WT/DS487/ R 
 
28 November  2016 
(16-6452)  Page: 1/107 
  Original: English  
 
  UNITED STATES – CONDITIONAL TAX INCE NTIVES  
FOR LARGE CIVIL AIRC RAFT  
REPORT OF THE PANEL  
 
 
 
 
 
 
 
 
 
 
 
 
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  TABLE OF CONTENTS  
 
1   INTRODUCTION  ................................ ................................ ................................ ........  14 
1.1   Complaint by the European Union  ................................ ................................ ...............  14 
1.2   Panel establishment and composition  ................................ ................................ ..........  14 
1.3   Panel proceedings  ................................ ................................ ................................ ..... 14 
1.3.1   General  ................................ ................................ ................................ ................  14 
1.3.2   Changes to the timetable  ................................ ................................ ........................  15 
1.3.3   Additiona l Working Procedures for the Protection of Business Confidential 
Information (BCI) and Highly Sensitive Business Information (HSBI)  ................................ ....... 16 
1.3.4   Additional Working Procedures for the Partial Ope ning to the Public of the 
Meetings of the Panel  ................................ ................................ ................................ ....... 16 
2   FACTUAL ASPECTS  ................................ ................................ ................................ ..... 16 
3   PARTIES' REQUESTS FO R FINDINGS AND RECOM MENDATIONS  ................................  17 
4   ARGUMENTS OF THE PAR TIES  ................................ ................................ ...................  17 
5   ARGUMENTS OF THE THI RD PARTIES  ................................ ................................ ........  17 
6   INTERIM REVIEW  ................................ ................................ ................................ ...... 17 
7   FINDINGS  ................................ ................................ ................................ .................  22 
7.1   Introduction  ................................ ................................ ................................ .............  22 
7.2   Function of the Panel, Burden of Proof, and Treaty Interpretation  ................................ .... 22 
7.2.1   Function of the Panel  ................................ ................................ ..............................  22 
7.2.2   Burden  of proof  ................................ ................................ ................................ ..... 23 
7.2.3   Treaty interpretation  ................................ ................................ ..............................  24 
7.3   Description and background of the measures at issue  ................................ ....................  25 
7.3.1   Aerospace tax measures  ................................ ................................ .........................  25 
7.3.1.1    Measures related to the B&O tax  ................................ ................................ ...........  26 
7.3.1. 2   Exemptions from sales and use taxes  ................................ ................................ ..... 27 
7.3.1.3    Exemptions from taxes imposed on certain leaseholds  ................................ ..............  28 
7.3.2   Siting provi sions ................................ ................................ ................................ .... 28 
7.3.2.1    First Siting Provision  ................................ ................................ ............................  28 
7.3.2.2    Second Siting Provision  ................................ ................................ ........................  29 
7.3.3   Legislative background and scope of the measures at issue  ................................ ..........  30 
7.4   Existence of a subsidy under Article 1 of the SCM Agreement  ................................ ..........  32 
7.4.1   Arguments of the parties  ................................ ................................ ........................  32 
7.4.2   Third-party views  ................................ ................................ ................................ ... 33 
7.4.3   Whether there is a financia l contribution as "government revenue that is 
otherwise due is foregone or not collected"  ................................ ................................ ..........  33 
7.4.3.1    B&O aerospace tax rate  ................................ ................................ .......................  35 
7.4.3.2    B&O tax credit for aerospace product development  ................................ ..................  42 
7.4.3.3    B&O tax credit for property and leasehold excise taxes  ................................ .............  45 WT/DS487/R  
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  7.4.3.4    Computer sales and use tax exemptions  ................................ ................................ . 48 
7.4.3.5    Construction sales and use tax exemptions  ................................ .............................  51 
7.4.3.6    Leasehold  excise tax exemption  ................................ ................................ ............  52 
7.4.3.7    Leaseholder property tax exemption  ................................ ................................ ...... 55 
7.4.3.8    Conclusion on financial contribution  ................................ ................................ ....... 56 
7.4.4   Whether a benefit is thereby conferred  ................................ ................................ ..... 58 
7.4.5   Conclusion under Article 1 of the SCM Agreement  ................................ .......................  59 
7.5   Whether the challenged measures are prohibited subsidies under Article 3.1(b) of 
the SCM Agreement  ................................ ................................ ................................ .........  59 
7.5.1   Arguments of the parties  ................................ ................................ ........................  60 
7.5.1.1    European Union  ................................ ................................ ................................ .. 60 
7.5.1.2    United States  ................................ ................................ ................................ ..... 62 
7.5.2   Third-party views  ................................ ................................ ................................ ... 63 
7.5.3   Order of analysis  ................................ ................................ ................................ ... 66 
7.5.4   Article 3.1(b) of the SCM Agreement  ................................ ................................ ........  67 
7.5.4.1    Prohibited subsidies  ................................ ................................ .............................  67 
7.5.4.2    Article III:8(b) of the GATT 1994  ................................ ................................ ...........  68 
7.5.4.3    Contingency  ................................ ................................ ................................ ....... 68 
7.5.4.4    Other interpretive issues  ................................ ................................ ......................  71 
7.5.5   Relevant facts for the assessment of the alleged contingency  ................................ ....... 74 
7.5.5.1    The siting provisions of ESSB 5952  ................................ ................................ ........  74 
7.5.5.2    Products at issue  ................................ ................................ ................................ . 77 
7.5.5.3    Other relevant facts on record ................................ ................................ ...............  82 
7.5.6   Whether the subsidies are de jure  contingent upon the use of domestic over 
imported goods  ................................ ................................ ................................ ...............  83 
7.5.6.1    The First Siting Provision, considered separately  ................................ ......................  85 
7.5.6.2    The Second Siting Provision, considered separately  ................................ ..................  89 
7.5.6.3    The First Siting Provision and the Second Siting Provision, considered jointly  ...............  91 
7.5.7   Whether the subsidies are de facto  contingent upon the use of domestic over 
imported goods  ................................ ................................ ................................ ...............  92 
7.5.7.1    Legal standard  ................................ ................................ ................................ .... 93 
7.5.7.2    The Panel's approach to address the European Union's claim  ................................ ..... 93 
7.5.7.3    The First and Second Siting Provisions  ................................ ................................ ... 96 
8   CONCLUSIONS AND RECO MMENDATION  ................................ ................................ . 105  
8.1   Conclusions  ................................ ................................ ................................ ...........  105 
8.2   Recommendation  ................................ ................................ ................................ .... 106 
 
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  LIST OF ANNEXES  
ANNEX  A 
WORKING PROCEDURES O F THE PANEL  
Contents  Page  
Annex  A-1 Working Proc edures of the Panel  A-2 
Annex  A-2 Additional Procedures on BCI and HSBI A-7 
Annex  A-3 Additional Working Procedures for the partial opening to the public of the 
meeting of the Panel  A-19 
Annex  A-4 Additional Working Procedures for the partial opening to  the public of the 
second meeting of the Panel  A-21 
ANNEX B  
ARGUMENTS OF THE PAR TIES 
Contents  Page  
Annex  B-1 First integrated executive summary of the arguments of the European Union  B-2 
Annex  B-2 Second integrated executive summary of the arguments of the European Union  B-10 
Annex  B-3 First integrated executive summary of the arguments of the United States  B-20 
Annex  B-4 Second integrated executive summary of the arguments of the United States  B-28 
ANNEX C  
ARGUMENTS OF THE THIRD PARTIES  
Contents  Page  
Annex  C-1 Integrated executive summary of the arguments of Australia  C-2 
Annex  C-2 Integrated executive summary of the arguments of Brazil  C-4 
Annex  C-3 Integrated executive summary of the arguments of Canada  C-8 
Annex  C-4 Integrated executive summary  of the arguments of China  C-11 
Annex  C-5 Integrated executive summary of the arguments of Japan  C-13 
 
ANNEX  D 
PROCEDURAL RULINGS  
Contents  Page  
Annex D -1 Letter from the Panel, 15  January 2016  D-2 
Annex D -2 Letter from the Panel, 4  May 2016  D-3 
 
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  WTO  CASES CITED IN THIS REPORT  
Short title  Full case title and citation  
Australia – Automotive Leather 
II Panel Report, Australia – Subsidies Provided to Producers and Exporters of 
Automotive Leather , WT/DS126/R , adopted 16 June 1999, DSR 1999:III, p. 
951 
Brazil – Aircraft  Appellate Body Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/AB/R , adopted 20 August 1999, DSR 1999:III, p. 1161  
Brazil – Aircraft  Panel Report, Brazil – Export Financing Programme for Aircraft , WT/DS46/R , 
adopted 20 A ugust 1999, as modified by Appellate Body Report 
WT/DS46/AB/R, DSR 1999:III, p. 1221  
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R , adopted 20 August 1999, DSR 1999:III, p. 1377  
Canada – Aircraft  Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft , 
WT/DS70/R , adopted 20 August 1999, upheld by Appellate Body Report 
WT/DS70/AB/R, DSR 1999:IV, p. 1443  
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 – Aircraft Credits and 
Guarantees  Panel Report, Canada – Export Credits and Loan G uarantees for Regional 
Aircraft , WT/DS222/R  and Corr.1, adopted 19 February 2002, DSR 2002:III, 
p. 849  
Canada – Autos  Appellate Body Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/AB/R , WT/DS142/AB/R , adopted 19 June 2000, D SR 
2000:VI, p. 2985  
Canada – Periodicals  Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R , adopted 30 July 1997, DSR 1997:I, p. 449  
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  / WT/DS426/AB/R , adopted 24 May 2013, DSR 
2013:I, p. 7  
China – Auto Parts  Appellate Body Reports, China – Measures Affecting Imports of Automobile 
Parts, WT/DS339/AB/R  / WT/DS340/AB/R  / WT/DS342/AB/R , adopted 
12 January 2009, DSR 2009:I, p. 3  
Colombia – Ports of Entry  Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry , 
WT/DS366/R  and Corr.1, adopted 20 May 2009, DSR 2009:VI, p. 2535  
EC – Hormones  Appellate Body Report, EC Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/AB/R , WT/DS48/AB/R , adopted 13 February 1998, 
DSR 1998:I, p. 135  
EC and certain member States 
– Large Civil Aircraft  Appellate Body Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/AB/R , adopted 1 
June 2011, DSR 2011:I, p. 7  
EC and certain member States 
– Large Civil Aircraft  Panel Repo rt, European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , WT/DS316/R , adopted 1 June 2011, as 
modified by Appellate Body Report, WT/DS316/AB/R, DSR 2011:II, p. 685  
India – Patents (US)  Appellate Body Report, India – Patent Protection for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R , adopted 16 January 1998, 
DSR 1998:I, p. 9  
Indonesia – Autos  Panel Report, Indonesia – Certain Measures Affecting the Automobile 
Industry , WT/DS54/R , WT/DS55/R , WT/DS59/R , WT/DS64/R , Corr.1 and 
Corr.2, adopted 23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201  
Japan – Alcoholic Beverages II  Appellate Body Report, Japan – Taxes on Alcoholic Beverages , 
WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R , adopted 1 Novembe r 1996, 
DSR 1996:I, p. 97  
Japan – DRAMs (Korea)  Panel Report, Japan – Countervailing Duties on Dynamic Random Access 
Memories from Korea , WT/DS336/R , adopted 17 December 2007, as 
modified by Appellate Body Report WT/DS336/AB/R, DSR 2007:VII, p. 2805  WT/DS487/R  
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  Short title  Full case title and citation  
Korea – Alcoholic Beverages  Appellate Body Report, Korea – Taxes on Alcoholic Beverages , 
WT/DS75/AB/R , WT/DS84/AB/R , adopted 1 7 February 1999, DSR 1999:I, 
p. 3 
Korea – Alcoholic Beverages  Panel Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/R , 
WT/DS84/ R, adopted 17 February 1999, as modified by Appellate Body 
Report WT/DS75/AB/R, WT/DS84/AB/R, DSR 1999:I, p. 44  
US – Anti-Dumping Measures 
on Oil Country Tubular Goods  Appellate Body Report, United States – Anti-Dumping Measures on Oil 
Country Tubular Goo ds (OCTG) from Mexico , WT/DS282/AB/R , adopted 
28 November 2005, DSR 2005:XX, p. 10127  
US – Carbon Steel  Appellate Body Report, United States – Countervailing Duties on Certain 
Corrosion -Resistant Carbon Steel Flat Products from Germany , 
WT/DS213/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 2014, DSR 2014 :V, p. 1727  
US – Corrosion -Resistant Steel 
Sunset Review  Appellate Body Report, United States – Sunset Review of Anti -Dumping 
Duties on Corrosion -Resistant Carbon Steel Flat Products from Japan , 
WT/DS244/AB/R , adopted 9 January 2004, DSR 2004:I, p. 3  
US – Countervailing and Anti -
Dumping Measures (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 – FSC Appellate Bo dy 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) 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 – Gambling  Appellate Body Report, United States – Measures Affecting the Cross -Border 
Supply of Gambling and Betting Services , WT/DS285/AB/R , adopted 
20 April 2005, DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475)  
US – 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 – Hot-Rolled Steel  Panel Report, United States – Anti-Dumping Measures on Certain Hot -Rolled 
Steel Products from Japan , WT/DS184/R , adopted 23 August 2001 modified 
by Appellate Body Report WT/DS184/AB/R, DSR 2001:X, p. 4769  
US – Large Civil Aircraft (2nd 
complaint)  Appellate Body Report, United States – Measures Affecting Trade in Large 
Civil Aircraft (Second Complaint) , WT/DS353/AB/R , adopted 23 March 2012, 
DSR 2012:I, p. 7  
US – Large Civil Aircraft (2nd 
complaint)  Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft 
(Second Complaint) , WT/DS353/R , adopted 23 March 2012, as modified by 
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649  
US – Offset Act (Byrd 
Amendment)  Appellate Body Report, United States – Continued Dumpin g and Subsidy 
Offset Act of 2000 , WT/DS217/AB/R , WT/DS234/AB/R , adopted 
27 January  2003, DSR 2003:I, p. 375  
US – Poultry (China)  Panel Report, United States – Certain Measures Affecting Imports of Poultry 
from China , WT/DS392/R , adopted 25 October 2010, DSR 2010:V, p. 1909  
US – Shrimp  Appellate Body Report, United States – Import Prohibition of Certain Shrimp 
and Shrimp Products , WT/DS58/AB/R , adopted 6 November 1998, DSR 
1998:VII, p. 2755  WT/DS487/R  
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  Short title  Full case title and citation  
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  
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 – Wool Shirts and Blouses  Appellate Body Report, United States – Measure Affecting Imports of Woven 
Wool Shirts and Blouses from India , WT/DS33/ AB/R, adopted 23 May 1997, 
and Corr.1, DSR 1997:I, p. 323  
 
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  GATT CASES CITED IN THIS REPORT  
Short Title  Full Case Title and Citation  
Japan – Alcoholic Beverages  I GATT Panel Report, Japan – Customs Duties, Taxes and Labelling Practices 
on Imported Wines  and Alcoholic Beverages , L/6216, adopted 
10 November  1987, BISD  34S/83  
US – Section 337 Tariff Act  GATT Panel Report, United States Section 337 of the Tariff Act of 1930 , 
L/6439, adopted 7  November  1989, BISD  36S/345  
US – Superfund  GATT Panel Report, United States – Taxes on Petroleum and Certain 
Imported Substances , L/6175, adopted 17  June 1987, BISD  34S/136  
 
 
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  EXHIBITS REFERRED TO  IN THIS REPORT  
Panel Exhibit  Title Short Title  
EU-3 Engrossed Substitute Senate Bill 5952, Chapter 2, Laws of 
2013 3rd S pecial Session, 2014  Wash.  Sess. Laws 2  ESSB 5952  
EU-4 Final Bill Report ESSB 5952  ESSB 5952 Final Bill Report  
EU-5 Department of Revenue Fiscal Note (5952 SB)  ESSB 5952 Fiscal Note  
EU-21 House Bill 2294, 2003 Wash. Sess. Laws 2767  HB 2294  
EU-22 RCW 82 .04.260: Tax on manufacturers and processors of 
various foods and by -products – Research and 
development organizations – Travel agents – Certain 
international activities – Stevedoring and associated 
activities – Low-level waste disposers – Insurance 
produc ers, surplus line brokers, and title insurance agents 
– Hospitals – Commercial airplane activities – Timber 
product activities – Canned salmon processors. (Effective 
until July 1, 2015.)  RCW Section  82.04.260  
EU-23 RCW 82.04.4461: Credit – Preproduction d evelopment 
expenditures. (Expires July 1, 2040.)  RCW Section  82.04.4461  
EU-24 RCW 82.04.4463: Credit – Property and leasehold taxes 
paid on property used for manufacture of commercial 
airplanes. (Expires July 1, 2040.)  RCW Section 82.04.4463  
EU-25 RCW 82 .08.975: Exemptions – Computer parts and 
software related to the manufacture of commercial 
airplanes. (Expires July 1, 2040.)  RCW Section 82.08.975  
EU-26 RCW 82.12.975: Computer parts and software related to 
the manufacture of commercial airplanes. (Expir es July 1, 
2040.)  RCW Section 82.12.975  
EU-27 RCW 82.08.980: Exemptions – Labor, services, and 
personal property related to the manufacture of 
commercial airplanes. (Expires July 1, 2040.)  RCW Section 82.08.980  
EU-28 RCW 82.12.980: Exemptions – Labor, se rvices, and 
personal property related to the manufacture of 
commercial airplanes. (Expires July 1, 2040.)  RCW Section 82.12.980  
EU-29 RCW 82.29A.137: Exemptions – Certain leasehold 
interests related to the manufacture of superefficient 
airplanes. (Expires  July 1, 2040.)  RCW Section 82.29A.137  
EU-30 RCW 84.36.655: Property related to the manufacture of 
superefficient airplanes. (Expires July 1, 2040.)  RCW Section 84.36.655  
EU-32 RCW 82.04.220: Business and occupation tax imposed.  RCW Section 82.04.220  
EU-33 Department of Revenue, Washington State, Business & 
occupation tax  B&O Tax Explanation, 
Washington State Department of 
Revenue  
EU-35 House Bill 2466, 2006 Wash. Sess. Laws 787  HB 2466  
EU-36 RCW 82.04.240: Tax on manufacturers. (Contingent 
expiration date.)  RCW Section 82.04.240  
EU-37 RCW 82.04.450: Value of products, how determined.  RCW Section 82.04.450  
EU-38 RCW 82.04.250: Tax on retailers.  RCW Section 82.04.250  
EU-39 RCW 82.04.270: Tax on wholesalers.  RCW Section 82.04.270  
EU-40 RCW 82.04.070: "Gross proceeds of sales".  RCW Section 82.04.070  
EU-41 WAC 458 -20-19301: Multiple activities tax credits.  WAC Section 458 -20-19301  
EU-42 Substitute Senate Bill 6828, 2008 Wash. Sess. Laws 365  SSB 6828  
EU-44 Snohomish County Council, Executive/Council Ap proval 
Form,  25 July 2012  Snohomish County Council, 
Lease Approval  
EU-45 Paine Field Community Council, Meeting Minutes, 
November 12, 2013  Paine Field Community Council, 
Minutes of Meeting of 12 
November 2013  
EU-48 The Seattle Times, "State gave Boeing a free pass on 
$19.5M in sales tax", by Jim Brunner, originally published 
November 29, 2015 / Updated November 30, 2015  The Seattle Times, "State gave 
Boeing a free pass on $19.5M in 
sales tax", 30 November 2015  
EU-49 Department of Revenue, Washington Sta te, Leasehold 
excise tax  Leasehold Excise Tax, 
Washington State Department of 
Revenue  
EU-50 WAC 458 -29A-100: Leasehold excise tax – Overview and 
definitions . WAC Section 458 -29A-100 WT/DS487/R  
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  Panel Exhibit  Title Short Title  
EU-51 Washington State Department of Revenue, Personal 
Property Tax, Dec ember 2012  Personal Property Tax, 
Washington State Department of 
Revenue  
EU-58 RCW 82.32.850: Significant commercial airplane 
manufacturing – Tax preference – Contingent effective 
date. RCW Section  82.32.850  
EU-59 Office of Washington Governor – Jay Insl ee, "Legislature 
approves key elements of 777X incentive package", 10 
November 2013  Office of Washington Governor, 
"Legislature approves key 
elements of 777X incentive 
package", 10 November 2013  
EU-61 Notification Letter from Carol K. Nelson, Director, 
Washington State Department of Revenue, to Kyle 
Thiessen, Washington State Code Reviser , 10 July 2014  Letter from the Director of the 
Washington State Department of 
Revenue to the Code Reviser , 10 
July 2014  
EU-62 Department of Revenue, Washington State, Tax  
Classifications for Common Business Activities  Tax Classifications for Common 
Business Activities , Washington 
State Department of Revenue  
EU-65 Reuters, "Boeing seen in advanced talks to make 777X 
near Seattle", by Tim Hepher and Alwyn Scott, 4 
November 2013 Reuters, "Boeing seen in 
advanced talks to make 777X 
near Seattle", 4 November 2013  
EU-78 Boeing Presentation, "Introducing the 787", by Tom Dodt, 
September 2011  Boeing Presentation, 
"Introducing the 787", 
September 2011  
EU-79 Boeing, "Randy's Journ al: Arrivals", posted on 22 May 
2007 Boeingblogs, "Randy's Journal: 
Arrivals", 22 May 2007  
EU-82 RCW 82.32.550: "Commercial airplane," "component," 
and "superefficient airplane" – Definitions.  RCW Section  82.32.550(3)  
EU-83 Reuters, "Boeing hopeful of 77 7X deal, may build wings in 
Japan if rejected", 11 November 2013  Reuters, "Boeing hopeful of 
777X deal, may build wings in 
Japan if rejected", 11 November 
2013 
EU-84 Airbus, "How is an aircraft built? Production"  Airbus, "How is an aircraft built? 
Product ion" 
EU-86 Airbus, "How is an aircraft built? Final assembly and tests"  Airbus, "How is an aircraft built? 
Final assembly and tests"  
EU-87 Airbus Video, "The A350 XWB Final Assembly Line: 
efficiency in motion", 23 October 2012  Airbus Video, "The A350 XWB  
Final Assembly Line: efficiency in 
motion", 23 October 2012  
EU-88 Airbus Video, "A350 XWB final assembly: a step -by-step 
overview", 23 October 2012  Airbus Video, "A350 XWB final 
assembly: a step -by-step 
overview", 23 October 2012  
EU-91 BBC Documentary, "How to Build A Super Jumbo Wing", 
24 August 2013  BBC Documentary, "How to Build 
A Super Jumbo Wing", 24 
August 2013  
EU-92 RCW 82.08.020: Tax imposed – Retail sales – Retail car 
rental. (Contingent expiration date.)  RCW Section 82.08.020  
EU-95 Department  of Revenue, Washington State, 2016 Tax 
Exemption Study: A Study of Tax Exemptions, Exclusions 
or Deductions From the Base of a Tax; a Credit Against a 
Tax; a Deferral of a Tax; or a Preferential Tax Rate: As 
Authorized by RCW 43.06.400  2016 Tax Exemption Study, 
Washington State Department of 
Revenue  
EU-97 Boeing Video, "Boeing 747 Dreamlifter", 17 January 2009  Boeing Video, "Boeing 747 
Dreamlifter", 17 January 2009  
EU-104 Airbus Video, "A380 from dream to reality: Final 
assembly", 18 October 2007  Airbus Video, "A380 from dream 
to reality: Final assembly", 18 
October 2007  
EU-110 Washington State House Finance Committee, Video, 
"Testimony of Governor Inslee before House Finance 
Committee", 7 November 2013  Washington State House Finance 
Committee, Video, "T estimony of 
Governor Inslee before House 
Finance Committee", 7 
November 2013  
EU-121 The Seattle Times, "Boeing must disclose tax -break 
savings, state Department of Revenue rules", by Jim 
Brunner, originally published January 7, 2016 / Updated 
January 8, 2 016 The Seattle Times, "Boeing must 
disclose tax -break savings, state 
Department of Revenue rules", 8 
January 2016  
EU-122 Boeing Frontiers, "Supersize! The 747 -700 will be 
transformed into an even larger freighter to save 
significant time and costs in tra nsporting 787 assemblies", 
by Tom Koehler, June 2005  Boeing Frontiers, "The 747 -700 
will be transformed into an even 
larger freighter", June 2005  WT/DS487/R  
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  Panel Exhibit  Title Short Title  
USA-1 [[BCI]] Boeing expert statement (BCI)  
USA-2 [[BCI]] Boeing, Make/Buy Model 777 -
300ER, July 2007 (BCI)  
USA-6 Boeing Backgrounder, "The Boeing 777 Family: Preferred 
by Passengers and Airlines around the World", April 2015  Boeing 777 Backgrounder  
USA-8 [[BCI]] Boeing, 777X Make/Buy, All 
Commodities, Status as of 17 
December 2014 (BCI)  
USA-11 Department of Revenue, Washington State, Question: 
What are the major B&O tax classifications?  Question: What are the major 
B&O tax classifications?, 
Washington State Department of 
Revenue  
USA-12 Department of Revenue, Washington State, Retail Sales 
Tax Retail Sales Ta x Explanation, 
Washington State Department of 
Revenue  
USA-13 Department of Revenue, Washington State, Services 
subject to sales tax  Services Subject to Sales Tax, 
Washington State Department of 
Revenue  
USA-14 Department of Revenue, Washington State, Digi tal 
Products including Digital Goods  Digital Products including Digital 
Goods, Washington State 
Department of Revenue  
USA-15 Shorter Oxford English Dictionary on Historical Principles , 
5th edition, Volume 2, p. 2044  Shorter Oxford English 
Dictionary , 5th edition, Volume 2, 
p. 2044  
USA-16 Department of Revenue, Washington State, Local Sales, 
Use Tax Rates and Changes (Effective January 1 – March 
31, 2016)  Local Sales, Use Tax Rates and 
Changes, Washington State 
Department of Revenue  
USA-17 RCW 82.12.020: Use tax imposed. ( Effective until January 
1, 2016. ) RCW Section 82.12.020  
USA-18 RCW 82.12.035: Credit for retail sales or use taxes paid 
to other jurisdictions with respect to property used. 
(Effective until January 1, 2016. ) RCW Section 82.12.035  
USA-19 Department of Revenue, Washington State, Use Tax  Use Tax Explanation, 
Washington State Department of 
Revenue  
USA-20 RCW 84.36.005: Property subject to taxation  RCW Section 84.36.005  
USA-21 RCW 84.36.010: Public, certain public -private and tribal 
proper ty exempt. ( Effective until January 1,  2022. ) RCW Section 84.36.010  
USA-22 RCW 84.36.020: Cemeteries, churches, parsonages, 
convents, and grounds. ( Effective until December 31,  
2020. ) RCW Section 84.36.020  
USA-23 RCW 84.36.477: Business inventories.  RCW Section 84.36.477  
USA-25 Department of Revenue, Washington State, Leasehold 
excise tax  Leasehold Excise Tax 
Explanation, Washington State 
Department of Revenue  
USA-26 RCW 82.29A.030: Tax imposed —Credit —Additional tax 
imposed. ( Effective until January 1, 2019. ) RCW Section 82.29A.030  
USA-28 Le Nouveau Petit Robert , 2009, pp. 2034 -2035 Le Nouveau Petit Robert , 2009, 
pp. 2034 -2035 
USA-29 Diccionario de la Lengua Española , 2001, pp. 1839 -1840 Diccionario de la Lengua 
Española , 2001, pp. 1839 -1840 
USA-30 Boeing, 777X Content Sources, Major Structures & 
Propulsion, Status as of 27 October 2015  Boeing, 777X Content Sources, 
Major Structures & Propulsion, 
Status as of 27 October 2015  
(BCI)  
USA-31 RCW 82.04.440: Credit – Persons taxable on multiple 
activities.  RCW Section 82.04.440  
USA-32 [[BCI]] Boeing letter to the Director of 
the Washington State 
Department of Revenue (BCI) , 
9 July 2014  WT/DS487/R  
BCI deleted as indicated [[BCI]]  
- 12 - 
 
  Panel Exhibit  Title Short Title  
USA-33 Collective Bargaining Agreement between Boeing and the 
International Association of Machinists and Aerospace 
Worker s, AFL -CIO, of 2 November 2008, including 
Contract Extension and Modification Agreements of 7 
December 2011 and 3 January 2014  Collective Bargaining Agreement 
between Boeing and the 
International Association of 
Machinists and Aerospace 
Workers, 2 November 2008, 
including Contract Extension and 
Modification Agreements, 7 
December 2011 and 3 January 
2014 
USA-34 [[BCI]] Addendum No. 14 to the 1991 
Boeing Everett Mitigation 
Decision Document SEPA #14 -
009, 27 March 2014  (BCI)  
USA-35 [[BCI]] Addendum No. 15 to the 1991 
Boeing Everett Mitigation 
Decision Document SEPA #14 -
011 – Composite Wing 
Manufacturing Facility, 
30 May 2014 (BCI)  
USA-37 RCW 82.04.120: "To manufacture".  RCW Section 82.04.120  
USA-38 Supreme Court of Washington, Citizens Alliance for 
Property Rights Legal Fund v. San Juan County et al. 
(2015)  Supreme Court of Washington, 
Citizens Alliance for Property 
Rights Legal Fund v. San Juan 
County et al. (2015)  
USA-42 Mitsubishi Heavy Industries, Boeing 787  Mitsubishi Heavy Industries, 
Boeing 787  
   
USA-51 Shorter Oxford English Dictionary , 6th edition , pp. 2044-
2045 Shorter Oxford English 
Dictionary , 6th edition , pp. 2044-
2045 
USA-52 Spirit AeroSystems, "Spirit celebrates completion of first 
Boeing 737 MAX fuselage  Spirit AeroSystems, "Spirit 
celebra tes completion of first 
Boeing 737 MAX fuselage  
USA-63 Chapter 1.04 RCW  Chapter 1.04 RCW  
USA-64 Chapter 82.08 RCW: Retail Sales Tax  RCW Chapter 82.08  
USA-65 Department of Revenue, Washington State, 2016 Tax 
Exemption Study, Introduction and Summary of F indings  2016 Tax Exemption Study, 
Introduction and Summary of 
Findings,  Washington State 
Department of Revenue  
USA-67 [[BCI]] Boeing 787 customs invoice and 
related shipment documentation 
(BCI)  
USA-68 Boeing Frontiers, "Wings around the world", by Adam 
Morgan, March 2006  Boeing Frontiers, "Wings around 
the world", March 2006  
USA-73 [[BCI]] Email from Erik Zahn, Boeing 
Commercial Airplanes, 15 April 
2016 (BCI)  
USA-84 Washington Court of Appeals, Nationscapital Mortgage 
Corporation et al. v. Department of  Financial Institutions, 
133 Wn. App. 723, 737 -738 (Wash. Ct. App. 2006), June 
2006 Washington Court of Appeals, 
Nationscapital Mortgage 
Corporation et al. v. Department 
of Financial Institutions, June 
2006 
 WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  ABBREVIATIONS USED I N THIS REPORT  
Abbreviation  Description  
B&O tax  Business and occupation tax  
BCI Business Confidential Information  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes  
ESSB 5952  Washington State Legislature Engrossed Substitu te Senate Bill 5952  
GATT 1994  General Agreement on Tariffs and Trade 1994  
HB 2294  Washington State Legislature House Bill 2294  
HB 2466  Washington State Legislature House Bill 2466  
HSBI Highly Sensitive Business Information  
RCW Revised Code of Washingt on (Washington State)  
SCM Agreement  Agreement on Subsidies and Countervailing Measures  
SSB 6828  Washington State Substitute Senate Bill 6828  
Vienna Convention  Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155 
UNTS 331; 8 Intern ational Legal Materials 679  
WAC Washington Administrative Code (Washington State)  
WTO World Trade Organization  
 WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  1  INTRODUCTION  
1.1  Complaint by the European Union  
1.1.  On 19 December 2014 , the European Union requested consultations with the United States 
pursuant  to Articles 4.1 and 30 of the Agreement on Subsidies and Countervailing Measures 
(SCM  Agreement ); Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 
(GATT  1994), to the extent incorporated by Article 30 of the SCM Agreement ; and Article 4 of the 
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) , with respect 
to the measures and claims set out below.1 
1.2.  Consultations were held on 2 February 2015. These consultations did not lead to a mutually 
satisfactory solutio n.2 
1.2  Panel establishment and composition  
1.3.  On 12 February 2015 , the European Union requested the establishment of a panel pursuant 
to Articles 4.4 and 30 of t he SCM Agreement, Article XXIII:2 of the GATT 1994 (to the extent 
incorporated by Article 30 of the S CM Agreement), and Article 6 of the DSU (as modified by 
Article  4.4 of the SCM Agreement, and in light of Article 1.2 and Appendix 2 to the DSU),  with 
standard terms of reference.3 At its meeting on  23 February 2015 , the Dispute Settlement Body 
(DSB) estab lished a panel pursuant to the request of the European Union , in accordance with the 
provisions of Article 4.4 of the SCM Agreement and Article  6 of the DSU , with standard terms of 
reference .4 
1.4.  The Panel's terms of reference are the following:  
To examine, i n the light of the relevant provisions of the covered agreements cited by 
the parties to the dispute, the matter referred to the DSB by the European Union  in 
document WT/DS 487/2  and to make such findings as will assist the DSB in making 
the recommendations  or in giving the rulings provided for in those agreements.5 
1.5.  On 13 April 2015 , the European Union requested the Director -General to determine the 
composition of the panel, pursuant to Article 8.7 of the DSU . On 22 April 2015 , the Director -
General according ly composed the Panel as follows:  
Chairperson:  Mr Daniel Moulis  
 
Members:   Mr Terry Collins -Williams  
   Mr Wilhelm Meier  
 
1.6.  Australia; Brazil; Canada; China; India; Japan; the Republic of Korea (Korea) ; and the 
Russian Federation  (Russia) notified their inte rest in participating in the Panel proceedings as third 
parties.  
1.3  Panel proceedings  
1.3.1   General  
1.7.  The commencement of the Panel's work was delayed as a result of a lack of available 
resources in the World Trade Organization (WTO) Secretariat .6 The parties were no tified of this 
circumstance . The Panel held its organizational meeting with the parties on 4 December  2015. 
                                               
1 See Request for Consultations by the European Union, WT/DS487/1, 23 December 2014.  
2 See Request for the Establishment of a Panel by the European Union, WT/DS487/2, 13 February 20 15. 
3 Ibid. 
4 See Dispute Settlement Body, Minutes of Meeting held in the Centre William Rappard on 
23 February  2015, WT/DSB/M/357, 17 April 2015, pp. 14 -15. 
5 Constitution of the Panel Established at the Request of the European Union – Note by the Secreta riat, 
WT/DS487/3 , 23 April 2015.  
6 Communication from the Panel to the DSB, WT/DS487/ 4, 30 September 2015.  WT/DS487/R  
BCI deleted as indicated [[BCI]]  
- 15 - 
 
  After consultation with the parties, the Panel adopted its Working Procedures  on 
7 December  20157, its timetable on 16 December 2015 , and a revised timetable on 19 April 2016 . 
1.8.  The European Union filed its first written submission  on 9 December 2015 . The United States 
filed its first written submission on 19 January 2016 . Third -party submissions were received on 
26 January  2016 from Australia, Brazil, Canada, China , and Japan . 
1.9.  The Panel held a first substantive meeting with the parties on 24 and 25 February 2016 . A 
session with the third parties took place on  25 February 2016 , in which oral statements were made 
by Australia, Brazil, China, and Japan . Written responses to questions posed by the Panel were 
received on 9 March 2016  from the European Union, the United States, Australia, Brazil, Canada, 
China , and Japan . 
1.10.  The parties filed their second written submissions on 18 March 2016 . 
1.11.  The Panel held a sec ond substantive meeting with the parties on  5 April 2016 . Written 
responses to questions posed by the Panel were received on 18 April 2016. Comments by the 
parties on each other's responses to questions were received on 25 April 2016.  
1.12.  On 9 May 2016 , the Pa nel issued the descriptive sections of its draft r eport to the parties. 
Parties provided comments to the descriptive sections of the Panel report on 17 May 2016.  
1.13.  The Panel issued its Interim Report to the parties on  6 July 2016. On 15 July 2016, the 
Europe an Union and the United States each submitted written requests for review of precise 
aspects of the interim report. Neither party requested an interim review meeting. On 20 July 2016, 
each of the parties submitted comments on the other's requests for revie w. The Panel issued its 
Final Report to the parties on  29 July 2016.  
1.3.2   Changes to the timetable  
1.14.  On 5 January 2016, the United States requested an adjustment to the timetable so that the 
deadline for the second written submission was set no earlier than 25 Ma rch 2016 (one week later 
than originally scheduled). The European Union commented on the United States' request on 
7 January 2016. On 15 January 2016, the Panel informed the parties that it had declined the 
United States' request for an extension of the de adline for the second written submissions.8 
1.15.  In the course of the second meeting with the parties on 5 April 2016, the Panel informed the 
parties that in order to have sufficient time to assess the legal and factual issues in the dispute, 
the timetable woul d have to be adjusted so that the interim report was issued to parties on 
15 June 2016  and all subsequent dates were similarly adjusted . The parties had no comments to 
this proposal. On 19 April 2016, the Panel issued the revised timetable.  
1.16.  On 28 April 201 6, the United States requested an opportunity to comment on certain factual 
evidence and arguments that were submitted by the European Union with its comments on the 
United States' responses to Panel questions. The Europea n Union commented on the 
United  States' request on 2 May 2016. On 4 May 2016, the Panel informed the parties that it had 
declined the United States' request.9 
1.17.  On 13 June 2016, the Panel informed the parties that it intended to issue the interim report 
to parties on 6 July 2016 and to adjus t all subsequent dates similarly. The European Union 
submitted comments to this notice on 14 June. On 15 June 2016, the Panel issued a revised 
timetable.  
1.18.  On 12 July 2016, the United States requested a  two-day extension for parties to request the 
review of precise aspects of the interim report . On the same date, the Europea n Union 
communicated its agreement to the United  States' request , under the understanding that 
subsequent dates on the schedule would not change. On 13 July 2016, the Panel informed the 
                                               
7 See the Panel's Working Procedures in Annex A -1. 
8 See letter from the Panel in Annex D -1. 
9 Ibid. WT/DS487/R  
BCI deleted as indicated [[BCI]]  
- 16 - 
 
  parties that it had extended by two days the deadline for parties to request the review of precise 
aspects of the interim report , and that subsequent deadlines  had not been revised . The Panel 
issued a revised timetable to the parties.  
1.3.3   Additional Working Procedures for the Protection of Business Confidential 
Information (BCI)  and Highly Sensitive Business Information (HSBI)  
1.19.  At the request of the United States, and having consid ered comments from the 
European  Union, the Panel adopted Additional Working Procedur es for the Protection of Business 
Confidential Information and Highly Sensitive Business Information  (BCI/HSBI Procedures) on 
13 January 2016.10 
1.3.4   Additional Working Procedures for the Partial Opening to the Public of the 
Meetings of the Panel  
1.20.  On 22 February 2016 and 23 March 2016 , at the request of the United States, and noting 
the European Union's agreement, the Panel adopted additional working procedures for the partial 
opening to the public of the meetings of the Panel. These procedures provided for public  viewing of 
a video -recording of non-confidential portions of each meeting by means of  delayed broadcast . 
Closed session s were foreseen for the parties to address BCI or HSBI and for those  third parties 
that had requested not to make their statements in th e video -recorded session for public  
viewing .11 The public screening of the video -recording of the non -confidential portions of the Panel 
meetings took place on 17 and 18 May 2016.  
2  FACTUAL ASPECTS  
2.1.  The claims brought by the European Union concern tax -related provisions  for civil aircraft 
provided by the state of Washington  in the United States , as amended by Engrossed Substitute 
Senate Bill 5952 (ESSB 5952), Chapter 2, Laws of 2013 3rd Special Session, 2014 Wash. Sess. 
Laws 2.  Specifically, this dispute concer ns the following tax -related provisions  contained in the  
Revised Code of Washington (RCW):  
a. a 0.2904% business and o ccupation tax rate with respect to the manufacture or sale of 
commercial airplanes, contained in RCW Section 82.04.260(11) ; 
b. tax credits for p roperty taxes and leasehold excise taxes on commercial airplane 
manufacturing facilities, contained in RCW Section 82.04.4463;  
c. tax credits for aerospace product development, contained in RCW Section 82.04.4461;  
d. sales tax exemption for computer hardware, so ftware, and peripherals, contained in 
RCW Section 82.08.975;  
e. sales tax exemption for construction services and materials, contained in 
RCW Section  82.08.980;  
f. use tax exemption for computer hardware, software, and peripherals, contained in 
RCW Section  82.12 .975;  
g. use tax exemption for construction services and materials, contained in 
RCW Section  82.12.980;  
h. leasehold excise tax exemption, contained in RCW Section 82.29A.137; and  
i. leasehold er property tax exemption, contained in RCW Section 84.36.655.  
                                               
10 See the Additional Working Procedures for the Protection of BCI/HSBI in Annex A -2. 
11 See the A dditional Working Procedures for the partial opening to the public of the meetings of the 
Panel in Annexes A -3 and A -4. WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  2.2.  The Europe an Union clai ms that the availability of the above tax incentives is subject to the 
conditions in Sections  2, 5, and 6 of ESSB 5952 (as codified at RCW Sections 82.32.850 and 
82.04.260(11)(e)(ii)) . These conditions relate to a decision on the initial sitin g of a "significant 
commercial airplane manufacturing program" (as defined in the relevant legislation12) in the state 
of Washington, as well as to the future siting outside the state of Washington of "any final 
assembly or wing assembly of any version or v ariant of a commercial airplane that is the basis of a 
siting of a significant commercial airplane manufacturing program" .13 
3  PARTIES' REQUESTS FO R FINDINGS AND RECOM MENDATIONS  
3.1.  The European Union  requests that the Panel find that each of the challenged 
Washi ngton State tax incentives , as amended and extended by ESSB 5952,  constitutes a subsidy 
that is prohibited pursuant to Articles 3.1(b) and 3.2 of the SCM Agreement  due to being 
contingent on the use of domestic over imported goods. The European Union furth er requests, 
pursuant to Article  4.7 of the SCM Agreement, that the Panel recommend that the United States 
withdraw the subsidies without delay.  
3.2.  The United States requests that the Panel reject the European Union's  claims in this dispute 
and find that the challenged measures are not inconsistent with the United States' obligations 
under Article s 3.1(b) and 3.2 of the SCM Agreement . 
4  ARGUMENTS OF THE PAR TIES  
4.1.  The arguments of the parties are reflected in their executive summaries, provided to the 
Panel in acco rdance with paragraph 20 of the Working Procedures adopted by the Pan el (see 
Annexes B -1, B-2, B-3, and B-4). 
5  ARGUMENTS OF THE THI RD PARTIES  
5.1.  The arguments of Australia, Brazil, Canada, China, and Japan  are reflected in their executive 
summaries, provided i n accordance with paragraph 21 of the Working Procedures adopted by the 
Panel (see Annexes C -1, C-2, C-3, C-4, and C-5). India, Korea, and Russia  did not submit written 
or oral arguments to the Panel.  
6  INTERIM REVIEW  
6.1.  On 6 July 2016, t he Panel issued its Int erim Report to the parties . On 15 July 2016, the 
European Union and the United States each submitted written requests for review of precise 
aspects of the Interim Report. Neither party requested an interim review meeting. On 
20 July 2016, each of the parti es submitted comments on the other's requests for review.  
6.2.  In accordance with Article 15.3 of the DSU, this section sets out the Panel's response to the 
parties ' requests for review of precise aspects of the Report made at the interim review stage. The 
parties' requests for substantive modifications are discussed below, generally in sequence 
according to the paragraphs to which the requests pertain.  
6.3.  The numbering of some of the paragraphs and footnotes in the Final Report has changed 
from the numbering in th e Interim Report. The discussion below refers to the numbering in the 
Interim Report and, where it differs, includes the corresponding numbering in the Final Report.  
6.4.  The United States notes that paragraph 7.4  summarizes the requests of the United States 
"but omits an issue raised by the United States for the Panel's consideration regarding the Panel's 
terms of reference". In particular, the United States requests inclusion of a reference to its opening 
                                               
12 In turn, "significant commercial airplane manufacturing program" is defined as: "[A]n airplane 
program in which the following products, including final assembly, 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 e xisting model, of a commercial airplane; and (ii)  Fuselages and wings of a new 
model, or any version or variant of an existing model, of a commercial airplane." ESSB 5952 Sections 2(2)(c) 
and (d), codified at RCW Sections  82.32.850(2)(c) and (d) (Exhibit s EU-3 and EU-58). 
13 ESSB 5952 Sect ions 5(11)(e)(ii) and 6 (11)(e)(ii), codified at RCW Section  82.04.260(11)(e)(ii) 
(Exhibits  EU-3 and EU-22). WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  statement at the first meeting of the Panel, in which t he United States noted that, prior to the 
establishment of this Panel, the European Union had maintained that the measures at issue in this 
dispute were properly within the terms of reference of the compliance panel in the proceeding 
under Article 21.5 of the DSU in US – Large Civil Aircraft (2nd complaint) .14 The United States 
identifies paragraph 7.41  of the Interim Report (paragraph 7.39 of this Report) as "a logical 
place for the Panel to address the terms of reference issue identified by the United Stat es".15 The 
European Union considers that this is an inappropriate request for review of an interim report and 
that it should be rejected by the Panel. The European  Union requests that, to the extent that the 
Panel elects to include a discussion on the Unite d States' statements related to terms of reference, 
the Panel reflect "the United States' repeated statements that it did not consider any of the 
measures to be outside the [Panel's] terms of reference".16 The Panel declines the United States' 
request for i nclusion of a reference to this issue in the Panel's findings. In its statement to the 
Panel, the United States explicitly clarified that " the United States does not itself consider that any 
of the measures at issue are outside the Panel's terms of referen ce".17 Although the Panel 
recognizes that the vesting of jurisdiction is a fundamental issue that may need to be considered 
even in the absence of any objection by a party, the Panel does not find any reason to question 
the vesting of its jurisdiction in th e present case. Moreover, apart from any potential relevance of 
statements by a party made in another dispute, it is an uncontested fact that the measures at 
issue in this dispute are not presently being considered in any other dispute. The Panel addresses  
the legislative background and scope of the measures within its terms of reference in 
Section  7.3.3, and does not consider any additional discussion of the issue raised by the United 
States to be necessary.  
6.5.  The United States proposes an addition at the en d of the second sentence of paragraph  7.7 
to "elaborate the function of the Panel" in examining municipal law, which according to the 
United  States is "to determine the proper factual predicate against which WTO -consistency will be 
judged".18 The European U nion considers that the addition proposed by the United States is not 
necessary, as the current formulation is an accurate description of the existing jurisprudence on 
the matter.19 The United States also requests a revision to paragraph  7.8 to "avoid imply ing that 
an analysis of the meaning of a Member's municipal law could disregard the interpretive rules of a 
Member's domestic legal system".20 The European Union considers that the modification proposed 
by the United States is not necessary, as the current formulation is an accurate and succinct 
description of the existing jurisprudence relating to the identification of the meaning and content 
of domestic law.21 The Panel considers th at paragraphs 7.7 and 7.8 adequately refer to 
Appellate  Body reports and con sequentl y does not consider the elaboration of the issue requested 
by the United States to be necessary . 
6.6.  The European Union proposes to consolidate the discussions in paragraphs 7.7-7.8 and 
7.15-7.16 on a panel's role in examining the meaning of municipal law.22 The United States 
recalls its comments on paragraphs 7.7 -7.8 and  requests that the Panel take those comments into 
account in making any modifications in response to the European Union's request.23 The Panel has 
consolidated this discussion to avoid du plication by deleting paragraphs 7.15 and 7.16 of the 
Interim Report.  
6.7.  The European Union requests changes to paragraphs 7.17, 7.40, 7.81 -7.84, and 7.245  of 
the Interim Report ( paragraphs 7.15, 7.38, 7.79 -7.82, and 7.243 of this Report) , to "reflect the 
uncontested fact that the challenged aerospace tax incentives existed in Washington  State prior to 
                                               
14 United  States'  request for review of the Panel 's Interim Report , paras . 2-3. 
15 Ibid. para. 12. 
16 European Union 's comments on United  States'  request for review of the Panel 's Interim Report , 
para. 1. 
17 United States ' opening statement at the first meeting of the Panel, para. 34.  
18 United  States'  request for review of the Panel 's Interim Report , paras . 4-5. 
19 European  Union 's comments on United  States'  request for review of the Panel 's Interim Report , 
para. 2. 
20 United  States'  request for review of the Panel 's Interim Report , para . 6. 
21 European Union 's comments on United  States'  request for review of the Panel 's Interim Report , 
para. 3. 
22 European Union 's request for review of the Panel 's Interim Report , para. 5 . 
23 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 6. WT/DS487/R  
BCI deleted as indicated [[BCI]]  
- 19 - 
 
