly discernible 
from the text, design, structure, and operation of the subsidy at issue; and (iii) the 
concept of "geographical region" in Article  2.2 does not depend on the territorial 
size of the ar ea cov ered by a subsidy.  
(Appellate Body Report, US – Washing Machines , para. 5.240)  
  
 
2388 European Union's first written submission, para. 607.  WT/DS353/R W 
 
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  Carolina -based income the proceeds from sales of aircraft that would otherwise be treated as sales 
within  South Carolina and subject to South Carolina corporate income tax, thereby reducing the 
amount of South Carolina c orporate income tax that Boeing must pay.  
8.936.   "Apportionment " refers to the process of determining the portion of corporate income 
earned in multiple jurisdictions that is properly attributable to, and thus subject to taxation in, a 
particular jurisdiction. I n South Carolina, business income of manufacturers and retailers is 
apportioned by multiplying the taxpayer's net  income  (after certain allocations not relevant to the 
present case)  by a "sales factor "; a fraction in which the numerator is the total sales of the 
taxpayer in the State of South Carolina during the taxable year, and the denominator is the total 
sales of the taxpayer everywhere during the taxable year.2389 The amount of taxable income 
attributed to South Carolina is multiplied by South Carolina 's corporate income tax rate of 5%.2390  
8.937.   Section  12-6-2320(B)  of the South Carolina Code  authorizes the allocation and 
apportionment of a taxpayer's income on alternative bases for periods of up to five years or ten 
years, by agreement with the taxpayer, for tax payers planning new or expanded facilities in South 
Carolina. H3130 amended  section 12 -6-2320(B) of the South Carolina Code  to set forth certain 
conditions that must be satisfied by a taxpayer to qualify for an income allocation and 
apportionment agreement  of up to ten years. These conditions include : 
a. the taxpayer is planning a new facility in the state and invests at least USD 750 million 
in real or personal property or both in a single county in the state and creates at least 
3,800 full -time new jobs with in seven years from the date on which the taxpayer 
requests an agreement with an alternative allocation and apportionment method2391; 
b. the South Carolina Coordinating Council for Economic Development certifies that the new 
facility will have a significant bene ficial economic effect on the region for which it is 
planned and that its benefits to the public exceed its costs to the public.2392 
8.938.   Under the amendment to South Carolina 's Income Tax Act effected by H3130, the 
taxpayer may begin operating under an income all ocation and apportionment agreement beginning 
with the tax year in which the agreement is executed. If the taxpayer fails to meet the investment 
and employment requirements set forth above, the taxpayer will be assessed any tax due as a 
result of that fail ure. For any subsequent year that the taxpayer fails to maintain 3,800 full -time, 
new jobs, the S outh Carolina  Department of Revenue may assess any tax due for that year.2393 
8.939.   On 10 August 2010, Boeing made an application for "Qualification of Income 
Apportion ment Incentive " with the S outh Carolina  Coordinating Council for Economic Development 
in respect of "construction of an aerospace manufacturing facility in Charleston County, City of 
North Charleston with 3,800 jobs and a capital investment of USD 750 mill ion".2394 On 
8 September  2010, the S outh Carolina  Coordinating Council for Economic Development certified 
Boeing 's eligibility to enter into negotiations with the S outh Carolina  Department of Revenue to 
receive the "Income Apportionment Incentive ". It also ce rtified that the facility described in 
                                               
2389 South Carolina Income Tax Act, S.C. Code , Title 12, chapter 6, (Exhibit EU -509), sections  12-6-
2252 and 12 -6-2280. 
2390 South Carolina Income Tax Act, S.C. Code , Title 12, chapter 6, (Exhibit EU -509), section  12-6-530. 
South Carolina taxable income includes not only business income subject to apportionment under S.C. Code, 
section 12 -6-2252, but also any income that is allocated to South Carolina pursuant to sections 12 -6-2220 and 
12-6-2230.  
2391 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU -466), 
section 1 (amending South Carolina Income Tax Act, S.C. Code , Title 12, chapter 6, ( Exhibit EU -509), 12 -6-
2320 to add (B)(3)(a)(ii) and (b)(3)(b)).  
2392 South Carolina Income Tax Act, S.C. Code , Title 12, chapter 6, (Exhibit EU -509), section  12-6-
2320(B)(3)(c).  
2393 South Carolina Income Tax Act, S.C. Code , Title 12, chapter 6, (Exhibit EU -509), section  12-6-
2320(B)(4).  
2394 Boeing, Application for Qualification of Income Apportionment Incentive , (10 August 2010), 
(Exhibit  EU-12). WT/DS353/R W 
 
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  Boeing 's application would have a significant beneficial economic effect on the region for which the 
project is planned, and that the benefits to the public exceed the costs to the public.2395 
8.940.   Boeing and the S outh Caroli na Department of Revenue entered into a Special Allocation 
and Apportionment Agreement as of 1 January 2012  (Income Allocation and Apportionment 
Agreement ).2396 Under the Income Allocation and Apportionment Agreement, Boeing and the 
South Carolina  Department of Revenue agree that [***2397 ***2398]. 
8.941.   [***].  
8.2.8.9.2   Main arguments of the parties  
8.942.   The European Union  argues that the Income  Allocation and  Apportionment Agreement 
involves  a financial contribution to Boeing in the form of the foregoing of government revenue 
otherwi se due, within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement, which confers a 
benefit, and is specific.  
8.943.   The European Union considers that, under the Income  Allocation and  Apportionment 
Agreement, Boeing 's sales of aircraft that are received by a purchaser in South Carolina are 
deemed  not to be "sales in this State " when the sale s are to: (a) an airline or other customer with 
a principal place of business outside of the United States ; (b) a leasing company for the ultimate 
use of an operator with  a principal place of business outside of the United States ; (c) a special 
entity established for the purpose of U .S. Export -Import Bank financing of sales to operators 
having their principal place of business outside of the United  States ; or (d) a separat e Boeing sales 
company for the ultimate use of an operator with a principal place of business outside of the 
United States.2399 According to the European Union, this tax treatment differs from the benchmark 
tax treatment of comparable income of comparable tax payers, namely, the single factor 
apportionment method set forth in South Carolina Code  sections 12 -6-2252 and 12 -6-2280, under 
which the foregoing transactions would be considered sales within  the State of South Carolina.2400  
8.944.   The European Union argues there fore that the effect of the  Income Allocation and 
Apportionment Agreement is to lower the numerator of Boeing 's "sales factor " (i.e. Boeing 's sales 
allocated to South Carolina), without changing the denominator (i.e. Boeing 's total sales 
everywhere), there by reducing the sales factor. Accordingly, when Boeing 's total income is 
multiplied by the lower sales factor, the result is a reduction in Boeing 's taxable income, and 
consequently, a reduction in the amount of South Carolina corporate income tax that Boe ing must 
pay.2401 The Income Allocation and Apportionment Agreement with Boeing therefore results in a 
financial contribution by a government ; namely, the foregoing of government revenue otherwise 
due within the meaning of Article 1.1(a)(1)(ii) of the SCM Agr eement.2402  
                                               
2395 Letter from A. D. Young, Executive Director, S outh Carolina  Coordinating Council for Economic 
Development to Boeing C ompany, dated 8 September 2010. (Boeing, Application for Qualification of Income 
Apportionment Incentive , (10 August 2010), (Exhibit EU -12), pdf p. 10).  
2396 Special Allocation and Apportionment Agreement between South Carolina Department of Revenue 
and The B oeing Company, Inc. (1 January 2012) (Income Allocation and Apportionment Agreement) (formerly 
Exhibit US -13-294), (Exhibit EU -510) (BCI).  
2397 Income Allocation and Apportionment Agreement, (Exhibit EU -510) (BCI), [***]. 
2398 Income Allocation and Apportionment  Agreement, (Exhibit EU -510) (BCI),  section 3.1 . 
2399 European Union's first written submission, para. 611.  
2400 European Union's first written submission, para. 618:  
Under this apportionment methodology, transactions that would otherwise be 
considered sales in  South Carolina (and therefore taxable in South Carolina) are 
excluded from Boeing's taxable income on the basis of the princip al place of 
business of the ultimate operator – a concept otherwise wholly absent from South 
Carolina's laws on apportionment of income – thus artificially reducing the amount 
Boeing pays in state income taxes.  
2401 European Union's first written submission, para. 612.  
2402 European Union's first written submission, para. 617.  WT/DS353/R W 
 
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  8.945.   The European Union argues that the Income Allocation and Apportionment Agreement also 
confers a benefit on Boeing 's LCA division within the meaning of Article 1.1(b), with the entirety of 
the financial contribution representing the amount of the benefit.2403  
8.946.   The European Union additionally argues that the Income Allocation and Apportionment 
Agreement is specific within the meaning of Articles 2.1(a) and 2.1(c) of the SCM Agreement. With 
respect to de jure  specificity under Article 2.1(a), the Europe an Union asserts that the statutory 
provision establishing Boeing 's eligibility for an alternative apportionment method was enacted as 
part of H3130, the Boeing incentive legislation. Additionally, the provision is subject to investment 
and employment cond itions which make it applicable solely to Boeing.2404 Finally, the Income 
Allocation and Apportionment Agreement was entered into with Boeing alone, and the Special 
Apportionment Method is applicable only to Boeing.2405 As to de facto  specificity within the 
mean ing of Article 2.1(c), the subsidy is used by a limited number of taxpayers. To the best of the 
European Union 's knowledge, Boeing is the only recipient of a ten -year allocation and 
apportionment agreement. Boeing is necessarily also the predominant user a s well as a 
disproportionate beneficiary, receiving 100% of the subsidy.2406 Furthermore, the European Union 
points to the "untrammelled discretion " exercised by the granting authority in respect of allocation 
and apportionment agreements, noting that a taxpa yer applying for an alternative apportionment 
methodology is allowed to propose its own methodology. According to the European Union, Boeing 
was approved for a "highly customized methodology, specifically tailored to Boeing 's specific 
business practices an d commercial interests, and which bears no relation to the statutory 
allocation method or any legitimate public interests ".2407 The European Union also argues that the 
Income Allocation and Apportionment Agreement is a pr ohibited subsidy under Articles  3.1(a)  and 
3.2, foo tnote 4 and annex I, Item (e) of the SCM Agreement because, pursuant to the Special 
Apportionment Method, sales of Boeing aircraft delivered in South Carolina are deemed not to be 
South Carolina sales on condition that they are destined for ex port markets outside the 
United  States.2408 
8.947.   The United States  argues that the European Union has failed to establish that the Income  
Allocation and Apportionment Agreement involves  a financial contribution or  confers  a benefit. 
Indeed, the United States consi ders that the European Union 's arguments that the Income 
Allocation and Apportionment Agreement involves a subsidy are based on a misunderstanding of 
South Carolina 's income tax law.2409 
8.948.   The United States considers that the European Union incorrectly interpre ts "sales in this 
State " in South Carolina Code  section 12 -6-2280, which represent the numerator of the sales 
factor for purposes of the single factor apportionment method set forth in South Carolina Code  
section 12 -6-2252, as including sales in South Caro lina to airlines with a principal place of business 
outside the United States. It is on this basis that the European Union argues that the Special 
Apportionment Method  set forth in the Income Allocation and Apportionment Agreement  alters the 
treatment of "sales in this State " for purposes of calculating the sales factor , by excluding such 
sales from the numerator, thereby reducing Boeing 's South Carolina income tax liability. According 
to the United States, however, "sales in this State " is defined in South  Carolina Code  
section  12-6-2280(B) as including sales of goods, merchandise or property that are "received by a 
purchaser in this State ". South Carolina Code  section 12 -6-2280(B) further provides that the place 
at which the goods are received by a purchas er is the place where the goods are received by the 
purchaser "after all transportation is completed ". Where receipt occurs outside the United States, 
as is the case for sales to airlines with a principal place of business outside the United States, 
there will be no "sales in this State " according to the single factor apportionment method.2410 
8.949.   The United States also rejects the European Union 's arguments that the Income Allocation 
and Apportionment Agreement is specific. The United States notes that income all ocation and 
                                               
2403 European Union's first written submission, paras. 622 and 62 3. 
2404 European Union's first written submission, para. 624.  
2405 European Union's first written submission, para. 624; second written submission, para. 668 and 
fn 1127.  
2406 European Union's first written submission, para. 625.  
2407 European Union's first written su bmission, para. 625.  
2408 European Union's first written submission, paras. 749 and 750; response to Panel question No. 36, 
paras. 202 -204. 
2409 United States' first written submission, para. 603.  
2410 United States' first written submission, para. 604.  WT/DS353/R W 
 
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  apportionment agreements are part of a widely available effort by South Carolina to ensure that 
the apportionment of a taxpayer 's income represents the extent of the taxpayer 's business activity 
in the state, as well as to provid e an incentive to companies that are planning new or expanded 
facilities in South Carolina.2411 The European Union incorrectly limits its specificity analysis to the 
Income Allocation and Apportionment Agreement, without addressing the question of whether the 
legislation or  granting authority imposes limitations on access to the subsidy.2412 Even assuming 
arguendo  that the specific provision authorizing the use of the ten -year allocation and 
apportionment agreement in H3130 were the proper focus of the analysis, the European Un ion has 
failed to articulate how the provision contains an express limitation on access to certain 
enterprises.2413 
8.950.   The United States also considers that the European Union has failed to establish that the 
measure is de facto  specific under Article 2.1(c). Ac cording to the United States, approximately 40 
projects have been approved for special allocation and apportionment methods since 1996. 
Moreover, South Carolina Code  section 12 -6-2320(B) sets forth objective criteria that must be 
satisfied before an income  allocation and apportionment agreement can be entered into. The 
European Union has not questioned that those criteria were satisfied in Boeing 's case. Nor has it 
explained how the manner in which  discretion has been exercised by  the granting authority  in the 
decision to grant the subsidy indicates that the measure is specific.2414 The United States argues 
that the European Union's claims under Article 3 of the SCM Agreement with respect to the Income 
Allocation and Apportionment Agreement also fail, owing to its misunderstanding of South Carolina 
income tax law and consequent failure to establish a prima facie  case that the Income Allocation 
and Apportionment Agreement confers a specific subsidy to Boeing, let alone a subsidy that is 
contingent on export perfo rmance.2415 
8.2.8.9.3   Evaluation by the Panel  
8.2.8.9.3.1   Whether there is a financial contribution  
8.951.   We here examine the European Union 's claim that the special sourcing rules provided for in 
the Income  Allocation and Apportionment Agreement constitute a specific subsidy within th e 
meaning of Articles 1 and 2 of the SCM Agreement. We begin by determining whether the 
European Union has demonstrated that the Income  Allocation and  Apportionment Agreement, and 
more specifically, [***], involves a foregoing of government revenue otherwi se due, and thus is a 
financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.  
8.952.   The tax treatment at issue involves the method by which South Carolina assesses Boeing 's 
liability for state corporate income taxes. As previousl y explained, when a taxpayer has taxable 
business income in multiple jurisdictions, taxing jurisdictions may apply various apportionment 
methodologies to determine how much of the taxpayer 's total income is properly taxable by that 
taxing jurisdiction. Sou th Carolina mainly applies a single factor; namely sales, to apportion the 
business income of manufacturers and retailers for purposes of assessing liability to South Carolina 
income taxes. Thus, under section 12 -6-2252 of the South Carolina Code , manufact urers and 
retailers in South Carolina are assessed income tax on their income "apportioned " to the State of 
South Carolina, based on their net income  (after certain allocations)  multiplied by a ratio 
representing the proportion of their sales in South Caro lina, compared to their overall total sales 
(the sales factor).2416 The "sales factor " is more precisely defined in South Carolina Code  
section  12-6-2280:  
(A) The sales factor is a fraction in which the numerator is the total sales of the 
taxpayer in this Sta te during the taxable year and the denominator is the total sales of 
the taxpayer everywhere during the taxable year.  
                                               
2411 United St ates' first written submission, para. 644.  
2412 United States' first written submission, para. 645.  
2413 United States' first written submission, para. 645.  
2414 United States' first written submission, para. 646.  
2415 United States' first written submission, para. 67 7. 
2416 South Carolina Income Tax Act, S.C. Code , Title 12, chapter 6, (Exhibit EU -509), section  12-6-
2252(A).  WT/DS353/R W 
 
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  (B) The term "sales in this State " includes sales of goods, merchandise, or property 
received by a purchaser in this State. The place wher e goods are received by the 
purchaser after all transportation is completed is considered the place at which the 
goods are received by the purchaser. Direct delivery into this State by the taxpayer to 
a person designated by a purchaser constitutes delivery  to the purchaser in this State.  
8.953.   Under the Income Allocation and Apportionment Agreement, [***], which is the focus of 
the European Union 's challenge, provides that Boeing will use the general apportionment method 
set forth in South Carolina Code  section 1 2-6-2252. [***].  
8.954.   The difference between the parties centres around whether, under the definition of "sales 
factor" in South Carolina Code  section 12 -6-2280(A), and more particularly, the numerator of the 
sales factor which consists of the "sales in this S tate" as defined in  South Carolina Code  
section  12-6-2280(B), Boeing 's sales of LCA to foreign customers are sales in this State, such that 
the Income Allocation and Apportionment Agreement would change their status to out -of-state 
sales for purposes of as sessing Boeing 's liability to South Caroli na income taxes, or whether under  
South Carolina Code  section 12 -6-2280, such sales would in any case be considered out -of-state 
sales, such that they are treated in the same way under both the general provisions o f South 
Carolina income tax law and the Income Allocation and Apportionment Agreement.  
8.955.   The United States disagrees that South Carolina Code  section 12 -6-2280(B)  defines "sales 
in this State" in a manner that includes  sales by Boeing of airplanes to foreign  purchasers. For the 
United States, export sales are treated in the same way under South Carolina income tax law  and 
under the Income  Allocation and  Apportionment Agreement: In both cases, income from export 
sales is apportioned outside  South Carolina. The refore, the special sourcing rules  in the Income 
Allocation and Apportionment Agreement do not entail a more favourable apportionment of 
Boeing 's income from foreign sales of LCA than would apply under the terms of South Carolina 
Code section 12 -6-2280 its elf. 
8.956.   The United States supports its position by noting that , while the first sentence of South 
Carolina Code  section 12 -6-2280(B)  provides that the term "sales in this State" includes sales of 
goods, merchandise or property received by a purchaser in this State,  the second sentence of 
South Carolina Code  section 12 -6-2280(B) provides that the place where goods are received by 
the purchaser is considered the place at which the goods are "received " by the purchaser  "after all 
transportation is completed ". For the United States, an export sale of an LCA manufactured by 
Boeing in South Carolina involves the transportation of the aircraft outside  of South Carolina and 
the territory of the United States. For purposes of South Carolina Code  section 12 -6-2280(B), th e 
aircraft is therefore "received " outside South Carolina.  Because export sales of aircraft must be 
transported to the airline outside the United States, they are not i n any event "received" in 
South  Carolina.2417 
8.957.   The European Union contests this understandin g of when and where an aircraft is 
"received"  by a foreign customer for purposes of South Carolina Code  section 12 -6-2280(B). 
According to the European Union, Boeing aircraft are formally delivered (covering actual handover 
and legal transfer of title) at Boeing 's Washington and South Carolina delivery centres. The 
European Union argues that, u nder South Carolina Code  section  12-6-2280(B), the sale of an 
aircraft to a foreign purchaser which is delivered to the purchaser at Boeing's delivery centre in 
South  Carolina  would be treated as a sale "in this State ". According to the European Union, South 
Carolina Code  section 12 -6-2280(B) does not make any reference to whether the purchaser or 
eventual operator is located outside of the United States. Rather, the a pportionment of sales inside 
or outside South Carolina is based on the place where the purchaser "receives " the good. The 
European Union argues therefore that, when  a foreign customer takes formal delivery  of an aircraft 
at Boeing 's 787 delivery centre in South Carolina, the aircraft is "received by the purchaser " in 
                                               
2417 United States' response to Panel question No. 35, para. 147: "{b}y definition, export sales involve 
transporting goods outside the territory of t he country where the goods were manufactured. Thus, an export 
sale involving LCA manufactured by Boeing in South Carolina would involve the transportation of the LCA 
outside of South Carolina and the territory of the United States. Therefore, South Carolin a law does not require 
income from export sales to be apportioned to South Carolina because they are not 'sales in this state'".  WT/DS353/R W 
 
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  South Carolina, and the income from such sale would therefore be apportioned to 
South  Carolina.2418  
8.958.   The question that arises therefore is when particular goods (aircraft) can be considered to 
be "received" by a purchaser ( in particular, a foreign customer) for purposes of South Carolina 
Code section  12-6-2280(B) , and more particularly, whether aircraft  are received by a foreign 
customer "after all transportation is completed" at the time of formal  delivery to the customer at 
Boeing's delivery centre in South Carolina, or when the aircraft are transported to the airline's 
headquarters outside the United States. This necessarily requires the Panel to interpret South 
Carolina Code  section 12 -6-2280. A lthough it is not the role of WTO panels to interpret a Member's 
domestic legislation as such, it is permissible, and in this case, essential, that the Panel interpret 
the relevant provisions of South Carolina's income tax law in order to resolve the quest ion of 
whether the measure in question (which is not South Carolina Code  sections 12 -6-2252 or 12 -6-
2280, but rather, the Special Apportionment Method set forth in the Income Allocation and 
Apportionment Agreement) involves a foregoing of revenue otherwise  due, and thus a financial 
contribution within the meaning of Article 1.1(a) (1)(ii) of the SCM Agreement.2419 
8.959.   In respect of the types and threshold of evidence that may be required to prove a 
particular construction of municipal law, the Appellate Body in US – Carbon Steel (India)  has 
explained that the nature and extent of evidence required to satisfy the burden of proof will vary 
from case -to-case:  
Thus, whereas in some cases the text of the relevant legislation may suffice to clarify 
the content and meaning  of the relevant legal instruments, in other cases the 
complainant will also need to support its understanding of the content and meaning of 
such legal instruments with evidence beyond the text of the instrument, such as 
evidence of consistent application of such laws, pronouncements  of domestic courts on 
the meanings of such laws, the opinions of legal experts, and the writings of 
recognized scholars.2420 
8.960.   In that regard, the Appellate Body stated in US – Countervailing and Anti -Dumping 
Measures  (China ) that, in ascertaining the meaning of municipal law, a panel should undertake a 
holistic assessment  of all relevant elements, starting with the text of the law and including, but not 
limited to, relevant practices of administering agencies, or legal interpretatio ns of municipal law 
given by a domestic court.2421 In respect of the burden of proof, the Appellate Body in US – Carbon 
Steel also clarified that the party asserting that another party's municipal law, as such, is 
inconsistent with relevant treaty obligations  bears the burden of introducing evidence as to the 
scope and meaning of such law to substantiate that assertion.2422 We consider that the burden 
                                               
2418 The European Union also disagrees that the term "after all transportation is completed" in the 
second sentence of S .C. Code s ection 12 -6-2280(B) could be interpreted to mean that goods that are 
"physically received" in South Carolina but then removed from that state can be considered to be "received by 
the purchaser" in the place to which the goods are removed. Rather, the idea expressed in the second 
sentence of S .C. Code section 12 -6-2280(B), that the place of "receipt" of goods is the place in which they are 
received by the purchaser "after all transportation is completed" should be understood to address cases where 
goods are received in -state by a common carrier but are then shipped by that carrier to the purchaser 
out-of-state. In that case, the purchaser "receives" the goods not when they are given by the seller to the 
shipper in -state, but when the shipper delivers those go ods to the purchaser out -of-state.  
2419 The Appellate Body has acknowledged that in a number of previous disputes, panels and the 
Appellate Body have been required to ascertain the meaning of municipal law in order to determine whether 
the challenged measure was consistent with a provision of the covered agreements. The Appellate Body 
considered in US – Hot-Rolled Steel  that, "{a}lthough it is not the role of panels or the Appellate Body to 
interpret a Member's domestic legislation as such, it is permissible, indeed essential, to conduct a detailed 
examination of that legislation in assessing its consistency with WTO law." (Appellate Body Report, US – 
Hot-Rolled Steel , para. 200 ). The Appellate Body has stated moreover that, as part of their duties under 
Article 11 of the DSU, "panels have the obligation to examine the meaning and scope of the municipal law at 
issue in order to make an objective assessment of the matter before it, including an objective assessment of 
the facts of the case and the applicability a nd conformity with the covered agreements." (Appellate Body 
Reports, US – Countervailing and Anti -Dumping Measures (China ), para. 4.98; and US – Carbon Steel (India ), 
para. 4.445).  
2420 Appellate Body Report, US – Carbon Steel (India ) para. 4.446.  
2421 Appellate  Body Report, US – Countervailing and Anti -Dumping Measures (China ), para. 4.101. See 
also Appellate Body Report s, US – Carbon Steel (India ), para. 4.446 ; and EU – Biodiesel (Argentina ), 
paras.  6.201 and 6.202 .  
2422 Appellate Body Report, US – Carbon Steel , para. 157.  WT/DS353/R W 
 
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  should be allocated in the same manner in the situation before us; namely, where the European 
Union as complainin g party asserts a particular interpretation of South Carolina's income tax law in 
order to demonstrate that the measure at issue (namely, the Special Apportionment Method under 
the Income Allocation and Apportionment Agreement) involves a foregoing of reve nue otherwise 
due, for purposes of Article 1.1(a)(1)(ii) of the SCM Agreement.  
8.961.   With these principles in mind, and mindful of the need to conduct a holistic assessment of 
the evidence before us, we begin our interpretation of the sales factor apportionment  method 
applicable under South Carolina's income tax law by examining the relevant text of South Carolina 
Code section 12 -6-2280.  
8.962.   The term "sales in this State" is defined in South Carolina Code  section 12 -6-2280(B) to 
include "sales of goods, merchandise , or property received by a purchaser in this State ". There is 
no disagreement that aircraft qualify as "goods, merchandise, or property". As we have noted, the 
disagreement involves the circumstances under which aircraft  are considered to be "received by a 
purchaser in this State" for purposes of the first sentence of South Carolina Code  
section  12-6-2280(B). The second sentence of South Carolina Code  section 12 -6-2280(B) provides 
that the "place where goods are received by the purchaser after all transpor tation is completed is 
considered the place at which the goods are received by the purchaser ". The third sentence of 
South Carolina Code  section 12 -6-2280(B) provides that "{d}irect delivery into this State by the 
taxpayer to a person designated by a purch aser constitutes delivery to the purchaser in this 
State ".2423  
8.963.   The European Union considers that aircraft are "received by a purchaser in this State", for 
purposes of South Carolina Code  section 12 -6-2280(B) , when a customer  takes formal delivery of 
an aircr aft. Formal delivery of all Boeing aircraft to all Boeing customers worldwide occurs only at 
Boeing 's delivery centres in Washington State, and since 2012, in South Carolina. The evidence 
before us indicates that f ormal delivery of an aircraft is a process  that takes place over 
approximately two weeks and involves numerous inspections, test flights by Boeing flight crew, 
various "acceptance flights " by customer flight crew, the handover of legal title  to the aircraft in 
exchange for final payment or other f inancing arrangements, delivery by the FAA (or its foreign 
equivalent in the case of foreign purchasers) of the certificate of airworthiness, and the flight by 
the airline's pilots back to the airline's headquarters or base  for further checks and 
customiza tion.2424  
8.964.   The meaning of "sales in this State" in South Carolina Code  section 12 -6-2280(B) , and 
more particularly, the circumstances in which an aircraft would be considered "received by the 
purchaser after all transportation is completed" for purposes of th e second sentence of South 
Carolina Code  section 12 -6-2280(B) , is not clear to the Panel on the face of the text of South 
Carolina Code  section 12 -6-2280(B) . More specifically, it is not clear to the Panel that formal 
delivery of an aircraft at Boeing's de livery centre in South Carolina would be considered a "sale in 
this State" under South Carolina Code  section 12 -6-2280(B) , on the basis that the aircraft was 
"received by the purchaser after all transportation is completed" in South Carolina. The Panel is 
not persuaded on the basis of the factual material before it that all transportation is completed, 
and that an aircraft can be considered to have been received by a customer, when the customer's 
representatives attend Boeing's South Carolina delivery centr e to engage in aspects of the formal 
delivery process.   
8.965.   We note that the underlying objective of the sales factor apportionment methodology for 
assessing liability to South Carolina income taxes is expressed in South Carolina Code  
section  12-6-2210(B) . South Carolina Code  section 12 -6-2210(B)  provides that, where a taxpayer 
is transacting or conducting business partly within and partly without South Carolina , South 
Carolina income tax is imposed on a base which reasonably represents the proportion of the tr ade 
or business carried on within the state .2425 We are not persuaded that Boeing's manufacture of 
                                               
2423 The third sentence of S .C. Code section 12 -6-2280(B) thus appears to qualify the scope of " after all 
transportation  is completed" in the second sentence, by providing that, in situations where an agent is 
designated to collect the goods on beh alf of the purchaser inside South Carolina, this would be "delivery to" 
(and presumably a receipt by) the purchaser in the State, although " all transportation " would not in fact have 
been completed in that scenario.  
2424 See C. Sloan, "SpeciAAl Delivery Fligh t Event: American Airlines Boeing 777 -300ER (Part Two) – 
Aircraft Acceptance, Handover Event and Delivery", Airchive.com , 27 April 2013,  (Exhibit EU -1119).  
2425 S.C. Code section 12 -6-2210(B):  WT/DS353/R W 
 
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  aircraft in South Carolina would necessarily be considered a trade or business that is carried on 
within South Carolina , in circumstances where the aircraft in question are manufactured for 
out-of-state customers, which may not have any connection with South Carolina, for use wholly 
outside South Carolina. Owing to the nature of large civil aircraft, the process of purchasing the 
good requires the customer to collect the aircraft from a U.S. -based  delivery centre and fly it back 
to its own headquarters or base , from wher e it will be further tested before it is  then "placed into 
service " for that customer. In those circumstances, it would in our view be a strained 
interpretation  of South Carolina Code  section 12 -6-2280(B)  to consider  the customer as having 
received the airplane "after all transportation is completed " in South Carolina .  
8.966.   The United States has submitted a statement of  the Admin istrator of Audits for t he South 
Carolina  Department of Revenue  in support of its interpretation of  South Carolina's income tax 
law, treating sales of airplanes to foreign customers as out -of-state sales . In the statement, th e 
official expresses the view  that, under South Carolin a income tax law, the sale of an airplane 
involving a purchaser who "picks up " the airplane at Boeing 's facility in South Carolina and then 
flies that airplane directly to a foreign jurisdiction where it will be put into use carrying passengers 
on commerci al flights, will be sourced to the foreign jurisdiction for purposes of the South Carolina 
single sales apportionment formula, and will not be considered a sale in South Carolina.2426  
8.967.   The European Union challenges the authoritativeness of this statement  as the "conclusory 
statement by a South Carolina government employee with respect to a narrow factual 
hypothetical ".2427 The European Union points out that the statement in question is neither a 
revenue ruling (i.e. an advisory opinion providing general guidance as to the interpretation of state 
tax law) nor a private letter ruling (i.e. an advisory opinion which although not having the force of 
law, is binding on agency personnel with respect to the person to whom it was issued based on the 
specific facts and cir cumstances presented).2428 The European Union alleges that Boeing could 
have sought a private letter ruling had it wanted certainty regarding the interpretation of South 
Carolina 's income apportionment rules to aircraft sales, and notes that neither Boeing nor the 
United States appear to have done so.2429 However, it is not clear to us that the South Carolina  
Department of Revenue would have considered it appropriate to issue a private letter ruling in the 
circumstances.2430 In addition, although the Audit Services Division of the South Carolina  
Department of Revenue is not the division responsible for legal interpretation, advice and 
guidance, it is the division responsible for audits conducted by the Department relating to the 
apportionment of income by corporation s and the sourcing of that income.2431 Moreover, we note 
that the European Union does not produce a legal opinion contradicting the views expressed in the 
statement of the South Carolina tax official, or otherwise supporting its interpretation of South 
Caroli na Code  section 12 -6-2280 as meaning that formal delivery of an aircraft in South Carolina 
to an out -of-state purchaser is a "sale in this State".2432 There is similarly  no evidence before the 
Panel of the application of this law, or pronouncements of domesti c courts on its interpretation.   
                                                                                                                                               
If a taxpayer is transacting or conducting business partly within and partly without 
this State, the South Carolina income tax is imposed upon a base which reasonably 
represents the proportion of the trade or business carried on within this State.  
2426 Statement of R. Taylor, State of South Carolina Department of Revenue on  Application of South 
Carolina Tax Law Regarding Sourcing of Income, (Exhibit USA -533).  
2427 European Union's comments on the United States' response to Panel question No. 145, para. 391.  
2428 European Union's comments on the United States' response to Panel que stion No. 145, para. 393. 
See also South Carolina Department of Revenue, Revenue Procedure No. 09 -3, 20 March 2009, (Exhibit 
EU-1432), pp. 2 -5. 
2429 European Union's comments on the United States' response to Panel question No. 145, para. 394.  
2430 We note in pa rticular that the South Carolina Department of Revenue may exercise its discretion not 
to issue a private ruling letter on a number of grounds, including where the inquiries concern purely 
hypothetical situations, on matters in litigation, and when request s are best handled by another means. (South 
Carolina Department of Revenue, Revenue Procedure No. 09 -3, 20 March 2009, (Exhibit EU -1432), p. 5).  
2431 Statement of R. Taylor, State of South Carolina Department of Revenue on Application of South 
Carolina Tax La w Regarding Sourcing of Income, (Exhibit USA -533). Moreover, the Audit Division is the division 
of the South Carolina Department of Revenue listed in the "Notices" section of the Income Allocation and 
Apportionment Agreement and thus presumably is the divi sion responsible for negotiating and administering 
that agreement with Boeing. (Income Allocation and Apportionment Agreement, (Exhibit EU -510) (BCI), 
section 6.1).  
2432 See Panel Report, Thailand – Cigarettes (Philippines) , paras. 7.708  and 7.709 for an anal ogous 
situation in which the Philippines submitted an expert opinion in support of its position that an individual who 
resells domestic cigarettes is exempt from personal income tax, and thus, unlike resellers of imported WT/DS353/R W 
 
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  8.968.   Finally, we note that [***2433]. This is additional evidence that tends to suggest that 
Boeing also did not consider , for those years at least,  that its income tax liability in South Carolina 
would be any different under South  Carolina income tax law or the Income  Allocation and  
Apportionment Agreement.2434  
8.969.   On the basis of our holistic assessment of the text of South Carolina Code  
section  12-6-2280(B) , in light of the underlying purpose of the apportionment rules as expressed 
in South Carolina  Code section 12 -6-2210 (namely, to impose income tax on a base which 
reasonably represents the proportion of the trade or business "carried on within this State "), along 
with evidence before us regarding the interpretation of the apportionme nt rules in  South Carolina 
Code section  12-6-2280: (a) the statement of  the Administrator of Audits for the S outh Carolina  
Department of Revenue  to the effect that income from Boeing 's sales of aircraft  to foreign 
customers would not be treated as sales in  South Carolina  under South Carolina income tax law; 
and (b)  [***], we are not satisfied that, under South Carolina Code  section 12 -6-2280, formal 
delivery of the aircraft  at Boeing 's delivery facility in South Carolina  to an out -of-state customer 
would be  apportioned to South Carolina. It seems to us that the more reasonable interpretation of 
South Carolina Code  section 12 -6-2280(B) , in the context of the sale and delivery of aircraft, is 
that the place where the goods are received by the purchaser "after all transportation is 
completed" is the place to which the aircraft are flown for entry into service, and that, where this 
is outside South Carolina, such sales will not be apportioned to South Carolina under South 
Carolina Code  section 12 -6-2280(B) .2435 
8.970.    We are not persuaded  that the European Union has demonstrated that the special 
sourcing rules provided for in the Income Allocation and Apportionment Agreement, insofar as they 
source income from sales and deliveries of airplanes to foreign customers, or to l easing companies 
or special purpose entities , to the principal place of business of the ultimate operator of the 
airplane, as sales "outside South Carolina ", involve  different tax treatment from that which would 
be afforded to such sales and deliveries und er South Carolina Code  sections 12-6-2252 and 
12-6-2280.2436  
                                                                                                                                               
cigarettes, need not prepare and m aintain revenue and expense reports. Based on that opinion, considered 
together with the text of the relevant provisions, and in the absence of any evidence submitted by Thailand to 
contradict that expert opinion, the panel concluded that it had been estab lished that resellers of domestic 
cigarettes were exempt from income tax, and consequently from the obligation to file revenue and expense 
reports.  
2433 [***] (Income Allocation and Apportionment Agreement, (Exhibit EU -510) (BCI), pdf p. 17).  
2434 We caution tha t we do not assign significant weight to this factor, owing to the fact that Boeing did 
not begin making deliveries of the 787 from its South Carolina facility until 2012, and we do not have 
information before us as to the customers that received those air craft.  
2435 We recognize that, under this interpretation, aircraft that are transported outside South Carolina but 
within the United States are also not "received" in South Carolina for purposes of South Carolina income tax 
law. Moreover, under the Special Ap portionment Method in the Income Allocation and Apportionment 
Agreement, such sales would be  apportioned to South Carolina. In other words, the Income Allocation and 
Apportionment Agreement would appear to involve an apportionment method that differs from the prescribed 
statutory method in respect of sales of aircraft to U.S. customers outside South Carolina , and to apportion 
those sales to South Carolina , when they would not otherwise be so apportioned. The United States 
acknowledges that "it is possible t hat the tax treatment of Boeing's income from sales to U.S. airline customers 
located outside South Carolina may change under the Apportionment Agreement." (United States' response to 
Panel question No. 36, para. 151 ). However, it explains that it is uncle ar how this potential change would affect 
Boeing's actual tax liability in the absence of information as to the U.S. state to which that income would 
otherwise have been apportioned, and whether that other U.S. state's effective tax rate applied to such in come 
would represent an increase or decrease over the effective tax rate applied by South Carolina. (United States'  
response to Panel question No. 36, para.  152).  
2436 If it is the case, as appears to us, that the Special Apportionment Method under the Income  
Allocation and Apportionment Agreement does not involve a different apportionment of Boeing's LCA sales to 
foreign purchasers than would be the case under the general sales factor apportionment rules in S outh 
Carolina  Income Tax Act sections 12 -6-2252 and  12-6-2280, the question naturally arises as to why South 
Carolina and Boeing would enter into the Income Allocation and Apportionment Agreement. Indeed, the 
European Union cautions that the Panel should exercise a degree of scepticism regarding the United  States' 
arguments that the Income Allocation and Apportionment Agreement has no effect on Boeing's tax liability. 
(European Union's response to Panel question No. 37, para. 212). In response to a question from the Panel, 
the United States explains that en tering into the Income Allocation and Apportionment Agreement provides 
Boeing with certainty regarding the apportionment of income generated by its significantly expanded South 
Carolina operations over the ten -year term of the Agreement, once it is "activa ted". More specifically, it 
reduces Boeing's exposure to changes in applicable tax rules after Boeing makes significant investments in the WT/DS353/R W 
 
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  8.971.   In light of the foregoing, we therefore consider that the European Union has 
failed to establish that the Income Allocation and Apportionment Agreement involves 
South Carolina foregoing revenue tha t would otherwise be due in respect of Boeing's 
state corporate income tax liability.  
8.972.   We reach this conclusion independently of the separate questions of whether Boeing has in 
fact "activated " the Income Allocation and Apportionment Agreement and whether t he Panel 
should make findings in the absence of evidence to that effect. We recall that the [***2437].2438 
8.973.   In response to the Panel 's request for information pursuant to Article 13 of the DSU, the 
United States advised on 28 February 2013 that Boeing had not yet  notified the South Carolina 
Department  of Revenue that it wished to begin using the Special Apportionment Method set out in 
the Income Allocation and Apportionment Agreement.2439 The United States further advised , in its 
response to Panel questions on 5 Dece mber 2013,  that Boeing is not "currently using " the Special 
Apportionment Method because it had not yet provided the notice required by section 3.1 of the 
Income Allocation and Apportionment Agreement.2440 The United States once again advised that it 
had conf irmed with South Carolina tax authorities that Boeing had not, as of 1 December 2014, 
provided notification under the Income Allocation and Apportionment Agreement to activate the 
Special Apportionment Method.2441  
8.974.   The European Union considers that, just beca use Boeing may not yet have provided the 
required notification to the South Carolina authorities, it does not mean that Boeing is not 
currently using the Special Apportionment Method under the Income Allocation and Apportionment 
Agreement. According to the  European Union, Boeing is able to benefit from the Income Allocation 
and Apportionment Agreement for up to 15 months before it provides the required notification to 
the South Carolina Department of Revenue.2442  
8.975.   The evidence on record indicates that, as of 1  December 2014, Boeing had not yet notified 
the South Carolina  Department of Revenue that it wished to begin using the Special 
Apportionment Method in respect of any tax year. Moreover, we are satisfied on the evidence that 
Boeing 's South Carolina corporat e income tax for [***].2443 It is possible that Boeing provided the 
                                                                                                                                               
company's operations, as well as to unanticipated disputes with tax authorities. The United States contends 
that it i s commonplace for companies in a wide range of industries and jurisdictions to enter into similar types 
of agreements in order to achieve greater certainty with respect to future tax liability. (United States' response 
to Panel question No. 147, paras.  299 and 300). Having regard to the other ways potentially open to South 
Carolina and Boeing to clarify the interpretation of the sales factor apportionment rules under the South 
Carolina income tax laws in the case of sales of LCA (e.g. legislative amendment,  revenue ruling or private 
letter ruling, or litigation) it appears to us that the option of reaching a contractual agreement for a defined 
period of time through a mechanism already contemplated under S .C. Code section 12 -6-2320(B), which 
Boeing may elect  to activate anytime within seven years from 1 January 2010, provides certain distinct 
advantages for both South Carolina and Boeing. On South Carolina's side, there is no need to amend legislation 
or issue a general revenue ruling that could potentially b enefit other taxpayers in an unforeseen manner 
without those taxpayers being required to undertake the significant investments in South Carolina that are the 
condition for Boeing being able to use the Special Apportionment Method in the Income Allocation a nd 
Apportionment Agreement. On Boeing's side, it obtains a contractually enforceable right protecting it from 
changes in South Carolina income tax law which could supersede or modify any general revenue ruling or 
private letter ruling it may otherwise have  sought to obtain. In addition, it is able to elect if and when it wishes 
to use the Special Apportionment Method. We therefore consider it plausible that Boeing could have considered 
it advantageous to enter into an agreement that provides it with a measu re of certainty regarding the way in 
which income from sales both outside and within the United States would be apportioned for purposes of its 
South Carolina income tax liability.  
2437 Income Allocation and Apportionment Agreement, (Exhibit EU -510) (BCI), se ctions 3.1 and 1.1.  
2438 Income Allocation and Apportionment Agreement, (Exhibit EU -510) (BCI), section 3.1.  
2439 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 7 4, para. 157.  
2440 United States' response to Panel question No. 36, fn 175.  
2441 United States' response to Panel question No. 146, para. 298.  
2442 The European Union explains that corporate tax returns are due on the 15th day of the third month 
after the close of  the corporation's tax year. Boeing's tax year ends on 31 December, meaning that under 
section 3.1 of the Income Allocation and Apportionment Agreement, Boeing could elect to have its corporate 
income tax liability for the previous year assessed on the bas is of the Special Apportionment Method by 
notifying the South Carolina Department of Revenue by 15 March of the following year. (See Boeing, 
Application for Qualification of Income Apportionment Incentive , (10 August 2010), (Exhibit EU -12), item F.1).  
2443 United States' response to Panel question No. 146, para. 298.  WT/DS353/R W 
 
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  South Carolina authorities with the required notice by the 15  March  2015 due date for its tax 
return for the tax year ended 31 December 2014. If this were the case, there would be a factual 
basis for surmising that Boeing 's South Carolina income tax for the year ended 31 December 2014 
was, or at least will be, assessed on the basis of the Special Apportionment Method. However, in 
the absence of such information, it is difficult to see how the Panel could make a finding in respect 
of an event which not only has not yet occurred, but in fact may not occur. However, our 
interpretation of "sales in this State " under South Carolina Code  section  12-6-2280(B) , as applied 
to sales and deliveries of Boe ing LCA to foreign customers at Boeing 's South Carolina delivery 
facility , renders it unnecessary to further address this issue .2444 
8.2.8.9.4   Conclusion  
8.976.   As we explain above, we are not satisfied that the European Union has demonstrated that 
the Special Apportionment M ethod to be applied under the Income Allocation and Apportionment 
Agreement, insofar as it sources income from sales and deliveries of airplanes to foreign 
customers, or to leasing companies or special purpose entities to the principal place of business of  
the ultimate operator of the airplane, as sales "outside South Carolina ", involves a different tax 
treatment from that which would be afforded to such sales and deliveries under South Carolina 
Code sections  12-6-2252 and 12 -6-2280(B). Accordingly, the Eur opean Union has  failed to 
establish  that the Income Allocation and Apportionment Agreement involves South Carolina 
foregoing revenue that would otherwise be due in respect of Boeing 's state corporate income tax 
liability.  
8.977.   In light of the foregoing, w e con clude that the European Union has failed to establish that 
the measure involves a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM 
Agreement and therefore a specific subsidy within the meaning of Articles 1 and 2 of the SCM 
Agreement.  
8.2.8.10   Whether the property tax exemption in respect of Boeing 's large cargo 
freighters is a specific subsid y to Boeing  
8.2.8.10.1   Introduction  
8.978.   In paragraph 24 of its panel request, the European Union identifies as one of the Project 
Gemini -related  subsidies present ly benefiting Boeing:  
Property tax exemptions for Boeing 's Large Cargo Freighters, pursuant to S.C. Code § 
12-37-220(B)(33), as amended by Section 1 of H3482, Act No. 45, 2009 S.C. Acts 
763. 
8.979.   As already explained in the context of our evaluation of the Proj ect Emerald and Boeing 
FILOT Agreements, South Carolina imposes a property tax assessment rate equal to 10.5% of the 
fair market value of property owned and used by manufacturers in the conduct of their 
business.2445 South Carolina also provides various gener al exemptions from property tax. 
Section  12-37-220(A) of the South Carolina Code , entitled "General exemption from taxes ", sets 
forth 11 exemptions from ad valorem taxation, pursuant to the provisions of section 3 of Article X 
of the State Constitution and  subject to the provisions of section 12 -4-720. Section 12 -37-220(B) 
of the South Carolina Code  then provides:  
In addition to the exemptions provided in subsection (A), the following classes of 
property are exempt from ad valorem taxation subject to the pr ovisions of Section 
12-4-720: 
… 
                                               
2444 Accordingly, we do not consider it necessary to address the European Union's request for the Panel 
to "draw the appropriate inferences". (European Union's response to Panel question No. 172, fn 1106; and 
comment on United States' response to Panel question No. 36, para. 218).  
2445 County Equalization and Reassessment, S.C. Code , Title 12, chapter 43, (Exhibit EU -525), 
section 12-43-220(a)(1).  WT/DS353/R W 
 
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  (33)(a) All personal property including aircraft of an air carrier which operates an air 
carrier hub terminal facility in this State for a period of ten consecutive years from the 
date of qualification , if its qualifications  are maintained. An air carrier hub terminal 
facility is defined in Section 55 -11-500. 
(b) All aircraft, including associated personal property, owned by a company owning 
aircraft meeting the requirements of Section 55 -11-500(a)(3)(i) without regard to the  
other requirements of Section 55 -11-500. An aircraft qualifying for the exemption 
allowed by this subitem  may not be used by the operator of the aircraft as the basis 
for an exemption pursuant to subitem  (a) of this item.  
8.980.   The exemption set forth in secti on 12 -37-220(B)(33)(b) above was effected through an 
amendment to section 12 -37-220 by H3482.2446 It was signed into law on 2 June 2009 and was 
expressed to apply to property tax years beginning after 2006. Its effect was to exempt from ad 
valorem  taxation al l aircraft and associated personal property owned by a company owning two or 
more specially equipped planes that are used for the transportation of specialized cargo (the LCF 
property tax exemption).2447  
8.981.   Boeing employs "Dreamlifter " LCFs, modified 747 -400 ai rcraft, to transport components of 
the 787 Dreamliner from various manufacturing facilities to assembly lines in Everett, Washington, 
and North Charleston, South Carolina.2448 Boeing operates four such Dreamlifter LCFs from its 
facility in North Charleston.2449 The European Union argues that Boeing has benefited from the LCF 
property tax exemption set forth above since 2009, and that this constitutes a specific subsidy 
within the meaning of Articles 1 and 2 of the SCM Agreement.  
8.2.8.10.2   Main arguments of the parties  
8.982.   The European Union  argues that the LCF property tax exemption is a financial contribution 
by a government within the meaning of Article 1.1(a)(1)(ii), namely the foregoing of government 
revenue otherwise due.2450 The European Union identifies the tax treatment a pplicable to Boeing 's 
LCFs in South Carolina as the exemption from property taxes for "specially equipped planes " used 
to transport "specialized cargo ", as well as associated personal property, set out in section 12 -37-
220(B)(33)(b) of the South Carolina C ode.2451 According to the European Union, the legislative 
history of H3482 suggests that the reason for Boeing 's tax treatment is to provide a major subsidy 
to Boeing. The European Union identifies the benchmark tax treatment of comparable taxable 
activity of  comparable taxpayers as the tax treatment of aircraft ownership by a manufacturer or 
any other taxpayer in South Carolina ; namely , an assessment ratio of 10.5% under section 12 -43-
220 of the South Carolina Code .2452 The European  Union argues that a compariso n of the 
benchmark tax treatment and the treatment received by Boeing under the LCF property tax 
exemption, in light of the reasons for the LCF property tax exemption, demonstrates that the tax 
treatment accorded to Boeing represents the foregoing of reven ue otherwise due.2453  
                                               
2446 South Carolina Act No. 45, S.C. Code , Acts 763 H3482 (2  June 2009),  (Exhibit EU -522).  
2447 See section 1 of South Carolina Act No. 45, S.C. Code , Acts 763 H3482 (2 June 2009),  (Exhibit 
EU-522), which amends S .C. Code section 12 -37-220(B)(33)(b) to exempt from ad valorem  taxes: "{a}ll 
aircraft, including associate d personal property, owned by a company owning aircraft meeting the 
requirements of Section 55 -11-500(a)(3)(i) without regard to the other requirements of Section 55 -11-500". 
Section 55 -11-500(a)(3)(i), which was enacted in 2005 to expand the definition of  an "air carrier hub terminal 
facility" for purposes of South Carolina's air hub bonds legislation, to include an airport terminal facility from 
which an air carrier operates "two or more specially equipped planes that are … used for the transportation of 
specialized cargo ". (See South Carolina Act No. 33, R34 H3234 (2005), (Exhibit EU -1387)).  
2448 Boeing 747 Dreamlifter Fact Sheet, available at 
<http://www.boeing.com/commercial/787family/dreamlifter_fact.html>, accessed 1 September 2016, (Exhibit 
EU-443).  
2449 South Carolina Department of Revenue, Boeing Applications for Property Tax Exemptions, 
28 April 2010,  (Exhibit EU -521).  
2450 European Union's first written submission, para. 646.  
2451 European Union's first written submission, para. 647.  
2452 The European Union fur ther specifies that the benchmark property tax treatment of aircraft in South 
Carolina is the same regardless of whether the owner is a manufacturer or other type of taxpayer. 
(European  Union's first written submission, para. 648; second written submission , para. 685 and fn 1150).  
2453 European Union's first written submission, para. 649.  WT/DS353/R W 
 
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  8.983.   The European Union argues that the LCF property tax exemption  provides Boeing with 
benefits on non -market terms, and therefore confers a benefi t within the meaning of 
Article  1.1(b).2454  
8.984.   The European Union argues that the LCF property tax  exemption is specific within the 
meaning of Articles 2.1(a)  and 2.1(c) on a number of grounds. First, the LCF property tax 
exemption is specific within the meaning of Article 2.1(a) since H3482 explicitly limits the 
exemption to an industry or group of en terprises, namely "compan{ies} owning aircraft meeting 
the requirements of Section 55 -11-500(a)(3)(i) ".2455 Second, the LCF property tax exemption is 
specific within the meaning of Article 2.1(c) since, to the best of the European  Union 's knowledge, 
Boeing is  the only beneficiary of this subsidy.2456 In any event, the exemption is de facto specific 
since the United States itself confirms that the subsidy has been used by only a limited number of 
certain enterprises.2457 Third, the European Union argues that the LCF property tax exemption falls 
under the provisions of Article 3, and is therefore deemed to be specific pursuant to Article  2.3. 
8.985.   The United States  argues that the European Union has failed to demonstrate that the LCF 
property tax exemption amounts to govern ment revenue foregon e within the meaning of 
Article  1.1(a)(1)(ii), and in any case, overestimates th e value of any such exemption. Moreover, 
the LCF property tax exemption is not specific within the meaning of Article 2.  
8.986.   The United States argues that the European Union has failed to identify any statements in 
the legislative history of H3482 that establish that it was intended to benefit Boeing.2458 
Furthermore, the European Union fails to carry out the comparison of taxpayers in the context of 
the tax system  since it ignores the availability of equivalent treatment to other entities in the 
state.2459 In addition, as a factual matter, the European Union overstates the value of the LCF 
property tax exemption.  
8.987.   As to whether the LCF property tax exemption is specif ic, the United States argues that the 
specificity analysis should be carried out at the level of South Carolina 's property tax exemptions 
collectively. Indeed, the LCF property tax exemption is part of South Carolina 's larger efforts to 
ensure that the Sta te's tax structure does not impede investment and other economic activity 
within the State.2460 On this basis, the United States argues that, as a group, South Carolina 's 
property tax exemptions are not specific within the meaning of Article 2.1(a) since they  are not 
explicitly limited to certain enterprises. With respect to the text of the LCF property tax exemption 
in particular, the mere requirement that a company own a certain number of certain aircraft in 
order to take advantage of a tax exemption for tho se aircraft is not an express limitation to any 
particular industry or group of enterprises.2461 The United States contends that the  LCF property 
tax exemption is non -specific under Article 2.1(b) on the basis that the exemption is statutory and 
there is no d iscretion involved on the part of any government entity as to whether to grant the 
exemption or not.2462 Finally, the LCF property tax exemption is not de facto  specific under 
Article  2.1(c). Property tax exemptions are widely available and widely used in Sou th Carolina. The 
property tax exemption provided in section 12 -37-220-(B)(33) of the South Carolina Code  in 
particular has been used by the United Parcel Service, Air South, and Boeing.2463 
                                               
2454 European Union's first written submission, para. 651.  
2455 European Union's first written submission, para. 653; second written submission, para. 697.  
2456 European Union's fir st written submission, para. 654.  
2457 The European Union notes that, in response to a Panel question under Article 13 of the DSU, the 
United States stated that the property tax exemptions  under subsections (a) and (b) of 
section  12-37-220(B)(33), concerning the LCF property tax exemption as well as a property tax exemption for 
air carriers which operate an air carrier hub terminal facility, have been u sed by three entities in total, 
including Boeing. (European Union's first written submission, para. 655; seco nd written submission, 
para. 698).  
2458 United States' comments on European Union's response to Panel question No. 113, paras. 209 -212.  
2459 United States' first written submission, paras. 609 and 610; second written submission, para. 570.  
2460 Furthermore, South Carolina property tax exemptions are all contained in the South Carolina tax 
code and expressed as exemptions to the general rate set out in that code. (United States' first written 
submission, para. 652).  
2461 United States' first written submission, para. 6 53; second written submission, para. 578.  
2462 United States' first written submission, para. 655; second written submission, para. 579.  
2463 United States' first written submission, para. 656; second written submission, para. 580.  WT/DS353/R W 
 
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  8.2.8.10.3   Evaluation by the Panel  
8.2.8.10.3.1   Whether there is a financial contribution  
8.988.   The question before the Panel is whether the LCF property tax exemption involves a 
financial contribution in the form of the foregoing of revenue otherwise due, within the meaning of 
Article 1.1(a)(1)(ii) of the SCM Agreement.  
8.989.   As in the case of the FILOT  agreements challenged in this proceeding, the parties structure 
their arguments according to the three -step analysis set out by the Appellate Body in the original 
proceeding for determining the existence of revenue foregone. As we have explained in that 
context, we consider it essential to look at the broader legal rationale underlying this analysis 
before studying its specific stages.2464 In particular, the Appellate Body has observed that the 
foregoing of revenue otherwise due implies that less revenue has bee n raised by the government 
than would have been raised in a different situation, and crucially that "the word 'foregone ' 
suggests that the government has given up an entitlement to raise revenue that it could 
'otherwise ' have raised ".2465 This entitlement doe s not exist in the abstract, and must therefore be 
assessed against some defined, normative benchmark.2466 
8.990.   Assessing the LCF property tax exemption in light of the guidance provided by the 
Appellate Body, we are of the view that this measure is a financial co ntribution within the meaning 
of Article 1.1(a)(1)(ii) because it is an instance of a government giving up an entitlement to raise 
revenue that it could otherwise have raised. The very nature of the challenged measure as a tax 
exemption suggests that it is  an instance of the taxing authority giving up an entitlement to raise 
revenue that it could otherwise have raised under the South Carolina property tax rules.  
8.991.   Our tentative conclusion that the LCF property tax exemption amounts to revenue 
foregone finds f urther support in the application of the three -step analysis set out by the Appellate 
Body in the original proceeding.  
8.992.   The European Union argues that the benchmark  tax treatment of  comparable taxable 
activity of comparable taxpayers is the "tax treatment of aircraft in South Carolina " which is 
subject to a property tax assessment ratio of 10.5%, whether owned by manufacturers or other 
taxpayers.2467 The United  States responds that the European Union fails to consider the availability 
of equivalent treatment t o other entities in the state, without however specifying what this 
equivalent treatment is.2468 We consider the benchmark identified by the European Union to be 
reasonable and appropriate, particularly in the absence of any alternative proposed by the United  
States.  
8.993.   As to the tax treatment of aircraft in South Carolina, we note that subparagraph 33(a) of 
section 12 -37-220(B) provides an exemption in respect of aircraft of an air carrier which operates 
an air carrier hub terminal facility for a period of 10 c onsecutive years. The analysis of the S outh 
Carolina  Office of Research and Statistics indicated that th is hub exemption "has not been used 
very often "2469, suggesting that for the most part, aircraft in South Carolina are subject to property 
taxes, either at  the rate of 10.5% set forth in the South Carolina Constitution, or potentially at a 
lower rate if the taxpayer in question has entered into a FILOT  agreement covering its aircraft 
pursuant to the various FILOT statutes.2470  
                                               
2464 See paras. 8.868  and 8.869  above.  
2465 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 806 (referring to Appellate 
Body Report, US – FSC, para. 90).  
2466 Appellate Body Report,  US – Large Civil Aircraft (2nd complaint) , para. 806 (referring to Appellate 
Body Report, US – FSC, para. 90).  
2467 European Union's first written submission, para. 648; second written submission, para. 685.  
2468 United States' first written submission, paras. 609 and 610; second written submission, para. 570.  
2469 South Carolina Office of Research and Statistics, Statement of Estimated Local Revenue Impact, 
H.B. 3482, 12 May 2009, (Exhibit EU -529).  
2470 We recall that Boeing, along with Vought and Global Aeronautica,  was party to the 2006 Project 
Emerald F ILOT Agreement which, as explained in Section 8.2.8.7.1  above, exempted the project property from 
ad valorem  taxes in exchange for the payment of a negotiated "fee". Boein g LCFs are specifically identified in 
the Project Emerald F ILOT Agreement as items of project property that would be assessed at the rate provided 
for under the fee agreement. However, unlike the other project property, which is subject to the 4% WT/DS353/R W 
 
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  8.994.   With respect to the objective rea sons behind the challenged tax treatment, there is no 
direct evidence before us that sets forth the objective reasons why the South Carolina legislature 
amended section 12 -37-220(B)(33) in June 2009 to provide the additional LCF property tax 
exemption. The  tax treatment  involves an exemption from ad valorem  taxes in respect of Boeing 's 
LCFs and associated personal property , provided by virtue of section  12-37-220(B)(33)(b). The 
exemption in question was ratified on 27 May 2009 and approved on 2  June 2009. I t is expressed 
to apply for property tax years beginning after 2006.2471 The European Union argues that it can be 
logically inferred that the amendment effected by H3482 was intended to subsidize Boeing through 
a major property tax break connected to Boeing 's "Dreamlifter " LCFs "likely in order to signal 
South Carolina 's willingness to provide financial incentives to win the second 787 final assembly 
line".2472  
8.995.   We note that the initial version of H3482 introduced into the South Carolina House of 
Representatives in February 2009 would have exempted from property taxation all personal 
property (including aircraft), owned by a company meet ing the requirements of 
section  55-11-500(a)(3)(i).2473 Section 55 -11-500(a)(3)(i) refers to a certified or licensed air 
carrier tha t operates two or more specially equipped planes that are used for the transportation of 
"specialized air cargo ". The S outh Carolina  Office of Research and Statistics conducted an analysis 
of the estimated revenue impact of the initial version of H3482 for the South Carolina Senate 
Committee on Finance in May 2009. The analysis noted that there was at least one entity in South 
Carolina that was known to qualify for this property tax exemption. However, there was no 
definition of "specially equipped " or "specialized cargo ".2474 While the South Carolina  Department 
of Revenue had informed the S outh Carolina  Office of Research and Statistics that it would 
"construe the specialized cargo provision very strictly ", the S outh Carolina  Office of Research and 
Statistics concluded that local property tax revenues could be affected because "it may be difficult 
to narrow the scope of this exemption Statewide ", and all personal property would be 
exempted.2475  
8.996.   The version of H3482 that was ratified and signed into law some two t o three weeks later 
narrowed the scope of the LCF property tax exemption from "all personal property, including 
aircraft " owned by a company owning two or more specially equipped planes used for the 
transportation of specialized air cargo to "all aircraft,  including associated personal property " 
owned by such companies. In our view, the subsequent narrowing of the scope of the exemption 
to aircraft (from all personal property), in light of the advice to the South Carolina Senate Finance 
Committee that there  was some uncertainty as to whether there would be more than one entity in 
South Carolina that could potentially qualify for the property tax exemption given the absence of 
definitions of "specially equipped " or "specialized cargo ", supports a reasonable i nference that the 
reason underlying the amendment to section 12 -37-220(B)(33) effected by H3482 was to provide 
a tax exemption to the one entity in the State that was known to qualify for the exemption. 
Moreover, we are satisfied on the balance of probabil ities that Boeing was the one qualifying entity 
referred to in the analysis of the S.C Office of Research and Statistics. Indeed, Boeing itself listed 
the "100% abatement of the LCFs " as one of the components of South Carolina 's "incentive offer " 
in a pres entation to Boeing 's Board of Directors regarding the Pro ject Gemini proposal in 
October  2009, suggesting that Boeing at least considered itself to be that one entity.2476 We 
therefore conclude that the amendment effected by H3482 was intended to provide a pr operty tax 
exemption in respect of Boeing 's LCFs.   
8.997.   When we compare the LCF property tax exemption with the benchmark tax treatment of 
aircraft in South Carolina, whether owned by manufacturers or other taxpayers, taking into 
account the reasons behind the challenged tax treatment, we are satisfied that the State of South 
                                                                                                                                               
assessmen t ratio under the FILOT  agreement, the LCFs are subject to a 9.5% assessment ratio. (Project 
Emerald F ILOT Agreement, (Exhibit EU -556), section 4.1).  
2471 South Carolina Act No. 45, S.C. Code , Acts 763 H3482 (2 June 2009), (Exhibit EU -522), section 3.  
2472 Europ ean Union's first written submission, para. 647; response to Panel question No. 113, 
para. 204. 
2473 See South Carolina H3482, as introduced (10 February 2009), (Exhibit EU -520), section 1.  
2474 South Carolina Office of Research and Statistics, Statement of Esti mated Local Revenue Impact, 
H.B. 3482, 12 May 2009, (Exhibit EU -529).  
2475 South Carolina Office of Research and Statistics, Statement of Estimated Local Revenue Impact, 
H.B. 3482, 12 May 2009, (Exhibit EU -529).  
2476 Boeing Board of Directors, "Gemini Update", P resentation, 19 October 2009,  (Exhibit USA -323), 
slide NLRB -004283.  WT/DS353/R W 
 
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  Carolina is foregoing property taxes that would otherwise be due in relation to the LCFs owned by 
Boeing in South Carolina. We conclude that the European Union has established  that the 
LCF property tax exemption in section 12 -37-220(B)(33)(b) of the South Carolina Code  
involves  a financial contribution within the meaning of Article 1.1(a) (1)(ii) of the SCM 
Agreement.  
8.2.8.10.3.2   Whether there is a benefit  
8.998.   While the United States argues that the European  Union overvalues the amount of the LCF 
property tax exemption2477, it does not appear to contest the European Union 's argument that the 
exemption confer s a benefit within the meaning of Article 1.1(b). In light of our finding on financial 
contribution above,  we find that the LCF pr operty tax exemption in 
section  12-37-220(B)(33)(b) of the South Carolina Code  confers a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement.2478 
8.2.8.10.3.3   Whether the subsidy is specific  
8.999.   The parties inter alia disagree on whether the subsidy provided through the LCF property 
tax exemption is specific within the meaning of Article 2.1(c). The European Union 's position is 
that the subsidy  is de facto specific because Boeing is the only known beneficiary of the subsidy, 
and even the "hub exemption " set forth in section 12 -37-220(B)(33)(a) of the South Carolina Code  
is used only by two enterprises besides Boeing, both of which are air transport companies and thus 
would constitute "certain enterprises " within the meaning of Article 2.1. The United States ' position 
is that the LCF property tax exemption is part of a broader programme of property tax exemptions 
set out in section 12 -37-220 of the South Carolina Code  as a whole, and that specificity must 
therefore be assessed at the level of  that programme. When viewed in that proper context, the  
subsidy provided through the  LCF property tax exemption is not specific within the meaning of 
Article 2.1(c).  
8.1000.   For the reasons detailed below, we consider  that the European Union has established that 
the subsidy provided through the  LCF property tax exemption is de facto  specific within the 
meaning of Article 2.1(c). The United States has provided little argumentation or evidence in 
support of its assertion that specificity  in relation to the LCF prope rty tax exemption  should be 
assessed at the level of a broader subsidy scheme. In particular, we do not consider that the 
United States has adequately substantiated its argument that the LCF property tax exemption is 
part of South Carolina 's larger efforts  to ensure that the South Carolina's  tax structure does not 
impede investment and other economic activity within the state.2479  
8.1001.   We note that there are many exemptions provided in section 12 -37-220 of the South 
Carolina Code , which vary widely in nature, and appear to pursue a number of purposes, some of 
which are not obviously related to the promotion of investment and other economic activity.2480 
The South Carolina  Department of Revenue groups the various exemptions under such diverse 
categories such as: "Manuf acturing Exemptions ", "Research and Development Exemptions ", 
"Corporate Headquarters, Corporate Office Facility, and Distribution Facility Exemptions ", 
"Exemptions for Inventory and Intangibles ", "Exemption for Personal Property in Transit ", 
"Pollution Con trol Exemption ", "Environmental Cleanup Exemption ", "Fire Sprinkler System 
Exemption ", and "Other Particular Business Exemptions ".2481 The LCF property tax exemption is 
included under "Other Particular Business Exemptions ".2482 The other "particular business 
exemptions " listed in this category of property tax exemptions seem to have few "links or 
                                               
2477 In particular, the parties disagree on how many LCFs Boeing sought the LCF exemption for in 2009. 
See Section 8.2.8.10.4  below.  
2478 Also see para. 8.885  above on tax reductions conferring a benefit.  
2479 United States' first written submission, para. 652.  
2480 For example, section 12 -37-220 provides exemptions from property taxes for, among other things, 
properties used f or public purposes and owned by the State, counties, municipalities, school districts, 
charitable institutions such as hospitals and aged care institutions, public libraries, for certain types of private 
property held by eligible individuals, and for prope rty owned and used for particular purposes by certain 
non-profit organizations such as The Boy Scouts of America, The Girl Scouts of America, the Young Women's 
Christian Association, Young Men's Christian Association, and The Salvation Army.  
2481 South Caroli na Tax Incentives, (Exhibit EU -494), pp. 141 -163. 
2482 South Carolina Tax Incentives, (Exhibit EU -494), pp. 162 and 163.  WT/DS353/R W 
 
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  commonalities "2483 between them. We are not persuaded that the LCF property tax exemption can 
be considered to be  part of a broader programme of property tax exem ptions set  out in 
section  12-37-220 of the South Carolina Code  such that we should treat the whole of section 12 -
37-220 of the South Carolina Code  as the "proper subsidy scheme " for purposes of our analysis 
under Article 2.1(c).2484 We will therefore carry out the spec ificity analysis at the level of the 
challenged LCF property tax exemption.  
8.1002.   The only other argument made by the United States in support of its position that the 
subsidy provided through the LCF property tax exemption is not specific within the meaning of  
Article 2.1(c) is the assertion in its first written submission that "the property tax exemption 
provided in Section 12 -37-220(B)(33) " has been used by United Parcel Service and Air South in 
addition to Boeing.2485 As previously explained, the LCF property t ax exemption that is the focus of 
the European Union 's subsidy claim is the exemption set forth in subparagraph (33)(b) of 
section  12-37-220(B), which is the subparagraph added through an amendment effected by 
H3482. The United States ' response does not cl arify whether United Parcel Service and Air South 
used the LCF property tax exemption in subparagraph (33)(b) or the "hub exemption " provided in 
subparagraph (33)(a). Moreover, the European Union argues  that th e United States'  assertion is 
contradicted by the response  received  by the European Union  from the South Carolina  Department 
of Revenue to a request it made in July 2012 under the S outh Carolina  Freedom of Information Act 
for any applications by a taxpayer for tax exemptions provided in South Carolina  Code section 12 -
37-220(B)(33)(a) or (b), because this response  identifie s only applications made by Boeing.2486 It 
is conceivable that United Parcel Service and Air South requested the tax exemptions after the 
date of the European Union 's request  under the S outh Carolina Freedom of Information Act  to the 
South Carolina  Department of Revenue but prior to February  2013, when the United States 
provided its response to the Panel 's request for information. However, the United States does not 
pursue this line of ar gument in its second written submission . The United States does not offer any 
response in that submission to the assertion of the European Union that the information provided 
by the South Carolina  Department of Revenue indicates that applications for tax e xemptions 
provided for in South Carolina Code  section 12 -37-220(B)(33)(a) or (b) had been received only 
from Boeing. The only argument of the United States in its second written submission with respect 
to whether the subsidy provided through the LCF proper ty tax exem ption is specific under 
Article  2.1(c) is  that "property tax exemptions in general are widely available and widely used in 
South Carolina "2487, an argument that depends on treating the LCF property tax exemption as part 
of a broader property tax ex emption scheme. We have rejected that argument as insufficiently 
substantiated.  
8.1003.   We therefore find that the evidence before us supports the argument of the 
European  Union that Boeing has been the only user of the LCF property tax exemption provided for 
in South Carolina Code  section 12-37-220(B)(33)(b) . In our view the subsidy provided through the 
LCF tax exemption is specific within the meaning of Article 2.1(c) because of the "use of {the} 
subsidy programme by a limited number of certain enterprises". We n ote that there is evidence to 
support the view that the LCF property tax exemption was tailored specifically for Boeing.2488 To 
find a subsidy specific within the meaning of Article 2.1(c) where the subsidy has been used by 
only one company and the evidence s uggests that the subsidy was tailored specifically for that 
company is consistent with the approach taken by the original panel in finding that certain 
subsidies provided to Boeing under the Illinois Corporate Headquarters Relocation Act were specific 
under Article 2.1(c).2489 We also recall, in this regard, our observations above  on the meaning of 
the phrase "use of a subsidy programme by a limited number of certain enterprises" in 
Article  2.1(c). We are satisfied that the fact that only Boeing has used the s ubsidy provided 
through the LCF property tax exemption clearly indicates the existence of a limitation of access to 
the subsidy. In making this finding that the subsidy at issue here is specific within the meaning of 
                                               
2483 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 851.  
2484 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 752  and 753. 
2485 United States' first written submission, para. 656 (referring to United States' response to the Panel's 
request for information pursuant to Article 13 of the DSU, dated 28 February 2013, (Exhibit USA -198) (BCI), 
para. 162).  
2486 European Union's second written submission, para. 698; and S outh Carolina Department of Revenue  
FOIA Correspondence, 5  July 2012, (Exhibit EU -1124).  
2487 United States' second written submission, para. 580.  
2488 See para. 8.996  above . 
2489 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras,. 7.918  and 7.920. See also 
para. 8.1046  below.  WT/DS353/R W 
 
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  the second sentence of Article 2.1(c) o n the grounds that it has been used by "a limited number of 
certain enterprises" we have also consider ed the last sentence of Article  2.1(c), which requires 
that account be taken of "the extent of diversification of economic activities within the jurisdict ion 
of the granting authority, as well as of the length of time during which the subsidy programme has 
been in operation". We see no basis in the facts before us to support an argument that , 
notwithstanding that the subsidy provided through the LCF tax exe mption has been used by only 
one company, the subsidy should not be considered to be specific because of the limited extent of 
diversification of economic activities in South Carolina or the limited length of time during which 
the programme has been in ope ration. We note that the United States does not make any such 
argument.  
8.1004.   We therefore conclude that the European Union has established  that the  subsidy 
provided through the  LCF property tax exemption is de facto  specific within the meaning 
of Article 2.1(c)  of the SCM Agreement. Having found that the subsidy  is specific within 
the meaning of Article 2.1(c), we do not consider it necessary to address the 
parties ' arguments under Articles 2.1(a) and 2.1(b) .2490 
8.1005.   Finally, we note that the European Union also argues  that the subsidy provided to Boeing 
through the LCF property tax exemption is specific pursuant to Article 2.3 of the SCM Agreement.  
Article 2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to 
be specific". We rej ect this argument because in Section 10 of this Report we find that the 
European Union has failed to establish that any subsidy at issue in this proceeding is prohibited by 
Articles 3.1 and 3.2 of the SCM Agreement.  
8.2.8.10.4   The amount of the subsidy  
8.1006.   The parties di sagree on the amount of the subsidy to Boeing 's LCA division from the LCF 
property tax exemption. Their disagreement focuses on the number of Boeing LCF s in operation 
and subject to the exemption in 2009, as well as the rate of de preciation used by the 
European  Union  in its amount calculation. The European Union estimates the amount of the 
financial contribution conferred by the LCF property tax exemption, which in the case of foregoing 
of revenue otherwise due corresponds to the amount of the subsidy, at U SD 25.82 million between 
2013 and 201 5.2491 This amount was calculated on the basis of depreciated estimates of the value 
of each of Boeing 's four tax -exempt LCF s at the time they entered into service.2492 The 
United  States argues that the European Union has sig nificantly overstated the amount of the 
financial contribution because it has erroneously assumed that three LCF s were subject to South 
Carolina property tax in 2009, when there is no basis to conclude that Boeing operated more than 
a single LCF in 2009.2493 The United States argues that the  European Union 's calculation in fact 
understates the initial values to Boeing of each LCF2494, and disregards the actual LCF values 
provided by the United  States.2495 In addition, the United States argues that the European Union  
has arbitrarily selected a 5% rate of depreciation to estimate the value of the LCFs in future 
years.2496 The United States provides an estimate of the value to Boeing of the LCF property tax 
exemption as USD [***] between 2012 and 2014.2497  
8.1007.   The parties first disagree on the number of Boeing LCF s in operation in 2009 and subject 
to the challenged tax exemption in that year. The European Union explains that its position that 
three LCF s were in operation in 2009 is based on the Expert Report of Mr Hugh McTeague2498, 
which in turn relies on Individual Aircraft Reports from ACAS, an industry database.2499 The 
                                               
2490 See Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.928.  
2491 South Carolina Subsidies to Boeing's LCA Division, (Exhibit EU -39), p. 4. Also see European Union's 
first written submission, para. 650.  
2492 European Union's first written submission, para. 650 and fn 1473; also see para. 652 and fn 1476; 
and H. McTeague, Aircraft Valuation for a Boeing B747 -400 LCF ("Dreamlifter") , (21 November 2012),  (Exhibit 
EU-27); and South Carolina Subsidies to Boeing's LCA Division, (Exhibit EU -39), p. 4.  
2493 United States' first written submission, para. 613.  
2494 United States' first writt en submission, para. 612.  
2495 United States' second written submission, para. 573.  
2496 United States' first written submission, para. 612.  
2497 Boeing "But -For" LCF Exemption Value and Depreciation Information,  (Exhibit USA -336) (BCI).  
2498 H. McTeague, Aircraft Val uation for a Boeing B747 -400 LCF ("Dreamlifter") , (21 November 2012), 
(Exhibit EU -27). 
2499 ACAS Individual Aircraft Reports on Boeing's Large Cargo Freighters, (Exhibit EU -1125).  WT/DS353/R W 
 
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  information in the ACAS reports is consistent with information contained in Boeing 's tax exemption 
applications for 2010 and 20112500, as well as with statements of Boe ing officials.2501 The 
European  Union explains that it has not used the figures provided by the United States in response 
to the Panel 's request for information pursuant to  Article 13 of the DSU because [***]. 
Furthermore, the valuations provided by the Unite d States do not indicate a source for the listed 
figures, lack markings indicating an official government document, and do not associate listed 
values with particular LCF s.2502  
8.1008.   We do not find that the European Union 's reliance on the information contained in  
Boeing 's tax exemption application for 2010 lend s support to its position that three LCF s were in 
operation in 2009. The European Union explains in its second written submission that it was 
limited to relying on Boeing 's 2010 and 2011 applications because  these were the only ones 
provided to it through its request under South Carolina 's Freedom of Information Act.2503 The tax 
exemption application for 2010 indicates that [***].2504 We agree with the United States that this 
reveals nothing about the number of LCF s for which Boeing requested an exemption in 2009.2505 
The only information shown by [***].2506 This cannot serve as support for the proposition that 
three LCF s were in operation that year.  
8.1009.   However, through other evidence it relies on, the European Union has est ablished  that 
three LCF s were indeed in operation in 2009. The European Union 's subsidy estimate  at page 4 of 
Exhibit EU -39 identifies the three LCF s that were allegedly in operation and subject to the 
exemption in 2009 as the aircraft with registration nu mbers N747BC, N780BA, and N249BA. 
According to the ACAS reports on which the European Union 's Expert  Report relies, the LCF 
N747BC was converted to a freighter in 2006, and after having its operational role changed to 
"research/development " in 2006, had it s operational role changed to "freighter " in 2007.2507 The 
LCF N780BA was converted to a freighter and had its operational role changed to "freighter " in 
20072508, while the LCF N249BA was converted to a freighter and had its operational role changed 
to "freight er" in 2008.2509 This information from the ACAS reports is corroborated by certain 
statements by a Boeing official. A Vice President of Marketing for Boeing Commercial Airplanes 
stated in a blog post dated June 2008 that a third LCF Dreamlifter "will enter in to service by early 
July" 20082510, to accompany the "first two " that "have been in use since 2007 ".2511 The dates 
referred to in these statements are in line with the information from the ACAS reports, which show 
that the operational roles of the LCF s with regi stration numbers N747BC and N780BA were 
changed to "freighter " in 2007, while the change for N249BA was made in 2008. This information 
suggests to us that by 2009, there were indeed three Boeing LCF s in operation.  
8.1010.   The United States has failed to rebut the  case made by the European Union in support of 
its position that three LCF s were in operation in 2009. The e vidence submitted by the 
United  States in response to Panel question No. 144 and intended to settle the question of how 
many LCF s were in operation in 2009 fails in its task. We agree with the European Union that it is 
not clear that Exhibit USA -5282512 is, in fact, Boeing 's 2009 application for the LCF property tax 
exemption. It is unclear whether the property listed in that exhibit is an airplane. In B oeing 's 
applications for 2010 and 2011, the subject property is identified by vehicle identification numbers 
                                               
2500 South Carolina Department of Revenue, Boeing Applications for Property Tax Ex emptions, 
28 April 2010,  (Exhibit EU -521).  
2501 R. Tinseth, Boeing Commercial Airplanes, "Three of four", Randy's Journal blog post , 12 June 2008,  
(Exhibit EU -1126).  
2502 European Union's second written submission, para. 689.  
2503 European Union's second written su bmission, para. 687.  
2504 European Union's first written submission, para. 644 and fn 1466.  
2505 United States' first written submission, para. 613.  
2506 See South Carolina Department of Revenue, Boeing Applications for Property Tax Exemptions, 
28 April 2010, (Exhi bit EU -521), pdf p. 2.  
2507 ACAS Individual Aircraft Reports on Boeing's Large Cargo Freighters, (Exhibit EU -1125), p. 12.  
2508 ACAS Individual Aircraft Reports on Boeing's Large Cargo Freighters, (Exhibit EU -1125), p. 7.  
2509 ACAS Individual Aircraft Reports on Bo eing's Large Cargo Freighters, (Exhibit EU -1125), p. 2.  
2510 R. Tinseth, Boeing Commercial Airplanes, "Three of four", Randy's Journal blog post , 12 June 2008, 
(Exhibit EU -1126).  
2511 R. Tinseth, Boeing Commercial Airplanes, "Three of four", Randy's Journal blog  post, 12 June 2008, 
(Exhibit EU -1126).  
2512 While the United States refers to Exhibit USA -530 (BCI) in its response to Panel question No. 144, 
para. 295, we understand the correct reference to be to Exhibit USA -528 (BCI). (See European Union's 
comment on Uni ted States' response to Panel question No. 144, fn 572 ). WT/DS353/R W 
 
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  matching FAA registration numbers for Boeing LCF, the type of LCF and the make "747". Exhibit 
USA-528 instead reads [***2513]. The European Union furt her notes that the application pre -dates 
the enactment of the LCF tax exemption legislation, and therefore seems to concern some other 
exemption.2514  
8.1011.   Other evidence provided by the United States also fails to rebut the case made by the 
European Union. We agr ee with the European Union that Exhibit USA -222, entitled "LCF Values ", 
lacks any indication of the source of the listed figures.2515 Exhibit  USA-336 provided by the 
United  States in its second written submission, entitled "Boeing 'But For ' LCF Exemption Valu e and 
Depreciation Information "2516 and described as "a spreadsheet provided by Boeing 's Corporate Tax 
Department "2517, fails to lend support to the United States ' position. The United States contends 
that the exhibit reconfirms the original information provided  in response to the Panel 's request for 
information pursuant to  Article 13 of the DSU2518, namely Exhibit USA -222. However, we have 
difficulty seeing how Exhibit USA-336 confirms the information in Exhibit USA-222, when the 
information seems rather contradict ory: in Exhibit USA-222, values are shown [***], whereas in 
Exhibit USA-336 values are shown [***]. The latter exhibit states that only one LCF had its first 
year of exemption in 2009, and that [***] The Exhibit does not explain this statement further, 
nor has the United States explained or argued this anywhere in its submissions. To us, Exhibit 
USA-336 seems to concede that [***]. However, this is not an argument the United States has 
made anywhere in its submissions.  
8.1012.   In sum, we take the view that the Uni ted States has failed to rebut the case made by the 
European Union that three Boeing LCF s were in operation and subject to the LCF property tax 
exemption in 2009.  
8.1013.   The second point of disagreement between the parties concerns the depreciation rate 
used by t he European Union in its amount calculation. Section 12-37-930 of the South Carolina 
Code provides that "{t}he fair market value for vehicles, watercraft, and aircraft must be based on 
values derived from a nationally recognized publication of vehicle valu ations, except that the value 
may not exceed ninety -five percent of the prior year 's value. "2519 The European Union argues that, 
lacking published values for Boeing 's unique customised LCF s, it used the valuation method 
provided in South Carolina tax law, nam ely 95% of the previous year 's value, which it considers to 
be the least arbitrary basis for assessing depreciation based on publicly available information.2520 
The United States argues that the European Union assumes the lowest possible depreciation rate 
to be applicable to the LCF s, without providing any explanation of why that figure was chosen and 
why it should be considered an accurate depreciation rate for LCF s. Thus, even aside from the fact 
that the Panel has actual depreciated figures in Exhibit USA -222 (BCI), the European Union has 
failed to provide an estimate upon which the Panel can reasonably rely.2521 
8.1014.   While the United States objects to the depreciation rate selected by the European Union, 
it does not propose any more reasonable rate of depreciation for the Panel to use instead. While 
Exhibit USA -336 (BCI), submitted by the United States in its second written submission, [***], 
the United States fails to explain this statement any further.  
8.1015.   In light of the fact that the depreciation rate used by the E uropean Union is authorised 
under South Carolina tax law, and the United States has failed to provide a more reasonable rate 
of depreciation, or a more reasonable life -time for the asset over which to apply depreciation, we 
are of the view that the 5% rate  proposed by the European Union is a  reasonable rate of 
depreciation.  
                                               
2513 South Carolina Department of Revenue, Boeing Application for Property Tax Exemption, PT -401, 
2009, (Exhibit USA -528) (BCI).  
2514 European Union's comment on United States' response to Panel question N o. 144, paras. 387 -390. 
2515 European Union's second written submission, para. 689.  
2516 There is no indication what "But -For" refers to.  
2517 United States' second written submission, para. 572.  
2518 United States' second written submission, para. 574.  
2519 Assessment o f Property Taxes, S.C. Code , Title 12, chapter 37, (Exhibit EU -523), section  12-37-
930. 
2520 European Union's second written submission, para. 690.  
2521 United States' first written submission, para. 614; second written submission, paras. 573 and 574. 
Also see p ara. 8.1011  above.  WT/DS353/R W 
 
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  8.1016.   We therefore consider the European Union 's estimate  of the amount of the subsidy at 
USD 2 5.82 million between 2013 and 2015 to be reasonable.2522 
8.2.8.10.5   Conclusion  
8.1017.   In light of our above findings,  we conclude that the European Union has established that 
the property tax exemption for Boeing's large cargo freighters provided in South Carolina Code  
section 12 -37-220(B)(33)(b) involves a specific subsidy within the meaning of Articles 1 and 2 of 
the S CM Agreement, in the amount of USD 2 5.82 million between 2013 and 2015.  
8.2.8.11   Whether the sales and use tax exemptions for aircraft fuel, computer 
equipment , and construction materials are specific subsidies to Boeing  
8.2.8.11.1   Introduction  
8.1018.   In paragraph 24 of its panel re quest, the European Union identifies as among the  Project 
Gemini -related subsidies presently benefiting Boeing:  
Exemptions from state sales and use taxes for aircraft fuel, computer equipment, and 
construction materials, established by Sections 2, 3, and 4  of H3130, respectively, and 
codified at S.C. Code § 12 -36-2120(9)(e) and (f), (65)(b), and (67).  
8.1019.   The European Union argues that these above -referenced provisions exempt Boeing 's 
purchases of aircraft fuel, computer equipment , and construction materials fr om South Carolina 
and local sales and use tax, and thereby constitute a specific subsidy to Boeing within the meaning 
of Articles 1 and 2 of the SCM Agreement.  
8.1020.   Retail sales and retail purchases of tangible personal property are subject to South 
Carolina s ales and use tax, respectively. A 6% tax applies to gross proceeds of sales by persons 
engaged in the business of selling tangible personal property at retail in South Carolina2523, as well 
as to the sales price of tangible personal property purchased at reta il for use, storage, or other 
consumption in the state.2524 Local governments also have the authority to impose certain 
additional local sales and use taxes.2525 South Carolina tax legislation nonetheless provides 
numerous exclusions and exemptions from sales an d use taxes.2526 
8.1021.   H3130, signed into law on 30 October 2009, created three sales and use tax exemptions 
with respect to: ( a) fuel sold to manufacturers, electric power companies, and transportation 
companies for "the generation of motive power for test flights  of aircraft by the manufacturer of 
the aircraft " and for "the transportation of an aircraft prior to its completion from one facility of the 
manufacturer of the aircraft to another facility of the manufacturer of the aircraft, not including the 
transporta tion of major component parts for construction or assembly, or the transportation of 
personnel "2527; (b) the sales of "computer equipment … used in connection with a manufacturing 
facility "2528; and ( c) the sales of "construction materials used in the constructi on of a new or 
expanded single manufacturing facility ".2529 These permanent exemptions, effective from 
November 2009, are available to taxpayers that: ( a) invest at least USD 750 million in real or 
personal property in a single manufacturing facility over a s even-year period; ( b) create 3,800 full -
                                               
2522 We therefore do not consider it necessary to address the European Union's request for the Panel to 
"draw reasonable inferences". (European Union's second written submission, para. 691).  
2523 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU -493), 
sections 12 -36-910(A) and 12 -36-1110.  
2524 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapter 36, (Exhibit EU -493), 
sections 12 -36-1110 and 12 -36-1310.  
2525 See South Carolina Tax Incentives, (Exhibit EU -494), p. 207.  
2526 See, generally, The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter  36, (Exhibit 
EU-493), section 12 -36-2120(1) -(80). Also see South Carolina Tax Incentives, (Exhibit EU-494), pp. 210, 212, 
and 213.  
2527 H3130, section 2, enacted as The South Carolina Sales and Use Tax Act, S. C. Code, Title  12, 
chapter 36, (Exhibit EU -493), section s 12-36-2120(9)(e) and (f).  
2528 H3130, section 3, enacted as The South Carolina Sales and Use Tax Act, S.C. Code, Title  12, 
chapter  36, (Exhibit EU -493), section 12 -36-2120(65)(B).  
2529 H3130, section 4, enacted as The South Carolina Sales and Use Tax Act, S.C. Code, Title  12, 
chapter  36, (Exhibit EU -493), section 12 -36-2120(67).  WT/DS353/R W 
 
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  time new jobs at the manufacturing facility over the seven -year period2530; and ( c) notify the 
South Carolina  Department of Revenue of their intent to use th e exemption prior to 
15 October  2015.2531 
8.2.8.11.2   Main arguments of the p arties  
8.1022.   The European Union  argues that the sales and use tax exemptions for aircraft fuel, 
computer equipment, and construction materials, enacted as part of H3130, are a specific subsidy 
within the meaning of Articles 1 and 2.  
8.1023.   The European Union argues tha t the sales and use tax exemptions for aircraft fuel, 
computer equipment, and construction materials, enacted as part of H3130, involve  a financial 
contribution by a government within the meaning of Article 1.1(a)(1)(ii), namely the foregoing of 
government  revenue otherwise due. In its argumentation, the European Union follows the 
three -step approach to analysing claims under Article 1.1(a)(1)(ii) set out by the Appellate Body in 
the original proceeding.2532 First, the European Union identifies the tax treatme nt applicable to 
goods purchased by Boeing in South Carolina (or outside of South Carolina for use within South 
Carolina) as a permanent exemption from sales and use taxes for three types of goods, namely 
aircraft fuel, computer equipment, and construction  materials.2533 The reason for this tax 
treatment ; namely, to reduce Boeing 's South Carolina tax liability , is evident from the legislative 
context in which the exemptions were adopt ed, as well as their terms and conditions.2534 Second, 
the European Union identi fies the benchmark tax treatment of comparable taxable activity of 
comparable taxpayers as the tax treatment of purchases of aircraft fuel, computer equipment, or 
construction materials by any other manufacturer in South Carolina, that is a sales and use t ax 
rate of 7% at state -level and 8% in Charleston County.2535 Third, a comparison of this benchmark 
tax treatment with the treatment received by Boeing, in light of the reasons for enacting the 
exemptions, clearly shows the foregoing of government revenue oth erwise due.2536 The 
European  Union estimates the amount of  the financial contribution at USD 49.14 million between 
2010 and 2035.2537  
8.1024.   The European Union argues that the challenged tax exemptions confer a benefit within 
the meaning of Article 1.1(b).2538  
8.1025.   The Europ ean Union also argues that the challenged tax exemptions are specific within 
the meaning of Articles 2.1(a) and 2.1(c). First, the exemptions are de jure specific within the 
meaning of Article 2.1(a) since the statutory language establishing these exemptio ns explicitly 
restricts the recipients to certain enterprises, namely those with Boeing 's precise investment 
profile.2539 Second, the tax exemptions are de facto specific within the meaning of Article 2.1(c) 
                                               
2530 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36,  (Exhibit EU -493), 
sections 12 -36-2120(9)(E)(i) and (ii), (9)(F)(i) and (ii), 65(B)(i) and (ii), and 67(i) and (ii).  
2531 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibi t EU-466), 
sections 2(B), 3(B) , and 4(B). Also see South Carolina Tax Incentives, (Exhibit EU -494), pp. 215, 217 , and 
218. We note that the exemption on construction materials was effectively subsumed in July 2011 by a 
previously enacted exemption for cons truction materials used in the construction of a single manufacturing or 
distribution facility that invests at least USD 100 million over 18 months at a single site in South Carolina. (See 
S.C. Code , section 12 -36-2120(67) ). Also see European Union's first  written submission, fn 1389; and United 
States' first written submission, para. 596.  
2532 European Union's first written submission, para. 594 (referring to Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint) , paras. 812 -814).  
2533 European Union's  first written submission, para. 595.  
2534 European Union's first written submission, para. 596; second written submission, para. 644.  
2535 European Union's first written submission, paras. 597 and 588; second written submission, 
paras.  645 and 646.  
2536 European U nion's first written submission, para. 598.  
2537 European Union's first written submission, paras. 599 -601; second written submission, 
paras.  647-651. The European Union argues that its estimate  takes into account the fact that the challenged 
exemption for co nstruction materials under section 12 -36-2120(67) of the South Carolina Code was effectively 
subsumed by another exemption in July 2011 subject to different eligibility criteria. (See European Union's 
second written submission, fn 1089. See also European U nion's second written submission, para.  652; and 
comments on United States' response to Panel question No. 150, paras. 26 and 27).  
2538 European Union's first written submission, paras. 602 and 603 (referring to Panel Report, US – FSC, 
para. 7.103). The Europ ean Union is of the view that the entirety of the financial contribution can be 
considered to confer a benefit to Boeing. (European Union's first written submission, para. 603).  
2539 European Union's first written submission, para. 604; second written submiss ion, para. 660.  WT/DS353/R W 
 
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  since, to the best of the European Union 's knowledg e, Boeing is the only taxpayer to benefit from 
these exemptions.2540 Third, the European Union rejects the United States ' claim that Article 2.1(b) 
shows that the exemptions are not specific, since the very specific and narrow criteria governing 
eligibility f or the exemptions clearly favour certain enterprises over others.2541 The European Union 
also argues that the Panel should assess the challenged exemptions individually, rather than as 
part of a broader single programme as argued by the United States.2542 
8.1026.   The United States  argues that the European Union fail s to establish the existence of a 
financial contribution with respect to the sales and use tax exemptions for aircraft fuel, computer 
equipment, and construction materials, enacted as part of H3130 . Moreover, the European Union  
overstates any financial contribution and benefit provided by the exemptions, and does not 
demonstrate that they are specific.  
8.1027.   The United States argues that the European Union has not met its burden of proof for 
establishing the existenc e of a financial contribution, since it fails in its application of the Appellate 
Body's three -step analysis for determining the existence of revenue foregone.2543 First, the 
European Union fails to identify the tax treatment applicable to Boeing 's sales and use taxes, 
because it restricts its examination to the specific exemptions for fuel, computer equipment, and 
construction materials, and fails to address the reason for applying those exemptions in the full 
context of the South Carolina sales and use tax s ystem and the availability of equivalent treatment 
to numerous other entities in the state.2544 Second, the European Union fails in the identification of 
the tax treatment of sales and use taxes of comparably situated taxpayers, by making the 
unsupported asse rtion that there are no comparable taxpayers. Third, the European Union fails to 
carry out a comparison of Boeing 's tax treatment and that of other comparably situated taxpayers 
in the context of an examination of the structure of the domestic tax regime a nd its organising 
principles.2545 Notwithstanding the above, the European Union overstates the value of the 
challenged exemptions to Boeing, since it does not even refer to the actual figures provided by the 
United States in response to the Panel 's request fo r information pursuant to  Article 13 of the DSU, 
and disregards the availability of other sales and use tax exemptions to Boeing.2546  
8.1028.   The United States also argues that the challenged tax exemptions are not specific within 
the meaning of Article 2. First, th e sales and use tax exemptions are not specific within the 
meaning of Article 2.1(a) since they are not explicitly limited to ce rtain enterprises. The 
European  Union does not in fact claim that the exemptions are explicitly limited to Boeing or to 
aerospac e manufacturing, but instead claims that they are limited to enterprises with Boeing 's 
investment profile.2547 Second, an analysis under Article 2.1(b) confirms that the exemptions are 
not specific, since they are available to any manufacturer meeting the "objective criteria " on 
notification, investment, and job creation. These criteria are automatic and strictly adhered to.2548 
Third, the challenged exemptions are not specific within the meaning of Article 2.1(c).2549 In 
addition to the above, the European Union 's specificity claims under both Articles 2.1(a) and 2.1(c) 
ignore the fact that the challenged exemptions form part of a scheme to provide widely available 
exemptions to a variety of industries in order to ensure that the state 's tax structure does not 
imped e investment and other economic activities.2550 Finally, in response to the Panel 's request for 
information pursuant to  Article 13 of the DSU, the United States indicated that taxpayers other 
                                               
2540 European Union's first written submission, para. 605.  
2541 European Union's second written submission, fn 1107.  
2542 European Union's second written submission, paras. 656 -659 (referring to Appellate Body Report, 
US – Large Civil Aircraft (2nd complaint) , paras. 849 and 851).  
2543 United States' first written submission, para. 587 (referring to Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint) , paras. 812 -814).  
2544 United States' first written submission, para. 588; second written subm ission, para. 583.  
2545 United States' first written submission, para. 588.  
2546 United States' first written submission, paras. 589 -597; second written submission, paras. 584 -590. 
2547 United States' first written submission, para. 658.  
2548 United States' first writ ten submission, para. 660; second written submission, para. 592.  
2549 United States' first written submission, para. 661.  
2550 United States' first written submission, paras. 591 and 657 -661 (referring in particular to Panel 
Report, US – Large Civil Aircraft (2nd complaint) , para. 7.198).  WT/DS353/R W 
 
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  than Boeing have notified the South Carolina  Department of Revenue of their intention to use the 
challenged tax exemptions.2551 
8.2.8.11.3   Evaluation by the Panel  
8.2.8.11.3.1   Whether there is a financial contribution  
8.1029.   The first question before the Panel is whether the sales and use tax exemptions for 
aircraft fuel, computer equipment , and construct ion materials, enacted as part of H3130, 
constitute a financial contribution through the foregoing of government revenue that is otherwise 
due, within the meaning of Article 1.1(a)(1)(ii). The European Union 's position is that these 
exemptions were specifi cally designed to exempt Boeing 's purchases of aircraft fuel, computer 
equipment, and building materials f rom normal rates of South Carolina and local sales and use tax. 
The United States ' position is that the European Union fails to consider the availabil ity of 
equivalent treatment to numerous other entities in the state.  
8.1030.   As in the case of the FILOT  agreements and the LCF property tax exemption challenged in 
this proceeding, the parties structure their arguments according to the three -step analysis set ou t 
by the Appellate Body in the original proceeding for determining when revenue that is otherwise 
due has been foregone . As we have explained in more detail in the context of the FILOT  
agreements, we consider it essential to look at the broader legal ratio nale underlying this analysis 
before studying its specific stages.2552 In particular, the Appellate Body has observed that the 
foregoing of revenue otherwise due implies that less revenue has been raised by the government 
than would have been raised in a diff erent situation, and crucially that "the word 'foregone ' 
suggests that the government has given up an entitlement to raise revenue that it could 
'otherwise ' have raised ".2553 This entitlement does not exist in the abstract, and must therefore be 
assessed agai nst some defined, normative benchmark.2554 
8.1031.   Assessing the challenged sales and use tax exemptions in light of  the guidance provided 
by the Appellate Body, we are of the view that these measure s involve a  financial contribution 
within the meaning of Article 1.1 (a)(1)(ii), because they are instances of a government giving up 
an entitlement to raise revenue that it could otherwise have raised. As in the case of the LCF 
property tax exemption2555, the very nature of the challenged measures as tax exemptions 
suggests t hat they are instances of the taxing authority giving up an entitlement to raise revenue 
that it could otherwise have raised under the South Carolina sales and use tax rules. Furthermore, 
similar to the Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement challenged in 
this proceeding, the sales and use tax exemptions for aircraft fuel, computer equipment , and 
construction materials are conditional tax incentives available to companies able and willing to 
make investments of a certain magnitude in  the State of South Carolina. They embody a quid pro 
quo arrangement whereby an entity is granted some form of tax advantage in exchange for 
fulfilling set requirements, and conversely a taxing authority relinquishes an existing entitlement to 
raise revenu e that it could otherwise raise where an entity fulfils the set requirements.2556  
8.1032.   Our tentative conclusion that the challenged sales and use tax exemptions amount to 
revenue foregone finds further support in the application of the three -step analysis set out  by the 
Appellate Body in the original proceeding. Both parties refer extensively to this analysis, but 
disagree on its application to the present situation.  
8.1033.   First, the parties disagree on the framing of the relevant tax treatment applicable to 
Boeing, as  well as the reasons behind that treatment. The Appellate Body stated in the original 
proceeding, in the context of income tax, that the first step in determining the existence of the 
foregoing of government revenue otherwise due entails "identify{ing} the  tax treatment that 
                                               
2551 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 72, para. 155; first written submission, paras. 662 and 663, 
and fn 1025.  
2552 See paras. 8.868  and 8.869  above.  
2553 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 806 (referring to Appellate 
Body Report, US – FSC, para. 90).  
2554 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 806 (referring to Appellate 
Body Report, US – FSC, para. 90).  
2555 See para. 8.990  above.  
2556 See para. 8.873  above.  WT/DS353/R W 
 
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  applies to the income of the alleged recipients. Identifying such tax treatment will entail 
consideration of the objective reasons behind that treatment and, where it involves a change in a 
Member 's tax rules, an assessment of the reaso ns underlying that change ".2557 The 
European  Union identifies the tax treatment applicable to goods purchased by Boeing in South 
Carolina (or outside of South Carolina for use within South Carolina) as a permanent exemption 
from sales and use taxes for three types of goods, namely aircraft fuel, computer equipment, and 
construction materials.2558 The European Union argues that the reasons for this tax treatment are 
to materially reduce the expense to Boeing of constructing those portions of Project Gemini not 
already provided by South Carolina , outfitting the facilities with the computer equipment necessary 
for a state -of-the-art LCA production facility, and flying the finished 787 aircraft  to be painted at 
Boeing 's facility in Amarillo, Texas, and back. These rea sons are evident from the following: the 
exemptions were enacted as part of H3130, the Boeing incentive legislation; the eligibility criteria 
for the exemptions match Boeing 's investment and job creation commitments in South Carolina; 
the exemptions are on ly available for a limited period of time; and the exemptions are tailored to 
the specific needs of Boeing 's manufacturing activities in South Carolina.2559 By contrast, the 
United States takes the view that the European Union construes the object of the reve nue 
foregone analysis overly narrowly by restricting its examination to the exemptions for fuel, 
computers, and construction materials2560, and merely assumes that South Carolina sought to give 
incentives to Boeing without considering the availability of equi valent treatment to numerous other 
entities in the state.2561 
8.1034.   We consider the proper object of the revenue foregone analysis to be the tax treatment 
that applies to Boeing 's purchases of aircraft fuel, computer equipment , and construction materials 
in South C arolina (or outside of South Carolina for use within South Carolina), namely a 
permanent exemption from sales and use taxes by virtue of the three exemptions enacted as part 
of H3130. Indeed, the evidence before the Panel shows that Boeing has notified the  South Carolina  
Department of Revenue of its intention to use all three exemptions2562, and has been granted 
exemptions for such purchases.2563 As a result, all of Boeing 's purchases of computer equipment 
are exempt from sales and use tax by virtue of section 12 -36-2120(65)(b) of the South Carolina 
Code; its purchases of construction materials used in the construction of a new or expanded single 
manufacturing facility are exempt by virtue of section 12 -36-2120(67); and its purchases of 
aircraft fuel are exempt by  virtue of sections 12 -36-2120(9)(e) and (f). We understand such 
exemptions to be permanent on account of Boeing having fulfilled the investment, job creation and 
notification requirements. There is no evidence before us that Boeing has used any sales and use 
tax exemptions for aircraft fuel, computer equipment or construction materials other than those 
challenged in this proceeding.  
8.1035.   Furthermore, with respect to the objective reasons behind this treatment, there is 
evidence on the record before us to suppor t the European Union 's position that the sales and use 
tax exemptions for aircraft fuel, computer equipment, and construction materials were intended to 
reduce Boeing 's tax liability. In particular, we note that the eligibility criteria for the exemptions,  
namely a minimum investment of USD 750 million and the creation of a minimum of 3.800 
full-time jobs at a single manufacturing facility over a seven -year period, precisely match the 
commitments made by Boeing to South Carolina. Furthermore, the exemption on aircraft fuel, 
which applies to "the generation of motive power for test flights of aircraft by the manufacturer " 
and to "the transportation of an aircraft prior to its completion from one facility of the 
manufacturer of the aircraft to another facility  of the manufacturer of the aircraft, not including the 
transportation of major component parts for construction or assembly, or the transportation of 
personnel " seem tailor -made to the circumstances of Boeing 's operations in South Carolina. Added 
to the a bove circumstances is the fact that the exemptions on aircraft fuel, computer equipment, 
and construction materials, while being permanent, are only available between November 2009 
and October 2015. Moreover, certain statements by South Carolina authoritie s support this view. 
Indeed, a statement of the South Carolina Board of Economic Advisors observes, in the context of 
                                               
2557 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 812.  
2558 European Union's first written submission, para. 595; second written submission, para. 644.  
2559 European Union's first written submission, para. 596; second  written submission, para. 644.  
2560 See United States' first written submission, para. 588; second written submission, para. 583.  
2561 United States' first written submission, para. 588.  
2562 In November 2009 for construction materials, in June 2010 for computer e quipment, and in 
March  2011 for aircraft fuel. (See S outh Carolina Department of Revenue  Notifications, (Exhibit US -13-292) 
(BCI) ). 
2563 South Carolina Department of Revenue  Exemptions, (Exhibit US -13-293) (BCI).  WT/DS353/R W 
 
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  sections on all three exemptions, that "{s}ince we are not currently collecting any tax revenue 
from a manufacturer that meets these crite ria, this section is not expected to reduce state General 
Fund revenue in FY2009 -10." This statement was made at the time that H3130 was passed, just 
prior to the establishment of Project Gemini.2564 The European Union also highlights a statement 
by the then -Governor of South Carolina in the press to the effect that Boeing would receive "some 
sales-tax exemptions specific to the company ", adding that "{t}here are some special incentives in 
terms of exemptions that were important to make the case for South Caro lina versus other 
places ".2565 Finally, we note that a letter from Boeing notifying the South Carolina  Department of 
Revenue of its intention to use the exemption relating to con struction materials in November  2009 
suggests a link between Boeing 's decision to  locate operations in South Carolina and a sales tax 
incentive.2566 
8.1036.   Second, the parties disagree on the identification of the benchmark tax treatment for 
comparison. The Appellate Body stated in the original proceeding, in the context of income tax, 
that dete rmining the existence of the foregoing of government revenue otherwise due entails 
"identify{ing} a benchmark for comparison  – that is, the tax treatment of comparable income of 
comparably situated taxpayers ".2567 The European Union argues that the benchmark tax treatment 
is the tax treatment of purchases of aircraft fuel, computer equipment , and construction materials 
by any other manufacturer in South Carolina, which is the application of South Carolina 's normal 
rates of state and local sales and use tax. Th e United States rejects the European Union 's position, 
and seems to suggest that other comparable taxpayers have been granted similar treatment , by 
referring to prior incentive packages granted to large companies investing in South Carolina.2568 
8.1037.   We do not agr ee with the United States ' position, but rather consider the appropriate 
comparator to be the tax treatment applicable to purchases of aircraft fuel, computer equipment , 
and construction materials by other manufacturers in South Carolina (or for use in Sou th 
Carolina). We see a parallel between the United States ' arguments here and with respect to the 
FILOT agreements  discussed in Section 8.2.8.7  above . As in the case of the FILOT agreements, the 
United States considers that "comparably situated taxpayers " are other large industrial taxpayers 
in South Carolina.2569 As we explain in that context, we find problematic the circularity of the 
United States ' argument that "comparably situated taxpayers " are other taxpayers eligible for th e 
same favourable treatment because they meet the same eligibility requirements. This would mean 
that the group of compa rably si tuated taxpayers is defined by the criteria a ttached to the very 
measure that is alleged to give rise to the foregoing of govern ment revenue otherwise due. We are 
of the view that the United States'  approach goes against the guidance provided by the Appellate 
Body of comparable situations in the context of revenue foregone . The  comparison suggested by 
the United States between the tax treatment of one individual taxpayer under a challenged 
measure and the treatment of other taxpayers who qualify for the same tax treatment is at odds 
with cases in which the Appellate Body has articulated the comparability test, which examined 
measure s applicable to a more abstractly identified group of taxpayers, in contrast with the very 
same narrow benchmark suggested by the United States .2570  
8.1038.   Turning to the tax treatment applicable to purchases of aircraft fuel, computer 
equipment , and construction m aterials by other manufacturers in South Carolina (or for use in 
South Carolina), we observe on the one hand that South Carolina state law imposes a sales and 
use tax rate of 6% on sales and purchases in South Carolina, or for consumption in South Carolina  
(while also granting local governments the authority to impose certain additional local sales and 
                                               
2564 South Carolina Board of Economic Advisors, S tatement of Estimated State Revenue Impact, 
H.B.3130, 27 October 2009, (Exhibit EU -507), pdf pp. 3 and 4. Also see European Union's first written 
submission, para. 605.  
2565 G. Ratnam, "Boeing Incentives for South Carolina Plant May Be $400 Million", Bloomber g, 
20 November 2009 (Exhibit EU -508), pdf p. 2.  
2566 South Carolina Department of Revenue  Notifications, (Exhibit US -13-292) (BCI), pdf p. 3: "I am 
writing to confirm my understanding that The Boeing Company's … official announcement to the Governor and 
state of South Carolina on Wednesday October 28th 2009 regarding the selection of Charleston, SC, as the 
home for the second manufacturing line of the 787 serves as Boeing's notification under the requirements of 
amended Section 12 -36-2120(67) of the 1976 Code of our intention to utilize the sales tax incentive under this 
section."  
2567 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813.  
2568 United States' first written submission, para. 588 (referring to section III.K.2.a of the first writte n 
submission). Also see European Union's second written submission, fn 1073.  
2569 United States' first written submission, para. 588.  
2570 See paras. 8.877 -8.880  above.  WT/DS353/R W 
 
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  use taxes). On the other hand, the United States has presented some evidence of other 
exemptions contained in section 12 -36-2120 of the South Carolina Code  that could potentially 
apply to purchases of aircraft fuel, computer equipment, and construction materials by other 
manufacturers in South Carolina (or for use in South Carolina).2571 However, the United States has 
not explained why such other exemptions would  constitute the appropriate benchmark tax 
treatment. In particular, the United States has provided no reasoning to support a finding that the 
appropriate benchmark tax treatment for assessing a tax exemption should be other tax 
exemptions. Furthermore, the  European Union correctly observes that some of the exemptions 
referred to by the United States have a narrower application than the exemptions challenged in 
this proceeding.2572 In light of our review of the relevant tax structure and principles, we consider  
the appropriate benchmark tax treatment to be the sales and use tax rates imposed by the State 
of South Carolina and local governments.  
8.1039.   The third and final step of the Appellate Body 's three -step analysis concerns a comparison 
of the challenged tax treat ment with the benchmark tax treatment, in light of the reasons for the 
challenged treatment.2573 In this instance, a comparison of Boeing 's tax treatment under the 
challenged sales and use tax exemptions , taking into account the reasons for that treatment ; i.e. a 
permanent exemption from sales and use taxes on purchases of aircraft fuel, computer equipment , 
and construction materials , with the benchmark tax treatment indicates the foregoing of 
government revenue otherwise due.  
8.1040.   We therefore find that the sales  and use tax exemptions for aircraft fuel, 
computer equipment , and construction materials, enacted as part of H3130, each involve  
a financial contribution within the meaning of Article 1.1(a) (1)(ii) of the SCM 
Agreement.  
8.2.8.11.3.2   Whether there is a benefit  
8.1041.   While th e parties disagree on the amount  of the sales and use tax exemptions for aircraft 
fuel, computer equipment , and construction materials2574, the United States does not appear to 
contest the European Union 's argument that the sales and use tax exemptions confer  a benefit 
within the meaning of Article 1.1(b). In light of our finding on financial contribution above, we 
therefore find that the sales and use tax exemptions for aircraft fuel, computer 
equipment , and construction materials, enacted as part of H3130, c onfer a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement.2575 
8.2.8.11.3.3   Whether the subsidy is specific  
8.1042.   With respect to  whether the subsidy provided by the sales and use tax exemptions for 
aircraft fuel, computer equipment and construction materials is  specific within the meaning of 
Article 2.1,  the parties mainly disagree on the level at which  the analysis should be conducted . The 
United States argues that the specificity determination should be carried out at the level of South 
Carolina sales and use tax exemptions collectively, because the exemptions challenged by the 
European Union form part of a scheme to provide widely available exemptions to a variety of 
industries in order to ensure that the state 's tax structure does not impede investment and ot her 
economic activities. When viewed in this context, it is clear that these exemptions are not specific 
within the meaning of Article 2 of the SCM Agreement.2576 The Eu ropean Union rejects the 
United  States ' position on the existence of a broader single prog ramme, pointing to the lack of 
links or commonalities between exemptions. Instead, it argues that the various exemptions 
                                               
2571 United States' response to Panel question No. 150, paras. 20 -22. 
2572 See European Union's comments on United States' response to Panel question No. 150, 
paras.  26-27; as well as State of South Carolina, Department of Revenue, S .C. Revenue Ruling #04 -7, (Exhib it 
EU-1438), pp. 3 and 13; and State of South Carolina, Department of Revenue, S .C. Revenue Ruling #13 -3, 
(Exhibit EU -1439), p. 3.  
2573 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 814.  
2574 See United States' first written submission , paras. 589 -598; second written submission, 
paras.  584-590. 
2575 Also see para. 8.885  above on tax reductions conferring a benefit.  
2576 United States' first written submission, paras. 657, 660, and 661.  WT/DS353/R W 
 
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  contained in South Carolina tax law are separate exemptions that favour certain enterprises 
through selective eligibility.2577  
8.1043.   As already  explained above2578, the Appellate Body emphasi zed in the original proceeding 
the need for a specificity inquiry to take into account the broader legislative framework within 
which a measure has been adopted.2579 With respect to how to determine whether a subsi dy forms 
part of a broader programme, the Appellate Body observed the following in the original 
proceeding:  
Determining whether multiple subsidies are part of the same subsidy is not always a 
clear-cut exercise. As we have explained, it requires careful sc rutiny of the relevant 
legislation  – whether set out in one or several instruments  – or the pronouncements 
of the granting authority(ies) to determine whether the subsidies are provided 
pursuant to the same subsidy scheme. Another factor that may be consid ered is 
whether there is an overarching purpose behind the subsidies. Of course, this 
overarching purpose must be something more concrete than a vague policy of 
providing assistance or promoting economic growth.2580 
The Appellate Body further observed that "where multiple subsidies are part of the same subsidy 
scheme, one would ex pect to find links or commonalities between those subsidies ".2581 
8.1044.   In light of our review of the evidence before us, we disagree with the United  States ' 
position that specificity should b e assessed at the level of all sales and use tax exemptions 
contained in South Carolina legislation. We see no single "overarching purpose "2582, and few "links 
or commonalities "2583 in the sales and use tax exemptions in section 12 -36-2120 of the South 
Carolina Code. These exemptions are numerous and varied, and seem to serve a number of 
purposes. South Carolina sales and use tax law contains over 80 full exemptions. For the purposes 
of a South Carolina  Department of Revenue tax manual, these exemptions are divid ed into six 
broad categories, namely: ( a) government -related exemptions (e.g. material necessary to 
assemble missiles)2584; (b) business -related exemptions (including the three challenged 
exemptions); ( c) agricultural exemptions (e.g. fuel used to cure agricu ltural products)2585; (d) 
educational exemptions (e.g. meals or food used in furnishing meals to K -12 students in 
schools)2586; (e) general public good exemptions (e.g. concession sales by non -profit organisations 
at festivals)2587; and ( f) alternative energy exemp tions (e.g. building material used to construct a 
new or renovated building in a research district and machinery or equipment located in a research 
district).2588 With just under 40 exemptions, business -related exemptions are the largest category. 
These exemp tions range from the fairly broad (e.g. exemption for depreciable assets as part of a 
sale of an entire business)2589 to the very specific (e.g. exemption for sweetgrass baskets made by 
                                               
2577 European U nion's second written submission, paras. 656 -659 (referring to Appellate Body Report, 
US – Large Civil Aircraft (2nd complaint) , paras. 849 and 851).  
2578 See Section 8.2.8.6.3.3  above.  
2579 See Appellate Body Report,  US – Large Civil Aircraft (2nd complaint) , paras. 750 and 753. See also 
Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.565.  
2580 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 752.  
2581 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 851.  
2582 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 752.  
2583 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 851.  
2584 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU -493), 
section  12-36-2120(22).  
2585 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU -493), 
section  12-36-2120(18).  
2586 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU -493), 
section  12-36-2120(10)(a).  
2587 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU -493), 
section  12-36-2120(39).  
2588 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU-493), 
section  12-36-2120(72).  
2589 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU -493), 
section  12-36-2120(42).  WT/DS353/R W 
 
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  artists of South Carolina using locally grown sweetgrass).2590 In total, ten  of these exemptions 
contain investment and job requirements.2591 
8.1045.   Nonetheless, we also see that a subset of the exemptions contained in 
section  12-36-2120 of the South Carolina Code  appears to have certain "links and commonalities " 
with the three sales and us e tax exemptions challenged in this proceeding.2592 Certain of these 
exemptions operate in a similar manner to the three challenged exemptions, as they are subject to 
precise investment requirements (different from those under the challenged exemptions): the 
exemption for "material handling systems … used in the operation of a … manufacturing facility " is 
subject to an investment of USD 35 million over a five -year period and notification to the South 
Carolina Department of Revenue2593, while the exemption effecti ve as of July 2011 for 
"construction materials used in the construction of a new or expanded single manufacturing or 
                                               
2590 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU -493), 
section  12-36-2120(64).  
2591 In addition to the three challenged exemptions, see S.C. Code  section 12 -36-2120(51), providing an 
exemption for material handling systems and material handling equipment used in the operation of a 
distribution facility or a manufacturing facility of a taxpayer that invests at least USD 35 million in South 
Carolina; S.C. Code  section 12 -36-2120(65) (apparently enacted by H3130), providing an exemption for 
computer equipment used in connection with, and electricity and certain fuel used by, a technology intensive 
facility that invests USD 300 million over five years, creates at least 100 new jobs during the five years with a 
certain average compensation, and spends at least 60% of the USD 300 million investment on computer 
equipment; S.C. Cod e section 12 -36-2120(67) (apparently enacted by H3130), providing an exemption for 
construction materials used in the construction of a single manufacturing or distribution facility, or one that 
serves as both, that invests at least USD 100 million at a si ngle site in South Carolina over an 18 -month 
period; S.C. Code  section 12 -36-2120(73), providing an exemption for amusement park rides and associated 
parts, machinery and equipment, requiring an investment of USD 250 million and the creation of 250 full -time 
jobs and 500 part -time jobs or seasonal jobs over a five -year period; S.C. Code section 12 -36-2120(78), 
providing an exemption for materials and electricity used in the operation of a facility researching and testing 
the impact of natural hazards, requi ring an investment of USD 20 million over a three -year period; and S.C. 
Code section 12 -36-2120(79), providing an exemption for computer equipment, software and electricity used 
within a datacenter, requiring a taxpayer to invest at least USD 50 million in  real or personal property or both 
over a five -year period, or several taxpayers to invest at least USD  75 million in such property over the same 
period, creating and maintaining at least 25 full -time jobs with a certain average compensation, and subject t o 
certain notification requirements and deadlines. (The South Carolina Sales and Use Tax Act, S.C. Code , 
Title 12, chapter 36, (Exhibit EU -493)). Also see S.C. Code section 12 -62-30, providing an exemption for 
tangible personal property purchased by a cert ified motion picture production company for use in connection 
with the filming or production of motion pictures in South Carolina for a company planning to spend at least 
USD 250,000 in South Carolina within a consecutive twelve -month period (referred to i n South Carolina Tax 
Incentives, (Exhibit EU -494), p. 219).  
2592 With respect to fuel, South Carolina tax legislation provides exemptions from sales and use taxes for 
fuel sold to manufacturers for "the generation of heat or power used in manufacturing tangib le personal 
property for sale", "the generation of electric power or energy for use in manufacturing tangible personal 
property for sale", and "the generation of motive power for transportation". (The South Carolina Sales and Use 
Tax Act, S.C. Code , Title 12, chapter 36, (Exhibit EU -493), section 12 -36-2120(9)(b) -(d); see United  States' 
first written submission, para. 659). With respect to computer equipment, South Carolina tax law provides at 
least four other exemptions, namely: (a) an exemption for "machi nes used in manufacturing … tangible 
personal property for sale" ( S.C. Code  § 12-36-2120(17) (Exhibit EU -493), section  12-36-2120(17); see 
United States' response to Panel question No. 150, para. 21); (b) an exemption for "material handling systems 
… used in the operation of a … manufacturing facility", subject to an investment of USD 35 million over a five -
year period and notification to the South Carolina Department of Revenue (The South Carolina Sales and Use 
Tax Act, S.C. Code , Title 12, chapter 36, (Ex hibit EU -493), section  12-36-2120(51); see United States' 
response to Panel question No. 150, para. 21); (c) an exemption from sales and use taxes for "machines used 
in research and development", being defined as "machines used directly and primarily in re search and 
development, in the experimental or laboratory sense, of new products, new uses for existing products, or 
improvement of existing products" (The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapter 36, 
(Exhibit EU -493), section 12 -36-2120(56); United States' first written submission, para. 598, and response to 
Panel question No. 150, paras. 21 and 22); and (d) an exemption for "original or replacement computers, 
computer equipment, and computer hardware and software purchases used w ithin a datacenter" (The South 
Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapter 36, (Exhibit EU -493), section 12 -36-2120(79); 
United States' response to Panel question No. 150, para. 21). With respect to construction materials, we recall 
that t he challenged exemption was effectively subsumed in July 2011 by another exemption applying to 
"construction materials used in the construction of a new or expanded single manufacturing or distribution 
facility" subject to different eligibility criteria, n amely a capital investment of USD 100 million in real and 
personal property at a single site in South Carolina over an eighteen -month period. (The South Carolina Sales 
and Use Tax Act, S.C. Code , Title 12, chapter 36, (Exhibit EU -493), section 12 -36-2120(6 7)). 
2593 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU -493), 
section  12-36-2120(51).  WT/DS353/R W 
 
- 451 - 
 
  distribution facility " is subject to an investment of USD 100 million at a single site over an 
eighteen -month period.2594 Despite this, we see  no single "overarching purpose " in these 
exemptions. Rather than creating a coherent programme, these exemptions appear to form a 
patchwork of more or less narrowly defined exemptions.  We have therefore decided to carry out 
the specificity analysis at the  level of the challenged sales and use tax exemptions.  
8.1046.   Assessing specificity at the level of the sales and use tax exemptions on aircraft fuel, 
computer equipment , and construction materials, enacted through H3130, we are of the view that 
the challenged ex emptions are specific within the meaning of Article 2.1(c)  because of "the use of 
{the} subsidy programme by a limited number of certain enterprises" . While the United States 
argues that an unidentified number of other taxpayers have notified the South Car olina 
Department of Revenue of their intention to use the challenged tax exemptions, there is no 
evidence before the Panel that these exemptions have been used by any entity other than 
Boeing.2595 We therefore find that the European Union has established that  Boeing has been the 
only recipient of the subsidies provided through the sales and use tax exemptions at issue. This is 
unsurprising since there is evidence to support the view that the challenged exemptions were 
tailored specifically for Boeing: the elig ibility criteria for the three challenged exemptions precisely 
match Boeing 's South Carolina commitments; the exemptions themselves seem tailor -made to the 
circumstances of Boeing 's operations in South Carolina; the notification deadlines for the use of 
the exemptions are set to coincide with the beginning of Boeing 's Gemini operations in South 
Carolina; and certain statements by South Carolina authorities suggest that the exemptions were 
designed for Boeing.2596 We consider our finding to be in line with that  of the panel in the original 
proceeding concerning the Illinois Corporate Headquarters Relocation Act. Indeed, the requirement 
of a high revenue threshold meant that Boeing was the only company to meet the eligibility 
criteria for certain incentives provi ded by the Act.2597 The panel also noted that the narrow time 
window for applying for incentives under the Act only reinforced its finding that the incentives were 
designed specifically for Boeing.2598  
8.1047.   We also recall, in this regard, our observations above in p aragraph 8.898  on the meaning 
of the phrase "use of a subsidy programme by a limited number of certain enterprises". We are 
satisfied that the fact that only Boeing has used the subsidies provided through the sales and use 
tax exemptions clearly indicates the existence of a limitation of access to the subsidies.  
8.1048.   In making this finding that the subsidies are specific within the meaning of Article 2.1(c) 
on the grounds that they have been used by "a limited number of certain enter prises" we have 
also considered the last sentence of Article 2.1(c), which requires that account be taken of "the 
extent of diversification of economic activities within the jurisdiction of the granting authority, as 
well as the length of time during which  the subsidy programme has been in operation". We see no 
basis in the facts before us to support an argument that notwithstanding that the subsidies have 
been used by only one company, they should not be considered to be specific because of the 
limited ext ent of diversification of economic activities in South Carolina or the limited length of 
time during which the subsidies programmes have been in operation. 2599 We note that the 
United  States does not make any such argument. Having found the challenged exempt ions to be 
specific within the meaning of Article 2.1(c), we do not consider it necessary to address the 
parties ' arguments under Articles 2.1(a) and 2.1(b).2600 
8.1049.   We therefore conclude that the European Union has established that the subsid y 
provided through t he sales and use tax exemptions on aircraft fuel, computer 
equipment , and construction materials enacted through H3130 is specific within the 
                                               
2594 The South Carolina Sales and Use Tax Act, S.C. Code , Title 12, chapte r 36, (Exhibit EU -493), 
section  12-36-2120(67).  
2595 See United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 72, para. 155; first written submission, paras. 662 and 663, 
and fn 1025; and European Union's second written submis sion, para. 661.  
2596 See para. 8.1035  above.  
2597 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.918.  
2598 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.923 and 7.919.  
2599 If anything , with regard to the duration during which the subsidy programmes have been in 
operation we consider that the fact that the notification deadlines for the use of the exemptions are set to 
coincide with the beginning of Boeing's Gemini operations in South C arolina is further support for our finding 
that the subsidies are specific in fact.  
2600 See Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.928.  WT/DS353/R W 
 
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  meaning of Article 2.1 (c) of the SCM Agreement. Having found that the subsidy  is 
specific within the meaning of A rticle 2.1(c), we do not consider it necessary to address 
the parties' arguments under Articles 2.1(a) and 2.1(b).2601 
8.1050.   Finally, we note that the European Union also argues that the subsid y provided through 
the sales and use tax exemptions is specific pursuant  to Article 2. 3 of the SCM Agreement. 
Article  2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to 
be specific". We reject this argument because in Section 10 of this Report we find that the 
European Union has faile d to establish that any subsidy at issue in this proce eding is prohibited by 
Articles  3.1 and 3.2 of the SCM Agreement.  
8.2.8.11.4   The amount of the subsidy  
8.1051.   The parties disagree on the amount of the subsidy to Boeing 's LCA division from the sales 
and use tax exemptio ns for aircraft fuel, construction materials, and computer equipment. The 
European Union estimates the amount of the financial contribution conferred by the tax 
exemptions, which in the case of the foregoing of revenue otherwise due corresponds to the 
amou nt of the subsidy, at USD 49.14 million between 2010 and 20352602, or USD 2.25 million 
between 201 3 and 201 5.2603 In arriving at its estimate , the European Union estimates the portion 
of costs attributable to purchases of construction materials and computer equi pment in Boeing 's 
reported investment in new buildings, machinery , and equipment in South Carolina.  
8.1052.   The United States argues that the European Union 's estimate  is speculative and 
unsupported, overvalues the alleged subsidy2604, and fails to even refer to the  actual figures 
provided by the United States.2605 The United States  estimates the amount of the subsidy at 
[***] in the period 2010 -2012.2606. It does not provide an estimate of the future projected value 
of the subsidy in the post -2012 period.  
8.1053.   As to the diverg ences in the parties' amount estimates for the 2010 -2012 period, t he 
disagreement stems primarily from the method used by the European Union in estimating the 
amount of the subsidy and its  rejection  of the estimate  provided by the United States in response  
to the Panel 's request for information pursuant to  Article 13 of the DSU.2607 The European Union's 
estimate of the subsidy (a total of USD 49.14 million between 2010 and 2035 )2608 represents  the 
sum of an estimated amount of USD 31.14 million in the period 2010 -2011, and USD 18 million in 
the period 2012 -2035. In a first phase of its estimate , the European Union estimates the amount 
of the subsidy for the period 2010 -2011 to be at least USD 31.14 million.2609 Based on a 
declaration by an employee  of the European Ae onautics Defence and Space Company N.V. (EADS) , 
the European Union considers the costs of construction materials and computer equipment to 
represent [***] of the overall cost of buildings, and [***] of the overall cost of machinery and 
equipment, respectiv ely.2610 According to the cost -benefit analysis of the South Carolina 
Department of Commerce, Boeing 's total investment of USD 1 billion in Project Gemini includes 
                                               
2601 See Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.928.  
2602 European Union's first written submission, paras. 599 -601; second written submission, 
paras.  647-651. 
2603 South Carolina Subsidies to Boeing's LCA Division, (Exhibit EU -39), p. 1.  
2604 United States' first written submission, para. 598.  
2605 United States' first written submission , paras. 590 -597. 
2606 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 73, para. 156; first written submission, para. 590.  
2607 The Panel had asked the United Sta tes, in question 73 of its request for information pursuant to 
Article 13 of the DSU, to "indicate, with supporting documents, the annual value to Boeing of each tax 
exemption listed in question 71" which had listed the three sales and use tax exemptions, and to "provide 
current projections of the annual value of each of these tax exemptions for future years ". The United States 
responded with estimated values to Boeing of the listed tax exemptions for the tax years 2010, 2011 and 
2012, and advised that it " is not aware of existing future projections" . (United States' response to the Panel's 
request for information pursuant to Article 13 of the DSU , dated 28 February 2013, response to question 
No. 73, para. 156 ). 
2608 European Union's first written submission, p aras. 599 -601; second written submission, 
paras.  647-651. 
2609 European Union's first written submission, para. 600; also see South Carolina Subsidies to Boeing's 
LCA Division, (Exhibit EU -39), p. 3.  
2610 Declaration of Patrick Libralesso, EADS General Procureme nt, 26 February 2013, (Exhibit EU -26) 
(BCI).  WT/DS353/R W 
 
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  USD 625.3 million in new buildings and USD 400 million in machinery and equipment2611, 
accordingly  yielding a construction materials cost of [***] and a computer equipment cost of 
[***]. The European Union estimates that half of these purchases were made in Charleston 
County, subject to an average 8% sales and use tax rate, and half made elsewhere in S outh 
Carolina, subject to a 7% tax rate.2612 Applying these tax rates equally to the construction 
materials and computer equipment costs, the total amount  of the tax exemption for construction 
materials is at least [***] and the total amount  of the tax exempt ion for computer equipment is 
at least [***], or at least USD 31.14 million in total over the period 2010 -2011, which 
corresponds to Boeing 's timeline for construction and operation of the 787 final assembly and 
delivery facility.2613 
8.1054.   Nonetheless, the Europea n Union considers the figure of USD 31.14 million in the period 
2010-2011 underestimate s the total amount  of the subsidy, since this amount  does not include 
sales and use tax exemptions for purchases of aircraft fuel, which the European Union is unable to 
estimate . Furthermore, the amount  does not account for Boeing 's subsequent capital investments 
in South Carolina, including new facilities and the expansion of existing facilities. Thus, in a second 
phase, the European Union calculates  the subsidy to repre sent an addi tional amount  of at least 
USD 18 million in the period 2012 -2035. The European Union argues that, i n the absence of better 
information, Boeing can be assumed to continue to spend USD 10 million each year on goods 
subject to the two2614 sales and u se tax exemptions, thereby benefit ing from a subsidy of 
USD 750,000 each year. Over the 25 -year useful life of the Gemini facilities, this amounts to an 
additional subsidy of USD 18 million. Combining both phases of its estimate , the European Union 
estimat es the amount of  the subsidy at USD 49.14 million between 2010 and 2035.2615 
8.1055.   The United States objects in particular to the second phase of the European Union 's 
subsidy estimate : whereas the European Union 's estimate  for the period 2010 -2011 has some 
groundin g in evidence, albeit incorrect and based on unwarranted assumptions, its estimate  for 
the period 2012 -2035 is a complete fiction.2616 With respect to the period 2010 -2011, the 
European Union 's estimate  is based on the unsupported assumption that Boeing 's investment of 
USD 1 billion was entirely made in the years 2010 -2011, as well as a summary statement by a 
Boeing competitor on the proportion of costs allocated to construction materials and computer 
equipment.2617 With respect to the period 2012 -2035, the Unite d States argues that the 
European  Union, rather than  trying to estimate the value of any alleged further investments by 
Boeing, arbitrarily selects the figure of USD 10 million as representing  Boeing 's annual 
expenditures for  2012 to 2035, making no effort  to explain how this figure was derived, or how it 
                                               
2611 South Carolina Department of Commerce, Cost -Benefit Analysis, The Boeing Company, Charleston 
County, (Exhibit EU -499), p. 1. The South Carolina Department of Commerce and the South Carolina Board of 
Economic A dvisors agree in their respective cost -benefit analyses of Project Gemini that Boeing's capital 
investment amounts to approximately USD 1 billion. However, where the analyses diverge, the European Union 
considers the figures provided by the South Carolina Department of Commerce to be more accurate. Neither 
analysis includes the challenged sales and use tax exemptions. (See European Union's first written submission, 
para. 599 ).  
2612 European Union's first written submission, para. 599.  
2613 European Union's first  written submission, para. 600; also see South Carolina Subsidies to Boeing's 
LCA Division, (Exhibit EU -39), p. 3.  
2614 While the European Union refers to the three sales and use tax exemptions in its first written 
submission when discussing the post -2011 per iod, it states in its second written submission that this was a 
simple drafting error since the European  Union does not contest that the challenged exemption for construction 
materials was effectively subsumed by the exemption in section 12 -36-2120( 67) of the S.C. Code as of 
July 2011. (See European Union's second written submission, fn 1089 ). 
2615 European Union's first written submission, para. 601; second written submission, para. 651. The 
European Union states that it does not rely on the estimate provided  by the United States because of the 
United States' alleged failure to adequately respond to the Panel's request  for information  pursuant Article 13 
of the DSU. The United States provided, without any supporting documentation, estimated values for the thre e 
sales and use tax exemptions from 2010 to 2012 which are based on what the European Union considers is the 
unsupported assumption that materials and labour each account for half of Boeing's total construction costs . 
(European  Union's second written submi ssion, para. 648 and fn 1081 ). The European Union requests the Panel, 
to the extent necessary, to draw appropriate inferences from the United States' alleged non -cooperation in the 
information -gathering process . (European Union's second written submission,  para. 649 ). 
2616 United States' first written submission, para. 595; second written submission, para. 588.  
2617 United States' first written submission, paras. 592 and 593. The United States notes that the 
European Union decided to rely on the guesswork of an E ADS employee even before it had received the 
United  States' answer to the Panel's request for information under Article 13 DSU. (United States' second 
written submission, para. 586).  WT/DS353/R W 
 
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  reflect s Boeing 's current or future  investment  plans.2618 While the European Union claims that it is 
relying on this figure in the absence of better information, the absence of information does not 
justify re sorting to wholly arbitrary figures.2619 Moreover, while the European Union acknowledges 
that the challenged sales and use tax exemption for construction materials, which constitutes the 
major component  of the subsidy  amount  for 2010 and 2011, was effectively  subsumed by another 
exemption as of July  2011, it still estimates an amount for this  exemption throughout the period 
2012-2035.2620 
8.1056.   We first consider the European Union 's estimate of the amount of the subsidy for the 
period 2010 -2011, as well as the estimate  provided by the United States for the period 2010 -
2012. For the reasons detailed below, we are of the view that the United States' estimate is a 
reasonable approximation  of the amount of the subsidy  for 2010 -2012, since it is corroborated by 
other evidenc e before the Panel. The record before us includes two separate cost -benefit analyses 
of Project Gemini, the first prepared by the South Carolina Department of Commerce and 
undated2621, the second prepared by the South Carolina Board of Economic Advisors, addr essed to 
Senator Hugh K. Leatherman Sr. and dated 8 October 2009.2622 The European Union relies on the 
former, stating that it is more accurate regarding the actual terms of Boeing 's investment since 
the South Carolina Department of Commerce is the lead state  agency for attracting economic 
development projects and was primarily responsible for negotiating the Project Gemini  incentive 
package  with Boeing . In contrast, the Board of Economic Advisors analysed a hypothetical capital 
investment project by a manufac turing project based on specific characteristics described in a 
state senator 's analysis request.2623 The two cost -benefit analyses mainly diverge in their 
respective allocations of Boeing 's USD 1 billion investment to new buildings on the one hand, and 
machi nery and equipment on the other. Under the heading "Announced Capital Investment ", the 
analysis of the South Carolina Department of Commerce allocates USD 625.3 million to new 
buildings and USD 400 million to machinery and equipment. Under the same heading , the analysis 
of the Economic Board of Advisors allocates USD 250 million to new buildings and USD 731 million 
to machinery and equipment.2624 Notwithstanding the European Union 's reasons for relying on the 
figures provided by the South Carolina Department o f Commerce, which the United States does 
not contest, we observe that applying the European Union 's assumptions2625 to the figures 
provided by the South Carolina Board of Economic Advisers leads to a subsidy amount of 
USD 16.7 million for the period 2010 -2011, or USD  8.35 million in each of those years. While we 
acknowledge that the United States ' amount estimat e varies  year-on-year, the average annual 
amount of subsidy estimated by the United  States is [***].2626 This annual amount estimate is 
within a very clos e range to that resulting from the application of the European Union 's calculation 
method to the estimates provided by the South Carolina Board of Economic Advisors. We therefore 
                                               
2618 United States' second written submission, para. 588.  
2619 United States' f irst written submission, para. 595.  
2620 United States' first written submission, paras. 596 and 597; second written submission, paras. 589 
and 590.  
2621 South Carolina Department of Commerce, Cost -Benefit Analysis, The Boeing Company, Charleston 
County,  (Exhibi t EU-499).  
2622 Letter from W . C. Gillespie, South Carolina Board of Economic Advisors, to Senator H . K. 
Leatherman, Cost -Benefit Analysis, 8 October 2009,  (Exhibit EU -498).  
2623 European Union's first written submission, para. 599. See Letter from W . C. Gillesp ie, South Carolina 
Board of Economic Advisors, to Senator H . K. Leatherman, Cost -Benefit Analysis, 8 October 2009, (Exhibit 
EU-498), p. 1.  
2624 Letter from W . C. Gillespie, South Carolina Board of Economic Advisors, to Senator H . K. 
Leatherman, Cost -Benefit A nalysis, 8 October 2009, (Exhibit EU -498), p. 2. The evidence on the record does 
not allow the Panel to determine what the actual allocation was. We note that the exhibit Boeing Investment in 
South Carolina (2010 -3Q2012), (Exhibit USA -324) (BCI) aggregates  expenditure on the Final Assembly and 
Delivery Facility and site work. Also see United States' response to Panel question No. 128, para. 265.  
2625 The European Union's assumptions are that [***] % of building costs is made up by construction 
materials, while  [***] % of machinery and equipment costs is made up by computer equipment, and that 
purchases are made half in Charleston County, subject to a tax rate of 8%, and half in South Carolina, subject 
to a tax rate of 7%. See European Union's first written subm ission, para. 599. The United States objects to the 
European Union's estimat e of the proportions of costs allocated to construction materials and computer 
equipment merely on the basis that the Declaration of Patrick Libralesso is cursory. (See United Stat es' first 
written submission, para. 593 ). However, we note that the United States itself estimates the cost of 
construction materials to account for  [***] of total construction costs. (United States' response to the Panel's 
request for information pursuant  to Article 13 of the DSU, dated 28 February 2013 , response to  question 
No. 73, para. 156).  
2626 United States' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013 , response to  question No. 73, para. 156; first written submission, para. 590.  WT/DS353/R W 
 
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  consider that the United  States' estimat e of the amount of the subsidy as [***] over the period 
2010-2012 is reasonable.  
8.1057.   As to the estimated amount of the subsidy for the post -2012 period, we note that the 
United States does not provide an estimate, and the European Union's projections are based on a 
methodology that the United Sta tes alleges involves the arbitrary selection of USD 10 million as 
the annual amount of Boeing investment expenditures in South Carolina in the 2012 -2035 period.  
We agree that the European Union has provided no support for its selection of the  figure of 
USD 10 million in Boeing spending in each year from 2012 to 2035 , although we note that the 
United States does not suggest any alternative amount  of Boeing's projected spending  on which to 
base an estimate of the amount  of the subsidy to Boeing in the post -2012 period. Having reviewed 
the record however, we are satisfied that the European Union's estimate of the annual amount  of 
the subsidy in the post -2012 period; i.e. USD 750,000, is corroborated by other evidence and is 
therefore a reasonable approximation of the annual amount  of the subsidy for the 2013 -2015 
period. The European Union submitted as an exhibit a 2010 report prepared by an economic 
consulting firm on behalf of The Alliance for South Carolina's Future, entitled "The Economic 
Impact of Boeing in  South Carolina".2627 In this report, the authors provide an estimate of the 
state component of the Project Gemini incentive package, including an estimate of the total 
amount  of the "Statutory Sales Tax Incentives", which it estimates  at USD 41 million.2628 We 
acknowledge that a significant portion of Boeing's expenditures would have been made early on in 
the construction of the Gemini facilities and infrastructure. We therefore deduct from this figure 
the United States' estimate of USD [***] for the period 2010 -2012. If we allocate the remainder 
(USD [***]) over the average 25-year useful life of the Gemini facilities  and infrastructure2629, we 
arrive at an average annual subsidy amount of USD [***]. This figure is sufficiently close to the 
European Union's annual estimate of USD 750,000, which is in turn the basis for its estimate of 
USD 2.25 million in the period 2013 -2015.   
8.1058.   We therefore  consider the European Union's  estimat e of the amount of the 
subsidy as USD 2.25 million  over the period 2013 -2015 is  reasonable.2630 
8.2.8.11.5   Conclusion  
8.1059.   In light of the findings  above , we conclude that the European Union has established that 
the sales and use tax exemptions for aircraft fuel, computer equipment, and construction 
materials, provided in South Carolina Code  section s 12-36-2120(9) (e) and (f), (65)(b), and (67) 
involve a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, in the 
amount of USD 2. 25 million  between 2013 and 2015.  
8.2.8.12   Whether the workforce recruitment, training and development programme 
provided to Boeing is a specific subsidy to Boeing  
8.2.8.12.1   Introduction  
8.1060.   In paragraph 24 of its panel request, the European Union identifies as one of the Project 
Gemini -related subsidies presently benefiting Boeing:  
Establishment of workforce recruitment, training and deve lopment programs for 
Boeing.  
8.1061.   The European Union argues that the workforce recruitment, training, and development 
programmes provided to Boeing through the South Carolina Technical College System (Boeing 
                                               
2627 Alliance for South Carolina's Future,  The Economic Impact of Boeing in South Carolina , (May 2010), 
(Exhibit EU -489).  
2628 See Alliance for South Carolina's Future,  The Economic Impact of Boeing in South Carolina , 
(May 2010), (Exhibit EU -489), p. 12.  
2629 Beyond noting in the context of other South Carolina measures that the 25 -year average useful life 
of the facilities used by the European Union is shorter than the actual useful life of the facilities and 
infrastructure, whi ch ranges from ten to 40 years, the United States does not appear to object to the use of 
this period of time. (See United States' first written submission, fns 904 and 923) .  
2630 In light of our conclusion, we do not consider it necessary to address the Eur opean Union's request 
for the Panel to "draw appropriate inferences". (European Union's second written submission, para. 649).  WT/DS353/R W 
 
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  workforce programme) constitute a specific subsidy to  Boeing within the meaning of Articles 1 and 
2 of the SCM Agreement.  
8.1062.   The Boeing workforce programme challenged by the European Union is delivered as part 
of the South Carolina Technical College System 's job training programme (readySC ). The readySC 
progra mme has provided customised training for new and expanding business and industry in 
South Carolina since 1961.2631 The Boeing workforce programme consists of South Carolina 
recruiting and training assemblers/fabricators for Boeing 's 787 final assembly and del ivery facility 
at no cost to Boeing. The multi -phase training provided under the challenged programme spans 
the identification and selection of eligible candidates to training an FAA -certified workforce capable 
of assembling the 787 's composite -material fu selage. Between the fiscal year 2009 -2010 and 
February 2013, over 2 ,660 Boeing employees have been trained through the challenged 
programme, while a total of 3 ,600 Boeing employees will be trained under the programme.2632 
8.2.8.12.2   Main arguments of the parties  
8.1063.   The European Union  argues that the Boeing workforce programme, provided through 
readySC, constitutes a specific subsidy within the meaning of Articles 1 and 2 of the SCM 
Agreement. The programme involves a government provision of goods or services other than 
general infrastructure within the meaning of Article 1.1(a)(1)(iii). Since Boeing would otherwise 
have to pay for the selection, training and development of its workforce on market terms, the 
programme provided at no cost to Boeing confers a benefit within the  meaning of 
Article  1.1(b).2633 The programme is also specific within  the meaning of Articles 2.1(a) and 2.1(c) , 
since the South Carolina Budget and Control Board provided special funding earmarked for 
Boeing 's workforce programme, and Boeing is the predomina nt user of the subsidy and receives a 
disproportionately large amount of the subsidy.2634 
8.1064.   The United States  argues that the European Union has failed to demonstrate that the 
Boeing workforce programme constitutes a financial contribution or confers a benefit2635, and that 
in any event the programme is not specific within the meaning of Article 2.1. The readySC 
programme is broadly available and has been widely used throughout the economy of South 
Carolina, Boeing is neither the main or most frequent user of the p rogramme, nor is there any 
indication that discretion has been exercised in a manner indicating specificity.2636  
8.2.8.12.3   Evaluation by the Panel  
8.2.8.12.3.1   Whether there is a financial contribution and a benefit  
8.1065.   The first question before the Panel is whether the Boeing workfo rce programme 
constitutes a financial contribution through the provision of government services, within the 
meaning of Article 1.1(a)(1)(iii). The European Union 's position is that the Boeing workforce 
programme, provided through readySC, provides free ser vices including screening and training of 
applicants that Boeing would otherwise have to pay for itself.2637 The United States ' position is that 
the European Union provides only a cursory analysis in support of its financial contribution claim, 
and has theref ore failed to demonstrate the existence of a financial contribution.2638 
8.1066.   In light of the uncontested evidence before us that South Carolina provides free 
workforce screening, training and development services to Boeing under the readySC 
                                               
2631 readySC, "About Us", available at <www.readysc.org/about.htm>, accessed 1 September 2016,  
(Exhibit USA -240).  
2632 United States' r esponse to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 28 February 2013, response to question No. 77, paras. 163 -169; and European Union's first written 
submission, paras. 657 -660. Also see S. Wilhelm, "Charleston, High -flying efforts to build a Boeing jet work 
force", Puget Sound Business Journal , 3 June 2011, (Exhibit EU -530).  
2633 European Union's first written submission, paras. 662 -666; second written submission, 
paras.  699-701. 
2634 European Union's first written submission,  paras. 667 and 668; second written submission, 
paras.  702 and 703.  
2635 United States' first written submission, para. 617; second written submission, para. 599.  
2636 United States' first written submission, paras. 647 -651; second written submission, paras. 600 -604. 
2637 European Union's first written submission, para. 663.  
2638 United States' second written submission, para. 599.  WT/DS353/R W 
 
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  programme2639, which Boei ng would otherwise have to acquire at market rates, we find that the 
Boeing workforce programme involves a financial contribution within the meaning of 
Article 1.1(a)(1)(iii) and confers a benefit within the meaning of Article  1.1(b).   
8.2.8.12.3.2   Whether the subsidy is specific  
8.1067.   With respect to specificity, the first issue raised by the parties ' arguments is whether the  
subsidy provided through the  Boeing workforce programme is specifi c within the meaning of 
Article  2.1(a). In support of its argument that the Boeing wo rkforce programme, provided through 
readySC, involves a subsidy that is  specific within the meaning of Article 2.1(a), the 
European  Union asserts that the South Carolina State Budget and Control Board enacted a special 
resolution to provide special funding  to the State Board for Technical and Comprehensive 
Education for readySC, expressly earmarked for carrying out the Boeing workforce training, 
recruitment, and development programme.2640 The United St ates counters that the 
European  Union has failed to articul ate how this information is releva nt to an analysis under 
Article  2.1(a).2641 
8.1068.   For the reasons detailed below, we conclude  that the European Union has failed to 
establish  that the subsidy provided through the Boeing workforce programme is specific within the 
meaning of Article  2.1(a). The European Unions ' sole argument in support of its position  that the 
subsidy provided through the Boeing workforce programme is specific under Article 2.1(a) is based 
on a resolution adjusting the amount of funding appropriated to the Center for Accelerated 
Technology Training (CATT) Program as a consequence of expenditures anticipated in relation to 
Boeing 's South Carolina operations. The resolution adopted on 23 February 2010 by the South 
Carolina Budget and Control Board appro ved "an adjustment in state general fund appropriations 
within the Center for Accelerated Technology Training Program at the State Board for Technical 
and Comprehensive Education not to exceed $3,100,000 ".2642 The Board adopted this resolution in 
response to a notification from the State Board for Technical and Comprehensive Education "of an 
additional need in the CATT budget for FY 2009 -10 estimated at between $2,203,505 and 
$3,100,000 ".2643 The need for this adjustment reflected "anticipated CATT expenditures f or the 
Boeing Project which are estimated at $3,100,000 for the remainder of  FY 2009 -10. This 
USD 3.1 million includes expenses for training classes such as staffing, material and supplies, 
testing and operations ".2644  
8.1069.   However, since the evidence before the Panel shows that the measure at issue is 
provided pursuant to a pre -existing broader subsidy programme2645, the relevant question under 
Article 2.1(a) is whether access to that subsidy programme  is explicitly limited. The fact that the 
resolution cited by the  European Union adjusts appropriations to accommodate one specific 
application of this broader programme is not evidence that access to the scheme as a whole is 
explicitly limited to certain enterprises. In fact, the evidence indicates that no such limitat ion 
exists. The resolution itself notes that the CATT Program  "designs, develops and conducts training 
for individuals seeking to fill jobs being created by new and expanding industries ".2646 Similarly, 
the provision in the FY 2009 -2010 Appropriation Act purs uant to which the resolution was adopted 
states that "it is the intent of the General Assembly that the State Board for Technical and 
Comprehensive Education expend whatever funds as are necessary to provide direct training for 
new and expanding business o r industry ".2647 There is nothing to suggest that the applicability of 
this provision in the FY 2009 -2010 Appropriation Act is limited to certain enterprises . Aside from 
                                               
2639 See, in particular, United States' response to the Panel's request for information pursuant to 
Article  13 of the DSU, dated 28 February 2 013, response to question No. 77, paras. 163 -169. 
2640 European Union's first written submission, para. 667; second written submission, para. 702.  
2641 United States' first written submission, para. 648.  
2642 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010, 
(Exhibit EU -537), pdf p. 2.  
2643 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010, 
(Exhibit EU -537), pdf p. 2.  
2644 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010, 
(Exhibit EU -537), pdf p. 2.  
2645 See, in particular, readySC, "About Us", available at <www.readysc.org/about.htm>, accessed 
1 September 2016,  (Exhibit USA -240); and readySC, Annual Report , FY 2010 -2011,  (Exhibit USA -225).  
2646 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010, 
(Exhibit EU -537), pdf p. 2. (emphasis added)  
2647 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010, 
(Exhibit EU -537), pdf p. 9. (emphasis added)  WT/DS353/R W 
 
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  its argument based on the resolution of 23 February 2010, the European  Union has advanced  no 
other argument to show that the eligibility for the workforce development programme is expressly 
limited to certain enterprises . We therefore find the European Union has failed to establish  that the 
subsidy provided through the workforce development pr ogramme is specific within the meaning of 
Article 2.1(a).2648 
8.1070.   The second issue raised by the parties ' arguments is whether the  subsidy provided 
through the  Boeing workforce programme is specific within the meaning of Article 2.1(c). The 
European Union argues that the challenged programme is specifi c within the meaning of 
Article  2.1(c) on the grounds that Boeing is the predominant user of the subsidy and receives a 
disproportionately large amount of the subsidy. In this respect the European Union contends that  
the Boeing workforce programme accounted for more than one -third of all readySC expenditures 
in 2010, that the training programme includes a focus on Boeing -specific job skills in the first 
phase and is provided directly to post -hire Boeing employees in a  third phase. Moreover, the 
European Union argues that the granting authority has exercised its discretion in a manner 
favouring Boeing, including by providing a more extensive set of services to Boeing and conducting 
training on processes and equipment un ique to Boeing.2649  
8.1071.   The United States counters that readySC, through which the Boeing workforce 
programme is provided, is not used by a limited number of certain enterprises but rather works 
with a number of businesses and industries in any given year. In fi scal year 2010 -2011, readySC 
trained 5 ,872 workers for 73 companies, and 4 ,400 workers for 82 companies in the following 
fiscal year. While readySC will train 3 ,600 workers for Boeing in total, it has trained 270 ,000 
workers during the course of its existe nce.2650 Similarly, Boeing is not the predominant user of the 
programme, since Boeing 's usage of the programme over the course of any particular year does 
not make it the main or most frequent user of a long -established programme.2651 Finally, the fact 
that read ySC conducts training on processes and equipment unique to Boeing is no indication that 
discretion has been exercised in a manner indicating specificity, since the programme provides 
training and skills that are designed for the particular needs of all par ticipating companies.2652  
8.1072.   For the reasons detailed below, we consider  that the European Union has failed to 
establish  that the subsidy provided through the Boeing workforce programme is specific within the 
meaning of Article  2.1(c). In light of the fact that  the readySC programme has existed for over half 
a century, we do not see any evidence before us to suggest that the programme is used by a 
limited number of certain enterprises, that it is predominantly used by certain enterprises, that 
disproportionately  large amounts of subsidy have been granted to certain enterprises, or that 
discretion has been exercised by the granting authority in a manner indicating specificity. In 
particular, the fact that in one year of the programme 's over fifty -year existence , Boeing 
accounted for more than one -third of all readySC expenditures , does not demonstrate that Boeing 
is the predominant user of readySC, or that it receives a disproportionately large amount of the 
subsidy. The European Union furthermore fails to conduct the kind of disproportionality analysis 
that accords with the framework set out by the Appellate Body in the original proceeding.2653 
Moreover, the European Union has not established that discretion was exercised so as to limit 
access to the subsidy programme  to certain enterprises: the fact that the training focuses on 
Boeing job skills and is provided directly to post -hire Boeing employees is irrelevant as an 
indication of de facto specificity. The European  Union further fails to provide any empirical 
eviden ce in support of its contention that the services provided to Boeing were more extensive 
than those provide d to other firms. We therefore find that the European Union has failed to 
establish  that the subsidy provided through the Boeing workforce programme is specific 
within the meaning of Article 2.1(c).  
                                               
2648 We note that in the original proceeding the panel found certain Washington State job training 
incentives to be a specific subsidy , within the meaning of Article 2.1(a) of the SCM Agreement. (See Panel 
Report, US – Large Civil Airc raft (2nd complaint) , paras. 7.568 -7.572 and 7.590 -7.594). However, the measure 
at issue in that proceeding was not part of a pre -existing broader scheme, as is the case in this proceeding.  
2649 European Union's first written submission, para. 668.  
2650 United S tates' first written submission, para. 649; second written submission, para. 602.  
2651 United States' first written submission, para. 650 (referring to Panel Report, US – Large Civil Aircraft 
(2nd complaint) , para. 7.752); second written submission, para. 602 . 
2652 United States' first written submission, para. 651; second written submission, paras. 603 and 604.  
2653 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 879.  WT/DS353/R W 
 
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  8.1073.   Finally, we note that the European Union also argues that the subsid y provided to Boeing 
through the Boeing workforce programme is specific pursuant to Article 2.3 of the SCM Agreement. 
Article 2.3 provides  that "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to 
be specific". We reject this argument because in Section 10 of this Report we find that the 
European Union has failed to establish that any subsidy at issue in this proceedin g is prohibited by 
Articles 3.1 and 3.2 of the SCM Agreement.  
8.2.8.12.4   Conclusion  
8.1074.   In light of our above findings, we conclude that the European Union has failed to  establish 
that the workforce recruitment, training, and development programme involves a specific sub sidy 
within the meaning of Articles 1 and 2 of the SCM Agreement.  
8.3  Summary of the Panel 's conclusions as to whether the United States has failed to 
withdraw the subsidy within the meaning of Article 7.8 of the SCM Agreement  
8.1075.   In Section 8.1 of the Report, we evaluate whether the United States has failed to 
withdraw the subsidy through the modifications it made to the particular pre -2007 NASA and DOD 
aeronautics R&D measures that were the subject of the DSB recommendations and rulin gs. As a 
result of our evaluation, we f ind that the European Union has established that the amendments 
made by the United States through the Boeing Patent Licence Agreements to the terms of the pre -
2007 NASA procurement contracts and DOD assistance instrum ents do not constitute a withdrawal 
of the subsidy within the meaning of Article 7.8 of the SCM Agreement. With respect to the pre -
2007 Space Act Agreements, we f ind that the European Union has established that the United 
States, having taken no action in respect of those instruments, has failed to withdraw the subsidy 
within the meaning of Article 7.8 of the SCM Agreement.  
8.1076.   In Section 8.2 of the Report , we evaluate whether the United States has failed to 
withdraw the subsidy by granting or maintaining post -2006 measures alleged to constitute specific 
subsidies within the meaning of Article 1 and 2 of the SCM Agreement. As a result of our 
evaluation, we f ind that the European Union has established that the following measures invol ve 
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and that by 
granting or maintaining these specific subsidies after the end of the implementation period, the 
United States has failed to withdraw the subsidy within the mean ing of Article 7.8 of the SCM 
Agreement:  
a. certain transactions between NASA and Boeing pursuant to post -2006 NASA 
procurement contracts, cooperative agreements, and Space Act Agreements ; while we 
are unable to estimate the amount  of the subsidy on the basis  of the evidence on the 
record, to the extent it is relevant to the Panel's a ssessment of whether the 
United  States has withdrawn the subsidy , or taken appropriate steps to remove the  
adverse  effects , within the meaning of Article 7.8  of the SC M Agreement,  we find the 
United  States'  estimate  of the amount of the financial contribution at [***] between 
2007 and 2012 to be the most credible estimate  (Section 8.2.2);  
b. certain transactions between DOD and Boeing pursuant to post -2006 DOD assistance 
instruments; while we are unable to estimate the amount  of the subsidy on the basis of 
the evidence on the record, to the extent that it is relevant, we find the United States' 
estimate  of the amount of the financial contribution at [***] between 2007 and 2012 to 
be the most credible estimate ( Section 8.2.3);  
c. transactions pursuant to the Boeing CLEEN Agreement; while we are unable to estimate 
the amount  of the subsidy on the basis of the evidence on the record, to the extent that 
it is relevant, we find the European Uni on's estimate  of the amount of the financial 
contribution at USD  27.99 million between 2010 and 2014 to be a credible estimate 
(Section 8.2.4);  
d. Washington State B&O tax rate reduction for the aerospace industry, in the amount of 
USD 325 million between 201 3 and 2015 ( Section 8.2.7);  WT/DS353/R W 
 
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  e. Washington State B&O tax credits for preproduction/aerospace product development, as 
amended by section 7 of SSB 6828, in the amount of [***] between 2013 and 2015 
(Section 8.2.7);  
f. Washington State B&O tax credit for property ta xes, as amended by HB 2466 to include 
leasehold excise taxes, in the amount of [***] between 2013 and 2015 ( Section 8.2.7);  
g. Washington State sales and use tax exemptions for computer software, hardware, and 
peripherals , in the amount of [***] between 2013 and 2015 ( Section  8.2.7);  
h. City of Everett B&O tax rate reduction, in the amount of USD 54.1 million between 2013 
and 2015 (Section 8.2.7);  
i. payments by South Carolina pursuant to commitments made in the Project Gemini 
Agreement to compensate Boeing for a po rtion of the costs incurred by Boeing in respect 
of the construction of the Project Gemini facilities and infrastructure through air hub 
bond proceeds, in the amount of USD 50 million ( Section 8.2.8.6);  
j. South Carolina property tax exemption for Boeing's la rge cargo freighters, in the amount 
of USD 2 5.82 million between 2013 and 2015 ( Section 8.2.8.10); and  
k. South Carolina sales and use tax exemptions for aircraft fuel, computer equipment , and 
construction materials, in the amount of USD 2.25 million between 2013 and 201 5 
(Section 8.2.8.11).  
8.1077.   We also f ind that the European Union has failed to  establish that the following measures 
involve specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and that 
the European Union has consequently failed to establish that by granting or maintaining these 
specific subsidies after the end of the implementation p eriod, the United  States has failed to 
withdraw the subsidy within the meaning of Article 7.8 of the SCM Agreement:  
a. certain transactions betwe en DOD and Boeing pursuant to pre-2007 and post -2006 DOD 
procurement contracts, on the grounds that, assuming arguendo  that these measures 
involve financial contributio ns within the meaning of Article  1.1(a)(1)  of the SCM 
Agreement , the European Union has failed to establish that they confer a benefit within 
the meaning of Article  1.1(b)  of the SCM Agreement ( Section 8.2.3);  
b. tax exemptions and exclusions under FSC/ETI legislation and successor legislation, on 
the grounds that the European Union has failed t o establish that Boeing actually received 
the FSC/ETI tax benefits after 2006, and that the measure therefore involves a financial 
contribution within the meaning of Article 1.1(a)(1)(ii ) of the SCM Agreement 
(Section  8.2.5);  
c. tax abatements provided throug h IRBs issued by the City of Wichita, on the grounds that 
these tax abatements are no longer specific within the meaning of Article 2.1(c) of t he 
SCM Agreement and, as a result, the measure is no longer subject to the provisions of 
the SCM Agreement on act ionable subsidies  (Section 8.2.6);  
d. South Carolina sublease of the Project Site, on the grounds that the European Union has 
failed to establish  that the sublease i nvolves a subsidy  to Boeing  (Section  8.2.8.5);  
e. alleged provision by South Carolina of Gemini and Emerald facilities and infrastructure, 
on the grounds that the European Union has failed to establish  that th is measure 
involve s a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement ( Section 8.2.8.6);  
f. South Carolin a fee -in-lieu-of taxes arrangements set forth in the Boeing F ILOT 
Agreement and Project Emerald F ILOT Agreement, on the grounds that  the 
European  Union has failed to establish that  the subsidy provided through  these 
arrangements is specific within the mean ing of Article 2 of the SCM Agreement 
(Section  8.2.8.7);  WT/DS353/R W 
 
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  g. South Carolina corporate income tax credits in connection with the designation of the 
Project Gemini and Project Emerald facilities  and infrastructure  as part of the same 
multi-county industrial park , on the grounds that the European Union has failed to 
establish that the subsidy provided through the  tax credits is specific within the meaning 
of Article 2 of the SCM Agreement ( Section 8.2.8.8);  
h. South Carolina Income  Allocation and  Apportionment Agreem ent, on the grounds that 
the European Union has failed to establish that the agreement involves a financial 
contribution within the meaning of Article 1.1(a)(1)(ii ) of the SCM Agreement 
(Section  8.2.8.9); and  
i. South Carolina workforce recruitment, training and development programme, on the 
grounds that the European Union has failed to establish that the subsidy provided 
through this programme is  specific within the meaning of Article 2 of the SCM Agreement 
(Section 8.2.8.12).  
9  WHETHER THE UNITED ST ATES HAS FA ILED TO TAKE APPROPR IATE STEPS TO 
REMOVE THE ADVERSE E FFECTS , WITHIN THE MEANING O F ARTICLE 7.8 OF THE  SCM 
AGREEMENT  
9.1  Introduction   
9.1.   In this Section of the Re port, we assess whether  the United States has failed to take 
appropriate step s to remove the advers e effects , within the meaning of Article 7.8 of the SCM 
Agreement, in relation to the measures that we have ruled  are within the scope of this proceeding, 
and which  are specif ic subsidies that have not been withdrawn for purposes of Article  7.8. 
9.2.  The Europe an Union argues that the subsidies that the United States has failed to withdraw, 
and which it grants and maintains at the end of the implementation period , cause present adverse 
effects , in the form of certain kinds of serious prejudice to the interests  of the European Union , 
within the meaning of Articles 5(c) and 6.3 of the SCM Agreement,  after the end of the 
implementation period. Accordingly, the United  States has failed to comply with the DSB 
recommendations and rulings and has acted inconsistently wi th Articles 5, 6, and 7.8 of the SCM 
Agreement. The United States argues that it has withdrawn the subsidy in relation to the three 
measures the subject of the DSB recommendations and rulings of any significance (the NASA 
procurement contracts, DOD assista nce instruments, and the FSC/ETI subsidies) and that the 
minor subsidies (Washington State B&O tax rate reduction and tax abatements provided through 
the City of Wichita IRBs) are not of a magnitude that they could plausibly cause adverse 
effects.2654 The Eur opean  Union therefore does not establish its case that "the United States grants 
and maintains subsidies to Boeing after the end of the implementation period that cause present 
adverse effects."2655  
9.3.  In Section 6, we explain that, in light of how the European  Union has framed its case, our 
task in this proceeding is to determine, for the subsidies that the United States has failed to 
withdraw after the end of the implementation period, whether the subsidies cause present adverse 
effects , in the form of certain  kinds of serious prejudice to the interests of the European Union, 
within the meaning of Articles 5(c) and 6.3 of the SCM Agreement .  
9.4.  With respect to subsidies to the 787 and 777X alleged to affect  the A350X WB and A330 , the 
European Uni on argues2656:  
a. That t he combined effects of certain aeronautics R&D subsidies that improve the quality 
and accelerate the launch and delivery positions of the 787 fami ly and 777X, and other  
                                               
2654 United  States' Compliance Communication, paras. 9-11; first written submission, para. 679. 
Moreover, with respect to the tax abatements related to the City of Wichita IRBs, the United States argues that 
it has withdrawn the subsidy because it is no longer specific. (United States' opening statement at the meeting 
with the Panel, paras. 94 and 99).  
2655 United States' first written submission, para. 679 (quoting European Union's first written 
submission, para. 790).  
2656 European Union's first written submission, section VII.H.  WT/DS353/R W 
 
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  subsidies that enable Boeing to lower the prices  of these aircraft , collectively , are a  
genuine and substantial  cause of:  
i. Significant lost sales of the A350XWB, within the meaning of Article 6.3(c) of the 
SCM Agreement, and threat thereof . 
ii. Impedance of imports of the A350XWB to the United States,  within the meaning of 
Article 6.3(a) of the S CM Agreement, and threat thereof.  
iii. Impedance of exports of the A350XWB , within the meaning of Article 6.3(b) of the 
SCM Agreement to various third -country markets , and threat thereof .2657 
iv. Significant price suppression of the A350XWB , within the meaning of Article 6.3(c) of 
the SCM Agreement, and threat thereof . 
b. That the original adverse effects  of the pre -2007 aeronautics R&D subsid ies in respect of 
the A330 and Original A350 continue in the post -implementation period as:  
i. Significant price suppression of the A 330 through orders  of A330 LCA placed during 
the 2004 -2006 reference period (owing to deliveries of those aircraft occurring later, 
along with the prices fixed at that time through options and purchase rights 
exercised later, as well as "follow -on" orders based on A330 pricing expecta tions 
from 2004 -2006); and post-2006 A330 orders by all other customers.  
ii. Significant price suppression of the A350XWB ( based on  Original A350 orders 
converted to A350XWB orde rs and on new A350XWB orders ). 
iii. Significant lost sales  of the A350XWB, in that the adverse effects arising from sales 
of the  787 that were the basis for lost sales findings  for the Original A350  (and also 
the other alleged Original A350 lost sales that were not resolved) in the original 
proceeding , continue a t present to the extent those aircraft have not yet been 
delivered.  
iv. Signifi cant lost sales of the A350XWB after the original reference period  (i.e. 
post-2006), to the extent that the relevant Boeing LCA remain undelivered.  
v. Threat  of impedance of exports of  the A350XWB resulting from 787 deliveries, the 
result of Original A350 lost sales in the original reference period, occurring in the 
post-implementation period . 
9.5.  With respect to subsidies to the 737  MAX alleged to affect the A320neo , the European  Union 
argues that the combined effects of: (a) certain  aeronautics R&D subsidies that  enhance the 
quality and enable the earlier availabil ity of the 737 MAX ; and (b) other  subsidies that enable 
Boeing to lower the prices of  the 737 MAX , collectively , are a genuine and substantial  cause of2658: 
a. Significant lost sales of A320neo , within the meaning of Article 6.3(c) of the SCM 
Agreement,  and threat thereof . 
b. Threat of impedance of  future A320neo imports to  the United States market , within the 
meaning of Article 6.3(a) of the SCM Agreement,  and threat of impedance of future 
A320neo exports  to various third -country markets , within the meaning of Article  6.3(b) 
of the SCM Agreement . 
                                               
2657 Based on  the causal mechanisms that the European U nion argues indicate higher counterfactual 
sales volumes and market shares for Airbus, absent the U.S. subsidies, and on  evidence  of alleged lost sales of 
Airbus LCA in relevant country markets, as well as evidence that in the European Union's view demonst rates 
that Boeing is projected to make significantly more than 50% of present and future deliveries of "new 
technology, twin -aisle" aircraft into these markets. (European Union's first written submission, paras.  1592, 
1593, 1598, and 1599; second written s ubmission, paras. 1551 -1553 and 1560 -1563; and response to Panel 
question No. 169, paras. 468, 469, 476, and 477).  
2658 European Union's first written submission, section VII .I.  WT/DS353/R W 
 
- 463 - 
 
  c. Significant price suppression of the A320neo , within the meaning of Article 6.3(c) of the 
SCM Agreement , and threat thereof . 
9.6.  With respect to subsidies  to the 737NG alleged to affect the A320ceo , the European Union 
argues that the subsidie s that enable Boeing to lower the prices of the  737NG, collectively , are a 
genuine and substantial  cause of2659: 
a. Significant lost sales of the A320ceo , within the meaning of Article 6.3(c) of the SCM 
Agreement , and threat thereof . 
b. Displacement, impedance , and/or threat s thereof, of A320ceo  imports to the United 
States market , within the meaning of Article 6.3(a) of the  SCM Agreement, and of 
A320ceo exports to various third country markets , within the meaning of Article  6.3(b) 
of the SCM Agreement . 
c. Significant price su ppression of the A320ceo , and threat thereof . 
9.7.  As in the original proceeding, the European Union's seriou s prejudice arguments focus on the 
effects of the subsidies on Airbus' prices and sales through their effects on Boeing's product  
development  and prices .2660 Accordingly, with the exception of an additional argument regarding 
the continuation of the original adverse effects of the pre -2007 aeronautics R&D subsidies 
described in item (b) in paragraph 9.14 below, the European Union's serious  prejudice claims 
under Article  6.3 involve two phases of analysis:  
a. how certain subsidies aff ected Boeing's product  development behaviour  (for subsidies 
alleged to operate through a "technology causal mechanism"), and how certain other 
subsidies affected Boeing's LCA pricing behaviour  (for subsidies alleged to operate 
through a "price causal mecha nism"); and  
b. how the effects of the subsidies on Boeing's product  development and pricing collectively 
thereby affect Airbus sales and prices  in the post -implementation period, as empirically 
demonstrated on the basis of the evidence of Boeing and Airbus p rices and sales.  
9.8.  The parties' arguments on whether the United States has taken appropriate steps to remove 
the adverse effects , within the meaning of Article 7.8 of the SCM Agreement , reveal significant 
disagreement on a number of issues. They disagree , for example, on the delineation of the 
relevant product markets for analysing the European Union's serious prejudice  claims, and more 
particularly, whether the A330 and 777 compete with the "new technology" wide -body, twin -aisle 
LCA (i.e. the 787, 777X and A 350XWB), and whether the A320ceo and 737NG compete with the 
"new technology" single -aisle, narrow -body LCA (i.e. the 737 MAX and A320neo).  
9.9.  The parties also disagree as to how the various subsidies should be collectively assessed for 
purposes of determinin g whether they are a genuine and substantial  cause of serious prejudice , as 
well as the standard for determining whether subsidies are a genuine  cause of serious prejudice . 
9.10.  The parties disagree on whether the aeronautics R&D subsidies that are alleged to o perate 
through a technology causal mechanism do in fact affect  Boeing's product development of LC A in 
the post -implementation period, as well as how that evaluation should be undertaken. They also  
disagree as to the operation of the post -2006 subsidies, an d more particularly, whether such 
subsidies, in light of their magnitude, structure and operation, and the relevant  conditions of 
competition, do in fact affect Boeing's LCA pricing behaviour in a manner that renders them 
capable of causing the various Art icle 6.3 market phenomena.  
                                               
2659 European Union's first written submission, section VII.J.  
2660 See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1657. The European Union 
explains that, in following a "unitary" approach to demonstrating the adverse effects of the subsidies, it first 
sets out the nature of the subsidies and how they affect, in light of the conditions of competition, the 
commercial behaviour of Boeing. On that basis, the European Union then seeks to establish the particular 
market phenomena in Article 6.3 for the various Airbus products and the markets in which they compete. 
(European Union's first written submission, para. 796).  WT/DS353/R W 
 
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  9.11.  The European Union generally presents arguments concerning the effects of the subsidies 
on Boeing's  product development and pricing behaviour on a horizontal  basis. This means that the 
European Union seeks to demonstrate that th e pre-2007 aeronautics R&D subsidies affect Boeing's  
product development , and that the post -2006 subsidies affect Boeing's LCA pricing behaviour2661, 
based on the nature of the particular subsidy or group of subsidies at issue, rather than the 
particular Boe ing LCA said to be subsidized by the various subsidies in combination.2662 Based on 
conclusions that the European Union draws from the effects of the subsidies at issue on Boeing's 
technology development and pricing behaviour, respectively, the European Union  then presents 
arguments that , collectively , the subsidies adversely impact  competing Airbus LCA in the 
post-implementation period.  
9.12.  The Panel has decided to address the European Union's arguments concerning the effects of 
the various subsidies on Boeing's  product development and pricing behaviour in the context of the 
particular LCA product markets and the particular Boeing LCA that are said to benefit from the 
subsidies. It is only in the context of the particular LCA and product markets that the Panel is  able 
to meaningfully evaluate whether subsidies that may, in the abstract, be argued to affect Boeing's 
product development and pricing behaviour, do in fact have those alleged effects in relation to 
particular Boeing LCA. Once we determine that a subsidy  or aggregated group of subsidies has 
affected the technological development or prices of a particular Boeing LCA family, we then 
consider how such effects have impacted the sales and prices of the competing Airbus aircraft in 
that product market.  
9.13.  In Sect ion 9.2 we begin by address ing various factors  that provide necessary background 
for our consideration of the case: (a) developments in the LCA industry since the original 
proceeding and the implications of these developments f or the appropriate LCA product market 
delineation in this proceeding; (b) the concept  of price in the context of the LCA markets and the 
way in which airframe manufacturers such as Boeing set their LCA prices; (c) the standard of 
causation and related issu e of the subsidies  that may appropriately be aggregated  in order to 
assess their effects in an integrated manner; and (d) the relevant time -period over which to 
assess whether the non -withdrawn subsidies cause serious prejudice in the post -implementation 
period.  
9.14.  We then address, i n Section 9.3, whether  subsidies benefiting the 787 and 777X cause 
serious prejudice in respect of the A350XWB and A330. Accordingly, we evaluate both aspects of 
the European Union's serious prejudice case concerning the A350XWB and A330: (a) whether the 
combined effects of: (i) pre-2007 and certain  post-2006 aeronautics R&D subsidies  alleged to  
accelerate the launch and delivery positions of the 787 family and 777X , and (ii) the post -2006 
subsidies alleged to  enable Boeing to lower its prices, collectively, are a genuine and substantial 
cause of various forms of serious prejudice in respect of  the A350XWB and A330 in the post -
implementation period; and (b) whether the original adverse effects of the pre -2007 aeronautics 
R&D subsidies on the A330 and Original A350 continue into the post -implementation period as 
serious prejudice to the interests of the European Union in respect of  the A350XWB  and A330 .  
9.15.  In Section 9.4 we address whether  subsidies benefiting the 737 MAX and 737NG cause 
serious prejudice in respect of the A320neo and A320ceo, respectively. This involves a 
consideration of whether: (a) the combined effects of: (i) certain aeronautics R&D subsidies 
alleged to  improve the quality and accelerate  the launch and delivery positions of the 737 MAX , 
and (ii) the post -2006 subsidies alleged to  enable Boeing to lower its 737 MAX prices, collectively, 
are a genuine and substantial cause of various forms of ser ious prejudice in relation to the 
A320neo  in the post -implementation period ; and (b) the post -2006 subsidies alleged to  enable 
Boeing  to lower its 737NG prices , collectively,  are a genuine and substantial cause of various forms 
of serious prejudice in rela tion to the A320ceo  in the post -implementation period .  
                                               
2661 With the exception of a relatively small number of individual post -2006 aeronautics R&D subsidies, 
which according to the European Union, operate through a technology causal mechanism in the same manner 
as the pre-2007 aeronautics R&D subsidies. See paras. 9.85, 9.198 , 9.199 , 9.356 , and 9.357  below.  
2662 See e.g. Europea n Union's first written submission, section VII.E (Technology Causal Mechanism) 
and section VII.F (The U.S. Subsidies Cause Adverse Effects Through a Price Causal Mechanism) (dealing in a 
horizontal fashion with the arguments concerning the technology caus al mechanism and price causal 
mechanism), compared to section VII.H (Effects of U.S. Subsidies Benefiting the 787 and 777X on the A330 
and A350XWB), section VII.I (Effects of U.S. Subsidies Benefiting the 737 M AX on the A320neo), and 
section  VII.J (Effects  of the U.S. Subsidies Benefiting the 737NG on the A320ceo) (dealing with the collective 
effects of all of the subsidies benefiting the various Boeing aircraft on the competing Airbus aircraft).  WT/DS353/R W 
 
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  9.2  Preliminary considerations relevant to the Pan el's evaluation of the 
European  Union's serious prejudice case  
9.2.1   Developments in the LCA industry since the original proceeding and their 
implications for t he identification of the relevant LCA product markets  
9.16.  In this Section, we describe developments in the LCA industry since the original proceeding 
in order to determine whether the Panel should assess the competitive impact of U.S. subsidies 
benefiting cert ain Boeing LCA on the basis of the LCA product markets identified by the original 
panel, or on the basis of differently delineated product markets. The two main issues that arise are 
whether current conditions of competition mean that existing and new tech nology aircraft of 
similar capacity, range and maximum take -off weight (MTOW) no longer exercise meaningful 
competitive constraints upon one another, and are more appropriately considered to occupy 
distinct product markets, and whether the trend towards la rger variants of wide -body, twin -aisle 
LCA means that it is no longer meaningful to apply the 200 -300 seat and 300 -400 seat product 
market delineation that the original panel adopted.  
9.17.  In the original proceeding, the panel described certain key features of  the LCA markets in 
which Boeing and Airbus LCA compete. According to the European Union, f or the most part, these 
features remain unchanged.2663 Thus, the LCA industry is effectively a competitive, supply -side 
duopoly, in which Boeing and Airbus are the only  manufacturers of LCA.2664 Boeing and Airbus 
each hold s significant market share and possess es a degree of market power, meaning that each 
manufacturer's decisions regarding the supply and pricing of its products have the ability to 
influence the pricing of t he other, and more generally, the market price for LCA.2665 Overall market 
demand for LCA is understood to be fairly inelastic with respect to price, due to the lack of viable 
alternatives to LCA and the cost of the aircraft itself representing only a small p ortion of total 
airline operating costs. However, individual firms, such as Boeing and Airbus, face elastic  demand 
for their individual LCA products, given the ability of customers to negotiate significant discounts 
on LCA, exploiting the substitutability of aircraft from the two suppliers.2666 
9.18.  Technological innovation is a crucial element of competition between LCA manufacturers.2667 
The marketing life of an aircraft is determined largely by the life of the technology that defines the 
model. Once the technology is superseded, the LCA manufacturer will no longer be able to sell the 
model without making major capital investments to incorporate the latest available 
technologies.2668  
9.19.  Given the enormous costs associated with the development of a new LCA family, both 
Airbus and Boeing are necessarily limited in the number of different LCA families (including size 
variants within an LCA family) that they are able to offer customers. Each LCA family, therefore, is 
ideally optimised in terms of size and range (among other fa ctors) to cover as wide a base of 
customer needs as possible. B oth Airbus and Boeing design the physical characteristics of their 
LCA families in consultation with , and according to the needs of , airlines and leasing companies, 
and as a result have develop ed broadly similar LCA families with overlapping physical 
characteristics and customer end -uses.2669 Airbus and Boeing each offers a full line of LCA, and 
both manufacturers source material and technology worldwide, often from the same suppliers.2670 
At the same  time, Airbus and Boeing compete by differentiating their aircraft, optimising new size 
variants to fill existing gaps in the market.  
                                               
2663 European Union's first written submission, para. 839.  
2664 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1688; and Appellate Body Report, US 
– Large Civil Aircraft (2nd complaint ), para. 903. While certain manufacturers other than Boeing and Airbus 
have attempted to produce single -aisle LCA (notab ly Bombardier, Embraer, Comac, and United Aircraft 
Corporation), their market shares and product ranges are limited.  
2665 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1688; and Appellate Body Report, US 
– Large Civil Aircraft (2nd complai nt), para. 903.  
2666 Moreover, used aircraft can represent a viable alternative for some customers also, contributing to 
pressure on LCA manufacturers to price their new LCA near competitive levels. (M. Baye, NERA, Response to 
the EU's Allegations Regarding t he Nature and Effect of U.S. Aeronautics R&D Subsidies to Boeing  
(6 October  2015) (Baye Report), (Exhibit USA -581), para. 9 and fn 6).  
2667 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1769.  
2668 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7. 1651. 
2669 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 903.  
2670 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 903.  WT/DS353/R W 
 
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  9.20.  Aircraft acquisitions form the key element of an airline's business and strategic plan.2671 
Every LCA sales campaign involve s a unique focus on the needs of the particular airline or leasing 
company. Airlines generally evaluate the competing Airbus and Boeing offers according to factors 
such as price and pricing expectations, direct operating costs, capacity differences, dates of 
delivery, options, asset value expectations, residual value assumptions, disposal of used aircraft, 
the "family concept", engine manufacturers, guarantees, support, financing, cost of change , and 
cost of diversifying and subjective factors.2672 While diffe rences in price, capacity and direct 
operating cost s generally are the most significant factors that determine the outcome of an LCA 
sales campaign, the significance of those factors in any LCA sales campaign varies depending on 
the fleet and business plan s of the customer, and its strategic goals.2673  
9.21.  During an LCA sales campaign, the customer will conduct its own technical and economic 
evaluations of each LCA manufacturer's proposal, and assess the total cost and anticipated 
revenue stream presented by the particular proposal. This evaluation involves arriving at an 
estimate of the present value of costs associated with the acquisition of a new fleet of aircraft (e.g. 
price, maintenance costs, direct and indirect operating costs, financing, training costs) a gainst the 
present value of the revenue stream that would be expected to be generated by the proposed 
fleet. The resultant calcul ation is the net present value  (NPV) to the customer. Price concessions 
made by the manufacturer can offset disadvantages assoc iated with certain "non -price" factors 
that are part of the NPV calculation, but offsetting certain non -price factors through price 
concessions can, in certain cases, be costly .2674  
9.22.  In the original proceeding, the panel found that the market for LCA is a glo bal market 
geographically, and neither party disputes that this remains the case.2675 The European 
Communities had presented its original case on the basis that there were five LCA product 
markets, of which the following three LCA product markets and aircraft  were relevant to its 
claims2676:  
a. Single -aisle aircraft with a capacity of approximately 100 to 200 passengers in a 
two-class configuration, and a short to medium range. The relevant Boeing and Airbus 
aircraft in this LCA product market were the 737NG and A3 20ceo families of LCA, 
respectively.  
b. Wide-body aircraft with a capacity of approximately 200 to 300 passengers in a 
three-class configuration, and a medium to long or ultra -long range. The relevant Boeing 
aircraft in this LCA product market were the 767 an d the 787 -8. The relevant Airbus 
aircraft in this LCA product market were the A330 and A350XWB -800. 
                                               
2671 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.16 93. Airlines either purchase new 
LCA outright from Boeing or Airbus, finance purchases through instruments such as finance leases, lease the 
aircraft that they operate, or purchase used aircraft from other airlines or leasing companies.  
2672 Statement of C. Moure y, "Current Competitive Conditions in the LCA Industry", 27 March 2013 
(Mourey Statement), (Exhibit EU -34) (BCI), para. 44. The "family concept" refers to LCA manufacturers' 
practice of offering several derivatives of one base LCA, generally with limited d ifferences in the airframe 
(aside from its length), on -board systems, cockpits and handling qualities. This concept reduces costs by 
allowing flight crews to operate a range of LCA, since the training and licensing requirements qualify crews to 
shift from one aircraft to another within the same family. (Mourey Statement, (Exhibit EU -34) (BCI), para. 55). 
The subjective factors that influence an airline customer or leasing company's evaluation of Airbus and Boeing 
offers include the impact on the image of an  airline of flying a particular LCA, value of product features such as 
cabin width and aesthetics, the long -term viability of the product and manufacturer, long -term risks of new 
technologies and materials and risks associated with a single engine choice. (Mourey Statement, (Exhibit 
EU-34) (BCI), para. 61).  
2673 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1694. Direct operating costs include 
fuel burn, maintenance costs, user charges (e.g. take -off, landing , and navigation fees), and cost s for crew. 
According the Airbus' Christophe Mourey, direct costs are almost always among the crucial factors analysed by 
airlines in purchasing LCA. Together with the capital costs of the aircraft, direct costs determine the cost basis 
of the airline, and  thus have a significant impact on its profitability. (Mourey Statement, (Exhibit EU -34) (BCI), 
para. 47).  
2674 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1694.  
2675 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1671.  
2676 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1669 and 7.1670. The two other 
LCA product markets not relevant to the original proceeding are: (a) wide -body aircraft with a capacity of 400 
to 500 passengers in a three -class configuration (or the respective cargo equivalent) and a long range; and (b) 
super wide -body aircraft with a capacity in excess of 500 passengers in a three -class configuration (or the 
respective cargo equivalent), and a long range.  WT/DS353/R W 
 
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  c. Wide-body aircraft with a capacity of approximately 300 to 400 passengers in a 
three-class configuration, and a long or ultra -long range. The relevant Boein g aircraft in 
this LCA product market were the 777 family of LCA. The relevant Airbus aircraft in this 
LCA product market were the A340 and A350XWB -900 and A350XWB -1000 families.  
9.23.  The panel evaluated the European Communities' serious prejudice claims on the  basis of the 
LCA product markets it had identified and the three groups of "subsidized" Boeing LCA which 
corresponded to three groups of Airbus "like" products in each product market.2677 Neither party 
appealed this aspect of the original panel's serious pre judice evaluation and the Appellate Body 
considered the European Union's appeal on the basis of these LCA product markets. Since 2006 
(the end of the reference period in the original proceeding) there have been important 
developments in the LCA product mar kets; notably, the launch of new single -aisle and  wide-body 
LCA incorporating new generation  technologies, which are intended ev entually to supersede 
existing current generation  aircraft marketed by both Boeing and Airbus.  
9.24.  With regard to wide -body LCA, Bo eing continues to produce the  767, although it receives 
limited orders.2678 Airbus continues to produce the A330, which has two size variants, the 
A330-200 and the A330 -300.2679 As described in the original proceeding, the 787 programme was 
launched by Boeing in  2004, and in response, Airbus launche d the A350XWB programme in 
late 2006.2680 The 787 family has three size variants; the 787 -8, which is the Boeing aircraft 
closest in size (as represented by maximum seat number) to the A3 30-200, while the 787 -9 is 
closest  in size to the A330 -300. The 787 -10, launched in June 2013, is close in size to the 777 -
200ER which, along with the 777 -300ER, is in the process of being replaced by two larger size 
variants, the 777 -8X and the 777 -9X.2681 The A350XWB family also has three s ize variants, the 
A350XWB -800, the A350XWB -900, and the A350XWB -1000. The A350XWB -1000 is roughly 
equivalent in size to the new 777 -8X, the A350XWB -900 to the 787 -10 (and the 777 -200ER), and 
the A350XWB -800 to the 787 -9.2682 The 777X was formally launched in November 2013, although 
Boeing has had authorization to offer the 777X in sales campaigns and take commitments to 
purchase since May 2013.2683 The new 777 -9X (which is replacing the 777 -300ER) has no 
equivalently -sized Airbus competitor.2684  
9.25.  Table 4 below provides a comparison of the existing and new technology Airbus and Boeing 
wide-body, twin -aisle LCA at issue in this proceeding, based on seating capacity, MTOW, range and 
list price.  
                                               
2677 Panel Report, US – Large Civil Air craft (2nd complaint ), para. 7.1672.  
2678 According to Christophe Mourey, the 767 averages eight aircraft per year since the beginning of 
2007, although the Tanker version of the 767 recently won a major contract from the U.S. Air Force. (Mourey 
Statement, (E xhibit EU -34) (BCI), para. 95). Boeing's 767 assembly line includes a 767 derivative to support 
the military aircraft refuelling tanker programme. In its 2014 Annual Report, Boeing reported that in 
October  2014 it increased its combined tanker and commerci al production rate from 1 to 1.5 per month and 
planned to increase to two per month in 2016. (Subsidies to Boeing's LCA Division (2013 -2014 Update), 
(Exhibit EU -1451), annex A: Boeing's Annual Report on Form 10 -K for the fiscal year ended 
31 December,  2014, p. 28). 
2679 While the original panel found, among other things, that A330 prices and sales in the 2004 -2006 
reference period were adversely affected by the launch of the 787 in 2004, in more recent years the A330 
appears to have enjoyed significant sales. (See Mourey Statement, (Exhibit EU -34) (BCI), paras. 97 and 116). 
Further, Airbus launched the A330neo family (comprising the A330 -800neo and A330 -900neo), a re -engined 
version of the A330 which features certain other incremental innovations. (See Airbus P ress Release, "Airbus 
launches the A330neo", 14 July 2014, (Exhibit EU -1667)). At the time of launch in July 2014, Airbus expected 
that deliveries of the A330neo would start in the final quarter of 2017.  
2680 Panel Report, US – Large Civil Aircraft (2nd comp laint), para. 7.1777.   
2681 D. Tsang, "Boeing 777X & 787 -10X unfazed by 787 battery woes", Aspire Aviation , 
14 February  2013, (Exhibit EU -611); and "787 -10 to come later than suggested",  Leeham, News and 
Comment , 14 August 2012, (Exhibit EU -612).  
2682 Boeing Pre ss Release, "Boeing Launches 777X with Record -Breaking Orders and Commitments", 
17 November 2013, (Exhibit EU -1299), p. 2.  
2683 D. Gates, "Boeing to offer 777X for sale as launch nears", Seattle Times , 1 May 2013, (Exhibit 
EU-1300).  
2684 Boeing Press Release, "B oeing Launches 777X with Record -Breaking Orders and Commitments", 
17 November 2013, (Exhibit EU -1299), p. 2.  WT/DS353/R W 
 
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  Table 4: Airbus and Boeing  wide -body, twin-aisle aircraft compared on the basis of 
seating capacity, MTOW , range and price2685 
LCA model  Seats  MTOW (t)  Range 
(nautical  miles)  List price 
(USD  millions)  
787-8 246 227.93  7,350  206.8  
 
A330 -200 246 238.00  6,850  208.6  
 
A350XWB -800 
 276 259.00  8,200  245.5  
787-9 280 247.21  7,600  243.6  
 
A330 -300 300 235.00  5,600  231.1  
 
777-200ER  302 297.55  7,350  258.8  
 
A350XWB -900 315 268.0  7,750  
 277.7  
787-10 300-330 250.8  7,000  290 
 
777-300ER  360 351.53  7,650  315 
 
A350XWB -1000  369 308.0  8,000  
 320.6  
777X (8)  350 315 9,300  349.8  
 
777X (9)  400 344 8,200  377.2  
 
9.26.  There have also been developments in the single -aisle LCA offered by Boeing and Airbus, 
driven largely by advances in engine technologies. In December 2010, Airbus launched a 
re-engined A320 f amily aircraft (A319, A320, and A321 models) as a new engine option  (neo) 
family. First deliveries were scheduled for October 2015. Some eight months later, in August  2011, 
Boeing launched an allegedly similarly fuel -efficient , improved version of its 737N G family with 
new engines, the 737 MAX family, with first deliveries scheduled for 2017.2686  
9.27.  The European Union argues that there have been a number of other developments in the 
LCA markets since 2006 that complement the launches of the new generations of LC A and impact 
the competitive relationships among the relevant Boeing and Airbus LCA, warranting a different 
delineation of the relevant LCA product m arkets from  that adopted by the panel in the original 
proceeding.2687 More specifically, the European Union po ints to rising fuel prices, which have 
incentivized airlines to update their older fleets with new, more technologically advanced , fuel 
efficient aircraft. New technology aircraft, however, are only available for deliveries in the long - 
term, whereas exist ing technology aircraf t are still available for short -term delivery needs.2688 
Further, increasing congestion and slot constraints at hub airports, resulting from  growing air 
                                               
2685 The data in Table 4 above is compiled from the following evidence; seating capacity : Boeing Press 
Release, "Boeing Launches 787 -10 Dreamliner", 1 8 June 2013, (Exhibit EU -1159) for 787 -10; Boeing website, 
"777X Gallery Experience", "777X Details & Specifications", (Exhibit EU -1302) for 777X8 and 9; and Mourey 
Statement, (Exhibit EU -34) (BCI) for all other LCA models; MTOW : D. Tsang, "Boeing 777X & 7 87-10X unfazed 
by 787 battery woes", aspire aviation , 14 February 2013, (Exhibit EU -611) for 787 -10, 777X8 and 9; and 
Mourey Statement, (Exhibit EU -34) (BCI) for all other LCA models; range : Boeing Press Release, "Boeing 
Launches 787 -10 Dreamliner", 18 Jun e 2013, (Exhibit EU -1159) for 787 -10; Boeing website, "777X Gallery 
Experience", "777X Details & Specifications", (Exhibit EU -1302) for 777X8 and 9; and Mourey Statement, 
(Exhibit EU -34) (BCI) for all other LCA models; and list price : Boeing Press Release,  "Boeing Launches New 
Commercial Airplane; Highlights Innovation, Efficiency and Partnerships a t 2013 Paris Air Show", 
20 June 2013, (EU -1184) for 787 -10 (2013 list price), obtained by dividing approximate list price values of 
orders by number of aircraft ordered; Boeing website, "777X Gallery Experience", "777X Details & 
Specifications", (Exhibit EU -1302) for 777X8 and 9 (2013 list prices); Boeing List Prices, (EU -1210) for 787 -8, 
787-9, 777 -200ER, and 777 -300ER (2012 list prices); and European Union's f irst written submission, 
paras.  907, 918, and 923 for all Airbus models (2012 list prices).  
2686 Mourey Statement, (Exhibit EU -34) (BCI), para. 81.  
2687 European Union's first written submission, paras. 888 -893. 
2688 European Union's first written submission, paras.  889 and 890; and Mourey Statement, (Exhibit 
EU-34) (BCI), paras. 11-35. WT/DS353/R W 
 
- 469 - 
 
  traffic demand, have  increased the attractiveness of larger aircraft within each of the aircraft 
families.2689 
9.28.  The European Union argues that as a result of the foregoing developments in the LCA 
industry since 2006, the Panel should examine its claims in this proceeding on the basis of seven 
(rather than five) current global product markets.  This product market delineation is  based on the 
proposition that existing technology  aircraft, which are less fuel efficient but avail able for earlier 
delivery, and new technology aircraft , which are more fuel efficient but may not be available for 
delive ry for many years, despite their similarities in seating capacity, range, and MTOW, in fact do 
not exercise meaningful competitive constraints on one another, and therefore are more 
appropriately considered to compete in distinct LCA product markets.2690 The European Union's 
proposed delineation of the relevant LCA product markets is depicted below:  
Table 5: The European Union's proposed product market delineation  
European Union's proposed product market delineation in this compliance p roceeding2691 
Relevant product market  Airbus LCA  Boeing LCA  
Single -aisle 
Existing technology/near -term delivery  
 A320ceo family  737NG family  
Single -aisle 
New technology/late -term delivery  
 A320neo family  737 MAX family  
Medium -sized twin -aisle 
Existing tec hnology/near -term delivery  
 A330 family  N/A 
Medium - and large-sized twin-aisle 
New technology/ late-term delivery  A350XWB -800 
A350XWB -900 
A350XWB -1000 787-8 
787-9 
787-10 
777X 
Large -sized twin-aisle  
Existing technology/near -term delivery  N/A 777 
 
9.29.  The dif ferences between the product market delineation relied on by the panel in the 
original proceeding, and the European Union's proposed product market delineation in this 
proceeding can be illustrated as follows:  
                                               
2689 European Union's first written submission, para. 889; and Mourey Statement, (Exhibit EU -34) (BCI), 
paras. 11 -35. 
2690 European Union's first written submission, paras. 901 -905 and 910 -914. 
2691 Accordingly, the European Union considers that the 767, A340, and Original A350 are no longer in 
any LCA product market.  WT/DS353/R W 
 
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  Table 6: Comparison of  the product market delineation in the original proceeding with 
the European Union's proposed product market delineation  
Product market delineation in the 
original proceeding  European Union's proposed product market 
delineation in the compliance proceeding  
100-200 seat single -aisle LCA  Single -aisle 
Existin g technology/near -term delivery  
Single -aisle 
New technology/late -term delivery  
200-300 seat wide -body LCA  Medium -sized twin -aisle 
Existin g technology/near -term delivery  
Medium - and large-sized twin-aisle 
New technology/ late-term delivery  
300-400 seat wide -body LCA  
Large -sized twin-aisle  
Existing technology/near -term delivery  
 
9.30.  As can be seen from the above table, the European Union's proposed LCA product market 
delineation essentially means that  the single -aisle LCA product market would be divided into two 
product mark ets (one for older technology, current generation  LCA, and one for new t echnology, 
new generation  LCA). The 200 -300 seat and 300 -400 seat wide -body, twin -aisle product markets 
would  be combined but then distinguished on the basis of the technological generation and 
delivery availability.  In other words, the European Union's proposed market delineation for wide -
body, twin -aisle LCA groups  current generation, existing technology LCA in  a med ium-sized wide -
body segment with  current generation, existing technology LCA in a large -sized wide -body 
segment, neither of which compete s with any new technology, wide -body aircraft, and a new 
technology wide -body segment that covers both medium wid e-body LCA and large wide -body LCA . 
9.31.  The United States does not agree that the European Union's proposed LCA product markets 
are an accurate reflection of LCA competition and considers that the Panel would be justified in 
rejecting the European Union's adve rse effects claims becau se they are not based on valid 
markets , within the meaning of Articles 6.3(a) through (c) of the SCM Agreement.2692 
9.32.  The European Union's proposed product market delineation raises two issues. The first is 
whether the Eu ropean Union has  demonstrated  that existing and new  technology aircraft , which 
have different levels of fuel efficiency, but which otherwise have similar range, seating capacity,  
and MTOW, compete  in separate product markets. The second is whether it is appropriate to 
abandon the original panel's delineation of the wide -body, twin -aisle aircraft product markets as 
comprising separate product markets for smaller - and larger -sized twin -aisle airc raft, in favour of 
the European  Union's new approach, which treats all of th e new technology  wide-body, twin -aisle 
aircraft, regardless of variations in size, range, and MTOW, as competing in the same product 
market.  
9.33.  As the Appellate Body has explained, the concept of serious prejudice relates to, and arises 
out of, competitive engag ement in a market.2693 In other words, a subsidiz ed product can only 
cause serious prejudice to another product if the  two products in question compete in  the same 
market.2694 In this proceeding, the European Union argues that subsidies to certain Boeing LCA 
families cause serious prejudice in respect of  certain Airbus LCA families. In order to assess these 
claims it is necessar y to determine that the particular Boeing LCA identified by the European Union 
as the relevant "subsidized product " in fact compete  (or potentially compete) in the same product 
market as the Airbus LCA to which they are alleged to have caused serious prejudic e. The 
                                               
2692 United States' first written submission, para. 695.  
2693 Appellate Body Report, EC and certain member States – Large Civil Aircra ft, para. 1119.  
2694 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1119.  WT/DS353/R W 
 
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  Appellate Body has provided  guidance on how different product markets might be identified, 
explaining that "two products would be in the same market if they were engaged in actual or 
potential competition in that market".2695 The Appellate Body said that this would be the case 
when two products are "sufficiently substitutable so as to create competitive constraints on each 
other ".2696 The European Union's proposed product market delineation therefore raises the 
question of whether, due to developments in the conditions of c ompetition in the LCA markets, 
existing technology and new technology  LCA of similar capacity, range , and MTOW  have ceased to 
exercise competitive constraints on each other, and as such now compete in separate  product  
markets, justifying a departure from the product market delineation on which the original panel 
and Appellate Body based their analyses and findings.  
9.34.  Our review of the evidence demonstrates that , among the various single -aisle LCA, and 
among various twin -aisle LCA, there is a high degree of similarity between Airbus and Boeing 
products regardless of whether they are current or new generation models .2697 Speci fically, old and 
new generation aircraft of similar capacity, range , and MTOW share close similarities in seat 
number, MTOW, length and wing -span.2698 This is more pronounced for single -aisle LCA, but there 
is nonetheless also sufficient overlap across all tw in-aisle LCA models. While such similarities 
between LCA of themselves  are not necessarily determinative of whether the LCA in question place 
meaningful competitive constraints on each other, they may well be di spositive where those 
similarities also point  to the products serving the same purpose in terms of the routes and 
passenger volumes for which they are suitable, because they suggest that those LCA would likely 
meet the specific requirements of the same customers. We also note that the Appellate Body has 
specifically pointed to physical similarities between LCA as a relevant factor when determining the 
demand -side substitutability of different aircraft.2699 
9.35.  The European Union's argument that existing technology and new technology aircraft 
occupy separate product markets relies primarily on the evidence of Christophe Mourey, Senior 
Vice President Contracts at Airbus  (the Mourey Statement ).2700 The Mourey Statement explains 
that airlines purchase LCA for specific missio ns, based on the timing, range, and passen ger 
demand in the airline's route network. The suitability of an LCA model for a specific mission 
depends primarily on its direct operating costs, size and range. These qualitative and quantitative 
differences and preferences are quantified  into a n NPV cal culation, which represents a hypothetical 
assessment of the stream of future revenues and costs over time of the aircraft performing that 
specific mission. Airline customers and leasing companies compare the NPV rates of competing 
Airbus and Boeing offers as part of their assessment of which aircraft manufacturer's offer will be 
the more economical, and represent the best value over time.2701  
9.36.  The Mourey Statement undertakes  an NPV analysis of different pairings of new technology 
and existing technology aircra ft. Specifically, Mr Mourey calculates the NPV differences between , 
respectively,  the A320ceo versus the A320neo, and the A330 and A350XWB versus the 787, based 
on an assumed common de livery date and a hypothetical typical mission . Mr Mourey concludes 
that, when fuel costs are high , the NPV advantage of a new technology aircraft over its 
equivalently -sized, existing  technology counterpart is so significant that customers would "have a 
clear preference" for the former.2702 Mr Mourey then notes, however, that ne w technology aircraft 
have later delivery availabilities than existing technology aircraft, and are therefore unable to fill 
an airline's more immediate needs, for example to secure capacity until delivery positions for new 
technology aircraft become avail able.2703 Mr Mourey argues that new technology a ircraft therefore 
                                               
2695 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1122.  
2696 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1120.  
2697 See Mourey Statement, (Exhibit EU -34) (BCI).  
2698 See Mourey Statement, (Exhibit EU -34) (BCI). See also Panel Report, EC and certain member States 
– Large Civil Aircraft (Article 21.5 – US) at paras. 6.1239 -6.1240 and 6.1286  (for single -aisle LCA) and 
6.1295 -6.1300 (for twin -aisle LCA). The panel in that case considered that, despite differences in maximum 
flying range between existing technology and new technology single -aisle LCA, the evidence before it 
suggested that the n ew generation single -aisle LCA are marketed as updated, more fuel -efficient versions of 
their existing technology counterparts for the purpose of serving essentially the same missions already 
operated by existing technology LCA, at paras. 6.1246 and 6.1248 . 
2699 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1134.  
2700 Mourey Statement, (Exhibit EU -34) (BCI).  
2701 Mourey Statement, (Exhibit EU -34) (BCI), para. 69.  
2702 Mourey Statement, (Exhibit EU -34) (BCI), paras. 74-92 (comparing  the A320neo and the A320ceo), 
and 115 -131 (comparing the A330 with the 787 and the A350XWB).  
2703 Mourey Statement, (Exhibit EU -34) (BCI), paras. 91 and 122 -127. WT/DS353/R W 
 
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  compete in a market  for long -term delivery positions while existing technology ai rcraft compete 
separately in a market  for short -term delivery positions. As explained above, on the basis of thi s 
analysis, the Eur opean Union considers that the new technology  A320neo and the 737 MAX 
compete against each other in  one LCA product market, while the existing technology  A320ceo and 
the 737NG compete against each other in another LCA product market. Sim ilarly, contrary to the 
basis on which the panel found serious prejudice in respect of the A330 in the original proceeding, 
the Eur opean Union considers that the existing technology  A330 can no longer be said to compete 
against the new technology  787 and now occupies an LCA  product market of its own.  
9.37.  We do not consider that the evidence presented in the Mour ey Statement demonstrates that 
existing technology aircraft and new technology  aircraft of similar capacity, range , and MTOW 
compete in separate LCA product markets . First, the Mourey Statement's  NPV analysis, which 
purports to determine the value advantage of new technology aircraft over similarly -sized existing 
technology aircraft, compares the aircraft only on the basis of the operating costs of flyin g typi cal 
routes over time. Mr Mourey's analysis  excludes factors such as delivery availability and fleet 
commonality, which can also significantly affect the value of a particular offer. On the basis of 
comparing operating costs alone, the NPV advantage o f new technology aircraft appear s 
significant . It is th is degree of advantage that Mr Mourey argues cannot be offset by pricing 
concessions on existing technology aircraft. By limiting the comparison to operating costs , 
however, Mr Mourey overstates the ad vantage that a new technology aircraft might have in an 
actual sales campaign against an equivalently -sized, existing technology aircraft.2704 If, for 
example, the delivery availability of existing  and new technology aircraft is  taken into account, the 
value advantage o f the new technology aircraft's  lower operating costs would be offset  by the 
existing technology aircraft's earlier availability. Similarly, if an existing technology aircraft shared 
commonality with a customer's fleet, this advantage would, at least partially, also offset a  new 
technology aircraft's operating cost  advantage. Mr Mourey 's conclusion that the value difference 
between existing and new technology aircraft cannot reasonably be offset by price concession s 
assumes a value advantage in w hich no factors other than operating costs are taken into account 
in a customer's assessment of the value differential offered by the two typ es of aircraft. This is not 
the case.2705 We therefore do not accept the fundamental premise underlying Mr Mourey's 
argument, which is that the value advant age represented by a new technol ogy aircraft's lower 
operating costs cannot be offset by pricing con cessions on equivalently -sized existing technology  
aircraft.  
9.38.  Even if we were to accept that a new technology  aircraft 's operating  cost advantage could 
not be of fset by pricing concessions on existing technology  aircraft, we do not consider that this  
would necessarily demonstrate  that the latter does not exercise competitive constraints  on the 
former.2706 The very fact of a new technology  aircraft's better value assumes at least some cap on 
its price , which must be defined in relation to i ts existing technology alternative.2707 If the prices of 
a new technology  aircraft increased beyond a certain point, it would cease to be the more 
economical choice, despite its large operating cost advantage.2708 The Mourey Statement  
compartmentaliz es the needs of LCA customers into existing technology, near -term availability 
versus new technology, long -term availability in a way that  in our view  does not reflect the reality 
of the market s. The European Union supports its case that subsidies to the various Boeing aircraft 
cause serious prejudice  to the European Union's  interests in the post -implementation period by 
reference to evidence of the comp etitive interactions between Boeing and Airbus in particular LCA 
sales campaigns involving the 787, 777X, 737 MAX , and 737NG, on the one hand, and the 
A350XWB, A320neo , and A320ceo, on the other, between 2007 and 2015. We discuss this sales 
                                               
2704 See also Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), 
paras. 6.1263 -6.1269, 6.1288, and 6.1345.  
2705 See para. 9.20 above.  
2706 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1120.  
2707 See also Panel Report, EC and certain member Sta tes – Large Civil Aircraft (Article 21.5 – US), 
para. 6.1262.  
2708 Indeed, there is evidence to suggest that Airbus set the prices of its new technology A320neo by 
reference to the prices of its existing technology A320ceo. (S. Hamilton, "A320 NEO to have $7 -8 million Price 
Premium", Flight International , 23 August 2010, (Exhibit USA -361)). A 2013 article indicated that A320ceos 
and 737NGs were being "massively discounted" owing to customer preference for the more fuel -efficient 
versions of the A320neo and 73 7 MAX that were then in development. ("Le vrai prix des avions d'Airbus et de 
Boeing", Challenges , 13 June 2013, (Exhibit EU -1709)). We note that Airbus marketing materials suggest that 
the existing technology A330 is compared to the new technology 787. (S ee F. Bregier, "Airbus Results 2012, 
Outlook 2013", Presentation at the Annual Press Conference, 17 January 2013, (Exhibit USA -296)).  WT/DS353/R W 
 
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  campaign eviden ce in Sections 9.3.2.2  and 9.4.3 in connection with our evaluation of the European 
Union's serious prejudice claims in the wide -body, twin -aisle, and narrow -body, single -aisle LCA 
product markets, a s well as in an appendix to th e Report which is designated as HSBI (the HSBI 
Appendix ).2709 The sales campaign evidence shows that Airbus and Boeing will often offer a mix of  
both old an d new technology LCA in individual sales  campaign s, wherein existing tech nology 
aircraft are operated as an interim solution, pending the delivery o f new technology aircraft .2710 A 
particularly attractive offer for the existing technology A320ceo, for example, will exercise 
competitive constraints on Boeing's competing "package de al" comprising 737NGs and new 
technology  737 MAXs. This is an example of  existin g technology aircraft exercising  competitive 
constraints on new technology aircraft.2711 
9.39.  In light of the foregoing, we  consider that the Europe an Union has not demonstrated that 
existing technolog y aircraft and new technology  aircraft  of similar capacity, range , and MTOW  no 
longer exercise meaningful competitive constraints on each other such that they  presently  
compete in separate LCA product markets.2712  
9.40.  Therefore, in  evaluating th e European Union's claims that the United States has failed to 
remove the adverse effects, within the meaning of Article 7.8 of the SCM Agreement, because the 
unwithdrawn subsidies cause present adverse effects , in the form of serious prejudice,  after the 
end of the imple mentation period, we treat the existing technology A320ceo and 737NG, as well as 
the new technology  A320neo and 737 MAX, as all competing in the same product market for 
narrow -body, single -aisle aircraft. We similarly treat the existing tec hnology  A330 and 777 families  
as competing with new technology  twin-aisle, wide -body LCA of both Airbus (the A350XWB family) 
and Boeing (the 787 and 777X families)  and not in their own distinct monopoly product markets .  
9.41.  The second issue raised by the Euro pean Union's proposed product delineation is whether 
the Panel should treat all of the wide -body, twin -aisle aircraft at issue in this proceeding, 
regardless of variations in seating capacity, range, and MTOW, as competing in one wide -body, 
twin-aisle prod uct market, as the European Union does in respect of its proposed "medium - and 
large-sized twin aisle, new technology" product market, or whethe r the variations in seating 
                                               