  ESSB 5952, which amended the terms of those incentives".24 The United  States has no objection 
to the revisions requested by the European Union.25 The Panel has re vised the paragraphs 
identified by the European Union to refer to the measures "as amended and extended by" 
ESSB  5952.  
6.8.  The United States requests revisions to paragraph 7.36  of the Interim Report 
(paragraph  7.34 of this Report) to reflect its view of the l egislative history of the measures at issue 
in this dispute and the measures at issue in US – Large Civil Aircraft (2nd complaint) .26 The 
European Union requests that the Panel reject the United States' request for modification, which in 
its view "is predic ated on a series of erroneous factual premises".27 In the light of the parties' 
comments, the Panel has made minor adjustments to the paragraph.  
6.9.  Both the European Union and the United States suggest changes to paragraph s 7.39 and 
7.42 of the Interim Report (paragraphs 7.37 and 7.40 of this Report) to provide a more accurate 
characterization of legislation in Washington State.28 The Panel has made consequential revisions 
to paragraphs 7.39 and 7.42 of the Interim Report in the light of the parties' comments.  
6.10.  The United States requests the elimination of a sentence in paragraph 7.55  of the Interim 
Report (paragraph 7.53 of this Report) , which states that an entitlement granted by virtue of the 
relevant legislation "could only  be re -established through further le gislation revoking or amending 
the previous legislation". The United States notes that "revoking or amending the particular 
legislation at issue are not the only alternatives" and revenue may no longer be foregone, for 
example, if the measure providing for  the benchmark tax were changed.29 The European Union 
considers that the sentence, as currently worded, is correct.30 In the light of the parties' 
comments, the Panel has removed the word "only" from the sentence identified by the 
United  States.  
6.11.  The European  Union requests in paragraphs 7.89, 7.104, 7.117, 7.113, 7.139, and 
7.148  of the Interim Report (paragraphs 7.87, 7.102, 7.115, 7.131, 7.137, and 7.146 of this 
Report) the addition of a reference to the objectives of HB 2294 (along with the existing refere nce 
to ESSB 5952) in discussing the "objective reasons" for the relevant tax treatment of each 
aerospace tax measure.31 The United States does not agree with the European Union's request, 
and considers that it is unclear what relevance the European Union as cribes to the objectives of 
HB 2294 in the context of the relevant paragraphs. As part of its comments on the 
European  Union's request, the United States requests a modification of paragraph 7.65  of the 
Interim Report (paragraph 7.63 of this Report) , as le gislation such as ESSB 5952 does not amend 
or extend previous legislation but  rather amends or extends tax treatment provided for in the 
Revised Code of Washington , which itself reflects earlier legislation .32 The Panel does not consider 
the additional refe rences requested by the European  Union to be necessary. The paragraphs 
identified by the European Union clarify the "objective reasons" for each of the aerospace tax 
measures with supporting cross -references to the more extensive discussion in the context of the 
B&O aerospace tax rate, including reference to the objectives of prior legislation. The Panel has 
made the change requested by the United States  in paragraph 7.63 of this Report . 
6.12.  The United States requests a revision of the first sentence of paragra ph 7.1 42 of the 
Interim Report (paragraph 7.140 of this Report) to reflect that, as noted in the remainder of the 
paragraph, the leasehold excise tax is an excise tax, and not a property tax.33 The European Union 
                                               
24 European Union 's request for review of the Panel 's Interim Report , para. 6 . 
25 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 7. 
26 United  States'  request for review of the Panel 's Interim Report , para . 8. 
27 European Union 's comments on United  States'  request for review of the Panel 's Interim Report , 
para. 4. 
28 European Union 's request for review of the Panel 's Interim Report , paras. 8 -10; United  States'  
request for review of the Panel 's Interim Report , paras . 10-11 and 13 . 
29 United  States'  request for revi ew of the Panel 's Interim Report , para . 14. 
30 European Union 's comments on United  States'  request for review of the Panel 's Interim Report , 
para. 6. 
31 European Union 's request for review of the Panel 's Interim Report , para. 11.  
32 United  States'  comments on  European Union 's request for review of the Panel 's Interim Report , 
paras.  11-12. 
33 United  States'  request for review of the Panel 's Interim Report , para . 15. WT/DS487/R  
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  requests that the Panel reject the United St ates' proposed modification and retain the current 
language. In the European Union's view, the leasehold excise tax is functionally a property tax. To 
the extent that the United States wishes to clarify that the leasehold excise tax is not formally a 
"property tax " within the specific meaning of the Revised Code of Washington, the European Union 
considers that the Panel could replace the phrase "property tax " in the sentence at issue with the 
phrase "tax on property ", when referring to the leasehold excise tax.34 The Panel has partially 
modified the first sentence of paragraph 7.142  of the Interim Report to accommodate the 
United  States' request. However, the Panel has used the word "supplements" instead of 
"complements" (which was the word suggested by the U nited States) to describe the relationship 
of the "leasehold excise tax" to the "property taxes" . 
6.13.  The European Union requests in footnote 263 to paragraph 7.143  of the Interim Report 
(footnote 300 to paragraph 7.141 of this Report) , in relation to the refe rence to the parties ' 
arguments on the quantitative coverage of property tax exemptions, clarification of the cross -
reference to the discussion of the parties' arguments concerning sales and use tax exemptions.35 
The United States has no comment on the Euro pean Union's request.36 The Panel has made the 
requested clarification to footnote 263  of the Interim Report . The Panel has also provided a 
supplemental reference to the parties' arguments in a footnote to the last sentence of 
paragraph  7.121 of this Report . 
6.14.  The European Union requests a revision of paragraph 7.176  of the Interim Report 
(paragraph 7.174 of this Report) to refer to "wing assembly", rather than "final assembly of a 
wing", in the description of its argument as to the potential triggering of the  Second Siting 
Provision.37 The United States has no objection to the European  Union's request.38 The Panel has 
made the requested correction to paragraph 7.176  of the Interim Report . 
6.15.  The United States requests a revision of paragraph 7. 187 of the Interim Re port 
(paragraph 7.185 of this Report) to better capture the substance of the United States' argument in 
rejecting the European Union's interpretation of the word "use" in Article 3.1(b) of the 
SCM Agreement.39 The European Union makes no comment on the Unit ed States' request. The 
Panel has made the requested change.  
6.16.  The European Union requests rephrasing paragraph 7.231 of the Interim Report 
(paragraph 7.229 of this Report), specifically by removing the word "challenged" before 
"aerospace tax measures" , so as not to inaccurately convey that the measures challenged by the 
European Union are the aerospace tax incentives as they stood before the amendments and 
extensions effected by ESSB 5952.40 The United States agrees with the European Union's 
explanation and c onsiders further that the first sentence in paragraph 7.231 of the Interim Report 
should be revised as explained in the United States' comments on paragraph 7.36 of the Interim 
Report discussed above.41 The Panel has made the modification requested by the E uropean Union. 
The Panel has added a footnote to the first sentence of paragraph 7.229 of this Report referring to 
the earlier discussion of the legislative background of ESSB 5952, but declines to make the 
additional changes to the sentence requested by t he United States.  
6.17.  The European Union requests a change in paragraph 7.231  of the Interim Report of the 
phrase " the entry into force of the amended and extended aerospace tax measures was 
contingent " to instead state " the entry into force of the amend ment and exten sion of the  
aerospace tax measures was contingent ". According to the European Union, this change would 
clarify that it was only the amendment and extension of the tax measures that were conditional 
upon fulfilment of the First Siting Provision, rat her than the entirety of the aerospace tax 
                                               
34 European Union 's comments on United  States'  request for review of the Panel 's Interim Report , 
para. 7. 
35 European Union 's request for review of the Panel 's Interim Report , para. 13.  
36 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 14. 
37 European Union 's request for review of the Panel 's Interim Report, para. 14.  
38 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 14. 
39 United  States'  request for review of the Panel 's Interim Report , para. 16.  
40 European Union 's request for review of the Panel 's Interim Report , para. 16.  
41 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 17. WT/DS487/R  
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  measures. The European Union requests similar changes to paragraphs 7.289 and 7.315(a)  of 
the Interim Report to refer to the entry into force of the amendment and extension by ESSB 5952 
of the aerospace tax measur es.42 The United States has no objection to the European Union's 
requests.43 The Panel has made the requested modifications to paragraphs 7.231, 7.289, and 
7.315(a)  of the Interim Report (paragraphs 7.229, 7.287, and 7.313(a) of this Report) . 
6.18.  The European Un ion requests an additional citation in footnote 450 to paragraph 7.243  
of the Interim Report (footnote 488 to paragraph 7.241 of this Report) to its submissions on the 
point that the measures at issue do not place any conditions on the use of elements or 
components of commercial airplanes, other than wings and fuselages.44 The United  States has no 
objection to the European Union's request.45 The Panel has made the requested addition to the 
footnote.  
6.19.  The European Union requests a modification of paragraph 7.28 9 of the Interim Report 
(paragraph 7.287 of this Report) to reflect that only wings or fuselages, not both, are required to 
be made of carbon fibre as noted elsewhere by the Panel.46 The United States has no objection to 
the European Union's request.47 The P anel has made the requested modification.  
6.20.  The European Union requests inclusion in paragraph 7.352  of the Interim Report 
(paragraph 7.350 of this Report) of references to its submissions and exhibits that, in addition to 
evidence related to the 777X aircra ft programme, "would support the more general proposition in 
relation to the aerospace industry" regarding the variety of aircraft manufacturing processes, as 
well as continuing innovation within the aerospace industry.48 The United States does not consider  
that adding the requested citations would provide additional clarity to the report, as they are not 
"illustrative for the purposes of the Panel's sentence".49 The Panel does consider them to be 
illustrative of the statements made in the paragraph and there fore has included the references 
identified by the European Union.  
6.21.  The United States requests a revision of paragraph 7. 358 of the Interim Report 
(paragraph 7.356 of this Report) as, in its view, the word "coincident" used in the paragraph "does 
not accura tely capture the sequence of events" of Boeing's decision to site the 777X aircraft 
programme in Washington State. The United States also considers the same sentence "problematic 
in its reference to 'certain wing structures that the same manufacturer had p reviously imported for 
other commercial airplane manufacturing programmes '."50 The European Union requests that the 
Panel reject the United States' request for modification. In the European Union's view, the 
statement at issue is a "factual finding … based on an objective assessment of the evidence that 
the Parties placed before the Panel, and should not be rewritten based on the United States' own 
view of the evidence".51 In the light of the parties' comments, the Panel has made modifications 
and clarificati ons to the sentence in question.  
6.22.  The European Union requests in paragraph 7.368  of the Interim Report (paragraph 7.366 
of this Report) an adjustment of the left parenthesis in the phrase "(outside Washington State, 
including overseas)" as the current formu lation "could potentially be misunderstood to indicate 
that the reference to Washington State is not an essential aspect of the explanation".52 The 
                                               
42 European Union 's request for review of the Panel 's Interim Report , para. 17.  
43 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 18. 
44 European Union 's request for review of the Panel 's Interim Report , para. 19.  
45 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 20. 
46 European Uni on's request for review of the Panel 's Interim Report , para. 21.  
47 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 22. 
48 European Union 's request for review of the Panel 's Interim Report , para. 22.  
49 United States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 23. 
50 United  States'  request for review of the Panel 's Interim Report , paras. 18 -20. 
51 European Union 's comments on United  States'  request for review of the Pan el's Interim Report , 
para. 8. 
52 European Union 's request for review of the Panel 's Interim Report , para. 23.  WT/DS487/R  
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  United  States has no comment on the European Union's request.53 The Panel has made the 
requested modification.  
6.23.  In addition to the requests discussed above , the Panel has made corrections for 
typographical and other non -substantive errors in the Interim Report, including t hose identified by 
the parties.  
7  FINDINGS  
7.1  Introduction  
7.1.  In this dispute, the European Union clai ms that the United States is acting inconsistently with 
the SCM Agreement by providing prohibited subsidies to the aerospace industry in the state of 
Washington . The European Union argues that these  subsidies are provided by the s tate of 
Washington in the United States.  
7.2.  More specifically, the European Union challenges seven aerospace tax measures54, namely: 
(i) a reduced business and occupation (B&O) tax rate for the manufacture and sale of commercial 
airplanes; (ii) a credit for the B&O tax for pre -producti on development of commercial airplanes and 
components; (iii) a credit for the B&O tax for property taxes on commercial airplane 
manufacturing facilities; (iv) an exemption from sales and use taxes for certain computer 
hardware, software, and peripherals; ( v) an exemption from sales and use taxes for certain 
construction services and materials; (vi) an exemption from leasehold excise taxes on port district 
facilities used to manufacture superefficient airplanes; and (vii) an exemption from property taxes 
for the personal property of port district lessees used to manufacture superefficient airplanes.  
7.3.  The European Union claims that the alleged subsidies are prohibited under Articles  3.1(b) 
and 3.2 of the SCM Agreement as subsidies that are contingent on the use  of domestic over 
imported goods. According to the European Union this contingency results from two siting 
provisions – a First Siting Provision and a Second Siting Provision – contained in Engrossed 
Substitute Senate Bill 5952 ( ESSB 5952 ). The European Un ion requests that the Panel recommend 
that the United States withdraw the subsidies without delay, on the basis that they are prohibited 
subsidies, as required by Article 4.7 of the SCM Agreement.  
7.4.  The United States requests the Panel to find that the Unite d States has acted consistently 
with its obligations under the SCM Agreement and to deny the relief requested by the 
European  Union . 
7.5.  This Report is organized as follows. Section 7.2 sets out the relevant principles regarding th e 
Panel's function, the burden of proof, and treaty interpretation. Section 7.3 provides a description 
and background of the measures at issue. In section  7.4, the Panel examines whether the 
measure s challenged by the European Union constitute subsidies within the meaning of Article 1 of 
the SCM Agreement. In section  7.5 the Panel turns to an examination of whether the challenged 
measures are prohibited under Article 3 of  the SCM Agreement. The Panel sets forth its 
conclusions and recommendation in section  8. 
7.2  Function of the Panel, Burden of Proof , and  Treaty Interpretation  
7.2.1   Function of the Panel  
7.6.  According to Article  11 of the DSU:  
The function of panels is to assist the DSB in discharging its responsibilities under this 
Understanding and the covered agreements. Accordingly, a panel should make an 
objective assessment of the matter before it, including an objective assessment of the 
                                               
53 United  States'  comments on European Union 's request for review of the Panel 's Interim Report , 
para. 24. 
54 These seven aerospace tax measures  correspond to the nine tax -related provisions cited in para.  2.1 
above. In the articulation of its claims, the European Union groups the sales and use tax exemption s for 
computer hardware, software, and peripherals  in subparagraphs  2.1(d) and (f); and the sales tax exemption s 
for construction services and materials  in subparagraphs 2.1(e) and (g).  WT/DS487/R  
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  facts of the case and the applicability of and conformity with the relevant covered 
agreements, and make such other findings as will assist the DSB in making the 
recommendations or in giving the rulings provided for in the covered agreements.  
7.7.  The P anel has been require d to examine municipal law in the course of exercising its 
functions under Article 11 of the DSU in this dispute . In this regard, the Appellate  Body has 
explained 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".55 The Appellate Body 
has added that:  
As part of their duties under Article 11 of the DSU, pa nels have the obligation to 
examine the meaning and content 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 and conformity with  the covered agreements. 
This obligation under Article 11 means that panels must conduct their own objective 
and independent assessment of the meaning of municipal law, instead of deferring to 
a party's characterization of such law.56 
7.8.  In respect of the type s and threshold of evidence that may be required to prove the WTO -
inconsistency of municipal law, the Appellate Body has explained that "[i]f the meaning and 
content of the measure are clear on its face,  then the consistency of the measure as such can be 
assessed on that basis alone. If, however, the meaning  … is not evident on its face, further 
examination is required."57 The nature and the extent of the evidence required to satisfy the 
burden of proof will vary from case to case.58 In some cases, the text o f the relevant legislation 
may be sufficient to clarify the content and the meaning of the relevant legal instruments. In other 
cases, the parties will also need to support their understanding of the content and meaning of such 
legal instruments with evide nce beyond the text of the instrument, such as evidence of consistent 
application of such laws,  pronouncements of domestic courts on the meaning of such laws, the 
opinions of legal experts, and the writings of recognized scholars.59 The task of a panel may be 
facilitated by agreement between the parties about the meaning of the law and its interpretation, 
being an interpretation that it is open for the panel to itself adopt. The Appellate Body has added 
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" as well as  "legal interpretation [s] given by a 
domestic court  or by a domestic administering agency as to the meaning of municipal law with 
respect to the measure being reviewed for consistency with the covered agreements ".60 
7.2.2   Burden of proof  
7.9.  The general rule in WTO dispute settlement is that the burden of proof rests upon the  party, 
whether complaining or defending, who asserts the affirmative of a particular claim or defence.61 
Following this principle, the Appellate Body has explained that the complaining party in any given 
dispute  should establish a prima facie case of incon sistency of a measure with a provision of the 
WTO covered agreements, before the burden of showing consistency with that provision or 
defending it under an exception must be assumed by the defending party.62 In other words, "a 
                                               
55 Appellate Body Report, US – Hot-Rolled Steel , para. 200. See also Appellate Body Report, US – 
Carbon Steel (India) , p. 4.445.  
56 Appella te Body Report, US – Carbon Steel (India) , p. 4.445 (citing Appellate Body Report, India – 
Patents (US) , para. 66).  
57 Appellate Body Report, US – Corrosion -Resistant Steel Sunset Review , para. 168.  
58 Appellate Body Report, US – Carbon Steel , para. 157. See  also Appellate Body Report, US – Carbon 
Steel (India) , p. 4.446.  
59 Appellate Body Reports, US – Countervailing and Anti -Dumping Measures (China) , para. 4.10 0; US –
 Carbon Steel , para. 157; US – Carbon Steel (India) , para. 4.446.  
60 Appellate Body Report, US – Countervailing and Anti -Dumping Duties (China) , para.  4.101. See also 
Appellate Body Report, US – Carbon Steel (India) , para. 4.446.  
61 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, p. 323 at p. 335.  
62 Appellate Body Report, EC – Hormones , para.  104. WT/DS487/R  
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  party claiming a violation of a provision of the WTO Agreement  by another Member must assert 
and prove its claim."63 
7.10.  A prima facie  case is "one which, in the absence of effective refutation by the defending 
party, requires a panel, as a matter of law, to rule in favour of the complainin g party presenting 
the prima facie case."64 To establish a prima facie case, the party asserting a particular claim must 
adduce evidence sufficient to raise a presumption that what is claimed is true. If the complaining 
party "adduces evidence sufficient to  raise a presumption that what is claimed is true, the burden 
then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the 
presumption."65 In this regard, the Appellate Body has stated that:  
[P]recisely how much and preci sely what kind of evidence will be required to establish 
such … [presumptions] will necessarily vary from measure to measure, provision to 
provision, and case to case.66 
7.11.  The Appellate Body has also stated that "[a] complaining party may not simply submit 
evidence and expect the panel to divine from it a claim of WTO -inconsistency. Nor may a 
complaining party simply allege facts without relating them to its legal arguments".67 
7.12.  In this dispute, the European Union bears the burden of establishing a prima facie case that 
the disputed measures are prohibited subsidies inconsistent with Article 3 of the SCM Agreement. 
In addition , if the Panel finds that the European Union has made out its prima facie  case, it is for 
the United States to provide rebuttal arguments a nd evidence that is needed to support that 
rebuttal . 
7.2.3   Treaty interpretation  
7.13.  Article  3.2 of the DSU provides that Members recognise that the dispute settlement system 
serves to clarify the provisions of the covered agreements "in accordance with customary ru les of 
interpretation of public international law". It is well established that the principles codified in 
Articles  31 and 32 of the Vienna Convention on the Law of Treaties (the "Vienna Convention")68 
are such customary rules of interpretation of public in ternational law.69 They provide as follows:  
ARTICLE 31  
General rule of interpretation  
1. A treaty shall be interpreted in good faith in accordance with the ordinary 
meaning to be given to the terms of the treaty in their context and in the light of its 
object and purpose.  
2. The context for the purpose of the interpretation of a treaty shall comprise, in 
addition to the text, including its preamble and annexes:  
(a) any agreement relating to the treaty which was made between all 
the parties in connexion with the conclusion of the treaty;  
(b) any instrument which was made by one or more parties in 
connexion with the conclusion of the treaty and accepted by the other 
parties as an instrument related to the treaty.  
3. There shall be taken into account together wi th the context:  
                                               
63 Appellate Body Report, US – Wool Shirts and Blouses , p. 16, DSR 1997:I, p. 323 at p. 337.  
64 Appellate Body Report, EC – Hormones , para.  104. 
65 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, p. 323 at p. 33 5. (footnote 
omitted)  
66 Ibid. 
67 Appellate Body Report, US – Gambling , para. 140.  
68 Done at Vienna, 23  May 1969, 1155 United Nations Treaty Series 331 (1980); 8 International Legal 
Materials  679 (1969).  
69 See, e.g. Appellate Body Report, US - Shrimp , para. 114. WT/DS487/R  
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  (a) any subsequent agreement between the parties regarding the 
interpretation of the treaty or the application of its provisions;  
(b) any subsequent practice in the application of the treaty which 
establishes the agreement of the parties re garding its interpretation;  
(c) any relevant rules of international law applicable in the relations 
between the parties.  
4. A special meaning shall be given to a term if it is established that the parties so 
intended.  
ARTICLE 32  
Supplementary means of inte rpretation  
Recourse may be had to supplementary means of interpretation, including the 
preparatory work of the treaty and the circumstances of its conclusion, in order to 
confirm the meaning resulting from the application of article 31, or to determine the  
meaning when the interpretation according to article 31:  
(a) leaves the meaning ambiguous or obscure; or  
(b) leads to a result which is manifestly absurd or unreasonable.  
7.14.  There is a considerable body of WTO case law dealing with the application of these 
provisions. It is clear that interpretation must be based above all on the text of the treaty70, but 
that the context of the treaty also plays a role. It is also well -established that these principles of 
interpretation "neither require nor condone the imputa tion into a treaty of words that are not there 
or the importation into a treaty of concepts that were not intended."71 Furthermore, panels "must 
be guided by the rules of treaty interpretation set out in the Vienna Convention, and must not add 
to or diminis h rights and obligations provided in the WTO Agreement."72 
7.3  Description and background of the measures at issue  
7.3.1   Aerospace tax measures  
7.15.  The European Union challenges seven separate tax measures for civil aircraft provided by 
the state of Washington (aerospace  tax measures) as amended and extended by ESSB 595273: 
(a) reduced business and occupation (B&O) tax rate for the manufacture and sale of 
commercial airplanes (B&O aerospace tax rate)74; 
                                               
70 Appellate Body Report, Japan – Alcoholic Beverages  II, p. 11, DSR 1996:I,  97, at p. 105. 
71 Appellate Body Report, India – Patents (US) , para.  45. 
72 Ibid. para. 46. 
73 Engrossed Substitute Senate Bill 5952, Chapter 2, Laws of 2013 3rd Special Session,  
2014 Wash.  Sess. Laws 2, (ESSB 5952) (Exhibit EU -3). See European Union's first written submission, 
para. 15. Throughout these proceedings, the European Union has consistently referred to this legislation as 
"SSB 5952", rather than "ESSB 5952", explaining  that it "omitted the 'Engrossed' and the 'E', in an effort to 
abbreviate the name". European Union's response to Panel question No. 52, para. 4. The United States has 
noted that the bill enacting the relevant legislation and conditions was Engrossed  Subst itute Senate Bill 5952, 
rather than Substitute Senate Bill 5952. United States' first written submission, fn 1. The United States has 
also clarified the legislative process beginning with Senate Bill 5952 as well as the series of amendments that 
led to the  "Substitute" bill and subsequently the "Engrossed" bill that was passed by the Washington State 
legislature and approved by the Governor. United States' response to Panel question No. 52, paras. 1 -5. The 
United States also confirmed that the citation in t he European Union's pa nel request corresponds to 
ESSB  5952, and that the United States does not take the position that ESSB 5952 is outside the Panel's terms 
of reference.  United States' response to Panel question No. 52, paras. 6 -8. In light of this clari fication and 
confirmation by the United States, the Panel refers to the legislation cited in the European Union's panel 
request as Engrossed Substitute Senate Bill 5952 (ESSB 5952) throughout this Report.  
74 ESSB 5952  (Exhibit EU -3), Sections 5 -6, codified at RCW Section 82.04.260 (Exhibit EU -22). WT/DS487/R  
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  (b) B&O tax credit for pre -production development for commercial airpla nes and 
components (B&O tax credit for aerospace product development)75; 
(c) B&O tax credit for property taxes on commercial airplane manufacturing facilities 
(B&O  tax credit for property and leasehold excise taxes)76; 
(d) exemption from sales and use taxes for certain computer hardware, software, and 
peripherals (computer sales and use tax exemptions)77; 
(e) exemption from sales and use taxes for certain construction services and materials 
(construction sales and use tax exemptions)78; 
(f) exemption from lease hold excise taxes on port district facilities used to manufacture 
superefficient airplanes (leasehold excise tax exemption)79; and  
(g) exemption from property taxes for the personal property of port district lessees used 
to manufacture superefficient airpla nes (leaseholder property tax exemption)80. 
7.16.  A person claiming the B&O tax credit for property and leasehold excise taxes , listed above 
as (c), is not eligible for either the leasehold excise tax exemption  or the leaseholder property tax 
exemption , listed ab ove as (f) and (g), respectively.  
7.3.1.1   Measures related to the B&O tax  
7.17.  The first three aerospace tax measures listed above pertain to the business and occu pation 
(B&O) tax, which is the s tate of Washington's "major business tax "81, in that the state of 
Washingto n "relies primarily on a B&O tax – rather than a corporate tax or an income tax – for 
purposes of business taxation" .82 The B&O tax is imposed "for the act or privilege of engaging in 
business activities" and "is measured by the application of rates against  the value of products, 
gross proceeds of sales, or gross income of the business, as the case may be".83 The B&O tax 
applies to distinct business activities (such as retailing, manufacturing, wholesaling, extracting, 
and services). A business may have more than one B&O tax rate, depending on the types of 
activities conducted.84 
7.18.  The first tax measure above ( B&O aerospace tax rate ) provides for a B&O tax rate 
of 0.2904% for specified business activities.85 The other two B&O tax -related measures (B&O tax 
credits for aerospace product development and for property and leasehold excise taxes) provide 
credits against B&O tax liability based on specified expenditures or other tax payments made by 
the taxpayer concerned.86 The rules regarding the calculation of B&O tax l iability for different types 
of activities as well as the amount of B&O tax credits are discussed below in connection with 
whether there is a financial contribution in the sense of Article  1 of the SCM Agreement.  
                                               
75 ESSB 5952 (Exhibit EU -3), Section 9, codified at RCW Section 82.04.4461 (Exhibit EU -23). 
76 ESSB 5952 (Exhibit EU -3), Section 10, codified at RCW Section 82.04.4463 (Exhibit EU -24). 
77 ESSB 5952 (Exhibit EU -3), Sec tions 11 -12, codified at RCW Section 82.08.975 (Exhibit EU -25) and 
RCW Section 82.12.975 (Exhibit EU -26). 
78 ESSB 5952 (Exhibit EU -3), Sections 3 -4, codified at RCW Section 82.08.980 (Exhibit EU -27) and RCW 
Section 82.12.980 (Exhibit EU -28). 
79 ESSB 5952 (Ex hibit EU -3), Section 13, codified at RCW Section 82.29A.137 (Exhibit EU -29). 
80 ESSB 5952 (Exhibit EU -3), Section 14, codified at RCW Section 84.36.655 (Exhibit EU -30). 
81 See Final Bill Report, Engrossed Substitute Senate Bill 5952, (ESSB 5 952 Final Bill Re port) 
(Exhibit  EU-4), p. 1.  
82 United States' first written submission, para. 39 . 
83 RCW Section 82.04.220(1)  (Exhibit  EU-32). See also United States' first written submission, 
paras.  39-41. 
84 See ESSB 5952 Final Bill Report  (Exhibit  EU-4), p. 1. See para. 7.77 below regarding B&O taxation of 
multiple business activities.  
85 See ESSB 5952  (Exhibit  EU-3), Sections 5 -6; RCW Section 82.04.260(11)  (Exhibit  EU-22); 
ESSB  5952 Final Bill Report  (Exhibit  EU-4), p. 3.  
86 See RCW Section 82.0 4.4461(2)  (Exhibit EU -23). WT/DS487/R  
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  7.3.1.2   Exemptions from sa les and use taxes  
7.19.  The nex t two aerospace tax measures in the abov e list are exemptions from the s tate of 
Washington's retail sales and use taxes. The retail sales tax is Washington State's principal source 
of tax revenue (including business and non -business tax revenue)87, and is c ollected from 
customers by businesses making retail sales in Washington State. The retail sales tax is generally 
imposed on the sale of tangible personal property88 and digital products89, as well as certain 
services90, to the final consumer or end user of su ch property, digital product, or service.91 The 
use tax is a tax on the use of go ods or certain services in the s tate of Washington when sales tax 
has not been paid.92 Goods used in Washington State are subject to either sales or use tax, but 
not to both; th us, the use tax compensates when the sales tax has not been paid.93 
7.20.  The computer sales and use tax exemptions relate to sales or use  "of computer hardware, 
computer peripherals, or software … used primarily in the development, design, and engineering of 
aerospace products or in providing aerospace services".94 These exemptions also relate to sales or 
use of "labor and services rendered in respect  to installing the computer hard ware, computer 
peripherals, or software".95 
7.21.  The construction sales and use tax exemp tions concern labour, services, and personal 
property used to construct new buildings for the manufacture of commercial airplanes or the 
fuselages and wings of commercial airplanes. More specifically, the sales tax exemption applies to 
retail sales taxes o n "[c]harges, for labor and services rendered in respect to the constructing of 
new buildings, made to a manufacturer engaged in the manufacturing of commercial airplanes or 
the fuselages or wings of commercial airplanes".96 Sales and use tax exemptions app ly to the sales 
and use of "tangible personal property that will be incorporated as an ingredient or component"97 
in constructing such buildings.  These construction sales and use tax exemptions also apply to 
charges for construction labour and services made  to, and tangible personal property used in 
constructing new buildings for, "a port district, political subdivision, or municipal corporation, to be 
leased to a manufacturer engaged in the manufacturing of commercial airplanes or the fuselages 
or wings of commercial airplanes".98 
7.22.  The applicable tax rates and coverage of retail sales and use taxes in Washington State are 
considered in greater detail below in connection with whether these exemptions constitute a 
financial contribution in the sense of Article  1 of the SCM Agreement.  
                                               
87 United  States' first written submission, para . 42; Retail Sales Tax Explanation, Washington State 
Department of Revenue  (Exhibit  USA-12). 
88 Retail Sales Tax Explanation, Washington State Department of Revenue  (Exhibit  USA-12). 
89 Digital Products including Digital Goods, Washington State Department of Revenue  (Exhibit  USA-14). 
90 Services Subject to Sales Tax, Washington State Department of Revenue  (Exhibit  USA-13). 
91 See ESSB  5952 Final Bill Report  (Exhibit  EU-4), p.1.  
92 Use Tax Explanation, Washington State Department of Revenue  (Exhibit  USA-19). See also 
ESSB  5952 Final Bill Report  (Exhibit  EU-4), p.1; United States' first written submission, para. 44. For example, 
the use tax is owed if goods are purchased in another state that  does not have a sales tax or a state with a 
sales tax lower than that of the state of Washington , and then used in the state of Washington . The use tax 
would also be owed if good s are purchased from someone who is not authorized to collect sales tax (e.g.  
purchases of furniture from an individual through a newspaper classified ad or a purchase of artwork from an 
individual collector), or if personal property is acquired with the purchase of real property.  
93 Use Tax Explanation, Washington State Department of Revenue  (Exhibit  USA-19). 
94 RCW Section 82.08.975  (Exhibit  EU-25); RCW Section 82.12.975  (Exhibit  EU-26); ESSB  5952 
(Exhibit  EU-3), Sections 11 -12. 
95 RCW Section 82.08.975  (Exhibit  EU-25); RCW Section 82.12.975  (Exhibit  EU-26); ESSB  5952 
(Exhibit  EU-3), Sections 11 -12. 
96 RCW Section 82.08.980  (Exhibit  EU-27); ESSB 5952  (Exhibit  EU-3), Section 3.  
97 RCW Section 82.08.980  (Exhibit  EU-27); RCW Section 82.12.980  (Exhibit  EU-28); ESSB 5952  
(Exhibit  EU-3), Sections 3 -4. The United States explains that the "use tax is not due on construction services", 
which "accounts for why the language of the statute on its face appears to have a more limited scope when 
compared with the language for the exemption for the retail sales tax". United States' first written submiss ion, 
fn 118.  
98 RCW Section 82.08.980(1)(a)(ii) (Exhibit  EU-27); RCW Section 82.12.980(1)(a)(ii) (Exhibit EU -28). WT/DS487/R  
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  7.3.1.3   Exemptions from taxe s imposed on certain leaseholds  
7.23.  The final two aerospace tax measures concern property taxes imposed on certain leaseholds 
in Washington State. Real and personal property in Washington State is generally subject to  
property taxes based on its value, unless a specific exemption is provided by law.99 For example, 
all property owned by federal, state, and local governments is exempt from the Washington State 
property tax.100 
7.24.  The leasehold excise tax exemption relates to t he Washington State leasehold excise tax, 
which is imposed in lieu of a property tax on the use of public property by a private party.101 More 
specifically, Washington State imposes "a leasehold excise tax on the act or privilege of occupying 
or using public ly owned real or personal property … through a leasehold interest".102 The leasehold 
excise tax exemption applies to "[a]ll leasehold interests in port district facilities exempt from tax 
under [the construction sales and use tax exemptions] and used by a ma nufacturer engaged in the 
manufacturing of superefficient airplanes".103 
7.25.  Under the leaseholder property tax exemption, Washington State also exempts from 
property taxation "all buildings, machinery, equipment, and other personal property of a lessee of 
a por t district eligible [for the construction sales and use tax exemptions], used exclusively in 
manufacturing superefficient airplanes".104 
7.26.  Neither the leasehold excise tax exemption nor the leaseholder property tax exemption is 
available to a person claiming t he B&O tax credit for property and leasehold excise taxes.105 
7.3.2   Siting provisions  
7.27.  The European Union identifies two "siting" provisions that govern the availability of the 
above aerospace tax measures, namely a First Siting Provision106 relating to all of the ae rospace 
tax measures, and a Second Siting Provision107 relating only to the B&O aerospace tax rate .108 
7.3.2.1   First Siting Provision  
7.28.  Each of the above aerospace tax measures is extended , and certain others are also 
amended,  by ESSB 5952,  which, according to the First  Siting Provision in Section 2 of ESSB 5952, 
"takes effect contingent upon the siting of a significant commercial airplane manufacturing 
program in the state of Washington". Alternatively, "[i]f a significant commercial airplane 
manufacturing program is no t sited in the state of Washington by June 30, 2017, … [this act] does 
not take effect".109 
                                               
99 See ESSB  5952 Final Bill Report  (Exhibit  EU-4), p. 1; RCW Section 84.36.005  (Exhibit  USA-20); 
United States' first written submission, para. 46. 
100 RCW Section 84.36.010  (Exhibit  USA-21). See also ESSB  5952 Final Bill Report  (Exhibit EU -4), 
pp. 1-2; United States' first written submission, para. 46.  
101 Leasehold Excise Tax Explanation, Washington State Department of Revenue  (Exhibit  USA-25). 
102 RCW Section 82.29A.030  (Exhibit  USA-26). 
103 RCW Section 82.29A.137  (Exhibit  EU-29). Under Washington State law, "superefficient airplane" is 
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 percent less fuel than other similar airplanes on the market". 
RCW Section  82.32.550(3)  (Exhibit  EU-82). 
104 RCW Section 84.36.6 55 (Exhibit EU -30). 
105 RCW 82.29A.137(1)  (Exhibit  EU-29); RCW 84.36.655(1)  (Exhibit  EU-30). These refer to measures 
(f), (g), and (c), respectively, in the list in para. 7.15 above.  
106 The European Union refers to this as the "Programme -Siting Condition". Se e European Union's first 
written submission, paras. 42 -45. The United States refers to this as the "Initial Siting Provision".  
United  States' first written submission, paras. 74 -78. 
107 The European Union refers to this as the "Exclusive -Production Condition ". European Union's first 
written submission, paras. 46 -52. The United States refers to this as the "Future Siting Provision". See 
United  States' first written submission, paras. 55 -56, 79 -80. 
108 See Request for the Establishment of a Panel by the European Union, WT/DS487/2, 
13 February  2015, p. 2.  
109 ESSB 5952  (Exhibit  EU-3), Section 2, codified at RCW Section 82.32.850  (Exhibit  EU-58). WT/DS487/R  
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  7.29.  The First Siting Provision defines "siting" to mean "a final decision, made on or after 
November 1, 2013, by a manufacturer to locate a significant commercial airplan e manufacturing 
program in Washington State". In turn, "significant commercial airplane manufacturing program" is 
defined as:  
[A]n airplane program in which the following products, including final assembly, will 
commence manufacture at a new or existing lo cation 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 wings of a new model, or any version or variant of an 
existin g model, of a commercial airplane.110 
7.30.  The First Siting Provision additionally defines "new model, or any version or variant of an 
existing model, of a commercial airplane" to mean "a commercial airplane manufactured with a 
carbon fiber composite fuselage or carbon fiber composite wings or both".111 
7.31.  Both parties agree that the  First Siting Provision has been fulfilled and, as a result, the 
measures set out in ESSB 5952 are in effect.112 
7.3.2.2   Second Siting Provision  
7.32.  ESSB 5952 also contains a Second Siting Provision , relating only to the B&O aerospace tax 
rate113, which provides as follows:  
With respect to the manufacturing of commercial airplanes or making sales, at retail 
or wholesale, of commercial airplanes, this subsection (11) [i.e. the B&O aerospace 
tax rate ] does no t apply on and after July 1st of the year in which the department  [i.e. 
the Department of Revenue]  makes a determination that any final assembly or wing 
assembly of any version or variant of a commercial airplane that is the basis of a 
siting of a signific ant commercial airplane manufacturing program in the state under 
section 2 of this act [i.e. the First Siting Provision] has been sited outside the state of 
Washington. This subsection (11)(e)(ii) [i.e. the Second Siting Provision] only applies 
to the manu facturing or sale of commercial airplanes that are the basis of a siting of a 
significant commercial airplane manufacturing program in the state under section 2 of 
this act.  
7.33.  The Second Siting Provision thus concerns the continued availability of the B&O ae rospace 
tax rate  for the version or variant of the commercial airplane that is the basis of the First Siting 
Provision. The Second Siting Provision specifically pertains to the siting of "any final assembly  or 
wing assembly" of that commercial airplane. As agreed by the parties, and as explained more fully 
below, t he Boeing 777X is the relevant version or variant of commercial airplane that served as 
the basis for fulfilment of the First Siting Provision.114 
                                               
110 ESSB 5952  (Exhibit  EU-3), Section 2(2)(c) and (d), codified at RCW 82.32.850(2)(c) and (d)  
(Exhibit  EU-58). 
111 ESSB 5952  (Exhibit  EU-3), Section 2(2)(b), codified at RCW 82.32.850(2)(b)  (Exhibit EU -58). 
112 Notification Letter from Carol K. Nelson, Director, Washington State Department of Revenue, to Kyle 
Thiessen, Washington State Code Reviser , 10 July 2014  (Exhibit  EU-61). Un ited States' first written  
submission, para. 78. See para . 7.273  below regarding the details of fulfilment  of the First Siting Provision.  
113 ESSB 5952 (Exhibit EU -3), Sections 5 -6(11)(e)(ii), codified at RCW 82.04.260(e)(ii) (Ex hibit EU-22). 
114 See European Union's first written submission, para. 46; United States' first written submission, 
para. 56. WT/DS487/R  
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  7.3.3   Legislative background and scope of the measures at  issue  
7.34.  ESSB 5952 amends and extends certain tax measures established in 2003 under 
Washington State Legislature House Bill 2294 (HB 2294)115, which were measure s at issue in the 
dispute US – Large Civil Aircraft (2nd complaint) .116 
7.35.  The parties have raised diff erent views as to the temporal scope of the measures at issue 
and the applicability of the contingencies introduced by ESSB 5952. For example, with reference to 
pre-existing tax measures in Washington State, the United States submits that "[a]bsent 
ESSB  5952, aerospace activity through 2024 subject to the B&O tax, the sales and use tax, the 
property excise tax, and the leasehold excise tax would have qualified under HB 2294 and for the 
[aerospace tax measures] identified by the European Union", and thus con tends that "the 
treatment prior to 2024 under any of these measures, even if the measure were determined to be 
a subsidy, is a priori not contingent on any conditions introduced by ESSB 5952".117 By contrast, 
the European Union asserts that its challenge is not limited to the extended  tax treatment from 
2024 to 2040 effected by ESSB 5952, but rather that "the European Union is challenging the 
subsidies at issue from the point in time that they became contingent on satisfaction of the [First 
Siting Provision] conditions in SSB 5952, i.e., November 2013. The European Union challenges the 
existence of a financial contribution for the whole period from November 2013 through 
June 2040."118 
7.36.  In light of these differing assertions, the Panel first reviews the legislativ e background and 
scope of the measures at issue before turning to the claims raised in this dispute. T he tax 
measures  adopted by the Washington State Legislature in 2003 under HB 2294 included a 
reduction in the B&O tax rate119; a B&O tax credit for pre -production development expenditures120; 
a B&O tax credit for computer software and hardware121; and a B&O tax credit for property taxes 
paid on property used in the manufacture of commercial airplanes and airplane components.122 
Also included were sales and use tax exemptions for computer equipment and software, and their 
installation, as well as construction services and equipment, used primarily in the development of 
commercial airplanes and components.123 A leasehold  excise  tax exemption and property tax 
exemption for port district facilities was also available to manufacturers of superefficient airplanes 
that were not using the B&O tax credit for property taxes.124 These measures were scheduled to 
end in 2024.125 
7.37.  ESSB 5952 extended the availability of these tax measures  to 2040 upon fulfilment of the 
First Siting Provision through the siting of the Boeing 777X program me. ESSB  5952 also provided 
that the B&O aerospace tax rate would no longer apply to that programme if the conditions 
foreseen in the Second Siting Provisio n occurred . At the same time, the aerospace tax measures 
reflect substantive amendments made by ESSB 5952 as well as other legislative changes made to 
the tax measures  in the intervening period between HB  2294 and ESSB 5952. For example, with 
regard to the  B&O aerospace tax rate, in 2006, Washington State Legislature House Bill 2466 (HB 
2466) also extended the reduced B&O tax rate to certain certified repair stations126, and 
consolidated the B&O aerospace tax rates for the manufacture of commercial airplanes and 
                                               
115 House Bill 2294, 2003 Wash. Sess. Laws 2767, (HB 2294)  (Exhibit  EU-21). 
116 See Panel Report, US – Large Civil Aircraft (2nd complai nt), para. 7.39.  
117 United States' response to Panel question No. 2, para. 3. See also United States' response to Panel 
question Nos. 53, 54, and 58.  
118 European Union's second written submission, para. 18. See also European Union's response to Panel 
questio n No. 6, para. 8.  
119 HB 2294  (Exhibit  EU-21), Sections 3 -4; Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.47-7.49.  
120 HB 2294  (Exhibit  EU-21), Section 7; Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.51-7.52.  
121 HB 2294  (Exhibit  EU-21), Section 8; Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.53-7.54.  
122 HB 2294  (Exhibit  EU-21), Section 15; Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.55-7.56.  
123 HB 2294  (Exhibit  EU-21), Sections 9 -12; Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.59-7.62.  
124 HB 2294  (Exhibit  EU-21), Sections 13 -14; Panel Report, US – Large Civil Aircraft (2nd complaint) , 
paras.  7.64-7.68.  
125 HB 2294  (Exhibit  EU-21); ESSB 5952 Final Bill Report  (Exhibit EU-4), p. 2.  
126 House Bill 2466, 2006 Wash. Sess. Laws 787, (HB 2466)  (Exhibit  EU-35), Section 5.  WT/DS487/R  
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  components, and for the sales of commercial airplanes and components, into a single provision 
covering both manufacture and sales.127 In addition, Substitute Senate Bill 6828 (SSB 6828) of 
2008 extended the reduced B&O tax rate to the manufacture and ret ailing of tooling used in the 
manufacture of commercial airplanes and components of airplanes.128 The B&O tax credit for 
aerospace product development reflects an extension of the credit to non -manufacturing firms 
under HB 2466 of 2006.129 It further reflects the extension under SSB 6828 of the credit for 
preproduction development to "aerospace product development", which was subsequently carried 
over in the provisions extended by ESSB 5952.130 The B&O  tax credit for property and leasehold 
excise taxes amended by  ESSB 5952 reflects the prior 2006 amendment under HB 2466 to include 
leasehold excise taxes in addition to property taxes as part of this B&O tax credit.131 The computer 
sales and use tax exemptions amended by ESSB 5952 reflect prior changes made unde r HB 2 466 
of 2006 and under SSB  6828 of 2008.132 Further, ESSB 5952 amends the construction sales and 
use tax exemptions  originally e stablished in HB  2294 by changing their application to "the 
manufacturing of commercial airplanes or the fuselages and wings of com mercial airplanes" rather 
than to "manufacturing of superefficient airplanes".133 
7.38.  ESSB 5952 was enacted in November 2013 by the Washington State legislature. Pursuant to 
the First Siting Provision, the aerospace tax measures , as amended and extended by  ESSB 5952, 
were to take effect upon the determination by the Department of Revenue of Washington State 
that the First Siting Provision had been satisfied, based on the "siting" of a "significant commercial 
airplane manufacturing program" as defined in that prov ision. On 9 July 2014, Boeing submitted a 
letter to the Department of Revenue of Washington State providing formal notification that Boeing 
had made a final decision to manufacture the 777X in Washington State, and describing how the 
777X satisfied the req uirements of the First Siting Provision.134 The Department of Revenue of 
Washington State provided written notice on 10  July 2014 of its determination that the First Siting 
Provision had been fulfilled and that ESSB 5952 had taken effect on 9 July 2014.135 The 
Boeing  777X was the model of commercial airplane that served as the basis for determining that 
the First Siting Provision had been fulfilled.136 
7.39.  For the purposes of this dispute, the measures that are within the Panel's terms of reference 
are those identifi ed by the European Union in its request for the establishment of a panel.137 These 
measures are the aerospace tax measures, as presently codified in the RCW provisions cited in the 
European Union's panel request.138 The aerospace tax measures as codified139 reflect the 
substantive amendments made under ESSB  5952 as well as other legislative amendments 
                                               