2709 See Appendix 2.  
2710 For single -aisle aircraft, seven of the sales campaigns submitted by the European Union involved 
split offers across existing  and new technology aircraft. These sales campaigns are discussed at the following 
paragraphs of the HSBI Appendix  (Appendix  2): 173 -180; 181 -187; 190 -195; 196 -201; 212 -217; 218 -223; 
and 224 -230. For twin -aisle aircraft, at least thr ee of the sales campaigns submitted by the European Union 
involved split offers across existing  and new technology aircraft, including the sales campaigns discussed at the 
following paragraphs of the HSBI Appendix  (Appendix  2): 12 -23; 24 -30; and 51 -60. 
2711For a nu mber of the sales campaigns which  the European Union submits in support of its claims of 
serious prejudice to Airbus new technology aircraft, the evidence specifica lly refers to aspects of the 
existing -technology portion of Boeing's competing offer a s posing a threat to Airbus' new -technology offer. 
With respect to competition between current and new technology LCA in the singl e-aisle market, see e.g. the 
sales campaign dis cussed at paras. 181 -187 of the HSBI Appendix  (Appendix  2) and [[HSBI]]  (Exhibi t 
EU-898) (HSBI); the sales campaign dis cussed at paras. 190 -195 of the HSBI Appendix  (Appendix  2) and 
[[HSBI]]  (Exhibit EU -906) (HSBI); the sales campaign dis cussed at paras. 196 -201 of the HSBI Appendix  
(Appendix 2) (HSBI)  and [[HSBI]]  (Exhibit EU -924) ( HSBI); the sales campaign dis cussed at paras. 212 -217 
of the HSBI Appendix  (Appendix  2) and [[HSBI]]  (Exhibit EU -952) (HSBI); and the sales campaign dis cussed 
at paras. 218 -223 of the HSBI Appendix  (Appendix  2) and European Union's second written submissio n, 
paras.1709 -1711. With respec t to competition between existing  and new technology LCA in the twin -aisle 
market, see e.g.  the sales campaign discussed at par as. 63 -65, 70 -73, and 76 of the HSBI Appendix  
(Appendix  2) and [[HSBI]]  (Exhibit EU -845) (HSBI); t he sales campaign discussed at  paras. 128 -134 of the 
HSBI Appendix  (Appendix  2) and [[HSBI]]  (Exhibit EU -1484) (HSBI); and the sales campaign discussed in 
[[HSBI]]  (Exhibit EU -787) (HSBI) . 
2712 We note that the panel in EC and certain member States – Large Ci vil Airc raft (Article 21.5 – US) 
similarly concluded, on the basis of, inter alia , evidence which was not before this Panel, that for the purpose 
of the serious prejudice disciplines of the SCM Agreement, all Airbus and Boeing single -aisle aircraft compete  in 
one and the same LCA product market, and all five families of Airbus and Boeing twin -aisle LCA exercise 
differing but overall sufficient degrees of competitive constraints against each other such that they should all 
be considered to fall within the sa me LCA product market for the purpose of the serious prejudice claims 
considered by that panel. (See Panel Report, EC and certain member States – Large C ivil Aircraft (Article 21.5 
– US), paras. 6.1286 and 6.1370). We reach our conclusion s as to the approp riate delineation of LCA product 
markets for purposes of this proceeding on the basis of the evidence before us as to the present conditions of 
competition in the LCA product markets. We acknowledge that these conditions will continue to evolve. We 
therefo re do not rule out the possibility that, in time, existing technology LCA could move into distinct product 
markets from their new technology counterparts.  WT/DS353/R W 
 
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  capacity, range, and MTOW in fact warrant treating wide -body, twin -aisle aircraft, r egardless of 
the vintage of their technologies, as competing in two or more distinct wide -body product markets.  
9.42.  We recall that the original panel, for purposes of evaluating the European Communities'  
serious prejudice claims in the 2004 -2006 period, had i dentified two relevant wide -body, twin -aisle 
LCA product markets in that proceeding: A 200 -300 seat market and a 300 -400 seat market.2713 
Since the original proceeding, however, there has been a general shift toward s larger size variants 
within aircraft famil ies for both Airbus and Boeing LCA. The consequence is that competition 
among wide -body, twin -aisle aircraft no longer obviously o ccurs within the confines of a 200 -300 
seat and 300 -400 seat  product market delineation. Further, as explained above, Boeing a nd Airbus 
in fact compete  by differentiating their aircraft and optimising new size -variants to fill existing 
gaps in the market. As such, it is not the case that one Airbus wide -body, twin -aisle LCA family is 
designed to compete primarily with an opposing  Boeing wide -body, twin -aisle LCA family. Rather, 
wide-body, twin -aisle families contain a number of variants that compete against variants from 
one or more competing wide -body, twin -aisle LCA families, depending on the particular size of the 
variants invo lved. For example, both the 787 and the A350XWB families include variant models 
that cover a variety of seating capacity and range requirements from 246 seats to 369 seats.2714 
In light of these developments in the LCA markets since the 2004 -2006 period consi dered by the 
original panel, we consider that it is no longer appropriate to base  our evaluation of the 
European  Union's serious prejudice arguments involving wide -body, twin -aisle LCA on the 200 -300 
seat and 300 -400 seat product market delineation used by  the original panel and Appellate Body.  
9.43.  We note our earlier observation that, while there is overlap between twin -aisle models in 
terms of capacity, range, MTOW, length and wing -span, there is generally greater variation in 
these factors for wide -body, twi n-aisle LCA compared to narrow -body, single -aisle LCA. Further, 
our analysis of the sales campaign evidence suggests that, when purchasing  wide-body, twin -aisle 
LCA, customers separately categoriz e their needs according to medium -sized, twin -aisle aircraft  
and larger -sized, twin-aisle aircraft, to the extent that they often effectively run two separate 
competitions within the same sales campaign.2715 Further, having reviewed the sales campaign 
evidence for the wide -body, twin -aisle sales campaigns and the airc raft offered by each airframe 
manufacturer to meet the customer's particular requirements, it seems that within the general 
categories of medium -sized, twin -aisle aircraft and larger -sized, twin-aisle aircraft, the following 
aircraft tend to be offered in competition with each other2716: 
Table 7: Competitive relationships between different wide -body, twin -aisle LCA  
Relevant product market  Airbus LCA  Boeing LCA  
Medium -sized twin -aisle aircraft  A330 family  
A350XWB -800 787-8 
787-9 
Larger -sized twin -aisle aircraft  A350XWB -900 
A350XWB -1000 787-10 
777-8X 
777-9X 
777 family  
 
9.44.  We cauti on that it is not possible to draw a brigh t-line distinction. Wide -body, twin -aisle 
aircraft are differentiated products, and customers' requirements in terms of size, routes to be 
served and availability vary considerably. It is ce rtainly possible that a larger medium -sized 
aircraft (e.g. the 787 -9) could in some circumstances, depending on the particular needs of the 
                                               
2713 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1669 -7.1675; and Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint) , para. 898.  
2714 Table 4 Airbus and Boeing wide -body, twin -aisle aircraft compared on the basis of seating capacity, 
MTOW , range and price . 
2715 See e.g.  the sales campaign di scussed at paras. 136 -141 of the HSBI Appendix  (Appendix  2), 
[[HSBI]]  (Exhibit EU -1496) (HSBI), and [[HSBI]]  (Exhibit EU -1498) (HSBI); the sales campaign dis cussed at 
paras. 144 -149 of the HSBI Appendix  (Appendix  2) and European Union's response to Panel question No.  169, 
para. 299; and the sales campaign discussed at paras. 1 52-158 of the HSBI Appendix  (Appendix  2) and 
[[HSBI]]  (Exhibit EU -1533) (HSBI).    
2716 See e.g. the split of aircraft considered "medium" and "larger" twin -aisle aircraft in the sales 
campaigns disc ussed at paras.  135-142, 143 -150, and 151 -159, respectively, of the HSBI Appendix  
(Appendix  2).  WT/DS353/R W 
 
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  customer in terms of capacity and routes to be  served, exercise meaningful compet itive 
constraints on a smaller larger -sized aircraft (e.g. the A350XWB -900).  
9.45.  Nonetheless, we consider that the particular product market delineation identified  in Table 7 
above is supported by t he evidence before us, and provides a reasonable and adequate basis on 
which to evaluate the European Union's serious prejudice claims. While we have departed from the 
European Union's proposed product market delineation by rejecting the proposition that n ew 
technology  LCA do not compete in the same product ma rkets as their similarly -sized existing 
technology  counterparts, and by distinguishing competition between medium -sized twin -aisle LCA, 
on the one hand, from competition between larger -sized twin -aisle on the other, we do not agree 
with the United States that this justifies rejecting the European Union's adverse effects claims 
owing to a failure to frame the serious prejudice allegatio ns on the basis of the correct markets , 
within the meaning of Article s 6.3(a) through (c) of the SCM Agreement.  
9.46.  As stated by the original panel and Appellate Body, "provided  that the European 
Communities demonstrated one of the alleged forms of serious prejudice in subparagraphs (a) 
through (c) of Article 6.3 in relation t o a particular Boeing subsidi zed LCA and a corresponding 
Airbus like product , it would establish serious pr ejudice for purposes of Article  5(c)".2717 The 
European Union's serious prejudice  case in this proceeding is that, among other things, subsidies 
benefit ing particular Boeing wide -body, twin -aisle family LCA cause serious prejudice to its 
interests in respect of particular Airbus wide -body, twin -aisle family LCA. Specifically, the 
European Union argues that the effect of the U.S. subsidies benefiting the 7 87 is serious prejudice 
to its interests in respect of the A350XWB and the A330, while the effect of the U.S. subsidies 
benefiting the 777X is serious prejudice to its interests in respect of the A350XWB. It is clear from 
the product market deli neation in Table 7 above that certain size variations of the 787 compete 
with certain size variations of the A350XWB and with the A330, while certain size variations of the 
777X compete with certain size variations of the A350XWB. We conside r that the European Union's 
evidence satisfactorily demonstrates, for each of the pairings of Boeing and Airbus in the European 
Union's serious prejudice case, that the relevant subsidi zed Boeing LCA compete against the 
relevant, corresponding  Airbus like product.  
9.47.  On the basis of the foregoing :  
a. We consider that it has not been demonstrated that  new techno logy LCA and existing 
technology  LCA of similar seating capacity, range, and MTOW compete in distinct LCA 
product markets.  
b. Therefore, we will evaluate th e European Union's claims regarding the effects of 
subsidies to the 737 MAX on prices and sales of the A320neo, and the effects of 
subsidies to the 737NG on prices and sales of the A320ceo , on the basis that these four 
aircraft families all compete in a na rrow-body, single -aisle aircraft LCA product market.   
c. We will similarly treat the A330 and 777 as competing with new technology A350XWB, 
787 and 777X family variants in the wide -body, twin -aisle LCA product markets. We 
consider that it is possible to evalu ate the European Union's serious prejudice claims 
involving wide -body, twin -aisle aircraft even thoug h we do not accept the 
European  Union's proposed delineation of the wide -body, twin -aisle markets, because 
those claims are based on the notion that the 78 7 and 777X families compete with 
variants of the A350XWB.2718  
                                               
2717 Appellate Body Report, US – Large Civil Aircraft (2nd complaint)  para. 898 , referring to Panel Report, 
US – Large Civil Aircraft (2nd complaint) , para. 7.166 7. (emphasis added)  
2718 We consider that the A330 (an existing technology aircraft) competes with the smaller -sized 
variants of the 787 and is in the same LCA product market as smaller -sized variants of the A350XWB. For 
reasons that we explain in fn 3173 below , however, our rejection of the European Union's argument  that the 
A330 occupies its own "medium -sized twin -aisle existing technology" LCA product market does not affect the 
outcome of our analysis of the eff ects of the subsidies on the A330.  WT/DS353/R W 
 
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  9.2.2   The different aspects of LCA prices and how LCA manufacturers such as Boeing set 
LCA prices  
9.48.  As we explain in greater detail in Sections 9.3.2.2  and 9.4.3, the European Union argues 
that the post -2006 subsidies that operate through a price causal mechanism enable Boeing to 
lower the prices of its LCA in highly competitive  LCA sales campaigns.2719 Our evaluation of these 
arguments requires that w e first explain the various aspects of an LCA "price" as well as the 
factors that influence the price s set by LCA manufacturers.  
9.49.  As explained in the original proceeding, the "net fly -away price" of an aircraft comprises the 
"total aircraft price" less cre dits and price concessions offered by the LCA manufacturer (i.e. either 
Boeing or Airbus), estimated engine manufacturer discounts and other discounts offered by 
suppliers of buyer furnished equipment. Concessions provided by the engine manufacturers and 
suppliers of buyer furnished equipment are negotiated between the customer and the supplier, 
without the direct involvement of the LCA manufacturer.2720 According to the 
European  Communities' expert in the original proceeding, pricing offered by engine manufac turers 
and suppliers of buyer furnished equipment can have a significant impact on the net fly -away price 
in a manner that is largely unknown to the LCA manufacturers.2721 
9.50.  The "total aircraft price" in turn, is composed of the airframe basic price  plus charge s for 
changes to standard specifications, buyer furnished equipment, supplier furnished equipment and 
the engine basic list price.2722 LCA manufacturers publish annual "list" or "catalogue" basic 
airframe prices for each model of LCA. List prices are not indi cative of the prices that airline 
customers and leasing companies actually pay for the airframe, however.2723 Indeed, there appear 
to be no transparent, market prices for Boeing or Airbus LCA. Airframe prices are negotiated 
individually with each customer in individual sales campaigns. Depending on the model of aircraft 
and the closeness of competition of potential substitutes for the customer's requirements, the size 
of the order and status of the customer, discounts from the published list prices can range f rom 
35-40% to as much as 60%.2724  
9.51.  As previously mentioned, the European Union supports its case that subsidies to the various 
Boeing aircraft cause serious prejudice to the European Union's  interests in the post -
implementation  period  by reference to evidence  of the competitive interactions between Boeing 
and Airbus in particular LCA sales campaigns involving the 787, 777X, 737 MAX, and 737NG , on 
the one hand, and the A350XWB, A320neo , and A320ceo, on the other, between 2007 and 
2015.2725 Much of this evidence ha s been designated as HSBI by the European  Union  and the 
United States, and we therefore discuss it in detail only in an HSBI Appendix  (Appendix 2 of this 
Report).  The real "market price" of Boeing and Airbus LCA has been described as the best -kept 
secret o f the industry.2726  
                                               
2719 The European Union explains that its challenge is confined to LCA sales campaigns that Boeing won 
"which were characterised by particularly intense and close competition, and in which price, technology and 
delivery dat es played a substantial role in the purchase decision". (European Union's response to Panel 
question No. 169, para. 174).  
2720 Engines are the single most expensive component of an LCA, representing between 20 and 30% of 
its total cost. (Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1690).  
2721 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1693 and fn 3566.  
2722 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1693.  
2723 In a 2013 article, an aircraft industry anal yst stated that a customer has never purchased an aircraft 
at the list prices communicated by aircraft manufacturers. ("Le vrai prix des avions d'Airbus et de Boeing", 
Challenges , 13 June 2013, (Exhibit EU -1709)). Moreover, the actual prices paid by custom ers on delivery will 
be affected by an "escalation" of the negotiated price to adjust for changes in aerospace industry costs of 
materials and labor between the date of order and date of delivery (which may be several years subsequent to 
the date of order) . ("Le vrai prix des avions d'Airbus et de Boeing", Challenges , 13 June 2013, (Exhibit 
EU-1709)).  
2724 Top tier Boeing customers, such as American Airlines, Delta Airlines, and Southwest Airlines, 
reportedly obtain the benefits of Boeing's "most -favoured cus tomer" clause, in which Boeing guarantees that 
no other customer will obtain a lower price. "Launch" customers also are considered to generally obtain the 
lowest prices because the first aircraft produced in an LCA programme are frequently overweight. ("Le vrai prix 
des avions d'Airbus et de Boeing", Challenges , 13 June 2013, (Exhibit EU -1709) ). 
2725 See Appendix 2 . 
2726 "Le vrai prix des avions d'Airbus et de Boeing", Challenges , 13 June 2013, (Exhibit EU -1709).  WT/DS353/R W 
 
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  9.52.  The European Union argues that LCA sales are strongly determined by the dynamic nature 
of competition, in which each manufacturer faces inter -temporal strategic constraints and trade -
offs, implying that current business decisions (e.g. on  price and production) affect future demand 
and supply conditions.2727 Boeing and Airbus do not compete for specific orders with the sole 
objective of maximizing their short-run profits, in the sense of the profits pertaining to those 
specific orders. Rather,  they compete and set their prices with a view to maximizing their overall 
profits across their long -term sales activity .2728 The European Union asserts that pricing incentives 
of LCA manufacturers like Boeing are therefore "co -determined by the necessity of having to 
recoup massive fixed cost investments and by the prevailing conditions of competition" as well as 
by the need to keep production lines running, cover recurring costs and maintain a steady stream 
of cash flows2729:  
As a result of these strictures, B oeing will decide to price extremely aggressively in 
some sales campaigns (potentially below pure marginal costs, especially early -on in 
the learning curve), while Boeing's pricing decisions in other campaigns allow it to 
recoup some of its fixed investmen t costs (i.e., pricing substantially above marginal 
costs). In any of these cases, Boeing must look at its costs holistically, and cannot 
afford to be uniquely guided by marginal cost considerations.2730 
9.53.  In the original proceeding, the Appellate Body provided  the following description of the 
economics of LCA pricing, based on findings made by the panel and matters of common ground 
between the parties:  
The LCA market is a duopoly. Airbus and Boeing each holds a significant share of the 
market and possesses a d egree of market power. Each manufacturer's decision 
regarding the supply and pricing of its products has the ability to influence the pricing 
of the other and, more generally, the market price .2731  
… 
LCA production involves substantial upfront development co sts over a period of 
several years, with a return over a considerably longer period – 18 years, on average. 
LCA production is generally characterized by steep learning curves. The production 
costs of initial units of a new LCA model are much higher than th e production costs of 
subsequent units once the manufacturer has begun to realize learning curve 
efficiencies. Because such efficiencies are factored into an LCA manufacturer's 
projected costs at the time of the launch of the new aircraft programme , 
manufa cturers price initial units of LCA as though they were already at the bottom of 
the learning curve. At the time of launch, the manufacturer sets pricing targets for the 
new aircraft that, over its projected life, must exceed the manufacturer's fully loaded  
average production costs by an amount sufficient to justify the investment.2732  
9.54.  An empirical stud y of the commercial aircraft industry  submitted by the European Union in 
this proceeding  indicate s that production costs change drastically over time due to lea rning curve 
efficiencies , while prices are quite "flat" for all products, suggesting that mark -ups move to offset 
the movements in costs.2733 
                                               
2727 European Union's comments on the United States' response to Panel question No. 158, 
paras.  100-105. The European Union refers to economic literature indicating that prices in dynamic games are 
typically set in a way that departs from short -run profit maximization because firms must account for the 
impac t of their current actions or omissions upon their future activity and profits. (European Union's comments 
on the United States' response to Panel question No. 158, para. 106 fn 187; and C.L. Benkard, "A Dynamic 
Analysis of the Market for Wide -Bodied Comme rcial Aircraft", Review of Economic Studies , Vol. 71 (2004), 
(Exhibit EU -1697), pp. 581 -611).  
2728 European Union's comments on the United States' response to Panel question No. 158, para. 109.  
2729 European Union's comments on the United States' response to Pan el question No. 158, para. 121.  
2730 European Union's comments on the United States' response to Panel question No. 158, para. 122. 
(fn omitted)  
2731 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 903. (fns omitted)  
2732 Appellate Body Repo rt, US – Large Civil Aircraft (2nd complaint ), para. 905.  (fns omitted)  
2733 C.L. Benkard, "A Dynamic Analysis of the Market for Wide -Bodied Commercial Aircraft", Review of 
Economic Studies , Vol. 71 (2004), (Exhibit EU -1697), p. 585.  WT/DS353/R W 
 
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  9.55.  There is also evidence in this proceeding regarding the Boeing 787 programme  which 
illustrates how the profitability of an LCA programme depends on the LCA manufacturer being able 
to move down the learning curve and deliver subsequent units of LCA at a profit level that enables 
it to recoup deferred production costs and ensure that, over the long -term, the programme is 
sufficiently profitable to have justified the investment. In October 2015, Boeing was reported to 
have accumulated some USD 32 billion in deferred production costs related to the 787 programme, 
which it expected to recoup over the following six years by del ivering another 900 aircraft at an 
average profit of more than USD 35 million per plane.2734 Its deliveries in the second quarter of 
2015 were estimated to represent a loss of approximately USD 25  million per aircraft.2735 The 
accumulated deferred costs for the 787 programme are projected to peak at USD 33 billion  in late 
2016, after which they are expected to decline, driving the per -unit costs of the aircraft down.2736 
The accumulated deferred losses do not include Boeing's original investment to develop the 787, 
which has been estimated by analysts at an additional  USD 20 billion or more.2737 According to 
industry analysts, Boeing has been able to continue producing the 787 because of its "cash cow" 
programmes, i.e. the 737 and 777 programmes which, as mature program mes, have "produced 
cash like mad" .2738 Indeed, it seems that certain aircraft programmes are "significant sources of 
cash" for both Airbus and Boeing.2739 
9.56.  Finally, there is HSBI evidence before the Panel which suggests that LCA manufacturers 
forecast costs and revenues for LCA programmes based on periodically revised cost, sales and 
delivery expectations, in order to ensure that prices in individual sales and the programmes as a 
whole remain profitable.2740  
9.2.3   Standard of causation and aggregation of subsidies  
9.57.  We re call that, owing to the way that the European Union has chosen to demonstrate that 
the United States has failed to comply with the DSB recommendations and rulings , in the sense of 
failing to take  appropriate step s to remove the adverse effects , the Panel i s effectively evaluating a 
new serious prejudi ce case under Article s 5 and 6.3  of the SCM Agreement . In other words, the 
Panel is evaluating  whether the European Union has demonstrated that, after the end of the 
implementation period, the subsidies that th e United States has failed to withdraw, within the 
meaning of Article 7.8, are causing serious prejudice , within the meaning of Articles 5(c) and 6.3 
of the SCM Agreement.2741  
9.58.  With this in mind, we set forth our understanding of the requisite causal link between the 
subsidies and the serious prejudice phenomena in Article 6.3, pursuant to Articles 5(c) and 6.3 of 
the SCM Agreement.  
                                               
2734 One analyst has calcula ted that Boeing would in fact need to sell the 787s it delivers after 2020 at a 
profit of USD 50 million (representing a margin of more than 30%) in order for the overall programme to 
return a "low single digit" profit. (D. Gates, "Will 787 program ever sh ow an overall profit? Analysts grow more 
sceptical", The Seattle Times , 17 October 2015, (Exhibit EU -1705), p. 6).  
2735 D. Gates, "Will 787 program ever show an overall profit? Analysts grow more sceptical", The Seattle 
Times , 17 October 2015, (Exhibit EU -1705). Indeed, this article refers to the views of several industry analysts 
that Boeing's accumulated deferred losses on the 787 programme are now so large that it will not be possible 
to avoid declaring a reach -forward loss, estimated by one analyst to be i n the range of USD 5 billion.  
2736 Boeing expects the model mix of 787s to shift to higher -priced 787 -9s and 787 -10s, which cost only 
5 to 10% more than the original 787 -8 but will represent 20 to 40% more revenue. (D. Gates, "Will 787 
program ever show an o verall profit? Analysts grow more sceptical", The Seattle Times , 17 October 2015, 
(Exhibit EU -1705), p. 8).  
2737 D. Gates, "Will 787 program ever show an overall profit? Analysts grow more sceptical", The Seattle 
Times , 17 October 2015, (Exhibit EU -1705), p. 6.  
2738 D. Gates, "Will 787 program ever show an overall profit? Analysts grow more sceptical", The Seattle 
Times , 17 October 2015, (Exhibit EU -1705), p. 11. According to one industry analyst: "It's an extraordinarily 
strong Boeing Co. that has coped with th e disaster that is the 787 without running out of cash."  
2739 "UPDATE 2 – Airbus debates new A320 output hike, suffers test glitch", Reuters , 28 May 2015 
(Exhibit EU -1686), reporting that medium -haul planes are "significant sources of cash for both Airbus and  
Boeing" and describing the A330 programme as "another cash cow" for Airbus.  
2740 See European Union's response to Panel question No. 169, fn 729.  
2741 See Section 6 above . See however, the European Union's "parallel"  argument with respect to its 
serious prejudice allegations concerning wide -body, twin -aisle LCA, discussed in Section 9.3.3, which seems to 
be based on a different theory of what it means to remove the adverse effects for pur poses of Article 7.8 of the 
SCM Agreement; namely, that the adverse effects of the pre -2007 aeronautics R&D subsidies found to exist in 
the original 2004 -2006 reference period  (in the form of certain kinds of serious prejudice)  continue into  the 
post-implementation period.   WT/DS353/R W 
 
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  9.59.  The Appellate Body has consistently articulated the causal link required as "a genuine and 
substantial relationship of cause and  effect".2742 The subsidies must contribute, in a "genuine" and 
"substantial" way, to producing or bri nging about one or more of the effects , or market 
phenomena, identified in Article 6.3. The genuine  nature of the causal link requires a complaining 
party to  show that the nexus between cause and effect is "real" or "true" . The substantial  
component of the causal relationship concerns the relative importance of the causal agent  (i.e. the 
subsidies at issue) in bringing about the adverse effects in question.2743 
9.60.  One example of a situation in which the nexus between cause and effect was not sufficiently 
real or true to justify a finding that the subsidy in question was a genuine cause  of the Article 6.3 
market phenomena is provided by the Appellate Body in EC and ce rtain member States – Large 
Civil Aircraft . In that case, the Appellate Body found that the panel's generalized finding that the 
R&TD subsidies enabled Airbus to develop features and aspects of its aircraft faster than would 
otherwise have been possible wa s insufficient to justify "cumulating" the effects of the R&TD 
subsidies with the "product effects" of the launch aid/member S tate f inancing  subsidies in enabling 
Airbus to launch particular models.  Rather, in order to establish the requisite genuine  causa l link, 
the panel should have made specific findings that technology or production processes funded by 
the R&TD subsidies contributed to Airbus' ability to launch and bring to market particular models of 
LCA.2744 Another example is the four subsidies granted to Boeing in connection with the relocation 
of its corporate headquarters to the State of Illinois, which the European Communities in the 
original proceeding had argued may reasonably be deemed to benefit all of the company or the 
business unit's products.  The Appellate Body found that there was no genuine causal link between 
these subsidies and the relevant market effects in the 100 -200 seat LCA product market because 
these subsidies were not shown to have "meaningfully contributed" to Boeing's lowering of  prices 
for the 737NG.2745 
9.61.  The Appellate Body has acknowledged that panels examining whether the causal 
relationship between the subsidies at issue and the market phenomena ident ified in Article 6.3 
meets the genuine and substantial  standard may often be conf ronted with multiple factors that 
may have contributed, to varying degrees, to the relevant market phenomena. Panels must seek 
to understand the interactions between the subsidies at issue and the various other factors, and 
make an assessment of their conn ections to bringing about the relevant effects.2746 A subsidy need 
not be the sole cause, or only substantial cause, of an effect in or der for it to be found to be a 
genuine and substantial  cause. Indeed, a subsidy may be found to be a genuine and substantial  
cause notwithstanding the existence of other factors that contribute to producing the relevant 
market phenomena if the contribution of the subsidy, in light of a proper consideration of all other 
contributing factors and their effects,  rises to that of ge nuine and substantial .2747 This assessm ent 
of whether subsidies are a genuine and substantial  cause of any of the market phenomena 
identified in Article 6.3 is a fact -intensive exercise and potentially there will be considerable 
differences in the way s compla ining parties choose to demonstrate the links between the subsidies 
at issue and the effects, and in the nature of supporting evidence, in different cases.2748 
9.62.  Related to the question of the causation standard applied by the Panel is the issue of how 
the vari ous different subsidies should be grouped together for purposes of assessing their effects. 
In the original proceeding, t he Appellate Body addressed the permissible approaches that panels 
may take to collectively assessing the effects of multiple subsidies . It said that t he first involves an 
ex ante  decision to undertake a single analysis of the effects of multiple subsidies where the 
structure, design , and operation of those subsidies are similar, and thereby to assess in an 
integrated causation analysis t he collective effects of such subsidy measures ( so-called 
"aggregation" of subsidies).2749 The second involves an examination, taken after a panel has found 
that at least one subsidy (or aggregated grouping of subsidies) has caused adverse effects, as to 
whether the effects  of other subsidies (or agg regated grouping of subsidies) complement and 
                                               
2742 Appellate Body Reports, US – Upland Cotton , para. 438;  US – Upland Cotton (Article 21.5 – Brazil) , 
para. 374;  EC and certain member States – Large Civil Aircraft , para. 1232; and  US – Large Civil Aircraft (2nd 
complaint ), para. 913.  
2743 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 913.  
2744 Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 1404 and 1407.  
2745 Appellate Body Report, US – Large Civil Aircraft (2nd complai nt), para. 1342.  
2746 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 914.  
2747 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 914.  
2748 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 915.  
2749 This approach was employed by the panel in US – Upland Cotton . WT/DS353/R W 
 
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  supplement  those effects ( so-called "cumulation" of subsidies).2750 The Appellate Body said that, in 
selecting an appropriate approach to collectively assessing the effect s of multiple subsidies, panels 
are confined in two ways: First, by the need not to "unduly segment" by considering the effects of 
each subsidy on an individual basis only (such that no subsidy is a "substantial " cause  of the 
relevant adverse effects)2751; and second, by the need not to combine multiple measures in such a 
way as to absolve a complainant of its burden of proving that each challenged measure is a 
"genuine" cause of, or "genuinely contributes to producing", the market phenomena identified in 
Article 6.3.2752 
9.63.  In the original proceeding, the panel conducted an aggregated analysis of the aeronautics 
R&D subsidies  in evaluating their effects on Boeing's development of technologies for the 787. The 
European Union argues that the group of pre -2007 aeronaut ics R&D subsidies operate s through a 
technology causal mechanism  to affect Boeing's development of technolo gies for the 787 and its 
other new technology  LCA (i.e. the 777X and 737 MAX) . The United States does not object to the 
aggregation of the pre -2007 a eronautics R&D subsidies. We consider it is appropriate to evaluate 
the effects of the pre -2007 aeronautics R&D subsidies on Boeing's product development behaviour 
as an aggregated group.2753  
9.64.  The European  Union considers that at their most basic level , and i n light of the conditions of 
competition in the LCA markets, all of the post-2006 subsidies , except certain post -2006 
aeronautics R&D subsidies, enable Boeing to lower the prices of its LCA in competitive sales 
campaigns a nd can therefore be treated as one  group  for purposes of assessing their impact on 
Boeing's LCA prices.2754 However, the Eu ropean Union also acknowledges minor differences  in the 
way that various sub -groupings of the post -2006 subsidies operate. To account for those 
differences, and "to follo w the taxonomy" of the original proceeding, the European Union 
structures its discussion of the effects of the post -2006 subsidies on Boeing's LCA prices by 
dividing the post -2006 subsidies into three aggregated groups:  
a. A tied tax category of aggregated s ubsidies, comprising the Washington State B&O tax 
rate reduction and the City of Everett B&O tax rate reduction.2755 The European Union 
argues that these tied tax  subsidies are triggered by sales of each LCA to which they 
relate and directly enable Boeing to lower its prices while maintaining the profitability of 
the sale.2756 
                                               
2750 The "cumulation" approach was employed by the panel in EC and certain member States – Large 
Civil Aircraft . The Appellate Body explained that whether both, either or neither of aggregation an d cumulation 
are appropriate in a particular case will be a function of the particular subsidy measures at issue and their 
effects on prices and sales in the relevant market, the manner in which a complainant presents its claims and 
the way in which the pa nel decides to structure its causation analysis. (Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint ), para. 1290).  See also paras. 9.89, 9.93, 9.467 , and 9.468  below.  
2751 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1284.  
2752 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1290.  
2753 As explained in Sections 9.3.2.1.4  and 9.4.2.2  below, the European Union argues that a relatively 
small number of individual post -2006 aeronautics R&D subsidies operate through a technology causal 
mechanism to contribute to Boeing's development of inn ovative technologies for its current LCA. In paras.  9.85 
and 9.86 below, we explain that we will aggregate these particular post -2006 aeronautics R&D subsidies with 
the pre -2007 aeronautics R&D subs idies.  
2754 European Union's first written submission, paras. 955 and 1113, and fn 1929; second written 
submission, para. 941; and response to Panel question No. 43, paras. 279 and 280. At fn 352 to its response 
to Panel question No. 43, the European Union m akes two sequential conditional alternative arguments that, 
should the Panel disagree that certain post -2006 aeronautics R&D subsidies operate, at present, through a 
technology causal mechanism, alternatively, they operate through a price causal mechanism under so -called 
"Category 2", and should the Panel disagree with that argument, alternatively, they operate "on a different 
basis", through a "price effects" causal pathway, as described for so -called "Category 3" subsidies.  
2755 The European Union also inclu des the FSC/ETI subsidies and the South Carolina Income Allocation 
and Apportionment Agreement within this category of tied tax subsidies, however, as we explain in 
Sections  8.2.5 and 8.2.8.9 , respectively, we f ind that the FSC/ETI subsidies have been withdrawn and that the 
European Union has failed to establish  that the Income Allocation and Apportionment Agreement involves a 
subsidy.  
2756 See European Union's first writ ten submission, paras. 1132 -1154; and second written submission, 
para. 941. The European Union identifies the Boeing LCA to which each particular "tied tax" subsidy is "linked" 
at para. 1135 of its first written submission. It discusses the structure, oper ation and design of subsidies in this 
category, their magnitude, and the role of competitive conditions , all as part of demonstrating that the tied tax WT/DS353/R W 
 
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  b. State and local cash flow subsidies, comprising all of the non -aeronaut ics R&D subsidies 
that are not tied tax  subsidies, aggregated into a single category. These subsidies are 
alleged to p rovide Boeing with additional operating cash flow because they are linked to 
(and lower) Boeing's costs of researching, developing or producing Boeing LCA.2757 
c. Aeronautics R&D subsidies (NASA, DOD, and FAA) which, in contrast to the pre -2007 
aeronautics R&D s ubsidies, o perate through a price  causal mechanism, in that they are 
alleged to lower Boeing's costs of licensing intellectual property rights to LCA technology, 
and of developing that technology, thereby providing Boeing with additional cash which 
Boeing can and does use to lower its LCA prices.2758 
9.65.  The United States objects that the European Union discusses the alleged price effects of the 
post-2006 subsidies on the basis of their aggregation into three distinct groups, without 
conducting the aggregation ana lysis on a model -specific basis. According to the United States, this 
is important because not all of the subsidies in an aggregated group are even alleged to impact the 
pricing of the 787, 737 MAX , and 737NG.2759 The United States therefore disag rees with th e 
European Union's aggregations of the tied tax  and state and local cash flow  subsidies on the basis 
that these subsidies are not all alleged to impact the same aircraft and the European Union has 
failed to describe the design, structure or operation of an y of them in such a way as would warrant 
their aggregation.2760  
9.66.  In the next three subsections, we determine whether it is appropriate to aggregate the 
post-2006 subsidies into three categories for purposes of conducting an integrated analysis of the 
effects of those subsidies within each aggregated group. Then in Section 9.2.3.4  we additionally 
consider whether it is appropriate to further aggregate any of these groups with each other or with 
the pre -2007 aeronautics R&D subsidies , which are alleged to operate through a technology causal 
mechanism, rather than a price causal mechanism. We summa rize our conclusions in 
Section  9.2.3.5 . 
9.2.3.1   Aggregation  of the  tied tax  subsidies  
9.67.  In the State of Washington, B&O tax is levied on the gross proceeds of sale, gross incomes 
of a business , or the value of products. The City of Everett B&O tax is a tax on gross revenues 
which, with respect to manufacturing, are generally treated as the value of products 
manufactured.2761 The Washington State and City of Everett B&O tax rate reductions reduce the 
B&O tax rates applicable to revenues earned from the sale of LCA attributable to Washington State 
or the City of Everett, as the case may be, lowering Boeing's taxes and thereby inc reasing Boeing's 
after-tax profits.2762 
                                                                                                                                               
subsidies impact Boeing's LCA pricing and thereby constitute a genuine and substantial  cause of present 
adverse effects.  
2757 See European Union's first written submission, paras. 1155 -1179; and second written submission, 
para. 941. The European Union identifies the Boeing LCA to which the subsidies in this category are "linked" at 
paras. 1159 -1161 of its first  written submission. It discusses the structure, operation and design of this 
category of subsidies, their magnitude, and the role of competitive conditions , all as part of demonstrating that 
the state and local cash flow subsidies impact Boeing's LCA pric ing and thereby "cause or contribute to causing, 
along with the other subsidies" present adverse effects.  
2758 European Union's first written submission, paras. 1120 and 1180 -1190. The European Union alleges 
at para . 1184 of its first written submission that the genuine  causal link relates to the fact that the subsidies 
are in the form of support for R&D relating to aeronautics R&D applied or to be applied on Boeing LCA (i.e. the 
links to the technologies on the particular Boeing LCA). It discusses the structu re, operation , and design of this 
category of subsidies, their magnitude, and the role of competitive conditions , all as part of demonstrating that 
this category of subsidies result in lower Boeing LCA pricing and "thereby cause, or contribute to causing, along 
with the other subsidies, present adverse effects". (European Union's first written submission, para. 1191).  
2759 United States' first written submission, para. 713.  
2760 We address the United States' objection  concerning the aggregation of the tied tax su bsidies into a 
single category for purposes of conducting an integrated analysis of their effects  at para. 9.73 and concerning 
the aggregation of the state and local cash flow subsidies into a single category for purposes of co nducting an 
integrated analysis of their effects at paras. 9.80-9.82 of our evaluation below.  
2761 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1806.  
2762 Panel Report, US – Large Civi l Aircraft (2nd complaint ), para. 7.1806. The Washington State B&O tax 
rate reduction and the City of Everett B&O tax rate reduction are the same in nature and operation, the 
pertinent difference being that the former reduces taxes levied at the state leve l in respect of state revenues WT/DS353/R W 
 
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  9.68.  The European Union describes the Washington State B&O tax rate reduction and the City of 
Everett B&O tax rate reduction as "tied" to the production and sale of Boeing LCA. This was also 
the term used by the panel and th e Appellate Body in the original proceeding to describe these 
subsidies.2763 It is the per -unit production or sale of LCA that gives rise to the receipt of the 
subsidies. The receipt of the tied tax subsidies by Boeing  therefore correspond s directly  with per -
unit sales of Boeing LCA. F luctuations in Boeing's total sales volumes affect the total amounts of 
these subsidies but do not affect the calculus regarding the profitability of a particular sale. Such 
per-unit subsid ies can be contrasted with the state and  local cash flow  subsidies and the post -2006 
aeronautics R&D subsidies, which are "untied" in the sense that the amounts of those subsidies 
received by Boeing do not vary in direct proportion to the number of aircraft produced or sold.2764  
9.69.  It is important to  note that t he concept of "tied" used to describe the per -unit subsidies in 
this proceeding is different from the concept of "tied" used  in the context of  determining the 
products over which subsidies provided to a company should be allocated in order to c alculate the 
level of countervailing duties that may be levied against those  products . Articles 19.4 of the SCM 
Agreement and VI:3 of the GATT 1994 require Members to accurately determine the per -unit 
subsidy amount found to exist with respect to the produ ct under investigation and to not impose 
countervailing duties exceeding that amount. This may involve the  identification of amounts of a 
subsidy that a company has received in respect of the production or sale of a particular product  in 
situations where a  company manufactures and sells a variety of products not covered by the 
investigation and which are made in the same production line.2765 Where  a subsidy is considered to 
be tied  to the production or sale of a particular product, an investigating authority m ay allocate  the 
subsidy amounts received to those specific products, and thereby calculate the specific per -unit 
rate of subsidization for the product concerned. By cont rast, where the subsidy is not tied  to any 
particular product, it may be presumed that the company may allocate the subsidy across its 
entire production.2766  
9.70.  The Appellate Body  in US – Washing Machines  recently discussed considerations relevant to 
a determination of whether a subsidy is "tied" to a product in this different context of allocati ng 
subsidies across the products of a company when calculating a per -unit rate of subsidization in 
accordance with Articles 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994.2767 
9.71.  In contrast, the tied tax  subsidies at issue in this proceeding , as we ll as in the original 
proceeding , are "tied"  in the sense that receipt of the subsidies is contingent on the production or 
sale of a particular product  on a per -unit basis  and this has relevance for the potential economic 
                                                                                                                                               
while the latter concerns municipal taxes in respect of municipal revenues. Boeing is subject to state B&O taxes 
on revenues realized from all LCA it manufactures in Washington (i.e. 787, 777X, 737 MAX, and 737NG as well 
as the 767, 777, and 747). Accordingly, the European Union alleges that the Washington State B&O tax rate 
reduction applies to the 787, 777X, 737 MAX, and 737NG. Boeing is also subject to municipal B&O taxes on 
revenues realized from all LCA manufactured at it s facility in Everett, Washington (i.e. the 787 as well as the 
767, 777, 777X , and 747). Accordingly, the European Union argues that the City of Everett B&O tax rate 
reduction applies to the 787 and 777X. (European Union's second written submission, para. 1065). The 
European Union requests the Panel to assess the effects of the tied tax subsidies on the prices for those Boeing 
aircraft to which they apply. (European Union's second written submission, para. 934).  
2763 The Appellate Body has described this conce pt of a tied subsidy as being where the receipt of the 
subsidy is contingent on the production or sale of a particular product on a per -unit basis. (Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint ), para. 1339).  
2764 Untied subsidies include s o-called "development subsidies", such as R&D subsidies, which were 
discussed by Professor Luís Cabral in his report in the original proceeding. (See Panel Report, US – Large Civil 
Aircraft (2nd complaint ), appendix VII.F.2, para. 1).  
2765 Alternatively, a su bsidy may be granted on a company basis rather than a product basis, and it may 
similarly be difficult to identify which portions were used by the company for manufacturing the product 
concerned as opposed to other products.  
2766 The present proceeding does n ot require the Panel to allocate the subsidies in question over 
Boeing's products to arrive at a per -unit rate of subsidization and the imposition of countervailing duties 
consistently with Articles 19.4 of the SCM Agreement and Article VI:3 of the GATT 19 94. Rather, the Panel is 
required to assess how the receipt of the subsidies affected Boeing's commercial behaviour , in order to 
determine whether the effects  of the subsidies are any of the market phenomena identified in Article 6.3 of the 
SCM Agreement.  
2767 See Appellate Body Report, US – Washing Machines , paras. 5.270 -5.274. Notably, it did not refer to 
the different sense in which it used the concept of "tied" in the Appellate Body Report in US – Large Civil 
Aircraft (2nd complaint) , i.e. as referring to  situations where receipt of the subsidy was "contingent on the 
production or sale of a particular product on a per -unit basis ". (Appellate Body Report, US – Large Civil Aircraft 
(2nd complaint) , para. 1339). (emphasis added)  WT/DS353/R W 
 
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  effect  of the receipt of the subsi dy on the actual pricing behaviour of the subsidy recipient . As the 
Appellate Body explained in the original proceeding:  
All other things being equal , a firm provided with a subsidy that is tied to production 
or sale enjoys the ability to lower its price while nevertheless achieving the same 
profit margin. In effect, the subsidy enhances the firm's ability  to lower its prices in 
order to obtain a sale, notwithstanding that the outcome of any given sale, and the 
importance of price to that outcome, will still be dictated by the prevailing competitive 
conditions, including the market power and the pricing strategies of the participants, 
in a particular market.2768  
9.72.  In the original proceeding, both parties considered that, in light of the similarities in 
structur e and operation between the Washington State and City of Everett B&O tax rate 
reductions, it was appropriate for the panel to aggregate them and thereby conduct an integrated 
analysis of their effects, along with the FSC/ETI subsidies , which were also tied  to per -unit sales of 
LCA.2769 The panel therefore aggregated these subsidies and conducted an integrated analysis of 
the effects.2770  
9.73.  We consider that the particular nature and operation of these per -unit subsidies is such that 
it is appropriate to conduct an integrated analysis of their effects. We would add that, because the 
City of Everett B&O tax rate reduction only impacts Boeing's revenues in respect of aircraft 
manufactured in the City of Everett, it does not impact Boeing's reve nues in respect of the 
737 MAX or 737N G, which are not  manufactured in Everett. Our consideration of the effects of the 
tied tax  subsidies on  Boeing's pricing of the 737 MAX  and 737NG  will therefore be confined to the 
Washington State B&O tax rate reduction.  
9.2.3.2   Aggregation  of the  state and local cash flow  subsidies  
9.74.  The European Union argues that the Panel may aggregate all of the subsidies that it 
identifies within the category of state and local cash flow  subsidies and conduct an integrated 
analysis of their effects. This is because all of these subsidies allegedly operate to reduce certain of 
Boeing's fixed costs; namely, costs of researching, developing, selling, and producing LCA.2771 The 
United States objects that the European Union only states that each such subsidy, regardless of i ts 
form, increases Boeing's operating cash flow, and that the "majority" consist of "tax breaks" while 
some others involve the "provision of goods and services".2772 According to the United States, the 
only real similarity between these "miscellaneous" subsid ies is that they could not be placed into 
the other two categories.2773 The United States argues that, under the European Union's theory, 
literally all subsidies that generally share a causal pathway and are not tied to a product would be 
aggregated. The absence of a similarity, in the sense of a "tie" to the sale of the same product, 
cannot suffice as the only common feature to aggregate a group of subsidies. Accordingly, the 
European Union has failed to show that any of the state and local cash flow subsidie s should be 
aggregated with any other alleged subsidy.2774 
9.75.  The state and local cash flow  subsidies which the European Union considers should be 
aggregated for purposes of conducting an integrated analysis of their effects , and which we  find 
have not been with drawn , within the meaning of Article 7.8,  comprise the Washington State tax 
measures enacted under HB 2294 (other than the Washington State B&O  tax rate reduction which 
is a tied tax  subsidy as explained in Section 9.2.3.1  above), and the South Carolina subsidies.  
9.76.  The relevant Washington State tax subs idies involve two B&O tax credits and one sales and 
use tax exemption. The B&O tax credits are: (a) for certain preproduction development 
expenditures on aeronautics -related resea rch, design, and engineering activities, as well as for 
certain expenditures on design and preproduction development, computer software and hardware 
                                               
2768 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1260. (emphasis added)  
2769 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1805. See also Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint ), para. 1296.  
2770 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), fn 2618.  
2771 European Union's second written submission, para. 935.  
2772 United States' first written submission, para. 753.  
2773 United States' first written submission, paras. 754 -758. 
2774 United States' first written submiss ion, para. 759.  WT/DS353/R W 
 
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  for the digital design, and development of commercial airplanes2775; and (b) for property taxes and 
leasehold excise taxes related to new construction.2776 These tax credits are applied against 
Boeing's total B&O tax liability, which accrues in connection with the manufacture and sale of all 
Boeing LCA produced in the State of Washington.2777 The third Washington State tax subsidy is the 
sales and use tax exemptions for computer software, hardware, and peripherals when these items 
are purchased for or used in the development of commercial airplanes or their components.2778 
9.77.  The South Carolina subsidies involve: (a) a propert y tax exemption in respect of Boeing's 
LCFs; (b) sales and use tax exemptions in respect of aircraft fuel, computer equipment , and 
construction materials; and (c) the provision of USD 50 million by the South Carolina authorities 
through the issuance of air  hub bonds to partially offset the costs of constructing certain facilities 
and infrastructure. These subsidies were among a number of incentives provided by the State of 
South Carolina to induce Boeing to locate its new 787 production facilities in South Carolina. The 
European Union argues that these subsidies are "linked" to production of the 787 at facilities in 
South Carolina.2779 
9.78.  In general terms, the state and local cash flow  subsidies involve incentives provided by 
state and mun icipal authorities relate d to Boeing's LCA production activities in var ious 
jurisdictions. Unlike the tied tax  subsidies, Boeing's receipt of the state and local cash flow 
subsidies described above is not contingent upon per -unit production or sale of LCA. The 
European  Union asser ts that the state and local cash flow subsidies operate to reduce Boeing's 
overall costs. However, there is no evidence that the savings represented by these subsidies were 
factored into the programme accounting for any of the Boei ng LCA programmes to actu ally offset 
or reduce  any LCA programme costs. Nor is there evidence that Boeing otherwise applies the 
additional cash represented by these subsidies to its specific LCA programmes.  
9.79.  The European Union provided a table setting forth its assertions regardin g the "applicability" 
of each post -2006 subsidy to particular LCA families. We have adapted that table to cover only the 
measures that we have found to be specific subsidies granted or maintained in the p ost-2006 
period . This table is as follows:  
                                               
2775 The European Union argues that the Washington State B&O tax credits for pre -production 
development are "linked most closely" to Boeing aircraft that are currently in pre -production, which would 
mean the 737 MAX, 787 -10, and 777X. (Europea n Union's first written submission, para. 1160; second written 
submission, para. 1066).  
2776 The European Union argues that the B&O tax credits for property taxes and leasehold excise taxes 
relate to sites for which Boeing has made the largest investments in land and facilities (and in the case of the 
leasehold excise tax credit, the Dreamlifter Operations Center), and thus are "most closely linked" to sites 
producing the 737NG, 737 MAX, and 787. (European Union's first written submission, para. 1160, second 
written submission, para. 1066).  
2777 The B&O tax is Washington's major business tax. It is a tax on gross receipts of all businesses 
operating in Washington, as a measure of the privilege of engaging in business. "Gross receipts" refers to the 
gross proceeds of sales, the gross income of a business, or the value of products, depending on which is 
applicable. Taxpayers are taxed based on the activities in which they engage in the State of Washington, such 
as manufacturing, wholesaling, retailing or the provisio n of services. (See Panel Report, US – Large Civil 
Aircraft (2nd complaint ), para. 7.47).  
2778 The European Union argues that the sales and use tax exemptions for computer software, hardware, 
and peripherals relate to the facilities where Boeing has made the  largest investments in computer equipment, 
meaning that they are "most closely linked" to the 737NG, 737 MAX, and 787. (European Union's first written 
submission, para. 1160; second written submission, para. 1066).  
2779 European Union's first written submiss ion, para. 1161; second written submission, para. 1066.  WT/DS353/R W 
 
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  Table 8: Alleged  "applicability" of various post -2006 subsidies to Boeing aircraft 
families2780  
Aggregated 
Subsidy group  Subsidy  787 777X  737 
MAX 737 
NG 
Tax subsidies 
tied to sales  Washington State B&O Tax Rate Reduction  X X X X 
City of Eve rett B&O Tax Rate Reduction  X X   
State and 
Local Cash 
Flow 
Subsidies  Washington State B&O Tax Credit s for 
Preproduction/Aerospace  
Product Development  X  X  
Washington State B&O Tax Credit for Property Taxes 
and Leasehold Excise Taxes X X X X 
Washingt on State  Sales and Use Tax Exemptions  X X X X 
South Carolina Project Gemini Facilities & 
Infrastructure  X    
South Carolina Project Gemini – Sales and Use Tax 
Exemptions  X    
South Carolina Project Gemini – Large Cargo Freighter 
Property Tax Exemptio n X    
Post-2006 
R&D Subsidies  NASA aeronautics R&D subsidies  X X X X 
FAA aeronautics R&D subsid y X X X X 
DOD aeronautics R&D subsidies  X X X X 
 
9.80.  We have some difficulty reconciling the European Union's argument that these subsidies 
represent the func tional equivalent of additional cash, on the one hand, with its argument that 
these subsidies should be "linked" to certain LCA because they allegedly reduce the costs of 
researching, developing, selling, and producing those LCA, on the other. If the subsi dies operate to 
free up additional cash for Boeing, albeit in some way connected to LCA production, they should in 
our view be treated as the equivalent of additional cash . This is the way that the 
European  Communities in the original proceeding arg ued tha t a similar grouping of untied  
subsidies (including the Washington State tax measures other than the Washington State B&O tax 
rate reduction) should be analysed.2781  
9.81.  Moreover , the European Union does no t explain how amounts of the state and local cash 
flow subsidies that are  alleged to be  "linked" to more than one Boeing family LCA (e.g. the 
Washin gton state and local cash flow  subsidies and the post-2006 aeronautics R&D subsidies) 
should be apportioned across the various LCA families. In any case, a division  of amounts of the 
same untied subsidy across various Boeing LCA families would be at odds with the contention that 
the subsidies represent the functional equivalent of additional untied cash.  
9.82.  We do not consider that it is appropriate to allocate, from wi thin the category of subsidies 
that the European Union identifies  as state and local cash flow subsidies,  certain amounts of 
particular subsidies to certain Boeing LCA programmes based on the ir asserted "links"  to those 
programmes . These subsidies are not tied to production of Boeing LCA on a per -unit basis , and at 
most, operate in an  indirect way t o affect Boeing's overall costs. In our view, t hey represent the 
                                               
2780 Total Financial Contribution (2007 -2014) and Allocation to Boeing Aircraft Programmes, (Exhibit 
EU-1450). See also European Union's second written submission, para. 1072; first written submission, 
paras. 1135 and 1159 -1161.  
2781 See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1609. Indeed, the 
European  Union's argument that each of the state and local cash flow subsidies is "linked" to production of one 
or more specific families of Boeing LCA suggests that these subsidies should be divided into four aggregated 
categories, representing the respective "links" between the subsidy in question and the production of the 787, 
777X, 737NG, and 737 MAX programmes. To recall, the United States  objects to the European Union's 
proposed aggregation of the state and local cash flow subsidies into a single category, inter alia , on the basis 
that not all of these subsidies are alleged to impact the same aircraft. (United States' first written submiss ion, 
para. 713).  WT/DS353/R W 
 
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  functional equivalent of additional cash to Boeing. We therefore consider that it is appropriate  to 
aggregate them into one category for purposes of conducting an integrated analysis of their 
effects.  
9.2.3.3   Aggregation  of the post -2006 aeronautics R&D subsidies  
9.83.  The European Union argues that the technologies being developed with the assistance of the 
vast majority of the post -2006 aeronautics R&D subsidies (in contrast to the technologies 
developed with the assistance of the pre -2007 aeronautics R&D subsidies), have not yet matured 
to the point at which they could be applied to Boeing aircraft that are cur rently being marketed.2782 
According to the European Union, these aeronautics R&D subsidies "at present" operate through a 
price causal mechanism .2783 The European Union argues that the present effect of the post -2006 
aeronautics R&D subsidies is to give Boeing access to and use of research results that enable it to 
continue maturing the technologies, without having to pay license fees for such access and use, 
thereby lowering Boeing's LCA costs  in relation to currently marketed LCA . 
9.84.  The European Union had origin ally argued, in its first written submission, th at the Panel 
should conduct an aggregated analysis of "the aeronautics R&D subsidies",  which it alleged to 
cause adverse effects "through both technology and price causal mechanisms".2784 The 
United  States objec ted to the aggregation of the FAA aeronautics R&D subsid y with the NASA and 
DOD aeronautics R&D subsidies. It also objected to the aggregation of the aeronautics R&D 
subsidies for purposes of analysing  their effects through a price causal mechanism  because  the 
original panel had concluded that the aeronautics R&D subsidies did not operate through a price 
causal mechanism.2785 As the European Union's arguments regarding the alleged effects of the 
aeronautics R&D subsidies have developed throughout the course of  the proceeding, however, it 
has em erged that the European  Union i s alleging only that (except as described below) the 
post-2006 aeronautics R&D subsidies  should be analysed  as operating through a price causal 
mechanism, and accordingly that only the post -2006 aeron autics R&D subsidies should be 
aggregated  for this purpose.2786 With this clarification of the European Union's argument 
concerning the subset of aeronautics R&D subsidies that should properly be aggregated for 
purposes of ass essing their effects th rough a price causal mechanism , it would seem that the latter 
objection of the United States is moot.2787  
9.85.  The European Union's position regarding the FAA aeronautics R&D subsid y requires 
additional explanation. The European Union argues that the flight test funding under the FAA 
aeronautics R&D subsid y operates through a technology causal mechanism, while the non -flight 
test funding under that subsidy operates through a price causal mechanism.2788 However, it has 
also requested the Panel to analyse the flight te st funding aspect of the FAA aeronautics R&D 
subsid y as operating through a price causal mechanism if the Panel decides to reject its technology 
effects arguments regarding this aspect of the FAA aeronautics R&D subsid y.2789 We consider that 
it is appropriate  to aggregate the non -flight test funding under the FAA aeronautics R&D subsid y 
with the post -2006 NASA and DOD aeronautics R&D subsidies, owing to the fact that  this aspect of  
                                               
2782 According to the European Union, the inability to "link" the majority of the post -2006 aeronautics 
R&D subsidies to Boeing LCA arises from the nature of these subsidies as funding early -stage R&D intended to 
create technologies that will  not appear on aircraft for years or even decades. (European Union's response to 
Panel question No. 158, para. 72). The post -2006 aeronautics R&D subsidies are therefore "similar in nature" 
to the pre -2007 aeronautics R&D subsidies. (European Union's respo nse to Panel question No. 43, para. 280).  
2783 European Union's response to Panel question No. 43, para. 280.  
2784 European Union's first written submission, para. 956.  
2785 United States' first written submission, para. 752.  
2786 European Union's second written submi ssion, para. 933; opening statement at the meeting with the 
Panel, para. 83; and response to Panel question No. 43, para. 280.  
2787 In other words, we do not understand the United States to object to the aggregation of the 
post-2006 aeronautics R&D subsidies for purposes of examining their effects through a price causal 
mechanism, provided the European Union does not include in that aggregated group any aeronautics R&D 
subsidies that are alleged to operate through a technology causal mechanism.  
2788 See Allocatio n of Post -2006 R&D Subsidies through Technology and Price Causal Mechanisms, 
(Exhibit EU -1265).  See also fn 2753 above.  
2789 European Union's response to Panel questio n No. 43, fn 352 . WT/DS353/R W 
 
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  the FAA aeronautics R&D subsid y is alleged to operate through a price causal me chanism in the 
same way as the majority of post -2006 NASA and DOD aeronautics R&D subsidies.2790  
9.86.  Accordingly, in conducting our assessment of the effects of the post -2006 aeronautics R&D 
subsidies through a price causal mechanism, we will aggregate the post -2006 NASA and DOD 
aeronautics R&D subsidies with the non -flight test funding portion of the FAA aeronautics R&D 
subsid y. 
9.2.3.4   Whether any of the aggregated groupings of subsidies should be further 
aggregated with each other  
9.87.  In the analysis of the nature and ope ration of the various subsidies at issue above, we have 
concluded that it is appropriate for us to  aggregate  them into the following four general categories, 
and for the subsidies so aggregated, conduct an integrated analysis of their effects within each 
category:  
a. Pre-2007 aeronautics R&D subsidies, which are alleged to operate through  a technology 
causal mechanism . 
b. Tied tax  subsidies; i.e. the Washington State and City of Everett B&O tax rate 
reductions, both of which correspond directly with sales of Boe ing LCA, such that 
fluctuations in Boeing's total sales volumes do not affect the calculus regarding the 
profitability of a particular sale.2791  
c. State and local cash flow  subsidies; i.e. the remaining Washington State subsidies and 
the South Carolina subsidi es, owing to their nature as subsidies that Boeing receives in 
connection with its LCA production activities generally, which operate to provide Boeing 
with the equivalent of additional cash flow.   
d. Aeronautics R&D subsidie s alleged to operate through a pri ce causal mechanism ; i.e. the 
post-2006 NASA and DOD aeronautics R&D subsidies and the non -flight test funding 
portion of the FAA aeronautics R&D subsid y.  
9.88.  Based on the foregoing analysis and concl usions, we do not consider it appropriate to 
further aggreg ate any of categories of subsidies with each other in analysing their effe cts. In order 
to provide additional clarity, we explain this aspect of our analysis further.2792  
9.89.  The tied tax subsidies and the state and local cash flow  subsidies, although both ultimately 
operating through a price causal mechanism , are sufficiently different in their nature that it is not 
appropriate to aggregate these subsidies and assess their effects in an integrated manner.2793 This 
does not mean that the effects  of these two distinc t categories of aggregated subsidies ca nnot 
subsequently be cumulated , provided  one category is found to be a genuine and substantial  cause 
of adverse effects in the post -implementat ion period, and the other is a genuine  cause, the effects 
of which "comple ment and supplement" those of the first category. We addre ss this later in our 
analysis.2794  
9.90.  As to whether the Panel should aggregate the state and local cash flow  subsidies with the 
post-2006 aeronautics R&D subsidies and conduct an integrated analysis of t heir effects, our 
reasons for declinin g to do so are as follows: The state and local cash flow  subsidies are state 
location investment incentives that are provided in return for Boeing's location of its manufacturing 
facilities in a particular place (and c onsequent investment in the local economy and creation of 
local employment opportunities). In very general terms, they are designed to offer Boeing a 
lower -cost manufacturing proposition for aircraft currently or soon to be in production than Boeing 
                                               
2790 In Section 9.3.2.1.4 , we evaluate the effects of the flight test funding portion of the FAA aeronautics 
R&D subsid y, operating through a technology causal mechanism, on Boeing's development of technologies for 
its various new generation LCA.  
2791 We recall  that the City of Everett B&O tax rate reduction does not apply to the 737NG and 737 MAX 
programmes, because only the 787 (and 777X) is produced in the City of Everett.  
2792 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1299.  
2793 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1326.  
2794 See paras. 9.468  and 9.469  below.  WT/DS353/R W 
 
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  could presumably find by locating its production facilities elsewhere. The aeronautics R&D 
subsidies are federal government measures that are designed to incentivize the U.S. aeronautics 
industry to conduct R&D that industry would not otherwise consider it cost -efficient to undertake 
at that time, with a view to enhancing the speed at which industry is able to develop new 
technologies for application to future generations of LCA over an extended time horizon.  
9.91.  The European Union argues that the aeronautics R&D su bsidies also enable Boeing to lower 
the prices of the LCA that Boeing currently produces and markets , because Boeing can continue to 
mature the technologies it is researching without having to pay licence fees for the access to and 
use of the intellectual property generated by the subsidized R&D. Regardless of whether we 
consider that argument plausible or substanti ated, we note that  the post -2006 ae ronautics R&D 
subsidies are connected in an even more indirect and speculative manner  to production of any 
existing LCA  than the state and local cash flow subsidies.  We therefore regard the nature and 
operation of the post -2006 aeronautics R&D subsidies, even assuming arguendo  that they are 
theoretically capable of being a nalysed in the way the European Union ass erts; i.e. as providing 
Boeing with access to and use of research results that enable it to continue maturing technologies 
for the development of future LCA without having to pay licence fees for such access and use, as 
sufficiently dist inct from the way i n which the state and local cash flow  subsidies are said to affect 
Boeing's LCA pricing. We therefore do not consider it appropriate to aggregate these two 
categories of subsidies with each other and conduct an integrated analysis of their effects.  
9.92.  We rea ch a similar conclusion regar ding the aggregation of the tied tax  subsidies with the 
post-2006 aeronautics R&D subsidies, owing to the different nature of these two groupings of 
subsidies, and the way they are alleged to operate to affect Boeing's LCA pric es. 
9.93.  For the sake of completeness, we also consider that it is not appropriate to aggregate the 
pre-2007 aeronautics R&D subsidies with any of the other aggregated groupings of post -2006 
subsidies. This is because the pre -2007 aeronautics R&D subsidies ar e alleged to operate through 
a technology causal mechanism, which is significantly different from the price causal mechanism  
alleged in relation to the post -2006 subsidies. However, the fact that we do not consider it 
appropriate to aggregate the pre -2007 ae ronautics R&D subsidies with the post -2006 subsidies  
when analysing their effects does not mean that we will not consider, at a subsequent po int in the 
analysis, whether the  effects  of the pre -2007 aeronautics R&D subsidies on Airbus' LCA sales and 
prices should be cumulated  with those of any of the other subsidies at issue , provided we have 
established that one of those categories of subsidies is a genuine and substantial  cause of those 
effects and the other is a genuine  cause of those same effects .2795 
9.94.  In re aching these conclusions, we have endeavoured to ensure that our analysis of the 
effects of the multiple subsidies in this proceeding is not unduly segmented or "atomized", and 
that our decisions to aggregate certain subsidies in order to conduct an integr ated analysis of their 
effects enable us to determine that there is a "genuine and substantial relationship of cause and 
effect" between the subsidies and the alleged market phenomena in Article 6.3.2796  
9.2.3.5   Summary of conclusions regarding the aggregation of pa rticular subsidies  
9.95.  Based on the nature and operation of the  U.S. subsidies before us, it is appropri ate to 
aggregate the  subsidies into the following categories and to conduct an integrated analysis of the 
effects of the subsidies within each of these categories:  
a. Pre-2007 aeronautics R&D subsidies , which ar e alleged to operate through a technology 
causal mechani sm.  
b. A tied tax  subsidies  category, comprising the Washington State B&O tax rate reduction 
and the City of Everett B&O tax rate reduction.  
c. State an d local cash flow subsidies, comprising all of the non -aeronaut ics R&D subsidies 
that are not tied tax  subsidies, aggregated into a single category.  
                                               
2795 We consider this approach consistent with the guidance in Appellate Body Repor t, US – Large Civil 
Aircraft (2nd complaint ), para. 1320.  
2796 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1284.  WT/DS353/R W 
 
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  d. Post-2006 aeronautics R&D subsidies (NASA, DOD, and FAA) which, in contrast to the 
pre-2007 aeronautics R& D subsidies, are alleged to operate th rough a price causal 
mechanism . 
9.2.4   The relevant time -period over which to assess whether the European Union has 
demonstrated that the United States has failed to take appropriate steps to remove the 
adverse effects  
9.96.  We rec all that with respect to its claims under Articles 5 and 6.3 of the SCM Agreement in 
the original proceeding, the European Communities requested the panel to assess the existence of 
present adverse effects caused by the challenged subsidies over the period  2004-2006.2797 
Accordingly, the panel conducted its assessment of whether the effect of the subsidies at issue was 
serious prejudice within the 2004 to 2006 period. However, it explained that it would not limit the 
temporal scope of the evidence that it cons idered relevant in undertaking that assessment, and 
therefore, would take into account all of the relevant evidence submitted in the proceeding.2798  
9.97.   In this proceeding, the Panel must determine wheth er the United States has taken 
appropriate step s to remove  the adverse effects , within the meaning of Article 7.8 of the SCM 
Agreement. The European Union has chosen to discharge its burden of demonstrating the failure of 
the United States to take such appropriate steps by purporting to show that variou s subsidie s that 
have not been withdrawn , within the meaning of Article 7.8 , are causing adverse effects after the 
end of the implementation period. The European Union argues that the Panel should assess 
"whether the subsidies that the United States has failed to wi thdraw, and that it grants or 
maintains after the end of the implementation period on 24 September 2012, cause present 
adverse effects after the end of that implementation period."2799 In response to a question from 
the Panel, the European Union further clari fied that the "reference period" for purposes of 
assessing whether any non -withdrawn subsidies "presently" cause adverse effects is the period 
since the end of the implementation period, and not a period that begins immediately after the 
reference period f rom the original proceeding (i.e. 2004 t o 2006) or any date prior to 
24 September 2012.2800 
9.98.  The evidence submitted by the European Union in its first written submission concerning the 
alleged non -withdrawal of the subsidies the subject of the DSB recommendati ons and rulings, and 
the granting and maintaining of additional closely connected subsidies, covers the pre -2007 
aeronautics R&D subsidies at issue in the original proceeding, as well as aeronautics R&D subsidies 
and other subsidies that have  allegedly com e into existence since the date of the panel req uest in 
the original proceeding;  i.e. subsidies alleged to exist since 20 07. The evidence submitted by the 
European Union in its first written submiss ion to substantiate its allegations of serious prejudice 
concerns LCA sales campaigns between the relevant Boeing and Airbus aircraft that occurred 
between 2007 and 2012 , as well as order, delivery and pricing data for the period 2007 to 2012 .  
9.99.  The general absence in the European Union's first written submission of direct evidence as 
to the existence of subsidies or of the market phenomena identified in Article 6.3 for the period 
after 23 September 2012 is a consequence of the timing of the European Union's panel request 
and filing of its first written submission in relation to the expiration of the reasonable period of 
time for the United States to comply with the DSB recommendations and rulings in the original 
proceeding. We briefly recount the relevant events.  
9.100.   Under Article 7.9 of the SCM Agreement, the Unite d States had until 2 3 September  2012 
to comply with the DSB recommendations and rulings to "take appropriate steps to remove the 
adverse effects or withdraw the subsidies".2801 On 23 September 2012, the United States notified 
the European Union that the United States had taken a number of actions allegedly withdrawing 
the subsidies or removing their adverse effects.2802 The European Union requested consultations 
                                               
2797 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1677.  
2798 Panel Report, US – Large Civil Aircraft  (2nd complaint ), para. 7.1679.  
2799 European Union's first written submission, para. 832; response to Panel question No. 155, para. 52.  
2800 European Union's response to Panel question No. 155, para. 52 and fn 73.  
2801 Dispute Settlement Body, Minutes of the meeti ng held on 23 March 2012, WT/DSB/M/313 
(circulated 29 May 2012), para. 79.  
2802 United States' Compliance Communication, para. 2.  WT/DS353/R W 
 
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  with the United States on 25  September 2012.2803 Consultations were held on 10 October  2012, 
with a view to  reaching a mutually satisfactor y solution. The next day, on 11  October 2012, the 
European Union requested the establishment of a panel in accordance with Articles 4.4 and 7.4 of 
the SCM Agreement and Article 21.5 of the DSU.2804 As a result of the Panel's pr eliminary rulings 
regarding information gathering un der Article 13 of the DSU on 26  November 2012, the Panel 
posed a number of questions to the U nited States in December  2012, based  in large part upon 
questions that had previously been prepared by the Euro pean Union in the context of its request 
that the DSB initiate an Annex V procedure.2805 Those questions generally sought information 
regarding the existence or continuation of various alleged subsidy programmes as well as 
information regarding Boeing's LCA o rders, deliveries, and pricing. The United States provided its 
responses to the Panel's requests for information  pursuant to  Article  13 of the DSU in January, 
February, and March of 2013.2806 The European Union filed its first and second written submissions 
in this proceeding on 28 March 2013 and 23 July 2013, respectively. The substantive meeting with 
the parties was held on 29 to 31 October 2013.  
9.101.   In sum, the short period of time that had elapsed since the end of the implementation 
period on 24 September 201 2 and the European Union's initiation of the compliance proceeding 
through the request for the establishment  of a panel (11 October 2012) and consequent filing of 
its first written submission (28 March 2013), necessarily meant that  the information that the  
European Union was able to present as to the existence or continuation of the challenged 
subsidies, and the market phenomena in Article 6.3, for the period after 23 September 2012, was 
relatively limited. It has also given rise to an issue  concerning the European Union's allegations 
that the U.S. subsidies benefiting the 777X cause adverse effects in the post -implementation 
period, because at the time of the expiration of the implementation period, as w ell as the time of 
the European  Union's panel request,  the 777X had not yet been offered for sale.  
9.102.   The 777X was formally launched on 17 November 2013, which is after the date of the 
European Union's panel request and subsequent to the meeting of the Panel with the parties.2807 
The European Union had referred to  the imminent launch of the 777X in its first written submission 
and argued that the adverse effects of the U.S. subsidies would be enhanced once that aircraft 
was launched.2808 It also argued that the U.S. subsidies benefiting the 777X presently caused a 
threat of significant lost sales and of threat of significant price suppression.2809  
9.103.   In September 2015, the Panel requested the European Union to update the information on 
which it relies to demonstrate its claim of adverse effects to include 2013 and 2014, and  to the 
extent possible, the elapsed portion of 2015.2810 In response, the European Union updated both its 
lost sales and displacement evidence to include the most recent data and developments since 
2013, as well as certain (but not all) pricing information u nderpinning its significant price 
suppression arguments.2811 In this context, it submitted evidence concerning a number of sales 
campaigns involving the 777X which the European Union alleges are evidence of significant lost 
sales of the A350XWB. The European Union argues that these sales demonstrate that the previous 
                                               
2803 European Union's request for consultations.  
2804 European Union's request for the establishment of a panel, para. 34.  
2805 The Panel' s rulings regarding the applicability of the Annex V procedures to this compliance 
proceeding, and the request that the Panel seek information pursuant to its authority under Article 13 of the 
DSU by posing to the United  States the questions that the Europ ean Union had prepared for submission under 
Annex V  of the SCM Agreement,  are set forth in the Preliminary Ruling and Decision regarding Information -
Gathering under Article 13 of the DSU, dated 26  November 2012, in Annex E -1 to this Report.  
2806 United States ' response to the Panel's request for information pursuant to Article 13 of the DSU, 
dated 25 January 2013, response to question Nos. 1 -4, 11, 23 , 24, and 30; response to the Panel's request for 
information pursuant to Article 13 of the DSU, dated 28 Febru ary 2013; and United States' communication in 
response to the Panel's request for information pursuant to Article 13 of the DSU, dated 22  March 2013  
(Exhibit USA -176).  
2807 Boeing Press Release, "Boeing Launches 777X with Record -Breaking Orders and Commitment s", 
17 November 2013, (Exhibit EU -1299), p. 2.  
2808 European Union's first written submission, para. 1198.  
2809 European Union's first written submission, paras. 1555, 1318 -1328, and 1555 -1566; second written 
submission, paras. 1445 -1452 and 1508 -1515. The Europ ean Union's claims of impedance and displacement 
(including threat thereof) do not appear to involve the 777X. (See European Union's response to Panel question 
No. 169, paras. 457 -487).  
2810 Panel question No. 169, 15 September 2015.  
2811 European Union's respon se to Panel question Nos. 169 and 170.  WT/DS353/R W 
 
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  threat of significant lost sales and the threat of significant price suppression have both now 
manifested.2812  
9.104.   The United States argues  in its first written submi ssion that, because the 777X was not  
launched at the time of the European Union's panel request, alleged effects of subsidies to the 
777X could not contribute to a finding that there was non -compliance at the end of the compliance 
period, or that there were adverse effects as of the DSB's re ferral of the matter to the Panel.2813 In 
other words, the European Union must show that the alleged adverse effects existed at the time 
the matter was referred to the Panel.2814  
9.105.   The European Union responds  that evidence coming into existence after the date of the 
panel request which demonstrates the adverse effects caused by the U.S. subsidies benefiting the 
777X is relevant to the Panel's assessment. It considers that the Panel is not precluded from 
finding that the U.S. subsidies benefiting the 777X cause pre sent adverse effects merely because 
the effects occurred after the date of the panel request.2815 More generally, the European Union 
argues that the relevant time -period for the Panel's determination of wheth er any non -withdrawn  
subsidies "presently" cause ad verse effects is the period after 2 3 September 2012 ( i.e. the 
post-implementation period ). In making that determination, the Panel should not limit the 
temporal scope of the evidence that it considers relevant, and should take into account all relevant 
evidence submitted in this dispute. The European Union therefore purports to provide evidence of 
"present adverse effects", including relevant evidence from past time -periods, which it considers 
"consistent with a longer -term counterfactual ".2816 Moreover, it ar gues that evidence of adverse 
effects prior to 24  September 2012 is "relevant and probative" as regards the Panel's assessment 
of present adverse effects where the United States has failed to remove any of the subsidies at 
issue, has granted new subsidies that are similar to its earlier subsidies, and the conditions of 
competition in which these subsidies cause present adverse effects have remained largely 
unchanged during the entire post -2007 period.2817  
9.106.   We disagree with the United States to the extent that it maintains its objection to the 
Panel's consideration of adverse effects involving th e 777X on the basis that the 777X  only came 
into existence after the date of the European Union's panel request. The European Union's panel 
request identifies measures  that existed at that time (including U.S. subsidies alleged to benefit 
the 777X) which are alleged to be specific subsidies that have not been withdrawn as of the 
expiration of the implementation period, and makes claims of adverse effects caused by those 
subsidies in relation to the 777X in the post -implementation period. In determining whether the 
United States  has taken appropriate step s to remove the adverse effects,  within the meaning of 
Article 7.8, the Panel should take into account developments subse quent to the date of the panel 
request to the extent that there is such evidence before it and that evidence is relevant to the 
question of whether compliance has been achieved.  
9.107.   More generally, we consider that , consistent with the approach taken by the o riginal panel, 
we will not limit the temporal scope of the evidence that may be relevant to undertaking our 
assessment, and therefore will examine the entirety of the evidence submitted by the parties, 
including the most recent evidence, in light of the pa rties' arguments. However, we recognize that, 
in order for the European Union to make its case that the United States has failed to comply with 
Article  7.8 of the SCM Agreement, it must establish the existence of adverse effects,  in the form of 
serious pre judice  within the meaning of Articles 5 (c) and 6.3 of the SCM Agreement, in the post -
implementation period, i.e. in the period after 2 3 September 2012 . Accordingly, our conclusions as 
to whether the European Union has demonstrated that any or all of the U. S. subsidies that t he 
United States has failed to withdraw,  within the meaning of Article 7.8, cause adverse effects, will 
focus on serious prejudice data presented by the parties with respect to the post -implementation 
                                               
2812 European Union's response to Panel question No. 169, paras. 175, 179, 191, and 548. The 
European  Union also argues that options and purchases rights for additional 777Xs provided to customers in a 
number of sales ca mpaigns in the 2013 -2015 period constitute a further threat of significant lost sales. 
(European Union's response to Panel question No. 169, paras. 211 (Emirates 2013), 227 (Qatar Airways 2013), 
and 317 (Etihad Airways 2013)).  
2813 United States' first writt en submission, para. 699.  
2814 See also United States' response to Panel question No. 42, fn 190.  
2815 European Union's comments on the United States' response to Panel question No. 42, 
paras.  259-261. 
2816 European Union's first written submission, para. 834.  
2817 European Union's response to Panel question No. 155, para. 53.  WT/DS353/R W 
 
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  period, as it is only with respect t o the effects found to exist in th is period that the United States 
may be found to have failed to comply with its obliga tion under Article 7.8 to take appropriate 
steps to remove the adverse ef fects.   
9.108.   We next evaluate, for the relevant groupings of  competi ng Boeing and Airbus aircraft, 
whether the European Union has demonstrated that the subsidies at issue are a genuine and 
substantial cause of serious prejudice  to its interests, within the meaning of Articles 5(c) and 6.3,  
in the post -implementation period . We begin with an evaluation of the effects of the 787 and 777X 
which are alleged to adversely affect sales and prices of the A350XWB and A330.  
9.3  Whether subsidies benefiting the 787 and 777X cause serious prejudice to the 
interests of the European Union, within the meaning of Articles 5(c) and 6.3,  in respect 
of the A350XWB and A330 in the post -implementation period  
9.3.1   Introduction  
9.109.   In this Section , we evaluate the European Union's case that the United States grants or 
maintains subsidies to Boeing benefiting the 787 and 777X which cause present adverse effects , in 
the form of certain kinds of serious prejudice to its interests, within the meaning of Articles 5(c) 
and 6.3,  in respect of the A350XWB and A330 in the post -implementation period.  
9.110.   As previously expl ained, the European Union for the most part presents its arguments as 
to how certain aeronautics R &D subsidies operate through a technology causal mechanism  and 
how the majority of post -2006 subsidies operate through a price causal mechanism  on a horizonta l 
basis; i.e. based on the nature of the particular subsidy or subsidy groups at issue, rather than the 
particular Boeing LCA said to be subsidized by the various subsidies in combination.2818 
Accordingly, in Section VII.E of its first written submission, the  European Union purports to 
establish a "genuine" and "substantial"  causal link between certain aeronautics R&D subsidies and 
"present adverse effects through a technology effects causal mechanism".2819 In Section VII.F of 
its first written submission, the Eu ropean Union purports to establish a "genuine" and "substantial" 
causal link between the majority of the post -2006 subsidies and "present adverse effects through 
a price -based causal mechanism".2820  
9.111.   In Section VII.H of its first written submission, dealing w ith the effects of the subsidies 
benefiting the 787 and 777X on the A350XWB and A330, the European Union presents its case 
that the "combined effects of: (i) certain of the US aeronautics R&D subsidies that improve the 
quality and accelerate the launch and  availability of delivery positions of these Boeing LCA; and (ii) 
the other US subsidies that enable lower Boeing prices, constitute a "genuine and substantial " 
cause of the adverse effects discussed below, and the corresponding harm to Boeing's sole 
compe titor – Airbus."2821  
9.112.   Owing to the conceptual and empirical differences underlying the European Union's main 
case of post -implementation serious  prejudice to its interests in  respect  of the A350XWB , and the 
parallel argument  that the  serious prejudice caused by the pre -2007 aeronautics R&D subsidies  
that arose in 2004 -2006 in respect of the A330 and Original A350 continue s in the post -
                                               
2818 See e.g. European Union's first written submission, section VII.E (Technology Causal Mechanism) 
and section VII.F (The U.S. Subsidies Cause Adverse Effects Through a Price Causal Mechanism), de aling in a 
horizontal fashion with the arguments concerning the technology causal mechanism and price causal 
mechanism, compared to section VII.H (Effects of U.S. Subsidies Benefiting the 787 and 777X on the A330 and 
A350XWB), section VII.I (Effects of U.S . Subsidies Benefiting the 737 MAX on the A320neo), and section VII.J 
(Effects of the U.S. Subsidies Benefiting the 737NG on the A320ceo), dealing with the collective effects of all of 
the subsidies benefiting the various Boeing aircraft on the competing A irbus aircraft.  
2819 See European Union's first written submission, para. 1205.  
2820 See European Union's first written submission, para. 1223.  
2821 European Union's first written submission, para. 1199. The European Union's main case  as outlined 
in section VII.H o f its first written submission is that the effects of: (a) certain aeronautics R&D subsidies which 
improve the quality and accelerate the launch and delivery positions of the 787 and 777X LCA family aircraft 
(the so -called technology causal mechanism); and  (b) the majority of the post -2006 subsidies which enable 
Boeing to lower its 787 and 777X prices (the so -called price causal mechanism), collectively, are a "genuine 
and substantial" cause of: significant lost sales (and threat of significant lost sales) of the A350XWB; significant 
price suppression (and threat of significant price suppression) of the A350XWB; and impedance and threat of 
impedance of the A350XWB in the U.S. market and a number of third country markets.  WT/DS353/R W 
 
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  implementation period as present serious prejudice in respect of  the A330 and A350XWB, we 
examine the two lines of argument sep arately.  
9.113.   First, i n Section 9.3.2, we address the European Union's main case : whether certain 
subsidies granted or maintained by the United States after the end of the implementation period 
and benefiting the 787 and 777X cause serious prejudice to the interests of the European Union , 
within the meaning of Articles 5(c) and 6.3 , with respect to the A350XWB in the 
post-implementation period. Second, i n Section 9.3.3, we address the European Union's par allel 
argument that the original serious prejudice to its interests caused by the pre -2007 aeronautics 
R&D subsidies that arose in 2004 -2006 in respect of the A330 and Original A350 continue s in the 
post-implementation period as serious prejudice to its in terests with respect to the A330 and 
A350XWB.  
9.3.2   The European Union's main case: Whether the pre -2007 aeronautics R&D 
subsidies and certain post -2006 aeronautics R&D subsidies combined with the other 
post-2006 subsidies cause serious prejudice  to the interes ts of the European Union, 
within the meaning of Articles 5(c) and 6.3,  in respect of the A350XWB in the 
post-implementation period  
9.114.   The European Union alleges that certain aeronautics R&D subsidies and the majority of the 
post-2006 subsidies , collectively , are a genuine and substantial  cause of the following forms of 
serious prejudice with respect to the A350XWB in the post -implementation period:  
a. Significant lost sales  of the A350XWB , within the meaning of Article 6.3(c) of the SCM 
Agreement, and threat thereof.2822 
b. Impedance of imports of the A350XWB to the United States,  within the meaning of 
Article 6.3(a) of the SCM Agreement, and threat thereof.2823  
c. Impedance of exports of the A350XWB , within the meaning of Article 6.3(b) of the SCM 
Agreement, to the Chilean,  Qatari, United Arab Emirates, Mexican, Ethiopian, and 
                                               
2822 As evidenced by the following LCA sales campaigns involving the 787 or 777X in competition with 
the A350XWB occurring between 2007 and 2015: Qatar Airways 2007 and 2013 (European Union's first written 
submission, paras. 1410 -1429; second written submission, paras. 1306 -1320; and response t o Panel question 
No. 169, paras. 212 -227, 452, and fn 861); British Airways 2007 and 2013 (European Union's first written 
submission, paras. 1430 -1441; and second written submission, paras. 1289 -1305 and 1321 -1331); LAN 
Airlines 2007 (European Union's firs t written submission, paras. 1450 -1462; second written submission, 
paras.  1343-1355; and response to Panel question No. 169, para. 452 a nd fn 861); ILFC 2007 
(European  Union's first written submission, paras. 1463 -1476; and second written submission, paras . 1356 -
1369); Virgin Atlantic Airways 2007 (European Union's first written submission, paras. 1477 -1484; second 
written submission, paras. 1370-1378; and response to Panel question No. 169, para. 452 and fn 861); Etihad 
Airways 2008, 2011 and 2013 (Europea n Union's first written submission, paras. 1485 -1498; second written 
submission, paras. 1379 -1395; and response to Panel question No. 169, paras. 294 -317 and 325); United 
Airlines 2010, 2012 , and 2013 (European Union's first written submission, paras. 1499 -1511; second written 
submission, paras. 1260 -1273 and 1396 -1411; and response to Panel question No. 169, paras. 319 -322); Air 
France -KLM 2011 (European Union's first written submission, paras. 1512 -1531; second written submission, 
paras. 1412 -1424; and re sponse to Panel question No. 169, para. 452 and fn 861); Aeromexico 2012 
(European Union's first written submission, paras. 1532 -1545; second written submission, paras. 1425 -1434; 
and response to Panel question No. 169, para. 452 and fn 861); Singapore Air lines 2013 (European Union's 
second written submission, paras. 1274 -1288); Emirates 2013 (European Union's response to Panel question 
No. 169, paras.  193-211); Cathay Pacific 2013 (European Union's response to Panel question No. 169, 
paras.  228-247); Lufth ansa 2013 (European Union's response to Panel question No. 169, paras. 248 -274); All 
Nippon Airlines 2014 and 2015 (European Union's response to Panel question No. 169, paras. 275 -293, 323, 
and 324); and Ethiopian Airlines 2015 (European Union's response t o Panel question No. 169, paras. 326 and 
327). More generally, see European Union's first written submission, paras. 1311 and 1407 -1566; second 
written submission, paras. 866, 1159 -1203, and 1256 -1452; and response to Panel question Nos. 42, 
paras.  255 and  273, and 169, paras. 171 -328 and 409 -452. 
2823 As evidenced by the United Airlines 2010 sales campaign, alleged to be a significant lost sale of the 
A350XWB (European Union's first written submission, paras. 1586 and 1587; second written submission, 
paras. 1 532-1536; and response to Panel question No. 169, paras. 459 -461).  WT/DS353/R W 
 
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  Japanese third country markets2824, and to the Chinese and Indian third country 
markets , and threat thereof, .2825 
d. Significant price suppression of the A350XWB , within the meaning of Article 6.3(c) of the 
SCM Agreement, and threat thereof.2826 
9.115.   For each of the sales campaigns sa id to evidence significant lost sales of the A350XWB, the 
European Union alleges that the "subsidy -enhanced features" of the 787 and 777X; i.e. both the 
technological advancements of the ai rcraft (resulting in lower fuel burn and maintenance costs) 
and its earlier delivery availability, as well as the "subsidy -enabled aggressive pricing conditions 
Boeing offered" were a genuine and substantial cause of the customer's decision to order the 78 7 
or 777X, as the case may be, over the competing model of A350XWB.2827 The European Union's 
impedance and significant price suppression claims as described above are also based on the 
assertion that the suppression of A350XWB prices occurred due to a combina tion of very low prices 
and the "advanced technology and early availability" of the 787.2828 
9.116.   The Panel adopts a unitary  approach to establishing causation, under which prices, sales, 
market share, and other indicators of competitive harm are not assessed in i solation, but rather as 
part of an integrated causation analysis.2829 Our analysis is counterfactual in nature: we ask 
whether, but for the effects of the various subsidies, Airbus' sales, prices and market share would 
be higher. We will analyse the effects o f the subsidies in two related phases: First , we examine  the 
effects, if any, of the relevant category of subsidies on Boeing's product development and pricing  
                                               
2824 Based on the following sales campaigns, each of which is alleged to be a significant lost sale of the 
A350XWB: LAN 2007 (European Union's first written submission, paras. 1590 and 1591; s econd written 
submission, paras. 1547 -1550; and response to Panel question No. 169, paras. 466 and 467); Qatar 2007 
(European Union's first written submission, paras. 1608 and 1609; second written submission, 
paras.  1578-1580; and response to Panel questio n No. 169, paras. 484 and 485); Etihad 2008, 2011, and 
2013 (European Union's first written submission, paras. 1610 and 1611; second written submission, 
paras.  1581-1584; and response to Panel question No. 169, paras. 486 and 487); Aeromexico 2012 
(Europea n Union's first written submission, paras. 1606 and 1607; se cond written submission, 
paras.  1574-1577; and response to Panel question No. 169, paras. 482 and  483); Ethiopian 2015 
(European  Union's response to Panel question No. 169, paras. 470 -472); and Al l Nippon Airlines 2014 and 
2015 (European  Union's response to Panel question No. 169, paras. 478 and 479). On account of Lion Air 
having cancelled its 2012 order for 787 aircraft, the European Union no longer argues that U.S. subsidies 
caused displacement in the Indonesian market for new technology, twin -aisle LCA (see European Union's 
response to Panel question No. 169, fn 863).  
2825 Based on evidence that Boeing is projected to make more than 50% of present and future deliveries 
of "new technology, twin -aisle" aircraft into these markets. (European Union's first written submission, 
paras.  1592, 1593, 1598, and 1599; second written submission, paras. 1551 -1553 and 1560 -1563; and 
response to Panel question No. 169, paras. 468, 469, 476, and 477).  
2826 As evidenced  by aggregate average A350XWB prices between 2007 and 2015 as well as evidence 
from sales campaigns from 2007 and 2010 -2015 purporting to show that the 787 and 777X, and the 
"subsidy -enhanced low prices" of these aircraft forced Airbus to lower its A350XWB  prices below what it would 
otherwise have been able to achieve (European Union's first written submission, paras. 1277 -1328; second 
written submission, paras. 1463 -1515; and response to Panel question Nos. 170, paras. 546, 548, 550 -556, 
and 559 -565, and 1 66, para. 153).  
2827 European Union's first written submission, paras. 1410 -1544; second written submission, 
paras.  1260-1434; and response to Panel question No. 169, paras. 182 -325. In its discussion of the factors 
that allegedly led customers to prefer the 787 or 777X over the competing model of A350XWB, the 
European  Union addresses, for each sales campaign: (a) "Availability", referring to the alleged earlier launch 
and delivery positions for the 787 or 777X, as the case may be, said to be due to the aerona utics R&D 
subsidies operating through various aspects of a technology causal mechanism; (b) "Technology", referring to 
the innovative technology and related fuel efficiency of the 787 or 777X, as the case may be, again said to be 
due to the aeronautics R&D  subsidies operating through various aspects of a technology causal mechanism; 
and (c) "Pricing", referring to Boeing's allegedly aggressive pricing behaviour that was said to be due to the 
post-2006 subsidies operating through a price causal mechanism. Se e also European Union's first written 
submission, paras. 1305 -1307 (alleging that the 787's advanced technology and early availability were 
deciding factors in identified LCA sales campaigns), and paras. 1311 -1313 (alleging that certain "illustrative 
compe titive sales campaigns, which are largely clustered in two distinct time periods of 2007 and 2010 -2012" 
show that Boeing's aggressive pricing was a decisive factor in the 787 winning the sale over the A350XWB). 
The claims concerning threat of impedance and  impedance of A350XWB imports and exports are similarly 
based on Boeing's product development and pricing decisions (in each case, said to be the result of U.S. 
subsidies to Boeing) which have allegedly resulted in deliveries of the 787 at the expense of d eliveries of the 
A350XWB. (European Union's first written submission, para. 1583).  
2828 See e.g. European Union's first written submission, paras. 1291 and 1298.  
2829 See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1658.  WT/DS353/R W 
 
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  of the 787 and 777X; and second , we examine  whether any such effects  of the subsidies in 
question on Boeing's product development and prices had the alleged impact on A350XWB sales 
and prices in the post -implementation period , such that these subsidies constitute a genuine and 
substantial cause of the particular forms of serious prejudice alleged by the European Union with 
respect to the A350XWB .  
9.117.   In commencing our evaluation of the European Union's main serious prejudice case with 
respect to the A350XWB , we analyse , in Section 9.3.2.1  whether  the pre -2007 aeronautics R&D 
subsidies and certain  post-2006 aeronautics R&D subsidies benefiting the 787 and 777X cause 
serious prejudice in respect of  the A350XWB in the post -implementation period through a 
technology causal mechanism . We then examine , in Section  9.3.2.2 , whether certain post -2006 
subsidies benefiting the 787 and 777X cause s erious prejudice in respect of  the A350XWB in the 
post-implementation period through a price causal mechanism.  
9.3.2.1   Whether the pre -2007 aeronautics R&D subsidies and certain post-2006  
aeronautics R&D subsidies cause serious prejudice  to the interests of the European 
Union, within the meaning of Articles 5(c) and 6.3,  in respect  of the A350XWB in the 
post-implementation period , through a technology causal mechanism  
9.118.   The Eur opean Union argues that the pre-2007 aeronautics R&D subsidies  continue to cause 
significant competitive harm to the European Union's LCA -related interests following the end of the 
implementation period through their genuine and substantial contribution to  Boeing's development 
of technologies for its current aircraft and the availability of future Boeing LCA. The 
European  Union alleges that Boeing benefits from the effects of the pre -2007 aeronautics R&D 
subsidies in three main ways, which it refers to as t he "main technology effects" of these 
aeronautics R&D subsidies2830:  
a. Original subsidy technology effects : Boeing continues to benefit from 787 technologies  
that were "found to be the effect" of the original pre -2007 aeronautics R&D subsidies, 
which impact th e market through sales of the 787.2831  
b. Spill-over technology effects : Boeing has benefited from the application of the 
"subsidized 787 technologies" to Boeing's more recent 787, 777X (and 737 MAX) LCA 
developments.2832  
c. Sleeper technology effects : Boeing has de veloped new innovative technologies based in 
part on research co nducted under the original aeronautics R&D programmes which it is 
now beginning to apply to its most recent LCA developments.2833  
9.119.   The European Union also argues that certain post -2006 aeronautic s R&D subsidies  operate 
through a further particular "main technology effect" of the technology causal mechanism:  
a. New subsidy technology effects : Boeing is the beneficiary of new "post -2006" NASA, 
DOD and FAA aeronautics R&D subsidies, which have enabled B oeing to develop new 
technologies for its 787 -10 and 777X LCA models and enabled their early availability.2834  
9.120.   The United States disputes that, since the end of the implementation period, the 
aeronautics R&D subsidies cause adverse effects through the above -referenced aspects of the 
technology causal mechanism alleged by the European Union. The United States considers that the 
European Union's allegations are based on the "faulty premise" that the technology effects found 
by the original panel have continued past the compliance deadline. Rather, there is no basis for the 
European Union's presumption that the current market presence of the 787  and the application of 
the 787 technologies  are "genuinely and substantially" related to subsidies.2835 In the original 
proceeding, the European Communities did not argue that Boeing never  would have launched the 
787; only that the 787 would have been launched later than it was. The original panel found that, 
                                               
2830 European Union's first written submission, para. 982.  
2831 European Union's first written submission, para. 983.  
2832 European Union's first written submission, para. 984.  
2833 European Union's first written submission, para. 985.  
2834 European Union's first written submission, para. 986. 
2835 United States' first written submission, para. 703.  WT/DS353/R W 
 
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  absent the aeronautics R&D subsidies, Boeing "most likely" would ha ve launched the 787, but 
"significantly later" than 2004. Thus, for the United States, the relevant question  is not if Boeing 
would have launched the 787 without the benefit of the NASA and DOD programmes, but when  the 
787 launch would have occurred. The U nited States argues that "in a counterfactual without the 
WTO-inconsistent R&D subsidies, Boeing would still have developed the technology to make the 
787 available as it currently is, launch the 737 MAX  when and as it did, and develop the 777X as it 
is."2836 For the United States, this refutes most of the European Union's case concerning the 
alleged operation of pre -2007 aeronautics R&D subsidies through a technology causal mechanism.  
9.121.   The United  States also disputes that any of the post -2006 aeronautics R&D subsidies 
operate through any aspect of a technology causal mechanism.  
9.122.   In Sections 9.3.2.1.1  through 9.3.2.1.4  we examine whether the European U nion has 
established that the pre -2007 aeronautics R&D  subsidies, and certain post -2006 aeronautics R&D 
subsidies alleged to operate throug h a technology causal mechanism  give rise to the particular 
forms of technology effects in the post -implementation period that the European Union alleges in 
relation to th e 787 and 777X. To the extent that we find that these subsidies have such effects on 
Boeing's product development of the 787 and 777X, we will then assess the consequent impact on 
A350XWB sales and prices in the post -implementation period so as to determin e whether the 
subsidies in question, through these technology effects, constitute a genuine and substantial cause 
of the particular forms of serious prejudice all eged by the European Union in respect of  the 
A350XWB.  
9.3.2.1.1   Original subsidy technology effects of the pre -2007 aeronautics R&D subsidies  
9.123.   The European Union has at times framed its "technology effects" arguments on the basis 
that the effects of the pre -2007 aeronautics R&D subsidies that are said to continue into the post -
implementation period are the 787 technologies themselves.2837 The United States disputes such 
an interpretation of the original panel and Appellate Body findings. It argues that the panel and the 
Appellate Body found  only that the aeronautics R&D subsidies accelerated Boeing's developmen t of 
787 technologies and thereby enabled it to launch the 787 earlier than would otherwise have been 
the case. We therefore begin our evaluation of the European Union's arguments that the original 
technology effects of the pre -2007 aeronautics R&D subsidi es on the 787 continue into the 
post-implementation period by clarifying the precise finding s regarding the effects of the 
aeronautics R&D subsidies in the original proceeding.  
9.124.   In the original proceeding, the European Communities argued that the aeronauti cs R&D 
subsidies accelerated Boeing's development of new, advanced technologies for the 787 and 
thereby caused serious prejudice  to its interests in respect of  competing Airbus aircraft in the 
200-300 seat LCA product market.2838 According to the European Com munities, but for Boeing's 
participation in the NASA and DOD  aeronautics  R&D programmes at issue, Boeing would not have 
been able to launch a technologically advanced aircraft like the 787 in 2004, with promised 
deliveries in 2008.2839 In evaluating the effec ts of the pre -2007 aeronautics R&D subsidies on 
Boeing's development of advanced LCA technologies, the original panel considered that Boeing 
"most likely" would have either: (a) developed a 767 -replacement that incorporated all of the 
                                               
2836 United States' first written submission, para. 708. The United States submits a statement by Boeing 
engineers to the effect that, absent the R&D subsidies Boeing would have launched the 787 most likely no later 
than 2006, in any case well before September 2012, leaving ample time for Boeing to adapt 787 technologies 
to the 777X and 737 MAX.  
2837 There are several places throughout the European Union's submissions where the ordinary meaning 
of the lan guage chosen by the European Union to express its argument indicates that the European Union 
considers that the effects of the pre -2007 aeronautics R&D subsidies on the 787 continue into the 
post-implementation as the 787 technologies themselves. Such argu ments can only be based on an 
assumption that the original panel found that the 787 technologies themselves were the effect of the 
aeronautics R&D subsidies. See e.g. European Union's first written submission, paras. 979 and 983; comments 
on the United Sta tes' response to Panel question No. 156, para. 58.  
2838 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1601 -7.1604. Specifically, the 
European Communities argued that the challenged subsidies "accelerated Boeing's development of new and 
advanced LCA technologies, as well as design and manufacturing processes, thereby enabling Boeing to bring 
the 787 to market much sooner than it could have on its own", "limited and delayed Airbus' access to 
innovative R&D technologies", "increased the market ability of the 787", and "allowed a rapid ramp -up of 787 
deliveries". (Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1601).  
2839 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1774.  WT/DS353/R W 
 
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  technologies that are  featured on the 787, but its launch would have occurred "significantly later" 
than 2004 and Boeing would not have been able to promise deliveries for 2008; or (b) launched a 
767-replacement in 2004 that, while technologically superior to the 767, was not as technologically 
innovative as the 787 that actually launched.2840 The panel ultimately reasoned that it was not 
necessary to determine which outcome would have occurred. It explained:  
What is clear to us is that, absent the aeronautics R&D subsidies, Boein g would not 
have been able to launch an aircraft incorporating all of the technologies that are 
incorporated on the 787 in 2004, with promised deliveries commencing in 2008.2841 
9.125.   This conclusion was supported by the panel's earlier findings that the aeronautic s R&D 
subsidies complemented Boeing's internal product development efforts, and were focused on areas 
that "carry the greatest prospect of creating significant competitive advantage" and otherwise 
helped Boeing "reduce the time to market".2842 The panel did n ot consider, however, that the 
technologies applied to the 787 were exclusively attributable to work conducted under the 
challenged NASA and DOD aeronautics R&D programmes. Instead, the panel recognized that 
Boeing's technology developments were "clearly t he product of a variety of factors".2843 The panel 
explained that it would be reasonable to assume that, at some point in time, it would no longer be 
possible to characterize the research conducted under the aeronautics R&D programmes at issue 
as having contr ibuted in a genuine and substantial way to the technologies applied on a given 
product, including the 787.2844 The panel did not consider that this point had been reached in 
2004, however.2845 
9.126.   The Appellate Body affirmed the panel's overall conclusions regarding  the effects of the 
aeronautics R&D subsidies at issue, explaining that "{t}he Panel's finding must be understood to 
mean that the NASA aeronautics R&D subsidies accelerated the technology development process  
by some  amount of time, and, therefore gave Boe ing an advantage in bringing its technologies to 
market".2846 Elsewhere, the Appellate Body described the aeronautics R&D subsidies as having 
provided Boeing with a "boost"2847 to the development of technologies "at the earliest, most 
fundamental, stages of rese arch".2848 We therefore consider that the original panel and the 
Appellate Body found that the aeronautics R&D subsidies accelerated Boeing's development of 
technologies for the 787, which in turn enabled Boeing to launch the 787 earlier than otherwise 
would have been possible, thereby reducing Boeing's time to market with the 787.  
9.127.   It is clear from the foregoing that neither the panel nor the Appellate Body considered that 
the 787 technologies were themselves the effect s of the aeronautics R&D subsidies . The 
aeronautics R&D subsidies were not found to have brought into existence any technology or 
product that would not otherwise exist. Rather, they accelerated Boeing's development of various 
technologies and reduced the time to market of a technologically -advan ced product that would 
                                               
2840 Panel Report, US – Large Civil Aircraf t (2nd complaint) , para. 7.1775.  
2841 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1775.  
2842 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1742.  
2843 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1758. The panel referred , for 
instance , to the significant investments that  Boeing and its suppliers  had made from  2000 onwards in R&D for 
the development of the Sonic Cruiser, the expertise developed by Boeing and certain of its 787 suppliers in the 
use of composit es in primary and secondary structures, as well as knowledge and experience that Boeing 
derived from development of the 777 and 737NG LCA  programmes.  (Panel Report, US – Large Civil Aircraft (2nd 
complaint) , para. 7.1757).  
2844 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1758. The panel explained as follows:  
Boeing's technology developments are clearly the product of a variety of factors. 
Indeed, it is reasonable to assume that at some point in time, the contribution of 
the NASA -funded re search will diminish in relation to other, more recent or 
revolutionary technological developments that are attributable to other factors, and 
that it will no longer be possible to characterize the NASA research conducted in 
the 1990s as having contributed  in a genuine and substantial way to new 
technologies applied to future Boeing LCA.  
2845 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.175 8. 
2846 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 980 (italics original, 
underlining added).  
2847 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 986.  
2848 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 986.  WT/DS353/R W 
 
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  otherwise have taken Boeing longer to develop and place on the market.2849 The issue for our 
analysis under Article 7.8 of whether the United States has taken appropriate steps to remove the 
adverse effects is whether th is acceleration of Boeing's development of advanced LCA technologies 
that the aeronautics R&D subsidies were found to have in the original proceeding is still evident or 
whether it has ended by the end of the implementation period .  
9.128.   Given that the effect s of the aeronauti cs R&D subsidies found in the original proceeding 
were to accelerate Boeing's development of advanced LCA technologies, leading to an earlier than 
otherwise launch of the 787, the mere existence of 787 technologies (as applied to the 787, or as 
adapted thr ough technological spill -over to the 777X and other newer Boeing LCA) in the post -
implementation period  does not demonstrate that this effect continues . Rather, an assessment of 
whether this acceleration effect continues to exist in the post -implementation  period logically 
involves a counterfactual analysis of whether Boeing likely would have been in a different situation 
with respect to the timing of its 787 -related technology development absent these aeronautics 
R&D subsidies.2850 Specifically, the question is whether it is likely that, absent these subsidies, the 
787 technologies would still not have been developed by the end of the implementation period and 
thus the 787 would not have been present in the market by that time. It is logical to ask in this 
connection how much additional time Boeing would have required to develop the 787 absent these 
subsidies because this would indicate whether it is likely that Boeing would have been in the 
market with an unsubsidized 787 prior to the expiration of the impleme ntation period, in which 
case the pre -2007 aeronautics R&D subsidies can no longer be characterized as contributing in a 
genuine and substantial way to Boeing's 787 -related technology development.  
9.129.   With these considerations in mind, the Panel now turns to the arguments and evidence 
provided by the parties in support of their estimates of the additional time that it would have taken 
Boeing to develop the 787 absent the pre -2007 aeronautics R&D subsidies .2851  
                                               
2849 The findings of the panel in the original proceeding regarding the nature an d effects of the 
aeronautics R&D subsidies (i.e. an acceleration effect providing a time to market advantage) can be contrasted 
with certain of the findings in EC and certain member States – Large Civil Aircraft  regarding the nature and 
effects of certain of the subsidies at issue in that dispute. In EC and certain member States – Large Civil 
Aircraft , the panel concluded, among other things, that Airbus would have been unable  to bring to market the 
LCA that it launched but for certain of the subsidies in q uestion. In oth er words, certain of the subsidies in 
question  in that dispute enabled the creation and market presence  of products that would not otherwise exist. 
(See Panel Report, EC and certain member States – Large Civil Aircraft , paras. 7.1949 and 7.1 984; and 
Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 1261, 1264 -1270, and 
1300). See also Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), 
paras.  6.1464 -6.1477.  
2850 The use of a cou nterfactual analysis in this context is consistent with our general approach in this 
Section of the Report, in which we consistently asses s the effects of subsidies through counterfactual analysis. 
See e.g. para. 9.116  above.   
2851 We note that the arguments of both the European Union and the United States are premised on the 
idea that the proper counterfactual analysis of whether the acceleration effect of the pre -2007 aeronautics R&D 
subsidies on Boeing's technolo gy development continues involves an analysis of what the situation would have 
been if Boeing had not received these subsidies. This presupposes that the situation that would exist "absent 
the subsidies" is the situation that would exist if the subsidies h ad never been granted. Canada, a third party in 
this proceeding, argues that Article 7.8 does not require this approach to the counterfactual analysis. According 
to Canada, a Member satisfies its obligation under Article 7.8 if it withdraws subsidies by th e end of the 
implementation period. For Canada, this means that the appropriate counterfactual analysis to assess the 
impact of non -withdrawn subsidies is to consider what the situation would be if the subsidies had been 
withdrawn by the end of the impleme ntation period and that a compliance panel is not required to conduct an 
analysis of what the situation would be if the subsidies had never been granted in the first place. (Canada's 
third-party statement, paras. 30 -37; third -party submission, paras. 37 an d 44-46). Canada thus considers that 
a proper counterfactual analysis of the effects of the pre -2007 aeronautics R&D subsidies in the 
post-implementation period requires the identification of the situation that would prevail if these subsidies had 
been wit hdrawn at the end of the implementation period. Canada submits that if the European Union has  failed 
to demonstrate that the situation regarding sales volume and prices of Boeing aircraft and the resulting impact 
on the sales volume and prices of competing  Airbus aircraft would be any different if the R&D subsidies had 
been withdrawn at the end of the implementation period, the Panel cannot find that the R&D subsidies cause 
adverse effects in the post -implementation period. We note, however, that Canada app ears to acknowledge 
that demonstrating that Boeing's technology developments would not be materially different if it had never 
received the subsidies implicitly also demonstrates that Boeing's technology developments would not be 
materially different if th e subsidies had been withdrawn by the end of the implementation period. (Canada's 
third-party submission, para. 45). Therefore, the issue raised by Canada appears to be of limited practical 
import in this proceeding and we proceed on the basis of the count erfactual analysis as framed by the parties, WT/DS353/R W 
 
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  9.130.   In its first written submission, the United States s eeks to demonstrate that, absent the 
pre-2007 aeronautics R&D subsidies, Boeing would have launched the 787 most likely no later 
than 2006 , leaving ample time for Boeing to adapt 787 technologies to the 777X and 737 MAX.2852 
In response to the United States' first written submission, the European Union argue s that it is not 
plausible that Boeing, with its own funding, could have "replicated" in less than two years the 
"decades of US Government -supported R&D that enabled the development and launch of the 
787".2853 The European Union argues that it would have taken Boeing "at least 10 years to develop 
only a number of select LCA technologies and design tools necessary for the 787", and in addition 
to the ten years , Boeing would further "require considerable time to develop the knowledge it has 
acquired through its decades of experience participating in the US Government -supported R&D 
programmes".2854 This time -frame would still be inadequate, as it pertains to the development of 
individual technologies, and in reality, it would take even longer  to "develop, mature, produce and 
certify a package of new innovative technologies and the time required to find the design solution 
to make them interact optimally".2855 
9.131.   We evaluate the merits of these two estimates below. We begin b y explaining the 
European Union's "additional 10 years plus" estimate, and the United States' criticisms, and the 
United States' "counterfactual launch no later than end of 2006" estimate and the 
European  Union's criticisms.  
The European Union's "additiona l 10 years plus" estimate of the time it would have taken Boeing 
to develop the 787 absent the pre -2007 aeronautics R&D subsidies  
9.132.   The European Union relies on a statement by Airbus engineers to support its estimate that 
Boeing would have needed more than ten years  to develop the technologies and design tools 
acquired from its participation in the relevant aeronautics R&D programmes to be in a position to 
develop and launch the 787 absent the pre -2007 aeronautics R&D subsidies (the Airbus 
Engineers'  Respons e).2856 The Airbus Engineers' Response was submitted as a response to , and 
critique of , a statement of Boeing engineers that supports the United States' estimate.  
9.133.   The Airbus Engineers Response refers to a number of timeframes in relation to the 
development o f an LCA, including the time to develop individual LCA technologies and design tools, 
and the time to integrate technologies into a final design solution. This includes a ten-year 
incubation period, to allow for necessary certification, quality testing and  material proofs. The 
Airbus engineers explain that it takes at least [***] to develop the requisite composite design and 
manufacturing tools, in particular with respect to tolerance specifications .2857 They also describe a 
"building block" approach for devel oping new technologies, which starts from an early study phase, 
and continues through design, procurement, production, certification and delivery and inherently 
involves trial and error. Finally, they conclude that, were Airbus to undertake development of a 
composite 360° barrel design, based on Airbus' knowledge of composites at the time  the 787 was 
launched in 2004 , it would have taken Airbus [[HSBI]]  to develop, mature, produce and certify 
                                                                                                                                               
i.e. as an analysis of the situation that would likely exist if the aeronautics R&D subsidies had never been 
granted to Boeing.  
2852 United States' first written submission, para. 709. The United States asserts th at it is making this 
demonstration to assist the Panel, even though as a legal matter, it has met its burden of rebuttal by showing 
that the European Union has failed to address the relevant question in conducting a counterfactual analysis of 
the alleged t echnology effects on the 787, including any "spill -over" effects. (United States' first written 
submission, paras. 706 and 707).  
2853 Response by B. Domke, P. A. Brown, J. Kumpfert , and I. Whitehouse to the June 2013 Statement of 
Boeing Engineers, 19 July 201 3 (Airbus Engineers' Response), (Exhibit EU -1014) (BCI), para. 3. The 
European  Union does not provide an estimate of the length of time it would have taken Boeing to develop the 
787 absent the pre -2007 aeronautics R&D subsidies in its first written submiss ion. 
2854 European Union's second written submission, para. 975. See also European Union's second written 
submission, paras. 975, 1012, and 1031 -1041; Airbus Engineers' Response, (Exhibit EU -1014) (BCI), paras. 55 
and 63; European Union's response to Panel qu estion Nos. 45 and 154; and European Union's comments on 
United States' response to Panel question Nos. 45 and 47.  
2855 European Union's second written submission, para. 1031 (emphasis original). The European Union 
also criticizes the Boeing engineers' specif ic estimates of the time it would have taken to complete certain R&D 
tasks, and any comparison the Boeing engineers draw to the time it actually took to design and develop the 
A350XWB. (Airbus Engineers' Response, (Exhibit EU -1014) (BCI), paras. 48 -63 and 67-87). 
2856 Airbus Engineers' Response, (Exhibit EU -1014) (BCI).  
2857 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 43.  WT/DS353/R W 
 
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  the composite 360° barrel sections for use on the A350XWB.2858 Based  on the Airbus Engineers' 
Response, the European Union asserts that it would have taken Boeing "at least [[HSBI]]  longer 
to deliver  the 787, with the launch delayed by a similar amount of time".2859  
9.134.   The United States argues that the European Union's position  that it would have taken 
Boeing an unspecified period in excess of ten years to develop technologies and an unspecified 
period to actually launch the 787 is unsupported by the evidence. The United States considers 
that, a part from being both "highly gener alized" and "unsupported by reference to real -world 
experience in the specific technologies at issue"2860, the European Union's estimate improperly 
assumes that Boeing would need to take additional time for work not performed  under the R&D 
programmes. The Uni ted States argues that the proper counterfactual estimate should only take 
into account the additional time required to attain the increased knowledge and experience to 
undertake the subsidized aspects of the technology development process of the 787 in or der to fill 
the gap in knowledge and experience. By accounting for the entirety of development, maturation, 
production, and certification of technologies actually used on the 787, the European Union 
attributes to the subsidies all non -subsidized developmen t. By doing so, the European  Union 
inapp ropriately double counts the time  that it would have  taken Boeing  to develop the 787 with its 
particular technologies, absent the aeronautics R&D subsidies .  
9.135.   The United States also contends that the European Union ha s never indicated in this 
proceeding when it considers the 787 would have launched absent the subsidies, and by extension 
has failed to establish that the 787's counterfactual launch would have occurred after the end of 
the implementation period.2861 The Unit ed States contrasts this ambiguity with the more definitive 
position that the European Communities took in the original panel proceeding as to how long it 
would have taken Boeing to launch the 787 absent the subsidies: "The European Communities 
argues that , had Boeing needed to develop the 787 using its own resources, the 787 would likely 
not have been launched any earlier than mid -2006 …".2862 
The United States' estimate that, absent the pre -2007 aeronautics R&D subsidies, Boeing would 
have launched the 787 n o later than 2006  
9.136.   As support for its estimate that absent the pre -2007 aeronautics R&D subsidies, Boeing 
would have launched the 787 no later than 2006, the United States relies on  a statement by eight 
Boeing engineers who worked on the development of the 787, 777X, and/or 737 MAX (the Boeing 
Engineers'  Statement).2863 The Boeing engineers purport to estimate the extent of the timing 
advantage that the pre -2007 aeronautics R&D subsidies could "maximally" have provided Boeing, 
based on the assumption for purpos es of their statement that Boeing did in fact enjoy such a 
timing advantage.2864 They assume that: (a) Boeing (including McDonnell Douglas) had not 
participated in the relevant NASA and DOD aeronautics R&D programmes; and (b) aside from that 
lack of participa tion by Boeing, the degree of knowledge and technology that Boeing attained 
through its independent R&D activities, its suppliers and the broader aeronautics community 
remains the same.2865  
9.137.   The Boeing engineers first discuss Boeing's incentives to conduct ea rly-stage research in 
the early 2000s, when Boeing was undertaking intensive pre -launch product development for the 
Sonic Cruiser, and then the 7E7, which later became the 787. They then consider the seven 
specific 7E7/787 technology areas considered by th e original panel and purport to assess the 
"additional time required to replicate the work done by Boeing under the NASA and DOD programs 
                                               
2858 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 40. 
2859 European Union's comments on United States' response to Panel  question No. 153, paras. 19 and 
42. (emphasis original)  
2860 United States' second written submission, para. 782.  
2861 United States' comments on European Union's response to Panel question No. 153, paras. 16 and 
22, and fn 20.  
2862 United States' comments on Eur opean Union's response to Panel question No. 153, para. 16 
(referring to Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 4.280).  
2863 Statement of Boeing Engineers Regarding the Technologies and Development of the 787, 737 MAX , 
and 777X, June 2 013 (Boeing Engineers' Statement), (Exhibit USA -283) (BCI).  
2864 The Boeing engineers explain that they disagree with the panel's findings concerning the links 
between the pre -2007 aeronautics R&D subsidies and the 787, but assume those findings to be correct  for 
purposes of their analysis. (Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 4).  
2865 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 5.  WT/DS353/R W 
 
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  using the internal resources of Boeing and its suppliers ".2866 The engineers explain that "{t}his 
assessment is based on examples of the time and effort taken by Boeing and its suppliers to 
address early -stage R&D challenges that were either comparable to, or more demanding than, the 
types of activities conducted under the NASA and DOD programs" .2867 Finally, the Boeing 
enginee rs discuss the pattern and pace of Airbus' development of the A350XWB, on the basis that 
Airbus' ability to announce orders for the A350XWB in July 2006, followed by formal launch that 
December, even though it did not have access to the benefits from the p re-2007 aeronautics R&D 
subsidies, is a "useful reference point" for analysing the counterfactual timing of the 787 
launch.2868 
9.138.    The Boeing engineers express the view that, even though commercial enterprises may 
generally face disincentives to invest in early -stage aeronautics research where the commercial 
payoff is highly uncertain, distant or difficult to capture, "such disincentives diminish significantly 
where an aircraft manufacturer identifies a compelling need to develop a new product requiring 
specific  attributes that are difficult or impossible to offer using existing technology ".2869 According 
to the Boeing engineers, Boeing faced precisely that situation in the early 2000s when it 
determined that a critical priority was to develop a new, highly -efficien t mid -sized twin -aisle 
aircraft to replace the 767 and serve anticipated demand for point -to-point long -haul travel, while 
customers were at the same time demanding significant breakthroughs in efficiency but were 
reluctant to pay more than the acquisition  cost of the 767 and A330. The Boeing engineers state 
that under those circumstances, "Boeing had ample incentive to, and would, undertake whatever 
additional early -stage research necessary to augment its ongoing R&D for the 787."2870 This was 
evident from th e risky, early -stage R&D that Boeing actually conducted on a number of 
technologies during the 787 development program.2871 
9.139.   With those considerations in mind, the Boeing engineers provide specific estimates of the 
time that would have been required to replica te the work done by Boeing under the pre -2007 
NASA and DOD aeronautics R&D programmes found to involve subsidies  using the internal 
resources of Boeing and its suppliers.2872 Their conclusions are summarized as follows:  
a. Composite fuselage : Boeing could have replicated  in less than two years  the particular 
tasks that were accomplished under NASA's Advanced Technology Composite Aircraft 
Structures (ATCAS) program, given the scope, scale and complexity of the work and 
technical challenges involved, when compared  to Boeing's work developing a one -piece 
composite barrel design concept for incorporation into the 7E7 baseline design, its 
completion of a full -scale demonstration barrel fuselage section and development of 
design, tooling and production concepts.2873 Speci fically, it would have taken 
approximately 18 months to build and study the ATCAS panelized composite fuselage 
section, given that Boeing took [***].2874 It would have taken Boeing [***] if 
conducted during the 7E7 development program, given that it took [***] to conclude 
"much more exacting and complex costing studies of the barrel fuselage design adopted 
for the 787".2875  
b. Composite wings : Boeing could have completed construction and testing of a semi -span 
composite wing box demonstrator using a stitched/resin filled infusion technology that 
                                               
2866 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 7. These technology areas are: (a) 
composite fuselage; (b) composite wings; (c) aerodynamics and structural design; (d) more -electric 
architecture; (e) open systems architecture; (f) health management systems; and (g) noise reduction 
technologies.  
2867 Boeing Engineers' Statement, (Exhibit  USA-283) (BCI), para. 7.  
2868 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 8.  
2869 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 9.  
2870 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 10.  
2871 The Boeing engineers also argue that the time required to advance research from technology 
readiness levels is significantly reduced  when that research occurs in the context of a high -priority aircraft 
development program (Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 12:  "{o}n such a 
program, Boeing pre - and post -launch R&D activity proceeds at a much faster pace than NASA R&D 
aeronautics programmes because it is subject to tight deadlines and given much greater engineering and 
budgetary resources to meet those deadlines").  
2872 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), paras. 13 -40. 
2873 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 23.  
2874 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 21.  
2875 Boeing Engineers' Statement, (Exhibit USA -283) (BC I), para. 22.  WT/DS353/R W 
 
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  was developed under the NASA's Advanced Subsonic Technology (AST) Program in 
approximately 18 months as compared to the [***].2876 Boeing participated in the 
composite wing element of the NASA AST Program for a period of five y ears.2877  
c. Aerodynamics and structural design : Boeing could have developed enhanced TRANAIR 
and OVERFLOW computational fluid dynamics (CFD) codes in approximately six months 
using the level of resources that were available under the 7E7 program me, had Boeing 
done the work on its own rather than under the NASA's AST Program . According to the 
Boeing engineers, "one Boeing employee worked part -time for 3 years to assess the 
TRANAIR and OVERFLOW generic (publicly available) codes".2878 
d. More-electric system architectu re: Between [***], Boeing made rapid progress [***]. 
This was because "Boeing was serious about bringing a new aircraft to market" and also 
because Boeing took the decision to deploy [***]. In light of the advances made in such 
a short time, "it would have  taken Boeing even less time to conduct mu ch less ambitious 
research, such as that done by McDonnel Douglas on the power -by-wire/fly -by-light 
subtask of NASA's AST programme".2879 
e. Open systems architecture : Boeing could have developed defined generic open 
architecture specifications and component interfaces related to the 787 open systems 
architecture in approximately one year (rather than the three years spent by McDonnell 
Douglas under the DOD Vehicle Management Systems Integrated Technology for 
Affordable L ifecycle Cost (VITAL) Program ), given that Boeing [***].2880  
f. Health management systems : The 787's health management system is only an 
enhanced version of the health management technology used on the 777, and "there 
was no need for significant early -stage R&D , and no need for learning or technology 
from U.S. Government R&D programs".2881 
g. Noise reduction : The technological challenges that Boeing overcame in the [***] during 
which  it matured and tested the noise reduction technologies for the 787 are comparable 
to or greater than those posed by the noise reduction technologies that Boeing had 
worked on under the NASA aeronautics R&D programmes.2882 
9.140.   As regards the estimate for the composite fuselage, the Boeing engineers make two 
additional observations. First, they not e that prior to starting work on developing the aircraft that 
became the 787, Boeing already had decades of composites experience, from its use of composites 
on the 757 and 767 in the late 1970s, to the 737 Classics in the mid -1980s and most importantly, 
the 777 in the late -1980s and early 1990s.2883 Second, they consider that their conclusion that, 
starting in late 2002, Boeing could have replicated its work under the ATCAS Program within two 
years is confirmed by how quickly Airbus was able to launch the "pr edominantly composite" 
A350XWB.2884 Like Boeing, Airbus developed composites expertise over decades, generally 
increasing its application of composites with each successive aircraft program me. Similarly, Airbus 
leveraged the composites experience of its suppl iers, and did not purs ue the A350XWB until the 
commercial imperative arose.2885 The Boeing engineers note that Airbus was able to announce 
orders for the A350XWB in July 2006, a little over two years after Boeing launched the 787, and 
                                               
2876 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 27. The Boeing  engineers submit that 
the demonstrator developed under the  NASA  AST Program  [***]. (Boeing Engineers' Statement, (Exhibit USA -
283) (BCI), para. 27).  
2877 Boeing Enginee rs' Statement, (Exhibit USA -283) (BCI), para. 27.  
2878 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 30.  
2879 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), paras. 33 -35. 
2880 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 36.  
2881 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 37.  
2882 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 40.  
2883 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 14.  
2884 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 24. 
2885 According to the Boeing engineers, Airbus needed to develop an aircraft to compete more effectively 
with the 787 and 777 . (Boeing Engineers'  Statement, (Exhibit USA -283) (BCI), para. 24).  WT/DS353/R W 
 
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  only months after Airbus  had accepted firm orders for its earlier A350 design.2886 The Boeing 
engineers conclude:  
In our view, Airbus' ability to offer the A350 XWB as quickly as it did shows that, with 
the right incentives, either of the existing large commercial aircraft manufactu rers can 
undertake development of an aircraft with a composite fuselage and then offer that 
aircraft to customers in a relatively short period of time.2887 
9.141.   The European Union makes a number of criticisms of the Boeing engineers' estimate of the 
counterfactual  launch date of the 787 absent the pre -2007 aeronautics R&D subsidies. First, the 
European Union argues that the Boeing engineers' counterfactual estimate, while focused on the 
technical feasibility of developing and producing the 787, fails to take into account whether absent 
the subsidies it would have been feasible for Boeing to proceed with the launch of the 787 from an 
economic or commercial  point of view. Second, t he European Union considers that the Boeing 
engineers' estimate of the technical feasibi lity of developing the 787 without the assistance of the 
pre-2007 aeronautics R&D subsidies is flawed on a number of grounds.2888 
9.142.   With regard to the economic feasibility of launching the 787 absent the subsidies, the 
European Union argues that the Boeing engi neers' counterfactual estimate ignores the question of 
whether Boeing would have considered it economically rational to proceed with the 787's launch, 
considering the original panel's findings that there are large disincentives inherent in conducting 
long-term, high -risk aeronautics R&D, and its overall finding that the 787 would have launched 
"significantly later" than 2004 absent Boeing's participation in the NASA and DOD programmes.2889 
9.143.   The European Union argues that it is for the United States to establish  that Boeing would 
have invested all of the necessary funds to conclude all of the necessary pre -launch development 
absent the pre -2007 aeronautics R&D subsidies.2890 In particular, the European Union argues that 
undertaking the fundamental R&D that was the s ubject of the pre -2007 aeronautics R&D subsidies 
"would have increased the uncertainty regarding Boeing's ability to deliver the aircraft as 
promised, both in terms of its timing and performance".2891 The European Union considers that 
early-stage R&D will onl y be undertaken where it is economically rational to do so, specifically 
where the risk -adjusted return from the R&D is anticipated to exceed a company's investment 
hurdle rate or weighted average cost of capital. Any delay in the ability to deliver the 78 7 would 
give rise to negative effects in the form of additional costs, deferred revenues and additional risk, 
all of which would affect the risk -adjusted anticipated return and Boeing's "business case" for 
launching and bringing the 787 to market.2892 The Eur opean Union asserts that these additional 
costs, deferred revenues and additional risk "would have reduced, or even undermined, the 
viability of the 787".2893 
9.144.   The European Union also makes a number of criticisms of the Boeing engineers' estimate, 
based on the  technical feasibility of Boeing concluding the necessary R&D to be able to launch a 
technologically -comparable aircraft to the 787 absent the pre -2007 aeronautics R&D subsidies. The 
European Union seeks to support its criticisms of the Boeing engineers' s tatement by reference to 
                                               
2886 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 24. See also United States' first 
written submission, paras. 785 -788; and second written submission, paras. 799 -811. 
2887 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 24.  
2888 The European Union argues that the United States simply repackag es many  of the same arguments 
that it made in the original proceeding regarding the relevance of Boeing's non -subsidi zed capabilities and 
those of it suppliers, as well as the relevance of the availability of Boeing's internal funds. (See 
European  Union's second written submission, paras. 956 , 957, 964, 967, 973 -975, 977 -997, 999 -1010, 
1014-1019, and 1022 -1024; response to Panel question No. 45, paras. 297 -317; and Airbus Engineers'  
Response, (Exhibit EU -1014) (BCI), paras. 7 -63 and 67 -87). 
2889 See European Union's second written submission, paras. 977 -997 and 1014 -1019; and response to 
Panel question No. 45, paras. 297 -317. 
2890 European Union's response to Panel question No. 45, paras. 303 -306 and 311.  
2891 European Union's response to Panel question No. 45, para. 316. The European Union questions the 
notion that long -term and uncertain research may become "short term and capable of execution" based on 
commercial imperative in the pre -launch phase combined with a [***] to complete the research. 
(European  Union's second w ritten submission, para. 1018).  
2892 See e.g. European Union's response to Panel question Nos. 45, paras. 313 -317, and 154, paras. 30 
and 34 -38. 
2893 European Union's response to Panel question No. 45, paras. 313-317. WT/DS353/R W 
 
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  the Airbus Engineers' Response  which responds specifically to the assertions made by the Boeing 
engineers in the Boeing Engineers' Statement.2894  
9.145.   First, according to the European Union, the Boeing engineers address the wrong 
counterf actual by estimating the time to replicate  certain work. Asking whether Boeing could have 
replicated certain work absent the R&D subsidies assumes that the Boeing engineers already knew 
that the technology existed or was feasible. The European Union conten ds that Boeing engineers 
would not have known which technologies were technically feasible and necessary or desirable had 
Boeing not participated for decades in government -supported R&D programmes. It would not have 
made sense for Boeing to proceed with th e decision to launch the 787 had it not known it w as 
possible to develop the composite fuselage with the desired characteristics and cost benefits, for 
instance. Thus the relevant question is "how many years it would have taken Boeing to develop, 
mature, p roduce and certify novel technologies its engineers did not know existed, or were even 
feasible".2895 In addition, the European Union argues that Boeing engineers' estimate fails to take 
into account the fact that there is a great deal of trial and error invo lved in aeronautics R&D.2896  
9.146.   Second, the European Union argues that , even assuming Boeing knew which technologies 
had to be researched, the Boeing engineers' estimate of two additional years of time is an 
unrealistically low estimate from an engineering stan dpoint. According to the European Union, the 
proper counterfactual must take into account the necessary time that would have been required to 
complete the "design, procurement, production, certification and delivery" of 787 technologies, 
which the Boeing e ngineers' estimate fails to do.2897 In support of this, the Airbus engineers refer 
to the time that it typically takes to develop new materials, build and test complex structural 
elements, build full scale test models, conduct flight testing, certify the airw orthiness, safety , and 
reparability of materials, and integrate new technologies into the final design.2898 The 
European  Union also criticizes  Boeing engineers f or failing to factor in that basic aeronautics R&D 
proceeds at a "slower pace" due to inherent unc ertainty in the effort and the need to minimize 
wasting research.2899  
9.147.   Third, the European Union considers that the Boeing engineers' estimate  is not based on a 
"comprehensive, component -by-component timeline"2900 of all of the tasks that Boeing would have 
had t o complete in relation to "the millions of components that Boeing developed for the 787" .2901 
Instead , the estimate  focuses on a limited set of R&D tasks and technologies undertaken pursuant 
to a sub -set of NASA and DOD programmes, and ignores entirely work p erformed under dual -use 
military RDT&E program elements.2902  
9.148.   Fourth, the European Union argues that statements made by Boeing outside the context of 
litigation contradict the plausibility of the Boeing engineers' estimate. The European Union refers 
to a pres entation by Boeing engineers Craig Wilsey and Robert Stoker, from Boeing Commercial 
Airplanes Engineering, Operations & Technology Department.2903 In discussing "{t}echnology 
{m}aturity {l}evels" in relation to technology readiness levels  (TRLs) , their presen tation indicated 
that it takes "{u}p to 10 years for major technologies" to reach a TRL 6 and an additional "3 to 6 
                                               
2894 Airbus Engineers' Response, (Exhibit EU -1014) (BCI).  
2895 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 13  
2896 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 13; and European Union's second 
written submission, paras. 974, 975, 989 -999, 1003, 1008, and 1023 -1030.  
2897 Airbus Engine ers' Response, (Exhibit EU -1014) (BCI), para. 28.  
2898 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), paras. 27-38. 
2899 European Union's second written submission, paras. 1028 and 1029; and Airbus 
Engineers'  Response, (Exhibit EU -1014) (BCI), para. 14.  
2900 European Union's comments on United States' response to panel question No. 46, para. 307. See 
also European Union's second written submission, paras. 1042 -1047.  
2901 European Union's comments on United States' response to panel question No. 46, para. 307. Se e 
also European Union's second written submission, paras. 1042 -1047. For instance, Airbus engineers fault the 
Boeing engineers for failing to refer to the "many US government -supported programmes that followed ATCAS" 
that contributed to the full barrel str ucture that Boeing now uses for the 787 composite fuselage. (Airbus 
Engineers' Response, (Exhibit EU -1014) (BCI), para. 69).  
2902 European Union's second written submission, paras. 1042 -1047.  
2903 C. Wilsey, R. Stoker, "Continuous Lower Energy, Emissions and Noi se (CLEEN) Technologies 
Development – Boeing Program Overview", Presentation at the CLEEN Consortium Public Session, 
27 October  2010, (Exhibit EU -665), p. 4.  WT/DS353/R W 
 
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  years" before the LCA is ready for entry into service and first delivery.2904 The European Union 
asserts that "this timeframe is also corrobora ted by Boeing's Chief Technologist in stating that 
'R&D programs … provide little -to-no return for 15-20 years  {because,} in the aviation industry, it 
can take that long, if not longer, for a technology to move from discovery to maturation to 
commercializa tion and implementation on a product'".2905 
9.149.   Fifth, the European Union argues that the Boeing engineers' estimate is also contradicted 
by the difficulties encountered by Boeing engineers in resolving the problems relating to the final 
development of the 787, w hich resulted in the delay s of the first delivery of the 787 by nearly 
three and a half years .2906 According to the European Union, the delays of the 787's entry into 
service contradict the proposition that Boeing could have researched the fundamental technol ogies 
developed under the NASA and DOD aeronautics R&D programmes in less than two years.2907 The 
Airbus engineers assert that Boeing's handling of the 787 production delays serves as "real -life"2908 
experience demonstrating Boeing's inability to resolve  "even t hese more concrete, defined 
problems "2909, contradicting the notion that "solving engineering problems is merely a question of 
dedicating enough engineering resources and money, and less a question of taking the time to 
carefully resolve the engineering probl ems encountered".2910 The European Union submits a 
statement by an Airbus engineer which  contains a lengthy discussion of what he considers are the 
reasons for the delay s in the entry into service of the 787; including the selection of a green field 
site, "in adequate supplier selection", and "inadequate supply chain coordination and 
supervision".2911 
9.150.   Sixth, the European Union rejects the suggestion that Airbus' experience developing the 
A350XWB serves as a benchmark that confirms the Boeing engineers' estimate of  the amount of 
additional time it would have taken Boeing to develop the technologies in order to launch the 787. 
The European Union contends that the attempt by the Boeing engineers to confirm their estimate 
by reference to Airbus' experience with the A35 0XWB "compares apples with oranges"2912, since 
the composite technology solutions on the two LCA differ significantly and the A350XWB does not 
incorporate a "more -electric" systems architecture. Hence, the Panel would need to add 
significantly to the A350XWB development time to account for these technological differences  
before making any comparison, as the composite technology solutions and "more -electric" systems 
architecture would take additional time to develop . The European Union also argues that, even 
without factoring in additional time to account for the technological differences between the 
A350XWB and 787, the Boeing engineers' estimate is wrong, as it has actually taken Airbus  almost  
[[HSBI]]  to develop the A350XWB  without a full barrel composite fus elage or "more -electric" 
systems architecture, as compared to the 787 development time .2913 
                                               
2904 C. Wilsey, R. Stoker, "Continuous Lower Energy, Emissions and Noise (CLEEN) Technologies 
Develop ment – Boeing Program Overview", Presentation at the CLEEN Consortium Public Session, 
27 October  2010, (Exhibit EU -665), p. 4. The European Union refers to a presentation slide by Boeing 
engineers that indicates that 8 -10 years is the "reality" for the tim e it takes to identify materials until they are 
production ready. (See European Union's comments on United States' response to Panel question No. 153, 
para. 22 (referring to G. Young, Director Materials & Fabrication Technology, "The Challenge of New Mater ials 
In the Aerospace Industry", Presentation at Georgia Institute of Technology, 15 May 2013, (Exhibit EU -1663), 
slide 8) ). 
2905 European Union's comments on United States' response to Panel question No. 153, para. 22 
(referring to Statement of Dr J. Tracy, Boeing Chief Technologist, before the U.S. Senate Committee on 
Commerce, Subcommittee on Aviation Operations, Safety, and Security, Hearing on "Threats to U.S. 
Competitiveness in Aviation", 18 July 2012,  (Exhibit EU -82) (emphasis added by the European Unio n)). 
2906 At the time of launch in April 2004, Boeing committed to deliver the 787 to launch customers 
beginning in May 2008. However, entry into service was delayed until 26 October 2011. (See "Boeing 787 Hits 
Another Snag, Dreamliner's Timeline of Pain (BA) ", 247wallst.com , 10 November 2010, (Exhibit EU -1161); and 
T. Kelly, "Dreamliner carries its first passengers and Boeing's hopes", Reuters , 26 October 2011,  (Exhibit 
EU-1181)).  
2907 European Union's second written submission, paras. 1009 and 1010; and Airbus 
Engineers'  Response, (Exhibit EU -1014) (BCI), para. 10. 
2908 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 8.  
2909 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 10. (emphasis original)  
2910 Airbus Engineers' Response, (Exhibit EU -1014) (BC I), para. 3.  
2911 Statement of B. Domke on the engineering -related aspects of the Pa nel's first set of questions, 
4 December 2013, (Exhibit EU -1268) (BCI), paras. 5 -22. 
2912 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 3.  
2913 European Union's second written submission, paras. 1011 -1013; response to panel question No. 45, 
paras. 318 -330; and Airbus Engineers' Response, (Exhibit EU -1014) (BCI), paras. 3, 14, and 47 -62. Airbus WT/DS353/R W 
 
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  The Panel's evaluation of the two estimates  
9.151.   We begin by considering the arguments presented by the European Union that it would 
have taken Boeing at least an addition al ten years or more to develop an aircraft equivalent to the 
787 absent the pre -2007 aeronautics R&D subsidies. We then consider the merits of the estimate 
provided by the United States based on the Boeing Engineers'  Statement, addressing the economic 
feasibility of launching the 787 without the pre -2007 aeronautics R&D subsidies, as well as the 
European Union's criticisms of the methodology employed by the Boeing engineers and the 
technical feasibility of their estimate. Finally, w e consider whether Airbu s' experience with the  
launch of the A350XWB is relevant to assessing the plausibility of the counterfactual a nalyses  of 
whether, absent the pre -2007 aeronautics R&D subsidies , Boeing likely would have launch ed the 
787 before or after the end of the implem entation period.  
9.152.   In our evaluation of the arguments of the parties with regard to how the timing of Boeing's 
technology development in respect of the 787 would have been different absent the pre -2007 
aeronautics R&D subsidies, an important issue is whether  these arguments are consistent with the 
findings of the panel and the Appellate Body in the original proceeding as to the precise role of 
these subsidies in accelerating Boeing's technology development with respect to the 787. T he 
European Union's affirma tive case regarding the amount of additional time that it would have 
taken Boeing to develop and launch the 787 proceeds on the basis that the relevant counterfactual 
question concerns the amount of additional time that it would have taken an LCA manufactu rer 
like Boeing to research, develop, produce, certify , and deliver  the 787. If we were to formulate the 
counterfactual question in the terms proposed by the European Union, the estimate of the time we 
arrive at would also include time to undertake activit ies (internal R&D conducted by Boeing and its 
suppliers, production, certification and delivery) that were not found to have been effects  of the 
pre-2007 aeronautics R&D subsidies in the original proceeding.  The original panel did not consider 
that Boeing' s technology development in relation to the 787 was solely the result of Boein g's 
subsidized participation in NASA and DOD aeronautics R&D programmes. Nor did it consider that 
the acceleration effect of the aeronautics R&D subsidies encompassed phases in t he development 
of the 787 beyond its launch. Therefore, by formulating the counterfactual question in terms of the 
amount of additional time it would have taken Boeing to research, develop, produce , certify and 
deliver the 787 absent the subsidies, the Eur opean Union's estimate erroneously attributes to the 
pre-2007 aeronautics R&D subsidies aspects of the 787's development that were not  found to have 
been accelerated by Boeing's participation in the relevant NASA and DOD aeronautics R&D 
programmes.2914 
9.153.   A furt her difficulty with respect to the European Union's argument s is that the 
European  Union  has not provided a clear statement on its behalf, or supporting evidence, that the 
787 would not have launched until after the end of the implementation period. Its af firmative case 
instead has referred to an estimate of the amount of time required to develop technologies and 
design tools (more than ten years) , an estimate of the extent of the delay in delivering the 787 
([[HSBI]] ), and a statement that the launch would  have been delayed "by a similar amount of 
time". The Panel is uncertain whether it should infer from the foregoing that it is the 
European  Union's position that Boeing, absent the aeronautics R&D subsidies, would not have been 
able to launch the 787 befor e September 2012.2915  
9.154.   Turning to the United States' estimate, we first address the European Union's criticism that 
the United States has failed to address whether Boeing would have considered it economically 
rational and commercially feasible to have proceed ed with the launch of the 787 at a point later 
than 2004 absent the pre -2007 aeronautics R&D subsidies. The European Union's criticism appears 
to rely in great part on statements by the original panel to the effect that there are large 
                                                                                                                                               
engineers assert that the four panel fuselage section is considered "lower ris k" compared to the 787's 360° 
barrel composite design (R. Wall and A. Rothman, "Airbus Says A350 Design Is 'Lower Risk' than Troubled 
787", Bloomberg , 17 January 2013,  (Exhibit EU -1168)). See also Statement of P. Gavin, T. Sommer, 
B. Domke, and D. Wacht, 8  November 2007, (Exhibit EU -33) (HSBI), para. 13.  
2914 See e.g. European Union's second written submission, paras. 975 and 1031 -141; response to panel 
Question No. 45, paras. 320 and 330; and comments on United States' response to Panel question No.  47, 
para. 312.  
2915 See also European Union's comments on United States' response to Panel Question No. 47, 
para. 320 and fn 552.  WT/DS353/R W 
 
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  disincentives inhere nt in conducting long -term, high -risk aeronautics R&D.2916 The United States 
responds that the Boeing engineers' estimate is fully consistent with the panel's findings in the 
original proceeding. The United States argues that the original panel findings estab lish that the 
pre-2007 aeronautics R&D subsidies provided foundational knowledge relevant to Boeing's 
pre-launch R&D, which accelerated the launch  of the 787.2917 While noting the panel's finding that 
there are disincentives to undertake early -stage R&D, the United States maintains that those 
disincentives diminish over time, particularly as near -term commerci al priorities arise. The 
United  States further rejects the assertion that additional research undertaken absent the 
pre-2007 aeronautics R&D subsidies wo uld have any impact on the 787 business case, as any 
pre-launch R&D projects would have been funded through Boeing's Independent R&D budget for 
commercial aircraft, and would have been treated as [***].2918 
9.155.   While we agree with the original panel's general obs ervations regarding disincentives 
inherent in conducting long -term, high -risk aeronautics R&D, we are also inclined to agree with the 
United States that those disincentives diminish as a practical matter as near -term commercial 
priorities arise. We are sat isfied on the basis of the evidence before us and in light of the findings 
of the original panel that the commercial imperatives in the early 2000s were such that a critical 
commercial priority for Boeing was to develop a new, highly -efficient mid -sized, t win-aisle aircraft 
to replace the 767.2919  
9.156.   In this regard, we note that the original panel did not consider that Boeing was not 
capable, based on its engineering and technological capabilities unrelated to the pre -2007 
aeronautics R&D subsidies, and those of  its suppliers, of developing  such an aircraft. Consistent 
with these considerations, t he European  Union itself does not argue that the 787 technologies in 
question "would never have existed" absent the pre -2007 aeronautics R&D subsidies.2920 Indeed, 
we would  emphasize that in the original proceeding, the European Communities argued that in the 
absence of the aeronautics R&D subsidies at issue, Boeing would not have been able to launch the 
787 or a comparable aircraft until mid-2006.2921 
9.157.   As we have explained abov e, we are attempting to reach a reasonable estimate of how 
long it would have taken Boeing to undertake the subsidized R&D activities absent the pre -2007 
aeronautics R&D subsidies and therefore, when the 787 would have launched absent those 
subsidies. Ther e is no evidence before us, and no support in the findings in the original proceeding, 
that suggests the possibility that Boeing would have taken a commercial decision not to proceed 
with the development of the 787 with all of the technologies, absent the pre-2007 aeronautics R&D 
subsidies. To the extent that this is what the European Union means when it argues that additional 
costs, deferred revenues and additional risk arising from a delay in the launch of the 787 "would 
have reduced, or even undermined, the viability of the 787", we are unable to agree.  
9.158.   The European Union argues that it is for the United States to demonstrate that Boeing 
would have invested all of the necessary funds to conduct  the necessary pre -launch R&D. We 
disagree, as we do not cons ider there is sufficient evidentiary support for the proposition that 
Boeing would not have proceeded to develop the 787 at all absent the pre -2007 aeronautics R&D 
                                               
2916 See European Union's second written submission, paras. 1014 -1022 (referring to Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint) , paras. 980 and 1009; and Panel Report, US – Large Civil 
Aircraft (2nd complaint) , paras. 7.1747 and 7.1760).  
2917 United States comments on European Union's response to Panel question No. 45, para. 293.  
2918 Boeing engineers submit that Boeing's indep endent R&D budget for commercial aircraft is [***] 
(See Boeing, Reply of Boeing engineers to EU and Airbus statements regarding the technologies and 
development of the 787, 737 MAX, and 77X, August 2013 (Boeing Engineers' Reply), (Exhibit USA -359) (BCI), 
paras. 10 -12). 
2919 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1747. The panel indicated that it was 
satisfied based on the evidence that Boeing would have developed an LCA to replace the 767 and noted that 
the European Union did not obje ct to this as it did not argue that Boeing would not have launched a new 
aircraft in the 200 -300 seat LCA product market. (Panel Report, US – Large Civil Aircraft (2nd complaint) , 
para. 7.1774 and fn 3704). See also Boeing Engineers' Statement, (Exhibit US A-283) (BCI), paras. 9 and 10.  
2920 European Union's comments on United States' response to Panel question Nos. 153, para. 18, and 
156, para. 70. (emphasis original)  
2921 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 4.280 ("{t}he European Commu nities 
argues that, had Boeing needed to develop the 787 using its own resources, the 787 would likely not have 
been launched any earlier than mid -2006, by which time Airbus would have been ready to compete with the 
A350XWB -800. Moreover, a non -subsidized 787, like the A350XWB -800, would have required a longer period 
before it could be delivered.")  WT/DS353/R W 
 
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  subsidies. We note that, beyond generalized assertions, the European Union has not itself 
presented specific evidence of the additional costs or risks, or the amount of deferred revenues 
that would have resulted had Boeing not benefited from its participation in the NASA and DOD 
aeronautics R&D programmes. Nor is there any evidence before us conc erning the 787 business 
case that would enable the Panel to undertake the type of financial assessment to determine the 
viability of the Boeing engineers' estimate.2922 We note that t he original panel did not accept 
arguments that Boeing lacked the financial resources to engage in the same commercial behaviour 
(including its product development behaviour) absent the subsidies at issue in the original 
proceeding, and the European Union in this proceeding does not attempt to substantiate any 
argument that Boeing  would have lacked the financial resources to develop 787 absent the 
pre-2007 aeronautics R&D subsidies.  
9.159.   We next evaluate the European Union's argument  that the United States has failed to 
demonstrate that it would have been technically feasible to launch the 787 in 2006 (rather than 
the actual launch in 2004) absent the pre -2007 aeronautics R&D subsidies, as the Boeing 
engineers conclude in the Boeing Engineers' Statement.  
9.160.   The European Union's argument involves criticisms of the Boeing engineers' estimate  and 
is generally directed at: (a) the Boeing engineers' methodological approach (e.g. the Boeing 
engineers improperly estimate the time to replicate  research even though Boeing would not have 
known which technologies were technically feasible, fail to acc ount for the time to design, procure, 
produce, certify, and deliver the 787 and fail to account for Boeing's participation in all of the 
relevant NASA and DOD aeronautics R&D programmes); (b) the implausibility of the Boeing 
engineers' estimate in light of  statements made by Boeing engineers outside the context of this 
dispute and nearly 3.5 years of delays faced by Boeing following the launch in 2004; and (c ) the 
irrelevance of the United  States' reference to the development of the A350XWB as a benchmark t o 
confirm the Boeing engineers' estimate.2923 We begin by addressing the European Union's 
criticisms of the Boeing engineers' methodology before turning to the relevance of statements by 
Boeing engineers and delays following the 787's launch, and the parties'  disagreement regarding 
the relevance of the development of the A350XWB to our assessment.  
9.161.   We have already addressed above the flaw inherent in the European Union's argument that 
the counterfactual assessment of Boeing's technology development in relation to the 787 absent 
the pre-2007 aeronautics R&D subsidies should consider the entire development period of the 787 
beyond its launch (including the time it would have taken Boeing to develop, mature, produce, and 
certify 787 technologies, and the time to in tegrate those components into a single aircraft, as the 
European Union argues), which approach we consider is inconsistent with the findings in the 
original proceeding and would risk attributing unsubsidized aspects of the 787's development to 
the effects of the subsidies . 
9.162.   The European Union's criticism of the Boeing engineers' methodology is otherwise highly -
generalized in nature, and ultimately  unpersuasive. The Boeing engineers s eek to identify tasks 
that Boeing conducted under the challenged NASA and DO D aeronautics R&D programmes and 
then to assess the additional time that Boeing would have required to condu ct that work using the 
internal resources of Boeing and its suppliers, i.e. they evaluate the time Boeing would have 
needed to conduct  the tasks had  Boeing not participated in the relevant aeronautics R&D 
programmes.2924 The Boeing engineers identify aspects of the development of key technological 
areas of the 787, including tasks related to material choice and design for the fuselage, the 
construction o f early wing box designs necessary to develop the 787 composite wing, the 
development of CFD design tools, and of prototypes of generators and motor controllers for the 
787 more -electric system architecture.2925 They derive their estimates by first identifyin g other, 
specific unsubsidized early -stage R&D activities in the pre -launch development phase for the 
7E7/787 that they consider were either "comparable to, or more demanding" than, the type of 
tasks that Boeing conducted under the relevant aeronautics R&D  programmes, and note the time 
that was required to conduct  those unsubsidized R&D tasks. The Boeing engineers use the time 
                                               
2922 Having rejected the European Union's argument for these reasons, we do not consider it necessary 
to address further the manner in which Boeing allocates Indepe ndent R&D budget funds for pre -launch R&D 
projects.  
2923 European Union's response to Panel question No. 45, paras. 324 -330 and 331 -341. 
2924 See para. 9.136  above.  
2925 See Boeing Engineers' Statement, (Exhibit USA -283) (BCI), paras. 22 -23, 30, and 32 -34. WT/DS353/R W 
 
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  that was required to conduct  those unsubsidized tasks as a proxy to estimate the time that Boeing 
would have needed  in the counterfa ctual scenario  to conduct the early -stage research that it 
actually conducted under the aeronautics R&D programmes. Under this counterfactual, the Boeing 
engineers estimate that Boeing would have undertake n the necessary R&D work , especially 
considering th at Boeing was under commercial pressure to develop a highly -efficient, mid -sized 
twin-aisle aircraft to replace the 767 .2926 
9.163.   The methodological approach of the Boeing engineers is in certain respects similar to the 
approach taken by the panel in the original proceeding. The original panel considered the ways and 
degree to which the NASA and DOD aeronautics R&D subsidies contributed to the development of 
particular 787 technologies in its evaluation of whether and the extent to which the aeronautics 
R&D subsidi es contributed to the development and launch of the 787. The panel's findings do not 
reflect every aspect of the 787 development process.2927 The panel stopped short of reaching 
conclusions as to how much of a competitive advantage the subsidies provided Boei ng in the form 
of an accelerated launch, reasoning that it only needed to establish that Boeing would not have 
been able to launch the 787 as early as it did in 2004 absent the subsidies.  
9.164.   The European Union faults the Boeing engineers generally for failing  to account for the 
slow pace of developmental research, and for otherwise overlooking the time required to learn 
from trial and error. In doing so, the European Union argues that the Boeing engineers' estimate 
fails to properly account for the additional upfront time to acquire knowledge and experience 
sufficient to determine which technologies it is feasible to research before measuring the time to 
conduct that research.2928 Similarly, the European Union alleges that the Boeing engineers fail to 
precisely id entify "the millions of components that Boeing developed for the 787"2929, and provide 
a "comprehensive, component -by-component timeline"2930 of all of the tasks that Boeing would 
have had to complete under every challenged NASA and DOD aeronautics R&D programme . 
Despite these criticisms, the European Union does not itself enumerate the specific additional tasks 
that Boeing should have reflected in its assessment, and importantly, the European Union does not 
provide evidence of how long Boeing would have needed t o conduct any of the R&D tasks that 
were actually performed under the NASA and DOD aeronautics R&D programmes.2931 The 
European Union has also failed to provide specific evidence to rebut the timing estimates that the 
Boeing engineers provide for the specific  R&D tasks discussed in their statement.  
                                               
2926 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 7.  
2927 The panel's findings on the operation of the aeronautics R&D subsidies, in particular, refer to the 
importance of the design, building, and testing of a  four-panel fuselage design, which Boeing performed under 
certain NASA aeronautics R&D programmes, to the development of the 787's 360° barrel fuselage design; and 
of Boeing's work designing, fabricating, testing, and demonstrating power management and dis tribution 
architectures, electrical actuators and starter/generators to Boeing's design and development of the 
more-electric architecture of the 787. (See Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.1751 and 7.1752).  
2928 For instance, t he European Union refers to the "slower pace" o f early-stage R&D, the need to 
account for trials and errors and the fact that unsuccessful research is valuable, and general references by 
Airbus engineers to the time it takes to introduce new materials and structural design solutions in LCA through 
a "building block approach". (Airbus Engineers' Response, (Exhibit EU -1014) (BCI), paras. 68 -87). 
2929 European Union's comments on United States' response to panel question No. 46, para. 307 (fn 
omitted). See also E uropean Union's second written submission, paras. 1042 -1047. For instance, Airbus 
engineers fault the Boeing engineers for failing to refer to the "many US government -supported programmes 
that followed ATCAS" that contributed to the full barrel structure t hat Boeing now uses for the 787 composite 
fuselage. (Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 69).  
2930 European Union's comments on United States' response to panel question No. 46, para. 307. See 
also European Union's second written submis sion, paras. 1042 -1047.  
2931 Rather than identify discrete tasks that were conducted under the NASA and DOD aeronautics R&D 
programmes, the European Union argues in this proceeding that the Boeing engineers omit many U.S. 
government -supported programmes, and otherwise fail to acknowledge the inter -dependence and 
complementarity of NASA programmes and the value of knowledge and experience that Boeing acquired 
through its participation. (Airbus Engineers' Response, (Exhibit EU -1014) (BCI), paras. 68 -87). The 
European  Union has also resubmitted certain exhibits in this proceeding that were originally provided in the 
original proceeding. These include the statement by Airbus Engineer Dominik Wacht entitled "An Analysis of 
Selected NASA Research Programs and Their I mpact on Boeing's Civil Aircraft Programs " in this proceeding. 
(See Statement of D. Wacht, Boeing, An Analysis of Selected NASA Research Programs and Their Impact on 
Boeing's Civil Aircraft Programs , November 2006, (Exhibit EU -32) (BCI)). The European Unio n has also 
submitted Exhibit EU -1664, which recapitulates the contribution of NASA and DOD aeronautics R&D 
programmes to the development process of the 787. These statements do not provide estimates of the time to 
undertake the specific R&D tasks that were  alleged to have been performed under the NASA and DOD 
aeronautics R&D programmes.  WT/DS353/R W 
 
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  9.165.   It is the European Union's burden to establish that the pre -2007 aeronautics R&D subsidies 
continue to cause any of the alleged serious prejudice market phenomena in the 
post-implementation period. There are undoubt edly many complex steps and interactions involved 
in the launch of an LCA, especially one as technologically innovative and complex as the 787. The 
panel was clear in the original proceeding that it did not consider the technologies developed and 
applied t o the 787 were solely attributable to the aeronautics R&D subsidies. Given this, there is 
no reason why this Panel should include in its estimate the development time in relation to tasks 
that were not attributable to the subsidies. It is difficult to acce pt the European Union's 
generalized criticisms of the United States' estimate in the absence of any clear estimate from the 
European Union as to how much additional time Boeing would have needed to conduct any of the 
R&D tasks that were actually performed under the NASA and DOD aeronautics R&D programmes.  
9.166.   For similar reasons, we are not persuaded by the European Union's argument  that the 
Boeing engineers' estimate is contradicted by statements made outside the context of litigation 
and by the delays faced i n the later stages of the 787's development. Statements made by Boeing 
engineers that the European Union has cited regarding the time that is required to develop and 
mature technologies are also highly generalized and do not speak to the contribution of th e 
challenged aeronautics R&D subsidies in respect of Boeing's overall development of the 787.2932 
We similarly fail to see the relevance of approximately 3.5 years in delays following  the launch of 
the 787 programme to our assessment of the additional time it  would have taken Boeing to launch 
the 787 absent the subsidies. The fact that, in the real world, Boeing underestimated the nature of 
the technological challenges that would arise following the launch of the 787 does not speak to the 
additional time that Boeing would have needed to conclude the type of early -stage R&D tasks that 
were conducted under the challenged NASA and DOD aeronautics R&D programmes  in order to 
have the confidence to proceed with the launch of the 787 .2933 
9.167.   Finally, we address the question  of whether Airbus' experience in developing the A350XWB 
is relevant to our analysis of the credibility of the Boeing engineers' estimate of the additional 
amount of time it would have taken Boeing to launch an aircraft that would have been 
technologically  comparable to the 787 absent the pre -2007 aeronautics R&D subsidies .  
9.168.   According to the Airbus engineers2934, the development time for the A350XWB should 
actually be understood as having begun in December 2004, at the time Airbus began development 
of the comp osite wing for the Original A350 family LCA model, which was itself based on the 
aluminium fuselage design of the A330. The Airbus engineers explain that the Original A350 was 
launched at that time in an attempt to compete with the newly -launched 787. Owin g to the 
negative market reaction to the Original A350, Airbus undertook a "clean sheet" design of a 
completely new aircraft, the A350XWB, which retained the composite wing design that had been 
developed for the Original A350, but otherwise incorporated a four-panel carbon fibre reinforced 
plastic (CFRP) fuselage.2935  
9.169.   The A350XWB was launched in December 2006. According to the Airbus engineers, Airbus 
undertook a front -load design and product development process called DARE (Develop and 
                                               
2932 In its discussion of a 1999 NASA study of the average time taken for technologies to mature from 
initial concept to marketable product, based on NASA's defined technology readiness levels (the Peisen Study), 
the original panel noted the "considerable variability in the time it takes for technologies to mature, with 
average maturation times varying by technology type, by the technology's primary benefit or goal, and to a 
lesser extent, by the need for additional technologies or NASA testing for the successful maturation of the 
technology". (Panel Report, US – Large Civil Aircraft (2nd complaint) , fn 3668). The European Union in this 
proceeding "recalls the agreement between t he Parties, at the Panel meeting, that the precise timeframes  set 
out in the {Peisen} study are of lesser relevance to the compliance Panel's assessment, because, as the original 
panel and the Appellate Body have themselves found, the study was based on a v ariety of different aircraft 
technologies with widely varying maturation times". (European Union's response to panel question No. 46, 
para. 362 (emphasis original)).  
2933 Other than a generalized notion that complex technical issues can take time to resolve, the 
European Union has not explained how difficulties arising from supplier outsourcing and supply chain issues are 
comparable to those arising in relation to the type of early -stage R&D that Boeing conducted pursuant to its 
participation in the NASA and R &D programmes.  
2934 See Airbus Engineers' Response, (Exhibit EU -1014) (BCI), paras. 49 -56. 
2935 Airbus engineers explain that the A350XWB airframe incorporates 53% of composite structures in 
addition to the use of titanium and advanced aluminium alloys, constitu ting "{o}ver 70 percent of the 
A350XWB's weight -efficient airframe". (Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 51).  WT/DS353/R W 
 
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  Ramp -up Excellence)2936, which involved [[HSBI]]  of pre -launch research between [[HSBI]]  in 
which Airbus assessed the feasibility of design options taking into account aircraft design maturity, 
ramp-up time, and fulfilment of contractual commitments to customers.2937 Pursuant to this  new 
development approach, Airbus undertook the development, maturation, production, and 
certification of the A350XWB up to its date of first flight in June 2013. Thus, the Airbus engineers 
assert that the period of time from launch until entry to service in 2014 is [[HSBI]] .2938 The 
Airbus engineers assert that the full development time of the A350XWB is [[HSBI]] , taking into 
account the time from early stages of development of its composite wing (originally designed for 
the cancelled Original A350 family LCA  model) through research, development , and production 
phases until the date of first flight and certification. The Airbus engineers state that the "nine 
years, from 2004 -2013, to research, develop, produce and test the {composite} wing, which is yet 
to be certified . … stands in stark contrast to the 18 months Boeing engineers allege it would have 
taken them to 'develop a composite wing for the 787'".2939 
9.170.   As we have explained previously, what is relevant to our assessment is the additional time 
that Boeing woul d have required to conclude the relevant R&D tasks that were completed under 
the NASA and DOD aeronautics R&D subsidies, to allow Boeing to proceed with the launch of the 
787 (and announcement of promised deliveries) had Boeing not participated in the NASA  and DOD 
aeronautics R&D programmes. Therefore, to the extent an analysis of the development of the 
A350XWB is to provide a benchmark to determine the reasonableness of the United 
States'  two-year estimate, our comparison should focus on the time required to conclude the 
pre-launch development of the two aircraft. This is consistent with the findings in the original 
proceeding, and avoids attributing to the subsidies aspects of the development that were not 
accelerated by Boeing's participation in the relev ant NASA and DOD aeronautics R&D programmes.  
9.171.   The Boeing engineers have indicated that certain systems developed for the 787 were 
carried over from the Sonic Cruiser  development programme.2940 Aside from this, the Boeing 
engineers state that Boeing began inten sive pre -launch R&D specifically related to the 787 in 
[***].2941 Boeing formally launched the 787 on 26 April 2004. The time from the start of intensive 
pre-launch R&D on the 787 ( [***]) until formal launch (April 2004) was approximately [***]. In 
addition, the Boeing engineers assert that Boeing could have conducted all the necessary research 
to launch the 787 before the end of April 2006 (with promised deliveries in 2010) absent the pre -
2007 aeronautics R&D subsidies. If we accept the Boeing engineers' esti mate, the time from the 
start of intensive pre -launch R&D on the 787 (November 2002) until a counterfactual -adjusted, 
non-subsidized launch of the 787 (April 2006), would be approximately [***]. 
9.172.   Turning to the pre -launch development period for the A350XWB,  the Airbus engineers 
state that Airbus began work on the composite wing design of the A350XWB (which originally 
formed part of the Original A350 design) in December 2004. According to the United States, Airbus 
began entering into customers commitments in July 20062942, although formal launch took place in 
December 2006.2943 If we treat the starting point of pre -launch R&D for the A350XWB as the date 
when work began on the composite wing design for the A350XWB until its official launch in 
                                               
2936 Airbus engineers explain that DARE begins at early study phase and continues through design, 
procurement production, cer tification, delivery, in -service operation, and support. (Airbus Engineers' Response, 
(Exhibit EU -1014) (BCI), para. 53 and accompanying slides).  
2937 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), paras. 52 and 53.  
2938 Airbus Engineers' Response, (Exhibi t EU-1014) (BCI), para. 55.  
2939 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 56 (referring to Boeing 
Engineers'  Statement, (Exhibit USA -283) (BCI), para. 27). (emphasis original)  
2940 United States' second written submission, para. 805; and Boeing  Engineers' Statement, (Exhibit 
USA-283) (BCI), paras. 30 and 33 (referring to in -house work on generic TRANAIR and OVERFLOW CFD codes 
and preliminary work on a "more -electric" system architecture).  
2941 United States' second written submission, para. 805; an d Boeing Engineers' Statement, (Exhibit 
USA-283) (BCI), para. 15 ("{i}n 2000, Boeing made the decision to undertake a new aircraft development 
program. While studying three concepts in parallel (i.e., the 747 -X, Sonic Cruiser, and 7E7), we focused efforts 
on the Sonic Cruiser … In [***] Boeing decided to shift its new product development efforts away from the 
Sonic Cruiser to the 7E7 …").  
2942 United States' second written submission, paras. 801 and 806 (referring to "Singapore Airlines 
Orders 20 Airbus A350 X WB-900s and 9 Airbus A380s", Business Wire , 21 July 2006, (Exhibit USA -291)).  
2943 Airbus Engineers' Response, (Exhibit EU -1014) (BCI), para. 51. WT/DS353/R W 
 
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  December 2006, Airbus sp ent approximately [***] on pre -launch R&D before formally offering 
the A350XWB to customers.2944 
9.173.   Therefore, the United States' estimate that the launch and delivery of the 787 would have 
been delayed by approximately two years absent the pre -2007 aeronautics R&D subsidies in fact 
results in a longer pre -launch development period for the 787 than the equivalent pre -launch 
development time -frame for the A350XWB. Adding two additional years for the counterfactual 
launch of an unsubsidized 787 in 2006, Boeing woul d have spent nearly [***] undertaking 
pre-launch R&D before launching the 787, compared to Airbus, which spent approximately [***] 
undertaking pre -launch R&D for the A350XWB.  
9.174.   In addition to its argument that the entire development period to the point of f irst delivery, 
and not just the pre -launch R&D period, is relevant to the counterfactual, the European Union 
offers a number of reasons why we should not rely on  Airbus' experience in developing  the 
A350XWB to evaluate the reasonableness of the United Stat es' two-year estimate. The 
European  Union argues that a direct comparison between the development times for the two 
aircraft cannot be made without adjustments, as the 787 and A350XWB have different composite 
fuselage designs, and the A350XWB does not empl oy a "more electric" system architecture like the 
787 does.2945  
9.175.   We recognize that the 787 and A350XWB are two different aircraft in terms of their design 
and technical solutions. Indeed, the parties agree that the 787 and A350XWB are not identical.2946 
Accordin gly, the development time for one aircraft is not perfectly indicative of the development 
time for the other. Nevertheless, despite the differences in  their design and  technical solutions, the  
fact that Airbus was able to proceed from a "clean sheet" desig n of the A350XWB to a point where 
it had sufficient confidence to undertake the formal launch of the A350XWB in a period of roughly 
[***], having never previously produced an Airbus aircraft with a composite fuselage provides, "a 
general sense of what rang e of estimates is reasonable".  To the extent that the 787's barrel 
composite fuselage design and "more electric" system architecture would have implications for the 
length of the aircraft development cycle, and in particular, the pre -launch development tim e, the 
United States' counterfactual allows for two additional years of pre -launch development, which 
                                               
2944 If we treated the point at which Airbus offered the A350XWB to Singapore Airlines in July 2006, the 
time betwee n pre-launch R&D and offering would be shorter, approximately 1.5 years.  
2945 In addition, the European Union argues that the United States must account for any alleged effects 
of alleged subsidies on the A350XWB's development process, as the United States ha s characterized the 
development process of the A350XWB as subsidized in another dispute. (See European Union's response to 
Panel question No. 45, fn 407). The United States responds that EC and certain member States – Large Civil 
Aircraft  is a separate and  distinct dispute. Notwithstanding, it argues that the findings in that dispute were 
that, absent launch aid /member State financing  subsidies, Airbus most likely would not have existed, there 
would be no Airbus aircraft on the market, and none of the sales  that the subsidized Airbus made would have 
occurred. Therefore, the United States submits that, if it accounted for subsidies to the A350XWB, there would 
be no A350XWB timeline at all. (United States comments on European Union's response to Panel question  No. 
45, fn 474 (referring to Appellate Body Report, EC and certain member States – Large Civil Aircraft , 
para. 1264)).  
2946 European Union's second written submission, paras. 1011 -1013; response to panel question No. 45, 
paras. 318 -330; Airbus Engineers' Re sponse, (Exhibit EU -1014) (BCI), paras. 3, 14, and 47 -62; United States'  
second written submis sion, para. 804. The European Communities in the original proceeding asserted  that the 
A350XWB "offer{s} customers comparable, if not better, performance and oper ating characteristics as Boeing's 
787". (EC response to panel question No. 87 of the panel questions in the original proceeding, para. 404, 
(Exhibit USA -290) (HSBI)). The European Union has also not demonstrated on the evidence that the 787's 
barrel compos ite fuselage or "more electric" systems architecture design has materially increased the 787's 
competitive appeal over the A350XWB. In addition, the performance of the A350XWB in the market is also 
consistent with the view that LCA customers  consider the A 350XWB to be in the same league as  the 787 in 
respect of its mission capabilities, performance, efficiency, and price. We note that during the 2007 -2015 time -
period, Airbus obtained more orders of the A350XWB (780) than Boeing obtained for  the 787 (749). ( Ascend 
data base, Orders, data request as of 29 September 2015,  (Exhibit EU -1658)). Setting aside 767 and A330 
orders by customers, since its launch in 2004, Boeing has obtained 1097 orders of the 787 throug h 2015, while 
Airbus has obtained 781 orders of t he A350XWB during the same period. This constitutes a difference of 316 
total orders in Boeing's favour. For purposes of comparison, Boeing captured 348 orders of the 787 during the 
2004-2006 time -period before Airbus launched the A350XWB.  WT/DS353/R W 
 
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  means that the 787 pre -launch development period would exceed the A350XWB  pre-launch 
development period by [***].2947  
9.176.   The Panel has carefully evaluated the arguments of the parties and the evidence before it, 
including assessing the relevance and probity of the evidence. We have concluded that it is simply 
not plausible, and the European Union has failed to establish  that, absent the aeronautics R&D 
subsidies , Boeing would not have launched the 787 by the end of the implementation period in 
September 2012. Although it is more difficult for us to confidently predict exactly when Boeing 
would have been able to launch the 787 absent the pre -2007 aeronautics R&D s ubsidies, we have 
concluded that it would be well before (i.e. at least several years before) the end of the 
implementation period.  
9.177.   In light of the foregoing , we conclude  that the European Union has failed to demonstrate  
that the acceleration effect of the pre -2007 aeronauti cs R&D  subsidies  in relation to Boeing's 
technology development  for the 7872948, has continued into the post -implementation period.  The 
European Union has therefore failed to demonstrate  the existence of original subsidy technology 
effects  of the pre -2007 aeronautics R&D subsidies in the post -implementation period.   
9.3.2.1.2   Spill-over technology effects of the pre -2007 aeronautics R&D subsidies  
9.178.   In the preceding Section in this Report we evaluate the European Union's arguments that 
the original technology effects of the pre -2007 aeronautics R&D subsidies on Boeing's development 
of the LCA technologies applied to the 787 continue into the post -implementation period. In this 
Section, we address the European Union's arguments that  the pre -2007 aeronauti cs R&D subsidies 
through their effects on Boeing's development of 787 technologies that have subsequently been 
adapted and applied to the more recently launched 787 -9/10 and 777X mode ls, giver rise to 
"spill-over technology effects"  in respect of those air craft in the post -implementation period . 
9.179.   Regarding the technological spill -over to the 787 -9/10, the European Union argues that 
Boeing was able to "simply stretch" the 787 -8 baseline model it launched in 2004 to develop the 
larger variants of the 787 -family of LCA; the 787 -9 and 787 -10X models, based on the spill -over 
of knowledge and experience acquired through participation in the original NASA and DOD 
aeronautics R&D programmes.2949 As regards the spill -over technology effects on the 777X, the 
European Unio n argues that Boeing's experience developing the CFRP composite wing of the 787 
under the original NASA and DOD aeronautics R&D programmes enabled it to incorporate a next 
generation, scaled -up composite wing design on the 777X -family models. This wing con figuration 
will allegedly use [[HSBI]]2950 and will use close -coupling of the engine nacelles to the wing as 
derived from the 787 to attach larger -diameter engines, which contributes to a 10% fuel burn 
advantage o ver the 777 -300ER while maintaining the necess ary ground clearance.2951 In addition, 
                                               
2947 The European U nion additionally argues that the Boeing engineers' conclusion that Boeing would 
have launched the 787 before the end of April 2006 is further contradicted by the fact that Boeing required 
four years in the pre -launch phase  to develop and test the relevant  material s for the 777X, which involves 
similar design and de velopment work for the 787 . The European Union argues that, under the Boeing 
engineers' counterfactual, Boeing would have spent half as long to do similar design and development work for 
the 787.  Moreover, the European Union contends that its estimate that the 777X pre -launch development 
phase was four years is  "conservative" as it does not account for additional time Boeing spent on composites 
development for the 787, which is relevant to the 777 X testing and design. (See Statement of B. Domke on the 
engineering -related aspects of the Panel's first set of questions, 4 December 2013, (Exhibit EU -1268) (BCI), 
paras. 18 and 19). The Panel disagrees that a simple comparison of the time spent on pre -launch R&D for the 
787 and 777X programmes undermines the Boeing engineers' counterfactual estimate that, absent the 
aeronautics R&D subsidies, Boeing would have launched the 787 by April 2006. Commercial priorities differ 
between different aircraft programm es and these differing priorities can influence the point in time at which an 
aircraft manufacturer decides to launch an aircraft programme. Based on the European Union's estimate that it 
will take Boeing approximately ten years to move from the pre -launch  phase for the 777X in 2010 until 
estimated first delivery in 2020, the overall development time for the 777X is comparable to that of the 787. 
(Statement of B. Domke on the engineering -related aspects of the Panel's first set of questions, 
4 December  2013, (Exhibit EU -1268) (BCI), para. 20).  
2948 See paras. 9.126 -9.128  above.  
2949 European Union's first written submission, paras. 995 and 1031 -1037.  
2950 European Union's response to Panel question No. 165, p ara. 130 (referring to Boeing Presentation 
#23, (Exhibit EU -1674) (HSBI), slides 2 and 3).  
2951 European Union's response to Panel question No. 165, para. 131 -136 (referring to Boeing 
Presentation #19, (Exhibit EU -1676) (HSBI)).  WT/DS353/R W 
 
- 514 - 
 
  the European Union submits that [[HSBI]]  have also "spilled -over" from the 787's development 
and will be incorporated on the 777X.2952 
9.180.   The United States argues that, as Boeing would have been able to develop the 
technolog ies to launch the 787 in 2006  and make it available as it currently is,  even absent the 
pre-2007 aeronautics R&D subsidies, Boeing would have had ample time to leverage learning and 
developments from the 787 programme to incorporate those technologies onto o ther newer LCA 
developments, including the newer models of the 787 and the 777X. The United States maintains 
that the effect of the pre -2007 aeronautics R&D subsidies was to accelerate Boeing's development 
of technologies for the 787 in the early 2000s, no t to create those technologies themselves such 
that, absent the pre -2007 aeronautics R&D subsidies, the 787 technologies would never have 
existed. Accordingly, the United States considers that there can be no spill -over technology 
effects.2953  
9.181.   The European U nion's spill -over technology effects theory raises two issues. The first is 
whether , conceptually, the original technology effects  of the pre -2007 aeronautics R&D subsidies 
could have  "spilled-over" to other aircraft , bearing in mind that these effects per tain to the 
acceleration of Boeing's development of 787 -related technologies and not to their existence as 
such. If so, t he second  issue is whether  any of the alleged technologies identified by the 
Europe an Union in relation to the 787 -9/10 and 777X are su fficiently related or linked to the 787 
technologies such that the latter  bear a meaningful technological connection to the former.  
9.182.   As we explain  in Section 9.3.2.1.1  above, the European Union has at times fram ed its 
technology effects  arguments on the understanding that the effects  of the pre -2007 aeronautics 
R&D subsidies that are said to continue into the post -implementation period are t he 787 
technologies themselves. These 787 technologies themselves spill-over into other technologies 
that are applied to newer Boeing  LCA. To the extent that the European Union's spill -over 
technology effects arguments reflect this understanding of the effects of the pre -2007 aeronautics 
R&D subsidies, they are based on an inco rrect understanding of the findings of the original panel 
and Appellate Body regarding the effects of the pre -2007 aeronautics R&D subsidies. The 
causation finding in the original proceeding was that the pre -2007 aeronautics R&D subsidies 
accelerated  the d evelopment by Boeing of the 787 technologies. Therefore, the relevant question 
before us is whether, owing to that acceleration, any alleged so -called spill -over technologies 
applied to the 787 -9/10 and 777X also came into existence earlier than would othe rwise be the 
case, enabling an earlier than otherwise launch of these aircraft.  
9.183.   The United States argues that the acceleration effect of the pre -2007 aeronautics R&D 
subsidies was relatively short -lived, and to the extent that there is any technological c ontinuity 
leading to spill -over onto newer Boeing LCA, the launch of the 787 in 2006 would have left ample 
time for Boeing to adapt technologies to the newer iterations of the 787, as well as the 777X LCA, 
ahead of their respective actual launches.2954 
9.184.   We con clude in Section 9.3.2.1.1  above that the European Union has failed to establish  
that, absent the pre -2007 aeronautics R&D subsidies, Boeing would have launched the 787 after 
the end of the implementation period in September 20 12. The end of the implementation period is 
more than eight years after Boeing actually launched the 787 in 2004, and is ten or more years 
after Boeing began pre -launch R&D for the development of the 787 , following its decision to 
develop a replacement for  the 767. Regardless of w hether Boeing would have launched the 787 
before the end of 2006 or somewhat later, we consider that an unsubsidized launch of the 787 
would nevertheless have occurred multiple years in advance of the la unch of the 787 -10 (in 
June 2013) or the 777X (in November 2013).  
                                               
2952 European Union's first writt en submission, paras. 994 and 1061 -1073; response to Panel question 
No. 165, paras. 128 and 129 (referring to Boeing Presentation #20, (Exhibit EU -1671) (HSBI), slides 3 -5; 
Boeing Presentation #21, (Exhibit EU -1672) (HSBI), slide 5; and Boeing Presentation  #22, (Exhibit EU -1673) 
(HSBI), slide 2). See also Statement of B. Domke, Airbus, Impact of Selected NASA/DOD -supported 787 
Technologies and Recent U.S. R&D Programmes on Boeing's Post -2007 LCA Developments , March 2013 (Airbus 
Engineer 's Statement), (Exhib it EU-31) (BCI), paras. 67 and 72 -75. 
2953 See United States' first written submission, para. 708; and second written submission, para. 739.  
2954 See United States' first written submission, paras. 3, 682, 703 -711, 735 -738, and 782 -799; second 
written submission , paras. 732 -739, 743 -849, 881 -904, and 1187 -1204; response to Panel question Nos. 45, 
46, 47, 151, 152, 153, 156, 157, and 165; and comments on European Union's responses on Panel question 
Nos. 45, 46, 47, 151, 152, 153, 156, 157, and 165.  WT/DS353/R W 
 
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  9.185.   At the point in time of an unsubsidized 787 launch, Boeing would have undertaken all of 
the R&D necessary to launch 787 that the pre -2007 aeronautics R&D subsidies had enabled it to 
undertake. The question remains whe ther Boeing would have had sufficient time following the 
unsubsidized launch of the 787 to leverage its knowledge and experience to proceed with the 
respective launches of the 787 -9/10 and 777X models. The onus is on the European Union to 
demonstrate that there would not have been sufficient time. However, the European Union has not 
provided credible evidence that the 787 technologies that Boeing would have developed absent the 
aeronautics R&D subsidies could not have been adapted and developed into spill -over technologies 
for the 787 -9/10 or 777X in sufficient time to enable their respective launches in 2013.2955 
9.186.   Accordingly, we conclude that the European Union has failed to demonstrate th e existence 
of so-called spill-over technology effects  of the pre -2007 a eronautics R&D subsidies  in respect of 
the 787 -9/10 or  777X in the post -implementation period .2956  
9.3.2.1.3   Sleeper technology effects of the pre -2007 aeronautics R&D subsidies  
9.187.   The European Union argues that Boeing is now applying certain other technologies to its 
newly developed LCA which were researched under the pre -2007 aeronautics R&D programmes. 
The European Union's sleeper technology2957 allegations concern: (a) the application of Hybrid 
Laminar Flow Control  (HLFC) technology on the 787 -9/10X and 777X [[HSBI]]  to increase fuel 
burn savings2958; (b) the use of Radio Frequency Identification (RFID) tagging to enhance the 787 
Airplane Health Management system, including retrofitting RFID tagging on existing 787s, and 
installation on new 787 -9/10X models2959 and the 777X2960; and (c) the incorporation of a folding 
wing tip design on the 777X.2961 
9.188.   The European Union alleges that R&D conducted by Boeing under the NASA R&T Base and 
Aviation Safety programmes, as well as the DOD Aerospace Flight Dynamics/Vehicle Systems, 
Aerospace Avio nics/Sensors, and Dual -Use Science and Technology RDT&E program elements, has 
enabled Boeing to develop HLFC technology for use on the 787 -9 and 787 -10X to reduce drag and  
increase  fuel burn savings and payload range capability.2962 It also contends that RFID  tags to 
enhance the 787's Airplane Health Management systems, which were developed under NASA's R&T 
Base Program and a number of DOD RDT&E program elements will be used to store information 
such as parts maintenance logs to facilitate maintenance operatio ns and enable paperless 
maintenance, which can result in [[HSBI]]  and will "further increase the attractiveness, 
marketability and operating cost savings of the 787 LCA family".2963 This particular sleeper 
technology will also be retrofitted on existing 787 m odels that have been delivered to 
customers.2964 
                                               
2955 As we explain  in para. 9.182  above, t his is because the European Union misconstrues the findings 
from the original proceeding as to the effects of the pre -2007 aeronautics R&D subsidies.  
2956 In light of this conclusion, we need not address t he question whether any of the alleged technologies 
identified by the European Union in relation to the 787 -10 and 777X are in some way related or linked to those 
on the 787.  
2957 These so -called sleeper technologies are described as "promising technologies …  that {Boeing} 
chose not to apply to its LCA developments prior to 2007, including its 787, because the technologies did not 
yet display the necessary technology readiness or maturity". (European Union's first written submission, 
paras.  985, 993 -995, 1025,  and 1074). See also Airbus Engineer 's Statement, (Exhibit EU -31) (BCI), 
section  III. 
2958 European Union's first written submission, paras. 1079 -1081; and Airbus Engineer's  Statement, 
(Exhibit EU -31) (BCI), paras. 85 -91. 
2959 European Union's first written subm ission, paras. 1085 and 1208; and Airbus Engineer's  Statement, 
(Exhibit EU -31) (BCI), paras. 98 -109. 
2960 European Union's response to Panel question No. 165, para. 126.  
2961 European Union's first written submission, paras. 1075 -1078; and Airbus Engineer's  Statement, 
(Exhibit EU -31) (BCI), paras. 92 -97. We address in Section 9.3.2.1.4  the European Union's additional 
allegation that certain post-2006 aeronautics R&D subsidies have contributed to the development, maturation, 
validation  or testing of technologies, including certain of the alleged sleeper technologies discussed herein. 
(See e.g. European Union's first written submission, paras. 1081 , 1086, and 1087).  
2962 Airbus Engineer's Statement, (Exhibit EU -31) (BCI), paras. 88-91. 
2963 European Union's first written submission, para. 1208; and Airbus Engineer's  Statement, (Exhibit 
EU-31) (BCI), paras. 99 and 103.  
2964 European Union's first written submission, para. 1085; and Airbus Engineer's  Statement, (Exhibit 
EU-31) (BCI), paras. 98 -109. The European Union submits that Boeing is also validating RFID technology WT/DS353/R W 
 
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  9.189.   The European Union argues that the HLFC and RFID sleeper technologies developed 
through the pre -2007 aeronautics R&D subsidies will also impact the 777X, citing recent evidence 
suggesting that Boeing plans to a pply RFID to "all {s}erialized parts" of the 777X including aircraft 
structures2965 and that Boeing is leveraging knowledge and experi ence acquired under the NASA 
Research and Technology  Base (R&T Base)  Program to develop and incorporate the drag reduction 
technology, HLFC, for the 777X's [[HSBI]]  to achieve fuel -burn savings.2966 Overall, the 
European  Union contends that these technologies will contribute to "a promised 21 per cent 
improvement  in per -seat fuel burn and a 16  per cent improvement in cash operating  cost per -seat 
over today's 777 -300ER"2967 and will enable Boeing to launch and deliver the 777X "earlier than 
would otherwise have been possible ".2968 The European Union also contends that Boeing leveraged 
experience from its participation in DOD RDT&E program elements, including the Northrop 
Grumman A -6E Intruder fighter aircraft and A -6 Squadrons RDT&E program elements, to develop 
a folding wing tip for the 777X. This will allow the aircraft to achieve the same airport compatibility 
(International Civil Aviati on Organization (ICAO) Code E category) as the current generation 777 -
300ER despite having the largest wingspan of all Boeing aircraft.2969  
9.190.   The United States disputes that the pre -2007 aeronautics R&D subsidies were the 
inspiration for, or assisted in integr ating, the alleged technologies on new 787 -9/10 and 777X 
models. It argues that Boeing would have had time to further develop any alleged sleeper 
technologies.2970  
9.191.   The United States responds that the use of HLFC on the 787 -9 is "unrelated to NASA's R&T 
Base program" as Boeing did not rely on the Boeing/NASA 8 -ft Cross Flow Suction experiment test 
results or FAA CLEEN testing when designing the 787 HLFC Tail System.2971 As for the 
European  Union's allegations regarding the use of RFID tags, the United States asse rts that Boeing  
[***] RFID devices [***]. Notwithstanding the limited scope of deployment, the United States 
argues that Boeing developed this solution through work with its suppliers. Beyond application to 
passenger and crew safety equipment, [***].2972 It asserts that Boeing has opted not to 
incorporate HLFC on the 777X configuration.2973 The United States says the 777X will not 
incorporate HLFC in its [[HSBI]] , as reflected in the firm 777X configuration. Instead, the 777X 
will feature a passive suction system , as well as a structural integration method that are both 
                                                                                                                                               
under the 2012 ecoDemonstrator programme. (European Union's first written submission, paras. 1086 and 
1087).  
2965 European Union's response to Panel question No. 165, para. 126 (citing A. Kumar, Associate 
Technical Fellow Boeing, "Boeing Plans on RFID Implementation", presentation, (Exhibit EU -1670), p. 2).  
2966 HLFC is a drag reduction technique that permits extending turbulent boundary layer flow in flow 
conditions that would otherwise re sult in turbulent flow. (See European Union's first written submission, 
paras.  1079-1081; and Airbus Engineer's  Statement, (Exhibit EU -31) (BCI),  paras. 85 -91). The 
European  Union submits that Boeing has also tested and validated HLFC as part of its work u nder the FAA 
CLEEN Program, demonstrating the "complementarity" and "cumulative effect" of Boeing's participation in 
NASA and DOD aeronautics R&D programmes. (European Union's first written submission, para. 1081).  
2967 European Union's first written submissi on, para. 1214. This also includes [[HSBI]] . 
(European  Union's response to Panel question No. 165, para. 129)  
2968 European Union's first written submission, para. 1218.  
2969 European Union's first written submission, paras. 1075 -1078; and Airbus Engineer's  Statement, 
(Exhibit EU -31) (BCI), paras. 92 -97. 
2970 United States' first written submission, paras. 708, 709, 782 -784, and 804 -811; second written 
submission, paras. 739 and 882 -896; opening statement at the meeting with the Panel, para. 129; response to 
Panel q uestion No. 165, para. 84; comments on European Union's response to Panel question No. 165, 
para. 166; Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 76; Boeing Website, "737 Family – 
The New Boeing 737 MAX Family – Efficiency, Reliability, Pa ssenger Appeal", available at 
<http://www.boeing.ch/commercial/737 MAX>, accessed 3 August 2016, (Exhibit EU -617); and Boeing Press 
Release, "Boeing Launches 777X with Record -Breaking Orders and Commitments", 17 November 2013, (Exhibit 
USA-392).  
2971 United S tates' comments on European Union's response to Panel question No. 165, para. 170 
(referring to Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 31).  
2972 United States' first written submission, para. 801; and Boeing Engineers' Statement, (Exhibit  
USA-283) (BCI), para. 39. The United States additionally contends that Boeing's testing of RFID on the 
ecoDemonstrator 737 -800 test bed was not under a CLEEN contract, and was not enabled by any other U.S. 
R&D program mes. 
2973 United States' response to Pane l question No. 165, para. 83; and comments on European Union's 
response to Panel question No. 165, para. 170.  WT/DS353/R W 
 
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  Boeing's own internally -funded inventions.2974 Regardless, the United States contends that Boeing 
developed the 787 HLFC Tail System technology using internal funding and publicly available 
material t hat was simultaneously available to Airbus, including the publicly -disclosed results of 
U.S. Government -funded tests and projects. This does not involve Boeing/NASA 8 -ft Cross Flow 
Suction experiment or testing  under the FAA CLEEN Program .2975  
9.192.   The United Sta tes argues that RFID tagging was not enabled by the original NASA and 
DOD aeronautics R&D programmes, and in any event, will have limited application on the 787 
passenger and crew safety equipment and will not be used on aircraft structural parts for the 
787.2976 The United States argues that any development of RFID technology that will be deployed 
on the 777X was not enabled by the original NASA and DOD aeronautics R&D programmes.2977  
9.193.   Finally, the United States rejects the allegations that the 777X folding wing  tip design is 
similar in material respects to the folding wing used under A -6E Intruder fighter aircraft design.2978 
The United States argues that the European Union fails to show that eff ects from the NASA ACT, 
AST, High Speed Research (HSR)  and Aviation Sa fety program mes, and DOD F -22, A -6, B-2, and 
Joint Strike Fighter  RDT&E program elements, have enabled or contributed to Boeing's 
development of the 777X's composite wings, or hardware and software that is being implemented 
on the 777X.2979 The United States contends that the 777X design is different from the A -6E 
folding wing in all material respects. This includes:  [***] Moreover, the 777X folding wing tip 
design is asserted to differ markedly from that referred to as an initial design reference point, the 
777-200.2980 The 777X folding wing tip and A -6E folding wing share "overall design principles" to 
the same extent as all aircraft with a wing that fold upwards, such as the Hawker Sea Fury 
(introduced in 1945), Douglas Skyraider (introduced in 1946), de Havill and Sea Vixen (introduced 
in 1959), Blackburn Buccaneer (introduced in 1962), and the Russian Sukhoi SU -33 naval fighter 
aircraft.2981 
9.194.   With respect to the allegations regarding the application of HLFC on the 787 -9/10X and the 
use of RFID tagging on the 787 an d 777X, we note that the European Union cites advances Boeing 
made on health management technologies under NASA R&T Base Program and Aviation Safety 
Program dating back to 2000, and work under two contracts dating back to 1999 and 2000, and 
finally, work u nder a number of DOD RDT&E program elements .2982 Similarly, the European Union 
refers to Boeing's study of HLFC while participating in NASA's R&T Base Program between 1992 
                                               
2974 United States' response to Panel question No. 165, para. 83 (referring to S. Trimble, "State Permit 
Reveals Boeing Plan to Hike 777X Output 25%" , Flightglobal , 22 June 2015 (Exhibit USA -597)); comments on 
European Union's response to Panel question No. 165, para. 813.  
2975 United States' first written submission, paras. 802 and 813; Boeing Engineers' Statement, (Exhibit 
USA-283) (BCI), paras. 31 and 83; and comments on European Union's response to Panel question No. 165, 
para. 170.  
2976 United States' first written submission, para. 801; and Boeing Engineers' Statement, (Exhibit 
USA-283) (BCI), para. 39. See also United States' comments on European Union 's response to Panel question 
No. 165, para. 172.  
2977 United States' comments on European Union's response to Panel question No. 165, para. 172.  
2978 United States' first written submission, para. 812; second written submission, paras. 793, 900, and 
901; Boeing  Engineers' Statement, (Exhibit USA -283) (BCI), paras. 80 and 81; and Boeing Engineers' Reply, 
(Exhibit USA -359) (BCI), paras. 41 and 42.  
2979 United States' first written submission, para. 809. In particular, in respect of DOD RDT&E program 
elements, the Uni ted States argues that the European Union has not demonstrated that the effects derive from 
assistance instruments that were the subject of the panel's findings, as opposed to  procurement contracts. In 
any event, it contends that the F -22, A -6, B-2, and Jo int Strike Fighter  RDT&E program elements are "quite 
old". (United  States'  first written submission, para. 810; and second written submission, para. 898).  
2980 United States' first written submission, para. 812; second written submission, paras. 793 and 901; 
Boeing Engineers' Statement, (Exhibit USA -283) (BCI), paras. 80 and 81; and Boeing Engineers' Reply, 
(Exhibit USA -359) (BCI), para. 42 (quoting Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), para. 121).  
2981 United States' second written submission, para . 900; and Boeing Engineers' Reply, (Exhibit 
USA-359) (BCI), para. 41 (qu oting Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), para. 121).  
2982 Airbus Engineer's Statement, (Exhibit EU -31) (BCI), paras. 106-109 (referring to Statement of D.  
Wacht, Boeing,  An Analysis of Selected NASA Research Programs and Their Impact on Boeing's Civil Aircraft 
Programs , November 2006, (Exhibit EU -32) (BCI), p. 131; NASA Aviation Safety Budget Estimates, 
FY 2000-2007, (Exhibit EU -655), FY 2000, SAT 4.1 -51; NASA Contract NA S1-00106 with The Boeing Company 
regarding Flight Critical Systems Research (2000), (Exhibit EU -656), section C.1, article 2.3; and NASA 
Contract NAS1 -99070 with Boeing Commercial Airplane Group regarding Structures and Materials Technology 
for Aerospace V ehicles (25 January 1999), (Exhibit EU -657), at pp. 2-5). WT/DS353/R W 
 
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  and 1999.2983 The limited references to the development and implementation of health monit oring 
technologies, on the one hand, and advances in the use of HLFC, on the other hand, in the 
materials cited by the European Union indicate that these technology areas were studied.  
9.195.   However, while Boeing may have studied these technologies under the id entified projects, 
the European Union has failed to provide evidence showing how, or otherwise qualify the extent to 
which, these experiences contributed to Boeing's development of the ultimate technologies, or the 
extent to which the particular pre -2007 a eronautics R&D subsidies enabled an earlier launch of the 
relevant aircraft or a launch that would otherwise not have been possible. The evidence presented 
is not sufficient to enable us to assess the significance of the pre -2007 aeronautics R&D subsidies 
to the ultimate development of these technologies.2984 We note, in addition, that the United States 
has argued that RFID will feature on the 787 in a limited capacity, and will not appear in the final 
design of the 777X, further calling into question the exte nt to which the pre -2007 aeronautics R&D 
subsidies can be said to have any impact on the technological development of these aircraft based 
on the so -called sleeper technologies theory.  
9.196.   With respect to the sleeper technologies emanating from various RDT&E p rogram elements 
that allegedly facilitated Boeing's development of a folding wing tip for the 777X, we note that the 
European Union's arguments relate generally to work conducted under a number of DOD RDT&E 
program elements, particularly a DOD procurement contract under which Boeing allegedly 
conducted R&D work to improve the Northrop Grumman A -6E Intruder attack aircraft.2985 There 
were no findings in the original proceeding that the payments and access to DOD facilities provided 
through procurement contracts  funded under the original 23  RDT&E program elements involved 
specific subsidies to Boeing, nor are there any such findings in this proceeding. Accordingly, even 
assuming arguendo  that the work that Boeing performed under that procurement contract 
provided  the technological foundations for Boeing's subsequent development of the folding wing tip 
on the 777X (an e videntiary  issue on which we express no view), the European Union's argument 
would in any case fail because it has not established an adequate link between that R&D and the 
pre-2007 aeronautics R&D subsidies.   
9.197.   Accordingly, we conclude that the European Union has failed to demonstrate th e existence 
of sleeper  technology effects  of the pre -2007 aeronautics R&D subsidies  in respect of the 787 -9/10 
or 777X in the post -implementation period .  
9.3.2.1.4   New technology effects of certain post -2006 aeronautics R&D subsidies  
9.198.   We recall that the European Union argues that the vast majority of the aeronautics R&D 
subsidies that came into existence after the original proceed ing (the post -2006 aeronautics R&D 
subsidies), aggregated into one category, provide Boeing with additional cash flow because they 
lower Boeing's costs of licensing intellectual property rights to LCA technology, and of developing 
that technology, and ther efore operate through a price causal mechanism.2986 However, the 
European Union also points to a relatively small number of individual post -2006 aeronautics R&D 
subsidies which it argues operate through a technology causal mechanism (rather than a price 
causa l mechanism) to contribute to Boeing's development of innovative technologies for its current 
LCA as well as the availability of "innovative future Boeing LCA".2987 In this Section of the Report, 
we evaluate the European Union's arguments regarding this small  number of post -2006 
aeronautics R&D subsidies that are said to operate through a technology causal mechanism to 
affect the development of technologies for the 787 -9/10 and 777X and thereby cause serious 
prejudice to the European Union's  interests in the p ost-implementation period.  
                                               
2983 Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), paras. 89 and 90 (referring to NASA R&T Base 
Budget Estimates FY 1991 -FY 2004, (Exhibit EU -648), FY 1992, 1995, and 1999).  
2984 In this respect, in  discussing the contribution of subsidies to Boeing's development of RFID, Airbus 
engineer Burkhard Domke indicate s that Boeing's participation in NASA aeronautics R&D Base Program and 
DOD RDT&E program elements "likely benefit the RFID technology on Boein g's 787". (See Airbus 
Engineer's  Statement, (Exhibit EU -31) (BCI), para. 128).  
2985 Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), para. 94: "{t}he 777X folding wing tip is a 
product of Boeing's research and work performed under a DOD contract to improve  the Northrop Grumman 
A-6E Intruder attack aircraft."  
2986 Section 9.4.3.4.3  below . 
2987 European Union's first written submission, para. 979.  WT/DS353/R W 
 
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  9.199.   The European Union argues that Boeing's participation in: NASA's Environmentally 
Responsible Aviation (ERA) Project ; the Subsonic Fixed Wing  Project  and Supersonics Project 
under NASA's Fundamental Aeronautics Program; and the ec oDemonstrator programme pursuant 
to the Boeing CLEEN Agreement enabled Boeing's development of technologies for the 787 -8/9/10 
and 777X, thereby contributing to  serious prejudice  caused through those aircraft.2988 The 
European  Union also argues that certain p ost-2006 aeronautics R&D subsidies, including Boeing's 
research and testing of technologies not currently applied on Boeing LCA under NASA's Subsonic 
Fixed Wing  Project  and under  DOD's RDT&E Air Force Aerospace Flight Dynamics/Aerospace 
Vehicle Technologie s and Air Force Advanced materials for Weapons Systems program elements , 
cause a threat of serious prejudice in the form of " future  technology effects".2989  
9.200.   The European Union argues that Boeing is conducting further R&D focused on validating 
RFID technology  under the 2012 ecoDemonstrator programme for application on the 787, as well 
as additional testing and validation of HLFC under NASA's ERA and Subsonic Fixed Wing 
Project s.2990 The European Union argues that these technologies help reduce overall aircraft fu el 
burn, increase payload range capability and lower maintenance costs.2991 The European Union 
argues that Boeing is conducting testing and validation of HLFC for use on the 777X under the 
ecoDemonstrator programme, and NASA ERA and Subsonic Fixed Wing Projec ts to facilitate 
promised delivery in [[HSBI]] .2992 The European  Union submits that recent evidence 
demonstrates that Boeing plans to apply RFID to "all {s}erialized parts" of the 777X including 
aircraft structures.2993 In addition, the European Union speculates  that Boeing is also testing 
[[HSBI]] .2994 
9.201.   The United States argues that the European Union's allegations regarding the technological 
advances arising out of Boeing's post -2006 participation in NASA and DOD aeronautics R&D efforts 
and the Boeing CLEEN Agreeme nt are without merit. In the case of post -2006 NASA -funded 
research, the United States argues that Boeing did not conduct the work as alleged, the research 
effort is not relevant or did not enable the particular technology as alleged. With respect to fligh t 
testing conducted pursuant to the Boeing CLEEN Agreement, the United States submits that "most 
ecoDemonstrator flight tests had no CLEEN involvement whatsoever"2995 and thus any testing was 
not funded under the Boeing CLEEN Agreement per se . In situations w here a particular technology 
may have been evaluated on flights that were partially funded by the FAA CLEEN Program, the 
United States considers the role of the FAA CLEEN Program was, at most, to contribute a portion of 
the fuel cost incurred on the test f light, which is not a "technology effect" pursuant to the 
European Union's own theory. The United States considers that the European Union's position that 
tests on the ecoDemonstrator test bed would not exist absent the FAA's funding cannot be 
supported.2996 The United States requests the Panel to reject the  European Union's argument 
                                               
2988 The European Union argues that, should the Panel disagree that any of th ese alleged post -2006 
aeronautics R&D subsidies operate, at present, through a technology causal pathway, they should in the 
alternative be understood to operate through a price causal pathway. (See European Union's response to Panel 
question No. 43, fn 35 2). 
2989 European Union's second written submission, paras. 1051 -1056. (emphasis original)  
2990 European Union's first written submission, para. 1103. See also Airbus Engineer's  Statement, 
(Exhibit EU -31) (BCI), section IV.B.2; A. Washburn, Chief Technologist, N ASA Environmentally Responsible 
Aviation Integrated Systems Research Program, "Drag Reduction Status and Plans – Laminar Flow and AFC", 
Presentation at AIAA Aero Sciences Meeting, 4 -7 January 2011, (Exhibit EU -668), p. 10; J. Eppink and R. 
Wlezien, "Data A nalysis for the NASA/Boeing Hybrid Laminar Flow Control Crossflow Experiment", Paper 
prepared for 41st AIAA Fluid Dynamicy Conference and Exhibit, Honolulu, 27 -30 June 2011,  (Exhibit EU -667); 
G. Norris, "787 -9 Technology Revealed?", Aviation Week , Blog Things with Wings , 2 June 2011, (Exhibit 
EU-647); and G. Norris, "Boeing Ditches Drag Reduction System for 777X", Aviation Week , 10 May 2015, 
(Exhibit EU -1679).  
2991 European Union's response to Panel question No. 165, para. 137.  
2992 European Union's first written  submission, paras. 1100 -1102.  
2993 European Union's response to Panel question No. 165, para. 126 (citing A. Kumar, Associate 
Technical Fellow Boeing, "Boeing Plans on RFID Implementation", presentation, (Exhibit EU -1670), p. 2).  
2994 European Union's first wri tten submission, para. 1101.  
2995 United States' second written submission, para. 892. According to the United States, the 
ecoDemonstrator test bed aircraft itself is a Boeing 737 -800 that was not funded by the CLEEN Contract, most 
ecoDemonstrator flight test s had no CLEEN involvement whatsoever, and Boeing uses its own aircraft as flying 
test beds as a matter of course outside of U.S. Government R&D program mes. (Boeing Engineers' Reply, 
(Exhibit USA -359) (BCI), paras. 44 -47). 
2996 United States' first written su bmission, paras. 800 -808, 813, 975 -978, 986 -988, 989, and 990; 
second written submission, paras. 740, 792 -794, 892, 897 -903, 1194 -1196, and 1201 -1204.  WT/DS353/R W 
 
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  regarding  threat of future technology effects , as Articles 5 and 6 of the SCM Agreement do not 
permit a challenge to subsidies that are merely alleged to have effects in the futu re.2997 
9.202.   The United States argues that Boeing's development of HLFC for the 787 -10 is unrelated to 
NASA's R&T Base Program, but instead, resulted from Boeing's use of  "internal funding and 
publicly available material that was simultaneously available to Airbus , including the publicly 
disclosed results of U.S. Government -funded tests and projects".2998 The United States argues that 
RFID technology that will feature on upcoming 787 and 777X models was not developed or 
otherwise tested pursuant to a  Boeing CLEEN Agreement2999 As discussed in  paragraph  9.191 , the 
United  States has also indicated that the 777X will not incorporate HLFC in its design . 
"Existing" new technology effects  
9.203.   We first address the European Union's argument that Boeing ha s received post -2006 
support to continue research into HLFC through work  conducted  under NASA's Subsonic Fixed 
Wing Project and Supersonics Project, as well as under NASA's ERA Project . According to evidence 
on record, Boeing received funding of USD 572,39 0 at the end of 2007 to research laminar flow 
technology to develop a design for Supersonic Transport Aircraft through the use of CFD 
analysis.3000 While asserting that the 777X will not incorporate  HLFC in its design, the 
United  States has not denied that HL FC technology has been incorporated on the 787 -9, and 
potentially the 787 -10X. Boeing's website indicates that HLFC is a feature of the 787 -9.3001 
However, the European Union has provided no evidence as to the contribution of th e research  into 
HLFC conducted  under NASA's Subsonic Fixed Wing Project, Supersonics Project or ERA Project to 
Boeing's overall decision to incorporate the HLFC technologies on the 787-9 and 787-10X, or the 
extent to which  such research  enabled an earlier launch of the 787 -10X incorpora ting this 
technology, or a launch that would otherwise not have been possible. Finally, we turn to the 
European Union's allegat ions concerning Boeing's participation in the FAA CLEEN Program through 
the Boeing CLEEN Agreement in respect of the  development of RFID technology and HLFC for use 
on the 787 and  777X.3002 The European Union submits that "{a} major component of the CLEEN 
Program is flight testing … under the ecoDemonstrator Program"3003, including tes ting that was 
done under a 2012 737 -800 test bed and a  2013 787 test bed.3004 The European Union describes 
testing on the ecoDemonstrator as "more generic" as it submits that "{a} technology tested on the 
ecoDemonstrator is … tested in a way that the results can be applied to many different LCA 
platforms".3005 While noting this is a departure from Boeing's past practice of testing technologies 
                                               
2997 United States' second written submission, para. 850.  
2998 Boeing Engineers' Statement, (Exhibit USA -283) ( BCI), para. 31. See also United States' comments 
on European Union's response to Panel question No. 165, para. 170.  
2999 United States' comments on European Union's response to Panel question No. 165, paras. 170 -172 
(referring to Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 39). See also Boeing 
Engineers'  Reply, (Exhibit USA -359) (BCI), paras. 44 -47. 
3000 NASA, Research Opportunities in Aeronautics – 2006, Supersonics Project 3 award announcement, 
(Exhibit EU -143), pp. 13 and 14; NASA task order NN L08AA36T, (Exhibit EU -151).  
3001 See <http://www.boeing.com/commercial/787/frontiers -787-9-october -2013>, accessed 
3 August  2016.  
3002 We recall that the FAA launched the FAA CLEEN Program in 2010, awarding USD 125 million in 
five-year R&D agreements to Boeing, General Electric, Honeywell, Pratt & Whitney, and Rolls -Royce North 
America, on a 50% cost -sharing basis. Under its agreement with Boeing, the FAA CLEEN Program funds 
research to mature specified technologies, as well as testing and assessment of technolog ies through Boeing's 
ecoDemonstrator programme.  See Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), para. 111; FAA Fact 
Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program", 24 June 2010,  (Exhibit EU -257); 
Boeing, Backgrounder, 2012 e coDemonstrator Program Shows Boeing's Long Commitment to Environmentally 
Progressive Technology , (June 2012), (Exhibit EU -261), pp. 1 and 2.  
3003 Airbus Engineer 's Statement, (Exhibit EU -31) (BCI), para. 113 (referring to Boeing, Backgrounder, 
2012 ecoDemonst rator Program Shows Boeing's Long Commitment to Environmentally Progressive Technology , 
(June 2012), (Exhibit EU -261), p. 2).  
3004 Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), paras. 114 and 118 (referring to FAA Fact 
Sheet, "Continuous Lower Energy, E missions, and Noise (CLEEN) Program", 18 September 2012, (Exhibit 
EU-18)). As part of the 2012 series of tests on the 737 -800 test bed, the European Union submits that Boeing 
flight tested the following technologies: (a) a variable area fan nozzle; (b) ada ptive trailing edges; (c) 
"real-time, iPad based flight trajectory optimization and information management systems"; and (d) a method 
of electronically testing emergency equipment using RFID devices. (See Airbus Engineer's  Statement, (Exhibit 
EU-31) (BCI),  para. 116 (referring to Boeing, Fact Sheet, "The Suit of Technologies on the eco Demonstrator 
Tests New Ways to Reduce Fuel Consumption and Community Noise", June 2012, (Exhibit EU -263)) ). 
3005 Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), para. 115.  WT/DS353/R W 
 
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  on a platform -specific basis, the European Union acknowledges that the ecoDemonstrator 
program me operates adjunct to Boeing's continuing flight testing on a platform -specific basis.3006 
The Airbus engineers contend that Boeing conducted further testing and "refining" of HLFC3007, and 
testing and "validat{ion}" of RFID technology .3008 
9.204.   Central to the original panel's finding that the NASA and DOD aeronautics R&D 
programmes before it cause d serious prejudice  was the conclusion that Boeing would not have 
been able to launch the 787 with the technologies it had and promise deliveries in the same time -
frame, absent the contribution of the pre -2007 aeronautics R&D subsidies.3009 In reaching this 
conclusion, the panel ob served that the aeronautics R&D programmes before it were aimed at 
helping Boeing overcome large disincentives inherent in "long term, high risk" aeronautics R&D.3010 
Absent the contribution of the pre -2007 aeronautics R&D subsidies, th e panel considered that  
Boeing would not have achieved the same gains "within the time frame and/or at the lower cost to 
itself that were the product of the aeronautics R&D subsidies".3011 
9.205.   We see an important difference between the type of early -stage, high r isk R&D at issue in 
the original proceeding and the testing and assessment that takes place under Boeing's  
ecoDemonstrator programme , which  receives  funding under the FAA CLEEN Program. The 
European Union acknowledges that Boeing's work under the FAA CLEEN  Program is primarily 
focused on flight testing, validation and refinement of technologies already in a late stage of 
development. It is not clear to us that Boeing would not have undertaken this work on its own. 
The European Union has , for instance , recog nized that flight testing under the ecoDemonstrator 
test beds is supplemental to Boeing's testing. Finally, the European Union has not alleged that 
Boeing could not have funded this testing, absent the 50% cost contribution from the FAA CLEEN 
Program. Inde ed, we would have difficulty accepting such an argument, given that the total 
amount of FAA funding to Boeing under the Boeing CLEEN Agreement accounts for only 
USD 27,986,056 during the 2010 -2014 period.3012  
9.206.   Thus, we are not persuaded that Boeing's particip ation in the FAA CLEEN Program through 
the Boeing CLEEN Agreement  materially  helped Boeing to undertake R&D that it would not 
otherwise have undertaken, or to achieve the same gains that it would not otherwise have 
achieved within essentially the same time -frame. Rather, if anything, Boeing's participation in a 
cost-sharing a rrangement  such as the Boeing CLEEN Agreement merely lowered the cost at which 
Boeing  was able to undertake research that it would have undertaken in any case. We therefore 
conclude tha t the European Union has failed to demonstrate that Boeing's participation in the FAA 
CLEEN Program, through the Boeing CLEEN Agreement, created or accelerated the development 
and creation of the RFID technolog y or HLFC technologies that are alleged to fea ture on the 787 -
9/10 and 777X models.3013  
9.207.   The European Union has therefore failed to demonstrate the existence of so -called new 
technology effects of the particular post -2006 aeronautics R&D subsidies  in respect of the 787 -
9/10 or  777X in the post -implementa tion period.  
                                               