127 HB 2466  (Exhibit  EU-35), Section 4.  
128 Substitute Senate Bill 6828, 2008 Wash. Sess. Laws 365, (SSB 6828)  (Exhibit  EU-42), Section 4.  
129 HB 2466  (Exhibit  EU-35), Section 3; ESSB 5952 Final Bill Report  (Exhibit  EU-4), p. 2; United States' 
first written submission, para. 62.  
130 SSB 6828  (Exhibit  EU-42), Section 7; United States' first written submission, para. 62 (noting that 
this "broadened the B&O tax credi t for aerospace product development to include expenditures in developing 
aerospace products, such as machinery for maintaining and repairing commercial airplanes and tooling 
equipment").  
131 See HB 2466  (Exhibit  EU-35), Section 10.  
132 Thus, the currently cod ified provisions of these exemptions omit the limitation to manufacturers or 
processors for hire of commercial airplanes or components of such airplanes that originally existed under 
HB 2294. See HB 2294  (Exhibit  EU-21), Sections 9 -10; ESSB 5952  (Exhibit  EU-3), Sections 11 -12. 
133 See HB 2294  (Exhibit  EU-21), Sections 11 -12; ESSB 5952  (Exhibit  EU-3), Sections 3 -4. 
134 Letter from Boeing to Carol K. Nelson, Director, Washington State Department of Revenue, regarding 
decision to site 777X program me, 9 July 2014  (Exhibit USA -32) (BCI).  
135 Letter from the Director  of the Washington State Department of Revenue  to the Code Reviser , 
10 July 2014 (Exhibit  EU-61). 
136 United States' first written submission, para. 56.  
137 See Constitution of the Panel Established at the Reque st of the European Union – Note by the 
Secretariat, WT/DS487/3, 23 April 2015.  
138 The Panel notes that the United States has focused upon the enacted results of ESSB 5952, rather 
than the legislative bill itself, stating that "ESSB 5952 is not itself a meas ure challenged by the EU." United 
States' first written submission, fn 99. As further explained by the United States, "provisions of legislation like 
HB 2294 or ESSB 5952 operate as law to the extent they are codified in the RCW, and any provision so codif ied 
will continue to do so until it is amended, rescinded, or expires." United States' comments the European 
Union's response to Panel question No. 54, para. 10.  
139 In this connection, RCW Section 1.04.020 states that "[a]ny section of the Revised Code of 
Washington … expressly amended by the legislature, including the entire context set out, shall, as so amended, 
constitute the law and the ultimate declaration of legislative intent."  RCW Section 1.04.020  in Chapter 1.04 
RCW (Exhibit  USA-63). WT/DS487/R  
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  subsequent to the enactment of HB  2294 in 2003 , and are presently in effect until 2040 . The 
aerospace tax measures are further subject to the First and Second Sitin g Provisions, whic h were 
introduced by ESSB 5952.  
7.40.  Recalling the parties' different views as to the temporal scope of the measures at issue and 
the applicability of the contingencies introduced by ESSB 5952 , the Panel considers that the 
measures at issue ar e not limited to tax treatment for the period of extension from 2024 to 2040. 
Rather, given the Panel's terms of reference as well as the various substantive amendments 
effected by ESSB 5952  and prior to its passage , the aerospace tax measures and Siting P rovisions 
at issue are those that are in effect pursuant to codified provisions of Washington State law 
following the enactment and entry into force of ESSB 5952.  
7.4  Existence of a subsidy under Article 1 of the SCM Agreement  
7.4.1   Arguments of the parties  
7.41.  The Euro pean Union contends that the aerospace tax measures are subsidies within the 
meaning of Article 1 of the SCM Agreement.140 According to the European Union, each of the 
aerospace tax measures at issue constitutes a financial contribution under Article 1.1(a)( 1)(ii) of 
the SCM Agreement because "government revenue that is otherwise due is foregone or not 
collected". In support of its contention, the European Union proposes various benchmarks for 
comparison for the aerospace tax measures and contends that, in re lation to these benchmarks, 
government revenue that would otherwise be due  is foregone. The European Union also draws 
upon findings in US – Large Civil Aircraft (2nd complaint) and contends that similar considerations 
apply in respect of measures that are analogous to those that were found to constitute financial 
contribution s in that dispute. At the same time, t he European Union distinguishes its claim from 
that made in US – Large Civil Aircraft (2nd complaint)  as it argues in the present case "that a 
financial contribution exists in the abstract" rather than being entity -specific .141 The 
European  Union  contends that government revenue does not need to have been actually foregone 
for there to be a financial contribution , but rather that it is the foregoing of  the government's 
entitlement  to collect revenue that is determinative of a financial contribution.142 Further, the 
European Union argues that the conferral of a benefit is a natural consequence of the foregoing of 
government revenue in comparison to "market " conditions.143 
7.42.  The United States asserts that the European Union fails to make a prima facie  case that any 
of the challenged measures constitute s a financial contribution . The United States also disputes  the 
European Union's  reliance on  findings made in re spect of contested measures in US – Large Civil 
Aircraft (2nd complaint)  to demonstrate a financial contribution in this dispute .144 While 
acknowledging t he European Union 's clarification as to a financial contribution existing "in the 
abstract", t he United States  contends that the present tense drafting of Article 1.1(a)(ii) means 
that "this provision covers revenue foregone or not collected in the present ".145 In addition, t he 
United States  disagrees with various legal interpretations advanced by the European  Union, 
including that the term "maintain" in Article 3.2 refers to the continuation of a subsidy that has 
been "granted"146, as well as t he European Union 's distinction between the terms "not collected" 
and "foregone", arguing that both are in the present p assive tense, and that "the two verbs 
describe different ways that the government may obtain tax income".147 With respect to the 
                                               
140 European Unio n's first written submission, para . 53; second written submission, para. 9; opening 
statement at the first meeting of the Panel, para.  15; opening statement at the second meeting of the Panel, 
para. 12. 
141 European Union's response to Panel question No. 23,  para. 45 (quoting Panel Report, US – Large 
Civil Aircraft (2nd complaint) , para. 7.151). See also European Union's second written submission, para. 34.  
142 See European Union's second written submission, para. 21; opening statement at the second 
meeting of the Panel, paras. 15 -16. 
143 European Union's first written submission, paras. 67-68; second written submission, para s. 36-37; 
opening statement at the first meeting of the Panel, para. 35; opening statement at the second meeting of the 
Panel, para.  23. 
144 United States' first written submission, para. 94 -99. 
145 United States' second written submission, para. 86. (emphasis original)  The United States further 
submits that the European Union's legal arguments do not overcome "the implication of the present tense 
drafting of Article 1.1(a)(ii) ". United States' second written submission, para. 87.  
146 United States' secon d written submission, para. 88.  
147 United States' second written submission, para . 89. WT/DS487/R  
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  benefit allegedly conferred, the United States agrees with the European Union  that "the concept of 
financial contribution in the form of revenue foregone that is otherwise due often overlaps with the 
concept of benefit", but contends that "[t]he European Union has not identified with sufficient 
clarity what the benefit is that it is alleging, much less provided evidence that the two  concepts 
fully overlap in the present case."148 The United States further contends that the European Union 
erroneously argues that a finding of benefit proceeds automatically from a finding that revenue is 
foregone.149 
7.4.2   Third -party views  
7.43.  Australia submits "tha t by the very nature of the type  of transaction relating to the 
foregoing or non -collection of government revenue, the actual use or exercise of the fiscal 
incentive by a beneficiary/recipient may not necessarily be determinative in establishing the 
existe nce of a financial contribution ".150 Accordingly, Australia frames the question as " whether, 
but for the tax incentive, the beneficiary of the tax measure would owe revenue payable as a debt, 
but expect it to be forgone or not collected ".151 With regard to the  benefit conferred, Australia 
refers to the standard of a measure making a recipient "better off" in comparison to the 
marketplace, and that, "[i]n this instance, the marketplace would be made up of other companies 
facing the usual tax rates set by Washing ton State, without provision of the discounts offered to 
companies that qualified for the tax exemption/discount ".152 
7.4.3   Whether there is a financial contribution as "government revenue that is 
otherwise due is foregone or not collected"  
7.44.  Article 1.1(a)(1)(ii) o f the SCM Agreement  provides in relevant part:  
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 … , i.e. where:  
(ii) government revenue that is otherwise due is foregone or not collected (e.g. 
fiscal incentives such as tax credits); (footnote omitted)  
7.45.  With regard to the legal standard under Article  1.1(a)(1)(ii) of the SCM Agreement , the 
Appellate Body has set out the following considerations:  
In our view, the " foregoing " of revenue " otherwise  due" implies that less revenue has 
been raised by the government than would have been raised in a different situation, 
or, that is, "otherwise". Moreover, the word "foregone" suggests that the government 
has given up an entitlement to  raise revenue that it could "otherwise" have raised. 
This cannot, however, be an entitlement in the abstract, because governments, in 
theory, could tax all revenues. There must, therefore, be some defined, normative 
benchmark against which a comparison ca n be made between the revenue actually 
raised and the revenue that would have been raised "otherwise".153 (emphasis 
original)  
7.46.  The Appellate Body therefore considered that "the term 'otherwise due' implies some kind of 
comparison between the revenues due unde r the contested measure and revenues that would be 
due in some other situation", and that "the basis of comparison must be the tax rules applied by 
the Member in question".154 The Appellate Body further stated that, "[i]n identifying the 
appropriate benchmar k for comparison, panels must obviously ensure that they identify and 
examine fiscal situations which it is legitimate to compare. In other words, there must be a 
                                               
148 United States' response to P anel question No. 22, para. 53.  
149 United States' secon d written submission, para. 93.  
150 Australia's response to Panel question No. 1.  
151 Ibid. 
152 Australia's response to Panel question No. 2.  
153 Appellate Body Report, US – FSC, para. 90.  
154 Ibid. The Appellate Body further noted that a "WTO M ember, in principle, has the sovereign authority 
to tax any particular categories of revenue it wishes" and that "[w]hat is 'otherwise due', therefore, depends on 
the rules of taxation that each Member, by its own choice, establishes for itself."  WT/DS487/R  
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  rational basis for comparing the fiscal treatment of the income subject to the contested meas ure 
and the fiscal treatment of certain other income."155 
7.47.  The Appellate Body considered that there may be situations where the measures at issue 
might be described as an "exception" to a general rule of taxation, and that in such situations it 
may be possibl e to apply a "but for" test to examine the fiscal treatment of income absent the 
contested measure. At the same time, given the variety and complexity of domestic tax systems , 
the Appellate Body did not consider that "Article 1.1(a)(1)(ii) always requires  panels to identify, 
with respect to any particular income, the 'general' rule of taxation prevailing in a Member".156 
Instead, the Appellate Body explained "that panels should seek to compare the fiscal treatment of 
legitimately comparable income to determin e whether the contested measure involves the 
foregoing of revenue which is 'otherwise due ', in relation to the income in question".157 
7.48.  In US – Large Civil Aircraft (2nd complaint) , the Appellate Body reiterated the principle that 
it is necessary to identify "legitimately comparable" situations of taxation in order to determine 
whether government revenue is foregone.158 The Appellate Body further articulated three 
analytical steps for a panel examining a claim under Article 1.1(a)(1)(ii) of the SCM Agreement.  
7.49.  First, a panel should "identify the tax treatment that applies to the income of the alleged 
recipients ", which " 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 ".159 
7.50.  Second, " the panel should identify a benchmark for comparison  – that is, the tax treatment 
of comparable income o f comparably situated taxpayers", which " involves an examination of the 
structure of the domestic tax re gime and its organizing principles ".160 The Appellate Body noted 
the potential difficulty of this exercise given that such principles may " be unique to the particular 
domestic regime " or " that disparate tax measures, implemented over time, do not easily offe r up 
coherent principles serving as a benchmark ".161 Nevertheless, " 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 con stitutes comparable income of comparably 
situated taxpayers ".162 
7.51.  Third, " 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 ".163 According 
to the App ellate Body, this " comparison will enable a panel to determine whether, in the light of 
the treatment of the comparable income of comparably situated taxpayers, the government is 
foregoing revenue that is otherwise due in relation to the income of the alle ged recipients. "164 
7.52.  Before proceeding to the analysis of each aerospace tax measure under Article 1.1(a)(1)(ii) 
of the SCM Agreement , the Panel will address the United States' argument that aerospace activity 
until 1 July 2024 would have qualified for certai n tax treatment un der legislation pre -dating 
ESSB  5952, and that the extent of any financial contribution in this dispute would be limited to 
revenue foregone at some point in the future.165 The Panel recalls that the European Union has 
argued that, unlike i n a past dispute under another provision of the SCM Agreement, in this case 
the European Union is advancing its claim in the abstract, on the basis of the pertinent legislation 
as such, and that it considers that Article  1.1(a)(1)(ii) covers not only the f oregoing of actual 
revenue in the present, but also the foregoing of an entitlement to future revenue.166 
                                               
155 Appella te Body Report, US – FSC (Article 21.5 – EC), para. 90.  
156 Ibid. para. 91. (emphasis original)  
157 Ibid. 
158 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para s. 810-812. 
159 Ibid. para. 812.  
160 Ibid. para. 813.  
161 Ibid. 
162 Ibid. 
163 Ibid. para. 814.  
164 Ibid. 
165 United States' response to Panel question Nos. 2 and 21; second written submission, paras. 85 -92. 
166 European Union's response to Panel question Nos. 6 and 21.  WT/DS487/R  
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  7.53.  In respect of the measures at issue, the Panel agrees with the European Union that 
Article  1.1(a)(1)(ii) of the SCM Agreement  encompass es the foregoing of revenue in the future.167 
In the particular context of tax -based measures, the underlying legislation may be effective over a 
period defined in the legislation itself, or indefinitely. Where such legislation gives rise to a 
financial contribution in the f orm of revenue foregone, the fact of a government having forgone 
such revenue is true for the entire period during which the legislation is in force. Even if the 
effective start date of a period defined in the legislation is subsequent to the date on which  the 
legislation enters into force, as of th e date of entry into force the government would have, by 
virtue of the legislation, already given up its entitlement to the future tax revenue during the 
defined future period.168 That entitlement could be re -estab lished through further legislation 
revoking or amending the previous legislation. This principle is implicit in past cases involving 
financial contributions from tax -based measures. Where the rulings in those cases have been 
based on the underlying legisla tion as such, they have not only concerned particular revenue 
streams foregone in particular periods, but instead have concerned all of the implicit future 
revenue streams that would be foregone pursuant to the underlying legislation.169 
7.54.  In this connection, the present tense of the verb "is" in Article 1.1(a)(1)(ii) relates to a 
government presently foregoing an entitlement to collect revenue  either now or in the future.170 It 
is this government action taken with respect to otherwise applicable tax liabilities that is the focus 
of the analysis under Article 1.1(a)(1)(ii) , particularly where t he measures are challenged as such  
rather than " against the application … during any given point in time or in any specific instance".171 
In this dispute, the Panel has determ ined that the aerospace tax measures at issue are those that 
are presently in effect pursuant to codified provisions of Washington State law following the 
enactment and entry into force of ESSB 5952.172 A finding that the aerospace tax measures result 
in gov ernment revenue being foregone,  or that they cause government revenue to be foregone , be 
it currently or in the future,  applies to the measures themselves. This foregoing of revenue would 
apply to taxpayers at any time during the entire period in which the  measures are in force. The 
foregoing of revenue is constituted by the government's promise to do so, and not only by 
particular instances of it being done . 
7.55.  Having addressed the threshold issue of revenue foregone in the future, the Panel now 
examines each  of the challenged aerospace tax measures, as such, on the basis of the analytical 
framework outlined above, to assess whether any of them involves a financial contribution in the 
form of government revenue foregone within the meaning of Article 1.1(a)(1)( ii) of the 
SCM Agreement.  
7.4.3.1   B&O aerospace tax rate  
7.56.  The legislation for the B&O aerospace tax rate provides in relevant part:  
(11)(a) Beginning October 1, 2005, upon every person engaging within this state in 
the business of manufacturing commercial airplanes , or components of such airplanes, 
or making sales, at retail or wholesale, of commercial airplanes or components of such 
airplanes, manufactured by the seller, as to such persons the amount of tax with 
respect to such business is, in the case of manufactu rers, equal to the value of the 
product manufactured and the gross proceeds of sales of the product manufactured, 
                                               
167 The Panel notes that the United States does not categorically reject the possi bility that a financial 
contribution may occur in the future.  
168 This is consistent with the Appellate Body's characterization of a government having "given up an 
entitlement to raise revenue that it could 'otherwise' have raised". Appellate Body Report, US – FSC, para. 90.  
169 See, e.g. Panel Report , US – FSC, paras. 7.98 -7.101. In that dispute, the panel examined the "FSC 
scheme" as a whole, and noted inter alia  that for any given fiscal year, a corporation was free to elect whether 
or not to have the status  of a FSC. Thus, it was the existence and operation of the scheme itself, which was of 
indefinite duration under the US tax laws, that gave rise to the finding of revenue foregone, rather than 
individual instances of application of the scheme by particular  corporations, or instances of application of the 
scheme during any particular period.  This aspect of the panel report was not appealed.  
170 See United States' second written submission, para. 86 (" By virtue of the present tense verb 'is', this 
provision cov ers revenue foregone or not collected in the present . Thus, Article 1.1(a)(1)(ii) deals with tax 
liabilities that exist in the present, and government actions with respect to those liabilities. "). (emphasis 
added)  
171 European Union's response to Panel quest ion No. 6, para. 7.  
172 See para. 7.41 above.  WT/DS487/R  
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  or in the case of processors for hire, equal to the gross income of the business, 
multiplied by the rate of:  
(i) 0.4235 percent from October 1 , 2005, through June 30, 2007; and  
(ii) 0.2904 percent beginning July 1, 2007.  
(b) Beginning July 1, 2008, upon every person who is not eligible to report under the 
provisions of (a) of this subsection (11) and is engaging within this state in the 
business  of manufacturing tooling specifically designed for use in manufacturing 
commercial airplanes or components of such airplanes, or making sales, at retail or 
wholesale, of such tooling manufactured by the seller, as to such persons the amount 
of tax with re spect to such business is, in the case of manufacturers, equal to the 
value of the product manufactured and the gross proceeds of sales of the product 
manufactured, or in the case of processors for hire, be equal to the gross income of 
the business, multip lied by the rate of 0.2904 percent.173 
7.4.3.1.1   First step: applicable tax treatment  
7.57.  Based on the available evidence, the Panel will first identify the applicable tax treatment 
under the B&O aerospace tax rate, including consideration of the objective reasons behind that 
treatment. As provided for in the relevant legislation, the B&O aerospace tax rate applies to "every 
person engaging within [the state of Washington] in the business of manufacturing commercial 
airplanes, or components of such airplanes, or making sal es, at retail or wholesale, of commercial 
airplanes or components of such airplanes, manufactured by the seller".174 The B&O aerospace tax 
rate also applies to those persons " engaging within [the s tate of Washington]  in the business of 
manufacturing tooling specifically designed for use in manufacturing commercial airplanes or 
components of such airplanes, or making sales, at retail or wholesale, of such tooling 
manufactured by the seller ".175 
7.58.  Thus, the B&O aerospace tax rate applies to  the following activities  within the state of 
Washington:  (i) the manufacture  of commercial air planes (and components thereof); (ii) sales of 
commercial airplanes (and components thereof)  by such manufacturers ; and (iii) the manufacture 
and sales of tooling  for use in manufacturin g commercial airplanes or components of such 
airplanes . 
7.59.  The B&O aerospace tax rate is a specific rate of taxation applicable to these activities. For 
the manufacture and sales of commercial airplanes and components thereof, this specific rate was 
implement ed in two stages: first, a rate of  0.4235% from 1 October 2005 through 30 June 2007; 
and second, a rate of 0.2904% beginning 1 July 2007.176 For the manufacture and sales of tooling  
for use in manufacturing commercial airplanes or components of such airplane s, the applicable 
rate as of 1 July 2008 is 0.2904% . As a result of the enactment of ESSB 5952, the B&O aerospace 
tax rate expires on 1  July 2040.177 
7.60.  Thus, the relevant tax treatment at present and until the expiration of the B&O aerospace 
tax rate in 2040 i s the tax rate of 0.2904% . This rate is multiplied by, "in the case of 
manufacturers … the value of the product manufactured and the gross proceeds of sales of the 
product manufactured, or in the case of processors for hire … the gross income of the busine ss".178  
                                               
173 RCW Section 82.04.260(11) (Exhibit EU -22). 
174 RCW Section 82.04.260(11)(a) (Exhibit EU -22). Under Washington State law, the term "commercial 
airplane" "has its ordinary meaning, whic h is an airplane certified by the federal aviation administration for 
transporting persons or property, and any military derivative of such an airplane". RCW Section 82.32.550(1)  
(Exhibit  EU-82). Further, the term "component" "means a part or system certif ied by the federal aviation 
administration for installation or assembly into a commercial airplane".  RCW Section 82.32.550(2)  
(Exhibit  EU-82). 
175 RCW Section 82.04.260(11)(b)  (Exhibit  EU-22). 
176 ESSB 5952  (Exhibit EU -3), Sections 5 -6; RCW 82.04.260(11)(a)  (Exhibit  EU-22). 
177 ESSB 5952  (Exhibit  EU-3), Sections  5-6. 
178 RCW Section 82.04.260(11)  (Exhibit  EU-22). WT/DS487/R  
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  7.61.  With regard to the "objective reasons" behind this tax treatment179, the Panel notes that the 
underlying legislation itself repeatedly refers to tax "incentives " and "preferences " to encourage 
the aerospace industry (as such) to remain in Washington State and to expand its presence there.  
For instance, ESSB 5952 is entitled "Aerospace Industry – Tax Preferences  – Tax Exemption".180 
The published Session Laws of Washington State containing ESSB 5952 characterize the act as 
"[r]elating 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 ".181 
7.62.  In the text of the legislation itself, t he Washington State legislature explicitly set out the 
reasons for enacting the aerospace tax measures in ESSB 5952:  
The legislature finds that the people of Washington have benefited enormously from 
the presence of the aerospace industry in Washington state. The legislature further 
finds that the industry continu es to provide good wages and benefits for the 
thousands of engineers, mechanics, and support staff working directly in the industry 
throughout the state. The legislature further finds that suppliers and vendors that 
support the aerospace industry in turn p rovide a range of well -paying jobs. In 2003, 
and again in 2006, and 2007, the legislature determined it was in the public interest 
to encourage the continued presence of the aerospace industry through the provision 
of tax incentives . To this end, and in re cognition of the continuing extreme importance 
of the aerospace industry in Washington, it is the legislature's intent to reaffirm and 
build upon prior aerospace tax incentive legislation  in a fiscally prudent manner.  
… 
It is the legislature's specific pub lic policy objective to maintain and grow 
Washington's aerospace industry workforce. To help achieve this public policy 
objective, it is the legislature's intent to conditionally extend aerospace industry tax 
preferences  until July 1, 2040, in recognition of intent by the state's aerospace 
industry sector to maintain and grow its workforce within the state.182  
7.63.  These references make clear that the purpose of the legislation is to provide favourable tax 
treatment for the aerospace industry, in order to encoura ge the i ndustry to remain in 
Washington  State and to grow its workforce. As stated in the Final Bill Report of ESSB 5952, "[t]he 
explicitly described public policy objective of the act is to maintain and grow Washington [State]'s 
aerospace industry workfor ce."183 This language is similar to that of the prior legislation in 
HB 2294. In HB 2294  the Washington State legislature "declare [d] that it is in the public interest 
to encourage the continued presence of [the aerospace ] industry through the provision of t ax 
incentives. The comprehensive tax incentives  in this act address the cost of doing business in 
Washington state compared to locations in other states."184 The mechanism for achieving the 
objective of encouraging the aerospace industry is, in the words of both pieces of legislation, the 
provision of tax "preferences", "exemptions", and "incentives".  
7.4.3.1.2   Second step: benchmark for comparison  
7.64.  Having identified the relevant tax treatment and its objective reasons, the next step of this 
analysis is the identificati on of an appropriate "benchmark for comparison" within th e 
Washington  State tax regime to determine whether this tax treatment constitutes revenue 
foregone by the Washington State government that would otherwise be due. This benchmark must 
be ascertained w ith regard for "the structure of the domestic tax regime and its organizing 
principles".185 
                                               
179 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 812.  
180 ESSB 5952  (Exhibit  EU-3), p. 2. (emphasis added)  
181 Ibid. (emphasis added)  
182 ESSB 5952  (Exhibit EU -3), Section 1(1) and (3).  
183 ESSB 5952 Final Bill Report  (Exhibit  EU-4), p. 3. 
184 HB 2294 (Exhibit  EU-21), Section 1. (emphasis added) See also SSB 6828  (Exhibit  EU-42), 
Section  1. 
185 Appellate Body Report, US – Large Civil Aircraft ( 2nd complaint) , para. 813.  WT/DS487/R  
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  7.65.  The European Union submits that the benchmarks for comparison are the "general B&O tax 
rate for manufacturing and wholesaling activities " of 0.484% and that of 0.471%  otherwise 
applicable to retailing.186 The United States generally contends that the European Union has not 
met its burden to identify the benchmark for each aerospace tax measure. With specific respect to 
the B&O aerospace tax rate, the United States submit s that Washington State's unique B&O tax 
system results in a pyramiding effect and thus  "the industry in which a taxpayer sits may impact 
whether it is comparably situated to a taxpayer in the aerospace industry ".187 The United States 
also submits that "ther e is no question that Boeing's 777X program would have qualified for the 
0.2904 percent B&O tax rate established under HB 2294 through 2024 if Washi ngton had not 
enacted ESSB 5952", and contends on this basis that "[Boeing's] eligibility for that rate duri ng the 
2014-2024 does not represent revenue foregone ".188 
7.66.  As a threshold matter, the Panel notes that the parties' arguments on the benchmark for 
examining the B&O aerospace tax rate relate specifically to the B&O tax regime, as distinguished 
from other type s of taxation that exist in Washington State. Given that the B&O tax is the primary  
business tax in Washington State, and noting the parties' argumentation based on particular 
features of that regime, the Panel frames its assessment  of "legitimately compar able" tax 
situations in the light of the specific structure and organizing principles of the B&O tax regime.  
7.67.  The Washington State B&O tax is imposed "for the act or privilege of engaging in business 
activities" and "is measured by the application of rates against the value of products, gross 
proceeds of sales, or gross income of the business, as the case may be".189 In general, the B&O 
tax rate varies by activity, according to the following "major B&O tax classifications": 
(i) manufacturing; (ii) wholesaling;  (iii) retailing; and (iv) services and other activities.190 
7.68.  Because t he B&O aerospace tax rate applies to manufacturing, wholesaling, and retailing 
activities for commercial airplanes (as well as their components and tooling), these are the B&O 
tax classifi cations that are pertinent to the benchmark for comparison. The provisions of 
Washington State law governing these three categories of B&O tax are set out below:  
Manufacturing : Upon every person  engaging within this state in business as a 
manufacturer, except persons taxable as manufacturers under other provisions of this 
chapter; as to such persons the amount of the tax with respect to such business shall 
be equal to the value of the products , including byproducts, manufactured, multiplied 
by the rate of 0.484 percent .191 (emphasis added)  
Wholesale : Upon every person  engaging within this state in the business of making 
sales at wholesale, except  persons taxable as wholesalers under other provisions of 
this chapter; as to such persons the amount of tax with respect  to such business shall 
be equal to the gross proceeds of sales of such business multiplied  by the rate of 
0.484 percent.192 (emphasis added)  
                                               
186 See European Union's response to Panel question No. 24, para. 48; f irst written submission, 
paras.  17-21, 59 . 
187 United States' response to Panel question No. 56, para. 20.  
188 United States' secon d written submission, para. 92.  
189 RCW Section 82.04.220(1)  (Exhibit  EU-32). See also United States' f irst written submission, 
paras.  39-41. As further explained by the Washington State D epartment of Revenue , "Washington, unlike 
many other states, does not have an income tax. Washington's B&O tax is calculated on the gross income from 
activities. This means there are no deductions from the B&O tax for labor, materials, taxes, or other costs of 
doing business." Business & Occupation Tax  Explanation , Washington State Department of Revenue  
(Exhibit EU-33). See also ESSB 5952 Final Bill Report (Exhibit EU -4), p. 1. 
190 Question : What are the  major B&O tax classifications? , Washington State Department of Revenue  
(Exhibit  USA-11); United States' first written submission, para. 41.  
191 RCW Section 82.04.240  (Exhibit  EU-36). Further, the "value of products, including by -products, 
extracted or manufactured shall be determined by the gross proceeds derived from the sale thereof whether 
such sale is at wholesale or at retail". RCW Section 82.04.450(1)  (Exhibit EU-37). 
192 RCW Section 82.04.270  (Exhibit  EU-39). Further, the "' [g]ross proceeds of sales' means the value 
proceeding or accruing from the sale of tangible personal property, digital goods, digital codes, digital 
automated services, and/or for other se rvices rendered, without any deduction on account of the cost of 
property sold, the cost of materials used, labor costs, interest, discount paid, delivery costs, taxes, or any 
other expense whatsoever paid or accrued and without any deductio n on account of  losses." 
RCW Section  82.04.070 (Exhibit EU -40). WT/DS487/R  
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  Retail : Upon every person  engaging within this state in the business of making sales 
at retail, except  persons  taxab le as retailers under other provisions of this chapter, as 
to such persons, the amount of tax with respect to such business is equal to the gross 
proceeds of sales of the business, multiplied  by the rate of 0.471 percent.193 
(emphasis added)  
7.69.  The Panel consid ers that these general rates, as set out in these provisions and identified by 
the European Union, properly serve as the " normative benchmark "194 for comparison within the 
Washington State B&O tax system. The express wording of the relevant statutes contempl ates a 
general rate of B&O taxation applicable to "every person" engaging in the relevant activity, 
"except" where such persons are taxable "under other provisions" of the same chapter.  
7.70.  Moreover, other documents produced by Washington State addressing the B&O aerospace 
tax rate support the understanding  that, in the absence of an explicit provision for a different tax 
treatment , B&O taxation would generally operate according to these major activity classifications 
and the corresponding rates of taxation. Th e Final Bill Report to ESSB 5952 describes the B&O tax 
and explains that "[m]ajor tax rates are 0.471 per cent for retailing ; 0.484 per cent for 
manufacturing , wholesaling , and extracting; and 1.5 per cent for services, and activities not 
classified elsewh ere".195 The Department of Revenue Fiscal Note in relation to ESSB  5952 provides 
a "narrative explanation" of the measures having a fiscal impact, which refers to "[r]educed 
business and occupation (B&O) tax rates of 0.2904% for manufacturers of commercial a irplanes 
(instead of the general manufacturing rate  of 0.484%)".196 Further, the Washington State 
Administrative Code refers to the RCW Section containing the B&O aerospace tax rate as 
"provid[ing] several special B&O tax rates/classifications  for manufactur ers engaging in certain 
manufacturing activities".197 Finally, a 2016 Tax Exemption Study by the Washington State 
Department of Revenue characterizes the B&O aerospace tax rate as a "preferential rate".198 
7.71.  The Panel notes the United States' description of the B&O tax as a "pyramiding tax". 
According to the United States:  
[G]oods and services are taxed multiple times as they move through the production 
chain, with a successively greater effective tax rate for each business in the chain. As 
a result, industries w ith multiple steps, such as the aerospace industry, have higher 
effective tax rates. In part to address this "pyramiding", Washington has introduced a 
number of industry -specific B&O tax rates.199 
7.72.  The Panel also observes that the United States further sugges ts that because "Washington's 
unique B&O tax system results in a pyramiding effect", "the industry in which a taxpayer sits may 
impact whether it is comparably situated to a taxpayer in the aerospace industry".200 
7.73.  Arguments related to the "pyramiding" effect  of the B&O tax were examined previously  by 
the panel and the Appellate Body in US – Large Civil Aircraft (2nd complaint)  in relation to similar 
(though subsequently amended and extended) measures under HB 2294. Reviewing arguments on 
average effective ta x rates based on the panel record in that dispute, the Appellate Body saw "no 
indication … that adjusting tax rates to approximate the average effective tax rate reflects a 
principle under the Washington State B&O tax regime. Rather, it appears to be more in the nature 
of an ex post  explanation regarding the relationship of these rates to one another. "201 The 
Appellate Body further considered that the panel record in that dispute did "not support the 
                                               
193 RCW Sec tion 82.04.250 (Exhibit EU -38). 
194 See Appellate Body Report, US – FSC, para. 90.  
195 ESSB 5952 Final Bill Report  (Exhibit  EU-4), p. 1. (emphasis added)  
196 ESSB 5952 Fiscal Note (Exhibit EU -5), p. 2. (emphasis added)  
197 WAC Section 458 -20-136(5)  (Exhibit USA-41). 
198 2016 Tax Exemption Study , Washington State Department of Revenue  (Exhibit EU-95), Appendix B , 
p. B-1. 
199 United States' first written submission, para. 41 (citing Panel Report, US – Large Civil Aircraft 
(2nd complaint) , para. 7.98).  
200 United States' Response to Panel question No. 56, para. 20.  
201 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 829.  WT/DS487/R  
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  contention that Washington State implemented House Bill  2294 alone, or as part of a broader 
regulatory scheme, to counteract the effects of pyramiding ".202 
7.74.  In the present dispute, the evidence before the Panel demonstrates that the B&O tax 
system is organized based on major activity classifications with statutorily prescribed rates of 
taxation corresponding to each activity. W ithin the framework of those major activity 
classifications , the B&O tax system  contemplates different rates of taxation for certain 
businesses.203 The B&O aerospace tax rate itself is one such ca se, as it is explicitly framed 
according to these major activity classifications  (i.e. manufacturing, wholesaling, and retailing), 
and for such aerospace activities it establishes a specific B&O tax rate due to policy reasons tied to 
the maintenance and gr owth of Washington State's aerospace industry workforce.204 
7.75.  In this context, the counteraction of higher effective tax rates from "pyramiding" due to 
multiple business activities does not appear to amount to an "organizing principle" of the domestic 
tax regi me in question. Other features of the B&O tax system may reflect a concern for preventing 
double B&O taxation, namely the provision for a Multiple Activities Tax Credit for persons taxable 
under the B&O tax on making retail and wholesale sales of the items  they manufacture , such that 
taxes paid on manufacturing of products sold in Washington State can be credited against retailing 
or wholesaling B&O tax liability on the items manufactured .205 However, this feature of the B&O 
tax system reinforces an understan ding of the B&O tax structure built on core activity 
classifications of manufacturing, wholesaling, and retailing for the purposes of identifying 
comparably situated taxpayers in Washington State.206 It is these activity classifications, rather 
than the effe ctive tax rates of specific industries or sectors, that appear to form the "organizing 
principle" underlying the B&O tax system.  
7.76.  Finally, the Panel is not persuaded that any possible qualification for pre -existing tax 
incentives, in particular those establ ished under HB 2294, is relevant to establishing the 
benchmark in this case. The fact that the applicable tax treatment may have been available 
previously by virtue of earlier measures does not automatically render that tax treatment its own 
normative benc hmark, particularly as the earlier application of the tax treatment in question may 
itself be a departure from the organizing principles of the domestic tax regime. The United States 
has not articulated why a B&O aerospace tax rate of 0.2904% should be und erstood as a "defined, 
normative benchmark" reflective of "organizing principles" of the B&O tax regime. The assertion 
that "[Boeing's] eligibility for that rate during the [period] 2014-2024 does not represent revenue 
foregone "207 would seem to apply a stri ct "but for" test, without accounting for the organizing 
principles of the B&O tax regime described above. Such an approach could amount to " identifying 
a benchmark solely by reference to historical rates "208, contrary to the reservations expressed by 
the Ap pellate Body209 as to the identification of a benchmark without proper regard for the 
complexities of a Member's domestic rules of taxation .210 In this case, the benchmark for 
comparison is not determined simply by historical tax treatment, but rather is based  on the 
government revenue that would be otherwise due from comparably situated taxpayers in light of 
the structure and organizing principles of the Wa shington State B&O tax regime.  
7.77.  On the basis of the evidence and arguments on the record, the Panel consid ers that 
taxpayers in Washington State engaged in the major business activities of manufacturing, 
wholesaling , and retailing are comparably situated to their counterparts in the aerospace industry 
engaged in such activities, as "every " taxpayer in the stat e engaged in those activities is subject to 
                                               
202 Ibid. para. 830.  
203 For example, the RCW provisions codifying the B&O aeros pace tax rate include special B&O tax rates 
for other businesses, including inter alia  the manufacturing of seafood and dairy products, as well as the 
manufacturing and wholesaling of "fruits or vegetables by canning, preserving, freezing, processing, or 
dehydrating fresh fruits or vegetables". See RCW Section 82.04.260(1) (Exhibit EU -22). 
204 ESSB 5952  (Exhibit EU -3), Section 1(3).  
205 RCW Section 82.04.440(4)  (Exhibit  USA-31). See also WAC Section 458 -20-19301(3)  
(Exhibit  EU-41) (explaining that " [t]his integ rated tax credits system is intended to assure that gross receipts 
from sales or the value of products determined by such gross receipts are taxed only one time, whether the 
activities occur entirely within this state or both within and outside this state" ). 
206 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813.  
207 United States' second wr itten submission, para. 92.  
208 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 815 . 
209 Appellate Body Report, US – FSC, para. 91. 
210 Appellate Body Report, US – FSC (Article 21.5 – EC), fn 66.  WT/DS487/R  
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  the B&O tax. Accordingly, the appropriate normative benchmarks with regard to the B&O 
aerospace tax rate are the general B&O tax rates of 0.484% for manufacturing and wholesaling 
activities , and 0.471% for retailing activities.  
7.4.3.1.3   Third step: comparison of applicable tax treatment with benchmark  
7.78.  Having established the relevant tax treatment provided to alleged beneficiaries of the B&O 
aerospace tax rate, as well as the reasons for that treatment, the Panel turns to t he comparison of 
the B&O aerospace tax rate with the identified benchmarks.  
7.79.  For taxpayers engaged in the business of manufacturing commercial airplanes, or 
manufacturing components of such airplanes, the B&O aerospace tax rate provides for a B&O tax 
rate o f 0.2904% . This is to be compared with the taxation of comparably situated taxpayers, 
namely the B&O tax rate of 0.484%  generally applicable to other entities engaged in 
manufacturing activities in Washington State. Pursuant to the Washington State tax cod e, as 
amended by ESSB  5952,  the rate applicable to manufacturing commercial airplanes (or 
components of such airplanes) is lower than that generally applied to other manufacturing 
activities. There is no evidence that this difference is reflective of any o rganizing principle of the 
B&O tax system. Rather, the difference is for the express reason of incentivizing the maintenance 
and growth of Washington State's aerospace industry.  For these reasons , the Panel finds that the 
Washington  State government is for egoing revenue that is otherwise due in relation to 
manufacturing beneficiaries of the B&O aerospace tax rate.  
7.80.  For taxpayers  engaged in the business of making sales at wholesale of  commercial 
airplanes, or making sales at wholesale of components of such ai rplanes, the B&O aerospace tax 
rate provides for a B&O tax rate of 0.2904%. This is to be compared with the taxation of 
comparably situated taxpayers, namely the B&O tax rate  of 0.484%  generally applicable to other 
entities engaged in wholesaling  activitie s in Washington State. Pursuant to the Washington State 
tax code, as amended by ESSB 5952 , the rate applicable to wholesale sales of commercial 
airplanes (or components of such airplanes ) is lower than that generally applied to wholesaling 
activities. T here is no evidence that this difference is reflective of any organizing principle of the 
B&O tax system. Rather, the difference is for the express reason of incentivizing the maintenance 
and growth of Washington State's aerospace industry. For these reasons , the Panel finds that the 
Washington  State government is foregoing revenue that is otherwise due in relation to wholesaling 
beneficiaries of the B&O aerospace tax rate.  
7.81.  For taxpayers engaged in the business of making sales at retail of commercial airplanes , or 
making sales at retail of  components of such airplanes, the B&O aerospace tax rate provides for a 
B&O tax rate of 0.2904%. This is to be compared with the taxation of comparably situated 
taxpayers, namely the B&O tax rate of 0.471%  generally applicabl e to other entities engaged in 
retailing  activities in Washington State. Pursuant to the Washington State tax code, as amended 
by ESSB 5952 , the rate applicable to retail sales  of commercial airplanes (or components of such 
airplanes ) is lower than that ge nerally applied to retailing activities . There is no evidence that this 
difference is reflective of any organizing principle of the B&O tax system. Rather, the difference is 
for the express reason of incentivizing the maintenance and growth of Washington S tate's 
aerospace industry. For these reasons , the Panel finds that the Washington State government is 
foregoing revenue that is otherwise due in relation to retailing  beneficiaries of the B&O aerospace 
tax rate.  
7.82.  Finally, for taxpayers engaged in the manufa cture and sales , at both wholesale and retail 
levels,  of tooling  for use in manufacturing commercial airplanes or components of such airplanes , 
the B&O aerospace tax rate provides for a B&O tax rate of 0.2904%. This is to be compared with 
the taxation of c omparably situated taxpayers, namely the B&O tax rate of 0.484% generally 
applicable to other entities engaged in manufacturing and wholesaling  activities in 
Washington  State , and the B&O tax rate of 0.4 71% generally applicable to other entities engaged 
in retailing activities in Washington State . Pursuant to the Washington State tax code, as amended 
by ESSB 5952 , the rate applicable to manufacturing, wholesaling, and retailing of tooling for use in 
manufacturing commercial airplanes (or components of such airplanes ) is lower than that generally 
applied to such activities . There is no evidence that this difference is reflective of any organizing 
principle of the B&O tax system. Rather, the difference is for the express reason of incentivizing 
the maintenance  and growth of Washington State's aerospace industry. For these reasons, the 
Panel finds that the Washington State government is foregoing revenue that is otherwise due in WT/DS487/R  
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  relation to tooling  beneficiaries (manufacturers, wholesalers, and retailers) of the  B&O aerospace 
tax rate.  
7.83.  Accordingly, the Panel finds that the B&O aerospace tax rate, in respect of all of the types of 
activities that it covers, constitutes a financial contribution within the meaning of 
Article  1.1(a)(1)(ii) of the SCM Agreement.  
7.4.3.2   B&O t ax credit for aerospace product development  
7.84.  The legislation for the B&O tax credit for aerospace product development provides in 
relevant part:  
(1)(a)(i) In computing the tax imposed under this chapter [the B&O tax], a credit is 
allowed for each person for  qualified aerospace product development. For a person 
who is a manufacturer or processor for hire of commercial airplanes or components of 
such airplanes, credit may be earned for expenditures occurring after December 1, 
2003. For all other persons, credi t may be earned only for expenditures occurring 
after June 30, 2008.  
… 
(2) The credit is equal to the amount of qualified aerospace product development 
expenditures of a person, multiplied by the rate of 1.5 percent.  
… 
(5) The definitions in this subsectio n apply throughout this section.  
… 
(b) "Aerospace product development" means research, design, and engineering 
activities performed in relation to the development of an aerospace product or of a 
product line, model, or model derivative of an aerospace prod uct, including prototype 
development, testing, and certification. …  
(c) "Qualified aerospace product development" means aerospace product development 
performed within this state.  
(d) "Qualified aerospace product development expenditures" means operating 
expenses, including wages, compensation of a proprietor or a partner in a partnership 
as determined by the department, benefits, supplies, and computer expenses, directly 
incurred in qualified aerospace product development by a person claiming the credit 
provided in this section. … 211 
7.4.3.2.1   First step: applicable tax treatment  
7.85.  Based on the available evidence, the Panel will first identify the applicable tax treatment 
under the B&O tax credit for aerospace product development, including consideration of the 
objective  reasons behind that treatment. As provided fo r in the r elevant legislation, 
Washington  State provides a credit against B&O tax liability "equal to the amount of qualified 
aerospace product development expenditures of a person, multiplied by the rate of 1. 5 per 
cent".212 The term " aerospace product development " is defined to include "research, design, and 
engineering activities performed in relation to the development of an aerospace product or of a 
product line, model, or model derivative of an aerospace pro duct, including prototype 
development, testing, and certification".213 In turn, the term "aerospace product" is defined under 
Washington State law as: "(i)  Commercial airplanes and their components; (ii) Machinery and 
equipment that is designed and used prim arily for the maintenance, repair, overhaul, or 
                                               
211 RCW Section 82.04.4461  (Exhibit  EU-23). 
212 RCW Section 82.04.4461(2)  (Exhibit  EU-23). 
213 RCW Section 82.04.4461(5)(b)  (Exhibit  EU-23). WT/DS487/R  
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  refurbishing of commercial airplanes or their components".214 Such "aerospace product 
development" is only "qualified" – i.e. it only counts towards the tax credit – if it occurs in 
Washington State215, and the r elevant expenditures for such development against which the credit 
is calculated include a variety of "operating expenses" specified in the relevant statute that are 
"directly incurred in qualified aerospace product development by a person claiming the cre dit 
provided in this section ".216 
7.86.  Thus, the tax treatment at issue is a credit applied against a taxpayer's B&O tax liability, 
calculated as 1.5% of expenditures on the development of commercial airplanes and their 
components, as well as machinery and equipm ent used in relation to commercial airplanes and 
their components.  As a result of the enactment of ESSB 5952, the B& O tax credit for aerospace 
product development  expires on 1 July 2040.217 Thus, the relevant tax treatment for the covered 
activities, at pres ent and until the 2040 expiry date, is as set forth above.  
7.87.  This tax treatment forms part of the legislation in ESSB 5952 targeted towards the 
aerospace industry in Washington State . Its "objective reasons" are the same as discussed in 
respect of the B&O ae rospace tax rate – that is, to provide favourable tax treatment for the 
aerospace industry in order to encourage the industry to remain in Washington State and to grow 
its workforce .218 
7.4.3.2.2   Second step: benchmark for comparison  
7.88.  Having identified the relevant tax  treatment and its objective reasons, the next step of the 
analysis is the identification of an appropriate "benchmark for co mparison" within the 
Washington  State tax regime to determine whether this tax treatment constitutes revenue 
foregone by the Washin gton State government that would otherwise be due. This benchmark must 
be ascertained with regard for "the structure of the domestic tax regime and its organizing 
principles".219 
7.89.  With regard to the "benchmark for comparison", the European Union submits that the B&O 
tax credit for aerospace product development reduces the amount of B&O tax liability by the value 
of the credit, and that "the standard tax treatment of manufacturers, unabated by such tax 
credits, serves as the normative benchmark".220 The United St ates, in addition to its general 
argument that the European Union has not met its burden to identify the benchmark for each 
aerospace tax measure , also submits, in respect of tax credits, that the comparable taxable 
"event" is not an event involving the sa me taxpayers absent the credit, as this would be the "type 
of historical comparison for a taxpayer [that] was criticized by the Appellate Body".221 
7.90.  The Panel considers that, as with the B&O aerospace tax rate, the B&O tax regime (rather 
than other types of t axation that exist in Washington State ) constitutes the part of the Washington 
State tax regime that is relevant to the appropriate benchmark  for the B&O tax credit for 
aerospace product development. Unlike the B&O aerospace tax rate, the B&O tax credit fo r 
aerospace product development  does not alter the rate of taxation applicable to a given taxpayer, 
but rather provides for an amount to be credited or offset against that taxpayer's B&O tax liability. 
As discussed above, the organizing principles of the B &O tax regime involve the establishment of 
                                               
214 RCW Section 82.08.975(3)(a)  (Exhibit  EU-25). Under Washington State law, the term "commercial 
airplane" "has its ordinary meaning, which is an airplane certified by the federal aviation administration for 
transporting persons or property, and any military derivative of such an airplane". RCW Section 82.3 2.550(1)  
(Exhibit  EU-82). Further, the term "component" "means a part or system certified by the federal aviation 
administration for installation or assembly into a commercial airplane". RCW Section 82.32.550(2)  
(Exhibit  EU-82). 
215 RCW Section 82.04.4461(5) (b) (Exhibit  EU-23). United States' first written submission, para. 60. 
216 RCW Section 82.04.4461 (5)(d) (Exhibit  EU-23). 
217 ESSB 5952 (Exhibit EU -3), Section 9.  
218 See para. 7.65 above.  
219 Appellate Body Report, US – Large Civil Ai rcraft (2nd complaint) , para. 813.  
220 See European Union's response to Panel question No. 24, para. 48; f irst written submission, 
paras.  22-24, 62 -63. 
221 The United States' r esponse to Panel question No. 57, para. 23 (citing Appellate Body Report, US – 
Large  Civil Aircraft  (2nd complaint) , para. 815).  WT/DS487/R  
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  generally applicable rates of taxation according to major activity classifications, across a range of 
different industries and sectors.222 
7.91.  Based on the evidence on record, the Panel does not consider it to be an "or ganizing 
principle" of the B&O tax regime  to provide industry -specific credits for designated activities to 
offset a portion of the tax liability arising from the pertinent B&O tax rates. A taxpayer is normally 
subject to generally applicable B&O tax rates  based on the type of business activity conducted 
(e.g. manufacturing, wholesaling, or retailing). The taxpayer's B&O tax liability would be calculated 
by multiplying the applicable tax rate by the taxable amount generated by the business activity.223 
The "gross" B&O tax liability thus calculated would be the benchmark against which to compare 
the taxpayer's B&O tax liability net of the amount of the credit. The fact that in every case of such 
comparison the taxpayer in question is the same does not change th is conclusion , because the 
organizing principle is not that credits are made available, but rather that taxpayers, by virtue of 
the generally applicable rates of taxation according to major activity classifications, would 
otherwise expect to have to pay th e tax that is being credited . Indeed, given that the form of the 
measure is a credit, or offset, against a taxpayer's gross B&O tax liability, the Panel considers this 
approach to identifying the benchmark  for a measure of this nature  as most reasonable . 
7.92.  The Panel therefore agrees with the European Union that the relevant normative benchmark 
is the B&O tax liability that would apply to a given taxpayer in the absence of the credit.  
7.4.3.2.3   Third step: comparison of applicable tax treatment with benchmark  
7.93.  Having est ablished the relevant tax treatment provided to alleged beneficiaries of the B&O 
tax credit for aerospace product development, as well as the reasons for that treatment, the Panel 
turns to the comparison of the B&O tax credit for aerospace product developm ent with the 
identified benchmark . 
7.94.  As described above, taxpayers engaged in activities subject to B&O taxation in 
Washi ngton  State are subject to B&O tax rates corresponding to the major activity classifications. 
It is by virtue of the additional provision  for a B&O tax credit tied to aerospace product 
development  that this tax liability can be reduced for eligible taxpayers by the amount of the 
credit . As noted above, this credit is provided within the framework of legislation enacted for the 
express reaso n of incentivizing the maintenance and growth of employment in Washington State's 
aerospace industry . 
7.95.  In this regard, the Panel is mindful of the Appellate Body's reservation that "an approach 
that focuses too narrowly on the change effected by a tax measu re could result in a finding that 
government revenue otherwise due is foregone anytime the tax rate applicable to a recipient is 
lowered."224 The Appellate Body underscored "the risk in identifying a benchmark solely by 
reference to historical rates, the ver y departure from which may reflect evidence of shifting norms 
within that regime".225 This is the issue raised by the United States referred to above.226 
7.96.  Taking into account the Appellate Body's guidance, the Panel's analysis does not concern 
"what previously  applied to commercial aircraft manufacturing activities", but rather "what would 
currently  apply to these activities if the conditions for" the tax credit were not met.227 The Panel 
has taken into account the structure of the B&O tax system and the reasons f or the specific tax 
treatment at issue. Moreover, the Panel does not consider , nor did the United States provide 
evidence or argumentation to suggest,  that the provision of this tax credit reflects "evidence of 
shifting norms  within " the B&O tax regime .228 The Panel notes that the measure in question is a 
                                               