3006 Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), para. 115 (referring to G. Norris, 
"EcoDemonstrator Paves Technology Pathway To Future", Aviation Week & Space Technology , 8 October 2012, 
(Exhibit EU -662)).  
3007 Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), para. 124. 
3008 Airbus Engineer's  Statement, (Exhibit EU -31) (BCI), para. 130.  
3009 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1775.  
3010 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1747.  
3011 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1759.  
3012 Specific contributions are listed in the Boeing CLEEN Agr eement as USD 6,736,692 (2010), 
USD 6,511,448 (2011), USD 7,960,050 (2012), USD 6,494,751 (2013), and USD 283,115 (2014).  These 
amounts are then adju sted to account for the actual funding provided by the FAA to Boeing based on 
modifications appended to the Boeing CLEEN Agreement. See Boeing CLEEN Agreement, (Exhibit EU -17), p. 3, 
modification 2 (providing USD 6,310,150 in 2011), modification 3 (providi ng an additional USD  201,298 in 
2011), and modification 4 (providing USD 7,960,050 in 2012).  
3013 We recall, in the event we were to reject the European Union's argument that post -2006 R&D 
subsidies presently have technology effects, the European Union reques ts the Panel to find in the alternative, 
that the subsidies operate through a "price effects" causal pathway. (See European Union's response to Panel 
question No. 43, fn 352).  We address whether the post -2006 funding and support provided to Boeing under 
the Boeing CLEEN Agreement alternatively operates through a price causal mechanism in Section 9.3.2.2.3  
below.  WT/DS353/R W 
 
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  "Future" new technology effects  
9.208.   The European Union separately argues that certain post -2006 aeronautics R&D subsidies 
cause a threat of serious prejudice in the form of " future  technology effects".3014 The European 
Union identifies the followin g research that Boeing is currently carrying out through the post -2006 
aeronautics R&D subsidies which it considers will lead to the development of technologies for 
application on future generations of Boeing LCA , including possibly future twin -aisle aircr aft:  
a. NASA's Subsonic Fixed Wing Project  related to the development of pultruded rod stitched 
efficient unitized structure (PRSEUS) composite materials that will have "significant 
implications for how future aircraft will be designed and repaired"3015;  
b. Boein g's research and testing of variable area fan nozzle (VAFN), RFID devices, adaptive 
trailing wing edge technology and a modified winglet, on the ecoDemonstrator testing 
component of the FAA CLEEN Program, to the extent not currently applied on the 
737 MAX or other LCA models, nevertheless "generates important knowledge and 
experience that is applied to subsequent technology developments".3016  
9.209.   The United States argues that Articles 5 and 6 of the SCM Agreement do not permit a 
challenge to subsidies that are al leged to  involve  a threat of future technology effects and 
therefore requests the Panel to reject the European Union's argument  in its entirety. Under 
Article  5 of the SCM Agreement, the United States argues that causation must be presently 
occurring even if the form of adverse effects is imminent or threatened rather than current serious 
prejudice. Hence, it submits that Article 5 uses the term "cause" in the present t ense. According to 
the European  Union's own argument, the causal mechanism is not present ly operating, but is 
alleged to do so in the future. Otherwise, Article 5 would refer to subsidies that "cause or threaten 
to cause", which is not the case.3017 
9.210.   Article 5 of the SCM Agreement provides that "{n}o Member should cause … serious 
prejudice to the interests of another Member". Pursuant to footnote 13, the term "serious 
prejudice" should also be understood to include "threat of serious prejudice". Article 5, when read 
together with Articles 6.3(a) through (d), sets out the particular situations in wh ich serious 
prejudice may arise; i.e. through displacement or impedance of imports, significant price 
undercutting, significant price suppression, significant price depression or significant lost sales, or 
an increase in the world market share of a particu lar subsidized primary product or commodity.  
9.211.   Articles 5 and 6 when read together allow for a finding of serious prejudice  where a given 
subsidy is shown to presently cause a threat of (for example)  significant lost sales or significant 
price suppression. In articulating a standard for determining the existence of a threat of serious 
prejudice under Article 6.3(c), the Appellate Body has explained that, "as with a determination of 
threat of material injury … it is reasonable to require that a determination of threat of serious 
prejudice 'be based on facts and not merely on allegation, conjecture or remote possibility'".3018 
Importantly, the threat of serious prejudice that results in a "'change in circumstances' … 'must be 
clearly foreseen and imminent'".3019 
                                               
3014 European Union's second written submission, paras. 1051 -1056. (emphasis original)  
3015 European Union's  second written submission, para. 1052. See also Airbus Engineer's  Statement, 
(Exhibit EU -31) (BCI), paras. 141 -159. 
3016 European Union's second written submission, para. 1055. The European Union has also referred to 
Boeing's "research into nonlinear modelli ng and non -destructive inspection for composite aircraft structures" 
under DOD RDT&E Air Force Aerospace Flight Dynamics/Aerospace Vehicle Technologies and Air Force 
Advanced materials for Weapons Systems program elements , related to the development of non linear 
modelling and non -destructive evaluation, which allow better methods to design fatigue -resistant structures 
and inspection of ageing aircraft structures . (See European Union's first written submission, paras. 1089 and 
1104-1110; and Airbus Engineer' s Statement, (Exhibit EU -31) (BCI), paras. 165 -175).These have been found 
to be outside the scope of this proceeding.  
3017 United States' second written submission, para. 850.  
3018 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para.  1171 (citing 
Article 15.7 of the SCM Agreement).  
3019 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1171 (citing 
Article 15.7 of the SCM Agreement).  WT/DS353/R W 
 
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  9.212.   We note that the European Union has raised a number of threat claims in this proceeding, 
including allegations of threat s of significant price suppression, of significant lost sales, and of 
displacement and/or impedance.3020 The European Union's claims in those c ontexts are based , 
inter alia , on facts related to Boeing's plans to bring specific Boeing aircraft to market (for 
instance, the 787 -10X, 737 MAX , and 777X), and the threat of serious prejudice to competing 
Airbus LCA posed by the imminent launch of the pa rticular Boeing aircraft, which has benefited 
from advanced technology that was allegedly enabled by the aeronautics R&D subsidies. The 
competitive harm is alleged to be clearly foreseen and imminent due to the technological advances 
and the anticipated ar rival of the aircraft in the market.3021  
9.213.   We see significant differences between those allegations and the European Union's 
arguments concerning the alleged "future technology effects" of certain of the post -2006 
aeronautics R&D subsidies. None of the relevan t technologies that are the focus of the "future 
technology effects" allegations are alleged to have been applied to twin-aisle or other Boeing LCA 
to date.3022 At most, the European Union alleges that there are "encouraging findings"3023 that a 
technology such as PRSEUS could  be employed on LCA in the future.  
9.214.   In our view, the prospect for potential application of technologies to future but as yet 
non-existent LCA models is too remote and speculative to constitute a threat of serious prejudice , 
within the meanin g of Article 5(c) and footnote 13 and Article 6.3 of the SCM Agreement. The 
possibility alone is inconclusive as to whether competitive harm to the European Union's  interests 
is imminent, as it is contingent on whether the technologies will ultimately be a pplied to LCA that 
may ultimately be launched at some future point in time. Accordingly, we are not persuaded that 
the European Union has demonstrated that certain post -2006 aeronautics R&D subsidies enable 
Boeing to develop technologies that will be appli ed to future generations of Boeing LCA and in that 
sense, give rise to a threat of serious prejudice in the form of "future technology effects".  
Conclusion  
9.215.   In sum, we  conclude  that t he European Union has failed to demonstrate that:  
a. research conducted on H LFC under the Fundamental Aeronautics Supersonics Project  
and Subsonic Fixed Wing  Project  and NASA's ERA  Project contributed to Boeing's overall 
development of technologies, or otherwise enabled an  earlier launch of the 787 -9/10; or 
that  
b. Boeing's particip ation in the FAA CLEEN Program, through the Boeing CLEEN Agreement, 
created or a ccelerated the creation of HLFC or  RFID technologies relevant to the 
787-9/10X, or 777X.  
9.216.   We therefore  find that the European Union has failed to demonstrate the existence of so-
called new technology effects of the particular post -2006 aeronautics R&D subsidies in respect  of 
the 787 -9/10 and 777X in the post -implementation period.3024  
9.217.   We also reject the European Union's argument  that research Boeing conducted under 
NASA's Subsonic Fixed Wing Project  related to the deve lopment of PRSEUS  composite materials or 
Boeing's research and testi ng of VAFN , RFID devices, adaptive t railing wing edge technology or  a 
modified winglet can give rise to "future technology effects" that could constit ute a threat of 
serious prejudice , within the meaning of Article 5(c) and footnote 13 and Article 6.3 of the SCM 
Agreement.  
                                               
3020 Sections 9.3 and 9.4 below . 
3021 See e.g. European Union's first written submission, paras. 1316 and 1328.  
3022 European Union's first written submission, para. 1105; and Airbus Engineer's  Statement, (Exhibit 
EU-31) (BCI), paras. 144, 167, and  174. 
3023 European Union's second written submission, para. 1052.  
3024 Given the European Union's request that if we reject its arguments that the particular, identified  
post-2006 aeronautics R&D subsidies operate through a technology causal mechanism, we consi der in the 
alternative whether they should be analysed as operating through a price causal mechanism, we will address 
whether these particular , identified  post-2006 aeronautics R&D subsidies operate through a price causal 
mechanism in Section 9.3.2.2.3  below.  WT/DS353/R W 
 
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  9.3.2.1.5   Summary of conclusions on whether the pre -2007 aeronautics R&D subsidies 
and certain  post-2006  aeronautics R&D subsidies cause seri ous prejudice  to the 
interests of the European Union, within the meaning of Articles 5(c) and 6.3,  in respect 
of the A350XWB in the post -implementation period , through a technology causal 
mechanism   
9.218.   Based on the foregoing analysis, the Panel  conclude s as follows:  
a. The European Union has failed to  demonstrate  the existence of original subsidy 
technology effects of the pre -2007 aeronautics R&D subsidies in the post -
implementation period.   
b. The European Union has failed to demonstrate the existence of spill -over technology 
effects of the pre-2007 aeronautics R&D subsidies  in respect of the 787 -9/10 or  777X in 
the post -implementation period . 
c. The European Union has failed to demonstrate the existence of sleeper technology 
effects of the pre -2007 aeronautics R&D sub sidies in respect of the 787 -9/10 or 777X in 
the post-implemen tation period .  
d. The European Union has failed to demonstrate  the existence of new technology effects of 
the particular post -2006 aeronautics R&D subsidie s in respect of the 787 -9/10 or  777X 
in the post -implementation period.  
9.219.   Because the European Union has failed to demonstrate any effect of the  pre-2007 
aeronautics R&D subsi dies, or of the particular, identified post -2006 aeronautics R&D subsidies, on 
Boeing's product devel opment in respect of t he 787 or  777X in the post -implementation period, 
the possibility of any consequent impact of those subsidies on sales and prices of the A350XWB 
does not arise.3025 Accordingly, there is no basis on which the pre -2007 aeronautics R&D  subsidies  
or the particul ar, identified post -2006 aeronautics R&D subsidies can be found to be a genuine and 
substantial cause of any of the forms o f serious prejudice alleged in respect of  the A350XWB  in the 
post-implementation period, through a technology causal mechanism .  
9.220.   The Panel therefore finds that the European Union has failed to establish  that the 
pre-2007 aeronautics R&D subsidies and certain post -2006 aeronautics R&D subsidies  
are a genuine and substantial cause of any of the forms of serious prejudice alleged in 
respec t of the A350XWB in the post -implementation period, through a technology causal 
mechanism.  
9.3.2.1.6   The A350XWB as a competitive response to the 787  
9.221.   One further issue of potential relevance to the issue of the effects of the  pre-2007 
aeronautics R&D subsidies on sa les and prices of the A350XWB  concerns the notion that Airbus 
would only have launched the A350XWB as a response  to Boeing's launch of the 787 , meaning 
that the subsidies in question would logically not have affected the terms of competition between 
the 78 7 and A350XWB . In its third set of questions to the parties, the Panel asked both parties 
whether they agreed that, had Boeing not launched the 787 in 2004, Airbus would not have sought 
to develop the Original A350 versions and launched the A350XWB when it  did, and how (if at all) 
such factors should be taken into account in any counterfactual analysis of the hypothetical 
position that would have existed in the post-implementation period , absent the pre -2007 
aeronautics R&D subsidies.3026 
9.222.   The European Union re spond ed that, had Boeing not launched the 787 in 2004, Airbus 
would not have sought to develop the Original A350 versions, and Airbus would have continued to 
enjoy the market leadership of its A330.3027 The European Union also responded that the timing of 
the launch of the A350XWB, in the scenario in which Boeing had not launched the 787 by 2004, 
                                               
3025 See paras. 9.116  and 9.122  above.  
3026 Panel question No. 152 to the parties.  
3027 European Union's response to Panel question No. 152, para. 9; comments on the United  States'  
response to Panel question No. 152, para. 10.  WT/DS353/R W 
 
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  "would have depended, in large part, on the timing of a counterfactual launch of the 787 ".3028 The 
European Union says that it is "possible" that, with a significantly d elayed launch of the 787, 
Airbus would have launched the A350XWB in response to demands from airlines for significantly 
more fuel -efficient aircraft, and would have done so irrespective of whether Boeing had already 
launched the 787 or was close to launchi ng it.3029 
9.223.   The European Union argues that these considerations are not, however, particularly 
relevant to the Panel's assessment of the existence of adverse effects in the post -implementation 
period. Absent the pre -2007 aeronautics R&D subsidies and their imp act on Boeing's launch of the 
787, Airbus would have continued to enjoy the market leade rship of the A330. The 
European  Union submits that, alternatively , "in a counterfactual in which Airbus had decided to 
launch the A350XWB by 24 September 2012, the pre -2007 aeronautics R&D subsidies would also 
be a genuine and substantial cause of significantly lower EU LCA sales and prices – in this case, of 
the A350XWB."3030 Moreover, even under a counterfactual in which the launch of the A350XWB 
was only ever a competiti ve response  to the launch of the 787, the terms of competition between 
the 787 and A350XWB in this counterfactual scenario "would be altered by the fact that the portion 
of the 787's order book that the European Union did not challenge as 'lost sales' woul d still need to 
be produced, pushing out further the delivery positions that Boeing could offer in competitive sales 
campaigns against the A350XWB."3031  
9.224.   The United States responded to the Panel's question by agreeing with the European Union 
that, had Boeing not launched the 787 in 2004, Airbus would not have sought to develop the 
Original A350 versions when it did. However, the United States additionally considers that Airbus 
would not have developed the A350XWB when it did.3032 The United States argues that the  
underlying findings of the original panel and evidence available demonstrate that the A350XWB 
was developed as a reaction  to the 787, and therefore, would not have been launched when it was 
in 2006 if Boeing had not launched the 787 in 2004.3033 The United S tates considers that 
Airbus'  focus on developing and devoting resources to the A380, and the market dominance of the 
A330 in the period prior to the launch of the 787 in 2004, "each independently meant that the 
A350XWB would only have been launched in resp onse to the 787 ".3034 
9.225.   For the United States, the fact that the A350XWB was a "reaction to, and contingent upon" 
the launch of the 787 must be considered in the appropriate counterfactual.3035 According to the 
United States, if the 787 had launched in 2006 (inste ad of 2004), the delay in the 787's launch 
would have caused a delay in the launch of the A350XWB. Although the pre -2007 aeronautics R&D 
subsidies accelerated the launch of the 787, they did not alter the terms of competition between 
the 787 and the A350XW B after launch. Any acceleration effect of the pre -2007 aeronautics R&D 
subsidies would have no effect on competition between the 787 and A350XWB.3036 This means that 
there is no basis to find a genuine and substantial causal link with respect to the pre -2007 
aeronautics R&D subsidies, or the portions of the post -2006 aeronautics R&D subsidies erroneously 
alleged to have technology effects.3037 
9.226.   The original panel was satisfied that the technological and operating cost advantages of 
the 787 over the A330 and Origi nal A350, as well as its scheduled delivery dates commencing in 
2008, caused Airbus to lose significant sales of the A330 and Original A350 between 2004 and 
                                               
3028 European Union's response to Panel question No. 152, para. 9; comments on the United  States'  
response to Panel question No. 152, para. 12.  
3029 European Union's comments on the United States' response to  Panel question No. 152, para. 12.  
3030 European Union's response to Panel question No. 152, para. 10.  
3031 European Union's comments on the United States' response to Panel question No. 152, para. 14.  
3032 United States' response to Panel question No. 152, para. 9 . 
3033 United States' response to Panel question No. 152, para. 10. "Airbus had no plans, and no reason, 
to launch an aircraft like the A350XWB absent the market entry of the 787 because the A330 held a dominant 
market position and because Airbus had dedicate d its focus and resources to its priority of launching the 
technologically innovative and extraordinarily complex A380." The United States refers to Panel Report, US – 
Large Civil Aircraft (2nd complaint ), paras. 4.334 and 7.1777, and Appellate Body Report , US – Large Civil 
Aircraft (2nd complaint ), para. 1024, in support of its position.  
3034 United States' response to Panel question No. 152, para. 13. "{t}he A350XWB would never have 
entered a market in which its sales and prices were not affected by the mark et presence of the 787." 
(United  States' comments in the European Union's response to Panel question No. 152, paras. 8 and 14).  
3035 United States' response to Panel question No. 152, para. 14.  
3036 United States' comments in the European Union's response to Pan el question No. 152, para. 14.  
3037 United States' response to Panel question No. 152, para. 14.  WT/DS353/R W 
 
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  2006, and significantly suppressed the prices of those aircraft during that period.3038 We note that 
Airbus' Christian Scherer, in a statement in the original proceeding which is referred to by the 
panel, said that at the beginning of 2004, Airbus had expected that the A330 would remain the 
standard for the 200 -300 seat LCA product market for at least anot her ten years of deliveries .3039 
This statement is consistent with evidence before the Panel that in early 2004 Airbus was focused 
on developing the A380 and did not anticipate a major updating of the A330 for several years .3040 
9.227.   The United States' point is that,  this being the case, the A350XWB would only ever have 
been launched as a competitive response to the 787. This means that, absent the pre -2007 
aeronautics R& D subsidies, Boeing would have launched the 787 at a later date, the A350XWB 
would have been launc hed in response, and the competitive dynamics between the 787 and 
A350XW would be essentially no different than they currently are, only with a delay. In other 
words, only the sales and prices of the A330 and Original A350 are logically capable of being  
adversely affected by  the pre -2007 aeronautics R&D subsidies. The European Union concedes that 
the timing of the counterfactual launch of the A350XWB does depend "in part" on the timing of the 
counterfactual launch of the 787.3041 This seems to be because it co nsiders that, had the 
counterfactual launch of the 787 been sufficiently delayed, Airbus would in any event have 
responded to market demand from airlines for more fuel -efficient aircraft, irrespective of whether 
Boeing had launched the 787, or was close to  launching it.3042  
9.228.   We conclude in Sections 9.3.2.1.1  through 9.3.2.1.5  above that the European Union has 
failed to demonstrate that the pre -2007 aeronautics R&D subsidies, operating through a 
technolo gy causal mechanism, affect Boeing's development of technologies for the 787 and 777X 
in the post -implementation period. It is therefore not necessary that we evaluate whether, in any 
case, technology effects of the pre -2007 aeronautics R&D subsidies could  logically have impacted 
only the A330 and Original A350 because, as a factual matter, the launch of the A350XWB was a 
competitive response to the launch of the 787. However, we consider that if it were necessary for 
the Panel to address this issue, the Eu ropean Union would have needed to demonstrate that, 
absent the pre -2007 aeronautics R&D subsidies, Boeing would not have been able to launch the 
787 until after Airbus had independently decided to launch a new wide -body aircraft such as the 
A350XWB in resp onse to customer demand for more fuel efficient aircraft. We find this scenario 
unlikely on the basis of the evidence before us. We note that in 2004, 14 years had already lapsed 
since Boeing's launch of a new, wide -body LCA (its newest wide -body LCA model  until that time 
was the 777, which had been launched in 19 90).3043 Moreover, Airbus would likely have been 
occupied with flight testing and first deliveries  of the A380 until at least mid -20073044 and Airbus 
had anticipated in 2004 that the A330 -200 would be th e market leader for at least another ten 
years of deliveries.  
9.3.2.2   Whether the post -2006 subsidies benefiting the 787 and 777X cause serious 
prejudice  to the interests of the European Union, within the meaning of Articles 5(c) and 
6.3, in respect of the A350XWB  in the post -implementation period , through a price 
causal mechanism  
9.229.   As stated in paragraph  9.114  above,  the European Union argues that certain unwithdrawn 
subsidies that the United States grants and maintains since the end of the reference period i n the 
original proceeding (the post -2006 subsidies ), through their effects on Boeing's pricing of the 787 
and 777X, considered collectively  with the effects of certain aeronautics R&D subsidies on Boeing's 
technology developments for the 787 and 777X, cause various forms of serious prejudice with 
respect to the A350XWB in the post -implementation period.  
9.230.   In Section 9.3.2.1  above, however, the Panel conclude s that the European Union has failed 
to demonstrate the existence of the various forms of technology effects of the aeronautics R&D 
                                               
3038 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1780.  
3039 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1777.  
3040 M. Pilling, "D ream Date", Airline Business , 1 April 2004, (Exhibit USA -579), p. 6.  
3041 European Union's comments on the United States' response to Panel question No. 152, para. 12.  
3042 European Union's comments on the United States' response to Panel question No. 152, para . 12. 
3043 M. Pilling, "Dream Date", Airline Business , 1 April 2004, (Exhibit USA -579), p. 6.  
3044 Airbus had planned flight tests of the A380 in 2005 with first entry into service in 2006, however, it 
did not make its first A380 delivery until October 2007. C.  Daily, "Boeing Commits to Building 7E7 After ANA 
Order", Global News Wire , 27 April, 2004, (Exhibit USA -578); and T. Enders, "Je n'exclus aucun recours en 
justice pour protéger la reputation d'Airbus", Le Monde , 13 October 2007, (Exhibit USA -580).  WT/DS353/R W 
 
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  subsidies in question in respect of the 787 and 777X in the post -implementation period . The 
consequence of this conclusion is that the technological advancements (including the  timing of 
delivery) of the 787 and 777X in the post -implementation period cannot be considered to be an 
effect of the aeronautics R&D  subsidies  operating through a technology causal mechanism . This 
means that the remaining aspect of the European Union's main serious prejudice case regarding 
the A350XWB that the Panel must evaluate is whether the post -2006 subsidies that are said to 
operate through a price causal mechanism  cause the alleged forms of serious prejudice in respect 
of the A350XWB in the post -implementation period.  
9.231.   In this Section, we therefore consider whether the post -2006 subsidies, through their 
effects on Boeing's prices of the 787 and 777X, are a genuine and substantial cause  of significant 
lost sales of the A350XWB  (as well as a threat of  significant lost sales) , impedance and a threat of 
impedance of A350XWB imports (to the United States) and of exports (to certain third country 
markets), and significant price suppression of the A350XWB  (as well as a threat of significant price 
suppressio n) in the post -implementation period .  
9.232.   In Section 9.2.2, we explain that we w ill conduct our analysis of the effects of the post -
2006 su bsidies that operate through a price causal mechanism  by aggregating them into one of 
three  categories: (a) tied tax subsidies, comprising the Washington  State  and City of Everett B&O 
tax rate reductions, the receipt of which is contingent on the sale of particular Boein g LCA on a 
per-unit basis; (b) state and loca l cash flow  subsidies, comprisi ng incentives provided by state and 
municipal authorities in Washington and South Carolina related to Boeing's LCA production 
activities in those jurisdictions, but which are not related to LCA production  or sale  on a per -unit 
basis;  and (c) post -2006 aero nautics R&D subsidies, which the European Union argues enable 
Boeing to use intellectual property to continue developing technologies for future LCA without 
having to pay licence fees.  
9.233.   We therefore begin our analysis of the effects of the post -2006 subsid ies by asking 
whether the European U nion has demonstrated that the tied tax  category of subsidies affected 
Boeing's 787 and 777X pricing and thereby affected A350XWB sales and prices in the 
post-implementation period,  such that these subsidies are a genuin e and substantial cause of any 
of the serious prejudice phenomena alleged by the European Union with respect to the A350XWB  
in the post -implementation period . We then undertake the same analysis for the state and local 
cash flow  subsidies, and for the post -2006 aeronautics R&D subsidies.   
9.3.2.2.1   The tied tax  subsidies  
9.234.   The tied tax  subsidies alleged to benefit the 787  (in respect of 787s produ ced in the State 
of Washington)3045 and 777X are the Washington State and City of Everett B&O tax rate 
reductions . These B&O ta x rate reductions re duce the B&O taxes in respect of revenues earned 
from the sale s of LCA attributable to Washington State (or the City of Everett, as the case may 
be), lowering Boeing's taxes and thereby increasing Boeing's after -tax profits.3046  
9.235.   According  to the European Union, the structure, desig n, and operation of the tied tax 
subsidies impact  Boeing's LCA prices by lowering the taxes and fees paid by Boeing on the 
production and sale of each individual LCA, thus directly reducing the marginal unit cost  of each 
LCA by an amount equal to the subsidy.3047 The causal link between the subsidies and adverse 
effects is "confirmed and amplified" by the magnitude of the subsidies which, when taken 
collectively, is "large by any reasonable measure".3048 The European Un ion emphasi zes that the 
Appellate Body in the original proceeding considered that the tied tax subsidies were a genuine 
and substantial cause of adverse effects on the basis of their close nexu s to the subsidi zed Boeing 
LCA, their design, structure and ope ration, their magnitude3049, and the conditions of competition 
                                               
3045 We re call that Boeing also produces 787s in the State of South Carolina; accordingly, revenues 
associated with sales of 787s produced in South Carolina are not subject to B&O taxes in the State of 
Washington.  
3046 Panel Report, US – Large Civil Aircraft (2nd comp laint), para. 7.1807.  
3047 European Union's first written submission, paras. 1136 -1146.  
3048 European Union's first written submission, paras. 1147 and 1173; second written submission, 
para. 1077.  
3049 The European Union uses the term "magnitude" differently from the way the European Communities 
used this term in the original proceeding. In the original proceeding, the European Communities used 
"magnitude" to refer to the total subsidy amounts that it alleged Boeing had received between 1989 and 2006: WT/DS353/R W 
 
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  in the LCA industry.3050 The European Union argues that nothing has occurred since the original 
proceeding to alter the Appellate Body's reasoning and conclusion.3051  
9.236.   The European Union argues  generall y that the impact of the U.S. subsidies on Boeing's LCA 
prices  (including the tied tax subsidies)  is concentrated  on LCA sales campaigns in which the 
competition is very intense.3052 According to the European Union, Airbus and Boeing, as "two 
rational and pro fit-maximising LCA manufacturers", have "no incentive to offer price concessions 
that go beyond what is necessary to win a deal".3053 
9.237.   The United States does not d ispute that subsidies that are tied  to the production and sale 
of particular LCA are capable  of affecting Boeing's pricing behaviour.3054 Rather, its primary 
argumen t with respect to the tied tax  subsidies is that their magnitude is too small to cause 
adverse effects.3055 The United States notes that the adverse effects finding s with respect to the 
tied tax  subsidies in the original proceeding included the FSC/ETI subsidies, which have since been 
withdrawn. The original panel's finding that the Washington State and City of Everett B&O tax rate 
reductions were not large enough on their own  to cause adverse ef fects still stands, and the 
European Union has not demonstrated otherwise in this proceeding.  
9.238.   Both parties appear to accept that , as per -unit subsidies, the tied tax subsidies by their 
nature , are capable of affecting Boeing's pricing behaviour.3056 The Unite d States describes the tied 
tax subsidies at issue in the original pr oceeding (and therefore also in this proceeding) as subsidies 
"that did affect Boeing's marginal cost  of producing current LCA alleged to be subsidized".3057 It 
distinguishes the effects on pricing of tied tax subsidies from the effects on pricing of untied, 
non-recurring subsidies on the basis that tied tax subsidies correspond directly with sales, such 
that fluctuations in total sales volumes do not affect the calculus regarding the profita bility of a 
particular sale:  
{I}n terms of effects on pricing behaviour, the more of a specific LCA a manufacturer 
produces, the less significant an untied non -recurring subsidy generally is on a per -
aircraft basis. The significance (if any) of a tied tax subsidy does not become diluted in 
the same way when production volumes increase.3058 
9.239.   This is also broadly consistent with the positions of the parties in the original proceeding 
and the conclusion of the panel that the FSC/ETI subsidies and the B&O tax subsi dies, by lowering 
the taxes incurred in connection with sales of LCA, have a far more direct and immediate 
relationship to aircraft prices and sales than other subsidies at issue in the dispute.3059 The 
Appellate Body also emphasi zed the nature of the tied ta x subsidies as tied to the production and 
sale of LCA on a per -unit basis in reaching the conclusion that subsidies of this nature were 
                                                                                                                                               
(a) allocated over time (with the addition of an "opportunity benefit" reflecting the time value of the funds to 
Boeing); and (b) allocated across the various models of Boeing LCA. In this proceeding, the European Union 
refers to "magnitude" as meaning simply the "amoun t" of the subsidies.  
3050 European Union's first written submission, paras. 1123 -1153.  
3051 European Union's first written submission, paras. 1141 -1146.  
3052 See e.g. European Union's response to Panel question No. 164, paras. 116 and 117: "{i}n this 
context, the European Union also recalls that the price -sensitive nature of sales involving closely competing 
products, the existence of large economies of scale, the role of switching cost and incumbency, as well as 
Boeing's exercise of market power each facilitate Bo eing's targeted use of its subsidies in highly competitive 
sales to charge lower prices for its LCA than it would otherwise have charged." (emphasis added)  
3053 European Union's response to Panel question No. 164, para. 111. The European Union's argument 
posits that the tied tax subsidies do not affect Boeing's prices in a generalized manner, e.g. by affecting the 
calculus of the pricing floor below which Boeing cannot sell an aircraft without affecting the overall profitability 
of the LCA programme, but are a ccumulated for strategic use in highly price -sensitive sales campaigns.  
3054 United States' first written submission, paras. 727 and 728.  
3055 United States' first written submission, paras. 719 -721; second written submission, paras. 863 -865. 
3056 We note that Kor ea, in contrast, argues that the fact that a subsidy is ostensibly "tied" to a 
particular investment does not necessarily mean that the subsidy actually caused an investment that would not 
otherwise have occurred. Korea notes that money is fungible. In ord er to overcome the "presumption that 
money is fungible", a complaining party would need to produce extensive evidence of the recipient's financial 
capabilities and investment plans in the absence of the alleged subsidies that demonstrates that the 
investme nts would not otherwise have occurred. (Korea's third -party submission, paras. 26 -28).  
3057 United States' comments on the European Union's response to Panel question No. 169, para. 27.  
3058 United States' first written submission, para. 728.  
3059 Panel Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1806 and 7.1807.  WT/DS353/R W 
 
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  capable of affecting Boeing's pricing decisions with respect to the relevant LCA.3060 As the 
Appellate Body explained:  
All other things being equal, a firm provided with a subsidy that is tied to production 
or sale enjoys the ability to lower its price while nevertheless achieving the same 
profit margin. In effect, the subsidy enhances the firm's ability  to lower its prices in  
order to obtain a sale, notwithstanding that the outcome of any given sale, and the 
importance of price to that outcome, will still be dictated by the prevailing competitive 
conditions, including the market power and the pricing strategies of the particip ants, 
in a particular market.3061  
9.240.   However, the Appellate Body also appeared to consider that, while the tied tax subsidies 
provide d Boeing with the ability and incentive  to lower its LCA prices, the competitive dynamics of 
the LCA markets are such that it wo uld not actually do so unless it faced  the commercial 
imperative , in the particular circumstances of th e sales campaign. That imperative  would arise only 
where the LCA sales campaigns we re particularly price -sensitive, in the sense that Boeing was 
under pr essure t o reduce its prices, and there we re no other non -price factors  that explain the 
outcome of the sales campaign :  
In this dispute, we consider that, given the nature of the tied tax subsidies, their 
operation over time, their magnitude, and the compe titive conditions in the LCA 
market, Boeing had both the ability and incentive to use the tied tax subsidies to 
lower prices, and that there was a substantial likelihood that this occurred  in sales 
campaigns that were particularly competitive and sensitive  in terms of price. On that 
basis, where it can be established that Boeing was under particular pressure to reduce 
its prices  in order to secure LCA sales in particular sales campaigns, and there are no 
other non -price factors that explain Boeing's success  in obtaining the sale or 
suppressing Airbus' pricing , we can conclude that the subsidies contributed in a 
genuine and substantial way to the lowering of Boeing's prices.3062 
9.241.   The Appellate Body therefore considered that it would only be possible to reach a 
conclusion regarding the causal connection between the tied tax subsidies and Boeing's LCA pricing 
by examining the sales campaign evidence to determine whether , in each sales campaign, Boeing 
was under particular pressure to reduce its prices in order to se cure the LCA sale  and there were 
no other non -price factors that explain ed Boeing's success in obtaining the sale.3063  
9.242.   As this is a compliance proceeding, we consider it appropriate to follow the same approach 
to analysing the effects of the tied tax subsidi es on Boeing's LCA pricing as taken by the Appellate 
Body in the original proceeding. We  therefore evaluate the sales campaign evidence submitted in 
relation to sales campaigns won by Boeing with the 787 and/or 777X at the expense of the 
A350XWB , and which  the European Union argues are  evidence of significant lost sales of the 
A350XWB, as well as of impedance of A350XWB imports and exports, and significant price 
suppression of the A350XWB, in each case an effect of the U.S. subsidies. In doing so, we 
determ ine whether the campaigns are "price -sensitive", in the sense that  Boeing appeared to be 
under particular pressure to reduce its prices in order to secure the sales, and there are no non-
price factors that explain Boeing's success in obtaining the sale ; e.g. Boeing's incumbency and a 
                                               
3060 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 1252 -1260.  
3061 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1260.  (emphasis added)  
3062 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1260. (emphasis added) This 
is confirmed by the Appellate Body's reiteration of this aspect of its reasoning regarding the effects of the tied 
tax subsidies on Boeing's prices, somewhat l ater in the Report:  
We have explained that, due to the nature of the tied tax subsidies, their operation 
over time, their magnitude, and the competitive conditions in the LCA market, 
Boeing had both the ability and the incentive to use the tied tax subsidi es to lower 
prices, and that there was a substantial likelihood that this occurred in sales 
campaigns that were particularly competitive and sensitive in terms of price. We 
have also explained that, where it can be established that Boeing was under 
particu lar pressure to reduce its prices in order to win an LCA sale in a particular 
sales campaign, and there were no other non -price factors that explain Boeing's 
success in obtaining the sale, we can conclude that the subsidies contributed in a 
genuine and sub stantial way to the lowering of Boeing's prices . 
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1271 (emphasis added))  
3063 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 1261 -1265.  WT/DS353/R W 
 
- 530 - 
 
  consequent switching cost advantage, the suitability of the aircraft for the particular customer's 
requirements (in terms of range, capacity and delivery availability).  
9.243.   Where Boeing appeared to be under particular pressure to reduce its pri ces in order to 
secure the sale , and there are no non -price factors that explain Boeing's success in obtaining the 
sale, we will conclude that the tied tax subsidies contributed in a genuine and substantial way to 
the lowering of Boeing's LCA  prices. As a second step in the analysis, we will then address the 
United States' argument concerning the relative insignificance of the magnitudes of the tied tax 
subsidies by determining whether, on the basis of the evidence before us, the magnitudes we re 
enough to "cover the margin of victory between the final net prices of Boeing and Airbus"3064 such 
that the tied tax subsidies, through their effects on Boeing's prices, are a genuine and substantial 
cause of lost sales of the A350XWB.  
The sales campaigns involving competition between the 787 and 777X and A350XWB  
9.244.   The European Union submits  evidence for certain  LCA sales campaigns involving the 787 
and/or 777X and the A350XWB that occurred between 2007 and 2015 , and were won, in whole or 
in part, by Boeing . It argues that these LCA sales campaigns are highly competitive, and instances 
where Boeing did in fact act on its incentive, enabled by its receipt of subsidies, to offer pricing 
concessions that enabled it to secure the sale at the expense of Airbus.3065 The basic details 
concerning the outcomes of these  sales campaigns are set forth i n Table 9 and Table 10 below :  
                                               
3064 See Appellate Body Repo rt, US – Large Civil Aircraft (2nd complaint ), para. 1263.  
3065 The European Union must establish the existence of adverse effects in the post -implementation 
period (i.e. the period after 23 September 2012), and therefore the only LCA sales campaigns that can  be 
evidence of the existence of significant lost sales are those that took place after the end of the implementation 
period. Nevertheless, we also examine the evidence related to sales campaigns that took place in the 
2007-2012 period on the basis that we  should examine the entirety of the evidence submitted by the parties to 
the extent that it may be relevant to identifying the particular pricing dynamic between Boeing and Airbus.  WT/DS353/R W 
 
- 531 - 
 
  Table 9: Alleged lost sales of the A3 50XWB between 2007 -2012 due to the 787  
Sales campaigns alleged to demonstrate  lost sales of the A350XWB due to subsidies to the 787 
between 2007 -20123066 
Campaign  Number of 787 orders  Number (if any) of A350XWB 
orders3067 
Qatar Airways 2007  30 787 -8 80 A350XWB , consisting of 20 
A350XWB -800 and 40 A350XWB -900, 
converted from Original A350, and 20 
additional A350XWB -1000 
British Airways 2007  24 787, consisting of 8 787 -8 and 16 
787-9, plus 18 options and 10 
purchase rights  None 
LAN Airlines 2007  26 787 -8/787 -9 None 
ILFC 2007  52 787  None 
Virgin Atlantic Airways 
2007  15 787 -9, plus 8 options and 20 
purchase rights  None 
Etihad Airways 2008 and 
2011  41 787 -9 12 A350XWB  
United Airlines 2010  
 25 787 -8, plus 50 options  25 A350XWB -900 
United Airlines 2012  
("Follow -on") 5 787, consisting of 4 787 -9 and 1 
787-8 None 
United Airlines 2013  20 787 -10, 10 of which were an 
up-conversion of the 2010 order of 
787-8 35 A350XWB -1000, consisting of 
conversion of 2010 order to 25 
A350XWB -1000 and additional 10 
A350XWB -1000 
Air France -KLM 2011  
 25 787-9 25 A350XWB -900 
Aeromexico 2012  6 787 -9 None 
The data in Table 9 above is supported by th e following evidence: Qatar Airways Press Release, "Qatar Airways 
Orders 60 Boeing  787-8 Dreamline rs And 32 Boeing 777s", 11 November 2007, (Exhibit EU -769); Airbus Press 
Release, "Qatar Airways confirms order for 80 A350 XWBs and adds three A380s", 18 June 2007, (Exhibit EU -
771); Boeing Press Release, "Boeing and British Airways Finalize Contr act for 24 787 Dreamliners", 
27 December 2007, (Exhibit EU -782); Boeing Press Release, "Boeing, LAN Airlines Complete Deal for 32 787s 
and Four 777 Freighters", 5 November 2007, (Exhibit EU -793); Boeing Press Release, "Boeing, ILFC Announce 
Order for 63 Airplanes" , 19 June 2007, (Exhibit EU -800); Boeing Press Release, "Boeing and Virgin Atlantic 
Announce 787 Order, Environmental Partnership", 24 April 2007, (Exhibit EU -807); Boeing Press Release, 
"Boeing, Etihad Airways Announce Twin -Aisle Order", 14 July 2008, (Ex hibit EU -814); "Etihad Cancels Orders 
for Four 787 Dreamliners", Aviation and Aerospace , 4 March 2011, (Exhibit EU -825); "Etihad Cuts Dreamliner 
Order in Swap for Boeing 777s", Arabian Business , 8 March 2011, (Exhibit EU -826); Boeing Press Release, 
"Boeing , Etihad Airways Announce Order for 10 787 -9 Dreamliners", 12 December 2011, (Exhibit EU -831); 
"Etihad splits massive order between Boeing, Airbus", USA Today , 15 July 2008, (Exhibit EU -827); Boeing 
Press Release, "Boeing and United Airlines Finalize 787 O rder", 25 February 2010, (Exhibit EU -838); Airbus 
Press Release, "United Signs Firm Order for 25 A350 XWB aircraft", 10 March 2 010, (Exhibit EU -839); Boeing 
website, Orders and Deliveries – 2012 Orders Detail, available at 
<http://www.boeing.com/commercial /#/orders -deliveries>, last accessed 7 August 2016, (Exhibit EU -1566); 
E. Russell, "United quietly upped 787 number prior to Paris order", Flightglobal , 1 July 2013, (Exhibit 
EU-1567); Boeing Press Release, "Boeing Launches New Commercial Airplane; Highlig hts Innovation, Efficiency 
and Partnerships at 2013 Paris Air Show", 20 June 2013, (Exhibit EU -1184); Boeing website, Orders and 
Deliveries – 2013 Net Orders, through 9 July 2013, available at 
<http://www.boeing.com/commercial/#/orders -deliveries>, accesse d 7 August 2016, (Exhibit EU -1185); 
                                               
3066 The European Union had also challenged the Air Berlin 2007 and Lion Air 2012 twin -aisle campaigns, 
but does not pursue its arguments in relation to these campaigns on account of both airlines having cancelled 
their 787 orders. (European Union's response to Panel question No. 169, para. 328).  
3067 Certain of the campaigns cited by  the European Union are "split campaigns", meaning that the 
customer ordered both Airbus and Boeing LCA. In many cases, the split order was a strategic decision by the 
airline that involved maximizing early delivery positions, and maintaining a competitive  balance between the 
two airframe manufacturers.  WT/DS353/R W 
 
- 532 - 
 
  United Press Release, "United is North American launch customer for Boeing 787 -10", 18 June 2013, (Exhibit 
EU-1186); Airbus Press Release, "Airbus, United Airlines reach agreement for 35 A350 -1000 aircraft", 
20 June 2013, (Exhibit EU -1187); Boeing Press Release, "Boeing, Air France -KLM Finalize Order for 25 787s", 
10 January 2012, (Exhibit EU -850); Airbus Press Release, "Air France -KLM co nfirms future with A350XWB", 
19 June 2013, (Exhibit EU -1209); Airbus Press Release, " Air France -KLM to acquire up to 60 A350 XWBs", 
16 September 2011, (Exhibit EU -852); and Boeing Press Release, "Boeing, Aeromexico Finalize 787 Dreamliner 
Order", 27 December 2012, (Exhibit EU -872).  
 
Table 10: Alleged lost sales of t he A350XWB in the post -implementation period due to 
the 787 and 777X  
Post-implementation period sales campaigns alleged to demonstrate  lost sales of the A350XWB due 
to subsidies to the 787 and 777X3068 
Campaign  Number of 787 orders  Number of 777 orders  Numbe r (if any) of 
A350XWB orders  
Singapore 
Airlines 2013  30 787 -10X None 30 A350XWB -900, plus 20 
options  
British Airways 
2013  12 787 -10, plus firming up 
options for 6 787 -8/787 -9 None 18 A350XWB -1000 
Emirates 2013  None 150 777X, consisting of 35 
777-8X and  115 777 -9X, 
plus 50 purchase rights  None  
Qatar Airways 
2013  None 50 777 -9X, plus 50 
purchase rights  None 
Cathay Pacific 
2013  None  21 777 -9X None  
Lufthansa 2013  None  34 777 -9X, plus 30 options  25 A350XWB -900, plus 30 
options  
Etihad Airways 
2013  30 787-10, plus 12 options 
and purchase rights  25 777X, consisting of 17 
777-9X and 8 777 -8X, plus 
12 options and purchase 
rights  50 A350XWB, consisting of 
40 A350XWB -900 and 10 
A350XWB -1000  
ANA 2014  14 787 -9  20 777 -9X  None 
ANA 2015 
("Follow -on") 3 787 -10 None None 
Ethiopian  
Airlines  2015  6 787 -8 None None 
The data in Table 10 above is supported by the following evidence:  Boeing Press Release, "Boeing Launches 
New Commercial Airplane; Highlights Innovation, Effi ciency and Partnersh ips at 2013 Paris Air Show", 
20 June 2013, (Exhibit EU -1184); Singapore Airlines Press Release, "SIA To Order US$17 Billion Worth Of 
Aircraft From Airbus & Boeing", 30 May 2013, (Exhibit EU -1195); Airbus Press Release, "Singapore Airlin es 
finalises order for up to 50 more A350 XWBs", 19 June 2013, (Exhibit EU -1196); "Boeing Launches 787 -10 
with $30 Billion of Orders", Reuters , 20 June 2013, (Exhibit EU -1245); "BA Set to Order 10 Boeing 787 -10s", 
Reuters , 16 June 2013, (Exhibit EU -1246); "British Airways Confirms Order for 787 -10 Series", British Airways 
News , 18 June 2013, (Exhibit EU -1247); "BA Orders 18 New Airbus A350 Aircraft", The Independent , 
23 April 2013, (Exhibit EU -1249); Emirates Press Release, "Emirates announces l argest -ever aircraft order", 
17 November 2013, (Exhibit EU -1317); Boeing Press Release, "Boeing Launches 777X with Record -Breaking 
Orders and Commitments", 17 November 2013, (Exhibit EU -1299); Qatar Airways Press Release, "Qatar 
Airways Announces the Purchase of 50 Bo eing 777 -9X", 17 November 2013, (Exhibit EU -1316); Boeing Press 
Release, "Boeing Launches 777X with Record -Breaking Orders, Strengthens Partnerships in the Middle East at 
the 2013 Dubai Airshow", 20 November 2013, (Exhibit EU -1454); Boeing Press Release, " Boeing, Qatar 
Airways Finalize Order for 50 777Xs", 16 July 2014, (Exhibit EU -1469); Boeing Press Release, "Boeing and 
Cathay Pacific Airways Announce Order for 21 777 -9Xs", 20 December 2013, (Exhibit EU -1443); Cathay Pacific 
Press Release, "Cathay Pacific  places order for 21 Boeing 777 -9X aircraft – Deliveries to commence in 2021", 
                                               
3068 The 777X was launched in November 2013, so is only relevant for sales campaigns in the 
post-implementation period.  WT/DS353/R W 
 
- 533 - 
 
  20 December 2013, (Exhibit EU -1444); M. Steen, "Lufthansa makes record German investment", Financial 
Times , 19 September 2013, (Exhibit EU -1493); Lufthansa Press Release, "Moder n, quiet and environmentally 
efficient: Lufthansa Group orders 59 ultra -modern wide -body Boeing 777 -9X an d Airbus A350 -900 aircraft", 
19 September 2013, (Exhibit EU -1313); "Lufthansa Splits $19 Billion Order Between Airbus, Boeing", 
Bloomberg , 19 September  2013, (Exhibit EU -1510); Airbus Press Release, "Lufthansa, Airbus' biggest airline 
customer, commits to up to 55 A350s", 19 September 2013, (Exhibit EU -1494); Boeing Press Release, 
"Boeing, Etihad Airways Kick Off Dubai Airshow with 777X, 787 -10 Orders" , 17 November 2013, (Exhibit 
EU-1314); Etihad Airways Press Release, "Etihad Airways announces largest ever fleet order to enable 
accelerated growth strategy", 17 November 2013, (Exhibit EU -1315); Airbus Press Release, "Etihad Airways 
orders 50 A350 XWB, 36 A320neo and one A330 -200F", 17 November 2013, (Exhibit EU -1548); Boeing Press 
Release, "Boeing Statement on ANA Widebody Airplane Selection", 27 March 2014, (Exhibit EU -1445); ANA 
Holdings News, "ANA Group to place record 1700 billion yen order for 70 new aircra ft", 27 March 2014, (Exhibit 
EU-1446); Boeing Press Release, "Boeing Announces ANA 's Commitment to Become Newest 787 -10 
Customer", 30 January 2015, (Exhibit EU -1569); and Boeing Press Release, "Boeing, Ethiopian Airlines 
Announce Order for Six 787 Dr eamliners", 17 June 2015, (Exhibit EU -1570).  
 
9.245.   The evidence submitted in relation to the above sales campaigns includes information 
concerning: (a) the aircraft that were offered by Airbus and Boeing, respectively, to customers in 
each sales campaign; (b) t he particular needs of the airline customer in terms of factors such as 
seating capacity, range and routes to be served, efficiency and delivery dates; and (c) the 
dynamics of the pricing interactions between Airbus and Boeing, on the one hand, and the air line 
or leasing company  customer on the other, through repeated rounds of negotiations.3069 This 
evidence allows the Panel to assess with a high degree of confidence the extent to which the sales 
campaigns were or were not particularly price -sensitive. While some of the sales campaign 
evidence is in the public domain (e.g. the information concerning the terms of the aircraft orders 
ultimately placed by the customer), a significant part of it, especially as regards the internal Airbus 
communications describing Airbus' sales strategies and evaluating the competing Airbus and 
Boeing offers, is designated as HSBI. Therefore, in the discussion that follows, we provide a 
non-confidential summary of our conclusions regarding the extent to which the outcomes of the 
individual sales campaigns appeared to turn on the price of the competing offers. Our detailed 
confidential analysis of the evidence pertaining to each s ales campaign is set forth in an  HSBI 
Appendix  to the Report.3070  
9.246.   We conclude that there is insufficient evi dence to demonstrate that any of the LCA sales 
campaigns involving the 787 and/or 777X and the A350XWB set forth in Table 9 and Table 10 
above were  price-sensitive in the s ense used by the Appellate Body (i.e. where Boeing was under 
particular pressure to reduce its prices in order to secure LCA sales in particular sales campaigns, 
and there were no other non -price factors that explain Boeing's success in obtaining the sale ).  
9.247.   Indeed, while pricing was discussed in certain of the sales campaigns, other factors 
featured more prominently in the airline customers' evaluations of the suitability of the competing 
offers as well as in the evidence on record explaining the reasons w hy the airline customer chose 
to order Boeing aircraft over the competing Airbus offering. In the majority of the LCA sales 
campaigns, a critical factor was the airline customers' preference for the delivery availability of the 
Boeing aircraft over the com peting Airbus aircraft, in light of the airlines' particular fleet 
replacement requirements as well as Airbus' delivery delays.3071 The choice of engine manufacturer 
                                               
3069 The exception is with respect the Ethiopian Airlines 2015 campaign. The European Union argues that 
this sales campaign constitutes a significant lost sale of the A350XWB (European Union's response to Panel 
question No. 169, paras. 326 and 327), but does not submit any evidence regarding the details of this sales 
campaign. Indeed, the only ev idence submitted by the European Union in connection with this sales campaign 
is a Boeing press release announcing the order for six 787s. There is no evidence before the Panel that Airbus 
even participated in a competition to offer alternative Airbus airc raft in this sales campaign. The 
European  Union argues that this order "also" results in the threat of further significant lost sales having 
materialized (European Union's response to Panel question No. 169, para. 326 and fn 592, referring to its first 
written submission , para. 1342 ). This paragraph of the European Union's first written submission is part of the 
European Union's "parallel" argument, wherein it describes the threat of significant lost sales arising out of the 
2005 Ethiopian Airlines lost sal e of the Original A350 as arising from the possibility that Ethiopian Airlines may 
continue to retain options and purchase rights which "flow" from the 2005 order. However, there is no evidence 
before the Panel that the 2015 Ethiopian Airlines order arose out of an exercise of options or purchase rights 
relating to its 2005 order.  
3070 See HSBI Appendix  (Appendix 2 ). 
3071 See HSBI Appendix  (Appendix 2)  paras. 10, 22, 29, 39, 48, 60, 76 -79, 89, and 111. In the case of 
one "split order", the airline customer's nee ds could not be met by one aircraft manufacturer, meaning that 
neither Airbus nor Boeing would have been awarded the whole order. (See HSBI Appendix  (Appendix 2 ), para. 
89).  WT/DS353/R W 
 
- 534 - 
 
  was another major factor in many campaigns .3072 In some cases, the main factors taken into 
accou nt by the airline customers included performance evaluations of the various aircraft, 
perceived strengths and weaknesses in performance guarantees and/or the level of confidence in 
the maturity of the aircraft programme.3073 In other campaigns, the size of th e aircraft, given the 
airlines' planned range and capacity needs, also featured as a decisive factor.3074 Incumbency was 
a vital factor in some cases, with the airline customer either striving for the advantages generated 
by fleet commonality, or being averse  to the risks brought on by fleet diversity.3075 We con clude 
that in each case there a re factors other than price that explain why Airbus either did not win the 
sale, or in the case of the sales campaigns that involved "split orders", i.e. where the customer  
ordered a number of Airbus and Boeing aircraft, why there is no basis to conclude that Boeing's 
pricing resulted in the customer  awarding a greater portion of the order to Boeing (and thus a 
lesser portion to Airbus) than would otherwise have been the case .3076 
9.248.   Our review of the sales campaign evidence is also consistent with other evidence 
suggesting that the competing models of Airbus and Boeing wide -body, twin -aisle LCA are less 
substitutable, and therefore that the outcomes of sales campaigns involving the se aircraft will 
depend to a greater extent on non -price factors. Airlines will generally purchase a particular LCA 
model for the purpose of performing a specific route, or mission. A significant factor in determining 
the outcome of an LCA sales campaign t herefore, is the suitability of the aircraft f or a particular 
route or routes:  the more suitable an aircraft for the routes in question, the lower its direct 
operating costs over time.3077 The suitability of an aircraft to perform a particular route depends o n 
its seating, cargo, payload and range capability, which are largely determined by an aircraft's 
number of se ats, its MTOW  and its range when at maximum passenger capacity.3078 The closer the 
suitability of two aircraft for a particular route or routes, the greater their substitutability. The 
wide-body, twin -aisle models of Boeing (787 and 777X) and Airbus (A330 and A350XWB) display a 
far greater variance in terms of seating capacity, maximum take -off weight, and range than their 
narrow -body, single -aisle cou nterparts (A320neo and A320ceo, and 737 MAX and 737NG).  
9.249.   Our conclusion is further supported by the statement of Airbus' Executive Vice President, 
Strategy & Marketing, Kiran Rao, who opines that [[HSBI]] .3079 It is also consistent with the 
conclusions drawn b y the Appellate Body in the original proceeding suggesting that sales 
campaigns involving single -aisle LCA are likely to be more price -sensitive than those involving 
wide-body, twin -aisle LCA:  
{P}rice appears to have been a particularly important consider ation in the 100 -200 
seat LCA market due to the relatively high degree of substitutability between the A320 
and the 737NG, and the fact that many customers within this product market are 
low-cost carriers, which are particularly price -sensitive.3080  
9.250.   On the b asis of the foregoing evaluat ion of the nature of the tied tax subsidies, the 
conditions of competition in the wide -body, twin -aisle LCA mark ets, and the evidence pertaining to  
sales campaigns involving the 787 and 777X and A350XWB between 2007 and 2015, w e conclude 
that the European Union has failed to demon strate that these campaigns were price -sensitive, in 
the sense that Boeing was under particular pressure to reduce its prices in order to secure LCA 
sales in the particular sales campaigns, and there we re no other non -price factors that explain 
Boeing's success in obtaining the sale . While the tied tax subsidies may have given Boeing the 
                                               
3072 See HSBI Appendix  (Appendix 2) , paras. 29, 60, 89, 133, 149, and 158.  
3073 See HSBI Appendix  (Appendix 2) , paras. 10, 22, 76 -79, 89, and 111.  
3074 See HSBI Appendix  (Appendix 2 ), paras. 29, 76 -79, 141, and 148.  
3075 See HSBI Appendix  (Appendix 2 ), paras. 22, 98, and 157.  
3076 Several of the LCA sales campaigns involved split orders of both Airb us and Boeing aircraft: Qatar 
Airways (2007); Etihad Airways (2008, 2011 and 2013); United Airlines (2010, 2012 and 2013); Air 
France -KLM (2011); Singapore Airlines (2013); British Airways (2013); and Lufthansa (2013). In one of these 
campaigns, the result ing split order was part of a deliberate policy on the part of the airline customer to avoid 
becoming dependent on one manufacturer for its long -haul needs. ( HSBI Appendix  (Appendix 2), paras.  140 
and 141).  
3077 Mourey Statement, (Exhibit EU -34) (BCI), paras.  48 and 49.  
3078 Mourey Statement, (Exhibit EU -34) (BCI), paras. 48 and 49.  
3079 Statement of K. Rao, 6 October 2015, (Exhibit EU -1668) (HSBI). It is not affected by the caveats 
expressed by the United States and Mr Wojick concerning the inherent limitations of NPV analyses as a tool for 
comparing relevant factors associated with the respective offers of Airbus and Boeing in any LCA sales 
campaign.  
3080 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1259.  WT/DS353/R W 
 
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  ability  and incentive  to lower its LCA prices  without affecting its profitability calculus , the 
competitive dynamics o f these LCA sales campaigns are such that it did not have the commercial 
imperative  to do so in order to win the sales.3081  
9.251.   Because the European Union has failed to demonstrate any effect of the tied tax subsidies 
on Boeing's 787 or 777X prices in the post -implementation period, the possibility of any 
consequent impact of those subsidies on sales and prices of the A350XWB does not arise.3082 
Accordingly, there is no basis on which the tied tax subsidies can be found to be a genuine and 
substantial cause of any o f the forms of serious prejudice alleged in respect of the A350XWB in the 
post-implementation period, through a price causal mechanism.  
9.252.   The Panel therefore finds that the European Union has failed to establish  that the 
tied tax subsidies are a genuine and  substantial cause of any of the forms of serious 
prejudice alleged in respect of the A350XWB in the post -implementation period, through 
a price causal mechanism.  
9.3.2.2.2   The state and local cash flow  subsidies  
9.253.   This category of post -2006 subsidies comprises:  
a. B&O tax credits for Washington State property taxes and leasehold excise taxes in 
connection with property where the 787  and 777X  (as well as  737 families ) are 
produced, and a property tax exemption for LCFs in South Carolina used in transporting 
parts for th e 787 production;  
b. B&O tax credits for aerospace preproduction in Washington that are alleged to affect 
aircraft i n preproduction such as the 787 and  777X (as well as the  737 MAX );  
c. sales and use tax exemptions for construction materials, fuel and computer  equipment 
related to 787 production in Washington and South Carolina; and  
d. grants related to infrastructure for 787 production facilities in South Carolina.  
9.254.   In Section 9.2.3.2  of this Report, we explain t he nature and operatio n of the state and 
local cash flow  subsidies for purposes of deciding whether and how to aggregate  the various 
post-2006 subsidies. In particular, we explain that the receipt of these subsidies is not contingent 
upon per -unit production or sale o f LCA.  
9.255.   The European Union argues that the state and local cash flow  subsidies generally operate 
to liberate funds and thereby reduce costs that Boeing would otherwise have had to incur with its 
own resources. The European Union considers that Boeing is able, and ha s strong incentives, to 
use the additional cash represented by  the state and local cash flow  subsidies to lower prices for 
its LCA in competitive sales campaigns without reducing its profits.3083 The European Union 
therefore regards the state and local cash f low subsidies as having  the same essential cost 
reducing effect as the tied tax  (per-unit) subsidies . They  should be analysed as operating to 
provide Boeing with the same ability to lower its LCA prices in particular, price -sensitive LCA sales 
campaigns, t hereby contributing to causing the same effects on Airbus' prices and sales  as the tied 
tax subsidies . Moreover, the magnitude of the state and local cash flow  subsidies "confirms and 
amplifies" the existing causal connection already established by the sub sidies' close connection to 
the production of the particular Boeing aircraft and the conditions of competition in the LCA 
industry.3084  
9.256.   The Eur opean Union considers that the untied  nature of this aggregated group of subsidies 
is not an obstacle to their bein g found to cause adverse effects, especially in light of the Appellate 
Body's acceptance of the proposition that subsidies that are "not directly contingent upon 
                                               
3081 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1260.  
3082 See paras. 9.116  and 9.233  above.  
3083 European Union's first written submission, para. 1156; second written submission, para. 1080.  
3084 European U nion's first written submission, paras. 1173 -1175.  WT/DS353/R W 
 
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  production or sale can nevertheless affect pricing decisions in some circumstances".3085 It 
empha sizes that, in the original proceeding, the Appellate Body found a causal link between t he 
tax abatements related to  the City of Wichita IRBs and adverse effects, and argues that, since  the 
state and local cash flow  subsidies share the same essential featu res as t he tax abatements 
related to  the City of Wichita IRBs, this finding  should "apply" equally to the state and local cash 
flow subsidies at issue in this proceeding.3086 
9.257.   The European Union notes that the Appellate Body reached its conclusion regarding th e tax 
abatements related to the City of Wichita IRBs notwithstanding that they were untied  subsidies.3087 
According to the European Union,  the state and local cash flow  subsidies are also closely "linked" 
to the research, development or production of particul ar Boeing LCA. This "close link with 
production", coupled with the "cash flow -enhancing nature" and the "prevailing comp etitive 
conditions", of the state and local cash flow  subsidies, which are essentially the same as those of 
the tax abatements related t o the City of Wichita IRBs, means that the Appellate Body's reasoning  
applies equally to all of the state and local c ash flow  subsidies in this proceeding.3088 
9.258.   The United States arg ues that the European Union has failed to establish a causal 
connection betwee n any of the state and local cash flow  subsidies and the alleged adverse effects. 
While the European Union refers to "aggressive pricing" by Boeing in LCA sales campaigns, it fails 
to explain how subsidies not tied to Boeing's marginal cost of producing th e relevant aircraft  
(including those alleged to reduce Boeing's early -stage R&D costs) would affect Boeing's pricing. 
Absent such a showing, any "aggressive pricing" reflects normal competition rather than the 
effects of subsidies.3089 The United States argue s that, g iven that both the European Union and 
United States agree that Boeing's offers in LCA sales campaigns reflect the terms that Boeing, as a 
profit -maximizing firm, views as necessary to win the sales campaign, the relevant question is 
whether, and t o what extent, the alleged subsidies enabled Boeing to price as it did.3090  
9.259.   According to the United States,  the European Union had two ways to show that alleged 
subsidies enabled Boeing to provide additional discounts substantial enough to alter the outcome 
of a particular campaign. First, it could have shown that, even though the sales at those prices 
were profit -maximizing, Boeing would have been unable to make them absent the subsidies. 
Second, it could have shown that sales at those prices would no longer  have been 
profit -maximizing for Boeing in the absence of the subsidies.3091 According to the United States, 
"{t}he notion that a rational, profit -maximizing firm would deviate from optimal pricing strategy to 
generate increased revenue (at the expense of pro fits) only makes sense if the firm is 
capital -constrained and needs short -term revenue to continue operations."3092 The United States 
observes that the European Union has been very clear that it does n ot allege that  Boeing faces 
capital constraints that force  it to deviate from a profit -maximizing strategy. The United States 
further notes that the European Communities in the original proceeding had not been able to 
establish that Boeing was capital constrained.3093  
9.260.   Further, the  United States notes that the  econo mic model provided by the European 
Communities in the original proceeding, which purported  to demonstrate the effects of untied  
subsidies on Boeing's LCA pricing behaviour, was also rejected  by the original panel .3094 While the 
Appellate Body in the original proceeding expressed the view that untied  subsidies "may"  affect 
Boeing's prices, the United  States maintains that the European Union must actually establish that 
                                               
3085 European Union's second written submission, para. 1085 (citing Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint) , para. 1348 (emphasis added)).  
3086 European Union's first written submission , paras. 1169 and 1177; second written submission, 
paras.  1087-1089.  
3087 European Union's second written submission, para. 1087.  
3088 European Union's second written submission, paras. 1088 and 1089.  
3089 United States' comments on the European Union's response t o Panel question No. 169, para. 18.  
3090 United States' comments on the European Union's response to Panel question No. 169, paras. 22 
and 23.  
3091 United States' comments on the European Union's response to Panel question No. 169, para. 23.  
3092 United States' com ments on the European Union's response to Panel question No. 169, para. 23. 
Indeed, the United States argues that economic theory dictates that where a firm needs to maximize 
short-term revenue, it would lower  its prices, as raising them would have the opp osite effect. Therefore, if 
Boeing needed cash in the short -term due to the absence of the alleged subsidies, it would charge lower , not 
higher, prices.  
3093 United States' first written submission, para s. 723 and 724; second written submission, para. 867.  
3094 United States' first written submission, para s. 723-726; second written submission, para. 867.  WT/DS353/R W 
 
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  they do so.3095 According to the United States, t he European Union  provides  no causation analysi s 
beyond the general proposition that money is fungible.3096  
9.261.   The United States considers that the Appellate Body's treatment of the effec ts of the tax 
abatements related to  the City of Wichita IRBs cannot support the European Union's general 
theory c oncernin g the operation of untied  subsidies such as the state and local cash flow subsidies 
through a price causal mechanism.3097 
The analysis of the effects of untied subsidies on Boeing's LCA pricing in the original proceeding  
9.262.   Certain of the state and local cash fl ow subsidies, such as the Washington State B&O tax 
credit s for property taxes and for aerospace preproduction /aerospace product development , were 
also at issue and analysed in the original proceeding. In the original proceeding, the European 
Communities al leged that all of the subsi dies, other than the FSC/ETI subsidies  and the 
Washington State and City of Everett B&O tax rate reductions, similarly operated to "increase 
Boeing's non -operating cash flow", thereby providing Boeing with the ability to engage i n 
"aggressive pricing" of its LCA in order to win market share from Airbus.3098 The subsidies in this 
group were not "explicitly targeted to lowering Boeing's costs of production of specific LCA 
models".3099 Rather, they were considered "fungible" by the Europea n Communities, and treated 
as the "functional equivalent of additional cash flow available to Boeings' LCA division".3100 The 
European Communities argued that, notwithstanding the fact that this category of subsidies was 
not directly related to Boeing's produ ction of individual LCA, Boeing's receipt of the subsidies of the 
magnitudes in question, in light of the strategic incentives in the LCA market, and Boeing's 
financial condition, made it reasonable to infer that the subsidies did in fact affect Boeing's L CA 
pricing behaviour.3101  
9.263.   The European Communities' original  case that subsidies that are untied , in the sense tha t 
their receipt is not contingent on  production or sale of LCA on a per -unit basis, can nonetheless 
affect Boeing's LCA pricing behaviour, was t herefore based on a combination of: (a) an 
econometric simulation model developed by Professor Luís Cabral concerning the effects of 
"development subsidies"; (b) the financial condition or economic viability  of Boeing's LCA division 
in the absence of the s ubsidy amounts; (c) subsidy magnitudes; (d) the conditions of competition 
in the LCA market; and (e) selected individual LCA sales campaigns.3102 
9.264.   The United States in the original proceeding agreed with the European Communities that 
the abse nce of a direct li nk (i.e. tie ) to production of a particular product is not of itself  
determinative  of the outcome of the Panel's causation analysis. At the same time, in the absence 
of such a tie, a complaining Member would bear the burden of identifying persuasive eviden ce that 
the subsidy was used by the recipient in a way that caused the adverse effects at issue, or that, 
but for the subsidy, the recipient could not have competed in the market as it did.3103  
9.265.   The original panel's discussion of the econometric simulati on mo del developed by 
Professor  Cabral is set forth in appendix VII.F.2 of the original panel report.3104 The original panel 
considered that  a principal weakness of Professor Cabral's model, insofar as it purported to 
demonstrate that Boeing would use a significan t portion of each additional dollar of untied  subsidy 
to engage in aggressive pricing of its LCA, was that the theory appeared to be inconsistent with 
                                               
3095 United States' first written submission, para. 730 (citing Appellate Body Report, US – Large Civil 
Aircraft (2nd complaint) , para.  1348 at fn  2713).  
3096 United S tates' first written submission, para. 722.  
3097 United States' first written submission, para. 729.  
3098 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1825.  
3099 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1609 and 7.1827 .  
3100 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1609.  
3101 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1610.  
3102 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1611.  
3103 Panel Report, US – Large Civil A ircraft (2nd complaint ), para. 7.1828 and fn 3786.  
3104 As the panel explains, the "Cabral Model" actually comprised two models, the "objective function 
model" and the "price competition model". The main purpose of the "price competition model" was to 
determi ne Boeing's allocation of subsidies between three types of "investment": (a) "aggressive pricing" due to 
learning curve efficiencies; (b) "aggressive pricing" due to buyer switching costs; and (c) R&D expenditures. 
(Panel Report, US – Large Civil Aircraft (2nd complaint ), appendix VII.F.2, para. 30).  WT/DS353/R W 
 
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  Boeing's actual pricing behaviour between 2001 and 2006.3105 The original panel also expressed 
the view that  the relationship between a reduction in Boeing's general costs that are not part of 
the development costs for a particular LCA programme  (e.g. general R&D costs ), and LCA prices 
was less direct  than suggested by Professor Cabral, especially in light of th e evidence as to how 
LCA manufacturers set their prices.3106 The panel's conclusions regarding the Cabral model were 
not appealed.  
9.266.   The original panel also found unpersuasive the European Communities' attempt to 
demonstrate that, but for Boeing's receipt of th e subsidies in question between 1989 and 2006, 
Boeing's LCA division would not have been "economically viable", in large part because the 
European Communities' argument rested on the proposition th at Boeing had received 
USD 19.1 billion in subsidies over t hat 17 year period, wh ile the panel found that Boeing had 
received a fraction of that amount.3107 Indeed, the panel estimated that the magnitude of the 
subsidies that could appropriately be analysed as operating as the functional equivalent of 
additional cash  to Boeing was only USD 550 million over that 17 year period. The panel was 
unpersuaded that subsidies which by their nature are not directly tied to the production or sale of 
products, in such comparatively small amounts, could have affected Boeing's LCA pricing in a 
manner that could give rise to serious prejudice.3108  
9.267.   The European Communities appealed this finding on the basis that the panel should have 
assesse d the effects of this group of untied  subsidies , either with the tied tax  subsidies, as an 
aggreg ated single group, or at least by cumulating  the effects of the group of untied subsidies with 
those of the tied tax  subsidies.3109 While the Appellate Body did not find fault with the pane l's 
decision not to conduct an aggregated  analysis of the effects of t he two groups of subsidies as 
though they were a single subsidy, it found that the panel had erred in failing to make a 
cumulative  assessment  of whether the effects of the untied  subsidies complemented and 
supplemented  the effects that the original panel h ad found were caused by the tied tax 
subsidies.3110  
9.268.    The Appellate Body, in completing t he analysis on this issue, found that w ith one 
exception, none of the untied  subsidies at issue was a genuine  cause of serious prejudice  in the 
single -aisle market. The e xception was with respect to the tax abatements related to the City of 
Wichita IRBs, which we f ind ha ve been withdrawn by the United  States.3111 There, the Appellate 
Body found that because the subsidy could "not be considered trivial" in its overall magnitud e and 
duration, and was "closely connected" to Boeing's production of the 737, it had a genuine causal 
connection to the serious prejudice  already found to have been caused by the tied tax subsidies in 
the single -aisle market.3112 With respect to the remainin g untied  subsidies, which were the other 
Washington tax subsi dies that are also at issue as state and local cash flow  subsidies in this 
proceeding, the Appellate Body found insufficient evidence that the subsidies had been used in 
connection with expenditu res associated with the 737NG. As a resu lt, it found there could be no 
genuine  causal connection between the subsidies and serious prejudice  in the single -aisle 
market.3113  
The amounts of the state and local cash flow subsidies and their alleged "links" to p roduction of 
particular Boeing LCA  
9.269.   In Section  8 of this Report, we estimate  the relevant amounts of the various state and 
local cash flow  subsidies for the 2013 -2015 period, which we present in the table below, along with 
an estimate of the value of Boeing  orders for the various LCA over that same period. We also 
indicate the LCA programmes to which the particular subsidies are alleged by the European Union 
to be "linked".  
                                               
3105 Panel Report, US – Large Civil Aircraft (2nd complaint ), appendix VII.F.2, paras. 68 and 72.  
3106 Panel Report, US – Large Civil Aircraft (2nd complaint ), appendix VII.F.2, para. 74 and fn 4262.  
3107 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1830 and 7.1831.  
3108 Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1828 and 7.1834.  
3109 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1323.  
3110 See Appellate Body R eport, US – Large Civil Aircraft (2nd complaint) , paras. 1287 and 1288; and 
Panel Report, EC and certain member States – Large Civil Aircraft , para. 7.1956.  
3111 See para. 8.640  above.  
3112 Appellate Body Report, US – Large Civil Air craft (2nd complaint) , para. 1348.  
3113 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 1341 -1346.  WT/DS353/R W 
 
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  Table 11: Estimated amounts of state and local cash flow sub sidies 2013 -2015  
Subsidy  2013 -2015  
(USD millions)  Boeing LCA in respect of 
which the European 
Union alleges the 
subsidy arises  Value of Boeing 
orders 
2013 -20153114 
Washington State B&O tax credit s for 
preproduction/aerospace product 
development  [***] 737 MAX  and 787 -10s and 
777Xs manufactured in the 
State of Washington   
 
737NG:  
USD 45.7 billion  
737 MAX : 
USD 97.6 billion  
787: USD 36 billion  
777X:  
USD 63.3 billion  
 Washington State B&O tax credit for 
property taxes and leasehold excise 
taxes  [***] 737NG, 737 M AX, and 
787s manufactured in the 
State of Washington  
Washington State sales and use tax 
exemptions for computer  hardware , 
software, and peripherals  [***] 737NG, 737 MAX , and 
787s manufactured in the 
State of Washington  
South Carolina payment of proceed s of 
USD 50 million in bond issuances  50 (lump sum)  787s manufactured in 
South Carolina  
South Carolina property tax exemption 
in respect of Boeing LCFs  25.82 787s manufactured in 
South Carolina  
South Carolina sales and use tax 
exemptions in respect of aircraft fuel, 
computer equipment , and construction 
materials  2.25 787s manufactured in 
South Carolina  
 
9.270.   Unlike the tied tax  subsidies, Boeing's receipt of the state and local cash flow  subsidies is 
not contingent on the production or sale of LCA on a per -unit basis. The state and local cash flow 
subsidies  represent the functional equivalent of additional cash to Boeing. The European Union 
asserts that  the state and local cash flow  subsidies reduce Boeing's fixed costs of production. 
However, it does not d emonstrate that any particular subsidy affects the programme costs for any 
specific Boeing LCA programme , in the sense that the subsidies in question affect Boeing's 
production cost forecasts for an LCA programme, and thereby alter the profitability calcul us of 
sales of those LCA at particular prices .3115 In addition,  in asserting generally that certain state and 
local cash flow  subsidies can be considered "linked" to multiple Boeing LCA programmes  (as is the 
case for the Washington state and local cash flow  subsidies), the European Union does not explain 
how much of the subsidy should be considered to be allocated to each aircraft programme , based 
on such "link".  
9.271.   The Panel does not rule out the possibility that, in certain specific contexts,  subsidies that 
reduce the fixed costs of a producer may be shown to impact prices. For example, if Boeing were 
facing capacity constraints (such that any additional sales would result in higher marginal costs), a 
subsidized expansion of production capacity could be demonst rated to allow for a reduction of 
                                               
3114 These  calculation s have been  made using an estimated discount of 44% off the average 2012 
list-price of the relevant LCA. The average  2012 list prices are set forth in Boeing list prices, (Exhibit EU-1210). 
The 44% discount is the discount from average 2012 list prices of Boeing LCA used  in the International Trade 
Resources Report submitted by the European Union  in connection with its c alculation of the annual amounts of 
the Washington State B&O tax rate reduction. (See ITR Repo rt, (Exhibit EU -25), para. 11).  
3115 See Section 9.2.2  above. Compare, for example, the European Union's response to Pan el question 
No. 169, fn 408. The European Union has not explained, beyond generalized assertions, how the individual 
state and local cash flow subsidies impact Boeing's fixed costs of production in relation to any of its LCA 
programmes . We note, moreover, that the Washington State B&O tax credits for property and leasehold excise 
taxes and for preproduction/aerospace product development, as well as the Washington State sales and use 
tax exemptions for computer  hardware , software, and peripherals , were all c hallenged in the original 
proceeding and argued by the European Communities to be untied subsidies which were not linked to 
production of particular families of Boeing LCA or to the production or sale of individual LCA. (See Panel Report, 
US – Large Civil Aircraft (2nd complaint ), para. 7.1609 and fn 3376). The European Union does not explain why 
it is now appropriate to analyse these same subsidy measures as reducing Boeing's fixed costs of production of 
any particular LCA programme or programmes.  WT/DS353/R W 
 
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  marginal costs, and hence prices.3116 Nor is the situation before us one in which a subsidy enables 
an otherwise uncompetitive producer to remain in the market, distorting market prices by 
contributing to excess supply or cap acity.3117 There is no evidence before us from which the Panel 
can conclude that, absent the state and local cash flow subsidies, Boeing would not have engaged, 
or would not have been financially able to engage, in the same pricing behaviour in which it 
engag ed.  
9.272.   The European Union refers to  the Appellate Body's finding with respect to the tax 
abatements related to the City of Wichita IRBs to support the argument that, in light of the 
incentives that Boeing has to reduce its prices in strategic LCA sales campa igns, and the subsidy 
magnitudes, the untied  Washington  State  subsidies that have a  "link" to the production of the 
relevant Boeing LCA , can be considered to have a genuine  causal link to Boeing's pricing of those 
aircraft.3118  
9.273.   The Appellate Body's finding i n relation to the tax abatements related to the City of Wichita 
IRBs was a factual determination made in the context o f completing the analysis .3119 To interpret 
what the Appellate Body said in that particular context as setting forth an economic theory or le gal 
ruling regarding the basis on which untied  subsidie s, through their impact on the recipient's pricing 
behaviour, should be considered to be a genuine  cause of serious prejudice  would, in our view, be 
overstretching the application of that finding. The state and local cash flow  subsidies may be 
related in a factual sense  to the production of certain (or all) LCA by Boeing. The subsidies 
generally arise from Boeing's location of its LCA manufacturing in particular places.  However, the 
fact that the produc tion of certain (or all) Boeing LCA in a particular location gives rise to certain 
subsidies, does not of itself, say anything meaningful in an economic sense  about how Boeing 
would apply the notional additional cash represented by those subsidies, and mor e specifically, 
whether it would use such additional cash to lower the prices of its LCA, or how it would allocate 
that additional cash to lower pricing of different LCA models where the subsidies in question are 
"linked" in a factual sense to production o f a number of LCA models.3120  
                                               
3116 This i s assuming that learning curve efficiencies are not adversely impacted by the addition of the 
new capacity. Aviation industry analysts have speculated that Boeing's decision to split its 787 production 
between two assembly sites on opposite coasts may have  adversely affected the rate at which Boeing's 787 
production costs have declined. (D. Gates, "Will 787 program ever show an overall profit? Analysts grow more 
sceptical", The Seattle Times , 17 October 2015, (Exhibit EU -1705), p. 9).  
3117 The evidence before the Panel suggests that, if anything, there is greater demand for LCA in the 
product markets the subject of this proceeding than can currently be met. Evidence before the Panel indicates 
that, as of the end of July 2014, both Airbus and Boeing held record backlogs of orders for approximately 
11,000 aircraft combined. The 787 was reported to be sold out through the end of the decade. Boeing was 
reported to have raised its prices by approximately 3.1%, which was almost twice the rate of price increases of 
the previous year. ("Boeing Raises Jet Prices 3.1 Per cent; 777 -9X Costs Most", Bloomberg , 31 July 2014, 
(Exhibit EU -1447)). Both Airbus and Boeing were reported in late 2014 and 2015 to be considering increasing 
production targets for single -aisle LCA to mee t anticipated demand which already exceeded capacity, with 
Boeing's reported backlog for the 737 family being reported as 4,008 orders as of September 2014; almost 
eight years of production at current rates. ("Boeing considering further boost in 737 produc tion", Chicago 
Tribune , 17 September 2014, (Exhibit EU -1684); and "UPDATE 2 – Airbus debates new A320 output hike, 
suffers test glitch", Reuters , 28 May 2015, (Exhibit EU -1686)).  
3118 And correspondingly, that untied subsidies that have a close connection or "link" to the production 
of other Boeing LCA at issue in this proceeding (i.e. the 787 and 777X), can also be considered to have a 
genuine  causal link to Boeing's pricing of those aircraft.  
3119 The Appellate Body found that the original panel erred in failin g to consider whether the "remaining" 
(untied) subsidies had a genuine causal relationship with; i.e. made a "real or meaningful contribution to" the 
effects of the tied tax subsidies on Boeing's pricing in the 100 -200 seat LCA product market, such that th e 
remaining subsidies could be said to "complement and supplement" the effects of the tied tax subsidies and 
thereby also cause serious prejudice. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), 
paras.  1328 and 1329). The Appellate Body then decided to complete the analysis. The Appellate Body has 
completed the analysis only in cases in which there are sufficient factual findings in the panel report or 
undisputed facts in the panel record to enable it to carry out the legal analysis. (See  e.g. Appellate Body 
Report, EC and certain member States – Large Civil Aircraft , paras. 1143 -1147). The United States had 
asserted that there were no such findings or undisputed facts on the record that would enable the Appellate 
Body to complete the anal ysis in this instance, and moreover, that the European Union had failed to identify 
any. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1332).  
3120 To take an example, although the Washington State B&O tax credits for pre -production/ aerospace 
product development may currently be generated in respect of Boeing aircraft that are in pre -production, such 
as the 737 MAX, 787 -10, and 777X, given the nature of this subsidy as untied , we do not consider that this 
necessarily provides a basis for concluding, in a manner analogous to the Appellate Body's analysis of the per -WT/DS353/R W 
 
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  9.274.   In the original proceeding, the Appellate Body reasoned (in relation to its analysis of the 
tied tax subsidies) that it is rational to expect that, where a subsidy is provided on a per-unit basis  
in respect of LCA produced or so ld, the manufacturer would be inclined, in the appropriate market 
context, to pass on all or part of that subsidy to the purchaser because it is possible to do so 
without sacrificing profit margins.3121 The calculus of the extent to which untied subsidies, wh ich 
relate in a less direct way to production or sales than per -unit subsidies, potentially affect the 
profitability of a n LCA sale in light of the competitive dynamics of the LCA markets , is far less 
clear.  We are unable to identify any economic rationale  or other explanation as to why untied 
subsidies that ma y be considered factually associated with production of Boeing aircraft, whether 
individual aircraft models, certain models, or all models , would contribute to Boeing's ab ility to 
lower the prices of those aircraft.3122  
9.275.   The European Union does not  advance an  economic theory to support its argument that 
subsidies that reduce Boeing's fixed costs  in a general sense impact its LCA prices  generally or 
more specifically, over the short-term or over the long -term.3123 Nor does it attempt to 
demonstrate that Boeing's LCA pricing wo uld not be economically feasible  absent the receipt of  the 
state and local cash flow subsidies .3124 
9.276.   Because the European Union has failed to demonstrate any effect of the state and local 
cash flow subsidies on Boeing's prices of the 787 or 777X in the post -implementation period, the 
possibility of any consequent impact of those subsidies on sales and prices of the A350XWB does 
not arise.3125 Accordingly, there is no basis on which the state and local cash flow subsidies can be 
found to be a genuine and substantial cause of any of the forms o f serious prejudice alleged in 
respect of  the A350XWB  in the post -implementation period, through a price causal mechanism .  
9.277.   The Panel therefore finds that the  European Union has failed to establish that the  
state and local cash flow subsidies are a genuine and substantial cause of any of the 
                                                                                                                                               
unit tied tax subsidi es in the original proceeding, that  Boeing would have the ability and incentive  to use that 
subsidy to lower its LCA prices in relation to those aircraft  models. The same analysis applies with respect to 
the other state and local cash flow subsidies which the European Union alleges are "linked" to the production of 
one or more Boeing LCA.  
3121 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1261.  
3122 We note that the Appellate Body has explained that, even where a panel considers its view to 
represent common sense or its own conception of economic rationality, it should at least explain the economic 
rationale that supports its "intuition"  and moreover, should test its intuitions empirically. (Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint ), para. 643). Indeed, accepting the European Union's 
arguments would, in this instance amount to "causation through association". (See A ppellate Body Report, EC 
and certain member States – Large Civil Aircraft , para. 1404 ). Our approach to this issue is consistent with the 
approach to an analogous issue taken by the Appellate Body in EC and certain member States – Large Civil 
Aircraft . In that case, the Appellate Body found that the panel's generalized finding that the R&TD subsidies 
enabled Airbus to develop features and aspects of its aircraft faster than would otherwise have been possible 
was insufficient to justify cumulating the effect s of the R&TD subsidies with the "product effects" of the launch 
aid/member State financing  subsidies in enabling Airbus to launch particular models. Rather, in order to 
establish the requisite genuine  causal link, the panel should have made specific findi ngs that technology or 
production processes funded by the R&TD subsidies contributed to Airbus' ability to launch and bring to market 
particular models of LCA. (Appellate Body Report, EC and certain member States – Large Civil Aircraft , 
paras.  1404 and 140 7). 
3123 Unlike in the original proceeding, the European Union does not submit an economic model 
explaining how subsidies the receipt of which is not contingent on per -unit production or sale of LCA, by virtue 
of operating to increase Boeing's cash flow in a general sense, cause Boeing to lower its LCA prices. (Panel 
Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1613).  
3124 This is a significant departure from the European Communities' case in the original proceeding, 
where it sought to demonstrate that Boeing's pricing and product development decisions would have been 
"unsustainable and financially irrational" absent Boeing's alleged receipt of the subsidies at issue. (See Panel 
Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1621, 7.183 0, and 7.1831, and fn 3787). The 
evidence before us suggests that the 787 programme has thus far generated significant losses for Boeing. See 
para. 9.55 where the Panel discusses evidence that the accumulated "deferred costs" f or the 787 programme 
are projected to peak at USD 33 billion late 2016 and that these losses are in addition to Boeing's original 
investment to develop the 787, which has been estimated by analysts at an additional  USD 20 billion or more. 
(D. Gates, "Will 787 program ever show an overall profit? Analysts grow more sceptical", The Seattle Times , 
17 October 2015, (Exhibit EU -1705), p. 8). However, the evidence also suggests that Boeing has thus far been 
able to sustain this programme due to the cash generated  by its highly profitable 777 and 737 programmes. 
(See para. 9.55 above).  
3125 See paras. 9.116  and 9.122  above.  WT/DS353/R W 
 
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  forms of serious prejudice alleged in respect of the A350XWB in the 
post-implementation per iod, through a price  mechanism .  
9.3.2.2.3   The post -2006 aeronautics R&D subsidies  
9.278.   The European Union argues that the post -2006 aeronautics R&D subsidies3126 operate to 
lower Boeing's pricing of current LCA, such as the 787 and 777X, because they provide Boeing 
with access to and use of research re sults and inputs that enable it to "continue maturing" 
technologies for application to future generations of LCA without having to pay the U.S. 
Government for such access and use.3127 The European Union considers that the post -2006 
aeronautics R&D subsidies o perate in a manner that is "identical to the remaining state and local 
subsidies".3128  
9.279.   The European Union considers that the post -2006 aeronautics R&D subsidies are similar in 
nature to the pre -2007 aeronautics R&D subsidies in that they concern the developm ent of LCA 
technologies that "Boeing has a significant economic disincentive to research on its own".3129 
However, unlike the pre -2007 aeronautics R&D subsidies, the post -2006 aeronautics R&D 
subsidies concern technologies that are not sufficiently mature for  application to current Boeing 
LCA, and thus do not affect sales and prices of current generation Boeing LCA throug h a 
technology causal mechanism .3130 The European Union argues that the post-2006 aeronautics R&D 
subsidies do affect the prices o f current Boei ng LCA through a price causal mechanism , however. 
This is because the post -2006 aeronautics R&D subsidies relieve Boeing from paying to licence the 
use of intellectual property in its technology development activities. The post -2006 aeronautics 
R&D subsidi es therefore lower Boeing's costs of licensing intellectual property rights to LCA 
technology , and of developing that technology , in order to continue improving its products and to 
maintain the competitiveness of products, "enabling it to act on its incent ive to pass such cost 
savings on to its customers in the form of lower prices for Boeing LCA".3131 
9.280.    The European Union argues that the post -2006 aeronautics R&D subsidies, operating 
through a price causal mechanism , enable Boeing to lower the prices of its cu rrent LCA based on 
the same reasoning that the Appellate Body adopted in concluding that the tax abatements related 
to the City of Wichita IRB s have a genuine  causal link to, and "complemented and supplemente d" 
the effects of the tied tax  subsidies on Boei ng's LCA prices in the original proceeding.3132 The 
genuine  causal link between the post -2006 aeronautics R&D subsidies and alleged present adverse 
effects is confirmed by the design, structure, magnitude, and operation of these subsidies, in light 
of the rel evant conditions of competition, as well as their nexus with the subsidi zed Boeing LCA. 
This is sufficient to establish that the post -2006 aeronautics R&D subsidi es affect Boeing's LCA 
pricing decisions, as the Appellate Body made clear that subsidies not contingent upon per-unit 
production or sale may affect prices, and given the conditions of competition, Boeing would have 
                                               
3126 Although the European Union argues that t he non -flight testing portion of the FAA aeronautics R&D 
subsid y should be analysed as operating through a technology causal mechanism, it request s the Panel to 
analyse this aspect of the FAA aeronautics R&D subsid y as operating through a price causal mech anism if the 
Panel were to reject its technology effects arguments. (European Union's response to Panel question No. 43, 
fn 352).   
3127 European Union's response to Panel question No. 43, para. 280.  
3128 European Union's first written submission, paras. 1180 an d 1187. See also European Union's 
comments on United States' response to Panel question No. 158, para. 79, where the European Union explains 
that the post -2006 aeronautics R&D subsidies that operate through a price causal mechanism are not, in the 
short-term, materially different from the tax abatements related to the City of Wichita IRBs.  
3129 European Union's response to Panel question No. 43, para. 280.  
3130 The post -2006 aeronautics R&D subsidies cannot be linked to particular Boeing LCA  currently 
marketed , owing to their nature as "funding early -stage R&D intended to create technologies that do not 
actually appear on LCA until years or decades in the future". (European Union's response to Panel question No. 
158, para. 72). Compare to European Union's second w ritten submission, paras. 1099 and 1100 and United 
States' comments on the European Union's response to Panel question No. 43, paras. 239 -246.  
3131 European Union's response to Panel question No. 43, para. 280. See also European Union's first 
written submiss ion, para. 1187; opening statement at the meeting with the Panel, paras. 81 and 82; and 
closing statement at the meeting with the Panel , paras. 25 and 26 . 
3132 European Union's first written submission, para. 1187: "{w}hile the City of Wichita IRBs provided 
benefits through tax breaks on property investment, and the aeronautics R&D subsidies here relate to funding 
and support for R&D, both share the salient feature that they generate or free non -operating cash flow that 
Boeing can use to lower LCA prices".  WT/DS353/R W 
 
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  used the post -2006 aeronautics R&D subsidies available to it to reduce prices in competitive sales 
campaigns.3133 
9.281.   The United States makes  a number of arguments, first with respect to the  proposition that , 
absent the post -2006 aeronautics R&D subsidies, Boeing would have had to pay the U.S. 
Government to licence the intellectual property, and second, with respect to the proposition that  
cost savings represented by Boeing not having to pay to licence the intellectual property represent 
the equivalent of additional cash flow that Boeing would use to lower its current LCA prices.  
9.282.   The United States considers that there is no support for the Euro pean Union's argument 
that, absent the post -2006 aeronautics R&D subsidies, Boeing would have had to incur additional 
costs licensing intellectual property from the U.S. Government. According to the United States, the 
European Union's argument implies that , because the benefit conferred by the subsidy concerns 
the more favourable allocation of intellectual property right s to Boeing, the counterfactual 
assessment of Boeing's LCA pricing in the absence of the post -2006 aeronautics R&D subsidies 
should assume that Boeing would need to licence those technologies from the U.S. Government in 
order to carry out its LCA technology development activities. However, the nature of the research 
funded by the post -2006 aeronautics R&D subsidies is research  that would not have been 
undertaken in the absence of the subsidies. Thus, in the appropriate counterfactual, the research 
would not have been undertaken by Boeing or by the U.S. Government and there is no basis for 
thinking that Boeing would pay to obtain intellectual p roperty rights to such non -existent 
research.3134 Moreover, the European Union provides no evidence that the R&D funded by the 
post-2006 aeronautics R&D subsidies can be expected to produce significant protectable 
intellectual property, or that any such prote cted intellectual property is likely to be needed to 
conduct subsequent research relevant to Boeing's LCA.3135  
9.283.   The United States also considers that, even assuming arguendo  that the post -2006 
aeronautics R&D subsidies resulted in lower intellectual property licensing fees for Boeing, the 
European Union  fails to provide any economic theory to explain why, in a counterfactual world in 
which Boeing paid to licence the equivalent intellectual property, Boeing would need to raise the 
prices of its current LCA. Fir st, the European Union does  not address the magnitude of the 
licensing fees that Boeing would have had to pay absent the post -2006 aeronautics R&D subsidies , 
or support an estimate of the value of the putative  cost savings with any evidence. Second and 
more fundamentally, there is no basis for concluding that, in a counterfactual world where Boeing 
had to pay to licence intellectual property to develop LCA technologies for application to future LCA 
models, it would need to raise the prices of its current LC A.3136 Third, given the European Union's 
position that the post -2006 aeronautics R&D subsidies support research into technologies that are 
not linked to current Boeing LCA (i.e. the 787, 777X, 737 MAX , or 737NG)3137, the so -called "cost 
savings" from not having to licence intellectual property are "untied" to the production of current 
LCA and therefore would not affect pricing of current Boeing LCA , unless Boeing were shown to 
face significant capital constraints, such that its investment and pricing behaviour wo uld be 
sensitive to fluctuations in cash flows.3138  
9.284.   Finally, as regards the European Union's attempt to argue that the post -2006 aeronautics 
R&D subsi dies complement and supplement  the effects of other subsidies on Boeing's LCA prices, 
by analogy to the way  that the Appellate Body cumulated the effects of the tax abatements related 
to the City of Wichita IRBs with those of the tied tax subsidies in the 100 -200 seat LCA product 
                                               
3133 European Union's first written submission, paras. 1114 -1116 and 1183 -1190; and second written 
submission, paras. 1083 -1091.  
3134 United States' comments on the European Union's response to Panel question No. 43, 
paras.  249-251. The United States adds that, if  the nature of the subsidized research is such that the R&D 
would have been conducted by Boeing absent the post -2006 aeronautics R&D subsidies, there would be no 
basis for finding that the post -2006 aeronautics R&D subsidies at any point in the future coul d give rise to 
technology effects, and the European Union's position is therefore internally inconsistent. See also 
United  States' response to Panel question No.  158, para. 45.  
3135 United States' comments on the European Union's response to Panel question N o. 43, para. 252.  
3136 United States' comments on the European Union's response to Panel question No. 43, paras. 253 
and 254.  
3137 Referring to European Union's response to Panel question No. 43, para. 280.  
3138 United States' comments on the European Union's respo nse to Panel question No. 43, para. 255. 
The United States notes that the European Union has stated clearly that it is not attempting to show that 
Boeing was or is capital constrained.  WT/DS353/R W 
 
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  market , the United States argues that the European Union has failed to establish an y "link" to 
particular Boeing LCA.3139 Specifically, the European Union does not explain how intellectual 
property licensing fees that would be required to develop a future technology for a future aircraft 
model are linked to the production of existing aircra ft that are currently being sold.  
9.285.   Japan and Korea advance arguments supporting the analysis of R&D subsidies through a 
price causal mechanism. Japan argues that a price causal mechanism is inherent in any subsidy 
that has the potential to cause price -related effects, and that R&D subsidies are no exception. R&D 
subsidies function by enabling the recipient to lower the sales price of products incorporating the 
results of the subsidized research and development.3140 Japan considers that, even assuming for 
the sa ke of argument that, with respect to the aeronautics R&D subsidies at issue in this 
proceeding, Boeing used the previously -subsidized technology, experience , and knowledge to 
further the development of new innovative technologies (the so -called "spill -over" and sleeper 
technology effects), this does not mean that the assessment of adverse effects can properly be 
based on such a technology causal mechanism.3141 For Japan, the fact that a recipient has 
invented a particular technology likely reveals that it had the technological potential to do so, but 
could not afford to commercially, in the absence of subsidization.3142 In this situation, the proper 
counterfactual in analysing  adverse effects is whether the recipient, as a business entity, would 
have had to offer products using the technology it developed without the R&D subsidies at higher 
prices, rather than whether the recipient could, or could not, have invented the particular 
technology.3143 Japan further observes that it is not clear what realistic steps the sub sidizing 
government could take to remove the "technological effect" of R&D subsidies. However, if the 
removal of adverse effects is considered from the perspective of the price effects of R&D subsidies, 
it is more realistic for a subsidizing government to take appropriate steps to remove the adverse 
effects, within the meaning of Article 7.8 of the SCM Agreement.3144  
9.286.   Korea considers that the technology causal mechanism is difficult to reconcile with the 
structure of the SCM Agreement and its definition of sub sidies and that it is doubtful that such an 
analysis can properly be extended to other situations in which the parties have not accepted its 
use.3145 A subsidy only exists where government action takes the form of a financial contribution. 
In essence, then, a  subsidy always consists of extra money for the recipient. Because the essence 
of a subsidy is the extra money the recipient obtains, the effects of the subsidy must be measured 
by the effects of that money. Therefore, as a logical matter, the only direct effect of the provision 
of money to a recipient at lower -than-market cost is a reduction in the recipient's overall cost of 
financing.3146 Korea considers that the proposed technology causal mechanism presents 
insuperable conceptual difficulties in cases such  as this, with a product characterized by long 
development times that can continue to provide multiple benefits over multiple generations. As a 
practical matter, technological advantages gained in the past cannot be withdrawn and their 
effects cannot be er ased. Korea fails to see how the U.S. producer in this proceeding can be 
expected to unlearn the knowledge it has gained over the years, while by the same token, the 
benefits of any continuing subsidies would not be reflected for many years, when the knowl edge 
generated today is actually put to use. By contrast, money obtained through improper subsidies 
can be repaid or otherwise offset through taxes or other levies; the financial effects of a subsidy 
are quantifiable and remediable. The technological effec ts are not. Korea therefore considers that 
the assessment of adverse effects through a technological mechanism should be carefully 
circumscribed, if not entirely rejected.3147 
9.287.   The parties' arguments raise two basic issues. Th e first is whether the post -2006 
aeronautics R&D subsidies relieve Boeing from paying to licence intellectual property in its 
                                               
3139 United States' comments on the European Union's response to Panel que stion No. 43, 
paras.  257-259. 
3140 Japan's third -party submission, paras. 10  and 11. 
3141 Japan's third -party submission, para. 12.  
3142 Japan emphasizes in this respect the positive externalities of R&D subsidies, and that R&D subsidies, 
by their nature, can be di stinguished from those that provide a competitive advantage to inefficient 
enterprises. Indeed, R&D subsidies are meaningless unless the recipient has the requisite internal 
competencies to achieve the desired result. (Japan's third -party submission, paras . 21-23). 
3143 Japan's third -party submission, para. 14; third -party statement, paras. 24 -26. 
3144 Japan's third -party submission, para. 16.  
3145 Korea's third -party submission, para. 25.  
3146 Korea's third -party submission, paras. 25 -27. 
3147 Korea's third -party submiss ion, paras. 29  and 30. WT/DS353/R W 
 
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  technology development activities and thus can be considered to lower Boeing's costs.3148 The 
second is whether, if the Panel  accept s that characterization of the oper ation of the subsidies, 
these subsidies have been demonstrated to  affect Boeing's LCA pricing behaviour.  
9.288.   With respect to this second  issue, we recall that in Section 9.3.2.2.2  above, we evaluate 
the European Union's argument t hat certain state and local cash flow subsidies provide Boeing with 
additional cash flow because they are linked to (and lower) Boeing's costs of researching, 
developing or producing LCA. We f ind that the European Union ha s failed to demonstrate that 
these  subsidies, by virtue of operating to increase Boeing's overall cash flow, have a genuine 
causal link to Boeing's LCA pricing. This is because the European Union does not provide any 
theoretical or other basis (such as cash flow constraints) for considerin g that Boeing's LCA pricing 
behaviour would have been any different  absent the subsidies. The European Union's argument 
regarding Boeing's incentives to apply the alleged cost savings represented by the post -2006 
aeronautics R&D subsidies to lower pricing of its LCA parallel s the argument it makes in this regard 
in relation to the state and local cash flow  subsidies. This argument must therefore fail for the  
same reasons that we find that the European Union ha s failed to demonstrate that Boeing would 
use th e additiona l cash flow represented by the state an d local cash flow  subsidies to lower its LCA 
prices.  
9.289.   It is therefore unnecessary  for us to address the first  issue, which is whether the post -
2006 aeronautics R&D subsidies should be analysed as representi ng additional cash flow to Boeing 
on the basis that they relieve Boeing from paying to licence intellectual property in its technology 
development activities and thereby lower Boeing's costs. We merely observe that the vast majority 
of the post -2006 aerona utics R&D s ubsidies do not appear, on the basis of the evidence before us, 
to be related in any sense to the production of the particular LCA that the European Union alleges 
are being offered to customers at lower prices.3149 At most, these subsidies could relate to the 
development technologies for potential application of future generations of Boei ng LCA .  
9.290.   Because the European Union has failed to demonstrate any effect of the post -2006 
aeronautics R&D subsidies  on Boeing's prices of the 787 or 777X in the pos t-implementation 
period (assuming, arguendo , that we treat these subsidies as relieving Boeing from paying to 
licence intellectual property in its technology development activities, and thus as subsidies that 
lowered Boeings' costs , an issue we need not an d do not decide ), the possibility of any consequent 
impact of those subsidies on sales and prices of the A350XWB does not arise.3150 Accordingly, 
there is no basis on which the post -2006 aeronautics R&D subsidies can be found to be a genuine 
and substantial c ause of any of the forms o f serious prejudice alleged in respect of  the A350XWB  
in the post -implementation period, through a price causal mechanism .  
9.291.   The Panel therefore finds that the European Union has failed to establish that the  
post-2006 aeronautics R &D subsidies are a genuine and substantial cause of any of the 
forms of serious prejudice alleged in respect of the A350XWB in the 
post-implementation per iod, through a price  mechanism.  
                                               
3148 Alternatively, whether for aeronautics R&D that Boeing would have undertaken in the absence of the 
subsidies, the full amount of the financial contributions should be treated as "cost savings" to Boeing.  
3149 For the vast majority of the post -2006 aeronautics R&D subsidies, the European Union indicate s that 
the subsidies concern technologies that are not yet sufficiently mature for application to current Boeing LCA. 
These subsidies therefore do not bear any relation to expenditures ass ociated with Boeing's current LCA 
offerings. The European Union alleges that a  relatively small number of individual post-2006 aeronautics R&D 
subsidies are in fact related to Boeing's development of innovative technologies for current LCA offerings, i.e. 
the non -flight testing portion of the FAA aeronautics R&D subsid y, which the European Union requests the 
Panel to analyse as operating through a technology causal mechanism based on their contribution to Boeing's 
development of innovative technologies for current LCA offerings, specifically the 787, 737 MAX, and 777X. As 
regards this subsidy, the European Union argues in the alternative that it be considered to operate through a 
price causal mechanism.  
3150 See paras. 9.116  and 9.122  above.  WT/DS353/R W 
 