222 See also Tax Classifications for Common Business Activities, Washington State Department of 
Revenue  (Exhibit EU-62). 
223 More specifically, the B&O tax liability "is measured by the application of rates against the value of 
products, gross proceeds of sales, or gross income of the business, as the case may be".  
RCW Section  82.04.220(1)  (Exhibit  EU-32). 
224 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 815. 
225 Ibid.  
226 See United States' res ponse to Panel question No. 57. 
227 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 823. (emphasis original) See 
also European Union's comments on the United States' response to Panel question No. 57, para. 15.  
228 Appellate Body Report , US – Large Civil Aircraft (2nd complaint) , para. 815. See also United States' 
response to Panel question No. 57. WT/DS487/R  
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  tax credit, and thus does not change the applicable tax rates, but rather offsets B&O tax liability 
that would otherwise be due in the absence of the credit.  
7.97.  Based on these considerations , the Panel finds th at the B&O tax credit for aerospace 
product development results in the foregoing of government revenue by Washington State with 
respect to the B&O tax liability that would otherwise be presently incurred by the taxpayers eligible 
for the credit . In this re gard, the Panel considers the illustrative reference in Article  1.1(a)(1)(ii)  to 
"fiscal incentives such as tax credits" to be apposite to the circumstances of the B&O tax credit for 
aerospace product development  as presented to the Panel . 
7.98.  Accordingly, the  Panel finds that the B&O tax credit for aerospace product development 
constitutes a financial contribution within the meaning of A rticle 1.1(a)(1)(ii) of the 
SCM Agreement.  
7.4.3.3   B&O tax credit  for property and leasehold excise taxes  
7.99.  The legislation for the B&O tax credit for property and leasehold excise taxes  provides in 
relevant part:  
(1) In computing the tax imposed under this chapter [the B&O tax], a credit is allowed 
for property taxes and leasehold excise taxes paid during the calendar year.  
(2) The credi t is equal to:  
(a)(i)(A) Property taxes paid on buildings, and land upon which the buildings are 
located, constructed after December 1, 2003, and used exclusively in manufacturing 
commercial airplanes or components of such airplanes; and  
(B) Leasehold exci se taxes paid with respect to buildings constructed after January 1, 
2006, the land upon which the buildings are located, or both, if the buildings are used 
exclusively in manufacturing commercial airplanes or components of such airplanes; 
and 
(C) Property  taxes or leasehold excise taxes paid on, or with respect to, buildings 
constructed after June 30, 2008, the land upon which the buildings are located, or 
both, and used exclusively for aerospace product development, manufacturing tooling 
specifically desi gned for use in manufacturing commercial airplanes or their 
components, or in providing aerospace services … ; or  
(ii) Property taxes attributable to an increase in assessed value due to the renovation 
or expansion, after: (A) December 1, 2003, of a buildi ng used exclusively in 
manufacturing commercial airplanes or components of such airplanes; and (B) 
June 30, 2008, of buildings used exclusively for aerospace product development, 
manufacturing tooling specifically designed for use in manufacturing commerci al 
airplanes or their components, or in providing aerospace services, … 229 
7.4.3.3.1   First step: applicable tax treatment  
7.100.   Based on the available evidence , the Panel will first identify the applicable tax treatment 
under the B&O tax credit for property and leasehold e xcise taxes, including consideration of the 
objective reasons behind that treatment. As provided fo r in the relevant legislation, 
Washington  State provides a credit against B&O tax liability  "for property taxes and leasehold 
excise taxes paid during the ca lendar year".230 The tax credit applies to property and leasehold 
excise taxes related to buildings, and/or land upon which the buildings are located, that are: "used 
                                               
229 RCW Section 82.04.4463  (Exhibit  EU-24). The B&O tax credit for property and leasehold excise taxes 
contains further provisions on the calcu lation of the credit for property taxes paid on certain machinery and 
equipment, as well as certain computer hardware, computer peripherals, and software. See RCW 
Section  82.04.4463(2)(b)  (Exhibit  EU-24). 
230 RCW Section 82.04.4463(1)  (Exhibit  EU-24). WT/DS487/R  
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  exclusively in manufacturing commercial airplanes or components of such airplanes"231; and "u sed 
exclusively for aerospace product development, manufacturing tooling specifically designed for use 
in manufacturing commercial airplanes or their components , or in providing aerospace services".232 
In addition, this B&O tax  credit applies to property tax es "attributable to an increase in assessed 
value due to renovation or expansion" of such buildings.233 As a result of the enactment of 
ESSB  5952, the B&O tax credit for property and leasehold excise taxes expires on 1 July 2040.234 
Thus, the relevant tax trea tment, at present and until the 2040 expiry date, is as set forth above.  
7.101.   The United States explains that the B&O tax credit for property and leasehold excise taxes  
enables a taxpayer to claim a credit that is measured according to property taxes and leaseh old 
excise taxes235 "due on certain types of property with certain types of uses related to commercial 
airplane, airplane components, aerospace services, and aerospace product development".236 The 
tax credit provided for under this aerospace tax measure "offse ts the B&O tax that is due in a 
given year".237 
7.102.   This tax treatment forms part of the legislation in ESSB 5952 targeted towards the 
aerospace industry in Washington State . As such, its "objective reasons" are the same as 
discussed in respect of the B&O aerosp ace tax rate – that is, to provide favourable tax treatment 
for the aerospace industry in order to encourage the industry to remain in Washington State and 
to grow its workforce.238 
7.4.3.3.2   Second step: benchmark for comparison  
7.103.   Having identified the relevant tax tre atment and its objective reasons, the next step of the 
analysis is the identification of an appropriate "benchmark for co mparison" within the 
Washington  State tax regime to determine whether this tax treatment constitutes revenue 
foregone by the Washington  State government that would otherwise be due. This benchmark must 
be ascertained with regard for "the structure of the domestic tax regime and its organizing 
principles".239 
7.104.   With regard to the "benchmark for comparison", the European Union submits that the B&O 
tax credit for property and leasehold excise taxes  reduces the amount of B&O tax liability by the 
value of the credit, and that "the standard tax treatment of manufacturers, unabated by such tax 
credits, serves as the normative benchmark".240 The United States, in addition to its general 
argument that the European Union has not met its burden to identify the benchmark for each 
aerospace tax measure, also submits, in respect of tax credits, that the comparable taxable 
"event" is not an event involving the same taxpayers absent the credit, as this would be the "type 
of historical comparison for a taxpayer [that] was criticized by the Appellate Body".241 
7.105.   The Panel considers that, as with the other B&O -related tax measures , the B&O tax regime 
constitutes the par t of the Washington State tax regime that is relevant to the appropriate 
benchmark for the B&O tax credit for property and leasehold excise taxes . Like the B&O tax credit 
for aerospace product development , the B&O tax credit for property and leasehold exci se taxes 
does not alter the rate of taxation but rather provides for an amount to be credited against a 
taxpayer's B&O tax liability. As discussed above, the organizing principles of the B&O tax regime 
                                               
231 RCW Section 82.04.4463(2)(a)(i)(A) and (B)  (Exhibit  EU-24). Under Washington State law, the term 
"commercial airplane" "has its ordinary meaning, which is an airplane certified by the federal aviation 
administration for transporting persons or property, and an y military derivative of such an airplane". RCW 
Section 82.32.550(1)  (Exhibit  EU-82). Further, the term "component" "means a part or system certified by the 
federal aviation administration for installation or assembly into a commercial airplane". RCW 
Section 82.32.550(2)  (Exhibit  EU-82). 
232 RCW Section 82.04.4463(2)(a)(i)(C)  (Exhibit  EU-24). 
233 RCW Section 82.04.4463(2)(a)(ii)  (Exhibit  EU-24). 
234 ESSB 5952 (Exhibit EU -3), Section 10.  
235 See description of these taxes in paras. 7.25-7.26 above . 
236 United States' response to Panel question No. 9, para. 18.  
237 Ibid. 
238 See para. 7.65 above.  
239 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813.  
240 See European  Union's response to Panel question No. 24, para. 48; f irst written submission, 
paras.  22-24, 62 -63. 
241 The United States' r esponse to Panel question No. 57, para. 23 (citing Appellate Body Report, US – 
Large Civil Aircraft  (2nd complaint) , para. 815).  WT/DS487/R  
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  involve the establishment of generally applicable rate s of taxation according to major activity 
classifications, across a range of different industries and sectors.242 
7.106.   As also discussed above, and b ased on the evidence on record, the Panel does not consider 
it to be an "organizing principle" of the B&O tax regi me to provide industry -specific credits for 
designated activities to offset a portion of the tax liability arising from the pertinent B&O tax rates.  
The Panel follows the same approach  for the B&O tax credit for property and leasehold excise 
taxes, for the  same reasons, as that taken in respect of the B&O tax credit for aerospace product 
development.  The Panel therefore agrees with the European Union that the relevant normative 
benchmark is the B&O tax liability that would apply in the absence of the credit . 
7.4.3.3.3   Third step: comparison of applicable tax treatment with benchmark  
7.107.   The comparison for the B&O tax credit for property and leasehold excise taxes  follows the 
same reasoning as that set out above for the B&O tax credit for aerospace product development . 
Thus, taxpayers engaged in activities subject to B&O taxation in Washington State are subject to 
B&O tax rates corresponding to the major activity classifications. It is by virtue of the additional 
provision for a B&O tax credit for property and leasehold exc ise taxes paid in respect of the 
designated aerospace related activities and properties that this tax liability can be reduced, for 
eligible taxpayers, by the amount of the credit . As noted above, this credit is provided within the 
framework of legislation  enacted for the express reason of incentivizing the maintenance and 
growth of employment in Washington State's aerospace industry . 
7.108.   As with the B&O tax credit for aerospace product development , the Panel is mindful of the 
Appellate Body's reservation that "an approach that focuses too narrowly on the change effected 
by a tax measure could result in a finding that government revenue otherwise due is foregone 
anytime the tax rate applicable to a recipient is lowered."243 The Appellate Body underscored "the 
risk in identifying a benchmark solely by reference to historical rates, the very departure from 
which may reflect evidence of shifting norms within that regime".244 
7.109.   Taking into account the Appellate Body's guidance, the Panel's analysis does not concern 
"what previously  applied to commercial aircraft manufacturing activities", but rather "what would 
currently  apply to these activities if the conditions for" the tax credit were not met.245 The Panel 
has taken into account the structure of the B&O tax system and the  reasons for the specific tax 
treatment at issue. Moreover, the Panel does not consider , nor did the United States provide 
evidence or argumentation to suggest, that the provision of this tax credit reflects " evidence of 
shifting norms within " the B&O tax regime .246 The Panel notes that the measure in question is a 
tax credit, and thus does not change the applicable tax rates, but rather offsets B&O tax liability 
that would otherwise be due in the absence of the credit.  
7.110.   Based on these considerations , the Pane l finds that the B&O tax credit for property and 
leasehold excise taxes results in the foregoing of government revenue by Washington State with 
respect to the B&O tax liability that would otherwise be presently incurred by taxpayers eligible for 
the credit . In this regard, and a s with the B&O tax credit for aerospace product development , the 
Panel considers the illustrative reference to "fiscal incentives such as tax credits" in 
Article  1.1(a)(1)(ii) to be apposite to the circumstances of the B&O tax credit  for property and 
leasehold excise taxes  as presented to the Panel . 
7.111.   Accordingly, the Panel finds that the B&O tax credit for property and leasehold excise taxes 
constitutes a financial contribution within the meaning of A rticle 1.1(a)(1)(ii) of the 
SCM Agreement.  
                                               
242 See also Tax Classifications for Common Business Activities, Washington State Department of 
Revenue  (Exhibit EU-62). 
243 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 815. 
244 Ibid. See also United States' response to Panel question No.  57. 
245 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 823. (emphasis original) See 
also European Union's comments on the United States' response to Panel question No. 57, para. 15.  
246 Appellate Body Report, US – Large Civil Aircraft  (2nd complaint) , para. 815. See also United States' 
response to Panel question No. 57. WT/DS487/R  
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  7.4.3.4   Computer sales and use tax exemptions  
7.112.   The legislation for the c omputer sales tax e xemption  provides  in relevant part:  
(1) The tax levied by RCW 82.08.020 [the sales tax] does not apply to sales of 
computer hardware, computer peripherals, or softwar e … used primarily in the 
development, design, and engineering of aerospace products or in providing 
aerospace services, or to sales of or charges made for labor and services rendered in 
respect to installing the computer hardware, computer peripherals, or  software.247 
7.113.   The computer use tax e xemption  provide s in relevant part:  
(1) The provisions of this chapter [the use tax] do not apply in respect to the use of 
computer hardware, computer peripherals … used primarily in the development, 
design, and engineerin g of aerospace products or in providing aerospace services, or 
to the use of labor and services rendered in respect to installing the computer 
hardware, computer peripherals, or software.248 
7.4.3.4.1   First step: applicable tax treatment  
7.114.   Based on the available evidenc e, the Panel will first identify the applicable tax treatment 
under the computer sales and use tax exemptions , including consideration of the objective reasons 
behind that treatment. As provided fo r in the relevant legislation, Washington State provides an  
exemption from the retail sales tax249 for "sales of computer hardware, computer peripherals, or 
software … used primarily in the development, design, and engineering of aerospace products or in 
providing aerospace services, or to sales of or charges made f or labor and services rendered in 
respect  to installing the computer hard ware, computer peripherals, or software".250 Additionally, 
the use of these items is exempt from the Washington  State 's "use tax"251, which is a tax on the 
use of goods or certain service s in the state of Washington when sales tax has not been paid.252 As 
a result of ESSB 5952, the computer sales and use tax exemptions expire on 1 July 2040.253 Thus, 
the relevant tax treatment for the covered activities and products, at present and until the 2 040 
expiry date, is as set forth above.  
7.115.   This tax treatment forms part of the legislation in ESSB 5952 targeted towards the 
aerospace industry in Washington State . As such, its "objective reasons" are the same as 
discussed in respect of the B&O aerospace ta x rate – that is, to provide favourable tax treatment 
for the aerospace industry in order to encourage the industry to remain in Washington State and 
to grow its workforce.254 
7.4.3.4.2   Second step: benchmark for comparison  
7.116.   Having identified the relevant tax treatment  and its objective reasons, the next step of the 
analysis is the identification of an appropriate "benchmark for co mparison" within the 
Washington  State tax regime to determine whether this tax treatment constitutes revenue 
foregone by the Washington State  government that would otherwise be due. This benchmark must 
be ascertained with regard for "the structure of the domestic tax regime and its organizing 
principles".255 
                                               
247 RCW Section 82.08.975 (Exhibit EU -25). 
248 RCW Section 82.12.975  (Exhibit  EU-26). 
249 RCW Section 82.08.020  (Exhibit  EU-92). 
250 RCW Section 82.08.975  (Exhibit  EU-25). 
251 RCW Section 82.12.975 (Exhibit EU -26). 
252 Use Tax Explanation, Washington State Department of Revenue  (Exhibit  USA-19). For example, the 
use tax is owed if goods are purchased in another state that does not have a sales tax or a state with a sa les 
tax lower t han that of the s tate of Washington. The use tax would also be owed if good are purchased from 
someone who is not authorized to collect sales tax (e.g. purchases of furniture from an individual through a 
newspaper classified ad or a purchase of artwork fro m an individual collector), or if personal property is 
acquired with the purchase of real property.  
253 ESSB 5952 (Exhibit EU -3), Sections 11 -12. 
254 See para. 7.65 above.  
255 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813.  WT/DS487/R  
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  7.117.   With regard to the "benchmark for comparison", the European Union submits that the 
comput er sales and use tax exemptions " exempt [] the purchase of otherwise taxable goods and 
services from the retail sales and use taxes ", and that "the normative benchmark is the sales and 
use taxes that would otherwise apply absent these exemptions".256 The Unit ed States, in addition 
to its general argument that the European Union has not met its burden to identify the benchmark 
for each aerospace tax measure, also submits, in respect of tax exemptions , that the comparable 
taxable "event" is not an event involvin g the same taxpayers absent the exemption , as this would 
be the "type of historical comparison for a taxpayer [that] was criticized by the Appellate Body".257 
The United States further submits that "quantitative coverage of various tax regimes could be 
relevant to determining a financial contribution compared to a normative benchmark"258 and that 
"Washington provides a large number of exemptions  … suggesting that the sales and use tax rates 
that are notionally (but not actually) applicable to all purchases by c onsumers located in 
Washington are not the appropriate benchmark ".259 
7.118.   As a threshold matter, it is the sales and use tax regime , as distinguished from other types 
of taxation that exist in Washington State , in which the aerospace tax measure at issue applies  
and according to which the parties have advanced their arguments on the appropriate benchmark 
for comparison. Therefore, in order to identify the appropriate benchmark for comparison, the 
Panel will examine the structure of the sales and use tax regime in  Washington State , particularly 
in respect of its organizing principles and legitimately comparable  tax situations.  
7.119.   Washington State has a retail sales tax, which is its principal source  of tax revenue .260 
Generally, a retail sale is the sale of tangible per sonal property, as well as the sale of certain 
services (including construction services) and sales of digital products to consumers.261 The 
Washington State retail sales tax rate has two components: the state component, which is equal 
to 6.5%, and the local  component, which varies by jurisdiction .262 Local gov ernments within 
Washington State have the authority to set their own retail sales tax  rates within their 
jurisdictions, but the State administers both components .263 
7.120.   The Washington State use tax is compleme ntary to the retail sales tax, in that it is due on 
the use of goods or services to the extent that the user has not paid the Washington State retail 
sales tax or "a legally imposed retail sales or use tax … to any other state, possession, territory, or 
commonwealth of the United States, any political subdivision thereof, the District of Columbia, and 
any foreign country or political subdivision thereof".264 Thus, goods in Washington State are 
subject to either sales or use tax, but not both, and the use tax compensates when the sales tax 
has not been paid.265 Use tax is determined on the value of the goods ( generally the purchase 
price) when first used in Washington State.266 The use tax rate is the same as the retail sales tax 
rate.267 
7.121.   Both parties have noted that  there are a number of exemptions from retail sales and use 
taxes for purchases of specific goods or services. Some of these exemptions are limited to a 
particular industry or sector, while other exemptions are available for any purchaser or user of the 
                                               
256 See European Union's comments on the United States' response to Panel question No. 24, para. 50; 
first written submission, paras. 22 -24, 62 -63. 
257 The United States' r esponse to Panel question No. 57, para. 23 (citing Appellate Body Re port, US – 
Large Civil Aircraft  (2nd complaint) , para. 815).  
258 United States' response to Panel question No. 60, para. 31. 
259 United States' response to Panel question No. 56, para. 21. 
260 United  States' first written submission, para . 42; Retail Sales Tax E xplanation, Washington State 
Department of Revenue  (Exhibit  USA-12). 
261 RCW Section 82.08.020  (Exhibit  EU-92); United States' first written submission, para. 42; Retail 
Sales Tax Explanation, Washington State Department of Revenue  (Exhibit  USA-12); Services  Subject to Sales 
Tax, Washington State Department of Revenue  (Exhibit  USA-13); Digital Products including Digi tal Goods , 
Washington State Department of  Revenue (Exhibit USA -14). 
262 See Local Sales, Use Tax Rates and Changes, Washington State Department of Revenue 
(Exhibit  USA-16). 
263 United States' first written submission , para. 43. 
264 RCW Section 82.12.020  (Exhibit  USA-17); RCW Section  82.12.035  (Exhibit  USA-18). 
265 Use Tax Explanation, Washington State Department of Revenue  (Exhibit  USA-19).  
266 Ibid. 
267 Ibid. WT/DS487/R  
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  specified good or service.268 The parties also have advanced arguments based on the quantitative 
coverage of the exemptions .269 
7.122.   The parties' arguments on the coverage and exemption of sales and use taxes are 
primarily based on a 2016 Tax Exemption Study by the Washington State Department of Revenue. 
The portions of the study submitted to the Panel include an Introduction and Summary of 
Findings270 as well as an Appendix containing a detailed list of "tax exemptions" examined in the 
study. The study uses the term "t ax exemption" to cover "a variety of preferences that reduce tax 
liability for taxpayers", including exclusions, deductions, credits, preferential tax rates, and 
exemptions under a range of different tax regimes, not limited to the retail sales and use tax es.271 
On the basis of data in this study, both parties have submitted figures on the quantitative 
coverage of certain exemptions in relation to the underlying tax. The United States refers to the 
large number of exemptions as "suggesting that the sales and use tax rates that are notionally 
(but not actually) applicable to all purchases by consumers located in Washington are not the 
appropriate benchmark".272 
7.123.   Having examined the tax study, the Panel  finds that it evidences a tax regime structure in 
which there are specific exemptions targeted at defined beneficiaries.273 To the extent that the 
study is submitted as evidence of the factual assertion  that exemptions from the tax rules in 
question (sales and use taxes) are of greater value than government revenue col lected under 
those rules,  the parties' arguments based on this study do not clearly establish that this is the 
case. For example, the parties derive fractions using different figures for the numerator274, and the 
figures used by both parties fail to adjust f or the exemptions in question that are available to the 
aerospace industry, which could be necessary to assess government revenue that would be 
"otherwise due" and to guard against the normative benchmark being distorted by alleged 
subsidies at issue.275 
7.124.   The Panel considers that the quantitative scope of what may be considered an "exception" 
could undermine the notion of a "general rule" for a given tax situation . An organizing principle 
that a government professes in respect of a tax, or that appears to be t he principle that is being 
applied "on the surface", may not represent the "true" organizing principle. T he terms and 
principles employed by the sovereign tax authority in question  will be important but in all cases 
the Panel's decision must be informed by  the evidence and by the Panel's interpretation of it . In 
this respect, the Panel finds relevant the Appellate Body's statement that the benchmark for 
comparison is normative in nature , and that "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".276 
                                               
268 See Table of Contents for RCW Chapter 82.08  (Exhibit  USA-64); Retail Sales Tax Explanation, 
Washington State Department of Revenue  (Exhibit  USA-12) (listing "common exemptions" that include food, 
prescription drugs, sales to nonresidents, federal gover nment sales, interstate and foreign sales, 
manufacturers' machinery and equipment, sales to Indians or Indian tribes, and newspapers); 2016 Tax 
Exemption Study, Washington State Department of Revenue  (Exhibit  EU-95), Appendix B ; 
United  States'  response to Panel question No. 25, para. 55 (providing as examples motor vehicles and 
brokered natural gas).  
269 See parties' responses and comments on each other's responses to Panel question No. 60.  
270 2016 Tax Exemption Study, Washington State Department of Revenue (E xhibit USA-65), 
Introduction and Summary of Findings . 
271 Ibid. p. 1-1. 
272 United States' response to Panel question No. 56, para. 21.  
273 2016 Tax Exemption Study, Washington State Department  of Revenue (Exhibit EU -95), Appendix B . 
274 Specifically, the United States uses a fraction based on "taxpayer savings from exemptions", whereas 
the European Union uses a fraction based on "state potential revenue gains" – these figures form the 
numerator of the fraction to represent the value of the exemption, and both par ties add "forecasted tax 
revenues" of the particular tax to the chosen exemption value to form the denominator. The difference 
between taxpayer savings, on the one hand, and potential revenue gains from a full repeal, on the other hand, 
is that repeal of a  given exemption does not automatically mean the tax can be collected due to other reasons 
within the Washington State tax system.  See 2016 Tax Exemption Study, Washington State Department of 
Revenue  (Exhibit  USA-65), Introduction and Summary of Findings,  p. 1-3. 
275 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 824.  
276 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813. WT/DS487/R  
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  7.125.   In this case, the Washington State sales and use taxes are draw n as broadly applicable 
taxes in a non -exhaustive fashion, and are designed to complement one another through mutually 
exclusive coverage. This breadth of the sales and use taxes is foundational to the structure of the 
sales and use tax regime, which set o ut exemptions in a specific manner . Although the exemptions 
involve a diversity of goods, services, and sectors , the evidence advanced by the United States is 
not sufficient to rebut the prima facie  conclusion that can be drawn from what the European Union  
has placed before the Panel . The structure of the tax is that of a generally applicable tax that 
applies by default. As a matter of fact the Panel does not find that structure to have been inverted 
by the relative coverage of exemptions in quantitative te rms. In other words, exempting taxpayers 
from sales and use taxes does not amount to an "organizing principle" of the Washington State 
sales and use tax regime (or the Washington State tax regime more generally).  
7.126.   It is with regard for this basic structure,  and on the basis of the rules established by 
Washington State, that the Panel finds that the generally applicable sales and use taxes serve as 
the appropriate normative benchmark in respect of the computer sales and use tax exemptions . 
7.4.3.4.3   Third step: compari son of applicable tax treatment with benchmark  
7.127.   In view of the benchmark established above, it follows that the specific exemption from 
sales and use taxe s, which otherwise would apply to the aerospace activities in question , amounts 
to the foregoing of gov ernment revenue by Washington State that would otherwise be due. 
Accordingly, the Panel finds that the computer sales and use tax exemption constitutes a financial 
contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.  
7.4.3.5   Construction sales and use tax exemptions  
7.128.   The legislation for the c onstruction sales tax exemption  provides  in relevant part:  
(1) The tax levied by RCW 82.08.020 does not apply to:  
(a) Charges, for labor and services rendered in respect to the constructing of new 
buildings, made to (i) a manufacturer engaged in the manufacturing of commercial 
airplanes or the fuselages or wings of commercial airplanes or (ii) a port district, 
political subdivision, or municipal corporation, to be leased to a manufacturer engaged 
in the manufacturing of commercial airplanes or the fuselages or wings of commercial 
airplanes;  
(b) Sales of tangible personal property that will be incorporated as an ingredient or 
component of such buildings during the course of the constructing; or  
(c) Charges made for labor and services rendered in respect to installing, during the 
course  of constructing such buildings, building fixtures … 277 
7.129.   The construction use tax exemption  provides  in relevant part:  
(1) The provisions of this chapter do not apply with respect to the use of:  
(a) Tangible personal property that will be incorporated as an ingredient or component 
in constructing new buildings for (i) a manufacturer engaged in the manufacturing of 
commercial airplanes or the fuselages or wings of commercial airplanes or (ii) a port 
district, political subdivision, or municipal corporation, to  be leased to a manufacturer 
engaged in the manufacturing of commercial airplanes or the fuselages or wings of 
commercial airplanes; or  
(b) Labor and services rendered in respect to installing, during the course of 
constructing such buildings, building fix tures … 278 
                                               
277 RCW Section 82.08.980  (Exhibit EU-27). 
278 RCW Section 82.12.980  (Exhibit  EU-28). WT/DS487/R  
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  7.4.3.5.1   First step: applicable tax treatment  
7.130.   Based on the available evidence , the Panel will first identify the applicable tax treatment 
under the construction sales and use tax exemptions , including consideration of the objective 
reasons behind that tre atment. As provided fo r in the relevant legislation, Washington State 
provides exemptions from retail sales taxes279 on "[c]harges, for labor and services rendered in 
respect to the constructing of new buildings, made to a manufacturer engaged in the 
manufac turing of commercial airplanes or the fuselages or wings of commercial airplanes", as well 
as taxes on "[s]ales of tangible personal property that will be incorporated as an ingredient or 
component of such buildings during the course of the constructing".280 Similarly, there is an 
exemption from use taxes "with respect to the use of [t]angible personal property that will be 
incorporated as an ingredient or component in constructing new buildings for a manufacturer 
engaged in the manufacturing of commercial ai rplanes or the fuselages  or wings of commercial 
airplanes".281 As a result of ESSB 5952, the construction sales and use tax exemptions expire on 
1 July 2040.282 Thus, the relevant tax treatment for the covered activities and products, at present 
and until the 2040 expiry date, is as set forth above.  
7.131.   This tax treatment forms part of the legislation in ESSB 5952 targeted towards the 
aerospace industry in Washington State . As such, its "objective reasons" are the same as 
discussed in respect of the B&O aerospace t ax rate – that is, to provide favourable tax treatment 
for the aerospace industry in order to encourage the industry to remain in Washington State and 
to grow its workforce.283 
7.4.3.5.2   Second step: benchmark for comparison  
7.132.   The parties have not differentiated between  the computer sales and use tax exemptions, 
on the one hand, and the construction sales and use tax exemptions, on the other, in their 
arguments regarding the benchmark for comparison.  
7.133.   The construction sales and use tax exemptions  pertain to the same under lying tax 
obligations as those considered above, namely the Washington State retail sales and use taxes. In 
the Panel's view, the same considerations apply in determining the appropriate normative 
benchmark for comparison in relation to the construction sa les and use tax exemptions . These 
exemptions form a targeted tax treatment within a structure organized according to the principle 
that either sales or use taxes, but not both, are generally due on the sales and use of tangible 
goods and services.  In light  of this basic organizing principle, it is the generally applicable sales 
and use taxes that serve as the appropriate normative benchmark in this case.  
7.4.3.5.3   Third step: comparison of applicable tax treatment with benchmark  
7.134.   In view of the benchmark established a bove, it follows that the specific exemption from 
sales and use taxe s, which would otherwise apply to the aerospace activities in question , amounts 
to the foregoing of government revenue by Washington State that would otherwise be due. 
Accordingly, the Pan el finds that the construction sales and use tax exemption constitutes a 
financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.  
7.4.3.6   Leasehold excise tax exemption  
7.135.   The legislation for the l easehold excise tax exemption provides  in relevant part:  
                                               
279 RCW Section 82.08.020  (Exhibit EU-92). 
280 RCW Section 82.08.980 (Exhibit EU -27). A similar exemption is applied for charges, for labor and 
services for constructing new buildings, made to "a port district, political subdivision, or municipal corporation, 
to be leased to a manufacturer engaged in the manufacturing of commercial airplanes or the fuselages or 
wings of commercial airplanes".  
281 RCW Section 82.12.980  (Exhibit  EU-28). A similar ex emption is applied to tangible  property used in 
constructing new buildi ngs for "a port district, political subdivision, or municipal corporation, to be leased to a 
manufacturer engaged in the manufacturing of commercial airplanes or the fuselages or wings of commercial 
airplanes".  
282 ESSB 5952 (Exhibit EU -3), Sections 3 -4. 
283 See para. 7.65 above.  WT/DS487/R  
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  (1) All leasehold interests in port district facilities exempt from tax under [the 
construction sales and use tax exemptions ] and used by a manufacturer engaged in 
the manufacturing of superefficient airplanes … are exempt from tax under  this 
chapter. A person claiming the credit under [the  B&O tax credit for property and 
leasehold excise taxes ] is not eligible for the exemption under this section.284 
7.4.3.6.1   First step: applicable tax treatment  
7.136.   Based on the available evidence , the Panel will first  identify the applicable tax treatment 
under the leasehold excise tax exemption, including consideration of the objective reasons behind 
that treatment. As provided fo r in the relevant legislation, Washington State imposes a leasehold 
excise tax in lieu of  a property tax on the use of public property by a private party.285 The relevant 
regulations explain that "[t]he intent of the law is to ensure that lessees of property owned by 
public entities bear their fair share of the cost of governmental services when  the property is 
rented to someone who would be subject to property taxes if the lessee were the owner of the 
property".286 Washington State exempts from this tax leasehold  interests in certain facilities "used 
by a manufacturer engaged in the manufacturing of superefficient airplanes" .287 The leasehold 
excise tax exemption is not available to a person claiming the B&O tax credit for property and 
leasehold excise taxes .288 ESSB 5952 extended the application of this exemption to 1 July 2040.289 
Thus, the relevant ta x treatment for the covered activities, at present and until the 2040 expiry 
date, is as set forth above.  
7.137.   This tax treatment forms part of the legislation in ESSB 5952 targeted towards the 
aerospace industry in Washington State . As such, its "objective rea sons" are the same as 
discussed in respect of the B&O aerospace tax rate – that is, to provide favourable tax treatment 
for the aerospace industry in order to encourage the industry to remain in Washington State and 
to grow its workforce.290 
7.4.3.6.2   Second step: ben chmark for comparison  
7.138.   Having identified the relevant tax treatment and its objective reasons, the next step of the 
analysis is the identification of an appropriate "benchmark for co mparison" within the 
Washington  State tax regime to determine whether this tax treatment constitutes revenue 
foregone by the Washington State government that would otherwise be due. This benchmark must 
be ascertained with regard for "the structure of the domestic tax regime and its organizing 
principles".291 
7.139.   The European Union subm its that the appropriate benchmark for comparison for the 
leasehold excise tax exemption "is the payment of the 12.84 percent leasehold excise tax that 
would normally apply ".292 The United States, in addition to its gen eral argument that the 
European  Union h as not met its burden to identify the benchmark for each aerospace tax measure, 
also submits that, for tax exemptions, the comparable taxable "event" is not an event involving 
the same taxpayer absent the exemptions, as this would be the "type of historica l comparison for 
a taxpayer [that] was criticized by the Appellate Body".293 The United States further submits that 
"quantitative coverage of various tax regimes could be relevant to determining a financial 
                                               
284 RCW Section 82.29A.137 (Exhibit  EU-29). 
285 Leasehold Excise Tax,  Washington State Department of Revenue  (Exhibit  EU-49). 
286 WAC Section 458 -29A-100 (Exhibit EU -50). 
287 Under Washington State law, "supereffic ient airplane" is 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 percent 
less fuel than other similar airplanes on the market". RCW Section  82.32.550(3)  (Exhibit  EU-82). 
288 RCW Section 82.29A.137  (Exhibit  EU-29). 
289 ESSB 5952 (Exhibit EU -3), Section 13; RCW Section 82.29A.137  (Exhibit  EU-29). 
290 See para. 7.65 above.  
291 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813.  
292 European Union's response to Panel question No. 24, para. 51.  
293 United States' r esponse to Panel question No. 57, para. 23 (citing Appellate Body Report, US – Large 
Civil Aircraft  (2nd complaint) , para. 815).  WT/DS487/R  
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  contribution compared to a normative benchmark"294 and that  "tax exemptions far outweighed tax 
revenues" for state property taxes.295 
7.140.   The Panel notes that the leasehold excise tax is an excise tax that supplements the 
Washington State property tax regime. Specifically, the leasehold excise tax applies in lieu of real 
property tax where a private party uses public property  under lease, rather than owning real 
property . This tax is complementary to real and personal property taxes, which are levied in 
accordance with the statutory rule of the property tax regime in Washington State that "[a]ll 
property now existing, or that is hereafter created or brought into this state, shall be subject to 
assessment and taxation for state, county, and other taxing district purposes".296 Thus, real and 
personal property is general ly subject to taxation, although a number of exemptions to this 
general rule apply.297 For example, property valued at less than USD 500, churches and 
cemeteries, business inventory, and property owned by federal, state, and local governments are 
all exempt from property taxation.298 Although government -owned property as such is not subject 
to property tax, such property becomes subject to the leasehold excise tax when it is used by a 
private party. Personal property such as household goods and personal effects  are not subject to 
property tax unless these items are used in a business, and personal property is subject to the 
same levy rate as real property.299 
7.141.   Based on the foregoing, the Panel considers that  it is the Washington State property tax 
regime, as distin guished from other types of taxation that exist in Washington State , that is 
relevant to identify ing the appropriate benchmark for the leasehold excise tax exemption. As 
noted, under this tax regime, real and personal property is subject to taxation unless  a specific 
exemption applies. In this respect, while the Panel takes note of the parties' arguments on the 
quantitative coverage of property tax exemptions300, the relevant rules established by 
Washington  State authorities suggest that the organizing princi ple of the tax regime is to create a 
default rule of property taxation with provision for specific exemptions  and the quantitative 
information does not displace that principle . Exempting taxpayers from property tax liability does 
not appear to be an "organ izing principle" of the Washington State property tax regime. Nor does 
the structure of the tax regime in question suggest an alternative benchmark apart from the 
generally defined norm of being subject to property taxation. The particular features of the 
leasehold excise tax, which is a tax on the use of public property by a private party in lieu of the 
property tax, reinforces the notion of generally applicable property taxation as the appropriate 
benchmark for comparison.301 In light of this, the applicabl e leasehold excise tax rate of 12.84% of 
the rent paid by the lessee for the property represents the taxable situation that is legitimately 
comparable to that covered by the leasehold excise tax exemption.  
7.142.   Accordingly, the Panel considers that the benchmar k for comparison for the leasehold 
excise tax exemption is the leasehold excise tax that would ordinarily be imposed on private 
parties using public property.  
7.4.3.6.3   Third step: comparison of applicable tax treatment with benchmark  
7.143.   Given the benchmark of otherwis e applicable leasehold excise taxation within the general 
regime of property taxation , the specific exemption from leasehold excise  taxes, which would 
otherwise apply to the aerospace activities in question, amounts to the foregoing of government 
                                               
294 United States' response to Panel question No. 60, para. 31. 
295 Ibid. para. 32. 
296 RCW Section 84.36.005  (Exhibit  USA-20). 
297 United States' first written submission, para. 46.  
298 RCW Section  84.36.010  (Exhibit  USA-21); RCW Section 84.36.020  (Exhibit  USA-22); RCW 
Section  84.36. 477 (Exhibit  USA-23). 
299 Real and personal property are chiefly distinguished by the characteristic of  mobility , with the former 
including " land, structures, improvements  to land,  and certain equipment affixed to  land or structures ", and 
the latter including " machinery, equipment,  furniture, and supplies of businesses  and farmers ". Personal 
Property Tax , Washington State Department of Revenue  (Exhibit  EU-51). 
300 See parties ' responses and comments on each other's responses to Panel question No. 60. See also 
paras. 7.123 -7.125  above . The Panel notes that the parties relied upon the same tax exemption study in 
respect o f exemptions from property taxation as that cited in respect of exemptions from retail sales and use 
taxes.  
301 Leasehold Excise Tax Explanation, Washington State Department of Revenue  (Exhibit  USA-25); WAC 
Section 458 -29A-100 (Exhibit  EU-50). WT/DS487/R  
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  revenue by Washington State that would otherwise be due. Accordingly, the Panel finds that the 
leasehold excise tax exemption constitutes a financial contributio n within the meaning of 
Article  1.1(a)(1)(ii)  of the SCM Agreement . 
7.4.3.7   Leaseholder property tax exemption  
7.144.   The legislation for the l easeholder property tax exemption  provides in relevant part:  
(1) Effective January 1, 2005, all buildings, machinery, equipment, and other personal 
property of a lessee of a port district eligible under [the construction sales and u se tax 
exemptions ], used exclusively in manufacturing superefficient airplanes, are exempt 
from property taxation. A person taking the credit under [ the B&O tax credit for 
property and leasehold excise taxes ] is not eligible for the exemption under this 
section. … 302 
7.4.3.7.1   First step: applicable tax treatment  
7.145.   Based on the available evidence , the Panel will first identify the applicable tax treatment 
under the leaseholder property tax exemption, including consideration of the objective reasons 
behind that treatment . As provided fo r in the relevant legislation, Washington State exempts from 
property taxation "all buildings, machinery, equipment, and other personal property of a lessee of 
a port district eligible [for construction sales and use tax exemptions ], used e xclusively in 
manufacturing superefficient airplanes".303 The leaseholder property tax exemption is not available 
to a person claiming the B&O tax credit for property and leasehold excise taxes.304 ESSB 5952 
extended the application of this exemption to 1 July  2040.305 Thus, the relevant tax treatment, at 
present and until the 2040 expiry date, is as set forth above.  
7.146.   This tax treatment forms part of the legislation in ESSB 5952 targeted towards the 
aerospace industry in Washington State . As such, its "objective r easons" are the same as 
discussed in respect of the B&O aerospace tax rate – that is, to provide favourable tax treatment 
for the aerospace industry in order to encourage the industry to remain in Washington State and 
to grow its workforce.306 
7.4.3.7.2   Second step: b enchmark for comparison  
7.147.   Having identified the relevant tax treatment and its objective reasons, the next step of the 
analysis is the identification of an appropriate "benchmark for comparison" within the Washington 
State tax regime to determine whether thi s tax treatment constitutes revenue foregone by the 
Washington State government that would otherwise be due. This benchmark must be ascertained 
with regard for "the structure of the domestic tax regime and its organizing principles".307 
7.148.   The European Union su bmits that the leaseholder property tax exemption "exempts certain 
otherwise taxable business property from the property taxes that would normally apply", and "that 
otherwise applicable property tax treatment therefore provides the normative benchmark".308 The 
United States, in addition to its general argument that the European Union has not met its burden 
to identify the benchmark for each aerospace tax measure, also submits that, for tax exemptions, 
the comparable taxable "event" is not an event involving t he same taxpayer absent the 
exemptions, as this would be the "type of historical comparison for a taxpayer [that] was criticized 
by the Appellate Body".309 The United States further submits that "quantitative coverage of various 
                                               
302 RCW Section 84.36.655  (Exhibit EU -30). 
303 Ibid. Under Washington State law, "superefficient airplane" is 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 
percent less fuel than other similar airplanes on the market". RCW Section  82.32.550(3)  (Exhibit  EU-82). 
304 RCW Section 84.36.655  (Exhibit  EU-30). 
305 ESSB 5952  (Exhibit  EU-3), Section 14.  
306 See para. 7.65 above.  
307 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813.  
308 European Union's response to Panel question No. 24, para. 51.  
309 United States' r esponse to Panel question No . 57, para. 23 (citing Appellate Body Report, US – Large 
Civil Aircraft  (2nd complaint) , para. 815).  WT/DS487/R  
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  tax regimes could be relevant  to determining a financial contribution compared to a normative 
benchmark"310 and that "tax exemptions far outweighed tax revenues" for state property taxes.311 
7.149.   As discussed above, under the relevant statutory rule  of the Washington State property tax 
regime312, real and personal property in Washington State is generally subject to taxation, 
although a number of exemptions from this general rule apply.313 In this respect, the Panel has 
noted that the relevant rules established by Washington State authorities sugge st that the 
organizing principle of the tax regime is to create a default rule of property taxation with provision 
for specific exemptions  and the quantitative information does not displace that principle . 
Exempting taxpayers from property tax liability do es not appear to be an "organizing principle" of 
the Washington State property tax regime. Nor does the structure of the tax regime in question 
suggest an alternative benchmark apart from the generally defined norm of being subject to 
property taxation. Th us, the generally applicable property tax within the state of Washington 
corresponds to the taxable situation (namely ownership of personal property by an eligible lessee) 
that is legitimately comparable to that covered by the leaseholder property tax exem ption.  
7.150.   Accordingly, the Panel considers that the benchmark for comparison is the property tax 
that would ordinarily be imposed on personal property of lessees of port districts.  
7.4.3.7.3   Third step: comparison of applicable tax treatment with benchmark  
7.151.   Given the be nchmark of otherwise applicable property taxation , the specific exemption 
from property taxes, which would otherwise apply to the aerospace activities in question, amounts 
to the foregoing of government revenue by Washington State that would otherwise be d ue. 
Accordingly, the Panel finds that the leaseholder property tax exemption constitutes a financial 
contribution within the meaning of Article 1.1(a)(1)(ii)  of the SCM Agreement.  
7.4.3.8   Conclusion on financial contribution  
7.152.   In concluding, the Panel notes various additional arguments raised by the parties in 
relation to whether the aerospace tax measures constitute a financial contribution.  
7.153.   The United States has submitted that aerospace activity until 1 July 2024 would have 
qualified for certain tax treatment under  legislation pre -dating ESSB 5952, and that the extent of 
any financial contribution in this dispute would be limited to revenue foregone at some point in the 
future.314 In this regard, the Panel recalls its determination that the aerospace tax incentives at  
issue are those as currently codified and in effect until  2040 by virtue of ESSB 5952.315 Thus, the 
preceding analysis of a financial contribution under each of the aerospace tax measures does not 
refer to a future window of time during which pre -existin g tax treatment was extended. Rather, 
the analysis of government revenue foregone has been conducted in regard to the currently 
codified tax provisions, which reflect and incorporate a series of earlier legislative acts, in addition 
to incorporating new subst antive provisions created by ESSB 5952.  
7.154.   The Panel further notes the European Union's clarification that its claim is directed at the 
aerospace tax measures "as such", and thus is "not directed against the application of these 
measures during any given poin t in time or in any specific instance".316 The Panel considers this an 
important distinction from the claim made in US – Large Civil Aircraft (2nd complaint) , in which 
arguments were presented and assessed in relation to Boeing -specific subsidies and their a lleged 
causation of adverse effects under Part III of the SCM Agreement. Thus, although evidence of 
actual use of certain fiscal incentives may support or confirm a finding that government revenue is 
foregone that is otherwise due317, the Panel does not cons ider this to be required for the purposes 
                                               
310 United States' response to Panel question No. 60, para. 31. 
311 Ibid. para. 32. 
312 RCW Section 84.36.005  (Exhibit  USA-20). 
313 United States' first written su bmission, para. 46; RCW Section 84.36.010  (Exhibit  USA-21); RCW 
Section 84.36.020  (Exhibit  USA-22); RCW Section 84.36.020  (Exhibit  USA-23).  
314 United States' response to Panel question No. 2. 
315 See para . 7.42 above . 
316 European Union's response to Panel question No. 6, para. 7.  
317 See ESSB 5952 Fiscal Note  (Exhibit  EU-5); Snohomish County Council Lease Approval 
(Exhibit  EU-44); Paine Field Community Council, Minutes of Meeting of 12 November 2013  (Exhibit  EU-45); 
The Seattle Times , "State gave Boeing a free pass on $19.5M in sales tax ", 30 November 2015  WT/DS487/R  
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  of Article  1.1(a)(1)(ii) of the SCM Agreement, particularly where a claim is made that the 
challenged measures "as such" make a financial contribution.318 
7.155.   In the same vein, the Panel notes the issue raised by the Uni ted States of whether it is 
possible to establish a financial contribution (and benefit) for tax incentives that legally are 
mutually exclusive according to their own explicit terms, as is the case for the B&O tax credit for 
property and leasehold excise t axes on the one hand, and the tax exemptions related to leasehold 
excise taxes and leaseholder property taxes on the other hand.319 The Panel does not consider that 
any such mutual exclusivity should prevent simultaneous challenge, or a finding that each tax  
incentive, on its own and "as such", represents the foregoing of revenue otherwise due. The fact 
that a taxpayer can in the future choose between tax incentives does not render the one that 
ultimately is not chosen to be less of a foregoing of revenue . Furthermore, for measures such as 
those at issue where there may be multiple potential recipients of the financial contribution, 
certain taxpayers may be eligible for, and may use, one incentive, while others may be eligible for, 
and may use, the other at an y given moment during the period of availability of the tax measures 
(in this case, until the expiration of the aerospace tax measures in 2040).320 
7.156.   Finally, the Panel notes the United States' reiteration that the European Union has failed to 
meet its burden of proof in respect of any financial contribution made by the aerospace tax 
measures, and that this burden cannot be met by substituting the findings made in the context of 
US – Large Civil Aircraft (2nd complaint)  regarding different claims and measures. The Panel agrees 
that its terms of reference are confined to the aerospace tax measures identified in the 
European  Union's panel request in the present case, which are formally and substantively distinct 
from those considered in US – Large Civil Aircraft ( 2nd complaint) . The Panel's assessment is based 
upon arguments and evidence on the record of this dispute, with careful regard for the principle 
that it is the complaining party's burden to establish a prima facie case which, in the absence of 
adequate ref utation, requires the Panel to rule in favour of the complaining party.  A significant 
amount of evidence was placed before the Panel by the European Union, and its submissions led 
the Panel to various relevant aspects of that evidence. Brevity in the Europ ean Union' s 
submissions did not prejudice  its satisfaction of the burden of proving facts to establish that the 
measures involved a foregoing of revenue otherwise due within the terms of Article 1.1(a)(1)(ii) of 
the SCM Agreement. The case put in rebuttal by the United States did not reverse the 
European  Union's satisfaction  of its burden . 
7.157.   In conclusion, n one of these arguments disturbs the Panel's above analysis of the 
aerospace tax measures . Accordingly, the Panel finds that each aerospace tax measure con stitutes 
a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement because 
"government revenue that is otherwise due is foregone or not collected".  
                                                                                                                                               