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  9.3.2.2.4   Summary of conclusions on whether the post -2006 subsidies benefiting the 
787 and 777X cause serious prejudice  to the interests of the European Union, within the 
meaning of Articles 5(c) and 6.3,  in respect of the A350XWB in the post -implementation 
period , through a price causal mechanism  
Tied tax subsidies  
9.292.   The Panel recalls  that the Appellate Body in the original proceeding emphasi zed the nature 
of the tied tax subsidies as tied to the production and sale of LCA on a per -unit basis in reaching 
the conclusion that subsidies of this nature a re capable of affecting Boeing's pri cing decisions with 
respect to the relevant LCA. The Appellate Body reasoned that, given the nature of the tied tax 
subsidies, their operation over time, their magnitude, and the competitive conditions in the LCA 
markets, Boeing had  the ability  and incenti ve to lower its LCA prices, however it would be 
necessary to establish that (a) Boeing was under particular pressure to reduce its prices in order to 
secure LCA sales in particular sales campaigns and  (b) there were no other non -price factors that 
explaine d Boeing's success in obtaining the sale, in order to conclude that the subsidies 
contributed in a genuine and substantial way to the lowering of Boeing's prices. T he Appellate 
Body therefore considered that it would only be possible to reach a conclusion regarding the causal 
connection between the tied tax subsidies and Boeing's prices  by examining the sales campaign 
evidence.  
9.293.   Following the approach of the Appellate Body to the analysis of the tied tax subsidies, t he 
Panel has evaluated the sales campaign evidence submitted in relation to sales campaigns won by 
Boeing with the 787 and/or 777X at the expense of the A350XWB between 2007 and 2015 and 
which are argued to be evidence of significant lost sales of the A350XWB, as well as  impedance of 
A350XWB impor ts and exports, and significant price suppression of the A350XWB, and threats of 
the foregoing, in each case an effect of the U.S. subsidies. In doing so, it sought to determine 
whether the campaigns are price -sensitive, in the sense that  Boeing was under particular pressure 
to reduce its prices in order to secure LCA sales in particular sales campaigns and there were no 
other non -price factors that explain Boeing's success in obtaining the sale. The Panel concluded 
that none of the sales campaigns involvin g the 787 and 777X and the A350XWB were  price-
sensitive in the above sense, and that there were other factors that featured prominently in the 
customers' evaluations of the suitability of the competing offers and the objective evidence on the 
record explai ning the reasons why the customer chose to order the Boeing aircraft over the 
competing Airbus offering. Accordingly, the  European Union has failed to establish  that the tied tax 
subsidies are a genuine and substantial cause of any of the forms of serious prejudice alleged by 
the European Union in respect of the A350XWB in the post -implementation period through a price 
causal mechanism.  
State and local cash flow subsidies  
9.294.   Unlike the tied tax  subsidies, Boeing's receipt of the state and loc al cash flow  subsidies is 
not contingent on the production or sale of LCA on a per -unit basis. Therefore, rather than 
operating to directly reduce the marginal unit  costs of each Boeing LCA, the state and local cash 
flow subsidies represent additional  untied  cash to Boeing . The European Union asserts that  the 
state and local cash flow  subsidies reduce Boeing's fixed costs of production. However, it does not 
demonstrate that any particular subsidy affects the programme costs for any specific Boeing LCA 
programme , in the sens e that the subsidies in question affect Boeing's production cost forecasts 
for an LCA programme, and thereby alter the profitability calculus of sales of those LCA at 
particular prices . 
9.295.   The Panel does not consider that asserted factual "links" between the receipt of a subsidy 
and the production of LCA mean that the subsidies thereby have a genuine  causal relationship to 
Boeing's prices, and to consequent  effects on Airbus' sales and prices. The Appellate Body's finding 
in relation to the tax abatements rela ted to the City of Wichita IRBs was a factual determination 
made in the context o f completing the analysis . The Panel does not  interpret what  the Appellate 
Body said in the  particular context of cumulating the effects of the tax abatements related to the 
City of Wichita IRBs with the effects of the tied tax subsidies in the 100 -200 seat LCA product 
market, as part of completing the analysis, as setting forth an economic theory or legal rulin g 
regarding the basis on which untied  subsidie s, through their impa ct on the recipient's pricing 
behaviour, should be considered to be a genuine  cause of serious prejudice. Moreover, in as serting 
generally that certain state and local cash flow  subsidies can be considered "linked" to multiple WT/DS353/R W 
 
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  Boeing LCA models (as is the case for the Washington state and local cash flow  subsidies), the 
European Union does not explain how much of the subsidy should be considered to be allocated to 
each aircraft model, based on such "link".   
9.296.   The European Union does not  advance an  economic th eory to support its argument that 
subsidies that reduce Boeing's fixed costs  in a general sense impact its LCA prices  generally or 
more specifically, over the short -term or over the long -term. Nor does it attempt to demonstrate 
that Boeing's LCA pricing wo uld not be economically feasible  absent the receipt of  the state and 
local cash flow subsidies .3151  
9.297.   Accordingly, the  European  Union has failed to establish  that the state and local cash flow 
subsidies are a genuine and substantial cause of any of the forms o f serious prejudice al leged by 
the European Union in respect of  the A350XWB in the post -implementation period through a price 
causal mechanism.  
Post-2006 aeronautics R&D subsidies  
9.298.   The European Union has failed to establish  that the post -2006 aeronautics R &D subsidies , 
assuming for purposes of argument that the post -2006 aeronautics R&D operate in the same 
manner as the state and local cash flow subsidies , are a genuine and substantial  cause of any of 
the forms of serious prejudice alleged  by the European U nion in respect of  the A350XWB in the 
post-implementation period  through a price causal mechanism.  
9.3.3   The parallel argument: Whether the original serious prejudice caused by  the pre -
2007 aeronautics R&D subsidies in respect of the A330 and Original A350 cont inues in 
the post -implementation period as serious prejudice t o the interests of the 
European  Union in respect of  the A330 and A350XWB  
9.299.   In this Section , we address the European Union's pa rallel argument that the United  States 
has failed to take appropriate steps to remove the adverse effects , within the meaning of 
Article  7.8, because each of: (a) the significant price suppression of the A330 and Original A350; 
(b) the significant lost sales of the Original A350; and (c) the threat of displacement or impedan ce 
in the 200 -300 seat LCA product market, found to exist in the 2004 -2006 reference period in the 
original proceeding, continue s to exist in the post -implementation p eriod.  
9.300.   The European Union argues that the United States has failed to remove the signific ant 
price suppression of the A330  on a number of grounds.3152 First, some of the 2004 -2006 
price-suppressed orders of the A330 have yet to be delivered in the post -implementation period. 
Second, customers who placed orders of the A330 at suppressed prices in 2004-2006 have 
exercised options or purchase rights in respect of those price suppressed orders (and based on the 
same pricing), enabling them to buy more A330s at the same suppressed prices. Third, those 
same customers, after 2006, have made "follow -on or ders" influenced by the same low pricing 
expectations that Airbus had met in 2004 -2006 in respect of 17 out of 28 of the original 
2004-2006 customers. In addition, the European Union argues that, after 2006, the market 
became conditioned to expecting lower  prices for A330s and has never changed that view. In other 
words, the pricing expectations of all customers, not just those who benefited from price 
suppressed sales in 2004 -2006, have been adversely affected and this phenomenon continues into 
the post -implementation period.3153 
                                               
3151 The evidence before the Panel suggests that Boeing has thus far been able to sustain the significant 
"deferred production costs" associated with the 787 programme due to the cash generated by its highly 
profitable 777 and 737 programmes. See above para. 9.55. 
3152 The European Union rejects the argument of the United States that its claim of price suppression in 
respect of the A330 must fail as a matter of law because of its  position that the A330 is in a separate market. 
(European Union's second written submission, para. 1459).  The European Union argues that the omission, from 
the second part of Article 6.3(c) of the SCM Agreement, of the requirement that the "subsidized pro duct" and 
the "like product" be in the same market, means that significant price suppression, price depression, and lost 
sales may be established where the effects of a subsidy arise in a product market separate from the product 
market in which the subsidi zed prod uct competes. ( European Union's response to Panel question No. 40, 
paras.  229-250; comments on the United States' response to Panel question No. 40, paras. 233 -247).  
3153 European Union's first written submission, paras. 1226 -1265; second written subm ission, 
paras.  1453-1462.  WT/DS353/R W 
 
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  9.301.   The European Union bases its arguments that the United States has failed to remove the 
significant price suppression of the Original A350  on what it alleges is significant price suppression 
of the A350XWB in the post -implementation pe riod. In essence, the European Union argues that 
the significant price suppression of the Original A350 that was found to exist in 2004 -2006 
continues in the post -implementation period through deliveries of A350XWBs that were 
conversions (at suppressed pri ces) of orders for Original A350s that were placed in 2004 -2006.3154 
9.302.   The European Union considers that the United States has failed to remove the significant 
lost sales of the Original A350  because those lost sales continue in the post -implementation period 
as lost sales of the A350XWB through deliveries of 787 orders placed in the nine sales campaigns 
that the European Communities alleged were significant lost sales to Airbus over the 2004 -2006 
period in the original proceeding.3155 The European Union also alleg es that any options or purchase 
rights that were part of these orders, when "firmed up", also lead to a threat of significant lost 
sales. The European Union similarly treats these nine alleged lost sales of the Original A350 in the 
2004-2006 period as impe ded exports of the A350XWB in the post -implementation period where 
deliveries of the 787 from those lost sales are occurring in the post -implementation period. 
Accordingly, the European Union considers that the United States has failed to remove the threat  
of displacement and impedance  found to exist in the original proceeding.3156 
9.303.   With respect to the alleged continuing significant price suppression of the A330 , the 
United  States  argues that the European Union fails as a legal matter to establish one of the ba sic 
elements of a price suppression claim under Article 6.3(c) because the European Union's argument 
that the A330 is in a "monopoly" market for "existing technology, small wide -body aircraft that are  
available for near -term delivery" means that the A330 i s not in the same market as any Boeing 
aircraft.3157 
9.304.    The United States argues that the European Union is precluded from arguing that the 
United States has failed to remove the significant price suppression of the Original A350  on the 
basis of alleged signifi cant price suppression of the A350XWBs currently being delivered (as a 
result of converted orders of Original A350s). The United States considers that the original panel 
rejected the argument that suppression of Original A350 prices necessarily led to supp ression of 
A350XWB prices when the orders were converted. It also disputes that Airbus had no choice but to 
convert the Original A350 orders to A350XWB orders at the same price. However, even if the 
European Union were correct that Airbus had no choice but  to convert the Original A350 orders to 
A350XWB at lower prices to avoid cancellation and penalty fees, this is not an effect of the pre -
2007 aeronautics R&D subsidies.3158 
9.305.   As to the alleged continuing significant lost sales of the Original A350  as significan t lost 
sales of the A350XWB in respect of deliveries  in the post -implementation period  of 787s ordered 
out of those lost sales campaigns, the United States argues that the European Union cannot turn  
what were found in the original proceeding to be  lost sal es of the Original A350  into lost sale s of 
the A350XWB  in the compliance proceeding. The United States also argues  that five of  the LCA 
sales campaigns  at issue in the original proceeding  cannot be the basis of lost sales claims in this 
proceeding because they were rejected as lost sales in the origi nal proceeding and the 
European  Union did not appeal those panel findings. Even if the Panel in this proceeding did 
"reassess" those alleged lost sales cases, it would conclude as it did in the original proceedi ng, that 
there were other factors besides the subsidies that explained the outcomes of those campaigns. 
Similarly, original findings based on impedance of exports of A330 and Original A350  aircraft 
cannot be the basis for impedance findings regarding the A 350XWB. Moreover, five of the nine 
sales campaigns at issue in the original proceeding were found not to be lost sales (findings the 
                                               
3154 European Union's first written submission, paras. 1277 -1289; second written submission, 
paras.  1465-1481.  
3155 European Union's first written submission, paras. 1337 -1406; second written submission, 
paras.  1204-1255.  
3156 European Union's first written submission, paras. 1569, 1570, 1586 -1588, 1590, 1591, 1594 -1597, 
1602, 1604, 1605, 1608, and 1609; second written submission, paras. 1532 -1550, 1554 -1559, and 
1567-1573.  
3157 United States' first written submission, para. 776; second wr itten submission, para. 936.  
3158 United States' first written submission, paras. 830 -831; second written submission, paras. 939 -945.  WT/DS353/R W 
 
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  European Union  did not appeal) and therefore cannot support arguments of displacement of 
exports in this proceeding.3159 
9.306.   Canad a argues that the European Union's claims regarding the continuation of adverse 
effects in the form of price suppression and lost sales should fail because it is not sufficient for the 
European Union to establish that current and future deliveries are rela ted to orders placed during 
the original reference period. Rather, the European Union must establish that these Boeing 
deliveries and their negative effects on Airbus (lost sales and price suppression) are attributable to 
the presence of subsidies at the e nd of the implementation period. The European Union fails to 
conduct a proper counterfactual analysis to establish that the situation would have been different 
in the absence of the subsidies at the end of the implementation period.3160  
9.307.   We note that an impor tant element of the European Unio n's arguments that the 
United  States has not removed the effects of the past serious prejudice in respect of  the A330 and 
Original A350 , because that serious prejudice continues in the post -implementation period , is the 
idea that serious prejudice continues to exist until the relevant LCA is delivered . In support of this 
view, the European Union relies on the original panel's observation that the phenomena of price 
suppression and lost sales do not begin and end at the time an LCA is ordered but continue up to 
and including the time at which the aircraft is delivered (or not delivered):  
In the Panel's view, the phenomena of "price suppression" and "lost sales" do not 
begin and end at the time at which an LCA is ordered. Rath er, given the particularities 
of LCA production and sale, these forms of serious prejudice should be understood to 
begin at the time at which an LCA order is obtained (or an order is lost), and to 
continue up to and including the time at which that aircraf t is delivered (or not 
delivered). However, the Panel considers that the ordinary meaning of the terms 
"imports" and "exports" in Articles 6.3(a) and (b) of the SCM Agreement, respectively, 
suggests that these forms of serious prejudice arise only on deliv ery of the aircraft to 
the customer.3161  
Because we regard price suppression and lost sales to exist from the time an order for 
LCA is made, up to and including its delivery, data pertaining to both LCA orders and 
to LCA deliveries will potentially be releva nt to demonstrating the existence of 
significant price suppression and significant lost sales. As regards displacement and 
impedance or imports or exports, the Panel considers that the existence of these 
serious prejudice phenomena can only be definitely e stablished by relevant delivery 
data. 3162 
9.308.   We note that the relevant paragraphs of the panel report explaining the findings of 
significant price suppression and lost sales suffered by Airbus in the 200 -300 seat LCA product 
market do not explicitly mention the  idea that price suppression and lost sales begin at the time of 
an order and continue up to and including the delivery of an aircraft, which suggests that these 
findings were made with respect to orders only.3163 The European Union contends that, in respect 
of "sales of A330 family LCA to customers that placed orders during the original 2004 -2006 
reference period", "{t}he original panel found that, for those sales, the significant price 
suppression continued from the initial order through each of the aircraft  deliveries".3164 Actually, 
no explicit statement to that effect appears in the panel report. The only discussion of the role of 
deliveries appears in the context of the panel's finding that lost sales of A330 and Original A350 
                                               
3159 United States' first written submission, paras. 845 -868; second written submission, paras. 999 -1034 
and 1131 -1186.  
3160 Canada's third -party submission, para. 41.  
3161 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1685.  
3162 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1686. (fn omitted)  
3163 Panel Report, US – Large Civil Aircraft (2nd complain t), paras. 7.1781 -7.1788.  
3164 European Union's first written submission, para. 1231 (emphasis omitted). We note that with regard 
to the panel's findings of significant price suppression and significant lost sales in the 100 to 200 seat LCA 
product market, t he Appellate Body noted that it was "uncertain whether the Panel was referring to orders, or 
to deliveries, or whether it was referring to such orders or deliveries occurring inside or outside the reference 
period". (Appellate Body Report, US – Large Civil  Aircraft (2nd complaint) , para. 1222).  WT/DS353/R W 
 
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  LCA constituted evidence of a t hreat of displacement or impedance of exports from certain third 
country markets.3165  
9.309.   Moreover, the Appellate Body made findings of significant price suppression and lost sales 
solely based on orders without referring to deliveries. Following its reversal of  the panel's findings 
of significant price suppression and significant lost sales in the 100  to 200 and 300  to 400 seat  LCA 
product  markets3166, the Appellate Body proceeded to complete the analysis through an analysis of 
evidence related to specific sales ca mpaigns. The Appellate Body made no reference to the role of 
deliveries in this regard.3167  
9.310.   Thus, it is somewhat unclear whether and, if so, how the idea that price suppression and 
lost sales "exist from the time an order is made, up to and including its del ivery" is reflected in the 
actual findings of significant price suppression and lost sales made in the original proceeding. More 
importantly, however, we consider that the European Union's reliance on this idea as a basis for a 
finding that the United Stat es has failed to take appropriate steps to remove the adverse effects 
reflects an interpretation of Article 7.8 that we find problematic. Moreover, we consider that 
certain factual arguments of the European Union in support of its claim that the particular  adverse 
effects found to exist in the original proceeding have continued into the post -implementation 
period are contradicted by the evidence before us and/or inconsistent with the findings made in 
the original proceeding.  
9.311.   We consider that the European U nion's approach poses the following problems with respect 
to the interpretation of Article 7.8 of the SCM Agreement.  
9.312.   First, the European Union's argument involves an assumption that the phrase "take 
appropriate steps to remove the adverse effects" in Artic le 7.8 must be interpreted to mean that a 
Member found to be granting or maintaining an actionable subsidy is obligated to ensure that the 
particular adverse effects found to exist in respect of the specific transactions during the original 
reference perio d cease to exist in respect of those same transactions .3168 We doubt whether such 
an interpretation of "remove the adverse effects" is meaningful in a practical sense. It is not clear, 
for example, how it is possible in practice for a Member to take steps to ensure that significant 
price suppression found in relation to specific transactions during the original reference period 
does not continue in respect of those same transactions  in the post -implementation period or that 
a significant lost sale found in the  original reference period in respect of a specific transaction does 
not continue to constitute a lost sale in respect of that transaction  in the post -implementation 
period. The European Union never explains what kind of action the United States could have  taken 
with respect to that undelivered aircraft that would have removed the "present" adverse effects.  
9.313.   Second, the idea that "to take appropriate steps to remove the adverse effects" entails an 
obligation to ensure that adverse effects must be "removed" from the specific transactions that 
formed the basis for the adverse effects findings in the original proceeding is also difficult to 
reconcile with the prospective interpretation of Article 7.8.3169 The European Union has explicitly 
endorsed such a prospecti ve reading of Article 7.8, arguing that "{t}he removal of adverse effects 
does not refer to the removal of adverse effects in the past. It refers to the withdrawal of adverse 
effects in the sense of ensuring that there are no adverse effects arising in the  new reference 
period ".3170 In our view, the European Union has not explained how the "historic" aspect of its 
claim of present adverse effects in relation to the A330 and the A350XWB is consistent with this 
prospective approach to the interpretation of Artic le 7.8. In our view, to interpret "to take 
appropriate steps to remove the adverse effects" to mean "ensuring that no adverse effects arise 
in the new reference period", is very different from interpreting this phrase to mean that a Member 
                                               
3165 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1791.  
3166 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1249.  
3167 Appellate Body Report, US – Large Civil Aircraft (2nd compl aint), paras. 1262 -1274.  
3168 See e.g. European Union's first written submission, paras. 1330 ("the United States has failed to 
remove the adverse effects from those 787 sales that were found in the original proceedings to be caused by 
the subsidies"), 1331 ( "{t}he United States has failed to remove the adverse effects associated with each of 
these sales"), 1339 ("{b}elow, the European Union demonstrates that the United States has not removed the 
adverse effects related to these significant lost sales at Qanta s, Ethiopian Airlines, Icelandair and Kenya 
Airways. These sales constitute present significant lost sales to the extent that deliveries flowing from those 
sales remain outstanding.")  
3169 See Section 6.3 above .  
3170 European Union's first written submission, para. 49. (emphasis added)  WT/DS353/R W 
 
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  is obligated "to  remove the adverse effects associated with each of {the} sales"3171 that were 
found to be lost sales in the original proceeding.  
9.314.   We disagree, in this regard, with the notion that where aircraft the subject of a past order 
found in the original proceeding to  be a lost sale are undelivered at the time of the expiry of the 
implementation period, this is a "present" adverse effect. The European Union appears to consider 
that the fact that aircraft will be delivered in the post -implementation period means that th ere is 
an "adverse effect arising in the new reference period".3172 In our view, the fact that aircraft are 
undelivered after the expiry of the implementation period is not a "present" adverse effect arising 
in the post -implementation period but a consequence  or manifestation of an event that occurred in 
the past. Because of the inherent relationship between orders and deliveries, we fail to see how 
the United States could have taken any steps with respect to outstanding deliveries without 
retroactively affect ing the underlying orders. More generally, we consid er that the 
European  Union's "historic" case essentially attempts to show present adverse effects on the basis 
of phenomena that are not effects that presently arise from subsidies granted or maintained a t 
"present " but are more accurately described as continuing manifestations or effects of past 
adverse effects. In our view, to interpret Article 7.8 to mean that a Member is obligated to remove 
the "effects of adverse effects" of subsidies granted in the p ast is in contradiction with the 
prospective interpretation of that provision.  
9.315.   In addition to these legal and conceptual problems, we find that the European Union's 
argument that the adverse effects , in the form of certain kinds of serious prejudice withi n the 
meaning of Articles 5(c) and 6.3,  found to exist in the original proceeding in respect of particular 
transactions in the 200 -300 seat LCA product market , continue into the post -implementation 
period , is in several  respects contradicted by the evidenc e before us and/or inconsistent with 
relevant findings made in the original proceeding.  
9.316.   Regarding the alleged continuation of serious prejudice  in the form of significant price 
suppression of A330  LCA3173, we recall that as support for its argument that foll ow-on orders by 
airlines that had purchased A330s at significantly suppressed prices in 2004 -2006 were also made 
at significantly supressed prices, the European Union relies on the average A330 pricing trend 
during the period 2001 -2012 and on a comparison of average prices of follow -on orders by those 
airlines during the period 2007 -2012 with average price s of A330 orders paid by all other 
customers in that period.3174 
                                               
3171 See fn 3168 above . 
3172 The European Union states, for example, in respect of aircraft the subject of orders found to be lost 
sales in the  original proceeding that "{t}o the extent they remain undelivered, they represent present adverse 
effects to the European Union in the form of significant lost sales to the EU LCA industry that the United States 
has failed to remove". (European Union's fi rst written submission, para. 1342).  
3173 We do not consider that, as argued by the United States, the European Union's argument that the 
A330 is now in a monopoly market means that the European Union has failed to make a prima facie  case 
because it has not e stablished that the A330 is "in the same market" as any Boeing aircraft. The 
European  Union's claim of significant price suppression in relation to the A330 is not based on the existence of 
current competition between the A330 and any subsidized Boeing air craft. The European Union's case with 
respect to the A330 is that the 2004 -2006 adverse effects experienced by the A330 have "lingered" and that 
the A330 continues to experience price suppression as a result. The European Union's  argument is that "much 
of the present significant price suppression is a continuation or extension of significant price suppression that 
arose in the 2004 -2006 period, when the products were in the same product market". (European Union's 
response to Panel question No. 170, para. 55 7). According to the internal logic of the European Union's case, 
the A330 may have moved into a different market from the 787 but the "lingering" effects of the original 
serious prejudice caused by the 787 when the A330 and the 787 were in the same market  continue regardless. 
Therefore, because of this particular causation theory relied upon by the European Union, it is possible for the 
European  Union's claim to be sustained even if the A330 currently exists in its own market. Thus, there is no 
basis to fi nd that by asserting that the A330 is in a market of its own, the European Union has failed to make a 
prima facie  case under Article 6.3(c) of the SCM Agreement.  
3174 European Union's first written submission, paras. 1242 -1246. The European Union asserts tha t the 
average A330 family price trend supports the conclusion that Airbus [***], even though Airbus' input costs 
have increased steadily over the 2005 -2012 period. (European Union's first written submission, paras. 1244 
and 1245). The European Union assert s that the comparison of average pric es of follow -on orders with average 
prices of orders of A330s to other customers during the period 2007 -2012 shows that average pric es for the 
follow -on orders [***] and that, while average pric es for both sets of custo mers [***], average pric es for 
follow -on orders by customers that ordered A330s in 2004 -2006 [***] than orders by other customers. 
(European Union's first written submission, para.  1246).  WT/DS353/R W 
 
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  9.317.   As noted above, the European Union also argues that the pre -2007 aeronautics R&D 
subsidies c ause significant price suppression with respect to post -2006 orders (and related 
deliveries) of A330s to all customers other than those that purchased A330s in the original 
reference period.3175 The European Union asserts that this is supported by evidence sh owing that 
the average indexed pricing of A330 family orders [***] notwithstanding that Airbus made 
substantial investments in the A330 since 2004 to improve its performance and faced steadily 
rising input costs.3176 The European Union argues that the fact th at Airbus was unable to [***] 
A330 prices was the effect of the pre -2007 U.S. aeronautics R&D subsidies.3177  
9.318.   We note that the pricing data that the European Union presents in support of its argument 
that significant price suppression of the A330 found to exi st in the original reference period has 
continued into the post -implementation period only  covers the period  up to 20123178 and was not 
updated to cover the post -implementat ion period. Although in October  2015 the Panel requested 
the European Union to update the data on which it relied to substantiate its serious prejudice case, 
the European Union did not update much of the data on which it relies to demonstrate that the 
A330 has suffered significant price suppression in the post -implementation period.3179  
9.319.   In an y case, much of that data is directed to an argument that A330 prices have never 
recovered to their 2003 highs, and that therefore "something" is holding down A330 prices. 
However, it is not clear to us why Airbus could have legitimately expected A330 pric es to ever 
"recover" to their pre -2004 levels, when the A330 was the technological market leader, given the 
reality that since then, the 787 and A350XWB have changed the competitive dynamics of this 
market. The A330 still has a place in the market and its sales still appear robust, but there is no 
reason to think it could command the sort of price it once did.  
9.320.   Finally, we note that data presented by the United States demonstrates that there is no 
correlation in price movements between the A330 and the 787.  Specifically, [***].3180 
9.321.   Thus, even setting aside the problems with the European Union's A330 price suppression 
arguments that arise due to the "historic" nature of its case3181, we find that the European Union 
has failed to empirically demonstrate that the A33 0 is suffering significant price suppression in the 
post-implementation period.3182 
9.322.   Regarding the European Union's argument that price suppression found to exist in the 
original proceeding continues into the post -implementation period as significant price sup pression 
of the A350XWB3183, we are of the view that this argument is in contradiction with the fact that the 
price suppression that occurred in 2004 -2006 was price suppression of a different aircraft, the 
                                               
3175 See para. 9.300  above. 
3176 European Union's first written submission, paras. 1247 -1250.  
3177 European Union's first written submission, paras. 1252 -1264.  
3178 European Union's first written submission, paras . 1245 (figures 2 and 3), 1246 (figure 4), and 1250 
(figures 5 and 6).  
3179 European Union's response to Panel question Nos. 169 and 170. The European Union provided 
information on the post -2012 evolution of average A330 prices. However, it did not update the data presented 
in its first written submission concerning the discrepancy i n the evolution of A330 average pricing and 
Airbus'  input costs and the data on A330 prices in 2007 -2012 in follow -on orders by customers who ordered 
A330s in 2004 -2006 compared with A330 prices paid by new customers in that period.  
3180 United States' comme nts on European Union's response to Panel question Nos. 169 and 170, 
para. 203.  
3181 See paras. 9.311 -9.314  above.  
3182 The empirical problems with the European Union's price trend data are discussed in further detail in 
Section 9.4.3.1.4  below in connection with the Panel's evaluation of the European Union's claims of significant 
price suppression of the A320neo and A320ceo. A number of the problems identified  in that Section regarding 
the price trend data for the A320neo and A320ceo apply equally to the European Union's price trend data for 
the A330. First, since a claim of significant price suppression requires establishing where prices would have 
been in the  absence of the subsidies, price trend data alone is not sufficient to demonstrate the existence of 
this market phenomenon; it is also necessary to present counterfactual argumentation demonstrating that, in 
the absence of the subsidies, prices would have been higher (see paras. 9.450  through 9.462  below  for further 
explanation). Second, we consider that the European Union cannot rely on sales campaigns that Boeing  won to 
substantiate its claims that Airbus LCA prices were suppressed (see 9.457  through 9.460  below  for further 
explanation). Third, the European Union ultimately appea rs to repudiate its own price trend data on the basis 
of methodological flaws ( see paras . 9.463  and 9.464  below for  further explanation).  
3183 European Union's first wri tten submission, paras. 1277 -1289; second written submission, 
paras.  1465-1481; response to Panel question s Nos. 152, paras. 10 and 11, and 170, paras. 559 -563. WT/DS353/R W 
 
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  Original A3503184 and that the original panel rejected t he European Union's argument that the price 
suppression of the Original A350 would necessarily lead to price suppression of the A350XWB 
when the orders were converted.3185 
9.323.   We consider that the European Union's argument that the serious prejudice,  in the form of 
significant lost sales found to exist in the original reference period , continue s into the 
post-implementation period as significant lost sales of A350XWB  is inconsistent with the findings 
made in the original proceeding in that, first, the original pan el made findings of significant lost 
sales in respect of the A330 and Original A350, not the A350XWB and, second, the European Union 
relies on several sales campaigns in respect of which no findings of significant lost sales were 
actually made in the origi nal proceeding.  
9.324.   First, the original panel found, with respect to four sales campaigns, that, but for the 
effects of aeronautics R&D subsidies that had contributed in a genuine and substantial way to 
Boeing's development of technologies for the 787, "Airbu s would have made additional sales of the 
A330 and Original A350 over the same period, and to that extent, would not have suffered 
significant lost sales in the 200 -300 seat wide -body LCA product market, within the meaning of 
Article 6.3(c) of the SCM Agre ement".3186 Thus, the relevant findings of lost sales made in the 
original proceeding pertained to the A330 and Original A350.  
9.325.   The European Union argues in this proceeding that the United States has failed to 
"remove{} the adverse effects related to these si gnificant lost sales at Qantas, Ethiopian Airlines, 
Icelandair and Kenya Airways"  because "{t}hese sales constitute present significant lost sales to 
the extent that deliveries flowing from those sales remain outstanding".3187 The European Union 
makes this ar gument as support for its claim that "the US subsidies benefiting Boeing's 787 family 
LCA presently cause present adverse effects, in the form of significant lost sales of A350XWB 
family LCA".3188 In other words, the European Union effectively argues that the  significant lost 
sales that it alleges have continued to exist at present because the aircraft remain undelivered are 
significant lost sales of the A350XWB rather than of the A330 and A350 in respect of which the 
findings of significant lost sales were ma de in the original proceeding. The European Union does 
not request the Panel to make a finding of present adverse effects in the form of significant  lost 
sales to the A330 and Original A350. In our view, the European Union has not provided a 
convincing exp lanation as to why "it is irrelevant whether or not the 787 orders found to be lost 
sales in the original reference period are lost sales for the A350XWB, rather than the A330 or 
Original A350".3189 The lost sales, which according to the European Union's theo ry that lost sales 
continue until the aircraft are delivered, the United States failed to remove as a result of the fact 
that the deliveries of the Boeing 787 remained outstanding at the expiry of the implementation 
period, were lost sales of A330 and Orig inal A350 aircraft. There is no logical basis to now treat 
those lost sales as lost sales of A350XWB LCA. We do not see how the fact that the 787 and the 
                                               
3184 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1792.  
3185 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1793.  
3186 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1794; see also para. 7.1786. The 
Appellate Body discussed this panel finding at para graphs  1056-1063 of its report.  
3187 European Union's f irst written submission, para. 1339.  
3188 European Union's first written submission, para. 1329.  
3189 European Union's second written submission, para. 1207:  
However, for the US failure to remove the adverse effects, it is irrelevant whether 
or not the 787 orde rs found to be lost sales in the original reference period are lost 
sales for the A350XWB, rather than the A330 or Original A350. Instead, when the 
subsidies caused the airlines to order these 787 aircraft under conditions of 
competition contemporaneous wi th the original reference period , these orders 
represented lost sales to the A330 or Original A350, as these were the Airbus 
aircraft that competed with the 787 in the same product market at that point in 
time. That the 787 competes in the same product mar ket with the A350XWB under 
present  conditions of competition does not alter the fact that, under conditions of 
competition contemporaneous  with the original reference period, the original panel 
and the Appellate Body found that Airbus suffered lost A330 an d Original A350 
sales to the 787. With its argument, the United States ignores the findings in the 
original proceedings, which served as the basis for the DSB's recommendations 
and rulings.  
(emphasis original)  
See also European Union's second written subm ission, para. 1209.  WT/DS353/R W 
 
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  A350XWB now compete in the same product market3190 can alter the fact that at the time the 787 
sales were  made, they caused  lost sales of the A330 and Original A350, not the A350XWB , which 
had not even been launched at that time.  
9.326.   Therefore, even assuming that, in light of the panel's observation that lost sales "continue 
up to and including the time at which that aircraft is delivered", sales of Boeing 787 that were 
found to be lost sales in respect of Airbus LCA in the original proceeding should be considered to 
give rise to present serious prejudice  where the aircraft have not been delivered, there is no bas is 
to find any such present serious prejudice  in relation to the A350XWB.  
9.327.   Second, the European Union relies on the notion that adverse effects in the form of 
significant lost sales continue where the aircraft remain undelivered not only with regard to the  
sales campaigns that resulted in findings of lost sales but also in relation to certain sales 
campaigns in respect of which the Panel in the original proceeding found that the aeronautics R&D 
subsidies at issue were not a cause of lost sales to Airbus.3191 The original panel found that in ten 
sales campaigns3192, including the five sales campaigns that the European Union treats as 
"additional significant lost sales in the original reference period"3193, "factors other than the 
performance characteristics of the 787  over the A330 or Original A350, and the 2008 delivery date 
for the 787, played a significant part in the Boeing sale".3194  
9.328.   The European Union submits with respect to these additional lost sales that the claim it 
presented in the original proceeding "remains  unresolved". While the Appellate Body found that 
the original panel erred in not cumulating the price effects of the B&O tax rate reductions with the 
technology effects of the aeronautics R&D subsidies in causing significant lost sales3195 and also 
clarified  the causation standard in a way that implies that the non -subsidy factors identified by the 
original panel as having contributed to the 787 sales at issue cannot be the basis for vitiating a 
genuine and substantial causal link3196, the Appellate Body found i tself unable to complete the 
analysis.3197 The European Union argues for each of these additional sales that "to the extent 
deliveries remain outstanding, these 787 sales constitute present significant lost sales, and that 
the US subsidies are a genuine and s ubstantial cause thereof", including follow -on orders and 
option exercises resulting from those sales.3198  
9.329.   We consider that the European Union is factually incorrect when it argues that the matter 
was left unresolved because the Appellate Body did not comple te the analysis.3199 Indeed, as noted 
by the United States3200, these sales campaigns were not left unresolved: the panel's finding in the 
original proceeding that these sales campaigns were not lost sales attributable to the subsidies 
was not appealed. The Appe llate Body found that the original panel erred in assuming that 
different causal mechanisms precluded cumulation of two aggregated groups of subsidies. 
However, contrary to the European Union's assertion, the Appellate Body did not find that 
subsidies with  a technology and price causal mechanism should be cumulated. The Appellate Body 
did not attempt to complete the analysis because the European Union did not request it to do 
so.3201 Since no findings of lost sales were made in the original proceeding in respe ct of the five 
                                               
3190 European Union's second written submission, para. 1209.  
3191 European Union's first written submission, paras. 1345 -1406.  
3192 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1786 and fn 3724.  
3193 European Union's first wri tten submission, para. 1345. Specifically, the European Union's argument 
concerns the following sales campaigns: (a) All Nippon Airways (2004, 2009 and 2012); (b) Japan Airlines 
(2005, 2007 and 2012); (c) Air Canada (2005 and 2007); (d) Continental Airline s (2004, 2006 and 2007); and 
(e) Northwest Airlines (2005). Thus, in most of these cases, the European Union includes both the orders at 
issue in the original proceeding and follow -on orders.  
3194 Panel Report, US – Large Civil Aircraft (2nd complaint) , para . 7.1786 and fn 3725.  
3195 European Union's first written submission, paras. 1347 -1349 (referring to Appellate Body Report, US 
– Large Civil Aircraft (2nd complaint) , para. 1321).  
3196 European Union's first written submission, paras. 1350 and 1351 (referring to Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint) , para. 913).  
3197 European Union's first written submission, paras. 1349 and 1351.  
3198 European Union's first written submission, para. 1352.  
3199 European Union's first written submission, para s. 1345, 1349, and 1351; second written submission, 
para. 1212.  
3200 United States' second written submission, paras. 1005 -1012.  
3201 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 1321: "{b}y closing its mind 
to such an approach, 'owing  to the very different way' in which the two groups of subsidies operate and their 
'entirely distinct causal mechanisms', the Panel failed to give full consideration to the possibility of cumulating WT/DS353/R W 
 
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  sales campaigns that the European Union treats as "additional lost sales in the original reference 
period", the question of whether any lost sales have continued into the post -implementation period 
on the grounds that the aircraft at issue h ave not been delivered does not arise.   
9.330.   In sum, the nine sales campaigns considered in the original proceeding upon which the 
European Union relies in this proceeding to support its argument that adverse effects in the form 
of lost sales found in the origi nal proceeding continue with respect to the A350XWB include four 
sales campaigns in which findings of lost sales were made in respect of a product other than the 
A350XWB and five sales campaigns in which no finding of lost sale was made at all.3202  
9.331.   Finally, in support of its argument that the serious prejudice  found to exist in the original 
proceeding continue s at present as serious prejudice  in respe ct of the A350XWB, the 
European  Union  also asserts that the United States has failed to remove the threat of d isplacement 
from the Australian market because there continue to be outstanding deliveries of 787 family LCA 
to Qantas under the order that formed the basis for this finding in the original proceeding.3203 First, 
we have explained above that we find that this  type of argument is problematic in terms of the 
underlying interpretation of Article 7.8. Second, we note that the original panel based its finding of  
a threat of displacement on a sales campaign involving the Original A350.3204 There is no basis to 
treat th is now as a finding of a threat of displacement in respect of the A350XWB. As in the case of 
the European Union's argument that serious prejudice  in the form of lost sales found to exist in the 
original proceeding in respect of the A330 and Original A350 c ontinue s as serious prejudice  in 
respect of the A350XWB, we consider that the European Union does not offer a convincing reason 
to explain why a particular form of serious prejudice  found to exist during the original reference 
period in respect of a partic ular aircraft should now be considered to continue to exist as a  form of 
serious prejudice in respect of  a different aircraft.   
9.332.   We reject  the European Union's argument that certain past serious prejudice  of 
the pre -2007 aeronautics R&D subsidies continue i nto the post -implementation period 
as present serious prejudice  in relation to the A330 and A350XWB . This is because: (a) 
the European Union's reliance on the role of deliveries of aircraft in the post -
implementation period as evidence of a continuation of  serious prejudice  (and more 
generally its theory that Article 7.8 applies to continuing effects of past adverse effects) 
is inconsistent with a prospective interpretation of Article 7.8 and leads to results that 
we consider to be illogical; and (b) the Eu ropean Union's arguments are unsupported by 
the evidence and /or in contradiction with the findings made in the original proceeding.  
9.3.4   Summary of findings on whether subsidies benefiting the 787 and 777X cause 
serious prejudice to the interests of the Europea n Union in respect of the A350XWB and 
A330 in the post -implementation period  
9.333.   As regards the European Union's main case ; i.e. whether the pre -2007 aeronautics R&D 
subsidies  and certain post -2006 aeronautics R&D subsidies, operating through a technology caus al 
mechanism , combined with the other post -2006 subsidies operating through a price causal 
mechanism,  cause serious prejudice to the interests of the European Union in respect of  the 
A350XWB in the post -implementation period , we find as follows:  
a. The Europe an Union has failed to demonstrate the existence of original technology 
effects of the pre -2007 aeronautics R&D subsidies, or of so -called spill -over technology 
effects or sleeper technology effects  of the pre-2007 aeronautics R&D subsidies  in 
respect of t he 787 -9/10 or 777X, in the post -implementation  period .  
                                                                                                                                               
the effects of these two groups of subsidies. We therefor e find that the Panel erred in failing to consider 
whether the price effects of the B&O tax rate reductions complement and supplement the technology effects of 
the aeronautics R&D subsidies in causing significant lost sales and significant price suppressio n, and a threat of 
displacement and impedance, in the 200 -300 seat LCA product market. The European Union does not request 
us to complete the analysis on this issue." (emphasis original, fn omitted)  
3202 For these reasons, we consider that these nine sales ca mpaigns also cannot support the 
European  Union's argument that the lost sales found in the original proceeding constitute evidence of (threat 
of) impedance of exports of A350XWB.  
3203 European Union's first written submission, para. 1569.  
3204 For the finding of the original panel, see Panel Report, US – Large Civil Aircraft (2nd complaint ), 
para. 7.1791.  WT/DS353/R W 
 
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  b. The European Union has failed to demonstrate the existence of so -called new technology 
effects of  certain post -2006 aeronautics R&D subsidies  in respect of the 787 -9/10 or 
777X in the post -implementa tion period.   
c. The European Uni on has failed to demonstrate any effect of the tied tax subsidies, the 
state and local cash flow subsidies, or the post -2006 aeronautics R&D subsidies on 
Boeing's 787 or 777X pricing in the post -implementation period.  
d. Because  the European Union has failed to demonstrate any effect of the pre -2007 
aeronautics R&D subsidies, or of certain post -2006 aeronautics R&D subsidies, on 
Boeing's product development in respect of the 787 or 777X in the post -implementation 
period , there is  no basis on which these subsidies can be found to be a genuine and 
substantial cause of any of the forms of serious prejudice alleged in respect of the 
A350XWB in the post -implementation period through a technology causal mechanism. 
By the same token, bec ause the European Union has failed to demonstrate any effect of 
the post -2006 subsidies (tied tax subsidies, state and local cash flow subsidies and 
aeronautics R&D subsidies) on Boeing's 787 or 777X prices in the post -implementation 
period,  the possibilit y of any consequent impact of those subsidies on sales and prices of 
the A350XWB does not arise, and  there is no basis on which those subsidies can be 
found to be a genuine and substantial cause of any of the forms of serious prejudice 
alleged in respect o f the A350XWB in the post -implementation period through a price 
causal mechanism.  
9.334.   We also find, with respect to the European Union's parallel argument, that t he 
European  Union has also failed to establish that certain  forms of  past serious prejudice , which 
were the effect s of the pre -2007 aeronautics R&D subsidies , continue into the post -implementation 
period as present  serious prejudice  in respect of  the A330 and A350XWB . 
9.335.   The European Union has therefore failed to establish that subsidies benefiting the 
787 an d 777X cause serious prejudice to its interests , within the meaning of 
Articles  5(c) and 6.3,  in respect of the A350XWB and A330 in the post -implementation 
period.  
9.4  Whether subsidies benefiting the 737 MAX and 737NG cause serious prejudice  to 
the inte rests of the European Union , within the meaning of Articles 5(c) and 6.3, in  
respect of the A320neo and A320ceo in the post -implementation period  
9.4.1   Introduction  
9.336.   In this Section we evaluate the European Union's case that the United States grants or 
maintains subsidies to Boeing benefiting the 737 MAX and 737NG , which  cause present adverse 
effects  in the form of certain k inds of serious prejudice to the European Union's  interests in  respect 
of the A320neo and A320ceo , respectively,  in the post -implementation pe riod. The European Union 
has divided its discussion of the effects of the U.S. subsidies benefiting the 737 MAX and adversely 
affecting the A320neo , and of the effects of the U.S. subsidies benefiting the 737NG and adversely 
affecting the A320ceo , on the b asis that the narrow -body, single -aisle LCA product market actually 
consists of two p roduct markets: the market for new technology  single -aisle LCA (comprising the 
737 MAX and A320neo) and the market for existing technology  LCA (comprising the 737NG and 
the A320ceo). For reasons we explain in paragraphs 9.35 through 9.40 above, we disagree with 
the European Union's proposed market del ineation and instead treat the new technology  A320neo 
and 737 MAX a s competing in the same product market for nar row-body, single -aisle aircraft as 
the existing technology  A320ceo and 737NG.  
9.337.   As previously explained, the European Union for the most part presents its arguments as 
to how certain aeronautics R &D subsidies op erate through a technology causal mechanism,  and 
how the majority of post -2006 subsidies operate  through a price causal mechanism,  on a 
horizontal basis; i.e. based on the nature of the particular subsidy or subsidy groups at issue, 
rather than the particu lar Boeing LCA said to be subsidized by the various subsidies in 
combination.3205 Accordingly, in Section VII.E of its first written submission, the European Union 
                                               
3205 See e.g. European Union's first written submission, section VII.E (Technology Causal Mechanism) 
and section VII.F (The U.S. Subsidies Cause Adverse Effects Through a Price Causal Mechanism), dealing in a WT/DS353/R W 
 
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  purports to establish a "genuine " and "substantial " causal link between certain aeronautics R&D  
subsidies and "present adverse effects through a technology effects causal mechanism".3206 In 
Section VII.F of its first written submission, the European  Union purports to establish a "genuine " 
and "substantial " causal link between the majority of the post -2006 subsidies and present adverse 
effects through a price causal mechanism.3207  
9.338.   In Section VII.I of its first written submission, dealing with the effects of the subsidies 
benefiting the 737 MAX on the A320neo, the European Union presents its case that the e ffects of: 
(a) certain aeronautics R&D subsidies which improve the quality and accelerate the launch and 
delivery positions of the 737 MAX LCA family aircraft (the technology causal mechanism); and (b) 
the majority of the post -2006 subsidies which enable B oeing to lower its 737 MAX  prices (the price 
causal mechanism ), collectively , are a genuine and substantial  cause of: significant lost sales (and 
a threat of significant lost sales) of the A320neo; significant price suppression (and a threat of 
significant  price suppression) of the A320neo; impedance and a threat of impedance of the 
A320neo in the U.S. market and a number of third country markets.3208  
9.339.   In Section VII.J of its first written submission, dealing with the effects of the subsidies 
benefiting the 73 7NG on the A320ceo, the European Union presents its case that the effects of the 
majority of the post -2006 subsidies which enable Boeing to lower  its 737NG prices (the price 
causal mechanism ) are a genuine and substantial  cause of: significant lost sales ( and a threat of 
significant lost sales) of the A320ceo; significant price suppression of the A320ceo; displacement, 
impedance and a threat of thereof of the A320ceo in the U.S. market and a number of third 
country markets.3209  
9.340.   The European Union's serious pr ejudice allegations concerning the effects of the subsidies 
benefiting the 737 MAX and 737NG on the A320neo and A320ceo, respectively, are as follows:  
a. Significant lost sales, within the meaning of Article 6.3(c) of the SCM Agreement, and a 
threat thereof .3210 
b. Impedance of imports of the A320neo and A320ceo to the United States,  within the 
meaning of Article 6.3(a) of the SCM Agreement, and a threat thereof.3211  
c. Impedance and/or displacement of exports of the A320neo and A320ceo , within the 
meaning of Article 6.3(b) of the SCM Agreement, to the third -country markets of 
Australia3212, Brazil3213, Canada3214, Iceland3215, Indonesia3216, Malaysia3217, Mexico3218, 
                                                                                                                                               
horizontal fashion with the arguments concerning the technology causal mechanism and price causal 
mechanism, compared to section VII.H (Effects of U.S. Subsidies Benefiting the 787 and 777X on the A330 and 
A350XWB), section VII.I (Effects of U.S. Subsidies Benefiting the 737 MAX on the A320neo), and section VII.J 
(Effects of the U.S. Subsidies Benefiting the 737NG on the A320ceo), dealing with the collective effects of all of 
the subsidies benefiting the vario us Boeing aircraft on the competing Airbus aircraft.  
3206 See European Union's first written submission, para. 1205.  
3207 See European Union's first written submission, para. 1223.  
3208 European Union's first written submission, paras. 1616 and 1617.  
3209 European Un ion's first written submission, paras. 1840 and 1841.  
3210 As evidenced by a number of LCA sales campaigns involving the 737 MAX in competition with the 
A320neo occurring between 2007 and 2015 and involving the 737NG in competition with the A320ceo. The 
relevant sales campaigns and aircraft are set forth in Section 9.4.3.1.1  below .  
3211 As evidenced by certain sales campaigns alleged to be significant lost sale s of the A320neo and 
A320ceo, respectively, and involving  a U.S. customer. The relevant sales campaigns are American Airlines 
2011, Southwest Airlines 2011 and 2013, Delta Airlines 2011 and United Airlines 2012 and 2013. As regards 
the impedance, and threat  thereof,  of imports with respect to the A320ceo, the Eu ropean Union argues that, in 
a duopoly environment, "rough parity in the distribution of market shares between the duopolists would be 
expected", while the effect of the U.S. subsidies is that the vast majority of present and future deliveries of 
existing technology single -aisle LCA will be 737NG family aircraft. (European Union's first written submission, 
paras. 1903 -1905). The European Union provides data concerning orders to date and deliveries due in the 
United States for the 737NG and A320ceo. (See Eur opean Union's response t o Panel question No.  169, 
para. 509).  
3212 Displacement of exports of the 320ceo. (European Union's f irst written submission, 
paras.  1908-1910; second written submission, paras. 1959 -1961; response t o Panel question No. 169, 
para. 511). 
3213 Threat of impedance of exports of the A320neo: European Union's first written submission, 
paras.  1831 and 1832; second written submission, paras. 1850 -1852; and response to Panel question No. 169, 
para. 493. The European Union adds that the GOL (2012) campaign won by the 737 MAX is a lost sale of the WT/DS353/R W 
 
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  Norway3219, Russia3220, Singapore3221, and the United Arab Emirates, and a threat 
thereof .3222 
d. Significant price suppressi on of the A320ne o and A320ceo  and a threat thereof .3223 
                                                                                                                                               
A320neo due to the U.S. subsidies and is further evidence of the existence of a threat of impedance of exports 
of the A320neo in the Brazilian market. In its first written submission, the European Union als o argued that the 
Brazilian market is a significantly large geographical market for new technology, single -aisle LCA and that in a 
duopoly environment, "rough parity in the distribution of market shares between the duopolists would be 
expected". (European Union's first written submission, para. 1831). Threat of displacement of exports of the 
A320ceo: European Union's first written submission, paras. 1911 and 1912.  
3214 Threat of impedance of exports of the A320neo: European Union's response to Panel question 
No. 169, para. 494. The European Union adds that the Air Canada (2013) campaign won by the 737 MAX is a 
lost sale of the A320neo due to the U.S. subsidies and is further evidence of the existence of a threat of 
impedance of exports of the A320neo in the Can adian market. (European Union's response to Panel question 
No. 169, para. 495). Impedance and threat of impedance of the A320ceo: European Union's first written 
submission, paras. 1913 -1914; second written submission, paras. 1953 -1954; and response to Pane l question 
No. 169, paras. 512 and 513.  
3215 Threat of impedance of exports of the A320neo: European Union's first written submission, 
para. 1834; second written submission, paras. 1853 -1855; and response to Panel question No. 169, para. 498.  
3216 Threat of impe dance of exports of the A320neo: European Union's first written submission, 
para. 1835; second written submission, paras. 1856 -1858; and response to Panel question No. 169, para. 499. 
The European Union adds that the Lion Air (2012) campaign won by the 737  MAX is a lost sale of the A320neo 
due to the U.S. subsidies and is further evidence of the existence of a threat of impedance of exports of the 
A320neo in the Indonesian market. (European Union's response to Panel question No. 169, para. 500). 
Displacemen t, impedance and threat of impedance of the A320ceo: European Union's first written submission, 
paras. 1915 -1920; second written submission, paras. 1955 -1958; and response to Panel question No. 169, 
paras. 514 -516. The European Union refers to Lion Air's 2 012 sales campaign, which it alleges is a lost sale of 
the A320ceo due to the U.S. subsidies as a further illustration that Airbus would have achieved greater future 
deliveries in the Indonesian existing technology single -aisle market absent the U.S. subsi dies. 
3217 Displacement of exports of the A320ceo, and threat thereof: European Union's first written 
submission, paras. 1921 and 1922; second written submission, paras. 1953 -1954; response to Panel question 
No. 169, paras. 517 -519. 
3218 Threat of impedance of e xports of the A320neo: European Union's first written submission, 
para. 1836; second written submission, paras. 1859 -1861; and response to Panel question No. 169, para. 501.  
3219 Threat of impedance of exports of the A320neo: European Union's first written su bmission, 
para. 1837; second written submission, paras. 1862 -1864; and response to Panel question No. 169, para. 502. 
The European Union adds that the portion of the Norwegian Air Shuttle (2012) campaign won by the 737 MAX 
is a lost sale of the A320neo due  to the U.S. subsidies and is further evidence of the existence of a threat of 
impedance of exports of the A320neo in the Norwegian new technology single -aisle market. (European Union's 
response to Panel question No. 169, para. 502). Impedance and threat o f impedance of exports of the 
A320ceo: European Union's first written submission, paras. 1923 and 1924; second written submission, 
paras.  1953 and 1954; and response to Panel question No. 169, paras. 520 and 521. The European Union 
refers to Norwegian Air Shuttle's 2012 sales campaign, which it alleges is a lost sale of the A320ceo due to the 
U.S. subsidies as a further illustration that Airbus would have achieved greater future deliveries in the 
Norwegian existing technology single -aisle market absent the U.S. subsidies.  
3220 Displacement and threat of displacement of exports of the A320ceo: European Union's first written 
submission, paras. 1925 and 1926; second written submission, paras. 1953 and 1954; and response to Panel 
question No. 169, paras. 522 and 52 3.  
3221 Threat of impedance of exports of the A320neo: European Union's first written submission, 
para. 1838; second written submission, paras. 1865 -1867; and response to Panel question No. 169, para. 503. 
The European Union adds that the Silk Air (2012 and 2015) campaigns won by the 737 MAX are lost sales of 
the A320neo due to the U.S. subsidies and further evidence of the existence of a threat of impedance of 
exports of the A320neo to the Singaporean market. (European Union's response to Panel question No. 169, 
para. 504). Displacement  and impedance of exports of the A320ceo (and threats thereof): European  Union's 
first written submission, paras. 1927 and 1928; second written submission, paras. 1955 -1958; and response to 
Panel question No. 169, paras. 524 an d 525. The European Union refers to Silk Air's 2012 sales campaign, 
which it alleges is a lost sale of the A320ceo due to the U.S. subsidies as a further illustration that Airbus would 
have achieved greater future deliveries in the Singaporean existing tec hnology single -aisle market absent the 
U.S. subsidies.  
3222 Threat of impedance of exports of the A320neo: European Union's response to Panel question 
No. 169, paras. 349 -374 and 505. The European Union adds that the Fly Dubai (2013) campaign won by the 
737 M AX is a lost sale of the A320neo due to the U.S. subsidies and is further evidence of the existence of a 
threat of impedance of exports of the A320neo in the United Arab Emirates market. Displacement, impedance 
(and threats thereof) of exports of the A320c eo: European Union's first written submission, paras. 1929 -1932; 
second written submission, paras. 1953 -1954; and response to Panel question No. 169, paras. 526 -528. The 
European Union refers to Fly Dubai's 2008 and 2014 sales campaigns, which it alleges r esulted in lost sales of 
the A320ceo due to the U.S. subsidies as a further illustration that Airbus would have achieved greater future 
deliveries in the United Arab Emirates existing technology single -aisle market absent the U.S. subsidies.  WT/DS353/R W 
 
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  9.341.   The P anel adopts a unitary  approach to establishing causation, under which prices, sales, 
market share, and other indicators of competitive harm are not assessed in isolation, but rather as 
part of an integrated causati on analysis.3224 Our analysis is counterfactual in nature . We ask 
whether, but for the effects of the various subsidies, Airbus' sales, prices and market share would 
be higher. We will analyse the effects of the subsidies in two related phases: First , we exam ine the 
effects, if any, of the  relevant category of subsidies on Boeing's product development and pricing  
of the 737 MAX and pricing  of the 737NG; and second , we examine  whether any such effects  of 
the subsidies in question  on Boeing's product development  and prices ha ve the alleged impact on 
A320neo and A320ceo sales and prices in the post -implementation period , such that these 
subsidies constitute a genuine and substantial cause of the particular forms of serious prejudice 
alleged by the European Union w ith respect to the A320neo and A320ceo .  
9.342.   In Section 9.4.2 we address whether the European Union has established that  certain  
aeronautics R&D subsidies  benefiting the 737 MAX cause serious prejudice with respect to the 
A320neo i n the post -implementation period through a technology causal mechanism. In 
Section  9.4.3, we evaluate the European Union's arguments that the  post-2006 subsidies 
benefiting the 737 MAX and 737NG  cause serious prejudice with res pect to the A320neo and 
A320ceo  in the post -implementation period through a price causal mechanism .  
9.4.2   Whether certain aeronautics R&D subsidies  benefiting the 737 MAX cause serious 
prejudice  to the interests of the European Union, within the meaning of Arti cles 5(c) and 
6.3, in respect of the A320neo  in the post -implementation period , through a technology 
causal mechanism  
9.343.   As explained in Section 9.3.2.1.2 , the European Union argues that one of the ways in 
which the pre -2007 aeron autics R&D subsidies continue to cause significant competitive harm to 
the European Union's LCA -related interests in the post -implementation period is through spill -over 
technology effects resulting from the application of the "subsidized 787 technologies"  to Boeing's 
more recent aircraft developments, including the 737 MAX.3225 Additionally, the European Union 
argues that certain post -2006 aeronautics R&D subsidies have given rise to new technology effects 
in that they have enabled Boeing to develop new techn ologies for its more recent aircraft 
developments, including the 737 MAX.3226 
9.4.2.1   Spill-over technology effects of the pre -2007 aeronautics R&D subsidies  
9.344.   The European Union argues that Boeing's participation in the original NASA and DOD 
programmes enabled Boeing to incorporate larger, more fuel -efficient engines, enhanced 
aerodynamics, and modern flight controls onto the 737 MAX  as inspired by the 787's design. 
Overall, the European Union asserts that the technologies applied to the 737 MAX represent a 13% 
fuel-burn savings over the 737NG.3227 Without the contribution of the pre -2007 aeronautics R&D 
subsidies, Boeing would have been unable to develop the proprietary technology to launch the 
737 MAX in August 2011 and promise first deliveries in 2017.3228 
9.345.   The European Uni on submits that Boeing's incorporation of larger engines on the 737 MAX  
is "one of the quintessential technology changes – and selling points – of the 737 MAX " and has 
contributed "a significant part" of the fuel burn advantage of the aircraft.3229 The Europe an Union 
                                                                                                                                               
3223 As evidenced  by certain pricing and market share data for the A320neo and A320ceo as well as 
certain of the sales campaigns alleged to be significant lost sales and which are said to demonstrate a pattern 
of pricing behaviour in which Airbus was forced to lower its ow n prices in reaction to Boeing's aggressive 
pricing. (European Union's first written submission, paras. 1808 -1810).  
3224 See Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1658.  
3225 European Union's first written submission, para. 984.  
3226 Europ ean Union's first written submission, para. 986.  
3227 European Union's first written submission, para. 1621.  
3228 European Union's first written submission, para. 1621. See also European Union's first written 
submission, paras. 1038 -1060 and 1620; and Airbus Eng ineer's  Statement, (Exhibit EU -31) (BCI), 
paras.  23-42 and 55 -61. 
3229 European Union's first written submission, para. 993. The European Union submits that its argument 
is not directly related to the new engines, but instead, concerns Boeing's ability to int egrate the engines 
through close coupling of the engine nacelles and through the use of CFD codes. It considers that Boeing's role 
as an integrator of different technologies was key in researching designing and developing the close coupling of 
the engines to the 787 wing. (European Union's second written submission, para. 1596).  WT/DS353/R W 
 
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  alleges that Boeing's engine integration design on the 737 MAX was enabled by: (a) the close 
coupling of the engines to the wings, using new nacelles and new pylons, which Boeing had 
developed previously for the 787; and (b) CFD codes that were de veloped and enhanced under 
several original NASA aeronautics R&D programmes (HSR, AST, HPCC, and R&T Base).3230 The 
minimal ground clearance inherent in the 737 design means that, absent the innovative engine 
integration design on the 737 MAX, Boeing would no t have been able to apply the larger diameter 
CFM LEAP engines to the 737 MAX without either building a new wing for the 737 MAX or 
otherwise devising its own engine integration. Both alternatives would have been more expensive 
and involved greater risk.3231  
9.346.   The European Union contends that Boeing was able to make changes to the aerodynamic 
shape of the overall aircraft using knowledge of CFD codes  developed under the pre -2007 
aeronautics R&D subsidies. This includes the incorporation of a "787 -style tail con e" for the conical 
tail cone of the 737 MAX that reduces drag by 1%. Finally, the European Union contends that 
Boeing was able to develop a partial fly -by-wire system on the 737 MAX incorporating manoeuvre 
and gust load alleviation based on Boeing's experi ence in introducing load alleviation systems on 
the 787.3232 The European Union submits that assertions that there were no spill -over effects from 
the original pre -2007 aeronautics R&D subsidies affecting the 787 to the design of the 737 MAX  
tail cone and fly -by-wire spoilers are contradicted by Boeing statements made outside this 
dispute.3233 
9.347.   The United States argues that the acceleration effect of the pre -2007 aeronautics R&D 
subsidies was relatively short -lived, and to the extent there is any technological con tinuity leading 
to spill -over onto newer Boeing LCA such as the 737 MAX, the launch of the 787 in 2006 would 
have left ample time for Boeing to adapt technologies to the 737 MAX well before its actual 
launch.3234 As regards the alleged technological connectio ns between the 787 technologies and 
those developed for the 737 MAX, the United States makes a number of arguments in response to 
the European Union's assertions.  
9.348.   The United States argues that the 737 MAX "primarily involve{s}" improved engine 
technology, which is outside the scope of this dispute.3235 Although the European Union attempts 
to link Boeing's engine integration design for the 737 MAX to the 787, Boeing's primary reference 
points for the 737 MAX engine installation were in fact production configura tions for the 737NG 
and to a lesser degree the 777, along with earlier work [***]3236 The United States explains that, 
starting in [***], Boeing considered that improvements in engine technology had advanced to the 
point where a re -engined 737 might be viable , and began intensive product development studies 
and testing. This included wind tunnel tests at Boeing's Transonic Wind Tunnel in Seattle to 
                                               
3230 More specifically, the European Union alleges that, based on research conducted under the NASA 
Subsonic Fixed Wing Project on the "Multi -Objective Optimization of a Turbofan for a n Advanced, Single -Aisle 
Transport", Boeing was able to develop a technical solution to close couple the engine nacelles (i.e. the outer 
casing of the engine) to the wing, allowing the engines to be located higher up and more forward relative to 
the wing l eading edge, based on the use of advanced computation al fluid dynamics (CFD) codes to determine 
optimal engine size and configuration.  
3231 European Union's first written submission, para. 1624; and Airbus Engineer's  Statement, (Exhibit 
EU-31) (BCI), paras. 9 9 and 134.  
3232 The European Union submits that the 737 MAX's fly -by-wire system is based on Boeing's experience 
developing a more electric architecture for the 787. (European Union's first written submission, para. 1622). 
See also European Union's response t o Panel question No. 165, paras. 139 -141; and Boeing Presentation #18, 
(Exhibit EU -1680) (HSBI). This feature will specifically enable Boeing to reduce airframe weight, due to lower 
sustained structural loads, thereby allowing higher permissible airplane g ross weights for take -off and landing 
and increasing payload range capability. (European Union's response to Panel question No. 165, para. 140 
(referring to Boeing Presentation #18, (Exhibit EU -1680) (HSBI))).  
3233 European Union's second written submission, paras. 1598 -1601; Airbus Engineer's  Statement, 
(Exhibit EU -31) (BCI), para. 111.  
3234 See United States' first written submission, paras. 3, 682, 703 -711, 735 -738, and 782 -799; 
United  States' second written submission, paras. 732 -739, 743 -849, 881 -904, and 11 87-1204; response to 
Panel question Nos. 45, 46, 47, 151, 152, 153, 156, 157, and 165; and comments on European Union's 
response to Panel question Nos. 45, 46, 47, 151, 152, 153, 156, 157, and 165.  
3235 United States' first written submission, para. 968. The United States submits this is "the same 
engine technology" as features on A320neo update. See also United States' first written submission, para. 972 
and Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 44.  
3236 United States' first written submiss ion, para. 980 (citing Boeing Engineers' Statement, (Exhibit 
USA-283) (BCI), para. 54).  WT/DS353/R W 
 
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  evaluate engine installation configurations.3237 Boeing concluded that, since [***], Boeing would 
be able to make co mmitments for the 737 MAX to American Airlines in July 2011.3238 As for the 
European Union's allegations regarding the contribution of CFD codes to the 737 MAX engine 
integration design, the United States argues, based on the statement of the Boeing engineers , that 
Boeing's would have replicated in six months its experience with CFD codes from its work under 
the various NASA aeronautics R&D programmes.3239 Finally, the United States considers that while 
statements by the European Union that the chevron technology  for the 787 is the same or similar 
to that of the 737 MAX [***], the two types of chevrons are [***].3240 
9.349.   The United States argues that the European Union's arguments regarding the alleged spill -
over effects of the design of the conical tail cone for the 787  on the 737 MAX tail cone  are based 
on "superficial similarity"3241. The two designs are only broadly similar in the sense that they are 
both conical.3242 The Boeing engineers explain that, while the 737NG represented a hybrid 
between cone and blade, for the 737  MAX, Boeing returned to the conical shape. This was part of 
improvements to the aft body design to improve the steadiness of air flow and eliminate the need 
for vortex generators on the tail. The basis for the final 737 MAX tail cone design was [***]. That 
basis for the design used the [***3243]3244 Overall, even if the 787 did not exist, Boeing would 
have designed the 737 MAX  tail cone as it is, in the same timeframe.3245 
9.350.   The United States argues that the fly -by-wire system on the 737 MAX "is very different 
from t hat of the 787, in terms of its extent, its systems architecture, and its suppliers".3246 It is 
partial, applied on [***], rather than all of the aircraft's spoilers. The allocation of spoiler pairs on 
the 737 MAX is the same as the 737NG, involving [***] for airplane control and [***] as speed 
brakes for ground operations. The control architecture for the 737 MAX's fly-by-wire spoilers is 
most similar to the control architecture applied to the fly-by-wire spoilers on the 767 and the 
757.3247 The actuators are su pplied by [***]. The United States argues that the 787 uses a 
different, digital fly -by-wire system on all spoilers, with actuators supplied by Moog. The 787 
system also includes a vertical gust suppression droop spoiler that is not on the 737 MAX. If the 
787 did not exist, Boeing would still have designed the 737 MAX fly -by-wire system exactly as it 
is.3248 
9.351.   As we have previously explained in the context of our evaluation of the European Union's 
arguments regarding the alleged spill -over technology effects of the pre -2007 aerona utics R&D 
subsidies to the technological developments of the 787 -9/10 and the 777X, the European Union's 
spill-over technology effects theory raises two issues. The first  is whether , conceptually,  the 
original technology effects  of the p re-2007 aeronautics R&D subsidies  could have  "spilled-over" to 
other aircraft , bearing in mind that these effects pertain to the acceleration of Boeing's 
development of 787-related technologies and not to the existence , as such , of those technologies . 
If so, the second issue is whether  any of the alleged technologies identified by the European Union 
in relation to the 737 MAX are related or linked to the 787 technologies such that the latter bear  a 
meaningful technological connection to the former.  
                                               
3237 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 44. See also United States' first 
written submission, paras. 980 and 972; and Boeing Engineers' Statement,  (Exhibit USA -283) (BCI), para. 54.  
3238 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 47.  
3239 United States' second written submission, para. 11 88; Boeing Engineers' Statement, (Exhibit 
USA-283) (BCI), para. 30.  
3240 United States' second written s ubmission, paras. 788 and 1191 -1192; Boeing Engineers' Statement, 
(Exhibit USA -283) (BCI), para. 56; Boeing Engineers ' Reply, (Exhibit USA -359) (BCI), para. 33.  
3241 United States' first written submission, para. 982.  
3242 United States' second written submissio n, paras. 791 and 1197; Boeing Engineers' Reply, (Exhibit 
USA-359) (BCI), paras. 37 and 38.  
3243 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 58.  
3244 United States' second written submission, paras. 791 and 1197; Boeing Engineers' Reply, (Exhibit  
USA-359) (BCI), paras. 37 and 38.  
3245 Boeing Engineers' Statement, (Exhibit USA -283) (BCI), para. 58.  
3246 United States' first written submission, para. 984 (referring to Boeing Engineers' Statement, (Exhibit 
USA-283) (BCI), para. 58).  
3247 United States' second  written submission, paras. 789 and 1199; Boeing Engineers' Reply, (Exhibit 
USA-359) (BCI), paras. 34 and 35; and comments on European Union's response to Panel question No. 165, 
para. 169.  
3248 United States' first written submission, para. 984 (referring to  Boeing Engineers' Statement, (Exhibit 
USA-283) (BCI), para. 58).  WT/DS353/R W 
 
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  9.352.   As prev iously noted, the causation finding in the original proceeding was that the pre -2007 
aeronautics R&D subsidies accelerated  the development by Boeing of the 787 technologies. The 
relevant question before us is therefore whether, owing to that acceleration, any alleged so -called 
spill-over technologies in relation to the 737 MAX also came into existence earlier than would 
otherwise be the case, enabling an earlier than otherwise launch of this aircraft.  
9.353.   We conclude in Section 9.3.2.1.1 above, in our evaluation of the European Union's 
arguments regarding the continuation of the alleged "original technology effects" of the pre -2007 
aeronautics R&D subsidies, that the European Union fail s to demonstrate that, absent the pre -
2007 aero nautics R&D subsidies, Boeing would have launched the 787 after the end of the 
implementation period in September 2012. We note that the end of the implementation period is 
more than eight years after Boeing actually launched the 787 in 2004, and is ten or  more years 
after when Boeing began pre -launch R&D for the development of the 787 following its decision to 
develop a replacement for the 767. At the point in time of an unsubsidized 787 launch, Boeing 
would have undertaken all of the R&D necessary to laun ch 787 that the pre -2007 aeronautics R&D 
subsidies had enabled it to undertake at an accelerated rate.  
9.354.   We find above that, a lthough it is more difficult for us to confidently predict exactly when 
Boeing would have been able to launch the 787 absent the pr e-2007 aeronautics R&D subsidies, 
Boeing would have done so  well before (i.e. at least several years before) the end of the 
implementation period.3249 In our view, it is not unrealistic to believe that Boeing would have been 
in a position to have launched the  737 MAX before  the end of the implementation period.  The 
European Union has not provided credible evidence that the 787 technologies that an unsubsidized 
Boeing would have developed could not have been adapted to the 737 MAX in sufficient time to 
enable i ts respective launch in August 2011.  We recall in this respect our earlier observation that 
the European Union misconstrues the findings from the original proceeding as to the effects of the 
pre-2007 aeronautics R&D subsidies.3250 
9.355.   Accordingly, we conclude tha t the European Union has failed to demonstrate the existence 
of so-called spill -over technology  effects of the pre-2007 aeronautics R&D subsidies  in respect of 
the 737 MAX in the post -implementation period  .3251  
9.4.2.2   New technology effects of certain post -2006 ae ronautics R&D subsidies  
9.356.   We recall that the European Union points to a relatively small number of individual 
post-2006 aeronautics R&D subsidies which it argues operate through a technology causal 
mechanism (rather than a price causal mechanism) to contribu te to "Boeing's development of 
innovative technologies for its current aircraft", such as the 737 MAX.3252 In this Section of the 
Report, we evaluate the European Union's arguments regarding th ese post-2006 aeronautics R&D 
subsidies that are said to operate t hrough a technology causal mechanism to affect the 
development of technologies for the 737 MAX and thereby cause serious prejudice to the 
European  Union's  interests in the post -implementation period.  
9.357.   The European Union argues that Boeing's participation in : (a) NASA's ERA Project, and the 
Subsonic Fixed Wing Project under NASA's Fundamental Aeronautics Program; (b) the DOD KC -46 
Next Generation Aerial Refueling Aircraft  program element ; and (c) the ecoDemonstrator 
programme pursuant to the Boeing CLEEN Agre ement enabled Boeing's development of 
                                               
3249 See para. 9.176  above . 
3250 As previously explained, the causation finding in the original proceeding was that the pre -2007 
aeronautics R&D subsid ies accelerated  the development by Boeing of the 787 technologies; they did not create 
those 787 technologies. The knowledge and experience gained through the pre -2007 aeronautics R&D 
subsidies w ere not the effect of the subsidies per se . This finding ther efore provides no basis for the argument 
that the pre -2007 aeronautics R&D subsidies provided the advantage each time a technology is put into use by 
Boeing, unless the European Union could have established that, by the end of the implementation period, 
Boeing would still not have developed the 787 technologies and launched the 787, a proposition which we 
rejected on the evidence before us.  
3251 In light of this conclusion, we need not address the second question, which is whether any of the 
alleged technologi es identified by the European Union in relation to the 737 MAX  are in some way related or 
linked to those on the 787.  
3252 European Union's first written submission, para. 979.  WT/DS353/R W 
 
- 563 - 
 
  technologies for the 737 MAX (as well as for the 787 -9/10 and 777X, discussed in 
Section  9.3.2.1.4 ), thereby contributing to adverse effects caused through that aircraft.3253  
9.358.   The European Uni on alleges that Boeing conducted research under NASA's Subsonic Fixed 
Wing Project  on the "Multi -Objective Optimization of a Turbofan for an Advanced Single -Aisle 
Transport", to identify a design solution for incorporating larger engines on a next -generati on 
single -aisle aircraft that helped Boeing determine the configuration for the 737 MAX.3254 In 
addition, the European Union submits that Boeing learned how to integrate large format 
multifunction primary displays into the legacy architecture of the 737 MAX c ockpit through 
participation in the DOD KC -46, Next Generation Aerial Refueling Aircraft  program element, 
specifically related to the 767 -2C.3255 Finally, the European Union argues that Boeing has tested 
and validated various technologies related to the devel opment of the 737 MAX as part of the 2012 
ecoDemonstrator 737 -800 flight test bed, including adaptive trailing edges and variable area fan 
nozzle (VAFN) technology that could contribute to additional fuel burn savings of 2% and reduce 
take-off noise as wel l as Boeing -proprietary winglet technology.3256 
9.359.   The United States denies that Boeing conducted research under the "Multi -Objective 
Optimization of a Turbofan for an Advanced, Single -Aisle Transport". Rather, the document on 
which the European Union relies for  its assertions regarding the contribution of the NASA Subsonic 
Fixed Wing Project  on the "Multi -Objective Optimization of a Turbofan for an Advanced, 
Single -Aisle Transport" argument is a " NASA study by NASA employees  Jeffrey Berton and 
Mark Guynn, which used public data on Boeing's 737NG aircraft".3257  
9.360.   The United States further argues that the DOD KC -46 Next Generation Aerial Refueling 
Aircraft program element  is outside the scope of this proceeding and therefore warrants no further 
consideration.  The Unite d States also denies that the KC -46 Next Generation Aerial Refueling 
Aircraft  program element contributed to Boeing's ability to incorporate multifunction primary 
displays in the 737 MAX. While it is true that the 737 MAX primary displays are derived from the 
displays developed for the 787, this was done by Boeing and its supplier Rockwell Collins without 
any U.S. Government funding. Although both the 737 MAX and 767 -derivative KC -46 primary 
displays are derived from those on the 787, there was no transfer of technology or learning from 
the KC -46 displays to those on the 737 MAX.3258 The 737 MAX and KC -46 displays are different 
devices; the KC -46 displays are designed to interact with military night vision systems, while those 
on the 737 MAX are not. The United  States submits that Boeing has updated the legacy 
architecture of the 737 and 767 "numerous times" over the years and there is no legacy 
architecture display integration challenge in common between the two aircraft.3259 Contrary to the 
European Union's argum ent, the flow of technology is from civil to military, with the display 
technology from the 787 being incorporated into the KC -46.  
                                               
3253 The European Union argues that, should the Panel disagree that any of these alle ged post -2006 
aeronautics R&D subsidies operate, at present, through a technology causal pathway, they should in the 
alternative be understood to operate through a price causal pathway. (See European Union's response to Panel 
question No. 43, fn 352).  
3254 European Union's first written submission, paras. 1095 and 1096; Airbus Engineer's  Statement, 
(Exhibit EU -31) (BCI), section IV.B.1 (referring to J. J. Berton and M. D. Guynn, NASA, Multi-Objective 
optimization of a Turbofan for an advanced, single -aisle tra nsport , (April 2012), (Exhibit EU -666), p. 22).  
3255 European Union's first written submission, paras. 1095 -1099 and 1623; Airbus Engineer's  
Statement, (Exhibit EU -31) (BCI), section IV; and Airbus Engineers' Response, (Exhibit EU -1014) (BCI), 
para. 104. (fn omitted)  
3256 European Union's first written submission, paras. 1090 -1094; Airbus Engineer's  Statement, (Exhibit 
EU-31) (BCI), section IV; and C. Wilsey and R. Stoker, "Continuous Lower Energy, Emissions and Noise 
(CLEEN) Technologies Development – Boeing Pro gram Overview", Presentation at the CLEEN Consortium Public 
Session, 27 October 2010, (Exhibit EU -665), p. 6  
3257 See United States' first written submission, para. 976 (referring to J. J. Berton and M. D. Guynn, 
NASA, Multi-Objective optimization of a Turbof an for an advanced, single -aisle transport  (April 2012), (Exhibit 
EU-666)) (emphasis original). See also Boeing Engineers' Statement, (Exhibit USA -283) (BCI), paras. 49 and 
50 ("{s}cientists preparing documents of this nature usually thank other scientists  who have reviewed their 
work or provided other input. The absence of any Boeing employees from the acknowledgement page of the 
NASA study confirms that Boeing played no role in that project").  
3258 Boeing Engineers' Reply, (Exhibit USA -359) (BCI), paras. 39 and 40.  
3259 United States' second written submission, para. 1195 (referring to Boeing Engineers' Reply, (Exhibit 
USA-359) (BCI), paras. 39 and 40 ). WT/DS353/R W 
 
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  9.361.   The United States acknowledges that FAA CLEEN funding under the Boeing CLEEN 
Agreement was used for preparation of the aircr aft/instrumentation specific to CLEEN test 
requirements, operation, fuel and support of the aircraft during 51.5 hours of dedicated adaptive 
trailing edge flight testing based in Glasgow, Montana, and subsequently, an apportioned 
percentage was used on pos t-test refurbishment costs of the aircraft to make it suitable for 
commercial operation with American Airlines. However, it submits that Boeing's proprietary 
adaptive trailing wing edge technology [***].3260 The United States argues that testing for 
Boeing's proprietary VAFN technology, multi -spar winglet design, and deployment of RFID devices 
was not conducted pursuant to the Boeing CLEEN Agreement on the 737 -800 ecoDemonstrator 
test bed, but was funded at Boeing's own expense. In cases where technologies are  tested on the 
737-800 ecoDemonstrator test bed, the United States submits that great care is employed to 
segregate CLEEN costs from ecoDemonstrator costs. At most, it is possible that the Boeing CLEEN 
Agreement funded a small portion of the fuel cost incu rred for a given technology. In this regard, 
only a small amount of FAA CLEEN funding may be allocated to testing of VAFN technology or RFID 
devices. It is unreasonable to suggest that a possible fuel cost contribution had a meaningful 
impact on Boeing's t esting of these technologies, let alone on Boeing's ability to develop the 737 
MAX. In any case, the Boeing CLEEN Agreement was not a source of funding of fuel costs for 
testing of the multi -spar winglet that the 737 MAX design incorporates, as the winglet  was not 
even installed on the test aircraft during the CLEEN phase of flight testing in Glasgow, Montana. In 
addition, the United States also emphasizes that VAFN technology [***].3261 
9.362.   We begin by addressing the European Union's argument that knowledge and e xperience 
gained under the Multi -Objective Optimization of a Turbofan for an Advanced, Single -Aisle 
Transport aspect of NASA's Subsonic Fixed Wing Project  helped Boeing in its decision to integrate 
larger engines on the 737 MAX and proceed with the overall  737 MAX design as opposed to a clean 
sheet replacement design. While the European Union submits a copy of the results of the NASA 
research effort, it does not identify how Boeing participated in this effort, or indeed whether this 
participation occurred t hrough a NASA procurement contract or other agreement funded under any 
of the challenged NASA aeronautics R&D programmes.3262 Nor does the European Union provide 
evidence of the contribution of the study to Boeing's decision to incorporate the relevant 
techno logies onto the 737 MAX, or of the extent to which this project contributed towards an 
earlier launch of the 737 MAX or a launch tha t would otherwise not have been possible. The Airbus 
engineers concede that "{t}he choice {to proceed with the 737 MAX  design} was certainly not 
based on the result of this study alone".3263 On the basis of the evidence before us, we are not 
persuaded that Boeing was directly involved in the research in question, or even that the research 
contributed to the development of the rele vant 737 MAX technologies or to enabling an earlier 
launch of the 737 MAX.  
9.363.   We next address the European Union's allegations that Boeing's participation in the KC-46, 
Next Generation Aerial Refueling Aircraft  program element enabled Boeing to integrate larg e 
format multifunction primary displays into the legacy architecture of the 737 MAX  cockpit. We 
recall that in Section 7.3.3.3 , we have ruled that the KC-46 New Generation Aerial Refueling 
Aircraft p rogram element is outside th e scope of th e compliance proceeding . We therefore do not 
further consider the European Union's argument regarding the implications of Boeing's 
participation in this program element for Boeing's development of the legacy architecture of the 
737 MAX cockpit . 
9.364.   Finally, we turn to the European Union's allegations concerning Boeing's participation in 
the FAA CLEEN Program through the Boein g CLEEN Agreement in respect of the 737 MAX. The 
European Union alleges that Boeing tested variable area fan nozzles and adap tive trailing edges 
                                               
3260 United States' second written submission, para. 1203; and Boeing Engineers' Reply, (Exhibit 
USA-359) (BCI), para. 43.  
3261 United States' second written submission, para. 1203. See also United States' first written 
submission, para. 989; second written submission, paras. 1201, and 1202; Boeing Engineers' Statement, 
(Exhibit USA -283) (BCI), paras. 64 -68; and Boeing Engineers' Reply, (Exhibit USA -359) (BCI), paras. 44 -47. 
3262 J. J. Berton and M. D. Guynn, NASA, Multi-Objective optimization of a Turbofan for an advanced, 
single -aisle transport , (April 2012), (Exhibit EU -666).  
3263 Airbus Engineer's  Statement, (Exhibit EU -31)(BCI), para. 136.  WT/DS353/R W 
 
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  under the 2012 ecoDemonstrator 737 -800 test bed, and that these technologies both appear on 
the 737 MAX.3264  
9.365.   In Section 9.3.2.1.4  above, we reject the European Union's argument that Boeing's 
participation in t he FAA CLEEN Program, through the Boeing CLEEN Agreement, created or 
accelerated the creation of RFID technology or HLFC technologies for use on the 787 -9/10 or 
777X. In reaching this conclusion, we distinguished the types of early -stage, high -risk R&D at 
issue in the original proceeding from the type of testing and validation of technologies that are 
already i n a late stage of development , which takes place under Boeing's ecoDemonstrator 
programme. As we explain in paragraph s 9.205 and 9.206  above , we are not persuaded that 
Boeing would not have undertaken the testing and validation work on its own, absent its work 
under the Boeing CLEEN Agreement.  
9.366.   Therefore we are similarly not persuaded that Boein g's participation in the FAA CLEEN 
Program through  the Boeing CLEEN Agreement materially  helped Boeing to undertake R&D  in 
relation to the alleged technologies that now feature on the 737 MAX,  that it would not otherwise 
have undertaken, or to achieve the same gains that it would not otherwise have achieved within 
essentially  the same time -frame. Rather, if anything,  Boeing's participation in a cost -sharing 
arrangement  such as the Boeing CLEEN Agreement merely  somewhat lower the cost at which it 
was able to  undertake research it would have undertaken in any case . We therefore  conclude that 
the European Union has failed to demonstrate that Boeing's participation in the FAA CLEEN 
Program, through the Boeing CLEEN Agreement, created or accelerated the developme nt and 
creation of the variable area fan nozzles and adaptive trailing edges that are alleged to feature on 
the 737 MAX. T he European Union has  therefore  failed to demonstrate  the existence of  new 
technology effects of the particular post -2006 aeronautics R&D subsidies in respect of the 737 MAX 
in the post -implementation period.3265  
9.4.2.3   Summary of c onclusions on whether certain aeronaut ics R&D subsidies  
benefiting the 737 MAX  cause serious prejudice  to the interests of the European Union, 
within the meaning of Ar ticles 5(c) and 6.3,  in respect of  the A320neo in the 
post-implementation period , through a technology causal mechanism  
9.367.   In this Section, we evaluate the European Union's arguments that the pre -2007 
aeronautics R&D subsidies, through their effects on Boeing 's development of 787 technologies, 
have "spilled over" to affect the technological development of the 737 MAX and the timing of its 
launch (the spill -over technology effects), and that certain post -2006 aeronautics R&D subsidies 
have led Boeing to develop  other technologies which also affect this aircraft's technological 
development and the timing of its launch (the new technology effects).  
9.368.   As regards the spill-over technology effects  of the pre -2007 aeronautics R&D subsidies, we 
refer to the original pan el's finding that the effect of the pre -2007 aeronautics R&D subsidies was 
to accelerate Boeing's development of the 787 technologies (rather than to create technologies 
that would not otherwise exist), and our conclusion in Section 9.3.2.1.1 , that the European Union 
has failed to demonstrate that, absent the pre -2007 aeronautics R&D subsidies, Boeing would 
have launched the 787 after the end of the implementation period in September 2012. We explain 
that, owing to this finding,  the onus is on the European Union to demonstrate that, absent the 
acceleration effect of the pre -2007 aeronautics R&D subsidies on Boeing's development of 787 
technologies, Boeing would not have had sufficient time to further develop technologies that wou ld 
have enabled it to launch the 737 MAX in 201 1. We conclude that the European Union has not 
provided credible evidence that, absent the pre -2007 aeronautics R&D subsidies, the 787 
technologies that Boeing would have developed could not have been adapted and further 
developed for the 737 MAX in sufficient time to enable Boeing to launch the 737 MAX  in 
                                               
3264 Airbus Engineer's Statement, (Exhibit EU -31) (BCI), para. 121. See also Airbus Engineer's 
Statement, (Exhibit EU -31) (BCI), para. 16 (referring to Boeing, Fact Sheet, "The Suite of Technologies on the 
ecoDemonstrator Tests New Ways to Reduce Fuel Consumption and Community Noise", June 2012, (Exhibit 
EU-262)).  
3265 Given the European Union's request that if we reject its arguments that the particular, identified 
post-2006 aeronautics  R&D subsidies operate through a technology causal mechani sm, we consider in the 
alternative whether they should be analy sed as operating through a price causal mechanism, we will address 
whether these particular , identified  post-2006 aeronautics R&D subsidies operate through a price causal 
mechanism in Section 9.4.3.3  below.  
 WT/DS353/R W 
 
- 566 - 
 
  August  2011. This is sufficient to enable the Panel to reject the European Union's argument 
regarding spill-over technology effects in relation to the 737 MA X without addressing whether 
there is in any case a sufficient technological link between the 787 technologies and the features of 
the 737 MAX that the European Union alleges are derived from the 787 technologies.  
9.369.   As regards the new technology effects  of certain post -2006 aeronautics R&D subsidies, we 
explain that there are three such subsidies that are alleged to have affected Boeing's development 
of certain technologies for the 737 MAX: (a) NASA's ERA Project  and the Subsonic Fixed Wing 
Project under NAS A's Fundamental Aeronautics Program; (b) the DOD KC -46, Next Generation 
Aerial Refueling Aircraft  program element ; and (c) the ecoDemonstrator programme pursuant to 
the Boeing CLEEN Agreement.  
9.370.   We reject the arguments regarding the NASA aeronautics R&D pro grammes  above because 
they are based on results of a study published by NASA, without any indication of whether Boeing 
participated in the study in question, and if so, how and through which instruments. There is also 
no evidence as to the degree to which the study in question contributed to solving the 
technological problems or to Boeing's decision to incorporate the relevant technologies onto the 
737 MAX. We reject the arguments regarding the DOD KC -46, Next Generation Aerial Refueling 
Aircraft program el ement  because the KC -46, Next Generation Aerial Refueling Aircraft program 
element is outside the scope of the proceeding. Finally, we decline to analyse the Boeing CLEEN 
Agreement  as contributing to Boeing's development of technologies for the 737 MAX bec ause the 
nature of the R&D performed is testing, validation and refinement of late -stage technologies. 
Unlike the R&D that Boeing performed under the pre -2007 aeronautics R&D subsidies, the R&D 
performed by Boeing under  the Boeing  CLEEN Agreement  is R&D th at Boeing would otherwise (and 
could otherwise) have performed itself. As the Boeing CLEEN Agreement is a cost -sharing 
arrangement, we consider the material contribution of that subsidy is to lower Boeing's costs of 
undertaking late stage testing and valid ation work. We will therefore consider whether, analysed 
as operating through a price causal mechanism, this post -2006 aeronautics R&D subsidy can be 
said to affect Boeing's LCA prices.  
9.371.   Finally, in Section 9.3.2. 1.4, we reject the European Union's argument that research 
Boeing conducted under NASA's Subsonic Fixed Wing Project related to the development of 
PRSEUS composite materials or Boeing's research and testing of VAFN, RFID devices, adaptive 
trailing wing ed ge technology or a modified winglet can give rise to "future technology effects" that 
could constitute a threat of serious prejudice, within the meaning of Article 5(c) and footnote 13 
and Article 6.3 of the SCM Agreement. This finding is similarly relevan t to our assessment here.  
9.372.   In conclusion, we reject the European Union's arguments concerning the existence of 
various alleged technology effects of the pre -2007 aeronautics R&D subsidies and certain post -
2006 aeronautics R&D subsidies  in respect of the 737  MAX in the post -implementation period .  
9.373.   Because the European Union has failed to demonstrate any effect s of the pre -2007 
aeronautics R&D subsidies, or of the particular, identified post -2006 aeronautics R&D subsidies, on 
Boeing's product development in re spect of the 737 MAX in the post -implementation period, the 
possibility of any consequent impact of those subsidies on sales and prices of the A320neo does 
not arise.3266 Accordingly, there is no basis on which the pre -2007 aeronautics R&D subsidies or 
the pa rticular, identified post -2006 aeronautics R&D subsidies can be found to be a genuine and 
substantial cause of any of the forms of serious prejudice alleged in respect of the A320neo in the 
post-implementation period, through  a technology causal mechanism.  
9.4.3   Whether the post -2006 subsidies benefiting the 737 MAX and 737NG cause 
serious prejudice  to the interests of the European Union, wit hin the meaning of 
Articles  5(c) and 6.3,  in respect of  the A320neo and A320ceo  in the post -implementation 
period , through a price causal mechanism  
9.374.   The European Union argues that certain unwithdrawn subsidies that the United States 
grants and maintains since the end of the reference period in the original proceeding (the 
post-2006 subsidies), through their effects on Boeing's pricing of the 737 MAX in certain 
price-sensitive LCA sales campaigns, considered collectively  with the effects of certain aeronautics 
R&D subsidies on Boeing's technology developments for the 737 MAX, cause various forms of 
                                               
3266 See para. 9.341  above.  WT/DS353/R W 
 
- 567 - 
 
  serious prejudice with respect to the A320neo in the post -implementation period. It further argues 
that the post -2006 subsidies, through their effects on Boeing's pricing of the 737NG in certain 
price-sensitive LCA sales campaigns, cause various forms of serious prejudice with respect t o the 
A320ceo in the post -implementation period.  
9.375.   In Section 9.4.2 above, the Panel conclude s that the European Union has failed to 
demonstrate the first part of its serious prejudice argument in relation to the 737 MAX and 
A320neo; namely, that the various aeronautics R&D subsidies affected Boeing's development of 
technologies for the 737 MAX in the post -implementation period. The consequence of this 
conclusion is that the technological advancements (including the timing of del ivery) of the 737 
MAX cannot be considered to be an effect of the subsidies.  
9.376.   This means that the  remaining element of the European Union's serious prejudice case 
regarding the A320neo  that we must address is whether the  post-2006 subsidies have enabled 
Boeing to lower the prices of the 737 MAX  in certain  highly competitive  LCA sales campaigns , 
thereby causing serious prejudice with respect to the A320neo in the pos t-implementation period. 
We note that the European Union also argues  that th e post -2006 subsi dies have enabled Boeing to 
lower the pri ces of the 737NG  only in certain  highly competitive  LCA sales campaigns , thereby 
causing serious prejudice with respect to the A320ceo  in the post -implementation period. Given  
our finding that the 737 MAX, 737NG, A3 20neo and A320ceo compete in one LCA product market 
for narrow -body, single -aisle LCA, we will consider whether the post -2006 subsidies, through their 
effects on Boeing's prices of the 737 MAX and 737NG, are a genuine and substantial cause of 
significant l ost sales of the A320neo and A320ceo, of i mpedance as well as displace ment of 
A320neo and  A320ceo imports (to the United  States) and exports (to certain third country 
markets), and of significant price suppression of the A320neo and A320ceo , and threats of  all of 
the foregoing, in the post -implementation period .  
9.377.   In Section  9.2.3, we explain that we shall  conduct our anal ysis of the effects of the 
post-2006 su bsidies that operate through a price causal mechanism  by aggregating t hem int o one 
of three categories: (a) tied tax  subsidies, comprising the Washington State and City of Everett 
B&O tax rate reductions, the receipt of which is contingent on the sale of particular Boein g LCA on 
a per -unit basis; (b) state and local cash flo w subsidies, comprising incentives provided by state 
and municipal authorities in Washington and South Carolina related to Boeing's LCA production 
activities in those jurisdictions, but which are not related to LCA production on a per -unit basis;  
and (c) post-2006 aeronautics R&D subsidies, which the European Union argues enable Boeing to 
use intellectual property to continue developing technologies for future LCA without having to pay 
licence fees.  
9.4.3.1   The Washington State B&O tax rate reduction  
9.378.   The subsidy w ithin the tied tax  subsidies aggregated category that is alleged to benefit the 
737 MAX and 737NG is the Washington State B&O tax rate reduction. This subsidy reduces the 
state B&O taxes applicable to the revenues earned from the sale of 737 MAX and 737NG aircraft, 
lowering Boeing's taxes and thereby increasing Boeing's after -tax profits.3267  
9.379.   We have previously explained the parties' general arguments as to t he nature and 
operation of the tied tax  category of post -2006 subsidies in connection with our analysi s of the 
effects of these subsidies on Boeing's 787 and 777X prices in the wide -body, twin -aisle LCA 
markets.3268 In Section 9.3.2.2.1  of this Report we explain ed the approach taken by the Appellate 
Body to determining whether the  FSC/ETI subsidies  and Washington State B&O tax rate reduction  
in the original proceeding, given their nature as tied tax  subsidies, the dynamics of price 
competition between Boeing and Airbus in a duopolistic market, and the way that the tied tax 
subsidie s are said to be applied by Boe ing to lower prices in certain  price-sensitive sales 
campaigns, contributed in a genuine and substantial way to the lowering of Boeing's prices.3269 
Based on this approach, we then proceeded to evaluate the sales campaign eviden ce to determine 
whether any of the sales campaigns involving wide -body, twin -aisle aircraft were price -sensitive, in 
the sense that  Boeing appeared to be under particular pressure to reduce its prices in order to 
secure the sales, and whether there were any non -price factors that explain ed Boeing's success in 
                                               
3267 Panel Report, US – Large Civil Aircraft (2nd complaint ), para. 7.1806.  
3268 See paras.  9.235  through 9.237 above . 
3269 See paras. 9.239  through  9.241  above . WT/DS353/R W 
 
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  obtaining the sale ; e.g. Boeing's incumbency and a consequent switching cost advantage, the 
suitability of the aircraft for the particular customer's requirements (in terms of range, capac ity 
and deliv ery availability). Had we conclude d that Boeing appeared to be under particular pressure 
to reduce its prices in order to secure the sales, and that there were no non -price factors that 
explain ed Boeing's success in obtaining the sale,  we would have  conclu ded that the tied tax 
subsidies contributed in a genuine and substantial way to the lowering of Boeing's LCA prices  in 
the wide -body, twin -aisle LCA markets . As a second step in the analysis, we would then have 
address ed the United States' argument concern ing the relative insignificance of the magnitudes by 
determining whether, on the basis of the evidence before us, the magnitudes of the tied tax 
subsidies were enough to "cover the margin of victory between the final net prices of Boeing and 
Airbus"3270 such that the tied tax subsidies, through their effects on Boeing's prices, are a genuine 
and substantial cause of lost sales of the A350XWB.  
9.380.   We will follow the same approach in analysing the effects of the Washington State B&O tax 
rate reduction on Boeing's 73 7 MAX and 737NG prices in so-called price-sensitive sales campaigns, 
and their consequent effect on A320neo and A320ceo sales. We therefore begin by examining the 
sales campaign evidence involving the 737 MAX and 737NG on the one hand, and the A320neo 
and A320ceo, on the other, to determi ne whether, in any of these campaigns,  Boeing appeared to 
be under particular pressure to reduce its prices in order to secure the sales, and whether there 
were no non -price factors that explained Boeing's success in obtain ing the sale.  
9.4.3.1.1   The sales campaigns involving competition between the 737 MAX and 
A320neo and the 737NG and A320ceo  
9.381.   The European Union submits eviden ce concerning certain  LCA sales campaigns involving 
the 737 MAX and A320neo, and the 737NG and A320ceo, betwe en 2007 and 2015 which it argues 
are highly competitive, and instances where Boeing did in fact act on its incentive, enabled by the 
receipt of subsidies, to offer pricing concessions that enabled it to secure the sales at the expense 
of Airbus. The main d etails concerning these sales campaigns are set forth  in Table 12 below3271: 
                                               
3270 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1263.  
3271 The year following the name of the airline customer designa tes the date of the o rder, although in 
some cases much of the  sales campaign  activity  may have taken place in the preceding year. For this reason, 
the years of the sales campaigns as designated by the Panel may differ in certain cases from the years of tho se 
campaigns as indicated in the European Union's submissions, which appear generally to refer to the year in 
which the sales campaign was conducted.  WT/DS353/R W 
 
- 569 - 
 
  Table 12: Alleged  lost sales of the A320neo and A320ceo in the post -implementation 
period due to the 737 MAX and 737NG  
Sales campaig ns alleged to demonstrate lost sales of both the A320neo and the A320ceo due to the 
737 MAX and the 737NG3272 
 
Campaign  Number of 737NG 
orders  Number of 737 MAX 
orders  A320neo /A320ceo3273 
American Airlines 2011  100, plus 40 options  100, plus 60 options  260 si ngle-aisle aircraft  
Southwest Airlines 2011  58 150 None 
Southwest Airlines 2013 
("Follow -on") 5 50 None 
Avolon 2012  10  15  20 (A320neo)  
Norwegian Air Shuttle 
2012 22  100 100 (A320neo)  
United Airlines 2012 and 
2013 64, of which 50 in 2012 
and 14 in 2 013 100 None 
 
SilkAir 2012  23  31  None 
Lion Air 2012  29  201 174 (A320neo)  
60 (A320ceo)  
Fly Dubai 2014  11 75, plus 25 purchase 
rights  None 
 
Sales campaigns alleged to demonstrate lost sales of the A320neo due to the 737 MAX  
 
Campaign  Number of 737NG  
orders  Number of 737 MAX 
orders  A320neo/A320ceo  
GOL 2012  None 60 None 
 
Avolon 2014 ("Follow -on") 
 None 5 None 
Aviation Capital Group 
2012 None 60 30 (A320neo)  
Aeromexico 2012  
 None 60  None 
Icelandair 2013  
 None 16 None 
TUI Travel 2013  
 None 60, plu s 90 options  None 
Air Canada 2013  
 None 61, plus 18 options and 
30 purchase rights  None 
Monarch Airlines 2014  
 None 
 30, plus 15 options  None 
SilkAir 2015 ("Follow -on") 
 None 63274 None 
                                               
3272 The European Union had also challenged the Air Lease Corp 2012 and GECAS 2012 single -aisle 
campaigns, bu t does not pursue its arguments in relation to these campaigns on account of both airlines 
having subsequently announced a number of Airbus orders. (European Union's response to Panel question 
No. 169, para. 408).  
3273 Certain of the campaigns cited by the Eu ropean Union are "split campaigns" in that the customer 
divided the order across both Airbus and Boeing.  
3274 We note that the European Union argues that this "follow -on" order consisted of seven 737 MAX 
aircraft. However, the evidence presented by the Europe an Union only shows an order for six 737s, without 
specifying whether the aircraft concerned are 737 MAX or NG. (European Union's response to Panel question 
No. 169, para. 407, and table at para. 329; and Boeing website, Orders and Deliveries – 2015 Net Or ders, 
through 22 September 2015, available at <http://www.boeing.com/commercial/#/orders -deliveries>, 
accessed 8 August 2016, (Exhibit EU -1568)).  WT/DS353/R W 
 
- 570 - 
 
  Sales campaigns alleged to demonstrate lost sales of the A320ceo due to the 737NG  
 
Campaign  Number of 737NG 
orders  Number of 737 MAX 
orders  A320neo/A320ceo  
Fly Dubai 2008  
 50 None None 
Delta Airlines 2011  
 100 None None 
The data in Table 12 above is supported by the following ev idence: Boeing Press Release, "Boeing and 
American Airlines Agree on Order for up to 300 Airplanes", 20 July 2011, (Exhibit EU -883); "American Airlines 
Deal Seen as Win fo r Airbus , Bad Omen for Boeing", Ascend Advisory , 21 July 2011, (Exhibit EU -886);  "Boeing 
Orders Likely  to Survive American Bankruptcy" , Seattle Times , 29 November 2011 , (Exhibit EU -891); Boeing 
Press Release, "Boeing 737 MAX Logs First Firm Order from Launch Customer Southwest Airlines", 13 
December 2011 , (Exhibit EU -896); Boeing website, Orders and deliveries – 2013 Orders Detail, available at 
<http://www.boeing.com/commercial/#/orders -deliveries>, last accessed 8 August 2016, (Exhibit EU -1647); 
Boeing Press Release, "Boeing Announces Historic 737 Order for United Airlines", 12 July  2012, (Exhibit 
EU-912); Boeing website, Orders and Deliveries – 2013 Net Orders, through 9 July 2013, available at 
<http://www.boeing.com/commercial/#/orders -deliveries>, last accessed 7 August 2016, (Exhibit EU -1185); 
Boeing website, Orders and Deliveries – 2013 Orders Detail, through June 2013, available at 
<http://www.boeing.com/commercial/#/orders -deliveries>, accessed 8 August 2016, (Exhibit EU -1151); 
Boeing Press Release, "Boeing Statement on SilkAir Commitment to order 737s", 3 August 2012, (Exhibit 
EU-922); Boeing website, Orders and Deliveries – Customer Summary SilkAir, through February 2013, 
available at <http://www.boeing.com/commercial/#/orders -deliveries>, accessed 8 August 2016, (Exhibit EU -
923); Boeing Press Release, "Boeing, Lion Air Finalize Hist oric Order for up to 380 737s", 14 February 2012, 
(Exhibit EU -961); Airbus Press Release, "Lion Air orders 234 A320 Family aircraft", 18 March 2013, (Exhibit 
EU-962); Boeing Press Release, "Boeing, flydubai Finalize Order for 75 737 MAXs", 6 January 2014, (Exhibit 
EU-1598); Boeing Press Release, "Boeing, GOL Announce order for 60 737 MAX Airplanes", 1 October 2012, 
(Exhibit EU -940); Boeing Press Release, "Boeing and Norwegian Announce Order for 100 737 MAX; 22 Next -
Generation 737s", 25 January 2012, (Exhibi t EU-944); Airbus Press Release, "Norwegian firms up order for 100 
Airbus A320neo", 8 June 2012, (Exhibit EU -948); Boeing Press Release, "Boeing, Avolon Announce 
Commitment for 737 MAXs and Next -Generation 737s", 11 July 2012, (Exhibit EU -965); Boeing webs ite, 
Orders and Deliveries – Customer Summary Avolon, through February 2013, available at 
<http://www.boeing.com/commercial/#/orders -deliveries>, last accessed 8 August 2016, (Exhibit EU -966); 
Airbus Press Release, "Avolon increases initial NEO commitment by signing order for 20", 10 January 2013, 
(Exhibit EU -967); Boeing Press Release, "Boeing, Avolon Announce Commitment for 787 Dreamliners, 
Additional 737 MAXs", 14 July 2014 , (Exhibit EU -1646) ; Boeing Press Release, "Boeing, Aeromexico Finalize 
Order for 737 MAX 8s and 9s", 6 November 2012, (Exhibit EU -871); Boeing Press Release, "Boeing, Icelandair 
Finalize Order for 16 737 MAX Airplanes", 13 February 2013, (Exhibit EU -988); "TUI Travel to Buy 60 Boeing 
737 MAX Aircraft", BBC News , 31 May 2013, (Exhibit E U-1217); C. Buyck, "TUI Travel Firms Up Boeing 737 
MAX Order", Aviation Week , 17 June 2013, (Exhibit EU -1218); Air Canada Press Release, "Air Canada Selects 
Boeing 737 MAX to Renew Mainline Narrowbody Fleet", 11 December 2013, (Exhibit EU -1571); Boeing Pre ss 
Release, "Boeing Statement on Air Canada 737 MAX Commitment", 11 December 2013, (Exhibit EU -1572); 
Boeing Press Release, "Boeing, Air Canada Finalize Order for 61 737 MAXs", 1 April 2014, (Exhibit EU -1573); 
Boeing Press Release, "Monarch Airlines Finali ze Order for 30 787 MAX 8s ", 31 October 2014, (Exhibit 
EU-1624); Boeing Press Release, "Monarch Airlines Selects Boeing as Preferred Bidder for Fleet Replacement", 
14 July 2014, (Exhibit EU -1625); Boeing website, Orders and Deliverie s – 2015 Net Orders, th rough 
22 September 2015, available at <http://www.boeing.com/commercial/#/orders -deliveries>, accessed 
8 August 2016, (Exhibit EU -1568); Boeing Press Release, "Boeing, Fly Dubai Announce Next -Generation 737 
Order", 14 July 2008, (Exhibit EU -1008); and Delta Press Release, "Delta Announces Order for 100 Boeing 
737-900ER Aircraft", 25 August 2011, (Exhibit EU -1001).  
 