(Exhibit  EU-48); The Seattle Times, "Boeing must disclose tax -break savings, state Department of Revenue 
rules", 8 January 2016  (Exhibit  EU-121). 
318 In the view of the United States,  "where a Member challenges the alleged grant of a subsidy to a 
particular recipient of an alleged subsidy, that Member normally must establish actual receipt of that subsidy.  
That may not be the case where a Member asserts 'that a financial contr ibution e xists in the abstract',  which 
the EU has now clarified is its argument in this proceeding. " United States' second written submission, 
para. 85. 
319 See, e.g. United States' response to Panel question No. 2, para. 4.  
320 In this connection, the Panel's conclusi ons are not impacted by the fact that the alleged contingency 
of using domestic over imported goods does not apply to all potential beneficiaries of the subsidies at issue. 
The provision of subsidies to a range of beneficiaries based on a contingency appli cable to only one or some of 
those beneficiaries may still be found inconsistent with the disciplines of the SC M Agreement, provided that: 
(i) a subsidy exists within the meaning of Article 1; and (ii) the availability of any such subsidy, to whichever 
recipient or beneficiary, is contingent in the manner set out in Article 3. These provisions do not require any 
strict identity of subsidy recipients and entities subject to the contingency in question. The Panel is therefore 
unpersuaded by the United States'  contention that the applicability of ESSB 5952's contingencies to only one 
potential recipient of subsidies "disproves the EU's claims that the alleged subsidies are 'as such' contingent on 
the use of domestic over imported fuselages and wings". See Unite d States' response to Panel question No. 59, 
para. 25. Accordingly, the Panel assesses in this section the criteria for determining the existence of a subsidy, 
and separately will consider whether, as a condition for access to any such subsidy, there is a requirement to 
use domestic over imported goods.  WT/DS487/R  
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  7.4.4   Whether a benefit is thereby conferred  
7.158.   With respect to whether a benefit is conferred under Article 1.1(b) of the SCM Agreement , 
the Appellate Body emphasi zed that "a 'financial contribution' and a 'benefit' [are] two separate 
legal elements in Article 1.1 of the SCM Agreement, which together determine whether a subsidy 
exists".321  
7.159.   The ordinary meaning of the term "benefit" has been understood as "clearly 
encompass[ing] some form of advantage".322 The Appellate Body further explained that "the word 
'benefit', as used in Article 1.1(b), implies some kind of comparison" to determine whe ther "the 
'financial contribution' makes the recipient 'better off' than it would otherwise have been, absent 
that contribution".323 In the Appellate Body's view, " the marketplace provides an appropriate basis 
for comparison in determining whether a 'benefit ' has been 'conferred ', because the trade -
distorting potential of a 'financial contribution ' can be identified by determining whether the 
recipient has received a 'financial contribution ' on terms more favourable than those available to 
the recipient in th e market. "324 
7.160.   In the case of tax -based financial contributions, while the foregoing of revenue by a 
government may not be conceptually equivalent to the enjoyment of an advantage by the 
recipient, as a practical matter the two will often coincide. That is, w here the government is found 
to have foregone revenue, this is because it has departed from the normative benchmark in 
respect of some particular category or class of taxpayers or activities. By virtue of foregoing 
revenue, that departure from the norm mea ns that the taxpayers that are subject to the 
government's normative departure owe less tax  than they otherwise would under the "normal" 
taxation rules.  
7.161.   It is in this light that the Panel  understand s the observation of the panel in US – Large Civil 
Aircra ft (2nd complaint)  that, "[i]n those cases where a financial contribution has been found to 
exist in the form of the foregoing of revenue otherwise due, the conclusion that a benefit exists 
has been made with little difficulty".325 Having reviewed cases in w hich the existence of a benefit 
readily followed from a determination of foregone revenue that was otherwise due326, the panel 
concluded that "the relevant tax break is essentially a gift from the government, or a waiver of 
obligations due, and it is clear t hat the market does not give such gifts".327 Although the parties 
disagree as to the extent to which revenue foregone is automatically determinative  of a benefit, 
they have not directly called into question the soundness of the approach adopted by the panel in 
US – Large Civil Aircraft (2nd complaint)  or its reliance on previous panels.  
7.162.   For tax -based financial contributions such as the aerospace tax measures, the relief from 
taxation otherwise due is not generally available to market participants, nor does it  exist as a 
general condition in the marketplace. It is in this sense that the Panel understands the 
"marketplace" observations made by the Appellate Body in Canada – Aircraft  as they would apply 
in the context of Article  1.1(a)(1)(ii).328 Indeed, the "marke t conditions" that are relevant as the 
benchmark in this context are the competitive conditions that exist in the absence of the 
challenged financial contribution. Judging the conferral of a benefit by reference to such market 
conditions , it is clear that the financial contribution s of forego ne government revenue otherwise 
due from certain Washington State taxpayers – through a reduced tax rate, credits against 
business taxation, or exemptions from otherwise applicable tax liability – makes the recipient s 
                                               
321 Appellate Body Report, Brazil – Aircraft , para. 157. (emphasis omitted)  
322 Appellate Body Report, Canada – Aircraft , para. 15 3 (citing Panel Report, Canada – Aircraft , 
para. 9.112) . 
323 Appellate Body Report,  Canada – Aircraft , para. 157 . 
324 Ibid. 
325 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.169.  
326 See Panel Reports, US – FSC, para. 7.103; US – FSC (Article 21.5 – EC), para. 8.46; Canada – 
Autos , para. 10.165.  
327 Panel Report, US – Large Ci vil Aircraft (2nd complaint) , para. 7.170.  Accordingly, the panel found that 
"for those tax measures that it has found to constitute a financial contribution, a benefit is conferred".  Ibid. 
para. 7.171.  
328 See fn 324 above.  WT/DS487/R  
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  "better off"  than they otherwise would have been, in the marketplace, absent those 
contribution s.329 
7.163.   While b earing in mind the guidance of the Appellate Body a s to the independence of the 
concepts of financial contribution and benefit330, the Panel does not con sider itself precluded from 
using the same factual elements from its conclusions as to revenue foregone in its analysis of 
whether each measure also confers a benefit. By way of reference, financial contributions in the 
form of "grants" under Article  1.1(a)(1)(i) of the SCM Agreement have been found to confer 
benefits, "as they place the recipient in a better position than the recipient otherwise would have 
been in the marketplace", given that no entity acting pursuant to commercial considerations would 
make such unremunerated payments.331 Similarly, a financial contribution in the form of foregone 
government revenue that is otherwise due  is naturally apt to provide the taxpayers concerned with 
an "advantage" in comparison to market conditions where such advan tages do not otherwise exist.  
7.164.   Accordingly, the Panel finds that each of the aerospace tax measures at issue confers a 
benefit within the meaning of Article 1.1(b) of the SCM Agreement.  
7.4.5   Conclusion under Article 1 of the SCM Agreement  
7.165.   Having concluded that t here is a financial contribution by the Washington State 
government under each of the aerospace tax measures at issue , and that a benefit is thereby 
conferred , the Panel finds that each of the aerospace tax measures at issue  constitutes a subsidy 
within th e meaning of Article 1 of the SCM Agreement.  
7.5  Whether the challenged measures are prohibited subsidies under Article 3.1(b) of 
the SCM Agreement  
7.166.   The Panel has found that the challenged measures are subsidies within the meaning of 
Article 1 of the SCM Agreem ent. It will now proceed to consider whether , as alleged by the 
European Union,  the measures are also "contingent … upon the use of domestic over imported 
goods"  and therefore prohibited subsidies under Article 3.1(b) of the SCM Agreement.  
7.167.   In this regard, the Panel recalls that, for a subsidy within the meaning of Article 1.1 to be 
subject to the provisions of Parts II, III, and V of the SCM Agreement (disciplines on prohibited 
subsidies, actionable subsidies, and countervailing measures, respectively), it must be "specific in 
accordance with the provisions of Article 2" of that Agreement.332 The Panel further recalls that, 
pursuant to Article 2.3 of the SCM Agreement, prohibited subsidies are deemed to be specific. The 
                                               
329 See Appellate Body Report, Canada – Aircraft , para. 154. 
330 The Appellate Body has stated that "the second element in Article 1.1. is concerned with the 'benefit 
… conferred' on the recipient  by [the] governmental action" of making a financial contribution, and that a 
"'benefit' does not exist in the abstract, but must be received and enjoyed by a beneficiary or a recipient".  The 
Appellate Body further considered that "[l]ogically, a 'benefit' can be said to arise only if a person, natural or 
legal, or a grou p of persons, has in fact received something". Appellate Body Report, Canada – Aircraft , 
paras. 154 and 156. (emphasis original)   
The Panel notes that these statements were made in the context of rejecting a specific argument "that 
'cost to government' is one way of conceiving of 'benefit'" . Ibid. para. 154. The Appellate Body considered this 
approach to be "at odds with the ordinary meaning of Article 1.1(b), which focuses on the recipient  and not on 
the government  providing the 'financial contribution'". Ibid. (emphasis original) The Appellate Body was not 
addressing the particular factual circumstance of the actual use of a financial contribution  (such as a tax 
incentive) by particular entities , nor did it address the potential relevance in this regard of  alleged subsidies 
being challenged "as such". Rather, in response to particular arguments before it, the Appellate Body was 
emphasising the focus on beneficiaries , as distinct from the provider , of a given financial contribution  in the 
conceptually distin ct analysis of whether a benefit is conferred by that financial contribution . 
331 Panel Report, US – Upland  Cotton , paras. 7.1116 and 7.1118. See also Panel Reports, EC and certain 
member States – Large Civil Aircraft , para. 7.1501 (finding that "to the extent that Airbus received a funding 
grant in the form of an actual 'direct transfer of funds ' from the various entities involved, it was automatically 
placed in a better position than it would otherwise have been in without the grant ", and that such funding 
grants therefore conferred a "benefit"); US – Large Civil Aircraft (2nd complaint) , para s. 7.1228 -7.1229 (in 
relation to payments that were not disputed to "constitute a financial contribution in the form of a direct 
transfer of funds", finding that such p ayments confer a "benefit" under Article 1.1(b) of the SCM Agreement as 
such payments would not be made by any "private entity acting pursuant to commercial considerations") 
and 7.1362 -7.1363.  
332 SCM Agreement, Article 1.2.  WT/DS487/R  
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  European Union's claim is that the measu res at issue are prohibited subsidies in that they are 
contingent on the use of domestic over imported goods. Accordingly, no matter what the Panel 
decides in relation to the alleged contingency, the Panel is not required to conduct a specificity 
analysis under Article 2 of the SCM Agreement.  
7.5.1   Arguments of the parties  
7.5.1.1   European Union  
7.168.   The European Union alleges that the aerospace tax measures at issue are de jure and de 
facto contingent upon the use of domestic over imported goods and therefore inconsistent wi th the 
United States' obligations under Article 3.1(b) of the SCM Agreement.333 In the European Union's 
view, the challenged aerospace tax measures have been contingent in this manner from the time 
that ESSB 5952 was enacted.334 
7.169.   According to the European Union , its first and principal claim is that the challenged 
aerospace tax measures are de jure contingent upon the use of domestic over imported goods 
inasmuch as the text of ESSB 5952 clearly sets out the prohibited contingency.335 The 
European  Union also makes a secondary claim that the aerospace tax measures are de facto 
contingent upon the use of domestic over imported goods.336 
7.170.   In the European Union's view, Article 3.1(b) of the SCM Agreement sets out a single 
standard irrespective of whether the claim is that the measure is de jure  or de facto  contingent on 
the use of domestic over imported goods. The difference would be the evidence necessary to 
establish each claim. A de jure  claim would be made on the basis of the express terms of the text 
of the measure or by necessary implication therefrom, whereas in a de facto  claim the contingency 
would have to be inferred "from the total configuration of facts constituting and surrounding the 
subsidy grant, including the design, structure and modalities of operation set  out in the 
measure".337 
7.171.   With respect to its de jure  claim, the European Union submits that, as clearly set out in the 
text of ESSB 5952, and as a result of the First Siting Provision and the Second Siting Provision, 
whether considered individually or togeth er, the challenged aerospace tax measures constitute 
subsidies that are contingent in law on the use of domestic over imported goods.338 The prohibited 
contingency in respect of the use of fuselages as domestic goods would result  solely from the First 
Siting  Provision , while the prohibited contingency in respect of the use of wings as domestic goods 
would result from both the First Siting Provision and the Second Siting Provision .339 
7.172.   The European Union argues that, p ursuant to the First Siting  Provision in Sect ion 2 of 
ESSB  5952, the challenged aerospace tax measures were contingent on the establishment of a 
new commercial aircraft manufacturing programme that uses goods (i.e., fuselages and wings) 
produced in the state of Washington. Under this provision, with respect to all aerospace companies 
in the state of Washington, if Boeing had decided to use imported wings and fuselages in the 
                                               
333 European Union's second written  submission, para. 40.  
334 European Union's response to Panel question No. 6, para. 11.  
335 European Union's second written submission, paras. 1, 2, 41 and 90; closing statement at the first 
meeting of the Panel, para. 1; opening statement at the second meetin g of the Panel, para. 2; response to 
Panel question Nos.  29 and 46, paras.  67 and 125.  See also Request for the Establishment of a Panel by the 
European Union, WT/DS487/2, 13 February 2015, p. 2.  
336 European Union's second written submission, paras. 1 and 9 0; opening statement at the second 
meeting of the Panel, para. 2. See also Request for the Establishment of a Panel by the European Union, 
WT/DS487/2, 13 February 2015, p. 2.  
337 European Union's first written submission, para. 72; second written submission,  para. 44; opening 
statement at the first meeting of the Panel, para. 47; response to Panel question Nos. 18 and 30, paras.  23-26 
and 68 -69. 
338 European Union's first written submission, paras. 70 and 73; second written submission, paras. 1, 41 
and 60; open ing statement at the first meeting of the Panel, para. 6; response to Panel question No. 41, 
para. 98. 
339 European Union's response to Panel question No. 43, para. 101.  WT/DS487/R  
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  assembly of the 777X (or any other new aircraft programme that it might have decided to site  in 
Washington State ), the challenge d tax measures would not have been granted .340 
7.173.   The European Union also argues that,  pursuant to the Second Siting Provision, the B&O 
aerospace tax rate for the 777X (or any other aircraft that Boeing might have sited to satisfy the 
First Siting Provision) is contingent on Boeing's use of wings produced exclusively in the state of 
Washington. The European Union contends in particular that, i f Boeing were to source even some 
wings for the sited aircraft programme outside of the United States, it would lose acce ss to the 
B&O aerospace tax rate in respect of the manufacturing and sale of 777X airplanes.341 
7.174.   The European Union further asserts that the United States' proposed reading of the First 
Siting Provision and the Second Siting Provision would render meaningless  all references contained 
therein to "wings" and to "fuselages".342 The European Union also argues that the text of 
ESSB  5952 does not require that the same manufacturer produce both the commercial airplane 
and the fuselages and wings; to the contrary, nothi ng in ESSB  5952 would preclude an airplane 
manufacturer from procuring wings or fuselages from another producer, as long as this other 
producer is located in the state of Washington.343 The European Union further contends that the 
Second Siting Provision in ESSB  5952 would be triggered even by a single instance of final 
assembly outside the state of Washington  of an airplane which was  the basis of the original siting 
decision , or by a single instance of wing assembly for that airplane outside the state of 
Washington , either by Boeing or by any other entity, and that this would result in precluding the 
continued availability of the B&O aerospace tax rate.344 
7.175.   The European Union argues further that any evidence provided by the United States and 
related to the manne r in which Boeing purportedly will produce 777X aircraft is irrelevant to the 
Panel's consideration of the European Union's de jure  claim , although some of those facts could be 
relevant to the European Union's de facto  claim.345 
7.176.   With respect to its de facto  claim, the European Union submits that the First Siting 
Provision and the Second Siting Provision in ESSB  5952 are each capable of strongly influencing 
Boeing's choice between imported wings and fuselages, and domestic (United States -produced) 
wings and fu selages, for the 777X airplanes.346 According to the European Union, ESSB  5952 
creates specific penalties for the use of imported wings or fuselages and rewards for the use of 
domestic wings or fuselages. The First Siting Provision and the Second Siting Prov ision acting 
together would maximize trade distortions in favour of domestic goods to the detriment of 
imported goods, which suggests that the challenged measures are geared to induce the use of 
domestic over imported goods.347 In the European Union's view, the subsidies at issue exceed the 
total development cost of the 777X airplanes, and would thereby overshadow any other factors 
that may favour a decision by Boeing to import wings and fuselages for 777X airplanes.348 
                                               
340 European Union's first written submission, paras. 44 and 74; second written submission , para. 61; 
opening statement at the first meeting of the Panel, paras. 53 -54; opening statement at the second meeting of 
the Panel, para . 3. 
341 European Union's first written submission, paras. 47, 51 -52 and 75; second written submission, 
para. 61; opening  statement at the first meeting of the Panel, paras. 55 -56; response to Panel question No. 7, 
para. 12.  
342 European Union's second written submission, paras. 65 -75. 
343 European Union's second written submission, paras. 65 and 76 -81; opening statement at the first 
meeting of the Panel, paras. 60 -61; response to Panel question No. 45, para. 119.  
344 European Union's second written submission, paras. 65 and 82 -84; opening statement at the first 
meeting of the Panel, para. 61; response to Panel question No. 7, para . 12. 
345 European Union's second written submission, para. 41.  
346 European Union's first written submission, para. 77; second written submission, para. 90. See also 
European Union's second written submission, para. 91; opening statement at the first meeting of the Panel, 
paras. 72 -73; response to Panel question No. 29, paras. 66 -67; Reuters, "Boeing seen in advanced talks to 
make 777X near Seattle", 4 November 2013 ( Exhibit EU -65). 
347 European Union's first written submission, para. 77; opening statement at th e first meeting of the 
Panel, paras. 6 and 70 -74; response to Panel question Nos. 31 and 41, paras. 70 -71 and 98.  
348 European Union's second written submission, para. 90. See also ibid, para. 91; European Union's 
opening statement at the first meeting of th e Panel, para. 73; response to P anel question No. 29, 
paras.  66-67; Reuters, "Boeing seen in advanced talks to make 777X near Seattle", 4 November 2013 
(Exhibit  EU-65). WT/DS487/R  
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  7.5.1.2   United States  
7.177.   In the United States' view,  the main issue before the Panel is whether a subsidy granted 
for the manufacture of a finished good, including its major structural elements, and which allows 
the producer to import all the parts that are used in the production process, can nonetheless be  
considered to be a subsidy contingent upon the use of domestic over imported goods.349 The 
United States argues in this regard that a contingency is only inconsistent with Article 3.1(b) of the 
SCM Agreement if it requires the use of domestic over imported goods350, and that this 
determination must take into account all sources that elucidate the meaning of the words used in 
the measure at issue, including relevant factual information on the application of the measure.351 
According to the United States, in the a nalysis of both the de jure  and the de facto  claims, the 
Panel should consider evidence that pertains to the actual operation of the measure, beyond the 
text of the legal instrument in question.352 
7.178.   As a factual matter, the United States asserts that Boeing d oes not use wings or fuselages, 
either domestic or imported, to produce 777X airplanes.353 According to the United States, 
fuselages and wings are not manufactured as separate products that are subsequently used in the 
manufacture of a finished 777X airplane .354 
7.179.   The United States asserts that the European Union has failed to establish that the 
aerospace tax measures at issue are de jure  contingent upon the use of domestic over imported 
goods. According to the United States, if a taxpayer can meet a condition wi thout resorting to the 
use of domestic over imported goods this would be sufficient to demonstrate that the underlying 
measure is not an import -substitution subsidy prohibited by Article 3.1(b) of the SCM 
Agreement.355 The United States argues that "the Firs t Siting Provision has been fulfilled , and the 
Second Siting Provision has been avoided , without any use of domestic over imported goods ".356 
7.180.   The United States argues that:  
The [First] Siting Provision and the [Second] Siting Provision in ESSB 5952 make no 
mention of goods . They make no mention of the use of goods. They make no mention 
of the domestic nature  of goods. They make no mention of imported goods . They 
contain no text that requires  the use of domestic over imported goods, nor even 
encourages  it. The y therefore do not result in any discrimination  against imported 
goods.357 (emphasis added)  
7.181.   According to the United States, the references to the manufacturing and the assembly of 
fuselages and wings in the First Siting Provision and the Second Siting Provis ion merely define the 
scope of the production activity  required to enjoy the tax treatment covered by ESSB 5952.358 The 
United States argues that there are several means of satisfying the First Siting Provision and the 
Second Siting Provision, including one that would not involve the use of fuselages and wings as 
inputs into the airplane production process , namely the 777X manufacturing program me.359 
7.182.   The United States argues further that the European Union has failed to demonstrate the 
existence of a domestic g ood on which the subsidies are allegedly contingent. According to the 
United States, ESSB 5952 does not require the use of any domestic parts in the assembly of the 
                                               
349 United States' second written submission, paras. 1 -3. 
350 United States' first written submission, para. 104; second written submission, paras. 10 -14. 
351 United States' second written submission, paras. 11, 17 and 34.  
352 United States' second written submission, paras. 29 -34 and 36; response to Panel question No. 18, 
paras. 37 -43. 
353 United Sta tes' first written submission, paras. 37 and 105; second wr itten submission, paras. 35 
and 54-56; response to Panel question No. 44, para. 104.  
354 United States' first written submission, para. 105; response to Panel question Nos. 34, 35 and 42, 
paras.  79, 81-82, 102 and 110 -115. 
355 United States' second written submission, paras. 10 -11, 15 -16, 37 and 51.  
356 United States' second written submission, para. 58 . See also ibid. paras. 60-62; United States' 
response to Panel question No. 33, para. 74.  
357 United Stat es' first written submission, para. 3. See also ibid. paras. 73, 101, 105 -107 and 109.  
358 United States' first written submission, paras. 73 and 101; second written submission, paras. 38 -47 
and 57.  
359 United States' second written submission, para. 51; respo nse to Panel question No. 18, para. 43.  WT/DS487/R  
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  fuselages and the wings; Boeing would be free to import 100% of the parts as long as the 
assembly takes place in the state of Washington.360 
7.183.   The United States further asserts that the European Union has failed to establish that the 
aerospace tax measures at issue are de facto  contingent upon the use of domestic over imported 
goods, because it has not demonstrated that the use of domestic goods is required as a condition 
for eligibility for the subsidy.361 According to the United States, none of the factual evidence 
referred to by the European Union supports its claim that the measures are de facto  contingent.362 
7.184.   The United States also argues that Boeing has complied with the First Siting Provision and 
has avoided triggering the Second Siting Provision even though it does not use domestic wings and 
fuselages and instead completes the assembly of wings an d fuselages as part of the final assembly 
of the finished airplane.363 The United States adds that the measures in ESSB 5952 had no effect 
on Boeing's make/buy decisions nor on its decision on where to site the assembly of fuselage s and 
wings.364 The United St ates contends that the European Union has failed to establish that the 
challenged measures are geared to induce the use of domestic over imported goods .365 The 
United  States submits that, provided it conducts the requisite assembly activity in the state of 
Washington, Boeing would satisfy the First Siting Provision and avoid triggering the Second Siting 
Provision even if it imported every part of the 777X airplane; Boeing therefore would be receiving 
no rewards for increasing the use of domestic inputs on the  777X airplane, nor would it be 
penalized for increasing the use of imported inputs.366 
7.185.   The United States rejects the interpretation advanced by the European Union on the 
meaning of the word "use" in Article 3.1(b) of the SCM Agreement , saying that a broad 
characterization of the meaning of the word "use", such as that advocated by the European Union, 
would be subjective in that it is not based on the text of the SCM Agreement.367 According to the 
United States, the term "use" in Article 3.1(b) refers to the em ployment of a domestic good as an 
input or instrumentality in a productive process, or to the enjoyment of a good for its intended 
purpose by an end user.368 Accordingly, Article 3.1(b) would cover subsidies granted contingent on 
the employment of a good as an input or instrumentality in a productive process, but not subsidies 
contingent on the creation of the output of such a productive process.369 In the United States' 
view, Article 3.1(b) of the SCM Agreement does not prohibit "production subsidies "; in this  respect, 
the United States argues that Article III:8(b) of the GATT 1994 provides relevant context for the 
interpretation of Article 3.1(b).370 
7.5.2   Third -party views  
7.186.   Australia submits that it is important that a distinction is retained between the permitted 
payment of a subsidy to domestic producers , including to encourage manufacturing activities,  and 
a prohibited subsidy which is contingent on the use of domestic over imported goods.371 Australia 
notes that it interprets the references to wings and fuselages in the legislation at issue merely as 
efforts to define the scope of the eligibility to the subsidy. According to Australia, " defining the 
scope of a subsidy in this manner does not imply that a subsidy is being provided contingent on 
the use of domestic over  imported goods. Rather, it is a practical way of targeting an industry 
which the Washington State Government has chosen to support."372 In Australia's view, the Panel 
needs to assess whether the challenged measure can be characterized as providing the scope  for 
                                               
360 United States' second written submission, paras. 24, 48 -50, 57, 64, 68 and 84.  
361 Ibid. para. 58.  
362 Ibid. paras. 78 -83. 
363 Ibid. paras. 59 -63. 
364 Ibid. paras. 64 -71 and 84.  
365 United States' first written submission, p aras. 105 and 132 -140; second written submission, 
paras.  72-74; response to Panel question No. 30, paras.  65-67. 
366 United States' second written submission, paras. 75 -77. 
367 Ibid. para. 20.  
368 United States' second written submission, para. 52; response to P anel question No. 44, 
paras.  104-108. 
369 United States' second written submission, para. 52.  
370 United States' first written submission, paras. 116 -124; second written submission, para. 20.  
371 Australia's third -party submission, paras. 10 and 21; third -party statement, paras. 10 -12; response 
to Panel question No. 5 . 
372 Australia's response to Panel question No. 5 . WT/DS487/R  
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  the beneficiaries of the subsidy, or whether it can be characterized instead as a requirement to use 
domestic over imported goods as a condition for the subsidy.373 Australia argues that it is unclear 
how the European Union reaches the conclusion that t he First and the Second Siting Provisions are 
expressly conditioned on the use of domestic over imported goods.374 According to Australia, it is 
doubtful whether the European Union has successfully made a case for a de jure  breach of 
Article  3.1(b) of the SC M Agreement; the Panel's determination in the present case may ultimately 
depend on the finding of facts.375 Australia encourages the Panel to consider whether the 
references to wings and fuselages in the First and the Second Siting Provisions can be regarde d as 
merely defining the beneficiary of the subsidies, instead of being a requirement to use 
domestically produced goods.376 In response to a question from the Panel, Australia submits that 
the Appellate Body's rulings in US – Softwood Lumber IV  cannot be in terpreted as stating that 
"goods" in Article  3.1(b) of the SCM Agreement  must be tradeable or capable of being traded. In 
Australia's view, such an interpretation would not be practical and would undermine the object and 
purpose of the SCM Agreement.377 
7.187.   Brazil argues that Article 3.1(b) of the SCM Agreement does not cover production 
requirements, as long as these requirements do not constitute requirements to use domestic 
goods to the detriment of imported goods.378 According to Brazil,  the SCM Agreement does n ot 
prohibit WTO Members from providing subsidies to producers contingent on the performance of 
production steps of a certain good in their territories. Such a production requirement could fall 
upon the production of either a final or an intermediate good.379 In Brazil's view, the expression 
"use" in Article  3.1(b) means that the goods in question must be "products" that can be "used" in 
a commercial context.380 Brazil adds that "contingency" under Article 3.1(b) requires concrete 
evidence of the actual requirem ent to use domestic products to the detriment of imported products 
and cannot be based simply on a measure's incidental or indirect impact on domestic production, 
such as the fact that domestic products may become more attractive to the producer and lead t o a 
larger share of domestic products as inputs.381 According to Brazil, a subsidy can be prohibited 
under Article  3.1(b) because the terms of the subsidy expressly condition its granting on the use of 
domestic inputs or otherwise the necessary implication o f the specific conditions is such that, 
absent the use of domestic goods, the conditions cannot be met.382 Brazil maintains that, i n the 
latter case, a  panel would have to examine the specific requirements imposed as a condition for 
the granting of the subsi dy, based on the text of the subsidy program me and on its necessary 
implications, and determine whether the conditions can be met without using domestic goods.383 
Brazil asserts that a subsidy on the production of a certain good, with requirements on the 
performance of production steps along the production chain, would not be considered de jure  
contingent on the use of domestic over imported goods under the purview of Article 3.1(b)  of the 
SCM Agreement .384 Conversely, a subsidy could be found de facto  to be pr ohibited under 
Article  3.1(b) when a condition does not necessarily require the use of domestic goods either 
directly or by necessary implication, but based on the total configuration of the facts it becomes 
clear that, in fact, the subsidy recipient is re quired to use domestic over imported goods in order 
to receive the subsidy.385 Brazil submits that, in the present case, the Panel will have to assess 
whether the conditions contained in the challenged measure simply require a domestic production 
activity by the producer (which would likely not amount to a prohibited conditionality) or if 
instead: (i ) the condition requires de jure  and by necessary implication the use of domestic over 
imported goods; or (ii) the condition, in combination with other factual ev idence on the record, 
requires de facto  the use of domestic over imported inputs.386 
                                               
373 Australia's third -party submission, paras. 11 -13. 
374 Australia's third -party statement, para. 6.  
375 Ibid. para. 7.  
376 Ibid. para. 13.  
377 Australia's  response to Panel question No. 4.  
378 Brazil's third -party submission, paras. 7 -8. See also Brazil's response to Panel question No. 5.  
379 Brazil's response to Panel question No. 5.  
380 Brazil's third -party submission, para. 9; third -party statement, para. 7.  
381 Brazil's third -party submission, paras. 10 -14; third -party statement, paras. 6 and 9.  
382 Brazil's third -party submission, paras. 16; third -party statement, para. 10.  
383 Brazil's third -party submission, para. 17.  
384 Brazil's response to Panel question No. 12. Se e also Brazil's response to Panel question No. 14.  
385 Brazil's third -party submission, paras. 18; third -party statement, para. 11.  
386 Brazil's third -party submission, para. 19.  WT/DS487/R  
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  7.188.   According to Canada , the European Union appears to be arguing that a subsidy is 
contingent on the use of domestic over imported goods where the producer of a final good is 
required to produce certain components of that good in order to receive the subsidy.387 In 
Canada's view, this interpretation of Article  3.1(b) would improperly extend the provision to cover 
situations where subsidy recipients are required to produce goods.388 According to Canada, under 
the challenged measure, the beneficiary company is required to manufacture and/or assemble 
those fuselages and wings itself  in order to receive the tax subsidy .389 There is no requirement to 
purchase in the United States wings, fus elages, or other parts used in the assembly of the final 
aircraft.390 Canada adds that the European Union did not provide any evidence suggesting that 
Boeing would de facto  have to "use" domestic components other than those that the company 
manufactures itse lf.391 Canada argues that WTO Members are not prohibited from providing 
subsidies to domestic producers, including where the subsidy to the producer of a final good is 
contingent on the recipient producing goods in its territory or producing certain intermed iate goods  
by itself .392 Similarly, in Canada's view, neither the GATT 1994 nor the SCM Agreement limits a 
Member's ability to define the level of production required for subsidy eligibility purposes.393 
Otherwise, production requirements would have to be limi ted to simple assembly operations, and 
the right of WTO Members to require subsidy recipients to produce goods, as defined by the 
granting Member, in order to receive a subsidy would be nullified.394 
7.189.   China contends that the Panel must examine whether, under the First Siting Provision and 
the Second Siting Provision, the subsidy is conditional or dependent on the use of domestic over 
imported goods.395 China disagrees with the United States' assertion that fuselages and wings are 
not "goods".396 In China's view, c ustom -tailored goods can also be considered as "goods" within 
the meaning of Article 3.1(b) of the SCM Agreement. China also disagrees with the notion that 
Article 3.1(b) requires that the relevant good is traded in practice, as long as the good has "the 
value of trading".397 According to China , the "use" of intermediate goods in the course of 
production may meet the condition for being considered a "use" of domestic over imported 
goods.398 The Panel should consider in this regard whether the conditions imposed  by the 
challenged measure result in a de facto  situation in which the 777X aircraft programme prefers 
domestic components or other intermediate goods over imported goods.399 China also argues that 
Article  III:8(b) of the GATT 1994 is not relevant to the pre sent dispute as a legal basis to exclude 
the challenged measure from examination under Article 3.1(b) of the SCM Agreement.400 In 
China's  view, there seems to be insufficient evidence that the First Siting Provision would result de 
jure in a prohibited subsi dy under Article 3.1(b) of the SCM Agreement.401 China argues however 
that the Panel should examine whether de facto  the First Siting Provision has created an incentive 
for the use of domestic components over imported components, taking into account that this 
provision may make it more favourable to purchase , in the state of Washington , the components 
for the fuselages and wings to be used in the assembly of 777X aircraft.402 Likewise, China 
suggests that the Panel should assess whether the Second Siting Provis ion should be considered 
de jure  as a prohibited subsidy under Article 3.1(b) of the SCM Agreement or otherwise whether 
                                               
387 Canada's third -party submission, para. 3.  
388 Ibid. 
389 Ibid. paras. 4 -5. 
390 Ibid. para. 5.  
391 Ibid. 
392 Ibid. 6-7. 
393 Ibid. paras. 8 -10. 
394 Ibid. paras. 8 and 11.  
395 China's third -party submission, para. 18.  
396 China's third -party statement, para.  3. 
397 China's third -party submission, para. 21 ; third-party statement, para.  3; response to Panel q uestion 
No. 4 . 
398 China's third -party statement, para.  4. 
399 China's third -party submission, para. 23.  
400 China's third -party submission, para. 25 ; third-party statement, para.  5. See also China's response 
to Panel question Nos. 5 and 15.  
401 China's third -party submission, para. 28 ; third-party statement, para.  7; response to Panel question 
No. 5 . 
402 China's third -party submission, paras. 29 -30; third-party statement, para.  8; response to Panel 
question No. 5 . WT/DS487/R  
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  de facto  it may result in an incentive to use more domestic than imported components due to cost 
savings and efficiencies.403 
7.190.   Japan argu es that the same legal standard  should be followed by panels when examining 
prohibited subsidies under Article 3.1(a) and under Article 3.1(b) of the SCM Agreement, as well 
as when examining de jure  and de facto  contingency.404 With respect to the evidentiary standard 
for the establishment of contingency, Japan states that a de jure  analysis should be based on the 
words actually used in the measure at issue  and their necessary implications , while a de facto  
analysis should be based on the total configuration of  the facts constituting and surrounding the 
granting of the subsidy in light of the available evidence , rather than on subjective motivations 
expressed by governmental agencies, officials or legislators.405 In Japan's view, a subsidy 
contingent on the use of  domestic goods that is prohibited by Article 3.1(b) of the SCM Agreement 
cannot be justified by Article III:8(b) of the GATT 1994.406 According to Japan, it appears that the 
European Union has argued that the challenged subsidy is de jure  contingent on the use of 
domestic over imported goods, but has based its analysis on "factual scenarios which may or may 
not have materialized , factual circumstances that may or may not have existed , and choices that 
private actors may or may not have made", instead of focu sing on the actual text of the 
measure.407 With respect to the First Siting Provision , Japan asserts that a law stating that a 
subsidy is contingent upon the domestic siting of  a certain program me is different from a law 
stating that a subsidy is contingent upon the use of  a domestic product.408 With respect to the 
Second Siting Provision , Japan asserts that the words used in the legislation are not completely 
clear as to whether, by virtue of the location requirement for the  final assembly or wing assembly, 
the revenue from the 777X will not benefit from the reduced B&O tax rate if these assembl ing 
activities  take place outside Washington State.409 In Japan's view, the European Union's analysis 
with respect to both the First Siting Provision and the Second Siting  Provision may fall  short of the 
standard required to establish "contingency" under Article 3.1(b) of the SCM Agreement.410 
7.5.3   Order of analysis  
7.191.   As noted above, the European Union has argued that its "first and principal claim in this 
dispute"  is that the challenged aerospace tax measures are de jure contingent upon the use of 
domestic over imported goods.411 
7.192.   The Panel will start by considering the European Union's de jure  claim. As explained below, 
the Panel will assess whether the European Union has made a prima  facie case that the 
contingency of the challenged aerospace tax measures upon the use of domestic over imported 
goods can be demonstrated on the basis of the words of the relevant legislation. This could be 
either because the conditionality is set out exp ressly in the legislation or because such 
conditionality can clearly be derived, by necessary implication, from the words used in the 
legislation.412 
7.193.   The European Union has also advanced a secondary claim, i.e. that the tax measures at 
issue are inconsistent  with Article 3.1(b) of the SCM Agreement by being de facto contingent upon 
the use of domestic over imported goods . If the Panel were to conclude that the European Union 
has successfully established that the aerospace tax measures are de jure contingent u pon the use 
of domestic over imported goods, and therefore inconsistent  with Article 3.1(b) of the 
SCM Agreement, it would not need also to establish that the same measures are de facto 
contingent.  Nonetheless, in that circumstance the Panel will try to en sure that there is a complete 
factual record on which the Appellate  Body may base its rulings in the event of an appeal.  
                                               
403 China's third -party submission, paras. 32 -33. 
404 Japan's thi rd-party submission, paras. 2 -8; third-party statement, para s. 3-5. 
405 Japan's thi rd-party submission, paras. 2 and 11 -21; third-party statement, para s. 6-11. 
406 Japan's  response to Panel question No. 5.  
407 Japan's thi rd-party submission, para. 12 . 
408 Japan's thi rd-party submission, para. 22; third-party statement, para.  13. 
409 Japan's thi rd-party statement, para.  14. 
410 Japan's thi rd-party submission, paras. 27 -28; third-party statement, para.  12. 
411 European Union's second written submission, para. 2. S ee also ibid. paras. 41, 85 and 90; European 
Union's closing statement at the first meeting of the Panel, paras. 1 and 11; response to Panel question 
No. 29, para.  67. 
412 See para. 7.274  below.  WT/DS487/R  
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  7.194.   Conversely, if the Panel finds that the European Union has not established its de jure  
claim, it will subsequently consider the Europea n Union's de facto claim , which the European Union 
makes on a secondary and alternative basis . In analysing the de facto  claim, the Panel would 
consider the total configuration of the facts constituting and surrounding the granting of the 
subsidy. As expla ined below413, this would include  considering  (i) the design and structure of the 
measur es granting the subsidies; (ii)  the modalities of operation set out in such measures; and 
(iii) the relevant factual circumstances surrounding the granting of the subsidi es that provide the 
context for understanding the measures' design, structure, and modalities of operation.  
7.5.4   Article 3.1(b) of the SCM Agreement  
7.5.4.1   Prohibited subsidies  
7.195.   Article 3.1 of the SCM Agreement reads as follows:  
Except as provided in the Agreement on A griculture, the following subsidies, within 
the meaning of Article 1, shall be prohibited:  
(a) subsidies contingent, in law or in fact4, whether solely or as one of 
several other conditions, upon export performance, including those 
illustrated in Annex  I5; 
(b) subsidies contingent, whether solely or as one of several other 
conditions, upon the use o f domestic over imported goods.  
____________________________  
 
(footnotes original ) 4 This standard is met when the facts demonstrate that the 
granting of a subsi dy, without having been made legally contingent upon export 
performance, is in fact tied to actual or anticipated exportation or export earnings. 
The mere fact that a subsidy is granted to enterprises which export shall not for 
that reason alone be conside red to be an export subsidy within the meaning of this 
provision.  
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.  
7.196.   Only those subsidies that meet the definit ion in Article 1 of the SCM Agreement and fall 
within the description of either Article 3.1(a) or 3.1(b), commonly referred to as " export subsidies " 
and "import substitution subsidies ", respectively, are prohibited by the SCM Agreement.  As noted 
by the App ellate Body:  
Only those subsidies that are conditioned on export performance or on import 
substitution are prohibited per se  under Article  3 of Part II of the SCM Agreement . In 
contrast, all other subsidies are allowed under the SCM Agreement , albeit a Mem ber 
granting such subsidies should not cause, through the use of the subsidies, adverse 
effects within the meaning of Article  5 of Part III, in which case it must remove the 
adverse effects or must withdraw the subsidies themselves.414 (original italics)  
7.197.   Pursuant to Article 3.2 of the SCM Agreement, "[a] Member shall neither grant nor 
maintain [p rohibited subsidies]".  
7.198.   Prohibited subsidies are a special category of subsidies, which Members have deemed to 
create such trade distortions that they are proscribed without the need for a complaining Member 
to show any adverse effects.415 As noted by the panel in Brazil – Aircraft , these subsidies "are 
specifically designed to affect trade".416 
                                               
413 See para. 7.329  below.  
414 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1054.  
415 The Appellate Body has explained that "the granting of a subsidy is not, in and of itself, prohibited 
under the SCM Agreement . Nor does granting  a 'subsidy', without more, constitute an inconsistency with that 
Agreement. The universe of subsidies is vast. Not all subsidies are inconsistent with the SCM Agreement . The WT/DS487/R  
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  7.5.4.2   Article III:8(b) of the GATT 1994  
7.199.   The United States has argued that Article III :8(b) of the GATT 1994 provides context for 
the interpretation of Article 3.1(b) of the SCM Agreement.417 Article III:8(b) is part of Article III of 
the GATT 1994, the provision dealing with the obligation of national treatment on internal taxation 
and regul ation. As noted by the Appellate Body:  
The broad and fundamental purpose of Article III is to avoid protectionism in the 
application of internal tax and regulatory measures. More specifically, the purpose of 
Article III "is to ensure that internal measures  'not be applied to imported or domestic 
products so as to afford protection to domestic production'".418 Toward this end, 
Article  III obliges Members of the WTO to provide equality of competitive conditions 
for imported products in relation to domestic prod ucts.419, 420 
7.200.   Notwithstanding the above, according to Article III:8(b):  
The provisions of this Article [Article III of the GATT 1994] shall not prevent the 
payment of subsidies exclusively to domestic producers, including payments to 
domestic producers derived  from the proceeds of internal taxes or charges applied 
consistently with the provisions of this Article and subsidies effected through 
governmental purchases of domestic products.  
7.201.   By its terms, Article III:8(b) of the GATT 1994 applies to the national tre atment disciplines 
under Article III of the GATT 1994, which are not at issue in this dispute , and clarifies that the 
provision of subsidies exclusively to domestic producers is not in itself a breach of the national 
treatment obligation . To the extent tha t Article III:8(b) provides interpretive guidance in the 
present case, it is consistent with the principle under the SCM Agreement that subsidization in 
itself is not prohibited, but only becomes so in two particular situations – one of which is a 
continge ncy on the use of domestic over imported goods.421 
7.5.4.3   Contingency  
7.202.   Returning to the specific text of Article 3.1(b ), the expression "contingent … upon" is 
common to Articles 3.1(a) and 3.1(b) of the SCM  Agreement. Article  3.1(a)  prohibits subsidies that 
are c ontingent  upon export performance , while Article  3.1(b)  prohibits those subsidies that are 
contingent  upon the use o f domestic over imported goods.  
7.203.   The expression "contingent … upon" is used in both Article 3.1(a) and Article 3.1(b). This 
expression has been found to have the same meaning in both provisions.422 The expression 
"contingent … upon" has been explored in greatest detail in disputes concerning allegations of 
export subsidies under Article 3.1(a) . In this context , the Appellate Body has noted:  
In our v iew, the key word in Article  3.1(a) is "contingent". As the Panel observed, the 
ordinary connotation of "contingent" is "conditional" or "dependent for its existence on 
something else". This common understanding of the word "contingent" is borne out by 
the text of Article  3.1(a), which makes an explicit link between "contingency" and 
                                                                                                                                               
only 'prohibited' subsidies are those identified in Article  3 of the SCM Agreemen t". Appellate Body Report, 
Canada – Aircraft (Article 21.5 – Brazil) , para. 47.  
416 Panel Report, Brazil – Aircraft , para. 7.26.  
417 See, for example, United States' first written submission, paras. 9 and 116 -123; second written 
submission, para s. 9, 20 and 47 ; opening statement at the first meeting of the Panel, para.  19; opening 
statement at the second meeting of the Panel, para.  16. 
418 (footnote original)  United States – Section 337 of the Tariff Act of 1930 , BISD 36S/345, para. 5.10.  
419 (footnote original)  United States – Taxes on Petroleum and Certain Imported Substances , 
BISD 34S/136, para. 5.1.9; Japan – Customs Duties, Taxes and Labelling Practices on Imported Wines and 
Alcoholic Beverages , BISD 34S/83, para. 5.5(b).  
420 Appellate Body Report, Japan – Alcoho lic Beverages  II, p. 16, DSR 1996:I,  97, at p. 109. 
421 See Panel Report, Indonesia – Autos , para. 14.33.  
422 Appellate Body Report, Canada – Autos , para.  123. WT/DS487/R  
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  "conditionality" in stating that export contingency can be the sole or "one of several 
other conditions ".423 (emphasis original)  
7.204.   Regarding the interpretation of the term "conting ent" in the context of an export subsidy, 
the Panel in Australia – Automotive Leather II  referred to a "close connection" between the grant 
or maintenance of a subsidy and export performance. It added that for a subsidy to be export 
contingent, it must be "conditioned" upon export performance , stating : 
An inquiry into the meaning of the term "contingent…"  in Article  3.1(a) must, 
therefore, begin with an examination of the ordinary meaning of the word 
"contingent" . The ordinary meaning of "continge nt" is "dependent for its existence on 
something else" , "conditional; dependent on, upon" .424 
7.205.   In Canada – Autos , the Appellate Body referred back to this earlier statement and held 
that "this legal standard applies not only to 'contingency' under Article  3.1(a), but a lso to 
'contingency' under Article  3.1(b)".425 
7.206.   The Appellate Body has also clarified that Article 3.1(b) covers not only de jure  
contingency, but also de facto  contingency. In Canada – Autos , the Appellate Body reversed a 
panel rulin g that had limited "conti ngency " under Article  3.1(b) to de jure  contingency:  
[W]e believe that the Panel erred in finding that Article  3.1(b) does not extend to 
subsidies contingent "in fact" upon the use of domestic over imported goods. We, 
therefore, reverse the Panel's broad c onclusion that "Article  3.1(b) extends only to 
contingency in law."426 
7.207.   In the context of Article 3.1(a), the Appellate Body has noted that contingency "in law" ( de 
jure) is demonstrated "on the basis of the words of the relevant legislation, regulation or ot her 
legal instrument".427 The Appellate Body has added that "such conditionality can [also] be derived 
by necessary implication from the words actually used in the measure".428 
7.208.   Given that "contingent … upon" has the same meaning in Article 3.1(b) as it does in  
Article  3.1(a) , a conclusion that a subsidy is de jure  contingent upon the use of domestic over 
imported goods is to be based on the words of the relevant legislation , as well as their necessary 
implication . This would require a finding that:  
[T]he existe nce of that condition can be demonstrated on the basis of the very words 
of the relevant legislation, regulation or other legal instrument constituting the 
measure. The simplest, and hence, perhaps, the uncommon, case is one in which the 
condition … is set  out expressly, in so many words, on the face of the law, regulation 
or other legal instrument. We believe, however, that a subsidy is also properly held to 
be de jure  … contingent where the condition … is clearly, though implicitly, in the 
instrument comp rising the measure. Thus, for a subsidy to be de jure  … contingent, 
the underlying legal instrument does not always have to provide expressis  verbis  that 
the subsidy is available only upon fulfillment of the condition … Such conditionality can 
also be deri ved by necessary implication  from the words actually used in the 
measure.429 (emphasis added)  
7.209.   With respect to de facto  contingency, in the context of Article 3.1(a) of the 
SCM Agreement, the Appellate Body has stated that "the evidence needed to establish de facto … 
                                               
423 Appellate Body Report, Canada – Aircraft , para.  166. 
424 Panel Report, Australia – Automotive Leathe r II, para.  9.55.  
425 Appellate Body Report, Canada – Autos , para.  123. 
426 Ibid. para. 143. 
427 Appellate Body Report, Canada – Aircraft , para.  167. See also Appellate Body Reports, Canada – 
Autos , para.  123; EC and certain member States – Large Civil Aircraft , para. 1038.  
428 Appellate Body Report, Canada – Autos , para.  123. See also ibid. para. 100; and Appellate Body 
Report, EC and certain member States – Large Civil Aircraft , para. 1038.  
429 Appellate Body Report,  Canada – Autos , para.  100. See also Panel Report , Canada – Aircraft Credits 
and Guarantees , para.  7.365 and Panel Report, US – FSC (Article  21.5 – EC), paras.  8.54-8.56.  WT/DS487/R  
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  contingency goes beyond a legal instrument and includes a variety of factual elements concerning 
the granting of the subsidy in a specific case"430: 
Proving de facto … contingency is a much more difficult task. There is no single legal 
document whic h will demonstrate, on its face, that a subsidy is "contingent … in 
fact…". Instead, the existence of this relationship of contingency, between the subsidy 
and … performance, must be inferred  from the total configuration of the facts 
constituting and surro unding the granting of the subsidy, none of which on its own is 
likely to be decisive in any given case.431 (emphasis original)  
7.210.   Still referring to contingency upon export performance under Article 3.1(a) , the 
Appellate  Body has stated that "the standard for de facto  … contingency … 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 g ranting of the subsidy."432 The Appellate Body has further noted that:  
The existence of de facto  export contingency, as set out above, "must be inferred  
from the total configuration of the facts constituting and surrounding the granting of 
the subsidy"433, which may include the following factors: (i) the design and structure 
of the measure granting the subsidy; (ii) the modalities of operation set out in such a 
measure; and (iii) the relevant factual circumstances surrounding the granting of the 
subsidy that pr ovide the context for understanding the measure's design, structure, 
and modalities of operation.434 (emphasis original)  
7.211.   Moreover, the Appellate Body  has ruled as follows : 
[T]he conditional relationship between the granting of the subsidy and export 
performa nce must be objectively observable on the basis of such evidence in order for 
the subsidy to be geared to induce the promotion of future export performance by the 
recipient. The standard for de facto … contingency is therefore not satisfied by the 
subjecti ve motivation of the granting government … In this respect, we 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 meas ure.435 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.436 In our view, the same understanding 
applies in the context of a determination  on … contingency, where the requisite 
conditionality … must be established on the basis of objective evidence, rather than 
subjective intent. We note, however, that while the standard for de facto  … 
contingency cannot be satisfied by the subjective motiva tion of the 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 expor t performance by 
the recipient.437 (emphasis added)  
                                               
430 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1038.  
431 Appellate Body Report, Canada – Aircraft , para. 167. See also Appellate Body Reports, Canada – 
Autos , para.  123; EC and certain member States – Large Civil Aircraft , para. 1038.  
432 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1045.  
433 (footnote original) Appellat e Body Report, Canada – Aircraft , para. 167. (original emphasis)  
434 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1046.  
435 (footnote original) For example, in the context of a discrimination claim under Article  III of the 
GATT  1994, the Appellate Body found that "[i]t is not necessary for a panel to sort through the many reasons 
legislators and regulators often have for what they do and weigh the relative significance of those reasons to 
establish legislative or regulatory intent." (Appellate Body Report, Japan – Alcoholic Beverages II , p. 27, 
DSR 1996:I, 97, at 119) Moreover, "there may well be a certain degree of speculation in seeking to establish 
the intent of a government in the abstract." (Panel Report, Japan – DRAMs ( Korea) , para. 7.104)  
436 (footnote original) Appellate Body Report, US – Offset Act (Byrd Amendment) , para. 259. (emphasis 
added) See also Appellate Body Report, China – Auto Parts , para. 178, where the Appellate Body found that 
the intent, stated or otherwi se, of the legislators is not conclusive as to the characterization of a measure.  
437 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1050.  WT/DS487/R  
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  7.212.   In sum, the Panel takes note of the Appellate Body 's findings  in prior disputes that 
"contingency" has the same meaning in Article 3.1(a) and Article 3.1( b) of the SCM Agreement , 
and that the contingency in  Article 3.1( b) can be established on a de jure  as well as on a de facto  
basis. The Panel shall be guided by these findings in its analysis.  
7.5.4.4   Other interpretive issues  
7.213.   The parties have advanced contrasting arguments regarding the interpretation of certain 
terms in Article 3.1(b ) of the SCM Agreement . 
7.5.4.4.1   The term "over"  
7.214.   Both the European Union and the United States note that the word "over" used in 
Article  3.1(b) of the SCM Agreement, in the expression "subsidies contingent … upon the use of 
domestic over import ed goods", is defined in the dictionary as "in preference to", "in excess of", or 
"more than".438 
7.215.   The United States notes that the expressions equivalent to the word "over" that are used 
in the French and the Spanish texts of Article 3.1(b) are " de préférenc e à" and " con preferencia a ", 
which would be equivalent to the English expression "in preference to" or "instead of".439 Thus, 
according to the United States:  
[A] subsidy that is inconsistent with Article 3.1(b) requires the use of domestic goods 
"in prefere nce to," i.e., instead of, imported goods. For this reason, Article 3.1(b) is 
often referred to as relating to "import substitution subsidies."440 It does not cover 
measures simply because they involve some sort of domestic activity, but rather it is 
focused  specifically on subsidies that depend on the substitution of domestic over 
imported goods.441 
7.216.   The European Union argues that, based on its ordinary meaning, the word "over" in 
Article  3.1(b) should be interpreted as "in excess of".442 The European Union recal led that the 
expression "in excess of" is used in other provisions of the W TO Agreements (such as 
Articles  II:1(b) and III:2 of the GATT 1994) and has been interpreted by previous panels and the 
Appellate Body as excluding a de minimis  standard.443 Based on its proposed meaning of the word 
"over", the European Union argues that there is no de minimis standar d for discrimination in 
Article  3.1(b) of the SCM Agreement. According to the European Union, "[a]s soon as a subsidy is 
contingent upon the use of domest ic over imported goods, competitive opportunities between 
domestic and imported goods are distorted, even if no such goods are currently imported".444 
7.217.   As clarified subsequently , the parties have no real discrepancy with respect to the meaning 
of the word "ov er" in Article  3.1(b) for the purpose of this dispute. The European Union has noted 
that it "does not disagree with the United States' legal interpretation of 'over'."445 The 
United  States has noted in turn that none of the parties has argued that there is a  de minimis  
exception in Article  3.1(b), so that there is no need for the Panel to address the question of 
whether such an exception exists.446 
                                               
438 European Union's response to Panel question No. 32, para. 72; United States' secon d written 
submission, para. 25; United States' response to Panel question No. 32, para. 68. See also Jap an's third -party 
submission, fn  5; Shorter Oxford English Dictionary , 5th edition, Volume 2, p. 2044 ( Exhibit US A-15); and 
Shorter Oxford English Dictio nary, 6th edition , pp. 2044 -2045 (Exhibit USA-51). 
439 United States' second written submission, para. 25; response to Panel question No. 32, para. 68. See 
also European Union's second written submission, para. 52.  
440 (footnote original) See, e.g., Canada – Renewable Energy (AB), para. 5.6. 
441 United States' response to Panel question No. 32, para. 68. See also United States' second written 
submission, para. 25.  
442 European Union's response to Panel question No. 32, para. 77; second written submission, para. 51.  
443 European Union's response to Panel question No. 32, paras. 73 -76. 
444 European Union's response to Panel question No. 32, para. 77; se cond written submission, 
paras.  50-51. 
445 European Union's second written submission, para. 52.  
446 United States' second wr itten submission, para. 28.  WT/DS487/R  
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  7.218.   In any event, the Panel notes the ordinary meaning of the word over, namely "[a]bove in 
degree, quality, or action ; in preference to; more than" .447 In Article 3.1(b) , the term "over" 
appears in the context of a prohibition on subsidies that are conditional upon the use of domestic 
over imported products. As noted above, the purpose of this provision is to prohibit cert ain 
subsidies that have been considered particularly trade -distorting by Members. In this context, the 
word "over" in Article  3.1(b) can be read in the sense of "in preference to" (or "instead of" or 
"rather than")448, so that this provision prohibits any su bsidy that is conditional on the use of 
domestic goods  in preference to (or "instead of" or "rather than")  imported goods . 
7.5.4.4.2   The term "use"  
7.219.   Article 3.1(b ) refers to subsidies contingent upon the use of domestic over imported goods. 
According to the United St ates, "[t]he term 'use' [in Article 3.1(b )] refers to either the act of using 
an input to produce a downstream good, or the use of a finished good by the end -user".449 The 
United States refers to footnote 61 of the SCM Agreement in Annex II ("Guidelines on 
Consumption of Inputs in the Production Process") as "mak[ing] clear that 'use' means the 
consumption of goods … as inputs into a production process".450 This is related to the United 
States' argument that separate wings and fuselages are elements of the fini shed aircraft and will 
not be "used" in the production of 777X airplanes.451 
7.220.   Conversely, the European Union argues that the term "use" in Article 3.1(b) is broad 
enough to "encompass situations where the input is 'used' in such a way that it has not been 
consumed and where it remains a discrete, identifiable part of the whole."452 In the 
European  Union's view, the term "use" is not limited to situations where an input is consumed in 
the production process, or merely attached to a final product .453 
7.221.   The Appellate B ody has examined the ordinary meaning of the term "use" in the context of 
a different provision of the SCM Agreement, namely Article 2.1(c) ("use of a subsidy programme 
by a limited number of certain enterprises" ). In this respect, the Appellate Body noted  that "[t]he 
word 'use' refers to the action of using or employing something" and cited the following dictionary 
definition of the term: " the action of using something; the fact or state of being used; application 
or conversion to some purpose ".454 The Appel late Body also noted that, in the context of 
Article  2.1(c) , "what is used  or employed is 'a subsidy programme'".455 The Panel observes that 
term "use",  referring to products, appears in several other provisions in the SCM Agreement  and in 
other covered agre ements.456 
                                               
447 "Over", 1 1, Shorter Oxford English Dictionary , 6th edition (2007), Vol. 2, p. 2048.  
448 This is also the meaning that best reconciles the language used in the three authentic versions of the 
SCM Agreement. The French text of Art icle 3.1(b) reads: " subventions subordonnées … à l'utilisation de 
produits nationaux de préférence à  des produits importés". The Spanish text reads: " las subvenciones 
supeditadas al empleo de productos nacionales con preferencia a  los importad os…" (emph asis added)  
449 United States' response to Panel question No. 44, para. 104.  
450 Ibid. para. 105.  Footnote 61 of the SCM Agreement provides as follows:  "Inputs consumed in the 
production process are inputs physically incorporated, energy, fuels and oil used in the production process and 
catalysts which are consumed in the course of their use to obtain the exported product. " (emphasis added)  
451 United States'  first written submission, para s. 110-115; second written submission, para s. 52-55; 
opening statement at the first meeting of the Panel, para s. 8-10; United States'  response to Panel question 
No. 44, para.  108. 
452 European Union's opening statement at the second meeting of the Panel, para. 30.  
453 European Union's response to Panel question No. 44, para. 102.  
454 Appellate Body Report,  US – Carbon Steel (India) , para. 4.374 and fn 1009. See also 
European  Union's response to Panel question No. 44, paras. 103 -105. 
455 Appellate Body Report,  US – Carbon Steel (India) , para. 4.374.  
456 See, for example, fn 29 to Article 8.2 of  the SCM Agreement ("the translation of industrial research 
findings into a plan, blueprint or design for new, modified or improved products, processes or services whether 
intended for sale or use…"); item (d) of Annex I to the SCM Agreement ("[t] he provis ion by governments or 
their agencies … of imported or domestic products or services for use in the production of exported goods…"); 
item (h) of Annex I to the SCM Agreement ("[t] he exemption, remission or deferral of prior -stage cumulative 
indirect taxes o n goods or services used in the production of exported products…"); para. II.3 of Annex II to 
the SCM Agreement ("[i] nvestigating authorities should treat inputs as physically incorporated if such inputs 
are used in the production process and are physicall y present in the product exported…"); Article III:1 of the 
GATT 1994 ("internal taxes and other internal charges, and laws, regulations and requirements affecting the 
internal sale, offering for sale, purchase, transportation, distribution or use of produc ts, and internal 
quantitative regulations requiring the mixture, processing or use of products in specified amounts or WT/DS487/R  
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  7.222.   In Article 3.1(b) , the term "use" appears in the context of a prohibition on subsidies that 
are conditional upon the use of domestic over imported goods. The purpose of this provision is to 
prohibit certain subsidies that have been considered part icularly trade -distorting by Members. The 
Panel finds that the ordinary meaning of the word, namely the action of using or employing 
something , is apt in the context of Article 3.1(b) . Neither the text of Article 3.1(b)  nor any relevant 
context indicates t hat the term "use" is confined to a particular manner of using or employing a 
given good, or that the good "used" in this context must possess certain characteristics in order to 
be capable of being "used" within the meaning of Article  3.1(b). Accordingly,  a subsidy conditional 
on the consumption of domestic goods , rather than or in preference to imported goods, as inputs 
into a production process  would be covered by Article  3.1(b) , but so too would a subsidy that is 
conditional in any other way on the use or employment of domestic goods , rather than or in 
preference to imported goods.  
7.5.4.4.3   The term "goods"  
7.223.   The United States submits that the word "goods" in Article 3.1(b) of the SCM  Agreement, 
in the expression "subsidies contingent … upon the use of domestic ove r imported goods ", refers 
to something that is saleable or tradeable.457 The United States points to the dictionary definition 
of "goods" as "saleable commodities, merchandise, wares"458 The United States also notes that the 
words used in the French and the Sp anish texts of Article 3.1(b) are " produits " and " productos ", 
respectively, both of which connote saleable commodities, merchandise, or wares.459 The 
United  States further notes that in Article 3.1(b) of the SCM Agreement the word "goods" is 
qualified by the  word "imported" (as well as by the word "domestic") and an imported good would 
be one that by definition is traded.460 The United States concludes that "goods", within the 
meaning of Article  3.1(b), must be understood as being products that are traded; if t hey are not, 
they cannot be imported, which would be inconsistent with the specif ic reference to "imported 
goods " in Article  3.1(b).461 
7.224.   The European Union agrees with the United States that the French and the Spanish texts 
confirm the interpretation that the  word "goods" in Article  3.1(b) of the SCM Agreement is 
synonymous with the word "products".462 The European Union, however, does not agree that the 
definition of "goods" should be limited to those products which are actually traded.463 In the 
European Union's  view, the approach advocated by the United States would run against a 
fundamental principle of the disciplines on trade in goods: that these disciplines protect 
competitive opportunities (and not just actual trade volu mes), including the potential  to comp ete, 
even absent actual trade in the goods concerned.464 According to the European Union, the 
interpretation advocated by the United States would open up an easy path for circumventing the 
subsidy disciplines under Article 3.1(b) of the SCM Agreement465 and wo uld defeat the purpose of 
Article  3.1(b) by affording impunity to the most distortive subsidies: those that successfully 
                                                                                                                                               
proportions…"); para. 1(a) of the Annex to the Agreement on Trade -Related Investment Measures ("the 
purchase or use by an enterprise of p roducts of domestic origin or from any domestic source…"); para. 2 of the 
Annex to the Agreement on Civil Aircraft ("the products covered by the descriptions listed below … shall be 
accorded duty -free or duty -exempt treatment, if such products are for use in civil aircraft or ground flying 
trainers and for incorporation therein, in the course of their manufacture, repair, maintenance, rebuilding, 
modification or conversion…"). (emphasis added)  
457 United States' first written submission, paras. 105 and 125 -128; second written submission, 
paras.  22-23. 
458 United States' first written submission, para. 126 (citing Appellate Body Report,  US – Softwood 
Lumber IV, para. 58 & fn 43, which in turn cites  The New Shorter Oxford English Dictionary , L. Brown (ed.) 
(Claren don Press, 1993), Vol. I, p. 1116).  
459 United States' first written submission, para. 126 (citing Le Nouveau Petit Robert , 2009, 
pp. 2034-2035 (Exhibit USA -28) and Diccionario de la Lengua Española , 2001, pp. 1839 -1840 (Exhibit USA-
29)). 
460 United States' fi rst written submission, para. 126 (citing Appellate Body Report,  US – Softwood 
Lumber IV , para. 62). See also United States' second written submission, para. 22.  
461 United States' first written submission, para. 128.  
462 European Union's second written submis sion, para. 46.  
463 Ibid. 
464 Ibid. (citing Panel Reports, Korea — Alcoholic Beverages , para. 10.81; Colombia — Ports of Entry , 
para. 7.356; US — Poultry (China) , paras. 7.424 –7.427 and 7.429; and Indonesia — Autos , para. 14.113; and 
Appellate Body Report, Canada — Periodicals , pp. 20-21, DSR 1997:I, 449, 466 -467. See also European 
Union's response to Panel question No.  33, para.  85. 
465 European Union's second written submission, para. 49 (citing Japan's response to Panel question 
No. 4, para. 4).  WT/DS487/R  
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  eliminate competing foreign products from the market.466 The European Union submits that a 
challenge under Article 3.1(b) should be evalu ated in view of the market situation at the point in 
time prior to adoption of the challenged measure.467 
7.225.   The Panel agrees with the parties that the term "goods" in Article 3.1(b) can be read as 
synonymous with "products". This is also the reading that best reconciles the language used in the 
three authentic versions of the SCM Agreement. In Article 3.1(b) , the term "goods" appears in the 
context of a prohibition on subsidies that are conditional upon the use of domestic over imported 
goods . As noted above, t he purpose of this provision is to prohibit certain subsidies that have been 
considered particularly trade -distorting by Members. Since a main objective of the agreement is to 
address trade distortions caused by subsidies – in the provision at issue, a sub sidized preference 
for domestic over imported goods –, it follows that the goods in question must be at least 
potentially tradable. Indeed, the SCM Agreement is part of a set of covered agreements called 
"Multilateral Agreements on Trade in Goods". There i s no requirement under the provision, 
however, that the goods in question must be actually traded. Following the Appellate Body's 
guidance with respect to provisions in other covered agreements, it can be said that Article 3.1(b) 
of the SCM Agreement prote cts competitive opportunities of imported products, rather than 
existing trade flows of such products.468 In this regard, the fact that a given product may, or may 
not, be actually traded at present is not dispositive of whether competitive opportunities exi st with 
respect to that product. The Panel therefore considers that there is no need to demonstrate 
present trade in a specific product as it exists at a given moment in time to establish a prohibited 
contingency under Article 3.1(b).  
7.5.5   Relevant facts for th e assessment of the alleged contingency  
7.226.   The European Union's primary claim is that, as a result of the First Siting Provision and the 
Second Siting Provision, considered individually or together, the challenged aerospace tax 
measures constitute subsidies t hat are de jure  contingent on the use of domestic over imported 
goods.469 
7.227.   The European Union also argues that the First Siting Provision and the Second Siting 
Provision  each make the tax measures at issue subsidies  that are de facto  contingent on the use of 
domestic over imported goods .470 
7.228.   Before assessing the European Union's claims, the Panel will review the texts of the 
relevant provisions of the measures at issue, as well as the additional factual evidence available.  
7.5.5.1   The siting provisions  of ESSB 5952  
7.229.   ESSB 5952 amended and extended the aerospace tax measures, which were originally 
established in 2003 by HB 2294.471 The amendment and extension, however, did not take effect 
immediately upon enactment of ESSB 5952. Instead, the entry into force of the amendment a nd 
extension of the aerospace tax measures was contingent upon satisfaction of the First Siting 
Provision in S ection 2 of ESSB 5952, namely "upon the siting of a significant commercial airplane 
manufacturing program in the state of Washington".472 The legisl ation also provides that, "[i]f a 
significant commercial airplane manufacturing program is not sited in the state of Washington by 
June 30, 2017, … [this act] does not take effect".473 
7.230.   The First Siting Provision reads:  
                                               
466 European Uni on's second written submission, para. 46; opening statement at the first meeting of the 
Panel, paras. 47 -48. 
467 European Union's second written submission, para. 46; closing statement at the first meeting of the 
Panel, para. 9.  
468 See, for example, Appellate  Body Reports, Japan – Alcoholic Beverages  II, p. 16, DSR 1996:I,  97, at 
pp. 109-110; Korea – Alcoholic  Beverages , paras. 119 -120. 
469 European Union's second written submission, para. 60.  
470 Ibid. 90-91. 
471 See para. 7.39 above.  
472 ESSB 5952 (Exhibit EU -3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU -58). See also 
European Union's  comments on United States' response to Panel question No.  53, para. 7. 
473 ESSB 5952 (Exhibit EU -3), Section 2, codified at RCW Section 82.32.8 50 (Exhibit EU -58). WT/DS487/R  
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  NEW SECTION. Sec. 2. A new section is a dded to chapter 82.32 RCW to read as 
follows:  
(1) Chapter ..., Laws of 2013 3rd sp. sess. (th is act) takes effect contingent upon the 
siting of a significant commercial ai rplane manufacturing program in the state of 
Washington. If a significant co mmercial airplane manufacturing program is not sited in 
the state of Washington  by June 30, 2017, chapter ..., Laws of 2013 3rd sp. sess. 
(this act) does not take effect.  
(2) The definitions in this subsection apply  throughout this section unless the context 
clearl y requires otherwise.  
(a) "Commercial airplane" has t he same meaning provided in RCW 
82.32.550.  
(b) "New model, or any version or var iant of an existing model, of a 
commercial airplane" means a commercial airp lane manufactured with a 
carbon fiber composite  fuselage or carbon fiber composite wings or both.  
(c) "Significant commercial airplane manufacturing program" means an 
airplane program in which the following products,  including final 
assembly, will commence manufacture at a new or existing loca tion with in 
Washington state on or after the effective date of this section:  
(i) The new model, or any version or variant of an existi ng model, of a 
commercial airplane; and  
(ii) Fuselages and wings of a new model, or any version or variant of an 
existing model, of  a commercial airplane.  
(d) "Siting" means a final decision, made o n or after November 1, 2013, 
by a manufacturer to locate a significant co mmercial airplane 
manufacturing program in Washington state.  
(3) The department must make a dete rmination regarding whether the contingency in 
subsection (1) of this section occurs and must provide written notice of the date on 
which such contingency occurs and chapter ..., Laws of 2013 3rd sp. sess. (this act) 
takes effect. If the  department determines that the conting ency in subsection (1) of 
this section has  not occurred by June 30, 2017, the department must provide written 
notice stating  that chapter ..., Laws of 2013 3rd sp. sess. (this act) does not take 
effect. Writt en notice under this subsection (3) must be prov ided to affected parties, 
the chief clerk of the house of representatives, the secretary of the senate, the office 
of the code reviser, and others as deemed appropriate by the department.474 
7.231.   Under the terms of the legislation, t he First Siting Provision  concerns a one -time event. 
That is, the amendment  and exten sion of the challenged aerospace tax measures would come into 
effect, for all beneficiaries, upon the siting of a significant commercial airplane manufacturing 
program me in Washington State . Moreover, if no such siting occurred by the specified date 
(30 June 2017), the possibility for the amendment  and exten sion of the measures to take effect 
would lapse.  
7.232.   The First Siting Provision defines "siting" to mean "a final decision, made on or after 
November 1,  2013, by a manufacturer to locate a significant commercial airplane manufacturing 
program in Washington State". In turn, "significant commercial airplane manufacturing program" is 
defined as:  
[A]n airplane program in which the following products, includin g final assembly, will 
commence manufacture at a new or existing location within Washington state on or 
after the effective date of this section:  
                                               
474 ESSB 5952 (Exhibit EU -3). WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  (i) The new model, or any version or variant of an existing model, of a 
commercial airplane; and  
(ii) Fuselage s and wings of a new model, or any version or variant of an 
existing model, of a commercial airplane.475 
7.233.   The First Siting Provision additionally defines "new model, or any version or variant of an 
existing model, of a commercial airplane" to mean "a commerci al airplane manufactured with a 
carbon fiber composite fuselage or carbon fiber composite wings or both".476 
7.234.   As to the procedures to verify the satisfaction of the conditions in the First Siting Provision , 
Section 2 of ESSB 5952 provides that:  
The department  [of Revenue of the state of Washington ] must make a dete rmination 
regarding whether the contingency in subsection (1) of this section [the siting] occurs 
and must provide written notice of the date on which such contingency occurs and 
[this act ] takes eff ect. If the  department determines that the contingency in 
subsection (1) of this section has  not occurred by June 30, 2017, the department 
must provide written notice stating  that [ this act ] does not take effect. Written notice 
under this subsection  (3) mu st be provided to affected parties, the chief clerk of the 
house of representatives, the secretary of the senate, the office of the code reviser, 
and others as deemed appropriate by the department.477 
7.235.   The Second Siting Provision within ESSB 5952 relates to the business and occupation 
(B&O) aerospace tax rate478, and provides as follows:  
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 and 
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 
manufacturing pro gram in the state under section 2 of this act.479 
7.236.   The Second Siting Provision concerns the continued availability of the 0.2904% B&O 
aerospace tax rate for the version or variant of a commercial airplane that is the basis of the First 
Siting Provision. The Second Siting Prov ision specifically pertains to the siting of any " final 
assembly or wing assembly" of such commercial airplane.  
7.237.   By its own terms, t he Second Siting Provision refers to the same significant commercial 
airplane manufacturing program me (that is, the program me that satisfied the First Siting 
Provision ) in which certain "products, including final assembly , will commence manufacture  at a … 
location within Washington state " (emphasis added).  The Second Siting Provision "only applies to 
the manufac turing or sale of commercial airplanes that are the basis of a siting [under the First 
Siting Provision]".480 The relevant "commercial airplanes" in this regard are Boeing 777X aircraft.  
                                               
475 Ibid. Section 2(2)(c) and (d), codified at RCW Section 82.32.850(2)(c) and (d) (Exhibit EU -58). 
476 ESSB 5952 (Exhibit EU -3), Section 2(2)(b), codified at RCW Section 82.32.850(2)(b) 
(Exhibit  EU-58). 
477 ESSB 5 952 (Exhibit EU -3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU -58). 
478 The Second Siting Provision concerns paragraph 11 of Sections 5 and 6 of ESSB 5952 , which  refers 
to the 0.2904% B&O tax rate applicable to  persons "engaging within the [s tate of Washington] in the business 
of manufacturing commercial airplanes, or components of such airplanes, or making sales, at retail or 
wholesale, of commercial airplanes or components of such airplanes, manufactured by the seller ". See 
ESSB  5952 (Exhibit EU-3) , Section s 5 and 6. See also United States' first written submission, paras.  79-80; 
response to Panel question No. 53(b), para. 16.  
479 ESSB 5952 (Exhibit EU -3), Sections 5 and 6 , codified at RCW Section 82.32.850( 11)(e)(ii) 
(Exhibit  EU-22). 
480 ESSB 595 2 (Exhibit EU -3), Sections 5 and 6 , codified at RCW Section 82.32.850( 11)(e)(ii) 
(Exhibit  EU-22). WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  7.238.   ESSB 5952 does not define the term "manufacture" .481 However, Section 82. 04.120 of the 
Revised Code of Washington contains the following definition of "manufacture":  
"To manufacture"  embraces all activities of a commercial or industrial nature wherein 
labor or skill is applied, by hand or machinery, to materials so that as a re sult thereof 
a new, different or useful substance or article of tangible personal property is 
produced for sale or industrial use …482 
7.239.   This definition is part of Chapter  82.04 of the Revised Code of Washington, which governs 
the application of the B&O tax.483 As stated by the United States, the Department of Revenue of 
the state of Washington considers that the  definition "would apply in the interpretation of 
ESSB  5952".484 
7.240.   There is no relevant statutory definition of the term "assembly" . As noted by the United 
States, if called to interpret undefined terms, Washington State authorities would consider the 
common law or ordinary meaning of the word in the context of the statute in which the word 
appears.485 Based on the dictionary meaning of the word, and its consider ation of the statute as a 
whole, the United States notes that "assembly is a subset of manufacturing".486 
7.5.5.2   Products at issue  
7.241.   The European Union's claim in this dispute relates to an alleged prohibited contingency 
based on the use of domestic over imported wings and fuselages .487 It is not in dispute whether 
the measures at issue place any conditions on the use of any other  elements or components  of 
commercial airplanes, including  sub-components of wings and fuselages.488 Accordingly, the 
products at issue for the Panel's analysis under Article 3.1(b) of the SCM are wings and fuselages 
of commercial airplanes.  
7.242.   The parties have presented extensive factual evidence regarding the production of 
commercial airplanes, particularly with regard to the production of wings an d fuselages in the 
context of commercial airplane assembly. In this section, the Panel will review this evidence, 
including undisputed aspects of the production and assembly of Boeing's 777X aircraft, as well as 
other evidence relating to the production an d transport of wings and fuselages of other types of 
commercial airplanes.  
7.5.5.2.1   Boeing's 777X aircraft program me 
7.243.   As noted above, the aerospace tax measures , as amended and extended by  ESSB 5952 , 
took effect upon fulfilment of the First Siting Provision, based o n Boeing's decision to site its 
program me for the production of  777X aircraft in the state of Washington.489 The United States 
has provided background explanations as to various aspects of the 777X program me and the 
production process of  777X aircraft, inclu ding information provided in a statement by corporate 
officers of Boeing (Boeing Expert Statement).490 
                                               
481 United States' first written submission, para. 78.  
482 See RCW Section 82.04.1 20 (Exhibit USA -37). The provision additionally lists activities included in 
this definition such as inter alia  "[t]he production or fabrication of special made or custom made articles".  
483 United States' response to Panel question No. 14, para. 28 . 
484 Ibid. 
485 See Supreme Court of Washington, Citizens Alliance for Property Rights Legal Fund v. San Juan 
County et al. (2015)  (Exhibit USA -38). United States' response to  Panel question No. 14, para. 29.  
486 United States' response to Panel question No. 14, para s. 29-32. 
487 See, e.g. European Union's first written submission, paras. 74 -75; openi ng statement at the first 
meeting of the Panel, para. 4; second written submission, para. 1; opening statement at the second meeting of 
the Panel , paras. 3, 9, 32 -34. 
488 See e.g. European Union's opening statement at the second meeting of the Panel , paras. 9 
and 31-32; United States' response to Panel question No. 64, para. 41. 
489 European Union's first written submission, para. 45; United States' first written submission, paras. 2 
and 78. See also Letter from the Director of the Washington State Department o f Revenue to the Code Reviser, 
10 July 2014  (Exhibit EU -61). 
490 Boeing expert statement  (Exhibit USA -1) (BCI) . WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  7.244.   The 777X is a new aircraft program me developed by Boeing, based on its earlier 777 
program me. According to the explanations provided by the United States, many of the 777X 
production and supplier choices made by Boeing mirror  those of the current  777-300ER , which is a 
twin-aisle aircraft , typically configured for approximately 350 -375 passengers (depending on class 
configuration) with a range of 7,825 nautic al miles . The 777 -300ER 's fuselages and wing s, 
however,  are composed primarily of aluminium; by contrast, the 777X's wings will be made 
primarily of carbon fibre -reinforced plastic.491 
7.245.   The United States submits a statement by experts affiliated with Boeing r egarding Boeing's 
production operations and background information on the products at issue. As explained by the 
Boeing experts:  
An aircraft gets its essential structure, its aerodynamic and load -bearing qualities, 
from its airframe . The main airframe stru ctures are the fuselage, wing, and tail.492 
(emphasis original)  
7.246.   In the following sections, the Panel will review evidence and information related to the 
manufacturing and assembly of the Boeing 777X. The Panel notes that this evidence, including the 
statemen t by the Boeing experts, concerns future manufacturing operations that have not yet 
commenced, and that, based on current projections, the first variant of the 777X will enter into 
service in the year  2020.493 
7.5.5.2.2   Fuselage  
7.247.   As explained by the Boeing experts with  respect to the fuselage of the aircraft:  
The fuselage  is the long tube that forms the longitudinal axis of the aircraft,  running 
from nose to tail. It forms the exterior structure that  houses the aircraft's interior 
accommodations and payload – e.g., passengers, crew, flight deck, cargo.494 
(emphasis original)  
7.248.   The fuselage' s primary elements consist of : 
a. Skins: the panels that form the exterior of the fuselage, with  cutouts for windows and 
doors ; 
b. Frames : stronger, hoop -shaped structures positioned  perpendicul ar to the skins at 
intervals along the length of the fuselage ; and  
c. Stringers : long, thin structures running parallel to, and reinforcing, the skins.495 
7.249.   The fuselage also  includes floor frames and panels that support passengers, crew, cargo, 
and interior  accommodations.496 
7.250.   The 777X's fuselage comprises eight separate fuselage sections, called Sections 41 to 48. 
Section 41 is the nose of the plane and Section 48 is the empennage (a tapered end at the tail of 
the plane).497 Like all other Boeing commercial aircraft (with the exception of the 787), the 777X's 
primary fuselage structures are made from aluminium.498 According to the Boeing experts, 
[[BCI]].499 
                                               
491 United States' first written submission, paras. 20-24; Boeing expert statement  (Exhibit USA -1) (BCI), 
para. 16; Boeing 777 Backgrounder (Exhibit  USA-6). 
492 See Boeing expert statement  (Exhibit USA -1) (BCI), para. 11.  
493 See ibid. para. 40.  
494 See ibid. para. 12.  
495 See Boeing expert statement (Exhibit USA -1) (BCI), para. 12.  
496 See ibid . 
497 See ibid. para. 13.  
498 See ibid . 
499 See ibid. para. 42. "Make/buy " refers to the process of determining which aircraft elements Boeing 
will make, and which to procure from outside suppliers. Ibid. fn 1. WT/DS487/R  
BCI deleted as indicated [[BCI]]  
- 79 - 
 
  7.251.   In its initial fuselage manufacturing operations, Boeing receives fuselage structures from 
its suppliers at the Eve rett fuselage building, which when completed will be a new facility next to 
the main factory building where the 777X will undergo final assembly.500 For the various fuselage 
Sections, [[BCI]], these primary fuselage structures [[BCI]].501 The separate fuselage  Sections 
are then joined into three larger parts of the fuselage, namely the forward (Sections 41 a nd 43), 
center (Sections 44 and  11/45), and aft (Sections 46 -48). More specifically:  
a. The forward part of the fuselage incorporates Section 41, which is the foremost fuselage 
section that will eventually house the flight deck, which is joined to Section 43.502 
b. The center part of the fuselage consists of Section 44, which unlike other fuselage 
sections does not have a keel panel; rather, Section 11/45 forms the b ottom of the 
center part of the fuselage, and is itself constructed from various structures: [[BCI]].503 
c. The aft part of the fuselage is formed by joining three separate fuselage sections 
(Sections 46 -48).504 
7.5.5.2.3   Wings  
7.252.   As explained by the Boeing experts with respe ct to the wings of the aircraft:  
The wings join the aircraft at roughly the mi d-point along the length of the fuselage. 
In addition to providing lift and flight contro l surfaces, the wings carry the engine 
installations and fuel.505 (emphasis original)  
7.253.   The w ings have elements that are fixed in flight, and flight control surfaces that move in 
flight. The 777X 's main fixed wing elements consist  of: 
a. The main wing box, which forms most of the wing 's visible surface area;  
b. The wing tip,  which is static in flight bu t folds at airport gates to meet certain wingspan 
constraints;  
c. The fixed leading and trailing edges that run most of the span of the visible wing; and  
d. The center wing box, which sits under the fuselage and is not visible on a finished 
aircraft.506 
7.254.   The visibl e wing box structures are composed of : (i) the skins, which form the wing 
exterior; (ii) the ribs, which run perpendicular to the wing span and support the skins; (iii) the 
spars, which run the length of the wing span and support the ribs; and (iv) the str ingers, which 
are attached to the skins and also run the length of the wi ng. As for the movable elements of the 
wings, the primary parts are : (i) the slats on the wing 's leading edge ; and (ii) the droop  panels, 
spoilers, ailerons and flaps on the trailing edge.507 
7.255.   Some of the main structures of the 777X's wings will be made mostly from carbon fibr e-
reinforced plastic.508 By contrast, both the fuselage  and the wing of the 777-300ER are primarily 
composed of alumin ium.509 According to the Boeing experts, [[BCI]].510 
                                               
500 Boeing expert statement  (Exhibit USA -1) (BCI), para. 52(a).  
501 Ibid. para. 52(b).  
502 Ibid. para. 52(c).  
503 Ibid. para. 52(e).  
504 Ibid. para. 52(d).  
505 See Boeing expert statement (Exhibit USA -1) (BCI), para. 14.  
506 See ibid. 
507 See ibid. para. 15. 
508 United States' first written submission, para. 22; Boeing expert statement  (Exhibit USA -1) (BCI), 
paras. 16, 39, 43.  
509 United Sta tes' first written submission, para. 21; Boeing 777 Backgrounder  (Exhibit USA-6). 
510 See Boeing expert statement  (Exhibit USA -1) (BCI), para. 42. See also United States' first written 
submission, para. 32.  WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  7.256.   The initial wing manufacturing operations for the 777X will take place in the Composite 
Wing Center that is being built close to the main factory building. As explained by the Boeing 
experts, that center is responsible for fabricating [[BCI]] 777X wing str uctures, [[BCI]].511 
Further fabrication takes place in a spar sub -assembly building where [[BCI]].512 
7.257.   The resulting "Section 12" wing structure consists of the main wing box (including spars, 
ribs, and panels) and the fixed leading and trailing edges, but doe s not include movable edges or 
the wingtip.513 
7.5.5.2.4   Final assembly process  
7.258.   The United States provided detailed descriptions of the vario us steps in the assembly of 
the 777X aircraft. The United States "acknowledges that wing fabrication, wing assembly, and 
fusela ge assembly are all production activities conducted in the manufacture of an airplane"514, but 
argues that fuselages and wings are "features or elements of the finished aircraft, which are 
generated only through the final assembly process of the airplane its elf – not inputs into the 
production process".515 In other words, and as stated by the Boeing experts, "neither a complete 
fuselage nor complete wings enter the final assembly process".516 
7.259.   The production carried out in the fuselage building, described above, r esults in three 
separate sections of the fuselage (forward, center, and aft), which at the time they leave the 
fuselage building still [[BCI]].517 The three fuselage sections are then [[BCI]].518, 519 
7.260.   The Section 12 wing structure , which results from initial win g manufacturing operations 
described above, undergoes additional operations in the main factory building, namely: 
[[BCI]].520 These operations result in two "outboard wing structures".521 
7.261.   Having undergone separate fabrication and installation operations522, the center fuselage 
structure (including the center wing box) and outboard wing structures are at this point brought 
together in the "wing -body join stage" of the moving assembly line. As explained by the Boeing 
experts, "[t]his is the first point at which the  main wing structures – the two outboard wings and 
the center wing box – are joined together".523 At this stage, the outboard wing structures still lack 
[[BCI]].524 
7.262.   The final assembly process then moves into "final body join", and the subsequent final 
assembly  position, where, as explained by the Boeing experts, certain operations complete the 
airframe and install the major remaining systems:  
[[BCI]]525 
7.5.5.2.5   Production and assembly of other aircraft  
7.263.   In addition to the Boeing 777X, the parties have presented evidence o n the production of 
other models of aircraft, particularly in respect of the production of wings and fuselages.  
                                               
511 Boeing expert statement (Exhibit USA -1) (BCI), pa ra. 52(h).  
512 Ibid. para. 52(i)-(k). 
513 United States' response to Panel question No. 64, para. 40.  
514 United States' response to Panel question No. 66, para. 71.  
515 United States' first written submission, para. 110. 
516 See Boeing expert statement (Exhibit USA -1) (BCI), para. 53. 
517 Ibid. para. 52(f).  
518 Ibid. 
519 Ibid. para. 52(m).  
520 Ibid. para. 52(l). 
521 Ibid. 
522 See ibid. para. 52(m).  
523 Ibid. para. 52(n). 
524 Ibid. 
525 Ibid. para. 51(p).  WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  7.264.   The parties have referred to another model of aircraft manufactured by Boeing, the 787, in 
respect of whether Boeing imports 787 wings from a fo reign supplier.526 The United States submits 
that the " 787's wings, like those of all Boeing large civil aircraft, consist of numerous individual 
parts, including those that make up fixed wing structures ( e.g., the spars, ribs, and panels that 
comprise the m ain wing box; the fixed leading and trailing edges; and the center wing box) and 
the movable wing elements that enable controlled flight operations ( e.g., moveabl e leading and 
trailing edges)".527 According to the United States, " Boeing imports multiple wing -related 
structures from Japan " that require further wing assembly activity in the United States.528 More 
specifically, Boeing imports a " right-hand and left -hand partial wing structure " that include the 
constituent parts of the main wing box and the fixed a nd leading trailing edges529, without 
[[BCI]].530 The United States clarifies that the imported wing structure for the 787 is referred to 
as Section 12, discussed above in relation to the 777X, which consists of the main wing box and 
the fixed leading and trai ling edges.531 These wing structures are then  shipped to a Boeing  787 
assembly facility in the United States in Boeing's Dreamlifter aircraft where they undergo assembly 
operations, including additional elements of the wing itself.532 The E uropean  Union has al so 
provided evidence, including descriptions from Boeing, of the production and shipping of the 
relevant 787 wing structures.533 
7.265.   In respect of the fuselages of the Boeing 737, it is not disputed that Boeing sources 
complete fuselages for the 737NG and 737MAX  single -aisle aircraft from a supplier in the state of 
Kansas, which are then transported by rail to Boeing's 737 manufacturing facility in the state of 
Washington for final assembly of the aircraft.534 
7.266.   The parties have also presented evidence of the product ion and assembly of certain 
models of Airbus aircraft. The European Union describes the pro duction and transport of 
Airbus  A350 XWB wings, which are structurally assembled at a facility in the United Kingdom, and 
from there transported by the Airbus Beluga  carrier aircraft to a facility in Bremen, Germany where 
they are "fully equipped with the relevant systems", and  then transported on the Airbus  Beluga to 
the final assembly site in Toulouse, France.535 In this regard, the United States contends that 
"these structures have neither all the fixed nor all the movable part s that the fully assembled 
A350 XWB wings have, and they must therefore undergo further assembly"536, such that "what 
leaves the United Kingdom is a [[BCI]]".537 The European Union further describes  the transport of 
Airbus A380 wings "across long distances", with wings first produced in the United Kingdom and 
"then moved by road for a mile, placed on a specially built barge on the river, and finally 
transported by road to Toulouse".538 The United State s submits that, for the A380, what is shipped 
                                               
526 See, e.g. European Union's  first written submission, paras. 74-75; Reuters, "Bo eing seen in 
advanced talks to make 777X near Seattle", 4 November 2013  (Exhibit EU-65). 
527 United States' response to Panel question No. 16, para. 34. 
528 Ibid. 
529 Ibid. para. 35 . 
530 Boeing expert statement (Exhibit USA -1) (BCI), fn 6. 
531 United States' respons e to Panel question No. 64, para. 40; response to Panel question No. 73; 
Mitsubishi He avy Industries, Boeing 787  (Exhibit USA-42); Boeing Frontiers, "Wings Around the World ", 
March  2006 (Exhibit USA-68); Boeing 787 customs invoice and related shipment docu mentation  
(Exhibit  USA-67) (BCI).  
532 United States' response to Panel question No. 16, para. 35; Boeing expert statement (Exhibit USA -1) 
(BCI), para. 43 (explaining that [[BCI]] in comparis on to 777X wings).  
533 See European Union's response to Panel question  No. 33, para. 79; Boeing Pres entation, 
"Introduc ing the 787", September 2011  (Exhibit EU-78); Boeingblogs, "Randy 's Journal : Arrivals", 
22 May 2007 (Exhibit EU-79); Boeing Video, "Boeing 747 Dreamlifter", 17 January 2009 (Exhibit EU-97); 
Boeing Frontiers,  "The 747 -400 will be transformed into an even larger freighter  ", June 2005 (Exhibit EU-122).  
534 United States' response to Panel question No. 35, para. 80; Spirit AeroSystems, "Spirit celebrates 
completion of first Boeing 737 MAX fuselage ", (Exhibit  USA-52); European Union's response to Panel question 
No. 33, paras. 80-81. 
535 See European Union's response to Panel question No. 17, paras. 18-19; Airbus, "How is an aircraft 
built? Production"  (Exhibit EU -84); Airbus Video, "The A350 XWB Final Assembly Line: e fficiency in motion", 
23 October 2012  (Exhibit EU-87). 
536 United States' response to Panel question No. 64, para. 47.  
537 Ibid. (citing Email from Erik Zahn, Boeing Commercial Airplanes, 15 April 2016 (Exhibit USA-73) 
(BCI).  
538 See European Union's  response t o Panel questi on No. 17, para. 22; BBC Documentary, "How to Build 
A Super Jumbo Wing", 24 August 2013 (Exhibit EU-91). WT/DS487/R  
BCI deleted as indicated [[BCI]]  
- 82 - 
 
  to Toulouse are [[BCI]].539 In this connection, the United  States considers that "[t] here are at 
least some complete finished wings for single -aisle aircraft that fit on the transport aircraft [such 
as an Airbus Beluga or a Boeing Dreamlifter] , [[BCI]]."540 However, the United States contends 
that the same is not true for completely assembled wings of larger aircraft, including [[BCI]].541 
7.267.   In addition, the European Union submits that "[m]anufacturing fuselages as inte rmediate 
goods before the final assembly of the aircraft is also the standard practice for Airbus", referring 
specifically to the production of the A320, the A350 XWB, and the A380.542 
7.5.5.3   Other r elevant facts on record  
7.268.   In accordance with the First Siting Provis ion in ESSB 5952, the availability of the aerospace 
tax measures at issue was conditional on a determination by the Department of Revenue of the 
state of Washington that a manufacturer had made a final decision, after 1  November 2013 but 
before 30 June 201 7, to site a significant commercial airplane manufacturing program me in the 
state of Washington.  
7.269.   The "significant commercial airplane manufacturing program" necessary for the 
Department of Revenue's  determination is one in which the following products, inc luding final 
assembly , will commence manufacture: (i) a new model of a commercial airplane, or any version 
or variant of an existing model; and (ii) fuselages and wings of a new model of a commercial 
airplane, or of any version or variant of an existing mo del. The "new model " or "any version or 
variant of an existing model " of a commercial airplane  is defined as "a commercial airplane 
manufactured with a carbon fiber composite fuselage or carbon fiber composite wings or both" . 
7.270.   Boeing's 777X program me is the  "significant commercial airplane manufacturing program ", 
and the 777X is the new model of a commercial airplane , that satisfied the First Siting Provision . 
On 9 July 2014, Boeing notified the Department of Revenue of the state of Washington in writing 
that Boeing had made a final decision to manufacture the 777X airplane in the state of 
Washington. In its letter Boeing stated that this decision satisfied the requirement in ESSB 5952 
that a significant commercial airplane manufac turing programme be sited in  the s tate of 
Washington.543 Three attachments  accompanied Boeing's letter, as examples of "actions Boeing 
has taken consistent with its decision to manufacture the 777X in Washington".544 The first 
attachment was a copy of a Collective Bargaining Agreement be tween Boeing and the International 
Association of Machinists and Aerospace Workers, AFL -CIO, containing a Letter of Understanding in 
which "Boeing 'agrees to locate the 777X wing fabrication and assembly, final assembly, and major 
components' in Puget  Sound" (Washington State).545, 546 [[BCI]].547, 548, 549 
                                               