9.382.   The evidence submitted in relation to the above sales campaigns includes information 
concerning: (a) the aircraft that were offered by Airbus an d Boeing, respectively, to customers in 
each sales campaign; (b) the particular needs of the airline customer in terms of factors such as 
seating capacity, range and routes to be served, efficiency and delivery dates; and (c) the 
dynamics of the pricing in teractions between Airbus and Boeing, on the one hand, and the airline 
customer or leasing company on the other, through repeated rounds of negotiations. This evidence 
allows the Panel to assess with a high degree of confidence the extent to which the sale s 
campaigns were or were not particularly price -sensitive. While some of the sales campaign 
evidence is in the public domain (e.g. the information concerning the terms of the aircraft orders 
ultimately placed by the customer), a significant part of it, esp ecially as regards the internal Airbus 
communications describing Airbus' sales strategies and evaluating the competing Airbus and 
Boeing offers, is designated as HSBI. Therefore, in the discussion that follows, we provide a non -
confidential summary of our conclusions regarding the extent to which the outcomes of the 
individual sales campaigns appeared to turn on the price of the competing offers. Our detailed WT/DS353/R W 
 
- 571 - 
 
  analysis of the evidence pertaining to each sales campaign is set forth in an HSBI Appendix  to the 
Report.3275  
9.383.   We conclude, based on our evaluation of the sales campaign evidence concerning the 
A320neo and A320ceo, that in five sales campaigns between 2007 and 2015 , Boeing appeared to 
be under particular pressure to reduce its pri ces in order to secure th e sale , and there were no 
non-price factors that explain Boeing's success in obtaining the sale .3276 While pricing was 
discuss ed in certain of the other  single -aisle sales campaigns, Boeing does not appear to have 
been under particular pressure to reduce its prices in order to secure these sales, and there were 
non-price factors that explain Boeing's success in obtaining the order s, or in the case of split 
orders, the portion of the order s that it obtained. In the majority of these LCA sales campaigns, a 
critical factor was Boeing's status as the incumbent aircraft supplier.3277 Another critical factor in 
many  of these  campaigns was the airline customer's preference for the delivery availability of the 
Boeing aircraft over the competing Airbus aircraft.3278 The size and timing of certain airline 
customers' fleet replacement needs also featured as a decisive factor in some campaigns, meaning 
that some orders could simply not be met by a single manufacturer and therefore necessarily 
resulted in split orders.3279 In other c ampaigns, vital factors included the technical performance of 
competing aircraft.3280 We conclude that in each of these  other  sales campaigns there were other 
factors that explain why Airbus either did not win the sale, or in the case of the sales campaigns 
that involved split orders, why there was no basis to conclude that Boeing's pricing resulted in the 
customer  awarding a greater portion of the order to Boeing (and thus a lesser portion to Airbus) 
than would otherwise have been the case.3281  
9.384.   Accordingly, bas ed on the reasoning of the Appellate Body when analysing the effects of 
the FSC/ETI subsidies on Boeing's prices in the original proceeding, we conclude that the 
Washington State B&O tax rate reduction contributed in a genuine and substantial way to the 
lowering of Boeing's prices of narrow -body, single -aisle LCA in five LCA sales campaigns  between 
2007 and 2015 .  
9.385.   As the European Union has demonstrated that the Washington State B&O tax rate 
reduction affected Boeing's pricing behaviour with respect to the 7 37 MAX and 737NG in five price -
sensitive sales campaigns between 2007 and 2015, we will next consider whether , on the basis of 
the evidence before us, the magnitudes of the Washington State B&O tax rate reduction were 
enough to "cover the margin of victory  between the final net prices of Boeing and Airbus"3282 such 
that this subsidy , through its effects on Boeing's prices, is a genuine and substantial ca use of lost 
sales of the A320neo and A320ceo . 
9.4.3.1.2   Whether the Washington State B&O tax rate reduction is a genui ne and 
substantial cause of significant lost sales of the A320neo and A320ceo in the 
post-implementation period  
9.386.   The principal argument that the United States makes is that the magnitudes of the tied tax 
subsidies are too small to cause adverse effects.3283 The United States emphasi zes that, in the 
original proceeding, the Washington State and City of Everett B&O tax rate reductions were found 
to cause adverse effects only when aggregated with FSC/ETI subsidies. It considers that, now that 
the FSC/ETI subsidies  are not relevant to the analysis, the B&O tax rate reductions are too small 
to cause the alleged market phenomena and therefore cannot support a conclusion that they are a 
genuine and substantial cause of such phenomena.3284  
                                               
3275 See HSBI Appendix  (Appendix 2 ). 
3276 Fly Dubai 2008, Delta 2011, Icelandair 2013, Air Canada 2013, and Fly Duba i 2014.  
3277 See HSBI Appendix  (Appendix 2),  paras. 179, 187, 194, 210, 216, 222, 237, 243, and 257.  
3278 See HSBI Appendix  (Appendix 2), paras. 194, 200, 216, and 237.  
3279 See HSBI Appendix  (Appendix 2), paras. 179 and 222.  
3280 See HSBI Appendix  (Appendix 2),  paras. 216 and 257.  
3281 Several of the single -aisle LCA sales campaigns involved split orders of both Airbus and Boeing 
aircraft: American Airlines (2011), Norwegian Air Shuttle (2012), Lion Air (2012), Avolon (2012 and 2014), and 
Aviation Capital Group (2012).  
3282 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1263.  
3283 United States' first written submission, paras. 719 -721; second written submission, paras. 863 -865. 
3284 To recall, in the original proceeding the FSC/ETI subsidies amounted  to USD 435 million between 
2004 and 2006. The Washington State and City of Everett B&O tax rate reductions amounted to USD 13.8 and WT/DS353/R W 
 
- 572 - 
 
  9.387.   We do not agree with the United States that, simply because the amounts of the 
Washingto n State B&O tax rate reduction were considered too small to cause adverse effects on 
their own in 2004 -2006, far greater amounts of th is subsid y in the 2013 -2015 period are similarly 
incapable of caus ing adverse effects after the end of the implementation period.  
9.388.   The amount of the FSC/ETI subsidies, which were found in the original proceeding to have 
caused adverse effects, was USD 435 million over a 2004 -2006 reference period. The combined 
amounts of  the Washington State and City of Everett B&O tax rate reductions over the same three 
year period was USD 16 million.3285 Although the FSC/ETI subsidies are no longer relevant to the 
analysis, the amounts of t he Washington State B&O tax rate reduction have in creased significantly 
from the amounts that were found to exist in the 2004 -2006 reference period in the original 
proceeding.3286 We estimate the total amount of the Washington State B&O tax rate reduc tion to 
be approximately USD 325 million over the equivale nt three year  period 2013 - 2015.3287  
9.389.   In its first written submission in this proceeding, the United States estimates the average 
annual amounts of the tied tax subsidies between 2007 and 2012, divided by the number of 
relevant Boeing aircraft (787, 737 MAX,  and 737NG) implicated in the sales campaigns between 
2007 and 2012 that the European Union alleges are evidence of significant lost sales.3288 This 
results in a per -aircraft rate of subsidisation of USD [***] for each 737 MAX and 737NG  involved 
in the allege dly price -sensitive LCA sales campaigns submitted by the European Union as evidence 
of signi ficant lost sales of the A320neo and A320ceo .3289 The United States compares these per -
aircraft subsidization rates to average list prices of the 737 MAX and 737NG,  as well as average 
actual prices of the Boeing LCA in sales campaigns subject to the Panel's request for information 
pursuant to Article 13 of the DSU .3290 These comparisons are presented in Table 13 below. Owing 
to the fact that the a verage actual prices are HSBI, the Panel has calculated estimated average 
actual prices, based on an assumed average discount off list prices, in order to provide a sense of 
those average actual prices.  
                                                                                                                                               
USD 2.2 million respectively, over the same period. (See Panel Report, US – Large Civil Aircraft (2nd 
complaint) , para.  7.1811).  
3285 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1811.  
3286 Section 8.2.7.2.2  above . 
3287 See para.  8.670  above . 
3288 The subsidy amounts used by the United States in this calculation are based on its own estimates, 
which as explained in Section 8.2.7.2.2.1 , are somewhat [***] the Panel's estimates (although not 
significantly so).The number of aircraft alleged to be lost sale s of the A350XWB , A320neo and A320ceo  
between 2007 and 2012 is 1,830. The United States says that its allocation of the annual tax savings from the 
B&O tax rate reductions over 305 aircraft per year is conservative because it is based on the assumption tha t 
Boeing would only use the tied tax subsidies to lower LCA prices in the sa les campaigns that the 
European  Union alleges to be lost sales in this proceeding, rather than all sales campaigns that Boeing won 
over this period. (United States' first written s ubmission, paras. 821 and 822).  
3289 Compilation of Number of Boeing Aircraft Sold in Alleged Lost Sales Campaigns and Related 
Calculations, (Exhibit USA -295) (HSBI). The United States' methodology determines the average annual 
amount of the Washington State (and where applicable, City of Everett) B&O tax rate reductions between 2007 
and 2012. It then determines the number of sales of the 787 and 737 (both MAX and NG) between 2007 and 
2012, and determines the average number of sales of each plane per year in t he sales campaigns challenged 
by the European Union. It divides the annual amount of the Washington State B&O tax rate reduction by the 
number of sales of the 787, 737 MAX, and 737NG, and the annual amount City of Everett B&O tax rate 
reduction by the numb er of sales of the 787. This is to take into account that the Washington State B&O tax 
rate reduction applies to both the 787 and the 737 families of LCA.  
3290 United States' response to Panel question No. 164, paras. 69 -77. For the sales campaigns subject to  
the Panel's request  for information pursuant to Article 13 of the DSU , see annex 1 to the Panel's request to the 
United States for information pursuant to Article 13 of the DSU, dated 18 December 2012.  WT/DS353/R W 
 
- 573 - 
 
  Table 13: Comparisons of per -aircraft rates of subsidization with per aircraft prices  
LCA model  Per-aircraft rate of 
subsidisation3291 
USD Average 2012 list 
price3292 
USD Average actual 
2012 price3293 
USD Estimated 
average actual 
price3294 
USD 
787 
 [***] 225 million  [[HSBI]] 126 million  
737 MAX  
 [***] 96.6 million  [[HSBI]] 54.1 million  
737NG3295 
 [***] 86.2 million  [[HSBI]] 48.3 million  
 
9.390.   The United States concludes that the per -aircraft rates of subsidization are dwarfed by the 
actual prices of the aircraft in question, demonstrating that the tie d tax subsidies could not 
possibly have caused the adverse effects alleged by the European Union.3296  
9.391.   In the original proceeding, the Appellate Body discu ssed how the magnitudes of the tied 
tax subsidies should be taken into account in assessing their impact  on Boeing's prices:  
Depending on the circumstances of each case, an assessment of whether subsidy 
amounts are significant should not necessarily be limited to a mere inquiry into what 
those amounts are, either in absolute or per -unit terms. Rather, such a n analysis may 
be situated within a larger inquiry that could, for instance, entail viewing these 
amounts against considerations such as the size of the market as a whole, the size of 
the subsidy recipient, the per -unit price of the subsidised product, the  price elasticity 
of demand, and, depending on the market structure, the extent to which a subsidy 
recipient is able to set its own prices in the market, and the extent to which rivals are 
able or prompted to react to each other's pricing within that marke t structure.3297 
9.392.   We therefore briefly set forth the evidence before the Panel pertaining to the factors 
identified by the Appellate Body as being potentially relevant to an assessment of the magnitudes 
of subsidies and their impact on Boeing's prices. Narrow -body, single -aisle LCA represented in the 
vicinity of USD 61.9 billion, 63.4 billion and 18 billion  in sales, based on the Panel's approximation 
of order values, in the 2013 -2015 period.3298 Boeing's Commercial Airplanes segment3299 reported 
                                               
3291 United States' first written submission, paras. 82 0-824. 
3292 United States' response to Panel question No. 164 (citing European Union's first written submission, 
paras. 894, 898, and 923). The United States calculates the average list price of the 737 MAX, 737NG, and 787 
by averaging the 2012 list price acr oss each family's size variations.  
3293 United States' response to Panel question No. 164, paras. 69 -76. These are the average actual 
prices paid in sales campaigns subject to the Panel's Article 13 request (see annex 1 to the Panel's request to 
the United S tates for Information pursuant to Article 13 of the DSU, dated 18 December 2012).  
3294 This calculation was made using an estimated discount of 44% off the average 2012 list -price of the 
relevant LCA. The 44% discount is the average discount from 2012 list p rices of Boeing LCA estimated in the 
International Trade Resources Report submitted by the European Union  in connection with its calculation of the 
annual amounts of the Washington State B&O tax rate reduction. (See ITR Report, (Exhibit EU -25), para. 11).  
3295 The United States appears to have made an error in calculating the 2012 average list price of the 
737NG. It states that the average list price of the 737NG is USD 96.6 million, which is the same as the average 
list price for the 737 MAX. The correct 201 2 average list price for the 737NG, based on the figures that the 
United States cites from the European Union's first written submission, is USD 86.2 million. (See United States' 
response to Panel question No. 164 (citing European Union's first written sub mission, para. 894)).  
3296 United States' first written submission, paras. 819 -824; response to Panel question No. 164, 
paras.  69-79; and comments on the European Union's response to Panel question No. 164, paras. 146 -155. 
3297 Appellate Body Report, US – Large  Civil Aircraft (2nd complaint) , para. 1193. (emphasis original)  
3298 These approximate order values were obtained by multiplying estimates of actual prices for the 737 
MAX and 737NG by the number of orders of each LCA model between 2013 and 2015, reported in  the Ascend 
data base submitted by the European Union. (See Ascend data base, Orders, data request as of 
29 September  2015, ( Exhibit EU -1658)). The estimated actual prices of USD 54.1 million and USD 48.3 million 
for the 737 MAX and 737NG, respectively, we re obtained by applying a 44% discount rate to their 2012 
average list prices. The estimated discount rate of 44% is from the International Trade Resources Report 
submitted by the European Union. (See ITR Report, (Exhibit EU -25)). 
3299 Boeing's activities are  organized into five principal segments, of which "Commercial Airplanes" is 
one. The other segments are the three Defense, Space & Security segments (Boeing Military Aircraft, Network 
& Space Systems and Global Services & Support), and Boeing Capital. Boei ng's Commercial Airplanes segment 
occupies floor space for manufacturing, warehousing, engineering, and other productive uses in Greater Seattle 
(the State of Washington), Greater Charleston (South Carolina), Portland (Oregon), Greater Los Angeles WT/DS353/R W 
 
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  revenues of approxim ately USD 49 billion, 53 billion and 60 billion in 2012, 2013, and 2014, 
respectively.3300 Its reported R&D expenses over the same period were approximately 
USD 2 billion, 1.8 billion and 1.8 billion, respectively.3301 As already noted in Table 13 above, the 
estimated actual per -unit prices of a 737 MAX and 737NG (based on 2012 average list prices of 
USD 96.6 million and USD 86.2 million, respectively) were approximately USD 54.1 million and 
USD 48.3 million.  
9.393.   We have calculated the numb er and estimated value of Boeing 737 MAX and 737NG orders 
(as well as the number and estimated  value of 787, 777, and 777X  orders ) from 2013 -2015, as 
set forth in Table 14 below.  
Table 14: Number and estima ted value of orders of Boeing LCA 2013 -20153302 
 Number and value of 
orders in 2013  Number and value of 
orders in 2014  Number and value o f 
orders to 
September  20153303 
 
777 55 orders  63 orders  34 orders  
USD 8.7 billion  USD 10 billion  USD 5.4 billion  
 
777X  66 orders  220 orders  20 orders  
USD 13.7 billion  USD 45.5 billion  USD 4.1 billion  
 
787 183 orders  50 orders  52 orders  
USD 23.1 billion  USD 6.3 billion  USD 6.6 billion  
 
 
737 MAX  699 orders  900 orders  206 orders  
USD 37.8 billion  USD 48.7 billion  
 USD 11 .1 billion  
 
737NG  498 orders  305 orders  143 orders  
USD 24.1 billion  USD 14.7 billion  USD 6.9 billion  
 
Total value 
of orders  USD 107.4 billion  USD 125.2 billion   
USD 34.1 billion  
 
 
9.394.   We recall that the estimated total amount of the Washington State B&O t ax rate re duction 
is approximately USD 325 million over the equivalent three year period 2013 - 2015.3304 It appears 
that the ratios of subsidy to order value are not unlike those before the panel in the original 
proceeding.3305 Of the figures in the original pr oceeding, the Appellate Body stated that, while it 
was possible to observe "at a high level of generalization" that the annual value of Boeing's sales is 
"many orders of magnitude greater than the annual value of the subsidies", this alone is not 
                                                                                                                                               
(Califor nia), Greater Salt Lake City (Utah), Australia, and Canada. (Subsidies to Boeing's LCA Division 
(2013 -2014 Update), (Exhibit EU -1451), annex A: Boeing's Annual Report on Form 10 -K for the fiscal year 
ended 31 December 2014, p. 16).  
3300 Subsidies to Boeing's LCA Division (2013 -2014 Update), (Exhibit EU -1451), annex A: Boeing's 
Annual Report on Form 10 -K for the fiscal year ended 31 December 2014, item 6, Selected Financial Data.  
3301 Subsidies to Boeing's LCA Division (2013 -2014 Update), (Exhibit EU -1451), annex A: Boeing's 
Annual Report on Form 10 -K for the fiscal year ended 31 December 2014, p. 23.  
3302 As explained in fn 3298 above, the estimated value of the orders each year is calculated by 
multiplying the number of orders of each LCA model by an estimate of the actual price of that LCA model (as 
opposed to list prices). The estimate of the actual price of each LCA model is obtained by applying a 44% 
discount rate to the average 2012 list price of each model. The esti mated discount rate of 44% is obtained 
from the International Trade Resources Report submitted by the European Union. (See ITR Report, (Exhibit 
EU-25)). The number of orders of each LCA model per year is based on the Ascend data base submitted by the 
Europ ean Union. (See Ascend data base, Orders, data request as of 29 September 2015, ( Exhibit EU -1658)).  
3303 Includes orders until September 2015. (See Ascend data base, Orders, data request as of 
29 September 2015, (Exhibit EU -1658)).  
3304 See para. 8.670  above.  
3305 See Panel Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1814 and 7.1815.  WT/DS353/R W 
 
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  indicativ e of the significance of the subsidy amounts.3306 According to the Appellate Body, this is 
because "even relatively small subsidies may have significant effects, depending on the nature of 
the subsidies, and the circumstances in which those subsidies are rece ived, including the relevant 
market structure and conditions of competition in that market."3307  
9.395.   The Panel sought to determine whether a price reduction enabled by a relatively small 
subsidy could nevertheless have determined the outcome of a price -sensitive  sales campaign. 
Accordingly, in its third set of questions to the parties, the Panel asked both parties to provide 
some indication of the magnitude of difference in Airbus and Boeing LCA pricing that had 
determined the outcomes of any of the highly compet itive LCA sa les campaigns that the 
European  Union had identified as evidence of Airbus lost sales in this proceeding.  
9.396.   In response, t he United States points  to two types of evidence on the record that it 
considers useful in making this determination. The f irst involves the magnitudes of price 
movements in the sales campaigns, based on information such as price lists and the initial and 
final offer data in the sales campaign evidence.3308 For sales campaigns involving single -aisle 
aircraft, the United States re fers to HSBI evidence for select single -aisle campaigns where Boeing's 
final offer involved increases in dir ect price discounts in the range of USD [[HSBI]] .3309 According 
to the United States, the scale of such direct price discounts arising through the cour se of 
negotiations in a campaign show s that the amounts of Washington State B&O tax rate reduction 
are too small to plausibly be a genuine and substantial cause of significant lost sales. The second 
type of evidence involves the European Union's calculatio ns of the differences between Boeing's 
net aircraft prices and its appraised values, which the European Union had submitted as an 
objective indicator of low pricing by Boeing given the difficulty of assessing net aircraft prices in a 
non-transparent market  context.3310 The United States argues that, although the European Union's 
calculations are flawed, the magnitude of the differences, which for single -aisle aircraft average in 
the vicinity of USD [[HSBI]] , also reveal s the relative insignificance of the Wash ington State B&O 
tax rate reduction amounts.3311 
9.397.   The European Union considers that airframe list prices and discounts from list prices are 
irrelevant as indicators of whether the subsidy magnitudes could have affected the outcomes of 
the sales campaigns becau se published list prices are well known to be wholly unreliable guides to 
the prices that customers actually pay.3312 The levels of additional price discounts between initial 
and final offers are no more illuminating, because LCA manufacturers understand that  a sales 
campaign will involve several rounds of bidding, requiring improved offers, and they therefore 
factor the expectation of this strategic interaction into their initial offers.3313 The European Union 
similarly considers that differences between Boeing' s net prices and its appraised values say 
nothing about the relative value between Boeing and Airbus offers, which is the relevant metric 
that drives customers' purchasing decisions.3314  
9.398.   The European Union also argues that differences in actual pricing of LC A are not 
meaningful in and of themselves because the "net prices" of Airbus and Boeing LCA offers obscure 
price differences that arise from differences between the competing but nevertheless 
"non-identical" aircraft in terms of their size and range, per -trip and per -seat operating costs and 
timing of their availability, all of which must be assessed against the specific requirements of a 
customer and that customer's cost of capital, among other factors.3315 To overcome this lack of 
                                               
3306 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1254.  
3307 Appellate Body Report, US – Large Civil Aircraft (2nd comp laint), para. 1254. The Panel also 
acknowledges Canada's argument that the fact that the effects of subsidies will likely vary depending on their 
relative magnitude as compared to prices, production costs, overall size of the market or sales of a company i n 
the market holds true, in particular, in the case of a small subsidy. According to Canada, while a small subsidy 
may have an effect on prices (depending on its nature, the circumstances of its provision, market structure and 
conditions of competition), a  panel must provide a reasoned and adequate explanation if it so concludes. 
(Canada's third -party submission, paras. 50 -53). 
3308 United States' response to Panel question No. 164, para. 68.  
3309 United States' response to Panel question No. 164, paras. 75 and 7 6. 
3310 See European Union's comments on the United States' response to Panel question No. 164, 
para. 144. 
3311 United States' response to Panel question No. 164, paras. 78 and 79.  
3312 European Union's comments on the United States' response to Panel question No. 164, para. 143.  
3313 European Union's comments on the United States' response to Panel question No. 164, para. 143.  
3314 European Union's comments on the United States' response to Panel question No. 164, para. 144.  
3315 European Union's response to Panel question No. 164, para. 108.  WT/DS353/R W 
 
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  comparability of prices  offered by Airbus and Boeing for their competing LCA, customers account 
for non -price factors through NPV assessments for the respective offers.3316 The European Union 
argues that the differences in NPVs between the respective offers of Airbus and Boeing in 
particular sales campaigns are a "reliable surrogate" for the information concerning the differences 
in sales campaign pricing requested by the Panel.3317  
9.399.   The European Union does not, however, provide an indication of the differences in 
customers' NPV assessment s of the respective Airbus and Boeing offers for any individual sales 
campaigns before the Panel. Rather, it submits a statement by Kiran Rao, Airbus' Executive Vice 
President Strategy and Marketing.3318 Mr Rao states that [[HSBI]] . The European Union then 
presents a calculation of its allegations of the total amounts of all measures alleged to be specific 
subsidies  in this proceeding  from 2007 through 2014 (including its estimates of the amounts of the 
"financial contributions" provided through the post -2006 NASA  aeronautics R&D measures  based 
on the " top-down " methodology discussed in Section  8.2.2.6 ) compared to Boeing's total annual 
deliveries  of aircraft between 2007 and 2014. The European Union's calculations result in 
general ized per -aircraft subsidy amounts of USD 1.95 million, 1.93 million, and 1.86 million for 
2012, 2013, and 2014, respectively, which the European Union argues exceeds the NPV difference 
discussed by Mr Rao. On the basis of this comparison, the European Unio n asserts that the "per -
aircraft" amount of all of the subsidies significantly exceeds the typical difference in value between 
the respective Airbus and Boeing offers in "closely fought and very competitive sales 
campaigns".3319 
9.400.   We agree with the European Uni on that an analysis of the degree of  magnitudes of price 
movements in sales campaigns, or of the differences between Boeing's net prices and appraised 
values , however measured, is of limited assistance in assessing whether a comparatively small 
subsidy may  make a difference to the outcome of a sales campaign. While we are mindful of the 
limits to which customers' NPV analyses of competing offers can be relied upon, we consider that 
this information could at least provide some indication of the potential for  a comparatively small 
price reduction to determine the outcome of a sales campaign.  
9.401.   However, w e do not accept the European Union's estimates of per -aircraft subsidy 
amounts, because they are based on significantly flawed estimates of the amounts of the 
subsidies. First, the amount estimate on which the European Union bases its per -aircraft subsidy 
calculations covers not only the annual amounts of the tied tax subsidies benefiting the relevant 
Boeing aircraft, but the alleged annual amounts of all post -2006 measures  challenged by the 
European Union, which it aggregates together into one single annual subsidy amount that is then 
allocated over the number of Boeing LCA delivered in that year. Second, the European Union's 
total amount estimate includes amount  estimates  for measures that we f ind are not specific 
subsidies, and amount estimates for subsidies which  we have rejected as not being an appropriate 
measure of the amount of the subsidy, or otherwise not being the best evidence.3320  
9.402.   If the Panel  replicate s the United States' methodology for calculating the per -aircraft rates  
of subsidization in 2007 -2012 for  the 2013 -2015 period, based on our estimates of the amounts of 
the Washington State B&O tax rate reduction  in 2013 -2015 and the aircraft involved in th e price -
sensitive sal es campaigns that occurred in the post -implementation period, we arrive at a per -
                                               
3316 As explained earlier in para. 9.21 when evaluating competing offers, airline and leasing company 
customers quantify the projected economic value of the aircraft to that customer over a defined period of ti me, 
taking into account price as well as various non -price factors such as delivery availability, fuel efficiency, 
performance guarantees or financing assistance to arrive at a "net present value" (NPV) represented by each 
aircraft manufacturer's offer. (M ourey Statement,  (Exhibit EU -34) (BCI), paras. 44 -61).  
3317 European Union's response to Panel question No. 164, para. 108. The United States responds that 
the European Union overstates the importance of NPV differences by treating them as determinative in s ales 
campaigns. According to the United States, NPV analysis is an important tool, but it is understood by 
customers to be sensitive to inputs and assumptions that are uncertain or subjective. For this reason, small 
differences in NPV between two offers wo uld likely be viewed as immaterial by customers, and other factors 
would determine the outcome of the sale. (United States' comments on European Union's response to Panel 
question No. 164, para. 118). The United States provides a more detailed explanation of the specific limitations 
of NPV analyses in paras. 119 -129 and in the Statement of J. Wojick, Senior Vice President, Global Sales & 
Marketing, Boeing Commercial Airplanes, (Exhibit USA -600) (HSBI).  
3318 Statement of K. Rao, 6 October 2015, (Exhibit EU -1668) (HSBI). Mr Rao has responsibility for 
pricing and the competitive positioning of Airbus products.  
3319 European Union's response to Panel question No. 164, paras. 114 and 115.  
3320 See Section 8.3 above . WT/DS353/R W 
 
- 577 - 
 
  aircraft rate of subsidization of approximately USD 1.99 million  per 737 MAX and 737NG.3321 This 
amount does exceed the NPV difference that  the evidence befo re us suggests  can be determinative 
of the outcomes of sales campaigns involving single -aisle aircraft, as well as what we are 
reasonably able to infer regarding the differences in final net prices for the price-sensitive sales 
campaigns  in the post -implem entation period , based on our analysis of the sales campaign 
evidence.  
9.403.   While the sales campaign evidence does  not provide direct evidence of the net prices of 
the final Boeing  and Airbus offers, the parties do allege approximate differences in net prices 
between the competing Airbus and Boeing offers for some of the sales campaigns .3322 There is 
HSBI evidence from  the sales campaign that led to  the Fly Dubai 2014 order from which it is 
possible to infer that the difference between Boeing and Airbus final net p rices was in the vicinity 
of [[HSBI]] .3323 There is also evidence from the Air Canada 2013 campaign regarding the 
magnitudes of the incremental proposals made by Airbus in the concluding stages of the campaign 
that suggests that Airbus thought it was close en ough to Boeing on price that relatively small 
improvements on price could affect the outcome of the campaign.3324 The evidence from the  sales 
campaigns in respect of the  Icelandair 201 3 order  could suggest a somewhat larger price 
differential than appears fro m the evidence in the Fly Dubai and Air Canada campaigns, however, 
this is somewhat contradicted by other evidence that Airbus' final offer for both the A320neo and 
A320ceo was [[HSBI]] , which suggests that at the final stage, Airbus had closed the gap.3325 We 
also recall the evidence submitted by the European Union, which the United States does not 
appear to contradict, that in certain price -sensitive sales campaign s involving single -aisle LCA, the 
NPV differences can be as small as [[HSBI]] .3326 The HSBI eviden ce from the Fly Dubai 2008 and 
Delta 2011 campaigns suggests that the difference in net prices in those campaigns were 
approximately [[HSBI]]3327 and [[HSBI]]3328 which  indicates that the magnitudes of the 
Washington State B&O tax rate reduction were capable of enabling at least a portion of Boeing's 
pricing advantage, contributing in substantial part to its winning those campaigns.  
9.404.   We are therefore satisfied that the Washington State B&O tax rate reduction , through the 
effects on Boeing's pricing,  contributed i n a genuine and substantial way to determining the 
outcome of price -sensitive sales campaigns involving the 737 MAX and 737NG and the A320neo 
and A320ceo in the Fly Dubai  2014,  Air Canada 2013 and Icelandair  2013 campaign s.3329 
Accordingly, we consider that t he effects of the Washington State B&O tax rate reduction were lost 
sales of the A320neo and A320ceo in the Fly Dubai, Air Canada, and Icelandair sales campaigns in 
the 2013 -2015 period.3330 
                                               
3321 Applying the United Stat es' methodology, the Panel divide s the total amount of the Washington 
State B&O tax rate reduction for 2013 -2015, based on the Panel's estimate (USD 325 million) for an average of 
USD 108.3 million per year, by an average of 54.3 single -aisle aircraft orde rs per year for 2013 -2015 
(calculated from the total of 11 737NGs and 152 737 MAX ordered from the Fly Dubai 2014, Air Canada 2013 
and Icelandair 2013 campaigns, divided by three), to arrive at approximat ely USD 1.99 million 
(USD  1.994  million) per single -aisle aircraft ordered in price -sensitive LCA sales campaigns between 2013 and 
2015.  
3322 However , neither party provide s direct evidence concerning the magnitudes of difference in Boeing 
and Airbus pricing that had determined the outcomes of any of the sale s campaigns at issue.  
3323 HSBI Appendix  (Appendix 2), fn 588 . Three of the five LCA sales campaigns that we f ind to be 
price-sensitive occurred in the post -implementation period: Fly Dubai 2013, Air Canada 2013 and 
Icelandair  2012. Although the Icelandair sa les campaign took place from May 2012, the order did not occur 
until February  2013. (European Union's first written submission, para. 1788).  
3324 HSBI Appendix  (Appendix 2),  para. 264.  
3325 HSBI Appendix  (Appendix 2),  paras. 249 and 250.  
3326 Statement of K. Rao, 6  October 2015, (Exhibit EU -1668) (HSBI), para. 2.  
3327 HSBI Appendix  (Appendix 2),  para. 164.  
3328 HSBI Appendix  (Appendix 2),  para. 170.  
3329 Although not necessary for our findings concerning the existence of significant lost sales in the 
post-implementation peri od, we also consider that the Washington State B&O tax rate reduction was a genuine 
and substantial cause of lost sales of the A320ceo in the Fly Dubai 2008 and Delta Airlines 2011 sales 
campaigns.  
3330 The European Union further argues that U.S. subsidies b enefiting the 737 MAX and 737NG cause a 
present threat of significant lost sales, within the meaning of Article 6.3(c) and footnote 13 of the SCM 
Agreement. (European Union's first written submission, paras. 1649, 1658, 1676, 1691, 1705, 1721, 1746, 
1759, and 1795; second written submission, paras. 1790 -1797 and 1910 -1915; and response to Panel 
question No. 169, paras. 447 -452). In support of this argument, the European Union relies on evidence of the 
existence of options and purchase rights negotiated in c onnection with the relevant orders (including evidence WT/DS353/R W 
 
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  9.405.   Finally, we address whether these lost sales can be considered "sign ificant". The Appellate 
Body has stated that something that is "significant" can be characterized as "important, notable or 
consequential".3331 The Appellate Body has also expressed the view that an assessment of whether 
a lost sale is significant can have bo th quantitative and qualitative dimensions.3332 In the original 
proceeding, the Appellate Body referred to the size of the orders that Boeing had won, the 
price-competitive nature of the sales campaigns and their strategic importance in concluding that 
the lo st sales represented by the SALE and JAL campaigns were significant lost sales within the 
meaning of Article 6.3(c) of the SCM Agreement.3333  
9.406.   The Fly Dubai, Air Canada and Icelandair sales campaigns involve orders for approximately 
152 737 MAX and 11 737NG a ircraft. These orders are comparable in size to the SALE and JAL 
orders for the 737NG, which the Appellate Body considered to be significant  lost sales in the 
original proceeding. Moreover, there is evidence that each of these campaigns was strategically 
important to Boeing and Airbus, for various reasons.3334 We are satisfied that these lost sales are 
significant lost sales , within the meaning of Article 6.3(c) of the SCM Agreement.3335 
9.407.   We find that the Washington State B&O tax rate reduction is a genuine and 
substantial cause of serious prejudice in the form of significant lost sales of A320neo 
and A320ceo families of LCA in the post -implementation period, in respect of the sales 
campaigns Fly Dubai 201 4, Air Canada 2013, and Icelandair 201 3.  
9.4.3.1.3   Whether the Washin gton State B&O tax rate reduction is a genuine and 
substantial cause of impedance  or a threat thereof , and displacement  or a threat 
thereof , in respect of the A320neo and A320ceo in the post -implementation period  
9.408.   In this Section of the Report, we determine  whether the Washington State B&O tax rate 
reduction is a genuine and substantial cause of impedance  (or a threat thereof)  and displacement 
(or a threat thereof ) of A320neo and A320ceo imports to the United States, within the meaning of 
Article 6.3(a) of t he SCM Agreement, and of A320neo and A320ceo exports to various third 
country markets, within the meaning of Article 6.3(b) of the SCM Agreement.  
                                                                                                                                               
of purchase commitments submitted by the United States in response to the Panel's request for information 
pursuant to Article 13 of the DSU, showing purchase commitments accompanying firm orders of Boe ing LCA. 
(Boeing Aircraft Commitments , (Exhibit US -13-331) (HSBI)). The European Union makes this threat of 
significant lost sales argument in relation to the following sales campaigns that we f ind to evidence significant 
lost sales: Icelandair 2013 (Europ ean Union's first written submission, para. 1795, second written submission, 
para. 1777), Air Canada 2013 (European Union's response to Panel question No. 169, para. 348), and Fly  
Dubai 2014 (European Union's response to Panel question No. 169, para. 374).  We do not consider that the 
mere fact that an LCA customer was additionally granted options or purchase rights is sufficient to demonstrate 
that lost sales in relation to these options and purchase rights are clearly foreseen and imminent, and thus give 
rise to a threat of significant lost sales. The Panel does not possess sufficient information about the nature of 
these options and purchase rights, including the conditions under which they may be exercised, to justify 
treating them as firm orders that are  waiting to materialize. Indeed, there is evidence before us to suggest that 
not all options will be exercised. (See European Union's response to Panel question No. 169, para. 451). We 
are therefore not persuaded that the European Union has demonstrated th at further significant lost sales are 
likely and "imminent". (Appellate Body Report, EC and certain member States – Large Civil Aircraft , 
para. 1171). Finally, we acknowledge the European Union's argument that "follow -on" orders have occurred, 
which it con siders to demonstrate: (a) the materialization of the threat of significant lost sales; as well as (b) 
the existence of a threat of further significant lost sales. (European Union's second written submission, 
para. 1797). However, the European Union's use of the term "follow -on" order is not necessarily synonymous 
with the subsequent exercise of previously acquired options or purchase rights arising out of a previous order. 
Rather, the European Union uses this term to encompass more broadly situations where  Boeing has an 
incumbency advantage by virtue of a previously won LCA sales campaign. As such, the existence of "follow -on" 
orders is unconvincing as evidence of a threat of further significant lost sales because such "follow -on" orders 
in fact arise out o f new LCA sales campaigns.  
3331 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1272.  
3332 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1218.  
3333 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1272.  
3334 Airbus' pricing in the Icelandair campaign, discussed at para graphs  245-251 of the HSBI Appendix , 
itself suggests the importance of this sale to Airbus. The factors that explain the strategic importance of the Air 
Canada and Fly Dub ai campaigns are discussed at para graphs  261 and 268, respectively, of the HSBI Appendix  
(Appendix 2).  
3335 Although not necessary for our findings concerning the existence of significant lost sales in the 
post-implementation period, we also consider that the  lost sales of the A320ceo in the Fly Dubai 2008 and 
Delta Airlines 2011 sales campaigns were significant  lost sales , within the meaning of Article 6.3(c) of the SCM 
Agreement.  WT/DS353/R W 
 
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  9.409.   The European Union argues that  "certain developments in Airbus' market shares and 
delivery volumes in various product markets" constitute a threat of impedance , within the meaning 
of Articles 6.3(a) and 6.3(b) (with respect to the A320neo), and displacement or impedance, or a 
threat thereof , within the meaning of Article 6.3(a) and 6.3(b) (with respect to the A320 ceo), in 
each case, caused in a genuine and substantial manner by the non -withdrawn U.S. subsidies.3336  
9.410.   In respect of its claims of threat of impedance of imports of the A320neo  to the 
United  States and of exports to various third country markets, the Europe an Union argues that the 
U.S. subsidies enable Boeing's product development and pricing decisions that result in deliveries 
of the 737 MAX family LCA at the expense of deliveries of Airbus' A320neo family LCA. In this 
respect, the European Union refers to its arguments and evidence concerning the alleged 
technology effects of the aeronautics R&D subsidies, which the European Union argues have 
enabled the advanced technology, early launch and early delivery availability of the 737 MAX, and 
which allegedly gi ve that aircraft family a competitive advantage in the context of the global 
market for new technology, single -aisle aircraft.3337 It also refers to its arguments and evidence 
concerning the effects of the post -2006 subsidies on Boeing's LCA pricing, which it  argues result in 
an increase in Boeing's market share at Airbus' expense.3338 The European Union asserts that 
"consequently", Boeing's future delivery advantage in these markets, based on present orders, is 
the result of U.S. subsidies.3339  
9.411.   Additionally, for c ertain geographic markets of substantial size, such as the Brazilian 
market, the European Union asserts that "rough parity in the distribution of market shares 
between duopolists" would be expected. It alleges that Boeing's significantly greater than 50% 
market share of present and future deliveries of narrow -body, single -aisle LCA in these markets, 
for several years, along with other evidence of causation, supports the argument that the 
deviation is the result of the U.S. subsidies.3340 Finally, the European Union refers to its allegations 
of significant lost sales of A320neo family LCA due to U.S. subsidies benefiting the 737 MAX. It 
argues that, as a result of those lost sales, deliveries of A320neo family LCA will be impeded in the 
relevant country markets.3341 
9.412.   In respect of its claims of displacement or impedance, or threats thereof, of imports of the 
A320ceo  to the United States and of exports to various third country markets, the European Union 
refers to its arguments and evidence concerning the effects of t he post -2006 subsidies on Boeing's 
LCA pricing, which it argues result in an increase in Boeing's market share at Airbus' expense.3342 
The European Union also refers to certain "large volume country markets" in which Boeing has, 
and will continue to have , a majority of present and/or future deliveries of 737NGs over the 
A320ceo (United States, Canada and Indonesia). The European Union asserts that "rough parity in 
the distribution of market shares between duopolists" would be expected3343 and that Boeing's 
delive ry advantage in these markets results from Boeing's "aggressive pricing" which is enabled by 
the U.S. subsidies.3344 Additionally, the European Union refers to its allegations of significant lost 
sales of A320ceo family LCA due to U.S. subsidies benefiting th e 737NG. It argues that, as a result 
of those lost sales, deliveries of A320ceo family LCA are displaced or impeded, and/or there is a 
threat that A320ceo deliveries will be displaced or impeded in the relevant country markets.3345 
9.413.   The United States responds that, based on the Appellate Body's guidance in the original 
proceeding, claims of impedance should be supported by evidence of changes in the relative 
market shares, over a sufficiently representative period, to demonstrate clear trends.3346 The 
United State s argues that the market share data provided by the European Union in support of its 
                                               
3336 European Union's first written submission, paras. 1823 and 1893; second writt en submission, 
paras.  1837 and 1946.  
3337 European Union's first written submission, para. 1826.  
3338 European Union's first written submission, para. 1826.  
3339 European Union's first written submission, para. 1827.  
3340 European Union's first written submission, pa ra. 1831; second written submission, para. 1840; 
response to Panel question No. 169, para. 537.  
3341 European Union's first written submission, para. 1828.  
3342 European Union's first written submission, para. 1898.  
3343 European Union's first written submission, p aras. 1903, 1913, and 1917.  
3344 European Union's first written submission, para. 1900; second written submission, para. 1950; and 
response to Panel question No. 169, para. 537.  
3345 European Union's first written submission, para. 1902.  
3346 United States' first w ritten submission, para. 1041.  WT/DS353/R W 
 
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  claims do es not establish that, absent the alleged subsidies, Boeing would have been unable to 
offer the 737 MAX as and when it did, or that 737 MAX or 737NG prices would be higher. The 
magnitudes of any alleged subsidies that could conceivably be found to affect Boeing's pricing are 
far too small to cause impedance.3347 
9.414.   The United States argues that the European Union's reliance on 50% market share as a 
"benchmark" for assess ing impedance, displacement and threat thereof in large volume markets 
such as the Brazilian, United States, Indonesian and Canadian geographic markets , where the 
market participants are two duopolists , lacks any support in the SCM Agreement. In addition, the 
European Union has not shown that, absent the subsidies, the market shares would be 50% in any 
market, much less all large volume markets.3348 
9.415.   The United States also argues that the Appellate Body in the original proceeding 
unambiguously indicated that th e mere recitation of lost sales in a market is insufficient to 
establish displacement, impedance, or threat s thereof. The United States argues that the alleged 
lost sales on which the European Union bases its claims of displacement , impedance,  or threat s 
thereof  are not genuinely and substantially caused by the alleged subsidies.3349 
9.416.   We begin our evaluation of the European Union's claims of impedance, displacement and 
threats thereof by first explaining our understanding of the phenomena of impedance and 
displacement, and the evidence that is relevant or necessary to support  the existence of each 
phenomenon , based on the explanations of the Appellate Body in EC and certain member States – 
Large Civil Aircraft .  
9.417.   "Displacement" , within the meaning of Article s 6.3(a) and 6.3(b) of the SCM Agreement , 
refers to an economic mechanism in which imports or exports of a like product are replaced  by the 
sales of the subsidized product.3350 Specifically, displacement connotes a "substitution effect 
between the subsidized produ ct and the like product of the complaining Member" and in the 
context of Article 6.3(b), displacement arises where exports of the like product of the complaining 
Member are substituted in a third country market by exports of the subsidized product.3351  
9.418.   The e xistence of displacement depends upon there being a competitive relationship 
between the two sets of products in the  market. An analysis of displacement should assess 
whether the phenomenon is discernible by examining trends in data relating to export volu mes 
and market shares over an appropriately representative period.3352 The Appellate Body's analysis 
in EC and certain member States – Large Civil Aircraft  suggests that the following characteristics 
will normally be necessary before a panel can reach a findi ng of displacement under 
Article  6.3(b):  First, at least a portion of the market share of the exports of the like product of the 
complaining Member must have been taken over or substituted by the subsidized product; and 
second, it must be possible to disce rn trends in volume and market share.3353 Article 6.4 of the 
SCM Agreement , which applies to the phenomenon  of displacement referred to in Article 6.3(b), 
requires that a finding of displacement be supported by evidence of changes in the relative market 
share  in favour of the subsidized product, over a sufficiently representative period, to demonstrate 
"clear trends" in the development of the market concerned. A panel assessing a claim of 
displacement of exports would have to look at whether trends are discern ible, with the 
identification of a trend being more accurate the larger the data set used in the analysis.3354 
                                               
3347 United States' second written submission, paras. 1309 and 1380.  
3348 United States' first written submission, paras. 1043 and 1085; second written submission, 
paras.  1313 and 1382.  
3349 United States' first written submission, pa ras. 1042, 1045,1046,1050, 1052,1054, 1056, 1058, 
1099, and 1108; second written submission, paras. 1310,1315, 1317, 1319, 1321, 1323, 1326, 1329, and 
1382.  
3350 Appellate Body Reports, EC and certain member States  – Large Civil Aircraft , para. 1119; and US – 
Large Civil Aircraft (2nd complaint ), para. 1071.  
3351 Appellate Body Reports, EC and certain member States  – Large Civil Aircraft , para. 1160; and US – 
Large Civil Aircraft (2nd complaint ), para. 1071.  
3352 Appellate Body Reports, EC and certain member States  – Large Civil Aircraft , paras. 1165, 1166, 
and 1170; and US – Large Civil Aircraft (2nd complaint ), para. 1071.  
3353 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1082.  
3354 Appellate Body Reports, EC and certain member States – Large Civil Aircraft , paras. 1166 and 1167;  
and US – Large Civil Aircraft (2nd complaint ), para. 1081.  WT/DS353/R W 
 
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  9.419.   "Impedance" arises both in situations where the exports or imports of the like product of 
the complaining Member would have expanded had they not be en obstructed  or hindered  by the 
subsidized product, as well as where such exports or imports did not materialize at all because 
production was held back  by the subsidized product.3355 The concept of impedance may involve a 
broader range of situations than di splacement, and while there may be some overlap between the 
concepts of displacement and impedance, they are not interchangeable.3356 
9.420.   As with claims of displacement under Article 6.3(b), Article 6.4 of the SCM Agreement 
provides that a finding of impedance of exports under Article 6.3(b) should be supported by 
evidence of changes in the relative market share in favour of the subsidized product, over a 
sufficiently representative period  to demonstrate clear trends in the development of the market 
concerned. How ever, since impedance may not be a "visible" phenomenon (unlike displacement), 
evidence of trends may not be dispositive, or may hold less probative value , for a finding of 
impedance.3357  
9.421.   The Appellate Body has explained that there are important distinctions  between the 
phenomena of displacement, impedance and lost sales, even though the concepts may potentially 
overlap in that these phenomena all relate to a firm's sales.3358 Importantly for the present claims, 
the Appellate Body considered that the original pa nel had implicitly accepted the European 
Communities' argument that every lost sale to Airbus in a particular country necessarily resulted in 
the displacement or impedance  of exports of Airbus aircraft  in that third -country LCA market. The 
Appellate Body s tated that it did not agree with the implication of the panel's reasoning that the 
phenomena of displacement and impedance necessarily follow from a finding of significant lost 
sales.3359  
9.422.   The European Union seeks to demonstrate the existence of impedance, di splacement and 
threats thereof , by reference to data showing deliveries of sin gle-aisle LCA due in the 
United  States and in various third -country markets over periods that extend as far as 2025. 
Underpinning this data are the European Union's causation arg uments in support of its claims of 
impedance, displacement and threats thereof: (a) the combined effects of the aeronautics R&D 
subsidies that operate through a technology causal mechanism with those of the post -2006 
subsidies that operate through a price causal mechanism, collectively, give the 737 MAX a 
competitive and pricing advantage over the A320neo ; and (b) the effects of the post -2006 
subsidies that operate through a price causal mechanism give the 737NG a pricing advantage over 
the A320ceo.  
9.423.   The Eu ropean Union's approach to demonstrating the existence of impedance, 
displacement and threats thereof is therefore based on an implicit aggregation of all of the 
subsidies at issue in this proceeding into one group, and an argument that the collective effe cts of 
these subsidies provides an explanation for Airbus' market shares in the various geographic 
markets. As we explain in Section 9.2.3.4 , we have aggregated various subsidies into groups 
depending on our analysis of their n ature and operation. We do not, however, consider it 
appropriate to aggregate all of the subsidies into one single group and to assess their effects on 
Airbus' sales, market shares or prices in an integrated manner. Consistent with the approach to 
collecti ve assessment of multiple subsidies articulated by the Appellate Body in the original 
proceeding, provided we find that one aggregated group of subsidies is a genuine and substantial  
cause of any of the alleged serious prejudice phenomena in the narrow -body, single -aisle product 
market, we would then consider whether to cumulate those effects with  the effects of any other 
aggregated group of subsidies that we find to be a genuine  cause of the same phenomena. The 
European Union's approach to analysing whethe r the U.S. subsidies benefiting the 737 MAX and 
the 737NG are a genuine and substantial cause of any of the Article 6.3 (a) and (b)  market 
phenomena is necessarily at odds with the Panel's conclusions as to the appropriate way to 
                                               
3355 Appellate Body Reports, EC and certain member States  – Large Civil Aircraft , para. 1161; US – 
Large Civil Aircraft (2nd complaint ), paras. 1071 and 1086.  
3356 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1071.  
3357 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1086.  
3358 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1241. According to the 
Appellate Body, the assessment of displacement or impedance has a well -defined geographic focus, whereas 
the relevant geographic market for assessing lost sales is not similarly confined. The fact that lost sales must 
be "significant" implies that the assess ment has both a quantitative and qualitative dimension, whereas the 
assessments of displacement or impedance is primarily quantitative in nature.  
3359 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 1240 and 1241.  WT/DS353/R W 
 
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  collectively assess the eff ects of the subsidies at issue in this proceeding, given their nature and 
operation.  
9.424.   We recall that, in analysing  whether the U.S. subsidies, operating through either a 
technology causal mechanism or a price causal mechanism, cause any of the alleged forms  of 
serious prejudice with respect to Airbus single -aisle aircraft in the post -implementation period, the 
structure of the Panel's analysis is necessarily as follows: (a) to analyse whether an aggregated 
group of subsidies (aggregated in accordance with ou r explanation in Section 9.2.3) is a genuine 
and substantial  cause of any one or more of the Article 6.3 market phenomena; and (b) if so, to 
analyse whether any other aggregated group of subsidies is a genuine  cause of any of t he same 
Article 6.3 market phenomena, so that the effects of the latter aggregated group can be cumulated 
with those of the former.  
9.425.   In Section 9.4.2, we evaluate the various alleged technology effects on the 737 MAX of the 
pre-2007 aeronautics R&D subsidies and of certain post -2006 aeronautics R&D subsidies, and find 
that the European Union has not demonstrated that these technology effects arise, and thus that 
the effects of the subsidies in question are any of the alleged Art icle 6.3 market phenomena with 
respect to the A320neo.3360 
9.426.   In Section 9.4.3.1 , we evaluate the European Union's arguments that the Washington 
State B&O tax rate reduction b enefiting the 737 MAX and 737NG, through its effects on Bo eing's 
pricing of narrow -body, single -aisle LCA, is a genuine and substantial cause of significant lost sales  
of Airbus narrow -body, single -aisle LCA in the post -implementation period. To recall, in  
Section  9.4.3.1.2 , we identi fy five LCA sales campaigns involving the 737 MAX/737NG and 
A320neo/A320ceo between 2007 and 2015 which were price -sensitive in the sense that Boeing 
was under particular pressure to reduce its prices in order to secure the sales and there were no 
non-price factors that explain Boeing's success in obtaining the sale.  We therefore conclude that 
the Washington State B&O tax rate reduction , in these sales campaigns, contributed in a genuine 
and substantial  way to the lowering of Boeing's prices, and moreover, that the effects of this 
subsid y were three significant lost sales of Airbus narrow -body, single -aisle LCA in the 
post-implementation period.  
9.427.   Accordingly, we next analyse here, in this Section 9.4.3.1.3 , whether the Washington  State 
B&O tax rate reduction is a genuine and substantial  cause of the next category of Article 6.3 
market phenomena  alleged  by the European Union ; i.e. impedance and/or displacement (and/or 
threats of the foregoing) of imports and/or exports of Airbus si ngle-aisle LCA in the 
post-implementation period , within the meaning of Articles 6.3(a) and 6.3(b) of the SCM 
Agreement.3361 To do this, we necessarily begin with our conclusion from Section 9.4.3.1.1  above, 
that the Washington St ate B&O tax rate reduction affected Boeing's pricing behaviour in five price -
sensitive sales campaigns between 2007 and 2015. We also take into account our finding s at the 
conclusion of Section 9.4.3.1.2  above that all five of those LCA sales campaigns were significant 
lost sales which are the effects of the Washington State B&O tax rate reduction.3362  
9.428.   The European Union has not advanced an additional causal theory to support the alleged 
causal link between the Washington State B& O tax rate reduction benefiting the 737 MAX and the 
737NG, and the phenomena of impedance, displacement and threats thereof, beyond that 
advanced and discussed comprehensively in connection with our evaluation of whether th is subsid y 
was a genuine and subs tantial cause of significant lost sales.3363 To the extent that the 
European  Union relies on lost sales in the single -aisle market (as the effects of the Washington 
State B&O tax rate reduction) to support its claims of impedance and displacement (including 
threats thereof), it can only validly do so for the geographic markets related to the sales 
campaigns for which we f ind the Washington State B&O tax rate reduction w as a genuine and 
substantial cause of Boeing's lower prices, and of the lost sales to Airbus . For the other geographic 
markets, there is no basis for considering whether the effects of the Washington State B&O tax 
                                               
3360 See Section 9.4.2.3  above . 
3361 Should the Panel find that the remaining aggregated categories of subsidies benefiting the 737 MAX 
and 737NG; i.e. the state and local cash flow subsidies, or the post -2006 aeronautics R&D subsidies t hat 
operate through a price causal mechanism, through their effects on Boeing's pricing of those aircraft, are a 
genuine cause of any of the Article 6.3 market phenomena, we will then cumulate the effects of those subsidies 
with those of the Washington Sta te B&O tax rate reduction.  
3362 Only thre e occurred in  the post -implementation period.  
3363 See Sections 9.4.3.1.1  and 9.4.3.1.2  above.  WT/DS353/R W 
 
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  rate reduction  are impedance, displacement or threats thereof because it has not been established 
that the subsid y in question affecte d Boeing's prices and thus ha s any causal connection to 
Boeing's share of orders or deliveries in those markets.  
9.429.   The European Union does additionally argue that, for large volume markets such as Brazil, 
United States, Canada,  and Indonesia,  it can be assum ed that , in the absence of one duopolist's  
product being subsidi zed, market share should be roughly 50% each.3364 Accordingly, Boeing's 
significantly greater than 50% market share of present and future deliveries of narrow -body, 
single -aisle LCA in these mark ets, for several years, along with other evidence of causation, 
supports the argument that the deviation  from rough  parity  is the result of the U.S. subsidies.3365 
We are not persuaded by the European Union 's counterfactual argument that, in the absence of 
the Washington State B&O tax rate reduction, Airbus' market  share in these markets would have 
been close to  50%.  
9.430.   We see no reason to as sume that, due to the nature of the global LCA product markets as 
duopolies , LCA deliveries  to certain geographic markets  should be more or less evenly split 
between Airbus and Boeing. It is not uncommon for multiple airlines from a particular region to 
maintain a long -term preference for either Airbus or Boeing, due their pre -existing relationship s 
with the manufacturer and the costs associated with switching LCA manufacturers. There is no 
basis to conclude that the dynamics of the LCA market s are such that for each large volume  
country market, Air bus and Boeing should generally each maintain a 50% share of deliveries.  
9.431.   Although the European Union argues that data showing trends in Airbus' and Boeing's 
relative shares of actual and projected LCA deliveries for the various geographic markets  support s 
its claims of impedance and displacement and threats thereof, without a causal  theory that 
explains how the subsid y in question affected Boeing's pricing behaviour, leading to the 
consequent impact on Airbus' sales, the Panel is unable to attribute the alleged impedance or 
displacement of Airbus' imports and exports to the effects o f the Washington State B&O tax rate 
reduction.  
9.432.   We will therefore examine whether the European Union's evidence demonstrates that the 
effect of the Washington State B&O tax rate reduction was displacement , impedance or threat s 
thereof for the four geograph ic markets for which we f ind Boeing and Airbus were involved in 
price-sensitive , single -aisle LCA sales campaigns, and therefore, for which a causal connection is 
established between the Washington State B&O tax rate reduction and Boeing's LCA prices.3366 For 
those geographic markets, we will compare the  combined market share s of the A320neo and the 
A320ceo to the combined market share s of the 737 MAX and the 737NG.3367 Specifically, we will 
base our analysis of relative market share s on actual and projected Airb us and Boeing deliveries of 
single -aisle LCA over the period from 2007 to 2025.3368  
                                               
3364 European Union's first written su bmission, para. 1582.  
3365 European Union's first written submission, para. 1831; second written submission, para. 1840; and 
response to Panel question No. 169, para. 537.  
3366 United States (Delta Airlines 2011); United Arab Emirates (Fly Dubai 2008 and 2014);  Canada (Air 
Canada 2013) and Iceland (Icelandair 2013). For these geographic markets, there is accordingly a causal 
phenomenon in which Boeing's receipt of the Washington State B&O tax rate reduction gave rise to lower than 
otherwise 737 MAX and 737NG pri ces, and lost sales of competing Airbus single -aisle aircraft.  
3367 For reasons we explain in paras. 9.35 through 9.39 we disagree with the European Union's proposed 
product market delineation and instead treat the existing technology A320ceo and 737NG and the new 
technology A320neo and 737 MAX as competing in the same product market for narrow -body, single -aisle 
aircraft. Our comparison of the relative market share data is based on the European Union's evidence as 
submitted in the Ascend data base, Deliveries made, data request as of 22 September 2015, (Exhibit 
EU-1660); and the Ascend data base, Deliveries due, data request as of 22 September 2015, (Exhibit 
EU-1659).  
3368 As the original panel explained, displacement, impedance, and threat thereof of the complaining 
party's imports or exports  necessarily involves the existence of goods crossing borders. For the LCA market, in 
which there is often a significant time -lag betwe en order and delivery, this means any demonstration of market 
share trends for the purposes of a displacement, impedance or threat thereof claim should be based on 
delivery data, rather than order data. (See Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.1683 -7.1686). With respect to the time -period over which we evaluate the existence of market share 
trends, 2007 to 2025 is the time -period over which the European Union presents its market share data. We 
note that this period extends both  prior to and beyond the reference period of 2013 -2015 that we use 
elsewhere in our findings. We take this longer period in order to ensure, in accordance with the Appellate WT/DS353/R W 
 
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  9.433.   We are aware that the Appellate Body has cautioned against panels mechanistically 
assuming that a finding of significant lost sales will of itself suffice to additionally est ablish the 
existence of impedance. We will examine the market share data submitted by the European Union 
in support of its claims of impedance and threat of impedance for these four geographic markets in 
order to determine whether, in light of the Panel's conclusions that in these markets the 
Washington State B&O tax rate reduction affected Boeing's prices in a manner that gave rise to 
significant lost sales, it is possible to identify "clear trends".  
9.434.   We begin with the data for the United States market, whi ch covers claims of threat of 
impedance of imports of the A320neo and impedance and threat thereof of imports of the A320ceo 
pursuant to Article 6.3(a) of the SCM Agreement.  
Table 15: U.S. single -aisle sales volume and market share data 
Year  737NG  737 MAX  A320ceo  A320neo  Boeing market 
share  Airbus market 
share  
2007 77 -- 35 -- 69% 31% 
2008 91 -- 34 -- 73% 27% 
2009 89 -- 23 -- 79% 21% 
2010 98 -- 11 -- 90% 10% 
2011 46 -- 40 -- 53% 47% 
2012 96 -- 32 -- 75% 25% 
2013 99 -- 52 -- 66% 34% 
2014 126 -- 73 -- 63% 37% 
2015 104 -- 77 1 57% 43% 
2016 109 -- 75 8 57% 43% 
2017 91 26 86 33 50% 50% 
2018 45 86 25 71 58% 42% 
2019 5 128 -- 143 48% 52% 
2020 -- 155 -- 152 50% 50% 
2021 -- 130 -- 143 48% 52% 
2022 -- 113 -- 56 67% 33% 
2023 -- 45 -- 40 53% 47% 
2024 -- 22 -- 9 71% 29% 
2025 --  -- 9 0% 100%  
Total  1076  705 563 665 59%  41%  
Source:  Ascend database, Deliveries made, data request as of 22 September 2015 , (Exhibit EU -1659);  and 
Ascend database, Deliveries due, data request as of 22 September 2015 , (Exhibit EU -1660).  
 
9.435.   The market share data shows that Boeing has enjoyed the majority of the market share for 
deliveries of single -aisle LCA in the United States between 2007 and 2016. While Boeing's share of 
deliveries is projected to decre ase to 50% in 2017, recover to 58% in 2018 and then hover around 
the 50% level until 2021, it appears that Boeing has been, and overall will remain, the dominant 
duopolist for deliveries of single -aisle LCA in the United States' market.  If anything, the tr end that 
seems to emerge is that for the next several years until 2021, Airbus' market share will increase. 
We are aware that an increase in Airbus ' market share does not necessarily refute the existence of 
impedance or threat of impedance, as the relevant  question is whether, but for the subsidies at 
issue, Airbus' imports of single -aisle LCA to the United States would otherwise be higher than they 
are.  
                                                                                                                                               
Body's guidance, that the effects of the subsidy are examined over a period of tim e that is long enough to 
discern the existence of clear trends. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , 
para. 1081 (citing Appellate Body Reports, EC and certain member States – Large Civil Aircraft , para . 1166; 
and US – Upland C otton, para.  478)). This is particularly important for the European Union's threat of 
displacement and impedance claims, which necessarily require evidence of projected future deliveries.  WT/DS353/R W 
 
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  9.436.   However, the only Boeing sale to a U.S. customer that can be causally connected to the 
Washington State  B&O tax rate reduction is the order of 100 737NG aircraft by Delta Airlines in 
2011. The Panel was not persuaded that the Washington State B&O tax rate reduction could be 
causally linked to orders of Boeing single -aisle aircraft by other U.S. customers (A merican Airlines' 
2011 order of 100 737 MAX and 100 737NG, Southwest Airlines' 2 011 order of 150 737 MAX and 
50 737NG and 2013 order of five 737NG, and United Airlines' 2 012 order of 100 737 MAX and 
50 737NG and 2013 order of 14 737NG) . As explained in the  HSBI Appendix  and summarized in 
paragraph 9.383.   , Boeing does not appear to have been under particular pressure to reduce its 
prices in those sales campaigns, and there were non -price factors that explain Boeing's success in  
obtaining those orders, or the portion of the order that it obtained .  
9.437.   Although it seems logical to us that, owing to Airbus losing the 2011 Delta Airlines sales 
campaign due to the effects of the Washington State B&O tax rate reduction , its imports of 
single-aisle LCA to the United States market will, to that extent  be obstructed, hindered or held 
back, we are mindful that the phenomenon of impedance is not synonymous with that of lost 
sales. In any case, there would be little to be gained by the Panel ma king a finding of impedance 
of imports in relation solely to lost sales that are already the subject of a finding of significant lost 
sales.  
9.438.   However, in this instance, because the Delta Airlines order arose in  2011, the Delta Airlines 
2011 campaign is not  part of the Panel's finding  of significant lost sales  in the post -implementation 
period . The threat of impeded imports of A320ceos into the United States market that arises from 
that 2011 Delta Airlines lost  sale does, however, arise in the post -implement ation period. In these 
circumstances, we consider it appropriate to make a finding in relation to the threat of impedance 
arising from th at lost sale. We therefore find that the effect of the Washington State B&O tax rate 
reduction is a threat of impedance  of imports of Airbus single -aisle LCA into the United States 
market.  
9.439.   We next examine the market share data for each of the third -country markets of Canada, 
Iceland and the United Arab Emirates  in relation to claims of impedance and threat thereof, and 
displacement and threat thereof.   
Table 16: Canada single -aisle sales volume and market share data  
Year  737NG  737 MAX  A320ceo  A320neo  Boeing market 
share  Airbus market 
share  
2007 7 -- -- -- 100%  -- 
2008 7 -- -- -- 100%  -- 
2009 10 -- -- -- 100%  -- 
2010 6 -- -- -- 100%  -- 
2011 6 -- -- -- 100%  -- 
2012 3 -- -- -- 100%  -- 
2013 5 -- -- -- 100%  -- 
2014 9 -- -- -- 100%  -- 
2015 13 -- -- -- 100%  -- 
2016 9 -- -- -- 100%  -- 
2017 1 3 -- -- 100%  -- 
2018 -- 27 -- -- 100%  -- 
2019 -- 35 -- -- 100%  -- 
2020 -- 20 -- -- 100%  -- 
2021 -- 16 -- -- 100%  -- 
2022 -- 8 -- -- 100%  -- 
2023 -- 5 -- -- 100%  -- 
2024 -- 3 -- -- 100%  -- 
2025 -- 5 -- -- 100%  -- 
Total  76 122 -- -- 100%  0% 
Source:  Ascend data base, Deliveries made, data request as of 22  September 2015 , (Exhibit EU -1659); and 
Ascend data base, deliveries due, data request as of 22 September 2015 , (Exhibit EU -1660) . 
 WT/DS353/R W 
 
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  Table 17: Iceland single -aisle sales volume and market share data3369 
Year  737NG  737 MAX  A320ceo  A320ne o Boeing market 
share  Airbus market 
share  
2018 -- 3 -- -- 100%  -- 
2019 -- 6 -- -- 100%  -- 
2020 -- 5 -- -- 100%  -- 
2021 -- 2 -- -- 100%  -- 
Total  -- 16 -- -- 100%  0% 
Source:  Ascend data base, Deliveries made, data request as of 22 September 2015 (Exhib it EU-1659); and 
Ascend data base, deliveries due, data request as of 22 September 2015 (Exhibit EU -1660) . 
Table 18: United Arab Emirates: Historic and scheduled volumes and market share in 
2007 -2025  
Year  737NG  737 MAX  A320ceo  A320n eo Boeing market 
share  Airbus market 
share  
2007 -- -- 3 -- 0.0%  100.0%  
2008 -- -- 5 -- 0.0%  100.0%  
2009 6 -- 10 -- 37.5%  62.5%  
2010 4 -- 4 -- 50.0%  50.0%  
2011 11 -- 8 -- 57.9%  42.1%  
2012 7 -- 10 -- 41.2%  58.8%  
2013 7 -- 12 -- 36.8%  63.2%  
2014 8 -- 15 -- 34.8%  65.2%  
2015 9 -- 13 -- 40.9%  59.1%  
2016 5 -- 8 -- 38.5%  61.5%  
2017 6 5 -- -- 100.0%  0.0%  
2018 -- 9 -- -- 100.0%  0.0%  
2019 -- 3 -- -- 100.0%  0.0%  
2020 -- 18 -- 3 85.7%  14.3%  
2021 -- 17 -- 7 70.8%  29.2%  
2022 -- 22 -- 7 75.9%  24.1%  
2023 -- 1 -- 3 25.0%  75.0%  
2024 -- -- -- 6 0.0%  100.0%  
2025 -- -- -- -- 0.0%  0.0%  
Total  63 75 80 26 56.6%  43.4%  
Source:  Ascend data base, Deliveries made, data request as of 22 September 2015 , (Exhibit EU -1659); and 
Ascend data base, deliveries due, data requ est as of 22 September 2015 , (Exhibit EU -1660) . 
 
9.440.   As regards the market share data for  Canada and  Iceland, Boeing maintains  100% of 
actual and projected deliveries.  We note that no deliveries of single -aisle LCA were made or are 
scheduled to be made into th e Icelandic market between 2007 and 2018 or after 2021. Moreover, 
the volumes of 3, 6, 5 and 2 737 MAX deliveries between 2018 and 2021 are quite low, and are 
similar to the volumes involved in the Kenyan third -party market for 200 -300 seat LCA in the 
original proceeding.3370  
                                               
3369 No deliveries of single -aisle LCA were made or are scheduled to b e made between 2007 and 2018 or 
after 2021.  
3370 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1073, table 5, and 1078.  WT/DS353/R W 
 
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  9.441.   The issue that arises with respect to the Canadian and Icelandic markets is whether the 
data is sufficient to identify clear trends as contemplated in Article 6.4. We are mindful that, in the 
original proceeding, the Appellate Body consi dered that data showing that Boeing's market share 
remained at 100% for all periods, and data showing sporadic and low volumes of deliveries, were 
insufficient to demonstrate clear trends. To recall, the panel considered that there was a threat of 
impedanc e in the third -country markets of Ethiopia, Kenya and Iceland based on data showing 
actual and projected future deliveries of Airbus and Boeing LCA over a period of years from the 
early 2000s to 2012.3371 For these third -country markets, however, Boeing's mar ket share 
remained at 100% over all of the periods considered by the panel. The data for Iceland covered 
only the years 2010 and 2011, with Boeing deliveries remaining stable at two per year, while the 
data for Kenya related to 2001, 2010, 2011 and 2012, w ith very small numbers of deliveries. The 
Appellate Body considered that this data did not represent a "clear trend". The Appellate Body also 
expressed reservations as to whether the data for Ethiopia, in terms of the years in which 
projected deliveries we re recorded and the number of deliveries amounted to a "clear trend".3372 
Consequently, the Appellate Body considered the data insufficient to demonstrate clear trends of a 
threat of impedance as required by Article 6.4 of the SCM Agreement and the panel's fi ndings of 
threat of impedance in respect of these third -country markets were reversed.3373  
9.442.   Notwithstanding our findings of lost sales of the A320neo being the effects of the 
Washington State B&O tax rate reduction in relation to Air Canada's order of 61 737 MAX in 2013  
and Icelandair's 2013 order of 16 737 MAX, we are unable to see in the data or in the 
Europ ean Union's impedance and threat of impedance arguments regarding the Canadian and 
Icelandic single -aisle LCA markets anything that would justify us depa rting from the approach that 
the Appellate Body took to similar data (and lost sales findings), showing that Boeing enjoyed and 
will enjoy 100% market share at all relevant times in respect of the Kenyan, Icelandic and 
Ethiopian third -country markets in th e original proceeding.  
9.443.   With respect to the United Arab Emirates,  the data show s a clear trend in which Boeing's 
single -aisle LCA deliveries are increasing, at least from 2017 until 2022. Airbus maintained a 
majority of deliveries in every year from 2007 to  2016 except for one. In 2017, when deliveries of 
the 737 MAX are due to begin, Boeing will overtake Airbus and retain a market share of between 
70 and 100% for the subsequent six years. We also f ind that Fly Dubai's 2008 and 2014 order s of 
50 737NG and 75 737 MAX , respectively,  are significant lost sale s for Airbus.3374 We conclude, 
based  on the evidence concerning market share trends in the United Arab Emirates  market and the 
evidence of the se lost sales , that the effect of the Washington State B&O tax rate reduction is a 
threat of impedance  in the United Arab Emirates  market in the post -implementation period.  
9.444.   We find that the Washington State B&O tax rate reduction is a genuine and 
substantial cause of serious prejudice  to the interests of the European Unio n in the form 
of a threat of impedance of imports of the A320ceo to the United States market , within 
the meaning of Article 6.3(a) of the SCM Agreement,  and in the form  of a threat of 
impedance of Airbus single -aisle exports to the United Arab Emirates , within the 
meaning of Article 6.3(b) of the SCM Agreement,  in each case, in the post -
implementation period.   
9.4.3.1.4   Whether the Washington State B&O tax rate reduction is a genuine and 
substantial cause of significant price suppression  (including threat thereof)  in respect of 
the A320neo and A320ceo in the post -implementation period  
9.445.   The European Union argues that the effects of the Washington State B&O tax rate 
reduction are significant price suppression , and threat of significant price suppression,  of the 
A320neo a nd A320ceo , within the meaning of Article 6.3(c) of the SCM Agreement.  
9.446.   We have already found, in paragraph 9.383  above, that in five sales campaigns between 
2007 and 2015 , Boeing appeared to be under particular pressure to red uce its prices in order to 
secure the sales, and that there were no non -price factors that explain Boeing's success in 
                                               
3371 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), para. 1073, table 5.  
3372 Appellate Body Report,  US – Large Civil Aircraft (2nd complaint ), para. 1087.  
3373 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 1089 and 1090.  
3374 See para. 9.404  above .  WT/DS353/R W 
 
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  obtaining the sales .3375 Accordingly, based on the reasoning of the Appellate Body when analysing 
the effects of the FSC/ETI subsidies on Bo eing's prices  in the original proceeding, the Washington 
State B&O tax rate reduction contributed in a genuine and substantial way to the lowering of 
Boeing's prices of narrow -body, single -aisle LCA in these five LCA sales campaigns.  We will now 
examine wh ether the evidence submitted by the European Union demonstrates that the effect of 
this impact of the Washington State B&O tax rate reduction on Boeing's 737 MAX and 737NG 
prices is suppression of Airbus'  prices of the A320neo and A320ceo in the post -imple mentation 
period.  
9.447.   The European Union argues that the U.S. subsidies cause significant price suppression of 
the A320neo and A320ceo through a price causal mechanism because they enabled Boeing to: (a) 
lower the prices of the 737 MAX in competitive sales ca mpaigns and Airbus was required to react 
to such low pricing by Boeing by reducing the prices at which it offered the A320neo in an attempt 
to maintain market share3376; and (b) lower the prices of the 737NG in competitive sales 
campaigns and Airbus was requi red to react to such low pricing by Boeing by reducing the prices 
at which it offered the A320ceo.3377 The European Union bases its arguments concerning the 
existence of significant price suppression of the A320neo and A320ceo on the conditions of 
competition  in the market for "new technology single -aisle LCA" and in the market for "existing 
technology single -aisle LCA" , respectively .3378 The European Union's significant price suppression 
claims rely on two types of evidence: (a) price trend data which purport s to demonstrate that, 
absent the U.S subsidies, prices for the A320neo and A320ceo in the post -implementation period 
would be higher3379; and (b) certain sales campaigns that Boeing  won, which the European Union 
nonetheless considers are illustrative examples o f Boeing's strategy of "aggressive pricing" which 
adversely impacts Airbus' pricing.3380  
9.448.   The European Union presents average aggregated prices at order data and average price 
per seat data for A320neo family aircraft , showing that average A320neo family pric es have 
[***].3381 As regards the A320ceo, the European Union presents average aggregated prices at 
order data and average price per seat data showing that A320ceo order prices have [***].3382 The 
European Union compares A320neo and A320ceo price movements to Ai rbus' changing input costs 
                                               
3375 Fly Dubai 2008, Delta 2011, Icelandair 2012, Air Cana da 2013, and Fly Dubai 2014.  
3376 The European Union's claims of significant price suppression with respect to the A320neo are also 
based on the alleged effects of the aeronautics R&D subsidies that operate through a technology causal 
mechanism to enable earl y 737 MAX delivery slots than would otherwise have been available, see 
Section  9.4.2 . 
3377 European Union's first written submission, paras. 1805 and 1873.  
3378 European Union's first written submission, paras. 1806, 1807, 1873, and 1883.  
3379 European Union's first written submission, paras. 1801 (for A320neo), 1876 (for A320ceo price 
trends); and Airbus proprietary presentation, "Price and price per seat evolution of net order intakes of A330, 
A320ceo, A320neo and A350X WB family LCA", Airbus proprietary presentation, 13 February 2013, (Exhibit 
EU-690) (BCI). The European Union presents the following diagrams: (a) A320neo net order prices from 
2010-2012 plotted against Airbus' input costs to produce the A320neo, as reflec ted in Airbus' price escalation 
formula , showing that, while Airbus production costs have increased, A320neo prices have [***]; and (b) 
A320ceo net order prices plotted against Airbus' input costs to produce the A320ceo, as reflected in Airbus' 
price escal ation formula , showing that, while Airbus production costs have increased, A320ceo prices have 
[***]. 
3380 The European Union presents seven sales campaigns involving single -aisle LCA which Boeing won, 
but which the European Union presents as "illustrative" o f Boeing's aggressive pricing of the 737 MAX: 
Southwest Airlines 2011, SilkAir 2012, Aeromexico 2012, United Airlines 2012, GOL 2012, Norwegian Air 
Shuttle 2012, and American Airlines 2011. (See European Union's first written submission, para. 1808). In 
support of its significant price suppression claims with respect to the A320ceo, the European Union refers to 
the Delta Airlines 2011, Fly Dubai 2008, American Airlines 2011, Southwest Airlines 2011, United Airlines 2012, 
SilkAir 2012, and LionAir 2012 campa igns. (European Union's first written submission, para. 1887). Although 
the European Union updated the data on which it relies to demonstrate the existence of lost sales of the 
A320neo and A320ceo in the post -implementation period to include a number of si ngle-aisle sales campaigns 
which occurred in 2013 -2015, it does not indicate that it wishes to also rely o n any of these sales campaigns as 
illustrating Boeing's "aggressive pricing" in relation to its claims of significant price suppression of the A320neo  
and A320ceo.  
3381 European Union's first written submission, para. 1802; and Airbus proprietary presentation, "Price 
and price per seat evolution of net order intakes of A330, A320ceo, A320neo and A350XWB family LCA", Airbus 
proprietary Presentation, 13 Feb ruary 2013, (Exhibit EU -690) (BCI).  
3382 European Union's first written submission, paras. 1876 -1882; and Airbus proprietary presentation, 
"Price and price per seat evolution of net order intakes of A330, A320ceo, A320neo and A350XWB family LCA", 
Airbus propr ietary Presentation, 13 February 2013, (Exhibit EU -690) (BCI).  WT/DS353/R W 
 
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  over time for th e same period , as reflected in Airbus' price escalation formula .3383 The European 
Union's position is that, because Airbus' input costs (as reflected in Airbus' price escalation 
formula)  have increased over time, Air bus' LCA prices should have increased to a commensurate 
degree (and would have  increased , absent the U.S. subsidies). In its response to the Panel's third 
set of questions, the European Union updated the pricing information underpinning its significant 
price suppression arguments to cover the 2013 and 2014 period.3384 The European Union considers 
that this new data indicates that: (a) [***]; and (b) [***].3385  
9.449.   The United States argues that the European Union has failed to establish significant price 
suppression because it does not demonstrate the requisite genuine and substantial causal link 
between the U.S. subsidies and Airbus' prices, under either a technology causal mechanism or a 
price causal mechanism.3386 The United States also considers that the pricing data  provided by the 
European Union is distorted and unreliable because it is aggregated for all models of the A320neo 
and A320ceo families. In any case, the pricing data fails to show that any impact on A320neo and 
A320ceo prices arises from the effects of th e subsidies on, respectively, 737 MAX and 737NG 
prices, rather than from competition from single -aisle LCA more generally.3387 Price trend data for 
the A320neo shows a [***].3388 With respect to the A320ceo, whereas 737NG prices [***] 
between 2007 and 2012, A320 ceo prices [***].3389 The United States further notes that the 
majority of the sales campaigns that the European Union considers to evidence Boeing's 
"aggressive pricing" involve  all-Boeing customers in which Boeing enjoyed an incumbency 
advantage: "{p}rying these customers away from Boeing necessarily required offering the 
A320neo on more attractive terms than would be the case where Boeing was not the 
incumbent."3390 Moreover, Airbus' significant production rate increases for the A320ceo are an 
additional reaso n why A320ceo prices are not higher than they are.3391 
9.450.   We begin our analysis by recalling that "price suppression" refers to a situation where 
"prices" either are prevented or inhibited from rising (i.e. they do not increase when they 
otherwise would have) or  they do actually increase, but the increase is less than it would otherwise 
have been.3392 The Appellate Body has further noted:  
{P}rice suppression is not {a directly observable phenomenon} … price suppression 
concerns whether prices are less than they woul d otherwise have been … The 
identification of price suppression, therefore, presupposes a comparison of an 
observable factual situation (prices) with a counterfactual situation (what prices would 
have been) where one has to determine whether, in the absenc e of the subsidies (or 
some other controlling phenomenon), prices would have increased or would have 
increased more than they actually did.3393 
                                               
3383 European Union's first written submission, paras. 1802 and 1875. The European Union explains that 
pricing escalation is used by Airbus and by Boeing to reflect increased costs in the same per iod. An escalation 
formula is applied to aircraft pricing to reflect changing costs and economic conditions over time. 
(European  Union's first written submission, para. 1802 and fn 3327). See also Panel Report, US – Large Civil 
Aircraft (2nd complaint ), para. 7.1685.  
3384 European Union's response to Panel question No. 170, para. 546; "Price Evolution Net Order 
Intakes", Airbus Presentation, October 2015, (Exhibit EU -1669) (BCI), pp. 3 and 4.  The European Union did 
not, however,  update the information concerni ng Airbus' input costs based on Airbus' price escalation formula , 
so there is no data on the record to indicate the level of Airbus' input costs for the A320neo and A320ceo in the 
post-implementation period.  
3385 European Union's response to Panel question No . 170, para. 571.  
3386 United States' first written submission, paras. 1001 and 1071; second written submission, 
paras.  1233 and 1358; and comments on the European Union's response to Panel question Nos. 166 and 170, 
paras. 206 -209.  
3387 United States' first w ritten submission, paras. 1005 -1008 and 1076 -1077; second written 
submission, paras. 1233, 1358, and 1367; comments on the European Union's response to Panel question 
Nos. 166 and 170, paras. 211 -213. 
3388 United States' comments on the European Union's respo nse to Panel question No. 170, para. 223.  
3389 United States' comments on the European Union's response to Panel question No. 170, paras. 221 
and 222.  
3390 United States' first written submission, para. 1008; second written submission, para. 1233; and 
comments o n the European Union's response to Panel question Nos. 166 and 170, paras. 214 and 215.  
3391 United States' first written submission, para. 1077; second written submission, paras. 1368 and 
1369.  
3392 Appellate Body Report, US – Upland Cotton , para. 423.  
3393 Appel late Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 351.  WT/DS353/R W 
 
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  9.451.   A counterfactual analysis is therefore an "inescapable part" of analysing  the effect of a 
subsidy under Article 6.3 (c) of the SCM Agreement.3394 The Panel must compare the observable 
factual situation of the prices for Airbus' A320neo and A320ceo with the counterfactual situation of 
what those prices would have been absent the Washington State B&O tax rate reduct ion.  
9.452.   In addition, Article 6.3(c) requires that the Panel determine that the effect of the subsidy 
in question is significant price suppression in the same market . As explained in Section 9.2.1, the 
European Union has argued its serious  prejudice claims on the basis of a market delineation that 
places in distinct product markets existing technology  aircraft such as the 737NG and A320ceo, 
which are less fuel efficient but avail able for earlier delivery, and new technology  aircraft such as  
the 737 MAX and A320 neo, which are more fuel efficient but may not be available for delivery for 
many years, despite the similarities in seating capacity, range , and MTOW that might otherwise 
exist between  all of these aircraft. For reasons we explain in paragraphs 9.35 through 9.39, we 
disagree with the European Union's proposed market delineation and instead treat  the existing 
technology A320ceo and 737NG and the new technology  A320neo and 737 MAX  as competing in 
the same product market for narrow -body, single -aisle aircraft. The practical implication of our 
delineation of one narrow -body, single -aisle product market is that we should take  into account 
any evidence that prices for the A320ceo and 7 37NG (and not just the 737 MAX) exercised 
constraints on A320neo pricing, and prices for the A320neo and 737 MAX (and not just the 737NG) 
exercised constraints on A320ceo pricing.3395 
9.453.   Airbus launched the A320neo family LCA in December 2010, with first deliver ies scheduled 
for October 2015. Some eight months later, in August 2011, Boeing launched the 737 MAX family, 
with first deliveries scheduled for 2017.3396 There is evidence that Airbus priced the A320neo at a 
premium of USD 7 -8 million over the A320ceo, which  represents one half of the NPV of the 15% 
fuel saving that the A320neo was expected to deliver over the A320ceo and 737NG.3397 An Airbus 
presentation in early 2013 declared that the A320neo had 35% more orders than the 737 MAX in 
the first year after its lau nch.3398 As can be seen from the order data set forth in Table 19 below, 
Airbus gained significant market share in the single -aisle market in 2011 following the A320neo 
launch. This declined following Boeing's launch of the 737 MAX i n the latter part of 2011. 
Airbus'  share of the single -aisle market has increased since so that it was at 57% by 2014.  
Table 19: Airbus & Boeing Single -Aisle Orders and Market Share (2007 -2014)3399 
 2007  2008  2009  2010  2011  2012  2013  2014  
Airbus A320ceo/neo orders  662 436 228 450 1526 756 1303 1597 
Boeing 737NG/MAX orders  707 447 177 416 579 1165 1197 1205 
Grand Total  1369 883 405 866 2105 1921 2500 2802 
Airbus market share  48% 49% 56% 52% 72% 39% 52% 57% 
Boeing market share  52% 51% 44% 48% 28% 61% 48% 43% 
9.454.   The LCA markets pose particular challenges for th e analysis of claims of price suppression,  
owing to  the difficulty of identifying and measuring  a "price"  for LCA. As discussed in Section  9.2.2 
of this Report, the pric e at which  a particular LCA is sold can vary significantly  depending on the 
customer and the campaign. Actual negotiated LCA prices are commercial ly sensitive and highly 
confidential . Factors such as performance guarantees, credit terms,  buying back of old aircraft and 
other aspects of an overall transaction also make it difficult to compare  in a meaningful way the  
prices  of the same aircraft sold to different customers (or even the same customers), at different 
                                               
3394 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 351.  
3395 The European Union appears to agree with this, noting that to the extent that any price suppression 
for the A320neo results from the 737NG, or for the A320ceo from the 737 MAX, these would be "non -subsidy" 
factors based on the structure of the European Union's arguments. (European Union's response to Panel 
question No. 170, para. 568).  
3396 Mourey Statement,  (Exhibit EU -34) (BCI), para. 81.  
3397 S. Hamilton, "A320 NEO to have $7 -8 million Price Premium", Flight International , 23 August 2010, 
(Exhibit USA -361).  
3398 F. Bregier, "Airbus Results 2012, Outlook 2013", Presentation at the Annual Press Conference, 
17 January 2013,  (Exhibit USA -296).  
3399 Ascend data base, Orders, data request as of 29 September 2015,  (Exhibit EU -1658).  WT/DS353/R W 
 
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  points in time .3400 Prices fo r aircraft will differ for a number of reasons , including the  size of the 
order,  incumbency and "product availability issues".3401  
9.455.   In the original proceeding, the panel found that the aeronautics R&D subsidies enabled 
Boeing to launch the technologically  advanced  787 earlier than would have otherwise been 
possible, and that this required Airbus to lower its A330 p rices in order to compete. The "economic 
logic" of the impact of the aeronautics R&D  subsidies , through the accelerated launch of the 787, 
on prices  of the A330,  was consistent with the trend of decreases in indexed A330 price data in the 
original reference period, coupled with  overall trends demonstrating erosion of Airbus' market 
share as compared with the period prior to the launch of the 787.3402 The panel reasoned that,  
absent the launch of the 787 in 2004, the A330 would have continued its pre -2004 dominant 
position in the 200 -300 seat LCA product market for a longer period of time, and for that 
additional period, would have been able to command hig her prices in general.3403  
9.456.   In Section 9.4.2, we reject the European Union's argument s concerning the alleged 
spill-over effects and new technology effects of the  aeronautics R&D subsidies in relation to the 
737 MA X in the post -implementation period  and thus the argument that the aeronautics R&D 
subsidies are causally related to any of the forms of serious prejudice alleged in respect of the 737 
MAX in the post -implementation period . Therefore, unlike the situation involving the 787 and A330 
in the original proceeding, there is no event or factor such as the accelerated launch of a 
technologically advanced aircraft that is the effect of the U.S. subsidies that can clearly and 
rationally be expected to have a generall y suppressing effect on prices of the A320neo or A320ceo.  
9.457.   Another difference between the significant price suppression claims of the European 
Communities in the original proceeding, and those made in this proceeding is that  in the original 
proceeding,  the European Communities supported its price suppression claims with evidence from 
sales campaigns which Airbus had won, at the cost of significantly reducing  its A330 and Original 
A350 prices to offset the technological advantages of the 787.3404 By contrast, evidence on which 
the European Union relies to support its significant price suppression claims in this proceeding 
comprises the sales campaigns that Boeing  won; i.e. campaigns that Airbus lost and for which  
there is necessarily no Airbus LCA "price" that w as suppressed. The European Union argues that 
these campaigns are still evidence of price suppression because they are "illustrative" of Boeing's 
aggressive pricing which, according to the European Union, suppresses Airbus' prices more 
generally.  
                                               
3400 See para s. 9.20 and 9.21 above. The global LCA market can be con trasted with international 
commodity markets, such as market at issue in US – Upland Cotton . In that case, there were discernible "world 
prices" for upland cotton that allowed for the use of modelling exercises to predict such prices in a 
counterfactual sc enario. See Appellate Body Report, US – Upland Cotton , para . 415: "{t}he Panel found that 
'the A -index can be taken to reflect a world price in the world market for upland cotton that is sufficient to form 
the basis for our analysis as to whether there is price suppression". See also Appellate Body Report, US – 
Upland Cotton (Article 21.5 – Brazil) , para. 357: "because the examination of price suppression necessarily 
involves an analysis of what would have been the case in the absence of an intervening even t, modelling 
exercises are likely to be an important analytical tool that a panel should scrutinize".  
3401 European Union's second written submission, paras. 1493 -1497; response to Panel question 
No. 166, paras. 147 -151; and comments on the United States' res ponse to Panel question No. 171, para. 164.  
3402 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 1106 -1113; and Panel 
Report, US – Large Civil Aircraft (2nd complaint) , paras. 7.1781 -7.1785.  
3403 Panel Report, US – Large Civil Aircra ft (2nd complaint) , paras. 7.1785 -7.1797. The original panel's 
findings of price suppression in the 100 -200 and 300 -400 seat markets, which were not based on an event 
such as the launch of a competing, technologically advanced aircraft, were overturned by the Appellate Body 
on the basis that they were insufficiently supported by evidence on the record. The original panel in EC and 
certain member States – Large Civil Aircraft , which also considered a price suppression claim in the context of 
the LCA market, found that while Boeing's LCA prices were being suppressed in some way, the United States 
had failed to establish that this phenomenon was caused by the subsidies. This finding was made on the basis 
of a "bifurcated" analysis, in which the panel first addr essed whether the complainant had established the 
existence of the market phenomena identified in Article 6.3, and then separately addressed whether the 
complainant had established whether the price suppression phenomenon was caused by the subsidies. This 
approach is in contrast to a "unitary" approach, which involves a "single, integrated analysis of both the market 
phenomena and the issue of whether they have been caused by the subsidies at issue". The bifurcated 
evaluation of the existence of Article 6.3  market phenomena has been criticised on the basis that it "may be 
difficult to ascertain the existence of some of the market phenomena in Article 6.3 without considering the 
effect of the subsidy at issue". (See Appellate Body Report, EC and certain membe r States  – Large Civil 
Aircraft , para. 1107).  
3404 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1792.  WT/DS353/R W 
 
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  9.458.   We exami ne the sales campaigns that occurred between 2007 -2012, which the 
European  Union alleges evidence Boeing's "aggressive pricing", in the context of our evaluation of 
whether the Washington State B&O tax rate reduction affected Boeing's 737 MAX and 737NG 
prices. Of those sales campaigns, only two (the Fly Dubai 2008 and Delta 2011 campaigns, both 
involving the 737NG and A320ceo) are campaigns where the  Panel finds that: (a)  the outcomes 
were price-sensitive , in the sense that Boeing was under particular press ure to reduce its prices in 
order to secure sales  and there were no other non -price factors that explain Boeing's success in 
obtaining the sale ; and (b) the Washington State B&O tax rate reduction was causally linked to the 
outcome of the sale.  
9.459.   This means  that there are many other campaigns in the single -aisle market which we have 
either found were not price -sensitive in the sense described above , or where the European Union 
itself does not allege that the campaigns were highly competitive . For example, in  updating its lost 
sales and displacement evidence to include the most recent data and developments since 20133405, 
the European Union explains that it does not challenge campaigns  such as an order by a group of 
Chinese airlines for 300 Boeing aircraft, value d at approximately USD 38 billion3406, Ryanair's 
orders in 2013 for 175 737 -800s (valued at USD 15.6 billion) or in 2014 for 100 737 MAX aircraft 
(valued at USD 11 billion).3407 Nor does it challenge Turkish Airlines' 2013 order for 50 737MAX 
and 20 737 -800s (va lued at USD 6.9 billion).3408 As for sales campaigns involving leasing company 
customers, the European Union notes that it does not challenge orders such as AerCap's 2015 
order for 100 737 MAX (valued at USD 10.7 billion), SMBC Aviation Capital's order for 80  737 MAX 
(valued at USD 8.5 billion) or BO C Aviation's 2014 orders for 50  737 MAX and 30 737 -800s 
(valued at USD 8.8 billion).3409 The European Union adds that there are "many further small and 
large Boeing orders that remain unchallenged in these proceedings , demonstrating that the 
European Union's challenge is limited to a relatively small portion of Boeing's overall sales".3410  
9.460.   The European Union acknowledges that some sales  campaigns are price -sensitive  and 
some are not. It argues that Boeing uses the subsid ies in the price -sensitive campaigns.3411 We 
have found  that this is the case in relation to a limited number of single -aisle sales campaigns that 
Boeing won. In this context, the fact that Boeing used subsidies to win a comparatively small 
number of pric e-sensitive campaigns does not illustrate  that Boeing similarly used the subsidies in 
other  single -aisle sales campaigns that Airbus won  at prices that were consequently suppressed 
due to the effects of the subsidies.  Had the European Union submitted evidence from sales 
campaigns that  Airbus won, which were price -sensitive in the above sense , or had there been 
additional evidence that Airbus' offer prices in the sales campaigns  that it lost were transmitted to 
affect the prices Airbus achieved in sales campaign s that it won,  there would have been a  basis to 
consider a causal link between the subsidies enabling Boeing's lower prices in price -sensitive sales 
campaigns, and suppression of Airbus' prices. As it stands, however, there is insufficient evidence 
to supp ort the proposition that, but for the Washington State B&O tax rate reduction benefiting the 
737 MAX and 737NG, A320neo and A320ceo prices obtained by Airbus  in sales campaigns not 
before us in evidence, which Airbus won, would be higher than they are.   
9.461.   The European Union presents evidence of Airbus' cost escalation to show what 
Airbus'  prices should have been absent the U.S. subsidies.3412 However, in markets in which a 
producer can enjoy a temporary monopoly position or greater than normal profits for certai n LCA 
models at certain points in time, it is not apparent to us why LCA prices would  necessarily be 
expected to track escalations in the input costs of LCA manufactu rers. In any case, the 
                                               
3405 European Union's response to Panel question No. 169, para. 174.  
3406 Boeing Press Release, "Boeing Hosts China President Xi Jinping, Anno unces Airplane Sale, Expanded 
Collaboration with China's Aviation Industry", 23 September 2015, (Exhibit EU -1441).  
3407 Boeing Press Release, "Boeing, Ryanair Finalize Order for 175 Next -Generation 737s", 
19 June 2013, (Exhibit EU -1653); and Boeing Press Rele ase, "Boeing, Ryanair Finalize Order for 100 737 MAX 
200", 1 December 2014, (Exhibit EU -1442).  
3408 Boeing Press Release, "Boeing, Turkish Airlines Finalize Order for 50 737 MAXs, 20 Next -Generation 
737s", 14 May 2013, (Exhibit EU -1654).  
3409 Boeing Press Releas e, "Boeing, AerCap Announce order for 100 737 MAX 8s", 16 June 2015, (Exhibit 
EU-1655); Boeing Press Release, "Boeing, SMBC Aviation Capital Annou nces Order for 80 737 MAXs", 
10 November 2014, (Exhibit EU -1656); and Boeing Press Release, "Boeing, BOC Aviat ion Announce Order for 
82 Airplanes", 25 August 2014, (Exhibit EU -1657).  
3410 European Union's response to Panel question No. 169, para. 174.  
3411 See paras. 9.52 and 9.236  above.  
3412 See fn  2723 above for an explanation of the concept of "escalation" in the context of the LCA 
industry.  WT/DS353/R W 
 
- 593 - 
 
  European  Union did not update the information concerning Airbus' input costs so there is no data 
on the record to indicate the level of Airbus' input costs for the A320neo and A320ceo in the post -
implementation period.3413 
9.462.   Moreover, when Boeing indexed average order prices for the 737 MAX are graphed against 
Airbus A320neo a nd A320ceo indexed average order prices, there is a correlation between price 
movements of the A320neo and A320ceo, but not between those two aircraft and the 737 MAX.3414 
This suggests to us the possibility of a relationship between A320neo and A320ceo price s. 
However, [***]. Without additional information to explain [***], all that we are able to deduce 
from this evidence is that the relationship between 737 MAX prices and prices of the A320neo and 
A320ceo is not apparent, and there is nothing to indicate th at 737 MAX  prices are suppressing 
A320neo prices.  
9.463.   More generally, the parties disagree as to the validity of price trend data presented on an 
LCA-family, rather than a model -specific , basis in relation to the significant price suppression 
claims in respec t of the  A320neo and A320ceo , as well as the  A350XWB and A330 . The 
United States argues that aggregated data masks the different pricing trends that may occur 
across differently -sized (and priced) LCA models.3415 In its second written submission, the 
European  Union acknowledges the limitations of aggregated  family  data, but argues: (a) that it is 
nonetheless more useful, since model -specific data is more likely to contain gaps and other flaws 
related to the small and uneven number of sales of individual size v ariations per year3416; and (b) 
the aggregated per-seat price trend data submitted by the European Union corrects for these 
limitations, since it evens out the changing mix of size variations within each LCA family.3417 To the 
extent that the United States has i dentified trends in the pricing relationship between Boeing and 
Airbus LCA that contradict the European Union's argument, this is only because it is comparing 
Airbus and Boeing aggregated net price trends, rather than aggregated per-seat price trends.3418  
9.464.   However, in its December 2015 comments on the United States' responses to the Panel's 
third set of questions, the European Union argues that while per -seat price trend data is a "more 
meaningful proxy" for trends in aircraft prices, it too is flawed and cann ot support the 
United  States' argument that price trend data undermines the European Union's position on price 
suppression. The European Union refers to "limitations inherent in aggregated annual pricing data 
for families or individual LCA, reflecting a sm all number of heterogeneous sales transactions" and 
concludes that these limitations undermine the usefulness of the data as a true indicator of market 
realities in a given year, and of competitive constraints between products that the parties agree 
are in  close competition.3419 At the same time, however, the European Union appears to maintain 
its previous position that disaggregated , model -specific  data is flawed, and disagrees on that basis 
with the United States' arguments that a comparison of disaggregated  Boeing and Airbus  model -
specific  price trend data also contradicts the European Union's price suppression argument.3420 The 
European Union thus appears to repudiate not only the United States' data as providing a reliable 
basis for drawing conclusions about market conditions, but also its own.  
                                               
3413 This is also the case with respect to the European Union's significant price suppression claims with 
respect t o the A350XWB and A330. To the extent that the European Union relies on an alleged absence of 
correlation between trends in A350XWB and A330 family prices and Airbus price escalation, the 
European  Union does not establish this for the post -implementation p eriod.  
3414 United States' comments on the European Union's response to Panel question Nos. 166 and 170, 
para. 223; Indexed Model -Specific and Family -Wide Average Pricing for 787, 777X, 737 MAX, and 737NG 
(2001 -2014), (Exhibit USA -599) (BCI), p. 11; and "Pric e Evolution Net Order Intakes", Airbus Presentation, 
October 2015, (Exhibit EU -1669) (BCI), pp. 3 and 4.  
3415 United States' second written submission, paras. 946 -949. 
3416 European Union's second written submission, paras. 1485 -1489.  
3417 European Union's second w ritten submission, para. 1488. The European Union also notes that, 
despite its criticisms of aggregated price trend data, the United States has itself submitted aggregated pricing 
data for the relevant Boeing LCA families and, unlike the European Union, ha s not submitted per -seat price 
trend data. (European Union's second written submission, paras. 1492 -1497).  
3418 In its second written submission, however, the United States submits aggregated per -seat price 
trend data, and maintains that this too contradicts the European Union's price suppression arguments.  
3419 European Union's comments on the United States' response to Panel question No. 170, paras. 163 
and 170.  
3420 European Union's comments on the United States' response to Panel question No. 171, 
paras.  163-171. WT/DS353/R W 
 
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  9.465.   Finally, we pr ovide our views on a non -attribution factor  raised by the United States that 
we consider the European Union has failed to adequately address. It concerns the impact of 
compet ition from existing technology  single -aisle LCA (i.e. the A320ceo and 737NG) on the 
A320neo and, conversely, the impact of new technology  single -aisle LCA (i.e. the A320neo and the 
737 MAX) on the  prices of the  A320ceo. As already noted, we treat the existing technology 
A320ceo and 737 NG and the new technology  A320neo and 737 MAX as competing in the same 
product market for narrow -body, single -aisle aircraft. Indeed, of the sales campaigns involving 
single -aisle LCA between 2007 -2015 that the European Union alleges are significant lost s ales to 
Airbus, a not insignificant number  involved both existing t echnology and new technology  LCA. It is 
clear to us that, especially where customers are c ontemplating ordering a mix of existing 
technology and new technology  aircraft of the same size, ra nge and MTOW,  the prices of existing 
technology  single -aisle aircraft constrain those of new technology  single -aisle aircraft and 
vice-versa.3421 The European Union has failed to address this factor in its arguments owing to its 
overly -narrow definitions of t he relevant product markets.  
9.466.    In our view, for the reasons stated above, there is insufficient evidence to demonstrate 
that, but for the Washington State B&O tax rate reduction  benefiting the 737 MAX and 737NG, 
prices of the A320neo and A320ceo, respectiv ely, in the post -implementation period, would be 
higher.3422  
9.467.   We find that the European Union has failed to establish  that the Washington 
State B&O tax rate reduction is a genuine and substantial cause of serious prejudice  to 
its interests  in the form of sign ificant price suppression  (including threat thereof)  in 
respect of the A320neo or the A320ceo in the post -implementation period.  
9.4.3.2   The state and local cash flow  subsidies  
9.468.   We next address the effects of the state and local cash flow subsidies on  Boeing's pric es of 
the 737 MAX and 737NG, and whether any such  effects also contribute to the effects of the 
Washington State B&O tax rate reduction as a cause of serious prejudice in respect of  the A320neo  
and A320ceo  in the post -implementation period.3423 We are mindful  that, where a category of 
subsidies has already been found t o be a genuine and substantial  cause of serious prejudice , a 
panel may ascertain whether any ot her category of subsidies is a genuine  cause of serious 
prejudice , and if so, whether the effects of  the latter group of subsi dies complement and 
supplement  those of the former, and thereby also constitute a cause of serious prejudice .3424  
9.469.   Because the Panel f inds that the Washington State B&O tax rate reduction is a genuine and 
substantial cause of serious  prejudice to Airbus narrow -body, single -aisle LCA in the post -
implementation period, we will  evaluate the effects of the state and local cash flow  subsidies by 
asking: (a) whether these subsidies have a genuine  causal connection with the relevant market 
effects on Airbus' narrow -body, single -aisle aircraft; and if so, (b) whether the effects of these 
subsidies should be cumulated with  the effects of the Washington State B&O tax rate reduction  
already found for the narrow -body, single -aisle market , and foun d to also contribute to the 
relevant serious prejudice phenomena . However, if the P anel is not satisfied that the state and 
local cash flow subsidies have a genuine  causal connection with the relevant market effects on 
                                               
3421 A 2013 article indicated that there A320ceos and 737NGs were being "massively discounted" owing 
to customer preference for the more fuel -efficient versions of the A320neo and 737 MAX that were then in 
development. ("Le vrai prix des avions d'Airbus et  de Boeing", Challenges , 13 June 2013, (Exhibit EU -1709)).  
3422 The European Union also argues that, in light of the continuation of the U.S. subsidies and the 
unchanged conditions of competition in the relevant markets, there is a threat of further significa nt price 
suppression. (European Union's first written submission, paras. 1821 and  1891). We f ind, however, that the 
existing U.S. subsidies and conditions of competition do not give rise to significant price suppression. The 
European Union's threat argumen ts do not provide a basis for any change in circumstances that would warrant 
the conclusion that price suppression that does not currently exist is nevertheless clearly foreseeable and 
imminent.  
3423 See para. 9.253  above for a su mmary of the subsidies included within this category of post -2006 
subsidies.  
3424 Appellate Body Report, US – Large Civil Aircraft (2nd complaint ), paras. 1287 and 1288.  WT/DS353/R W 
 
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  Airbus'  narrow -body, single -aisle, ai rcraft, there is no basis for finding that they  contribute to the 
relevant serious prejudice phenomena .3425  
9.470.   As previously explained, the European Union argues that the state and local cash flo w 
subsidies generally operate to reduce costs that Boeing would ot herwise have incurred with its own 
resources , and thereby liberate funds that Boeing can and does apply to lower LCA pricing in 
certain highly -competitive LCA sales campaigns . The European Union considers that Boeing is able, 
and has strong incentives, to use the additional cash flow represe nted by the state and local cash 
flow subsidies to lower prices for its LCA in competitive sales campaigns without reducing its 
profits.3426 In Section 9.3.2.2.2 , in evaluating the effects of th e state and local cash flow  subsidies 
benefiting the 787 and 777X on the A350XWB, we note that the European Union relies on the 
Appellate Body's finding with respect to the tax abatements related to the City of Wichita IRBs to 
support the argument that, in  light of the incentives that Boeing has to reduce its prices in 
strategic LCA sales campaign s, and the subsidy magnitudes, untied  subsidies such as the 
Washington State tax subsidies, which have a close connection, or "link" to the production of the 
relevant Boeing LCA, can be considered to  have a genuine  causal link to Boeing's pricing of those 
aircraft.3427 For the reasons set forth  in paragraphs 9.272  through 9.275  of this Report, we do not 
consider  that the Appellate Body's finding with respect to the tax abatements related to the City of 
Wichita IRBs supports the Euro pean Union's argument that the state and local cash flow subsid ies 
impact  Boeing's LCA prices.  
9.471.   We therefore consider that the Europea n Union has failed to demonstrate that the state 
and local cash flow  subsidies, by virtue of operati ng to increase Boeing's cash flow, would be used 
by Boeing to lower the prices of the 737 MAX and 737NG. There is no evidence before us from 
which we could conclude that, absent the state and local cash flow subsidies, Boeing would have 
been financially unable to engage in exactly the same pricing behaviour in which it engaged.3428 
There is  accordingly no basis for finding that the state and local cash flow subs idies affect Boeing's 
pricing behaviour, even in so -called pri ce-sensitive sales campaigns  and are thus a genuine cause 
of serious prejudice in relation to Airbus single -aisle LCA . Accordingly, there is no basis for 
cumulating the effects of these subsidie s with those of the Washington State B&O tax rate 
reduction in the single -aisle market.  
9.472.   The Panel finds that the European Union has failed to establish  that the state and 
local cash flow  subsidies are a genuine cause of any of the forms of serious prejudic e 
alleged in respect of the A320neo or A320ceo in the post -implementation period  through 
a price causal mechanism .  
9.4.3.3   The post -2006 aeronautics R&D subsidies  
9.473.   The European Union argues that the post -2006 aeronautics R&D subsidies3429 operate to 
lower Boeing's pr icing of current LCA, such as the 737 MAX and 737NG, because they provide 
Boeing with access to and use of research results and inputs that enable it to "continue maturing" 
technologies for application to future generations of LCA without having to pay the  U.S. 
Government for such access and use.3430  
                                               