539 United States' response to Panel question No. 64, para. 48 (citing Email from Erik Zahn, Boeing 
Commercial Airplanes, 15 April 2016 (Exhibit USA-73) (BCI).  
540 United States' response to Panel question No. 64, para. 41(citing Email from Erik Zahn, Boeing 
Commercial Airplanes, 15 April 2016 (Exhibit USA-73) (BCI).  
541 United States' response to Panel question No. 64, paras. 52 -53.  
542 European Union's response to Panel question No. 33, para. 83; Airbus, "How is an aircraft built? Final 
assembly and tests"  (Exhibit EU-86); Airbus Video, "The A350 XWB Final Assembly Line: efficiency in motion", 
23 October 2012 (Exhibit EU-87); Airbus Video, "A350 XWB final assembly: a step -by-step overview", 23 
October 2012  (Exhibit EU -88); Airbus Video, "A380 from dream to reality: F inal assembly", 18  October  2007 
(Exhibit EU -104).  
543 Boeing letter to the Director of the Washington State Department of Revenue , 9 July 2014  
(Exhibit  USA-32) (BCI). See also United States' response to Panel question No. 10, paras. 20 -21. 
544 Boeing letter to the Director  of the Washington State Department of Revenue , 9 July 2014  
(Exhibit  USA-32) (BCI).  
545 Ibid. 
546 See Letter of Understandi ng No. 43, Subject: 777X Work Placement, dated 3 January 2014, in 
Collective Bargaining Agreement between Boeing and the International Association of Machinists and 
Aerospace Workers, 2 November 2008, including Contract Extension and Modification Agreement s, 7 December 
2011 and 3 January 2014 (Exhibit USA -33), p. 190.  
547 Boeing letter to the Director of the Washington State Department of Revenue , 9 July 2014  
(Exhibit  USA-32) (BCI).  
548 Addendum No. 14 to the 1991 Boeing Everett Mitigation Decision Document SEP A #14 -009, 
27 March 2014 (Exhibit USA -34) (BCI).  
549 Addendum No. 15 to the 1991 Boeing Everett Mitigation Decision Document SEPA #14 -011 – 
Composite Wing Manufacturing Facility, 30 May 2014 (Exhibit USA -35) (BCI).  WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  7.271.   The Washington  State Department of Revenue accepted Boeing's statement as fulfilling the 
contingency requirements of the First Siting Provision in ESSB  5952. Subsequent to Boeing's 
letter, o n 10 July 2014, the Dep artment of Revenue issued a formal notification that a 
manufacturer had made a final decision to site a significant commercial airplan e manufacturing 
programme in the s tate of Washington ; that the contingency requirements in ESSB  5952 had been 
satisfied ; and that the relevant legislation had taken effect on 9 July 2014.550 As a result of this 
determination, the expiration date for the aerospace tax measures at issue was extended until 
1 July 2040 for all eligible taxpayers , and the other amendments to those m easures took effect .551 
As discussed above, pursuant to ESSB 5952 the Department of Revenue 's determination is a one -
time decision and there is no legal mechanism under Washington  State law that would allow the 
Department of Revenue  to revoke its determinati on.552 
7.5.6   Whether the subsidies are de jure  contingent  upon the use of domestic over 
imported goods  
7.272.   The Panel turns to the European Union's principal  claim , which is its de jure  claim. In this 
regard, t he Panel must determine whether the European Union has made  a prima facie  case that 
the challenged aerospace tax measures are de jure  contingent upon the use of domestic instead of 
imported goods, and therefore inconsistent with the United States' obligations under Article 3.1(b) 
of the SCM Agreement. To prevail o n its de jure  claim, the European Union has the burden of 
demonstrating that such contingency or conditionality is either set out expressly  on the face of the 
legislation or can clearly be derived, by necessary implication , from the words actually used in the 
legislation.553 
7.273.   In this regard, the Panel understands that a contingency that is not set out expressly in 
the relevant legislation  may nevertheless be derived by necessary implication if such contingency 
results inevitably from the words actually used in  the legislation , or if any other interpretation 
would be unreasonable.554 In other words, the terms used in the legislation must either expressly 
or by necessary implication demonstrate that the granting of a subsidy is contingent upon the use 
of domestic i nstead of imported goods.555 For the purpose of the de jure  determination, including 
by necessary implication, the relevant facts are therefore the text of the legislation at issue and 
any additional facts that can assist the Panel in understanding the meani ng of the terms as used in 
that legislation.556 
7.274.   As noted above, the ordinary connotation of the term "contingent" is "conditional" or 
"dependent for its existence on something else".  Therefore , the question before the Panel is 
whether, on the basis of the wo rds of the relevant legislation, the challenged aerospace tax 
measures are conditional upon the use of domestic over imported goods. Contingency upon the 
use of domestic over imported goods need not be the only condition; it can be one of several other 
                                               
550 Letter from the Director of the Washingto n State Department of Revenue to the Code Reviser , 
10 July 2014  (Exhibit  EU-61). See also United States' response to Panel question Nos. 10 and 12, paras. 21 
and 26. 
551 United States' first written submission, para. 78 (citing letter from the Director of th e Washington 
State Department of Revenue to the Code Reviser , 10 July 2014  (Exhibit EU -61)); response to Panel question 
No. 12, para. 26.  
552 See United States' respons e to Panel question No. 12, para . 26. 
553 As noted above (see paragraphs 7.209  and 7.210  above), the Appellate Body has indicated that de 
jure contingency can be established explicitly by a legal instrument and "also be derived by necessary 
implication from the words actually used in the m easure". Appellate Body Report, Canada – Autos , para.  100. 
See also ibid. para. 123. 
554 The meaning of the word "necessary", when referring to a mental concept, a truth, a judgment, etc., 
can be understood to refer to something "resulting inevitably from th e nature of things or of the mind itself". 
Shorter Oxford English Dictionary , 6th edition (2007), Vol. 2, p. 1901. A necessary implication is an implication 
so strong in its probability that anything to the contrary would be unreasonable. See Black's Law D ictionary , 8th 
edition (2004), p. 770.  
555 See Appellate Body Report,  Canada – Aircraft , para.  171. See also European Union's re sponse to 
Panel question No.  18, paras.  23-26. 
556 In the context of a de jure  analysis, such facts could include relevant context w ithin the legislation 
itself, or other clarifications of legal meaning within the domestic legal system in question (such as the 
interpretation of pertinent terms by domestic courts, or administrative regulations directly implementing the 
legislation). How ever, any such facts would serve to illuminate the meaning of words used in the legislation, 
and would not extend to other factual circumstances surrounding the granting of the subsidy that provide the 
context for understanding the measure's design, struct ure, and modalities of operation . WT/DS487/R  
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  conditions for benefitting from the tax measures at issue . In order to find contingency in the sense 
of Article  3.1(b), such contingency must be a necessary condition so that the recipient would not 
benefit from the subsidy unless domestic goods are used instead of , or in preference to,  imported 
goods.  
7.275.   The European Union asserts that the prohibited contingency is clearly s et out in the text of 
ESSB 5952  as a result of the First Siting Provision and of the Second Siting Provision, whether 
considered individuall y or together.557 In the European Union's view, each of these two 
provisions:558 
[I]ndependently  results in a de jure  violation of Article 3.1(b).559 At the same time, 
these conditions act together to maximize trade distortions in favour of domestic 
goods, and t o the detriment of competitive opportunities for imported goods. While 
the [First Siting Provision ] focuses on component sourcing decisions made at the 
beginning of a new aircraft programme, the [Second Siting Provision ] focuses on later 
stages .560 (emphasis  original)  
7.276.   The European Union adds that a prohibited contingency in respect of wings  result s from 
both the First Siting Provision and the Second Siting Provision , while a prohibited contingency in 
respect of fuselages  would result  solely from the First Sit ing Provision .561 
7.277.   With respect to the First Siting Provision , according to t he European Union:  
[U]nder the [First Siting Provision] established in Section 2 [of ESSB 5952], the 
aerospace tax incentive extensions and expansion provided for in [ESSB  5952] were  
made contingent upon Boeing's decision to loca te in Washington State both 
(i) production of the wings and fuselage for the 777X  and (ii) final assembly of 
the 777X.562, 563 
7.278.   The European Union concludes:  
Stated differently, for the extension and expansion of t he existing aerospace tax 
incentives to occur, Boeing was required to commit to use wings and fuselages 
produced or assembled in Washington State in the final assembly of 777X LCA in 
Washington State.564 
7.279.   With respect to the Second Siting Provision, the Europ ean Union asserts that:  
Pursuant to the exclusive -production condition established by [ESSB 5952] … the 
reduced [business and occupation] tax rate would not apply to revenue from the 777X 
in the event  Boeing were to perform any final assembly, or any wing assembly , for the 
777X outside of Washington State.565 In other words, in order for Boeing to benefit 
from the [business and occupation] tax rate reduction with respect to the 777X 
                                               
557 European Union's first written submission, paras. 70 and 73; second written submission, paras. 1, 2, 
41, 60, and 90 ; opening statement at the first meeting of the Panel, para. 6; closing statement at the first 
meeting of  the Panel, para. 3; opening statement at the second meeting of the Panel, para. 2; response to 
Panel question No s. 29, 41, 46, and 68, paras. 67, 98, 125, and 46 . 
558 European Union's r esponse to Panel question No.  68, para. 46.  
559 (footnote original) See, E uropean Union's first written submission, para. 73 ("As a result of the 
programme -siting condition and the exclusive -production condition, whether considered individually or 
together , the Washington State tax incentives, as amended and extended by SSB 5952 , constitute subsidies 
that are contingent on the use of domestic over imported goods, in violation of Articles 3.1(b) and 3.2 of the 
SCM Agreement". (emphasis added)).  
560 European Union's opening statement at the first meeting of the Panel, para. 6 . See al so 
European  Union's r esponse to Panel question No. 41 , para. 98. 
561 European Union's response to Panel question No. 43, para. 101.  
562 (footnote original) See  SSB 5952 Bill Report, Exhibit EU -4, p. 3.  
563 European Union's first written submission, para. 44.  
564 Ibid. See also European Union's second written submission, para. 61 ; opening statement at the first 
meeting of the Panel, para. 4. 
565 (footnote original) See SSB 5952 §§ 5 -6 (adding new subsection (e)(ii) to RCW 82.04.260(11)), 
Exhibit EU -3. WT/DS487/R  
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  (whether prior to or after 2024), Boeing must not conduct any final assembly,  or any 
wing assembly, of that aircraft outside of Washington State …  
Accordingly, under this exclusive -production condition, 777X aircraft benefit from the 
preferential [business and occupation] tax rate only if Boeing assembles the wings and 
assembles th e aircraft exclusively in Washington State.566 (emphasis original)  
7.280.   The United States has submitted particular facts relating to the production process of the 
777X programme as evidence of the meaning of the requirements in the First and Second Siting 
Provisi ons.567 The factual evidence referred to by the United States does not specifically relate to 
the meaning of the terms used in the legislation, nor does it concern the necessary implication of 
those terms. Rather, the evidence concerns the particular manner in which Boeing will produce 
777X aircraft in Washington State.568 In this regard, the Panel is not persuaded by the United 
States' argument that those facts relating to the siting of the 777X programme in Washington 
State are relevant to the de jure  analysi s. To the extent that this evidence sheds light on "the total 
configuration of the facts constituting and surrounding the granting of the subsidy"569, the Panel 
will consider its relevance in the context of the European Union's de facto  claim.  
7.281.   The Panel must  decide the European Union's de jure  claim against the aerospace tax 
measures on the basis of the text of ESSB 5952.  The Panel will start its consideration of this claim 
by looking separately at the First Siting Provision and the Second Siting Provision  to assess 
whether the European Union has successfully demonstrated the existence of the prohibited 
contingency in either of the provisions . Subsequently, if necessary, the Panel will consider the two 
siting provision s acting jointly.  
7.5.6.1   The First Siting Provisi on, considered separately  
7.282.   The Panel recalls that, according to  the First Siting Provision in S ection 2 of ESSB 5952,  
the aerospace tax measures as amended and extended by ESSB 5952 " [take]  effect contingent 
upon the siting of a significant commercial airpl ane manufacturing program in the state of 
Washington".570 The legislation also provides that, "[i]f a significant commercial airplane 
manufacturing program is not sited in the state of Washington by June 30, 2017, … [this act] does 
not take effect".571 
7.283.   The Panel further recalls that the First Siting Provision defines "siting" to mean "a final 
decision, made on or after November 1, 2013, by a manufacturer to locate a significant 
commercial airplane manufacturing program in Washington State".572 In turn, "significa nt 
commercial airplane manufacturing program" is defined as:  
                                               
566 European Union 's first written submission, paras. 47 and 52. See also European Union's second 
written submission, para. 61.  
567 See, for example, United States' response to Panel question No s. 18, 39, and 46 , paras.  37-43, 93 -
94, and 121 -122. 
568 The Panel notes the United States' argument that, "even under a de jure analysis, a panel must 
make sufficient findings as to how the alleged contingency operates, which may require findings as to how the 
contingency applies to actual subsidy recipients." See United States' response  to Panel question No. 46, 
para. 116. The United States seeks support for this statement in the Appellate Body's analysis in Canada – 
Autos . The measures at issue in that case created "value -added requirements" that de jure  were company -
specific and capabl e of variation across the manufacturer beneficiaries. Thus, according to the explicit terms of 
"the legal instruments at issue [in that dispute] and their implications for individu al manufacturers", there was 
a "multiplicity of possibilities for compliance " that may have been relevant to an analysis of de jure 
contingency. Appellate Body Report, Canada – Autos , paras.  130 and 132. This is distinguishable from the 
measures at issue in the present case, for which particular production choices by a manufacture r are not part 
of the de jure  requirements of the measures, but rather form part of the surrounding factual circumstances of 
the alleged contingency.  
569 Appellate Body Report,  Canada – Aircraft , para.  167. 
570 ESSB 5952 (Exhibit EU -3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU -58). See also 
European Union's  comments on United States' response to Panel question No.  53, para. 7. 
571 ESSB 5952 (Exhibit EU -3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU -58). 
572 ESSB 5952 (Exhibit EU -3), Se ction 2(2)(d), codified at RCW Section 82.32.850(2)(d) 
(Exhibit  EU-58). WT/DS487/R  
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  [A]n airplane program in which the following products, including final assembly, 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 wings of a new model, or any version or variant of an 
existing model, of a commercial airplane.573 
7.284.   The First Siting Provision ad ditionally defines "new model, or any version or variant of an 
existing model, of a commercial airplane" to mean "a commercial airplane manufactured with a 
carbon fiber composite fuselage or carbon fiber composite wings or both".574 
7.285.   As to the procedures invo lved, according to Section 2 of ESSB 5952:  
The department [of Revenue of the state of Washington ] must make a dete rmination 
regarding whether the contingency in subsection (1) of this section occurs and must 
provide written notice of the date on which such  contingency occurs and [ this act ] 
takes effect. If the  department determines that the contingency in subsection (1) of 
this section has  not occurred by June 30, 2017, the department must provide written 
notice stating  that [ this act ] does not take effect.  Written notice under this subsection  
(3) must be provided to affected parties, the chief clerk of the house of 
representatives, the secretary of the senate, the office of the code reviser, and others 
as deemed appropriate by the department.575 
7.286.   Based on the terms used in the legislation, the Panel understands that, for the aerospace 
tax measures to take effect, the First Siting Provision  requires a determination by the D epartment 
of Revenue of the state of Washington  that a final decision has been made, on or  after 
1 November 2013 and by 30 June 2017, to site a "significant commercial airplane manufacturing 
program"  within the state of Washington. The legislation also defines the characteristics that the 
"significant commercial airplane manufacturing program"  would have to fulfil to qualify for the 
Department of Revenue 's positive determination. Those characteristics are, in essence, that the 
following products  will "commence manufacture ", "including final assembly ", at a new or existing 
location within Washing ton State on or after the effective date of the legislation : (i) a new model  
of a commercial airplane or a version or variant of an existing model; and  (ii) fuselages and wings 
for the new model  of a commercial airplane or for the version o r variant of an existing model.  
7.287.   In other words, the amendment and extension by ESSB 5952 of the aerospace tax 
measures are subject, for their entry into force, to a condition precedent or suspensive condition576 
– a contingency – contained in the same legislation. That cont ingency is a positive determination 
by the D epartment of Revenue of the state of Washington , that a "significant commercial airplane 
manufacturing program"  had been sited , between 1 November  2013 and 30  June 2017, in the 
state of Washington . Such a determi nation in turn requires that a producer commit to manufacture  
within the state of Washington  the two following categories of products: (i)  a commercial airplane 
with a carbon fibr e composite fuselage , or carbon fibr e composite wings , or both ; and (ii) 
fuselages and wings for such commercial airplane s.577 
                                               
573 ESSB 5952 (Exhibit EU -3), Section 2(2)(c), codified at RCW Section 82.32.850(2)(c) (Exhibit EU -58). 
574 ESSB 5952 (Exhibit EU -3), Section 2(2)(b), codified at RCW Section 82.32.850(2)( b) 
(Exhibit  EU-58). 
575 ESSB 5952 (Exhibit EU -3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU -58). 
576 A condition precedent is an act or event, other than a lapse of time, that must exist or occur before a 
duty to perform something promised arise s. See Black's Law Dictionary , 8th edition (2004), p. 312. A 
suspensive condition is one that makes a certain obligation arise only if a specified but uncertain event occurs. 
See Black's Law Dictionary , 8th edition (2004), p. 313.  
577 A possible reading of t he First Siting Provision  is that the " significant commercial airplane 
manufacturing program " could consist of the manufacture (including final assembly ) of a model of commercial 
airplane  and the manufacture (including final assembly ) of fuselages and wing s of a  different  model of 
commercial airplane . In other words, under this reading, the f uselages and wings referred to in 
subparagraph  (ii) of the provision would not need to correspond to the commercial airplane  referred to in 
subparagraph (i). Neither pa rty has advanced such a reading. Moreover, such a reading would assume that the WT/DS487/R  
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  7.288.   The European Union interprets the terms of the First Siting Provision  as requiring Boeing 
"to commit to use wings and fuselages produced or assembled in Washington State in the final 
assembly of 777X [large c ivil aircraft] in Washington State".578 According to the European Union, 
"[i]f Boeing had not committed to using US -made wings and fuselages [it would have] thereby 
failed to satisfy the [ First Siting Provision ]".579 
7.289.   The Panel's reading of the text of the First Siting Provision  is different. On its face, the First 
Siting Provision  imposes a condition for certain tax benefits to take effect for a range of 
beneficiaries;  namely, that the competent authority (the Washington State Department of 
Revenue ) makes a one -time determination that a manufacturer has made a final decision to site a 
significant commercial airplan e manufacturing program me in the s tate of Washington . 
7.290.   Nowhere in the words used  in the First Siting Provision  does the Panel find a requirement 
that m akes the entry into force of the challenged measures contingent upon a determination that 
domestic goods will be used instead of imported products. Nor do the terms of the First Siting 
Provision  impose any such requirement in respect of the "significant co mmercial airplane 
manufacturing program " that would be the basis for the Department of Revenue 's determination. 
To the contrary, the First Siting Provision  is silent as to the use of imported or domestic goods and 
does not make the receipt of subsidies dep endent on refraining from using imported goods.  
7.291.   Nor can a prohibited import -substitution contingency be derived by necessary implication 
from the language of the First Siting Provision , in the sense that it would result inevitably from the 
words actually u sed in the legislation, or that any other interpretation would be unreasonable. The 
Panel sees nothing in the language of the siting contingency contained in the First Siting Provision  
that would per se  and necessarily exclude the possibility for the airpl ane manufacturer to use 
wings or fuselages from outside the state of Washington580 (if, for example, it continued 
manufacturing  some  fuselages and wings in the state of Washington, with the additional use of 
fuselages and wings that were manufactured separat ely elsewhere). Moreover, as a condition 
involving a one -time decision, the First Siting Provision  in itself would not prevent the 
manufacturer over time, and subsequent to the Department of Revenue's determination, 
terminating all production of wings or f uselages and only using wings and fuselages manufactured 
outside the state of Washington.  
7.292.   The Panel is mindful of the strict limitation of a de jure  analysis to the terms actually used 
in the measure at issue (and any relevant facts illuminating the meanin g of those words), as well 
as of the specific focus of the contingency that is prohibited under Article 3.1(b) , namely the 
requirement to use domestic goods instead of imported goods. In assessing the meaning of 
municipal law a panel may be assisted by "ev idence of the consistent application of such laws, the 
pronouncements of domestic courts on the meaning of such laws, the opinions of legal experts and 
the writings of recognized scholars"581, as well as the "relevant practices of administering 
agencies" .582 In this case, no such evidence has been presented that would alter the Panel's 
assessment of the First Siting Provision  for the purposes of the European Union's de jure  claim.  
7.293.   The contingency set out in the terms of the First Siting Provision  is not that pr oducts 
manufactured in the state of Washington (wings or fuselages) must be used in the manufacturing 
of commercial airplanes as a condition for receiving the subsidies, but rather that the 
                                                                                                                                               
references to a " significant commercial airplane manufacturing program " and to a "new model, or any version 
or variant of an existing model, of a commercial airplane" can inclu de two different commercial airplane 
models. Despite this theoretical possibility based on the terms of the First Siting Provision , such assumptions 
do not seem persuasive. The manufacturing activities referred to in the First Siting Provision are part of a 
single "manufacturing program" that is sited based on a decision taken by "a manufacturer", and there is no 
compelling evidence in the text of the measure or its context to suggest that this programme could involve 
more than one model of commercial airpl ane. Therefore, the Panel proceeds on the basis that the reference to 
fuselages and wings  in subparagraph (ii) is to the same model of commercial airplane  contemplated in 
subparagraph (i).  
578 European Union's  first written submission, para . 44. See also European Union's  second written 
submission, para . 61; opening statement at the first meeting of the Panel, para s. 53-54 and 68; opening 
statement at the second meeting of the Panel, para.  3. 
579 European Union's  opening statement at the first meeting of the Pan el, para.  68. See also 
ibid. para. 4; European Union's  second written submission, para . 61. 
580 Assuming arguendo  that the manufacturer could use wings or fuselages manufactured separately.  
581 Appellate Body Report, US – Carbon Steel , para. 157.  
582 Appellate B ody Report, US – Countervailing and Anti -Dumping Measures (China) , para. 4.101.  WT/DS487/R  
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  manufacturing (including by final assembly) of all of these produc ts be sited within the state of 
Washington. The terms actually used in the p rovision  do not preclude a scenario in which 
separately produced wings and fuselages were "used" in the manner alleged by the 
European  Union, i.e. that wings and fuselages manufact ured in the state of Washington were 
"used" in the final assembly of 777X commercial airplanes in the state of Washington. That such a 
scenario may be possible on the basis of terms used in the First Siting Provision , however, is not 
the same as concluding  that it is a requirement or condition for the subsidies that necessarily 
derives from those terms.  
7.294.   One other possible and equally reasonable reading of the terms of the First Siting Provision  
would allow the manufacturer to benefit from the subsidies if i t used wings and fuselages 
manufactured outside the state of Washington in the final assembly of 777X commercial airplanes 
in the state of Washington, so long as it manufactured at least some wings and fuselages in the 
state of Washington. Another possible  and also reasonable reading of the terms of the First Siting 
Provision , as mentioned above, would allow the manufacturer to benefit from the subsidies even if 
it stopped manufacturing f uselages , wings , and even commercial airplane s in the state of 
Washing ton, as the First Siting Provision  involves a one -time decision on the initial establishment, 
but not the continuation, of certain manufacturing activities.  
7.295.   Furthermore, and related to the above argument by the European Union, the Panel notes 
that there is  a discrepancy between the parties whether the First Siting Provision  requires the 
same entity to manufacture both the commercial airplane  and the f uselages and wings . In 
particular, the European Union has argued that "the [ First Siting Provision ] could ha ve been 
satisfied if Boeing had planned to purchase wings and fuselages produced by another entity in 
Washington State.583 Conversely, the United States has submitted that "the text of ESSB 5952 
clearly contemplates a single manufacturer, and Washington offi cials have confirmed to the United 
States that this was the only scenario they contemplated".584 The Panel notes that the terms of the 
First Siting Provision  refer to "a significant commercial airplane manufacturing program " in which a 
commercial airplane, a s well as fuselages and wings , are manufactured. The First Siting Provision  
also refers to " a manufacturer " that would have to decide to locate the significant commercial 
airplane manufacturing program me in the s tate of Washington .585 Because the " manufactur ing 
program " is the one and same programme, this strongly suggests that the manufacturer involved, 
namely the "manufacturer" referenced in the First Siting Provision, is the same manufacturer that 
would decide to site the program me in the state of Washingt on. In any event, regardless of the 
number of manufacturers that could satisfy the First Siting Provision , the terms of the provision in 
no case condition, either explicitly or by necessary implication, the availability of subsidies on the 
use of domestic over imported goods by the manufacturer or manufacturers involved. Thus, e ven 
if the First Siting Provision  could have been satisfied by two different entities siting two different 
operations in the state of Washington, this situation would neither express ly require nor 
necessarily imply that domestic goods instead of imported goods would have to be used by either 
entity . 
7.296.   Accordingly, the Panel finds that a  contingency upon the use of domestic over imported 
products is neither set out expressly in the First Siting Provision , nor can it be derived by 
necessary implication, in the sense that it results inevitably, from the terms used in this 
provision .586 The contingency on siting certain production activities within the state of Washington 
does not entail any e xplicit, or any necessarily implied, requirement to use domestic goods.  
7.297.   For the reasons explained above, the Panel concludes that the European Union has not 
demonstrated that, on its own, and based on its express terms, the First Siting Provision  makes 
the challenged aerospace tax measures de jure contingent upon the use of dom estic over imported 
goods.  
                                               
583 European Union's opening statement at the first meeting of the Panel, para. 60 . 
584 United States' response to Panel question No. 62, para. 35. See also United States' response  to Panel 
question Nos.  38, 45, and 70 , paras. 91, 111, and 83.  
585 See also, for example, United States' response to Panel question No. 38, paras.  91-92. 
586 Whether this contingency is demonstrated by other evidence is something that the Panel will discuss 
in relation to the European Union's de facto  claim below.  WT/DS487/R  
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  7.5.6.2   The Second Siting Provision , considered separately  
7.298.   The Panel recalls that the Second Siting Provision in Sections 5 and 6 of ESSB 5952 relates  
only to the B&O aerospace tax rate and provides as follows:  
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 and 
after July 1st of the year in which the de partment [of Revenue of the state of 
Washington ] 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 t he 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 manufactu ring program in the state under 
section 2 of this act.587 
7.299.   In other words, the 0.2904% B&O aerospace tax rate as amended and extende d by 
ESSB  5952 is subject to a condition subsequent or resolutory condition588, i.e. this tax rate would 
cease to apply under cer tain defined circumstances. In particular, t his condition would be 
activated, and the B&O aerospace tax rate terminated in respect of the manufacturing or sale of 
airplanes that had satisfied the First Siting Provision , if any final assembly (of an airplan e) or wing 
assembly that was the object of a positive siting determination by the D epartment of Revenue of 
the state of Washington  under the First Siting Provision , is subsequently sited outside the state of 
Washington . 
7.300.   According to the European Union, "un der this [ Second Siting Provision ], 777X aircraft 
benefit from the preferential B&O tax rate only if Boeing assembles the wings and assembles the 
aircraft exclusively in Washington State".589 The European Union adds that, pursuant to this 
provision, " if Boei ng opts, for example, to purchase any 777X wings from outside 
Washington  State, it will be penalized through loss of the B&O tax rate reduction for all revenue 
related to sales of the 777X ".590 
7.301.   As noted in the text of the Second Siting Provision , this provis ion "only applies to the 
manufacturing or sale of commercial airplanes that are the basis of a siting of a significant 
commercial airplane manufacturing program in the state under section 2 of this act ", that is, under 
the First Siting Provision . Furthermo re, by its terms, the Second Siting Provision  applies only to 
the challenged B&O aerospace tax rate, which in turn is one of the seven aerospace tax measures 
that would take effect upon satisfaction of the First Siting Provision . Because the First Siting 
Provision  defines what is referred to in the Second Siting Provision , the terms used in the Second 
Siting Provision  necessarily draw their meaning from the terms of the First Siting Provision , 
including t he events contemplated therein.  
7.302.   The Panel notes some variation in the usage of the verb "site" in the First and Second 
Siting Provisions, as well as potential discrepancies in the "assembly" activities that are the subject 
of siting in each provision. The term "siting" is defined in the First Siting Provisio n as "a final 
decision, made on or after November 1, 2013, by a manufacturer to locate a significant 
commercial airplane manufacturing program in Washington State". Section 2 of ESSB 5952 notes 
that the "definitions in this subsection apply throughout [the ] section unless the context clearly 
requires otherwise". In this connection, the context of the First Siting Provision is different to that 
of the Second Siting Provision as it refers to "the siting of a significant commercial airplane 
manufacturing progr am", which in turn is "an airplane program in which" an airplane model, 
                                               
587 ESSB 5952 (exhibit EU -3), Sections 5 and 6 , codified at RCW Section 82.04.260(11)(e)(ii) 
(Exhibit  EU-22). 
588 A condition subsequent is one that, if it occurs, will bring something else to an end; an  event the 
existence of which discharges a duty of performance that has arisen. See Black's Law Dictionary , 8th edition 
(2004), p. 312. A resolutory condition is one that upon fulfilment terminates an already enforceable obligation. 
See Black's Law Diction ary, 8th edition (2004), p. 313.  
589 European Union's  first written submission, para. 52. See also European Union's  second written 
submission, para . 61. 
590 European Union's  first written submission, para. 51. See also European Union's  second written 
submissio n, para . 61; opening statement at the first meeting of the Panel, para s. 61 and 68; opening 
statement at the second meeting of the Panel, para.  3. WT/DS487/R  
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  fuselages, and wings are "products [that], including final assembly, will commence manufacture" 
in Washington State. By contrast, the Second Siting Provision does not use the term "fin al 
assembly" in conjunction with the "manufacture" of the products listed in the First Siting Provision, 
but rather as a discrete activity along with "wing assembly" that the Department of Revenue may 
determine "has been sited" outside Washington State. In  the context of the Second Siting 
Provision, the term "final assembly" thus seems to pertain to final aircraft assembly, as 
distinguished from wing assembly, whereas "final assembly" in the First Siting Provision appears to 
refer to a stage or aspect of th e manufacturing process of all "products" listed therein. In any 
event, and apart from these contextual differences of the term "final assembly", the Panel 
considers that the expression "has been sited" (used in the Second Siting Provision in the passive 
tense) is consonant with the definition of "siting" in the First Siting Provision. In particular, the 
reference in the Second Siting Provision to a programme having been "sited" is related to a 
manufacturer's decision to locate the relevant manufacturing an d assembly activities in or outside 
Washington State.  
7.303.   As indicated above, the Second Siting Provision  explicitly provides that the B&O aerospace 
tax rate will cease to apply if an assembly operation that had been sited in the state of Washington 
is subsequ ently " sited outside the state of Washington ". Under the terms of the relevant 
legislation, to "site" is related to a manufacturer's decision to locate a manufacturing programme 
in a particular location.  
7.304.   The European Union asserts that, under the Second Siting Provision , the B&O aerospace 
tax rate would only continue in force "if Boeing assembles the wings and assembles the aircraft 
exclusively in Washington State".591 The European Union adds that, pursuant to this p rovision , if 
Boeing purchase s any 777X wing s from outside the state of Washington , it would lose the B&O 
aerospace tax rate for all revenue related to sales of the 777X  aircraft.592 
7.305.   Such conclusions, however, do not result explicitly from the terms of the Second Siting 
Provision . On its face, the Second Siting Provision  is silent as to the use of imported or domestic 
goods and does not make the receipt or continued enjoyment of subsidies dependent on refraining 
from using imported products. The Panel finds no express indication in the terms of the pro vision 
that the subsidy provided by the B&O aerospace tax rate would be lost by importing wings, as 
alleged by the European Union. In particular, the contingency contemplated in the Second Siting 
Provision relates to a determination that " any final assembl y 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 [the First Siting Provision ] has been sited outside the 
state of Washington ". Based purely on the wording of this statutory contingency, the terms " any 
final assembly or wing assembly " are explicitly tied, and arguably limited, to the specific assembly 
operations that were "the basis of a siting" under the First Siting Provision . Thus, the terms of the 
Second Siting Provision  could rather be understood to address the situation in which production 
activities that had been previously sited in the state of Washington, and had been the basis of the 
determination by the Department of Reve nue pursuant to the First Siting Provision , were 
subsequently sited outside the s tate of Washington . Seen in this light, the words of the Second 
Siting Provision  do not expressly condition the receipt of a subsidy on the use of domestic over 
imported goods . On its face, the Second Siting Provision , as long as production activities of the 
defined type continue to take place in the state of Washington, does not require that the goods for 
that production (whether they be wings or anything else) need to be sour ced only from within the 
state of Washington.  
7.306.   Nor can an import -substitution contingency be derived by necessary implication from the 
words of the Second Siting Provision , in the sense that such a contingency would result inevitably 
from the words actually  used in the legislation, or that any other interpretation would be 
unreasonable. That is, the siting contingency contained in the Second Siting Provision  would not 
per se  and necessarily exclude the possibility for the airplane manufacturer to use wings f rom 
outside the state of Washington (assuming arguendo  that the manufacturer could use wings 
                                               
591 European Union's  first written submission, para. 52. See also European Union's  second written 
submission, p ara. 61. 
592 European Union's  first written submission, para. 51. See also European Union's  second written 
submission, para . 61; opening statement at the first meeting of the Panel, para s. 61 and 68; opening 
statement at the second meeting of the Panel, para . 3. WT/DS487/R  
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  manufactured separately), as long as it did not relocate the previously sited manufacturing  of 
wings  outside the state of Washington.  
7.307.   The Panel recalls the strict limitation of a de jure  analysis to the terms actually used in the 
measure at issue and any relevant facts that illuminate the meaning of those terms in their 
particular context . The Panel also recalls the specific focus of the contingency that is prohibit ed 
under Article 3.1(b) , namely a requirement to "use" domestic instead of imported goods. As noted 
above593, in assessing the meaning of municipal law a panel may also be assisted by evidence of 
the consistent application of such laws, the pronouncements of  domestic courts on the meaning of 
such laws, the opinions of legal experts, the writings of recognized scholars, as well as the relevant 
practices of administering agencies . In this case, no such evidence has been presented that would 
alter the Panel's as sessment of the Second Siting Provision  for the purposes of the 
European  Union's de jure  claim.  
7.308.   The contingency set out in the Second Siting Provision  is not that products manufactured 
in the state of Washington (wings) must be "used" in the manufacturing of commercial airplanes 
as a condition for the subsidy, but rather that the manufacturing (including by final assembly) of 
all these products not be sited outside the state of Washington.  
7.309.   If the Second Siting Provision  is construed as relating to the reloc ation of a manufacturing 
program me previously sited under the First Siting Provision, it would not inevitably result from the 
terms of the Second Siting Provision  that domestic goods must be used over imports. Another 
reading of the terms of the Second Siting Provision  would allow the manufacturer in question to 
continue to benefit from the subsidy if it used wings manufactured outside the state of Washington 
in the final assembly of the commercial airplanes in question in the state of Washington, so long a s 
it maintained final and wing assembly previously sited in the state of Washington.  
7.310.   In sum, and c ontrary to what the European Union asserts, the Second Siting Provision 
does not indicate on its face that the B&O aerospace tax rate would cease to apply if the aircraft 
manufacturer in question "uses" imported products instead of domestic products.  Moreover, it does 
not inevitably result from the terms of the Second Siting Provision  that the importation of wings 
would amount to the "siting" of production acti vities outside the state of Washington , even if such 
an outcome is not excluded by the text of the Second Siting Provision . No express or obvious 
contingency results from the terms used in the provision, nor can one be derived inevitably from 
its terms.  
7.311.   For the reasons explained above, the Panel concludes that  the European Union has not 
demonstrated that the Second Siting Provision , on its own, and based on its express terms, makes 
the challenged B&O aerospace tax rate de jure contingent upon the use of dom estic instead of 
imported goods.  
7.5.6.3   The First Siting Provision  and the Second Siting Provision , considered jointly  
7.312.   The European Union asserts that, taken together, the First Siting Provision  and the Second 
Siting Provision  expressly condition all of the chall enged aerospace tax measures "on the use of 
domestic over imported goods in the final assembly of the aircraft, in violation of Articles 3.1(b) 
and 3.2 of the SCM Agreement ".594 The European Union adds that these siting provisions "act 
together  to maximize t rade distortions in favour of domestic goods and to the detriment of 
competitive opportunities for imported goods. While the [ First Siting Provision ] focuses on 
component sourcing decisions made at the beginning of a new aircraft programme, the [ Second 
Siting Provision ] focuses on later stages".595 
7.313.   As noted above, the First Siting Provision  and the Second Siting Provision , respectively, set 
out a condition for the activation of certain tax measures contained in the legislation, and a 
condition under which one  of those tax measures ( i.e. the  B&O aerospace tax rate) would cease to 
apply . More specifically, in accordance with these provisions:  
                                               
593 See para. 7.294  above.  
594 European Union's  first written submission, para. 76. See also ibid. para. 73.  
595 European Union's  opening statement at the first meeting of the Panel, para.  6. (emphasis original) 
See also Europea n Union's  response to Panel question Nos. 31 and 41, paras. 7 1 and 98.  WT/DS487/R  
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  a. the entry into force of the amendments and extensions to the aerospace tax measures 
requires a determination by the D epartment of Revenue of the state of Washington  that 
a final decision has been made to site within that state a "significant commercial airplane 
manufacturing program" , which would include the manufacture , including the final 
assembly  of: (i) a new model  of a commercial airplane or a version or variant of an 
existing model; and  (ii) fuselages and wings for a new model  of a commercial airplane or 
for a version o r variant of an existing model ; and  
b. one of the challenged aerospace tax measures (namely the 0.2904% B&O aerospace tax 
rate) would cease to apply if the D epartment of Revenue of the state of Washington  
makes a dete rmination that any final assembly of airplanes or wing assembly that had 
been sited in the state of Washington, in accordance with the First Siting Provision , has 
subsequently been " sited outside the state of Washington ". 
7.314.   On their face, the two siting provisions, and the respective conditions contained therein, 
provide for the "siting" of certain manufacturing activities within the state of Washin gton as a 
condition for the enjoyment of a number of tax benefits and seek to prevent certain manufacturing 
activities that had been sited within the s tate of Washington  being subsequently sited outside the 
state of Washington . Under the terms of the First Siting Provision , the term "siting" refers to a 
manufacturer's decision to locate a manufacturing programme (the "significant commercial 
airplane manufacturing program") in a particular location (in the state of Washington).  
7.315.   As the Panel has found above, the First Siting Provision  and the Second Siting Provision  
are silent as to the use of imported or domestic goods. On their face, these provisions do not make 
the receipt or continued enjoyment of subsidies dependent on refraining from using imported 
produ cts. Such conditionality does not result explicitly from the terms of the provisions, nor can it 
be derived by necessary implication, in the sense that it results inevitably, from such terms. On a 
de jure  basis these provisions do not speak of "component s ourcing decisions"596, but of the 
location of certain manufacturing activities.  
7.316.   Furthermore, while the Second Siting Provision  pertains explicitly to the "sited" programme 
that would have satisfied the First Siting Provision , this textual link between the tw o siting 
provisions adds nothing to the de jure  analysis of each of the provisions separately that the Panel 
has already conducted. Considering them jointly does not produce any elements that might have 
been obscured by considering them separately. Therefo re, the Panel finds that the terms of the 
First Siting Provision  and the Second Siting Provision , taken together, do not condition the 
challenged aerospace tax measures on the use of domestic over imported goods. Whether in 
practice , as also argued by the European Union, these two siting provisions act together  to create 
a contingency on the use of domestic goods over imported goods, is something that the Panel will 
turn to as part of its consideration of the European Union's de facto  claim against the meas ures at 
issue.  
7.317.   Accordingly, the Panel concludes that the European Union has not demonstrated that, 
acting together, the First Siting Provision  and the Second Siting Provision  make the challenged 
aerospace tax measures de jure contingent upon the use of dom estic over imported goods.  
7.5.7   Whether the subsidies are de facto  contingent upon the use of domestic over 
imported goods  
7.318.   The Panel has found that the European Union has failed to establish that the challenged 
aerospace tax measures are de jure contingent upon  the use of domestic over imported goods. 
The Panel will now consider the European Union's secondary claim, i.e. that the aerospace tax 
measures at issue are inconsistent with Article 3.1(b) of the SCM Agreement by being de facto 
contingent upon the use of  domestic over imported goods. In its assessment of this claim, the 
Panel will determine whether the contingency or conditionality of the aerospace tax measures on 
the use of domestic goods instead of imported goods, even if not set out expressly  in the 
legislation, including by necessary implication, is demonstrated by the facts of the case.  
                                               
596 See, for example, European Union's  opening statement at the first meeting of the Panel, para.  6; 
response to Panel question Nos. 31 and 41, paras. 7 1 and 98.  WT/DS487/R  
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  7.5.7.1   Legal standard  
7.319.   There are no specific precedents on the criteria that would guide the Panel's determination 
of a de facto  import substitution contingency under Article 3.1(b). However, a s discussed above, 
the Appellate Body has referred to elements that would be considered for a de facto  determination 
of export contingency under Article 3.1(a). For the reasons explained above, these elements are 
also relevant for a conti ngency determination under Article  3.1(b).597 
7.320.   In summary , the legal standard expressed by the word "contingent" is the same for both 
de jure  or de facto  contingency.598 However , there is a difference in the type of evidence that may 
be employed to establish de jure or de facto  contingency. De jure  contingency is demonstrated on 
the basis of the words of the relevant legislation, regulation or other legal instrument. The 
evidence needed to establish de facto  contingency goes beyond the relevant legal instrument s and 
includes a variety of factual elements concerning the granting of the subsidy in a specific case .599 
De facto  contingency  must be established f rom the total configuration of the facts constituting and 
surrounding the granting of the subsidy, including t he design, structure, and modalities of 
operation of the measure granting the subsidy, none of which on its own is likely to be decisive in 
any given case .600 That configuration of the facts  may include the following factors:  (i) the design 
and structure of the measure granting the subsidy; (ii) the modalities of operation set out in such 
a measure; and (iii)  the relevant factual circumstances surrounding the granting of the subsidy 
that provide the context for understanding the measure's design, structure, a nd modalities of 
operation.601 Moreover , the determination of contingency  must be based on an assessment of the 
subsidy itself , in the light of the relevant factual circumstances, rather than by reference to the 
granting authority's subjective motivation for  the measure.  Reviewable expressions of a 
government's policy objectives for granting a subsidy may, however, constitute relevant evidence 
in the inquiry.602 
7.321.   For the Panel to find a violation of Article 3.1(b) of the SCM Agreement, the European 
Union will ne ed to make a prima facie  case that the aerospace tax measures are granted subject to 
the condition that domestic products must be used instead of , or in preference to,  imported 
products. It would not be sufficient to demonstrate, for example, that a subsid y is being granted to 
a firm that uses domestic instead of imported goods or even that the subsidy would negatively 
affect the competitive opportunities of foreign producers. Such facts would not in themselves 
support a determination that the challenged me asures are subject to a prohibited contingency 
(although they might be relevant in the context of actions pursuant to Part s III and V of the  
SCM Agreement). Rather, the European Union will need to demonstrate that there is something 
about the design and st ructure of the challenged measures and their operation, in the 
circumstances in which the measures have been introduced and exist, that establishes the 
contingency, and does so with the requisite standard of certainty. The Panel recalls, i n this regard, 
the Appellate Body 's warning  against blurring "the line drawn by the [SCM] Agreement between 
prohibited  … subsidies and actionable  … subsidies", in a manner "contrary to the overall design and 
structure of the Agreement".603 
7.5.7.2   The Panel's approach to address the  European Union's claim  
7.322.   The European Union asserts that the text of ESSB 5952, and in particular the language of 
the First Siting Provision and the Second Siting Provision, is the most important fact on record and 
the best evidence of the design, structure , and modalities of operation of the challenged subsidies 
and the associated contingencies.604 
                                               
597 See Appellate Body Repo rt, Canada – Autos , para.  123. See also paras. 7.211  and 7.212  above.  
598 Appellate Body Report,  Canada – Aircraft , para. 167.  
599 Ibid. and Appellate Body Report, EC and certain member States – Large C ivil Aircraft , para. 1038 . 
600 Appellate Body Report s, Canada – Aircraft , para. 167 ; EC and certain member States – Large Civil 
Aircraft , para . 1051.  
601 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1046.  
602 Ibid. paras.  1051-1052.  
603 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1054. (emphasis 
original)  
604 European Union's response to Panel question Nos.  29 and 68, paras. 29 and 45 -46. See also 
European Union's second written submission, pa ras. 90 -91. WT/DS487/R  
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  7.323.   In addition to the text of ESSB 5952, the European Union cited the following four factors in 
support of its de facto claim : first, statements and testimony by the Governor of the state of 
Washington, referring to the "contingency language" included in the legislation605; second, that 
Boeing imports wings from Japan for its 787 aircraft606; third, that, prior to the enactment of 
ESSB  5952, Boeing would have considered th e possibility of importing wings fro m Japan for 
its 777X aircraft and decided against that option once ESSB  5952 was enacted607; and fourth, that 
ESSB  5952 "creates specific multi -billion dollar penalties  for use of imported wings or fuselages, 
and multi -billion dollar rewards  for use of domestic wings or fuselages ".608 
7.324.   The European Union submits that the First Siting Provision and the Second Siting Provision 
in ESSB  5952 are each capable of strongly influencing Boeing's choice between imported wings 
and fusela ges, and domestic (United States -produced) wings and fuselages for the 777X 
airplanes.609 The European Union asserts that the amount of the subsidies at issue exceeds the 
total development cost of the 777X airplanes, and would therefore overshadow any other factors 
that may favour a decision by Boeing to import wings and fuselages for 777X airplanes.610 The 
European Union maintains that the First Siting Provision and the Second Siting Provision acting 
together would maximize trade distortions in favour of domes tic goods and to the detriment of 
imported goods, which suggests that the challenged measures are geared to induce the use of 
domestic over imported goods.611 
7.325.   In response, the United States asserts that the European Union has failed to establish that 
the aer ospace tax measures at issue are de facto  contingent upon the use of domestic over 
imported goods, because the European Union has not demonstrated that the use of domestic 
goods is required as a condition for eligibility for the subsidies.612 According to th e United States, 
none of the factual evidence referred to by the European Union (the text of ESSB 5952; the 
statement of the Governor of the state of Washington; Boeing's alleged importation of wings from 
Japan for its 787 airplanes; Boeing's alleged consi deration of importing wings from Japan for 
its 777X airplanes; and the alleged system of rewards and penalties in ESSB 5952) supports its 
claim that the measures are de facto  contingent.613 
7.326.   The United States argues that Boeing has fulfilled the First Siting Provision and has 
avoided triggering the Second Siting Provision without the use of domestic over imported goods.614 
According to the United States, Boeing does not "use" domestic wings and fuselages and instead 
completes the assembly of wings and fuselages as part of the final assembly of the finished 
airplane.615 The United States adds that the measures in ESSB 5952 have had no effect on 
Boeing's make/buy decisions nor on its decision on where to site the assembly of fuselages and 
                                               
605 European Union's second written submission, para. 91; response to Panel question Nos.  29 and 68, 
paras.  67 and 45 and 47. See also Office of Washington Governor, "Legislature approves key elements of 777X 
incentive package", 10 November 2013 (Exhibit EU -59); and Washington State House Finance Committee, 
Video, "Testimony of Governor Inslee before House Finance Comm ittee", 7 November 2013 (Exhibit EU-110). 
606 European Union's first written submission, para. 75; second written submission, paras. 91 
and 95-96; opening statement at the first meeting of the Panel, paras. 66 -67; response to Panel question 
Nos. 29 and 68, paras.  67 and 45 and 48.  
607 European Union's second written submission, para. 91; opening statement at the first meeting of the 
Panel , para. 73; response to Panel question Nos.  29 and 68, paras.  67 and 45 and 48. See also Reuters, 
"Boeing hopeful of 777X deal, may build wings in Japan if rejected", 11 November 2013 ( Exhibit EU -83). 
608 European Union's second written submission, para . 91; opening statement at the first meeting of the 
Panel, para. 74; response to Panel question Nos.  29, 31, and 68, paras.  67, 70, and 45.  (emphasis original) 
See also European Union's second written submission, para. 2 ; response to Panel question Nos.  33 and 68, 
paras.   71, 85, and 46.  
609 European Union's first written submission, para. 77; second written submission, para. 90. See also 
European Union's second written submission, para. 91; opening statement at the first meeting of the Panel, 
paras. 67 -69 and 72 -73; response to Panel question No. 29, paras. 66 -67; Reuters, "Boeing seen in advanced 
talks to make 777X near Seattle", 4 November 2013 ( Exhibit EU -65). 
610 European Union's second written submission, para. 90. See also ibid, para. 91; opening statement at 
the first meeting of the Panel, para. 73; response to Panel question No. 29, paras. 66 -67; Reuters, "Boeing 
seen in advanced talks to make 777X near Seattle", 4 November 2013 ( Exhibit EU -65). 
611 European Union's first written submission, paras. 77 -78; openi ng statement at the first meeting of 
the Panel, paras. 6 and 70 -74; response to Panel question Nos. 30, 31 and 41, paras. 68 -71 and 98.  
612 United States' second written submission, para. 58.  
613 United States' second written submission, paras. 78 -83. 
614 Ibid. para. 58.  
615 United States' second written submission, paras. 59 -63. See also response to Panel question No. 64, 
para. 56. WT/DS487/R  
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  wings.616 The United States co ntends that the European Union has failed to establish that the 
challenged measures are geared to induce the use of domestic over imported goods.617 The 
United  States submits that, provided it conducts the requisite assembly activity in the state of 
Washingt on, Boeing would satisfy the First Siting Provision and avoid triggering the Second Siting 
Provision even if it imported every part of the 777X airplane; Boeing therefore would be receiving 
no rewards for increasing the use of domestic inputs on the 777X a irplane, nor would it be 
penalized for increasing the use of imported inputs.618 Finally, the United States argues that, if the 
challenged measures are not found to be de jure contingent upon import substitution, to show that 
they are de facto contingent upo n import substitution would typically involve at a minimum 
showing that the measures are having an import substitution effect.619 
7.327.   In its assessment of the European Union's de facto  claim against the challenged aerospace 
tax measures, the Panel will consider whether the text of the relevant legislation , the factors cited  
by the European Union, and other evidence on the record, support  the European Union's assertion 
that the aerospace tax measures are contingent upon the use of domestic over imported goods. 
The Panel's de facto  analysis must go beyond the text of the legislation and will be based on a 
holistic examination of all the available evidence. The Panel will consider in this regard the total 
configuration of the facts constituting and surrounding the gr anting of the subsidies, such as: (i) 
the design and structure of the measures; (ii) the modalities of operation set out in such 
measures; and (iii) the relevant factual circumstances surrounding the granting of the subsidies 
that provide the context for u nderstanding the measures' design, structure, and modalities of 
operation.  
7.328.   The Panel recalls that, with respect to the European Union's de jure  claim, the Panel 
started by analysing the First Siting Provision and the Second Siting Provision , each considere d 
separately , and subsequently consider ed the two siting provisions acting jointly.620 Because the 
consideration of the European Union's de jure  claim focused on the terms of the legislation, the 
Panel considered it appropriate to look at the siting provisio ns separately and to look subsequently 
at both provisions jointly. This approach was consistent with t he manner in which the 
European  Union directed its de jure  claim at the provisions " whether considered individually or 
together ".621 The European Union furt her clarified its argument as follows:  
To be clear, the European Union understands that each condition [ First Siting 
Provision  and Second Siting Provision ] independently  results in a de jure  violation of 
Article 3.1(b).  At the same time, these conditions a ct together to maximize trade 
distortions in favour of domestic goods, and to the detriment of competitive 
opportunities for imported goods .622 (emphasis original; footnote omitted)  
7.329.   With respect to its de facto  claim, the European Union has asserted that the First Siting 
Provision and the Second Siting Provision in ESSB  5952 "are each capable of strongly influencing 
Boeing's choice between imported wings and fuselages, and US-produced wings and fuselages, for 
the 777X [airplanes ]".623 In contrast, in articulati ng its arguments in support of its de facto  claim, 
the European Union has consistently referred to the joint operation of the two siting provisions.624 
7.330.   For purposes of determining the practical operation of the challenged measures, the Panel 
considers that i t would be artificial to look at the siting provisions separately. Not only are b oth 
                                               
616 United States' second written submission, paras. 64 -71 and 84.  
617 United States' first written submission, paras. 105 and 132 -140; se cond written submission, 
paras.  72-74; response to Panel question No. 30, paras.  65-67. 
618 United States' second written submission, paras. 75 -77. 
619 United States' response to Panel question No. 74, para.  111. 
620 See para. 7.283  above.  
621 European Union's fi rst written submission, para. 73 ; second written su bmission, para . 60; opening 
statement at the f irst meeting of the Panel, para . 6, fn 8.  
622 European Union's opening statement at the f irst meeting of the Panel, para . 6. 
623 Europe an Union's second written submission, para. 90 . See also European Union's first written 
submission, para. 77; second written submission, para. 91; opening statement at the first meeting of the 
Panel, paras. 72 -73; response to Panel question No. 29, paras. 66-67; Reuters, "Boeing seen in advanced talks 
to make 777X near Seattle", 4 November 2013 ( Exhibit EU -65). 
624 European Union's second written submission, paras. 91, 98; opening statement at the f irst meeting 
of the Panel, paras .67, 70 -74; response to Panel  question No s. 31, 41 , 68, and 76, paras. 7 0-71, 98, 45, 
and 55. WT/DS487/R  
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  provisions part of the same legal instrument (ESSB 5952 ), in practice both operate together in 
regulating the conditions for obtaining and then maintaining access to the s ubsidies at issue in this 
dispute. R ecalling the textual linkage in the legislation of the two siting p rovisions (the reference in 
the Second Siting Provision to the significant commercial airplane program me that had satisfied 
the First Siting Provision), the First Siting Provision having been satisfied by Boeing's 777X siting 
decision, the joint operation in practice of the two siting provisions can be examined and , as a 
practical matter,  their operation cannot at this point be dissociated.  
7.331.   The Panel will therefore consider the manner in which the measures at issue are 
structured, designed, and operate, under the terms of ESSB 5952, and as a result of the First 
Siting Provision and the Second Siting Provision . As noted, this approach is consistent with the 
manner in which the European Union has articulated its de facto claim, namely by reference to the 
joint operation of the two siting provisions.  
7.5.7.3   The First and Second Siting Provision s 
7.332.   The Panel recalls that, based on the terms used in the legislation, for the aerospace tax 
measures to take effect, the First Siting Provision  requires a determination by Washington  State's 
Department of Revenue that a final decision has been made, on or after 1 November 2013 and no 
later than 30 June 2017, to site a "significan t commercial airplane manufacturing program"  within 
the state of Washington. The legislation also defines the characteristics that the "significant 
commercial airplane manufacturing program"  would have to fulfil to qualify for the D epartment of 
Revenue 's positive determination. Those characteristics are, in essence, that the following 
products  will "commence manufacture ", "including final assembly ", at a new or existing location 
within Washington State on or after the effective date of the legislation : (i) a new model  of a 
commercial airplane or a version or variant of an existing model; and  (ii) fuselages and wings for a 
new model  of a commercial airplane or for a version o r variant of an existing model.  
7.333.   In turn, based on the terms used in the legislation, the B&O aerospace tax rate will cease 
to apply in respect of "the manufacturing or sale of commercial airplanes " that had satisfied the 
First Siting Provision  if Washington  State's Department of Revenue makes  a determination that 
any final airplane assembl y or wing assembly (that had been the object of a positive siting 
determination by the D epartment of Revenue under the First Siting Provision ) has subsequently 
been sited outside the state of Washington . 
7.334.   The European Union interprets the terms of the First Siting Provision  as requiring Boeing 
"to commit to use wings and fuselages produced or assembled in Washington State in the final 
assembly of 777X [large civil aircraft] in Washington State".625 According to the European Union, 
"[i]f Boeing had not committe d to using US -made wings and fuselages [it would have] thereby 
failed to satisfy the [ First Siting Provision ]".626 
7.335.   According to the European Union, under the Second Siting Provision , "777X aircraft benefit 
from the preferential B&O tax rate only if Boeing as sembles the wings and assembles the aircraft 
exclusively in Washington State".627 The European Union adds that, pursuant to this provision, " if 
Boeing opts, for example, to purchase any 777X wings from outside Washington State, it will be 
penalized through l oss of the B&O tax rate reduction for all revenue related to sales of the 
777X".628 
                                               
625 European Union's  first written submission, para . 44. See also European Union's  second written 
submission, para . 61; opening statement at the first meeting of the Panel, para s. 53-54 and 68;  opening 
statement at the second meeting of the Panel, para.  3. 
626 European Union's  opening statement at the first meeting of the Panel, para.  68. See also 
ibid. para. 4; European Union's  second written submission, para . 61. 
627 European Union's  first written  submission, para. 52. See also European Union's  second written 
submission, para . 61. 
628 European Union's  first written submission, para. 51. See also European Union's  second written 
submission, para . 61; opening statement at the first meeting of the Panel,  para. 61; opening statement at the 
second meeting of the Panel, para.  3. WT/DS487/R  
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  7.336.   The European Union adds that the siting provisions in ESSB 5952 "are geared to induce the 
use of domestic over imported goods".629 According to the European Union:  
[T]hese cond itions [the First Siting Provision and the Second Siting Provision ] act 
together to maximize trade distortions in favour of domestic goods, and to the 
detriment of competitive opportunities for imported goods.630 While the [First Siting 
Provision] focuses on  component sourcing decisions made at the beginning of a new 
aircraft programme, the [Second Siting Provision] focuses on later stages.631 
(emphasis original)  
7.337.   The European Union adds that the siting provisions in ESSB 5952 influence the choice by 
an individu al producer on how to produce an aircraft and source its wings and fuselages, as 
follows:  
In the absence of the contingencies, Boeing would have arrived at a decision as a 
reasonable commercial actor, which may or may not have been to use wings and 
fuselag es produced outside the United States. [ESSB 5952 ] distorts these choices. 
First, it takes away the competitive opportunity  for foreign producers of wings and 
fuselages, pursuant to the [First Siting Provision] . If Boeing had not committed to 
using US -made  wings and fuselages, and thereby failed to satisfy the [First Siting 
Provision] , that would have led to severe penalties for Boeing, as the entirety of 
[ESSB 5952 ] would not have gone into effect. Second, it further takes away the 
competitive opportunity  for foreign wing producers, pursuant to the [Second Siting 
Provision] . If Boeing uses any foreign -made wings for the 777X, and thereby fails to 
satisfy the [Second Siting Provision] , then the 777X -related portion of the B&O tax 
rate reduction will be elimi nated.632 
7.338.   The United States asserts that the relevant conditions in ESSB 5952 (namely, the First 
Siting Provision  and the Second Siting Provision ) have "nothing whatsoever to do with the use of 
goods" and instead "address aerospace -related production activit ies".633 The United States also 
argues that "the references to manufacturing or assembly of fuselages and wings in the Siting 
Provisions … merely define the scope of production activity required to use the tax treatment 
covered by ESSB  5952".634 
7.339.   The Panel has already concluded that, on its face, the First Siting Provision  imposes a 
condition for certain tax benefits to take effect for a range of beneficiaries , namely, that the 
competent authority (the Washington State Department of Revenue ) make a one -time 
determination that a manufacturer has made a final decision to site a significant commercial 
airplan e manufacturing program me in the s tate of Washington . The Panel also has concluded that 
the First Siting Provision  does not, either by its express terms or by n ecessary implication thereof, 
make the entry into force of the subsidies at issue contingent upon a determination that domestic 
goods will be used instead of imported goods .635 
7.340.   The Panel has concluded further that, on its face, the Second Siting Provision  is silent as to 
the use of imported or domestic goods and does not expressly or by necessary implication make 
the receipt or continued enjoyment of subsidies dependent on refraining from using imported 
goods . The Panel also found no indication in the terms o f the provision that the subsidy provided 
by the B&O aerospace tax rate would be lost by importing wi ngs, as alleged by the 
European  Union. The Panel concluded that the Second Siting Provision  does not, either by its 
                                               
629 European Union's  opening statement at the first meeting of the Panel, para.  70. See also 
European  Union's response to Panel question No. 30, paras. 68 -69. 
630 (footnote original) European Union's opening oral statement, para. 6.  
631 European Union's response to Panel question No. 31, para. 71.  
632 European Union's  opening statement at the first meeting of the Panel, para.  68. 
633 United States' first written submission, paras. 1 -2. See also  ibid. paras. 4, 7, 9, 73, 101, and 
106-109; second written submission, paras. 2 and 38; opening statement at the first meeting of the Panel, 
paras. 4 and 23.  
634 United States' second written submission, para. 38.  
635 See para s. 7.291 and 7.292  above.  WT/DS487/R  
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  express terms or by necessary implicati on, condition the receipt of the B&O aerospace tax rate on 
the use of domestic over imported goods .636 
7.341.   The Panel recalls the European Union's argument that the siting provisions focus on 
"component sourcing decisions".637 The Panel has found that the First and  Second Siting Provisions 
de jure do not speak of component sourcing decisions, but of the location of certain manufacturing 
activities .638 However, this does not resolve whether on a de facto  basis these provisions operate 
in a manner that conditions the av ailability of subsidies based on whether certain components are 
sourced from a foreign or domestic origin. It is in respect of this question of "component sourcing 
decisions" that the Panel will examine the European Union's claim of de facto contingency on  the 
use of domestic over imported goods . 
7.342.   Turning to the actual operation of the challenged measures, the evidence before the Panel 
confirms that the First Siting Provision  in itself did not and does not make the aerospace tax 
measures contingent upon the use of domestic goods instead of, or in preference to, imported 
goods. As noted above639, the First Siting Provision  was activated by the Washington State 
Department of Revenue  on 10 July 2014 . This activation was a result of a determination by the 
Departmen t of Revenue that a manufacturer (namely, Boeing) had made a final decision to site a 
significant commercial airplan e manufacturing programme (namely, the 777X programme) in the 
state of Washington  and that the contingency requirements in ESSB  5952 had therefore been 
satisfied . As a result of this determination, ESSB  5952 was deemed to have taken effect on 
9 July 2014.640 The Department of Revenue 's determination in turn was based on Boeing's 
notification of 9  July 2014 that it had made a fi nal decision to ma nufacture the  777X airplane , 
including its fuselages and wings,  in the state of Washington.641 Boeing's notification was 
accompanied by three attachments, as examples of "actions Boeing has taken consistent with its 
decision to manufacture the 777X in Washin gton".642 As a result of the Department of Revenue 's 
determination and the entry into effect of ESSB  5952, the expiration date for the aerospace tax 
measures at issue was extended until 1  July 2040 for all eligible taxpayers , including but not 
limited to Boe ing.643 
7.343.   Under the terms of the legislation, and as confirmed by the additional evidence available, 
the Department of Revenue 's determination was based exclusively on Boeing's decision to locate a 
significant commercial airplan e manufacturing programme (as de fined by the legislation) in the 
state of Washington .644 There is no indication that the activation of the First Siting Provision  was 
the result of any other factor, such as a commitment by the manufacturer to use domestic over 
imported goods.  
7.344.   In particular,  the European Union has submitted no evidence, and there is nothing in either 
Boeing's letter to the Department of Revenue or the Department of Revenue's determination, that 
indicates that the use of domestic over imported goods – by Boeing or anyone else - was a 
condition for the Department of Revenue's positive determination in respect of the First Siting 
Provision. In fact, undisputed evidence submitted by the United States shows that Boeing will 
source a significant number of the components for the 777X , including wing and fuselage 
components and subassemblies, outside the United States.645 In any event, there is no evidence to 
                                               
636 See para s. 7.308  and 7.313  above.  
637 See, for example, European Union's opening statement at the first meeting of the Panel, para. 6; 
response to Panel question Nos. 31 and 41, paras. 71 and 98.  
638 See para. 7.317  above.  
639 See para. 7.40 above.  
640 Letter from the Director of the Washington State Department of Revenue to the Code Reviser, 
10 July 2014  (Exhibit  EU-61). See also United States' response to Panel question Nos. 10 and 12, paras. 21 
and 26. 
641 Boeing letter to the Director of the Washington State Department of Revenue, 9 July 2014  
(Exhibit  USA-32) (BCI). See also United States' response  to Panel question No. 10, paras. 20 -21. 
642 Boeing letter to the Director of the Washington State Department of Revenue , 9 July 2014  
(Exhibit  USA-32) (BCI).  
643 United States' first written submission, para. 78 (citing letter from the Director of the Washingt on 
State Department of Revenue to the Code Reviser, 10 July 2014  (Exhibit EU -61)); response to Panel question 
No. 12, para. 26.  
644 See Letter from the Director  of the Washington State Department of Revenue to the Code Reviser , 
10 July 2014  (Exhibit  EU-61). See also para. 7.40 above.  
645 See, for example, Boeing expert statement  (Exhibit USA -1) (BCI), paras. 41 -42, 50 -52, and 59 -60; 
Boeing, Make/Buy Model 777 -300ER, July 2007 (Exhibit USA -2) (BCI); Boeing, 777X Make/Buy , All WT/DS487/R  
BCI deleted as indicated [[BCI]]  
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  indicate that a particular use of goods of specific origins formed part of the Department of 
Revenue's determination that the Firs t Siting Provision had been fulfilled. The Panel thus see s no 
factual evidence in the Department of Revenue's determination or in how Boeing will organize the 
sourcing for the production of the 777X indicating a de facto  requirement to use any domestic 
goods, including wings or fuselages as referred to specifically in the E uropean Union's claim of de 
facto contingency . 
7.345.   With respect to the First Siting Provision, the Panel additionally notes that the Department 
of Revenue's determination , pursuant to this pr ovision, is a one -time decision and there is no legal 
mechanism under Washington State law that would allow the Department of Revenue to revoke 
that determination.646 Thus, the First Siting Provision is not a measure whose operation will occur 
in repeated in stances over some (definite or indefinite) period. Pursuant to ESSB 5952, t here will 
be no other instance of this particular legislative provision being activated (again) in respect of 
another commercial airplane programme. The First Siting Provision estab lished the possibility for a 
one-time creation of certain tax benefits subject to a certain condition being fulfilled. That 
condition was in fact fulfilled, such that the tax benefits in fact did take effect , and these events 
exhausted the operational life  of the First Siting Provision. Thus, the evidence regarding the 
satisfaction, in July 2014, of the First Siting Provision by the Boeing 777X programme constitutes 
the entire universe of relevant evidence regarding tha t provision's operation.  
7.346.   While the ope ration of the First Siting Provision as such was a one -time event creating 
extended availability of a package of tax benefits, and while the Panel finds no factual evidence of 
any requirement to use domestic goods in respect of the triggering of that availability , the Panel 
recalls that the First Siting Provision does not exist in isolation. To the contrary, the role of the 
Second Siting Provision is to establish conditions for the airplane manufacturing programme that 
had activated the First Siting Provisi on (and thus effected the extended availability of the tax 
benefits ) to maintain that programme's access to one of those tax benefits, namely the B&O 
aerospace tax rate. To put this more precisely, given that the conditionality in the Second Siting 
Provisi on is phrased in the negative, the Panel understands the Second Siting Provision to set forth 
the factual circumstances that would, if they arose, cause the airplane manufacturing program me 
that had satisfied the First Siting Provision (namely, the 777X pr ogram me) to lose access to the 
B&O aerospace tax rate. These , then, are the conditions or circumstances that Boeing mu st avoid 
in respect of the 777X  program me in order not to lose access to that tax rate in respect of that 
program me. 
7.347.   The Panel thus will n ow consider the manner of operation of this second set of conditions 
attached to the subsidy. In particular, the Panel will examine in detail the facts concerning the 
manner in which the Second Siting Provision operates in practice in respect of the 777X 
program me which, having satisfied the First Siting Provision, is the sole and exclusive object of the 
Second Siting Provision. As its analytical framework, the Panel will consider the design, structure, 
and operation of the measures granting the subsidies, the modalities of operation as set forth in 
the measures, and the relevant factual circumstances surrounding the granting of the subsidies at 
issue, that provide context for understanding the measures' design, structure and operation. In 
that regard, the a dditional evidence surrounding the Department of Revenue's determination to 
activate the First Siting Provision can also serve to inform the factual circumstances in which the 
Second Siting Provision now operates. The Panel notes in particular the followin g facts in t his 
regard.  
7.348.   First, the relevant legislation grants discretion to the Department of Revenue to determine 
both: (i) that a manufacturer made a final decision to site a significant commercial airplan e 
manufacturing programme in the s tate of Washin gton; and (ii)  that any final airplane assembly or 
wing assembly previously sited in the state of Washington, and which was the subject of the 
Department of Revenue 's determination as described in (i)  above , has subsequently been sited 
outside the state of  Washington . To recall, the Department of Revenue 's determination of the 
original siting decision, under the First Siting Provision , was designed to be, and in fact operated, 
as a one -time determination, and there is no legal mechanism under Washington  State law that 
would allow the Department of Revenue  to revoke that determination once made.647 That said, 
                                                                                                                                               
Commodi ties, Status as of 17 December 2014 (Exhibit USA -8) (BCI); Boeing, 777X Content Sources, Major 
Structures & Propulsion , Status as of 27 October 2015 (Exhibit USA -30) (BCI).  
646 See United States' response to Panel question No. 12, para. 26.  
647 See paras. 7.273  and 7.347  above.  WT/DS487/R  
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  under the Second Siting Provision, the Department of Revenue could exercise its discretion to 
make a determination as described in (ii) above at any point  in the period during which the B&O 
aerospace tax rate is in effect under ESSB 5952. Such a determination would lead to the 
termination of this subsidy for the previously sited airplane programme as of 1  July of the year in 
which that second determination was made. A determination as described in (ii) above would only 
affect the B&O aerospace tax rate for the manufacturing or sale of commercial airplanes under the 
airplane manufacturing programme in question. It would not affect any of the other subsidies t o 
the manufacturer in question, nor would it affect any of the subsidies (including the B&O 
aerospace tax rate) for any of the other beneficiaries  in respect of other activities . 
7.349.   Second, the condition contained in the First Siting Provision  is to site the manufacture of 
certain "products " in Washington  State , namely: (i) a n ew model, or a version or var iant of an 
existing model, of a commercial airplane manufactured with a carbon fibre composite fuselage or 
carbon fibre composite wings or both ; and (ii) f uselages and wings for a new model of a 
commercial airplane, or a version or variant of an existing model . In contrast, the condition 
contained in the Second Siting Provision  is to refrain from siting outside of Washington State any 
final assembly or wing as sembly of a manufacturing program me that had previously been sited 
under the First Siting Provision.  The Panel notes that it is the Second Siting Provision's reference 
to wing assembly, rather than final assembly, that is relevant to the European Union's c laim of de 
facto contingency to use domestic over imported wings.648 This condition of the Second Siting 
Provision with respect to the siting of any wing assembly is in force for the entirety of the period 
during which the B&O aerospace tax rate  is in effect  under ESSB 5952.649 Accordingly, the Panel 
understands that, under the Second Siting Provision , if the manufacturer were to relocate outside 
Washington  State  the wing assembly of the " significant co mmercial airplane manufacturing 
program " that had been previously sited in Washington  State  in accordance with the First Siting 
Provision  (namely, the 777X programme), the legal consequence would be the termination of the 
availability of the B&O aerospace tax rate  for the manufacturing or sale of commercial airpla nes 
under that programme . 
7.350.   Third, the parties have discussed extensively the process of producing wings for large civil 
aircraft and, specifically, the incorporation of wings into the final production or final assembly of 
large civil aircraft. The evidence before the Panel reflects a variety of aircraft manufacturing 
processes , as well as continuing innovation within the aerospace industry, including for the 
development of the 777X itself.650 The Panel notes in this regard the United States' observation 
that t here is great variation in the process of producing large commercial airplanes.651 Accordingly, 
the available evidence suggests that manufacturers can decide on specific processes for producing 
wings , including by assembly,  and for incorporating wings into t he final production or final 
assembly of large civil aircraft based on a number of factors, including economic, business, 
logistical, and technological considerations.  
7.351.   Fourth, as part of their discussion on the process of producing wings for large civil ai rcraft, 
the parties advanced different definitions of what can be considered as a "wing" for a large civil 
aircraft. Different large civil aircraft models have wings with different designs, sizes, and technical 
characteristics.  As is clear from the availab le evidence, some large aircraft models have been 
produced using wing components or wing structures in different stages of completion that were 
                                               
648 See, for example, European Union's response to Panel question No . 50, paras.  132-133; comments 
on United States' response to Panel question Nos . 69 and 77, paras . 63 and 85 -89. 
649 In this respect, the Panel notes the United States' argument that there is no prohibited contingency 
in this case based on the fact that Boeing's 777X programme has satisfied the First Siting Provision and has not 
triggered the Second Siting Provision. S ee, for example, United States' opening statement at the second 
meeting of the Panel, para s. 46-47. Although this argument rests on particular aspects of 777X production in 
relation to the United States' interpretation of the terms "use" and "goods"  in Art icle 3.1(b), it also raises an 
important aspect of the combined operation of the First and Second Siting Provisions. Necessarily, by the terms 
of the legislation, a programme that satisfies the First Siting Provision would not at that moment trigger the 
Second Siting Provision. The latter would only be triggered at a later point in time, if the circumstances 
underlying the original siting determination by the Department of Revenue have changed in the manner 
specified in the Second Siting Provision.  
650 See, e.g. Boeing expert statement  (Exhibit USA -1) (BCI), para. 39 ("The 777X is designed to be the 
largest and most efficient twin -engine commercial aircraft in aerospace  history "). See also United States' 
response to Panel question No. 64, para. 57 ; European Un ion's response to Panel question No . 64, 
paras . 37-39; Boeing Frontiers, "The 747 -700 will be transformed into an even larger freighter", June 2005  
(Exhibit EU -122). 
651 United States' response to Panel question No. 64, para. 57 . WT/DS487/R  
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  produced separately from the rest of the airplane and, in some cases, transported to the site of 
the final airpl ane assembly.652 In any event, an examination of the available evidence suggests 
that manufacturers of large civil aircraft can incorporate wing structures into the process of final 
assembly at different levels of completion based on a number of factors, inc luding economic, 
business, logistical, and technological considerations.  
7.352.   More generally, r egarding the diversity of ways in which manufacturers may assemble 
large civil aircraft, t he United States noted that "[i] n fact, the evidence shows that what these 
[aircraft manufacturing] programs really have in common is that they all end up with fuselages 
and wings on the finished airplanes, which is not surprising because they are the main structural 
elements of the airframe."653 Thus, whatever manufacturing and ass embly process is chosen by a 
particular manufacturer, the result of that process will be a finished aircraft and the result of wing 
assembly, however performed, will be a finished wing. Notably, the Second Siting Provision refers 
to the location of "wing a ssembly" as the subject of a possible determination by the Department of 
Revenue, and the text of ESSB 5952 uses the word "products" when referring to commercial 
airplanes, fuselages, and wings that would have to be manufactured within Washington State as 
part of the "significant commercial airplane manufacturing program" under the First Siting 
Provision.654 
7.353.   Fifth, the Panel notes the United States' argument that Boeing does not use fuselages or 
wings, and has no plans to use fuselages or wings, since the win gs for 777X aircraft "are only 
completed as part of the output of the process of producing the aircraft itself".655 The Panel 
understands from this argument that Boeing is expected to assemble the wings of the 777X itself, 
rather than sourcing wings from ano ther entity, domestic or foreign. In this connection, t he 
United  States clarified that "its argument is not that, as a general matter, it is impossible to 
assemble any aircraft wings separate from the final assembly of any aircraft".656 [[BCI]].657 
7.354.   In any even t, the particular production process selected by Boeing  for the 777X airplane  is 
not in itself dispositive of whether the legislation creates de facto  a prohibited contingency on 
Boeing to use domestic goods . The fact that a manufacturer has chosen a parti cular production 
process  in the past or operates that process in the present , including because of economic, 
business, logistical, or technological factors , does not mean that alternative processes may not be 
available now or in the future. In  this respect , it is relevant that ESSB  5952 extends the subsidies 
provided pursuant to the aerospace tax measures until  2040. During the entirety of this period,  
the conditions in the Second Siting Provision govern the availability of the B&O aerospace tax rate  
for th e manufacturing or sale of commercial airplanes under the 777X programme . 
7.355.   Furthermore, the Panel recognizes that neither the First Siting Provision  nor the Second 
Siting Provision , either  explicitly or in the ir operation , binds Boeing to a specific process  for 
manufacturing 777X aircraft, either at the time of the 2014 siting determination or in respect of its 
future activities through 2040. Thus Boeing is not legally constrained by the measures at issue 
from adopting new processes or adapting existing proc esses in the future in respect of the 777X. 
The Panel notes in this regard the United States' argument that "ESSB 5952 does not require any 
production process in particular".658 The focus of the Panel's analysis, for the purpose of the 
current dispute, is not on the production processes for the 777X, in general or at any point in time, 
                                               
652 See paras. 7.266  and 7.268  above.  
653 United States' response to Panel question No. 64, para. 57, fn 71.  
654 "'Significant commercial airplane manufacturing program' means an airplane program in which the 
following products, inc luding final assembly, 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) Fus elages and wings of a new model, or any version or 
variant of an existing model, of a commercial airplane." ESSB 5952 (Exhibit EU -3). 
655 United States' response to Panel question No. 42, para. 102. Further, in the United States' view, the 
fact that "complet e finished wings for some smaller commercial airplanes can be transported in a large 
transport airplane … simply means that, for some airplanes, it is theoretically possible to fully assemble the 
wings in a location far from where any further assembly of t he airplane will take place".  United States' 
response to Panel question No. 64, para. 55.  See also United States' second written submission, para. 60.  
656 United States' response to Panel question No. 42, para. 102.  
657 See United States' first written submiss ion, paras. 25 and 130, and fn 45; opening statement at the 
first meeting of the Panel, para. 11; closing statement at the first meeting of the Panel, para. 6; respons e to 
Panel question Nos. 35 and 64, paras. 82, 52 -54 and 56; Boeing expert s tatement (Exh ibit USA -1) (BCI), 
para. 43. 
658 United States' response to Panel question No. 64, para. 57.  WT/DS487/R  
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  but rather on whether the measures at issue , in their design, structure, and modalities of 
operation,  would limit access to existing subsidies if imported goods were to be used  in any such 
processes . 
7.356.   Sixth, the significant co mmercial airplane manufacturing program me announced by the 
manufacturer , which is the basis of the First Siting Provision, in fact entails the production by 
Boeing and in Washington State of wing structures that, for other aircraft models, had been 
previously produced outside of Washington State and in some cases imported from outside the 
United States.659 Notwithstanding the fact that "ESSB 5952 does not require any production 
process in particular "660, the fact remains that following the passage of ESSB  5952 the 
manufacturer made a final decision , for the 777X manufacturing program me, to produce 
domestically certain wing structures (i.e. "Section 12" wing structures661) that the same 
manufacturer had previously im ported for another commercial airplane manufacturing 
program me.662 
7.357.   Considering all these facts, in the light of the European Union's  de facto  contingency claim, 
the Panel notes first that the provision of subsidies exclusively to domestic producers, without 
more, is not in itself a breach of the obligations under the covered agreements. In the context of 
the GATT 1994, this principle is reflected in Article III:8(b) of the GATT 1994, which clarifies that 
the provision of subsidies exclusively to domestic prod ucers is not in itself a breach of the national 
treatment obligation under that agreement. By contrast , subsidies of a particular character can be 
in breach of the SCM Agreement. The focus of the Panel's assessment is not whether the measures 
at issue have  had an import substitution effect or a detrimental impact on imports, as this would 
require the Panel to trespass into an adverse effects analysis of the type that is not contemplated 
by Article 3.1. Rather, the precise question before the Panel is whethe r the subsidies at issue have 
been granted to domestic producers (i.e. Boeing) contingent, in fact, upon the use of domestic 
goods.  
7.358.   The specific nature and operating mechanism of the Second Siting Provision becomes 
relevant to this question. We recall, in particular, that the Second Siting Provision provides that 
the "siting" of "wing assembly" of the airplane model in questio n (the 777X) outside 
Washington  State would result in the loss of the B&O aerospace tax rate for the manufacturing or 
sale of that ai rplane.663 It thus is clear that so long as this "siting" does not happen, the Second 
Siting Provision remains dormant, operating passively as a deterrent to safeguard the status quo  
(or at least particular aspects thereof) that satisfied the First Siting Pr ovision. This particular 
passive, deterrent nature of the measure in turn raises the question as to what sorts of factual 
evidence could inform the analysis of whether ongoing access to the B&O aerospace tax rate for 
the manufacturing or sale of commercial  airplanes under the 777X programme is contingent de 
facto on the use of domestic over imported 777X wings. In particular, at the time of the Panel's 
assessment of this claim , the Second Siting Provision has not been triggered, and therefore no 
evidence ex ists as to the actual operation (the triggering) of the Second Siting Provision.  
7.359.   The Panel thus is confronted by the counterfactual question of what would trigger the 
Second Siting Provision , that is, what action by Boeing would result in the Department of  Revenue 
determining that 777X wing assembly "has been sited" outside Washington State. We note in this 
regard the argument of the European Union that if Boeing were to use even a single imported 
777X wing, the Second Siting Provision would be triggered an d Boeing would lose the B&O 
aerospace tax ra te in respect of the 777X.664 The evidence cited by the European Union consists of 
                                               
659 See, for example, Office of Washington Governor, "Legislature approves key elements of 777X 
incentive package", 10 November 2013  (Exhibit EU -59); Washington State House Finance Committee, Video, 
"Testimony of Governor Inslee before House Finance Committee", 7 November 2013  (Exhibit EU -110); 
Collective Bargaining Agreement between Boeing and the International Association of Machinists and 
Aerospace Workers, 2 Novembe r 2008, including Contract Extension and Modification Agreements, 7 December 
2011 and 3 January 2014  (Exhibit USA -33), p. 190; Addendum No. 14 to the 1991 Boeing Everett Mitigation 
Decision Document SEPA #14 -009, 27 March 2014  (Exhibit USA -34) (BCI).  
660 United States' response to Panel question No. 64, para. 57.  
661 See paras. 7.259  and 7.266  above.  
662 See, for example, United States' first written submission, paras. 18, 24, 25, 28 -29, and 31 -32. 
663 The P anel recalls that the expression "has been sited" (used in the Second Siting Provision in the 
passive tense) is related to a manufacturer locating a manufacturing programme in a particular place, which is 
consonant with the definition of "siting" in the Fi rst Siting Provision. See para. 7.304  above.  
664 See European Union's  opening statement at the first meeting of the Panel, para s. 5 and 48.  WT/DS487/R  
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  the word "any" in the Second Siting Provision, which it argues means that that provision would be 
triggered by the use of any quant ity, no matter how small, of imported 777X wings.665 The United 
States for its part argued that the purpose of the Second Siting Provision is to prevent Boeing from 
relocating, or duplicating, 777X production outside Washington State.666 
7.360.   With regard to the que stion of what would trigger the Second Siting Provision , the Panel 
finds particularly relevant the discretion granted by ESSB 5952, and specifically by the Second 
Siting Provision, to the Department of Revenue to terminate the availability of the B&O aeros pace 
tax rate  for the manufacturing or sale of commercial airplanes under the 777X program me if it 
determines that Boeing has "sited" assembly of wings for that model outside of Washington State. 
In particular, the exercise of the Department of Revenue 's discretion would be inconsistent with 
Article 3.1(b) of the SCM Agreement if, in practice, it resulted in the termination of the B&O 
aerospace tax rate for the manufacturing or sale of commercial airplanes under the 777X 
program me on the basis of a determin ation that Boeing , by virtu e of using imported 777X wings,  
had "sited" 777X wing assembly outside Washington State . 
7.361.   To elucidate the issue of what would trigger the Second Siting Provision, and more 
specifically, whether a use by Boeing of imported 777X wi ngs would do so, the Panel posed a 
series of questions to the United States in respect of certain counterfactual scenarios, other than 
the existing status quo  that satisfied the First Siting Provision (and that thus by definition does not 
trigger the Secon d Siting Provision). That existing status quo  is that Boeing will itself assemble the 
wings and fuselage s, and conduct the final assembly of the 777X, in Washington State. The Panel 
questions specifically went to whether the Second Siting Provision would b e triggered if:  
a. Boeing continued manufacturing, inter alia , wings itself in Washington State and in 
addition purchased wings (assuming arguendo  that it were possible to do so) from 
another manufacturer in Washington State667; 
b. Boeing continued manufacturing, inter alia , wings itself in Washington State and also, 
(assuming arguendo  that it were possible to do so), imported some wings from a 
different producer (i.e., other than Boeing itself).668 
7.362.   The essence of the Panel's questions thus was what would happen purs uant to the Second 
Siting Provision if Boeing in the future source d some 777X wings from other entities, including 
foreign producers, rather than assembling all of them itself.669 The specific focus of these 
questions was the geographic location of other hypothetical suppliers . In response to the first 
question above, the United States indicated (assuming arguendo  that it were possible for 777X 
wings to be completed and transported as separate articles), that the Department of Revenue 
likely would not determi ne that any wing assembly had been sited outside Washington State, and 
thus the Second Siting Provision would not be triggered.670 In response to the Panel's other 
question, however, the United States indicated that if completed wings were produced outside of 
the United States and then imported , the Department of Revenue likely would determine that 
some wing assembly had been sited outside Washington  State , meaning that the Second Siting 
Provision would be triggered.671 
                                               
665 See European Union's  response to Panel question No. 7 , para.  12; comments on United Sta tes' 
response to Panel question No . 77, paras. 85-89. 
666 See United States' response to Panel question Nos. 43 and 80 , para s. 103 and 118 -120. 
667 See Panel question No. 40.  
668 See Panel question No. 80.  
669 The Panel recalls its assessment in the context of the  European Union's de jure  claim that, on its 
face, the Second Siting Provision did not condition the availability of the subsidy on use of domestic over 
imported goods. Based strictly on the terms of the Second Siting Provision, a possible reading of the 
conditionality set out therein would allow the manufacturer in question to continue to benefit from the subsidy 
if it used wings manufactured outside the state of Washington in the final assembly of the commercial airplanes 
in question in the state of Washi ngton, so long as it maintained final and wing assembly previously sited in the 
state of Washington . See above, para. 7.311 . As noted, in the context of its de facto  analysis the Panel 
considers not only the text of the measure , but also additional factual evidence relevant to understanding the 
design, structure, and modalities of operation of the contingency in question.  
670 See United States' respons e to Panel question No. 40, para . 97. 
671 See United States' respons e to Panel question No. 39, paras . 93-95; response to Panel question 
No. 80, paras.  118-120. See also United States' respons e to Panel question No. 7, paras . 15-16. WT/DS487/R  
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  7.363.   Thus, as explained in the United States' responses in this regard, if the manufacturer were 
to use wings produced outside of Washington State (including in particular wings imported from 
other countries) in the production of 777X aircraft672, the Department of Revenue would likely 
consider this to mean that some wing assembly had been sited outside of Washington State and 
this would activate the Second Siting Provision .673 This would be the case even if the manufacturer 
imported some wings, while continuing to produce wings in Washington State, effect ively 
duplicating wing manufacturing or assembly.674 In such cases, as indicated by the United States, 
the Department of Revenue would likely determine that at least some wing assembly had been 
sited outside of Washington, which would activate the Second Siting Provision . As a consequence, 
the use of imported wings would lead to the loss of the B&O aerospace tax rate . In contrast, if the 
manufacturer were to use wings made in Washington State by another producer, this would not 
activate the Second Siting Prov ision.675 
7.364.   The United States'  responses clarify that the Second Siting Provision is not only aimed at 
ensuring that a manufacturer ( namely Boeing ) itself assemble the 777X wings or conduct the final 
assembly of the 777X . This is notwithstanding the United Sta tes' arguments that the measures at 
issue (to the extent they are subsidies) would be production subsidies (to Boeing), rather than 
subsidies contingent on the use of any particular goods , and that the First Siting Provision  and the 
Second Siting Provision  contemplated a single entity performing all of the operations referred to in 
those provisions . In particular, the United States'  responses indicate that the Second Siting 
Provision would not be triggered simply by a  decision by Boeing to source 777X wings  from 
another entity rather than assembling them itself. Rather, in such a scenario, whether or not the 
Second Siting Provision would be triggered would be determined exclusively by where the wings in 
question were assembled. In particular, the only decisi on by Boeing to source wings which it would 
then "use" in producing the 777X that would not trigger the Second Siting Provision would be to 
source  such wings within Washington State, which by definition would be domestic wings.  
7.365.   The Panel considers that these descriptions are significant in understanding the modalities 
of operation of the conditions of the Second Siting Provision, which as noted are subject to 
administrative discretion vested in the Department of Revenue. As explained by the United States, 
within the Washington State domestic legal system, courts would accord "substantial weight to the 
agency's interpretation of the governing statutes and legislative intent" and "substantial deference 
to agency views when it bases its determination on factual  matters".676 The United States' 
clarifications as to how the Department of Revenue would likely exercise discretion shed light on 
the requirements imposed by the Second Siting Provision, which applies prospectively to the 777X 
manufacturing operations that are still being commenced and that may evolve over time. Under 
such circumstances, the likely actions of the relevant administrative agency in response to possible 
factual scenarios are indicative of whether, in practice, a subsidy would remain  available s o long as 
a manufacturer used domestic goods, while that same subsidy would be terminated if a 
manufacturer used those same goods from a foreign source.  
7.366.   In light of the foregoing, the Panel is not persuaded that the Second Siting Provision is 
only aimed at  preventing Boeing from relocating the 777X entirely outside Washington State or 
from establishing a parallel 777X production program outside Washington State . The Second Siting 
Provision does not only concern the production of airplanes . It also concerns the "use" of certain 
goods , and specifically the origin of those goods that enter into the production process for the 
777X as a condition for the continued availability of a subsidy . The Panel notes in particular the 
use of the word "or" in the Second Siti ng Provision. That is, that provision would be triggered if 
wing assembly "or" final assembly of the 777X were "sited" outside Washington State.677 The 
United States' responses as to how the Department of Revenue would likely exercise its discretion, 
in inte rpreting the Second Siting Provision , demonstrate that the expression "or" in that Provision 
                                               
672 Assuming arguendo  that the manufacturer could use wings or fuselages manufactured separat ely. 
673 See United States' respons e to Panel question Nos. 39 and 80, paras . 93-95 and 118 -120. See also 
United States' respons e to Panel question No. 7, paras . 15-16. 
674 See United States' respons e to Panel question No. 80, paras . 118-120. See also United S tates' 
respons e to Panel question No. 42, para . 103; European Union's  comments on United States' response to Panel 
question No.  80, para. 91.  
675 See United States' respons e to Panel question No. 40, para . 97. 
676 See Washington Court of Appeals, Nationscapita l Mortgage Corporation et al. v. Department of 
Financial Institutions, June 2006  (Exhibit USA -84); United States' response to Panel question No. 79, 
para. 117, fn 146 . 
677 See para. 7.304  above.  WT/DS487/R  
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  contemplates, and seeks to prevent inter alia , any wings (of the airplane model that satisfied the 
First Siting Provision) from being produced as separate products  outside Washington State 
(including overseas), that would then be shipped to Washington State for incorporation in the final 
assembly process. Statements made by the Governor of Washington about the goal of keeping 
777X wing production in Washington, seen  in the light of the United States'  responses , are 
consistent with this conclusion and are considered by the Panel to be relevant evidence in this  de 
facto analysis.678 
7.367.   The loss of the B&O aerospace tax rate  for the manufacturing or sale of commercial 
airpla nes under the 777X programme if Boeing used 777X wings produced outside of 
Washington  State, even if it maintained production of such wings in Washington State, makes the 
B&O aerospace tax rate  for that programme contingent upon the use of wings made in 
Washington  State. This is confirmed by the 777X programme retaining access to the B&O 
aerospace tax rate  if Boeing used 777X wings made in Washington State by another producer. 
Accordingly, pursuant to ESSB 5952, and as a result of the Second Siting Provisio n, the B&O 
aerospace tax rate  subsidy for the manufacturing or sale of commercial airplanes under the 777X 
programme is contingent de facto  not only on the production of that aircraft and its wings in 
Washington State, but additionally on not using 777X wings othe r than those made in 
Washington  State. Since wings made in Washington State are domestic goods and any imported 
wings would by definition be made outside of Washington State, it follows that the Second Siting 
Provision  makes the B&O aerospace tax r ate for the manufacturing or sale of commercial airplanes 
under the 777X programme contingent upon the use of domestic wings over imported wings.  
7.368.   Lastly, and for completeness, the Panel return s to the contention by the United States that 
wings are not used  in the production of the 777X, in the sense that separate, identifiable and 
complete "wings " never come into existence in the production process of the 777X. In this regard 
we observe that Article 3.1(b) does not require the identification of a specific g ood in order that it 
can be applied to a particular situation. In the case before us, it is the output or outputs of a wing 
assembly process that the evidence establishes must not be sourced by Boeing from overseas, 
because of the implications of doing so.  Regardless of precisely what these outputs are , and 
regardless of the reference to "wing" and to "wing assembly " in the siting provisions, there can be 
no doubt that goods, which together make up a wing to the factual satisfaction of the Department 
of Rev enue, cannot be sourced by Boeing from outside the state of Washington without the 
consequence of activating the Second Siting Provision. The Panel 's references to wings should be 
understood in this context.  
7.369.   For the reasons explained above, the Panel concl udes that the siting provisions in 
ESSB  5952, and in particular the prospective modalities of operation of the Department of 
Revenue's discretion under the Second Siting Provision , make the B&O aerospace tax rate for the 
manufacturing or sale of commercial  airplanes under the 777X programme de facto contingent 
upon the use of dom estic over imported goods within the meaning of Article  3.1(b) of the SCM 
Agreement.  
8  CONCLUSIONS AND RECO MMENDATION  
8.1  Conclusions  
8.1.  In light of the findings in the foregoing sections of  the Report, and with respect to the 
aerospace tax measures at issue, as amended and extended through Washington State's 
Engrossed Substitute Senate Bill (ESSB 5952), the Panel concludes that:  
                                               
678 Upon the passage of ESSB 5952, t he Washington State Governor issued a press release indicating 
that ESSB 5952 "includes strong contingency language to ensure that all of the 777X assembly and wing 
assembly remains in Washington. Specifically, the bill includes a provision that says the c ompany will lose its 
preferential B&O tax rate for the 777X if any of that work is moved out of state." Office of Washington 
Governor, "Legislature approves key elements of 777X incentive package", 10 November 2013  (Exhibit EU -59). 
The Governor additionall y provided testimony to the Washington State legislature prior to the passage of 
ESSB  5952 regarding House Bill 2089, a companion bill to a previous version of ESSB 5952, which had similar 
siting provisions referring to wing assembly and final assembly (in  addition to "wing fabrication", which does 
not appear in ESSB 5952). In that testimony, the Governor expresses the aim of maintaining employment in 
the aerospace industry by retaining production of the 777X carbon fibre wing in Washington State . See 
Washi ngton State House Finance Committee, Video, "Testimony of Governor Inslee before House Finance 
Comm ittee", 7 November 2013 ( Exhibit EU -110).  WT/DS487/R  
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  a. Each of the seven aerospace tax measures at issue in the presen t case constitutes a 
subsidy within the meaning of Article 1 of the SCM Agreement;  
b. Regarding the European Union's claim that the aerospace tax measures at issue are 
subsidies de jure  contingent upon the use of domestic over imported goods within the 
meanin g of Article 3.1(b) of the SCM Agreement:  
i. The European Union has not demonstrated that the aerospace tax measures are de 
jure contingent upon the use of domestic over imported goods with respect to the 
First Siting Provision in ESSB 5952 considered separat ely; 
ii. The European Union has not demonstrated that the reduced business and occupation 
(B&O) tax rate for the manufacture and sale of commercial airplanes (B&O aerospace 
tax rate) is de jure  contingent upon the use of domestic over imported goods with 
respe ct to the Second Siting Provision in ESSB 5952 considered separately;  
iii. The European Union has not demonstrated that the aerospace tax measures are de 
jure contingent upon the use of domestic over imported goods with respect to the 
First Siting Provision and  the Second Siting Provision considered jointly;  
c. With respect to the First Siting Provision and the Second Siting Provision in ESSB 5952 , 
considered jointly , the B&O aerospace tax rate for the manufacturing or sale of 
commercial airplanes under the 777X pr ogramme is a subsidy de facto  contingent upon 
the use of domestic over imported goods within the meaning of Article 3.1(b) of the SCM 
Agreement.  
8.2.  Having found that the B&O aerospace tax rate for the manufacturing or sale of commercial 
airplanes under the 77 7X programme is inconsistent with Article 3.1(b) of the SCM Agreement, the 
Panel also finds that the United States has acted inconsistent ly with Article 3.2 of the SCM 
Agreement.  
8.3.  Under Article  3.8 of the DSU, in cases where there is an infringement 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 United States has acted 
inconsistently with the SCM  Agreement, it has nullifie d or impaired benefits accruing to the 
European Union under that Agreement.  
8.2  Recommendation  
8.4.  Article  4.7 of the SCM  Agreement provides that, having found a measure in dispute to be a 
prohibited subsidy:  
[T]he p anel shall recommend that the subsidizing Member  withdraw the subsidy 
without delay. In this regard, the panel shall specify in its recommendation the time 
period within which the measure must be withdrawn.  
8.5.  The Panel has found that the European Union has demonstrated that the B&O aerospace tax 
rate for the manufacturing or sale of commercial airplanes under the 777X programme , pursuant 
to ESSB 5952, is a subsidy contingent upon the use of domestic over imported goods, prohibited 
under Articles 3.1(b) and 3.2 of the SCM Agreement.  
8.6.  Accordingly, taking into  account the nature of the prohibited subsidy found in this dispute, 
the Panel recommends that the United States withdraw it without delay and within 90 days.  
8.7.  Finally, the Panel notes that the rules contained in Part II of the SCM  Agreement do not 
require a panel to specify how the implementation o f recommendations under Article  4.7 should be 
effected by the subsidizing Member. In this context, the second sentence of Article  19.1 of  the 
DSU provides that a panel may suggest ways in which a recommendation co uld be implemented. 
Assuming that this provision also applies to recommendations under Article  4.7 of the 
SCM Agreement, the Panel notes that, pursuant to Article  21.3 of the DSU, the means of WT/DS487/R  
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  implementation is  in the first instance for the Member concerne d.679 Further, the Appellate Body 
has made clear that the second sentence of Article  19.1 "does not oblige panels to make ... a 
suggestion".680 In this case, in the absence of any request from the parties , the Panel refrains from 
making any suggestions concern ing steps that might be taken to implement its recommendation . 
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679 Panel Report,  US – Hot-Rolled Steel , para. 8.11.  
680 Appellate Body Report, US – Anti-Dumping Measures on Oil Count ry Tubular Goods , para.  189.