3425 In this latter situation, it would also logically follow that the state and local cash  flow subsidies could 
not, on their own, constitute a genuine and substantial  cause of adverse effects on Airbus' narrow -body, 
single -aisle aircraft.  
3426 European Union's first written submission, para. 1156; second written submission, para. 1080. See 
also p aras. 9.255  and 9.256  above . 
3427 And correspondingly, that "untied" subsidies which have a close connection or "link" to the 
production of other Boeing LCA at issue in this proceeding (i.e. the 787 an d 777X), can also be considered to 
have a genuine  causal link to Boeing's pricing of those aircraft.  
3428 We reiterate that the European Union does not attempt to demonstrate that Boeing's LCA pricing 
would not be economically feasible absent the receipt of t he state and local cash flow subsidies, which 
represents a significant departure from the European Communities' case in the original proceeding, where it 
sought to demonstrate that Boeing's pricing and product development decisions would have been 
"unsusta inable and financially irrational" absent Boeing's alleged receipt of the subsidies at issue. (See Panel 
Report, US – Large Civil Aircraft (2nd complaint ), paras. 7.1621, 7.1830, and 7.1831, and fn 3787).  
3429 Other than the non -flight testing portion of the  FAA aeronautics R&D subsid y above, fn 3149. 
3430 European Union's response to Panel question No. 43, para. 280.  WT/DS353/R W 
 
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  9.474.   As previously explained in Section 9.3.2.2.3  in evaluating the effects of the post -2006 
aeronautics R&D subsidies benefiting the 787 and 777X on the A350XWB, the European Union 
consid ers that the post -2006 aeronautics R&D subsidies operate in a manner that is "identical to 
the remaining state and local subsidies".3431 The Panel has alre ady explained that the 
European  Union's argument that the post -2006 aeronautics R&D subsidies enabled Bo eing to lower 
its LC A prices would ultimately fail for the reasons that this  same argument with  respect to the 
effects of the state and local cash flow  subsidies on Boeing's prices also fails.3432  
9.475.   We therefore conclude that the European Union has failed to d emonstrate that the 
post-2006 aeronautics R&D subsidies affected Boeing's pricing behaviour with respect to the 737 
MAX and 737NG . Having failed to demonstrate that these subsidies affected Boeing's pricing 
behaviour, there is no basis on which the subsidi es can be demonstrated to have caused the 
various forms of serious prejudice alleged with respect to the A320neo and A320ceo.  
9.476.   The Panel finds that the European Union has failed to establish  that the post -
2006 aeronautics R&D subsidies are a genuine cause of any of the forms of serious 
prejudice  alleged in respect of the A320neo or A320ceo in the post -implementation 
period  through a price causal mechanism .  
9.4.3.4   Summary of conclusions on whether the post -2006 subsidies  benefiting the  737 
MAX and 737NG cause seri ous prejudice  to the interests of the European Union, within 
the meaning of Articles 5(c) and 6.3,  in respect of the A320neo and A320ceo in the post -
implementation period , through a price causal mechanism  
9.4.3.4.1   Washington State B&O tax rate reduction  
9.477.   The Panel has concluded that the Washington State B&O tax rate reduction , which is the 
only tied tax  subsidy alleged to benefit the 737 MAX  and 737NG , affected Boeing's pricing 
behaviour  in five price -sensitive LCA sales campaigns in the 2007 -2012 period: Fly Dubai 2008, 
Delta Airlines 2011, Icelandair 2013, Air Canada 2013, and Fly Dubai 2014.3433  
Significant lost sales  
9.478.   Three of the five sales campaigns that  the Panel  finds are price-sensitive involved orders 
that occurred in the post -implementation period: Fly Dubai  2014, Air Canada 2013 and Icelandair 
2013. The Panel f inds that the Washington State B&O tax rate reduc tion contributed in a genuine 
and substantial  way to determining the outcomes of these campaigns. Accordingly , the effects of 
the Washington State B&O t ax rate reduction are lost sales of the A320neo and A320ceo in the Fly 
Dubai 201 4, Air Canada 2013 and Icelandair 201 3 sales campaign s. Each of these lost sales is  
"significant" , within the meaning of Article 6.3(c) of the SCM Agreement.  
9.479.   Therefore, the Pa nel finds that the Washington State B&O tax rate reduction is a genuine 
and substantial cause of serious prejudice in the form of significant lost sales  of A320neo and 
A320ceo families of LCA in the post -implementation period, in respect of the sales campa igns for 
Fly Dubai in 201 4, Air Canada in 2013, and Icelandair in 201 3.  
Impedance, displacement (and threats thereof)  
9.480.   With the exception s set forth in the next paragraph , the Panel is not satisfied that the 
European Union has adequately substantiated its  claims of impedance, displacement, or threats 
thereof, of imports of Airbus single -aisle aircraft to the United States or of exports of Airbus single -
aisle aircraft to various third country markets. The Panel's  previous  finding that the Washington 
State B &O tax rate reduction is a genuin e and substantial cause of significant lost sales of Airbus 
                                               
3431 European Union's first written submission, para. 1187. See also European Union's comments on 
United States' response to panel question No. 158. Japan and Korea also advance arguments supporting the 
analysis of R&D subsidies through a price causal mechanism. See paras. 9.285  and 9.286  above.  
3432 See paras. 9.285  and 9.286  above . 
3433 Following the approach of the Appellate Body to determining the impact of the tied tax subsidies on 
Boeing's pricing behaviour in th e original proceeding, LCA sales campaigns are considered price -sensitive 
where it is demonstrated that Boeing was under particular pressure to reduce its prices in order to secure sales 
and there were no other non -price factors that explain Boeing's succe ss in obtaining the sale.  WT/DS353/R W 
 
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  single -aisle aircraft  in respect of certain price-sensitive  LCA sales campaigns  does not, on its own, 
demonstrate impedance , displacement (or threat s thereof ) of A irbus single -aisle imports or 
exports to the geographic markets associated with those customers. Moreover, there would be 
little to be gained by the Panel making a finding of impedance of imports or exports in relation 
solely to lost sales that are already  the subject of a finding of significant lost sales.  The Panel 
additionally rejects the proposi tion that in certain so -called "large volume"  markets, it is 
reasonable to expect  that Boeing and Airbus, as duopolists, would have approximately 50% 
market shar e each, so that significant departures from this allocation serve as additional evidence 
that Airbus' single -aisle imports or exports are being impeded.  
9.481.   The threat of impeded imports of A320ceos into the United States market that arises from 
the Delta Air lines 2011 lost sale, unlike the lost sale itself, arises in the post -implementation 
period. In these circumstances, we consider it appropriate to make a finding in relation to the 
threat of impedance of A320ceo imports to the United States market arising from this lost sale. 
Additionally, the market share data for the third -country market of the United Arab Emirates 
shows a clear trend in which  Boeing's share of single -aisle deliveries grows at the expense of 
Airbus' from 2017 to 2022, reversing a pattern in which Airbus had previously mostly maintained a 
majority of deliveries from 2007 to 2016. Co nsidered in combination with the Panel's  finding s that 
the Fly Dubai  2008 and 2014 sales campaigns were significant lost sale s which are the effects of 
the Washi ngton State B&O tax rate reduction, we conclude that the Washington State B&O tax 
rate reduction is  also a  genuine and substantial cause of a  threat of impedance of Airbus' exports 
of single -aisle LCA to the U nited Arab Emirates  market in the post -implemen tation period.  We 
therefore find that the effects of the Washington State B&O tax rate reduction are a threat of 
impedance of imports of the A320ceo into the United States market and of exports of Airbus 
single -aisle aircraft from the United Arab Emirates market.  
9.482.   Therefore, the Panel finds that the Washington State B&O tax rate reduction is a genuine 
and substantial cause of serious prejudice  to the European Union's interests,  in the fo rm of a 
threat of impedance of  imports of the A320ceo into the United St ates market, and of  exports of 
Airbus single -aisle aircraft to the U nited Arab Emirates  market , in the post -implementation period.  
Significant price suppression  
9.483.   The European Union has failed to demonstrate that, but for the Washington State B&O tax 
rate r eduction, prices for the A320neo and A320ceo would be higher in the post -implementation 
period than they actually are. The Panel is not persuaded that  the evidence that the 
European  Union has provided regarding the divergences in movements between Airbus'  single -
aisle prices and its input costs (represented by Airbus' price escalation), which were not updated 
for the post -implementation period, or regarding the LCA sales campaigns that Boeing won, 
demonstrate s that Airbus' single -aisle LCA prices are lower than they would otherwise be , owing to 
the Washington State B&O tax rate reduction. Moreover, the Pa nel considers that the 
European  Union has itself cast doubt upon the reliability of the data it has presented purporting to 
demonstrate trends in Airbus air craft prices. Finally, the European Union has failed to adequately 
address a non -attribution factor  that the Panel considers could plausibly have affected prices of the 
A320neo and A320ceo.  Therefore, the European Union has failed to establish that the Was hington 
State B&O tax rate reduction is a genuine and substantial cause of significant price suppression of 
the A320neo or A320ceo, or threat thereof, in the post -implementation period, through a price 
causal mechanism.  
9.4.3.4.2   State and local cash flow  subsidies  
9.484.   The European Union has failed to demonstrate that the state and local cash flow  subsidies, 
by virtue of operating to increase Boeing's overall cash flow, are a genuine cause of lower prices of 
the 737 MAX and 737NG, absent any showing that  Boeing's LCA pri cing wo uld not be economically 
feasible  absent the receipt of  the state and local cash flow  subsidies . Accordingly, there is no basis 
for finding that the state and local cash flow  subsidies affect Boeing's pricing behaviour, even in 
so-called price-sensit ive sales campaigns. Given that the  European Union has failed to 
demonstrate  that the state and local cash flow subsidies  affect Boeing's pricing behaviour, there is 
no basis for cumulating the effects of these subsidies with those of the Washington State B&O tax 
rate reduction  in the single -aisle market.  WT/DS353/R W 
 
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  9.4.3.4.3   Post-2006 aeronautics R&D subsidies  
9.485.   The European Union has failed to demonstrate that the post -2006 aeronautics R&D 
subsidies, assuming the Panel were to accept that they opera te in the same manner as the state 
and local cash flow  subsidies, are a genuine cause of lower prices of the 737 MAX and 737NG, 
absent any showing that Boeing's LCA pricing wo uld not be economically feasible  absent the 
receipt of  the state and local cash flow  subsidies (and assuming f or purposes of argument that the 
post-2006 aeronautics R&D did operate in the same manner as  the state and local cash flow  
subsidies). Given that the European Union has failed to demonstrate  that the post -2006 
aeronautics R&D subsidies affect Boeing's pric ing behaviour, there is no basis for cumulating the 
effects of these subsidies with those of the Washington State B&O tax rate reduction in the single -
aisle market.  
9.4.4   Summary of f indings  on whether subsidies benefiting the 737 MAX and 737NG 
cause serious pr ejudice  to the interests of the European Union  in respect of the A320neo 
and A320ceo in the post -implementation period  
9.486.   The Panel finds as follows:  
a. The European Union has failed to establish that the pre -2007 aeronautics R&D subsidies 
and certain post -2006 aeronautics R&D subsidies  are a genuine and substantial cause of 
any of the forms of serious prejudice alleged with respect to the A320neo in the 
post-implementation period , through a technology causal mechanism . 
b. The Washington State B&O tax rate reduction  is a genuine and substantial  cause of 
serious prejudice in the form of:  
i. significant lost sales of A320neo and A320ceo families of LCA in the 
post-implementation period, in respect of the sales campaigns for Fly Dubai 201 4, 
Air Canada 2013, and Icelandair 2013; and  
ii. a threat of impedance of imports of the A320ceo to the United States market, and of 
Airbus single -aisle exports to the United Arab Emirates market, in each case  in the 
post-implementation period.  
c. The European Union has failed to establish that t he Washington State B&O tax rate 
reduction is a genuine and substantial  cause of serious prejudice in the form of 
significant price suppression of the A320neo or A320ceo , or threat thereof,  in the post -
implementation period , through a price causal mechanis m. 
d. The European Union has failed to establish  that the effects of the state and local cash 
flow subsidies, or of the post-2006 aeronautics R&D subsidies, are a genuine  cause of 
significant lost sales of the A320neo or A320ceo, impedance or displacement of Airbus 
single -aisle LCA imports to the United States or of exports to third countries, or 
significant price suppression with respect to the A320neo or A320ceo , or threats of any 
of the foregoing,  in the post -implementation period , through a price causal me chanism . 
9.5  Overall c onclusion  as to whether the subsidies benefiting the 787 and 777X cause 
serious prejudice to the interests of the European Union in respect of the A350XWB and 
A330 in the post -implementation period, and whether the subsidies benefiting th e 737 
MAX and 737NG cause serious prejudice to the interests of the European Union in 
respect of the A320neo and A320ceo in the post -implementation period  
9.487.   The Panel concludes from its analysis in Sections 9.3 and 9.4 that: 
a. The European Union has failed to  establish that the subsidies granted or maintained by 
the United States after the end of the implementation period and benefiting the 787 and 
777X; namely, the pre -2007 aeronautics R&D subsidies, th e tied tax subsidies, the state 
and local cash flow subsidies, and the post -2006 aeronautics R&D subsidies,  cause 
serious prejudice to the interests of the European Union,  within the meaning of WT/DS353/R W 
 
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  Article  5(c) and 6.3 of the SCM Agreement  in respect of the A3 50XWB and A330 , in the 
post-implementation period .  
b. The European Union has established that the Washington State B&O tax rate reduction  
granted or maintained by the United States after the end of the implementation period 
and benefiting the 737 MAX and 737 NG, cause s serious prejudice to the interests of the 
European Union,  within the meaning of Articles 5(c) and 6.3 of the SCM Agreement , in 
the form of : (i) significant lost sales of the A320neo and A320ceo families in the post -
implementation period in respe ct of the sales campaigns for Fly Dubai 201 4, Air Canada 
2013 and Icelandair 201 3; and ( ii) a threat of impedance of impor ts of the A320ceo to 
the United  States market and of exports of Airbus single -aisle aircraft to the United Arab 
Emirates. In this resp ect, the United States has failed to take appropriate steps to 
remove the adverse effects , within the meaning of Article 7.8 of the SCM Agreement , 
and has failed to comply with the DSB recommendation s and rulings  in the original 
proceeding in this dispute.  
c. The European Union has failed to establish that the pre -2007 aeronautics R&D subsidies, 
the state and local cash flow subsidies and the post -2006 aeronautics R&D subsidies  
cause serious prejudice to the interests of the European Union,  within the meaning of 
Article 5(c) and 6.3 of the SCM Agreement , in respect of the A320neo and A320 ceo, in 
the post -implementation period.  
10  WHETHER THE UNITED STATES GRANTS OR MAIN TAINS SUBSIDIES INCO NSISTENT 
WITH ARTICLES 3.1(A)  AND (B) AND 3.2 OF T HE SCM AGREEMENT AND  ARTIC LE III:4  
OF THE GATT 1994  
10.1  Introduction  
10.1.  In this Section of the Report, the Panel evaluates the European Union's claims that after the 
end of the implementation period the United States grant s or maintain s subsidies that are 
inconsistent with Articles 3.1(a)  and (b) and 3.2 of the SCM Agreement and Article III:4 of the 
GATT 1994 .3434  
10.2.  We recall that in Section 7 of this Report we ma ke ruling s that these claims are within the 
Panel's terms of reference , but that they are within the scope of this proceeding  only w ith respect 
to certain of the measures challenged by the European Union. As a result of our ruling regarding 
the measures with respect to which these claims are within the scope of this proceeding , the 
European Union may validly make claims under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM 
Agreement and under Article III:4 of the GATT 1994 in respect of the South Carolina measures 
that are otherwise within the Panel's terms of reference, the FAA aeronautics R&D  measure, and 
the post -2006 NASA and DOD aerona utics R&D measures. The European Union may also validly 
make claims under Articles 3.1(a) and 3.2 of the SCM Agreement in respect of  the FSC/ETI 
measure s.3435  
10.2  Whether the United States grants or maintains s ubsidies prohibited by 
Articles  3.1(a) and 3.2 of th e SCM Agreement  
10.2.1   Main arguments of the parties and third parties  
10.3.  The European Union  claims that " {t}he United States is granting or maintaining subsidies 
contingent/conditioned in law or in fact upon actual or anticipated export , which are thus 
prohibited b y Articles 3.1(a) and 3.2 , and footnote 4 , of the SCM Agreement".3436 The 
                                               
3434 While paragraph 32 of the European Union's panel request alleges that the me asures in items I.A 
through I.G  are inconsistent with Articles III:1, III:4 , and III:5 of the GATT 1994, in its first and second written 
submissions, th e European Union's claims in relation to Article III of the GATT 1994 are limited to alleged 
inconsistency with Article III:4 of the GATT 1994. (See European Union's first written submission, 
paras.  777-788; and second written submission, paras. 851 -864). The European Union therefore appears not 
to pursue its other claims under Article III of the GATT 1994.  
3435 See para. 7.438  above . 
3436 European Union's first written submission, para. 737.  WT/DS353/R W 
 
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  European  Union submits that: (a) the FSC/ETI measures3437 and the South Carolina income tax 
apportionment method provided for in the Income Allocation and Apportionment Agreement 
entered i nto between South Carolina and Boeing as of 1 January 20123438 are subsidies that are 
"contingent /conditioned  in law  upon export "3439; and (b) all measures at issue in this proceeding 
are subsidies that are "contingent/conditioned in fact  upon export" .3440 
10.4.  The Euro pean Union argues that it has demonstrated in this proceeding that the FSC/ETI 
measures continue to provide subsidies to Boeing and that the United States has therefore failed 
to withdraw the subsidy , within the meaning of Article 7.8 of the SCM Agreement.  The 
European  Union also recalls that the original panel found that the FSC/ETI measures were 
export -contingent subsidies to Boeing's LCA divi sion, prohibited under Articles  3.1(a) and 3.2 of 
the SCM Agreement. As the tax exemptions that continue to be pro vided through the FSC/ETI 
measures ultimately derive from precisely the same legislation that has previously been found to 
be contingent upon export performance, the violation of Article 3.1(a) of the SCM Agreement 
persists.3441 In response to the United Stat es' arguments that the relevant legislation has been 
terminated and that the United States has confirmed that Boeing has not used FSC/ETI tax 
benefits after 2006, the European Union argues that asserting that Boeing did not "use" the tax 
benefits necessari ly implies that the benefit was conferred on Boeing by the relevant measures at 
issue, since otherwise the opportunity to "use" the benefit would never arise. The European Union 
thus considers that whether Boeing has "used" the FSC/ETI tax benefits after 2 006 is irrelevant to 
the question of whether a prohibited export subsidy "exists".3442 The European Union also 
reiterates its view that the United States has failed to adequately substantiate its assertion that 
Boeing has not used the FSC/ETI tax benefits aft er 2006.3443  
10.5.  With respect to the Income Allocation and Apportionment Agreement  between Boeing and 
South Carolina , the European Union argues that, in derogation from the normal rule under South 
Carolina law , the apportionment method to which Boeing is entitle d excludes sales of Boeing LCA 
delivered in South Carolina from being considered as South Carolina sales, on the condition that 
they are destined for export markets outside the United States, thus reducing Boeing's income tax 
liability. As such, the measur e is contingent in law upon export performance and, as a 
consequence prohibited by Articles 3.1(a) and 3.2, footnote 4, and Annex I(e) of the SCM 
Agreement.3444 The European Union furthermore notes that by merely arguing that there is no 
subsidy with respect to the income tax apportionment method because there is no financial 
contribution or benefit, the United States fails to respond to the European Union's argument that 
the measure is contingent upon export. Consequently, if the Panel agrees with the Europea n Union 
that there is a subsidy, it must necessarily find that such a subsidy is contingent upon export and 
therefore prohibited.3445  
10.6.  In support of its claim that the United States is granting or maintaining subsidies 
"contingent /conditioned  in fact , upon ex port", prohibited by Articles 3.1(a) and 3.2, and footnote 4 
of the SCM Agreement, the European Union makes the followi ng arguments. First, the 
United  States is granting or maintaining subsidies to Boeing LCA "{a}s found in the original 
proceedings, and as  demonstrated in section V of this submission"3446. Second, the evidence 
demonstrates that both "the ratio of actual sales of Boeing LCA" and "the ratio of anticipated sales 
of Boeing LCA" are skewed towards exports.3447 Third, the subsidies at issue are geared to induce 
                                               
3437 See Section 8.2.5  above . 
3438 See Section 8.2.8.9  above . 
3439 European Union's first written submission, section VI.A.2(a). (emphasis original)  
3440 European Union's first written submission, section VI.A.2(b). (emphasis original)  
3441 European Union's first written submission, paras. 743 -746; second written submission, 
paras.  794-796. 
3442 European Union's second written submission, paras. 797 and 798 (referring to United States' first 
written submission, para. 678).  
3443 European Union's s econd written submission, paras. 799 -801. 
3444 European Union's first written submission, paras. 749 and 750; second written submission, 
paras.  804-806. 
3445 European Union's second written submission, para. 807 (referring to United States' first written 
submiss ion, para. 677).  
3446 European Union's first written submission, para. 751.  
3447 European Union's first written submission, paras. 752 -756; second written submission, 
paras.  811-817; Summary of Actual Boeing LCA Export Sales as a Percentage of Total Sales, (Exh ibit EU -563); 
Summary of Anticipated Boeing LCA Export Sales as a Percentage of Total Sales, and Supporting Boeing WT/DS353/R W 
 
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  or incentivize the skewing of Boeing LCA sales towards exports because the United States favours 
exports and conditions Boeing's behaviour by encouraging and directing Boeing to favour exports 
and by rewarding Boeing when it complies.3448 In support  of its position, the European Union 
submits an exhibit containing what it describes as "a series of representative examples of 
statements attributable to the United States or Boeing and extracted from the documents relating 
to the subsidies, which stateme nts refer expressly to exports, or a proxy for exports".3449 
According to the European Union, these statements speak to the structure, design , and operation 
of the subsidies, and are in the nature both of encouragement and direction going forward, as well 
as of reward for past export performance.3450 Fourth, the skewing of Boeing's LCA sales towards 
exports is not reflective of the conditions of supply and demand that would exist in the absence of 
the subsidies.  This is because it would be highly implausible t hat the behaviour of the 
United  States and Boeing has had no impact on the distribution of sales between the domestic and 
export markets. Absent the subsidies, the share of sales accounted for by exports would 
necessarily be diminished in some measure.  In the  original proceeding a finding was made that the 
launch of certain aircraft would not have occurred or would have been delayed in the absence of 
the subsidies. This implies at a minimum that the actual and anticipated development of Boeing 
and its sales ha ve been accelerated by the subsidies.3451  
10.7.  With respect to the European Union's claim that the FSC/ETI measures are subsidies 
contingent in law upon export performance and thus inconsistent with Articles 3.1(a) and 3.2, the 
United States  argues that it enacte d legislation terminating the FSC/ETI tax benefits and confirmed 
that Boeing did not use FSC /ETI tax benefits after 2006.3452 The United States considers that the 
European Union's claim that the Income Allocation and Apportionment Agreement between Boeing 
and South Carolina is a subsidy contingent in law upon export performance and thus inconsistent 
with Articles 3.1(a) and 3.2 is based on a misunderstanding of South Carolina tax law. Indeed, the 
European Union has failed to establish a prima facie  case that t he Agreement confers a specific 
subsidy to Boeing , within the meaning of Article 1, let alone a subsidy that is contingent on export 
performance , within the meaning of Article 3.1(a).3453 Even if the European Union could 
demonstrate the existence of a subsidy , it must also demonstrate that the granting of the subsidy 
is conditioned on export performance, which it cannot.3454  
10.8.  With respect to the European Union's claim of de facto export contingency under 
Articles  3.1(a) and 3.2, the United States argues that the European Union fails to make a prima 
facie case that the United States presently provides Boeing with subs idies prohibited under 
Articles  3.1(a) and 3.2 of the SCM Agreement. Indeed, the European Union fails to specify with 
any particularity how the allege d subsidies are in fact contingent on export performance. Instead 
of relying on any explicit link between export behaviour and an y alleged subsidy, the 
European  Union's position is based on the assertions that Boeing's export sales are increasing as a 
percentage of its total sales, and that a selection of statements, unrelated to any particular 
measure at issue, demonstrates that the United States has conditioned Boeing's behaviour to 
favour exports. These statements concerning the importance of exports to the U.S. economy are 
unremarkable, and certainly do not allow the United States to understand how the Kansas IRBs, 
for example, induce Boeing to skew sales in favour of exports.3455 
10.9.  Brazil argues that the determination of whether a subsidy is contingent in fa ct upon export 
performance should be based on an examination of the total configuration of facts surrounding the 
granting of a subsidy rather than only on an examination of sales ratios. The fact that a finding of 
                                                                                                                                               
Current Market Outlooks, (Exhibit EU -564); and Summary of Airbus Global Market Forecasts, and 
Corroborating Data on Anticipated Boeing LCA Ex port Sales, (Exhibit EU -565).  
3448 European Union's first written submission, paras. 757 and 758; se cond written submission, 
paras.  818-827; and Illustrative Statements Relating to De Facto  Export Contingency of U.S. Subsidies, 
(Exhibit EU -566).  
3449 European U nion's first written submission, para. 757; and Illustrative Statements Relating to De 
Facto  Export Contingency of U.S. Subsidies, (Exhibit EU -566).  
3450 European Union's second written submission, 824 -834 (referring to United States' first written 
submission , para. 674; and Illustrative Statements Relating to De Facto  Export Contingency of U.S. Subsidies, 
(Exhibit EU -566)).  
3451 European Union's first written submission, paras. 760 and 761.  
3452 United States' first written submission, para. 678; second written su bmission, para. 637.  
3453 United States' first written submission, para. 677; second written submission, para. 635.  
3454 United States' second written submission, para. 636.  
3455 United States' first written submission, para. 674; second written submission, paras. 627-630. WT/DS353/R W 
 
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  de facto  export contingency must involve a n examination of "the total configuration of the facts 
constituting and surrounding the granting of the subsidy, none of which is likely to be decisive in 
any given case" means that a comparison of sales ratios cannot be decisive or required as a 
necessary  element of proof. Brazil considers that the Appellate Body's analysis in EC and certain 
member States – Large Civil Aircraft  confirms that the evidence for demonstrating de facto  export 
contingency does not require in whole or in part reliance on an analy sis of sales ratios.3456  
10.10.   Canada submits that the European Union has failed to demonstrate that subsidies granted 
by the United States are contingent in fact upon export performance a nd thus in violation of 
Article  3.1(a) of the SCM Agreement. Canada notes th at the test established by the Appellate Body 
for determining whether a subsidy is contingent in fact upon anticipated exportation is whether 
"the granting of the subsidy {is} geared to induce the promotion of future export performance by 
the recipient". T his standard is met "when 'the subsidy is granted so as to provide an incentive to 
the recipient to export 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 s ubsidy '".3457 In 
this context, the Appellate Body has explained that an assessment of whether the granting of a 
subsidy is in fact tied to anticipated exportation could be based on a comparison of the ratio of 
anticipated export sales to domestic sales of the  subsidized product that would result from the 
granting of the subsidy with the ratio of export sales to domestic sales of that product in the 
absence of the subsidy.3458  
10.11.   In light of the guidance provided by the Appellate Body, Canada argues that the 
Europea n Union has failed to demonstrate that subsidies to Boeing are in fact tied to anticipated 
exportation for three main reasons. First, the European Union presents charts showing export 
sales as a percentage of total sales but does not provide baseline data demonstrating the extent to 
which Boeing would be expected to export in the absence of the subsidies.3459 Second, the 
European Union does not demonstrate that increased exports as a percentage of total sales are 
due to subsidies and not merely reflective of a  change in market conditions. In fact, the evidence 
submitted by the European Union suggests that it is more likely a change in market conditions 
rather than subsidization that accounts for the increase in export sales relative to domestic 
sales.3460 Third, t he European Union fails to explain how the factual circumstances surrounding the 
granting of the subsidies support a finding of de facto  export contingency. The statements relied 
upon by the European Union as evidence of a U.S. policy of favouring exports do not prove that 
the subsidies were geared to induce export performance.3461  
10.12.   Japan recalls that the appropriate legal standard for determining whether a subsidy is de 
facto export contingent is whether "the granting of the subsidy is geared to induce the pr omotion 
of future export performance by the recipient", which standard is met "when the subsidy is 
granted so as to provide an incentive to the recipient to export in a way that is not simply 
reflective of the conditions of supply and demand in the domesti c and export markets undistorted 
by the granting of the subsidy". Whether a subsidy is geared to induce the promotion of future 
export performance " must be inferred from the total configuration of the facts constituting and 
surrounding the granting of the subsidy ", including the design and structure of the measure, the 
modalities of the operation set out in the 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.3462 A comparison of the ratio of anticipated export 
sales to domestic sales of a subsidized product to the ratio of export sales and domestic sales in 
the absence of the subsidy may be one of the "facts constituting  and surrounding the granting of 
the subsidy" but cannot in and of itself be determinative of whether a given subsidy is de facto  
export contingent. In this respect, Japan considers that the state ments submitted by the 
European  Union in support of its de facto export contingency claim do not demonstrate an 
                                               
3456 Brazil's third -party submission, paras. 72 -83 (citing Appellate Body Report, Canada – Aircraft , 
para. 76). 
3457 Canada's third -party submission, para. 5 (quoting Appellate Body Report, EC and certain member 
States – Large Civil Aircraft , paras. 104 4 and 1045) . 
3458 Canada's third -party submission, para. 6 (quoting Appellate Body Report, EC and certain member 
States – Large Civil Aircraft , para. 1047).  
3459 Canada's third -party submission, paras. 10 -12.  
3460 Canada's third -party submission, paras. 13 and 14 .  
3461 Canada's third -party submission, paras. 15 and 16.  
3462 Japan's third -party submission, paras. 28 and 29 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , paras. 1044 -1047 (emphasis added by Japan)).  WT/DS353/R W 
 
- 603 - 
 
  incentive to skew anticipated sales towards exports.3463 Japan considers that to accept that de 
facto export contingency can be established solely on the basis of this anticipate d ratio test would 
create leg al uncertainty and make Members with small domestic markets more vulnerable to 
findings of de facto  export contingency than Members with larger domestic markets.3464  
10.2.2   Evaluation by the Panel  
10.13.   The issue before us is whether the United States is granting or mai ntaining subsidies 
contingent on export performance, in contravention of Articles 3.1(a) and 3.2 of the SCM 
Agreement.  
10.14.   We recall that our preliminary ruling in Section 7.6 means that the European Union may 
validly make claims under Articles 3.1(a) and 3.2 of the SCM Agreement only in respect of the 
post-2006 NASA and DOD aeronautics R&D measures, the FAA aeronautics R&D  measure, the 
FSC/ETI measures, and the South Carolina measures that are otherwise within the Panel's terms 
of reference.3465 Where we f ind, in Section 8 of this Report, that any measure in respect of which 
the European Union may validly make claims under Articles 3.1(a) and 3.2 of the SCM Agreement 
is not a subsidy , within the meaning of Article 1 of the SCM Agreeme nt, there obviously is no basis 
for a finding that the measure is inconsistent with Article 3.1(a) as a subsidy that is contingent in 
law or in fact upon export performance. For example, with regard to the two measures that the 
European Union alleges are s ubsidies contingent in law upon export performance, namely the 
FSC/ETI measures and the South Carolina Income Allocation and Apportionment Agreement, we 
find, in Sections 8.2.5 and 8.2.8.9  of this R eport,  that these measures do not constitute subsidies 
to Boeing after the end of the implementation period. Since the measures are not subsidies  to 
Boeing, they cannot be subsidies to Boeing contingent in law (or in fact) upon export performance.   
10.15.   Therefo re, our examination in  the remainder of  this Section concerns any measures in 
respect of which the European Union's claims under Articles 3.1(a) and 3.2 of the SCM Agreement 
are within the scope of this proceeding and which we find to be subsidies, includi ng subsidies not 
found to be specific under Articles 2.1 or 2.2.3466 
10.16.   In this respect, we recall the relevant findings made in Section  8.2 of the Report :  
a. Post-2006 NASA procurement contracts, cooperative agreements , and Space Act 
Agreements confer subsidies to Boeing that are specific , within the meaning of Article 
2.1(a) of the SCM Agreement.3467  
b. Post-2006 DOD assistance instruments confer subsidies to Boeing that are specific , 
within the meaning of Article 2.1(a) of the SCM Agreeme nt.3468  
c. The Boeing CLEEN Agreement involves subsidies to Boeing that are specific , within the 
meaning of Article 2.1(a) of the SCM Agreement.3469  
d. The direct transfer of funds by South Carolina to Boeing to compensate Boeing for a 
portion of the costs to constr uct the Gemini facilities is a subsidy to Boeing. The subsidy 
is specific , within the meaning of Article 2.1(c) , insofar as the transfer involved funds 
generated by the issuance of air hub bonds . The subsidy is not specific , within the 
meaning of Article 2 .1, insofar as the transfer involved funds generated by the issuance 
of economic development bonds.3470  
                                               
3463 Japan's third -party submission, paras. 31 and 32.  
3464 Japan's third -party submission, paras. 35 -37.  
3465 See para. 7.438  above . 
3466 Article 2.3 of the SCM Agreement provides that "{a}ny subsidy falling under the provisions of 
Article 3 shall be deemed to be specific". A subsidy not found to be specific under Articles 2.1 or 2.2 can be 
found to be specific (and thereby be subject to the provisions of Part III or V of the SCM Agreement pursuant 
to Article 1.2), if it is a prohibited su bsidy , within the meaning of Article 2.3 of the SCM Agreement.  
3467 See para. 8.231  above . 
3468 See para. 8.469  above . 
3469 See para. 8.565  above . 
3470 See para. 8.850  above . WT/DS353/R W 
 
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  e. The Project Emerald F ILOT Agreement and the Boeing F ILOT Agreement constitute 
subsidies to Boeing but are not specific , within the meaning of Article 2.1 of the SCM 
Agreement.3471  
f. The MCIP job tax credits are subsidies to Boeing but are not specific under Articles 2.1 or 
2.2 of the SCM Agreement.3472  
g. The LCF property tax exemption is a subsidy to Boeing that is specific , within the 
meaning of Article 2.1(c) of the SCM Agreement.3473  
h. Sales and use tax exemptions on aircraft fuel, computer equipment , and construction 
materials are subsidies to Boeing that are specifi c, within the meaning of 
Article  2.1(c).3474  
i. The Boeing workforce programme is a subsidy to Boeing but is not specific under  
Article  2.1(c) of the SCM Agreement.3475  
10.17.   Articles 3.1(a) and 3.2 of the SCM Agreement read as follows:  
3.1 Except as provided in the Agreement on Agriculture, the following subsidies, 
within the meaning of Article 1, shall be prohibited : 
(a)  subsidies contingent, in law or in fact{*}, whether solely or as one 
of several other conditions, upon export performance, including 
those illustrated in Annex I {*}; 
… 
3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph 1. 
{*fn original}4 This standard is met when the facts demonstrate that the granting  of a subsidy, 
without having been made legally contingent upon export performance, is in fact tied to actual or 
anticipated exportation or export earnings. The mere fact t hat a subsidy is granted to enterprises 
which export shall not for that reason alone be considered to be an export subsidy within the 
meaning of this provision.  
{*fn original}5 Measures referred to in Annex I as not constituting export subsidies shall not  be 
prohibited under this or any other provision of this Agreement.  
 
10.18.   Article 3.1(a) of the SCM Agreement has been subject to interpretation by the Appellate 
Body and several panels. In particular, the Appellate Body has explained that the word 
"contingent"  in Article 3.1(a) means "conditional" or "dependent for its existence on something 
else", and that the legal standard for export cont ingency expressed in Article  3.1(a) is the same 
for both de jure  and de facto  contingency.3476  
10.19.   With respect to the evidence required to demonstrate export contingency, the Appellate 
Body has found that the evidence that may demonstrate de jure  export contingency is different 
from the evidence that may reveal de facto  export contingency. De jure contingency "can be 
demonstrated on the basis of the very words of the relevant legislation, regulation or other legal 
instrument constituting the measure". Nonetheless, de jure  export contingency does not have to 
be set out expressly, but can also be derived by "necessary implication" fr om the wording of a 
legal instrument.3477 By contrast, the evidence needed to establish de facto  export contingency 
goes beyond a legal instrument and includes a variety of factual elements concerning the granting 
of the subsidy in a specific case. In this re spect, the Appellate Body has stated the following:  
                                               
3471 See para. 8.908  above . 
3472 See para. 8.933  above . 
3473 See para. 8.1017  above . 
3474 See para. 8.1059  above . 
3475 See para. 8.1074  above . 
3476 Appellate Body Report, Canada – Aircraft , paras. 166 and 167. See also  Appellate Body Report, EC 
and certain member States – Large Civil Aircraft , para. 1037.   
3477 Appellate Body Report, Canada – Autos , para. 100. See also Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1038.  WT/DS353/R W 
 
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  Proving de facto  export contingency is a much more difficult task. There is no single 
legal document which will demonstrate, on its face, that a subsidy is "contingent … in 
fact … upon export performance" . Instead, the existence of this relationship of 
contingency, between the subsidy and export performance, 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 likel y to be decisive in any given case.3478 
The factors to be considered as part of an analysis of "the total configuration of the facts 
constituting and surrounding the granting of the subsidy" include the design and structure of a 
measure, its modalities of ope ration and relevant factual circumstances that provide context for an 
understanding of the measure's design, structure and modalities of operation.3479  
 
10.20.   The Appellate Body has noted that the ordinary meaning of the word "tie" in the first 
sentence of footnot e 4 is to "limit or restrict as to … conditions". The Appellate Body has thus 
found that to satisfy the standard for de facto  export contingency "a relationship of conditionality 
or dependence" must be demonstrated between the subsidy and "actual or antici pated exportation 
or export earnings".3480 With respect to anticipated  exportation or export earnings in particular, 
the Appellate Body has further observed that the meaning of the word "anticipated" in footnote 4 
is "expected", and that "{w}hether exports we re anticipated or 'expected' is to be gleaned from an 
examination of objective evidence ". The Appellate Body has stressed, however, that the use of this 
word does not transform the standard for "contingent … in fact" into a standard that is satisfied by 
merely ascertaining "expectations" of exports on the part of the granting authority. The Appellate 
Body has explained that, although a subsidy "may well be granted in the knowledge, or with the 
anticipation, that exports will result", "that alone is not suff icient, because that alone is not proof 
that the granting of the subsidy is tied to  the anticipation of exportation" .3481 
10.21.   The Appellate Body has emphasized that "merely knowing that a recipient's sales are 
export -oriented does not demonstrate, without more, t hat the granting of a subsidy is tied to 
actual or anticipated exports." Rather, "the export orientation of a recipient may be taken into 
account as a relevant fact, provided that it is one of several facts which are considered and is not 
the only fact sup porting a finding."3482 The Appellate Body has explained that the relationship of 
conditionality that must be found between the granting of a subsidy and anticipated exportation in 
order to find that a subsidy is tied to anticipated exportation "can be establ ished by recourse to 
the following test: is the granting of the subsidy geared to induce the promotion of future export 
performance by the recipient?".3483 Thus: 
{T}he standard for de facto  export contingency un der Article 3.1(a) and footnote  4 of 
the SCM Agr eement would be met when the subsidy is granted so as to provide an 
incentive to the recipient to export 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 sub sidy.3484  
10.22.   The Appellate Body also observed in this connection that :  
Moreover, where relevant evidence exists, the assessment could be based on a 
comparison between, on the one hand, the ratio of anticipated  export and domestic 
                                               
3478 Appellate Body Report, Canada – Aircraft , para. 167. See also Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1038. (emphasis original)  
3479 Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 1046,  1050, and 
1056 (quoting Appellate Body Report, Canada – Aircraft , para. 167) . 
3480 Appellate Body Report, Canada – Aircraft , para. 171. See also Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1037.  
3481 Appellate Body Report, Canada – Aircraft , para. 172 (emphasis original). See also Appellate Body 
Report, EC and certain member States – Large Civil Aircraft , para. 1037.  
3482 Appellate Body Report, Canada – Aircraft , para. 173. See also Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1039.  
3483 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1044.  
3484 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1045.  WT/DS353/R W 
 
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  sales of the subsidized produc t that would come about in consequence of the granting 
of the subsidy, and, on the other hand, the situation in the absence of the subsidy .3485 
10.23.   Finally, the Appellate Body, in EC and certain member States – Large Civil Aircraft , 
cautioned against undue relian ce on government intent in determining whether a subsidy is de 
facto contingent on export performance:  
{W}e note that the Appellate Body and panels have, on several occasions, cautioned 
against undue reliance on the intent of a government behind a measure to determine 
the WTO -consistency of that measure. The Appellate Body has found that "the intent, 
stated or otherwise, of the legislators is not conclusive " as to whether a measure is 
consistent with the covered agreement. In our view, the same understandin g applies 
in the context of a determination on export contingency, where the requisite 
conditionality between the subsidy and anticipated exportation under Article 3.1(a) 
and footnote 4 of the SCM Agreement  must be established on the basis of objective 
evidence, rather than subjective intent. We note, however, that while the standard for 
de facto  export contingency cannot be satisfied by the subjective motivation of 
granting government, objectively reviewable expressions of a government's policy 
objectives for granting a subsidy may, however, constitute relevant evidence in an 
inquiry into whether a subsidy is geared to induce the promotion of future export 
performance by the recipient.3486 
10.24.   We consider that the European Union has failed to  establish that any of  the measures with 
respect to which its claims are within the scope of this proceeding and which we  find to be a 
subsidy is contingent  in fact upon export performance .3487 This is because the European Union 
does not provide an adequate analysis of "the total configuration of the facts constituting and 
surrounding the granting of the subsidy", including the design and structure of the measures, their 
modalities of operation and relevant factual circumstances that provide context for an 
understanding of the meas ures' design, structure , and modalities of operation.3488 The generalized 
nature of the European Union's assertions is inconsistent with the guidance provided by the 
Appellate Body regarding the evidence necessary to establish the existence of a subsidy conti ngent 
in fact upon export performance. The relevant sections of the European Union's submissions do not 
provide any discussion of any individual measure alleged to be a subsidy contingent upon export 
performance. The European Union states that " {a}s found in the original proceedings, and as 
demonstrated in Section V of this submission, the United States is granting or maintaining 
subsidies to Boeing LCA"3489 but it does not provide any factual analysis of any particular measure 
to show how that measure is gear ed to induce the promotion of future export performance. The 
European Union asserts that actual and anticipated sales of Boeing are skewed towards exports 
and that "the subsidies are geared to induce or incentivise this skewing because the United States 
favours exports , and conditions Boeing's behaviour by encouraging and directing Boeing to favour 
exports and by rewarding Boeing when it complies" .3490 Howev er, the statements the 
European  Union submits in support of this assertion3491 do not address any of the me asures in 
sufficient detail to enable an understanding of its design, structure , and modalities.  
10.25.   Thus, for example, the document provided by the European Union (Illustrative Statements 
Relating to De Facto  Export Contingency of U .S. Subsidies) include s the following statements 
relating to various NASA programmes:  
With competition from foreign competitors greatly increasing, affordable, innovative 
technology is critically needed to help preserve the U.S. aeronautics industry market 
                                               
3485 Appellate Body Report, EC and certain me mber States – Large Civil Aircraft , para. 1047. (emphasis 
original)  
3486 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1050. (emphasis 
original, fns omitted)  
3487 As noted above, we f ind that two measures which the European Un ion alleges are contingent in law 
upon export performance are not subsidies to Boeing and therefore cannot be subsidies that are inconsistent 
with Article 3.1(a).  
3488 See para. 10.19  above . 
3489 European Union's firs t written submission, para. 751.  
3490 European Union's first written submission, p. 321, item (iv).  
3491 Illustrative Statements Relating to De Facto  Export Contingency of U.S. Subsidies, (Exhibit EU -566).  WT/DS353/R W 
 
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  share, jobs, and balance  of trade. Exports in large commercial transports make a 
significant contribution to the U.S. balance of trade.   
The President, Congress and the NASA Administrator are emphasizing the value of 
NASA's research and technology base to U.S. industry in helping  to increase industrial 
competitiveness, provide jobs and improve the quality of life and the balance of trade. 
The taxpayers' investment in NASA is an investment in the international 
competitiveness of U.S. industry through partnerships that build upon NA SA's 
research and make it available to U.S. industry.  
Maintenance of the United States aircraft industry's market position is critical for the 
preservation of high paying skilled jobs, a capable industrial base, and balance of 
trade.  
Boeing is the world' s largest producer of commercial transport aircraft, maintaining a 
market share of over 57% for the world and over 80% for the United States. This 
provides a large benefit to the US. economy. Approximately 75% of Boeing sales are 
exports, helping to reduce  the US. trade deficit. Every $1 billion in US . airplane sales 
creates about 30,000 labor years of work, of which 87% is performed in the US.   
The aerospace industry is a major contributor to the balance of trade and the balance 
of trade has an effect on t he U.S. standard of living.  
As mentioned earlier, NASA's aeronautics customers play major roles in the economic 
growth and national security of the United States. In 1994 (a year of record low 
performance) the aerospace industry, primarily aeronautics, ge nerated $112 billion in 
sales, over $38  billion in exports, and over $25 billion in positive balance of trade.  
Appearing before the US House of Representatives, Wesley Harris, NASA's Associate 
Administrator, testified that the objective of the NASA AST Program was to provide 
"U.S. industry with a competitive edge to recapture market share {and} maintain a 
strongly positive balance of trade ".  
By the mid -1980s, there was yet another argument for continued government support 
of aeronautical research : the dim inishing level of U.S. industrial competitiveness in 
the global market  … Leaders in government, industry, academia and the media all 
began stress that to preserve the U.S. lead in aeronautics and, indeed, the U.S. 
balance of trade, the country had to accor d a much higher priority to aeronautical 
research and development.3492  
10.26.   Other statements in this document are even more general in nature. Overall, we agree 
with Canada's characterization of the statements in this document:  
The statements of Boeing employee s and U.S. government officials merely reflect that 
Boeing is considered to generate high -value technology through research and 
development, that it is a large exporter of products making an important contribution 
to the United States' trade balance, that e xports are important because they generate 
employment and that the U.S. government values Boeing's contribution as an 
exporter of high -technology products. These statements do not, however, prove that 
the subsidies were geared to induce export performance.3493 
10.27.   While the European Union asserts that these statements "also speak to the structure, 
design and operation of the subsidies"3494, it fails to connect any of these statements with any 
particular measure and explain how they demonstrate that the measure is con tingent in fact upon 
export performance. Instead, the European Union argues that "{t}aken as a whole , this evidence 
                                               
3492 Illustrative Statements Relating to De Facto  Export C ontingency of U.S. Subsidies, (EU -Exhibit -566), 
p. 4. We also note that most statements reproduced in this document that relate to NASA aeronautics R&D 
programmes pertain to a period well before the expiry of the implementation period in this proceeding.  
3493 Canada's third -party submission, para. 16.  
3494 European Union's first written submission, para. 757.  WT/DS353/R W 
 
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  demonstrates a US policy of favouring exports".3495 In our view, statements at this level of 
generality regarding the existence of a "US policy  of favouring exports", unsubstantiated by 
measure -specific analysis of design, structure and modalities of operation of particular measures, 
cannot support a finding of de facto  export contingency. In sum, we find that, as stated by the 
United States, "th e EU fails to specify with any particularity how the alleged subsidies are in fact 
contingent on export performance" .3496  
10.28.   Finally, insofar as the European Union's argument is based on data purporting to show that 
the ratios of Boeing's actual and anticipated  export sales to total sales have increased over time, 
we note that the European Union fails to compare the anticipated export ratio that would come 
about in consequence of the granting of the subsidy with the situation in the absence of the 
subsidy.3497  
10.29.   For these reasons, to the extent that we have ruled  that the European Union's 
claim s under Article s 3.1(a)  and 3.2 are  within the scope of this proceeding , we reject 
these claims as unfounded because: (a) certain measures challenged by the European 
Union are not subsidies provided to Boeing after the end of the implementation period; 
and (b) where we f ind that  the measures at issue are subsidies  provided to Boeing after 
the end of the implementation period,  the European Union has failed to establish that 
any o f these subsidies is contingent in fact upon export performance .  
10.3  Whether the United States grants or maintains subsidies prohibited by 
Articles  3.1(b) and 3.2 of the SCM Agreement  
10.3.1   Main arguments of the parties and third parties  
10.30.   The European Union  claims, with respect to all measures challenged in this proceeding, 
that "{t}he United States is granting or maintaining subsidies contingent/conditioned in fact upon 
the use of domestic over imported goods, which are thus prohibited by Articles 3.1(b) and 3.2 of 
the SCM Agreement ".3498 In support of this claim, the European Union makes the following 
arguments. First, "{a}s found in the original proceeding s, and as demonstrated in Section V of this 
submission, the United States is granting or maintaining subsidies to Boeing".3499 Second, 
pursuant to the subsidies, Boeing is to produce goods, of U.S. domestic origin, destined to be used 
in the manufacture of Boeing LCA, to the exclusion of imported goods.3500 Third, pursuant to the 
subsidies, Boeing is to maintain employment levels in the United States that cannot be sustained 
without the use of U.S. domestic goods.3501 Fourth, pursuant to the subsidies, Boeing is to locate 
substantial development and production activities in the United States, which necessarily implies 
the use o f U.S. domestic goods.3502 Finally, the United States favours the use of U.S. domestic 
goods and labour, and conditions Boeing's behaviour by encouraging and directing Boeing to 
favour U.S. domestic goods and labour, rewarding Boeing when it complies.3503 Thus, the 
European Union considers that, taken as a whole, or in any permutation, the facts and evidence 
demonstrate that the granting or maintaining of the subsidies, without having been made legally 
contingent/conditional upon the use of domestic over imported  goods, is nevertheless tied to the 
use of domestic over imported goods, and that the subsidies are thus contingent/conditioned in 
fact upon the use of domestic over imported goods, and are prohibited by Articles 3.1(b) and 3.2 
of the SCM Agreement.3504 
                                               
3495 European Union's first written submission, para. 758.  
3496 United States' first written submission, para. 674. Also see Canada's third -party submission, 
paras.  15 and 16; and Japan's third -party submission, paras, 29 and 32.  
3497 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1047 .  
3498 European Union's first written submission, para. 764.  
3499 European Union's first written sub mission, para. 768.  
3500 European Union's first written submission, para. 769; and Illustrative Statements Relating to De 
Facto  Contingency on the Use of Domestic Over Imported Goods, (Exhibit EU -583).  
3501 European Union's first written submission, para. 770;  Illustrative Statements Relating to De Facto 
Contingency on the Use of Domestic Over Imported Goods, (Exhibit EU -583).  
3502 European Union's first written submission, para. 771; Illustrative Statements Relating to De Facto  
Contingency on the Use of Domestic  Over Imported Goods, (Exhibit EU -583).  
3503 European Union's first written submission, para. 772; and Illustrative Statements Relating to De 
Facto  Contingency on the Use of Domestic Over Imported Goods, (Exhibit EU -583).  
3504 European Union's first written subm ission, para. 776.  WT/DS353/R W 
 
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  10.31.   The United States  argues with respect to the European Union's claim of de facto  
contingency of all challenged subsidies under Articles 3.1(b) and 3.2 that the European Union fails 
to make a prima facie case that the United States presently provides Boeing with subsidies 
prohibited under Articles 3.1(b) and 3.2. Indeed, the European Union fails to identify a single 
measure that confers a subsidy contingent on the use of domestic over imported goods. Rather 
than look to the text or operation of any particular meas ure, the European Union offers a collection 
of miscellaneous statements (ranging from statements by the U.S. President to statements by low-
level county and municipal officials ), unrelated to any particular measure, which, according to the 
European Union, have conditioned Boeing's behaviour to use domestic over imported goods. These 
statements are unremarkable and fail to demonstrate contingency within the meaning of Article 
3.1(b). At most, they suggest that Boei ng makes products in the United  States and e mploys 
workers there, and that some in the United States like the fact that they do.3505 
10.32.   Brazil notes that the European Union relies on the same evidence in support of its claims 
under Article 3.1(b) and Article III:4 of the GATT 1994 and argues that while bo th provisions 
address discriminatory conduct, they differ in scope and substantive obligations. Thus, a violation 
of Article 3.1(b) of the SCM Agreement does not necessarily and directly imply a violation of  
Article  III:4 of the GATT 1994. Brazil  also cons iders that the Illustrative Statements Relating to De 
Facto  Contingency on the Use of Domestic Over Imported Goods  submitted by the European Union 
are of limited probative value, particularly given the lack of any specific evidence relating to how 
each mea sure either is conditioned upon the use of domestic over imported goods or acts to 
accord less favourable treatment to imported products.3506 
10.33.   Canada argues that whereas the prohibition in Article 3.1(b) of the SCM Agreement covers 
situations where the grantin g of a subsidy is contingent on the recipient purchasing  domestic over 
imported goods, the European Union's position in this proceeding improperly expands the scope of 
Article 3.1(b) to cover subsidies contingent on the recipient producing  a particular int ermediate 
good.3507 Nothing in the GATT 1994 or the SCM Agreement prohibits a Member from making the 
granting of a subsidy contingent on a recipient producing goods in its territory. In fact, GATT 
Article III:8(b) explicitly allows WTO Members to provide subs idies only to their domestic 
producers. A producer of a final good that is required to produce an intermediate good is also a 
producer of the intermediate good.3508 Furthermore, Canada argues that the GATT and the SCM 
Agreement do not limit a subsidizing Memb er's ability to define the level of production for subsidy 
eligibility purposes. As part of that discretion, a Member may explicitly require the production of an 
intermediate good and may also implicitly require the production of an intermediate good by 
requiring a subsidy recipient to produce a final good or use a particular level of labour in a way 
that cannot be accomplished without producing an intermediate good. If a Member could not 
require the production of an intermediate good, that Member's ability  to condition the provision of 
a subsidy on a production requirement would be significantly curtailed because the production 
requirement would then have to be limited to simple assembly operations.3509 
10.34.   In this respect, Canada argues that the European Union's position that a subsidy requiring 
the production of an intermediate good to be used in the production of a final good is contingent 
upon the use of a domestic over an imported good , contrary to Article 3.1(b) is incorrect, as 
demonstrated by the Appellate Body decision in Canada – Autos . In assessing whether a measure 
providing Canadian automobile manufacturers with an import duty exemption contingent inter alia  
upon a Canadian value added requirement violated Article 3.1(b) of the SCM Agreement, the 
Appell ate Body found that the Canadian value added requirement would violate Article 3.1(b) only 
if it required the manufacturer to use domestic goods. The Appellate Body did not consider that a 
requirement to use domestic labour, regardless of whether that requ irement implied the 
production of intermediate goods would violate Article 3.1(b).3510  
                                               
3505 United States' first written submission, para. 676 (referring to European Union's first written 
submission, para. 773); second written submission, paras. 631 -633. 
3506 Brazil's third -party submission, paras. 60 -70. 
3507 Canada's third -party submission, para. 20.  
3508 Canada's third -party submission, para. 21.  
3509 Canada's third -party submission, para. 22.  
3510 Canada's third -party submission, paras. 24 and 25.  WT/DS353/R W 
 
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  10.3.2   Evaluation by the Panel  
10.35.   We examine the European Union's claims under Article s 3.1(b) and 3.2 insofar as we have 
determined these claims to be within the scope of this pro ceeding.3511 We recall that our 
preliminary ruling in Section 7.6.2 means that the European Union may validly make claims under 
Articles 3.1(b) and 3.2 of the SCM Agreement (and Article III:4 of the GATT 1994) only in respect 
of the post -2006 NASA and DOD aeronau tics R&D measures, the FAA aeronautics R&D  measure, 
and the South Carolina measures that are otherwise within the Panel's terms of reference.3512 
Where we f ind, in Section 8 of this Report, that any measure in respect of which  the European 
Union may validly make claims under Articles 3.1(b) and 3.2 of the SCM Agreement is not a 
subsidy within the meaning of Article 1 of the SCM Agreement, there obviously is no basis for a 
finding that the measure is inconsistent with Article 3. 1(b) as a subsidy that is contingent in law or 
in fact upon the use of domestic over imported goods.  
10.36.   Therefore, o ur examination in the remainder of this Section concerns any measures in 
respect of which we have ruled that the European Union's claim under A rticles 3.1(b) and 3.2 of 
the SCM Agreement are within the scope of this proceeding and which  we find to be subsidies, 
including subsidies not found to be specific under Articles 2.1 or 2.2.3513 
10.37.   Article 3.1(b) of the SCM Agreement reads as follows:  
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.  
 
10.38.   The term "contingent" has the same meaning in Article 3.1(b) as in Article 3.1(a).3514 A 
subsidy is prohibited under Article 3.1(b) if it is conditional, i.e. dependent for its existence on the 
use of domestic over imported goods. Article 3.1(b) applies to both c ontingency in law and 
contingency in fact.3515 While the Appellate Body has not yet discussed the question of the 
evidence required to establish that a subsidy is contingent in fact upon the use of domestic over 
imported goods, we can see no logical reason wh y the Appellate Body's pronouncements on the 
evidence required to establish de facto  contingency under Article 3.1(a) would not also apply to 
Article 3.1(b).  
10.39.   As in the case of the European Union's claim that the subsidies at issue in this proceeding 
are c ontingent in fact upon export performance, we consider that the European Union fails to 
adequately support its claim that the subsidies at issue are contingent in fact upon the use of 
domestic over imported goods through a proper analysis of the particular  measures at issue. With 
respect to none of these measures does the European Union attempt to support its claim through 
an analysis of "the total configuration of the facts constituting and surrounding the granting of the 
subsidy", including design, nature , and operation of the measure. Instead, the European Union 
submits a document entitled Illustrative Statements Relating to De Facto Contingency on the Use 
of Domestic Over Imported Goods3516 containing "a series of extracts from the documents relating 
to the  subsidies" and argues that the statements in this document "refer expressly or by 
implication to the fact" that "Boeing is to produce certain goods in the United States", "Boeing is to 
maintain certain employment levels in the United States", "Boeing is t o locate substantial 
development or production activities in the United States" and "refer expressly to the use of US 
domestic goods or labour, or a proxy thereof".3517 In fact, however, the European Union does not 
                                               
3511 See para. 10.2 above . 
3512 See para. 7.438  above .  
3513 See para. 10.16  above . 
3514 Appellate Body Report, Canada – Autos , para. 123.  
3515 Appellate Body Report, Canada – Autos , para. 143. 
3516 Illustrative Statements Rela ting to De Facto Contingency on the Use of Domestic Over Imported 
Goods, (Exhibit EU -583).  
3517 European Union's first written submission, paras. 769, 770, 771, and 772.  WT/DS353/R W 
 
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  explain how these Illustrative Statements ac tually support these assertions in respect of any 
particular measure. We note that many of these statements are quite general in nature and don't 
pertain to the design, nature and operation of particular measures.  
10.40.   Thus, for example, with regard to NASA aer onautics R&D measures, the document 
Illustrative Statements Relating to De Facto Contingency on the Use of Domestic Over Imported 
Goods includes the following statements:  
With competition from foreign competitors greatly increasing, affordable, innovative 
technology is critically needed to help preserve the U.S. aeronautics industry market 
share, jobs and balance of trade.  
In discussing the future of aeronautics in the US, Senator George Allen (VA), Chair of 
the Senate Science , Technology and Space Subcommi ttee, commented: "So, the 
question is: does the United States intend to respond to this competitive challenge 
from the Europeans , and if so, when and how? I recognize that the aviation -related 
manufacturing sector is a net exporter, representing many good -paying jobs for our 
fellow Americans. A loss of these jobs has a direct impact on the quality of life for our 
constituents. " 
The President, Congress, and the NASA Administrator are emphasizing the value of 
NASA's research and technology base to U.S. indust ry in helping to increase industrial 
competitiveness, provide jobs and improve the quality of life and the balance of trade. 
The taxpayers' investment in NASA is an investment in the international 
competitiveness of U.S. industry through partnerships that build upon NASA's 
research and make it available to U.S. industry.  
Maintenance of the United States aircraft industry's market position is critical for the 
preservation of high paying skilled jobs, a capable industrial base, and balance of 
trade.3518  
10.41.   We fail  to see how statements of this general nature demonstrate that the particular 
post-2006 NASA aeronautics R&D subsidies are in fact conditioned upon the production of certain 
goods in the United States, the maintenance of certain employment levels in the Un ited States or 
the location of substantial development or production activities in the United States or that these 
subsidies expressly refer to the use of domestic goods or labour, as arg ued by the 
European  Union. Moreover, even assuming these assertions a re factually correct with respect to 
these measures, the European Union has not explained why this would be sufficient to conclude 
that the measures are contingent upon the use of domestic over imported goods and thereby 
inconsistent with Article 3.1(b). T hus, the European Union contends on the basis of the Illustrative 
Statements in its Exhibit that "Boeing is to produce certain goods in the United States, which are 
thus goods of US origin, and which are destined to be used in the manufacture of Boeing LCA , to 
the exclusion of imported goods". The European Union does not state the legal basis for its 
apparent view that if the recipient of a subsidy "is to produce  certain goods in the Un ited States" 
and these goods "are destined to be used in the manufacture  of Boeing LCA", the subsidy is 
thereby contingent upon "the use of domestic goods over imported goods".  
10.42.   With respect to several other measures the statements in the document Illustrative 
Statements Relating to De Facto Contingency on the Use of Domestic Over Imported Goods are 
somewhat more directly related to the particular measures than in the case of the NASA 
aeronautics R&D measures. In particular, the document contains statements pertaining to some of 
the South Carolina measures that we f ind to be subsidies in Section 8.2.8 of this  Report. In respect 
of some of those South Carolina measures, the evidence in this document indicates that they are 
subject to conditions relating to levels of employment and/or i nvestment or the location of 
production, as also discussed elsewhere in this Report.  In contrast, we see no statements that 
refer expressly to the use of domestic U.S. goods as a condition of eligibility for these subsidies. 
The European Union does not exp lain with respect to any particular measure why the existence of 
such conditions relating to employment, investment or location of production means that the 
                                               
3518 Illustrative Statements Relating to De Facto Contingency on the Use of Domestic Over Im ported 
Goods, (Exhibit EU -583), pp. 6 and 7.  WT/DS353/R W 
 
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  measure is in fact contingent upon the use of domestic over imported goods within the meaning of 
Article 3.1(b) of the SCM Agreement.  
10.43.   For these reasons, to the extent that we have ruled that the European Union's 
claim s under Article s 3.1(b)  and 3.2  are within the scope of this proceeding , we reject 
these claims as unfounded because: (a) certain measure s challenged by the 
European  Union are not subsidies provided to Boeing after the end of the 
implementation period; and (b) where we f ind the measures  to be subsidies provided to 
Boeing after the end of the implementation period , the European Union has fai led to 
establish that any of these subsidies is contingent in fact upon the use of domestic over 
imported goods .  
10.4  Whether the United States is maintaining measures inconsistent with Article III:4 
of the GATT 1994  
10.44.   The European Union submits that the United States maintains measures inconsistent, in 
law or in fact, with Article III:4 of the GATT 1994. This claim concerns all measures challenged in 
this proceeding.3519 The European Union argues that t hrough the subsidies granted or maintained 
by the United States , it grants less favourable treatment to imported parts and materials capable 
of being used in the production of Boeing LCA, when compared with domestic parts, with respect 
to the internal sale, offering for sale, purchase, transportation, distribution or use. As with its claim 
under Article 3.1(b) of the SCM Agreement, the European Union's claim under Article III:4 of the 
GATT 1994 is based on its arguments, and evidence in support thereof, that Boeing is to produce 
goods, of U.S. domestic origin, destined  to be used in the manufacture of Boeing LCA, to the 
exclusion of imported goods; that Boeing is to maintain employment levels in the United States 
that cannot be sustained without the use of U.S. domestic products or materials; that Boeing is to 
locate su bstantial development and production activities in the United States, which necessarily 
implies the use of U.S. domestic products or materials; and that the United States favours the use 
of U.S. domestic products or materials and labour, and conditions Boe ing's behaviour by 
encouraging and directing Boeing to favour U.S. domestic goods and labour, rewarding Boeing 
when it complies.3520 The measures at issue are applied so as to afford protection to domestic 
production of parts and materials capable of being us ed in the production of Boeing LCA, and are 
therefore inconsistent with Article III:4 of the GATT  1994.3521 
10.45.   The United States rejects the European Union's argument that all measures challenged in 
this proceeding are also inconsistent with Article III:4 of the  GATT 1994. Indeed, the United States 
argues that it is impossible to discern the legal or factual basis for this claim, as it consists entirely 
of a cross -reference to the European Union's factual and legal arguments regarding Article 3.1(b) 
of the SCM Ag reement, which applies an entirely different legal standard. This approach of treating 
two separate provisions of the covered agreements as being essentially the same fails to meet the 
European Union's burden of proof to establish an inconsistency with Art icle III:4 of the 
GATT  1994.3522 Furthermore, the exhibit that the European Union relies on in its Article 3.1(b) 
claim and references in its Article III:4 claim, consisting of statements by federal, state, and local 
officials, entirely fails to explain the a lleged connection between the statements and the factual or 
legal conclusions it asks the Panel to draw. At most, these statements suggest that Boeing makes 
products in the United States and employs workers there, and that some in the United States like 
the fact that they do.3523  
10.46.   We note that in support of its claim under Article III:4, the European Union  makes the 
same factual assertions and relies upon the same evidence as in res pect of its claim under 
Article  3.1(b) of the SCM Agreement. We thus reject the  European Union's claim for the 
same reasons that we have rejected its claim under Article 3.1(b). First, the European 
Union fails to substantiate its factual assertions through a sufficiently detailed 
discussion of the particular measures at issue . Second , the European Union does not 
provide sufficient reasoning to  explain how these factual assertions , even assuming they 
                                               
3519 European Union's first written submission, para. 786.  
3520 European Union's first written submission, para. 787; second written submission, para. 862.  
3521 European Union's first written submission, para. 788; secon d written submission, para. 863.  
3522 United States' second written submission, paras. 638 -640. 
3523 United States' second written submission, para. 640 (referring to Illustrative Statements Relating to 
De Facto Contingency on the Use of Domestic Over Imported G oods, (Exhibit EU -583)).  WT/DS353/R W 
 
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  were correct, would warrant a fin ding of inconsistenc y with Article II I:4 of the 
GATT  1994 .  
10.5  Conclusion  
10.47.   We conclude that:  
a. To the extent that we have ruled that the European Union's clai ms under Articles  3.1(a), 
3.1(b) and Article 3.2 of the SCM Agreement are within the scope of this proceeding, 
these claims are unfounded because: (i) certain measur es challenged by the 
European  Union are no t subsidies provided to Boeing after the end of the implementation 
period; and (ii) where we f ind that the measures at issue are subsidies provided to 
Boeing after the end of the implementation period, the European Union has failed to 
establish that any of  these subsidies is contingent in fact upon export performance or 
upon the use of domestic over imported goods.   
b. To the extent that we have ruled that the European Union's claims under Article III :4 of 
the GATT 1994 are within the scope o f this proceeding,  the European  Union has failed to 
establish that any of the measures at issue is inconsistent  with Article III:4 of the 
GATT  1994.  
11  CONCLUSIONS AND RECO MMENDATIONS  
11.1.  We recall that our task in this proceeding under Article 21.5 of the DSU is to resolve a 
"disagreement as to the existence or consistency with a covered agreement of measures taken to 
comply with the recommendations and rulings" of the DSB. The European Union claims that the 
United States has failed to implement the DSB recommendations in US – Large Civil Aircraft (2nd 
complaint)  to withdraw the subsidies or take appropriate steps to remove the adverse effects, 
pursuant to Article 7.8 of the SCM Agreement. The European Union also claims that the measures 
at issue in this proceeding  are inconsisten t with Articles  3.1(a), 3.1(b), and 3.2 of the SCM 
Agreement and Article III:4 of the GATT 1994. The United States maintains that it has complied 
fully with the DSB recommendations and rulings by either withdrawing the relevant subsidies or 
taking appropri ate steps to remove their adverse effects.  
11.2.  In this Section of the Report, we provide a summary of the conclusions we have reached in 
the preceding Sections and formulate our overall conclusion as to whether the United States has 
failed to comply with the D SB recommendations and rulings.  
Rulings on the  terms of reference and  scope of the proceeding  
11.3.  In Section 7 of this Report, the Panel has considered a large number of questions arising out 
of a request of the United States that the Panel rule that certain measures, and claims of the 
European Union with regard to certain measures, are outside the Panel's terms of reference 
because the European Union's panel request does not satisfy the requirements of Article 6.2 of the 
DSU; and that certain measures, and cl aims of the European Union with regard to certain 
measures, are outside the scope of this  compliance proceeding .3524 
11.4.  In respect of whether certain measures, and claims with respect to certain measures, are 
outside our terms of reference for purposes of Articl e 6.2 of the DSU, we have made the following 
rulings :  
a. the European Union's claims under Articles 3.1(a), 3.1(b), and 3.2 of the SCM 
Agreement, and under Article III :4 of the GATT 1994, are within the Panel's terms of 
reference3525;  
                                               
3524 See para. 7.1 above . 
3525 The Panel's ruling that the European Union's claims under Articles 3.1(a), 3.1(b) , and 3.2 of the 
SCM Agreement, and under Article III of the GATT 1994, are with in its terms of reference is without prejudice 
to its further rulings, in para. 11.6 below, as to whether these claims in respect of certain measures are 
nevertheless outside the scope of this compliance proceed ing. WT/DS353/R W 
 
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  b. the South Carolina Phase II measures  are outside the Panel's terms of reference, owing 
to the failure of the European Union's panel request to m eet the requirements of 
Article  6.2 of the DSU in respect of such measures ; and  
c. the Washington State tax measures, as amended by SSB 5952 , are outside the Panel's 
terms of reference, owing to the failure of the European Union's panel request to meet 
the requirements of Article 6.2 of the DSU in respect of such measures.  
11.5.  In respect of whether certain measures are outside the scope of this co mpliance proceeding, 
we have made the following rulings:  
a. the following measures are within the scope of this compliance proceeding:  
i. the Washington State B&O tax credits for preproduction/aerospace product 
development3526; the Washington State B&O tax credit f or property taxes and 
leasehold excise taxes3527; the Washington State sales and use tax exemptions for 
computer software, hardware, and peripherals ; and the City of Everett B&O tax rate 
reduction;  
ii. DOD procurement contracts funded under  the 23 original RDT&E program elements;  
iii. DOD procurement contracts HR0011 -06-C-0073 and HR -0011-08-C-0044 SOW and 
assistance instruments HR0011 -06-2-0008, FA8650 -07-2-7716, and 
HR0011 -10-2-0001 funded under  the Materials Processing Technology Project of the 
Materials and Biolog ical Technology program element;  
iv. the provision of access to DOD equipment and employees through  the post -2006 
DOD procurement contracts and assistance instruments funded under the 23 original 
RDT&E program elements and the "additional" program elements tha t we have found 
to be within the scope of this proceeding ;  
v. the FAA aeronautics R&D  measure; and  
vi. the South Carolina Project Gemini measures and the Project Emerald measures.  
b. the following measures are outside the scope of this compliance proceeding:  
i. the W ashington State JCATI measure;  
ii. Air Force Contract F19628 -01-D-0016 funded under the DRAGON Project of the 
Airborne Warning and Control System (AWACS) (PE 0207417F) program element ; Air 
Force Contract FA8625 -11-C-6600 funded under the KC -46, Next Generation  Aerial 
Refueling Aircraft (PE 0605221F) program element ; and m easures funded under the 
Multi-Mission Mari time Aircraft (P -8A) (PE 0605500N) program element, including 
Navy contracts N00019 -04-C-3146, N00019 -09-C-0022, and N00019 -12-C-01123528; 
and  
iii. the provi sion of access  to DOD equipment and employees  through  the pre -2007 
procurement contracts and assistance instruments funded under the 23 original 
RDT&E program elements . 
11.6.  In addition to the above, with respect to whether claims of the European Union with reg ard 
to certain measures are outside the scope of this  compliance proceeding , we have made the 
following rulings:  
                                               
3526 Including amendments thereto pursuant to SSB 6828.  
3527 Including amendments thereto pursuant to HB 2466.  
3528 The Panel  has also ruled that claims concerning the Technology Transfer program element, the IP 
ManTech program element and the Long Range Stri ke Bomber program element are not further considered in 
this proceeding because the Panel is not satisfied of the existence of any procurement contracts or assistance 
instruments with Boeing which the European Union identifies as relevant to its claims whi ch are funded through 
these program elements.  WT/DS353/R W 
 
- 615 - 
 
  a. the European Union is precluded from bringing claims under Articles 3.1(a) and 3.2 of 
the SCM Agreement against the following four original Was hington State tax measures 
enacted under HB 2294: the Washington State B&O tax rate reduction; the Washington 
State B&O tax credits for preproductio n/aerospace product development3529; the 
Washington State B&O  tax credit for property taxes3530; and the Washingto n State sales 
and use tax exemptions for computer hardware, peripherals, and software .  
b. the European Union is precluded from bringing claims under Article s 3.1(b) and 3.2 of 
the SCM Agreement, and under Article III:4 of the GATT 1994, in respect of the fol lowing 
four original Washington State tax measures enacted under HB 2294: the Washington 
State B&O tax rate reduction; the Washington State B&O tax credits for 
preproductio n/aerospace product development3531; the Washington State B&O tax credit 
for property t axes3532; and the Washington State sales and use tax exemptions for 
computer hardware, peripherals, and software; as well as the FSC/ETI measures . 
c. the European Union is precluded from bringing claims under Articles 3.1(a), 3.1(b), and 
3.2 of the SCM Agreement  and under Article III:4 of the GATT 1994 in respect of : 
i. the City of Everett B&O tax rate reduction, the tax abatements related to the City of 
Wichita IRBs, and the pre -2007 NASA Space Act Agreements and DOD procurement 
contracts  at issue in the original p roceeding ; and  
ii. the pre -2007 NASA procurement contracts and DOD assistance instruments at issue 
in the original proceeding, as amended by the respective Boeing Patent Licence 
Agreements.  
Conclusions with respect to whether the United States has failed to wi thdraw the 
subsidy within the meaning of Article 7.8 of the SCM Agreement  
11.7.  With respect to the European Union's claim that the United States has failed to withdraw the 
subsidy within the meaning of Article 7.8 of the SCM Agreement , the Panel conclude s as follows  in 
Section 8 of this Report:  
a. with regard to pre -2007 NASA and DOD aeronautics R&D subsidies that were the subject 
of the DSB recommendations and rulings, the European Union has established that the 
modifications made by the United States through the  Boeing Patent Licence Agreements 
to the terms of the pre -2007 NASA procurement contracts and DOD assistance 
instruments do not constitute a withdrawal of the subsidy within the meaning of 
Article  7.8 of the SCM Agreement and that the United States, having  taken no action in 
respect of pre-2007 Space Act Agreements , has failed to withdraw the subsidy within the 
meaning of Article 7.8 of the SCM Agreement.  
b. with regard to the post -2006 measures of the United States challenged in this 
proceeding, the European Union has established that the following measures involve 
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and that 
by granting or maintaining these specific subsidies after the end of the implementation 
period, the United St ates has failed to withdraw the subsid y within the meaning of 
Article  7.8 of the SCM Agreement:  
i. certain transactions between NASA and Boeing pursuant to post -2006 NASA 
procurement contracts, cooperative agreements, and Space Act Agreements, with 
respect to  which we are unable to estimate the amount of the subsidy on the basis of 
the evidence on the record, but consider the United States' estimate of the amount  
of the financial contribution at [***] between 2007 and 2012 to be a credible 
estimate;  
                                               
3529 Including amendments thereto pursuant to SSB 6828.  
3530 Including amendments thereto pursuant to HB 2466.  
3531 Including amendments thereto pursuant to SSB 6828.  
3532 Including amendments thereto pursuant to HB 2466 .  WT/DS353/R W 
 
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  ii. certain tr ansactions between DOD and Boeing pursuant to post -2006 DOD assistance 
instruments, with respect to which we are unable to estimate the amount of the 
subsidy on the basis of the evidence on the record, but consider the United States' 
estimate of the amount  of the financial contribution at [***] between 2007 and 
2012 to be a credible estimate;  
iii. transactions pursuant to the Boeing CLEEN Agreement  with respect to which we are 
unable to estimate the amount of the subsidy on the basis of the evidence on the 
record, but consider the European Union's estimate of the amount  of the financial 
contribution at USD 27.99 million between 2010 and 2014 to be a credible estimate;  
iv. Washington State B&O tax rate reduction for the aerospace industry, in the amount 
of USD 325 mil lion between 2013 and 2015;  
v. Washington State B&O tax credits for preproduction/aerospace product development, 
as amended by section 7 of SSB 6828, in the amount of [***] between 2013 and 
2015;  
vi. Washington State B&O tax credit for property taxes, as amended by HB 2466 to 
include leasehold excise taxes, in the amount of [***] between 2013 and 2015;  
vii. Washington State sales and use tax exemptions for computer software, hardware, 
and peripherals , in the amount of [***] between 2013 and 2015;  
viii. City of Everett B&O ta x rate reduction, in the amount of USD 54.1 million  between 
2013 and 2015 ; 
ix. payments made by South Carolina pursuant to commitments made in the Project 
Gemini Agreement to compensate Boeing for a portion of the costs incurred by 
Boeing in respect of the con struction of the Gemini facilities and infrastructure 
through air hub bond proceeds, in the amount of USD 50 million;  
x. South Carolina property tax exemption for Boeing's large cargo freighters, in the 
amount of USD 25.82 million between 2013 and 2015; and  
xi. South Carolina sales and use tax exemptions for aircraft fuel, computer equipment , 
and construction materials, in the amount of USD 2. 25 million between 20 13 and 
2015; 
c. the European Union has failed to establish that the following measures involve specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and has 
therefore failed to establish that by granting or maintaining these specific subsidies after 
the end of the implementation period, the United States has failed to withdraw the 
subsidy within the meaning of Article 7.8 of the SCM Agreement:  
i. certain transactions between DOD and Boeing pursuant to pre -2007 and post -2006 
DOD procurement contracts, on the grounds that, assuming arguendo  that these 
measures were to involve financial con tribution s within the meaning of 
Article  1.1(a)(1) of the SCM Agreement, they do not confer a benefit on Boeing 
within the meaning of Article 1.1(b) of the SCM Agreement;  
ii. tax exemptions and exclusions under FSC/ETI legislation and successor legislation, 
on the grounds that the European Union has failed to establish that Boeing actually 
received the FSC/ETI tax benefits after 2006, and that the measure therefore 
involves a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM 
Agreemen t; 
iii. tax abatements provided through IRBs issued by the City of Wichita, on the grounds 
that these tax abatements are no longer specific within the meaning of Article 2.1(c) 
of the SCM Agreement and, as a result, the measure is no longer subject to the 
provisions of the SCM Agreement on actionable subsidies;  WT/DS353/R W 
 
- 617 - 
 
  iv. South Carolina sublease of the Project Site, on the grounds that the European Union 
has failed to establish  that the sublease i nvolves a subsidy  to Boeing;  
v. South Carolina provision of Gemini and Emerald f acilities and infrastructure, on the 
grounds that the European Union has failed to establish  that these measures involve 
financial contributions within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement;  
vi. South Carolina fee -in-lieu-of taxes arrangem ents set forth in the Boeing F ILOT 
Agreement and Project Emerald F ILOT Agreement, on the grounds that these 
arrangements are not specific within the meaning of Article 2 of the SCM Agreement;  
vii. South Carolina corporate income tax credits in connection with t he designation of the 
Project Gemini and Project Emerald portions of the Project Site  as part of the same 
multi-county industrial park, on the grounds that the tax credits are not specific 
within the meaning of Article 2 of the SCM Agreement;  
viii. South Carolin a Income Allocation and Apportionment Agreement, on the grounds 
that the European Union has failed to establish that the agreement involves a 
financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM 
Agreement; and  
ix. South Carolina workfo rce recruitment, training and development programme, on the 
grounds that the programme is not specific within the meaning of Article 2 of the 
SCM Agreement.  
Conclusions with respect to whether the United States has failed to take appropriate 
steps to remov e the adverse effects within the meaning of Article 7.8 of the SCM 
Agreement  
11.8.  With respect to the European Union's claim that the United States has failed to comply with 
its obligation to take appropriate steps to remove the adverse effects  within the mean ing of 
Article  7.8 of the SCM Agreement, the Panel conclude s as follows  in Section 9 of this Report:  
a. the European Union has failed to establish that the effects of certain aeronautics R&D 
subsidies and other subsidies are a genuine and substantial cause o f significant lost 
sales, significant price suppression, impedance  of impor ts to the United States market  or 
impedance  of exports to various third country markets,  or threats of any of the 
foregoing , within the meaning of Articles 5(c) and 6.3(a), (b) , and (c) of the SCM 
Agreement  in respect of the A350XWB in the post -implementation period ; 
b. the European Union has failed to establish that the original adverse effects of the pre -
2007 aeronautics R&D subsid ies in respect of the A330 and Original A350 continue in the 
post-implementation period as significant price suppression of the A330 and A350XWB, 
significant lost sales of the A350XWB, or a threat of impedance of exports of the 
A350XWB in the twin -aisle LCA market, within the meaning of Articles 5(c) and 6.3( a), 
(b), and (c) of the SCM Agreement  in the post -implementation period ; 
c. the European Union has established that the effects of the Washington State B&O tax 
rate reduction are a genuine and substantial cause of significant lost sales within the 
meaning of Articles 5(c) and 6.3(c) of the SCM Agreement of A320neo and A320ceo 
families of LCA in the single -aisle LCA market, in respect of the sales campaigns for Fly 
Dubai in 2014, Air Canada in 2013, and Icelandair in 2013, in the post -implementation 
period ; 
d. the European Union has established that the effects of the Washington State B&O tax 
rate reduction are a genuine and substantial cause of a threat of impedance of imports 
of the A320ceo to the United States single -aisle market , and a threat of impedance of 
exports of Airbus single -aisle LCA  in the United Arab Emirates third country market , 
within the meaning of Articles 5(c) and 6.3(a) and (b) of the SCM Agreement  in the 
post-implementation period ; and  WT/DS353/R W 
 
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  e. the European Union has failed to establish  that the effect s of the pre -2007 aeronautics 
R&D subsidies and the post -2006 subsidies are a genuine and substantial cause of 
significant price suppression  of the A320neo or  A320ceo , impedan ce of imports of the 
A320neo or  A320ceo to the United States market , or displacem ent and impedance  of 
exports of the A320neo or  A320ceo to the third country markets of Australia, Brazil, 
Canada, Iceland, Indonesia, Malaysia, Mexico,  Norway, Russia, and Singapore,  within 
the meaning of Articles 5(c) and 6.3(a), (b), and (c)  of the SCM A greement , or threats of 
any of the foregoing,  in the post -implementation period . 
Conclusions with respect to whether the United States ac ts inconsistently with 
Articles  3.1 and 3. 2 of the SCM Agreement and Article III:4  of the GATT 1994  
11.9.  With respect to th e European Union's claims under Articles 3.1 and 3.2 of the SCM 
Agreement and Article III:4 of the GATT 1994 , the Panel conclude s as follows  in Section 10 of this 
Report:  
a. to the extent that the Panel has found that the claims are within the scope of this 
proceeding, and that the measures at issue are subsidies within the meaning of Article 1 
of the SCM Agreement, the European Union has not established that the subsidies are 
inconsistent with Articles 3.1(a) and 3.2 or 3.1(b) and 3.2 of the SCM Agreement; an d 
b. to the extent that the Panel has found that the claims are within the scope of the 
proceeding, the European Union has not established that the measures at issue are 
inconsistent with Article III :4 of the GATT 1994.  
Conclusion with respect to whether the United States has complied with the DSB 
recommendations and rulings  
11.10.   In light of the foregoing, we conclude that by continuing to be in violation of Articles  5(c) 
and 6.3(a), (b), and (c)  of the SCM Agreement, the United States has failed to comply with th e 
DSB recommendations and rulings and, in particular, the obligation under Article 7.8 of the SCM 
Agreement to "take appropriate steps to remove the adverse effects or … withdraw the subsidy".  
11.11.   Under Article 3.8 of the DSU, in cases where there is an infrin gement of the obligations 
assumed under a covered agreement, the action is considered prima facie  to constitute a case of 
nullification or impairment. We conclude that, to the extent that the measures at issue are 
inconsistent with the SCM Agreement, they have nullified or impaired the benefits accruing to the 
European Union under that Agreement.  
11.12.   We therefore conclude that the United States has failed to implement the DSB 
recommendations and rulings to bring its measures into conformity with its obligations  under the 
SCM Agreement. To the extent that the United States has failed to comply with the DSB 
recommendations and rulings in the original dispute, those recommendations and rulings remain 
operative.   WT/DS353/R W 
 
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  APPENDIX 1   
BCI APPENDIX  
Introduction  
1. The parties ha ve submitted a number of collaborative R&D agreements in this proceeding as 
evidence of private collaborative R&D arrangements which are alleged to serve as relevant 
market benchmarks for determining whether certain of the aeronautics R&D measures before 
the Panel confer a benefit on Boeing. In this Appendix , we set forth our evaluation of the 
allocation of intellectual property rights and rights resulting therefrom (i.e. licence rights) 
under these collaborative R&D arrangements. We discuss five separate g roupings of these 
private collaborative R&D agreements.  
2. The first comprises the six BCI contracts  between Boeing as commissioning party, and 
research institutes and for -profit entities as commissioned party , that were submitted in the 
original proceeding (designated by the Appellate Body as Contracts A through F). These 
contracts were the basis for the Appellate Body's conclusion, in the context of completing the 
analysis, that the allocation of patent rights under the NASA procurement contracts and DOD 
assistance instruments was more favourable to Boeing as commissioned party than the 
corresponding allocations to the commissioned parties in Contracts A through F.  
3. The second consists of a total of 18 private, commercial collaborative R&D agreements  
submitte d by the United States' and European Union's technology licensing experts. The United 
States' expert, Louis P. Berneman, identified six private collaborative R&D agreements, five of 
which were drawn from his search of  the Recap database, as examples of act ual, 
market -based arm's -length R&D collaborations in the biopharmaceutical industry.1 The search 
criteria were: (a) co -development; (b) collaboration; (c) joint venture; or (d) research.2 The 
sixth is a Services Agreement between Plug Power Inc. and the Ge neral Electric Company.3 
The European Union's expert, Richard A. Razgaitis, identified a further 12 private, commercial 
collaborative R&D agreements covering the same industry by replicating Berneman's Recap 
database search criteria but restricting the dat e range from January 2007 to September 2012. 
From the results, he then narrowed his focus to agreements that produced non -confidential 
values for R&D expenditures and which he considered were "reasonably comparable in 
business purpose and structure to the U.S. Government R&D contracts with Boeing that are at 
issue in this dispute".4 
4. The third comprises two private collaborative R&D agreements  identified by Mr  Razgaitis 
in which the commissioning party is not a commercial actor, but a not -for-profit foundati on 
(which does not have a commercial interest in the intellectual property rights resulting from 
the research), also in the biopharmaceutical industry and identified as part of the Recap 
database search.  
5. The fourth is the standard terms and conditions of t he Wichita State University 
National Institute for Aviation Research (NIAR ) in respect of industry research 
collaborations in which NIAR is the commissioned party.5 
6. The fifth is a research and technology framework agreement between Airbus SAS and 
an unname d university , in which Airbus is the commissioning party.  
                                               
1 Berneman explains that Recap is a commercially available subscription database which contains 
records of R&D collaborations, licences, and other alliances in the biopharmaceutical industry, including those 
between commercial firms. (Berneman Declarati on, (Exhibit USA -322) (BCI), para. 18 and fn 15).  
2 Berneman explains that he additionally focused on alliances entered into when the research project 
was in relatively early stages, focusing on alliances classified by Recap as "discovery", "lead molecule" , 
"formulation" or "preclinical". (Berneman Declaration, (Exhibit USA -322) (BCI), para. 18 and fn 15).  
3 Services Agreement between Plug Power Inc. and General Electric Company (17 March 2000) (Plug 
Power -GE Contract), (Exhibit USA -354).  
4 Razgaitis Declar ation, (Exhibit EU -1262) (BCI), para. 54.  
5 NIAR is the largest university aviation R&D institution in the United States. It provides research, 
design, testing, and certification services to the aviation manufacturing agencies, government agencies, 
educat ional entities, and other entities. (Statement of J. Tomblin, Executive Director of the National Institute 
for Aviation Research, (Exhibit USA -263)).  WT/DS353/R W 
 
- 620 - 
 
  7. In the context of our discussion of these categories of collaborative R&D agreements, we also 
refer to the expert opinions of both Mr Berneman and Mr Razgaitis where appropriate.  
[***6 ***7 ***8 ***9 ***10 ***11 ***12 ***13 ***14 ***15 ***16 ***17 ***18 ***19 ***20 
***21 ***22 ***23 ***24 ***25 ***26 ***27 ***28 ***29 ***30 ***31 ***32 ***33 ***34 ***35 
***36 ***37 ***]. 
The 18 private, commercial collaborative R&D agreements identified by Berneman and 
Razgaitis  
28. As previously n oted, the United States' expert, Mr Berneman, and the European Union's 
expert, Mr Razgaitis, each discussed [***] as well as identifying a number of additional 
private, commercial collaborative R&D agreements in the biopharmaceutical industry.38 Both 
                                               
6 [*** 
7 *** 
8 *** 
9 *** 
10 *** 
11 *** 
12 *** 
13 *** 
14 *** 
15 *** 
16 *** 
17 *** 
18 *** 
19 *** 
20 *** 
21 *** 
22 *** 
23 *** 
24 *** 
25 *** 
26 *** 
27 *** 
28 *** 
29 *** 
30 *** 
31 *** 
32 *** 
33 *** 
34 *** 
35 *** 
36 *** 
37 ***] 
38 Mr Berneman identified the following six private, commercial collaborative R&D agreements: (1) 
Collaborative Pronet Research and Licence Agreement between Myriad Gene tics, Inc. and Monsanto Company 
(11 November 1989) (Monsanto -Myriad Contract), (Exhibit USA -351); (2) Sponsored Research Agreement 
between Pfizer, Inc. and T Cell Sciences, Inc. (1 August 1989) (Pfizer -T Cell Sciences Contract), (Exhibit 
USA-353); (3) Coll aboration Agreement between American Home Products Corporation and Athena 
Neurosciences, Inc. (1 April 1995) (American Home -Athena Neurosciences Contract), (Exhibit USA -355); (4) 
Agreement between Bayer AG and Oxford GlycoSciences (UK), Inc. (7 March 2000)  (Bayer -Oxford Glyco 
Sciences Contract), (Exhibit USA -352); (5) Research Collaboration and Option Agreement between Emisphere 
Technologies, Inc. and Eli Lilly and Company (26 February 1997) (Lil ly-Emisphere Contract), (Exhibit 
USA-356); (6) Plug Power -GE Contract, (Exhibit USA -354). Mr Razgaitis identified an additional 12: (1) License 
Agreement between Sangamo BioSciences, Inc. and Sigma -Aldrich Co. (10 July 2007) (Sigma -Sangamo 
Contract), (Exhibit USA -376); (2) Collaboration and License Agreement between Isis Pharmaceuticals, Inc. and 
Bristol -Myers Squibb Company (8 May 2007) (BMS -Isis Contract), (Exhibit USA -378); (3) Research 
Development and License Agreement between Aveo Pharmaceuticals, Inc. and Schering Corporation (23 March 
2007) (Schering -Aveo Contr act), (Exhibit USA -377); (4) Co -Development and Commercialization Agreement 
between Astellas Pharma, Inc. and Maxygen, Inc. (18 September 2008) (Astellas -Maxygen Contract), (Exhibit 
EU-1328); (5) License and Collaboration Agreement between Aventis Pharmace uticals, Inc., Sanofi -Aventis 
Amerique du Nord and Regeneron Pharmaceuticals, Inc. (28 November 2007) (Aventis -Regeneron Contract), 
(Exhibit USA -497); (6) Collaborative Research and License Agreement between Archemix Corp. and Merck, 
KGaA (17 January 2007)  (Merck -Archemix Contract), (Exhibit USA -379); (7) Collaboration and License 
Agreement between Synta Pharmaceuticals Corp and F. Hoffmann -La Roche, Ltd. (23 December 2008) 
(Roche -Synta Contract), (Exhibit USA -375); (8) Collaborative Research and License Ag reement between WT/DS353/R W 
 
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  expert s appear to agree generally that overall, these private collaborative R&D agreements 
reflect commissioning and commissioned parties bargaining at arm's length to reach a 
market -based apportionment of relevant technology and intellectual property rights as well as 
associated licence rights in their contracts.39  
29. Mr Berneman opines, with respect to the six private, commercial collaborative R&D 
agreements that he discusses, that there is no single competitive or market outcome with 
respect to the intellectual p roperty allocation terms of collaborative R&D agreements.40 
Moreover, he notes that rights to make, use and sell products covered by inventions and 
knowledge conceived and reduced to practice in the course of R&D collaboration (i.e. 
commercial use rights gr anted by licences) may be as important as the ownership of 
intellectual property. The scope of the rights granted by a licence will vary according to the 
R&D collaboration and the needs, wants, and situation of the parties, but can involve 
exclusivity, ter ritory, duration, as well as consideration such as up -front payments and 
royalties. Collaborative R&D arrangements can also include provisions regarding rights to use 
data resulting from the collaboration internally, and potentially for future research.41 
30. Mr Razgaitis considers, on the basis of the 12 private, collaborative R&D agreements that he 
identifies in which the commissioning party is a commercial actor, that the "market -typical" 
R&D contracting arrangements range from the commissioning party owning all of the 
foreground intellectual property, to a right to receive multiples of the total R&D funding level, 
to a combination of non -exclusive and exclusive rights to the foreground intellectual property, 
together in some cases with the right to sublicense  to third parties in exchange for intellectual 
property payments such as royalties.42  
31. Our review of the six private, commercial collaborative R&D agreements identified by Mr 
Berneman, and the 12 identified by Mr Razgaitis, indicates that the allocation of intellectual 
property rights varies from being exclusively held either by the commissioned or 
commissioning party, to being held by the party whose employees made the invention or 
jointly held in case of joint inventions. With respect to related licence ri ghts, where the 
commissioning party does not already own the intellectual property rights43, it automatically 
receives  in the overwhelming majority of cases an exclusive, royalty -bearing licence in 
foreground intellectual property for commercial use purpose s (typically including the right to 
sublicense).44 In addition to the above, many contracts also provide for the grant of a 
                                                                                                                                               
Icagen, Inc. and Pfizer, Inc. (13 August 2007) (Pfizer -Icagen Contract), (Exhibit EU -1330); (9) License and 
Collaboration Agreement between Gilead Sciences, Inc., Gilead Sciences Limited and Tibotec Pharmaceuticals 
(16 July 2009) (Gilead -Tibotec Contract), (Exhibit USA -374); (10) Collaboration and License Agreement 
between Acadia Pharmaceuticals, Inc. and Meiji Seika Kaisha, Ltd. (24 March 2009) (Meiji -Acadia Contract), 
(Exhibit EU -1292); (11) Collaboration and License Agreement between Hoff man-La Roche, Inc. and Metabasis 
Therapeutics, Inc. (7 August 2008) (Roche -Metabasis Contract), (Exhibit EU -1331); (12) Master Laboratory 
Services Agreement between Intercept Pharmaceuticals and WIL Research Laboratories LLC (2 October 2007), 
attachment C to Razgaitis Declaration, (Exhibit EU -1262) (BCI).  
39 Berneman Declaration, (Exhibit USA -322) (BCI), para. 18; and Razgaitis Declaration, (Exhibit 
EU-1262) (BCI), para. 49.  
40 Berneman Declaration, (Exhibit USA -322) (BCI), para. 64. 
41 Berneman Declaration, ( Exhibit USA -322) (BCI), paras. 10 -17. 
42 Razgaitis Declaration, (Exhibit EU -1262) (BCI), para. 61.  
43 That is all 18 contracts discussed in this Section except  the Intercept Pharmaceuticals -WIL Contract 
(Razgaitis Declaration, (Exhibit EU -1262) (BCI), attach ment c), in which the commissioning party owns all 
collected data, discoveries, inventions and improvements arising from any commissioned research and the 
commissioned party retains only its background intellectual property rights related to testing method s, 
practices, and procedures. (Ibid. section 8(a)).  
44 Gilead -Tibotec Contract, (Exhibit USA -374), section 9.1(a) – commissioning party automatically 
receives co -exclusive, royalty -free licence to commerciali ze combination product, and exclusive, royalty -free 
licence to exploit certain other products; Pfizer -T Cell Sciences Contract, (Exhibit USA -353), Exclusive patent 
licence agreement, pdf p. 38, section 2, and Exclusive technology licence agreement, pdf p. 62, section 2; Plug 
Power -GE Contract, (Exhibit USA-354), section 4(b); Sigma -Sangamo Contract, (Exhibit USA -376), section 2; 
Bayer -Oxford Glyco Sciences Contract, (Exhibit USA -352), section 3.1; BMS -Isis Contract, (Exhibit USA -378), 
sections 2.1 and 5.4; Schering -Aveo Contract, (Exhibit USA -377), secti on 6.1; Merck -Archemix Contract, 
(Exhibit USA -379), sections 7.2 and 7.1.1; Roche -Synta Contract, (Exhibit USA -375), section 6.2; 
Pfizer -Icagen Contract, (Exhibit EU -1330), section 3.4; Astellas -Maxygen Contract, (Exhibit EU -1328), 
section  9.1.3; Aventis -Regeneron Contract, (Exhibit USA -497), sections 4.1 and 4.3; Meiji -Acadia Contract, 
(Exhibit EU -1292), section 4.1(a); Roche -Metabasis Contract, (Exhibit EU -1331), section 4.2; and Monsanto -
Myriad Contract, (Exhibit USA -351), sections 3.3 and 2.3(b) – option to gain exclusive, royalty -bearing, WT/DS353/R W 
 
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  non-exclusive, royalty free licence in relevant intellectual property for research and 
development purposes. The few contracts that d o not mandate the automatic grant of such 
licences include, at minimum, an option to negotiate for an exclusive licence45, and/or a right 
of first refusal to such a licence.46 
32. In other words, regardless of the allocation of ownership over inventions arising from 
collaborative R&D, the overwhelming majority of the 18 private, commercial collaborative R&D 
agreements identified by Messrs Berneman and Razgaitis grant the commissioning party the 
exclusive right to commerciali ze foreground intellectual property, an d conversely exclude the 
commissioned party from commercially exploiting such intellectual property. [***]. 
33. The United States also notes that certain of the private, commercial collaborative R&D 
agreements identified by Mr Razgaitis contain significant fie ld of use restrictions on the 
commissioning party's ability to commercialize the foreground intellectual property.47 
According to the United States, this demonstrates that commercial commissioning parties 
sometimes face more significant limitations on the u se of their licences than does the U.S. 
Government under the NASA and DOD contracts and agreements at issue in this proceeding. 
As Mr Razgaitis observes in response, field of use and territorial limitations represent the 
primary commercial opportunity that  the commissioning party (and licensee) anticipates, given 
the subject R&D and its business capabilities and priorities. As the vast majority of the 18 
contracts under review demonstrate, field of use and territorial limitations appear to be typical 
in tec hnology licences, and are the result of negotiation between the parties.48 Despite the 
inclusion of such limitations, we observe that, unlike for the government use licences retained 
by NASA and DOD, in the vast majority of the private, commercial collabora tive R&D 
agreements before us , the commissioned party's capability of commercially exploiting an 
invention will be considerably affected by the fact that the commissioning party usually obtains 
either the patent or an exclusive licence or, at minimum, an o ption to negotiate an exclusive 
licence to the foreground intellectual property that allows for its commercial exploitation by the 
commissioning party in a given field and territory.  
Collaborative R&D agreements involving non -commercial actors  
34. Among the ex amples of collaborative R&D agreements from the biopharmaceutical industry 
identified by Mr Razgaitis are two in which the commissioning parties are non -commercial 
entities. We discuss these separately from those discussed in the preceding subsection of th is 
Appendix because the commissioning parties are pursuing public interest -motivated objectives 
in commi ssioning the research without themselves being engaged in the commercialization of 
any resulting invention.  
35. The first is an agreement between a limited  liability  company49 formed by a not -for-profit 
foundation as the commissioning party, in which a commissioned party is engaged to develop 
a pharmaceutical treatment for a medical condition.50 The commissioning party is not granted 
ownership of any intellect ual property rights or licence rights. However, in the event that the 
                                                                                                                                               
worldwide, commercial use licence is subject to exercise of option by commissioning party and to payment of 
pre-determined licence fees.  
45 American Home -Athena Neurosciences Contract, (Exhibit USA -355) – the option to acquire exclusive, 
royalty -bearing, worldwide, commercial use licence is subject to parties negotiating any undefined terms in 
good faith (section 6); and Lilly -Emisphere Contract, (Exhibit USA -356) – the option to acquire an exclusive, 
worldwide, commerci al use licence appears to be subject to terms set out in a "Form of License Agreement" in 
Exhibit B to the agreement, not included as evidence in this proceeding (section 2.1).  
46 American Home -Athena Neurosciences Contract, (Exhibit USA -355), section 6(k);  and Lilly -Emisphere 
Contract, (Exhibit USA -356), section 3.  
47 United States' response to Panel question No. 27, paras. 108 -112. The United States refers to eight of 
the private collaborative R&D agreements identified by Mr Razgaitis that appear to contain  field of use 
limitations: (1) Meiji -Acadia Contract, (Exhibit EU -1292); (2) Roche -Metabasis Contract, (Exhibit EU -1331); (3) 
Gilead -Tibotec Contract, (Exhibit USA -374); (4) Roch e-Synta Contract, (Exhibit USA -375); (5) Sigma -Sangamo 
Contract, (Exhibit USA -376); (6) Schering -Aveo Contract, (Exhibit USA -377); (7) BMS -Isis Contract, (Exhibit 
USA-378); and (8) Merck -Archemix Contract, (Exhibit USA -379).  
48 Razgaitis Declaration, (Exhi bit EU -1262), (BCI) paras. 28 and 81.  
49 A limited liability company, or LLC, is a business entity that is a U.S. -specific form of private limited 
company, which is generally treated as a pass -through entity for federal income tax purposes.  
50 Sponsored Rese arch Collaboration Agreement between Dart Therapeutics, LLC, and CombinatorX, Inc. 
(11 November 2007), attachment B to Razgaitis Declaration, (Exhibit EU -1262) (BCI).  WT/DS353/R W 
 
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  commissioned party sells or licences a product resulting from the research, it must repay the 
R&D funds it received to the commissioning party. In addition, the commissioned party is 
obligated to make certain milestone payments at periodic intervals from its commercial sales. 
Should the commissioned party decide to discontinue the development of any candidate drug 
without licensing its rights to a third party, the commissioning party may exercise its rights to 
be granted an exclusive, sublicensable fully paid licence in all intellectual property rights to 
develop, make, use and sell the discontinued drug candidate.51 
36. The second is a sponsored research agreement involving the same not -for-profit foundation, 
this tim e as the commissioning party itself.  Under this agreement, the commissioning party 
again sponsors  a commissioned party to search for a cure for a particular medical condition. 
The agreement entitles the commissioning party to be re paid the R&D funds it expended in 
sponsoring the research in the event that the commissioned party successfully commercializes 
the foreground intellectual property.52 In addition, should the commissioned party abandon its 
commercialization efforts for reaso ns other than safety or efficacy, the commissioning party is 
entitled to obtain an exclusive licence to the foreground and background intellectual property 
and licence such rights on a royalty -bearing basis to third parties, subject to royalty -sharing 
with the commissioned party.53  
37. Both of these agreements, while involving the same not -for-profit foundation as commissioning 
party, nevertheless provide some evidence that a commissioning party that is acting for public 
interest reasons and that: (a) does not itself have a commercial use for the foreground 
intellectual property; and (b) does not itself have a direct interest in commercializing the 
results of the research for a commercial purpose, will still seek to include a provision that 
enables it to recover  the funding that it provided. It will also retain an option to an exclusive, 
fully paid licence in order to enable the commercialization of the products resulting from the 
research collaboration. This puts the commissioning party in collaborative R&D agre ements 
involving non -commercial actors in a more favourable position from that of the commissioning 
party in the NASA procurement contracts and DOD assistance instruments, as the 
commissioning party in the former ensures a reimbursement of its investment i n case of 
successful commercialisation of inventions resulting from the R&D, as well as an option to an 
exclusive, fully paid licence to any intellectual property resulting from the R&D, should the 
commissioned party decide to discontinue the project.  
[***54 ***55 ***56 ***57 ***58 ***59 ***60 ***61 ***62 ***63 ***64 ***65 ***66 ***67 ***68 
***69 ***70 ***]. 
                                               
51 Sponsored Research Agreement Dart LLC -CombinatorX Inc, Attachment B to Razgaitis Declar ation, 
(Exhibit EU -1262) (BCI), article 7.  
52 Sponsored Research Agreement between Avi Biopharma Inc. and Charley's Fund, Inc. 
(12 October  2007), (Exhibit EU -1332), article 4.3.  
53 Sponsored Research Agreement between Avi Biopharma Inc. and Charley's Fund, I nc. 
(12 October  2007), (Exhibit EU -1332), article 9.1.  
54 [*** 
55 *** 
56 *** 
57 *** 
58 ***  
59 *** 
60 *** 
61 *** 
62 *** 
63 *** 
64 *** 
65 *** 
66 *** 
67 *** 
68 *** 
69 *** 
70 ***] WT/DS353/R W 
 
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  APPENDIX 2   
HSBI APPENDIX  
 
[[HSBI ]] 
 
 
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